-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UX8aqmwoq1Pxh6NR022z3Dbod2Y2AkitRhqm+7GAlsxOahAOMthI3URWjG7UjKqV 7BOM1EY2xsOm6Siz+jLAXg== 0000950124-04-000587.txt : 20040227 0000950124-04-000587.hdr.sgml : 20040227 20040227165637 ACCESSION NUMBER: 0000950124-04-000587 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05794 FILM NUMBER: 04636096 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747400 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO SCREW PRODUCTS CO DATE OF NAME CHANGE: 19731025 10-K 1 k82538e10vk.txt ANNUAL REPORT FOR FISCAL YEAR ENDED 12/31/2003 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2003 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. Series A Participating Cumulative Preferred Stock Purchase Rights New York Stock Exchange, Inc. Zero Coupon Convertible Senior Notes Due 2031 New York Stock Exchange, Inc.
Securities Registered Pursuant to Section 12(g) of the Act: None 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 an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2003 (based on the closing sale price of $23.85 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such date) was approximately $10,918,988,000. Number of shares outstanding of the Registrant's Common Stock at January 31, 2004: 452,460,000 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 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MASCO CORPORATION 2003 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I 1. Business.................................................... 2 2. Properties.................................................. 7 3. Legal Proceedings........................................... 8 4. Submission of Matters to a Vote of Security Holders......... 8 Supplementary Item. Executive Officers of the Registrant.... 8 PART II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities......... 9 6. Selected Financial Data..................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 10 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 26 8. Financial Statements and Supplementary Data................. 27 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 63 9A. Controls and Procedures..................................... 63 PART III 10. Directors and Executive Officers of the Registrant.......... 63 11. Executive Compensation...................................... 64 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters................ 64 13. Certain Relationships and Related Transactions.............. 64 14. Principal Accountant Fees and Services...................... 64 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................................... 65 Signatures.................................................. 68 FINANCIAL STATEMENT SCHEDULE Valuation and Qualifying Accounts........................... 69
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, 2003, 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, 2003 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) ------------------------------- 2003 2002 2001 ------- ------ ------ Cabinets and Related Products.............................. $ 3,058 $2,798 $2,567 Plumbing Products.......................................... 2,645 2,031 1,742 Installation and Other Services............................ 2,411 1,845 1,692 Decorative Architectural Products.......................... 1,522 1,358 1,229 Other Specialty Products................................... 1,300 1,117 785 ------- ------ ------ Total............................................ $10,936 $9,149 $8,015 ======= ====== ======
OPERATING PROFIT (1)(2) ------------------------------------ 2003 (3)(4) 2002 (4)(5) 2001 (6) ----------- ----------- -------- Cabinets and Related Products.................. $ 396 $ 379 $ 255 Plumbing Products.............................. 317 334 241 Installation and Other Services................ 368 304 243 Decorative Architectural Products.............. 195 311 261 Other Specialty Products....................... 204 218 138 ------- ------ ------ Total................................ $ 1,480 $1,546 $1,138 ======= ====== ======
(1) Amounts have been restated to exclude the operations of businesses sold in 2003. (2) Amounts are before general corporate expense. (3) Operating profit for 2003 includes goodwill impairment charges as follows: Cabinets and Related Products -- $51 million; Plumbing Products -- $36 million; Decorative Architectural Products -- $24 million and Other Specialty Products -- $31 million. (4) Operating profit is before the litigation settlement (income) charge, net, of $(72) million and $147 million in 2003 and 2002, respectively, pertaining to the Decorative Architectural Products segment. (5) Operating profit for 2002 includes a pre-tax gain of $16 million related to certain long-lived assets in the Plumbing Products segment, which were previously written down in December 2000 as part of a plan for disposition. (6) Operating profit excluding goodwill amortization expense for 2001 was as follows: Cabinets and Related Products -- $270 million, Plumbing Products -- $248 million, Installation and Other Services -- $287 million, Decorative Architectural Products -- $274 million and Other Specialty Products -- $152 million. 2 Approximately 80 percent of the Company's 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, Holland, Italy, Spain and the United Kingdom. See Note P to the Company's Consolidated Financial Statements included in Item 8 of this Report. The Company reviews its business portfolio on an ongoing basis as part of its corporate strategic planning and, in the first quarter of 2004, has determined that several of its European businesses are not core to the Company's long-term growth strategy and, accordingly, has embarked on a plan of disposition. These businesses had combined 2003 net sales in excess of $350 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. Except as the context otherwise indicates, the terms "Masco" and the "Company" refer to Masco Corporation and its consolidated subsidiaries. 