UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 COMMISSION FILE NUMBER 1-5794
MASCO CORPORATION
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                        38-1794485
        (State of Incorporation)                   (I.R.S. Employer Identification No.)

 21001 VAN BORN ROAD, TAYLOR, MICHIGAN                            48180
(Address of Principal Executive Offices)                        (Zip Code)	

Registrant's telephone number, Including Area Code: 313-274-7400
Securities Registered Pursuant to Section 12(b) of the Act:

                                                 NAME OF EACH EXCHANGE
            TITLE OF EACH CLASS                   ON WHICH REGISTERED
            -------------------                  ---------------------
Common Stock, $1.00 par value                New York Stock Exchange, Inc.
Zero Coupon Convertible Senior
  Notes Due 2031                             New York Stock Exchange, Inc.
Zero Coupon Convertible Senior
  Notes Series B Due 2031                    New York Stock Exchange, Inc.	

Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act).

Large accelerated filer [X]         Accelerated filer [ ]          Non-accelerated filer [ ]	

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2005 (based on the closing sale price of $31.76 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such date) was approximately $13,445,055,000.
Number of shares outstanding of the Registrant's Common Stock at January 31, 2006:
416,300,000 shares of Common Stock, par value $1.00 per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed for its 2006 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

MASCO CORPORATION
2005 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

ITEM                                                                    PAGE
----                                                                    ----
                               PART I
  1.    Business....................................................      2
 1A.    Risk Factors................................................      6
 1B.    Unresolved Staff Comments...................................      8
  2.    Properties..................................................      8
  3.    Legal Proceedings...........................................      9
  4.    Submission of Matters to a Vote of Security Holders.........      9
        Supplementary Item. Executive Officers of the Registrant....      9

                              PART II
  5.    Market for Registrant's Common Equity, Related Stockholder
          Matters and Issuer Purchases of Equity Securities.........     10
  6.    Selected Financial Data.....................................     11
  7.    Management's Discussion and Analysis of Financial Condition
          and Results of Operations.................................     12
 7A.    Quantitative and Qualitative Disclosures About Market
          Risk......................................................     31
  8.    Financial Statements and Supplementary Data.................     32
  9.    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure..................................     71
 9A.    Controls and Procedures.....................................     71
 9B.    Other Information...........................................     71

                              PART III
 10.    Directors and Executive Officers of the Registrant..........     72
 11.    Executive Compensation......................................     72
 12.    Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters................     72
 13.    Certain Relationships and Related Transactions..............     72
 14.    Principal Accountant Fees and Services......................     72

                              PART IV
 15.    Exhibits and Financial Statement Schedule...................     73
        Signatures..................................................     76

                    FINANCIAL STATEMENT SCHEDULE
        Valuation and Qualifying Accounts...........................     77	

1
 
PART I
ITEM 1. BUSINESS.
Masco Corporation manufactures, sells and installs home improvement and building products, with emphasis on brand name products and services holding leadership positions in their markets. The Company is among the largest manufacturers in North America of brand-name consumer products designed for the home improvement and new construction markets. The Company's operations consist of five business segments that are based on similarities in products and services. The following table sets forth, for the three years ended December 31, 2005, the contribution of the Company's segments to net sales and operating profit. Additional financial information concerning the Company's operations by segment, as well as general corporate expense, as of and for the three years ended December 31, 2005, is set forth in Note P to the Company's Consolidated Financial Statements included in Item 8 of this Report.

                                                                (IN MILLIONS)
                                                         NET SALES (1)
                                                  ---------------------------
                                                   2005      2004      2003
                                                  -------   -------   -------
Cabinets and Related Products...................  $ 3,324   $ 3,065   $ 2,684
Plumbing Products...............................    3,176     3,057     2,684
Installation and Other Services.................    3,063     2,771     2,411
Decorative Architectural Products...............    1,681     1,610     1,449
Other Specialty Products........................    1,398     1,347     1,148
                                                  -------   -------   -------
  Total.........................................  $12,642   $11,850   $10,376
                                                  =======   =======   =======	

                                                  OPERATING PROFIT (1)(2)(3)(4)
                                                  ------------------------------
                                                    2005       2004       2003
                                                  --------   --------   --------
Cabinets and Related Products...................  $   515    $   519    $   406
Plumbing Products...............................      367        370        343
Installation and Other Services.................      382        358        368
Decorative Architectural Products...............      252        269        210
Other Specialty Products........................      239        233        178
                                                  -------    -------    -------
  Total.........................................  $ 1,755    $ 1,749    $ 1,505
                                                  =======    =======    =======	

(1) Amounts exclude discontinued operations.
(2) Operating profit is before general corporate expense, gains on sale of corporate fixed assets, net, and accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer in 2003.
(3) Operating profit is before the Behr litigation settlement income of $6 million, $30 million and $72 million in 2005, 2004 and 2003, respectively, pertaining to the Decorative Architectural Products segment.
(4) Operating profit includes goodwill impairment charges as follows:
For 2005 - Plumbing Products - $7 million; Decorative Architectural Products - $26 million; and Other Specialty Products - $36 million. For 2004 - Plumbing Products - $25 million; Decorative Architectural Products - $62 million; and Other Specialty Products - $25 million. For 2003 - Plumbing Products - $17 million; Decorative Architectural Products - $5 million; and Other Specialty Products - $31 million.
Except as the context otherwise indicates, the terms "Masco" and the "Company" refer to Masco Corporation and its consolidated subsidiaries.
2
CABINETS AND RELATED PRODUCTS
In North America, the Company manufactures and sells economy, stock, semi-custom, assembled and ready-to-assemble cabinetry for kitchen, bath, storage, home office and home entertainment applications in a broad range of styles and price points. In Europe, the Company manufactures assembled and ready-to-assemble kitchen, bath, storage, home office and home entertainment cabinetry and other products. These products are sold under a number of trademarks including KRAFTMAID(R), MILL'S PRIDE(R) and TVILUM-SCANBIRK(TM) primarily to dealers and home centers, and under the names BLUESTONE(TM), MERILLAT(R), MOORES(TM) and QUALITY CABINETS(R) primarily to distributors and directly to builders for both the home improvement and new construction markets.
The cabinet manufacturing industry in the United States and Europe is highly competitive, with several large and hundreds of smaller competitors. The Company believes that it is the largest manufacturer of kitchen and bath cabinetry in North America based on sales revenue for 2005. Significant North American competitors include American Woodmark Corporation and Fortune Brands Inc.
In response to an increased demand for the Company's cabinet products and to maintain desired delivery times, the Company is constructing significant capacity additions to its North American cabinet operations. Construction is anticipated to be completed in early 2007.
PLUMBING PRODUCTS
In North America, the Company manufactures and sells a wide variety of faucet and showering devices under several brand names. The most widely known of these are the DELTA(R), PEERLESS(R), BRIZO(TM)and NEWPORT BRASS(R) single and double handle faucets used in kitchen, lavatory and other sinks and in bath and shower applications. The Company's faucets are sold by manufacturers' representatives and Company sales personnel to major retail accounts and to distributors who sell the faucets to plumbers, building contractors, remodelers, smaller retailers and others. Showerheads, handheld showers and valves are sold under the brand names ALSONS(R), DELTA, PEERLESS and PLUMB SHOP(R). The Company manufactures kitchen and bath faucets, showering devices and various other plumbing products for European markets under the brand names AXOR(TM), BRISTAN(TM), DAMIXA(R), GUMMERS(TM), HANSGROHE(R) and NEWTEAM(TM), which are sold through multiple distribution channels. AXOR and HANSGROHE products are also sold in North America through retailers and distributors.
Masco believes that its faucet operations are among the leaders in sales in the North American market, with American Standard, Kohler, Moen and Price Pfister as major brand competitors. The Company also has several major competitors, including Friedrich Grohe, among the European manufacturers of faucets and accessories, primarily in Germany and Italy. The Company also faces significant competition from private label products (including house brands sold by certain of the Company's customers), much of which is manufactured by foreign firms.
Other plumbing products manufactured and sold by the Company include AQUA GLASS(R) and MIROLIN(R) acrylic and gelcoat bath and shower units, which are sold primarily to wholesale plumbing distributors and major retail accounts for the home improvement and new home construction markets. Bath and shower enclosure units, shower trays and laundry tubs are manufactured and sold under the brand name AMERICAN SHOWER & BATH(TM). These products are sold to home centers, hardware stores and mass merchandisers for the "do-it-yourself" market. The Company's spas are manufactured and sold under HOT SPRING(R), CALDERA(R) and other trademarks directly to independent dealers. Other plumbing products for the international market include HUPPE(R) and BREUER(TM) shower enclosures sold by the Company through wholesale channels and home centers primarily in Germany and Western Europe. HERITAGE(TM) ceramic and acrylic bath fixtures and faucets are principally sold in the United Kingdom directly to selected retailers. GLASS(TM) and PHARO(TM) acrylic bathtubs and steam shower enclosures are sold in Europe.
3
Also included in the Plumbing Products segment are brass and copper plumbing system components and other plumbing specialties, which are sold to plumbing, heating and hardware wholesalers and to home centers, hardware stores, building supply outlets and other mass merchandisers. These products are marketed in North America for the wholesale trade under the BRASSCRAFT(R) and BRASSTECH(R) trademarks and for the "do-it-yourself" market under the MASTER PLUMBER(R) and PLUMB SHOP trademarks and are also sold under private label.
The Company features a durable coating on many of its decorative faucets and other products that offers tarnish protection and scratch resistance under the trademark BRILLIANCE(R). This finish is currently available on many of the Company's kitchen and bath products.
INSTALLATION AND OTHER SERVICES
The Company's Installation and Other Services segment operates over 290 local installation branch offices throughout most of the United States and in Canada. These branches supply and install primarily insulation and, in many locations, other building products including cabinetry, fireplaces, gutters, garage doors, bath accessories, shelving, windows and paint. The Company also operates over 60 local distribution centers throughout North America that supply insulation and other products including insulation accessories, cabinetry, roofing, gutters, drywall and fireplaces. Installation services are provided primarily to production home builders and custom home builders in the new construction market and distribution sales are made directly to contractors. Installation operations are conducted in local markets through various names. The Company's competitors in this market include several regional contractors and lumber yards, as well as numerous local installers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7 of this Report for additional information regarding the availability of insulation and price changes for this material.
Net sales of installed and distributed insulation comprised 15 percent, 15 percent and 16 percent of the Company's consolidated net sales for the years ended December 31, 2005, 2004 and 2003, respectively. Net sales of non-insulation products have increased over the last several years and represented approximately 38 percent of the segment's revenues for 2005.
DECORATIVE ARCHITECTURAL PRODUCTS
The Company manufactures architectural coatings including paints, specialty paint products, stains, varnishes and waterproofings. BEHR(R) paint and stain products, such as PREMIUM PLUS(R), and MASTERCHEM(R) specialty paint products, including KILZ(R) branded products, are sold in the United States and Canada primarily to the "do-it-yourself" market through home centers and other retailers. Net sales of architectural coatings comprised approximately 11 percent of the Company's consolidated net sales for each of the years ended December 31, 2005, 2004 and 2003, respectively. Competitors in the architectural coatings market include large multi-national companies such as Benjamin Moore & Co., ICI Paints, PPG Industries, Inc., Sherwin-Williams and Valspar, as well as many smaller regional and national companies.
The Company has established Color Solutions Centers(TM) in over 1,700 Home Depot stores throughout the United States. These centers enhance the paint-buying experience by helping consumers to interactively design and coordinate their product selection. Behr's PREMIUM PLUS brand, its principal product line, is sold exclusively through The Home Depot stores.
The Decorative Architectural Products segment also includes LIBERTY(R) cabinet, decorative door and builders' hardware, which is manufactured for the Company and sold to home centers, other retailers, original equipment manufacturers and wholesale markets. Key competitors in these product lines in North America include Amerock, Belwith, National, Umbra and Stanley. Decorative bath hardware and shower accessories are sold under the brand names FRANKLIN BRASS(R) and BATH UNLIMITED(R) to distributors, home centers and other retailers. Competitors include Moen and Globe Union.
4
AVOCET(TM) builders' hardware products, including locks and door and window hardware, are manufactured and sold to home centers and other retailers, builders and original equipment door and window manufacturers primarily in the United Kingdom.
OTHER SPECIALTY PRODUCTS
The Company manufactures and sells windows and patio doors under the MILGARD(R) brand name directly to the new construction and home improvement markets, principally in the western United States. The Company fabricates and sells vinyl windows and sunrooms under the GRIFFIN(TM)and CAMBRIAN(TM) brand names for the United Kingdom building trades. The Company extrudes and sells vinyl frame components for windows, patio doors and sunrooms under the brand name DURAFLEX(TM) for the European building trades.
The Company manufactures and sells a complete line of manual and electric staple gun tackers, staples and other fastening tools under the brand names ARROW(R) and POWERSHOT(R). These products are sold through various distribution channels including wholesalers, home centers and other retailers. SAFLOK(R) electronic locksets are sold primarily to the hospitality market, and LAGARD(R) commercial safe and ATM locks are manufactured and sold to commercial markets.
The Company also manufactures residential hydronic radiators and heat convectors under the brand names BRUGMAN(R), SUPERIA(TM), THERMIC(TM) and VASCO(R), which are sold to the European wholesale market from operations in Belgium, The Netherlands and Poland.
DISCONTINUED OPERATIONS
As part of its strategic planning, the Company continues to review all of its businesses to determine which businesses may not be core to continuing operations. In 2003, the Company completed the sale of three of its North American businesses. In early 2004, the Company determined that several European businesses were not core to the Company's long-term growth strategy and, accordingly, embarked on a plan of disposition, which was completed in early 2005. During 2005, the Company identified and sold two additional businesses, one in Europe and one in North America, pursuant to the Company's determination that these business units were not core to the Company's long-term cabinet platform strategy. The businesses sold during 2003, 2004 and 2005 had combined 2003 net sales of $758 million. Additional information is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this Report.
ADDITIONAL INFORMATION
- Over 80 percent of the Company's net sales are generated by operations in North America (primarily in the United States). International operations comprise the balance and are located principally in Belgium, Denmark, Germany, Italy, The Netherlands and the United Kingdom. See Note P to the Company's Consolidated Financial Statements included in Item 8 of this Report.
- Financial information concerning the Company's export sales and foreign and United States operations, including the net sales, operating profit and assets attributable to the Company's segments and to the Company's North American and International operations, as of and for the three years ended December 31, 2005, are included in Item 8 of this Report in Note P to the Company's Consolidated Financial Statements.
- The peak season for home construction and remodeling generally corresponds with the second and third calendar quarters. As a result, the Company generally experiences stronger sales during these quarters.
- The Company does not consider backlog orders to be material.
5
- Compliance with federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to result in material capital expenditures by the Company or to have a material adverse effect on the Company's earnings or competitive position.
- See Item 1A, "Risk Factors," for a discussion of the importance of major customers, competitive conditions and certain other business risks and uncertainties that may affect our operations.
AVAILABLE INFORMATION
The Company's website is www.masco.com. The Company's periodic reports and all amendments to those reports required to be filed or furnished pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available free of charge through its website. During the period covered by this Report, the Company posted its periodic reports on Form 10-K and Form 10-Q and its current reports on Form 8-K and any amendments to those documents to its website as soon as reasonably practicable after those reports were filed or furnished electronically with the Securities and Exchange Commission. The Company will continue to post to its website such reports and amendments to those reports as soon as reasonably practicable after those reports are filed with or furnished to the Securities and Exchange Commission. Material contained on the Company's website is not incorporated by reference into this Report on Form 10-K.
PATENTS AND TRADEMARKS
The Company holds United States and foreign patents covering its vapor deposition finish and various design features and valve constructions used in certain of its faucets and holds numerous other patents and patent applications, licenses, trademarks and trade names. As a manufacturer of brand-name consumer products, the Company views its trademarks and other proprietary rights as important, but does not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on the Company's present business as a whole.
EMPLOYEES
At December 31, 2005, the Company employed approximately 62,000 people. Satisfactory relations have generally prevailed between the Company and its employees.
ITEM 1A. RISK FACTORS.
There are a number of business risks and uncertainties that may affect our operations. These risks and uncertainties could cause future results to differ from past performance or expected results, including results described in statements elsewhere in this Report that constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. The impact on our operations of certain of these risk factors is discussed below under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations. These risks and uncertainties include, but are not limited to, the following, which we consider to be most relevant to our specific business activities.
A SIGNIFICANT PORTION OF OUR BUSINESS RELIES ON RESIDENTIAL CONSTRUCTION ACTIVITY.
Our results of operations are affected by levels of home improvement and residential construction activity, principally in North America and Europe (including repair and remodeling and new construction). Interest rates, energy costs, consumer confidence, general and regional economic conditions, and weather conditions and natural disasters can significantly impact levels of home improvement and residential construction activity. Historically, the Company has largely offset the impact on its reve-
6
nues of cyclical declines in the new construction and home improvement markets through new product introductions, acquisitions and market share gains. We have increased our emphasis on new product development in recent years, but we have reduced our prior focus on growth through acquisitions in favor of organic growth. Consequently, our financial performance will, in part, reflect our success in implementing our growth strategies in our existing markets and in introducing new products or entering new geographic markets.
WE RELY ON OUR KEY CUSTOMERS.
The size and importance of individual customers has increased because customers in our major distribution channels have consolidated. Larger customers can effect significant changes in their volume of purchases and can otherwise significantly affect the terms and conditions on which we do business. Further, as these same customers expand their markets and targeted customers, conflicts occur, and in some instances we also become their competitors. Our relationships with home centers are particularly important because sales of our home improvement and building products to home center retailers are substantial. In 2005, sales to the Company's largest customer, The Home Depot, were $2.7 billion (approximately 21 percent of total sales). Although builders, dealers and other retailers represent other channels of distribution for the Company's products, the loss of a substantial portion of our sales to The Home Depot would have a material adverse impact on the Company.
WE FACE SIGNIFICANT COMPETITION IN THE U.S. AND GLOBAL MARKETS.
The major markets for our products and services are highly competitive and in recent years global competition has increased significantly. Competition in our home improvement and building product lines is based largely on performance, quality, brand reputation, style, delivery, customer service, exclusivity and price. Competition in the markets for our service businesses is based primarily on price, customer service, scope of capabilities, installation quality and financial strength. Although the relative importance of such factors varies between customers and among product categories, price is often a primary factor. Our ability to maintain our leadership positions in our markets and to grow our businesses depends to a large extent upon our success in maintaining our relationships with our major customers, managing our cost structure and introducing new products.
OUR OPERATING RESULTS ARE AFFECTED BY THE COST AND AVAILABILITY OF RAW MATERIAL.
When we incur cost increases for raw materials, energy and other commodities, it may be difficult for us to completely offset the impact with price increases on a timely basis due to outstanding commitments to our customers, competitive considerations and our customers' resistance to accepting such price increases. Some of our operations, including the Installation and Other Services segment, encounter shortages or unusual price increases in raw materials from time to time. A substantial decrease in the availability of products from our suppliers or the loss of key supplier arrangements could adversely impact our results of operations.
OUR INTERNATIONAL BUSINESS HAS DIFFERENT RISKS FROM THOSE OF OUR NORTH AMERICAN BUSINESS.
Over 15 percent of our sales are derived outside of North America (principally in Europe) and are transacted in currencies other than U.S. dollars (principally euros and Great Britain pounds). Our international business faces political, monetary, economic and other risks that vary from country to country. Our international operating results have been adversely influenced in recent years, in part due to softness in the European markets and competitive pricing pressures on certain products. Our operating results can fluctuate based on changes in U.S. dollar exchange rates, which also presents difficulty in comparing operating performance from period to period.
7
WE HAVE FINANCIAL COMMITMENTS AND INVESTMENTS IN FINANCIAL ASSETS, INCLUDING ASSETS THAT ARE NOT READILY MARKETABLE AND INVOLVE FINANCIAL RISK.
We maintain investments in a number of private equity funds and in marketable securities. Since there is no active trading market for investments in private equity funds, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation. In addition, we have commitments that require us, when requested, to contribute additional capital to these private equity funds.
PRODUCT LIABILITY CLAIMS AND OTHER LITIGATION COULD BE COSTLY.
Increasingly, homebuilders (including our customers) are subject to construction defect and home warranty claims in the ordinary course of their business. Our contractual commitments to these customers typically include our agreement to indemnify them for liability for the performance of our products or services or the performance of other products that we install. We are also subject to product safety recalls and direct claims for product liability, including putative class actions, which can result in significant liability and be costly to defend. See Note U to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The table below lists the Company's principal North American properties for segments other than Installation and Other Services.

                                                                  WAREHOUSE AND
                BUSINESS SEGMENT                  MANUFACTURING   DISTRIBUTION
                ----------------                  -------------   -------------
Cabinets and Related Products...................       21              36
Plumbing Products...............................       29              13
Decorative Architectural Products...............       10              10
Other Specialty Products........................       22               7
                                                       --              --
  Totals........................................       82              66
                                                       ==              ==	

Most of the Company's North American manufacturing facilities range in size from single buildings of approximately 10,000 square feet to complexes that exceed 1,000,000 square feet. The Company owns most of its North American manufacturing facilities, none of which are subject to significant encumbrances. A substantial number of its warehouse and distribution facilities are leased.
In addition, the Company's Installation and Other Services segment operates over 290 local installation branch offices and over 60 local distribution centers in North America, the majority of which are leased.
8
The table below lists the Company's principal properties outside of North America.

                                                                  WAREHOUSE AND
                BUSINESS SEGMENT                  MANUFACTURING   DISTRIBUTION
                ----------------                  -------------   -------------
Cabinets and Related Products...................        4              22
Plumbing Products...............................       22              33
Decorative Architectural Products...............        3               2
Other Specialty Products........................       13               5
                                                       --              --
  Totals........................................       42              62
                                                       ==              ==	

Most of these international facilities are located in Belgium, China, Denmark, Germany, Italy, The Netherlands, Poland and the United Kingdom. The Company generally owns its international manufacturing facilities, none of which are subject to significant encumbrances, and leases its warehouse and distribution facilities.
The Company's corporate headquarters are located in Taylor, Michigan and are owned by the Company. The Company owns an additional building near its corporate headquarters that is used by its corporate research and development department.
Each of the Company's operating divisions assesses the manufacturing, distribution and other facilities needed to meet its operating requirements. The Company's buildings, machinery and equipment have been generally well maintained and are in good operating condition. As noted, the Company is constructing significant capacity additions to its cabinet operations, but otherwise, generally, the Company's facilities have sufficient capacity and are adequate for its production and distribution requirements.
ITEM 3. LEGAL PROCEEDINGS.
Information regarding legal proceedings involving the Company is set forth in Note U to the Company's consolidated financial statements included in Item 8 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
(PURSUANT TO INSTRUCTION 3 TO ITEM 401(b) OF REGULATION S-K).

                                                                                               EXECUTIVE
                                                                                                OFFICER
             NAME                                      POSITION                          AGE     SINCE
             ----                -----------------------------------------------------   ---   ---------
Richard A. Manoogian...........  Chairman of the Board and Chief Executive Officer       69      1962
Alan H. Barry..................  President and Chief Operating Officer                   63      2003
David A. Doran.................  Vice President - Taxes                                  64      1984
Daniel R. Foley................  Vice President - Human Resources                        64      1996
Eugene A. Gargaro, Jr. ........  Vice President and Secretary                            63      1993
John R. Leekley................  Senior Vice President and General Counsel               62      1979
John G. Sznewajs...............  Vice President - Corporate Development and Treasurer    38      2005
Timothy Wadhams................  Senior Vice President and Chief Financial Officer       57      2001	

Executive officers, who are elected by the Board of Directors, serve for a term of one year or less. Each elected executive officer has been employed in a managerial capacity with the Company for over five years except Mr. Wadhams. Mr. Wadhams was employed by the Company from 1976 to 1984. From 1984 until he rejoined the Company in 2001, he was an executive of Metaldyne Corporation (formerly MascoTech, Inc.), most recently serving as its Executive Vice President - Finance and Administration and Chief Financial Officer. Mr. Barry was elected to his present position in April 2003. He had served as a Group President of the Company since 1996. Mr. Sznewajs was elected to his current positions in August 2005. He had previously served as Vice President - Business Development since 2003 and before that time served in various capacities in the Business Development Department from 1996 to 2003.
9
 
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The New York Stock Exchange is the principal market on which the Company's Common Stock is traded. The following table indicates the high and low sales prices of the Company's Common Stock as reported by the New York Stock Exchange and the cash dividends declared per common share for the periods indicated:

                                            MARKET PRICE
                                           ---------------   DIVIDENDS
QUARTER                                     HIGH     LOW     DECLARED
-------                                    ------   ------   ---------
2005
  Fourth.................................  $31.20   $27.15     $.20
  Third..................................   34.70    29.37      .20
  Second.................................   34.94    29.57      .20
  First..................................   38.43    32.90      .20
                                                               ----
     Total...............................                      $.80
                                                               ====
2004
  Fourth.................................  $37.02   $32.87     $.18
  Third..................................   35.00    29.69      .18
  Second.................................   31.47    26.29      .16
  First..................................   30.80    25.88      .16
                                                               ----
     Total...............................                      $.68
                                                               ====	

On February 28, 2006 there were approximately 6,400 holders of record of the Company's Common Stock.
The Company expects that its practice of paying quarterly dividends on its Common Stock will continue, although the payment of future dividends is at the discretion of the Company's Board of Directors and will depend upon the Company's earnings, capital requirements, financial condition and other factors.
In March 2005, the Company's Board of Directors authorized the purchase of up to 50 million shares of the Company's Common Stock in open-market transactions or otherwise. The following table provides information regarding the Company's purchase of Company Common Stock for the three months ended December 31, 2005, in millions except average price paid per common share data:

                                                                  TOTAL NUMBER OF SHARES     MAXIMUM NUMBER OF
                                                                   PURCHASED AS PART OF     SHARES THAT MAY YET
                          TOTAL NUMBER OF    AVERAGE PRICE PAID     PUBLICLY ANNOUNCED      BE PURCHASED UNDER
PERIOD                    SHARES PURCHASED    PER COMMON SHARE      PLANS OR PROGRAMS      THE PLANS OR PROGRAMS
------                    ----------------   ------------------   ----------------------   ---------------------
10/01/05 - 10/31/05.....         3                 $28.79                   3                       34
11/01/05 - 11/30/05.....         3                 $29.00                   3                       31
12/01/05 - 12/31/05.....         2                 $29.64                   2                       29
                                 --                                         --
Total for the quarter...         8                 $29.11                   8
                                 ==                                         ==	

For information regarding securities authorized for issuance under the Company's equity compensation plans, see Part III, Item 12 of this Report.
10
 
ITEM 6. SELECTED FINANCIAL DATA.

                                                (DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
                                                 2005       2004       2003       2002       2001
                                               --------   --------   --------   --------   --------
Net sales (1)................................  $12,642    $11,850    $10,376    $ 8,653    $ 7,545
Operating profit (1),(2),(3),(4),(5),(7).....  $ 1,577    $ 1,592    $ 1,449    $ 1,234    $   989
Income from continuing operations
  (1),(2),(3),(4),(5),(6),(7),(8)............  $   872    $   949    $   769    $   524    $   168
Per share of common stock:
  Income from continuing operations:
     Basic...................................  $  2.07    $  2.13    $  1.60    $  1.08    $  0.37
     Diluted.................................  $  2.03    $  2.08    $  1.57    $  1.02    $  0.35
  Dividends declared.........................  $  0.80    $  0.68    $  0.60    $  0.55    $  0.53
  Dividends paid.............................  $  0.78    $  0.66    $  0.58    $  0.54 1/2 $  0.52 1/2
Income from continuing operations as a % of:
  Net sales..................................       7%         8%         7%         6%         2%
  Shareholders' equity (9)...................      16%        17%        15%        13%         5%
At December 31:
  Total assets...............................  $12,559    $12,541    $12,173    $12,050    $ 9,021
  Long-term debt.............................  $ 3,915    $ 4,187    $ 3,848    $ 4,316    $ 3,628
  Shareholders' equity.......................  $ 4,848    $ 5,423    $ 5,456    $ 5,294    $ 3,958	

(1) Amounts exclude discontinued operations.
(2) The year 2005 includes a non-cash goodwill impairment charge of $69 million after tax ($69 million pre-tax) and income of $4 million after tax ($6 million pre-tax) related to the Behr litigation settlement. See Note U to the Consolidated Financial Statements.
(3) The year 2004 includes a non-cash goodwill impairment charge of $104 million after tax ($112 million pre-tax) and income of $19 million after tax ($30 million pre-tax) related to the Behr litigation settlement. See Note U to the Consolidated Financial Statements.
(4) The year 2003 includes a non-cash goodwill impairment charge of $47 million after tax ($53 million pre-tax) and income of $45 million after tax ($72 million pre-tax) related to the Behr litigation settlement. See Note U to the Consolidated Financial Statements.
(5) The year 2002 includes a $92 million after tax ($147 million pre-tax), net charge related to the Behr litigation settlement and pre-tax income of $16 million for the planned disposition of a business.
(6) The year 2002 includes a $92 million after tax ($117 million pre-tax), non-cash goodwill impairment charge recognized as a cumulative effect of a change in accounting principle.
(7) Operating profit for 2001 includes goodwill amortization expense of $86 million.
(8) The year 2001 includes a $344 million after-tax ($530 million pre-tax), non-cash charge for the write-down of certain investments, principally securities of Furnishings International Inc.
(9) Based on shareholders' equity as of the beginning of the year.
11
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company's consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.
The following discussion and certain other sections of this Report contain statements reflecting the Company's views about its future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These views involve risks and uncertainties that are difficult to predict and, accordingly, the Company's actual results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including those discussed in Item 1A "Risk Factors" of this Report, the "Executive Level Overview," "Critical Accounting Policies and Estimates" and "Outlook for the Company" sections, may affect the Company's performance. The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.
EXECUTIVE LEVEL OVERVIEW
The Company manufactures and installs home improvement and building products. These products are sold to the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, builders, distributors and other outlets for consumers and contractors.
Factors that affect the Company's results of operations include the levels of home improvement and residential construction activity principally in North America and Europe (including repair and remodeling and new construction), the importance of and the Company's relationships with key customers (including The Home Depot, which represented approximately 21 percent of the Company's sales in 2005), the Company's ability to maintain its leadership positions in its markets in the face of increasing global competition, the Company's ability to effectively manage its overall cost structure and the availability and cost of raw materials. The Company's International business faces political, monetary, economic and other risks that vary from country to country, as well as fluctuations in European currency exchange rates. Further, the Company has financial commitments and investments in financial assets that are not readily marketable and that involve financial risk. In addition, product liability claims and other litigation could be costly. These factors are discussed in more detail in Item 1A "Risk Factors" of this Report. Historically, the Company has largely offset the impact on its revenues of cyclical declines in the new construction and home improvement markets through new product introductions, acquisitions and market share gains. While acquisitions have enabled the Company to build the critical mass that has given the Company strong positions in the markets it serves, the Company has put less emphasis on growth through acquisitions to focus on organic sales growth.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company regularly reviews its estimates and assumptions, which are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.
The Company believes that the following critical accounting policies are affected by significant judgments and estimates used in the preparation of its consolidated financial statements.
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REVENUE RECOGNITION AND RECEIVABLES
The Company recognizes revenue as title to products and risk of loss is transferred to customers or when services are rendered. The Company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. Allowances for doubtful accounts receivable are maintained for estimated losses resulting from the inability of customers to make required payments.
INVENTORIES
Inventories are recorded at the lower of cost or net realizable value with expense estimates made for obsolescence or unsaleable inventory equal to the difference between the recorded cost of inventories and their estimated market value based on assumptions about future demand and market conditions. On an on-going basis, the Company monitors these estimates and records adjustments for differences between estimates and actual experience. Historically, actual results have not significantly deviated from those determined using these estimates.
FINANCIAL INVESTMENTS
The Company maintains investments in marketable securities, which aggregated $115 million, and a number of private equity funds, which aggregated $262 million, at December 31, 2005. The investments in private equity funds are carried at cost and are evaluated for impairment at each reporting period, or when circumstances indicate an impairment may exist, using information made available by the fund managers and other assumptions. The investments in marketable securities are carried at fair value, and unrealized gains and unrealized losses (that are deemed to be temporary) are recorded as a component of shareholders' equity, net of tax effect, in other comprehensive income. The Company records an impairment charge to earnings when an investment has experienced a decline in value that is deemed to be other-than-temporary. Future changes in market conditions, the performance of underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation.
Based on its review, in the third quarter of 2005, the Company recognized an impairment charge of $28 million related to its investment in four million shares of Furniture Brands International (NYSE:FBN) common stock to reduce the cost basis from $25.05 per share to the market value at September 30, 2005 of $18.03 per share. In 2004, the Company also recognized an impairment charge of $21 million related to the Company's investment in FBN. At December 31, 2005, the FBN common stock was in an unrealized gain position; the aggregate carrying value of the investment was $90 million. The FBN common stock, included in marketable securities, was received in June 2002 from the Company's investment in Furnishings International Inc. debt.
The Company's investments in private equity funds and other private investments are carried at cost and are evaluated for impairment at each reporting period, or when circumstances, including the maturity of the fund, indicate impairment may exist. Since there is no active trading market for these investments, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation. Based on the Company's review of its private equity funds, the Company considered the decline in the estimated market value of certain of its private equity fund investments to be other-than-temporary and, accordingly, recognized an impairment charge of $15 million in the third quarter of 2005. At December 31, 2005, the carrying value of the Company's investments in private equity funds exceeded the estimated market value, as determined by the fund managers, by approximately $19 million, which the Company considers to be a temporary decline in the estimated fair value.
13
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company records the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," in the fourth quarter of each year, or as an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, the Company completes the impairment testing of goodwill utilizing a discounted cash flow method.
Determining market values using a discounted cash flow method requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. The Company's judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could result in a different outcome. In estimating future cash flows, the Company relies on internally generated five-year forecasts for sales and operating profits, including capital expenditures, and generally a one to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast. The Company generally develops these forecasts based on recent sales data for existing products, planned timing of new product launches, estimated housing starts and repair and remodeling estimates for existing homes.
In the fourth quarter of 2005, the Company estimated that future discounted cash flows projected for most of its reporting units were greater than the carrying values. Any increases in estimated discounted cash flows would have no impact on the reported value of goodwill.
If the carrying amount of a reporting unit exceeds its fair value, the Company measures the possible goodwill impairment loss based on an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill. This test for 2005 indicated that goodwill related to certain European businesses was impaired. The Company recognized a non-cash, pre-tax impairment charge of $69 million ($69 million, after tax) in the fourth quarter of 2005.
The Company reviews its individual indefinite-lived intangible assets for impairment annually and if an event occurs or circumstances change that indicate the assets may be impaired without regard to the reporting unit. The Company considers the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales, profit margins and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near and long term.
Intangible assets with finite useful lives are amortized over their estimated lives. The Company evaluates the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization.
EMPLOYEE RETIREMENT PLANS
Accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future, based on vested years of service, and attributing those costs over the time period each employee works. Pension costs and obligations of the Company are developed from actuarial valuations. Inherent in these valuations are key assumptions regarding inflation, expected return on plan assets, mortality rates, compensation increases and discount rates for obligations. The Company considers current market conditions, including changes in interest rates, in selecting these assumptions. The Company selects these assumptions with assistance from outside advisors such as consul-
14
tants, lawyers and actuaries. Changes in assumptions used could result in changes to the related pension costs and obligations within the Company's consolidated financial statements in any given period.
In 2005, the Company decreased its discount rate for obligations to an average of 5.25 percent from 5.75 percent. The discount rate for obligations was based on the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2005 Citigroup Pension Discount Curve. Such rates for the Company's defined-benefit pension plans ranged from 4.00 percent to 5.75 percent, with the most significant portion of the liabilities having a discount rate for obligations of 5.25 percent or higher. The assumed asset return was primarily 8.50 percent, reflecting the expected long-term return on plan assets.
The Company's underfunded amount, or the difference between the projected benefit obligation and plan assets, increased to $231 million from $193 million in 2004, primarily due to asset returns below projections. Qualified domestic pension plan assets in 2005 had a net gain of approximately four percent compared with average returns of five percent for the largest 1,000 Plan Benchmark.
The Company's projected benefit obligation relating to the unfunded non-qualified supplemental defined-benefit pension plans was $143 million at December 31, 2005 compared with $125 million at December 31, 2004.
The Company expects pension expense for its qualified defined-benefit pension plans to increase by $2 million in 2006 compared with 2005. If the Company assumed that the future return on plan assets was one-half percent lower than the assumed asset return, the 2006 pension expense would increase by an additional $2 million.
STOCK OPTIONS AND AWARDS
The Company's 2005 Long Term Stock Incentive Plan (the "2005 Plan") replaced the 1991 Long Term Stock Incentive Plan (the "1991 Plan") in May 2005 and provides for the issuance of stock-based incentives in various forms. At December 31, 2005, outstanding stock-based incentives were in the form of restricted long-term stock awards, stock appreciation rights, phantom stock awards and stock options. Additionally, the Company's 1997 Non-Employee Directors Stock Plan (the "1997 Plan") provides for the payment of part of the compensation to non-employee Directors in Company common stock.
Restricted Long-Term Stock Awards
Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution as the Company continues the practice of reacquiring an equal number of shares on the open market. The unvested stock awards, aggregating $185 million (9 million common shares) at December 31, 2005 are included as a reduction in shareholders' equity and are being expensed based on the respective vesting periods, principally 10 years. Compensation expense for the annual vesting of long-term stock awards was $44 million for the year ended December 31, 2005.
Stock Options
Fixed price stock options are granted to key employees and non-employee Directors of the Company. The grant date exercise price equals the market price of Company common stock on the date of grant. These options generally become exercisable in installments beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date. Restoration stock options under the 1991 Plan become exercisable six months from the date of grant. The 2005 Plan does not permit the granting of restoration stock options, except for restoration options resulting from the options granted under the 1991 Plan.
15
The Company began using the fair value method of accounting for options granted, modified or settled subsequent to January 1, 2003, and options granted prior to January 1, 2003 continue to be accounted for using the intrinsic value method as of December 31, 2005. Effective January 1, 2006, the Company will adopt SFAS No. 123R "Accounting for Stock-Based Compensation," using the Modified Prospective Application ("MPA") method. SFAS No. 123R requires companies to measure and recognize the cost (fair value) of employee services received in exchange for stock options. The MPA method will require the Company to record expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The expense for unvested stock options at January 1, 2006 will be based on the grant-date fair value of those awards as calculated for pro forma disclosure under SFAS No. 123. Changes to the grant-date fair value of stock options granted before January 1, 2006 are prohibited. The MPA method does not require the restatement of prior-year information. The amount of expense related to total unvested stock options remaining at December 31, 2005 was $104 million; such options have a weighted average vesting period of over 3 years.
The fair value of stock options was estimated at the grant date using a Black-Scholes option pricing model with the following assumptions for 2005:
risk-free interest rate - 4.1%, dividend yield - 2.3%, volatility factor - 35.8% and expected option life - 7 years. For SFAS No. 123R calculation purposes, the weighted average grant-date fair value of option shares, including restoration options, granted in 2005 was $10.33 per option share. The fair value for each option grant is calculated and the related expense is recorded over the vesting period of the option grant.
If the Company increased its assumptions for the risk-free interest rate and the volatility factor by 50 percent, the expense related to the fair value of stock options granted in 2005 would increase 44 percent. If the Company decreased its assumptions for the risk-free interest rate and the volatility factor by 50 percent, the expense related to the fair value of stock options granted in 2005 would decrease 55 percent.
INCOME TAXES
The Company has considered potential sources of future foreign taxable income in assessing the need for establishing a valuation allowance against its deferred tax assets at December 31, 2005 and 2004, related to its after-tax foreign tax credit carryforward of $50 million. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, a valuation allowance would be recorded in the period such determination is made.
OTHER COMMITMENTS AND CONTINGENCIES
Certain of the Company's products and product finishes and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company's estimate of costs to service its warranty obligations is based on historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.
The Company is subject to lawsuits and pending or asserted claims (including income taxes) with respect to matters generally arising in the ordinary course of business. Liabilities and costs associated with these matters require estimates and judgments based on the professional knowledge and experience of management and its legal counsel. When estimates of the Company's exposure for lawsuits and pending or asserted claims meet the criteria for recognition under SFAS No. 5, "Accounting for Contingencies," amounts are recorded as charges to earnings. The ultimate resolution of any such exposure to the Company may differ due to subsequent developments. See Note U to the Company's consolidated financial statements for information regarding legal proceedings involving the Company.
16
CORPORATE DEVELOPMENT STRATEGY
Acquisitions in past years have enabled the Company to build a critical mass that has given the Company a strong position in the markets it serves and has increased the Company's importance to its customers. The Company is now intensifying its focus on leveraging the critical mass to build greater value for its shareholders. The Company's focus includes additional cost reduction initiatives, as well as increasing synergies among the Company's business units. The Company expects to maintain a more balanced growth strategy of organic growth, share repurchases and fewer acquisitions with increased emphasis on cash flow and return on invested capital. As part of its strategic planning, the Company continues to review all of its businesses to determine which businesses may not be core to continuing operations.
In 2003, the Company completed the sale of its Baldwin Hardware, Weiser Lock and Marvel Group businesses. Total gross proceeds from the sale of Baldwin Hardware, Weiser Lock and Marvel Group were $289 million; the Company recognized a pre-tax net gain on the disposition of these businesses of $89 million.
In 2004, the Company determined that several European businesses were not core to the Company's long-term growth strategy and, accordingly, embarked on a plan of disposition (the "2004 Plan").
During 2004, in separate transactions, the Company completed the sale of its Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group businesses in Europe. In 2004, the Company reduced its estimate of expected proceeds and recognized pre-tax charges of $139 million ($151 million including tax effect) for those businesses that were expected to be divested at a loss. Any gains resulting from the dispositions were recognized as such transactions were completed. Total gross proceeds from the sale of these companies were $199 million, including cash of $193 million and notes receivable of $6 million. The Company recognized a pre-tax, net gain (principally related to the sale of Jung Pumpen) on the disposition of these businesses of $106 million.
During 2005, in separate transactions, the Company disposed of its Gebhardt Consolidated and GMU Group businesses in Europe as part of the Company's 2004 Plan. Gebhardt Consolidated supplies ventilation products and GMU Group manufactures cabinets. Total gross proceeds from the sale of Gebhardt Consolidated and GMU Group were $130 million; the Company recognized a pre-tax net gain (principally related to the sale of Gebhardt Consolidated) on the disposition of these businesses of $9 million. Net proceeds from the disposition of businesses completed in 2005 and 2004, pursuant to the Company's 2004 Plan, aggregated $280 million.
Also during 2005, in separate transactions, the Company completed the disposition of Zenith Products and Aran Group; such dispositions were completed pursuant to the Company's determination that these business units were not core to the Company's long-term cabinet platform strategy. Zenith Products manufactures bathroom storage and organization products for the North American retail market and Aran Group is a European manufacturer of assembled and ready-to-assemble kitchen cabinets; both business units were in the Cabinets and Related Products segment. Total gross proceeds from the sale of Zenith Products and Aran Group were $189 million; the Company recognized a pre-tax net gain (principally related to the sale of Zenith Products) on the disposition of these businesses of $50 million.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company accounted for the businesses held for sale at December 31, 2004, as well as other businesses which were sold in 2005, 2004 and 2003, as discontinued operations. There were no businesses held for sale at December 31, 2005. The sales and results of operations of the businesses sold in 2005, 2004 and 2003 are included in the Company's results from discontinued operations through the date of disposition. During the time the Company owned these businesses, they had net sales of $242 million, $581 million and $758 million in 2005, 2004 and 2003, respectively, and income (loss) from
17
discontinued operations before income taxes of $39 million, $5 million and $(10) million in 2005, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has largely funded its growth through cash provided by a combination of its operations, long-term bank debt and other borrowings, and by the issuance of Company common stock, including issuances for certain mergers and acquisitions.
Bank credit lines are maintained to ensure the availability of funds. At December 31, 2005, debt agreements with banks syndicated in the United States relate to a $2.0 billion 5-Year Revolving Credit Agreement which expires in November 2009. This agreement allows for borrowings denominated in U.S. dollars or European euros. Interest is payable on borrowings under this agreement based on various floating-rate options as selected by the Company.
In February 2006, the Company amended the terms of the $2.0 billion 5-Year Revolving Credit Agreement; the amendment primarily affected the requirement for the Company to maintain certain levels of net worth.
The 5-Year Revolving Credit Agreement, as amended, contains limitations on additional borrowings; at December 31, 2005, the Company had additional borrowing capacity, subject to availability, of up to $2.5 billion. The 5-Year Revolving Credit Agreement, as amended, also contains a requirement for maintaining a certain level of net worth; at December 31, 2005, the Company's net worth exceeded such requirement by approximately $842 million.
At December 31, 2005, the amount of debt and equity securities issuable under the Company's unallocated shelf registration statement with the Securities and Exchange Commission was $1.5 billion.
The Company had cash and cash investments of $1,964 million at December 31, 2005 as a result of strong cash flows from operations, proceeds from the disposition of certain businesses and financial investments, and the issuance of fixed-rate debt.
During 2005, the Company increased its quarterly common stock dividend 11 percent to $.20 per common share. This marks the 47th consecutive year in which dividends have been increased. Although the Company is aware of the greater interest in yield by many investors and has maintained an increased dividend payout in recent years, the Company continues to believe that its shareholders' long-term interests are best served by investing a significant portion of its earnings in the future growth of the Company.
Maintaining high levels of liquidity and cash flow are among the Company's financial strategies. The Company's total debt as a percent of total capitalization increased to 49 percent at December 31, 2005 from 44 percent at December 31, 2004. Repurchases and retirement of Company common stock contributed to the increase in the total debt to total capitalization ratio. The Company's working capital ratio was 1.8 to 1 and 2.1 to 1 at December 31, 2005 and 2004, respectively. The decline in the current ratio is primarily due to the reclassification to current liabilities of $800 million of 6.75% notes that are due and payable on March 15, 2006. The Company intends to use a portion of its cash to retire the notes due March 2006.
The derivatives used by the Company during the year ended December 31, 2005 consist of interest rate swaps entered into in 2005, for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. Generally, under interest rate swap agreements, the Company agrees with a counterparty to exchange the difference between fixed-rate and variable-rate interest amounts calculated by reference to an agreed notional principal amount. The derivative contracts are with two major creditworthy institutions, thereby minimizing the risk of credit loss. The interest rate swap agreements are designated as fair-value hedges, and the interest rate differential on interest rate swaps used to hedge existing debt is recognized as an adjustment to interest expense over the term of the agreement.
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For fair-value hedge transactions, changes in the fair value of the derivative and changes in the fair value of the item hedged are recognized in determining earnings.
The average variable interest rates are based on the London Interbank Offered Rate ("LIBOR") plus a fixed adjustment factor. The average effective rate on the interest rate swaps was 5.519%. At December 31, 2005, the interest rate swap agreements covered a notional amount of $850 million of the Company's fixed-rate debt due July 15, 2012 at an interest rate of 5.875%. The hedges are considered 100 percent effective because all of the critical terms of the derivative financial instruments match those of the hedged item. Accordingly, no gain or loss on the value of the hedges was recognized in the Company's consolidated statements of income for the years ended December 31, 2005 and 2004. The amount recognized as a reduction of interest expense was $3 million for the year ended December 31, 2005.
Certain of the Company's European operations also entered into foreign currency forward contracts for the purpose of managing exposure to currency fluctuations, primarily related to the United States dollar and the Great Britain pound.
CASH FLOWS
Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:

                                                               2005      2004      2003
                                                              ------    ------    ------
Net cash from operating activities..........................  $1,374    $1,454    $1,421
Increase (decrease) in debt, net............................     407       (13)     (541)
Net proceeds from disposition of:
  Businesses, net of cash disposed..........................     278       172       284
  Equity investment.........................................       -         -        75
Proceeds from settlement of swaps...........................       -        55         -
Issuance of Company common stock............................      33        58        37
Acquisition of businesses, net of cash acquired.............     (25)      (16)     (239)
Capital expenditures........................................    (282)     (310)     (271)
Cash dividends paid.........................................    (339)     (302)     (286)
Purchase of Company common stock............................    (986)     (943)     (827)
Proceeds from financial investments, net....................     193       330        55
Effect of exchange rates....................................      (5)       29        52
Other, net..................................................      22       (15)      (32)
                                                              ------    ------    ------
          Cash increase (decrease)..........................  $  670    $  499    $ (272)
                                                              ======    ======    ======	

The Company's cash and cash investments increased $708 million (including cash at businesses held for sale at January 1, 2005) to $1,964 million at December 31, 2005, from $1,256 million at December 31, 2004.
Net cash provided by operations of $1.4 billion consisted primarily of net income adjusted for non-cash and certain other items, including depreciation and amortization expense of $241 million, net gain on disposition of businesses of $63 million, net gain on disposition of financial investments of $98 million, income of $6 million related to the Behr litigation settlement, a $69 million charge related to goodwill impairment, a $45 million charge for the impairment of financial investments and other non-cash items, including stock-based compensation expense, amortization expense related to in-store displays and interest expense on the Zero Coupon Convertible Notes.
The Company continues to emphasize balance sheet management, including working capital management and cash flow generation. Days sales in accounts receivable decreased to 48 days at December 31, 2005 from 49 days at December 31, 2004, and days sales in inventories decreased to 46 days at December 31, 2005 from 49 days at December 31, 2004. Accounts payable days were 36 days
19
at both December 31, 2005 and 2004. The Company continues to implement working capital improvement initiatives.
Cash used for financing activities was $885 million, and included cash outflows of $339 million for cash dividends paid, $87 million for the net payment of debt and $986 million for the acquisition and retirement of Company common stock in open-market transactions. Cash provided by financing activities included $494 million from the issuance of notes (net of issuance costs) and $33 million from the issuance of Company common stock, primarily from the exercise of stock options.
At December 31, 2005, the Company had remaining Board of Directors' authorization to repurchase up to an additional 29 million shares of its common stock in open-market transactions or otherwise. In January 2006, the Company repurchased an additional three million shares of Company common stock and expects to continue its Company common share repurchase program throughout 2006.
Cash provided by investing activities was $186 million, and included $278 million of net proceeds from the disposition of businesses, $193 million from the net sale of financial investments and $22 million from other net cash inflows. Cash used for investing activities included $282 million for capital expenditures and $25 million for acquisitions and additional acquisition-related consideration relating to previously acquired companies. The Company expects to continue to monetize the marketable securities portfolio over the next several quarters.
The Company continues to invest in automating its manufacturing operations and increasing its capacity and its productivity, in order to be a more efficient producer and to improve customer service. Capital expenditures for 2005 were $282 million, compared with $310 million for 2004 and $271 million for 2003; for 2006, capital expenditures, excluding any potential 2006 acquisitions, are expected to approximate $420 million. Capital expenditures for 2006 include significant capacity additions to the Company's North American cabinet operations for which construction is anticipated to be completed in early 2007. Depreciation and amortization expense for 2005 totaled $241 million, compared with $237 million for 2004 and $244 million for 2003; for 2006, depreciation and amortization expense, excluding any potential 2006 acquisitions, is expected to approximate $250 million. Amortization expense totaled $28 million, $26 million and $32 million in 2005, 2004 and 2003, respectively.
Costs of environmental responsibilities and compliance with existing environmental laws and regulations have not had, nor in the opinion of the Company are they expected to have, a material effect on the Company's capital expenditures, financial position or results of operations.
The Company believes that its present cash balance and cash flows from operations are sufficient to fund its near-term working capital and other investment needs. The Company believes that its longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings, future financial market activities and proceeds from asset sales.
20
 
CONSOLIDATED RESULTS OF OPERATIONS
The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, the Company believes that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results.
SALES AND OPERATIONS
Net sales for 2005 were $12.6 billion, representing an increase of seven percent over 2004. Excluding results from acquisitions, net sales also increased seven percent compared with 2004. The increase in net sales in 2005 is principally due to continued strength in the new construction market for the Company's cabinet and window products and installation sales, as well as selling price increases for certain products. The following table reconciles reported net sales to net sales excluding acquisitions and the effect of currency translation, in millions:

                                                                TWELVE MONTHS
                                                              ENDED DECEMBER 31
                                                              ------------------
                                                               2005       2004
                                                              -------    -------
Net sales, as reported......................................  $12,642    $11,850
  - Acquisitions............................................      (21)         -
                                                              -------    -------
Net sales, excluding acquisitions...........................   12,621     11,850
  - Currency translation....................................        5          -
                                                              -------    -------
Net sales, excluding acquisitions and the effect of
  currency..................................................  $12,626    $11,850
                                                              =======    =======	

The Company's gross profit margins were 28.5 percent, 30.9 percent and 30.7 percent for the years ended December 31, 2005, 2004 and 2003, respectively. The decrease in the 2005 gross profit margins reflects additional increased commodity, energy and freight costs, as well as a less favorable product mix, offset in part by increased sales volume and increased selling prices for certain products. The 2004 gross profit margins reflected increased sales volume and increased selling prices, offset in part by initial increases in commodity costs, as well as sales in segments with somewhat lower gross margins. Operating results for the year ended December 31, 2003 were reduced by non-cash, pre-tax charges of $59 million relating to two United Kingdom business units.
Selling, general and administrative expenses as a percent of sales were 15.6 percent in 2005 compared with 16.8 percent in 2004 and 16.9 percent in 2003. Selling, general and administrative expenses for the year ended December 31, 2005 reflect lower compensation costs resulting from business unit consolidations and reduced Company financial performance related to incentive compensation, as well as reduced outside professional fees including fees associated with complying with Sarbanes-Oxley legislation. Selling, general and administrative expenses in 2004 include the benefit of lower promotion and advertising costs offset by higher costs and expenses associated with complying with Sarbanes-Oxley legislation and increased expenses associated with stock options. Selling, general and administrative expenses for the year ended December 31, 2003 include $16 million of accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer.
Operating profit for the years ended December 31, 2005, 2004 and 2003 includes $6 million, $30 million and $72 million, respectively, of income regarding the Behr litigation settlement. Operating profit margins, as reported, were 12.5 percent, 13.4 percent and 14.0 percent in 2005, 2004 and 2003, respectively. Operating profit margins, excluding the goodwill impairment charges and the income regarding the Behr litigation settlement, were 13.0 percent, 14.1 percent and 13.8 percent in 2005, 2004 and 2003, respectively. Operating profit margins in 2005 were negatively impacted by increased commodity, energy, freight and other petroleum-based product costs, which have not been offset by
21
selling price increases, as well as charges aggregating approximately $30 million related to certain profit improvement initiatives.
OTHER INCOME (EXPENSE), NET
In 2005, 2004 and 2003, the Company recorded $45 million, $21 million and $19 million, respectively, of non-cash, pre-tax charges for the write-down of certain financial investments.
In the third quarter of 2005, the Company recognized an impairment charge of $28 million related to its investment of four million shares of Furniture Brands International (NYSE: FBN) common stock to reduce the cost basis from $25.05 per share to the market value at September 30, 2005 of $18.03 per share. In 2004, the Company recognized an impairment charge of $21 million related to the Company's investment in FBN. At December 31, 2005, the FBN common stock was in an unrealized gain position; the aggregate carrying value was $90 million at December 31, 2005. The FBN common stock, included in marketable securities, was received in June 2002 from the Company's investment in Furnishings International Inc. debt. Based on the Company's review of its private equity funds, the Company considered the decline in the estimated market value of certain of its private equity fund investments to be other-than-temporary and, accordingly, recognized an impairment charge of $15 million in the third quarter of 2005.
Other, net in 2005 includes $30 million of realized gains, net, from the sale of marketable securities, dividend income of $16 million and $68 million of income from other investments, net. Other, net in 2005 also includes currency transaction losses of $25 million and other miscellaneous items.
Other, net in 2004 includes $50 million of realized gains, net, from the sale of marketable securities, dividend income of $27 million and $42 million of income from other investments, net. Other, net in 2004 also includes currency transaction gains of $26 million and other miscellaneous items.
Other, net in 2003 includes $23 million of realized gains, net, from the sale of marketable equity securities, dividend income of $25 million and $17 million of income from other investments, net. Other, net in 2003 also includes a $5 million gain from the sale of the Company's equity investment in Emco, $7 million of losses on the early retirement of debt, currency transaction losses of $4 million and other miscellaneous items.
Interest expense was $247 million, $217 million and $260 million in 2005, 2004 and 2003, respectively. The increase in interest expense in 2005 is primarily due to the issuance of fixed-rate notes in June 2005, as well as the impact of increasing interest rates. The decrease in interest expense in 2004 is primarily due to debt retirement, as well as the effect of the interest rate swap agreements that converted a certain amount of fixed-rate debt to lower variable-rate debt and reduced interest expense by $22 million for the year ended December 31, 2004.
INCOME AND EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS
Income from continuing operations and diluted earnings per common share for 2005 were $872 million and $2.03 per common share, respectively. Income from continuing operations for 2005 includes a non-cash, pre-tax goodwill impairment charge of $69 million ($69 million or $.16 per common share, after tax) and income related to the Behr litigation settlement of $6 million pre-tax ($4 million or $.01 per common share, after tax). Income from continuing operations and diluted earnings per common share for 2004 were $949 million and $2.08 per common share, respectively. Income from continuing operations for 2004 includes a non-cash, pre-tax goodwill impairment charge of $112 million ($104 million or $.23 per common share, after tax) and income related to the Behr litigation settlement of $30 million pre-tax ($19 million or $.04 per common share, after tax). Income from continuing operations and diluted earnings per common share for 2003 were $769 million and $1.57 per common share, respectively. Income from continuing operations for 2003 includes a non-cash, pre-tax goodwill impairment charge of $53 million ($47 million or $.10 per common share, after
22
tax) and income related to the Behr litigation settlement of $72 million pre-tax ($45 million or $.09 per common share, after tax).
The Company's effective tax rate for income from continuing operations was 37 percent in 2005, 2004 and 2003. The Company estimates that its effective tax rate should approximate 36 percent for 2006.
OUTLOOK FOR THE COMPANY
The Company believes that higher commodity costs experienced in late 2005 will continue to adversely affect its near-term operating performance. The Company has already implemented and continues to implement additional selling price increases on a number of its products, and believes that by the end of the first half of 2006, many of these cost increases will be largely offset by such price increases.
The Company remains committed to its strategy of value creation and continues to be focused on the simplification of its business model, cash flow generation, improvement in return on invested capital and the return of cash to shareholders through share repurchases and dividends.
Consistent with this strategy, the Company is pursuing a variety of initiatives to offset cost increases and increase operating profit, including sourcing programs, the restructuring of certain of its businesses (including consolidations), manufacturing rationalization, headcount reductions and other profit improvement programs. While the Company has incurred and will incur additional expenses and charges related to these programs, implementing these initiatives should improve the Company's earnings outlook for 2006 and beyond.
As part of its strategy, in January 2006, the Company announced a plant closure in the Plumbing Products segment; costs associated with this plant closure and other profit improvement programs are currently expected to approximate $70 million and are expected to be incurred during 2006.
23
 
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following table sets forth the Company's net sales and operating profit information by business segment and geographic area, dollars in millions.