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. These products are sold under a number of trademarks, including KRAFTMAID(R), MERILLAT(R), MILL'S PRIDE(R) and QUALITY CABINETS(R), to distributors, home centers and dealers and direct to builders for both the home improvement and new construction markets. The Company also manufactures kitchen and bath storage products under the brand name ZENITH(R). In Europe, the Company manufactures assembled and ready-to-assemble kitchen, bath, storage, home office and home entertainment cabinetry and other products under brand names including ALMA KUCHEN(TM), ALVIC(TM), ARAN(TM), BLUESTONE(TM), FAARUP(TM), GRUMAL(TM), MOORES(TM), SCANBIRK(TM), SYSTEMA(TM), TVILUM-SCANBIRK(TM), VESTERGAARD(TM) and XEY(TM). Sales in Europe are made through distribution channels that parallel North American distribution. 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 2003. Significant North American competitors include American Woodmark, Aristokraft, Omega and Schrock. 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) and NEWPORT BRASS(R) single and double handle faucets used in kitchen, lavatory and other sinks and in bath and shower enclosures. DELTA, PEERLESS and NEWPORT BRASS 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 ALSONS(R), DELTA and PLUMB SHOP(R) brand names. The Company manufactures kitchen and bath faucets and various other plumbing products for European markets under the brand names AXOR(TM), BRISTAN(R), DAMIXA(R), GUMMERS(R), HANSGROHE(R), MARIANI(R) and NEWTEAM(TM) and sells them through multiple distribution channels. AXOR(TM) and HANSGROHE(R) products are also distributed in North America, primarily through retailers. Masco believes that its faucet operations hold a leadership position in the North American market, with American Standard, Kohler, Moen and Price Pfister as major brand competitors. Competition from private label import products is also a significant factor in the Company's markets. There are several major competitors among the European manufacturers of faucets 3 and accessories, primarily in Germany and Italy, and hundreds of smaller competitors throughout Europe and Asia. 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 names AMERICAN SHOWER & BATH(TM), PLASKOLITE(TM) and TRAYCO(TM). These products are sold to home centers, hardware stores and mass merchandisers for the "do-it-yourself " market. The Company's spas and hot tubs are manufactured and sold under brand names HOT SPRING(R), CALDERA(R) and other trademarks directly to retailers. Other plumbing products for the international market include HUPPE(R) luxury bath and shower enclosures sold by the Company through wholesale channels primarily in Germany. HERITAGE(TM) ceramic and acrylic bath fixtures and faucets are principally sold in the United Kingdom directly to selected retailers and in the United States under the brand name CHATSWORTH(R). GLASS(TM) and PHARO(TM) acrylic bathtubs and steam shower enclosures are sold in Europe. RECOR(TM) cast iron bathtubs are sold in Europe and the United States. 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(R) 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 330 local installation branch offices throughout most of the United States and in Canada that supply and install primarily insulation and, in many locations, other building products including fireplaces, cabinetry, gutters, shelving and windows. The Company also operates over 50 local distribution branch offices throughout the United States that supply insulation and other products including roofing, drywall, gutters, fireplaces and acoustical ceiling products. Installation services are provided primarily to tract and custom home builders in the new construction market and distribution sales are made direct to contractors. Installation operations are conducted in local markets through such names as Gale Industries, Cary Insulation and Davenport Insulation. The Company's competitors in this market include several regional and numerous local installers. Net sales of insulation for the segment comprised 15 percent, 14 percent and 14 percent of the Company's consolidated net sales for the years ended December 31, 2003, 2002 and 2001, respectively. Non-insulation net sales have increased over the last several years and represented over 30 percent of the segment's revenues for 2003. 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, including paints and stains, comprised 10 percent, 11 percent and 11 percent of the Company's consolidated net sales for the 4 years ended December 31, 2003, 2002 and 2001, respectively. Competitors in the architectural coatings market include large multinational companies such as ICI Paints, PPG Industries, Inc., Sherwin-Williams and Valspar as well as many smaller regional and national companies. During 2003, the Company established Color Solutions Centers in over 1,500 Home Depot stores throughout the United States. These centers enhance the paint-buying experience by allowing consumers to interactively interface in the course of product selection. Behr's PREMIUM PLUS(R) brand, its principal product line, is sold exclusively through The Home Depot stores. The Company manufactures and sells decorative bath and shower accessories under the brand names FRANKLIN BRASS(R), GINGER(R) and BATH UNLIMITED(R) to home centers, plumbing wholesalers and other retailers. Competitors in these product lines include Moen and Globe Union. Also in the Decorative Architectural Products segment is 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. Imported products are also a significant factor in this market. 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 direct 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, doors and sunrooms under the brand name DURAFLEX(TM) for the European building trades. The Company manufactures 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. Commercial ventilating products are manufactured and sold by the Company in Europe to original equipment manufacturers and wholesale markets under the GEBHARDT(TM) brand name. 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, Holland and Poland. JUNG(TM) water pumps are manufactured and sold by the Company primarily in Germany. ADDITIONAL INFORMATION - The consolidation of customers in the Company's major distribution channels has increased the size and importance of individual customers and the ability of these customers to effect significant changes in their volume of purchases from individual vendors. The Company believes its relationships with home centers are particularly important. Sales of the Company's product lines to home center retailers have increased substantially in recent years and, in 2003, sales to the Company's largest customer, The Home Depot, were $2.5 billion (approximately 22 percent of total sales). Although builders, dealers and other retailers represent other channels of distribution for the Company's products, the 5 Company believes that the loss of a substantial portion of its sales to The Home Depot would have a material adverse impact on the Company. - The major markets for the Company's products and services are highly competitive. Competition in all of the Company's product lines is based largely on performance, quality, brand reputation, style, delivery, customer service, exclusivity and price. Competition in the markets for the Company's services businesses is based primarily on price, customer service and breadth of product offering. Although the relative importance of such factors varies among product categories, price is often a primary factor. - The Company's international operations are subject to political, monetary, economic and other risks attendant generally to international businesses. These risks generally vary from country to country. Results of existing European operations have been adversely influenced in recent years, in part due to softness in the Company's European markets, competitive pricing pressures on certain products and the effect of a higher percentage of lower margin sales to total European sales. - 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, 2003, is set forth 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. - 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. - In general, raw materials required by the Company are obtainable from various sources and in the quantities desired, although from time to time certain operations of the Company may encounter shortages or unusual price changes. Discussion of various factors that may affect the Company's results of operations can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7 of this Report. AVAILABLE INFORMATION The Company's website is http://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 in this Report on Form 10-K. 6 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, 2003, the Company employed approximately 61,000 people. Satisfactory relations have generally prevailed between the Company and its employees. ITEM 2. PROPERTIES. The table below lists the Company's principal North American properties by segment.
WAREHOUSE AND BUSINESS SEGMENT MANUFACTURING DISTRIBUTION ---------------- ------------- ------------- Cabinets and Related Products............... 22 40 Plumbing Products........................... 28 13 Decorative Architectural Products........... 11 13 Other Specialty Products.................... 25 6 -- -- Totals.................................... 86 72 == ==
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 or has options to acquire most of its North American manufacturing facilities, none of which is 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 approximately 330 branch service locations and approximately 50 distribution centers in North America, the majority of which are leased. The table below lists the Company's principal properties outside of North America by segment.
WAREHOUSE AND BUSINESS SEGMENT MANUFACTURING DISTRIBUTION ---------------- ------------- ------------- Cabinets and Related Products............... 16 26 Plumbing Products........................... 23 29 Decorative Architectural Products........... 3 8 Other Specialty Products.................... 23 7 -- -- Totals.................................... 65 70 == ==
Most of these international facilities are located in Belgium, China, Denmark, Germany, Holland, Italy, Poland, Spain and the United Kingdom. The Company generally owns its international manufacturing facilities, none of which is 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. 7 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. The Company believes that its facilities have sufficient capacity and are adequate for its production and distribution requirements. ITEM 3. LEGAL PROCEEDINGS. 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 to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr. More information about these settlements is set forth in Note T 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).
OFFICER NAME POSITION AGE SINCE ---- --------------------------------------- --- ------- Richard A. Manoogian......................... Chairman of the Board, Chief Executive 67 1962 Officer Alan Barry................................... President and Chief Operating Officer 61 2003 Dr. Lillian Bauder........................... Vice President -- Corporate Affairs 64 1996 David A. Doran............................... Vice President -- Taxes 62 1984 Daniel R. Foley.............................. Vice President -- Human Resources 62 1996 Eugene A. Gargaro, Jr. ...................... Vice President and Secretary 61 1993 John R. Leekley.............................. Senior Vice President and General 60 1979 Counsel Robert B. Rosowski........................... Vice President and Treasurer 63 1973 Timothy Wadhams.............................. Senior Vice President and Chief 55 2001 Financial Officer
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. 8 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 - ------- ------ ------ --------- 2003 Fourth.......................... $28.44 $24.61 $.16 Third........................... 25.99 22.45 .16 Second.......................... 25.58 18.60 .14 First........................... 21.96 16.59 .14 ---- Total........................ $.60 ==== 2002 Fourth.......................... $22.60 $17.25 $.14 Third........................... 27.05 19.00 .14 Second.......................... 29.43 25.39 .13 1/2 First........................... 28.99 24.10 .13 1/2 ---- Total........................ $.55 ====
On January 31, 2004 there were approximately 6,500 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 continue to depend upon the Company's earnings, capital requirements, financial condition and other factors. 9 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth summary consolidated financial information for the Company's continuing operations, for the years and dates indicated.