                                                                                                     PERCENT INCREASE
                                                                                                     -----------------
                                                                                                      2005      2004
                                                                                                      VS.        VS.
                                                                     2005       2004       2003       2004      2003
                                                                    -------    -------    -------    ------    -------
NET SALES:
    Cabinets and Related Products.....................              $ 3,324    $ 3,065    $ 2,684        8%       14%
    Plumbing Products.................................                3,176      3,057      2,684        4%       14%
    Installation and Other Services...................                3,063      2,771      2,411       11%       15%
    Decorative Architectural Products.................                1,681      1,610      1,449        4%       11%
    Other Specialty Products..........................                1,398      1,347      1,148        4%       17%
                                                                    -------    -------    -------
        TOTAL.........................................              $12,642    $11,850    $10,376        7%       14%
                                                                    =======    =======    =======
    North America.....................................              $10,513    $ 9,740    $ 8,645        8%       13%
    International, principally Europe.................                2,129      2,110      1,731        1%       22%
                                                                    -------    -------    -------
        TOTAL.........................................              $12,642    $11,850    $10,376        7%       14%
                                                                    =======    =======    =======	

                                                           2005     2005(B)     2004      2004(B)     2003     2003(B)
                                                          ------    -------    -------    -------    ------    -------
OPERATING PROFIT: (A)
    Cabinets and Related Products.....................    $  515    $   515    $   519    $   519    $  406    $  406
    Plumbing Products.................................       367        374        370        395       343       360
    Installation and Other Services...................       382        382        358        358       368       368
    Decorative Architectural Products.................       252        278        269        331       210       215
    Other Specialty Products..........................       239        275        233        258       178       209
                                                          ------    -------    -------    -------    ------    ------
        TOTAL.........................................    $1,755    $ 1,824    $ 1,749    $ 1,861    $1,505    $1,558
                                                          ------    -------    -------    -------    ------    ------
    North America.....................................    $1,577    $ 1,577    $ 1,616    $ 1,616    $1,411    $1,411
    International, principally Europe.................       178        247        133        245        94       147
                                                          ------    -------    -------    -------    ------    ------
        TOTAL.........................................     1,755      1,824      1,749      1,861     1,505     1,558
    General corporate expense, net....................      (192)      (192)      (194)      (194)     (115)     (115)
    Gains on sale of corporate fixed assets, net......         8          8          7          7         3         3
    Income regarding litigation settlement............         6          6         30         30        72        72
    Expense related to accelerated benefits, net......         -          -          -          -       (16)      (16)
                                                          ------    -------    -------    -------    ------    ------
TOTAL OPERATING PROFIT................................    $1,577    $ 1,646    $ 1,592    $ 1,704    $1,449    $1,502
                                                          ======    =======    =======    =======    ======    ======	

                                                           2005     2005(B)     2004      2004(B)     2003     2003(B)
                                                          ------    -------    -------    -------    ------    -------
OPERATING PROFIT MARGIN: (A)
    Cabinets and Related Products.....................     15.5%      15.5%      16.9%      16.9%     15.1%     15.1%
    Plumbing Products.................................     11.6%      11.8%      12.1%      12.9%     12.8%     13.4%
    Installation and Other Services...................     12.5%      12.5%      12.9%      12.9%     15.3%     15.3%
    Decorative Architectural Products.................     15.0%      16.5%      16.7%      20.6%     14.5%     14.8%
    Other Specialty Products..........................     17.1%      19.7%      17.3%      19.2%     15.5%     18.2%
    North America.....................................     15.0%      15.0%      16.6%      16.6%     16.3%     16.3%
    International, principally Europe.................      8.4%      11.6%       6.3%      11.6%      5.4%      8.5%
        TOTAL.........................................     13.9%      14.4%      14.8%      15.7%     14.5%     15.0%
TOTAL OPERATING PROFIT MARGIN, AS REPORTED............     12.5%        N/A      13.4%        N/A     14.0%       N/A	

(A) Before: general corporate expense; accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer in 2003; and income regarding the Behr litigation settlement (related to the Decorative Architectural Products segment).
(B) Excluding goodwill impairment charge. The 2005 goodwill impairment charge was as follows: Plumbing Products - $7 million; Decorative Architectural Products - $26 million; and Other Specialty Products - $36 million. The 2004 goodwill impairment charge was as follows: Plumbing Products - $25 million; Decorative Architectural Products - $62 million; and Other Specialty Products - $25 million. The 2003 goodwill impairment charge was as follows:
Plumbing Products - $17 million; Decorative Architectural Products - $5 million; and Other Specialty Products - $31 million. These charges relate to certain of the Company's European businesses.
24
BUSINESS SEGMENT RESULTS DISCUSSION
Changes in operating profit margins in the following Business Segment and Geographic Area Results discussion exclude general corporate expense, the income regarding the litigation settlement and the goodwill impairment charges in 2005, 2004 and 2003.
CABINETS AND RELATED PRODUCTS
Net sales of Cabinets and Related Products increased eight percent in 2005 compared with 2004 and increased 14 percent in 2004 compared with 2003. The 2005 sales increases in this segment were primarily attributable to increased sales volume in the new construction market, as well as certain selling price increases. The sales increases in 2004 were primarily due to increased sales volume of assembled cabinets largely through North American retail distribution channels at major home centers and through the new construction market in the United States, as well as a more favorable product mix. This segment was favorably influenced by a weaker U.S. dollar in 2004, which affected the translation of local currencies of European operations included in this segment.
Operating profit margins were 15.5 percent, 16.9 percent and 15.1 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins in 2005 reflect increased commodity and freight costs, as well as a shift to a less favorable product mix, which offset the positive impact of higher unit sales volume. Operating profit margins in this segment were also negatively affected by manufacturing and distribution inefficiencies due to increased demand for assembled cabinets in North America. The Company has major capital expansion programs to increase North American assembled cabinet manufacturing capacity for both the retail and new construction markets. These new facilities, located in the Western U.S., are expected to be in production in early 2007. Operating profit margins in 2004 reflect the positive impact of higher unit sales volume, as well as certain cost improvement initiatives.
PLUMBING PRODUCTS
Net sales of Plumbing Products increased four percent in 2005 compared with 2004 principally due to increased sales through the Company's wholesale distribution channel and the increased sales of certain European operations included in this segment. While sales volumes have increased, such increases were offset by a less favorable product mix and by continuing weakness impacting certain products sold through retail markets. Net sales of Plumbing Products increased 14 percent in 2004 compared with 2003 primarily due to increased sales volume in the retail markets in North America and Europe and in the new construction market in North America. A weaker U.S. dollar also had a favorable impact on the translation of local currencies of European operations included in this segment in 2004.
Operating profit margins were 11.8 percent, 12.9 percent and 13.4 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins in this segment in 2005 were adversely affected by charges aggregating $12 million related to certain profit improvement initiatives, including severance costs and costs associated with exiting a product line. The operating profit margins in this segment in 2005 were also adversely affected by increased commodity costs, which have not been offset by selling price increases and a less favorable product mix, which more than offset increased sales volume in the wholesale distribution channel. The Company's Plumbing Products segment continues to be negatively impacted by import competition, as well as a product mix shift towards lower-margin faucets within the North American retail channels. As part of the Company's strategic review of its businesses, the Company determined that in order to remain competitive, it is necessary to increase off-shore sourcing at lower costs, while consolidating and reducing manufacturing operations in North America. Consistent with this determination, in January 2006, the Company announced a North American plant closure in this segment; the costs and expenses associated with this plant closure and other profit improvement initiatives are expected to approximate $70 million and
25
will be incurred during 2006. The Company anticipates that this closure will improve the outlook for its plumbing-related business beyond 2006. Operating profit margins in 2004 compared with 2003 reflect an increase in European sales (which are generally at lower margins), as well as increased material costs, offset in part by increased sales volume.
INSTALLATION AND OTHER SERVICES
Net sales of Installation and Other Services increased 11 percent in 2005 compared with 2004 and increased 15 percent in 2004 compared with 2003. The increases in net sales in 2005 and 2004 were primarily due to increased selling prices, as well as increased sales volume of non-insulation products and continued strength in the new construction market.
Operating profit margins were 12.5 percent, 12.9 percent and 15.3 percent for the years ended December 31, 2005, 2004 and 2003, respectively. The slight decline in the 2005 operating profit margin was primarily attributable to continued increases in sales of generally lower-margin, non-insulation products, as well as the time lag in implementing selling price increases related to material cost increases, partially offset by the favorable impact of higher sales volume. The 2004 operating profit margin decline was primarily attributable to the time lag in implementing selling price increases related to material cost increases, as well as an increase in sales of generally lower-margin, non-insulation products.
Within the Installation and Other Services segment, the availability of fiberglass insulation to support the Company's installation and distribution activities continues to be constrained. The high level of demand for fiberglass insulation as a result of the continued strong new construction market has outpaced the industry's capacity to produce additional product. The Company believes that these conditions will persist at least through the first half of 2006 and is working with its diverse supplier base to secure the appropriate amount of material. At the current time, the Company believes that it will be able to do so, but if the Company cannot obtain the required amount of material, this could have a negative impact on its operations.
DECORATIVE ARCHITECTURAL PRODUCTS
Net sales of Decorative Architectural Products increased four percent in 2005 compared with 2004 and increased 11 percent in 2004 compared with 2003. The increase in net sales in 2005 was primarily due to increased selling prices for paints and stains. The increase in net sales in 2004 was primarily due to higher unit sales volume of paints and stains, as well as increased sales of decorative hardware.
Operating profit margins were 16.5 percent, 20.6 percent and 14.8 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins for this segment in 2005 were negatively impacted by increased material and freight costs, which were not completely offset by increased selling prices related to paints and stains. The operating profit margin improvement in 2004 includes the effect of increased sales volume of paints and stains and increased sales volume and improved operating performance of the Company's decorative hardware businesses, offset in part by increased material and promotion costs.
Operating profit margins for this segment in 2003 were impacted by increased advertising and marketing costs, including additional costs associated with new in-store paint display centers, and fixed asset and inventory adjustments reflecting excess, obsolete and resourced products related to decorative hardware. Operating profit margins for this segment in 2003 were negatively affected by non-cash, pre-tax charges of $55 million related to a business system implementation failure at a United Kingdom business unit.
OTHER SPECIALTY PRODUCTS
Net sales of Other Specialty Products increased four percent in 2005 compared with 2004, principally due to increased sales volume and certain selling price increases of vinyl and fiberglass windows
26
and patio doors to North American new construction markets, which were partially offset by reduced sales of European operations included in this segment. Net sales of Other Specialty Products increased 17 percent in 2004 compared with 2003, principally due to increased sales of vinyl and fiberglass windows and doors in North America. A weaker U.S. dollar in 2004 also had a favorable effect on the translation of local currencies of European operations included in this segment.
Operating profit margins were 19.7 percent, 19.2 percent and 18.2 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins in this segment in 2005 were negatively affected by increased commodity costs and the lower results of European operations, reflecting charges related to profit improvement initiatives, offset in part by reduced state use tax expense. The operating profit margin improvement in 2004 was primarily attributable to increased sales volume of windows. The operating profit margins in 2003 reflect increased material and insurance costs, as well as lower results of European operations.
GEOGRAPHIC AREA RESULTS DISCUSSION
NORTH AMERICA
Net sales from North American operations increased eight percent in 2005 compared with 2004, and increased 13 percent in 2004 compared with 2003, primarily due to continued strength in the new construction market and increased sales volume of cabinets, installed sales of insulation and non-insulation products, and vinyl and fiberglass windows and patio doors, as well as increased selling prices for certain products.
Operating profit margins were 15.0 percent, 16.6 percent and 16.3 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins in 2005 were negatively impacted by continued increases in commodity, energy, freight and other petroleum-based product costs, which have not been offset by selling price increases, partially offset by increased sales volume of cabinets, installation services and windows and patio doors to the new construction market. Operating profit margins in 2004 were positively affected by increases in sales volume of assembled cabinets, faucets, paints and stains, vinyl and fiberglass windows and patio doors and installed sales of insulation and non-insulation products. Operating profit margins in 2004 were negatively impacted by increased commodity costs, which offset lower sales promotion costs. The operating profit margins in 2003 reflect increased sales in segments that have somewhat lower operating profit margins, increased commodity and energy costs, as well as increased advertising and promotion costs.
INTERNATIONAL, PRINCIPALLY EUROPE
Net sales of the Company's International operations increased one percent in 2005 compared with 2004, primarily due to increased local currency sales of exported plumbing products and ready-to-assemble cabinets, offset in part by declining sales of windows and other plumbing products. Net sales of the Company's International operations increased 22 percent in 2004 compared with 2003, due to increased sales of plumbing products, ready-to-assemble cabinets and windows. A weaker U.S. dollar had a positive effect on the translation of European results in 2004, increasing European net sales in 2004 by 12 percent.
Operating profit margins were 11.6 percent, 11.6 percent and 8.5 percent for the years ended December 31, 2005, 2004 and 2003, respectively. Operating profit margins for 2005 were affected by increased commodity costs and costs associated with certain profit improvement initiatives, as well as a less favorable product mix. Operating profit margins for 2004 were positively affected by increases in sales volume of plumbing products, ready-to-assemble cabinets and windows. Operating profit margins for International operations for 2003 were adversely affected by the non-cash, pre-tax charges relating to accounting irregularities discussed previously.
27
OTHER MATTERS
COMMITMENTS AND CONTINGENCIES
Litigation
Information regarding legal proceedings involving the Company is set forth in Note U to the consolidated financial statements.
Other Commitments
With respect to the Company's investments in private equity funds, the Company had, at December 31, 2005, commitments to contribute up to $95 million of additional capital to such funds, representing the Company's aggregate capital commitment to such funds less capital contributions made to date. The Company is contractually obligated to make additional capital contributions to each of its private equity funds, upon receipt of a capital call from the private equity fund. The Company has no control over when or if the capital calls will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of the Company's investment in the private equity fund when paid.
During 2000, approximately 300 of the Company's key employees purchased from the Company 8.4 million shares of Company common stock for cash totaling $156 million under an Executive Stock Purchase Program ("Program"). The stock was purchased at $18.50 per share, the approximate market price of the common stock at the time of purchase. During 2005, participants in the Program settled their remaining outstanding five-year full recourse personal loans with a bank syndicate. The Company had guaranteed the repayment of the loans; however, all such loans were settled with no requirement for the Company to fulfill such guarantees.
The Company enters into contracts, which include reasonable and customary indemnifications that are standard for the industries in which it operates. Such indemnifications include claims made against builders by homeowners for issues relating to the Company's products and workmanship. In conjunction with divestitures and other transactions, the Company occasionally provides reasonable and customary indemnifications relating to various items, including:
the enforceability of trademarks; legal and environmental issues; provisions for sales returns; and asset valuations. The Company has never had to pay a material amount related to these indemnifications, and evaluates the probability that amounts may be incurred and appropriately records an estimated liability when probable.
Warranty
Certain of the Company's products and product finishes and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company's estimate of costs to service its warranty obligations is based on historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly. See Note U to the consolidated financial statements for additional information.
A significant portion of the Company's business is at the consumer retail level through home centers and major retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do not distinguish between warranty and other types of returns when they claim a return deduction from the Company. The Company's revenue recognition policy takes into account this type of return when recognizing revenue, and deductions are recorded at the time of sale.
28
 
CONTRACTUAL OBLIGATIONS
The following table provides payment obligations related to current contracts at December 31, 2005, in millions:

                                                      PAYMENTS DUE BY PERIOD
                                          -----------------------------------------------
                                          LESS THAN    2-3      4-5    MORE THAN
                                           1 YEAR     YEARS    YEARS    5 YEARS    TOTAL
                                          ---------   ------   -----   ---------   ------
Debt (A)................................   $  832     $1,588   $ 11     $2,344     $4,775
Operating leases........................      110        123     64         61        358
Private equity funds (B)................       32         32     31          -         95
Defined-benefit plans...................       38         20     25         70        153
Currently payable income taxes..........       61          -      -          -         61
Interest (C)............................      180        297    276      1,124      1,877
Post-retirement obligations.............        -          1      1          4          6
Purchase commitments (D)................      211         13      -          -        224
                                           ------     ------   ----     ------     ------
  Total.................................   $1,464     $2,074   $408     $3,603     $7,549
                                           ======     ======   ====     ======     ======	

(A) The Company has included $876 million related to the Zero Coupon Convertible Notes, which will be the accreted value on January 20, 2007.
(B) There is no schedule for the capital commitments to the private equity funds; such allocation was estimated by the Company.
(C) The Company assumed that all debt would be held to maturity.
(D) Excludes contracts that do not require volume commitments or open or pending purchase orders.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costs," which amends Accounting Research Bulletin No.
43. SFAS No. 151 clarifies the treatment of abnormal costs as period costs rather than as a portion of inventory costs. The adoption of SFAS No. 151 is effective January 1, 2006, and is not expected to have a material impact on the Company's consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and SFAS No. 3." SFAS No. 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle, unless it is impracticable. Previously, most voluntary changes in accounting principle were recognized by including the cumulative effect in net income of the period of the change. The adoption of SFAS No. 154 is effective for accounting changes and error corrections subsequent to December 31, 2005, and is not expected to have a material effect on the Company's consolidated financial statements.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an Interpretation of SFAS No. 143," ("FIN 47"). FIN 47 requires recognition of the fair value of a legal obligation to perform asset retirement activities when the obligation is incurred, generally upon acquisition or construction or through normal operation of the asset. Previously, there were diverse accounting practices regarding the recognition and timing of such obligations. The adoption of FIN 47 was effective for the year ended December 31, 2005, and did not have a material effect on the Company's consolidated financial statements.
29
In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based Compensation," which supersedes SFAS No. 123, SFAS No. 148 and Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires companies to measure and recognize the cost (fair value) of employee services received in exchange for stock options. SFAS No. 123R also clarifies and expands guidance in several areas including measuring fair value and classification of employee stock-based compensation, including stock options, restricted stock awards and stock appreciation rights. The Company will adopt SFAS No. 123R effective January 1, 2006 using the Modified Prospective Application ("MPA") method. The MPA method will require the Company to record expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The expense for unvested stock options at January 1, 2006 will be based on the grant-date fair value of those awards as calculated for pro forma disclosure under SFAS No. 123. Changes to the grant-date fair value of stock options granted before January 1, 2006 are prohibited. The MPA method does not require restatement of prior-year information. The Company expects this additional expense to approximate $7 million pre-tax in 2006. The Company has been using the fair value method for options granted, modified or settled subsequent to January 1, 2003. The Company is currently evaluating the impact that the other provisions of SFAS No. 123R will have on its consolidated financial statements.
30
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments."
The Company is exposed to the impact of changes in interest rates and foreign currency exchange rates in the normal course of business and to market price fluctuations related to its marketable securities and other investments. The Company has limited involvement with derivative financial instruments and uses such instruments to the extent necessary to manage exposure to fluctuations in interest rates and foreign currency fluctuations. See Note F to the consolidated financial statements for additional information regarding the Company's derivative instruments.
The derivatives used by the Company for the year ended December 31, 2005 consist of interest rate swap agreements entered into in 2004 for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. The Company, including certain European operations, also entered into foreign currency forward contracts to manage exposure to currency fluctuations related primarily to the United States dollar and the Great Britain pound.
At December 31, 2005, the Company performed sensitivity analyses to assess the potential loss in the fair values of market risk sensitive instruments resulting from a hypothetical change of 200 basis points in average interest rates, a 10 percent change in foreign currency exchange rates or a 10 percent decline in the market value of the Company's long-term investments. Based on the analyses performed, such changes would not be expected to materially affect the Company's consolidated financial position, results of operations or cash flows.
31
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Masco Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Masco Corporation's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The management of Masco Corporation assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in "Internal Control - Integrated Framework." Based on this assessment, management has determined that the Company's internal control over financial reporting was effective as of December 31, 2005.
Management's assessment of the effectiveness of Masco Corporation's internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which expressed unqualified opinions on management's assessment and the effectiveness of Masco Corporation's internal control over financial reporting as of December 31, 2005. Additionally, PricewaterhouseCoopers LLP expressed an unqualified opinion on the Company's 2005 consolidated financial statements. This report appears under Item 8. Financial Statements and Supplementary Data under the heading Report of Independent Registered Public Accounting Firm.
32
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Masco Corporation:
We have completed integrated audits of Masco Corporation's 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Masco Corporation and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Also, in our opinion, management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
33
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 2, 2006
34
 
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2005 AND 2004

                                                  (IN MILLIONS, EXCEPT SHARE DATA)
                                      ASSETS
                                                                 2005       2004
                                                                -------    -------
Current Assets:
  Cash and cash investments.................................    $ 1,964    $ 1,256
  Receivables...............................................      1,716      1,732
  Inventories...............................................      1,127      1,132
  Prepaid expenses and other................................        316        282
                                                                -------    -------
          Total current assets..............................      5,123      4,402

Property and equipment, net.................................      2,173      2,272
Goodwill....................................................      4,171      4,408
Other intangible assets, net................................        307        326
Assets held for sale........................................          -        163
Other assets................................................        785        970
                                                                -------    -------
          Total Assets......................................    $12,559    $12,541
                                                                =======    =======

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Notes payable.............................................    $   832    $    80
  Accounts payable..........................................        837        837
  Accrued liabilities.......................................      1,225      1,230
                                                                -------    -------
          Total current liabilities.........................      2,894      2,147

Long-term debt..............................................      3,915      4,187
Liabilities held for sale...................................          -         44
Deferred income taxes and other.............................        902        740
                                                                -------    -------
          Total Liabilities.................................      7,711      7,118
                                                                -------    -------
Commitments and contingencies

Shareholders' Equity:
  Preferred shares authorized: 1,000,000; issued:
     2005 - None; 2004 - None...............................          -          -
  Common shares authorized: 1,400,000,000; issued and
     outstanding:
     2005 - 419,040,000; 2004 - 446,720,000.................        419        447
  Paid-in capital...........................................          -        642
  Retained earnings.........................................      4,286      3,880
  Accumulated other comprehensive income....................        328        627
  Less: Restricted stock awards.............................       (185)      (173)
                                                                -------    -------
          Total Shareholders' Equity........................      4,848      5,423
                                                                -------    -------
          Total Liabilities and Shareholders' Equity........    $12,559    $12,541
                                                                =======    =======	

See notes to consolidated financial statements.
35
 
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                  (IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
                                                                 2005       2004       2003
                                                                -------    -------    -------
Net sales...................................................    $12,642    $11,850    $10,376
Cost of sales...............................................      9,033      8,187      7,192
                                                                -------    -------    -------
       Gross profit.........................................      3,609      3,663      3,184
Selling, general and administrative expenses................      1,969      1,989      1,754
(Income) regarding litigation settlement....................         (6)       (30)       (72)
Goodwill impairment charge..................................         69        112         53
                                                                -------    -------    -------
       Operating profit.....................................      1,577      1,592      1,449
                                                                -------    -------    -------
Other income (expense), net:
  Impairment charge for investments.........................        (45)       (21)       (19)
  Other, net................................................        127        188         77
  Interest expense..........................................       (247)      (217)      (260)
                                                                -------    -------    -------
                                                                   (165)       (50)      (202)
                                                                -------    -------    -------
       Income from continuing operations before income taxes
          and minority interest.............................      1,412      1,542      1,247
Income taxes................................................        518        574        465
                                                                -------    -------    -------
       Income from continuing operations before minority
          interest..........................................        894        968        782
Minority interest...........................................         22         19         13
                                                                -------    -------    -------
       Income from continuing operations....................        872        949        769
Income (loss) from discontinued operations, net of income
  taxes.....................................................         68        (56)        37
                                                                -------    -------    -------
       Net income...........................................    $   940    $   893    $   806
                                                                =======    =======    =======
Earnings per common share:
  Basic:
     Income from continuing operations......................      $2.07      $2.13      $1.60
     Income (loss) from discontinued operations, net of
       income taxes.........................................        .16       (.13)       .08
                                                                -------    -------    -------
     Net income.............................................      $2.23      $2.01      $1.68
                                                                =======    =======    =======
  Diluted:
     Income from continuing operations......................      $2.03      $2.08      $1.57
     Income (loss) from discontinued operations, net of
       income taxes.........................................        .16       (.12)       .08
                                                                -------    -------    -------
     Net income.............................................      $2.19      $1.96      $1.64
                                                                =======    =======    =======	

See notes to consolidated financial statements.
36
 
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                                           (IN MILLIONS)
                                                               2005     2004      2003
                                                              ------   -------   -------
Cash Flows From (For):
  Operating Activities:
     Net income.............................................  $  940   $   893   $   806
     Depreciation and amortization..........................     241       237       244
     Deferred income taxes..................................      75        91       179
     (Gain) loss on disposition of businesses, net..........     (63)       33       (89)
     Loss on early retirement of debt.......................       -         -         7
     (Gain) on disposition of investments, net..............     (98)      (92)      (40)
     European charges.......................................       -         -        54
     (Income) regarding litigation settlement...............      (6)      (30)      (72)
     Impairment charges:
       Investments..........................................      45        21        19
       Goodwill.............................................      69       168       142
     Other items, net.......................................     162       143       135
     Increase in receivables................................     (94)     (114)     (126)
     (Increase) decrease in inventories.....................     (57)     (138)       39
     Increase in accounts payable and accrued liabilities,
      net...................................................     160       242       123
                                                              ------   -------   -------
          Net cash from operating activities................   1,374     1,454     1,421
                                                              ------   -------   -------
  Financing Activities:
     Increase in debt.......................................      33        33        46
     Payment of debt........................................    (120)      (73)     (135)
     Issuance of notes, net.................................     494       293         -
     Retirement of notes....................................       -      (266)     (452)
     Proceeds from settlement of swaps......................       -        55         -
     Purchase of Company common stock.......................    (986)     (943)     (827)
     Issuance of Company common stock.......................      33        58        37
     Cash dividends paid....................................    (339)     (302)     (286)
                                                              ------   -------   -------
          Net cash (for) financing activities...............    (885)   (1,145)   (1,617)
                                                              ------   -------   -------
  Investing Activities:
     Capital expenditures...................................    (282)     (310)     (271)
     Purchases of marketable securities.....................    (155)     (349)     (377)
     Proceeds from marketable securities....................     301       629       421
     Proceeds from disposition of:
       Businesses, net of cash disposed.....................     278       172       284
       Other investments, net...............................      47        50        11
       Equity investment....................................       -         -        75
     Acquisition of businesses, net of cash acquired........     (25)      (16)     (239)
     Other, net.............................................      22       (15)      (32)
                                                              ------   -------   -------
          Net cash from (for) investing activities..........     186       161      (128)
                                                              ------   -------   -------
  Effect of exchange rates on cash and cash investments.....      (5)       29        52
                                                              ------   -------   -------
Cash and Cash Investments:
     Increase (decrease) for the year.......................     670       499      (272)
     Cash at businesses held for sale.......................      38       (38)        -
     At January 1...........................................   1,256       795     1,067
                                                              ------   -------   -------
     At December 31.........................................  $1,964   $ 1,256   $   795
                                                              ======   =======   =======	

See notes to consolidated financial statements.
37
 
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                                                             (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                                                        ACCUMULATED
                                                  PREFERRED          COMMON                                OTHER       RESTRICTED
                                                    SHARES           SHARES       PAID-IN   RETAINED   COMPREHENSIVE     STOCK
                                       TOTAL    ($1 PAR VALUE)   ($1 PAR VALUE)   CAPITAL   EARNINGS      INCOME         AWARDS
                                       ------   --------------   --------------   -------   --------   -------------   ----------
Balance, January 1, 2003.............  $5,294       $   -             $489        $2,207     $2,784        $ (22)        $(164)
Net income...........................     806                                                   806
Cumulative translation adjustments...     393                                                                393
Unrealized gain on marketable
  securities, net of income tax of
  $31................................      53                                                                 53
Minimum pension liability, net of
  income tax credit of $1............      (3)                                                                (3)
                                       ------
  Total comprehensive income.........   1,249
Shares issued........................      64                            5            59
Shares repurchased...................    (779)                         (35)         (744)
Settlement of stock-price
  guarantees.........................     (67)                                       (67)
Cash dividends declared..............    (291)                                                 (291)
Stock-based compensation.............     (14)                          (1)          (12)                                   (1)
                                       ------       -----             ----        ------     ------        -----         -----
Balance, December 31, 2003...........  $5,456       $   -             $458        $1,443     $3,299        $ 421         $(165)
Net income...........................     893                                                   893
Cumulative translation adjustments...     214                                                                214
Unrealized loss on marketable
  securities, net of income tax
  credit of $2.......................      (3)                                                                (3)
Minimum pension liability, net of
  income tax credit of $3............      (5)                                                                (5)
                                       ------
  Total comprehensive income.........   1,099
Shares issued........................      58                           20            38
Shares retired:
  Repurchased........................    (903)                         (31)         (872)
  Surrendered........................     (15)                                       (15)
Cash dividends declared..............    (312)                                                 (312)
Stock-based compensation.............      40                                         48                                    (8)
                                       ------       -----             ----        ------     ------        -----         -----
Balance, December 31, 2004...........  $5,423       $   -             $447        $  642     $3,880        $ 627         $(173)
Net income...........................     940                                                   940
Cumulative translation adjustments...    (251)                                                              (251)
Unrealized loss on marketable
  securities, net of income tax
  credit of $5.......................     (10)                                                               (10)
Minimum pension liability, net of
  income tax credit of $23...........     (38)                                                               (38)
                                       ------
  Total comprehensive income.........     641
Shares issued........................     105                            4           101
Shares retired:
  Repurchased........................    (986)                         (31)         (758)      (197)
  Surrendered........................     (33)                          (1)          (32)
Cash dividends declared..............    (337)                                                 (337)
Stock-based compensation.............      35                                         47                                   (12)
                                       ------       -----             ----        ------     ------        -----         -----
Balance, December 31, 2005...........  $4,848       $   -             $419        $    -     $4,286        $ 328         $(185)
                                       ======       =====             ====        ======     ======        =====         =====	

See notes to consolidated financial statements.
38
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. In the first quarter of 2004, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 46 - Revised ("FIN 46R"), "Consolidation of Variable Interest Entities." The Company consolidates the assets, liabilities and results of operations of variable interest entities, for which the Company is the primary beneficiary, in accordance with FIN 46R.
Use of Estimates and Assumptions in the Preparation of Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions.
Revenue Recognition. The Company recognizes revenue as title to products and risk of loss is transferred to customers or services are rendered, net of applicable provisions for discounts, returns and allowances. The Company generally recognizes customer program costs, including co-operative advertising and customer incentives, as a reduction to net sales. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.
Foreign Currency. The financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates in effect during the year. The resulting cumulative translation adjustments have been recorded in other comprehensive income. Realized foreign currency transaction gains and losses are included in the consolidated statements of income.
Cash and Cash Investments. The Company considers all highly liquid investments with an initial maturity of three months or less to be cash and cash investments.
Receivables. The Company does significant business with a number of individual customers, including certain home centers. The Company monitors its exposure for credit losses and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical collection, return and write-off activity. A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity. Accounts and notes receivable are presented net of certain allowances (including allowances for doubtful accounts) of $78 million and $82 million at December 31, 2005 and 2004, respectively.
Property and Equipment. Property and equipment, including significant betterments to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated statements of income. Maintenance and repair costs are charged against earnings as incurred.
Customer Promotion Costs. The Company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. In-store displays that are owned by the Company and used to market the Company's products are included in other assets in the consolidated balance sheets and are amortized over the expected useful life of three years; related amortization expense is classified as a selling expense in the consolidated statements of income.
39
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A. ACCOUNTING POLICIES - (CONTINUED)
Depreciation. Depreciation expense is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent, and machinery and equipment, 5 to 33 percent. Depreciation expense was $209 million, $204 million and $189 million in 2005, 2004 and 2003, respectively.
Goodwill and Other Intangible Assets. Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," requires goodwill and other intangible assets to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company compares the fair value of the reporting units to the carrying value of the reporting units for goodwill impairment testing. Fair value is determined using a discounted cash flow method.
The Company reviews its individual indefinite-lived intangible assets for impairment annually and if an event occurs or circumstances change that indicate the assets may be impaired without regard to the reporting unit. The Company considers the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales, profit margins and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near and long term.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. The Company evaluates the remaining useful lives of amortizable identifiable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization.
Fair Value of Financial Instruments and Derivative Instruments. The carrying value of financial instruments reported in the consolidated balance sheets for current assets, current liabilities and long-term variable-rate debt approximates fair value. The fair value of financial instruments that are carried as non-current investments is based principally on information from investment fund managers and other assumptions, on quoted market prices for those or similar investments, by estimating the fair value of consideration to be received or by discounting future cash flows using a discount rate that reflects the risk of the underlying investments. The fair value of the Company's long-term fixed-rate debt instruments is based principally on quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate market value of non-current investments and long-term debt at December 31, 2005 was approximately $567 million and $3,654 million, compared with the aggregate carrying value of $586 million and $3,915 million, respectively. At December 31, 2004 such aggregate market value was approximately $794 million and $4,026 million, compared with the aggregate carrying value of $785 million and $4,187 million, respectively.
The Company uses derivative financial instruments to manage exposure to fluctuations in earnings and cash flows resulting from changes in foreign currency exchange rates and interest rates. Derivative financial instruments are recorded in the consolidated balance sheets as either an asset or liability measured at fair value. For each derivative instrument that is designated and qualifies as a fair-value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in determining current earnings during the period of the change in fair values. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in determining current earnings during the period of change.
40
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A. ACCOUNTING POLICIES - (CONTINUED)
Stock Options and Awards. The Company elected to change its method of accounting for stock-based compensation and implemented the fair value method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," effective January 1, 2003. The Company is using the prospective method, as defined by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment to SFAS No. 123," for determining stock-based compensation expense. Accordingly, options granted, modified or settled subsequent to January 1, 2003 are accounted for using the fair value method, and options granted prior to January 1, 2003 continue to be accounted for using the intrinsic value method.
In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based Compensation," which supersedes SFAS No. 123, SFAS No. 148 and Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires companies to measure and recognize the cost (fair value) of employee services received in exchange for stock options. SFAS No. 123R also clarifies and expands guidance in several areas including measuring fair value and classification of employee stock-based compensation, including stock options, restricted stock awards and stock appreciation rights. The Company will adopt SFAS No. 123R effective January 1, 2006 using the Modified Prospective Application ("MPA") method. The MPA method will require the Company to record expense for unvested stock options that were awarded prior to January 1, 2003 through the remaining vesting periods. The expense for unvested stock options at January 1, 2006 will be based on the grant-date fair value of those awards as calculated for pro forma disclosure under SFAS No. 123. Changes to the grant-date fair value of stock options granted before January 1, 2006 are prohibited. The MPA method does not require the restatement of prior-year information. This additional expense is expected to approximate $7 million pre-tax in 2006. The Company is currently evaluating the impact that the other provisions of SFAS No. 123R will have on its consolidated financial statements.
In 2005, 2004 and 2003, 4,363,600, 5,627,000 and 5,121,800 option shares, respectively, including restoration option shares, net of cancellations, were awarded and the related expense of $29 million, $21 million and $3 million was included in the Company's consolidated statements of income for the years ended December 31, 2005, 2004 and 2003 (the first year that such expense was recorded), respectively. The following table illustrates the pro forma effect on net income and earnings per
41
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A. ACCOUNTING POLICIES - (CONTINUED)
common share as if the fair value method were applied to all previously issued stock options, in millions, except per common share amounts:

                                                          2005    2004    2003
                                                          -----   -----   -----
Net income, as reported.................................  $ 940   $ 893   $ 806
Add:
  Stock-based employee compensation expense included in
     reported net income, net of tax....................     47      48      41
Deduct:
  Stock-based employee compensation expense, net of
     tax................................................    (47)    (48)    (41)
  Stock-based employee compensation expense determined
     under the fair value method for stock options
     granted prior to 2003, net of tax..................     (7)    (12)    (12)
                                                          -----   -----   -----
Pro forma net income....................................  $ 933   $ 881   $ 794
                                                          =====   =====   =====
Earnings per common share:
  Basic as reported.....................................  $2.23   $2.01   $1.68
  Basic pro forma.......................................  $2.21   $1.98   $1.66
  Diluted as reported...................................  $2.19   $1.96   $1.64
  Diluted pro forma.....................................  $2.17   $1.93   $1.62	

For SFAS No. 123R calculation purposes, the weighted average grant date fair values of option shares, including restoration options, granted in 2005, 2004 and 2003, were $10.33, $10.36 and $8.89, respectively. The fair values of these options were estimated at the grant dates using a Black-Scholes option pricing model with the following assumptions for 2005, 2004 and 2003, respectively: risk-free interest rate - 4.1%, 4.4% and 3.3%; dividend yield - 2.3%, 2.1% and 2.3%; volatility factor - 35.8%, 37.0% and 37.0%; and expected option life - 7 years, 6 years and 7 years.
Reclassifications. Certain prior-year amounts have been reclassified to conform to the 2005 presentation in the consolidated financial statements. The results of operations related to 2005, 2004 and 2003 dispositions of businesses have been reclassified and separately stated in the accompanying consolidated statements of income for 2005, 2004 and 2003. In the Company's consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.
Other Recently Issued Accounting Pronouncements. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," which amends Accounting Research Bulletin No. 43. SFAS No. 151 clarifies the treatment of abnormal costs as period costs rather than as a portion of inventory costs. The adoption of SFAS No. 151 is effective January 1, 2006, and is not expected to have a material impact on the Company's consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and SFAS No. 3." SFAS No. 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle, unless it is impracticable. Previously, most voluntary changes in accounting principle were recognized by including the cumulative effect in net income of the period of the change. The adoption of SFAS No. 154 is effective for accounting changes and error corrections subsequent to December 31, 2005, and is not expected to have a material effect on the Company's consolidated financial statements.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an Interpretation of SFAS No. 143," ("FIN 47"). FIN 47 requires recognition of the
42
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A. ACCOUNTING POLICIES - (CONCLUDED)
fair value of a legal obligation to perform asset retirement activities when the obligation is incurred, generally upon acquisition or construction or through normal operation of the asset. Previously, there were diverse accounting practices regarding the recognition and timing of such obligations. The adoption of FIN 47 was effective for the year ended December 31, 2005, and did not have a material effect on the Company's consolidated financial statements.
B. DISCONTINUED OPERATIONS
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," addresses the accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 broadens the presentation of discontinued operations to include a component of the Company, which comprises operations and cash flows, that can be clearly distinguished from the rest of the Company. In accordance with SFAS No. 144, the Company has accounted for the businesses held for sale at December 31, 2004, as well as other businesses which were sold in 2005, 2004 and 2003, as discontinued operations.
In 2003, the Company completed the sale of its Baldwin Hardware, Weiser Lock and Marvel Group businesses. Total gross proceeds from the sale of these companies were $289 million; the Company recognized a pre-tax net gain on the disposition of these businesses of $89 million.
In 2004, the Company determined that several European businesses were not core to the Company's long-term growth strategy and, accordingly, embarked on a plan of disposition (the "2004 Plan"). The discontinued operations were previously included in each of the Company's segments, except the Installation and Other Services segment. In 2004, the Company reduced its estimate of expected proceeds and recognized pre-tax charges of $139 million ($151 million including tax effect) for those businesses that were expected to be divested at a loss. Any gains resulting from the dispositions were recognized when the transactions were completed. During 2004, in separate transactions, the Company completed the sale of its Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group businesses in Europe. Total gross proceeds from the sale of these companies were $199 million, including cash of $193 million and notes receivable of $6 million. The Company recognized a pre-tax net gain (principally related to the sale of Jung Pumpen) on the disposition of these businesses of $106 million.
During 2005, in separate transactions, the Company disposed of its Gebhardt Consolidated and GMU Group businesses in Europe as part of the Company's 2004 Plan. Gebhardt Consolidated supplies ventilation products and GMU Group manufactures cabinets. Total gross proceeds from the sale of Gebhardt Consolidated and GMU Group were $130 million; the Company recognized a pre-tax net gain (principally related to the sale of Gebhardt Consolidated) on the disposition of these businesses of $9 million. Net proceeds from the disposition of businesses completed in 2005 and 2004, pursuant to the Company's 2004 Plan, aggregated $280 million.
During 2005, the Company recorded as income from discontinued operations, approximately $3 million related to the reversal of severance and termination accruals that were recorded in 2004 as part of the 2004 Plan. The Company also recorded income of approximately $4 million (included in gain on disposal of discontinued operations, net) related to the reversal of expected fee and expense accruals that were recorded in 2004 as part of the 2004 Plan. The Company does not expect to incur any additional severance costs or fees and expenses related to the 2004 Plan.
Also during 2005, in separate transactions, the Company completed the disposition of Zenith Products and Aran Group; such dispositions were completed pursuant to the Company's determination that these business units were not core to the Company's long-term cabinet platform strategy. Zenith Products manufactures bathroom storage and organization products for the North American
43
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
B. DISCONTINUED OPERATIONS - (CONCLUDED)
retail market and Aran Group is a European manufacturer of assembled and ready-to-assemble kitchen cabinets; both business units were in the Cabinets and Related Products segment. Total gross proceeds from the sale of Zenith Products and Aran Group were $189 million; the Company recognized a pre-tax net gain (principally related to the sale of Zenith Products) on the disposition of these businesses of $50 million.
Gains from the 2005, 2004 and 2003 dispositions are included in income
(loss) from discontinued operations in the consolidated statements of income.
Selected financial information for the 2005, 2004 and 2003 discontinued operations, during the period owned by the Company, was as follows for the years ended December 31, 2005, 2004 and 2003, in millions:

                                                              2005   2004    2003
                                                              ----   -----   ----
Net sales...................................................  $242   $ 581   $758
                                                              ====   =====   ====
Income (loss) from discontinued operations..................  $ 39   $   5   $(10)
Gain on disposal of discontinued operations, net............    63     106     89
Impairment of assets held for sale..........................     -    (139)     -
                                                              ----   -----   ----
Income (loss) before income taxes...........................   102     (28)    79
Income tax..................................................   (34)    (28)   (42)
                                                              ----   -----   ----
  Income (loss) from discontinued operations, net of income
     taxes..................................................  $ 68   $ (56)  $ 37
                                                              ====   =====   ====	

The $63 million gain in 2005 on disposal of discontinued operations, net, is principally related to the businesses sold in the fourth quarter of 2005; such businesses were not included in the 2004 Plan or the impairment of assets held for sale in 2004.
Included in income tax above is income tax related to income (loss) from discontinued operations of $11 million, $4 million and $5 million in 2005, 2004, and 2003, respectively. Income (loss) before income taxes above includes non-cash, pre-tax goodwill impairment charges of $56 million and $89 million for the years ended December 31, 2004 and 2003, respectively.
The unusual relationship between income tax and (loss) before income taxes in 2004 (including the impairment charge for assets held for sale and the net gain on disposals) resulted primarily from the expected loss providing no current tax benefit and from the reversal of deferred tax assets of the discontinued operations which were no longer expected to be realized.
C. ACQUISITIONS
During 2005, 2004, and 2003, the Company acquired several relatively small businesses (primarily in the Installation and Other Services segment). The results of these acquisitions are included in the consolidated financial statements from the respective dates of acquisition. The aggregate net purchase
44
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
C. ACQUISITIONS - (CONCLUDED)
price of these acquisitions was as follows for the years ended December 31, 2005, 2004 and 2003, in millions:

                                                                2005    2004    2003
                                                                ----    ----    ----
Cash, net...................................................    $10     $ 8     $57
Assumed debt................................................      2       2       6
                                                                ---     ---     ---
     Total net purchase price...............................    $12     $10     $63
                                                                ===     ===     ===	

Certain purchase agreements provided for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions were met, including the operating performance of the acquired business and the price of the Company's common stock. At December 31, 2005, there were no outstanding contingent purchase price commitments or stock price guarantees. The Company paid an additional $15 million, $31 million (including $8 million in cash) and $182 million of acquisition-related consideration, including amounts to satisfy share price guarantees, contingent consideration and other purchase price adjustments in 2005, 2004 and 2003, respectively, relating to previously acquired companies. Common shares that were contingently issuable at December 31, 2004 and 2003 were included in the computation of diluted earnings per common share for 2004 and 2003, respectively.
D. INVENTORIES

                                                                   (IN MILLIONS)
                                                                 AT DECEMBER 31
                                                                ----------------
                                                                 2005      2004
                                                                ------    ------
Finished goods..............................................    $  525    $  577
Raw material................................................       427       406
Work in process.............................................       175       149
                                                                ------    ------
     Total..................................................    $1,127    $1,132
                                                                ======    ======	

Inventories which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method.
E. INVESTMENTS
FINANCIAL INVESTMENTS
The Company has maintained investments in marketable securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of
45
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
E. INVESTMENTS - (CONTINUED)
any current and future tax capital losses. Included in other assets were the following financial investments, in millions:

                                                                AT DECEMBER 31
                                                                --------------
                                                                2005      2004
                                                                ----      ----
Marketable securities:
  Furniture Brands International............................    $ 90      $100
  Other.....................................................      25       163
Private equity funds........................................     262       308
Metaldyne Corporation.......................................      94        84
TriMas Corporation..........................................      46        46
Other investments...........................................      12         9
                                                                ----      ----
     Total..................................................    $529      $710
                                                                ====      ====	

Investments in marketable securities are accounted for as available-for-sale. Accordingly, the Company records these investments at fair value, and unrealized gains and losses (that are deemed to be temporary) are recognized, net of tax effect, through shareholders' equity, as a component of other comprehensive income. Realized gains and losses and charges for other-than-temporary impairments are included in determining net income, with related purchase costs based on specific identification.
The Company had investments in 20 different marketable securities at December 31, 2005. The Company reviews industry analyst reports, key ratios and statistics, market analyses and other factors for each investment to determine if an unrealized loss is other-than-temporary. Based on this review, in the third quarter of 2005, the Company recognized an impairment charge of $28 million related to its investment in four million shares of Furniture Brands International (NYSE: FBN) common stock to reduce the cost basis from $25.05 per share to the market value at September 30, 2005 of $18.03 per share. In 2004, the Company also recognized an impairment charge of $21 million related to the Company's investment in FBN. At December 31, 2005, the FBN common stock was in an unrealized gain position; the aggregate carrying value of the investment was $90 million. The FBN common stock, included in marketable securities, was received in June 2002 from the Company's investment in Furnishings International Inc. debt.
The Company's investments in private equity funds and other private investments are carried at cost and are evaluated for impairment at each reporting period, or when circumstances, including the maturity of the fund, indicate impairment may exist. Since there is no active trading market for these investments, they are for the most part illiquid. These investments, by their nature, can also have a relatively higher degree of business risk, including financial leverage, than other financial investments. Future changes in market conditions, the future performance of the underlying investments or new information provided by private equity fund managers could affect the recorded values of such investments and the amounts realized upon liquidation. Based on the Company's review of its private equity funds, the Company considered the decline in the estimated market value of certain of its private equity fund investments to be other-than-temporary and, accordingly, recognized an impairment charge of $15 million in the third quarter of 2005. At December 31, 2005, the carrying value of the Company's investments in private equity funds exceeded the estimated market value, as determined by the fund managers, by approximately $19 million, which the Company considers to be a temporary decline in estimated fair value.
In November 2000, the Company reduced its common equity ownership in Metaldyne Corporation (formerly MascoTech, Inc.) through a recapitalization merger with an affiliate of Heartland Indus-
46
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
E. INVESTMENTS - (CONCLUDED)
trial Partners, L.P., a private equity fund in which the Company has invested $47 million (representing less than five percent of the fund). The Company currently owns six percent of the common equity of Metaldyne. The Company also holds preferred stock of Metaldyne, which accrues dividends at the rate of 15 percent per year. In June 2002, Metaldyne sold approximately 66 percent of the fully diluted common equity of its TriMas Corporation subsidiary to Heartland Industrial Partners, L.P. The Company exercised its right to its proportionate share and acquired approximately six percent of TriMas Corporation common stock for $25 million. In November 2004, the Company acquired an additional investment in TriMas common stock from Metaldyne for an aggregate cost of $21 million. The Company had an approximate 10 percent ownership in TriMas Corporation common stock at December 31, 2005 and 2004. Metaldyne is an automotive supplier and TriMas is a diversified manufacturer with a significant portion of its business associated with transportation products. The economic environment for businesses associated with the automotive and transportation industries is challenging and impacted by rising commodity and energy costs and customer resistance to price increases to offset such cost increases.
The Company's investments in marketable securities were as follows, in millions:

                                                               PRE-TAX
                                                       ------------------------
                                                       UNREALIZED    UNREALIZED    RECORDED
                                         COST BASIS      GAINS         LOSSES       BASIS
                                         ----------    ----------    ----------    --------
December 31, 2005....................       $ 94          $21          $   -         $115
December 31, 2004....................       $227          $36          $   -         $263	

Income from financial investments, net, included in other, net, within other income (expense), net, was as follows, in millions:

                                                              2005    2004    2003
                                                              ----    ----    ----
Realized gains from marketable securities.................    $ 39    $ 70    $ 38
Realized losses from marketable securities................      (9)    (20)    (15)
Dividend income from marketable securities................       4      14      16
Income from other investments, net........................      68      42      17
Dividend income from other investments....................      12      13       9
                                                              ----    ----    ----
     Income from financial investments, net...............    $114    $119    $ 65
                                                              ====    ====    ====
Impairment charge:
  Marketable securities...................................    $(30)   $(21)   $ (3)
  Private equity funds....................................     (15)     --     (16)
                                                              ----    ----    ----
     Total impairment charge..............................    $(45)   $(21)   $(19)
                                                              ====    ====    ====	

EQUITY INVESTMENTS
In 2003, the Company completed the sale of its 42 percent equity investment in Emco Limited, a Canadian distributor of plumbing and related products with approximate 2002 sales of $860 million, for cash proceeds of $75 million. The sale resulted in a pre-tax gain of $5 million.
F. DERIVATIVES
During 2003, the Company entered into interest rate swap agreements for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. In 2004, the Company terminated two interest rate swaps relating to $850 million of fixed-rate debt. These swap agreements were
47
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
F. DERIVATIVES - (CONCLUDED)
accounted for as fair value hedges. The gain of approximately $45 million from the termination of these swaps is being amortized as a reduction of interest expense over the remaining term of the debt, through July 2012.
In early 2004, the Company entered into new interest rate swap agreements for the purpose of effectively converting a portion of fixed-rate debt to variable-rate debt. The derivative contracts are with two major creditworthy institutions, thereby minimizing the risk of credit loss. The interest rate swap agreements are designated as a fair-value hedge, and the interest rate differential on interest rate swaps used to hedge existing debt is recognized as an adjustment to interest expense over the term of the agreement. The average variable interest rates are based on LIBOR plus a fixed adjustment factor. The average effective rate on the interest rate swaps was 5.519% in 2005. At December 31, 2005, the interest rate swap agreements covered a notional amount of $850 million of the Company's fixed-rate debt due July 15, 2012 with an interest rate of 5.875%. The hedges are considered 100 percent effective; therefore, the fair value of $43 million and $24 million was recorded in long-term debt with a corresponding increase to other assets in the Company's consolidated balance sheets at December 31, 2005 and 2004, respectively.
The amount recognized as a reduction of interest expense was $3 million, $22 million and $3 million for the years ended December 31, 2005, 2004 and 2003, respectively.
At December 31, 2005, the Company, including certain European operations, had entered into foreign currency forward contracts with notional amounts of $12 million, $10 million and $4 million to manage exposure to currency fluctuations in the United States dollar, Great Britain pound and various other currencies, respectively. At December 31, 2004, certain of the Company's European operations had entered into foreign currency forward contracts with notional amounts of $24 million, $29 million and $1 million to manage exposure to currency fluctuations in the United States dollar, Great Britain pound and various other currencies, respectively. Based on year-end market prices, no asset or liability was recorded at December 31, 2005 and 2004, as the forward price is substantially the same as the contract price. The counterparties to the Company's forward contracts are major financial institutions. In the unlikely event that the counterparties fail to meet the terms of a foreign currency forward contract, the Company's exposure is limited to the foreign currency rate differential.
G. PROPERTY AND EQUIPMENT

                                                                (IN MILLIONS)
                                                              AT DECEMBER 31
                                                              ---------------
                                                               2005     2004
                                                              ------   ------
Land and improvements.......................................  $  188   $  191
Buildings...................................................     974      980
Machinery and equipment.....................................   2,356    2,364
                                                              ------   ------
                                                               3,518    3,535
Less: Accumulated depreciation..............................   1,345    1,263
                                                              ------   ------
     Total..................................................  $2,173   $2,272
                                                              ======   ======	

The Company leases certain equipment and plant facilities under noncancellable operating leases. Rental expense related to these leases, recorded in the consolidated statements of income, totaled approximately $146 million, $142 million and $122 million during 2005, 2004 and 2003, respectively. Future minimum lease payments at December 31, 2005 were approximately as follows: 2006 - $110 million; 2007 - $74 million; 2008 - $49 million; 2009 - $33 million; and 2010 and beyond - $92 million.
48
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
G. PROPERTY AND EQUIPMENT - (CONCLUDED)
The Company leases operating facilities from certain related parties, primarily former owners (and in certain cases, current management personnel) of companies acquired. The Company recorded approximately $12 million and $13 million of rental expense paid in 2005 and 2004, respectively, to such related parties.
H. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004, by segment, are as follows, in millions:

                                     BALANCE                                      PRE-TAX                 BALANCE
                                     DEC. 31,                    DISCONTINUED    IMPAIRMENT               DEC. 31,
                                       2004     ADDITIONS (A)   OPERATIONS (B)     CHARGE     OTHER (C)     2005
                                     --------   -------------   --------------   ----------   ---------   --------
Cabinets and Related Products......   $  644         $ 2             $(39)         $   -        $ (60)     $  547
Plumbing Products..................      514           -                -             (7)         (46)        461
Installation and Other Services....    1,710           8                -              -            -       1,718
Decorative Architectural
  Products.........................      344           -                -            (26)          (7)        311
Other Specialty Products...........    1,196          12                -            (36)         (38)      1,134
                                      ------         ---             ----          -----        -----      ------
  Total............................   $4,408         $22             $(39)         $ (69)       $(151)     $4,171
                                      ======         ===             ====          =====        =====      ======	

                                     BALANCE                                      PRE-TAX                 BALANCE
                                     DEC. 31,                    DISCONTINUED    IMPAIRMENT               DEC. 31,
                                       2003     ADDITIONS (A)   OPERATIONS (B)     CHARGE     OTHER (C)     2004
                                     --------   -------------   --------------   ----------   ---------   --------
Cabinets and Related Products......   $  708         $ 7             $(64)         $ (56)       $  49      $  644
Plumbing Products..................      498           8                -            (25)          33         514
Installation and Other Services....    1,701          10                -              -           (1)      1,710
Decorative Architectural
  Products.........................      398           -                -            (62)           8         344
Other Specialty Products...........    1,186           8               (4)           (25)          31       1,196
                                      ------         ---             ----          -----        -----      ------
  Total............................   $4,491         $33             $(68)         $(168)       $ 120      $4,408
                                      ======         ===             ====          =====        =====      ======	

(A) Additions include acquisitions and contingent consideration for prior acquisitions of $7 million and $15 million, respectively, for 2005 and $8 million and $25 million, respectively, for 2004.
(B) During 2005, the Company completed the disposition of two business units that were not previously classified as discontinued operations. During 2004, the Company reclassified the goodwill related to European businesses held as discontinued operations. The Company also recognized charges in 2004 for those businesses expected to be divested at a loss; the charges included a write-down of goodwill of $64 million.
(C) Other includes principally foreign currency translation adjustments and reclassifications and purchase price adjustments related to the finalization of certain purchase price allocations.
The Company completed its annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2005 and 2004. This test indicated that other indefinite-lived intangible assets were not impaired; however, goodwill recorded for certain of the Company's European businesses was impaired, principally due to the continuing weakness in certain European markets. The Company recognized the related non-cash, pre-tax impairment charge for continuing operations of $69 million ($69 million, after tax) and $112 million ($104 million, after tax) for the years ended December 31, 2005 and 2004, respectively.
49
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
H. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONCLUDED)
Other indefinite-lived intangible assets of $254 million at December 31, 2005 and $255 million at December 31, 2004 primarily include registered trademarks. The carrying value of the Company's definite-lived intangible assets was $53 million at December 31, 2005 (net of accumulated amortization of $58 million) and $71 million at December 31, 2004 (net of accumulated amortization of $65 million) and principally includes customer relationships and non-compete agreements, with a weighted average amortization period of 12 years in 2005 and 10 years in 2004. Amortization expense related to the definite-lived intangible assets was $22 million, $20 million and $25 million in 2005, 2004 and 2003, respectively.
At December 31, 2005, amortization expense related to the definite-lived intangible assets during each of the next five years was approximately as follows: 2006 - $10 million; 2007 - $7 million; 2008 - $7 million; 2009 - $6 million; and 2010 - $5 million.
I. OTHER ASSETS

                                                               (IN MILLIONS)
                                                              AT DECEMBER 31
                                                              --------------
                                                              2005     2004
                                                              -----    -----
Financial investments (Note E)..............................  $529     $710
In-store displays...........................................    81       95
Prepaid benefit cost (Note O)...............................    43       44
Debenture expense...........................................    25       24
Notes receivable............................................    14       16
Other.......................................................    93       81
                                                              ----     ----
  Total.....................................................  $785     $970
                                                              ====     ====	

J. ACCRUED LIABILITIES

                                                                (IN MILLIONS)
                                                              AT DECEMBER 31
                                                              ---------------
                                                               2005     2004
                                                              ------   ------
Employee retirement plans...................................  $  216   $  223
Salaries, wages and commissions.............................     201      209
Insurance...................................................     194      183
Advertising and sales promotion.............................     140      136
Warranty (Note U)...........................................     105      100
Dividends payable...........................................      83       81
Interest....................................................      74       73
Income taxes................................................      61       59
Property, payroll and other taxes...........................      57       64
Litigation..................................................      10       22
Other.......................................................      84       80
                                                              ------   ------
  Total.....................................................  $1,225   $1,230
                                                              ======   ======	

50
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
K. DEBT

                                                                (IN MILLIONS)
                                                              AT DECEMBER 31
                                                              ---------------
                                                               2005     2004
                                                              ------   ------
Notes and debentures:
  6.75 %, due Mar. 15, 2006.................................  $  800   $  800
  4.625%, due Aug. 15, 2007.................................     300      300
  5.75 %, due Oct. 15, 2008.................................     100      100
  5.875%, due July 15, 2012.................................     850      850
  7.125%, due Aug. 15, 2013.................................     200      200
  4.8  %, due June 15, 2015.................................     500        -
  6.625%, due Apr. 15, 2018.................................     114      114
  7.75 %, due Aug. 1, 2029..................................     296      296
  6.5  %, due Aug. 15, 2032.................................     300      300
  Zero Coupon Convertible Senior Notes due 2031 (accreted
     value).................................................     848      823
  Floating-Rate Notes, due 2007.............................     300      300
  Notes payable to banks....................................       -        -
  Other.....................................................     139      184
                                                              ------   ------
                                                               4,747    4,267
Less: Current portion.......................................     832       80
                                                              ------   ------
     Total Long-term debt...................................  $3,915   $4,187
                                                              ======   ======	

All of the notes and debentures above are senior indebtedness and, other than bank notes, the 6.625% notes due 2018 and the 7.75% notes due 2029, are redeemable at the Company's option.
On June 10, 2005, the Company issued $500 million of fixed-rate 4.8% notes due 2015, resulting in net proceeds of $494 million. The Company reclassified $800 million of 6.75% notes due March 2006 to current liabilities; the Company intends to use a portion of its cash to retire this debt.
On March 9, 2004, the Company issued $300 million of floating-rate notes due 2007, resulting in net proceeds of $299 million. The interest rate is calculated based on the three-month LIBOR plus .25%; such rate averaged 3.6% and 1.8% for the years ended December 31, 2005 and 2004, respectively. During 2004, the Company retired the remaining $266 million of 6% notes due May 2004.
In July 2001, the Company issued $1.9 billion principal amount at maturity of Zero Coupon Convertible Senior Notes due 2031 ("Old Notes"), resulting in gross proceeds of $750 million. The issue price per Note was $394.45 per $1,000 principal amount at maturity, which represented a yield to maturity of 3.125% compounded semi-annually. In December 2004, the Company completed an exchange of the outstanding Old Notes for Zero Coupon Convertible Senior Notes Series B due July 2031 ("New Notes" or "Notes"). The Company exchanged the Notes as a result of EITF No. 04-08 that would have required the total number of shares underlying the Old Notes to be included in the calculation of diluted earnings per common share, whether or not the Old Notes were convertible according to their terms. The issue price of the New Notes was the equivalent of the accreted value of the Old Notes on the date of the exchange, or $438.54 per $1,000 principal amount at maturity, which continues to represent a yield to maturity of 3.125% compounded semi-annually. In addition, in consideration for exchanging the Old Notes, holders of the New Notes received an exchange fee of
51
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
K. DEBT - (CONTINUED)
$1.25 per $1,000 principal amount at maturity of the New Notes, which approximated $2 million and was expensed through the following put date of January 20, 2005.
From July 2002 through December 31, 2005, holders of $27.2 million and $1.6 million principal amount at maturity of Old Notes and New Notes, respectively, exercised their right to require the Company to repurchase such Notes for $11.1 million cash and $.7 million cash, respectively, the accreted value of the Notes on the date of exercise. During 2005, the Company repurchased $.8 million principal amount at maturity of Old Notes for cash of $.4 million, the accreted value of such Notes on the date of repurchase. At December 31, 2005, over 99 percent of the outstanding Notes were New Notes.
The New Notes have substantially the same terms as the Old Notes, except for the form of consideration payable upon conversion. Upon conversion of the Old Notes, the Company would have delivered shares of its common stock at the applicable conversion rate. Upon conversion of the New Notes, the Company will pay the principal return, equal to the lesser of (1) the accreted value of the Notes in only cash, and (2) the conversion value, as defined, which will be settled in cash or shares of Company common stock, or a combination of both, at the option of the Company. Similar to the Old Notes, the New Notes are convertible if the average price of Company common stock for the 20 days immediately prior to the conversion date exceeds 118 2/3, declining by 1/3% each year thereafter, of the accreted value of the New Notes ($452.82 per $1,000 principal amount at maturity as of December 31, 2005) divided by the conversion rate of 12.7317 shares for each $1,000 principal amount at maturity of the New Notes or $42.21 per common share at December 31, 2005. The New Notes, similar to the Old Notes, also become convertible if the Company's credit rating is reduced to below investment grade, or if certain actions are taken by the Company.
Similar to the Old Notes, the Company will not pay interest in cash on the Notes prior to maturity except in certain circumstances, including possible contingent interest payments that are not expected to be material. Similar to the Old Notes, holders of the New Notes have the option to require that the New Notes be repurchased by the Company on January 20, 2007; July 20, 2011; and every five years thereafter.
Until January 25, 2007, the Company may redeem all, but not part, of the Notes at their accreted value, only if the closing price for the Company's common stock on the New York Stock Exchange exceeds the conversion price of the Notes by 130% for a specified period of time. The Company may, at any time on or after January 25, 2007, redeem all or part of the Notes at their accreted value.
At December 31, 2005, the Company had a $2.0 billion 5-Year Revolving Credit Agreement with a group of banks syndicated in the United States, which expires in November 2009. This agreement allows for borrowings denominated in U.S. dollars or European euros with interest payable based on various floating-rate options as selected by the Company. There were no borrowings under the 5-Year Revolving Credit Agreement at December 31, 2005 and 2004.
In February 2006, the Company amended the terms of the $2.0 billion 5-Year Revolving Credit Agreement; the amendment primarily affected the requirement for the Company to maintain certain levels of net worth.
The 5-Year Revolving Credit Agreement, as amended, contains limitations on additional borrowings; at December 31, 2005, the Company had additional borrowing capacity, subject to availability, of up to $2.5 billion. The 5-Year Revolving Credit Agreement, as amended, also contains a requirement for maintaining a certain level of net worth; at December 31, 2005, the Company's net worth exceeded such requirement by $842 million.
52
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
K. DEBT - (CONCLUDED)
At December 31, 2005, the maturities of long-term debt during each of the next five years were approximately as follows: 2006 - $832 million; 2007 - $1,483 million (including $876 million related to the Zero Coupon Convertible Notes, the accreted value at the next put option date of January 20, 2007); 2008 - $105 million; 2009 - $10 million; and 2010 - $1 million.
At December 31, 2005, the amount of debt and equity securities issuable under the Company's unallocated shelf registration statement with the Securities and Exchange Commission was $1.5 billion.
Interest paid was $246 million, $219 million and $282 million in 2005, 2004 and 2003, respectively.
L. MINORITY INTEREST
The Company owns 64 percent of Hansgrohe AG. The aggregate minority interest, net of dividends, of $89 million and $80 million at December 31, 2005 and 2004, respectively, is recorded in deferred income taxes and other liabilities on the Company's consolidated balance sheets.
M. SHAREHOLDERS' EQUITY
In March 2005, the Company's Board of Directors authorized the repurchase of up to 50 million shares for retirement of the Company's common stock in open-market transactions or otherwise, replacing a previous Board of Directors authorization established in 2003. At December 31, 2005, the Company had remaining authorization to repurchase up to 29 million shares of its common stock in open-market transactions or otherwise. Approximately 31 million common shares in both 2005 and 2004, and 35 million common shares in 2003 were repurchased and retired for cash aggregating $986 million, $903 million and $779 million in 2005, 2004 and 2003, respectively.
On the basis of amounts paid (declared), cash dividends per common share were $.78 ($.80) in 2005, $.66 ($.68) in 2004 and $.58 ($.60) in 2003, respectively. In 2005, the Company increased its quarterly cash dividend by 11 percent to $.20 per common share from $.18 per common share.
In 1995, the Company's Board of Directors announced the approval of a Shareholder Rights Plan. The Rights were designed to enhance the Board's ability to protect the Company's shareholders against, among other things, unsolicited attempts to acquire control of the Company that do not offer an adequate price to all shareholders or are otherwise not in the best interests of the shareholders. The Rights were issued to shareholders of record in December 1995 and expired in December 2005.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The Company's total comprehensive income was as follows for the years ended December 31, 2005, 2004 and 2003, in millions:

                                                                2005      2004      2003
                                                                -----    ------    ------
Net income..................................................    $ 940    $  893    $  806
Other comprehensive income (loss):
  Cumulative translation adjustments, net...................     (251)      214       393
  Unrealized (loss) gain on marketable securities, net......      (10)       (3)       53
  Minimum pension liability, net............................      (38)       (5)       (3)
                                                                -----    ------    ------
     Total comprehensive income.............................    $ 641    $1,099    $1,249
                                                                =====    ======    ======	

The unrealized (loss) gain, net, on marketable securities is net of income tax (credit) of $(5) million, $(2) million and $31 million for 2005, 2004 and 2003, respectively. The minimum pension liability, net is
53
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
M. SHAREHOLDERS' EQUITY - (CONCLUDED)
net of income tax (credit) of $(23) million, $(3) million and $(1) million for 2005, 2004 and 2003, respectively.
The components of accumulated other comprehensive income were as follows, in millions:

                                                                       AT
                                                                  DECEMBER 31
                                                                ----------------
                                                                 2005      2004
                                                                ------    ------
Cumulative translation adjustments, net.....................    $  419    $  670
Unrealized gain on marketable securities, net...............        13        23
Minimum pension liability, net..............................      (104)      (66)
                                                                ------    ------
  Accumulated other comprehensive income....................    $  328    $  627
                                                                ======    ======	

The unrealized gain on marketable securities, net, is reported net of income tax of $8 million and $13 million at December 31, 2005 and 2004, respectively. The minimum pension liability is reported net of income tax credit of $61 million and $38 million at December 31, 2005 and 2004, respectively.
There were no realized gains, net, on marketable securities to be reclassified from accumulated other comprehensive income for the year ended December 31, 2005. The realized gains, net, on marketable securities of $19 million, net of tax effect, for 2004 were included in determining net income and were reclassified from accumulated other comprehensive income.
N. STOCK OPTIONS AND AWARDS
The Company's 2005 Long Term Stock Incentive Plan (the "2005 Plan") replaced the 1991 Long Term Stock Incentive Plan (the "1991 Plan") in May 2005 and provides for the issuance of stock-based incentives in various forms. At December 31, 2005, outstanding stock-based incentives were in the form of restricted long-term stock awards, stock appreciation rights, phantom stock awards and stock options. Additionally, the Company's 1997 Non-Employee Directors Stock Plan (the "1997 Plan") provides for the payment of part of the compensation to non-employee Directors in Company common stock. Compensation expense related to stock-based incentives was as follows for the years ended December 31, 2005, 2004 and 2003, in millions:

                                                                2005    2004    2003
                                                                ----    ----    ----
Restricted long-term stock awards...........................    $44     $39     $50
Stock options...............................................     29      21       3
Stock appreciation rights and phantom stock awards..........      2      17      12
                                                                ---     ---     ---
  Total.....................................................    $75     $77     $65
                                                                ===     ===     ===	

RESTRICTED LONG-TERM STOCK AWARDS
Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of reacquiring an equal number of shares on the open market.
54
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
N. STOCK OPTIONS AND AWARDS - (CONTINUED)
The following table summarizes the long-term stock awards granted, net of cancellations, for the three years ended December 31, 2005, shares in millions:

                                                                2005    2004    2003
                                                                ----    ----    ----
Stock award shares granted..................................      1       2       2
Weighted average grant date fair value (per share)..........    $36     $28     $19	

The unvested stock awards, aggregating $185 million (9 million common shares) and $173 million (10 million common shares) at December 31, 2005 and 2004, respectively, are included as a reduction in shareholders' equity and are being expensed based on the respective vesting periods, principally 10 years.
STOCK APPRECIATION RIGHTS AND PHANTOM STOCK AWARDS
In 2005, 2004 and 2003, the Company issued stock appreciation rights ("SARs") to certain foreign employees with cash compensation linked to the value of 366,800 shares, 315,000 shares and 287,800 shares, respectively, of Company common stock. The Company also issued phantom stock awards linked to the value of 150,100 shares, 156,000 shares and 160,500 shares of Company common stock in 2005, 2004 and 2003, respectively.
STOCK OPTIONS
Fixed price stock options are granted to key employees and non-employee Directors of the Company. The grant date exercise price equals the market price of Company common stock on the date of grant. These options generally become exercisable in installments beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date. Restoration stock options under the 1991 Plan become exercisable six months from the date of grant. The 2005 Plan does not permit the granting of restoration stock options, except for restoration options resulting from options granted under the 1991 Plan.
The following table summarizes the stock options granted for the three years ended December 31, 2005, shares in millions:

                                                    2005      2004      2003
                                                   -------   -------   -------
Stock option shares granted......................        4         4         4
Restoration stock option shares granted..........        -         2         1
Grant date exercise price range (per share)......  $28-$38   $26-$37   $23-$28	

55
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
N. STOCK OPTIONS AND AWARDS - (CONCLUDED)
A summary of the status of the Company's fixed stock options for the three years ended December 31, 2005 is presented below, shares in millions:

                                                              2005   2004   2003
                                                              ----   ----   ----
Option shares outstanding, January 1........................   26     26     26
  Weighted average exercise price...........................  $25    $22    $21
Option shares granted, including restoration options........    4      6      5
  Weighted average exercise price...........................  $31    $31    $27
Option shares exercised.....................................    2      5      4
  Weighted average exercise price...........................  $20    $20    $20
Option shares canceled......................................    1      1      1
  Weighted average exercise price...........................  $25    $23    $22
Option shares outstanding, December 31......................   27     26     26
  Weighted average exercise price...........................  $26    $25    $22
  Weighted average remaining option term (in years).........    6      6      6
Option shares exercisable, December 31......................   16     10     10
  Weighted average exercise price...........................  $25    $24    $22	

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2005, shares in millions:

          OPTION SHARES OUTSTANDING             OPTION SHARES EXERCISABLE
---------------------------------------------   --------------------------
                        WEIGHTED     WEIGHTED                   WEIGHTED
                         AVERAGE     AVERAGE                     AVERAGE
RANGE OF   NUMBER OF    REMAINING    EXERCISE    NUMBER OF      EXERCISE
 PRICES     SHARES     OPTION TERM    PRICE        SHARES         PRICE
--------   ---------   -----------   --------   ------------   -----------
 $16-22       10         5 Years       $20            8            $20
  23-28        5         7 Years        27            2             27
  29-32       11         7 Years        30            5             30
  33-38        1         3 Years        35            1             35
--------   ---------   -----------   --------   ------------   -----------
 $16-38       27         6 Years       $26           16            $25
========   =========   ===========   ========   ============   ===========	

At December 31, 2005, a total of 25,004,000 shares and 382,300 shares of Company common stock were available under the 2005 Plan and the 1997 Plan, respectively, for the granting of stock options and other restricted long-term stock incentive awards.
O. EMPLOYEE RETIREMENT PLANS
The Company sponsors defined-benefit and defined-contribution plans for most of its employees. In addition, substantially all salaried employees participate in non-contributory defined-contribution plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors. Aggregate charges to earnings under the Company's defined-benefit and defined-contribution plans were $51 million and $42 million in 2005, $55 million and $42 million in 2004 and $68 million and $38 million in 2003, respectively.
56
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
O. EMPLOYEE RETIREMENT PLANS - (CONTINUED)
Net periodic pension cost for the Company's qualified defined-benefit pension plans includes the following components for the three years ended December 31, 2005, in millions:

                                                               2005    2004    2003
                                                               ----    ----    ----
Service cost...............................................    $ 18    $ 16    $ 16
Interest cost..............................................      40      39      37
Expected return on plan assets.............................     (42)    (38)    (28)
Amortization of prior-service cost.........................       1       1       1
Amortization of net loss...................................       5       6       7
                                                               ----    ----    ----
     NET PERIODIC PENSION COST.............................    $ 22    $ 24    $ 33
                                                               ====    ====    ====	

The following table provides a reconciliation of changes in the projected benefit obligation, fair value of plan assets and the funded status of the Company's qualified defined-benefit pension plans at December 31, in millions:

                                                                2005     2004
                                                                -----    -----
CHANGES IN PROJECTED BENEFIT OBLIGATION:
  Projected benefit obligation at January 1.................    $ 712    $ 638
  Service cost..............................................       18       16
  Interest cost.............................................       40       39
  Participant contributions.................................        1        1
  Plan amendments...........................................       (2)       2
  Actuarial loss............................................       50       36
  Foreign currency exchange.................................      (17)      12
  Settlements...............................................       (2)      (3)
  Benefit payments..........................................      (29)     (29)
                                                                -----    -----
     PROJECTED BENEFIT OBLIGATION AT DECEMBER 31............    $ 771    $ 712
                                                                =====    =====
CHANGES IN FAIR VALUE OF PLAN ASSETS:
  Fair value of plan assets at January 1....................    $ 519    $ 421
  Actual return on plan assets..............................       30       56
  Foreign currency exchange.................................       (6)       5
  Company contributions.....................................       27       68
  Participant contributions.................................        1        1
  Settlements...............................................       (2)      (3)
  Benefit payments..........................................      (29)     (29)
                                                                -----    -----
     FAIR VALUE OF PLAN ASSETS AT DECEMBER 31...............    $ 540    $ 519
                                                                =====    =====
FUNDED STATUS OF QUALIFIED DEFINED-BENEFIT PENSION PLANS:
  Plan assets (less than) projected benefit obligation at
     December 31............................................    $(231)   $(193)
  Unamortized net transition obligation.....................        1        1
  Unamortized prior-service cost............................        5        8
  Unamortized net loss......................................      194      140
                                                                -----    -----
     NET (LIABILITY) RECOGNIZED AT DECEMBER 31..............    $ (31)   $ (44)
                                                                =====    =====	

57
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
O. EMPLOYEE RETIREMENT PLANS - (CONTINUED)
The following represents amounts recognized in the Company's consolidated balance sheets at December 31, in millions:

                                                                2005     2004
                                                                -----    -----
Accrued benefit liability...................................    $(220)   $(177)
Prepaid benefit cost........................................       43       44
Intangible asset............................................        9        8
Accumulated other comprehensive income......................      137       81
                                                                -----    -----
     NET AMOUNTS RECOGNIZED.................................    $ (31)   $ (44)
                                                                =====    =====	

Information for qualified defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets was as follows at December 31, in millions:

                                                                2005    2004
                                                                ----    ----
Accumulated benefit obligation..............................    $712    $644
Fair value of plan assets...................................    $535    $509	

The projected benefit obligation was in excess of plan assets for all qualified defined-benefit pension plans.
PLAN ASSETS
Following is a summary of the Company's qualified defined-benefit pension plan weighted average asset allocation at December 31:

                                                              2005   2004
                                                              ----   ----
Equity securities...........................................   83%    86%
Debt securities.............................................    4%     5%
Other.......................................................   13%     9%
                                                              ----   ----
     Total..................................................  100%   100%
                                                              ====   ====	

The investment objectives of the Company's qualified defined-benefit pension plans are: 1) to earn a return, net of fees, greater than or equal to the expected long-term rate of return on plan assets; 2) to diversify the portfolio among various asset classes with the goal of reducing volatility of return and reducing principal risk; and 3) to maintain liquidity sufficient to meet Plan obligations. Target allocations are: equity securities (85%), debt securities (5%) and other investments (10%).
Plan assets include approximately 1.4 million shares of Company common stock valued at $43 million and $52 million at December 31, 2005 and 2004, respectively.
The major assumptions used in accounting for the Company's defined-benefit pension plans at December 31, 2005, 2004 and 2003 were primarily as follows:

                                                         2005    2004    2003
                                                         -----   -----   -----
Discount rate for obligations..........................  5.25%   5.75%   6.25%
Expected return on plan assets.........................  8.50%   8.50%   8.50%
Rate of compensation increase..........................  4.00%   4.00%   4.50%
Discount rate for net periodic pension cost............  5.75%   6.25%   6.75%	

The discount rate for obligations is based on the expected duration of each defined benefit pension plan's liabilities matched to the December 31, 2005 Citigroup Pension Discount Curve. Such rates for
58
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
O. EMPLOYEE RETIREMENT PLANS - (CONCLUDED)
the Company's defined benefit pension plans ranged from 4.00 percent to 5.75 percent, with the most significant portion of the liabilities having a discount rate for obligations of 5.25 percent or higher.
The Company determined the expected long-term rate of return on plan assets by reviewing an analysis of expected and historical rates of return of various asset classes based on the current asset allocation of the plan assets. The measurement date used to determine the defined-benefit pension expense is primarily January 1.
OTHER
In addition to the Company's qualified defined-benefit pension plans, the Company has unfunded non-qualified supplemental defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. The actuarial present value of accumulated benefit obligations and projected benefit obligations related to these non-qualified plans totaled $134 million and $143 million at December 31, 2005 and $118 million and $125 million at December 31, 2004, respectively. Net periodic pension cost for these plans was $17 million in both 2005 and 2004 and $13 million in 2003.
The Company sponsors certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based on age and length of service. The aggregate present value of the unfunded accumulated post-retirement benefit obligation approximated $7 million and $6 million at December 31, 2005 and 2004, respectively.
CASH FLOWS
The Company expects to contribute approximately $31 million to its qualified defined-benefit pension plans in 2006. The Company also expects to pay benefits of $7 million to participants of its unfunded non-qualified supplemental defined-benefit pension plans in 2006.
The benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to the Company's qualified defined-benefit pension plans, are as follows: 2006 - $29 million; 2007 - $35 million; 2008 - $30 million; 2009 - $32 million; 2010 - $33 million; and 2011 - 2015 - $195 million. The benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to the Company's unfunded non-qualified supplemental defined-benefit pension plans, are as follows: 2006 - $7 million; 2007 - $8 million; 2008 - $8 million; 2009 - $9 million; 2010 - $10 million; and 2011-2015 - $54 million.
59
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
P. SEGMENT INFORMATION
The Company's reportable segments were as follows:
Cabinets and Related Products - principally includes assembled and ready-to-assemble kitchen and bath cabinets; home office workstations; entertainment centers; storage products; bookcases; and kitchen utility products.
Plumbing Products - principally includes faucets; plumbing fittings and valves; showerheads and hand showers; bathtubs and shower enclosures; and spas.
Installation and Other Services - principally includes the sale, installation and distribution of insulation and other building products.
Decorative Architectural Products - principally includes paints and stains; and door, window and other hardware.
Other Specialty Products - principally includes windows, window frame components and patio doors; electronic locksets; staple gun tackers, staples and other fastening tools; and hydronic radiators and heat convectors.
The above products and services are sold and provided to the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, builders, distributors and other outlets for consumers and contractors.
The Company's operations are principally located in North America and Europe. The Company's country of domicile is the United States of America.
Corporate assets consist primarily of real property, equipment, cash and cash investments and other investments.
The Company's segments are based on similarities in products and services and represent the aggregation of operating units for which financial information is regularly evaluated by the Company's corporate operating executives in determining resource allocation and assessing performance and is periodically reviewed by the Board of Directors. Accounting policies for the segments are the same as those for the Company. The Company primarily evaluates performance based on operating profit and, other than general corporate expense, allocates specific corporate overhead to each segment. Income regarding the Behr litigation settlement has also been excluded from the evaluation of segment operating profit.
60
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
P. SEGMENT INFORMATION - (CONTINUED)
The following table presents information about the Company by segment and geographic area, in millions:

                                         NET SALES (1)(2)(3)(4)(5)    OPERATING PROFIT (5)(9)    ASSETS AT DECEMBER 31 (6)(10)
                                        ---------------------------   ------------------------   ------------------------------
                                         2005      2004      2003      2005     2004     2003      2005       2004       2003
                                        -------   -------   -------   ------   ------   ------   --------   --------   --------
The Company's operations by segment
  are:
    Cabinets and Related Products.....  $ 3,324   $ 3,065   $ 2,684   $  515   $  519   $  406   $ 2,017    $ 2,272    $ 2,353
    Plumbing Products.................    3,176     3,057     2,684      367      370      343     2,206      2,356      2,160
    Installation and Other Services...    3,063     2,771     2,411      382      358      368     2,496      2,433      2,378
    Decorative Architectural
      Products........................    1,681     1,610     1,449      252      269      210       976      1,086      1,089
    Other Specialty Products..........    1,398     1,347     1,148      239      233      178     2,128      2,224      2,195
                                        -------   -------   -------   ------   ------   ------   -------    -------    -------
        Total.........................  $12,642   $11,850   $10,376   $1,755   $1,749   $1,505   $ 9,823    $10,371    $10,175
                                        =======   =======   =======   ======   ======   ======   =======    =======    =======
The Company's operations by geographic
  area are:
    North America.....................  $10,513   $ 9,740   $ 8,645   $1,577   $1,616   $1,411   $ 7,443    $ 7,145    $ 7,081
    International, principally
      Europe..........................    2,129     2,110     1,731      178      133       94     2,380      3,226      3,094
                                        -------   -------   -------   ------   ------   ------   -------    -------    -------
        Total, as above...............  $12,642   $11,850   $10,376    1,755    1,749    1,505     9,823     10,371     10,175
                                        =======   =======   =======
General corporate expense, net (7).................................     (192)    (194)    (115)
Gains on sale of corporate fixed assets, net.......................        8        7        3
Income regarding litigation settlement (8).........................        6       30       72
Expense related to accelerated benefits, net.......................        -        -      (16)
                                                                      ------   ------   ------
Operating profit, as reported......................................    1,577    1,592    1,449
Other income (expense), net........................................     (165)     (50)    (202)
                                                                      ------   ------   ------
Income from continuing operations before income taxes and minority
  interest.........................................................   $1,412   $1,542   $1,247
                                                                      ======   ======   ======
Corporate assets..............................................................................     2,736      2,007      1,998
Assets held for sale..........................................................................         -        163          -
                                                                                                 -------    -------    -------
        Total assets..........................................................................   $12,559    $12,541    $12,173
                                                                                                 =======    =======    =======	

                                                                                        DEPRECIATION AND
                                                               PROPERTY ADDITIONS       AMORTIZATION (5)
                                                              --------------------    --------------------
                                                              2005    2004    2003    2005    2004    2003
                                                              ----    ----    ----    ----    ----    ----
The Company's operations by segment are:
    Cabinets and Related Products...........................  $ 77    $ 86    $ 54    $ 58    $ 55    $ 52
    Plumbing Products.......................................    76      69      77      71      68      62
    Installation and Other Services.........................    15      19      31      26      33      33
    Decorative Architectural Products.......................    47      36      35      19      18      22
    Other Specialty Products................................    55      87      81      38      37      32
                                                              ----    ----    ----    ----    ----    ----
                                                               270     297     278     212     211     201
    Unallocated amounts, principally related to corporate
      assets................................................     9       6       7      24      18      17
    Assets of dispositions (acquisitions), net..............     3       7     (14)      -       -       -
                                                              ----    ----    ----    ----    ----    ----
        Total...............................................  $282    $310    $271    $236    $229    $218
                                                              ====    ====    ====    ====    ====    ====	

61
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
P. SEGMENT INFORMATION - (CONCLUDED)
(1) Included in net sales in 2005, 2004 and 2003 were export sales from the U.S. of $254 million, $218 million and $177 million, respectively.
(2) Intra-company sales between segments represented approximately one percent of net sales in 2005, 2004 and 2003.
(3) Includes net sales to one customer in 2005, 2004 and 2003 of $2,654 million, $2,614 million and $2,429 million, respectively. Such net sales were included in the following segments: Cabinets and Related Products, Plumbing Products, Decorative Architectural Products and Other Specialty Products.
(4) Net sales from the Company's operations in the U.S. were $10,187 million, $9,490 million and $8,442 million in 2005, 2004 and 2003, respectively.
(5) Net sales, operating profit and depreciation and amortization expense for 2005, 2004 and 2003 exclude the results of businesses sold in 2005, 2004 and 2003, including those held for sale at December 31, 2004.
(6) Long-lived assets of the Company's operations in the U.S. and Europe were $4,892 million and $1,610 million, $4,981 million and $2,017 million and $4,859 million and $2,130 million at December 31, 2005, 2004 and 2003, respectively.
(7) General corporate expense includes those expenses not specifically attributable to the Company's business segments.
(8) The income regarding litigation settlement relates to litigation discussed in Note U pertaining to the Company's subsidiary, Behr Process Corporation, which is included in the Decorative Architectural Products segment.
(9) Included in segment operating profit for 2005 were goodwill impairment charges as follows: Plumbing Products - $7 million; Decorative Architectural Products - $26 million; and Other Specialty Products - $36 million. Included in segment operating profit for 2004 were goodwill impairment charges as follows: Plumbing Products - $25 million; Decorative Architectural Products - $62 million; and Other Specialty Products - $25 million. Included in segment operating profit for 2003 were goodwill impairment charges as follows: Plumbing Products - $17 million; Decorative Architectural Products - $5 million; and Other Specialty Products - $31 million. The goodwill impairment charges were related to certain of the Company's European businesses.
(10) Segment assets exclude the assets of discontinued operations.
Q. OTHER INCOME (EXPENSE), NET
Other, net, which is included in other income (expense), net, included the following, in millions:

                                                                2005    2004    2003
                                                                ----    ----    ----
Income from cash and cash investments.......................    $ 36    $ 11    $ 8
Other interest income.......................................       7       7      8
Income from financial investments, net (Note E).............     114     119     65
Loss on early retirement of debt............................       -       -     (7)
Gain from sale of equity investment.........................       -       -      5
Other items, net............................................     (30)     51     (2)
                                                                ----    ----    ---
  Total other, net..........................................    $127    $188    $77
                                                                ====    ====    ===	

Other items, net, in 2005, 2004 and 2003 include realized foreign currency transaction (losses) gains of $(25) million, $26 million and $(4) million, respectively, as well as other miscellaneous items.
62
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
R. INCOME TAXES

                                                                         (IN MILLIONS)
                                                             2005      2004      2003
                                                            ------    ------    ------
Income from continuing operations before income taxes
  and minority interest:
     U.S................................................    $1,228    $1,384    $1,152
     Foreign............................................       184       158        95
                                                            ------    ------    ------
                                                            $1,412    $1,542    $1,247
                                                            ======    ======    ======
Provision for income taxes on income from continuing
  operations before minority interest:
     Currently payable:
       U.S. Federal.....................................    $  349    $  338    $  207
       State and local..................................        37        46        34
       Foreign..........................................        80        80        19
     Deferred:
       U.S. Federal.....................................        53        93       173
       State and local..................................         6         8         9
       Foreign..........................................        (7)        9        23
                                                            ------    ------    ------
                                                            $  518    $  574    $  465
                                                            ======    ======    ======
Deferred tax assets at December 31:
     Receivables........................................    $   23    $   28
     Inventories........................................        28        27
     Other assets.......................................        38        34
     Accrued liabilities................................       171       140
     Long-term liabilities..............................        82        81
     Capital loss carryforward..........................         -        21
     Foreign tax credit carryforward....................        50        50
                                                            ------    ------
                                                               392       381
                                                            ------    ------
Deferred tax liabilities at December 31:
     Property and equipment.............................       304       346
     Investment in foreign subsidiaries.................        32        38
     Intangibles........................................       296       227
     Other, principally long-term liabilities...........       143        99
                                                            ------    ------
                                                               775       710
                                                            ------    ------
Net deferred tax liability at December 31...............    $  383    $  329
                                                            ======    ======	

At December 31, 2005 and 2004, net deferred tax liability consisted of net short-term deferred tax assets included in prepaid expenses and other of $217 million and $175 million, respectively, and net long-term deferred tax liabilities of $600 million and $504 million, respectively.
Changes to the U.S. tax law enacted in 2004 significantly impacted the taxation of foreign earnings distributions. As a result, the Company made a dividend distribution of accumulated earnings from certain of its foreign subsidiaries of approximately $500 million in 2004. Prior to the dividend distribution, such earnings had been permanently reinvested, pursuant to the provisions of the APB Opinion No. 23, under the Company's previous tax planning strategy to invest such earnings in operating and non-operating foreign investments.
63
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
R. INCOME TAXES - (CONCLUDED)
This dividend distribution generated significant foreign tax credits that were used to offset the majority of the U.S. tax on the 2004 dividend distribution and created a $50 million foreign tax credit carryforward at December 31, 2005 and 2004. The Company believes that the foreign tax credit carryforward will be utilized before the newly enacted 10-year carryforward period expires on December 31, 2014, principally with identified potential sources of future income taxed in foreign jurisdictions at rates less than the present U.S. rate of 35 percent. Therefore, a valuation allowance was not recorded at December 31, 2005 and 2004.
The following is a reconciliation of the U.S. Federal statutory rate to the provision for income taxes on income from continuing operations before minority interest:

                                                                2005    2004    2003
                                                                ----    ----    ----
U.S. Federal statutory rate.................................     35%     35%     35%
State and local taxes, net of Federal tax benefit...........      2       2       2
Lower taxes on foreign earnings.............................     (1)     (1)     (1)
Foreign goodwill impairment charges providing no tax
  benefit...................................................      2       2       1
Domestic production deduction...............................     (1)      -       -
Other, net..................................................      -      (1)      -
                                                                 --      --      --
  Effective tax rate........................................     37%     37%     37%
                                                                 ==      ==      ==	

Income taxes paid were approximately $457 million, $406 million and $328 million in 2005, 2004 and 2003, respectively.
S. EARNINGS PER COMMON SHARE
The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share, in millions:

                                                                2005    2004    2003
                                                                ----    ----    ----
Numerator (basic and diluted):
  Income from continuing operations.........................    $872    $949    $769
  Income (loss) from discontinued operations, net of income
     taxes..................................................      68     (56)     37
                                                                ----    ----    ----
  Net income................................................    $940    $893    $806
                                                                ====    ====    ====
Denominator:
  Basic common shares (based on weighted average)...........     422     445     479
  Add:
     Contingent common shares...............................       4       6       9
     Stock option dilution..................................       4       5       3
                                                                ----    ----    ----
  Diluted common shares.....................................     430     456     491
                                                                ====    ====    ====	

At December 31, 2005, the Company did not include any common shares related to the Zero Coupon Convertible Senior Notes ("Notes") in the calculation of diluted earnings per common share, as the price of the Company's common stock at December 31, 2005 did not exceed the equivalent accreted value of the Notes. At December 31, 2004, the Company included approximately one million common shares related to the Notes in the calculation of diluted earnings per common share, as the price of the Company's common stock at December 31, 2004 exceeded the equivalent accreted value of the Notes.
64
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
S. EARNINGS PER COMMON SHARE - (CONCLUDED)
Additionally, 1.0 million common shares for both 2005 and 2004 and 7.9 million common shares for 2003 related to stock options were excluded from the computation of diluted earnings per common share due to their anti-dilutive effect, since the option exercise price of those options was greater than the Company's average common stock price during the respective years.
During 2004, holders of all 17,000 shares of the Company's convertible preferred stock converted their preferred stock to approximately 17 million shares of the Company's common stock. The convertible preferred shares carried substantially the same attributes as Company common stock and had been treated as if converted at a ratio of one share of preferred stock to 1,000 shares of common stock for basic and diluted earnings per common share computations.
T. EUROPEAN CHARGES
During 2003, the Company recorded a non-cash, pre-tax charge which reduced operating profit by approximately $35 million with respect to a United Kingdom business unit in the Decorative Architectural Products segment. The charge relates primarily to a business system implementation failure which allowed former management of the business unit to circumvent internal controls and artificially inflate the unit's operating profit in years prior to 2003. The Company also determined that goodwill related to this business unit was impaired and recorded an additional $5 million charge in 2003.
Finally, the Company determined that the strategic plan for this business unit, relative to certain product offerings and customer focus, should be changed. This revision in operating strategy resulted in 2003 pre-tax charges aggregating approximately $15 million related principally to inventories and receivables.
During 2003, the Company also detected that an employee at a United Kingdom business unit in the Plumbing Products segment had circumvented internal controls and overstated operating results by approximately $4 million in 2002. The Company completed its review of the business unit in the fourth quarter of 2003 and determined that no further adjustment was necessary.
The Company implemented changes to its operational and financial structure in Europe which included: reorganizing its European business operations into product groups; the addition of group operating and financial personnel; training and evaluation related to internal controls and the expansion of internal audit involvement.
U. OTHER COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business.
As the Company reported in previous filings, late in the second half of 2002, the Company and its subsidiary, Behr Process Corporation, agreed to two Settlements (the National Settlement and the Washington State Settlement) to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr.
65
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U. OTHER COMMITMENTS AND CONTINGENCIES - (CONTINUED)
The following is a reconciliation of the Company's Behr Process Settlement liability, in millions:

                                                                2005     2004
                                                                -----    -----
Balance at January 1........................................    $  19    $  63
  Payments on claims........................................      (10)     (14)
  Insurance proceeds........................................       (6)     (10)
  Adjustment of accrual.....................................        -      (20)
                                                                -----    -----
Balance at December 31......................................    $   3    $  19
                                                                =====    =====	

The Company expects that the evaluation, processing and payment of claims for both the National Settlement and the Washington State Settlement should be completed in the first half of 2006.
Early in 2003, a suit was brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia, alleging that certain practices violate provisions of federal and state antitrust laws. The plaintiff publicized the lawsuit with a press release and stated in that release that the U.S. Department of Justice was investigating the business practices of the Company's insulation installation companies. Although the Company was unaware of any investigation at that time, the Company was later advised that an investigation had been commenced but was subsequently closed without any enforcement action recommended. Two additional lawsuits were subsequently brought in Virginia making similar claims under the antitrust laws. Both of these lawsuits have since been dismissed without any payment or requirement for any change in business practices. During the second half of 2004, the same counsel who commenced the initial action in Atlanta filed six additional lawsuits on behalf of several of Masco's competitors in the insulation installation business. The plaintiffs then dismissed all of these lawsuits and, represented by the same counsel, filed another action in the same federal court as a putative class action against the Company, a number of its insulation installation companies and certain of their suppliers. This suit currently seeks class representation for all residential insulation contractors (other than the defendants and their affiliates) that have directly purchased fiberglass insulation suitable for residential installation from certain insulation manufacturers. An additional lawsuit, seeking class action status and alleging anticompetitive conduct, was recently filed in a Florida state court against the Company and a number of its insulation suppliers. The Company will be seeking the dismissal of each of these lawsuits and will be opposing certification of the two actions currently pending which seek to proceed on a class representation basis. Based on the advice of its outside counsel, the Company believes that the conduct of the Company and its insulation installation companies, which has been the subject of the above-described lawsuits, has not violated any antitrust laws. There cannot, however, be any assurance that the Company will ultimately prevail in some or any of these lawsuits or, if unsuccessful, that the ultimate liability would not be material. The Company is unable at this time to reliably estimate any potential liability which might occur from an adverse judgment but does not believe that any adverse judgment would have a material adverse effect on its businesses or the methods used by its insulation installation companies in doing business.
In February 2003, a suit was served upon the Company's subsidiary, Milgard Manufacturing, in the Solano County, California Superior Court, alleging design defects in certain of Milgard's aluminum windows. The complaint requests class action status for all owners of homes in California in which the windows are installed, and seeks replacement costs and other damages. Plaintiffs' motion for class certification is pending. The counsel representing plaintiffs have filed similar lawsuits in California against several other aluminum window manufacturers. Milgard denies that the windows are defective and is vigorously defending the case. Based on the advice of its outside counsel, Milgard believes that the case should not proceed as a class action and, if it is certified to proceed on a class representa-
66
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U. OTHER COMMITMENTS AND CONTINGENCIES - (CONTINUED)
tion basis, believes that it has meritorious defenses to the lawsuit. There cannot, however, be any assurance that Milgard will ultimately prevail or, if it is unsuccessful, that any ultimate liability would not be material. The Company is unable at this time to reliably estimate any potential liability which might occur from an adverse judgment against Milgard but does not believe that any adverse judgment would have a material adverse effect on its business.
In the fall of 2004, the Company learned that European governmental authorities are investigating possible anticompetitive business practices relating to the plumbing and heating industries in Europe. The investigations involve a number of European companies, including certain of the Company's European manufacturing divisions and a number of other large businesses. As part of its recently broadened governance activities, the Company, with the assistance of its outside counsel, completed a review of the competition practices of its European divisions, including those in the plumbing and heating industries, and the Company is cooperating fully with the European governmental authorities. Several private antitrust lawsuits have been filed in the United States as putative class actions against, among others, the Company and certain of the other companies being investigated relating to the defendants' plumbing operations. These appear to be an outgrowth of the investigations being conducted by European governmental authorities, and additional lawsuits involving the same subject matter may be filed. Based upon the advice of its outside counsel, the review of the competition practices of its European divisions referred to above and other factors, the Company believes that it will not incur material liability as a result of the matters that are the subject of these investigations or as a result of any such lawsuits.
WARRANTY
Certain of the Company's products and product finishes and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. The Company's estimate of costs to service its warranty obligations is based on historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.
The following is a reconciliation of the Company's warranty liability, in millions:

                                                              2005   2004
                                                              ----   ----
Balance at January 1........................................  $100   $ 90
  Accruals for warranties issued during the year............    67     57
  Accruals related to pre-existing warranties...............     1      9
  Settlements made (in cash or kind) during the year........   (57)   (48)
  Discontinued operations...................................     -     (3)
  Other, net................................................    (6)    (5)
                                                              ----   ----
Balance at December 31......................................  $105   $100
                                                              ====   ====	

ACQUISITION-RELATED COMMITMENTS
As part of the agreement relating to the Company's acquisition of an additional 37 percent equity ownership of Hansgrohe AG in December 2002 (increasing such ownership to 64 percent), certain minority shareholders of Hansgrohe AG, representing four percent of Hansgrohe outstanding shares,
67
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U. OTHER COMMITMENTS AND CONTINGENCIES - (CONTINUED)
hold an option expiring in December 2007 to require the Company to purchase such shares in Hansgrohe either with cash or Company common stock. The put option can only be exercised once by such minority shareholder and only with respect to all of such shareholder's shares. The fair value of the put option is not material. The amount payable under the put option to acquire shares is based on Hansgrohe's operating results (principally a multiple of operating earnings which is designed to reflect the appropriate fair value of the shares) and, if exercised at December 31, 2005, would have approximated $26 million if settled in cash; if the put option were settled in stock, the common shares to be issued at December 31, 2005 would have approximated 952,700. Such shares are currently included in the Company's diluted share count for computation of earnings per common share.
The Company, as part of certain acquisition agreements, provided for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions were met, including the operating performance of the acquired business and the price of the Company's common stock. At December 31, 2005, there were no such outstanding contingent purchase price commitments.
Stock Price Guarantees
During 2005, the Company settled the guarantee related to the value of 1.6 million shares of Company common stock for a stock price of $40 per share related to a 2001 divestiture. The guarantee was settled for cash and stock aggregating approximately $12 million. At December 31, 2005, there were no outstanding stock price guarantees.
INVESTMENTS
With respect to the Company's investments in private equity funds, the Company had, at December 31, 2005, commitments to contribute up to $95 million of additional capital to such funds representing the Company's aggregate capital commitment to such funds less capital contributions made to date. The Company is contractually obligated to make additional capital contributions to each of its private equity funds upon receipt of a capital call from the private equity fund. The Company has no control over when or if the capital calls will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of the Company's investment in the private equity fund when paid.
SHAREHOLDERS' EQUITY
During 2000, approximately 300 of the Company's key employees purchased from the Company 8.4 million shares of Company common stock for cash totaling $156 million under an Executive Stock Purchase Program ("Program"). The stock was purchased at $18.50 per share, the approximate market price of the common stock at the time of purchase. During 2005, participants in the program settled their remaining outstanding five-year full recourse personal loans with a bank syndicate. The Company had guaranteed the repayment of the loans; however, all such loans were settled with no requirement for the Company to fulfill such guarantees.
RESIDUAL VALUE GUARANTEES
The Company has residual value guarantees resulting from operating leases, primarily related to certain of the Company's trucks and other vehicles, in the Installation and Other Services segment. The operating leases are generally for a minimum term of 18 to 24 months and are renewable monthly after the initial term. After the end of the initial term, if the Company cancels the leases, the Company must pay the lessor the difference between the guaranteed residual value and the fair market value of the related vehicles. The value of lease-related guarantees, including the obligation payable under the
68
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U. OTHER COMMITMENTS AND CONTINGENCIES - (CONCLUDED)
residual value guarantees, assuming the fair value at lease termination is zero, was approximately $129 million at December 31, 2005.
For all operating leases that contain residual value guarantee provisions (principally related to vehicles), the Company calculates the amount due under the guarantees and compares such amount to the fair value of the leased assets. If the amount payable under the residual value guarantee exceeds the fair value at lease termination, the Company would record a liability equal to such excess with a corresponding charge to earnings. At December 31, 2005, the fair market value exceeded the amount payable under the residual value guarantees and no liability was recorded.
OTHER MATTERS
The Company enters into contracts, which include reasonable and customary indemnifications that are standard for the industries in which it operates. Such indemnifications include customer claims against builders for issues relating to the Company's products and workmanship. In conjunction with divestitures and other transactions, the Company generally provides reasonable and customary indemnifications relating to various items including: the enforceability of trademarks; legal and environmental issues; provisions for sales returns; and asset valuations. The Company has never had to pay a material amount related to these indemnifications and evaluates the probability that amounts may be incurred and appropriately records an estimated liability when probable.
69
 
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
V. INTERIM FINANCIAL INFORMATION (UNAUDITED)

                                                       (IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
                                                                   QUARTERS ENDED
                                          TOTAL    -----------------------------------------------
                                          YEAR     DECEMBER 31   SEPTEMBER 30   JUNE 30   MARCH 31
                                         -------   -----------   ------------   -------   --------
2005:
Net sales..............................  $12,642     $3,146         $3,296      $3,286     $2,914
Gross profit...........................  $ 3,609     $  867         $  946      $  968     $  828
Income from continuing operations......  $   872     $  142         $  256      $  267     $  207
Net income.............................  $   940     $  173         $  262      $  274     $  231
Earnings per common share:
  Basic:
     Income from continuing
       operations......................  $  2.07     $  .34         $  .61      $  .63     $  .48
     Net income........................  $  2.23     $  .42         $  .63      $  .65     $  .53
  Diluted:
     Income from continuing
       operations......................  $  2.03     $  .34         $  .60      $  .62     $  .47
     Net income........................  $  2.19     $  .41         $  .61      $  .64     $  .52
2004:
Net sales..............................  $11,850     $2,975         $3,117      $3,004     $2,754
Gross profit...........................  $ 3,663     $  887         $  978      $  960     $  838
Income from continuing operations......  $   949     $  139         $  284      $  289     $  237
Net income.............................  $   893     $  105         $  359      $  261     $  168
Earnings per common share:
  Basic:
     Income from continuing
       operations......................  $  2.13     $  .32         $  .65      $  .65     $  .52
     Net income........................  $  2.01     $  .24         $  .82      $  .59     $  .37
  Diluted:
     Income from continuing
       operations......................  $  2.08     $  .31         $  .63      $  .64     $  .51
     Net income........................  $  1.96     $  .23         $  .80      $  .58     $  .36	

Earnings per common share amounts for the four quarters of 2005 and 2004 may not total to the earnings per common share amounts for the years ended December 31, 2005 and 2004 due to the timing of common stock repurchases and the effect of contingently issuable common shares.
Fourth quarter 2005 income from continuing operations and net income include a $69 million after-tax ($69 million pre-tax), non-cash goodwill impairment charge. Income from continuing operations and net income include after-tax income related to the Behr litigation settlement of $1 million ($2 million pre-tax), $2 million ($3 million pre-tax) and $1 million ($1 million pre-tax) in the first, second and third quarters of 2005, respectively. Net income for 2005 includes after-tax income, net, related to discontinued operations of $24 million ($22 million pre-tax), $7 million ($9 million pre-tax), $6 million ($11 million pre-tax) and $31 million ($60 million pre-tax) in the first, second, third and fourth quarters of 2005, respectively.
Fourth quarter 2004 income from continuing operations and net income include a $104 million after-tax ($112 million pre-tax), non-cash goodwill impairment charge. Income from continuing operations and net income include after-tax income related to the Behr litigation settlement of $13 million ($21 million pre-tax), $4 million ($7 million pre-tax) and $1 million ($2 million pre-tax) in the first, second and third quarters of 2004, respectively. Net income for 2004 includes after-tax (loss) income, net related to discontinued operations of $(69) million ($(51) million pre-tax), $(28) million ($(23) million pre-tax), $75 million ($95 million pre-tax) and $(34) million ($(49) million pre-tax) in the first, second, third and fourth quarters of 2004, respectively.
70
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
ITEM 9A. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of its disclosure controls and procedures as required by Exchange Act Rules 13a-15(b) and 15d-15(b) as of December 31, 2005. Based on this evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective.
(B) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Management's report on the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is included in Item 8 of this Report under the heading Management's Report on Internal Control over Financial Reporting, and the related report of the Company's independent registered public accounting firm is included under the heading Report of Independent Registered Public Accounting Firm under the same Item.
(C) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Effective, March 1, 2006, the Company amended its Restated Certificate of Incorporation by filing a Certificate of Elimination of Series A Participating Cumulative Preferred Stock with the Secretary of State of the State of Delaware, which removed all references to such Series A Participating Cumulative Preferred Stock from the Company's Restated Certificate of Incorporation. Thereafter, the Company filed with the Secretary of State of the State of Delaware a Restated Certificate of Incorporation, a copy of which is included as Exhibit 3.i to this Report.
71
 
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). The Company's Code of Business Ethics applies to all employees, officers and directors including the Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer, and is posted on the Company's website at www.masco.com. Other information required by this Item will be contained in the Company's definitive Proxy Statement for its 2006 Annual Meeting of Stockholders, to be filed on or before April 28, 2006, and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2006 Annual Meeting of Stockholders, to be filed on or before April 28, 2006, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
EQUITY COMPENSATION PLAN INFORMATION
The Company has three equity compensation plans, the 1991 Long Term Stock Incentive Plan (under which further grants have been discontinued), 2005 Long Term Stock Incentive Plan and the 1997 Non-Employee Directors Stock Plan. The following table sets forth information as of December 31, 2005 concerning the Company's three equity compensation plans, each of which was approved by stockholders. The Company does not have any equity compensation plans that are not approved by stockholders.

                                          NUMBER OF           WEIGHTED          NUMBER OF SECURITIES
                                      SECURITIES TO BE       AVERAGE PER       REMAINING AVAILABLE FOR
                                         ISSUED UPON       SHARE EXERCISE       FUTURE ISSUANCE UNDER
                                         EXERCISE OF          PRICE OF        EQUITY COMPENSATION PLANS
                                         OUTSTANDING         OUTSTANDING        (EXCLUDING SECURITIES
                                      OPTIONS, WARRANTS   OPTIONS, WARRANTS       REFLECTED IN THE
           PLAN CATEGORY                 AND RIGHTS          AND RIGHTS             FIRST COLUMN)
           -------------              -----------------   -----------------   -------------------------
Equity compensation plans approved
  by stockholders...................     27,266,000            $25.92                25,386,000	

The remaining information required by this Item will be contained in the Company's definitive Proxy Statement for its 2006 Annual Meeting of Stockholders, to be filed on or before April 28, 2006, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2006 Annual Meeting of Stockholders, to be filed on or before April 28, 2006, and such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2006 Annual Meeting of Stockholders, to be filed on or before April 28, 2006, and such information is incorporated herein by reference.
72
 
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) LISTING OF DOCUMENTS.
(1) Financial Statements. The Company's Consolidated Financial Statements included in Item 8 hereof, as required at December 31, 2005 and 2004, and for the years ended December 31, 2005, 2004 and 2003, consist of the following:
Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements
(2) Financial Statement Schedule.
(i) Financial Statement Schedule of the Company appended hereto, as required for the years ended December 31, 2005, 2004 and 2003, consists of the following:
II. Valuation and Qualifying Accounts
(3) Exhibits.

EXHIBIT
NUMBER
-------
 3.i        Restated Certificate of Incorporation of Masco Corporation
            and amendments thereto (Filed herewith).
 3.ii       Bylaws of Masco Corporation, as amended December 5, 2001
            (Incorporated by reference to Exhibit 3.ii of Masco's 2002
            Form 10-K filed 3-14-2003).
 4.a.i      Indenture dated as of December 1, 1982 between Masco
            Corporation and Morgan Guaranty Trust Company of New York,
            as Trustee (Incorporated by reference to Exhibit 4.a of
            Masco's 2001 Form 10-K filed 3-28-2002), and Directors'
            resolutions establishing Masco Corporation's:
            (i)  7 1/8% Debentures Due August 15, 2013 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                 2-27-2004);
            (ii) 6.625% Debentures Due April 15, 2018 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                 2-27-2004);
            (iii) 5.75% Notes Due October 15, 2008 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                  2-27-2004); and
            (iv) 7 3/4% Debentures Due August 1, 2029 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2004 Form 10-K filed
                 3-16-2005).
 4.a.ii     Agreement of Appointment and Acceptance of Successor Trustee
            dated as of July 25, 1994 among Masco Corporation, Morgan
            Guaranty Trust Company of New York and The First National
            Bank of Chicago (Incorporated by reference to Exhibit 4.a.ii
            of Masco's 2004 Form 10-K filed 3-16-2005).
 4.a.iii    Supplemental Indenture dated as of July 26, 1994 between
            Masco Corporation and The First National Bank of Chicago
            (Incorporated by reference to Exhibit 4.a.iii of Masco's
            2004 Form 10-K filed 3-16-2005).
 4.b.i      Indenture dated as of February 12, 2001 between Masco
            Corporation and J.P. Morgan Trust Company, National
            Association (successor in interest to Bank One Trust
            Company, National Association), as Trustee (Filed herewith)
            and Directors' Resolutions establishing Masco Corporation's:
            (i) 6 3/4% Notes Due March 15, 2006 (Filed herewith);
            (ii) 5 7/8% Notes Due July 15, 2012 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                 3-14-2003);	

73

EXHIBIT
NUMBER
-------
            (iii) 4 5/8% Notes Due August 15, 2007 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                  3-14-2003);
            (iv) 6 1/2% Notes Due August 15, 2032 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                 3-14-2003);
            (v) Floating Rate Notes Due 2007 (Incorporated by reference
            to Exhibit 4.b.i of Masco's 2004 Form 10-K filed 3-16-2005);
                and
            (vi) 4.80% Notes Due December 15, 2015 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2nd Quarter Form 10-Q
                 filed 8-04-2005).
 4.b.ii     First Supplemental Indenture dated as of July 20, 2001 to
            the Indenture dated February 12, 2001 by and among Masco
            Corporation and J.P. Morgan Trust Company, National
            Association (successor in interest to Bank One Trust
            Company, National Association), as Trustee, relating to the
            Company's Zero Coupon Convertible Senior Notes Due July 20,
            2031 (Incorporated by reference to Exhibit 4.a.vi of Masco's
            2nd Quarter Form 10-Q filed 8-07-2001), Amendment No. 1
            dated as of July 19, 2002 (Incorporated by reference to
            Exhibit 4.b of Masco's 2nd Quarter Form 10-Q filed
            8-13-2002) and Amendment No. 2 dated as of November 2, 2004
            (Incorporated by reference to Exhibit 4 of Masco's 3rd
            Quarter Form 10-Q filed 11-04-2004).
 4.b.iii    Second Supplemental Indenture between Masco Corporation and
            J.P. Morgan Trust Company, National Association, as trustee
            dated as of December 23, 2004 (including form of Zero Coupon
            Convertible Senior Note, Series B due 2031) (Incorporated by
            reference to Exhibit 10.1 of Masco's Form 8-K filed 12-23-
            2004).
 4.c        U.S. $2 billion 5-Year Revolving Credit Agreement dated as
            of November 5, 2004 among Masco Corporation and Masco
            Europe, S.a r.l. as borrowers, the banks party thereto, as
            lenders, J.P. Morgan Securities Inc. and Citigroup Global
            Markets, Inc., as Joint Lead Arrangers and Joint Book
            Runners and Citibank, N.A., as Syndication Agent, Sumitomo
            Mitsui Banking Corporation, as Documentation Agent, and Bank
            One, NA (Main Office Chicago), as Administrative Agent
            (Incorporated by reference to Exhibit 4 of Masco's Form 8-K
            filed 11-12-2004), as amended by Amendment No. 1 dated
            February 10, 2006. (Incorporated by reference to Exhibit 4
            of Masco's Form 8-K filed 2-15-06).
NOTE:       Other instruments, notes or extracts from agreements
            defining the rights of holders of long-term debt of Masco
            Corporation or its subsidiaries have not been filed since
            (i) in each case the total amount of long-term debt
            permitted thereunder does not exceed 10 percent of Masco
            Corporation's consolidated assets, and (ii) such
            instruments, notes and extracts will be furnished by Masco
            Corporation to the Securities and Exchange Commission upon
            request.
NOTE:       Exhibits 10.a through 10.i constitute the management
            contracts and executive compensatory plans or arrangements
            in which certain of the Directors and executive officers of
            the Company participate.
10.a        Masco Corporation 1991 Long Term Stock Incentive Plan (as
            amended and restated October 27, 2005) (Filed herewith).
            (i) Forms of Restricted Stock Award Agreement for awards
            prior to January 1, 2005 (Incorporated by reference to
                Exhibit 10.a.i of Masco's 3rd Quarter Form 10-Q filed
                11-04-2004) and for awards on and after January 1, 2005
                (Incorporated by reference to Exhibit 10.1 of Masco's
                Form 8-K filed 1-06-2005);
            (ii) Forms of Restoration Stock Option (Incorporated by
            reference to Exhibit 10.a.ii of Masco's 3rd Quarter Form
                 10-Q filed 11-04-2004);
            (iii) Forms of Stock Option Grant (Incorporated by reference
            to Exhibit 10.a.iii of Masco's 3rd Quarter Form 10-Q filed
                  11-04-2004);	

74

EXHIBIT
NUMBER
-------
            (iv) Forms of Stock Option Grant for Non-Employee Directors
            (Incorporated by reference to Exhibit 10.a.iv of Masco's 3rd
                 Quarter Form 10-Q filed 11-04-2004); and
            (v) Forms of amendment to Award Agreements (Filed herewith).
10.b        Masco Corporation 2005 Long Term Stock Incentive Plan
            (Incorporated by reference to Exhibit 99.1 of Masco's Form
            8-K filed 5-13-2005).
            (i) Form of Restricted Stock Award (Filed herewith);
            (ii) Form of Stock Option Grant (Filed herewith);
            (iii) Form of Restoration Stock Option (Filed herewith); and
            (iv) Form of Stock Option Grant for Non-Employee Directors
                 (Filed herewith).
10.c        Forms of Masco Corporation Supplemental Executive Retirement
            and Disability Plan. (Filed herewith).
10.d        Masco Corporation 2002 Annual Incentive Compensation Plan
            (Incorporated by reference to Exhibit 10.d of Masco's 2002
            Form 10-K filed 3-14-2003).
10.e        Masco Corporation 1997 Non-Employee Directors Stock Plan (as
            amended and restated October 27, 2005) (Filed herewith).
            (i) Form of Restricted Stock Award Agreement (Filed
                herewith);
            (ii) Form of Stock Option Grant (Filed herewith); and
            (iii) Form of amendment to Award Agreements (Filed
                  herewith).
10.f        Other compensatory arrangements for executive officers
            (Filed herewith).
10.g        Masco Corporation 2004 Restricted Stock Award Program
            (Incorporated by reference to Exhibit 10.b of Masco's 2nd
            Quarter Form 10-Q filed 8-5-2004).
10.h        Compensation of Directors (Incorporated by reference to
            Exhibit 10.o of Masco's 2004 Form 10-K filed 3-16-2005).
10.i        Masco Corporation Retirement Benefit Restoration Plan dated
            January 1, 1995, as amended October 1, 2004 (Incorporated by
            reference to Exhibit 10.p of Masco's 2004 Form 10-K filed
            3-16-2005).
10.j        Shareholders Agreement by and among MascoTech, Inc. (now
            known as Metaldyne Corporation), Masco Corporation, Richard
            Manoogian, certain of their respective affiliates and other
            co-investors as party thereto, dated as of November 28, 2000
            (Filed herewith).
12          Computation of Ratio of Earnings to Combined Fixed Charges
            and Preferred Stock Dividends (Filed herewith).
21          List of Subsidiaries (Filed herewith).
23          Consent of Independent Registered Public Accounting Firm
            relating to Masco Corporation's Consolidated Financial
            Statements and Financial Statement Schedule (Filed
            herewith).
31.a        Certification by Chief Executive Officer required by Rule
            13a-14(a)/15d-14(a) (Filed herewith).
31.b        Certification by Chief Financial Officer required by Rule
            13a-14(a)/15d-14(a) (Filed herewith).
32          Certifications required by Rule 13a-14(b) or Rule 15d-14(b)
            and Section 1350 of Chapter 63 of the United States Code
            (Filed herewith).	

THE COMPANY WILL FURNISH TO ITS STOCKHOLDERS A COPY OF ANY OF THE ABOVE EXHIBITS NOT INCLUDED HEREIN UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER AND THE PAYMENT TO THE COMPANY OF THE REASONABLE EXPENSES INCURRED BY THE COMPANY IN FURNISHING SUCH COPY OR COPIES.
75
 
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MASCO CORPORATION

                                          BY      /s/ TIMOTHY WADHAMS
                                            ------------------------------------
                                                      TIMOTHY WADHAMS
                                              Senior Vice President and Chief
                                                      Financial Officer

March 2, 2006	

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

PRINCIPAL EXECUTIVE OFFICER:

       /s/ RICHARD A. MANOOGIAN          Chairman of the Board and Chief
--------------------------------------     Executive Officer
         Richard A. Manoogian

PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:

         /s/ TIMOTHY WADHAMS             Senior Vice President and Chief
--------------------------------------     Financial Officer
           Timothy Wadhams

         /s/ DENNIS W. ARCHER            Director
--------------------------------------
           Dennis W. Archer

        /s/ THOMAS G. DENOMME            Director
--------------------------------------
          Thomas G. Denomme

           /s/ PETER A. DOW              Director
--------------------------------------
             Peter A. Dow

      /s/ ANTHONY F. EARLEY, JR.         Director                             March 2, 2006
--------------------------------------
        Anthony F. Earley, Jr.

         /s/ VERNE G. ISTOCK             Director
--------------------------------------
           Verne G. Istock

        /s/ DAVID L. JOHNSTON            Director
--------------------------------------
          David L. Johnston

         /s/ J. MICHAEL LOSH             Director
--------------------------------------
           J. Michael Losh

       /s/ MARY ANN VAN LOKEREN          Director
--------------------------------------
         Mary Ann Van Lokeren	

76
 
MASCO CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                                                               (IN MILLIONS)
                COLUMN A                   COLUMN B             COLUMN C             COLUMN D      COLUMN E
----------------------------------------  ----------    ------------------------    ----------    ----------
                                                               ADDITIONS
                                                        ------------------------
                                          BALANCE AT    CHARGED TO    CHARGED TO                  BALANCE AT
                                          BEGINNING     COSTS AND       OTHER                       END OF
              DESCRIPTION                 OF PERIOD      EXPENSES      ACCOUNTS     DEDUCTIONS      PERIOD
----------------------------------------  ----------    ----------    ----------    ----------    ----------
                                                                         (A)           (B)
Allowance for doubtful accounts,
  deducted from accounts receivable in
  the balance sheet:
     2005...............................     $82           $13           $(5)          $(12)         $78
                                             ===           ===           ===           ====          ===
     2004...............................     $84           $19           $(6)          $(15)         $82
                                             ===           ===           ===           ====          ===
     2003...............................     $69           $23           $(2)          $ (6)         $84
                                             ===           ===           ===           ====          ===	

(a) Allowance of companies acquired and companies disposed of, net.
(b) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years.
77
 
EXHIBIT INDEX

EXHIBIT
NUMBER
-------
 3.i        Restated Certificate of Incorporation of Masco Corporation
            and amendments thereto (Filed herewith).
 3.ii       Bylaws of Masco Corporation, as amended December 5, 2001
            (Incorporated by reference to Exhibit 3.ii of Masco's 2002
            Form 10-K filed 3-14-2003).
 4.a.i      Indenture dated as of December 1, 1982 between Masco
            Corporation and Morgan Guaranty Trust Company of New York,
            as Trustee (Incorporated by reference to Exhibit 4.a of
            Masco's 2001 Form 10-K filed 3-28-2002), and Directors'
            resolutions establishing Masco Corporation's:
            (i)  7 1/8% Debentures Due August 15, 2013 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                 2-27-2004);
            (ii) 6.625% Debentures Due April 15, 2018 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                 2-27-2004);
            (iii) 5.75% Notes Due October 15, 2008 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2003 Form 10-K filed
                  2-27-2004); and
            (iv) 7 3/4% Debentures Due August 1, 2029 (Incorporated by
            reference to Exhibit 4.a.i of Masco's 2004 Form 10-K filed
                 3-16-2005).
 4.a.ii     Agreement of Appointment and Acceptance of Successor Trustee
            dated as of July 25, 1994 among Masco Corporation, Morgan
            Guaranty Trust Company of New York and The First National
            Bank of Chicago (Incorporated by reference to Exhibit 4.a.ii
            of Masco's 2004 Form 10-K filed 3-16-2005).
 4.a.iii    Supplemental Indenture dated as of July 26, 1994 between
            Masco Corporation and The First National Bank of Chicago
            (Incorporated by reference to Exhibit 4.a.iii of Masco's
            2004 Form 10-K filed 3-16-2005).
 4.b.i      Indenture dated as of February 12, 2001 between Masco
            Corporation and J.P. Morgan Trust Company, National
            Association (successor in interest to Bank One Trust
            Company, National Association), as Trustee (Filed herewith)
            and Directors' Resolutions establishing Masco Corporation's:
            (i) 6 3/4% Notes Due March 15, 2006 (Filed herewith);
            (ii) 5 7/8% Notes Due July 15, 2012 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                 3-14-2003);
            (iii) 4 5/8% Notes Due August 15, 2007 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                  3-14-2003);
            (iv) 6 1/2% Notes Due August 15, 2032 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2002 Form 10-K filed
                 3-14-2003);
            (v) Floating Rate Notes Due 2007 (Incorporated by reference
            to Exhibit 4.b.i of Masco's 2004 Form 10-K filed 3-16-2005);
                and
            (vi) 4.80% Notes Due December 15, 2015 (Incorporated by
            reference to Exhibit 4.b.i of Masco's 2nd Quarter Form 10-Q
                 filed 8-04-2005).
 4.b.ii     First Supplemental Indenture dated as of July 20, 2001 to
            the Indenture dated February 12, 2001 by and among Masco
            Corporation and J.P. Morgan Trust Company, National
            Association (successor in interest to Bank One Trust
            Company, National Association), as Trustee, relating to the
            Company's Zero Coupon Convertible Senior Notes Due July 20,
            2031 (Incorporated by reference to Exhibit 4.a.vi of Masco's
            2nd Quarter Form 10-Q filed 8-07-2001), Amendment No. 1
            dated as of July 19, 2002 (Incorporated by reference to
            Exhibit 4.b of Masco's 2nd Quarter Form 10-Q filed
            8-13-2002) and Amendment No. 2 dated as of November 2, 2004
            (Incorporated by reference to Exhibit 4 of Masco's 3rd
            Quarter Form 10-Q filed 11-04-2004).	

EXHIBIT
NUMBER
-------
 4.b.iii    Second Supplemental Indenture between Masco Corporation and
            J.P. Morgan Trust Company, National Association, as trustee
            dated as of December 23, 2004 (including form of Zero Coupon
            Convertible Senior Note, Series B due 2031) (Incorporated by
            reference to Exhibit 10.1 of Masco's Form 8-K filed
            12-23-2004).
 4.c        U.S. $2 billion 5-Year Revolving Credit Agreement dated as
            of November 5, 2004 among Masco Corporation and Masco
            Europe, S.a r.l. as borrowers, the banks party thereto, as
            lenders, J.P. Morgan Securities Inc. and Citigroup Global
            Markets, Inc., as Joint Lead Arrangers and Joint Book
            Runners and Citibank, N.A., as Syndication Agent, Sumitomo
            Mitsui Banking Corporation, as Documentation Agent, and Bank
            One, NA (Main Office Chicago), as Administrative Agent
            (Incorporated by reference to Exhibit 4 of Masco's Form 8-K
            filed 11-12-2004), as amended by Amendment No. 1 dated
            February 10, 2006. (Incorporated by reference to Exhibit 4
            of Masco's Form 8-K filed 2-15-06).
NOTE:       Other instruments, notes or extracts from agreements
            defining the rights of holders of long-term debt of Masco
            Corporation or its subsidiaries have not been filed since
            (i) in each case the total amount of long-term debt
            permitted thereunder does not exceed 10 percent of Masco
            Corporation's consolidated assets, and (ii) such
            instruments, notes and extracts will be furnished by Masco
            Corporation to the Securities and Exchange Commission upon
            request.
NOTE:       Exhibits 10.a through 10.i constitute the management
            contracts and executive compensatory plans or arrangements
            in which certain of the Directors and executive officers of
            the Company participate.
10.a        Masco Corporation 1991 Long Term Stock Incentive Plan (as
            amended and restated October 27, 2005) (Filed herewith).
            (i) Forms of Restricted Stock Award Agreement for awards
            prior to January 1, 2005 (Incorporated by reference to
                Exhibit 10.a.i of Masco's 3rd Quarter Form 10-Q filed
                11-04-2004) and for awards on and after January 1, 2005
                (Incorporated by reference to Exhibit 10.1 of Masco's
                Form 8-K filed 1-06-2005);
            (ii) Forms of Restoration Stock Option (Incorporated by
            reference to Exhibit 10.a.ii of Masco's 3rd Quarter Form
                 10-Q filed 11-04-2004);
            (iii) Forms of Stock Option Grant (Incorporated by reference
            to Exhibit 10.a.iii of Masco's 3rd Quarter Form 10-Q filed
                  11-04-2004);
            (iv) Forms of Stock Option Grant for Non-Employee Directors
            (Incorporated by reference to Exhibit 10.a.iv of Masco's 3rd
                 Quarter Form 10-Q filed 11-04-2004); and
            (v) Forms of amendment to Award Agreements (Filed herewith).
10.b        Masco Corporation 2005 Long Term Stock Incentive Plan
            (Incorporated by reference to Exhibit 99.1 of Masco's Form
            8-K filed 5-13-2005).
            (i) Form of Restricted Stock Award (Filed herewith);
            (ii) Form of Stock Option Grant (Filed herewith);
            (iii) Form of Restoration Stock Option (Filed herewith); and
            (iv) Form of Stock Option Grant for Non-Employee Directors
                 (Filed herewith).
10.c        Forms of Masco Corporation Supplemental Executive Retirement
            and Disability Plan. (Filed herewith).
10.d        Masco Corporation 2002 Annual Incentive Compensation Plan
            (Incorporated by reference to Exhibit 10.d of Masco's 2002
            Form 10-K filed 3-14-2003).
10.e        Masco Corporation 1997 Non-Employee Directors Stock Plan (as
            amended and restated October 27, 2005) (Filed herewith).
            (i) Form of Restricted Stock Award Agreement (Filed
                herewith);
            (ii) Form of Stock Option Grant (Filed herewith); and
            (iii) Form of amendment to Award Agreements (Filed
                  herewith).
10.f        Other compensatory arrangements for executive officers
            (Filed herewith).	