(IN MILLIONS, EXCEPT PER SHARE DATA) 2003 2002 2001 2000 1999 ------- ------- ------ ------ ------ Net sales (1)............................... $10,936 $ 9,149 $8,015 $6,839 $5,931 Operating profit (1)(2)(3)(4)............... $ 1,424 $ 1,301 $1,042 $ 939 $ 867 Income from continuing operations (1)(2)(3)(5)(6)(7)............. $ 740 $ 572 $ 203 $ 581 $ 541 Per share of common stock: Income from continuing operations (1)(2)(3)(5)(6)(7): Basic.................................. $ 1.54 $ 1.18 $ 0.44 $ 1.32 $ 1.24 Diluted................................ $ 1.51 $ 1.11 $ 0.43 $ 1.29 $ 1.21 Dividends declared........................ $ 0.60 $ 0.55 $ 0.53 $ 0.50 $ 0.46 Dividends paid............................ $ 0.58 $ 0.54 1/2 $ 0.52 1/2 $ 0.49 $ 0.45 At December 31: Total assets.............................. $12,149 $12,050 $9,021 $7,604 $6,517 Long-term debt............................ $ 3,848 $ 4,316 $3,628 $3,018 $2,431 Shareholders' equity...................... $ 5,456 $ 5,294 $3,958 $3,286 $3,019
(1) Amounts have been restated to exclude the operations of businesses sold in 2003. (2) The year 2003 includes a non-cash goodwill impairment charge of $118 million after-tax ($142 million pre-tax) and income of $45 million after-tax ($72 million pre-tax) related to the litigation settlement. (3) The year 2002 includes a $92 million after-tax ($147 million pre-tax), net charge for the Behr litigation settlement, including $19 million of pre-tax income recorded for reimbursements from liability insurers. (4) Operating profit for 1999-2001 includes goodwill amortization expense as follows: 2001 -- $93 million, 2000 -- $66 million, 1999 -- $45 million. (5) 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. (6) 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. (7) The year 2000 includes a $94 million after-tax ($145 million pre-tax), non-cash charge for the planned disposition of businesses and the write-down of certain investments. 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 10 results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions and competitive market conditions; pricing pressures; relationships with key customers; industry consolidation of retailers, wholesalers and builders; shifts in distribution; the influence of e- commerce; and other factors discussed in 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 is engaged principally in the manufacture and sale of 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. The Company also supplies and installs insulation and other building products for builders in the new construction market. 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 Company's ability to effectively manage its overall cost structure, fluctuations in European currencies (primarily the European euro and Great Britain pound), the importance of and the Company's relationships with home centers (including The Home Depot, which represented approximately 22 percent of the Company's sales in 2003) as distributors of home improvement and building products and the Company's ability to maintain its leadership positions in its markets in the face of increasing global competition. Historically, the Company has been able to largely offset the impact on its revenues of cyclical declines in new construction and home improvement markets through new product introductions and acquisitions as well as market share gains. 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, which are based on historical experience and on various other factors and assumptions 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. The Company records estimated reductions to revenue for customer programs and incentive offerings, including special pricing 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 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 11 differences between estimates and actual experience. Historically, actual results have not significantly deviated from those determined using these estimates. The Company maintains investments in marketable equity securities and bond funds, which aggregated $517 million, and a number of private equity funds, which aggregated $332 million, at December 31, 2003. 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 equity securities and bond funds 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 (loss). 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. 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. On January 1, 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," became effective. In accordance with SFAS No. 142, the Company is no longer recording amortization expense related to goodwill and other indefinite-lived intangible assets. In the fourth quarter of 2003, the Company completed the annual impairment testing of goodwill and other indefinite-lived intangible assets utilizing a discounted cash flow method. This test indicated that goodwill related to certain European businesses was impaired. The Company recognized a non-cash, pre-tax impairment charge of $137 million ($113 million after-tax) in the fourth quarter of 2003. In the third quarter of 2003, the Company also recognized a non-cash impairment charge of $5 million related to a business unit in the United Kingdom, as discussed in Business Segment Results. Intangible assets with finite useful lives are amortized over their estimated lives. The Company evaluates the remaining useful lives of amortizable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization. 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 and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different 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 three percent long-term assumed 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, housing starts and repair and remodeling estimates for existing homes. In the fourth quarter of 2003, the Company estimated that future discounted cash flows projected for most of its individual business units were greater than the carrying values related to business units with goodwill and other indefinite-lived intangible assets. Any increases in estimated discounted cash flows would have no impact on the reported value of goodwill. 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 12 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 consultants, 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 2003, the Company decreased its discount rate for obligations to 6.25 percent from 6.75 percent, which reflects the decline in long-term interest rates. The assumed asset return is 8.5 percent, reflecting the expected long-term return on plan assets. The Company's underfunded amount for the difference between the projected benefit obligation and plan assets decreased to $137 million from $183 million in 2002. This is primarily the result of asset returns above projections and Company contributions. The plan assets in 2003 had a net gain of approximately 23 percent as compared with an increase of 21 percent for the largest 1,000 Plan Benchmark. The Company's projected benefit obligation relating to the unfunded non-qualified supplemental pension plans was $110 million for 2003 compared with $82 million for 2002. The Company's underfunded amount for the difference between the projected benefit obligation and plan assets for its foreign pension plans was $42 million for 2003 compared with $22 million for 2002. The Company expects pension expense for its defined-benefit plans to decrease by approximately $7 million in 2004, principally due to higher asset returns achieved in 2003 compared with the projection. If the Company assumed that the future return on plan assets was 8 percent instead of 8.5 percent, the pension expense for 2004 would increase by approximately $2 million. The Company has considered future income and gains from investments and other identified tax-planning strategies, including the potential sale of certain operating assets, in assessing the need for establishing a valuation allowance against its deferred tax assets at December 31, 2003, particularly related to its after-tax capital loss carryforward of $62 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. Certain of the Company's products and product finishes and services are generally covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to lifetime, under certain circumstances, of the original purchaser. At the time of the 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 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 of 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. The Company used estimates for the number of claims expected and the average cost per claim to determine the liability related to the Behr litigation settlement in 2002. In 2003, the Company received a fraction of the claims originally estimated and reduced its accrual for litigation settlement by $58 million. 13 CORPORATE DEVELOPMENT STRATEGY Acquisitions over the last several years have enabled the Company to build a unique 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. Going forward, the Company will have a more balanced growth strategy of internal 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 are core to continuing operations. The Company reviews its business portfolio on an ongoing basis as part of its corporate strategic planning and, in the first quarter of 2004, has determined that several European businesses are not core to the Company's long-term growth strategy and, accordingly, has embarked on a plan of disposition. These businesses had combined 2003 net sales in excess of $350 million and an approximate net book value of $330 million. The Company expects net proceeds from the dispositions to exceed $300 million. The dispositions are expected to be completed within the next twelve months and the Company expects to recognize a modest net loss upon the disposition of all of these businesses. First quarter 2004 results will include a charge to reflect those businesses that are expected to be divested at a loss. Any gains resulting from the disposition of individual businesses will be recognized as such transactions are completed. During 2003, the Company acquired PowerShot Tool Company, Inc. (Other Specialty Products segment), and several relatively small installation service companies (Installation and Other Services segment). PowerShot Tool Company is a manufacturer of fastening products, including staple guns, glue guns, hammer tackers and riveting products, headquartered in New Jersey. The results of these acquisitions are included in the consolidated financial statements from the respective dates of acquisition. The aggregate net purchase price of these acquisitions was $63 million, and included cash of $57 million and debt of $6 million. The Company also paid an additional $182 million of acquisition-related consideration, including amounts to satisfy share price guarantees, contingent consideration and other purchase price adjustments, in 2003, relating to previously acquired companies. These acquisitions provide the Company with opportunities to broaden its product and service offerings and enter new markets, and contributed approximately $50 million in net sales for the year ended December 31, 2003. See Note C to the consolidated financial statements for additional information regarding acquisitions. On September 30, 2003, the Company completed the sale of its Baldwin Hardware and Weiser Lock businesses. Baldwin and Weiser were included in the Decorative Architectural Products segment and manufacture a wide range of architectural and decorative products, including builders' hardware and locksets. In a separate transaction on September 30, 2003, the Company also completed the sale of the Marvel Group. Marvel manufactures office workstations and machine stands, and was included in the Other Specialty Products segment. The sale of these businesses reflects the Company's continuing commitment to deploy the Company's assets in businesses that support its operating strategies and provide the greatest opportunities to create value for the Company's shareholders. Total proceeds from the sale of these companies were $289 million, including cash of $286 million and notes receivable of $3 million. The sales and results of operations of the businesses sold in 2003 are included in the Company's results from discontinued operations through the date of disposition. These businesses contributed net sales of $198 million, $271 million and $269 million in 2003, 2002 and 2001, respectively, and income (loss) before income taxes of $21 million, $29 million and $(4) million in 2003, 2002 and 2001, respectively. 