EXHIBIT
NUMBER
-------
10.g        Masco Corporation 2004 Restricted Stock Award Program
            (Incorporated by reference to Exhibit 10.b of Masco's 2nd
            Quarter Form 10-Q filed 8-5-2004).
10.h        Compensation of Directors (Incorporated by reference to
            Exhibit 10.o of Masco's 2004 Form 10-K filed 3-16-2005).
10.i        Masco Corporation Retirement Benefit Restoration Plan dated
            January 1, 1995, as amended October 1, 2004 (Incorporated by
            reference to Exhibit 10.p of Masco's 2004 Form 10-K filed
            3-16-2005).
10.j        Shareholders Agreement by and among MascoTech, Inc. (now
            known as Metaldyne Corporation), Masco Corporation, Richard
            Manoogian, certain of their respective affiliates and other
            co-investors as party thereto, dated as of November 28, 2000
            (Filed herewith).
12          Computation of Ratio of Earnings to Combined Fixed Charges
            and Preferred Stock Dividends (Filed herewith).
21          List of Subsidiaries (Filed herewith).
23          Consent of Independent Registered Public Accounting Firm
            relating to Masco Corporation's Consolidated Financial
            Statements and Financial Statement Schedule (Filed
            herewith).
31.a        Certification by Chief Executive Officer required by Rule
            13a-14(a)/15d-14(a) (Filed herewith).
31.b        Certification by Chief Financial Officer required by Rule
            13a-14(a)/15d-14(a) (Filed herewith).
32          Certifications required by Rule 13a-14(b) or Rule
            15d-14(b)and Section 1350 of Chapter 63 of the United States
            Code (Filed herewith).	

EXHIBIT 3.i
RESTATED CERTIFICATE OF INCORPORATION
OF
MASCO CORPORATION
MASCO CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is MASCO CORPORATION. The date of filing of its original Certificate of Incorporation with the Secretary of State of the state of Delaware was June 15, 1962.
2. This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of Delaware.
3. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.
4. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full:
FIRST: The name of the corporation is MASCO CORPORATION.
SECOND: Its registered office in the State of Delaware is located at the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The nature of the business or objects or purposes to be transacted, promoted or carried on are: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock the Corporation shall have authority to issue is one billion, four hundred one million (1,401,000,000) shares.
One billion, four hundred million (1,400,000,000) of such shares shall consist of common shares, par value one dollar ($1.00) per share, and one million (1,000,000) of such shares shall consist of preferred shares, par value one dollar ($1.00) per share.
The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof are as follows:
A. Each share of common stock shall be equal in all respects to all other shares of such stock, and each share of outstanding common stock is entitled to one vote.
B. Each share of preferred stock shall have or not have voting rights as determined by the Board of Directors prior to issuance.
Dividends on all outstanding shares of preferred stock must be declared and paid, or set aside for payment, before any dividends can be declared and paid, or set aside for payment, on the shares of common stock with respect to the same dividend period.
In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of the preferred stock shall be entitled, before any assets of the Corporation shall be distributed among or paid over to the holders of the common stock, to an amount per share to be determined before issuance by the Board of Directors, together with a sum of money equivalent to the amount of any dividends declared thereon and remaining unpaid at the date of such liquidation, dissolution or winding up of the Corporation. After the making of such payments to the holders of the preferred stock, the remaining assets of the Corporation shall be distributed among the holders of the common stock alone, according to the number of shares held by each. If, upon such liquidation, dissolution or winding up, the assets of the Corporation distributable as aforesaid among the holders of the preferred stock shall be insufficient to permit the payment to them of said amount, the entire assets shall be distributed ratably among the holders of the preferred stock.
The Board of Directors shall have authority to divide the shares of preferred stock into series and fix, from time to time, before issuance, the number of shares to be included in any series and the designation, relative rights, preferences and limitations of all shares of such series. The authority of the Board of Directors with respect to each series shall include the determination of any or all of the following, and the shares of each series may vary from the shares of any other in the following respects: (a) the number of shares constituting such series and the designation thereof to distinguish the shares of such series from the shares of all other series; (b) the rate of dividend, cumulative or noncumulative, and the extent of further participation in dividend distribution, if any; (c) the prices at which issued (at not less than par) and the terms and conditions upon which the shares may be redeemable by the Corporation; (d) sinking fund provisions for the redemption or purchase of shares; (e) the voting rights; and (f) the
2
terms and conditions upon which the shares are convertible into other classes of stock of the Corporation, if such shares are to be convertible.
C. No holder of any class of stock issued by this Corporation shall be entitled to pre-emptive rights.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever.
SEVENTH: (a) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than five nor more than twelve directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1988 Annual Meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding Annual Meeting of stockholders beginning in 1989, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. Except as otherwise required by law, any vacancy on the Board of Directors that results from an increase in the number of directors shall be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors shall be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall serve for the remaining term of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Designation with respect to such stock, such directors so elected shall not be divided into classes pursuant to this Article SEVENTH, and the number of such directors shall not be counted in determining the maximum number of directors permitted under the foregoing provisions of this Article SEVENTH, in each case unless expressly provided by such terms.
3
(b) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote in the election of directors. Any stockholder entitled to vote in the election of directors, however, may nominate one or more persons for election as director only if written notice of such stockholder's intent to make such nomination or nominations has been given either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an Annual Meeting of stockholders, 45 days in advance of the date on which the Corporation's proxy statement was released to stockholders in connection with the previous year's Annual Meeting of stockholders and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the day on which notice of such meeting is first given to stockholders. Each such notice shall include: (A) the name and address of the stockholder who intends to make the nomination or nominations and of the person or persons to be nominated; (B) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (C) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations is or are to be made by the stockholder; (D) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if the nominee had been nominated by the Board of Directors; and (E) the written consent of each nominee to serve as a director of the Corporation if elected. The chairman of any meeting of stockholders may refuse to acknowledge the nomination of any person if not made in compliance with the foregoing procedure.
(c) Notwithstanding any other provision of this Certificate of Incorporation or the by-laws (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the by-laws), and in addition to any affirmative vote required by law, the affirmative vote of the holders of at least 80% of the voting power of the outstanding capital stock of the Corporation entitled to vote, voting together as a single class, shall be required to amend, adopt in this Certificate of Incorporation or in the by-laws any provision inconsistent with, or repeal this Article SEVENTH.
EIGHTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by any such holders. Except as otherwise required by law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the President or a majority of the Board of Directors, subject to the rights of holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation which shall have the right, voting separately by class or series, to elect directors. Notwithstanding any other provision of this Certificate of Incorporation or the by-laws (and notwithstanding that a lesser percentage may be specified by law, this Certificate of Incorporation or the by-laws), and in addition to any affirmative vote required by law, the
4
affirmative vote of the holders of at least 80% of the voting power of the outstanding capital stock of the Corporation entitled to vote, voting together as a single class, shall be required to amend, adopt in this Certificate of Incorporation or in the by-laws any provision inconsistent with, or repeal this Article EIGHTH.
NINTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.
By resolution passed by a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the Directors of the Corporation, which, to the extent provided in the resolution or in the by-laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the Corporation or as may be determined from time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called for that purpose, to sell, lease or exchange all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock in, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the Corporation.
TENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement
5
and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
ELEVENTH: Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. Elections of Directors need not be by ballot unless the by-laws of the Corporation shall so provide.
TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
THIRTEENTH: 1. The affirmative vote of the holders of 95% of all shares of stock of the Corporation entitled to vote in elections of directors, considered for the purposes of this Article THIRTEENTH as one class, shall be required for the adoption or authorization of a business combination (as hereinafter defined) with any other entity (as hereinafter defined) if, as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon, such other entity is the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors considered for the purposes of this Article THIRTEENTH as one class; provided that such 95% voting requirement shall not be applicable if:
(a) The cash, or fair market value of other consideration, to be received per share by common stockholders of the Corporation in such business combination bears the same or a greater percentage relationship to the market price of the Corporation's common stock immediately prior to the announcement of such business combination as the highest per share price (including brokerage commissions and soliciting dealers' fees) which such other entity has theretofore paid for any of the shares of the Corporation's common stock already owned by it bears to the market price of the common stock of the Corporation immediately prior to the commencement of acquisition of the Corporation's common stock by such other entity;
(b) The cash, or fair market value of other consideration, to be received per share by common stockholders of the Corporation in such business combination
(i) is not less than the highest per share price (including brokerage commissions and soliciting dealers' fees) paid by such other entity in acquiring any of its holdings of the Corporation's common stock, and (ii) is not less than the earnings per share of common stock of the Corporation for the four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes on
6
such business combination, multiplied by the then price/earnings multiple (if any) of such other entity as customarily computed and reported in the financial community;
(c) After such other entity has acquired a 30% interest and prior to the consummation of such business combination: (i) such other entity shall have taken steps to ensure that the Corporation's Board of Directors included at all times representation by continuing director(s) (as hereinafter defined) proportionate to the stockholdings of the Corporation's public common stockholders not affiliated with such other entity (with a continuing director to occupy any resulting fractional board position); (ii) there shall have been no reduction in the rate of dividends payable on the Corporation's common stock except as necessary to insure that a quarterly dividend payment does not exceed 5% of the net income of the Corporation for the four full consecutive fiscal quarters immediately preceding the declaration date of such dividend, or except as may have been approved by a unanimous vote of the directors; (iii) such other entity shall not have acquired any newly issued shares of stock, directly or indirectly, from the Corporation (except upon conversion of convertible securities acquired by it prior to obtaining a 30% interest or as a result of a pro rata stock dividend or stock split); and (iv) such other entity shall not have acquired any additional shares of the Corporation's outstanding common stock or securities convertible into common stock except as a part of the transaction which results in such other entity acquiring its 30% interest;
(d) Such other entity shall not have (i) received the benefit, directly or indirectly (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assis- tance or tax credits of or provided by the Corporation, or (ii) made any major change in the Corporation's business or equity capital structure without the unanimous approval of the directors, in either case prior to the consummation of such business combination; and
(e) A proxy statement responsive to the requirements of the United States securities laws shall be mailed to all common stockholders of the Corporation for the purpose of soliciting stock- holder approval of such business combination and shall contain on its first page thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the business combination which the continuing directors, or any of them, may choose to state and, if deemed advisable by a majority of the continuing directors, an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such business combination, from the point of view of the remaining public stockholders of the Corporation (such investment banking firm to be selected by a majority of the continuing directors and to be paid a reasonable fee for their services by the Corporation upon receipt of such opinion).
The provisions of this Article THIRTEENTH shall also apply to a business combination with any other entity which at any time has been the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors considered for the purposes of this Article THIRTEENTH as one class, notwithstanding the fact that such other entity has reduced its shareholdings below 30% if, as of the record date for the determination of stockholders entitled to notice of and to vote on to the business combination, such other entity is an "affiliate" of the Corporation (as hereinafter defined).
7
2. As used in this Article THIRTEENTH, (a) the term "other entity" shall include any corporation, person or other entity and any other entity with which it or its "affiliate" or "associate" (as defined below) has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of stock of the Corporation, or which is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on March 31, 1981, together with the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the Corporation's stock within the meaning of the Securities Act of 1933; (b) an other entity shall be deemed to be the beneficial owner of any shares of stock of the Corporation which the other entity (as defined above) has the right to acquire pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise; (c) the outstanding shares of any class of stock of the Corporation shall include shares deemed owned through application of clause (b) above but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (d) the term "business combination" shall include any merger or consolidation of the Corporation with or into any other entity, or the sale or lease of all or any substantial part of the assets of the Corporation to, or any sale or lease to the Corporation or any subsidiary thereof in exchange for securities of the Corporation of any assets (except assets having an aggregate fair market value of less than $5,000,000) of any other entity; (e) the term "continuing director" shall mean a person who was a member of the Board of Directors of the Corporation elected by stockholders prior to the time that such other entity acquired in excess of 10% of the stock of the Corporation entitled to vote in the election of directors, or a person recommended to succeed a continuing director by a majority of continuing directors; and (f) for the purposes of subparagraphs l(a) and (b) of this Article THIRTEENTH the term "other consideration to be received" shall mean, in addition to other consideration received, if any, capital stock of the Corporation retained by its existing public stockholders in the event of a business combination with such other entity in which the Corporation is the surviving corporation.
3. A majority of the continuing directors shall have the power and duty to determine for the purposes of this Article THIRTEENTH on the basis of information known to them whether (a) such other entity beneficially owns 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors; (b) an other entity is an "affiliate" or "associate" (as defined above) of another; (c) an other entity has an agreement, arrangement or understanding with another; or (d) the assets being acquired by the Corporation, or any subsidiary thereof, have an aggregate fair market value of less than $5,000,000.
4. No amendment to the Certificate of Incorporation of the Corporation shall amend or repeal any of the provisions of this Article THIRTEENTH, unless the amendment effecting such amendment or repeal shall receive the affirmative vote of the holders of 95% of all shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article THIRTEENTH as one class; provided that this paragraph 4 shall not apply to, and such 95% vote shall not be required for, any amendment or repeal unanimously recommended to
8
the stockholders by the Board of Directors of the Corporation if all of such directors are persons who would be eligible to serve as "continuing directors" within the meaning of paragraph 2 of this Article THIRTEENTH.
5. Nothing contained in this Article THIRTEENTH shall be construed to relieve any other entity from any fiduciary obligation imposed by law.
FOURTEENTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further limitation or elimination of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on liability provided herein, shall be limited to the fullest extent permitted by the Delaware General Corporation Law, as amended. Any repeal or modification of this Article FOURTEENTH shall not increase the liability of any director of this Corporation for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
FIFTEENTH: 1. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or employee of the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer, or employee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of such person's heirs, executors and administrators. The Corporation shall indemnify a director, officer or employee in connection with an action, suit or proceeding (other than an action, suit or proceeding to enforce indemnification rights provided for herein or elsewhere) initiated by such director, officer or employee only if such action, suit or proceeding was authorized by the Board of Directors. The right to indemnification conferred in this Paragraph 1 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any action, suit or proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in such person's capacity as a director
9
or officer (and not in any other capacity in which service was or is rendered by such person) in advance of the final disposition of an action, suit or proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified for such expenses under this Article FIFTEENTH or otherwise.
2. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide indemnification and the advancement of expenses, to any agent of the Corporation and to any person (other than directors, officers and employees of the Corporation, who shall be entitled to indemnification under Paragraph 1 above) who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, to such extent and to such effect as the Board of Directors shall determine to be appropriate and permitted by applicable law, as the same exists or may hereafter be amended.
3. The rights to indemnification and to the advancement of expenses conferred in this Article FIFTEENTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or by-laws of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise.
IN WITNESS WHEREOF, said MASCO CORPORATION has caused this Certificate to be signed by Richard A. Manoogian, its Chairman of the Board and Chief Executive Officer this 23rd day of February, 2006.
MASCO CORPORATION

By: /s/ Richard A. Manoogian
    ------------------------------------
    Richard A. Manoogian
    Chairman of the Board and
    Chief Executive Officer	

10
 
EXHIBIT 4.b.i

MASCO CORPORATION,
ISSUER
AND
BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION
TRUSTEE

Indenture
Dated as of February 12, 2001

Reconciliation and tie(1) between Trust Indenture Act of 1939, as amended, and
Indenture, dated as of February 12, 2001 between Masco Corporation, Issuer and Bank One Trust Company, NA, Trustee

TRUST INDENTURE                                                     INDENTURE
ACT SECTION                                                          SECTION
---------------                                                 ----------------
Section 310(a)(1)............................................   6.09
   (a)(2)....................................................   6.09
   (a)(3)....................................................   Not Applicable
   (a)(4)....................................................   Not Applicable
   (b).......................................................   6.08
   ..........................................................   6.10
Section 311(a)...............................................   6.13
   (b).......................................................   6.13
   (b)(2)....................................................   7.03(a)(ii)
Section 312(a)...............................................   7.01
   ..........................................................   7.02(a)
   (b).......................................................   7.02(b)
   (c).......................................................   7.02(c)
Section 313(a)...............................................   7.03(a)
   (b).......................................................   7.03(b)
   (c).......................................................   7.03(a), 7.03(b)
   (d).......................................................   7.03(c)
Section 314(a)...............................................   7.04
   (b).......................................................   Not Applicable
   (c)(1)....................................................   1.02
   (c)(2)....................................................   1.02
   (c)(3)....................................................   Not Applicable
   (d).......................................................   Not Applicable
   (e).......................................................   1.02
Section 315 (a)..............................................   6.01(a)(i)	

(1) NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

2
TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
                                    ARTICLE 1
                        DEFINITIONS AND OTHER PROVISIONS

Section 1.01   Definitions  For all purposes of this Indenture, except as
               otherwise expressly provided or unless the context
               otherwise requires:.......................................     1
Section 1.02.  Compliance Certificates And Opinions......................     8
Section 1.03.  Form Of Documents Delivered To Trustee....................     9
Section 1.04.  Acts Of Holders...........................................     9
Section 1.05.  Notices, Etc.,............................................    10
Section 1.06.  Notice To Holders; Waiver.................................    11
Section 1.07.  Conflict With Trust Indenture Act.........................    11
Section 1.08.  Effect Of Headings And Table Of Contents..................    11
Section 1.09.  Successors And Assigns....................................    11
Section 1.10.  Separability Clause.......................................    12
Section 1.11.  Benefits Of Indenture.....................................    12
Section 1.12.  Governing Law.............................................    12
Section 1.13.  Legal Holidays............................................    12
Section 1.14.  Counterparts..............................................    12

                                    ARTICLE 2
                                 SECURITY FORMS

Section 2.01.  Forms Generally...........................................    12
Section 2.02.  Securities In Permanent Global Form.......................    13

                                    ARTICLE 3
                                 THE SECURITIES

Section 3.01.  Amount Unlimited; Issuable In Series......................    14
Section 3.02.  Denominations.............................................    17
Section 3.03.  Execution, Authentication, Delivery And Dating............    17
Section 3.04.  Temporary Securities......................................    20
Section 3.05.  Registration, Registration Of Transfer And Exchange.......    20
Section 3.06.  Mutilated, Destroyed, Lost And Stolen Securities..........    23
Section 3.07.  Payment Of Interest; Interest Rights Preserved............    24
Section 3.08.  Persons Deemed Owners.....................................    25
Section 3.09.  Cancellation..............................................    25
Section 3.10.  Computation Of Interest...................................    26

                                    ARTICLE 4
                           SATISFACTION AND DISCHARGE

Section 4.01.  Satisfaction And Discharge Of Indenture...................    26
Section 4.02.  Defeasance Of Securities Of Any Series....................    27	

Section 4.03.  Application Of Trust Funds; Indemnification...............    29
Section 4.04.  Reinstatement.............................................    30

                                    ARTICLE 5
                                    REMEDIES

Section 5.01.  Events Of Default.........................................    30
Section 5.02.  Acceleration Of Maturity; Rescission And Annulment........    31
Section 5.03.  Collection Of Indebtedness And Suits For Enforcement By
               Trustee...................................................    32
Section 5.04.  Trustee May File Proofs Of Claim..........................    33
Section 5.05.  Trustee May Enforce Claims Without Possession Of
               Securities................................................    34
Section 5.06.  Application Of Money Collected............................    34
Section 5.07.  Limitation On Suits.......................................    35
Section 5.08.  Unconditional Right Of Holders To Receive Principal,
               Premium And Interest......................................    35
Section 5.09.  Restoration Of Rights And Remedies........................    35
Section 5.10.  Rights And Remedies Cumulative............................    36
Section 5.11.  Delay Or Omission Not Waiver..............................    36
Section 5.12.  Control By Holders........................................    36
Section 5.13.  Waiver Of Past Defaults...................................    36
Section 5.14.  Undertaking For Costs.....................................    37
Section 5.15.  Waiver Of Usury, Stay Or Extension Law....................    37

                                    ARTICLE 6
                                   THE TRUSTEE

Section 6.01.  Certain Duties And Responsibilities.......................    38
Section 6.02.  Notice Of Defaults........................................    39
Section 6.03.  Certain Rights Of Trustee.................................    39
Section 6.04.  Not Responsible For Recitals Or Issuance Of Securities....    40
Section 6.05.  May Hold Securities.......................................    40
Section 6.06.  Money Held In Trust.......................................    41
Section 6.07.  Compensation And Reimbursement............................    41
Section 6.08.  Disqualification; Conflicting Interest....................    41
Section 6.09.  Corporate Trustee Required; Eligibility...................    42
Section 6.10.  Resignation And Removal; Appointment Of Successor.........    42
Section 6.11.  Acceptance Of Appointment By Successor....................    43
Section 6.12.  Merger, Conversion, Consolidation Or Succession To
               Business..................................................    44
Section 6.13.  Preferential Collection Of Claims.........................    45
Section 6.14.  Appointment Of Authenticating Agent.......................    45

                                    ARTICLE 7
                HOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY

Section 7.01.  Company To Furnish Trustee Names And Addresses Of
               Holders...................................................    47
Section 7.02.  Preservation Of Information; Communications To Holders....    47
Section 7.03.  Reports By Trustee........................................    48
Section 7.04.  Reports By Company........................................    50	

ii

                                    ARTICLE 8
              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Section 8.01.  Company May Consolidate, Etc.,............................    50
Section 8.02.  Successor Corporation To Be Substituted For Company.......    51
Section 8.03.  Securities To Be Secured In Certain Events................    51
Section 8.04.  Evidence To Be Furnished To The Trustee...................    52

                                    ARTICLE 9
                             SUPPLEMENTAL INDENTURES

Section 9.01.  Supplemental Indentures Without Consent Of Holders........    52
Section 9.02.  Supplemental Indentures With Consent Of Holders...........    53
Section 9.03.  Execution Of Supplemental Indentures......................    54
Section 9.04.  Effect Of Supplemental Indentures.........................    54
Section 9.05.  Conformity With Trust Indenture Act.......................    54
Section 9.06.  Reference In Securities To Supplemental Indentures........    54

                                   ARTICLE 10
                                    COVENANTS

Section 10.01.  Payment Of Principal, Premium And Interest...............    55
Section 10.02.  Maintenance Of Office Or Agency..........................    55
Section 10.03.  Money For Securities Payments To Be Held In Trust........    55
Section 10.04.  Limitations On Liens.....................................    57
Section 10.05.  Limitation On Sale And Leaseback.........................    58
Section 10.06.  Defeasance Of Certain Obligations........................    59
Section 10.07.  Certificate Of Officers Of The Company...................    60

                                   ARTICLE 11
                            REDEMPTION OF SECURITIES

Section 11.01.  Applicability Of Article.................................    61
Section 11.02.  Election To Redeem; Notice To Trustee....................    61
Section 11.03.  Selection By Trustee Of Securities To Be Redeemed........    61
Section 11.04.  Notice Of Redemption.....................................    62
Section 11.05.  Deposit Of Redemption Price..............................    62
Section 11.06.  Securities Payable On Redemption Date....................    63
Section 11.07.  Securities Redeemed In Part..............................    63

                                   ARTICLE 12
                                  SINKING FUNDS

Section 12.01.  Applicability Of Article.................................    63
Section 12.02.  Satisfaction Of Sinking Fund Payments With Securities....    64
Section 12.03.  Redemption Of Securities For Sinking Fund................    64

EXHIBIT A - FORM OF SECURITIES...........................................    A-1	

iii
INDENTURE, dated as o February 12, 2001, between MASCO CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "COMPANY"), and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as Trustee (herein called the "TRUSTEE").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "SECURITIES"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
Section 1.01. Definitions For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and except as otherwise herein expressly provided, the term "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and
(d) the words "HEREIN," "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
Certain terms, used principally in Article 6, are defined in that Article.
"ACT," when used with respect to any Holder, has the meaning specified in
Section 1.04.
"AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"ATTRIBUTABLE DEBT" means in respect of a sale and leaseback arrangement, at the time of determination, the lesser of (x) the fair value of the property subject to such arrangement (as determined by the Board of Directors) or (y) the present value (discounted at the rate per annum equal to the interest borne by fixed-rate Securities or the Yield to Maturity at the time of issuance of any Original Issue Discount Securities determined on a weighted average basis compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended or may, at the option of the lessor, be extended) after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water and utility rates and similar charges. In the case of any such lease which may be terminated by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. Notwithstanding the foregoing, there shall not be deemed to be any Attributable Debt in respect of a sale and leaseback arrangement if
(i) such arrangement involves property of a type to which Section 10.04 does not apply, (ii) the Company or a Consolidated Subsidiary would be entitled pursuant to the provisions of Section 10.04(a) to issue, assume or guarantee Debt (as defined in said Section 10.04(a)), secured by a mortgage upon the property involved in such arrangement without equally and ratably securing the Securities, or (iii) the greater of the proceeds of such arrangement or the fair market value of the property so leased has been applied or credited in accordance with clause (b) of Section 10.05.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.
"BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
2
"BUSINESS DAY," when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law to close.
"COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"COMPANY" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
"CONSOLIDATED NET TANGIBLE ASSETS" means the aggregate amount of assets (less applicable reserves) of the Company and its Consolidated Subsidiaries after deducting therefrom (a) all current liabilities (excluding any such liabilities deemed to be Funded Debt), (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (c) all investments in any Subsidiary other than a Consolidated Subsidiary, in all cases computed in accordance with generally accepted accounting principles and which under generally accepted accounting principles would appear on a consolidated balance sheet of the Company and its Consolidated Subsidiaries. For purposes of the foregoing, the term "investment in any Subsidiary other than a Consolidated Subsidiary" shall mean all evidences of indebtedness, capital stock, other securities, obligations or indebtedness of any Subsidiary other than a Consolidated Subsidiary owned or held by or owed to the Company or any Consolidated Subsidiary, except an evidence of indebtedness, an account receivable or an obligation or indebtedness on open account resulting directly from the sale of goods or merchandise or services for fair value in the ordinary course of business by the Company or the Consolidated Subsidiary to a Subsidiary other than a Consolidated Subsidiary.
"CONSOLIDATED SUBSIDIARY" means each Subsidiary other than any Subsidiary the accounts of which (i) are not required by generally accepted accounting principles to be consolidated with those of the Company for financial reporting purposes, (ii) were not consolidated with those of the Company in the Company's then most recent annual report to stockholders and (iii) are not intended by the Company to be consolidated with those of the Company in its next annual report to stockholders; provided, however, that the term "Consolidated Subsidiary" shall not include (a) any Subsidiary which is principally engaged in (i) owning, leasing, dealing in or developing real property, or (ii) purchasing or financing accounts receivable, making loans, extending credit or other activities of a character conducted by a finance company or (b) any Subsidiary, substantially all of the
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business, properties or assets of which were acquired after [date of Indenture] (by way of merger, consolidation, purchase or otherwise), unless the Board of Directors thereafter designates such Subsidiary a Consolidated Subsidiary.
"CORPORATE TRUST OFFICE" means the office of the Trustee in Chicago, Illinois at which at any particular time corporate trust business shall be principally administered. At the date of execution of this Indenture the address of the Corporate Trust Office is Bank One Plaza, Suite IL1-0126, Chicago, IL 60670-0126.
"CORPORATION" includes corporations, associations, companies and business trusts.
"DEFAULTED INTEREST" has the meaning specified in Section 3.07.
"DEPOSITARY" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more permanent global Securities, the Person designated as Depositary by the Company pursuant to
Section 3.01, which must be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and if at any time there is more than one such Person, "Depositary" as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01.
"FUNDED DEBT" means all indebtedness having a maturity of more than 12 months from the date of the determination thereof or having a maturity of less than 12 months but by its terms being renewable or extendible at the option of the borrower beyond 12 months from the date of such determination (a) for money borrowed or (b) incurred in connection with the acquisition of any real or personal property, stock, debt or other assets (to the extent that any of the foregoing acquisition indebtedness is represented by any notes, bonds, debentures or similar evidences of indebtedness), and for the payment of which the Company or any Consolidated Subsidiary is directly or contingently liable, or which is secured by any property of the Company or any Consolidated Subsidiary.
"HOLDER" means a Person in whose name a Security is registered in the Security Register.
"INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01.
"INTEREST," when used with respect to an Original Issue Discount Security which by its terms bears interest only upon Maturity, means interest payable after Maturity.
"INTEREST PAYMENT DATE," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
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"MATURITY," when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee.
"ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02.
"OUTSTANDING," used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption (a) money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities or (b) U.S. Government Obligations as contemplated by Section 4.02 in the necessary amount have been theretofore deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09) in trust for the Holders of such Securities in accordance with Section 4.03; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities as to which defeasance has been effected pursuant to
Section 4.02 and not reinstated pursuant to Section 4.04; and
(iv) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and
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payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 5.02, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 3.01, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by
Section 3.01, of the principal amount of such Security (or, in the case of a Security described in clause (A) or (B) of this paragraph, of the amount determined as provided in such clause), and (D) Securities owned by the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
"PARTNERSHIP" means any joint venture, partnership or participation by which the Company with one or more Persons forms a business arrangement to own or acquire tangible personal property for the purpose of financing such property and allocating rights to profits and liabilities for losses, and establishing obligations, among the Company and such Persons relating to such financing.
"PAYING AGENT" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.
"PERIODIC OFFERING" means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Company or its agents upon the issuance of such Securities.
"PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"PLACE OF PAYMENT," when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 3.01.
"PREDECESSOR SECURITY" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under
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Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"PRINCIPAL PROPERTY" means any manufacturing plant, research or engineering facility owned or leased by the Company or any Consolidated Subsidiary which is located within the United States of America or Puerto Rico, except any such plant or facility which, in the opinion of the Board of Directors, is not of material importance to the total business conducted by the Company and its Consolidated Subsidiaries as an entirety.
"REDEMPTION DATE," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"REDEMPTION PRICE," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any officer within the Corporate Trustee Administration Department, including any vice president, any assistant secretary, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"SECURITIES" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings specified in Section 3.05.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
"STATED MATURITY," when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"SUBSIDIARY" means any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (excluding in the computation of such percentage stock of any class or classes of such corporation which has or might have voting power by reason of the happening of any contingency) is at the time owned by the
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Company, or by one or more Subsidiaries, or by the Company and one or more Subsidiaries.
"TRUSTEE" means the Person named as the "TRUSTEE" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended, as in force on the date on which this instrument was executed provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended.
"U.S. GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt for any amount received by the custodian with respect to the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation.
"VICE PRESIDENT," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president."
"YIELD TO MATURITY" means the yield to maturity on a series of Securities, calculated at the time of issuance of such series of Securities, or if applicable, at the most recent redetermination of interest on such series and calculated in accordance with accepted financial practice.
Section 1.02. Compliance Certificates And Opinions.
Unless otherwise provided herein, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all
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such conditions precedent, if any, have been complied with and, unless otherwise provided herein, no additional certificate or opinion need be furnished.
Every certificate or opinion, other than the Officers' Certificate called for by Section 10.07, with respect to compliance with a condition or covenant provided for in this Indenture shall include
(a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
Section 1.03. Form Of Documents Delivered To Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
Section 1.04. Acts Of Holders.
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(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. If any Securities are denominated in coin or currency other than that of the United States, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action with respect to the Securities of more than one series as herein described, the principal amount of such Securities shall be deemed to be that amount of United States dollars that could be obtained for such principal amount on the basis of the spot rate of exchange into United States dollars for the currency in which such Securities are denominated (as evidenced to the Trustee by an Officers' Certificate) as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the immediately preceding sentence. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
Section 1.05. Notices, Etc., To Trustee And Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
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(a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or at any other address previously furnished in writing to the Company and the Holders by the Trustee; or
(b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at 21001 Van Born Road, Taylor, Michigan 48180 or at any other address previously furnished in writing to the Trustee by the Company.
Section 1.06. Notice To Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
Section 1.07. Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.
Section 1.08. Effect Of Headings And Table Of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
Section 1.09. Successors And Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
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Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11. Benefits Of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the Parties hereto, any Authenticating Agent, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to any conflicts of laws principles therein.
Section 1.13. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then, unless otherwise specified in such Security, payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
Section 1.14. Counterparts.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
ARTICLE 2
SECURITY FORMS
Section 2.01. Forms Generally.
The Securities of each series shall be in substantially the form set forth in Exhibit A, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law
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or any rules or regulations pursuant thereto, or with the rules of any securities exchange or to conform to general usage, all as may consistently herewith be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities.
The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
Section 2.02. Securities In Permanent Global Form.
If the Company shall establish pursuant to Section 3.01 that the Securities of a series are to be issued in whole or in part in permanent global form, then notwithstanding Section 3.01(g) and the provisions of Section 3.02, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced or increased to reflect exchanges. Any endorsement of a Security in permanent global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee or the Security Registrar in such manner and upon instructions given by such Person or Persons as shall be specified in such Security in permanent global form or in the Company Order to be delivered to the Trustee pursuant to
Section 3.03 or . Subject to the provisions of Section 3.03 and, if applicable,
Section 3.04, the Trustee or the Security Registrar shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified in such Security or in the applicable Company Order. If a Company Order pursuant to Section 3.03 or 3.04 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a global Security shall be in writing but need not comply with Section 1.02 and need not be accompanied by an Officers' Certificate or an Opinion of Counsel, provided that the form of permanent global Security to be endorsed, delivered or redelivered has previously been covered by an Opinion of Counsel.
The provisions of the last sentence of Section 3.03 shall only apply to any Security represented by a Security in permanent global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee or the Security Registrar the Security in permanent global form together with written instructions (which need not comply with Section 1.02 and need not be accompanied by an Officers' Certificate or an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 3.03.
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Unless otherwise specified as contemplated by Section 3.01 for the Securities evidenced thereby, every Security in permanent global form authenticated and delivered hereunder shall bear a legend in substantially the following form:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF THE DEPOSITARY OR ITS NOMINEE AND ANY PAYMENT IS MADE TO THE DEPOSITARY OR ITS NOMINEE, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF HAS AN INTEREST HEREIN.
ARTICLE 3
THE SECURITIES
Section 3.01. Amount Unlimited; Issuable In Series.
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. All Securities issued under this Indenture shall constitute unsecured and unsubordinated obligations of the Company and shall rank pari passu with all of the Company's other unsecured and unsubordinated obligations.
The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series
(a) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);
(b) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.07 and except for any Securities which, pursuant to
Section 3.03 of the Indenture, shall have not been issued and sold by the Company and are therefore deemed never to have been authenticated and delivered hereunder);
(c) the date or dates on which the principal of the Securities of the series is payable;
(d) the Person to whom any interest on any Security of the series shall be payable if other than as set forth in Section 3.07; the rate or rates at which any Securities of the series shall bear interest or the manner of calculation of such rate or rates, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on
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which any such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date;
(e) the place or places where the principal of and any premium or interest on Securities of the series shall be payable;
(f) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced;
(g) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased in whole or in part, pursuant to such obligation;
(h) if other than denominations of $1,000 and any multiple thereof, the denominations in which Securities of the series shall be issuable;
(i) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02;
(j) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 4.02 or Section 10.06 (and in the case of defeasance pursuant to Section 10.06, the negative or restrictive covenants that shall be subject to such defeasance) or both Sections and if other than by a Board Resolution, the manner in which any election by the Company to defease those securities shall be evidenced;
(k) whether the Securities of the series are to be issuable in whole or in part in permanent global form, without coupons, and, if so, (i) the form of any legend or legends which shall be borne by any such permanent global Security in addition to or in lieu of that set forth in Section 2.02, (ii) any circumstances in addition to or in lieu of those set forth in Clause 3.05(a) in which such permanent global Security may be exchanged in whole or in part for Securities registered, and in which any transfer of such permanent global Security in whole or in part may be registered, in the name of Persons other than the Depositary for such permanent global Security or a nominee thereof and (iii) the Depositary with respect to any such permanent global Security or Securities;
(l) the currency or currencies, including composite currencies, in which payment of the principal of, and any premium and interest on, the Securities of the series shall be payable if other than the currency of the United States of America;
(m) if the principal of, or any premium or interest on, any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are
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stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined);
(n) if the amount of payments of principal of, or any premium or interest on, the Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined;
(o) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined);
(p) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 5.01;
(q) whether and under what circumstances the Company will pay additional amounts on the Securities of the series held by a person who is not a U.S. person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Company will have the option to redeem such Securities rather than pay such additional amounts;
(r) any trustees, depositaries, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Securities of such series;
(s) if the Securities of any series may be converted into or exchanged for stock or other securities or other property of the Company or other entities, the terms upon which such series may be converted or exchanged, any specific terms relating to the adjustment thereof and the period during which such Securities may be so converted or exchanged;
(t) any addition to or change in the covenants set forth in Article 10 which applies to any Securities of the series; and
(u) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.01(e)).
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 3.03) set forth in the Officers'
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Certificate that established the form of the Securities of such series or in any such indenture supplemental hereto.
All Securities of any one series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided in or pursuant to such Board Resolution, such Officers' Certificate or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series.
Section 3.02. Denominations.
The Securities of each series shall be issuable in registered form without coupons and, except for any Security issuable in permanent global form, in such denominations as shall be specified in accordance with . In the absence of such provisions with respect to the Securities of any series, the Securities of such series, other than a Security issuable in permanent global form, shall be issuable in denominations of $1,000 and any multiple thereof.
Section 3.03. Execution, Authentication, Delivery And Dating.
The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, one of its Vice Presidents or its Treasurer, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with the applicable documents referred to below in this Section, and the Trustee shall thereupon authenticate and deliver such Securities to or upon the order of the Company (contained in the Company Order referred to below in this Section) or pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by a Company Order. The maturity date, original issue date, interest rate and any other terms of the Securities of such series shall be determined by or pursuant to such Company Order and procedures. If provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral instructions from the Company or its duly authorized agent, which instructions shall be promptly confirmed in writing. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such
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Securities, the Trustee shall be entitled to receive (in the case of subparagraphs 3.03(ii), 3.03(iii) and 3.03(iv) below, only at or before the time of the first request of the Company to the Trustee to authenticate Securities of such series) and (subject to Section 6.01) shall be fully protected in relying upon, unless and until such documents have been superseded or revoked:
(i) a Company Order requesting such authentication and setting forth delivery instructions if the Securities are not to be delivered to the Company, provided that, with respect to Securities of a series subject to a Periodic Offering, (a) such Company Order may be delivered by the Company to the Trustee prior to the delivery to the Trustee of such Securities for authentication and delivery, (b) the Trustee shall authenticate and deliver Securities of such series for original issue from time to time, in an aggregate principal amount not exceeding the aggregate principal amount, if any, established for such series, pursuant to a Company Order or pursuant to procedures acceptable to the Trustee as may be specified from time to time by a Company Order, (c) the maturity date or dates, original issue date or dates, interest rate or rates and any other terms of Securities of such series shall be determined by a Company Order or pursuant to such procedures and (d) if provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing;
(ii) any Board Resolution, Officers' Certificate and/or executed supplemental indenture referred to in Sections 2.01 and 3.01 by or pursuant to which the forms and terms of the Securities were established;
(iii) an Officers' Certificate setting forth the form or forms and (to the extent established) the terms of the Securities, stating that the form or forms and any such terms of the Securities have been established pursuant to Sections 2.01 and 3.01 and comply with this Indenture, and covering such other matters as the Trustee may reasonably request; and
(iv) At the option of the Company, either an Opinion of Counsel, or a letter addressed to the Trustee permitting to it rely on an Opinion of Counsel, substantially to the effect that:
(A) the forms of the Securities have been duly authorized and established in conformity with the provisions of this Indenture;
(B) if all of the terms of the Securities of such series have been established, the terms of the Securities have been duly authorized by the Company and established in conformity with the provisions of this Indenture, and, in the case of all other offerings, certain terms of the Securities have been established pursuant to a Board Resolution, an Officers' Certificate or a supplemental indenture in accordance with this Indenture, and when such other terms as are to be established pursuant to
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procedures set forth in a Company Order shall have been established, all such terms will have been duly authorized by the Company and will have been established in conformity with the provisions of this Indenture;
(C) when the Securities have been executed by the Company and authenticated by the Trustee in accordance with the provisions of this Indenture and delivered to and duly paid for by the purchasers thereof, they will have been duly issued under this Indenture and will be valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, and will be entitled to the benefits of this Indenture; and
(D) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Securities will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, considered as one enterprise, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval or authorization of any governmental body or agency is required for the performance by the Company of its obligations under the Securities, except such as are specified and have been obtained and such as may be required by the securities or blue sky laws of the various states in connection with the offer and sale of the Securities.
In rendering such opinions, such counsel may qualify any opinions as to enforceability by stating that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting the rights and remedies of creditors and is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Such counsel may rely upon opinions of other counsel (copies of which shall be delivered to the Trustee), who shall be counsel reasonably satisfactory to the Trustee, in which case the opinion shall state that such counsel believes he and the Trustee are entitled so to rely. Such counsel may also state that, insofar as such opinion involves factual matters, he has relied, to the extent he deems proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials.
The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken by the Company or if the Trustee in good faith by its board of directors or board of trustees, executive committee, or a trust committee of directors or trustees or Responsible Officers shall determine that such action would expose the Trustee to personal liability to existing Holders or would affect the Trustee's own rights, duties or immunities under the Securities, this Indenture or otherwise.
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Each Security shall be dated the date of its authentication. Unless otherwise specified as contemplated by Section 3.01 for any Security, interest on the each Security will accrue from the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing and subject, in the case of a Security in permanent global form, to Section 2.02, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.09 together with a written statement (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) directing such cancellation and stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.04. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series and of like tenor of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
Section 3.05. Registration, Registration Of Transfer And Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the
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Company in a Place of Payment being herein sometimes collectively referred to as the "SECURITY REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and transfers of Securities. The Trustee is hereby appointed "SECURITY REGISTRAR" for the purpose of registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees one or more new Securities of the same series of any authorized denominations and of a like aggregate principal amount and of like tenor.
At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and of like tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (a) - (g) below shall apply only to permanent global Securities:
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(a) Each permanent global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such permanent global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such permanent global Security shall constitute a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provisions in this Indenture, no permanent global Security may be exchanged in whole or in part for Securities registered, and no transfer of a permanent global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such permanent global Security or a nominee thereof unless (i) the Depositary notifies the Company pursuant to Clause 3.05(c) of this Section that it is unwilling or unable to continue as Depositary for such permanent global Security or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, (ii) if the Company in its sole discretion determines pursuant to Clause 3.05(d) of this Section that such permanent global Security shall be so exchangeable or transferrable and executes and delivers to the Security Registrar a Company Order providing that such permanent global Security shall be so exchangeable or transferrable, (iii) any event shall have occurred and be continuing which, after notice or lapse of time, or both, would become an Event of Default with respect to the Securities of the series of which such permanent global Security is a part or (iv) there shall exist such circumstances, if any, in addition or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.01.
(c) Subject to Clause 3.05(a) above, any exchange of a permanent global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a permanent global Security or any portion thereof shall be registered in such names as the Depositary for such permanent global Security shall direct. The Trustee shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered.
(d) If at any time the Depositary for any Securities of a series represented by one or more global Securities notifies the Company that it is unwilling or unable to continue as Depositary for such Securities or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, the Company shall appoint a successor Depositary with respect to such Securities. If a successor Depositary for such Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility (and in any event before the Depositary surrenders such global Security for exchange), the Company's election that such Securities be represented by one or more global Securities shall no longer be effective and the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the global Security or Securities representing such Securities in exchange for such global Security or Securities.
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(e) The Company may at any time and in its sole discretion determine that the Securities of any series issued in the form of one or more global Securities shall no longer be represented by a global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of definitive Securities of such series, will authenticate and deliver Securities of such series in definitive registered form, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the global Security or Securities representing such Securities, in exchange for such global Security or Securities.
(f) Subject to Clause 3.05(a) above, with respect to Securities represented by a global Security, the Depositary for such global Security may surrender such global Security in exchange in whole or in part for Securities of the same series in definitive registered form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, without service charge,
(i) to the Person specified by such Depositary a new Security or Securities of the same series, of any authorized denomination as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person's beneficial interest in the global Security; and
(ii) to such Depositary a new global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered global Security and the aggregate principal amount of Securities authenticated and delivered pursuant to clause 3.05(f)(i) above.
Upon the exchange of a global Security for Securities in definitive registered form, in authorized denominations, such global Security shall be canceled by the Trustee.
(g) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a permanent global Security or any portion thereof, whether pursuant to this Section, Section 3.04, 3.06, 9.06 or 11.07 or otherwise, shall be authenticated and delivered in the form of, and shall be, a permanent global Security, unless such Security is registered in the name of a Person other than the Depositary for such permanent global Security or a nominee thereof.
Section 3.06. Mutilated, Destroyed, Lost And Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such
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Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.07. Payment Of Interest; Interest Rights Preserved.
Unless otherwise provided as contemplated by Section 3.01 with respect to any Security, interest on such Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; provided that if that Security or its Predecessor Security was originally issued on a date after a Regular Record Date and before the following Interest Payment Date, the first payment of interest on such Security will be made on the Interest Payment Date following the next succeeding Regular Record Date. Unless otherwise specified as contemplated by Section 3.01 for any Security, interest payable at Maturity (other than on a date which is an Interest Payment Date) will be paid to the same Person to whom the principal amount of this Security is payable.
Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the
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payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause 3.07(b).
(b) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
Section 3.08. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation.
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All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order.
Section 3.10. Computation Of Interest.
Except as otherwise specified as contemplated by Section 3.01 for any Security, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of 12 30-day months.
ARTICLE 4
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction And Discharge Of Indenture.
This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other than
(x) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (y) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity within one year, or
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(C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (A), (B) or (C) above has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, and any premium or interest, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Sections 4.03(b) and 6.07, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause 4.01(a)(ii), the obligations of the Trustee under Section 4.03 and the last paragraph of Section 10.03 shall survive.
Section 4.02. Defeasance Of Securities Of Any Series.
Unless otherwise specified pursuant to Section 3.01 with respect to any Security, then notwithstanding Section 4.01, the Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Securities of any series on the 91st day after the date of the deposit referred to in subparagraph 4.02(d) hereof, and the provisions of this Indenture, as it relates to such Outstanding Securities, shall no longer be in effect (and the Trustee, at the expense of the Company, shall at Company Request, execute proper instruments acknowledging the same) (hereinafter called "DEFEASANCE"), except as to:
(a) the rights of Holders of Securities to receive, from the trust funds described in subparagraph 4.02(d) hereof, (i) payment of the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest and
(ii) the benefit of any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and payable in accordance with the terms of the Indenture and such Securities;
(b) the Company's obligations with respect to such Securities under Sections 3.05, 3.06, 4.03, 10.02 and 10.03; and
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(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder;
provided that the following conditions have been satisfied:
(d) with reference to this provision, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to in clause (A) or (B) of this subparagraph 4.02(d) money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee for such purposes, (A) the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest on the Redemption Date, as the case may be, and (B) any mandatory sinking fund payments or analogous payments applicable to Securities of such series on the day on which such payments are due and payable, each in accordance with the terms of this Indenture and of such Securities;
(e) such Defeasance shall not cause the Trustee with respect to the Securities of that series to have a conflicting interest as defined in Section 6.08 and for purposes of the Trust Indenture Act with respect to the Securities of any series;
(f) such Defeasance will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
(g) such Defeasance would not cause any Outstanding Security of such series then listed on any nationally recognized securities exchange to be then delisted as a result thereof;
(h) no Event of Default or event which with notice or lapse of time would become an Event of Default with respect to Securities of the series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;
(i) the Company has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred;
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(j) the Company has delivered to the Trustee an Opinion of Counsel stating that (i) such deposit, defeasance and discharge would not cause any outstanding Security of such series then listed on any nationally recognized securities exchange to be delisted as a result thereof; and (ii) and that such Defeasance would not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended from time to time;
(k) the Company has delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, except that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion is given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee's possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of such Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise, and (B) such Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used; and
(l) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the Defeasance contemplated by this provision have been complied with.
Section 4.03. Application Of Trust Funds; Indemnification.
(a) Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 4.02 or
Section 10.06 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 4.02 or
Section 10.06 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee or to make mandatory sinking fund payments or analogous payments as contemplated by Section 4.02 or Section 10.06, as the case may be.
(b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations deposited pursuant to Section 4.02 or Section 10.06 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.
(c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 4.02 or 10.06 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to
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the Trustee, are then in excess of the amount which then would have been required to be deposited for the purpose for which such money or U.S. Government Obligations were deposited or received.
Section 4.04. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 4.02 or 10.06 with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application or upon the occurrence of an Event of Default, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to
Section 4.02 or 10.06 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 4.03 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust.
ARTICLE 5
REMEDIES
Section 5.01. Events Of Default.
"EVENT OF DEFAULT," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(c) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or
(d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period
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of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of each series affected thereby a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "NOTICE OF DEFAULT" hereunder; or
(e) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
(f) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(g) any events of default provided with respect to Securities of that series.
Section 5.02. Acceleration Of Maturity; Rescission And Annulment.
If an Event of Default described in clause 5.01(a), 5.01(b), 5.01(c), 5.01(d) or 5.01(g) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series (each such series voting as a separate class in the case of an Event of Default under clause 5.01(a), 5.01(b), 5.01(c) or 5.01(g), and all such series voting as one class in the case of such an Event of Default under clause 5.01(d)) may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of all of the Securities of such series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount)
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shall become immediately due and payable. If any Event of Default described in clause 5.01(d) with respect to all series of Securities then Outstanding, or any Event of Default described in clause 5.01(e) or 5.01(f) occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Outstanding Securities (voting as one class) may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of all the Securities then Outstanding to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
(a) the Company has paid or deposited with the Trustee a sum sufficient to pay
(i) the overdue interest on all Securities of the series,
(ii) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the interest rate or rates prescribed in such Securities,
(iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed for overdue interest in such Securities, and
(iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustees, its agents and counsel and all other amounts due under Section 6.07;
and
(b) all Events of Default with respect to Securities of that series other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
Section 5.03. Collection Of Indebtedness And Suits For Enforcement By Trustee.
The Company covenants that if
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(a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities, for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, other than those incurred due to the Trustee's bad faith or negligence.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy.
Section 5.04. Trustee May File Proofs Of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements
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and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holders hereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession Of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
Section 5.06. Application Of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under this Indenture; and
SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected ratably without preference or priority of any kind according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.
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Section 5.07.Limitation On Suits.
No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
(b) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of all Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
Section 5.08. Unconditional Right Of Holders To Receive Principal, Premium And Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
Section 5.09. Restoration Of Rights And Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former
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positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
Section 5.10. Rights And Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy..
Section 5.11. Delay Or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default which shall have occurred and shall be continuing shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12. Control By Holders.
The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that
(a) such direction shall not be in conflict with any rule of law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and
(c) the Trustee shall have the right to decline any direction with respect to which a Responsible Officer reasonably determines such direction will cause the Trustee to incur any liability for which it shall not have been adequately indemnified pursuant to Section 5.07.
Section 5.13. Waiver Of Past Defaults.
The Holders of (i) not less than a majority in principal amount of the Outstanding Securities of any series (each such series voting as a separate class) may on behalf of the Holders of all Securities of such series waive any past default or Event of Default described in clause 5.01(d) which relates to less than all series of Outstanding Securities
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or described in clause 5.01(g) with respect to such series and its consequences, or (ii) not less than a majority in principal amount of the Outstanding Securities affected thereby (voting as one class) may on behalf of the Holders of all the Outstanding Securities affected thereby waive any past default or Event of Default described in said clause 5.01(d) which relates to all such Outstanding Securities and its consequences, except in any such case a default
(a) in the payment of the principal of, or any premium or interest on, any Security of such series, or
(b) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
Section 5.14. Undertaking For Costs.
All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 25% in principal amount of the Outstanding Securities of any series or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date).
Section 5.15. Waiver Of Usury, Stay Or Extension Law.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension of law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
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ARTICLE 6
THE TRUSTEE
Section 6.01. Certain Duties And Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such duties as specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that
(i) this Subsection shall not be construed to limit the effect of Subsection 6.01(a);
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series, determined as provided in Section 5.12, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and
(iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
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(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
Section 6.02. Notice Of Defaults.
Within 90 days after receipt by the Trustee of written notice of the occurrence of any default hereunder with respect to the Securities of any series the Trustee shall transmit in the manner and to the extent provided in Section 7.03(d), notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series; and provided, further, that in the case of any default of the character specified in
Section 5.01(d) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "DEFAULT," means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.
Section 6.03. Certain Rights Of Trustee.
Subject to the provisions of Section 6.01:
(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
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(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and
(i) The Trustee's immunities and protections from liability and its rights to compensation and indemnification in connection with the performance of its duties under this Indenture shall extend to the Trustee's officers, directors, agents and employees. Such immunities and protections and right to indemnification, together with the Trustee's right to compensation, shall survive the Trustee's resignation or removal and final payment of the Securities.
Section 6.04. Not Responsible For Recitals Or Issuance Of Securities.
The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
Section 6.05. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
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Section 6.06. Money Held In Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
Section 6.07. Compensation And Reimbursement.
The Company agrees
(a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expenses, disbursements or advances as may be attributable to its negligence or bad faith;
(c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder; and
(d) The Trustee shall have, and is hereby granted, a first priority lien on all monies, securities and collateral (other than monies held in trust by the Trustee for the purpose of paying the principal, premium, if any, and interest on any specific Securities) held by or on behalf of the Trustee pursuant to this Indenture for payment or reimbursement to the Trustee of its fees, expenses and any other monies payable to it hereunder.
Section 6.08. Disqualification; Conflicting Interest.
(a) If the Trustee has or shall acquire any conflicting interest within the meaning of the Trust Indenture Act with respect to the Securities of any series, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign with respect to the Securities of that series in the manner and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the provisions of Subsection 6.08(a) with respect to the Securities of any series, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit by mail to all Holders of Securities of that series, as their names and addresses appear in the Security Register, notice of such failure.
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Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 subject to supervision or examination by Federal or State authority and having its Corporate Trust Office in any State in the United States of America or in the District of Columbia. If such corporation publishes or files reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published or filed. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
Section 6.10. Resignation And Removal; Appointment Of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.08(a) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
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then, in any such case, (A) the Company, by a Board Resolution, may remove the Trustee with respect to the applicable series of Securities, or (B) subject to
Section 5.14, any Holder who has been a bona fide Holder of a Security of any series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to such series of Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
Section 6.11. Acceptance Of Appointment By Successor.
(a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring
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to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph 6.11(a) or 6.11(b), as the case may be.
(d) No such successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
Section 6.12. Merger, Conversion, Consolidation Or Succession To Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of
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the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
Section 6.13. Preferential Collection Of Claims.
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any other obligor).
Section 6.14. Appointment Of Authenticating Agent.
At any time the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue, exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such
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corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or such Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Bank One Trust Company, National Association, as Trustee,
By

as Authenticating Agent

By
 Authorized Officer

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ARTICLE 7
HOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Company To Furnish Trustee Names And Addresses Of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the date of such list, and
(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.
Section 7.02. Preservation Of Information; Communications To Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) If three or more Holders of Securities of any series (herein referred to as "APPLICANTS") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of such series or with Holders of all other series of Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at its election, either
(i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of Holders of such series of Securities or Holders of all other series of Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to the Holders of such series of Securities or the Holders of all series of Securities the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of such series of Securities or of all series of Securities or of all series of Securities whose name
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and address appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the relevant Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b).
Section 7.03. Reports By Trustee.
(a) If required under Section 313(a) of the Trust Indenture Act, within 60 days after May 15 of each year commencing with the year 2001, so long as any of the Securities are outstanding, the Trustee shall transmit by mail to all Holders, as provided in subsection 7.03(c), a brief report dated as of such May 15 with respect to any of the following events which may have occurred within the previous 12 months (but if no such event has occurred within such period no report need by transmitted):
(i) any change to its eligibility under Section 6.09 or the creation of or any material change to its qualifications under Section 6.08;
(ii) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than one-half of one percent of the principal amount of the Securities Outstanding of such series on the date of such report;
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(iii) any change to the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 6.13;
(iv) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;
(v) any additional issue of Securities which the Trustee has not previously reported; and
(vi) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 6.02.
(b) The Trustee shall transmit by mail to all Holders, as provided in subsection 7.03(c), a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection 7.03(a) (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding of such series at such time, such report to be transmitted within 90 days after such time.
(c) Reports pursuant to this Section shall be transmitted by mail:
(i) to all Holders of Securities, as the names and addresses of such Holders appear in the Security Register as of a date not more than fifteen days prior to the mailing thereof;
(ii) to such holders of Securities of any series as have, within two years preceding such transmission, filed their names and addresses with the Trustee for such series for that purpose; and
(iii) except in the case of reports pursuant to subsection 7.03(b), to all Holders of Securities whose names and addresses have been received by the Trustee pursuant to Section 7.01.
(d) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are
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listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange.
Section 7.04. Reports By Company.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and
(c) transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, to such Holders of Securities as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose and Holders of securities whose names and addresses have been furnished to or received by the Trustee pursuant to Section 7.02(a) such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs 7.04(a) and 7.04(b) as may be required by rules and regulations prescribed from time to time by the Commission.
ARTICLE 8
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.01. Company May Consolidate, Etc., Only On Certain Terms.
Subject to the provisions of Section 8.03, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations, or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties or shall prevent any sale or conveyance of all or substantially all of the property of the Company
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to any other corporation authorized to acquire and operate the same; provided, that in any such case, (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized and existing under the laws of the United States of America or a State thereof and such corporation shall expressly assume the due and punctual payment of the principal of, and premium, if any, and interest on all the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and
(ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition and shall not immediately thereafter have outstanding any secured Debt (as defined in Section 10.04) not expressly permitted by the provisions of Section 10.04 unless the provisions of Section 8.03 shall previously have been complied with.
Section 8.02. Successor Corporation To Be Substituted For Company.
In case of any such consolidation, merger, sale or conveyance (other than a conveyance by way of lease) and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company thereupon shall be relieved of any further liability or obligation hereunder or upon the Securities and may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Masco Corporation, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and upon the order of such successor corporation (instead of the Company) and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee or the Authenticating Agent for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof.
In the case of any such consolidation, merger, sale or conveyance, such change in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate.
Section 8.03. Securities To Be Secured In Certain Events.
If, upon any such consolidation or merger of the Company with or into any other corporation, or upon any sale or conveyance of the property of the Company as an entirety or substantially as an entirety to any other corporation, any Principal Property or
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any shares of stock or indebtedness of any Consolidated Subsidiary owning any Principal Property owned immediately prior thereto would thereupon become subject to any mortgage (as defined in Section 10.04), unless the Company could create such mortgage pursuant to Section 10.04 without equally and ratably securing the Securities, the Company, prior to or simultaneously with such consolidation, merger, sale or conveyance, will secure the Securities outstanding hereunder, equally and ratably with any other obligation of the Company or any such Subsidiary then entitled thereto, prior to the Debt (as defined in Section 10.04) secured by such mortgage.
Section 8.04. Evidence To Be Furnished To The Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.03, may receive and rely upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale or conveyance, and any such assumption complies with the provisions of this Article 8.
ARTICLE 9
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent Of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
(b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
(c) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of the relevant series) or to surrender any right or power herein conferred upon the Company; or
(d) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or permit or facilitate the issuance of Securities in uncertificated form; or
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(e) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to Securities of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of such Securities with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or
(f) to secure the Securities pursuant to the requirements of Sections 8.03 or otherwise; or
(g) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; or
(h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for and facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or
(i) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect.
Section 9.02. Supplemental Indentures With Consent Of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture voting as one class, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under the Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or
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(b) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
(c) modify any of the provisions of this Section or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(h).
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
Section 9.03. Execution Of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.04. Effect Of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
Section 9.05. Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference In Securities To Supplemental Indentures.
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Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
ARTICLE 10
COVENANTS
Section 10.01. Payment Of Principal, Premium And Interest.
The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of (and premium, if any) and any interest on each of the Securities of that series in accordance with the terms of the Securities and this Indenture.
Section 10.02. Maintenance Of Office Or Agency.
The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee and the Holders of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations and surrenders of Securities of that series and notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee and the Holders of any such designation or rescission and of any change in the location of any such other office or agency.
Section 10.03. Money For Securities Payments To Be Held In Trust.
(a) If the Company shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and
55
deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 10.03:
(i) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest, if any, on the Securities of such series (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities of such series;
(ii) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall be due and payable; and
(iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
(b) If the Company shall at any time act as its own Paying Agent it will, on or before each due date of the principal of (and premium, if any) or interest, if any, on the Securities of any series, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal (and premium, if any) or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall become due and payable.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee (except pursuant to Section 4.02 or 10.06) or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business
56
Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
Section 10.04. Limitations On Liens.
(a) The Company will not, nor will it permit any Consolidated Subsidiary to, issue, assume or guarantee any debt for money borrowed or any Funded Debt (hereinafter in this Article 10 referred to as "DEBT"), secured by a mortgage, security interest, pledge, lien or other encumbrance (mortgages, security interests, pledges, liens and other encumbrances being hereinafter called a "MORTGAGE" or "MORTGAGES") upon any Principal Property or upon any shares of stock or indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property (whether such Principal Property, shares of stock or indebtedness are now owned or hereafter acquired) without in any such case effectively providing concurrently with the issuance, assumption or guaranty of any such Debt that the Securities (together with, if the Company shall so determine, any other indebtedness of or guaranteed by the Company or such Consolidated Subsidiary ranking equally with the Securities and then existing or thereafter created) shall be secured equally and ratably with such Debt; provided, however, that the foregoing restrictions shall not apply to Debt secured by
(i) mortgages on property, shares of stock or indebtedness of any corporation existing at the time such corporation becomes a Consolidated Subsidiary;
(ii) mortgages on property existing at the time of acquisition of such property by the Company or a Consolidated Subsidiary, or mortgages to secure the payment of all or any part of the purchase price of such property upon the acquisition of such property by the Company or a Consolidated Subsidiary or to secure any Debt incurred by the Company or Consolidated Subsidiary prior to, at the time of, or within 120 days after the later of the acquisition, the completion of construction (including any improvements on an existing property) or the commencement of commercial operation of such property, which Debt is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; provided, however, that in the case of any such acquisition, construction or improvement, the mortgage shall not apply to any property theretofore owned by the Company or a Consolidated Subsidiary, other than any property on which the property so constructed or the improvement is located or to which the property so constructed or the improvement is appurtenant;
(iii) mortgages securing Debt of a Consolidated Subsidiary owing to the Company or to another Consolidated Subsidiary;
(iv) mortgages on property of a corporation existing at the time such corporation is merged or consolidated with the Company or a Consolidated
57
Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Consolidated Subsidiary; provided, however, that no such mortgage shall extend to any other Principal Property of the Company or any Consolidated Subsidiary or to any shares of capital stock or any indebtedness of any Consolidated Subsidiary which owns or leases a Principal Property;
(v) mortgages on property of the Company or a Consolidated Subsidiary in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute (including Debt of the pollution control or industrial revenue bond type) or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction of the property subject to such mortgages; or
(vi) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of mortgages existing at the date of this Indenture, or any mortgage referred to in the foregoing clauses (i) through (v), inclusive, provided, however, that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property which secured the mortgage so extended, renewed or replaced (plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 10.04, the Company may, and may permit any Consolidated Subsidiary to, issue, assume or guarantee Debt secured by a mortgage not excepted by clauses (i) through (vi) of paragraph (a) above without equally and ratably securing the Securities, provided, however, that the aggregate principal amount of all such Debt then outstanding, plus the aggregate principal amount of the Debt then being issued, assumed, or guaranteed, and the aggregate amount of the Attributable Debt in respect of sale and lease-back arrangements, shall not exceed 5% of Consolidated Net Tangible Assets, determined as of a date not more than 90 days prior thereto.
Section 10.05. Limitation On Sale And Leaseback.
The Company will not, nor will it permit any Consolidated Subsidiary to, enter into any arrangement with any person providing for the leasing by the Company or any Consolidated Subsidiary of any Principal Property (whether such Principal Property is now owned or hereafter acquired) (except for leases for a term of not more than three years and except for leases between the Company and a Consolidated Subsidiary or between Consolidated Subsidiaries), which property has been or is to be sold or transferred by the Company or such Consolidated Subsidiary to such person, unless (a) the Company or such Subsidiary would be entitled, pursuant to the provisions of Section
58
10.04, to issue, assume or guarantee Debt secured by a mortgage upon such property at least equal in amount to the Attributable Debt in respect of such arrangement without equally and ratably securing the Securities or (b) the Company or a Consolidated Subsidiary, within 120 days of the effective date of any such arrangement, applies an amount equal to the greater of the net proceeds of the sale of the Principal Property leased pursuant to such arrangement or the fair market value of the Principal Property so leased at the time of entering into such arrangement (as determined by the Board of Directors of the Company) to the retirement (other than any mandatory retirement or by way of payment at maturity) of Funded Debt of the Company or any Consolidated Subsidiary (other than Funded Debt owned by the Company or any Consolidated Subsidiary and other than Funded Debt subordinated in the payment of principal or interest to the Securities and except that no Security shall be retired if such retirement of Securities pursuant to this provision would be prohibited by the resolutions or supplemental indentures referred to in Section 3.01), provided, however, that in lieu of applying all or any part of such net proceeds or fair market value to such retirement, the Company may at its option (i) deliver to the Trustee Securities theretofore purchased or otherwise acquired by the Company, or (ii) receive credit for Securities theretofore redeemed pursuant to the resolutions or supplemental indentures referred to in Section 3.01 hereof, which Securities have not theretofore been made the basis for the reduction of a sinking fund payment pursuant to Article 12 or applied in lieu of retiring Funded Debt pursuant hereto. If the Company shall so deliver Securities to the Trustee (or receive credit for Securities so delivered), the amount of cash which the Company shall be required to apply to the retirement of Funded Debt pursuant to this Section 10.05 shall be reduced by an amount equal to the aggregate principal amount of such Securities.
Section 10.06. Defeasance Of Certain Obligations.
The Company may omit to comply, on or after the date the conditions set forth in subsections (a) to (f) of this Section 10.06 are satisfied, with any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities of such series (hereafter called "COVENANT DEFEASANCE") that is specified pursuant to Section 3.01(j), if
(a) With reference to this Section 10.06, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of that series, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to in clause (A) or (B) of this subparagraph 10.06(a) money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee for such purposes, (A) the principal of and any premium or interest on the Outstanding Securities of that series on the Stated Maturity of such principal or installment of principal or interest or the Redemption Date, as the case may be, and (B) any mandatory sinking fund payments or analogous payments applicable to
59
Securities of such series on the day on which such payments are due and payable, each in accordance with the terms of this Indenture and of such Securities;
(b) Such Covenant Defeasance shall not cause the Trustee with respect to the Securities of that series to have a conflicting interest as defined in
Section 6.08 and for purposes of the Trust Indenture Act with respect to the Securities of any series;
(c) Such Covenant Defeasance will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
(d) Such Defeasance would not cause any Outstanding Security of such series then listed on any nationally recognized securities exchange to be then delisted as a result thereof;
(e) No Event of Default or event which with notice or lapse of time would become an Event of Default with respect to Securities of that series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;
(f) The Company has delivered to the Trustee an Opinion of Counsel stating that (i) Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and Covenant Defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit and Covenant Defeasance had not occurred; (ii) such Covenant Defeasance would not cause any outstanding Security of such series then listed on any nationally recognized securities exchange to be delisted as a result thereof; and (iii) such deposit would not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended from time to time;
(g) The Company has delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, except that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion is given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee's possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of such Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise, and (B) such Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used; and
(h) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated by this Section have been complied with.
Section 10.07. Certificate Of Officers Of The Company.
60
On or before April 1 of each year beginning with the year 2001, so long as Securities of any series are Outstanding hereunder, the Company will file with the Trustee an Officers' Certificate, one of the signers of which shall be the principal financial officer, the principal accounting officer or the principal executive officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For purposes of this paragraph, any such default shall be determined without regard to any period of grace or requirement of notice provided in this Indenture.
ARTICLE 11
REDEMPTION OF SECURITIES
Section 11.01. Applicability Of Article.
Any Securities that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for any Securities) in accordance with this Article.
Section 11.02. Election To Redeem; Notice To Trustee.
The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the tenor, if applicable, of the Securities to be redeemed, and of the principal amount of Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction.
Section 11.03. Selection By Trustee Of Securities To Be Redeemed.
If less than all the Securities of any series are to be redeemed (unless all of the Securities of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the
61
Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
Section 11.04. Notice Of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Securities to be redeemed, at this address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,
(d) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,
(e) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. The notice of redemption mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security.
Section 11.05. Deposit Of Redemption Price.
62
Prior to 10:00 a.m., New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date.
Section 11.06. Securities Payable On Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
Section 11.07. Securities Redeemed In Part.
Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in permanent global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the Depositary for such Security in permanent global form, without service charge to the Holder, a new Security in permanent global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in permanent global form so surrendered.
ARTICLE 12
SINKING FUNDS
Section 12.01. Applicability Of Article.
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The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.01 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "MANDATORY SINKING FUND PAYMENT," and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "OPTIONAL SINKING FUND PAYMENT." If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.
Section 12.02. Satisfaction Of Sinking Fund Payments With Securities.
The Company (a) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (b) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such Series; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities to be so redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
Section 12.03. Redemption Of Securities For Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.02 stating that such Securities have not been previously used as a credit against any sinking fund payment and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in
Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.05, 11.06 and 11.07.
* * *
64
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested, all as of the day and year first above written.
MASCO CORPORATION

                                        By /s/ Richard G. Mosteller
                                           -------------------------------------
                                        Title: Senior Vice President - Finance

Attest: /s/ John R. Leekley
        -----------------------------
        Senior Vice President -
        General Counsel	

BANK ONE TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee

By /s/ Benita A. Pointer
   -------------------------------------
Title: Account Executive	

65
EXHIBIT A
FORM OF FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE "U.S. DEPOSITARY"), TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF THE DEPOSITARY OR ITS NOMINEE AND ANY PAYMENT IS MADE TO THE DEPOSITARY OR ITS NOMINEE, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF HAS AN INTEREST HEREIN.]
[If the Security is an original issue discount security for tax purposes and is not "publicly offered" within the meaning of Treasury Regulation 1.1275-1(h), insert -- For purposes of Sections 1271-1275 of the United States Internal Revenue Code of 1986, as amended, the issue price of this Security is _____, the amount of original issue discount is _____, the issue date is ________, 20__ and the yield to maturity is _____]
MASCO CORPORATION
[Title of Security]
No. ____ $___________
CUSIP No. _________
Masco Corporation, a corporation duly organized and existing under the laws of Delaware (herein called the "COMPANY," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________________________, or registered assigns, the principal sum of ________________________________ Dollars on ___________________________ [If the Security is to bear interest prior to Maturity, insert--, and to pay interest thereon from _______ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on _______ and _______ in each year, commencing _____, at the rate of __% per annum, until the principal hereof is paid or made available for payment [If applicable, insert --, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ____ or ____ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. [Interest on the Securities shall be computed on the basis of a 360-day year consisting of 12 30-day months.]
[If the Security is not to bear interest prior to Maturity, insert--The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of __% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal that is not so paid on demand shall bear interest at the rate of ___% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.]
Payment of the principal of (and premium, if any) and [if applicable insert, --any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert--; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register].
A-2
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
A-3
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated:
MASCO CORPORATION
By

Attest:

A-4
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication:
Bank One Trust Company, National Association, as Trustee
By

Authorized Officer

A-5
FORM OF REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the Company (herein called the "SECURITIES"), issued and to be issued in one or more series under an Indenture, dated as of ____________ (herein called the "INDENTURE"), between the Company and Bank One Trust Company, National Association, as Trustee (herein called the "TRUSTEE," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregate principal amount to $ _____].
[If applicable, insert--The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert --
(1) on ___________ in any year commencing with the year _________ and ending with the year ______________ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [on or after __________, 20____], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before __________ __, ____%, and if redeemed] during the 12-month period beginning _______________ of the years indicated,

       Redemption          Redemption
Year      Price     Year      Price
----   ----------   ----   ----------	

and thereafter at a Redemption Price equal to ____% of the principal amount, together in the case of any such redemption [if applicable, insert--(whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]
[If applicable, insert--The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on __________ in any year commencing with the year ______ and ending with the year ______ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after __________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12 month period beginning ____________ of the years indicated,
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       Redemption Price For      Redemption Price For
        Redemption Through    Redemption Otherwise Than
         Operation of the      Through Operation of the
Year       Sinking Fund             Sinking Fund
----   --------------------   -------------------------	

and thereafter at a Redemption Price equal to ____% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]
[Notwithstanding the foregoing, the Company may not, prior to __________ redeem any Securities of this series as contemplated by [clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than ____% per annum.]
[The sinking fund for this series provides for the redemption on ______ in each year beginning with the year __________ and ending with the year _________ of [not less than] $________ [("MANDATORY SINKING FUND") and not more than $___________] aggregate principal amount of Securities of this series.
[Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent
[mandatory] sinking fund payments otherwise required to be made--in the inverse order in which they become due.]
[In the event of redemption of this Security in part only, a new Security or Securities of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.]
[The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of this Security and (b) certain restrictive covenants, in each case upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.]
[If the Security is not an Original Issue Discount Security, -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.]
[If the Security is an Original Issue Discount Security, -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to--insert formula for determining the amount. Upon payment (i) of the amount of principal so
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declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security herein provided, and at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this
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series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $___ and any multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
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Exhibit 4.b.i(i)
RESOLUTIONS OF THE PRICING COMMITTEE
OF THE BOARD OF DIRECTORS OF
MASCO CORPORATION
 MARCH 8, 2001
WHEREAS, Masco Corporation, a Delaware corporation (the "Company") the Company has filed Registration Statements (Nos. 33-56043 and 333-40122) on Form S-3 with the Securities and Exchange Commission, which are in effect;
WHEREAS, the Company desires to create a series of securities under the Indenture dated as of February 12, 2001 (as amended to the date hereof, the "Indenture"), with Bank One Trust Company, National Association, (the "Trustee"), providing for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of this Company ("Securities") in one or more series under such Indenture; and
WHEREAS, capitalized terms used in these resolutions and not otherwise defined are used with the same meaning ascribed to such terms in the Indenture;
THEREFORE RESOLVED, that there is established a series of Securities under the Indenture, the terms of which shall be as follows:
1. The Securities of such series shall be designated as the "6-3/4% Notes Due March 15, 2006."
2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Eight Hundred Million Dollars ($800,000,000), except for Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture.
3. The date on which the principal of the Securities of such series shall be payable is March 15, 2006.
4. The Securities of such series shall bear interest from March 14, 2001 at the rate of 6-3/4% per annum, payable semi-annually on March 15 and September 15 of each year commencing on September 15, 2001 until the principal thereof is paid or made available for payment. The March 1 or September 1 (whether or not a business day), as the case may be, next preceding each such interest payment date shall be the "record date" for the determination of holders to whom interest is payable.
5. The Securities shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), and will be held by the Trustee as custodian for DTC. The Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form.
6. The principal of and interest on the Securities of such series shall be payable at the office or agency of this Company maintained for such purpose in Chicago, Illinois or at any other office or agency designated by the Company, for such purpose pursuant to the Indenture.
7. The Securities of such series shall be subject to redemption in whole or in part prior to maturity, at the Company's option, at a redemption price established in accordance with current market practice, substantially as follows: the redemption price shall be equal to the greater of (i) 100% of the principal amount of the Securities plus accrued interest to the redemption date, or (ii) the sum of the present values of the remaining principal amount and scheduled payments of interest on the Notes to be redeemed (other than accrued interest to the redemption date), discounted to the redemption date on a semi-annual basis at the appropriate treasury rate plus 25 basis points plus accrued interest to the redemption date.
8. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof.
9. The Securities shall be issuable at a price such that this Company shall receive $793,592,000 after an underwriting discount of $4,800,000.
10. The Securities shall be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture.
FURTHER RESOLVED, that the Securities of such series are declared to be issued under the Indenture and subject to the provisions hereof;
FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice President of the Company is authorized to execute, on the Company's behalf and in its name, and the Secretary or any Assistant Secretary of the Company is authorized to attest to such execution and under the Company's seal (which may be in the form of a facsimile of the Company's seal), $800,000,000 aggregate principal amount of the Securities of such series (and in addition Securities to replace lost, stolen, mutilated or destroyed Securities and Securities required for exchange, substitution or transfer, all as provided in the Indenture) in fully registered form in substantially the form of the note filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 333-40122), but with such changes and insertions therein as are appropriate to conform the Securities to the terms set forth herein or otherwise as the respective officers executing the Securities shall approve and as are not inconsistent with these resolutions, such
2
approval to be conclusively evidenced by such officer's execution and delivery of such Securities, and to deliver such Securities to the Trustee for authentication, and the Trustee is authorized and directed thereupon to authenticate and deliver the same to or upon the written order of this Company as provided in the Indenture;
FURTHER RESOLVED, that the signatures of the Company officers so authorized to execute the Securities of such series may be the manual or facsimile signatures of the present or any future authorized officers and may be imprinted or otherwise reproduced thereon, and the Company for such purpose adopts each facsimile signature as binding upon it notwithstanding the fact that at the time the respective Securities shall be authenticated and delivered or disposed of, the individual so signing shall have ceased to hold such office;
FURTHER RESOLVED, that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc One Capital Markets, Inc., McDonald Investments, Inc. and Wachovia Securities, Inc. are appointed underwriters for the issuance and sale of the Securities of such series, and the Chairman of the Board, the President or any Vice President of the Company is authorized, in the Company's name and on its behalf, to execute and deliver an Underwriting Agreement, substantially in the form heretofore approved by the Company's Board of Directors, with such underwriters, with such changes and insertions therein as are appropriate to conform such Underwriting Agreement to the terms set forth herein or otherwise as the officer executing such Underwriting Agreement shall approve and as are not inconsistent with these resolutions, such approval to be conclusively evidenced by such officer's execution and delivery of the Underwriting Agreement;
FURTHER RESOLVED, that Bank One Trust Company, National Association, the Trustee under the Indenture, is appointed trustee for Securities of such series, and as Agent of this Company for the purpose of effecting the registration, transfer and exchange of the Securities of such series as provided in the Indenture, and the corporate trust office of Bank One Trust Company, National Association in Chicago, Illinois is designated pursuant to the Indenture as the office or agency of the Company where such Securities may be presented for registration, transfer and exchange and where notices and demands to or upon this Company in respect of the Securities and the Indenture may be served;
FURTHER RESOLVED, that Bank One Trust Company, National Association is appointed Paying Agent of this Company for the payment of interest on and principal of the Securities of such series, and the corporate trust office of Bank One Trust Company, National Association, is designated, pursuant to the Indenture, as the office or agency of the Company where Securities may be presented for payment; and
FURTHER RESOLVED, that each of the Company's officers is authorized and directed, on behalf of the Company and in its name, to do or cause to be done everything such officer deems advisable to effect the sale and delivery of the Securities of such series pursuant to the Underwriting Agreement and otherwise to carry out the Company's
3
obligations under the Underwriting Agreement, and to do or cause to be done everything and to execute and deliver all documents as such officer deems advisable in connection with the execution and delivery of the Underwriting Agreement and the execution, authentication and delivery of such Securities (including, without limiting the generality of the foregoing, delivery to the Trustee of the Securities for authentication and of requests or orders for the authentication and delivery of Securities).
4
 
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE "U.S. DEPOSITARY"), TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY), ANY TRANSFERM PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN ASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
MASCO CORPORATION

                              6-3/4% Notes Due 2006

No. 1                                                               $400,000,000

                                                             CUSIP No. 574599AU0

     Masco Corporation, a corporation duly organized and existing under the laws	

of Delaware (herein called the "COMPANY," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Four Hundred Million Dollars on March 15, 2006, and to pay interest thereon from March 14, 2001 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2001, at the rate of 6 3/4% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities shall be computed on the basis of a 360-day year consisting of 12 30-day months.
Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: March 14, 2001
MASCO CORPORATION

                                        By /s/ Richard G. Mosteller
                                           -------------------------------------
                                           Richard G. Mosteller
                                           Senior Vice President - Finance

Attest /s/ Eugene A. Gargaro, Jr.
       ---------------------------------
       Eugene A. Gargaro, Jr.
       Vice President and Secretary	

FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication: March 14, 2001
Bank One Trust Company, National Association, as Trustee
By

Authorized Officer
REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the Company (herein called the "SECURITIES"), issued and to be issued in one or more series under an Indenture, dated as of February 12, 2001 (herein called the "INDENTURE"), between the Company and Bank One Trust Company, National Association, as Trustee (herein called the "TRUSTEE," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, initially limited in aggregate principal amount to $800,000,000.
The Notes will be redeemable at the option of the Company, in whole at any time or in part from time to time (each, a "REDEMPTION DATE") at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest to the Redemption Date and (ii) the sum, as determined by the Independent Investment Banker, of the present values of the principal amount and the remaining scheduled payments of interest on the Notes to be redeemed (exclusive of interest accrued to such Redemption Date), discounted from the scheduled payment dates to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points plus accrued but unpaid interest thereon to the Redemption Date. Notwithstanding the foregoing, installments of interest on Notes that are due and payable on an interest payment date falling on or prior to the relevant Redemption Date will be payable to the holders of such Notes registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes to be redeemed.
"COMPARABLE TREASURY PRICE" means, with respect to any Redemption Date, the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
"INDEPENDENT INVESTMENT BANKER" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"REFERENCE TREASURY DEALER" means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney, Inc. and their respective successors, unless either of them ceases to be a primary U.S. Government securities dealer in New York City (a "PRIMARY TREASURY DEALER"), in which case the Company shall substitute another Primary Treasury Dealer; and (b) any other Primary Treasury Dealer selected by the Company.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference Treasury Dealer and any Redemption Date for the Notes, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date.
"TREASURY RATE" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such Redemption Date using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury price for such Redemption Date.
This Security will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security herein provided, and at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
 
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK (THE "U.S. DEPOSITARY"), TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF THE U.S. DEPOSITARY), ANY TRANSFERM PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN ASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
MASCO CORPORATION

                              6-3/4% Notes Due 2006

No. 2                                                               $400,000,000

                                                              CUSP No. 574599AU0

     Masco Corporation, a corporation duly organized and existing under the laws	

of Delaware (herein called the "COMPANY," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Four Hundred Million Dollars on March 15, 2006, and to pay interest thereon from March 14, 2001 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2001, at the rate of 6 3/4% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on the Securities shall be computed on the basis of a 360-day year consisting of 12 30-day months.
Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
MASCO CORPORATION

Dated: March 14, 2001                   By /s/ Richard G. Mosteller
                                           -------------------------------------
                                           Richard G. Mosteller
                                           Senior Vice President - Finance

Attest /s/ Eugene A. Gargaro, Jr.
       ---------------------------------
       Eugene A. Gargaro, Jr.
       Vice President and Secretary	

FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Date of Authentication: March 14, 2001
Bank One Trust Company, National Association, as Trustee
By Authorized Officer
REVERSE OF SECURITY
This Security is one of a duly authorized issue of securities of the Company (herein called the "SECURITIES"), issued and to be issued in one or more series under an Indenture, dated as of February 12, 2001 (herein called the "INDENTURE"), between the Company and Bank One Trust Company, National Association, as Trustee (herein called the "TRUSTEE," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, initially limited in aggregate principal amount to $800,000,000.
The Notes will be redeemable at the option of the Company, in whole at any time or in part from time to time (each, a "REDEMPTION DATE") at a redemption price equal to the greater of (i) 100% of their principal amount plus accrued interest to the Redemption Date and (ii) the sum, as determined by the Independent Investment Banker, of the present values of the principal amount and the remaining scheduled payments of interest on the Notes to be redeemed (exclusive of interest accrued to such Redemption Date), discounted from the scheduled payment dates to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-thy months) at the Treasury Rate plus 25 basis points plus accrued but unpaid interest thereon to the Redemption Date. Notwithstanding the foregoing, installments of interest on Notes that are due and payable on an interest payment date falling on or prior to the relevant Redemption Date will be payable to the holders of such Notes registered as such at the close of business on the relevant record date according to their terms and the provisions of the Indenture.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes to be redeemed.
"COMPARABLE TREASURY PRICE" means, with respect to any Redemption Date, the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
"INDEPENDENT INVESTMENT BANKER" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"REFERENCE TREASURY DEALER" means (a) each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney, Inc. and their respective successors, unless either of them ceases to be a primary U.S. Government securities dealer in New York City (a "PRIMARY TREASURY DEALER"), in which case the Company shall substitute another Primary Treasury Dealer; and (b) any other Primary Treasury Dealer selected by the Company.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference Treasury Dealer and any Redemption Date for the Notes, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time, on the third Business Day preceding such Redemption Date.
"TREASURY RATE" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such Redemption Date using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury price for such Redemption Date.
This Security will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security herein provided, and at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
 
EXHIBIT 10.a
MASCO CORPORATION
1991 LONG TERM STOCK INCENTIVE PLAN
 (Amended and Restated October 27, 2005)
SECTION 1. PURPOSES
The purposes of the 1991 Long Term Stock Incentive Plan (the "Plan") are to encourage selected employees of and consultants to Masco Corporation (the "Company") and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company's future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth below:
(a) "Affiliate" shall mean any entity in which the Company's direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(e) "Committee" shall mean a committee of the Company's directors designated by the Board of Directors to administer the Plan and composed of not less than two directors, each of whom is a "non-employee director" within the meaning of Rule 16b-3.
(f) "Dividend Equivalent" shall mean any right granted under Section 6(e) of the Plan.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(h) "Incentive Stock Option" shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.
(i) "Non-Qualified Stock Option" shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(j) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
(k) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of the Plan.
(l) "Participant" shall mean an employee of or consultant to the Company or any Affiliate or a director of the Company designated to be granted an Award under the Plan.
(m) "Performance Award" shall mean any right granted under Section 6(d) of the Plan.
(n) "Prior Plans" shall mean the Company's 1988 Restricted Stock Incentive Plan and 1988 Stock Option Plan.
(o) "Restricted Period" shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions.
(p) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan.
(q) "Restricted Stock Unit" shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
(s) "Section 16" shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation.
(t) "Shares" shall mean the Company's common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under
Section 4(c) of the Plan.
(u) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION
The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee's authority shall include without limitation the power to:
(i) designate Participants;
(ii) determine the types of Awards to be granted;
(iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith;
(iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards;
(v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended;
(vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
(vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award;
(viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan;
(ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options;
(x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto;
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(xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan;
(xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards;
(xiii) delegate to directors of the Company the authority to designate Participants and grant Awards, and to amend Awards granted to Participants;
(xiv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards.
All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) Shares Available. Subject to adjustment as provided in Section 4(c):
The maximum number of Shares available for issuance in respect of Awards made under the Plan on or after May 17, 2000 shall be 20,000,000 Shares plus up to an additional 20,000,000 Shares to the extent Shares are acquired by the Company, including Shares purchased in the open market, on or after May 17, 2000 in connection with awards made under the Plan, provided, however, that in the event (i) an Award in respect of Shares under the Plan or the Prior Plans is settled for cash or expires or is terminated unexercised as to any Shares covered thereby, (ii) any Award under the Plan or the Prior Plans in respect of shares is cancelled or forfeited for any reason without the delivery of Shares,
(iii) any Option or other Award granted is exercised through the surrender of Shares, or (iv) tax obligations are satisfied through the surrender or withholding of Shares, the number of Shares available for issuance in respect of Awards under the Plan shall be increased by the number of Shares not delivered in connection with any such Award or so surrendered or withheld. Not more than 20,000,000 shares may be awarded as incentive stock options on or after May 17, 2000. Subject to the foregoing, Shares may be made available from the authorized but unissued Shares of the Company or from Shares reacquired by the Company, including but not limited to Shares purchased in the open market.
(b) Individual Stock-Based Awards. Subject to adjustment as provided in
Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 4,000,000 Shares in the aggregate; provided, however, that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Paragraph 4(b) in any prior years that were not granted in such prior year beginning on or after January 1, 2000. No provision of this Paragraph 4(b) shall be construed as limiting the amount of any other stock-based or cash-based Award which may be granted to any Participant.
(c) Adjustments. Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall have the authority to make such adjustment, if any, in such manner as it deems appropriate, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and
(iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash
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payments to the holders of outstanding Awards; provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY
Any employee of or consultant to the Company or any Affiliate, or any director of the Company, is eligible to be designated a Participant.
SECTION 6. AWARDS
(a) Options. The Committee is authorized to grant Options to Participants.
(i) Committee Determinations. Subject to the terms of the Plan, the Committee shall determine:
(A) the purchase price per Share under each Option, provided, however, that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant;
(B) the term of each Option; and
(C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder.
Subject to the terms of the Plan, the Committee may impose such conditions or restrictions on any Option as it deems appropriate.
(ii) Other Terms. Unless otherwise determined by the Committee:
(A) A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise.
(B) At the time of exercise of an Option payment in full in cash or in Shares (that have been held by the Participant for at least six months) or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased.
(C) The Company shall not be obligated to issue any Shares unless and until:
(I) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and
(II) in the opinion of the Company's counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company's counsel.
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Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company's counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan.
(D) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that an entity is no longer an Affiliate) other than the Participant's death, the Participant may thereafter exercise the Option as provided below, except that the Committee may terminate the unexercised portion of the Option concurrently with or at any time following termination of the employment or consulting arrangement (including termination of employment upon a change of status from employee to consultant) if it shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. If such termination is voluntary on the part of the Participant (other than retirement on or after normal retirement date), the Option may be exercised only within thirty days after the date of termination. If such termination is involuntary on the part of the Participant, the Option may be exercised within three months after the date of termination. If an employee retires on or after normal retirement date, Options shall continue to become exercisable and shall remain exercisable in accordance with the terms and the provisions of this Plan. If the employment or consulting relationship is terminated by reason of permanent and total disability, all unexercisable installments of the option shall thereupon become exercisable and shall remain exercisable for the remainder of the Option term, subject to the provisions of Section 6(a)(ii)(E). Unless the Committee determines otherwise, a change in a Participant's status from employee to consultant shall be considered a voluntary termination of employment as to any Option granted on or after September 13, 2000 (other than restoration Options granted with respect to Options granted prior to September 13, 2000). For purposes of this Paragraph (D), a Participant's employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above.
(E) If a Participant dies, all unexercisable installments of the Option shall thereupon become exercisable and, at any time or times within one year after death such Option may be exercised, as to all or any unexercised portion of the Option. The Company may decline to deliver Shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period.
(F) Except as provided above, an Option may be exercised only if and to the extent such Option was exercisable at the date of termination of employment or the consulting arrangement, and an Option may not be exercised at a time when the Option would not have been exercisable had the employment or consulting arrangement continued.
(G) The provisions of this clause (ii), as amended, shall apply to all outstanding Options, regardless of the grant date.
(iii) Restoration Options. The Committee may grant a Participant the right to receive a restoration Option with respect to an Option or any other stock option granted by the Company. Unless the Committee shall otherwise determine, a restoration Option shall provide that the underlying option must be exercised while the Participant is an employee of or, with respect to Options granted prior to September 13, 2000, a consultant to the Company or an Affiliate and the
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number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the original option.
(b) Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over
(ii) the grant price of the right as specified by the Committee. Subject to the terms of the Plan, the Committee shall determine the grant price, term, methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units.
(i) Issuance. The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee.
(ii) Restrictions. The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise. Unless the Committee shall otherwise determine, any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Subject to the aforementioned restrictions and the provisions of the Plan, Participants shall have all of the rights of a stockholder with respect to Shares of Restricted Stock.
(iii) Registration. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates.
(iv) Forfeiture. Except as otherwise determined by the Committee:
(A) If the employment of or consulting arrangement with a Participant terminates for any reason (including termination by reason of the fact that any entity is no longer an Affiliate), other than the Participant's death or permanent and total disability or, in the case of an employee, retirement on or after normal retirement date, all Shares of Restricted Stock theretofore awarded to the Participant which are still subject to restrictions shall upon such termination of employment or the consulting relationship be forfeited and transferred back to the Company. Unless the Committee determines otherwise, a change in a Participant's status from employee to consultant shall be considered a termination of employment as to any Award of Restricted Stock granted on or after September 13, 2000. Notwithstanding the foregoing or Paragraph (C) below, if a Participant continues to hold an Award of Restricted Stock following termination of the employment or consulting arrangement (including retirement), the Shares of Restricted Stock which remain subject to restrictions shall nonetheless be forfeited and transferred back to the Company if the Committee at any time thereafter determines that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate. For purposes of this Paragraph (A), a Participant's employment or consulting arrangement shall not be considered terminated (i) in the case of approved sick leave or other bona fide leave of absence (not to exceed one year), (ii) in the case of a transfer of employment or the consulting arrangement among the Company and
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Affiliates, or (iii) by virtue of a change of status from employee to consultant or from consultant to employee, except as provided above.
(B) If a Participant ceases to be employed or retained by the Company or an Affiliate by reason of death or permanent and total disability or if following retirement a Participant continues to have rights under an Award of Restricted Stock and thereafter dies, the restrictions contained in the Award shall lapse with respect to such Restricted Stock.
(C) If an employee ceases to be employed by the Company or an Affiliate by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock shall continue to lapse in the same manner as though employment had not terminated.
(D) At the expiration of the Restricted Period as to Shares covered by an Award of Restricted Stock, the Company shall deliver the Shares as to which the Restricted Period has expired, as follows:
(1) if an assignment to a trust has been made in accordance with Section 6(g)(iv)(B)(2)(c), to such trust; or
(2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or
(3) in all other cases, to the Participant or the legal representative of the Participant's estate.
(d) Performance Awards. The Committee is authorized to grant Performance Awards to Participants. Subject to the terms of the Plan, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and other terms and conditions shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to or otherwise based on or related to Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants to persons who are subject to Section 16 must comply with the provisions of Rule 16b-3. Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof, as the Committee shall determine.
(g) General.
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(i) No Cash Consideration for Awards. Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.
(iv) Limits on Transfer of Awards.
(A) Except as the Committee may otherwise determine, no Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company.
(B) Notwithstanding the provisions of Paragraph (A) above:
(1) An Option may be transferred:
(a) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant's estate; or
(c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant's life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust to which rights under such an Option may be as signed, for the purpose of determining compensation arising by reason of the Option shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the
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name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(2) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units:
(a) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(b) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant's estate; or
(c) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant's life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely in the Participant. Notwithstanding a qualified assignment, the Participant, and not the trust to which rights under such an Award may be assigned, for the purpose of determining compensation arising by reason of the Award shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(3) The Committee shall not permit directors or officers of the Company for purposes of Section 16 to transfer or assign Awards except as permitted under Rule 16b-3.
(C) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, the personal representatives of the Participant's estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant's irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary until it receives indemnity against claims of third parties satisfactory to the Company.
(v) Share Certificates. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
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(vi) Change in Control.
(A) Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company (as hereinafter defined) the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee's authority set forth in
Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any such Award, upon the Participant's request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant's rights had such Award been currently exercisable or payable; (ii) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (iii) cause any such Award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change in Control.
(B) With respect to any Award granted hereunder prior to December 6, 1995, a Change in Control shall occur if:
(1) any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, other than pursuant to a transaction or agreement previously approved by the Board of Directors of the Company, directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition) of voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company; or
(2) during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof.
(C) Notwithstanding the provisions of subparagraph (B), with respect to Awards granted hereunder on or after December 6, 1995, a Change in Control shall occur only if the event described in this subparagraph (C) shall have occurred. With respect to any other Award granted prior thereto, a Change in Control shall occur if any of the events described in subparagraphs (B) or (C) shall have occurred, unless the holder of any such Award shall have consented to the application of this subparagraph (C) in lieu of the foregoing subparagraph (B). A Change in Control for purposes of this subparagraph (C) shall occur if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, "Excluded Directors" are directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year of any "person" or "group of persons," as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting
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securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Board.
(D)(1) In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a Participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph (D)(a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then such Participant shall be entitled to receive from the Company, within 15 days following the determination described in (2) below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by such Participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such Participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments.
(2) All determinations required to be made under this
Section 6(g)(vi)(D), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the Participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected Participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected Participant. In the event that the Participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company.
(3) This Section 6(g)(vi)(D) shall not apply to any Award (x) that was granted prior to February 17, 1993 and (y) the holder of which is an executive officer of the Company, as determined under the Exchange Act.
(vii) Cash Settlement. Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee's sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion.
(viii)Replacement Options. No outstanding option may be cancelled and replaced with an option having a lower exercise price.
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SECTION 7. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may amend the Plan and the Board of Directors or the Committee may amend any outstanding Award; provided, however, that (i) no Plan amendment shall be effective until approved by stockholders of the Company insofar as stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of Rule 16b-3, and (ii) without the consent of affected Participants no amendment of the Plan or of any Award may impair the rights of Participants under outstanding Awards, and (iii) no Option may be amended to reduce its initial exercise price other than in connection with an event described in Section 4(c) hereof.
(b) Waivers. The Committee may waive any conditions or rights under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant.
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan.
(d) Correction of Defects, Omissions, and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan.
SECTION 8. GENERAL PROVISIONS
(a) No Rights to Awards. No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant.
(b) Withholding. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or other written agreement with the Participant.
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(e) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
(f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
SECTION 9. TERM
The Plan shall be effective as of the date of its approval by the Company's stockholders and no Awards shall be made under the Plan after May 17, 2010.
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EXHIBIT 10.a(v)
[For directors' existing stock options and awards]
Masco Letterhead
Date _______________
Name _______________
[Address1]
[Address2]
[Address3]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that the Board of Directors approved the following enhancements to outstanding awards of stock options and restricted stock to non-employee directors under the 1997 Non-Employee Directors Long Term Stock Incentive Plan (the "1997 Plan") and under the 1991 Long Term Stock Incentive Plan (the "1991 Plan").
If your service as a director terminates for any reason other than as a result of death, disability or retirement due to age, any portion of an option that is then exercisable will remain exercisable beyond the period currently provided until the later of (i) the 15th day of the third month following the date at which the option would otherwise have terminated in connection with the termination of service, or (ii) December 31 of the calendar year in which the option would otherwise have terminated in connection with the termination of service.
If your service as a director terminates as a result of permanent and total disability, any portion of an option not then exercisable will immediately become exercisable and will remain exercisable until the earlier of the expiration of its original term or one year after death.
The "clawback" provisions of the 1997 Plan (formerly Section 6(b)(5)) and comparable provisions in any stock option granted to you under the 1991 Plan will no longer apply.
For purposes of a "Change in Control" under the 1991 Plan and the 1997 Plan, the definition of "Excluded Director" (i.e., a director who is deemed not to be an incumbent director) will also include directors whose initial assumption of office occurs as a result of certain actual or threatened election contests not by or on behalf of the Board.
Very truly yours,

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
[For holders of awards under the 1991 Plan]
Masco Letterhead
Date _______________
Name _______________
[Address1]
[Address2]
[Address3]
RE: Enhancements to Awards under the 1991 Long Term Stock Incentive Plan
Dear [Salutation]:
As you may know, the Company recently adopted the 2005 Long Term Stock Incentive Plan (the "2005 Plan"). We are pleased to inform you that the Organization and Compensation Committee of the Board of Directors approved the following enhancements to outstanding awards of stock options and restricted stock under the 1991 Long Term Stock Incentive Plan (the "1991 Plan") in order to conform them to the 2005 Plan.
If you voluntarily terminate your employment, you will have thirty days to exercise any option that is then exercisable; the original exercise period under these circumstances was 10 days. If your employment terminates as a result of your permanent and total disability, all unexercisable installments of an option will immediately become exercisable and will remain exercisable until the earlier of the expiration of their original term or one year after death. Previously, in this situation the Option would continue to vest in accordance with its terms.
For purposes of a "Change in Control" under the 1991 Plan, the definition of "Excluded Director" (i.e., a director who is deemed not to be an incumbent director) will also include directors whose initial assumption of office occurs as a result of certain actual or threatened election contests not by or on behalf of the Board.
Very truly yours,

-------------------------------------   ----------------------------------------
Richard A. Manoogian                    Alan H. Barry
Chairman of the Board and               President and
Chief Executive Officer                 Chief Operating Officer	

Exhibit 10.b(i)
RETURN THE ENCLOSED COPY
AFTER YOU HAVE SIGNED AND
PROVIDED THE REQUESTED
INFORMATION; PLEASE RETAIN
THE ORIGINAL
Restricted Stock Award Agreement
[Date]
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that on [date] the Organization and Compensation Committee of the Board of Directors granted you an Award of Restricted Stock, pursuant to the Company's 2005 Long Term Stock Incentive Plan (the "Plan"), of [In Words] ([Shares]) shares of the Company's $1.00 par value Common Stock (the "Restricted Shares"). This letter and the attached Appendix (the "Agreement") state the terms of the Award and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the Plan and related Prospectus dated [date], copies of which are available from the Company. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them. For purposes of this Agreement, use of the words "employment" or "employed" shall be deemed to refer to employment by the Company and its subsidiaries and unless otherwise stated shall not include employment by an "Affiliate" (as defined in the Plan) which is not a subsidiary of the Company unless the Committee so determines at the time such employment commences.
Certificates for the shares of stock evidencing the Restricted Shares will not be issued but the shares will be registered in your name in book entry form promptly after your acceptance of this Award. You will be entitled to vote and receive any cash dividends (net of required tax withholding) on the Restricted Shares, but you will not be able to obtain a stock certificate or sell, encumber or otherwise transfer the shares except in accordance with the Plan.
Page 2
[Date]
Provided since the date of the Award you have been continuously employed by the Company, the restrictions on 10% of the shares will automatically lapse on
[date] and on the same date of each year thereafter until all shares are free of restrictions, in each case based on the initial number of shares.
In accordance with Section 6(d)(iv) of the Plan, if your employment should be terminated by reason of your permanent and total disability or if you should die while Restricted Shares remain unvested, the restrictions on all Restricted Shares will lapse and your rights to the shares will become vested on the date of such termination or death. If you are then an employee and your employment should be terminated by reason of retirement on or after your attaining age 65, such restrictions will continue to lapse in the same manner as though your employment had not been terminated, subject to the other provisions of this letter and the Plan.
If in the calendar year in which you attain age 66 there are more than five annual installments remaining to vest, the restricted period for shares that would otherwise vest beyond the next five annual installments will be accelerated to vest evenly in whole shares on the next five original vesting dates, so that you will be fully vested not later than the end of the calendar year in which you attain age 70. Subject to the other terms contained in this letter, if this Award is granted in or after the calendar year in which you attain age 65, this Award will vest in five equal annual installments on the dates specified above.
As restrictions lapse, a certificate for the number of Restricted Shares as to which restrictions have lapsed will be forwarded to you or the person or persons entitled to the shares.
If your employment is terminated for any reason, with or without cause, while restrictions remain in effect, other than for a reason referred to above, all Restricted Shares for which restrictions have not lapsed will be automatically forfeited to the Company.
Notwithstanding the foregoing, if at any time you engage in an activity following your termination of employment which in the sole judgment of the Committee is detrimental to the interests of the Company, a subsidiary or affiliated company, all Restricted Shares for which restrictions have not lapsed will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, "Business Activities" (as defined in the Appendix) for purposes of this Award and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
Your acceptance of this Award of Restricted Stock will acknowledge that you have read all of the terms and conditions herein and as set forth in the attached Appendix and will evidence your agreement to all of such terms and conditions and to the incorporation of the Appendix as part of this Agreement.
Page 3
[Date]
Please complete your mailing address and social security number as indicated below, sign, date and return one copy of this Award Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this Award may become effective. Since the Restricted Shares cannot be registered in your name until we receive the signed copy of this Agreement, and since dividend, voting and other rights will only become effective at that time, your prompt attention and acceptance will be greatly appreciated.
Very truly yours,
MASCO CORPORATION

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to the foregoing terms and conditions and the terms and conditions contained in the attached Appendix.

(Signature of Recipient)

(Mailing Address)

(Social Security Number)

Dated:
APPENDIX TO AWARD AGREEMENT
Masco Corporation (the "Company") and you agree that all of the terms and conditions of the award of Restricted Shares (the "Grant") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any awards of options, restricted stock, phantom stock or stock appreciation rights except as may be evidenced by agreements duly executed by you and the Company.
By signing the Agreement you acknowledge acceptance of the Grant and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Grant, as may be requested by the Company or any of its subsidiaries or affiliated companies.
In addition you agree, in consideration for the Grant, and regardless of whether restrictions on shares subject to the Grant have lapsed, while you are employed or retained as a consultant by the Company or any of its subsidiaries and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries other than a termination in connection with a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of (x) the Company or any subsidiary if you are employed by or consulting with the Company at any time while the Grant is outstanding, or (y) the subsidiary employing or retaining you at any time while the Grant is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
Should you either breach or challenge in judicial, arbitration or other proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting this Grant you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from this Grant, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from restrictions lapsing on shares on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to
set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
By accepting this Grant you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; (b) acknowledge that (1) all of your rights to the Grant are embodied in the Agreement and in the Plan, (2) the Grant and acceptance of the Grant does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or consulting relationship, and (3) your employment status is that of an employee-at-will and in particular that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time; and (c) agree that your acceptance represents your agreement not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of grant unless you have already agreed in writing to a longer period.
Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and Grant agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing (other than a claim involving non-competition restrictions or the Company's, a subsidiary's or an affiliated company's trade secrets, confidential information or intellectual property rights) which (1) are within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other restricted stock awards or option or other agreements relating to Company Common Stock or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary of the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement,
(b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any of the Company's option, restricted stock or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and your employer, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
The Agreement shall be governed by and interpreted in accordance with Michigan law.
 
Exhibit 10.b(ii)
PLEASE RETURN THE ENCLOSED
COPY AFTER YOU HAVE SIGNED
AND PROVIDED THE REQUESTED
INFORMATION; PLEASE RETAIN
THE ORIGINAL
[Date]
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that on [date] the Organization and Compensation Committee of the Board of Directors granted you a non-qualified stock option pursuant to the Company's 2005 Long Term Stock Incentive Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This letter and attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the Plan and the Prospectus dated [date] covering the shares which are the subject of this option. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them. Copies are also available upon request to the Company. We suggest that you review each of these documents. The federal income tax attributes of non-qualified stock options are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code.
For purposes of this Agreement, use of the words "employment" or "employed" shall be deemed to refer to employment by the Company and its subsidiaries and unless otherwise stated shall not include employment by an "Affiliate" (as defined in the Plan) which is not a subsidiary of the Company unless the Committee so determines at the time such employment commences.
This option, if accepted by you, grants you the right to purchase [no. of shares] shares of Company Common Stock, $1.00 par value, at a price of [$____] per share, which the Committee has determined is the fair market value of a share of Company Common Stock on the date of grant.
WHEN THE OPTION IS EXERCISABLE AND TERMINATION
This option is exercisable cumulatively in installments in the following manner:
Page 2
[Date]

20%   of    such   shares   1 year after    [date]
20%   "     "      "        2 years after   "  "   "
20%   "     "      "        3 years after   "  "   "
20%   "     "      "        4 years after   "  "   "
20%   "     "      "        5 years after   "  "   "  but
                            no later than   [date]	

provided that, subject to the last sentence of this paragraph, on each date of exercise you qualify under the provisions of the Plan, including Section 6(a), subparagraph (ii) (E), to exercise such option. All installments of the option as above described must be exercised no later than [expiration date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your employment is terminated for any reason, the option shall terminate in accordance with Section 6 of the Plan.
Notwithstanding the foregoing, if at any time you engage in an activity following your termination of employment which in the sole judgment of the Committee is detrimental to the interests of the Company, a subsidiary or affiliated company, all unexercised installments or portions thereof will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, "Business Activities" (as defined in the Appendix) for purposes of this option and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
Your acceptance of this option will acknowledge that you have read all of the terms and conditions set forth herein and in the attached Appendix and will evidence your agreement to all of such terms and conditions and to the incorporation of the Appendix as part of this Agreement.
Page 3
[Date]
Please complete your mailing address and Social Security number as indicated below and sign, date and return one copy of this option agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective.
Very truly yours,
MASCO CORPORATION

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to all of the foregoing terms and conditions and the terms and conditions contained in the attached Appendix.

(Signature of Recipient)

(Mailing Address)

(Social Security Number)

Dated:
APPENDIX TO OPTION AGREEMENT
Masco Corporation (the "Company") and you agree that all of the terms and conditions of the grant of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other grants of options, restricted stock, phantom stock or stock appreciation rights except as may be evidenced by agreements duly executed by you and the Company.
By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company or any of its subsidiaries or affiliated companies.
If your employment with the Company or any of its subsidiaries is terminated for any reason, other than death, permanent and total disability, retirement on or after normal retirement date or the sale or other disposition of the business or subsidiary employing you, and other than termination of employment in connection with a Change in Control, and if any installments of the Option or any restoration options granted upon any exercise of the Option became exercisable within the two year period prior to the date of such termination (such installments and restoration options being referred to as the "Subject Options"), by accepting the Option you agree that the following provisions will apply:
(1) Upon the demand of the Company you will pay to the Company in cash within 30 days after the date of such termination the amount of income realized for income tax purposes from the exercise of any Subject Options, net of all federal, state and other taxes payable on the amount of such income, plus all costs and expenses of the Company in any effort to enforce its rights hereunder; and
(2) Any right you would otherwise have, pursuant to the terms of the Plan and this Agreement, to exercise any Subject Options on or after the date of such termination, shall be extinguished as of the date of such termination.
The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are employed or retained as a consultant by the Company or any of its subsidiaries and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries other than a termination in connection with a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of
(x) the Company or any subsidiary if you are employed by or consulting with the Company at any time the Option is outstanding, or (y) the subsidiary employing or retaining you at any time while the Option is outstanding, to the extent such
competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
Should you either breach or challenge in judicial, arbitration or other proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income (and reduced by any amount already paid to the Company under the second preceding paragraph), but only to the extent such exercises occurred on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; (b) acknowledge that (1) all of your rights to the Option are embodied in the Agreement and in the Plan, (2) the grant and acceptance of the Option does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or consulting relationship, and (3) your employment status is that of an employee-at-will and in particular that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time; and (c) agree not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of grant unless you have already agreed in writing to a longer period.
Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company Common Stock or restricted stock awards or other agreements relating to Company Common Stock or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary of the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding
the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any of the Company's option, restricted stock or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and the Company or one of its subsidiaries, and
(d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
The Agreement shall be governed by and interpreted in accordance with Michigan law.
 
Exhibit 10.b(iii)
RESTORATION STOCK OPTION
CURRENT DATE
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
You have exercised a non-qualified stock option previously granted to you under the terms of the 1991 Long Term Stock Incentive Plan and you paid all or part of the option exercise price by delivery of Company common stock. In accordance with the program adopted by the Organization and Compensation Committee of the Board of Directors, subject to your acceptance, you are granted a non-qualified Restoration Option for shares of Company common stock, $1 par value, subject to the terms of this letter and the attached Appendix (the "Agreement") and the 2005 Long Term Stock Incentive Plan (the "Plan"), as follows:
Date of Restoration Option: ______________________
Number of Shares Granted: ________________________
Option Exercise Price: ___________________________
Exercisable in full on & after: __________________
This Option expires after: _______________________
All installments of the option as above described must be exercised before the Option expires; any portion that remains unexercised on the expiration date shall lapse and the right to purchase such shares pursuant to this option shall be of no further effect after such date. If during the option exercise period your employment is terminated for any reason, the option shall terminate in accordance with Section 6 of the Plan.
If at any time you engage in activity following your termination of employment which in the sole judgment of the Committee is detrimental to the interests of the Company, a subsidiary or affiliated company, all enexercised installments or portions thereof will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, "Business Activities" (as defined in the Appendix) for purposes of this option and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
For purposes of this Agreement, use of the words "employment" or "employed" shall be deemed to refer to employment by the Company and its subsidiaries and unless otherwise stated shall not include employment by an "Affiliate" (as defined in the Plan) which is not a subsidiary of the Company unless the Committee so determines at the time such employment commences.
Page 2
[Date]
If our records indicate you have not previously received the Company's latest annual report to stockholders and proxy statement, the Prospectus dated
[date] covering the shares which are the subject of this option, and the Plan, these documents are enclosed. Copies are also available upon request to the Company. We suggest that you review each of these documents. The federal income tax attributes of non-qualified stock options are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code.
Your acceptance of this option acknowledges that you have read all of the terms and conditions set forth herein and in the attached Appendix and evidences your agreement to all of such terms and conditions and to the incorporation of the Appendix as part of this Agreement.
Please complete your mailing address and Social Security number as indicated below and sign, date and return one copy of this option agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective.
Very truly yours,
MASCO CORPORATION
By

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to all of the foregoing terms and conditions and the terms and conditions contained in the attached Appendix.

(Signature of Recipient)

(Mailing Address)

(Social Security Number)

Dated:
APPENDIX TO OPTION AGREEMENT
Masco Corporation (the "Company") and you agree that all of the terms and conditions of the grant of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other grants of options, restricted stock, phantom stock or stock appreciation rights except as may be evidenced by agreements duly executed by you and the Company.
By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company or any of its subsidiaries or affiliated companies.
If your employment with the Company or any of its subsidiaries is terminated for any reason, other than death, permanent and total disability, retirement on or after normal retirement date or the sale or other disposition of the business or subsidiary employing you, and other than termination of employment in connection with a Change in Control, and if any installments of the Option or any restoration options granted upon any exercise of the Option became exercisable within the two year period prior to the date of such termination (such installments and restoration options being referred to as the "Subject Options"), by accepting the Option you agree that the following provisions will apply:
(1) Upon the demand of the Company you will pay to the Company in cash within 30 days after the date of such termination the amount of income realized for income tax purposes from the exercise of any Subject Options, net of all federal, state and other taxes payable on the amount of such income, plus all costs and expenses of the Company in any effort to enforce its rights hereunder; and
(2) Any right you would otherwise have, pursuant to the terms of the Plan and this Agreement, to exercise any Subject Options on or after the date of such termination, shall be extinguished as of the date of such termination.
The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are employed or retained as a consultant by the Company or any of its subsidiaries and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries other than a termination in connection with a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of
(x) the Company or any subsidiary if you are employed by or consulting with the Company at any time the Option is outstanding, or (y) the subsidiary employing or retaining you at any time while the Option is outstanding, to the extent such
competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
Should you either breach or challenge in judicial, arbitration or other proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income (and reduced by any amount already paid to the Company under the second preceding paragraph), but only to the extent such exercises occurred on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; (b) acknowledge that (1) all of your rights to the Option are embodied in the Agreement and in the Plan, (2) the grant and acceptance of the Option does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or consulting relationship, and (3) your employment status is that of an employee-at-will and in particular that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time; and (c) agree not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of grant unless you have already agreed in writing to a longer period.
Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company Common Stock or restricted stock awards or other agreements relating to Company Common Stock or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary of the Company. It is our mutual
intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any of the Company's option, restricted stock or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and the Company or one of its subsidiaries, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
The Agreement shall be governed by and interpreted in accordance with Michigan law.
 
Exhibit 10.b(iv)
[Date]
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that on [date], the Board of Directors granted you a non-qualified stock option pursuant to the Company's 2005 Long Term Stock Incentive Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This letter and the attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the Plan and Prospectus dated [date] covering the shares which are the subject of this option. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them. Copies are also available upon request to the Company. We suggest that you review each of these documents. The federal income tax attributes of non-qualified stock options are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code.
This option, if accepted by you, grants you the right to purchase [no. of shares] shares of Company Common Stock, $1.00 par value, at a price of [$_____] per share, which the Board has determined is the fair market value of a share of the Company Common Stock on the date of grant.
WHEN THE OPTION IS EXERCISABLE AND TERMINATION
This option is exercisable cumulatively in installments of 20% commencing as of [date], 20% as of [date], 20% as of [date], 20% as of [date] and 20% as of
[date]; provided that, subject to the last sentence of this paragraph, on each date of exercise you are an Eligible Director, as hereinafter defined. An Eligible Director is any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director. All installments of the option as above described must be exercised no later than [expiration date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your term as an Eligible Director is terminated for any reason, this option shall terminate in accordance with the following paragraph and Section 6 of the Plan.
Page 2
[Date]
Notwithstanding the foregoing or anything in the Plan:
(i) If your service as a Director is terminated by reason of permanent and total disability, any portion of the option that is not then exercisable shall become fully exercisable and shall remain exercisable in accordance with its terms and the provision of the Plan until the earlier of the expiration of the original option term or one year after death.
(ii) If you retire on or after normal retirement age as specified in the Company's Corporate Governance Guidelines, the option shall continue to become exercisable and shall remain exercisable in accordance with its terms and the provisions of the Plan.
(iii) If your service as a Director terminates for any reason other than as a result of death, permanent and total disability or retirement due to age, any portion of the option that is then exercisable will remain exercisable until the earlier of the expiration of the original option term or one year after death.
As provided in the Plan, if at any time you engage in an activity following your termination of service which in the sole judgment of the Board of Directors is detrimental to the interests of the Company, a subsidiary or an affiliated company, all unexercised installments or portions of the option will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, "Business Activities" (as defined in the Appendix) for purposes of this option and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
ACCEPTANCE
We agree that all of the terms and conditions of this option are reflected in this Agreement and the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of stock options or restricted stock except as may be evidenced by agreements duly executed by you and the Company.
By accepting this option you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to shares acquired pursuant to this option as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this option are embodied herein and in the Plan.
Section 3 of the Plan provides that the Organization and Compensation Committee shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Organization and Compensation Committee's interpretation of the terms and provisions of the Plan shall be final and conclusive.
Page 3
[Date]
Please complete your mailing address and Social Security number as indicated below and sign, date and return the copy of this Agreement to Eugene
A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective.
Very truly yours,
MASCO CORPORATION

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to all the foregoing terms and conditions.

(Signature of Recipient)

(Mailing Address)

(Social Security Number)

Dated:
Page 4
[Date]
APPENDIX TO OPTION AGREEMENT
Masco Corporation (the "Company") and you agree that all of the terms and conditions of the grant of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the 2005 Long Term Stock Incentive Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other awards except as may be evidenced by agreements duly executed by you and the Company.
By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company.
In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are a Director of the Company and for a period of one year following the termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such exercises occurred on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Option are embodied in the Agreement and in the Plan.
Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the
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[Date]
determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company Common Stock or restricted stock awards or other awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement,
(b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company's option or restricted stock incentive plans or other awards to the extent the provisions of such other agreement requires arbitration between you and the Company, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
The Agreement shall be governed by and interpreted in accordance with Michigan law.
 
Exhibit 10.c
The forms of the Masco Corporation Supplemental Executive Retirement and Disability Plan for named executive officers are filed herewith. The specific terms of individual arrangements for other executive officers vary, but none are more favorable to an executive than those filed herewith.
Form for: Richard A. Manoogian John R. Leekley
October 2, 2000
Dear: ________________
Our company's Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company's pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company's Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the "Plan". You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated ___________, ______. This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company's obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
For the purposes of this Agreement, words and terms are defined as follows:
a. "Average Compensation" shall mean the aggregate of your highest three years' total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided, however, (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation
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would have been absent such salary reduction and absent such generally applicable program.
b. A "Change in Control" shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Company" shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
e. The "Deferred Compensation Trust" shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
f. "Disability" and "Disabled" shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
g. The "Gross-Up Amount" (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan,
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retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the "Excise Tax"), and (ii) shall mean an additional payment (the "Excise Tax Adjustment Payment") in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the "Gross-Up Amount", including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
h. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
i. "Present Value" of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
j. "Profit Sharing Conversion Factor" shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or
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such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
k. "Retirement" shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
l. "SERP Percentage" of your Average Compensation is 60%.
m. "Surviving Spouse" shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a "Change in Control" for the purposes of paragraph 10 if none of clauses (i) through
(iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, "Surviving Spouse" shall be any spouse entitled to any benefits hereunder.
n. If you become Disabled, "Total Compensation" shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided, however, if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
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o. "Vested Percentage" shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided, however, (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
p. "Year" shall mean twelve full consecutive months, and "year" shall mean a calendar year.
q. "Years of Service" shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, and (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company's qualified defined contribution plans
(excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, provided, however, in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to
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paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided
(x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and
(z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by
(1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company's qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii)
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and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the "excess amount") the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided, however, in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided, further, if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (assuming no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to
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a life annuity (such deduction, however, only to commence on the date such benefit is first payable), and (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company's qualified defined benefit contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, provided, however, in all cases the amount offset pursuant to these subsections (i) and
(ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled.
8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as "the SERP Percentage of your Average Compensation", as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
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9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company's Retirement Benefits Restoration Plan. For this purpose benefits received under the Company's non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
10. Change in Control. (i) Immediately upon the occurrence of any Change in Control:
(1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
(2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
(A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
(B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
(C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to
the
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Present Value of those benefits payable in the future to you and your Surviving Spouse; and
(D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
(ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
(iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust
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a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided, however, that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse's certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
(iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse's name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an "Underpayment"), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to
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be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
(v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
11. We also agree upon the following:
a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company's Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company's officers and executives (in either case, the "Committee"), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person's benefit under any circumstances any of the Company's Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products
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or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
e. At the Company's request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse's cooperation in providing such information is a condition to the receipt of survivor's benefits under this Agreement.
f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or
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your Surviving Spouse's debts, contracts, torts or other engagements of any kind.
g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse's written application, or by the applicant's personal representative in the event of any legal disability.
i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company's general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company's general creditors, and are not set aside for your or your Surviving Spouse's benefit.
j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse's trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
k. This Agreement shall be governed by the laws of the State of Michigan.
12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as "dispute") involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and
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October 2, 2000
binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
The arbitrator's sole authority shall be to apply the clauses of this Agreement.
We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
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October 2, 2000
We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
Sincerely,
MASCO CORPORATION
By

Richard A. Manoogian Chief Executive Officer

DATE:
Form of Amendment for: John R. Leekley
December 5, 2003
[Participant's Address]
[Dear Participant]
Masco's Organization and Compensation Committee over the past several years has approved a number of major improvements to the benefits for our executives covered by Masco's program for supplemental retirement and other benefits (the "SERP Plan"). At its October meeting this Committee authorized a significant additional enhancement under your agreement pursuant to the SERP Plan (the "SERP Agreement") by increasing the percentage of your bonus eligible for inclusion in the SERP calculation from 50% to 60% of your base salary. (A corresponding change would be made in the calculation of disability payments by changing the definition of "Total Compensation" to 160% from 150% of your then current salary.) The provisions in your SERP Agreement, allowing certain carry-forwards or carry-backs of bonus payments in excess of what was 50% and is now 60%, would be retained.
This enhancement was, in part, approved to partially offset the effect of the current freeze on your salary. Accordingly, the existing provision in your SERP Agreement, which requires a calculation of benefits on the assumption that all compensation freezes are disregarded, would be eliminated.
In order for these changes to be implemented in your SERP Agreement, the definitions of "Average Compensation" and "Total Compensation" in your SERP Agreement would be amended to read as follows:
Average Compensation
"Average Compensation shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary paid during such year), divided by three, provided, however, (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary paid during that year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed."
[Participant's Name]
December 5, 2003
Page Two
Total Compensation
'If you become Disabled, "Total Compensation" shall mean 160% of your annual base salary rate at the time of your Disability."
Should you have any questions regarding this proposed amendment, please feel free to discuss them with Dan Foley, John Leekley or me. If not, I would appreciate your execution and return of a copy of this letter to Gene Gargaro, at which time the above described amendment will become effective.
Sincerely yours,

Richard A. Manoogian Chairman
I agree to the above amendment of my
SERP Agreement changing definition of
"Average Compensation" and "Total
Compensation" as set forth above.

Form of Amendment for: Richard A. Manoogian Alan Barry
March 31, 2004
[Participant]
Dear [Participant],
Masco's Organization and Compensation Committee over the past several years has approved a number of major improvements to the benefits for our executives covered by Masco's program for supplemental retirement and other benefits (the "SERP Plan"). At its October meeting this Committee authorized a significant additional enhancement under your agreement pursuant to the SERP Plan (the "SERP Agreement") by increasing the percentage of your bonus eligible for inclusion in the SERP calculation from 50% of your base salary to 60% of your maximum bonus opportunity. An additional change would be made in the calculation of disability payments by changing the definition of "Total Compensation" from 150% of your then current salary to the sum of your then current salary and 60% of your then current bonus opportunity.) The provisions in your SERP Agreement, allowing certain carry-forwards or carry-backs of bonus payments in excess of what was 50% of your base salary would also be modified.
This enhancement was, in part, approved to partially offset the effect of the current freeze on your salary. Accordingly, the existing provision in your SERP Agreement, which requires a calculation of benefits on the assumption that all compensation freezes are disregarded, would be eliminated.
In order for these changes to be implemented in your SERP Agreement, the definitions of "Average Compensation" and "Total Compensation" in your SERP Agreement would be amended to read as follows:
Average Compensation
"Average Compensation shall mean the aggregate of your highest three years total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of your maximum bonus opportunity for such year), divided by three, provided, however, (x) if any portion of a bonus is excluded by the parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of your maximum bonus opportunity for such year, (y) if you have on the date of determination less than three full years of employment, the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed."
[Participant]
March 31, 2004
Page Two
Total Compensation
If you become Disabled, "Total Compensation" shall mean the sum of your annual base salary rate and 60% of your then effective bonus opportunity at the time of your Disability."
Should you have any questions regarding this proposed amendment, please feel free to discuss them with Dan Foley, John Leekley or me. If not, I would appreciate your execution and return of a copy of this letter to Gene Gargaro, at which time the above described amendment will become effective.
This letter supersedes the letter agreement of December 5, 2003 between you and the Company.
Sincerely yours,
I agree to the above amendment of my
SERP Agreement changing definition of
"Average Compensation" and "Total
Compensation" as set forth above.