14 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. The credit lines with banks syndicated in the United States at December 31, 2003 include a $1.25 billion Amended and Restated 5-year Revolving Credit Agreement due and payable in November 2005 and a $750 million 364-day Revolving Credit Agreement that expires in November 2004. These agreements allow for borrowings denominated in U.S. dollars or European euros. The previous 364-day revolving credit agreement expired in November 2003. There were no borrowings under either agreement during 2003. Interest is payable on borrowings under these agreements based on various floating rate options as selected by the Company. Certain debt agreements contain limitations on additional borrowings; at December 31, 2003, the Company had additional borrowing capacity, subject to availability, of up to $2.5 billion. Certain debt agreements also contain a requirement for maintaining a certain level of net worth; at December 31, 2003, the Company's net worth exceeded such requirement by approximately $2 billion. In December 2002, the Company replenished the amount of debt and equity securities issuable under its unallocated shelf registration statement with the Securities and Exchange Commission pursuant to which the Company is able to issue up to a combined $2 billion of debt and equity securities. In addition, the Company increased its shelf registration related to common stock that can be issued in connection with acquisitions to 50 million shares. The Company had cash and cash investments of $795 million at December 31, 2003 as a result of strong cash flows from operations and the disposition of certain businesses in 2003. During 2003, the Company increased its quarterly common stock dividend 14 percent to $.16 per common share. This marks the 45th 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 decreased to 43 percent at December 31, 2003 from 47 percent at December 31, 2002. The Company's working capital ratio was 1.8 to 1 and 2.0 to 1 at December 31, 2003 and 2002, respectively. The Company has limited involvement with derivative financial instruments and does not use derivatives for trading purposes. The derivatives used by the Company for the year ended December 31, 2003 consist of interest rate swaps entered into late in 2003, for the purpose of effectively converting a portion of fixed-rate debt to floating-rate debt which is expected to reduce interest expense, given current interest rates. Certain of the Company's European operations also entered into foreign exchange forward contracts for the purpose of managing exposure to currency fluctuations related to the United States dollar and the Great Britain pound. Generally, under interest rate swaps, the Company agrees with a counterparty to exchange the difference between fixed-rate and floating-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 swaps are considered 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 or income over the term of the agreement. For fair-value hedge transactions, changes in the fair value of the derivative and changes in the fair value of the item hedged are recorded in determining earnings. 15 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 is 2.25%. The interest rate swap agreements cover 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 hedge is 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 hedge was recognized in the Company's statement of income for the year ended December 31, 2003. The amount recognized as an adjustment (reduction) of interest expense was approximately $3 million for the year ended December 31, 2003. CASH FLOWS Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:
2003 2002 2001 ------ ------ ------ Net cash from operating activities......................... $1,421 $1,225 $ 967 (Decrease) increase in debt, net........................... (541) 634 202 Proceeds from disposition of: Businesses, net of cash disposed......................... 284 21 232 Equity investment........................................ 75 -- -- Issuance of Company common stock........................... 37 598 -- Acquisition of businesses, net of cash acquired............ (239) (736) (589) Capital expenditures....................................... (271) (285) (274) Cash dividends paid........................................ (286) (268) (244) Purchase of Company common stock for: Retirement............................................... (779) (166) (67) Long-term stock incentive award plan..................... (48) (31) (49) Proceeds (purchases) of marketable equity securities, bond funds and other investments, net......................... 55 (327) (33) Decrease (increase) in long-term notes receivable, net..... 19 (22) 8 Effect of exchange rates................................... 52 59 1 Other, net................................................. (51) 53 (11) ------ ------ ------ Cash (decrease) increase......................... $ (272) $ 755 $ 143 ====== ====== ======
The Company's cash and cash investments decreased $272 million to $795 million at December 31, 2003, from $1,067 million at December 31, 2002. Net cash provided by operations in 2003 of $1.4 billion consisted primarily of net income adjusted for non-cash items, including depreciation and amortization of $244 million, income of $72 million related to the litigation settlement, a $142 million charge (including $5 million recorded in the third quarter of 2003) related to goodwill impairment, a $19 million charge for the impairment of certain investments and other non-cash items. Excluding working capital of acquired companies at the time of acquisition, net working capital decreased by approximately $36 million. The Company expects cash flows from operations to continue to increase due to improvements in inventory and working capital management as well as continuing strong business trends. Days sales in accounts receivable at December 31, 2003 were comparable to 2002 levels, days sales in inventory decreased to 47 days at December 31, 2003 from 56 days at December 31, 2002, and accounts payable days increased to 36 days at December 31, 2003 compared with 33 days at December 31, 2002, primarily due to the Company's working capital improvement initiatives. 