Form for: Alan Barry
October 2, 2000
Dear: ________________
Our company's Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company's pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company's Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the "Plan". You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated __________, __. This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company's obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
For the purposes of this Agreement, words and terms are defined as follows:
a. "Average Compensation" shall mean the aggregate of your highest three years' total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided, however, (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
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October 2, 2000
b. A "Change in Control" shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Company" shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
e. The "Deferred Compensation Trust" shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
f. "Disability" and "Disabled" shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
g. The "Gross-Up Amount" (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement,
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October 2, 2000
any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the "Excise Tax"), and (ii) shall mean an additional payment (the "Excise Tax Adjustment Payment") in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the "Gross-Up Amount", including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
h. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
i. "Present Value" of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
j. "Profit Sharing Conversion Factor" shall be a factor equal to the present value of a life annuity payable
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October 2, 2000
at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
k. "Retirement" shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
l. "SERP Percentage" of your Average Compensation is 60% if at the date of determination you have completed 15 or more Years of Service, and decreases by increments of four percentage points for each Year or portion thereof less than 15 that you have accumulated at the date of determination. The minimum SERP Percentage is 20% after five Years of Service; prior to completing five Years of Service the SERP Percentage is 0.
m. "Surviving Spouse" shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a "Change in Control" for the purposes of paragraph 10 if none of clauses (i) through
(iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, "Surviving Spouse" shall be any spouse entitled to any benefits hereunder.
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October 2, 2000
n. If you become Disabled, "Total Compensation" shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided, however, if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
o. "Vested Percentage" shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided, however, (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
p. "Year" shall mean twelve full consecutive months, and "year" shall mean a calendar year.
q. "Years of Service" shall mean the number of Years during which you were employed by the Company (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company's
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October 2, 2000
qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided, however, in all cases the amount offset pursuant to these subsections
(i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided
(x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and
(z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
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October 2, 2000
4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by
(1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company's qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the "excess amount") the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (with your SERP Percentage determined as though you were given credit for additional Years of Service until age 65 but no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided, however, in all cases the amount offset pursuant to these subsections (i) and
(ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA,
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October 2, 2000
or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided, further, if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the discounted Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (with your SERP Percentage determined as though you were given credit for additional Years of Service but no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however, only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company's qualified defined benefit contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) unless you have at least 25 Years of Service, any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all
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October 2, 2000
other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers), provided, however, in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled and with your SERP Percentage given credit for Years of Service while you were Disabled.
7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with your SERP Percentage given credit for Years of Service from the date you became Disabled to the date you would have attained age 65.
8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as "the SERP Percentage of your Average Compensation", as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
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October 2, 2000
9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company's Retirement Benefits Restoration Plan. For this purpose benefits received under the Company's non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
10. Change in Control. (i) Immediately upon the occurrence of any Change in Control:
(1) If you are then employed by the Company, (i) your SERP Percentage, if not already 60%, shall be deemed for all purposes of this Agreement to be the lesser of 60% or the percentage resulting by adding to your SERP Percentage immediately prior thereto the product obtained by multiplying 4% by the number of Years which would then have to elapse prior to your attainment of age 65, and (ii) your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
(2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
(A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
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October 2, 2000
(B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
(C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
(D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
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October 2, 2000
(ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
(iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause
(i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided, however, that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse's certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
(iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse's name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming
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subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an "Underpayment"), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
(v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
11. We also agree upon the following:
a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company's Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company's officers and executives (in either case, the "Committee"), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
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b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person's benefit under any circumstances any of the Company's Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
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e. At the Company's request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse's cooperation in providing such information is a condition to the receipt of survivor's benefits under this Agreement.
f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse's debts, contracts, torts or other engagements of any kind.
g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse's written application, or by the applicant's personal representative in the event of any legal disability.
i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company's general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company's general creditors, and are not set aside for your or your Surviving Spouse's benefit.
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j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse's trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
k. This Agreement shall be governed by the laws of the State of Michigan.
12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as "dispute") involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
The arbitrator's sole authority shall be to apply the clauses of this Agreement.
We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the
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decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
Sincerely,
MASCO CORPORATION
By

Richard A. Manoogian Chief Executive Officer

DATE:
Form for: Timothy Wadhams
[Date]
Dear:
Our Company's Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company's pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the Company's Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the "Plan". You are currently a participant in a similar plan maintained by Metaldyne Corporation (formerly known as MascoTech, Inc.) ("Metaldyne") upon the terms of a letter agreement signed by you and dated November 21, 2000 as modified by paragraph 6 of an employment, release and consulting agreement ("the November 22 Agreement") dated November 22, 2000 (such plan as so modified referred to herein as the "Existing Agreement"). Concurrently with your execution of this Agreement you have waived and released Metaldyne Corporation from all rights to which you were previously entitled under the Existing Agreement. The agreements contained in this letter, once accepted by you, establish your participation in the Plan as of the date hereof and describe in full your benefits pursuant to the Plan and all of the Company's obligations to you, and yours to the Company with respect to the Plan. These benefits as described below are contractual obligations of the Company.
For the purposes of this Agreement, words and terms are defined as follows:
a. "Average Compensation" shall mean the aggregate of your highest three year's total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid (the bonus with respect to any such year, however, only to be included in an amount not in excess of 60% of the base salary in effect at the end of such year), divided by three, provided, however, (x) if any portion of a bonus is excluded by the
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parenthetical contained in clause (ii) above, the total amount excluded will be added to one or both of the other two years included in the calculation as long as the amount so added does not result in a bonus with respect to any year exceeding 60% of the base salary in effect at the end of that year, and (y) if you have on the date of determination less than three full years of employment the foregoing calculation, including any adjustment required by clause (x) above, shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed.
b. A "Change in Control" shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Company" shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
e. The "Deferred Compensation Trust" shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
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f. "Disability" and "Disabled" shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
g. The "Gross-Up Amount" (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement, any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the "Excise Tax"), and (ii) shall mean an additional payment (the "Excise Tax Adjustment Payment") in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the "Gross-Up Amount", including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
h. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
i. "Present Value" of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the
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PBGC on the first day of the month which is (i) four months prior to the month in which a Change in Control occurs or (ii) the month in which your death occurs if the Present Value is being calculated under the proviso in the last sentence of paragraph 4 (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
j. "Profit Sharing Conversion Factor" shall be a factor equal to the present value of a life annuity payable at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
k. "Retirement" shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
l. "SERP Percentage" of your Average Compensation is 60%.
m. "Surviving Spouse" shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a "Change in Control" for the purposes of paragraph 10 if none of clauses (i)
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through (iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, "Surviving Spouse" shall be any spouse entitled to any benefits hereunder.
n. If you become Disabled, "Total Compensation" shall mean 160% of your annual base salary rate at the time of your Disability.
o. "Vested Percentage" shall mean 100%.
p. "Year" shall mean twelve full consecutive months, and "year" shall mean a calendar year.
q. "Years of Service" shall mean the number of Years during which you were employed by the Company (including Years of Service for the time you were employed by Metaldyne and its predecessors but excluding Years of Service with any other corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company's qualified defined contribution plans
(excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you by reason of employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers); provided, however, in all cases the amount offset
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pursuant to these subsections (i), (ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer and
(ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death. In addition to the foregoing, the Company guarantees the performance by Metaldyne of its obligations under clause (ii) of paragraph 4(b) of the November 22 Agreement.
4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by
(1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company and Metaldyne funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's and Metaldyne's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you
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attain age 65, to a 50% joint and spouse survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company's and Metaldyne's qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's and Metaldyne's Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the "excess amount") the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers (other than Metaldyne), but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers); provided, however, in all cases the amount offset pursuant to these subsections (i), (ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided, further, if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the Present Value, determined at the date of your death, of the aggregate payments
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estimated to be received by your Surviving Spouse based on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however, only to commence on the date such benefit is first payable), (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company's qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, and (iii) any retirement benefits paid or payable to you or your Surviving Spouse by reason of your employment by all other employers (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than such other employers); provided, however, in all cases the amount offset pursuant to these subsections (i),(ii) and (iii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8
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below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled.
8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as "the SERP Percentage of your Average Compensation", as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company's Retirement Benefits Restoration Plan. For this purpose benefits received under the Company's non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 3, the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
10. Change in Control. (i) Immediately upon the occurrence of any Change in Control:
(1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
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(2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
(A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
(B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
(C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
(D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (after giving effect to the last sentence of paragraph 3 and the provisions of clause (ii) of paragraph 4(b) of the November 22 Agreement)(A) to you and your Surviving Spouse if you or your Surviving Spouse is then
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receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
(ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
(iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause
(i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided, however, that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your
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Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse's certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
(iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse's name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that (1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an "Underpayment"), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
(v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the
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Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
11. We also agree upon the following:
a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company's Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of the Company's officers and executives (in either case, the "Committee"), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person's benefit under any circumstances any of the Company's Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in
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the event of a Change in Control, all such restrictions shall terminate one year thereafter.
In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
e. At the Company's request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse's cooperation in providing such information is a condition to the receipt of survivor's benefits under this Agreement.
f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse's debts, contracts, torts or other engagements of any kind.
g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind
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whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse's written application, or by the applicant's personal representative in the event of any legal disability.
i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company's general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company's general creditors, and are not set aside for your or your Surviving Spouse's benefit.
j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse's trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
k. This Agreement shall be governed by the laws of the State of Michigan.
12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as "dispute") involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any
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court of competent jurisdiction and enforcement may be had according to its terms.
The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
The arbitrator's sole authority shall be to apply the clauses of this Agreement.
We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
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We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
Sincerely,
MASCO CORPORATION
By

Richard A. Manoogian Chief Executive Officer

DATE:
Form for: Daniel Foley
October 2, 2000
Dear:
Our company's Board of Directors has adopted a plan whereby supplemental retirement and other benefits, in addition to those provided under the Company's pension and other benefit plans, will be made available to those Company and subsidiary executives as may be designated from time to time by the company's Chief Executive Officer. The plan providing such benefits, as originally made available to designated executives in 1987 and as subsequently amended from time to time heretofore or in the future, is referred to in this letter as the "Plan". You are currently a participant in the Plan upon the terms of a letter agreement signed by you and dated __________, __. This Agreement amends and replaces in its entirety your previously signed letter agreement and describes in full your benefits pursuant to the Plan and all of the Company's obligations to you, and yours to the Company. These benefits as described below are contractual obligations of the Company.
For the purposes of this Agreement, words and terms are defined as follows:
a. "Average Compensation" shall mean the aggregate of your highest three years' total annual cash compensation paid to you by the Company, consisting of (i) base salaries and (ii) regular year-end cash bonuses paid with respect to the years in which such salaries are paid, divided by three, provided, however, (x) if you have on the date of determination less than three full years of employment the foregoing calculation shall be based on the average base salaries and regular year-end cash bonuses paid to you while so employed, and (y) if the determination of Average Compensation includes any year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan, you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Average Compensation would have been absent such salary reduction and absent such generally applicable program.
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b. A "Change in Control" shall be deemed to have occurred if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new directors (other than Excluded Directors) whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. Excluded Directors are directors whose election by the Board or approval by the Board for stockholder election occurred within one year after any "person" or "group of persons" as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Company" shall mean Masco Corporation or any corporation in which Masco Corporation owns directly or indirectly stock possessing in excess of 50% of the total combined voting power of all classes of stock.
e. The "Deferred Compensation Trust" shall mean any trust created by the Company to receive the deposit referred to in clause (2) of paragraph 10.
f. "Disability" and "Disabled" shall mean your being unable to perform your duties as a Company executive by reason of your physical or mental condition, prior to your attaining age 65, provided that you have been employed by the Company for two consecutive Years or more at the time you first became Disabled.
g. The "Gross-Up Amount" (i) shall be determined if any payment or distribution by the Company to or for your benefit, whether paid, distributed, payable or distributed or distributable pursuant to the terms of this Agreement,
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any stock option or stock award plan, retirement plan or otherwise (such payment or distribution, other than an Excise Tax Adjustment Payment under clause (ii), is referred to herein as a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax together with any such interest or penalties are referred to herein as the "Excise Tax"), and (ii) shall mean an additional payment (the "Excise Tax Adjustment Payment") in an amount such that after subtracting from the Excise Tax Adjustment Payment your payment of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Excise Tax Adjustment Payment, the balance will be equal to the Excise Tax imposed upon the Payments. All determinations required to be made with respect to the "Gross-Up Amount", including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such national accounting firm as the Company may designate prior to a Change in Control, which shall provide detailed supporting calculations to the Company and you. Except as provided in clause (iv) of paragraph 10, all such determinations shall be binding upon you and the Company.
h. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
i. "Present Value" of future benefits means the discounted present value of those benefits (including therein the benefits, if any, your Surviving Spouse would be entitled to receive under this Agreement upon your death), using the UP-1984 Mortality Table and discounted by the interest rate used, for purposes of determining the present value of a lump sum distribution on plan termination, by the PBGC on the first day of the month which is four months prior to the month in which a Change in Control occurs (or if the PBGC has ceased publishing such interest rate, such other interest rate as the Board of Directors deems is an appropriate substitute). The above PBGC interest rate is intended to be determined based on PBGC methodology and regulations in effect on September 1, 1993 (as contained in 29 CFR Part 2619).
j. "Profit Sharing Conversion Factor" shall be a factor equal to the present value of a life annuity payable
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at the later of age 65 or attained age based on the 1983 Group Annuity Mortality Table using a blend of 50% of the male mortality rates and 50% of the female mortality rates as set forth in Revenue Ruling 95-6 (or such other mortality table that the Internal Revenue Service may prescribe in the future) and an interest rate equal to the average yield for 30-year Treasury Constant Maturities, as reported in Federal Reserve Statistical Releases G.13 and H.15, four months prior to the month of the date of determination (or, if such interest rate ceases to be so reported, such other interest rate as the Board of Directors deems is an appropriate substitute).
k. "Retirement" shall mean your termination of employment with the Company, on or after you attain age 65. Your acting as a consultant shall not be considered employment.
l. "SERP Percentage" of your Average Compensation is 60%.
m. "Surviving Spouse" shall be the person to whom you shall be legally married (under the law of the jurisdiction of your permanent residence) at the date of (i) your Retirement or death after attaining age 65 (if death terminated employment with the Company) for the purposes of paragraphs 1, 2 and 3, (ii) your death for the purposes of paragraph 5 and, if paragraph 5 is applicable, for the purposes of paragraph 3,(iii) the commencement of your Disability for the purposes of paragraphs 6 and 7 and, as long as paragraphs 6 or 7 are applicable, for the purposes of paragraph 3, (iv) your termination of employment for the purposes of paragraph 4 and, if paragraph 4 is applicable, for purposes of paragraph 3 and (v) a "Change in Control" for the purposes of paragraph 10 if none of clauses (i) through
(iv) has become applicable prior to the Change in Control and, if this clause (v) is applicable, for purposes of paragraph 3. For the purposes of paragraphs 11a, 11e, 11f, 11g, 11h, 11i and 11j, "Surviving Spouse" shall be any spouse entitled to any benefits hereunder.
n. If you become Disabled, "Total Compensation" shall mean your annual base salary rate at the time of your Disability plus the regular year-end cash bonus paid to you for the year immediately prior thereto, provided, however, if the determination of Total Compensation is for a year in which you volunteered to reduce your salary or, as part of a program generally applicable to participants in the Plan,
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you did not receive an increase in salary compared with the immediately preceding year, the Committee referred to in paragraph 11 shall make a good faith determination of what your Total Compensation would have been absent such salary reduction and absent such generally applicable program.
o. "Vested Percentage" shall mean the sum of the following percentages: (i) 2% multiplied by your Years of Service, plus (ii) 8% multiplied by the number of Years you have been designated a participant in the Plan; provided, however, (w) prior to completing five Years of Service the Vested Percentage is 0,(x) on or prior to your fiftieth birthday your Vested Percentage may not exceed 50%, (y) on or prior to each of your birthdays following your fiftieth birthday your Vested Percentage may not exceed the sum of 50% plus the product obtained by multiplying 5% by the number of birthdays that have occurred following your fiftieth birthday, and (z) your Vested Percentage in no event may exceed 100%.
p. "Year" shall mean twelve full consecutive months, and "year" shall mean a calendar year.
q. "Years of Service" shall mean the number of Years during which you were employed by the Company or MascoTech, Inc. (excluding, however, Years of Service with a corporation prior to the time it became a subsidiary of or otherwise affiliated with Masco Corporation).
1. In accordance with the Plan, upon your Retirement the Company will pay you annually during your lifetime, subject to paragraph 8 below, the SERP Percentage of your Average Compensation, less: (i) a sum equal to the annual benefit which would be payable to you upon your Retirement if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you retire, to a 50% joint and spouse survivor life annuity, and (ii) a sum equal to the annual benefit which would be payable to you upon Retirement if your vested accounts in the Company's qualified defined contribution plans
(excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, provided, however, in all cases the amount offset pursuant to these
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subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans.
2. Upon your death after Retirement or while employed by the Company after attaining age 65, your Surviving Spouse shall receive for life 75% of the annual benefit pursuant to paragraph 1 of this Agreement which was payable to you prior to your death (or, if death terminated employment after attaining age 65, which would have been payable to you had your Retirement occurred immediately prior to your death).
3. The Company will provide, purchase or at its option provide reimbursement for premiums paid for such supplemental medical insurance as the Company in its sole discretion may deem advisable from time to time (i) for you and your Surviving Spouse for the lifetime of each of you (A) following a termination of your employment with the Company due to Retirement or Disability, and (B) following any other termination of employment with the Company provided
(x) you and your Surviving Spouse are not covered by another medical insurance program substantially all of the cost of which is paid by another employer, (y) on the date of such termination your Vested Percentage is not less than 80% and
(z) the benefits under this paragraph 3 shall not commence until you have attained age 60 or your earlier death to the extent you die leaving a Surviving Spouse, and (ii) for your Surviving Spouse for his or her lifetime upon a termination of your employment with the Company due to your death.
4. If your employment with the Company is for any reason terminated prior to Retirement, other than as a result of circumstances described in paragraphs 2, 5 or 6 of this Agreement or following a Change in Control, and if prior to the date of termination you have completed 5 or more Years of Service, upon your attaining age 65 the Company will pay to you annually during your lifetime, subject to paragraph 8 below, the Vested Percentage of the result obtained by
(1) multiplying your SERP Percentage at the date your employment terminated by your Average Compensation, less (2) the sum of the following: (i) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if benefits payable to you under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan were converted to a life annuity, or if you are married when you attain age 65, to a 50% joint and spouse
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survivor life annuity, (ii) a sum equal to the annual benefit which would be payable to you upon your attaining age 65 if an amount equal to your vested accounts at the date of your termination of employment with the Company in the Company's qualified defined contribution plans (excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan (in each case increased from the date of termination to age 65 at the imputed rate of 4% per annum) were converted to a life annuity in accordance with the Profit Sharing Conversion Factor, and (iii) to the extent the annual payments described in this clause (iii) and the annual payments you would otherwise be entitled to receive under this paragraph 4 would, in the aggregate exceed (the "excess amount") the annual payments you would have received under paragraph 1 had you remained employed by the Company until Retirement (assuming for purposes of this clause no compensation increases), any retirement benefits paid or payable to you by reason of employment by all other previous or future employers, but only to the extent of such excess amount (the amount of such deduction, in the case of benefits paid or payable other than on an annual basis, to be determined on an annualized basis by the Committee referred to in paragraph 11 and excluding from such deduction any portion thereof, and earnings thereon, determined by such Committee to have been contributed by you rather than your prior or future employers), provided, however, in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. Upon your death on or after age 65 should you be survived by your Surviving Spouse, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit payable to you under the preceding sentence following your attainment of age 65; provided, further, if your death should occur prior to age 65, your Surviving Spouse shall receive for life, commencing upon the date of your death, 75% of the annual benefit which would have been payable to you under the preceding sentence following your attainment of age 65, reduced by a factor of actuarial equivalence as determined by the Committee, such that the Present Value of the aggregate payments to be received by your Surviving Spouse based on his or her life expectancy as of the date of your death is equal to the discounted Present Value, determined at the date of your death, of the aggregate payments estimated to be received by your Surviving Spouse based
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on his or her life expectancy at an age, and as if your Surviving Spouse had begun receiving payments, when you would have attained age 65.
5. If while employed by the Company you die prior to your attaining age 65 leaving a Surviving Spouse, and provided you shall have been employed by the Company for two consecutive Years or more, your Surviving Spouse shall receive annually for life, subject to paragraph 8 below, 75% of the SERP Percentage of your Average Compensation (assuming no compensation increases between the date of your death and the date you would have attained age 65), less: (i) a sum equal to the annual benefit which would be payable to your Surviving Spouse under the Company funded qualified pension plans and the defined benefit (pension) plan provisions of the Company's Retirement Benefits Restoration Plan and any similar plan if such benefit were converted to a life annuity (such deduction, however, only to commence on the date such benefit is first payable), and (ii) a sum equal to the annual payments which would be received by your Surviving Spouse as if your spouse were designated as the beneficiary of your vested accounts in the Company's qualified defined benefit contribution plans
(excluding your contributions and earnings thereon in the Company's 401(k) Savings Plan) and the defined contribution (profit sharing) provisions of the Company's Retirement Benefits Restoration Plan and any similar plan and such accounts were converted to a life annuity at the time of your death in accordance with the Profit Sharing Conversion Factor, provided, however, in all cases the amount offset pursuant to these subsections (i) and (ii) shall be determined prior to the effect of any payments from the plans and trusts referred to therein which are authorized pursuant to any Qualified Domestic Relations Order under ERISA, or other comparable order allocating marital or other rights under state law as applied to retirement benefits from non-qualified plans. No death benefits are payable except to your Surviving Spouse.
6. If you shall have been employed by the Company for two Years or more and while employed by the Company you become Disabled prior to your attaining age 65, until the earlier of your death, termination of Disability or attaining age 65 the Company will pay you an annual benefit, subject to paragraph 8 below, equal to 60% of your Total Compensation less any benefits payable to you pursuant to long-term disability insurance under programs provided by the Company. If your Disability continues until you attain age 65, you shall be considered retired and you shall receive retirement benefits pursuant to paragraph 1 above, based upon your Average Compensation as of the date it is determined you became Disabled.
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7. If you die leaving a Surviving Spouse while receiving Disability benefits pursuant to paragraph 6 of this Agreement, you will be deemed to have retired on your death and your Surviving Spouse shall receive for life 75% of the annual benefit which would have been payable to you if you had retired on the date of your death and your benefit determined pursuant to paragraph 1, based upon your Average Compensation as of the date you became Disabled and with credit for Years of Service from the date you became Disabled.
8. If the age of your Surviving Spouse is more than 20 years younger than your age, then the annual benefit payable under paragraphs 1, 4, 5 and 6 of this Agreement and the benefit payable as "the SERP Percentage of your Average Compensation", as that phrase is used in paragraph 5 of this Agreement, shall be reduced by the percentage obtained by multiplying 1.5% times the number of Years or portion thereof by which your Surviving Spouse is more than 20 years younger than you.
9. If you or your Surviving Spouse is eligible to receive benefits hereunder, unless otherwise specifically agreed by the Company in writing, you and your Surviving Spouse will not be able to receive benefits under any other Company sponsored non-qualified retirement plans other than the Company's Retirement Benefits Restoration Plan. For this purpose benefits received under the Company's non-qualified stock option or stock award plans will not be considered to have been received under a Company sponsored non-qualified retirement plan even though such benefits are received after retirement. Except as provided in the last sentence of paragraph 4 and in paragraph 10 of this Agreement, no benefits will be paid to your Surviving Spouse pursuant to this Agreement unless upon your death you were employed by the Company, Disabled or had taken Retirement from the Company.
10. Change in Control. (i) Immediately upon the occurrence of any Change in Control:
(1) If you are then employed by the Company, your Vested Percentage, if not already 100%, shall be deemed for all purposes of this Agreement to be 100%.
(2) If the Deferred Compensation Trust has theretofore been established or is established within thirty days after the Change in Control, the Company shall forthwith deposit to an account in your name (or that of your Surviving Spouse if you are then deceased and your Surviving Spouse is
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entitled to benefits hereunder) in the Deferred Compensation Trust 110% of the sum of the Gross-Up Amount plus:
(A) If you are then employed by the Company, an amount equal to the discounted Present Value of the benefits which would have been payable under paragraphs 1 and 2 of this Agreement upon Retirement at age 65 or attained age if greater, assuming for purposes of this clause, no compensation increases and that if younger than age 65 you and your Surviving Spouse had attained such age;
(B) If employment has previously been terminated but you or your Surviving Spouse is then entitled in the future to receive benefits under paragraph 4 of this Agreement, an amount equal to the discounted Present Value of the benefits which would have been payable under such paragraph;
(C) If you or your Surviving Spouse is then receiving payments under paragraphs 1, 2, 4, 5 or 7 of this Agreement, an amount equal to the Present Value of those benefits payable in the future to you and your Surviving Spouse; and
(D) If you are then receiving payments under paragraph 6 of this Agreement, an amount equal to the Present Value of the benefits which would have been payable under paragraphs 6 and 7 on the assumption you would have continued to receive benefits under paragraph 6 until you had attained age 65 and thereafter continued to receive benefits as though you were deemed to have retired.
(3) The Company shall thereafter be obligated to provide such supplemental medical insurance as has theretofore in the discretion of the Company been generally provided to participants and their Surviving Spouses under the Plan (A) to you and your Surviving Spouse if you or your Surviving Spouse is then receiving benefits under paragraph 3, (B) to you and your Surviving Spouse if you become Disabled if you are employed by the Company at the time of the Change in Control, (C) to your Surviving Spouse upon your death if you are employed by the Company at the time of the Change in Control and (D) to you and your Surviving Spouse upon any termination of employment following any Change in Control but only during the periods when you and your Surviving Spouse are not covered by another medical
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insurance program substantially all of the cost of which is paid by another employer. The obligations of the Company under this clause (i)(3) shall remain in effect for the lifetime of both you and your Surviving Spouse.
(4) If the Deferred Compensation Trust is not established prior to or within thirty days after the Change in Control, all payments which would have otherwise have been made to you or your Surviving Spouse from the Deferred Compensation Trust shall immediately after such thirty day period be made to you or your Surviving Spouse by the Company.
(ii) Any deposit by the Company to an account in your name or that of your Surviving Spouse in the Deferred Compensation Trust prior to the occurrence of the Change in Control, together with all income then accrued thereon (but only to the extent of the value of such deposited amount and the income accrued thereon on the day of any deposit under clause (i)(2) of this paragraph 10), shall reduce by an equal amount the obligations of the Company to make the deposit required under clause (i)(2) of this paragraph 10.
(iii) At or prior to making the deposit required by clause (i)(2) of this paragraph 10, the Company shall deliver to the Trustee under the Deferred Compensation Trust a certificate specifying that portion, if any, of the amount in the trust account, after giving effect to the deposit, which is represented by the Gross-Up Amount. Payment of 90.91% of the amount required by clause (i)(2) of this paragraph 10 to be paid to the trust account, together with any income accrued thereon from the date of the Change in Control, is to be made to you or your Surviving Spouse, as applicable, under the terms of the Deferred Compensation Trust, at the earlier of (1) immediately upon a Change in Control if you then are deceased or have attained age 65 or are Disabled, (2) your death subsequent to the Change in Control, or (3) the date which is one year after the Change in Control; provided, however, that the Trustee under the Deferred Compensation Trust is required promptly to pay to you or your Surviving Spouse, as applicable, from the trust account from time to time amounts, not exceeding in the aggregate the Gross-Up Amount, upon your or your Surviving Spouse's certification to the Trustee that the amount to be paid has been or within 60 days will be paid by you or your Surviving Spouse to a Federal, state or local taxing authority as a result of the Change in Control and the imposition of the excise tax under Section 4999 of the Code (or any successor provision) on the receipt of any portion of the Gross-Up Amount. All amounts in excess of the amount required to be paid from the trust account by the preceding
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sentence, after all expenses of the Deferred Compensation Trust have been paid, shall revert to the Company provided that the Company has theretofore expressly affirmed its continuing obligations under clause (i)(3) of this Paragraph 10.
(iv) Subject to the next sentence of this clause (iv), the payment of the Gross-Up Amount to you or your Surviving Spouse or the account in your or your Surviving Spouse's name in the Deferred Compensation Trust will thereby discharge the Company from any obligations it may have under any present or future stock option or stock award plan, retirement plan or otherwise, to make any other payment as a result of your income becoming subject to the excise tax imposed by Section 4999 of the Code (or any successor provision) or any interest or penalties with respect to such excise tax. As a result of the uncertainty which will be present in the application of Section 4999 of the Code (or any successor provision) at the time of the determination of the Gross-Up Amount and the possibility that between the date of determination of the Gross-Up Amount and the dates payments are to be made to you or your Surviving Spouse under this Agreement, changes in applicable tax laws will result in an incorrect determination of the Gross-Up Amount having been made, it is possible that
(1) payment of a portion of the Gross-Up Amount will not have been made by the Company which should have been made (an "Underpayment"), or (2) payment of a portion of the Gross-Up Amount will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for your benefit. In the event that you or your Surviving Spouse discover that an Overpayment shall have occurred, the amount thereof shall be promptly repaid by you or your Surviving Spouse to the Company.
(v) Prior to the occurrence of a Change in Control, any deposits made by the Company to an account in the Deferred Compensation Trust may be withdrawn by the Company. Upon the occurrence of a Change in Control, all further obligations of the Company under this Agreement (other than under this Paragraph 10 to the extent not theretofore performed) shall terminate in all respects.
11. We also agree upon the following:
a. Prior to the occurrence of a Change in Control, the Compensation Committee of the Company's Board of Directors, or any other committee however titled which shall be vested with authority with respect to the compensation of
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the Company's officers and executives (in either case, the "Committee"), shall have the exclusive authority to make all determinations which may be necessary in connection with this Agreement including the dates of and whether you are or continue to be Disabled, the amount of annual benefits payable hereunder by reason of offsets hereunder due to employment by other employers, the interpretation of this Agreement, and all other matters or disputes arising under this Agreement. The determinations and findings of the Committee shall be conclusive and binding, without appeal, upon both of us.
b. You will not during your employment or Disability, and after Retirement or the termination of your employment, for any reason disclose or make use of for your own or another person's benefit under any circumstances any of the Company's Proprietary Information. Proprietary Information shall include trade secrets, secret processes, information concerning products, developments, manufacturing techniques, new product or marketing plans, inventions, research and development information or results, sales, pricing and financial data, information relating to the management, operations or planning of the Company and any other information treated as confidential or proprietary.
c. You agree that you will not following your termination of employment for any reason (whether on Retirement, Disability or termination prior to attaining age 65) thereafter directly or indirectly engage in any business activities, whether as a consultant, advisor or otherwise, in which the Company is engaged in any geographic area in which the products or services of the Company have been sold, distributed or provided during the five year period prior to the date of your termination of employment. In light of ongoing payments to be received by you and your Surviving Spouse for your respective lives, the restrictions contained in the preceding sentence shall be unlimited in duration provided no Change in Control has occurred and, in the event of a Change in Control, all such restrictions shall terminate one year thereafter.
In addition to the foregoing and provided no Change in Control has occurred, if while you or your Surviving Spouse is receiving retirement or other benefits pursuant to this Agreement, in the judgment of the Committee you or your Surviving Spouse directly or indirectly engage in activity or act in a manner which can be considered adverse to the interest of the Company or any of its direct or indirect
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subsidiaries or affiliated companies, the Committee may terminate rights to any further benefits hereunder.
d. Except as may be provided to the contrary in a duly authorized written agreement between you and the Company you acknowledge that the Company has made no commitments to you of any kind with respect to the continuation of your employment, which we expressly agree is an employment at will, and you or the Company shall have the unrestricted right to terminate your employment with or without cause, at any time in your or its discretion.
e. At the Company's request, expressed through a Company officer, you agree to provide such information with respect to matters which may arise in connection with this Agreement as may be deemed necessary by the Company or the Committee, including for example only and not in limitation, information concerning benefits payable to you from third parties, and you further agree to submit to such medical examinations by duly licensed physicians as may be requested by the Company from time to time. You also agree to direct third parties to provide such information, and your Surviving Spouse's cooperation in providing such information is a condition to the receipt of survivor's benefits under this Agreement.
f. To the extent permitted by law, no interest in this Agreement or benefits payable to you or to your Surviving Spouse shall be subject to anticipation, or to pledge, assignment, sale or transfer in any manner nor shall you or your Surviving Spouse have the power in any manner to charge or encumber such interest or benefits, nor shall such interest or benefits be liable or subject in any manner for the liabilities of you or your Surviving Spouse's debts, contracts, torts or other engagements of any kind.
g. No person other than you and your Surviving Spouse shall have any rights or property interest of any kind whatsoever pursuant to this Agreement, and neither you nor your Surviving Spouse shall have any rights hereunder other than those expressly provided in this Agreement. Upon the death of you and your Surviving Spouse no further benefits of whatsoever kind or nature shall accrue or be payable pursuant to this Agreement.
h. All benefits payable pursuant to this Agreement, other than pursuant to paragraph 10, shall be paid in installments of one-twelfth of the annual benefit, or at
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such shorter intervals as may be deemed advisable by the Company in its discretion, upon receipt of your or your Surviving Spouse's written application, or by the applicant's personal representative in the event of any legal disability.
i. Except as provided in paragraph 10, all benefits under this Agreement shall be payable from the Company's general assets, which assets (including all funds in the Deferred Compensation Trust) are subject to the claims of the Company's general creditors, and are not set aside for your or your Surviving Spouse's benefit.
j. You agree that, if the Company establishes the Deferred Compensation Trust, the Company is entitled at any time prior to a Change in Control to revoke such trust and withdraw all funds theretofore deposited in such trust. You acknowledge that although this Agreement refers from time to time to your or your Surviving Spouse's trust account, no separate trust will be created and all assets of any Deferred Compensation Trust will be commingled.
k. This Agreement shall be governed by the laws of the State of Michigan.
12. We have agreed that the determinations of the Committee described in paragraph 11a shall be conclusive as provided in such paragraph, but if for any reason a claim is asserted which subverts the provisions of paragraph 11a, we agree that, except for causes of action which may arise under paragraph 11b and the first paragraph of paragraph 11c and provided no Change in Control has occurred, arbitration shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which could be the subject of litigation (hereafter referred to as "dispute") involving or arising out of this Agreement. It is our mutual intention that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.
The arbitrator shall be chosen in accordance with the commercial arbitration rules of the American Arbitration Association and the expenses of the arbitration shall be borne equally by the parties to the dispute. The place of the arbitration shall be the principal offices of the American Arbitration Association in the metropolitan Detroit area.
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The arbitrator's sole authority shall be to apply the clauses of this Agreement.
We agree that the provisions of this paragraph 12, and the decision of the arbitrator with respect to any dispute, with only the exceptions provided in the first paragraph of this paragraph 12, shall be the sole and exclusive remedy for any alleged cause of action in any manner based upon or arising out of this Agreement. Subject to the foregoing exceptions, we acknowledge that since arbitration is the exclusive remedy, neither of us or any party claiming under this Agreement has the right to resort to any federal, state or local court or administrative agency concerning any matters dealt with by this Agreement and that the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The arbitration provisions contained in this paragraph shall survive the termination or expiration of this Agreement, and shall be binding on our respective successors, personal representatives and any other party asserting a claim based upon this Agreement.
We further agree that any demand for arbitration must be made within one year of the time any claim accrues which you or any person claiming hereunder may have against the Company; unless demand is made within such period, it is forever barred.
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We are pleased to be able to make this supplemental plan available to you. Please examine the terms of this Agreement carefully and at your earliest convenience indicate your assent to all of its terms and conditions by signing and dating where provided below and returning a signed copy to me.
Sincerely,
MASCO CORPORATION
By

Richard A. Manoogian Chief Executive Officer

DATE:
 
Exhibit 10.e
MASCO CORPORATION
1997 NON-EMPLOYEE DIRECTORS STOCK PLAN
 (Amended and Restated October 27, 2005)
SECTION 1. PURPOSE
The purpose of this Plan is to ensure that the non-employee Directors of Masco Corporation (the "Company") have an equity interest in the Company and thereby have a direct and long term interest in the growth and prosperity of the Company by payment of part of their compensation in the form of common stock of the Company.
SECTION 2. ADMINISTRATION OF THE PLAN
This Plan will be administered by the Company's Board of Directors (the "Board"). The Board shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan. The Board's interpretation of the terms and provisions of this Plan shall be final and conclusive. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes thereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
SECTION 3. ELIGIBILITY
Participation will be limited to individuals who are Eligible Directors, as hereinafter defined. Eligible Director shall mean any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director.
SECTION 4. SHARES SUBJECT TO THE PLAN
(a) Subject to the adjustments set forth below, the aggregate number of shares of Company Common Stock, par value $1.00 per share ("Shares"), which may be the subject of awards issued under the Plan shall be 1,000,000.
(b) Any Shares to be delivered under the Plan shall be made available from newly issued Shares or from Shares reacquired by the Company, including Shares purchased in the open market.
(c) To the extent a Stock Option award, as hereinafter defined, terminates without having been exercised, or an award of Restricted Stock, as hereinafter defined, is forfeited, the Shares subject to such Stock Option or Restricted Stock award shall again be available for distribution in connection with future awards under the Plan. Shares equal in number to the Shares surrendered to the Company in payment of the option price or withholding taxes (if any) relating to or arising in connection with any Restricted Stock or Stock Option hereunder shall be added to the number of Shares then available for future awards under clause (a) above.
(d) In the event of any merger, reorganization, consolidation, recapitalization, stock split, stock dividend, or other change in corporate structure affecting the Shares, the aggregate number of Shares which may be issued under the Plan, the number of Shares subject to Stock Options to be granted under Section 6(a) hereof and the number of Shares subject to any outstanding award of Restricted Stock or unexercised Stock Option shall be adjusted to avoid enhancement or diminution of the benefits intended to be made available hereunder.
SECTION 5. DIRECTOR STOCK COMPENSATION
(a) The compensation of each Eligible Director for the five year period beginning January 1, 1997 shall be payable in part with an award of Restricted Stock determined as set forth below, and in part in cash. Compensation for this purpose means annual retainer fees but does not include supplemental retainer fees for committee positions or fees for attendance at meetings, which shall be paid in cash. The portion of compensation payable in Restricted Stock during the five year period shall be equal to one-half of the annual compensation paid to Eligible Directors in the year immediately prior to the award multiplied by five, and the balance of compensation, unless otherwise determined by the Board, shall be payable in cash. Each award of Restricted Stock shall vest in twenty percent annual installments (disregarding fractional shares) on January 1 of each of the five consecutive years following the year in which the award is made. Subject to the approval of this Plan by the Company's stockholders, each Eligible
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Director on February 18, 1997 is awarded as of that date 6,940 Shares of Restricted Stock, based on the closing price of the Shares as reported on the New York Stock Exchange Composite Tape (the "NYSE") on February 18, 1997. Cash shall be paid to an Eligible Director in lieu of a fractional share.
(b) Subject to the approval of this Plan by the Company's stockholders, each Eligible Director who is first elected or appointed to the Board on or after the date of the Company's 1997 annual meeting of stockholders shall receive, as of the date of such election or appointment, an award of Restricted Stock determined in accordance with Section 5(a) for the five year period beginning on January 1 of the year in which such election or appointment occurred; provided, however, that the price of the Shares used in determining the number of Shares of Restricted Stock which shall be issued to such Eligible Director shall be the fair market value of the Shares as determined by the Board of Directors on the date on which such Eligible Director is elected or appointed, and provided, further, that the amount of Restricted Stock awarded to any Eligible Director who begins serving as a Director other than at the beginning of a calendar year shall be prorated to reflect the partial service of the initial year of the Director's term, such proration to be effected in the initial vesting.
(c) Upon the full vesting of any award of Restricted Stock awarded pursuant to Section 5(a) or 5(b), each affected Eligible Director shall be eligible to receive a new award of Restricted Stock, subject to Section 4. The number of Shares subject to such award shall be determined generally in accordance with the provisions of Section 5(b); provided, however, that the Board shall have sole discretion to adjust the amount of compensation then to be paid in the form of Shares and the terms of any such award of Shares. Except as the Board may otherwise determine, any increase or decrease in an Eligible Director's annual compensation during the period when such Director has an outstanding award of Restricted Stock shall be implemented by increasing or decreasing the cash portion of such Director's compensation.
(d) Eligible Director shall be entitled to vote and receive dividends on the unvested portion of his or her Restricted Stock, but will not be able to obtain a stock certificate or sell, encumber or otherwise transfer such Restricted Stock except in accordance with the terms of the Company's 1991 Long Term Stock Incentive Plan (the "Long Term Plan"). If an Eligible Director's term of service as a director is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement age as specified in the Company's Corporate Governance Guidelines, all shares of Restricted Stock theretofore awarded to the Eligible Director which are still subject to restrictions shall upon such termination be forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of the Eligible Director's termination shall vest on the date of termination, based upon the portion of the year during which the Eligible Director served as a Director of the Company.
(e) Notwithstanding the foregoing or clause (g) below, if an Eligible Director continues to hold an award of Restricted Stock following termination of service as a director (including retirement), the Shares of Restricted Stock which remain subject to restrictions shall nonetheless be forfeited and transferred back to the Company if the Board at any time thereafter determines that the former Director has engaged in any activity detrimental to the interests of the Company.
(f) If an Eligible Director's term is terminated by reason of death or permanent and total disability or if following retirement as a director a former Director continues to have rights under an Award of Restricted Stock and thereafter dies, the restrictions contained in the Award shall lapse with respect to such Restricted Stock.
(g) If an Eligible Director's term is terminated by reason of retirement on or after normal retirement age as specified in the Company's Corporate Governance Guidelines, the restrictions contained in the Award of Restricted Stock shall continue to lapse in the same manner as though the term had not terminated.
SECTION 6. STOCK OPTION GRANT
(a) Subject to approval of this Plan by the Company's stockholders, each Eligible Director on the date of such approval will be granted on such date a stock option to purchase 8,000 Shares (the "Stock Option"). Thereafter, on the date of each of the Company's subsequent annual stockholders meetings, each person who is or becomes an Eligible Director on that date and whose service on the Board will continue after such date shall be granted a Stock Option, subject to Section 4, effective as of the date of such meeting.
(b) Stock Options granted under this Section 6 shall be non-qualified stock options and shall have the following terms and conditions.
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1. Option Price. The option price per Share shall be equal to the fair market value of the Shares on the date of grant as determined by the Board of Directors.
2. Term of Option. The term of the Stock Option shall be ten years from the date of grant, subject to earlier termination in the event of termination of service as an Eligible Director. If an Eligible Director's term of service as a director is terminated for any reason other than death, the Director may thereafter exercise the Stock Option as provided below, except that the Board may terminate the unexercised portion of the Stock Option concurrently with or at any time following termination if it shall determine that the former Director has engaged in any activity detrimental to the interests of the Company. If an Eligible Director's term is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement age as specified in the Company's Corporate Governance Guidelines, at a time when such Director is entitled to exercise an outstanding Stock Option, then such Stock Option may be exercised as to all or any of the Shares which the Eligible Director was entitled to purchase at the date of termination (A) for Stock Options granted prior to October 27, 2005, until the later of (i) the 15th day of the third month following the date at which such Stock Option would otherwise have terminated in connection with the termination of service, which date prior to the October 27, 2005 Plan amendments was three months after termination of the Director's service, or (ii) December 31 of the calendar year in which the Stock Option would otherwise have terminated in connection with the termination of service; and (B) for Stock Options granted on or after October 27, 2005, until the earlier of (i) the expiration of the original term, or (ii) one year after death. That portion of the Stock Option not exercisable at the time of such termination shall be forfeited and transferred back to the Company on the date of such termination. If an Eligible Director's term is terminated by reason of permanent and total disability, any portion of a Stock Option that is not then exercisable shall become fully exercisable and shall remain exercisable until the earlier of the expiration of the original option term or one year after death. If an Eligible Director retires from service as a director on or after normal retirement age as specified in the Company's Corporate Governance Guidelines, such Stock Option shall continue to become exercisable and shall remain exercisable in accordance with its terms and the provisions of this Plan. If an Eligible Director dies, all unexercisable installments of the Stock Option shall thereupon become exercisable and at any time or times within one year after death such Stock Option may be exercised as to all or any unexercised portion of the Stock Option. Except as so exercised, such Stock Option shall expire at the end of such period. Except as provided above, a Stock Option may be exercised only if and to the extent such Stock Option was exercisable at the date of termination of service as an Eligible Director, and a Stock Option may not be exercised at a time when the Stock Option would not have been exercisable had the service as an Eligible Director continued.
3. Exercisability. Subject to clause 2 above, each Stock Option shall vest and become exercisable with respect to twenty percent of the underlying Shares on each of the first five anniversaries of the date of grant, provided that the optionee is an Eligible Director on such date.
4. Method of Exercise. A Stock Option may be exercised in whole or in part during the period in which such Stock Option is exercisable by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in cash, by delivery of Shares, or by any combination of the foregoing.
5. Non-Transferability. Unless otherwise provided by the terms of the Long Term Plan or the Board, (i) Stock Options shall not be transferable by the optionee other than by will or by the laws of descent and distribution, and (ii) during the optionee's lifetime, all Stock Options shall be exercisable only by the optionee or by his or her guardian or legal representative.
6. Stockholder Rights. The holder of a Stock Option shall, as such, have none of the rights of a stockholder.
SECTION 7. GENERAL
(a) Plan Amendments. The Board may amend, suspend or discontinue the Plan as it shall deem advisable or to conform to any change in any law or regulation applicable thereto; provided, that the Board may not, without the authorization and approval of the stockholders of the Company: (a) modify the class of persons who constitute Eligible Directors as defined in the Plan; or (b) increase the total number of Shares available under the Plan. In addition, without the consent of affected participants, no amendment of the Plan or any award under the Plan may impair the rights of participants under outstanding awards.
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(b) Listing and Registration. If at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the Shares under the Plan upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of any award hereunder, no Shares may be delivered or disposed of unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board.
(c) Award Agreements. Each award of Restricted Stock and Stock Option granted hereunder shall be evidenced by the Eligible Director's written agreement with the Company which shall contain such terms and conditions not inconsistent with the provisions of the Plan as shall be determined by the Board in its discretion.
(d) Change in Control.
1. Notwithstanding any of the provisions of this Plan or instruments evidencing awards granted hereunder, upon a Change in Control of the Company (as hereinafter defined) the vesting of all rights of Directors under outstanding awards of Restricted Stock and Stock Options shall be accelerated and all restrictions thereon shall terminate in order that participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Stock Options and the termination of restrictions on Restricted Stock. Further, in addition to the Board's authority set forth in
Section 4(d), the Board, as constituted before such Change in Control, is authorized, and has sole discretion, as to any award, either at the time such award is made hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any such award, upon the participant's request, for an amount of cash equal to the amount that could have been attained upon the exercise of such award or realization of the participant's rights had such award been currently exercisable or payable; (ii) make such adjustment to any such award then outstanding as the Board deems appropriate to reflect such Change in Control; and (iii) cause any such award then outstanding to be assumed, or new rights substituted therefor, by the acquiring or surviving corporation after such Change in Control. A Change in Control shall occur if, during any period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company's Board of Directors, and any new Directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either Directors on such Board at the beginning of the period or whose election or nomination for election as Directors was previously so approved, for any reason cease to constitute at least a majority of the members thereof. For purposes hereof, "Excluded Directors" are Directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year after any "person" or "group of persons", as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Board.
2. In the event that subsequent to a Change in Control it is determined that any payment or distribution by the Company to or for the benefit of a participant, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, other than any payment pursuant to this subparagraph 2 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended from time to time (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then such participant shall be entitled to receive from the Company, within 15 days following the determination described in subparagraph 3 below, an additional payment ("Excise Tax Adjustment Payment") in an amount such that after payment by such participant of all applicable Federal, state and local taxes (computed at the maximum marginal rates and including any interest or penalties
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imposed with respect to such taxes), including any Excise Tax, imposed upon the Excise Tax Adjustment Payment, such participant retains an amount of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the Payments.
3. All determinations required to be made under this Section 7(d), including whether an Excise Tax Adjustment Payment is required and the amount of such Excise Tax Adjustment Payment, shall be made by PricewaterhouseCoopers LLP, or such other national accounting firm as the Company, or, subsequent to a Change in Control, the Company and the participant jointly, may designate, for purposes of the Excise Tax, which shall provide detailed supporting calculations to the Company and the affected participant within 15 business days of the date of the applicable Payment. Except as hereinafter provided, any determination by PricewaterhouseCoopers LLP, or such other national accounting firm, shall be binding upon the Company and the participant. As a result of the uncertainty in the application of Section 4999 of the Code that may exist at the time of the initial determination hereunder, it is possible that (x) certain Excise Tax Adjustment Payments will not have been made by the Company which should have been made (an "Underpayment"), or (y) certain Excise Tax Adjustment Payments will have been made which should not have been made (an "Overpayment"), consistent with the calculations required to be made hereunder. In the event of an Underpayment, such Underpayment shall be promptly paid by the Company to or for the benefit of the affected participant. In the event that the participant discovers that an Overpayment shall have occurred, the amount thereof shall be promptly repaid to the Company.
(e) Non-compete. Each award of Restricted Stock and Stock Option granted hereunder shall contain a provision whereby the award holder shall agree, in consideration for the award and regardless of whether restrictions on shares of Restricted Stock have lapsed or whether the Stock Option becomes exercisable or is exercised, as the case may be, as follows:
(i) While the holder is a Director of the Company and for a period of one year following the termination of such holder's term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the award is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of the holder's duties or responsibilities with such other entity, or (2) an investment by the award holder in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
(ii) Should the award holder either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting an award each award holder shall agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company
(1) the amount of income realized for income tax purposes from an award of Restricted Stock and/or the exercise of a Stock Option, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from restrictions lapsing on shares or exercises occurring, as the case may be, on or after the termination of the award holder's term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to the award holder by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by the award holder hereunder.
5
(f) Applicability. The provisions of this Plan as amended and restated October 27, 2005 shall apply to all outstanding Stock Options and awards of Restricted Stock.
(g) Term. No shares shall be awarded under this Plan after May 21, 2007.
6
 
Exhibit 10.e(i)
Restricted Stock Award Agreement
[Date]
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that on [date] the Board of Directors granted you an Award of Restricted Stock, pursuant to the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), of shares of the Company's $1.00 par value Common Stock. This letter states the terms of the Award and contains other provisions which on your acceptance commit the Company and you, so I urge you to read it carefully. You should also read the Plan, and the Prospectus dated [date], which are available from the Company. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them.
TERMS OF AWARD:
Certificates for the shares of stock evidencing the Restricted Stock will not be issued but the shares will be registered in your name in book entry form promptly after your acceptance of this Award. You will be entitled to vote and receive any cash dividends on the Restricted Stock, but you will not be able to obtain a stock certificate or sell, encumber or otherwise transfer the shares except in accordance with the Plan.
The number of shares of Restricted Stock you have been awarded is [number of shares].
Provided since the date of the Award you have continuously served as an Eligible Director, as defined in the Plan, the restrictions on 20% of the shares will automatically lapse on January 1, 200__ and on each January 1 thereafter until all shares are free of restrictions, in each case based on the initial number of shares. In accordance with Section 5(d) of the Plan, if your term as an Eligible Director should be terminated by reason of your death or permanent and total disability, or if following retirement from your term as an Eligible Director you thereafter die, the restrictions on all Restricted Stock will lapse and your rights to the shares will become vested on the date of such termination. If your term as an Eligible Director terminates by reason of retirement on or after normal retirement date, the restrictions contained in the Award shall continue to lapse in the same manner as though your term had not terminated. If your term as an Eligible Director is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement date, while restrictions remain in effect, the Restricted Stock that has not vested shall be automatically forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of such termination shall vest on the date of termination, based upon the portion of the year during which you served as an Eligible Director of the Company.
Notwithstanding the foregoing and as provided in the Plan, if at any time you engage in an activity following your termination of service which in the sole judgment of the Board of Directors is detrimental to the interests of the Company, a subsidiary or an affiliated company, all shares of Restricted Stock which remain subject to restrictions shall be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, "Business Activities" (as defined in the Appendix) for purposes of this Award and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture provisions.
Page 2
[Date]
As restrictions lapse, a certificate for the number of shares of Restricted Stock as to which restrictions have lapsed will be forwarded to you or the person or persons entitled to the shares.
OTHER TERMS AND ACCEPTANCE:
We agree that all of the terms and conditions of the Award are reflected in this Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of restricted stock or stock options except as may be evidenced by agreements duly executed by you and the Company.
By accepting this Award you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to the Restricted Stock as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this Award are embodied herein and in the Plan.
Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive.
This Agreement shall be governed by and interpreted in accordance with Michigan law.
Please complete your mailing address and social security number as indicated below, sign, date and return the copy of this Award Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this Award may become effective. Since the Restricted Stock cannot be registered in your name until we receive the signed copies of this Agreement, and since dividend, voting and other rights will only become effective at that time, your prompt attention and acceptance will be greatly appreciated.
Very truly yours,
MASCO CORPORATION

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to the foregoing.

(Signature of Recipient)

(Mailing Address)

[Date]

(Social Security Number)

Dated:
 
Exhibit 10.e(ii)
[Date]
[Name]
[Address1]
[Address2]
[Address3]
[Address4]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that on [date], the Board of Directors granted you a non-qualified stock option pursuant to the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This letter and the attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the Plan and Prospectus dated [date] , covering the shares which are the subject of this option. Enclosed are copies of these documents as well as our latest annual report to stockholders and proxy statement to the extent our records indicate you may not have previously received them. Copies are also available upon request to the Company. We also suggest that you review the federal income tax attributes of non-qualified stock options which are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code, as described in the Prospectus.
This option, if accepted by you, grants you the right to purchase [no. of shares] shares of the Company's $1.00 par value Common Stock at a price of
[$____] per share, which the Board has determined is the fair market value of a share of the Company's Common Stock on the date of grant as reflected by trades reported on the New York Stock Exchange.
WHEN THE OPTION IS EXERCISABLE AND TERMINATION
This option is exercisable cumulatively in installments of 20% commencing as of [date], 20% as of [date], 20% as of [date], 20% as of [date] and 20% as of
[date]; provided that on each date of exercise you qualify under the provisions of the Plan, including Section 6, to exercise such option. All installments of the option as above described must be exercised no later than [date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If your term as an Eligible Director, as defined in the Plan, is terminated for any reason, the option shall terminate, continue to vest or become immediately vested, and shall be exercisable, in accordance with Section 6 of the Plan.
As provided in the Plan, if at any time you engage in an activity following your termination of service which in the sole judgment of the Board of Directors is detrimental to the interests of the Company, a subsidiary or an affiliated company, all unexercised installments or portions of the option will be forfeited to the Company. You acknowledge that such activity includes, but is not limited to, engaging in "Business Activities" (as defined in the Appendix) for purposes of this option and for purposes of all other outstanding awards of restricted stock and options that are subject to comparable forfeiture procedures.
Enclosed please find a Prospectus dated [date] covering the shares which are the subject of this option, and a copy of the Plan, as amended October 27, 2005. We suggest that you review the federal income tax attributes of non-qualified stock options which are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code, as described in the Prospectus.
ACCEPTANCE
We agree that all of the terms and conditions of this option are reflected in this Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of stock options or restricted stock except as may be evidenced by agreements duly executed by you and the Company.
Page 2
[Date]
By accepting this option you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to shares acquired pursuant to this option as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this option are embodied herein and in the Plan.
Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive.
This Agreement shall be governed by and interpreted in accordance with Michigan law.
Please complete your mailing address and Social Security number as indicated below and sign, date and return the copy of this Agreement to Eugene
A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective.
Very truly yours,
MASCO CORPORATION

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
I accept and agree to all the foregoing terms and conditions.

(Signature of Recipient)

(Mailing Address)

(Social Security Number)

Dated:
APPENDIX TO OPTION AGREEMENT
Masco Corporation (the "Company") and you agree that all of the terms and conditions of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other grants of options and restricted stock except as may be evidenced by agreements duly executed by you and the Company.
By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company.
In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are a Director of the Company and for a period of one year following the termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests.
Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such exercises occurred on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set
off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder.
By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Option are embodied in the Agreement and in the Plan.
Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); or (2) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company common stock or restricted stock awards or other awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement,
(b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company's option or restricted stock incentive plans or other awards to the extent the provisions of such other agreement requires arbitration between you and the Company or one of its subsidiaries, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.
The Agreement shall be governed by and interpreted in accordance with Michigan law.
 
Exhibit 10.e(iii)
[For directors' existing stock options and awards]
Masco Letterhead
Date _________________
Name _________________
[Address1]
[Address2]
[Address3]
Dear [Salutation]:
On behalf of the Company, I am pleased to inform you that the Board of Directors approved the following enhancements to outstanding awards of stock options and restricted stock to non-employee directors under the 1997 Non-Employee Directors Long Term Stock Incentive Plan (the "1997 Plan") and under the 1991 Long Term Stock Incentive Plan (the "1991 Plan").
If your service as a director terminates for any reason other than as a result of death, disability or retirement due to age, any portion of an option that is then exercisable will remain exercisable beyond the period currently provided until the later of (i) the 15th day of the third month following the date at which the option would otherwise have terminated in connection with the termination of service, or (ii) December 31 of the calendar year in which the option would otherwise have terminated in connection with the termination of service.
If your service as a director terminates as a result of permanent and total disability, any portion of an option not then exercisable will immediately become exercisable and will remain exercisable until the earlier of the expiration of its original term or one year after death.
The "clawback" provisions of the 1997 Plan (formerly Section 6(b)(5)) and comparable provisions in any stock option granted to you under the 1991 Plan will no longer apply.
For purposes of a "Change in Control" under the 1991 Plan and the 1997 Plan, the definition of "Excluded Director" (i.e., a director who is deemed not to be an incumbent director) will also include directors whose initial assumption of office occurs as a result of certain actual or threatened election contests not by or on behalf of the Board.
Very truly yours,

Richard A. Manoogian Chairman of the Board and Chief Executive Officer
 
EXHIBIT 10.f
OTHER COMPENSATORY ARRANGEMENTS FOR EXECUTIVE OFFICERS
In order to assure that the Company's senior executives are fully aware of the tax, legal and financial implications of the Company's benefit programs, the Company has established a program to provide senior executives with assistance in their estate, financial and tax planning matters. Under this program, the Company will pay up to $10,000 for such professional services each year, with a special "carry-forward" of the second year's $10,000 allowance during the first year to cover additional costs associated with development of an initial estate and financial plan. The Company will inform each participant during the course of this process as to the amount of professional fees allocated to services performed on such participant's behalf under the program. The value of any such services received will be taxable as ordinary income to the participant.
The Company's executive officers are permitted to utilize certain Company facilities and equipment for personal purposes, if available.
 
EXHIBIT 10.j

SHAREHOLDERS AGREEMENT
BY AND AMONG
MASCOTECH, INC.
MASCO CORPORATION
RICHARD MANOOGIAN
RICHARD AND JANE MANOOGIAN FOUNDATION
THE HEARTLAND ENTITIES LISTED ON THE
SIGNATURE PAGES HERETO
THE HIP CO-INVESTORS LISTED ON THE SIGNATURE PAGES HERETO

DATED AS OF NOVEMBER 28, 2000

TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                    ARTICLE I

                       DEFINITIONS; RULES OF CONSTRUCTION

SECTION 1.01.   Definitions..............................................     1
SECTION 1.02.   Rules of Construction....................................    10

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

SECTION 2.01.   Authority; Enforceability................................    10
SECTION 2.02.   No Breach................................................    11
SECTION 2.03.   Consents.................................................    11
SECTION 2.04.   Share Ownership..........................................    11

                                   ARTICLE III

                                 SHARE TRANSFERS

SECTION 3.01.   Restrictions on Transfer.................................    12
SECTION 3.02.   Exceptions to Restrictions...............................    12
SECTION 3.03.   Improper Transfer........................................    13
SECTION 3.04.   Restrictive Legend.......................................    13

                                   ARTICLE IV

                         RIGHTS OF CERTAIN SHAREHOLDERS

SECTION 4.01.   Rights of First Offer....................................    14
SECTION 4.02.   Tag-Along Rights.........................................    15
SECTION 4.03.   Drag-Along Rights........................................    17
SECTION 4.04.   Information..............................................    18
SECTION 4.05.   Preemptive Rights........................................    20
SECTION 4.06.   Board of Directors.......................................    23
SECTION 4.07.   Right to Observer........................................    24
SECTION 4.08.   Consultation Right.......................................    25
SECTION 4.09.   Approval Rights..........................................    25
SECTION 4.10.   Transactions with Affiliates.............................    26	

-i-

                                                                            Page
                                                                            ----
                                    ARTICLE V

                               REGISTRATION RIGHTS

SECTION 5.01.   Company Registration.....................................    27
SECTION 5.02.   Demand Registration Rights...............................    28
SECTION 5.03.   Registration Procedures..................................    32
SECTION 5.04.   Registration Expenses....................................    36
SECTION 5.05.   Indemnification..........................................    36
SECTION 5.06.   1934 Act Reports.........................................    40
SECTION 5.07.   Holdback Agreements......................................    40
SECTION 5.08.   Participation in Registrations...........................    41
SECTION 5.09.   Remedies.................................................    41
SECTION 5.10.   Other Registration Rights................................    41
SECTION 5.11.   Rule 144.................................................    41

                                   ARTICLE VI

                  RIGHTS OF HOLDERS OF CLASS A PREFERRED STOCK

SECTION 6.01.   Series A Preferred Stock.................................    42
SECTION 6.02.   Management Fee...........................................    42

                                   ARTICLE VII

                                  MISCELLANEOUS

SECTION 7.01.   Notices..................................................    42
SECTION 7.02.   Binding Effect; Benefits; Entire Agreement...............    43
SECTION 7.03.   Waiver...................................................    43
SECTION 7.04.   Amendment................................................    43
SECTION 7.05.   Assignability............................................    43
SECTION 7.06.   Applicable Law...........................................    44
SECTION 7.07.   Specific Performance.....................................    44
SECTION 7.08.   Severability.............................................    44
SECTION 7.09.   Additional Securities Subject to Agreement...............    44
SECTION 7.10.   Name Change..............................................    44
SECTION 7.11.   Section and Other Headings...............................    45
SECTION 7.12.   Counterparts.............................................    45
SECTION 7.13.   Termination of Certain Provisions........................    45
SECTION 7.14.   ERISA Matters............................................    45
SECTION 7.15.   Regulatory Cooperation...................................    45
SECTION 7.16.   Publicity................................................    46	

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                                                                            Page
                                                                            ----
SECTION 7.17.   Expenses.................................................    46	

-iii-
SHAREHOLDERS AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of November 28, 2000, by and among MASCOTECH, INC. a Delaware corporation (the "Company"), RICHARD MANOOGIAN ("IS"), the RICHARD AND JANE MANOOGIAN FOUNDATION ("Foundation Shareholder" and, together with IS, "RM"), MASCO CORPORATION, a Delaware corporation (together with RM, the "Rollover Investors"), the HEARTLAND ENTITIES (as defined herein), LONG POINT CAPITAL FUND, L.P. and LONG POINT CAPITAL PARTNERS L.L.C. (collectively "Long Point"), CRM 1999 ENTERPRISE FUND, LLC ("Cramer" and with Long Point collectively the "Masco Transferees" or individually as a "Masco Transferee") and the entities identified as HIP CO-INVESTORS on the signature pages hereof (the HIP Co-Investors (including, without limitation, the Masco Transferees), the Rollover Investors, Sponsor and each Person executing a Joinder Agreement are collectively referred to herein as the "Shareholders" and individually as a "Shareholder").
WHEREAS, the Company and Riverside Acquisition Corporation (formerly Riverside Company LLC), a Delaware corporation ("Riverside") and an affiliate of Sponsor, have entered into a Recapitalization Agreement, dated as of August 1, 2000, as amended by Amendment No. 1 thereto, dated as of October 23, 2000, and Amendment No. 2 thereto, dated as of November 28, 2000 (the "Recapitalization Agreement"), which provides for, among other things, the merger of Riverside with and into the Company (the "Recapitalization Merger").
WHEREAS, as a result of and in connection with the Recapitalization Merger, each Shareholder will own the number of shares of common stock of the Company, $1.00 par value (the "Common Stock"), set forth on Schedule 2.04 hereto and Company Shareholder will own 361,001 shares of class A preferred stock of the Company, $1.00 par value (the "Class A Preferred Stock").
WHEREAS, the parties hereto desire to enter into this agreement to provide for certain rights and restrictions with respect to the Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties mutually agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings:
-2-
"ADJUSTMENTS" means adjustments to the number of shares of Common Stock outstanding as a result of a stock split, stock dividend, reclassification, subdivision or reorganization, recapitalization or similar event.
"ADVICE" see Section 5.03(p).
"AFFILIATE" of any specified Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"AGREEMENT" see the recitals to this Agreement.
"ASSIGNEE" see Section 4.01(c).
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close.
"CAPITAL STOCK" means, with respect to any Person, except as otherwise provided in Section 4.05, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock.
"CLASS A PREFERRED STOCK" see the recitals to this Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" see the recitals to this Agreement.
"COMPANY" see the recitals to this Agreement.
"COMPANY OPTION PERIOD" see Section 4.01(b).
"COMPANY SHAREHOLDER" means Masco Corporation, a Delaware corporation, provided that upon the transfer of all of Masco Corporation's shares of Common Stock to Masco Capital Corporation, a wholly-owned subsidiary of Masco Corporation, Masco Capital Corporation shall also be deemed Company Shareholder for all purposes of this Agreement; provided that Masco Capital Corporation executes a Joinder Agreement.
-3-
"CSFB" means, collectively, the CSFB Plan Partner and the CSFB Funds, or the CSFB Plan Partner acting on behalf of such other Persons.
"CSFB DIRECTOR" see Section 4.06(a)(ii)(c).
"CSFB FUNDS" means, collectively, Credit Suisse First Boston Equity Partners (Bermuda), L.P., Credit Suisse First Boston U.S. Executive Advisors, L.P., EMA Partners Fund 2000, L.P. and EMA Private Equity Fund 2000, L.P.
"CSFB PLAN PARTNER" means Credit Suisse First Boston Equity Partners, L.P.
"DEMAND HOLDERS" means any of Company Shareholder (on behalf of itself and its Direct Permitted Transferees), RM (on behalf of himself, itself and his or its Direct Permitted Transferees), a QI Demand Holder (on behalf of itself and its Direct Permitted Transferees), CSFB (on behalf of itself and its Direct Permitted Transferees and other Transferees to the extent permitted by Section 5.02(g)) or Sponsor (on behalf of itself and its Direct Permitted Transferees).
"DEMAND REGISTRATION" see Section 5.02(a).
"DIRECT PERMITTED TRANSFEREE" means:
(i) with respect to any Shareholder who is a natural person, (1) the spouse or any lineal descendant (including by adoption and stepchildren) of such Shareholder, (2) any trust of which such Shareholder is the trustee and which is established solely for the benefit of any of the foregoing individuals or (3) any partnership, all of the general partner(s) and limited partner(s) (if any) of which are one or more Persons identified in this clause (i);
(ii) with respect to Sponsor, any Affiliate of Sponsor;
(iii) with respect to Company Shareholder, any controlled Affiliate of Company Shareholder (including any wholly-owned subsidiary of Company Shareholder);
(iv) with respect to any Institutional Shareholder, any Affiliate of such Institutional Shareholder;
(v) with respect to Foundation Shareholder, any Affiliate of Foundation Shareholder;
(vi) with respect to MetLife, (a) any Affiliates of MetLife or (b) Portfolio Advisors, LLC or any controlled Affiliate of Portfolio Advisors, LLC; and
-4-
(vii) with respect to any Shareholder, any institutional lender to which such Shareholder pledges or grants a security interest in shares of Common Stock in a bona fide transaction effected in good faith, provided that (x) such pledgee executes a Joinder Agreement and (y) prior to any subsequent foreclosure or sale of such shares or any Transfer resulting from such foreclosure is effected, the provisions of Section 4.01 must be satisfied.
"ELIGIBLE OFFERING" see Section 4.05(a).
"FIRST OPTION" see Section 4.01(b).
"FIRST UNION CAPITAL PARTNERS" means First Union Capital Partners, 
LLC.
"FOUNDATION SHAREHOLDER" see the recitals to this Agreement.
"GAAP" means United States generally accepted accounting principles consistently applied throughout the specified period.
"HEARTLAND ENTITIES" means Heartland Industrial Partners, L.P., Heartland Industrial Partners (FF), L.P., Heartland Industrial Partners (E1), L.P., Heartland Industrial Partners (K1), L.P., Heartland Industrial Partners
(C1), L.P. and Direct Permitted Transferees of any of the foregoing.
"HIP CO-INVESTOR" means (i) each Shareholder that is a limited partner, or an Affiliate of a limited partner, in Sponsor or in any other fund or investment vehicle established or managed by Sponsor or an Affiliate of Sponsor, (ii) CSFB, (iii) each Masco Transferee and (iv) MetLife; provided that, upon the Transfer by MetLife of all of its shares of Common Stock to Portfolio Advisors, LLC or any controlled Affiliate of Portfolio Advisors, LLC in accordance with Section 3.02(a) of this Agreement, Portfolio Advisors, LLC or such controlled Affiliate of Portfolio Advisors, LLC shall be deemed to be a HIP Co-Investor under this Agreement.
"HOLDER" means any Demand Holder or Incidental Demand Holder.
"INCIDENTAL DEMAND HOLDER" see Section 5.02.
"INITIAL PUBLIC OFFERING" means either (x) an underwritten initial public offering of the Company pursuant to an effective registration statement filed under the 1933 Act (excluding registration statements filed on Form S-8, or any similar successor form or another form used for a purpose similar to the intended use for such forms) or (y) the listing of the Common Stock on a national securities exchange or authorization for quotation on the Nasdaq National Market System.
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"INSTITUTIONAL SHAREHOLDER" means any Shareholder that is not a natural person (other than Company Shareholder, Foundation Shareholder or Sponsor).
"INVESTORS" see Section 4.01(a).
"INVESTOR'S NOTICE" see Section 4.01(a).
"IS" see the recitals to this Agreement.
"JOINDER AGREEMENT" means a joinder agreement, a form of which is attached hereto as Exhibit A.
"MASCO TRANSFEREES" see the recitals to this Agreement.
"MATERIAL EVENT" see Section 4.09(a).
"METLIFE" means Metropolitan Life Insurance Company.
"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OBSERVER" see Section 4.07.
"OFFERED SHARES" see Section 4.01(a).
"PERMITTED TRANSFEREE" means:
(i) with respect to any Shareholder who is a natural person, (1) the spouse or any lineal descendant (including by adoption and stepchildren) of such Shareholder, (2) any trust of which such Shareholder is the trustee and which is established solely for the benefit of any of the foregoing individuals, (3) any charitable foundation selected by such Shareholder, or
(4) any partnership, all of the general partner(s) and limited partner(s) (if any) of which are one or more Persons identified in this clause (i), provided that, in the case of clauses (1), (2), (3) or (4), such Person executes a Joinder Agreement;
(ii) with respect to Sponsor, (a) any investor in Sponsor or an Affiliate of such investor in Sponsor or an investor in any fund or other investment vehicle established or managed by Sponsor or any of its controlled Affiliates or any other Person which is an Affiliate of Sponsor on the date hereof, (b) any of the Shareholders and any of their respective Affiliates, (c) any controlled Affiliate of Sponsor, and (d) any investor in Sponsor that is an investment fund in connection with a pro rata
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distribution of shares of Common Stock to all investors in Sponsor at the time of the expiration or termination of the fund, provided that, in the case of clauses (a), (b), (c) or (d), any such investor executes a Joinder Agreement; and provided, further, that, in the case of these clauses (a),
(b) or (c) Transfers to such Persons would not cause Sponsor to own, together with its Affiliates, a number of shares equal to less than thirty percent (30%) of the outstanding shares of Common Stock of the Company as of the date of any such Transfer;
(iii) with respect to Company Shareholder, any controlled Affiliate of Company Shareholder (including any wholly-owned subsidiary of Company Shareholder), provided that such Affiliate or wholly-owned subsidiary executes a Joinder Agreement;
(iv) with respect to any Institutional Shareholder (other than MetLife), (a) any Affiliate of such Institutional Shareholder, (b) any investor of such Institutional Shareholder that is an investment fund in connection with a pro rata distribution of shares of Common Stock to all investors (a "Shareholder Investor" or collectively "Shareholder Investors") in such Institutional Shareholder at the time of the expiration or termination of the fund, or (c) any Person acquiring all or substantially all of the investment portfolio of such Institutional Holder; and provided, further, that, in the case of clause (a), (b) or (c), all such investors execute a Joinder Agreement;
(v) with respect to Foundation Shareholder, any Affiliate of Foundation Shareholder, provided such Affiliate executes a Joinder Agreement;
(vi) with respect to MetLife, (a) any Affiliate of MetLife, (b) Portfolio Advisors, LLC or any controlled Affiliate of Portfolio Advisors, LLC or (c) any Shareholder Investor of such Institutional Shareholder that is an investment fund in connection with a pro rata distribution to all Shareholder Investors of such Institutional Shareholder at the time of the expiration or termination of the fund; provided, further, that, in the case of clause (a), (b) or (c), such investors execute a Joinder Agreement; and
(vii) with respect to any Shareholder, any institutional lender to which such Shareholder pledges or grants a security interest in shares of Common Stock in a bona fide transaction effected in good faith, provided that (x) such pledgee executes a Joinder Agreement and (y) prior to any subsequent foreclosure or sale of such shares or any Transfer resulting from such foreclosure is effected, the provisions of Section 4.01 must be satisfied.
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"PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government, a political subdivision or an agency or instrumentality thereof.
"PIGGYBACK HOLDER" see Section 5.01(a).
"PIGGYBACK REGISTRATION" see Section 5.01(a).
"PROPORTIONATE PERCENTAGE" see Section 4.05(a).
"PRO RATA PORTION" means, with respect to shares of Common Stock held by a Shareholder at any date of determination such number of shares of Common Stock owned by such Shareholder as would result in such Shareholder selling the same percentage of the total number of shares of Common Stock held by such Shareholder in the Transfer subject to the applicable Transfer Notice (the "Subject Sale") as the Sponsor Transferor sells in the Subject Sale (assuming, with respect to the Transfer Notice, that all Shareholders have exercised their Tag-Along Right).
"PUBLIC OFFERING" see Section 4.05(a)(i).
"PURCHASER" see Section 4.02(a).
"QI DEMAND HOLDER" means any Qualified Investor other than CSFB.
"QUALIFIED INVESTOR" means a HIP Co-Investor who (x), together with its Affiliates, at or prior to any date of determination, has made an aggregate cash investment in Common Stock of the Company equal to at least $40.0 million (based upon the original cost of such investment) or (y) owns, together with its Direct Permitted Transferees, at least 10% or more of the outstanding shares of Common Stock of the Company at the date of determination. For purposes of this definition and any other definitions containing thresholds for the dollar amount of cash invested in Common Stock of the Company or the percentage ownership of Common Stock of the Company, the cash investments and the beneficial ownership of the CSFB Funds and the CSFB Plan Partner will be deemed to be aggregated.
"QUALIFYING PUBLIC EQUITY OFFERING" means either (x) one or more underwritten public offerings of common equity securities of the Company pursuant to an effective registration statement filed under the 1933 Act (excluding registration statements filed on Form S-8, or any similar successor form) resulting in aggregate gross proceeds to the Company of $100,000,000 or more or (y) the listing of the Common Stock on a national securities exchange or authorization for quotation on the Nasdaq National Market System for which there is a public float of least $100,000,000 held by non-Affiliates of the Company.
"RECAPITALIZATION AGREEMENT" see the recitals to this Agreement.
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"RECAPITALIZATION MERGER" see the recitals to this Agreement.
"REGISTRABLE SECURITIES" shall mean any of (i) the shares of Common Stock owned by any Shareholder at the time of determination and (ii) any other securities issued or issuable with respect to the Common Stock by way of a stock split, stock dividend, reclassification, subdivision or reorganization, recapitalization or similar event. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the offering of such securities by the holder thereof shall have been declared effective under the 1933 Act and such securities shall have been disposed of by such holder pursuant to such registration statement,
(b) such securities have been sold to the public pursuant to Rule 144 (or any similar provision then in force) promulgated under the 1933 Act, (c) except for purposes of Section 5.02, such securities shall have been otherwise transferred and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the 1933 Act or any similar state law then in force or (d) such securities shall have ceased to be outstanding.
"REGISTRATION" see Section 5.03.
"REPRESENTATIVES" means the officers, employees, directors and agents of such Shareholder, including, representatives of its legal, accounting and financial advisors.
"REQUEST NOTICE" see Section 5.02(a).
"REQUISITE INVESTORS" means (i) Company Shareholder for so long as Company Shareholder either (a) has outstanding commitments or loans under the Subordinated Loan Agreement, (b) owns, together with its Permitted Transferees, $10.0 million or more in liquidation preference of Class A Preferred Stock, or
(c) owns, together with its Direct Permitted Transferees, at least 1,571,569 shares (as adjusted for Adjustments) of Common Stock, (ii) RM, (iii) CSFB (on behalf of itself and its Direct Permitted Transferees) and (iv) HIP Co-Investors (other than CSFB) (on behalf of the HIP Co-Investors and their Direct Permitted Transferees) owning a majority of the number of shares of Common Stock owned by all HIP Co-Investors (other than CSFB) and their Direct Permitted Transferees as a group at the applicable date of determination.
"RIVERSIDE" see the recitals to this Agreement.
"RM" see the recitals to this Agreement.
"ROLLOVER DEMAND HOLDERS" means Company Shareholder, RM and their respective Direct Permitted Transferees.
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"ROLLOVER INVESTORS" see the recitals to this Agreement.
"SECOND OPTION" see Section 4.01(c).
"SENIOR CREDIT FACILITIES" means the Credit Agreement, dated as of the date hereof, among The Chase Manhattan Bank, Chase Securities Inc., the Company and certain of its subsidiaries and the other lenders and financial institutions party thereto from time to time, as the same may be amended, modified, waived, refinanced or replaced from time to time (whether under a new credit agreement or otherwise).
"SHAREHOLDERS" see the recitals to this Agreement.
"SIGNIFICANT SUBSIDIARY" means any subsidiary of the Company that would be a "significant subsidiary" as such term is defined in Rule 1.02 of Regulation S-X under the 1933 Act.
"SPONSOR" means collectively the Heartland Entities or Heartland Industrial Partners, L.P. acting on behalf of the other Heartland Entities.
"SPONSOR OPTION PERIOD" see Section 4.01(c).
"SUBORDINATED LOAN AGREEMENT" means the subordinated loan agreement dated the date hereof between Company Shareholder and the Company.
"SUBSTANTIAL CHANGE OF CONTROL" means the sale, lease or transfer in one or a series of related transactions of at least a majority of the consolidated assets of the Company and its subsidiaries or a majority of the Capital Stock of the Company representing the right to vote for directors to any Person or "group" of Persons (other than Sponsor and its Affiliates) whether direct or indirect or by way of any merger, consolidation or other business combination or purchase of beneficial ownership or otherwise.
"TRANSACTIONS" means (i) the Recapitalization Merger and (ii) all of the other transactions contemplated by the Recapitalization Agreement, including the transactions contemplated by the subscription agreements to be entered into in connection with the Recapitalization Merger.
"TRANSFER" means the direct or indirect offer, sale, donation, assignment (as collateral or otherwise), pledge, hypothecation, encumbrance, transfer or disposition of any security.
"TRANSFER NOTICE" see Section 4.02(a).
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"TRANSFEREE" means any Person who acquires shares of Common Stock from a Shareholder and who is not a Permitted Transferee.
"TRIGGERING EVENT" means:
(i) with respect to a Rollover Demand Holder or CSFB, after the earlier of (1) the fifth anniversary of the date hereof if an Initial Public Offering has not been consummated by the fifth anniversary of the date hereof and (2) 180 days after an Initial Public Offering;
(ii) with respect to a QI Demand Holder, 180 days after an Initial Public Offering; and
(iii) with respect to Sponsor, at any time.
SECTION 1.02. Rules of Construction. For purposes of this Agreement whenever a threshold for the dollar amount of cash invested in Common Stock of the Company or the percentage of ownership of Common Stock is to be determined as to a Shareholder, the cash investments and the beneficial ownership of Direct Permitted Transferees of such Shareholder shall be aggregated with the cash investments and beneficial ownership of such Shareholder and the cash investments and the beneficial ownership of the Heartland Entities will be deemed to be aggregated.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each of the parties hereby severally represents and warrants to each of the other parties as follows:
SECTION 2.01. Authority; Enforceability. Such party has the legal capacity or corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. Such party (in the case of parties that are not natural persons) is duly organized and validly existing under the laws of its jurisdiction of organization, and the execution of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary action. No other act or proceeding, corporate or otherwise, on its part is necessary to authorize the execution of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed by such party and constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms of this Agreement, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and to the exercise of judicial discretion in accordance with general principles of equity (whether applied by a court of law or of equity).
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SECTION 2.02. No Breach. Neither the execution of this Agreement nor the performance by such party of its obligations hereunder nor the consummation of the transactions contemplated hereby or by the Transactions does or will:
(a) in the case of parties that are not natural persons, conflict with or violate its certificate of incorporation, bylaws or other organizational documents;
(b) violate, conflict with or result in the breach or termination of, or otherwise give any other person the right to accelerate, renegotiate or terminate or receive any payment or constitute a default or an event of default (or an event which with notice, lapse of time, or both, would constitute a default or event of default) under the terms of, any contract or agreement to which it is a party or by which it or any of its assets or operations are bound or affected, including, in the case of the Company, the Senior Credit Facilities or Subordinated Loan Agreement; or
(c) constitute a violation by such party of any laws, rules or regulations of any governmental, administrative or regulatory authority or any judgments, orders, rulings or awards of any court, arbitrator or other judicial authority or any governmental, administrative or regulatory authority.
SECTION 2.03. Consents. No consent, waiver, approval, authorization, exemption, registration, license or declaration is required to be made or obtained by such party, other than those which have been made or obtained, in connection with (i) the execution or enforceability of this Agreement or (ii) the consummation of any of the transactions contemplated hereby or by the Transactions.
SECTION 2.04. Share Ownership. (a) The Company represents and warrants that in the case of a Shareholder, such party will own, immediately following the consummation of the transactions contemplated by the Recapitalization Agreement, the number of shares of Capital Stock of the Company set forth opposite such party's name in Schedule 2.04 attached hereto, free and clear of any and all liens, claims and encumbrances, other than those created by this Agreement.
(b) The Company represents and warrants that, as of the date hereof after giving effect to the Transactions, the authorized capital stock of the Company consists of (A) 250,000,000 shares of Common Stock, of which 30,177,943 shares of Common Stock are issued and outstanding (without giving effect to the restricted stock awards, whether or not vested, or shares of Common Stock issuable to the former stockholders of K-Tech Mfg., Inc. pursuant to documentation in existence prior to the Transactions), and (B) 25,000,000 shares of preferred stock, of which 361,001 shares of Class A Preferred Stock are issued and outstanding. Without giving effect to any cash elections or any accretion in respect of restricted stock awards after the date of the Transactions and assuming full vesting of
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restricted stock awards granted as of the date of the Transactions, there are approximately 3,741,325 shares of Common Stock subject to restricted stock awards on the date hereof after giving effect to the Transactions. The maximum number of shares of Common Stock issuable to the former K-Tech Mfg., Inc. stockholders is not presently determinable, but is estimated at up to approximately 550,000 shares of Common Stock. Except (i) as provided for in this Agreement, (ii) for accretion in respect of restricted stock awards after the date hereof, (iii) for Common Stock to be issued to former stockholders of K-Tech Mfg., Inc. arising out of obligations existing prior to the Transactions, as of the date of the Transactions, no subscription, warrant, option, convertible or exchangeable security or other right to purchase or acquire any shares of Capital Stock of the Company is authorized or outstanding and the Company has no obligation to issue any subscription, warrant, option, convertible or exchangeable security or other such right.
(c) The Company represents and warrants that the shares of Common Stock issued to each Shareholder in connection with the Recapitalization Merger were duly and validly authorized, and when issued to each Shareholder in connection with the Recapitalization Merger will be duly and validly issued, fully paid and non-assessable and such shares are not subject to preemptive or similar rights except as provided by this Agreement.
(d) Each Shareholder hereby consents to and approves of the contribution by the Company in connection with the Transactions of all of its assets to Metalync Company LLC, its wholly-owned subsidiary, as required by the Senior Credit Facilities.
ARTICLE III
SHARE TRANSFERS
SECTION 3.01. Restrictions on Transfer. During the term of this Agreement, each Shareholder agrees that it will not Transfer any Common Stock, except as permitted by or in accordance with this Agreement.
SECTION 3.02. Exceptions to Restrictions. Subject to all applicable laws, the restrictions on Transfer set forth in Section 3.01 hereof shall not apply to any of the following:
(a) a Transfer by a Shareholder of Common Stock to one of its Permitted Transferees; provided that such Permitted Transferee shall agree to execute a Joinder Agreement in the form annexed hereto as Exhibit A (the "Joinder Agreement");
(b) a Transfer of Common Stock by a Shareholder in accordance with Sections 4.02 and 4.03 of this Agreement;
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(c) a Transfer by a Shareholder after such Shareholder has complied with Section 4.01; provided that the Transferee shall agree to execute a Joinder Agreement; and
(d) a Transfer of Common Stock by a Shareholder pursuant to an effective registration statement under the 1933 Act or a Transfer pursuant to Rule 144 under the 1933 Act.
SECTION 3.03. Improper Transfer. Any attempt to Transfer any shares of Common Stock not in accordance with this Agreement shall be null and void and the Company will not give nor permit the Company's transfer agent to give any effect to such attempted Transfer in its stock records.
SECTION 3.04. Restrictive Legend. Each certificate representing shares of Common Stock and held by a Shareholder will bear a legend substantially similar to the following (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A SHAREHOLDERS AGREEMENT DATED AS OF NOVEMBER 28, 2000. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY."
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ARTICLE IV
RIGHTS OF CERTAIN SHAREHOLDERS
SECTION 4.01. Rights of First Offer. (a) At any time or from time to time prior to a Qualifying Public Equity Offering, in the event that (x) at any time following the first anniversary of the date hereof (provided, however, that, prior to the second anniversary of the date hereof, such Rollover Investor does not in the good faith judgment of the Company jeopardize the "recapitalization" accounting treatment afforded the Company in the Recapitalization Merger), a Rollover Investor desires to Transfer, or (y) at any time following the date hereof, a HIP Co-Investor desires to Transfer, all or part of its Common Stock ("Offered Shares"), other than pursuant to Section 3.02(a), 3.02(d), 4.02 or 4.03 of this Agreement, such Rollover Investor or HIP Co-Investor (individually, an "Investor") shall give prompt written notice (an "Investor's Notice") of its desire to sell the Offered Shares to the Company and Sponsor. The Investor's Notice shall identify (i) the number of Offered Shares and (ii) all other material terms and conditions of the proposed Transfer including the purchase price and the form of the consideration.
(b) The Company shall have the right, but not the obligation, to purchase all, but not less than all, the Offered Shares (the "First Option") on the same terms and conditions as set forth in the Investor's Notice, which option shall be exercised by delivering to such Investor irrevocable written notice of its commitment to purchase the Offered Shares within fifteen (15) business days after receipt of the Investor's Notice (the "Company Option Period"). Failure by the Company to give such notice within such fifteen (15) business day period shall be deemed an election by the Company not to purchase the Offered Shares.
(c) In the event that the Company decides not to purchase the Offered Shares pursuant to Section 4.01(b), then Sponsor shall have the right, but not the obligation, to purchase all, but not less than all, the Offered Shares (the "Second Option") on the same terms and conditions as set forth in the Investor's Notice, which option shall be exercised by delivering to such Investor irrevocable written notice of its commitment to purchase the Offered Shares within ten (10) business days after the termination of the Company Option Period (the "Sponsor Option Period"); provided that Sponsor may, at its sole option, assign its rights to purchase an Investor's Offered Shares pursuant to this
Section 4.01 to another Shareholder or a Permitted Transferee of Sponsor (such person an "Assignee"); provided that if the Assignee is a HIP Co-Investor, each HIP Co-Investor will be able to participate in such assignment on a pro rata basis. Failure by Sponsor or its Assignee to give such notice within such ten
(10) business day period shall be deemed an election by Sponsor or its Assignee not to purchase the Offered Shares.
(d) Delivery of written notice by the Company, Sponsor or its Assignee accepting the First Option or the Second Option, as the case may be, shall constitute a
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contract between the Company, Sponsor or its Assignee, on the one hand, and such Investor on the other hand, for the purchase and sale of the Offered Shares on the terms and conditions set forth in the Investor's Notice. The purchase of any shares pursuant to the exercise of the First Option or the Second Option, as the case may be, shall be completed not later than forty-five (45) days following receipt of the Investor's Notice with respect to the Offered Shares, subject to receipt of any required material third-party or governmental approvals, compliance with applicable laws and the absence of any injunction or similar legal order preventing such transaction (collectively, the "Conditions") in which case the purchase of the Offered Shares shall be delayed pending the satisfaction of the Conditions up to an additional thirty (30) days. As a condition to entering into the contract referred to above, the Company, Sponsor and its Assignee will agree to use commercially reasonable efforts to satisfy the Conditions as soon as possible. In the event that neither the First Option nor the Second Option is exercised, the Investor shall have the right for a period of seventy-five (75) days after the termination of the Sponsor Option Period to Transfer (the "Investor Sale") the Offered Shares at a price not less than ninety percent (90%) of the price contained in, and otherwise on terms and conditions no less favorable to such Investor than those set forth in, the Investor's Notice, except that the purchase of the Offered Shares may be delayed up to an additional thirty (30) days pending satisfaction of the Conditions; provided that the Transferee agrees to execute a Joinder Agreement. If the Investor Sale is not consummated pursuant to the terms of the immediately preceding sentence, the Investor will not effect Transfer of any of the Offered Shares without commencing de novo the procedures set forth in this Section 4.01.
SECTION 4.02. Tag-Along Rights. (a) If, at any time or from time to time prior to a Qualifying Public Equity Offering, Sponsor or any of its Affiliates (the "Sponsor Transferor") proposes to Transfer any shares of Common Stock to a Person (the "Purchaser"), other than pursuant to Section 3.02(a), 3.02(d), 5.01 or 5.02 or in a circumstance where all of the shares owned by all of the Shareholders are being purchased pursuant to Section 4.03, the Sponsor Transferor shall give written notice (a "Transfer Notice") of such proposed Transfer to the Shareholders at least fifteen (15) days prior to the consummation of such proposed Transfer, setting forth (A) the total number of shares of Common Stock offered to be Transferred to Purchaser, (B) the consideration to be received for such shares of Common Stock by the Sponsor Transferor, (C) the identity of the Purchaser(s), (D) any other material terms and conditions of the proposed Transfer, (E) the expected date of the proposed Transfer and (F) that each such Shareholder shall have the right (the "Tag-Along Right") to elect to sell up to its Pro Rata Portion of such shares of Common Stock to be Transferred to Purchaser. If any portion of the consideration contained in the Transfer Notice includes consideration other than cash, the Sponsor Transferor shall provide the Shareholders with a summary of a valuation study, if any, that the Sponsor Transferor has prepared concerning such consideration, but the Sponsor Transferor shall have no liability to any Shareholder with respect to any such summary or study and no obligation to undertake any such valuation. Notwithstanding the first sentence of this Section 4.02(a), a Shareholder will have a Tag-Along Right in connection with Transfers of shares of Common Stock by the Sponsor
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Transferor to a Permitted Transferee (other than an Affiliate of the Sponsor Transferor) when the Sponsor Transferor Transfers shares of Common Stock to such Person at a price per share (as adjusted for Adjustments) that is greater than the price per share (as adjusted for Adjustments) paid for such shares by the Sponsor Transferor.
(b) Upon delivery of a Transfer Notice, each Shareholder has the option, but not the obligation, to sell up to the Pro Rata Portion of its shares of Common Stock at the same price per share of Common Stock and pursuant to the same terms and conditions with respect to payment for the shares of Common Stock as agreed to by the Sponsor Transferor, by sending written notice to the Sponsor Transferor within ten (10) days of the date of the Transfer Notice, indicating its election to sell up to the Pro Rata Portion of its shares of Common Stock in the same transaction. To the extent that elections pursuant to this Section 4.02(b) are not made with respect to any shares of Common Stock included in a Transfer Notice within such 10-day period, then the Sponsor Transferor shall re-offer to Shareholders who have elected to sell their Pro Rata Portion (the "Tag-Along Shareholders") for one additional three day period, the right to sell such additional number of shares as will result in the Tag-Along Shareholders being able to sell their pro rata share of such remaining shares of Common Stock, based upon all the shares of Common Stock being sold by all the Tag Along Shareholders (not including the remaining shares). For a sixty (60) day period following such ten (10) day period (which period may be extended an additional thirty (30) days in order to satisfy the Conditions), each Tag-Along Shareholder shall be permitted to sell to the Purchaser(s) on the terms and conditions set forth in the Transfer Notice that amount of its shares of Common Stock as to which it has made its election and the Sponsor Transferor shall be permitted to concurrently sell the balance of the shares of Common Stock that are the subject of the Transfer Notice that are not sold by the Tag-Along Shareholders.
(c) The provisions of Section 4.02(a) and (b) shall not apply to any Transfer or series of Transfers by Sponsor of shares of Common Stock to one or more Persons other than Permitted Transferees which in the aggregate do not exceed ten percent (10%) of such shares of Common Stock owned by Sponsor immediately following the Transactions.
(d) Each Tag-Along Shareholder shall not be required to make representations and warranties in connection with such sale other than customary representations and warranties with respect to (i) such Shareholder's due organization, power and authority, (ii) such Shareholder's ownership of the shares of Common Stock and ability to freely convey such shares of Common Stock without liens or encumbrances, (iii) customary representations regarding non-contravention of such Shareholder's charter, bylaws or other organizational documents or material agreements of such Tag-Along Shareholder and (iv) the enforceable nature of such Tag-Along Shareholder's obligations under the documents for such sale to which it is a party (collectively, the "Shareholder Representations"). No Tag-Along Shareholder shall be liable in respect of any indemnification provided in connection with a Tag-Along Sale (with respect to such Shareholder's Shareholder Representations) in
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excess of the consideration received by such Tag-Along Shareholder in such Tag-Along Sale and no Tag-Along Shareholder shall be required to participate in any escrow relating to such Tag-Along Sale in excess of such Tag-Along Shareholder's participation in the Tag-Along Sale.
(e) In the event that no Shareholder elects to sell shares of Common Stock pursuant to this Section 4.02, Sponsor and/or its Affiliates (as the case may be) shall have the right for a period of seventy-five (75) days (which period may be extended by an additional thirty (30) days to satisfy the Conditions) after the expiration of the 10-day period referred to in Section 4.02(b) to Transfer the Shares subject to the Transfer Notice to the Purchaser at a price not greater than the price contained in, and otherwise on terms and conditions no more favorable to Sponsor and/or such Affiliates than those set forth in, the Transfer Notice; it being agreed that, after the end of the 75-day period referred to in this Section 4.02(e) (including any permitted extension thereof), Sponsor and/or such Affiliates will not effect any transaction in any shares of Common Stock that are the subject of the Transfer Notice without commencing de novo the procedures set forth in this Section 4.02.
SECTION 4.03. Drag-Along Rights. If at any time prior to a Qualifying Public Equity Offering, Sponsor and its Affiliates intend to effect a Substantial Change of Control, Sponsor shall have the right to require the other Shareholders (the "Drag-Along Shareholders") to sell the same percentage of Common Stock held by them relative to such Shareholder's ownership of Common Stock as Sponsor and its Affiliates are selling in such transaction in connection with such Substantial Change of Control; to vote such Common Stock, whether by proxy, voting agreement or otherwise in favor of the transactions constituting a Substantial Change of Control; to waive their appraisal or dissenters' rights with respect to such transaction; or otherwise, participate in such Substantial Change of Control and each other Shareholder agrees to take any and all reasonably necessary action in furtherance of the foregoing; provided that (a) the consideration to be received by the other Shareholders shall be for the same type and amount per share of consideration received by Sponsor, and (b) after giving effect to such transaction, Sponsor and its Direct Permitted Transferees shall have sold the same percentage of their holdings of Common Stock of the Company as sold by the Drag-Along Shareholders; provided, however, that CSFB will not be obligated to participate in such transaction if the consideration per share in such transaction is less than $16.90 per share (as adjusted for Adjustments) of the Common Stock of the Company paid by CSFB in connection with the Transactions and provided, further, that if Sponsor and its Affiliates are selling all of their shares of Common Stock in connection with such Substantial Change of Control, the Drag-Along Shareholders will be required to sell all of their shares pursuant to this Section 4.03. In connection with the sale of their shares of Common Stock pursuant to this Section 4.03, the Drag-Along Shareholders shall not be required to make any representations and warranties other than the Shareholder Representations. In addition, no Drag-Along Shareholder shall be liable in respect of any indemnification in connection with a transaction effected pursuant to this Section 4.03 (a
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"Drag-Along Transaction") (with respect to such Shareholder's Shareholder Representations) in excess of the consideration received by such Drag-Along Shareholder in such Drag-Along Transaction and no such Drag-Along Shareholder shall be required to participate in any escrow relating to such Drag-Along Transaction in excess of such Drag-Along Shareholder's Pro Rata Portion.
SECTION 4.04. Information. (a) Prior to the occurrence of an Initial Public Offering, the Company shall deliver to each Shareholder:
(1) as soon as available, but in any event within forty-five (45) days after the end of each quarter, copies of:
(i) consolidated balance sheets of the Company and its subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries, for such quarter and for the portion of the fiscal year ending with such quarter,
in each case prepared in accordance with GAAP applicable to periodic financial statements generally, fairly presenting, in all material respects, the financial position of the Persons being reported on and their results of operations and cash flows, subject to changes resulting from normal year-end adjustments;
(2) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Company, copies of:
(i) consolidated balance sheets of the Company and its subsidiaries as at the end of such year, and
(ii) consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries for such year,
in each case prepared in accordance with GAAP, fairly presenting, in all material respects, the financial position of the Persons being reported on and their results of operations and cash flows, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the Persons being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP;
(b) In the case of any Shareholder (other than CSFB) prior to the occurrence of a Qualifying Public Equity Offering, and for so long as such Shareholder owns
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twenty-five percent (25%) or more of the number of shares of Common Stock (as adjusted for Adjustments) owned by such Shareholder immediately following the Transactions, or in the case of CSFB, for so long as CSFB retains a number of shares of Common Stock equal to at least twenty-five (25%) of the number of shares of Common Stock (as adjusted for Adjustments) owned by CSFB immediately following the Transactions, the Company shall deliver to each such Shareholder and CSFB:
(1) the information and reports provided pursuant to Sections 4.04(a)(1) and (2);
(2) monthly "flash reports" utilized by the Company in its own management containing summarized, abbreviated data with respect to income statement amounts, balance sheet data and cash flows; and
(3) such other information concerning the condition or operations, financial or otherwise, of the Company and its Subsidiaries as a Shareholder may, from time to time, reasonably request.
(c) The rights to receive the information set forth in subsections (1) and (2) of paragraph (a) shall be assignable to Transferees of Common Stock. The rights to receive the information set forth in subsections (2) and (3) of paragraph (b) shall be assignable to a Transferee that acquires from CSFB at least 25% of the shares of Common Stock owned by CSFB as of the date hereof (as adjusted for Adjustments).
(d) Prior to the occurrence of a Qualifying Public Equity Offering, and for so long as a Shareholder owns twenty-five percent (25%) or more of the number of shares of Common Stock owned by such Shareholder immediately following the Transactions (as adjusted for Adjustments), Representatives of such Shareholder shall be provided with a reasonable opportunity to discuss the business and affairs of the Company with the Company's senior managers, directors, officers and senior employees upon reasonable advance notice during normal business hours; provided that such Company representatives shall be available (A) to such Shareholder for an annual meeting with senior management at which the following year's budget is presented and (B) to Qualified Investors, RM and Company Shareholder for quarterly meetings at which the most recent quarterly results are discussed.
(e) Each Shareholder hereby agrees that neither it nor its Representatives will disclose to any third party any information provided to it or its Representatives by the Company hereunder which is not generally available to the public, except with the prior express approval of the Company or as may be required by applicable law; it being understood that nothing in this Section 4.04(e) will restrict the ability of Sponsor or a HIP Co-Investor to disclose certain information to its investors in accordance with the governing
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documents of their partnership arrangement; provided that such investors agree to be bound by the confidentiality provisions of this Agreement.
(f) Notwithstanding the above, access to highly confidential proprietary information and facilities need not be provided by the Company, nor shall the Company be required to provide information to any Shareholder that is a competitor or reasonably likely to become a competitor of the Company or any of its subsidiaries; it being understood that the Shareholders existing as of the date hereof are not competitors.
(g) Notwithstanding the foregoing, (x) MetLife in addition to Portfolio Advisors, LLC or any controlled Affiliate of Portfolio Advisors, LLC shall have the rights provided by this Section 4.04 notwithstanding the fact it has transferred all of its shares of Common Stock to Portfolio Advisors, LLC or any controlled Affiliate of Portfolio Advisors, LLC, provided such Person would have such rights as a Shareholder (it being agreed that, solely for purposes of paragraphs (b) and (d) of this Section 4.04, such Person shall be deemed to have held its shares of Common Stock since the consummation of the Transactions) and
(y) Company Shareholder shall be entitled to receive the information provided by this Section 4.04 so long as Company Shareholder owns any Class A Preferred Stock or has outstanding commitments or loans under the Subordinated Loan Agreement.
SECTION 4.05. Preemptive Rights. (a) Prior to the occurrence of an Initial Public Offering, the Company hereby grants and hereby agrees to cause each Significant Subsidiary of the Company to grant to each HIP Co-Investor and its Direct Permitted Transferees and Sponsor and its Direct Permitted Transferees the right to purchase up to such Shareholder's Proportionate Percentage (as hereinafter defined) of any future Eligible Offering (as hereinafter defined) and in the case such Eligible Offering is in whole or in part to Sponsor or any of its Affiliates, then the Company shall also grant Company Shareholder and RM the right to purchase up to their Proportionate Percentage. For purposes of this Section 4.05, the following terms shall have the meanings set forth below.
"Proportionate Percentage" means, with respect to any Shareholder as of any given date with respect to an Eligible Offering, the lower of (i) twenty percent (20%) of such Eligible Offering or (ii) the number (expressed as a percentage) obtained by dividing (A) the number of shares of Common Stock owned by such Shareholder as of such date by (B) the total number of shares of Common Stock outstanding as of such date, in each case, assuming all shares of Capital Stock of the Company convertible into or exercisable for Common Stock have been so converted; provided that CSFB should not be limited by the foregoing clause (i) in the event that the Eligible Offering consists of Capital Stock of the Company for a consideration per share of Capital Stock which is less than the purchase price per share of Common Stock paid by CSFB in connection with the Transactions (as such price is adjusted by the Adjustments).
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"Eligible Offering" means an offer by the Company or a Significant Subsidiary of the Company to sell to any Person or Persons (including any of the Shareholders) for cash, any Capital Stock of the Company or any Significant Subsidiary, other than an offering by the Company or a Significant Subsidiary of the Company:
(i) of Common Stock in an underwritten public offering (a "Public Offering") registered under the 1933 Act or pursuant to a Rule 144A offering under the 1933 Act;
(ii) of Common Stock of the Company issued upon the exercise of options, warrants or convertible securities outstanding as of the date hereof;
(iii) of Common Stock of the Company or options to purchase shares of Common Stock in connection with or pursuant to any stock option, stock purchase plan or agreement or other benefit plans approved by the Board of Directors of the Company to full-time employees, officers, directors, consultants and/or advisors to the Company or its subsidiaries;(excluding employees of Sponsor)
(iv) of Common Stock of the Company issued in connection with restricted stock awards pursuant to and in accordance with the Recapitalization Agreement;
(v) of Common Stock of the Company having a value of up to $5.2 million in order to comply with Section 5.15 of the Senior Credit Facilities;
(vi) of Capital Stock of the Company issued as consideration to any seller in connection with the acquisition by the Company or any subsidiary of the Company of the assets of any Person in any transaction approved by the Board of Directors of the Company;
(vii) of Capital Stock of the Company issued as an inducement in connection with any debt financing of the Company, subject to terms and conditions approved by the Board of Directors of the Company;
(viii) of Capital Stock of a Significant Subsidiary of the Company in connection with any sale of control of such Significant Subsidiary to, or any joint venture between such Significant Subsidiary and, a third party that is not a financial sponsor or investor, which sale or joint venture is approved by the Board of the Directors of the Company;
(ix) of director qualifying or similar shares of a Significant Subsidiary;
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(x) of Capital Stock of the Company issued as consideration in connection with the acquisition by the Company or any subsidiary of the Company of Simpson Industries, Inc. or Global Metal Technologies, Inc. (or any parent company thereof); and
(xi) of Capital Stock of the Company issued to former stockholders of K-Tech Mfg., Inc. arising out of obligations existing prior to the Transactions.
For purposes of this Section 4.05 only, "Capital Stock" means any and all shares of common stock or options, warrants or similar instruments or any other securities convertible or exchangeable therefor (collectively, "Equity Interests") or any equity security linked to or offered or sold in connection with any Equity Interests of such Person or any of its Significant Subsidiaries, as the case may be.
(b) The Company shall, before any securities are issued pursuant to an Eligible Offering, give written notice (a "Preemptive Notice") thereof to each Shareholder that is entitled to preemptive rights hereunder. Such notice shall specify the security or securities proposed to be issued, the proposed date of issuance, the consideration that the Company or such Significant Subsidiary, as the case may be, intends to receive therefor and all other material terms and conditions of such proposed issuance. For a period of ten (10) business days following the date of such notice, each such Shareholder shall be entitled, by written notice to the Company, to elect to purchase all or part of such Shareholder's Proportionate Percentage of the securities being sold in the Eligible Offering. To the extent that elections pursuant to this Section 4.05(b) shall not be made with respect to any shares of Common Stock included in a Preemptive Notice within such 10-day period, then the Company shall re-offer to Shareholders who have elected to purchase their Proportionate Percentage (the "Preemptive Shareholders") for one additional three-day period, the right to purchase any part of the shares of Common Stock not purchased by other Shareholders (the "Section 4.05 Remaining Shares") pursuant to this Section 4.05 which is equal to the product obtained by multiplying (i) the number of Section
4.05 Remaining Shares by (ii) a fraction, the numerator of which is the number of shares of Common Stock then owned by any such Preemptive Shareholder and the denominator of which is the aggregate number of shares owned by all Preemptive Shareholders. To the extent that elections pursuant to this Section 4.05(b) shall not be made with respect to any securities included in an Eligible Offering within such ten (10) business day period, then the Company or such Significant Subsidiary, as the case may be, shall not be obligated to issue to such Shareholder such securities for which such Shareholder has elected not to purchase. To the extent that there are securities that have not been purchased pursuant to this Section 4.05, then the Company or such Significant Subsidiary, as the case may be, may issue such securities, but only for consideration not less than, and otherwise on no less favorable terms to the Company or such Significant Subsidiary, as the case may be, than, those set forth in the Company's notice and only within
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thirty (30) days after the end of such ten (10) business day period. In the event that any such offer is accepted by any such Shareholder or Shareholders, the Company or such Significant Subsidiary, as the case may be, shall sell to such Shareholder or Shareholders, and such Shareholder or Shareholders shall purchase from the Company or such Significant Subsidiary, as the case may be, for the consideration and on the terms set forth in the notice as aforesaid, the securities that such Shareholder or Shareholders shall have elected to purchase within ten (10) business days of such Shareholder's election to purchase such Proportionate Percentage (subject to delay for an additional thirty days for satisfaction of the Conditions).
(c) Each of the Shareholders granted rights pursuant to this Section 4.05 acknowledges that it has been given the opportunity to purchase their Proportionate Percentage of Common Stock in connection with the acquisition of Simpson Industries, Inc. and accordingly this Section 4.05 shall not apply to the acquisition of Simpson Industries, Inc.
(d) The Company may comply with any applicable securities laws before issuing any shares of Common Stock pursuant to this Section 4.05 and shall not be in violation of the provisions hereof by reason of such compliance; provided it is using commercially reasonable efforts to so comply.
SECTION 4.06. Board of Directors. (a) At each annual or special stockholders meeting called for the election of directors, and whenever the Shareholders of the Company act by written consent with respect to the election of directors, each Shareholder agrees to vote or otherwise give such Shareholder's consent in respect of all shares of the Capital Stock of the Company (whether now owned or hereafter acquired) owned by such Shareholder, and take all other appropriate action and the Company shall take all necessary and desirable actions within its control in order to cause:
(i) an amendment to the Bylaws of the Company to provide that the authorized number of directors on the Board of Directors of the Company shall be as recommended by the Sponsor in its sole discretion.
(ii) the election to the Board of Directors of:
(a) such number of directors as shall constitute a majority of the Board of Directors as designated by Heartland Industrial Partners, L.P.;
(b) one director designated by the Company Shareholder; provided, however, that except as set forth in the immediately following sentence of this subpart (b) upon Company Shareholder and its Direct Permitted Transferees ceasing to own at least 1,571,569 shares of Common Stock or, upon a Qualifying Public Equity Offering, Company Shareholder shall no longer have the right to designate one director to the Board. Notwithstanding the
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foregoing, Company Shareholder shall maintain the right to designate one director to the Board of Directors for so long as Company Shareholder or its Affiliates, own (x) $10.0 million or more of liquidation preference of the Class A Preferred Stock or (y) have outstanding loans or unfunded commitments under the Subordinated Loan Agreement; and
(c) one director designated by the CSFB Plan Partner (the "CSFB Director") after consultation with Sponsor; provided, however, that upon CSFB and its Direct Permitted Transferees ceasing to own a number of shares of Common Stock which would equal at least a majority of the shares of Common Stock owned by CSFB immediately following the Transactions (as adjusted for Adjustments), CSFB shall no longer have the right to designate one director to the Board of Directors;
all of which persons shall hold office subject to their earlier removal in accordance with clause (iii) below, the Bylaws of the Company and applicable corporate law, until their respective successors shall have been elected and shall have qualified;
(iii) the removal from the Board of Directors (with or without cause) of any director elected in accordance with subpart (a), (b) or (c) of clause (ii) above upon the written request of the Shareholders that designated such director; and
(iv) upon any vacancy in the Board of Directors as a result of any individual designated as provided in clause (ii) above ceasing to be a member of the Board of Directors whether by resignation or otherwise, the election to the Board of Directors as promptly as possible of an individual designated by the Shareholders that designated such individual; provided that the CSFB Plan Partner will consult with Sponsor prior to designating a replacement to serve as the CSFB Director.
(b) The ability of a Shareholder to designate a director to the Board of Directors shall not be assignable to any Person.
(c) The parties hereto agree to cause the Board of Directors to appoint the CSFB Director to each decision making committee of the Board and to cause such CSFB Director to be nominated to the Board of each subsidiary of the Company to the extent the composition of such boards is substantially identical to the composition of the Board.
(d) The Company agrees to provide customary directors' liability insurance.
SECTION 4.07 Right to Observer. In the case of a Qualified Investor (other than CSFB), for so long as such Qualified Investor retains a number of shares of Common Stock equal to at least a majority of, or, in the case of the CSFB Plan Partner, for so long as it
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retains a number of shares of Common Stock equal to at least twenty-five percent (25%) of, the shares of Common Stock owned by such Person immediately following the Transactions (as adjusted for the Adjustments), such Person will have right to send one Representative on its behalf (the "Observer") to attend all meetings of the Board, including all committees thereof, solely in a non-voting observer capacity. The Company will furnish to the Observer copies of all notices, minutes, consents and other materials that it generally makes available to its directors. The Observer may participate in discussions of matters under consideration by the Board of the Company and any matters brought before any committee thereof but will not be entitled to vote on any matter presented to the Board of Directors. Any Qualified Investor and the CSFB Plan Partner will have the right to remove and replace its Observer in its sole discretion and to designate a substitute representative if its Observer is unable or unwilling to attend any of the Board's meetings, including any committees thereof. The right of Qualified Investors (other than CSFB) to appoint an Observer as set forth in this Section 4.07 will terminate upon the occurrence of a Qualifying Public Equity Offering.
SECTION 4.08. Consultation Right. (a) The Company hereby agrees to consult (a "Consultation") with the Representatives of the CSFB Plan Partner set forth on Exhibit B hereto with respect (x) to any issues, events or transactions pertaining to the Company which in the good faith judgment of the Board of Directors of the Company are material to the consolidated business, operations and financial condition of the Company and (y) to the preparation of the annual business plan of the Company. In connection with any Consultation, the Company will provide such Representatives with all material information regarding any action under consideration and reasonable notice so that the consultation period shall constitute sufficient time for the CSFB Plan Partner to participate meaningfully in any decision-making process regarding the action to be taken.
(b) The provision of Section 4.08(a) shall terminate upon a Qualifying Public Equity Offering.
SECTION 4.09. Approval Rights. (a) The Company hereby agrees not to enter into or adopt any Material Event (as defined below) without the prior written approval of the majority of the Representatives of the CSFB Plan Partner set forth on Exhibit B hereto, which approval with respect to clauses (i) and
(ii) of the definition of "Material Event" will not be unreasonably withheld. For the purpose of this Section 4.09, "Material Event" means (i) any agreement to acquire a business with a total enterprise value of $250.0 million or more individually or any agreement to acquire a business if there have been one or more agreements during the immediately preceding twelve (12) month period for acquisitions(s) with a total enterprise value of $500.0 million or more (it being hereby agreed by the parties that the acquisition of Global Metal Technologies, Inc. shall be counted toward such $500.0 million threshold and that the acquisition of Simpson Industries, Inc. shall not be counted toward such threshold); (ii) the selection of a chief executive officer of the Company;
(iii) any restructuring of debt or other similar transaction pursuant to which debt holders of the
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Company would hold twenty-five percent (25%) or more of the outstanding Capital Stock of the Company; and (iv) any liquidation, dissolution, winding-up of the affairs of the Company, whether voluntary or involuntary, or the filing of a voluntary petition in bankruptcy or the filing of a plan of reorganization. The Company hereby agrees to promptly give notice to the CSFB Plan Partner if the Company is contemplating any Material Event. The CSFB Plan Partner hereby agrees to notify the Company within ten (10) business days of the receipt of such notice as to whether it approves of the Material Event. Failure of the CSFB Plan Partner to notify the Company in writing within such ten (10) business day period of its approval or disapproval of the Material Event shall be deemed an approval by the CSFB Plan Partner of such Material Event.
(b) The provisions of Section 4.09(a) shall terminate upon a Qualifying Public Equity Offering.
SECTION 4.10. Transactions with Affiliates. Without the consent of the Requisite Investors, for so long as Sponsor directly or indirectly beneficially owns twenty percent (20%) or more of the outstanding shares of Common Stock of the Company, the Company and its subsidiaries will not enter into, or suffer to exist, any transaction with Sponsor or any of its Affiliates involving payments or other consideration in excess of $1.0 million. The foregoing restrictions will not apply to: (a) the payment of annual monitoring fees to Sponsor in an amount not to exceed (x) $4.0 million plus reimbursement of out-of-pocket expenses incurred by Sponsor in connection with the advisory services provided to the Company for the first year after the date hereof and (y) not to exceed 0.25% of the consolidated assets of the Company in subsequent years; provided that such amount will not be less than $4.0 million plus reimbursement of out-of-pocket expenses incurred by Sponsor in connection with the advisory services provided to the Company; (b) the payment to Sponsor of advisory fees and out-of-pocket expense reimbursement in connection with an acquisition, divestiture or financing by the Company or any of its subsidiaries (but excluding sales and purchases of personal property in the ordinary course of business) provided that such fees shall be in an amount equal to 1% of the aggregate value of such transaction; (c) fees payable to Sponsor in connection with the Transactions and reimbursement of out-of-pocket expenses incurred by Sponsor in connection with the Transactions; (d) transactions involving the sale, purchase or lease of goods or services in the ordinary course of business and on an arm's-length basis between or among the Company or any of its subsidiaries and portfolio companies of Sponsor; (e) transactions between or among the Company or any of its subsidiaries; (f) issuances of Capital Stock to Sponsor and its Affiliates pursuant to, and in compliance with, Section 4.05; and (g) issuances of Common Stock to Sponsor and other Shareholders, as applicable (valued at $16.90 or more per share of Common Stock, unless otherwise determined by the Board of Directors of the Company) for cash, or in exchange for common stock, to provide for the acquisition by the Company or one of its subsidiaries of all of the outstanding Capital Stock of Simpson Industries, Inc. or Global Metal Technologies, Inc. (or any parent company thereof) either initially or within one (1) year after the
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acquisition thereof by Sponsor or one of its Affiliates (based on the cash equity provided by Sponsor and its Affiliates at the closing of any such acquisition). Notwithstanding the foregoing, the benefits of this Section 4.10 in favor of a class of Requisite Investors (other than Company Shareholder) shall terminate as to it individually when such class (including their respective Direct Permitted Transferees) ceases to own a number of shares of Common Stock that would equal at least a majority of the number of shares of Common Stock (appropriately adjusted for Adjustments) owned by such class immediately following the Transactions. The benefits of this Section 4.10 in favor of Company Shareholder will terminate as to Company Shareholder when Company Shareholder (i) ceases to have outstanding commitments or loans under the Subordinated Loan Agreement, (ii) owns, together with its Direct Permitted Transferees, less than $10.0 million of liquidation preference of Class A Preferred Stock and (iii) ceases to own, together with its Direct Permitted Transferees, at least 1,571,569 shares of Common Stock.
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.01. Company Registration.
(a) Right to Piggyback on Registration of Stock. Subject to Section 5.01(c), if at any time or from time to time the Company proposes to register the Common Stock under the 1933 Act in connection with a public offering (other than an Initial Public Offering consisting solely of primary Common Stock or in connection with the registration of shares of Common Stock issued to former shareholders of K-Tech Mfg., Inc. arising out of, or in lieu of, obligations existing prior to the Transactions) of such Common Stock on any form other than Form S-4 or Form S-8 or any similar successor forms or another form used for a purpose similar to the intended use for such forms (a "Piggyback Registration"), whether for its own account or for the account of one or more shareholders of the Company, the Company shall each such time promptly give each Shareholder written notice of such determination (in any event within 10 business days after its receipt of notice of any exercise of demand registration rights); provided, however, that such notice of a Piggyback Registration shall be given at least thirty (30) days prior to the anticipated filing date of such Piggyback Registration. Upon the written request of any Shareholder (the "Piggyback Holder") given within ten (10) business days after the providing of any such notice by the Company, the Company shall use its best efforts to cause to be registered under the 1933 Act all of the Registrable Securities held by such Shareholder that the Shareholder has requested to be registered; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Piggyback Holder and (i) in the case of a determination
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not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the registration expenses in connection therewith); and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 5.01 shall relieve the Company of its obligation to effect any registration upon demand under Section 5.02. The registration rights contained in Section 5.01 may be assigned to any Transferee or Permitted Transferee.
(b) Selection of Underwriters. If any Piggyback Registration involves an underwritten primary offering, the Company shall have sole discretion in the selection of any underwriter or underwriters to manage such Piggyback Registration.
(c) Priority on Piggyback Registrations. In the event that the Piggyback Registration includes an underwritten offering, the Company shall so advise the Shareholders as part of the written notice given pursuant to Section 5.01(a) and the registration rights provided in Section 5.01(a) shall be subject to the condition that if the managing underwriter or underwriters of a Piggyback Registration advise the Company in writing (a copy of which shall be provided to the applicable Shareholders) that in its opinion the number of Registrable Securities proposed to be sold in such Piggyback Registration exceeds the number which can be sold, and would materially adversely affect the price at which the Registrable Securities are to be sold, in such offering, the Company (or the Shareholders, as the case may be) will include in such registration only the number of Registrable Securities which, in the opinion of such underwriter or underwriters can be sold in such offering without such material adverse effect. The Registrable Securities so included in such Piggyback Registration shall be apportioned (i) first, either (x) in the case of a primary registration on behalf of the Company, to any shares of Common Stock that the Company proposes to sell, or (y) in the case of a secondary registration on behalf of a Shareholder, pro rata among the Holders on the basis of the number of Registrable Securities requested to be registered pursuant to such Demand Registration, (ii) second, pro rata among the Company Shareholder, RM and the HIP Co-Investors (and their respective Permitted Transferees), but only to the extent of shares of Common Stock of the Company held by them as of the date hereof (as adjusted by the Adjustments), and (iii) third, pro rata among other shares included in such Piggyback Registration, in each case according to the total number of shares of the Common Stock requested for inclusion by said selling stockholders, or in such other proportions as shall mutually be agreed to among such selling stockholders.
SECTION 5.02. Demand Registration Rights.
(a) Right to Demand. At any time after a Triggering Event, the Demand Holders may (subject in the case of Sponsor to Section 6.01), individually or collectively, make a written request, which request will specify the aggregate number of Registrable
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Securities to be registered and will also specify the intended methods of disposition thereof (the "Request Notice") to the Company for registration with the Commission under and in accordance with the provisions of the 1933 Act of all or part of the Registrable Securities then owned by Demand Holders (a "Demand Registration"); provided that the Company may, if the Board of Directors so determines in the exercise of its reasonable, good faith judgment that due to a pending or contemplated acquisition or disposition or public offering or other material event involving the Company it would be inadvisable to effect such Demand Registration at such time (but in no event after such registration statement has become effective), the Company may, upon providing the Demand Holders written notice (the "Delay Notice"), defer such Demand Registration for a single period with respect to such Demand Registration not to exceed one hundred thirty five (135) days. Upon receipt by the Company of a request (a "Demand Request") to effect a Demand Registration the Company will within 10 business days after the receipt of such notice, notify each other Demand Holder of such request and such other Demand Holder shall have the option to include its Registrable Securities in such Demand Registration pursuant to this Section
5.02. Subject to Section 5.02(f), the Company will register all other Registrable Securities which the Company has been requested to register by such other Demand Holders (each an "Incidental Demand Holder") pursuant to this
Section 5.02 by written request given to the Company by such holders within 10 business days after the giving of such written notice by the Company to such other Demand Holders. The Company shall not be obligated to maintain a registration statement pursuant to a Demand Registration effective for more than
(x) ninety (90) days or (y) such shorter period when all of the Registrable Securities covered by such registration statement have been sold pursuant thereto (the "Effectiveness Period"). Notwithstanding the foregoing, the Company shall not be obligated to effect more than one Demand Registration in any 90-day period or such longer period not to exceed 180 days as requested by an underwriter pursuant to Section 5.07. Upon any such request for a Demand Registration, the Company will deliver any notices required by Section 5.01 and 5.02 and thereupon the Company will, subject to Section 5.01(c) and 5.02(f) hereof use its best efforts to effect the prompt registration under the 1933 Act of:
(i) the Registrable Securities which the Company has been so requested to register by Demand Holders as contained in the Request Notice, and
(ii) all other Registrable Securities which the Company has been requested to register by the Piggyback Holders and Incidental Demand Holders,
all to the extent required to permit the disposition of the Registrable Securities so to be registered in accordance with the intended method or methods of disposition of each seller of such Registrable Securities.
(b) Number of Demand Registrations. The Company shall not be required to prepare and file a registration statement pursuant to this Section 5.02 if
(i) a Rollover
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Demand Holder and its Direct Permitted Transferees cease to own at the time of making the Request Notice twenty-five percent (25%) or more of the shares of Common Stock of the Company owned as of the date hereof (as adjusted for Adjustments) and (ii) the Request Notice relates to less than twenty-five percent (25%) of the shares of Common Stock held by such Demand Holder. In addition, the Company will not be required to effect more than (i) two registrations pursuant to this Section 5.02 on behalf of Company Shareholder,
(ii) one registration on behalf of RM pursuant to this Section 5.02, (iii) two registrations on behalf of CSFB pursuant to this Section 5.02; provided that CSFB will be afforded one additional Demand Registration in the event that CSFB has not been able to dispose of all of the Registrable Securities requested to be registered by CSFB with its initial two Demand Registrations; provided that the Company shall not be obligated to attend or participate in any "road shows" if such third and final Demand Registration is for less than 10% of the shares of Common Stock of the Company owned by CSFB immediately following the Transactions (as adjusted for Adjustments and (iv) one demand on behalf of the QI Demand Holders as a group (other than CSFB) pursuant to this Section 5.02. Sponsor and its Affiliates will be entitled to an unlimited number of Demand Registrations. It being understood that if two or more Demand Holders make a collective Demand Registration, such Demand Registration will count pursuant to this Section 5.02(b) as a Demand Registration for each such Demand Holder. It is hereby acknowledged and agreed by the parties that any Registrable Securities included in a registration statement on behalf of an Incidental Demand Holder will not count as a Demand Registration for such Incidental Demand Holder. In connection with a Demand Registration by more than one Demand Holder or by a Demand Holder and Incidental Demand Holders, such Demand Holders and Incidental Demand Holders shall elect one such Holder to act as representative (the "DH Representative") in connection with such Demand Registration and the Company shall only be obligated to communicate with such DH Representative in connection with such Demand Registration. The Holders shall give the Representative any and all necessary powers of attorneys needed for the DH Representative to act on their behalf.
(c) Revocation. Holders of a majority in number of the Registrable Securities to be included in a registration statement pursuant to this Section 5.02 may, at any time prior to the effective date of the registration statement relating to such Demand Registration, acting through their DH Representative revoke such request by providing a written notice thereof to the Company. The Holders of Registrable Securities who revoke such request shall reimburse the Company for all its expenses incurred in the preparation, filing and processing of the Registration Statement. If pursuant to the terms of this Section 5.02(c), the Holders reimburse the Company for its reasonable expenses incurred in the preparation, filing and processing of any registration statement requested and subsequently revoked by such Holders, the attempted registration by such requested and subsequently revoked registration statement shall not be deemed to be a Demand Registration. Notwithstanding the foregoing, the Holders of a majority in number of the Registrable Securities to be included in a registration statement pursuant to this Section 5.02 may, at any
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time within five days after receipt of any Delay Notice acting through their DH Representative revoke such request by providing written notice thereof to the Company and the attempted Demand Registration shall not be deemed to be a Demand Registration, notwithstanding that such Holders shall not reimburse the Company for any expenses incurred in the preparation, filing and processing of any Registration Statement.
(d) Effective Registration. A registration will not count as a Demand Registration: (i) if a Holder determines in its good faith judgment to withdraw the proposed registration of any Registrable Securities requested to be registered by a Demand Holder (x) due to marketing or regulatory reasons subject to such Holder reimbursing the Company for its expenses in accordance with
Section 5.02(c) above, or (y) due to a material adverse change in the Company (other than as a result of any action by the Holder); (ii) if such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason (other than as a result of any action by the Holder) and the Company fails to promptly have such stop order, injunction or other order or requirement removed, withdrawn or resolved to the Holder's satisfaction; or (iii) the conditions to closing specified in the underwriting agreement or purchase agreement entered into in connection with the registration relating to any such demand are not satisfied (other than as a result of a default or breach thereunder by the relevant Holder).
(e) Selection of Underwriters. If any of the Registrable Securities covered by a Demand Registration are to be sold in an underwritten offering, the relevant Holder, or Holders, will have the right to select the managing underwriter(s) to administer the offering subject to the approval of the Company, which will not be unreasonably withheld.
(f) Priority on Demand Registrations. If the managing underwriter or underwriters of a Demand Registration advise the Company in writing that in its or their opinion the number of Registrable Securities proposed to be sold in such Demand Registration exceeds the number which can be sold, or adversely affects the price at which the Registrable Securities are to be sold, in such offering, the Company will include in such registration only the number of Registrable Securities which, in the opinion of such underwriter or underwriters, can be sold in such offering without such material adverse effect. To the extent such Demand Registration includes Registrable Securities of more than one Holder, the Registrable Securities so included in such Demand Registration shall be apportioned (i) first, pro rata among such Holders based upon the number of shares of Common Stock owned by each Holder at the date of determination and (ii) second, pro rata among other shares of Common Stock included in such Demand Registration; provided that if such Demand Registration is effected pursuant to a Demand Request by either Company Shareholder or RM such number of Registrable Securities (as adjusted for Adjustments) of either Company Shareholder or RM that are owned by Company Shareholder and RM immediately following the Transactions will be included first without regard to the pro rata treatment described in clause (i) of this sentence.
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(g) Assignability of Demand Registration Rights. The rights offered a Shareholder pursuant to Section 5.02 are only assignable to a Direct Permitted Transferee. Notwithstanding the foregoing, CSFB will be able to assign its rights under this Article V to a Transferee that acquires from CSFB at least 25% of the shares of Common Stock owned by CSFB as of the date hereof (as adjusted for Adjustments). Any such assignment permitted hereunder shall be effected hereunder only by giving written notice thereof from both the transferee and the transferee to the Company.
SECTION 5.03. Registration Procedures. It shall be a condition precedent to the obligations of the Company and any underwriter or underwriters to take any action pursuant to this Article V that the Shareholders requesting inclusion in any Piggyback Registration or Demand Registration (a "Registration") shall furnish to the Company such information regarding them, the Registrable Securities held by them, the intended method of disposition of such Registrable Securities, and such agreements regarding indemnification, disposition of such securities and other matters referred to in this Article V as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. With respect to any Registration which includes Registrable Securities held by a Shareholder, the Company will, subject to Sections 5.01 and 5.02 promptly:
(a) Prepare and file with the Commission a registration statement on the appropriate form prescribed by the Commission and use its best efforts to cause such registration statement to become effective as soon as practicable thereafter; provided that the Company shall not be obligated to maintain such registration effective for a period longer than the Effectiveness Period; provided further that before filing a registration statement or prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the registration statement, the Company will furnish to the holders of the Registrable Securities covered by such registration statement and the underwriter or underwriters, if any, copies of or drafts of all such documents proposed to be filed, including documents incorporated by reference in the Prospectus and, if required by such holders, the exhibits incorporated by reference, at least three (3) business days prior thereto, which documents will be subject to the reasonable review of such holders and underwriters. Holders will have the opportunity to object to any information pertaining to such holders that is contained therein and the Company will make the corrections reasonably requested by such holders with respect to such information prior to filing any registration statement or amendment thereto or any prospectus or any supplement thereto; provided, however, that the Company will not file any registration statement or amendment thereto or any prospectus or any supplement thereto or any documents required to be incorporated by reference therein to which holders of a majority of the Registrable Securities covered by such registration statement or the underwriters, if any, shall reasonably object;
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(b) Prepare and file with the Commission such amendments and post-effective amendments to such registration statement and any documents required to be incorporated by reference therein as may be necessary to keep the registration statement effective for a period of not less than the Effectiveness Period (but not prior to the expiration of the time period referred to in Section 4(3) of the 1933 Act and Rule 174 thereunder, if applicable); cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and comply with the provisions of the 1933 Act applicable to it with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus;
(c) Furnish to such Shareholder, without charge, such number of conformed copies of the registration statement and any post-effective amendment thereto, as such Shareholder may reasonably request, and such number of copies of the prospectus (including each preliminary prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein as the Shareholder or underwriter or underwriters, if any, may request in order to facilitate the disposition of the securities being sold by the Shareholder (it being understood that the Company consents to the use of the prospectus and any amendment or supplement thereto by the Shareholder covered by the registration statement and the underwriter or underwriters, if any, in connection with the offering and sale of the securities covered by the prospectus or any amendments or supplements thereto);
(d) Notify such Shareholder, at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, when the Company becomes aware of the happening of any event as a result of which the prospectus included in such registration statement (as then in effect) contains any untrue statement of material fact or omits to state a material fact necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter delivered to the investors of such securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(e) In the case of an underwritten offering, enter into such customary agreements (including underwriting agreements in customary form) and make members of senior management of the Company available on a basis reasonably requested by the underwriters to participate in, "road show" and other customary
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marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities) and cause to be delivered to the underwriters reasonable opinions of counsel to the Company in customary form, covering such matters as are customarily covered by opinions for an underwritten public offering as the underwriters may reasonably request and addressed to the underwriters;
(f) Make available, for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to a registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent that are necessary to be reviewed by such person in connection with the preparation of such registration statement;
(g) If requested, cause to be delivered, immediately prior to the effectiveness of the registration statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Securities sold pursuant thereto), letters from the Company's independent certified public accountants addressed to each selling Shareholder (unless such selling Shareholder does not provide to such accountants the appropriate representation letter required by rules governing the accounting profession) and each underwriter, if any, stating that such accountants are independent public accountants within the meaning of the 1933 Act and the applicable rules and regulations adopted by the Commission thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent certified public accountants delivered in connection with primary or secondary underwritten public offerings, as the case may be;
(h) Provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of the registration statement;
(i) Use its best efforts to cause all securities included in such registration statement to be listed, by the date of the first sale of securities pursuant to such registration statement, on any national securities exchange, quotation system or other market on which the Common Stock is then listed or proposed to be listed by the Company, if any;
(j) Make generally available to its security holders an earnings statement, which need not be audited, satisfying the provisions of Section 11(a) of the 1933 Act as soon as reasonably practicable after the end of the twelve (12)-month period beginning with the first month of the Company's first fiscal quarter commencing after
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the effective date of the registration statement, which statement shall cover said twelve (12)-month period;
(k) After the filing of a registration statement, (i) promptly notify each Shareholder holding Registrable Securities covered by such registration statement of any stop order issued or, to the Company's knowledge, threatened by the Commission and of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction and (ii) take all reasonable actions to obtain the withdrawal of any order suspending the effectiveness of the registration statement or the qualification of any Registrable Securities at the earliest possible moment;
(l) Subject to the time limitations specified in paragraph (b) above, if requested by the managing underwriter or underwriters or such Shareholder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or the Shareholder reasonably requests to be included therein, including, without limitation, with respect to the number of shares being sold by the Shareholder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any term of the underwritten offering of the securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;
(m) As promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement, deliver a copy of such document to such Shareholder;
(n) On or prior to the date on which the registration statement is declared effective, use its best efforts to register or qualify, and cooperate with such Shareholder, the underwriter or underwriters, if any, and their counsel in connection with the registration or qualification of, the securities covered by the registration statement for offer and sale under the securities or blue sky laws of each state and other jurisdiction of the United States as the Shareholder or managing underwriter or underwriters, if any, requests in writing, to use its best efforts to keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the Effectiveness Period do any and all other acts or things necessary or advisable to enable the disposition in all such jurisdictions of the Registrable Securities covered by the applicable registration statement; provided that the Company will not be required to qualify generally to do business in any
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jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject;
(o) Cooperate with such Shareholder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, may request; and
(p) Use its best efforts to cause the securities covered by the registration statement to be registered with or approved by such other governmental agencies, authorities or self-regulatory bodies within the United States as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities.
At all times after an Initial Public Offering, the Company shall file all reports required to be filed by it under the 1933 Act and the 1934 Act and the rules and regulations adopted by the Commission thereunder, and take such further action as any Shareholders may reasonably request, all to the extent required to enable such Shareholders to be eligible to sell Registrable Securities pursuant to Rule 144 (or any similar rule then in effect).
The Shareholders, upon receipt of any notice from the Company of the happening of any event of the kind described in subsection (d) of this Section 5.03, will forthwith discontinue disposition of the securities until the Shareholders' receipt of the copies of the supplemented or amended prospectus contemplated by subsection (d) of this Section 5.03 or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, each Shareholder will, or will request the managing underwriter or underwriters, if any, to, deliver, to the Company (at the Company's expense) all copies, other than permanent file copies then in such Shareholder's possession, of the prospectus covering such securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time periods mentioned in subsections (a), (b) and (n) of this Section 5.03 shall be extended by the number of days during the period from and including any date of the giving of such notice to and including the date when each seller of securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by subsection (d) of this
Section 5.03 hereof or the Advice.
SECTION 5.04. Registration Expenses. (a) Subject to Section 5.02(c), in the case of any Registration, the Company shall bear all expenses incident to the Company's performance of or compliance with Sections 5.01, 5.02 and 5.03 of this Agreement, including,
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without limitation, all Commission and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), rating agency fees, printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company and all independent certified public accountants and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions, or transfer taxes, if any, attributable to the sale of Registrable Securities by a Piggyback Holder or Holder or fees and expenses of more than one counsel representing the Shareholders selling Registrable Securities under such Registration).
(b) In connection with each registration initiated hereunder (whether a Demand Registration or a Piggyback Registration), the Company shall reimburse the holders covered by such registration or sale for the reasonable fees and disbursements of one law firm chosen by the holders of a majority of the number of shares of Registrable Securities included in such registration.
(c) The obligation of the Company to bear the expenses described in
Section 5.04(b) and to reimburse the holders for the expenses described in
Section 5.04(b) shall apply irrespective of whether a registration, once properly demanded, if applicable, becomes effective, is withdrawn or suspended, or is converted to another form of registration and irrespective of when any of the foregoing shall occur; provided, however, that the expenses for any registration statement withdrawn pursuant to 5.02(c) prior to its effectiveness at the request of a Holder (unless withdrawn following and due to a Delay Notice), any registration statement withdrawn solely at the request of a Holder, or any supplements or amendments to a registration statement or prospectus resulting from a misstatement furnished to the Company by a Holder, shall be borne by such Holder.
SECTION 5.05. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Shareholder, its officers, directors, Affiliates and agents and each Person who controls (within the meaning of the 1933 Act or the 1934 Act) the Shareholder, including, without limitation any general partner or manager of any thereof, against all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and disbursements) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, in which such Shareholder participates in an offering of Registrable Securities or in any document incorporated by reference therein or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus or any preliminary
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prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are made in reliance on and in conformity with any information with respect to such Shareholder furnished in writing to the Company by such Shareholder expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Shareholder from whom the Person asserting such loss, claim, damage or liability purchased the securities if it is determined that such loss, claim, damage or liability was caused by such Shareholder's failure to deliver to such Shareholder's immediate purchaser a current copy of the prospectus (if the current copy of the prospectus was required by applicable law to be so delivered) after the Company has furnished such Shareholder with a sufficient number of copies of such prospectus. The Company will also indemnify underwriters (as such term is defined in the 1933 Act), their officers and directors and each Person who controls such underwriters (within the meaning of the 1933 Act) to the same extent as provided above with respect to the indemnification of the Shareholders.
(b) Indemnification by the Shareholders. In connection with any registration statement in which a Shareholder is participating, each such Shareholder will furnish to the Company in writing such information and affidavits with respect to such Shareholder as the Company reasonably requests for use in connection with any registration statement or prospectus covering the Registrable Securities of such Shareholder and to the extent permitted by law agrees to indemnify and hold harmless the Company, its directors, officers and agents and each Person who controls (within the meaning of the 1933 Act or the 1934 Act) the Company, against any losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements in the registration statement or prospectus or preliminary prospectus (in the case of the prospectus or preliminary prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is made in reliance on and in conformity with the information or affidavit with respect to such Shareholder so furnished in writing by such Shareholder expressly for use in the registration statement or prospectus; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Shareholders and the liability of each such Shareholder shall be in proportion to and limited to the net amount received by such Shareholder from the sale of Registrable Securities pursuant to a registration statement in accordance with the terms of this Agreement. The indemnity agreement contained in this Section 5.05 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of such seller (which consent shall not be unreasonably withheld or delayed). The Company and the holders of the Registrable Securities hereby acknowledge and agree that, unless otherwise expressly agreed to in writing by such holders, the only information furnished or to be furnished to the Company for use in any registration statement or prospectus relating to the Registrable Securities or in any amendment, supplement or preliminary materials associated therewith are statements
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specifically relating to (a) transactions or the relationship between such holder and its Affiliates, on the one hand, and the Company, on the other hand,
(b) the beneficial ownership of shares of Common Stock by such holder and its Affiliates, (c) the name and address of such holder and (d) any additional information about such holder or the plan of distribution (other than for an underwritten offering) required by law or regulation to be disclosed in any such document.
(c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. The failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability hereunder with respect to the action, except to the extent that such indemnifying party is materially prejudiced by the failure to give such notice; provided, however, that any such failure shall not relieve the indemnifying party from any other liability which it may have to any other party. No indemnifying party in the defense of any such claim or litigation, shall, except with the consent of such indemnified party, which consent shall not be unreasonably withheld, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or may conflict with those available to any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels; provided, however, that such number of additional counsel must be reasonably acceptable to the indemnifying party.
(d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) of this Section 5.05 is unavailable to an indemnified party as contemplated by the preceding paragraphs (a) and (b) of this Section 5.05, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. In no event shall the liability of any selling Shareholder be greater in amount than the amount of net proceeds received by such Shareholder upon such sale or the amount for which such indemnifying party would have
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been obligated to pay by way of indemnification if the indemnification provided in paragraph (b) of this Section 5.05 had been available.
SECTION 5.06. 1934 Act Reports. The Company agrees that at all times after it has filed a registration statement pursuant to the requirements of the 1933 Act relating to any class of equity securities of the Company, it will use its best efforts to file in a timely manner all reports required to be filed by it pursuant to the 1934 Act to the extent the Company is required to file such reports. Notwithstanding the foregoing, the Company may deregister any class of its equity securities under Section 12 of the 1934 Act or suspend its duty to file reports with respect to any class of its securities pursuant to Section 15(d) of the 1934 Act if it is then permitted to do so pursuant to the 1934 Act and rules and regulations thereunder.
SECTION 5.07. Holdback Agreements. (a) Whenever the Company proposes to register any of its equity securities under the 1933 Act for its own account (other than on Form S-4 or S-8 or any similar successor form or another form used for a purpose similar to the intended use of such forms) or is required to use its best efforts to effect the registration of any Registrable Securities under the 1933 Act pursuant to Section 5.01 or 5.02, each holder of Registrable Securities agrees by acquisition of such Registrable Securities not to effect any sale or distribution, including any sale pursuant to Rule 144 under the 1933 Act, or to request registration under Section 5.02 of any Registrable Securities within 10 days prior to and 90 days (unless advised by the managing underwriter that a longer period, not to exceed 180 days, is required, or such shorter period as the managing underwriter for any underwritten offering may agree) after the effective date of the registration statement relating to such registration, except as part of such registration or unless in the case of a private sale or distribution, the transferee agrees in writing to be subject to this Section 5.07. If requested by such managing underwriter, each holder of Registrable Securities agrees to execute a holdback agreement, in customary form, consistent with the terms of this Section 5.07(a). Notwithstanding the foregoing, no Shareholder will be restricted from selling any Registrable Securities if such Shareholder was not able to sell all of its Registrable Securities pursuant to such registration statement or such Shareholder and its Affiliates beneficially own a number of shares of Common Stock as of such date of determination equal to less than three percent (3%) of the outstanding Common Stock of the Company.
(b) The Company agrees not to effect any sale or distribution of any of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities within the 10 days prior to and during the 90 days (unless advised by the managing underwriter that a longer period, not to exceed 180 days, is required, or such shorter period as the managing underwriter for any underwritten offering may agree) beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or S-4 or any successor forms thereto), except that such restriction shall not prohibit (i) grants
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of employee stock options or other issuances of Capital Stock pursuant to the terms of a Company employee benefit plan, issuances by the Company of Capital Stock pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date hereof, (ii) the Company from issuing shares of Capital Stock in private placements pursuant to Section 4(2) of the 1933 Act or in connection with a strategic alliance, or (iii) the Company from publicly announcing its intention to issue, or actually issuing, shares of Capital Stock to shareholders of another entity as consideration for the Company's acquisition of, or merger with, such entity. In addition, upon the request of the managing underwriter, the Company shall use its best efforts to cause each holder of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities whether outstanding on the date of this Agreement or issued at any time after the date of this Agreement (other than any such securities acquired in a public offering), to agree not to effect any such public sale or distribution of such securities during such period, except as part of any such registration if permitted, and to cause each such holder to enter into a similar agreement to such effect with the Company.
SECTION 5.08. Participation in Registrations. No Shareholder may participate in any Registration hereunder which is underwritten unless such Shareholder (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, underwriting agreements and other documents customarily required under the terms of such underwriting arrangements.
SECTION 5.09. Remedies. Each Shareholder shall have the right and remedy to have the provisions of Sections 5.01 and 5.02 specifically enforced by any court having jurisdiction in the event that the Company materially breaches such provisions, and the Company shall reimburse such Shareholder for the reasonable costs of and expenses for counsel for such Shareholder incurred in connection with such proceeding.
SECTION 5.10. Other Registration Rights. The Company will not grant any Person any demand or piggyback registration rights with respect to the Capital Stock of the Company other than registration rights that would not be in conflict or inconsistent with the rights of the Shareholders as set forth in this Article V.
SECTION 5.11. Rule 144. The Company shall file any reports required to be filed by it under the 1933 Act and the 1934 Act and the rules and regulations adopted by the Commission thereunder, and it will take such further action as any holder may reasonably request to make available adequate current public information with respect to the Company meeting the current public information requirements of Rule 144(c) under the 1933 Act, to the extent required to enable such holder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation
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hereafter adopted by the Commission. Notwithstanding the foregoing, nothing in this Section 5.11 shall be deemed to require the Company to register any of its securities pursuant to the 1934 Act.
ARTICLE VI
RIGHTS OF HOLDERS OF CLASS A PREFERRED STOCK
SECTION 6.01. Series A Preferred Stock. For so long as Company Shareholder or one of its Affiliates is the direct or indirect beneficial owner of at least $10.0 million in liquidation preference of Class A Preferred Stock, the Company will not (1) register for sale in any underwritten public offering any shares of Common Stock beneficially owned by Sponsor and its Affiliates or
(2) redeem or repurchase any shares of Common Stock beneficially owned by Sponsor and its Affiliates out of the proceeds of any underwritten public offering by the Company, in any such case, without optionally redeeming or repurchasing all of the shares of Class A Preferred Stock owned by Company Shareholder and its Affiliates; provided, however, that if the Company has no such right to optionally redeem or repurchase all of the shares of Class A Preferred Stock, then the Company, at its option, may offer to purchase for cash all of the Class A Preferred Stock held by Company Shareholder and its Affiliates at a price equal to the liquidation preference of the Class A Preferred Stock, together with cumulated and unpaid dividends. The provisions of this Section 6.01 will no longer be operative once the Company has made such offer regardless of whether or not the Company Shareholder sells any shares of Class A Preferred Stock pursuant to such offer unless such offer is not effected because the Company does not purchase the shares of Class A Common Stock which Company Shareholder has requested be purchased.
SECTION 6.02. Management Fee. For so long as Company Shareholder or any of its Affiliates is the direct or indirect beneficial owner of any Class A Preferred Stock, Sponsor agrees that any management fee due and owning to Sponsor by the Company will accrue but not be payable if at any time there are cumulated and unpaid dividends in respect of the Class A Preferred Stock.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices. All notices, requests and other communications to any party, hereunder shall be in writing (including bank wire, telex, facsimile or similar writing) and shall be given to such party at its address or telex or facsimile number set forth on the signature pages hereof or in the relevant Joinder Agreement or such other address or telex or facsimile number as such party may hereafter specify in writing to the Secretary of the Company for the purpose by notice to the party sending such communication. Each such
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notice, request or other communication shall be effective (i) if given by telex or facsimile, when such message is transmitted to the number specified on the signature pages to this Agreement or any Joinder Agreement, (ii) if given by mail, three (3) business days after such communication is deposited in the mails registered or certified, return receipt requested, with postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered at the address specified on the signature pages to this Agreement or any Joinder Agreement.
SECTION 7.02. Binding Effect; Benefits; Entire Agreement. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. This Agreement constitutes the entire agreement and understanding, and supersedes all prior agreements and understandings, both oral and written, between the parties hereto relating to the subject matter hereof.
SECTION 7.03. Waiver. Any party hereto may by written notice to the other (a) extend the time for the performance of any of the obligations or other actions of any other party under this Agreement; (b) waive compliance with any of the conditions or covenants of any other party contained in this Agreement; and (c) waive or modify performance of any of the obligations of any other party under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by any party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder.
SECTION 7.04. Amendment. Other than as a result of the execution and delivery of a Joinder Agreement, this Agreement may not be amended, modified or supplemented in any respect except by a written instrument executed by each Shareholder and the Company; provided that this Agreement may be amended and restated or amended without consent of Shareholders for the addition of new shareholders after the date hereof if such addition does not adversely affect the rights of the Shareholders (it being agreed that the provision of demand registration rights and piggyback registration rights and tag-along rights on an equal basis with HIP Co-Investors will not constitute an adverse affect).
SECTION 7.05. Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or any Shareholder except as otherwise expressly stated hereunder or with the prior
-44-
written consent of each other party. A Direct Permitted Transferee who executes a Joinder Agreement in accordance with the provisions hereof may be assigned any rights available hereunder (other than Section 4.06). All of the rights offered a Shareholder under this Agreement who executes a Joinder Agreement are assignable to a Transferee, except for the rights set forth in Sections 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 5.02 (other than certain rights granted to CSFB pursuant to Section 5.02). The rights set forth in Sections 4.04 and 5.02 are assignable to a Transferee who executes a Joinder Agreement to the extent provided in Section 4.04 and 5.02(g), respectively.
SECTION 7.06. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of law that would require the application of the laws of another jurisdiction, and the parties irrevocably submit to (and waive immunity from) the jurisdiction of the federal and state courts located in the County of New York in the State of New York.
SECTION 7.07. Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any state or federal court of New York (this being in addition to any other remedy to which they are entitled at law or in equity), and each party hereto agrees to waive in any action for such enforcement the defense that a remedy at law would be adequate.
SECTION 7.08. Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of the Agreement will not be affected and will remain in full force and effect.
SECTION 7.09. Additional Securities Subject to Agreement. Each Shareholder agrees that any other shares of Common Stock of the Company which it hereafter acquires by means of a stock split, stock dividend, distribution, exercise of options or warrants or otherwise (other than pursuant to a public offering) whether by merger, consolidation or otherwise (including shares of a surviving corporation into which the shares of Common Stock of the Company are exchanged in such transaction) will be subject to the provisions of this Agreement to the same extent as if held on the date hereof, including for purposes of constituting Registrable Securities hereunder.
SECTION 7.10. Name Change. For the benefit of Company Shareholder, the Company agrees to change its corporate name (but not the trade names used by its businesses) to exclude "Masco" or a derivation thereof from its corporate name prior to consummating an Initial Public Offering of its Common Stock.
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SECTION 7.11. Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
SECTION 7.12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.
SECTION 7.13. Termination of Certain Provisions. The provisions of this Agreement set forth in Sections 3.01, 3.02, 4.01, 4.02, 4.03, 4.04(b) (except as it relates to CSFB and Company Shareholder), 4.04(d) (except as it relates to CSFB and Company Shareholder) and 4.09 will terminate and be of no force and effect upon the occurrence of a Qualifying Public Equity Offering. The provisions of this Agreement set forth in Sections 4.04(a) (except as it relates to CSFB and Company Shareholder) and 4.05 will terminate and be of no force and effect upon the occurrence of an Initial Public Offering. The provisions of this Agreement set forth in Sections 4.04 (insofar as it relates to CSFB and Company Shareholder), 4.06, 4.07, 4.08 and 4.10 will terminate as to a particular Shareholder as set forth in such section.
SECTION 7.14. ERISA Matters. The Company agrees to give Sponsor the rights set forth in Sections 4.07 and 4.08 to the extent Sponsor does not have the ability to designate a Person to the Board of Directors of the Company and failure to have the rights set forth in Section 4.07 or 4.08 would cause Sponsor to have an ERISA Problem. For purposes of this Section 7.14, "ERISA Problem" means that the assets of Sponsor and its Affiliates would be considered "Plan Assets" within the meaning of 29 CFR 2510.3-101 due to the fact that Sponsor and its Affiliates do not have the rights specified in Section 4.07 or 4.08.
SECTION 7.15. Regulatory Cooperation. If any Shareholder reasonably determines that, by reason of any existing or future federal or state rule, regulation, guideline, order, request or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) (collectively, a "Regulatory Requirement"), it is effectively restricted or prohibited from holding any of the shares of Common Stock (including any shares of Capital Stock or other securities distributable in any merger, reorganization, readjustment or other reclassification of such shares), the Company and the other Shareholders shall take such action as may be reasonably necessary to permit such
-46-
Shareholder to comply with such Regulatory Requirement; provided, that no such action pursuant to this Section 7.15 shall adversely affect the Company, the rights of the other Shareholders hereunder or the rights, preferences, qualifications and limitations of any Capital Stock of the Company held by the other Shareholders; provided, further that neither the Company nor any Shareholder shall be required to purchase any of such shares of Common Stock as a result of such Regulatory Requirement. Such reasonable action to be taken may include the Company's authorization of one or more new classes of non-voting common stock that is otherwise substantially identical to the Common Stock then owned by such Shareholder and the amendment of the Company's certificate of incorporation or any other documents or instruments executed in connection with the shares held by such Shareholder. Such Shareholder shall give written notice to the Company and the other Shareholders of any such determination and the actions necessary to comply with such Regulatory Requirement, and the Company and such other Shareholders shall take all reasonably necessary steps to comply with such determination as expeditiously as possible.
SECTION 7.16. Publicity. None of the parties hereto shall issue any press release or make any public disclosure regarding the transactions contemplated hereby unless such press release or public disclosure shall be approved by those parties mentioned in such press release or public disclosure in advance. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the Commission or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised by counsel is legally necessary or advisable, and may make such disclosure as it is advised by its counsel is required by law.
SECTION 7.17. Expenses. The Company agrees, if the Transactions are consummated, to reimburse each Qualified Investor for all reasonable out-of-pocket expenses arising in connection with the Transactions promptly (including, without limitation, and, in any event, within 30 days after any invoice or other statement or notice), including all reasonable documented fees and expenses of counsel to such Qualified Investor incurred in connection with this Agreement and the transactions contemplated hereby and all reasonable out-of-pocket expenses incurred by such Qualified Investor for so long as such Person is a Qualified Investor in connection with the monitoring of its equity investment in the Company.
[Signature Pages Follow]
IN WITNESS WHEREOF, the Company and each Shareholder have executed this Agreement as of the day and year first above written.
MASCOTECH, INC.