16 Cash used for financing activities in 2003 was $1.6 billion, and included cash outflows of $286 million for cash dividends paid, $452 million for the retirement of notes (including interest expense and loss on early retirement), $779 million for the acquisition and retirement of Company common stock in open-market transactions, $48 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan, $89 million principally for the net payment of other debt and $37 million from the issuance of Company common stock for the exercise of stock options. At December 31, 2003, the Company had remaining Board of Directors' authorization to repurchase up to an additional 48 million shares of its common stock in open-market transactions or otherwise. In January 2004, the Company repurchased an additional five million shares of Company common stock. Cash used for investing activities was $128 million in 2003 and included $271 million for capital expenditures, $239 million for acquisitions and additional acquisition-related consideration relating to previously acquired companies and $32 million for other net cash outflows. Cash provided by investing activities in 2003 included $284 million of proceeds from the disposition of businesses, $55 million from the net sales of marketable equity securities, bond funds and other investments and $75 million from the sale of the equity investment in Emco. The Company continues to invest in automating its manufacturing operations and increasing its productivity, in order to be a more efficient producer and to improve customer service. Capital expenditures for 2003 were $271 million, compared with $285 million for 2002 and $274 million for 2001; for 2004, capital expenditures, excluding those of any potential 2004 acquisitions or divestitures, are expected to approximate $350 million. Depreciation and amortization expense for 2003 totaled $244 million, compared with $220 million for 2002 and $269 million for 2001; for 2004, depreciation and amortization expense, excluding any potential 2004 acquisitions or divestitures, is expected to approximate $270 million. Amortization expense totaled $32 million, $39 million and $106 million in 2003, 2002 and 2001, respectively, including goodwill amortization of $93 million in 2001. 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. 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 financial 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 2003 were $10.9 billion, representing an increase of 20 percent over 2002. Excluding results from acquisitions and divestitures, net sales increased nine percent (including a two percent increase relating to the effect of currency translation) compared with 2002. 17 The increase in net sales in 2003 is principally due to higher unit sales volume of certain products, particularly assembled cabinets, architectural coatings, installation services, vinyl windows and faucets. The following table reconciles reported net sales to net sales excluding acquisitions and divestitures, in millions:
TWELVE MONTHS ENDED DECEMBER 31 ------------------ 2003 2002 ------- ------- Net sales, as reported...................................... $10,936 $ 9,149 -- Acquisitions........................................... (1,334) (320) -- Divestitures (A)....................................... -- (13) ------- ------- Net sales, excluding acquisitions and divestitures.......... 9,602 8,816 -- Currency translation................................... (228) -- ------- ------- Net sales, excluding acquisitions, divestitures and the effect of currency........................................ $ 9,374 $ 8,816 ======= =======
(A) Refers to divestitures completed prior to January 1, 2003. Divestitures completed subsequent to January 1, 2003 are considered discontinued operations in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Sales related to discontinued operations are not included in the Company's net sales, as reported, for any period presented. The Company's gross profit margins were 30.6 percent, 31.6 percent and 30.3 percent for the years ended December 31, 2003, 2002 and 2001, respectively. The decline in the 2003 gross profit margins reflects increased sales in segments with somewhat lower margins, relatively higher International sales (which have lower gross profit margins), new product launch costs as well as increased energy costs which impacted material, freight and other operating costs. Selling, general and administrative expenses excluding general corporate expense as a percent of sales were 15.9 percent in 2003 compared with 14.9 percent in both 2002 and 2001, with the 2003 increase reflecting increased advertising and promotion costs as well as increased insurance and pension costs. Operating profit margins, as reported, were 13.0 percent, 14.2 percent and 13.0 percent in 2003, 2002 and 2001, respectively. Operating profit margins excluding general corporate expense, the income/charge for litigation settlement (2003 and 2002), the goodwill impairment charge (2003), income related to the planned disposition of businesses (2002) and goodwill amortization expense (2001) were 14.7 percent, 16.7 percent and 15.4 percent in 2003, 2002 and 2001, respectively. The overall decline in the 2003 operating profit margins is primarily due to increased energy, insurance, pension, advertising and promotion costs as well as adjustments as discussed in the Business Segment Results related to certain United Kingdom business units. OTHER INCOME (EXPENSE), NET In 2003 and 2002, the Company recorded $19 million and $24 million, respectively, of pre-tax, non-cash charges for the write-down of certain private equity funds and other financial investments. Other, net in 2003 include $23 million of realized gains, net from the sale of marketable equity securities, dividend income of $25 million and $17 million of income, net regarding private equity funds. Other, net in 2003 also include 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, realized foreign currency exchange losses of $5 million and other