By: /s/ David B. Liner
    ------------------------------------
Name: David B. Liner
Title: Vice President	

Notices:
21001 Van Born Road
Taylor, Michigan 48140
Attention: Chairman of the Board and
General Counsel
Facsimile: (313) 792-4107
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
MASCO CORPORATION
By: John R. Leekley

Name: John R. Leekley Title: Senior Vice President
Notices:
21001 Van Born Road
Taylor, Michigan 48140
Attention: Chairman of the Board and
General Counsel
Facsimile: (313) 792-4107
With a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Attention: Alan Stuart Schwartz, Esq.
Facsimile: (313) 465-7575
RICHARD A. MANOOGIAN

By: /s/ Richard A. Manoogian
    ------------------------------------

Notices:	

Richard A. Manoogian c/o Masco Corporation 21001 Van Born Road Taylor, Michigan 48140 Attention: Richard A. Manoogian Facsimile: (313) 792-6134
with a copy to:
Bodman Longley & Dahling LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: David M. Hempstead, Esq.
Facsimile: (313) 393-7579
RICHARD AND JANE MANOOGIAN FOUNDATION

By: /s/ Richard A. Manoogian
    ------------------------------------
Name: Richard A. Manoogian
Title: President	

Notices:
Richard and Jane Manoogian Foundation
c/o Masco Corporation
21001 Van Born Road
Taylor, Michigan 48140
Attention: Richard A. Manoogian
Facsimile: (313) 792-6134
with a copy to:
Eugene A. Gargaro, Jr., Esq.
c/o Masco Corp.
21001 Van Born Road
Taylor, Michigan 48140
Facsimile: (313) 792-6289
HEARTLAND ENTITY:
HEARTLAND INDUSTRIAL PARTNERS, L.P.
By: Heartland Industrial Associates
L.L.C., its General Partner

By: /s/ David A. Stockman
    ------------------------------------
Name: David A. Stockman
Title: Managing Member	

Notices:
Heartland Industrial Partners, L.P.
320 Park Avenue, 33rd Floor
New York, New York 10022
Attention: David A. Stockman
Facsimile: (212) 981-3535
and
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
HEARTLAND ENTITY:
HEARTLAND INDUSTRIAL PARTNERS (FF), L.P.
By: Heartland Industrial Associates
L.L.C., its General Partner

By: /s/ David A. Stockman
    ------------------------------------
Name: David A. Stockman
Title: Managing Member	

Notices:
Heartland Industrial Partners, L.P.
320 Park Avenue, 33rd Floor
New York, New York 10022
Attention: David A. Stockman
Facsimile: (212) 981-3535
and
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
HEARTLAND ENTITY:
HEARTLAND INDUSTRIAL PARTNERS (E1), L.P.
By: Heartland Industrial Associates
L.L.C., its General Partner

By: /s/ David A. Stockman
    ------------------------------------
Name: David A. Stockman
Title: Managing Member:	

Notices:
Heartland Industrial Partners, L.P.
320 Park Avenue, 33rd Floor
New York, New York 10022
Attention: David A. Stockman
Facsimile: (212) 981-3535
and
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
HEARTLAND ENTITY:
HEARTLAND INDUSTRIAL PARTNERS (K1), L.P.
By: Heartland Industrial Associates
L.L.C., its General Partner

By: /s/ David A. Stockman
    ------------------------------------
Name: David A. Stockman
Title: Managing Member	

Notices:
Heartland Industrial Partners, L.P.
320 Park Avenue, 33rd Floor
New York, New York 10022
Attention: David A. Stockman
Facsimile: (212) 981-3535
and
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
HEARTLAND ENTITY:
HEARTLAND INDUSTRIAL PARTNERS (C1), L.P.
By: Heartland Industrial Associates
L.L.C., its General Partner

By: /s/ David A. Stockman
    ------------------------------------
Name: David A. Stockman
Title: Managing Member:	

Notices:
Heartland Industrial Partners, L.P.
320 Park Avenue, 33rd Floor
New York, New York 10022
Attention: David A. Stockman
Facsimile: (212) 981-3535
and
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: David A. Stockman
Facsimile: (203) 861-2722
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Jonathan A. Schaffzin, Esq.
Facsimile: (212) 269-5420
LONG POINT CAPITAL FUND, L.P.

By: /s/ Ira Starr
    ------------------------------------
Name: Ira Starr
Title: Managing Director	

Notices:
767 Fifth Avenue
New York, New York 10153
Attention: Ira Starr
Facsimile: (212) 593-1888
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
Attention: Peter Samuels, Esq.
Facsimile: (212) 969-2900
LONG POINT CAPITAL PARTNERS, L.L.C.

By: /s/ Ira Starr
    ------------------------------------
Name: Ira Starr
Title: Managing Director	

Notices:
767 Fifth Avenue
New York, New York 10153
Attention: Ira Starr
Facsimile: (212) 593-1888
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
Attention: Peter Samuels, Esq.
Facsimile: (212) 969-2900
CRM 1999 ENTERPRISE FUND, LLC

By: /s/ Jay Abramson
    ------------------------------------
Name: Jay Abramson
Title: Exec. VP of Managing Member	

Notices:
520 Madison Avenue
32nd Floor
New York, NY 10022
Attention: Edward Azimi
Facsimile: (212) 371-3562
HIP CO-INVESTOR:
KLEINWORT BENSON HOLDINGS, INC.

By: /s/ Iain Leigh
    ------------------------------------
Name: Iain Leigh
Title: Authorized Person

By: /s/ John Walker
    ------------------------------------
Name: John Walker
Title: Authorized Person	

Notices:
75 Wall Street
34th Floor
New York, NY 10005
Attention: Alexander P. Coleman
Adam Lichtenstein
Facsimile: (212) 429-3139
With a copy to
Kirkland & Ellis
153 East 53rd Street
39th Floor
New York, NY 10022
Attention: Eunu Chun
Facsimile: (212) 446-4900
HIP CO-INVESTOR:
75 WALL STREET ASSOCIATES, LLC
By: Kleinwort Benson (USA), Inc.
Its: Attorney-in-Fact

By: /s/ Iain Leigh
    ------------------------------------
Name: Iain Leigh
Title: Authorized Person

By: /s/ John Walker
    ------------------------------------
Name: John Walker
Title: Authorized Person	

Notices:
75 Wall Street
34th Floor
New York, NY 10005
Attention: Alexander P. Coleman
Adam Lichtenstein
Facsimile: (212) 429-3139
With a copy to
Kirkland & Ellis
153 East 53rd Street
39th Floor
New York, NY 10022
Attention: Eunu Chun
Facsimile: (212) 446-4900
HIP CO-INVESTOR:
METROPOLITAN LIFE INSURANCE COMPANY

By: /s/ James A. Wiviott
    ------------------------------------
Name: James A. Wiviott
Title: Director	

Notices:
Metropolitan Life Insurance Company
Corporate Equities
334 Madison Avenue
Convent Station, NJ 07961
Attention: Susan M. Garret
Facsimile: (973) 254-3055
With a copy to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Attention: Todd S. Shenkin, Esq.
(Law, Area 6H)

Facsimile: (212) 251-1673
and
Metropolitan Life Insurance Company
4100 Boy Scout Boulevard
Tampa, FL 33607
Attention: Desiree DiSalvo - Securities
Accounting
Facsimile: (813) 801-2506
HIP CO-INVESTOR:
FIRST UNION CAPITAL PARTNERS, LLC

By: /s/ A. Wellford Tabor
    ------------------------------------
Name: A. Wellford Tabor
Title: Principal	

Notices:
First Union Capital Partners
One First Union Center, 12th Floor
301 South College Street
Charlotte, NC 28288-0732
Attention: A. Wellford Tabor
Facsimile: (704) 374-6711
With a copy to:
Kennedy Covington Lobdell & Hickman,
L.L.P.
100 North Tryon Street, Suite 4200
Charlotte, NC 28202-4006
Attention: Kevin P. Stichter
Facsimile: (704) 331-7598
HIP CO-INVESTOR:
GE CAPITAL EQUITY INVESTMENTS, INC.

By: /s/ William R. Kraus
    ------------------------------------
Name: William R. Kraus
Title: SVP	

Notices:
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attention: Barbara J. Gould, Esq.
Facsimile: (203) 357-3047
Attention: William R. Kraus
Facsimile: (203) 357-6426
With a copy to:
Winston & Strawn
200 Park Avenue
New York, NY 10166
Attention: David B. Hertzog, Esq.
Facsimile: (212) 294-4700
HIP CO-INVESTOR:
CREDIT SUISSE FIRST BOSTON U.S.
EXECUTIVE ADVISORS, L.P.

By: /s/ Hartley R. Rogers
    ------------------------------------
Name: Hartley R. Rogers
Title: Attorney-in-Fact	

Notices:
Credit Suisse First Boston
U.S. Executive Advisors, L.P.
c/o Credit Suisse First Boston Advisory
Partners, LLC
Eleven Madison Avenue
New York, New York 10010
Attention: Hartley R. Rogers
Facsimile: (212) 325-2291
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Facsimile: (212) 735-2000
HIP CO-INVESTOR:
CREDIT SUISSE FIRST BOSTON EQUITY
PARTNERS (BERMUDA), L.P.

By: /s/ Hartley R. Rogers
    ------------------------------------
Name: Hartley R. Rogers
Title: Attorney-in-Fact	

Notices:
Credit Suisse First Boston Equity
Partners (Bermuda), L.P.
c/o Credit Suisse First Boston Advisory
Partners, LLC
Eleven Madison Avenue
New York, New York 10010
Attention: Hartley R. Rogers
Facsimile: (212) 325-2291
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Facsimile: (212) 735-2000
HIP CO-INVESTOR:
CREDIT SUISSE FIRST BOSTON EQUITY
PARTNERS, L.P.

By: /s/ Hartley R. Rogers
    ------------------------------------
Name: Hartley R. Rogers
Title: Attorney-in-Fact	

Notices:
Credit Suisse First Boston Equity
Partners, L.P.
c/o Credit Suisse First Boston Advisory
Partners, LLC
Eleven Madison Avenue
New York, New York 10010
Attention: Hartley R. Rogers
Facsimile: (212) 325-2291
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Facsimile: (212) 735-2000
HIP CO-INVESTOR:
EMA PARTNERS FUND 2000, L.P.

By: /s/ Hartley R. Rogers
    ------------------------------------
Name: Hartley R. Rogers
Title: Attorney-in-Fact	

Notices:
EMA Partners Fund 2000, L.P.
c/o Credit Suisse First Boston Advisory
Partners, LLC
Eleven Madison Avenue
New York, New York 10010
Attention: Hartley R. Rogers
Facsimile: (212) 325-2291
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Facsimile: (212) 735-2000
EMA PRIVATE EQUITY FUND 2000, L.P.

By: /s/ Hartley R. Rogers
    ------------------------------------
Name: Hartley R. Rogers
Title: Attorney-in-Fact	

EMA Private Equity Fund 2000, L.P.
c/o Credit Suisse First Boston Advisory
Partners, LLC
Eleven Madison Avenue
New York, New York 10010
Attention: Hartley R. Rogers
Facsimile: (212) 325-2291
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Eileen T. Nugent
Facsimile: (212) 735-2000
MERCHANT CAPITAL, INC.

By: /s/ Edward Nadel
    ------------------------------------
Name: Edward Nadel
Title: Vice President	

Merchant Capital, Inc. Eleven Madison Avenue New York, New York 10010 Attention: Edward Nadel Facsimile: (212) 325-1659
HIP CO-INVESTOR:
BANCBOSTON CAPITAL INC.

By: /s/ Mark H. DeBlois
    ------------------------------------
Name: Mark H. DeBlois
Title: Managing Director	

Notices:
BancBoston Capital Inc.
175 Federal Street, 10th Floor
Boston, MA 02210
Attention: Daniel C. Reese
Facsimile: (617) 434-1153
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
Attention: Robert M. Wolf
Facsimile: (617) 951-8736
PRIVATE EQUITY PORTFOLIO FUND II, LLC
By: Fleet Bank, NA, its Manager

By: /s/ Glen Holland
    ------------------------------------
Name: Glen Holland
Title: Director	

Notices:
BancBoston Capital Inc.
175 Federal Street, 10th Floor
Boston, MA 02210
Attention: Daniel C. Reese
Facsimile: (617) 434-1153
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
Attention: Robert M. Wolf
Facsimile: (617) 951-8736
EXHIBIT A
JOINDER AGREEMENT
WHEREAS, the undersigned is acquiring simultaneously with the execution of this Agreement common stock (the "Common Stock"), par value $1.00 per share of MascoTech, Inc. (the "Company"); and
WHEREAS, as a condition to the acquisition of the Common Stock, the undersigned has agreed to join in a certain Stockholders Agreement (the "Stockholders Agreement") dated as of November 28, 2000 among MascoTech, Inc. and the Shareholders (as such term is defined in the Stockholders Agreement); and
WHEREAS, the undersigned understands that execution of this Agreement is a condition precedent to the acquisition of the Common Stock;
NOW, THEREFORE, as an inducement to both the transferor of the Common Stock and the other Shareholders (as such term is defined in the Stockholders Agreement), to Transfer (as such term is defined in the Stockholders Agreement) and to allow the Transfer of the Common Stock to the undersigned, the undersigned agrees as follows:
1. The undersigned hereby joins in the Stockholders Agreement and agrees to be bound by the terms and provisions of the Stockholders Agreement as provided by the Stockholders Agreement.
2. The undersigned hereby consents that the certificate or certificates to be issued to the undersigned representing the Common Stock shall be legended as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING WITH RESPECT TO THE DIRECT OR INDIRECT TRANSFER THEREOF, OF A SHAREHOLDERS AGREEMENT DATED AS OF NOVEMBER 28, 2000. THE SHAREHOLDERS AGREEMENT CONTAINS, AMONG OTHER
-2-
THINGS, SIGNIFICANT RESTRICTIONS ON TRANSFER OF THE SECURITIES OF THE COMPANY. A COPY OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE UPON REQUEST FROM THE COMPANY."
IN WITNESS WHEREOF, the undersigned has executed this Agreement this __ day of __________, 20__.
Name:
Title:

Address:
 
EXHIBIT B

                             Representatives of CSFB

Hartley R. Rogers   Phone: (212) 325-4618
                    Fax: (212) 325-2291

Jay Finney          Phone: (212) 325-4622
                    Fax: (212) 325-5553

Lee Wright          Phone: (212) 325-2762
                    Fax: (212) 325-5553	

                                  SCHEDULE 2.04	

                        SHAREHOLDER                          COMMON SHARES
                        -----------                          -------------
Heartland Entities                                           12,261,251
Richard Manoogian                                               621,170(a)
Richard and Jane Manoogian Foundation                           661,260
Masco Corporation                                             2,492,248
Kleinwort Benson Holdings, Inc.                                 591,716
75 Wall Street Associates LLC                                   295,858
Metropolitan Life Insurance Company                             591,716
First Union Capital Partners LLC                              1,479,290
GE Capital Equity Investments Inc.                              591,716
Credit Suisse First Boston Equity Partners, L.P.              6,247,530
Credit Suisse First Boston Equity Partners (Bermuda), L.P.    1,746,345
Credit Suisse First Boston U.S. Executive Advisors, L.P.          5,558
EMA Partners Fund 2000, L.P.                                    533,168
EMA Private Equity Fund 2000, L.P.                              343,139
Merchant Capital, Inc.                                          177,515
BancBoston Capital Inc.                                         769,231
Private Equity Portfolio Fund II, LLC                           118,343	

(a) Exclusive of 49,215 shares of restricted stock that will vest on the closing date of the Transactions (assuming no cash elections) and 147,645 shares of unvested restricted stock.
-2-

                        SHAREHOLDER                          COMMON SHARES
                        -----------                          -------------
Long Point Capital Fund L.P.                                    581,025
Long Point Capital Partners LLC                                  10,692
CRM 1999 Enterprise Fund, LLC                                    59,172	

EXHIBIT 12
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS

                                                                         (DOLLARS IN MILLIONS)
                                                               YEAR ENDED DECEMBER 31
                                                      ----------------------------------------
                                                       2005     2004     2003     2002    2001
                                                      ------   ------   ------   ------   ----
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES:
     Income from continuing operations before income
       taxes and cumulative effect of accounting
       change, net..................................  $1,412   $1,542   $1,247   $  933   $256
     (Deduct) add equity in undistributed (earnings)
       loss of fifty-percent-or-less-owned
       companies....................................      (1)      (1)       -      (10)    (1)
     Add interest on indebtedness, net..............     246      214      252      226    230
     Add amortization of debt expense...............       6        6       13       13     10
     Add estimated interest factor for rentals......      40       34       31       24     21
                                                      ------   ------   ------   ------   ----
     Earnings before income taxes, cumulative effect
       of accounting change, net, and fixed
       charges......................................  $1,703   $1,795   $1,543   $1,186   $516
                                                      ======   ======   ======   ======   ====
FIXED CHARGES:
     Interest on indebtedness.......................  $  244   $  214   $  253   $  225   $234
     Amortization of debt expense...................       6        6       13       13     10
     Estimated interest factor for rentals..........      40       34       31       24     21
                                                      ------   ------   ------   ------   ----
       Total fixed charges..........................  $  290   $  254   $  297   $  262   $265
                                                      ------   ------   ------   ------   ----
PREFERRED STOCK DIVIDENDS (A).......................  $    -   $    8   $   16   $   14   $  7
                                                      ------   ------   ------   ------   ----
     Combined fixed charges and preferred stock
       dividends....................................  $  290   $  262   $  313   $  276   $272
                                                      ======   ======   ======   ======   ====
RATIO OF EARNINGS TO FIXED CHARGES..................     5.9      7.1      5.2      4.5    1.9
                                                      ======   ======   ======   ======   ====
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
  PREFERRED STOCK DIVIDENDS (B)(C)..................     5.9      6.9      4.9      4.3    1.9
                                                      ======   ======   ======   ======   ====	

(a) Represents the amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company.
(b) Excluding the 2005 pre-tax income of $6 million related to the Behr litigation accrual, the non-cash, pre-tax goodwill impairment charge of $69 million and the pre-tax impairment charge of $45 million relating to financial investments, 2004 pre-tax income of $30 million related to the Behr litigation accrual, the non-cash, pre-tax goodwill impairment charge of $112 million, and the pre-tax impairment charge of $21 million related to a marketable security, the 2003 pre-tax income for litigation settlement of $72 million and the non-cash, pre-tax goodwill impairment charge of $53 million, the 2002 pre-tax charge for litigation settlement, net, of $147 million, and the 2001 non-cash, pre-tax charge of $530 million, the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends would be 6.2, 7.2, 4.9, 4.8 and 3.8 for the years 2005, 2004, 2003, 2002 and 2001, respectively.
(c) The year 2001 includes goodwill amortization expense.
 
.
.
.
EXHIBIT 21
MASCO CORPORATION
 (A DELAWARE CORPORATION)
Subsidiaries as of January 31, 2006

                                                    JURISDICTION OF
NAME                                         INCORPORATION OR ORGANIZATION
----                                         -----------------------------
Airex, LLC                                          Michigan
Alsons Corporation                                  Michigan
American Shower & Bath Corporation                  Michigan
Aqua Glass Corporation                              Tennessee
   Tombigbee Transport Corporation                  Tennessee
Aran World, Inc.                                    Delaware
Arrow Fastener Co., Inc.                            New Jersey
   Thematic Advertising Productions, LLC            New Jersey
Behr Holdings Corporation                           Delaware
   Behr Process Corporation                         California
      Behr Paint Corp.                              California
      BEHR PAINTS IT!, INC.                         California
      Behr Process Canada Ltd.                      Alberta, Canada
      BPC Realty LLC                                Delaware
      Masterchem Industries LLC                     Missouri
      Standard Brands Paint Company, Inc.           California
   ColorAxis, Inc.                                  California
Brass-Craft Manufacturing Company                   Michigan
   Masco Canada Limited                             Canada
   Tempered Products, Inc.                          Taiwan
Brasstech, Inc.                                     California
   Brasstech de Mexico, S.A. DE C.V. (90%)          Mexico
Brush Creek Ranch II, Inc.                          Missouri
Cal-Style Furniture Mfg. Co.                        California
Chatsworth Bathrooms, Inc.                          Delaware
Cobra Products, Inc.                                Delaware
d-Scan, Inc.                                        Delaware
Epic Fine Arts Company                              Delaware
   Beacon Hill Fine Art Corporation                 New York
   Canyon Road Corporation                          New Mexico	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-1-

                                                                          JURISDICTION OF
NAME                                                               INCORPORATION OR ORGANIZATION
----                                                               -----------------------------
The Faucet-Queens Inc.                                                       Delaware
Gamco Products Company                                                       Delaware
H & H Tube & Manufacturing Company                                           Michigan
Hansgrohe AG (37.35%)   Masco GmbH owns 27% of Hansgrohe AG                  Germany
                        Hansgrohe (see subsidiaries listed under
                        AG under Masco GmbH)
Jarry Realty, Inc.                                                           Florida
KraftMaid Cabinetry, Inc.                                                    Ohio
   KraftMaid Trucking, Inc.                                                  Ohio
Landex, Inc.                                                                 Michigan
   Brasstech de Mexico, S.A. DE C.V.(10%)                                    Mexico
   DM Land, LLC                                                              Michigan
   Tapicerias Pacifico, SA de CV (1%)                                        Mexico
Landex of Wisconsin, Inc.                                                    Wisconsin
Liberty Hardware Mfg. Corp.                                                  Florida
   Liberty Hardware Logistics (Shenzen) Co. Ltd.                             China
Masco Administrative Services, Inc.                                          Delaware
Masco Asia Pacific Pte Ltd                                                   Singapore
Masco Building Products Corp.                                                Delaware
   Computerized Security Systems, Inc.                                       Michigan
   Weiser Thailand                                                           Thailand
Masco Capital Corporation                                                    Delaware
Masco Conference Training Center: Metamora, Inc.                             Michigan
Masco Corporation of Indiana                                                 Indiana
   Delta Faucet (China) Co. Ltd.                                             China
   Delta Faucet (Korea)                                                      Korea
   Delta Faucet Company of Tennessee                                         Delaware
   Delta Faucet of Oklahoma, Inc.                                            Delaware
   Masco de Puerto Rico, Inc.                                                Puerto Rico
   Masco Europe, Inc.                                                        Delaware
   Masco Europe SCS (48.5%)                                                  Luxembourg
      Masco Europe s.a r.l.                                                  Luxembourg
         Masco Europe Inc. Financial SCS                                     Luxembourg
         Saflok EMEA (fka CSS Europe NV)                                     Belgium	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-2-

                                                                      JURISDICTION OF
NAME                                                            INCORPORATION OR ORGANIZATION
----                                                            -----------------------------
Metalurgica Recor, S.A.                                                 Portugal
Masco Denmark ApS                                                       Denmark
   Tvilum-Scanbirk ApS                                                  Denmark
      Tvilum-Scanbirk GmbH                                              Germany
Masco B.V.                                                              Netherlands
   Brugman International, B.V.                                          Netherlands
      The Heating Company Germany GmbH (fka Brugman GmbH)               Germany
      Brugman Industrie Sp. z.o.o.                                      Poland
      Brugman Polska Sp. z.o.o.                                         Poland
      Brugman Fabryka Grzejnikow                                        Poland
      Brugman Activa Sp.z.o.z. Poland (48.5%)                           Poland
      Brugman Radiatorenfabriek B.V.                                    Netherlands
      Brugman France SARL                                               France
      The Heating Company Denmark (fka Northor AS)                      Denmark
      Brugman Heating Products Ltd.                                     United Kingdom
Damixa ApS                                                              Denmark
   Damixa Armaturen GmbH                                                Germany
   Damixa SARL                                                          France
   Damixa Nederland B.V.                                                Netherlands
   Damixa N.V./S.A.                                                     Belgium
   Glass Idromassaggio Srl (49%)                                        Italy
   KS Beheer BV                                                         Netherlands
Masco Corporation Limited                                               United Kingdom
   Avocet Hardware Limited                                              United Kingdom
      Avocet Security Products (Hong Kong) Ltd.                         Hong Kong
      Avocet Hardware (Taiwan) Ltd.                                     Taiwan
      Avocet Security Products (Dongguan) Ltd.                          China
      Avocet Security Products (Suzhou) Company Limited (51%)           China
   Bristan Group Limited                                                United Kingdom	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-3-

                                                              JURISDICTION OF
NAME                                                   INCORPORATION OR ORGANIZATION
----                                                   -----------------------------
   Bristan Ltd. (fka Bristan Ltd / A&J Gummers Ltd /           United Kingdom
      Imperial Towel Rails Ltd.)
   Cambrian Windows Limited                                    United Kingdom
   Duraflex Ltd                                                United Kingdom
   Damixa Ltd. (fka Newteam / Berglen)                         United Kingdom
   Griffin Windows Ltd                                         United Kingdom
      Techniglass Ltd                                          United Kingdom
   Heritage Bathrooms Limited                                  United Kingdom
      The Bristol Bathroom Co.                                 United Kingdom
      Heritage Bathrooms Distribution Ltd. Bristol             United Kingdom
      CB Manufacturing Ltd.                                    United Kingdom
   Liberty Hardware Mfg U.K.                                   United Kingdom
   Moore Group Limited                                         United Kingdom
      Moore Furniture Group Limited                            United Kingdom
   Premier Manufacturing (PVCu) Ltd.                           United Kingdom
   Premier Trade Windows                                       United Kingdom
   Stormfront Door Ltd.                                        United Kingdom
Masco Germany Holding                                          Germany
   Masco GmbH                                                  Germany
      Alfred Reinecke GmbH & Co. KG                            Germany
      Glass Idromassaggio (51%)                                Italy
         S.T.S.R.                                              Italy
         Aquastyle Poland                                      Poland
   Hansgrohe AG (27%)                                          Germany
         Hansgrohe D                                           Germany
         Pontos GmbH                                           Germany
         Hansgrohe International, Gmbh Ltd.                    Germany
            Hans Grohe Pte.                                    Singapore
            Hansgrohe Ltd.                                     China
            Hansgrohe A/S                                      Denmark
            Hansgrohe S.A.R.L.                                 France	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-4-

                                                          JURISDICTION OF
NAME                                               INCORPORATION OR ORGANIZATION
----                                               -----------------------------
      Hans Grohe Hdl.ges.m.b.H.                            Austria
      Hansgrohe S.R.L.                                     Italy
      Hansgrohe S.A.                                       Spain
      Hans Grohe B.V.                                      Netherlands
      Hans Grohe Ltd.                                      United Kingdom
      Hans Grohe S.A.                                      Belgium
      Hansgrohe A.B.                                       Sweden
      Hans Grohe AG                                        Switzerland
      Hans Grohe Sp. Z.o.o.                                Poland
      Hans Grohe CS, s.r.o.                                Czech Republic
      Hans Grohe Kft                                       Hungary
      Hans Grohe Wasselonne, S.A.                          France
      C.P.T. Holding B.V.                                  Netherlands
      Hansgrohe Japan                                      Japan
      Hansgrohe Middle East & Africa                       Cyprus
      Hansgrohe, Inc.                                      Georgia
   Horst Breuer GmbH & Co. KG                              Germany
   Hueppe Belgium N.V./S.A.                                Belgium
   Hueppe GmbH                                             Austria
   Hueppe GmbH & Co.                                       Germany
   Hueppe Kft.                                             Hungary
   Hueppe Sarl                                             France
   Hueppe SRO                                              Czech Republic
   Hueppe B.V.                                             Netherlands
   Hueppe Sp. z.o.o.                                       Poland
   Hueppe Switzerland                                      Switzerland
   Hueppe S.r.l.                                           Italy
   Reser SL                                                Spain
Itermart Insaat Malzemeleri Sanayi ve Ticaret AS           Turkey
Masco International Services BVBA                          Belgium	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-5-

                                                                  JURISDICTION OF
NAME                                                       INCORPORATION OR ORGANIZATION
----                                                       -----------------------------
         The Heating Company BVBA (formerly Vasco BVBA)            Belgium
            Vamic BV                                               Netherlands
            Vasco GmbH                                             Germany
            Vasco GesmbH                                           Austria
            Vasco Ltd. UK                                          United Kingdom
            Vasco BC Sarl                                          France
            Vasco sp z.o.o.                                        Poland
            Vasco BVBA (formerly Vasco Imperial  Europe)           Belgium
            LTV Transport BVBA                                     Belgium
            Superia Radiatoren, BVBA                               Belgium
         Masco Belgium BVBA                                        Belgium
            Thermic Italia S.r.l.                                  Italy
         Peerless Sales Corporation                                Delaware
         Watkins Europe BVBA                                       Belgium
Masco Europe SCS (51.5%)                                           Luxembourg
Masco Japan Ltd.                                                   Delaware
Masco Product Design, Inc.                                         Delaware
Masco Retail Sales Support, Inc.                                   Delaware
   KraftMaid Sales and Distribution, LLC                           Delaware
   Liberty Hardware Retail & Design Services LLC                   Delaware
   Masco HD Support Services, LLC                                  Delaware
   Masco WM Support Services, LLC                                  Delaware
   Mill's Pride Store Support, LLC                                 Delaware
Masco Services Group Corp.                                         Delaware
   Masco Contractor Services, LLC                                  Delaware
      Builder Services Group, Inc.                                 Florida
         Cabinet Supply, Inc.                                      Delaware
         Western Insulation Holdings, LLC                          California
            Western Insulation, LP (1%)                            California
         Western Insulation, LP (99%)                              California
         Williams Consolidated Delaware LLC                        Delaware
            Williams Consolidated I, Ltd. (99%)                    Texas
         Williams Consolidated I, Ltd. (1%)                        Texas
         Insulpro Industries Inc.                                  Canada	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-6-

                                                      JURISDICTION OF
NAME                                           INCORPORATION OR ORGANIZATION
----                                           -----------------------------
      American National Services, Inc.                 California
         Coast Insulation Contractors, Inc.            California
         InsulPro Projects, Inc.                       Washington
         Sacramento Insulation Contractors             California
         Schmid Insulation Contractors, Inc.           California
         Superior Contracting Corporation              Delaware
   Service Partners, LLC                               Virginia
      Blow in Blanket, LLC                             Virginia
      Cell-Pak, LLC                                    Alabama
      Denver Southwest, LLC                            North Carolina
         Denver Southwest, LP (1%)                     Virginia
      Denver Southwest, LP (99%)                       Virginia
      East Coast Insulation Sales, LLC                 Virginia
      Houston Enterprises, LLC                         Virginia
      Industrial Products Co., LLC                     Virginia
      Insul-Mart, LLC                                  Virginia
      Insulation Sales of Michigan, LLC                Virginia
      Insulation Wholesalers, LLC                      California
      Johnson Products, LLC                            Virginia
         All-Weather Insulation Co., LLC               Virginia
      Lilienthal Insulation Company, LLC               Virginia
      Moore Products, LLC                              Virginia
      Renfrow Insulation, LLC                          Virginia
      Renfrow Supply, LLC                              Virginia
      RSA Supply, LLC                                  California
      Service Partners of Florida, LLC                 Virginia
      Service Partners of Georgia, LLC                 Virginia
      Service Partners of the Carolinas, LLC           Virginia
      Service Partners Northwest, LLC                  Virginia
         Thermoguard Insulation Company, LLC           Virginia
      Vest Insulation, LLC                             Virginia
      Virginia Gutter Supply, LLC                      Virginia
Masco Services, Inc.                                   Delaware
Masco Support Services, Inc.                           Delaware
Mascomex S.A. de C.V.                                  Mexico
Masterchem Brands, Inc.                                Missouri	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-7-

                                                      JURISDICTION OF
NAME                                           INCORPORATION OR ORGANIZATION
----                                           -----------------------------
Merillat Industries, LLC                           Delaware
   Masco Cabinetry Holdings, Inc.                  Delaware
      Masco Cabinetry, L.L.C.                      Delaware
         Texwood Industries, L.P. (99%)            Delaware
            Merillat LP (1%)                       Delaware
            Texwood Holdings LLC                   Delaware
               Merillat LP (99%)                   Delaware
      Quality Refacing Services, Inc.              Delaware
      Texwood Industries, L.P. (1%)                Delaware
   Merillat Transportation Company                 Delaware
Milgard Manufacturing Incorporated                 Washington
   Class Fund, LLC                                 Delaware
Mill's Pride, Inc.                                 Connecticut
   Mill's Pride Limited Partnership (99%)          Ohio
      Mill's Pride Pennsylvania, LLC               Ohio
   Mill's Pride LLC                                Ohio
      Mill's Pride Limited Partnership (1%)        Ohio
   Mill's Pride Premier, Inc.                      Ohio
   Premier Vanity Tops L.L.C.                      Ohio
Mirolin Industries Corp.                           Ontario
Morgantown Plastics Company                        Delaware
NCFII Holdings Inc.                                Delaware
   North Carolina STM, Inc.                        Delaware
   Universal Furniture Limited                     Delaware
Peerless Sales Corporation                         Delaware
RDJ Limited                                        Bahamas
   Arrow Fastener (U.K.) Ltd.                      United Kingdom
   Jardel Distributors, Inc.                       Canada
Vapor Tech (China) Co. Ltd.                        British Virgin Islands
   Vapor Tech (China) WOFE                         China
Vapor Technologies, Inc.                           Delaware
Watkins Manufacturing Corporation                  California
   Hot Spring Spas New Zealand (50%)               New Zealand
   Tapicerias Pacifico, SA de CV                   Mexico	

* Directly owned subsidiaries appear at the left hand margin, first tier and second tier subsidiaries are indicated by single and double indentation, respectively, and are listed under the names of their respective parent companies. Unless otherwise indicated, all subsidiaries are wholly owned. Certain of these companies may also use trade names or other assumed names in the conduct of their business.
-8-
 
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-100641), Form S-4 (Nos. 333-58036 and 333-100639), and Form S-8 (Nos. 33-42229, 333-64573, 333-30867, 333-74815, 333-37338, 333-75362, 333-110102 and 333-126888) of Masco Corporation of our report dated March 2, 2006 relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Detroit, Michigan
March 2, 2006	

EXHIBIT 31.a
MASCO CORPORATION CERTIFICATION
I, Richard A. Manoogian, certify that:
1. I have reviewed this annual report on Form 10-K of Masco Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

                                          By:   /s/ RICHARD A. MANOOGIAN
                                            ------------------------------------
                                            Chairman of the Board and
                                            Chief Executive Officer

Date: March 2, 2006	

EXHIBIT 31.b
MASCO CORPORATION CERTIFICATION
I, Timothy Wadhams, certify that:
1. I have reviewed this annual report on Form 10-K of Masco Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

                                          By: /s/ Timothy Wadhams
                                            ------------------------------------
                                            Timothy Wadhams
                                            Senior Vice President and
                                            Chief Financial Officer

Date: March 2, 2006	

EXHIBIT 32
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CERTIFICATIONS REQUIRED BY RULE 13A-14(B) OR RULE 15D-14(B) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
The certification set forth below is being submitted in connection with the Masco Corporation Annual Report on Form 10-K for the period ended December 31, 2005 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Section 1350 of Chapter 63 of Title 18 of the United States Code.
Richard A. Manoogian, the Chairman of the Board and Chief Executive Officer, and Timothy Wadhams, the Senior Vice President and Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13a or 15d of the Exchange Act; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation.

                                          /s/ RICHARD A. MANOOGIAN
                                          --------------------------------------
                                          Name: Richard A. Manoogian
                                          Title:   Chairman of the Board and
                                                   Chief
                                              Executive Officer

Date: March 2, 2006

                                          /s/ TIMOTHY WADHAMS
                                          --------------------------------------
                                          Name: Timothy Wadhams
                                          Title:   Senior Vice President and
                                                   Chief
                                              Financial Officer

Date: March 2, 2006	

A signed original of this written statement required by Section 906 has been provided to Masco Corporation and will be retained by Masco Corporation and furnished to the Securities and Exchange Commission or its staff upon request.