miscellaneous expenses. Other, net in 2002 include $39 million of realized losses, net from the sale of marketable equity securities and dividend income of $17 million. In addition, the Company incurred $14 million of losses related to interest ratelock transactions entered into in anticipation of the 18 Company issuing fixed-rate debt in 2002. Other items, net in 2002 include realized foreign currency exchange losses of $4 million and other miscellaneous expenses. In 2001, the Company recorded an aggregate $530 million pre-tax, non-cash charge for the write-down of certain investments, including $460 million for the securities of Furnishings International Inc. ("FII") held by the Company and $70 million for an other-than-temporary decline in the fair value of principally technology-related marketable equity securities investments. Other interest income for 2001 includes $29 million from the 12% pay-in-kind junior debt securities of FII. Other, net in 2001 include $13 million of realized gains, net from the sale of marketable equity securities, dividend income of $8 million and $4 million of income, net regarding private equity funds. Other items, net in 2001 also include realized foreign currency exchange losses of $7 million and other miscellaneous expenses. Interest expense was $262 million, $237 million and $239 million in 2003, 2002 and 2001, respectively. The increase in interest expense in 2003 is primarily due to increased fixed-rate borrowings in the last half of 2002. INCOME AND EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS Income from continuing operations and diluted earnings per common share for 2003 were $740 million and $1.51 per common share. Income from continuing operations for 2003 includes a pre-tax, non-cash goodwill impairment charge of $142 million ($118 million or $.24 per common share, after-tax). Income from continuing operations and diluted earnings per common share for 2002 were $664 million and $1.29 per common share. Income from continuing operations in 2002 was negatively affected by a $147 million pre-tax charge for a litigation settlement ($92 million or $.18 per common share, after-tax). Income from continuing operations and diluted earnings per common share for 2001 were $203 million and $.43 per common share. Income from continuing operations for 2001 included a $530 million pre-tax ($344 million or $.72 per common share, after-tax), non-cash charge for the write-down of certain investments. The Company's effective tax rate for income from continuing operations was 38 percent in 2003 compared with 34 percent in 2002 and 33 percent in 2001. The increase in 2003 was due principally to a lower tax benefit related to the goodwill impairment charge as well as an increase in domestic earnings (relative to total earnings), which are taxed at a higher rate than earnings from the Company's foreign operations. The Company estimates that its effective tax rate should approximate 36 percent for 2004. OUTLOOK FOR THE COMPANY Favorable sales performance has continued in early 2004 and, based on current business trends, the Company believes that it will achieve record sales and earnings for the full year 2004 from continuing operations, excluding any disposition charge. The Company expects certain operating expenses will continue to increase in 2004, including such items as energy, insurance and certain material and freight costs. The Company has embarked on a plan of disposition for several of its European businesses which are not core to the Company's long-term growth strategy. The dispositions are expected to be completed within the next twelve months and the Company expects to recognize a modest net loss upon the disposition of all of these businesses. 19 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 ------------------ 2003 2002 VS. VS. 2003 2002 2001 2002 2001 ------- ------- ------ ------- ------- NET SALES: Cabinets and Related Products......................... $ 3,058 $2,798 $2,567 9% 9% Plumbing Products..................................... 2,645 2,031 1,742 30% 17% Installation and Other Services....................... 2,411 1,845 1,692 31% 9% Decorative Architectural Products..................... 1,522 1,358 1,229 12% 10% Other Specialty Products.............................. 1,300 1,117 785 16% 42% ------- ------ ------ TOTAL............................................. $10,936 $9,149 $8,015 20% 14% ======= ====== ====== North America......................................... $ 8,763 $7,686 $6,745 14% 14% International, principally Europe..................... 2,173 1,463 1,270 49% 15% ------- ------ ------ TOTAL............................................. $10,936 $9,149 $8,015 20% 14% ======= ====== ======
2003 2003(B) 2002 2001(C) 2001(D) ------ ------- ------ ------- ------- OPERATING PROFIT: (A) Cabinets and Related Products........................... $ 396 $ 447 $ 379 $ 270 $ 255 Plumbing Products....................................... 317 353 334 248 241 Installation and Other Services......................... 368 368 304 287 243 Decorative Architectural Products....................... 195 219 311 274 261 Other Specialty Products................................ 204 235 218 152 138 ------ ------ ------ ------ ------ TOTAL............................................... $1,480 $1,622 $1,546 $1,231 $1,138 General corporate expense, net.......................... (112) (112) (98) (96) (96) Income (charge) for litigation settlement, net.......... 72 72 (147) -- -- Expense related to accelerated benefits................. (16) (16) -- -- -- ------ ------ ------ ------ ------ TOTAL, AS REPORTED.................................. $1,424 $1,566 $1,301 $1,135 $1,042 ====== ====== ====== ====== ====== North America........................................... $1,433 $1,433 $1,347 $1,080 $1,011 International, principally Europe....................... 47 189 199 151 127 ------ ------ ------ ------ ------ TOTAL............................................... $1,480 $1,622 $1,546 $1,231 $1,138 General corporate expense, net.......................... (112) (112) (98) (96) (96) Income (charge) for litigation settlement, net.......... 72 72 (147) -- -- Expense related to accelerated benefits................. (16) (16) -- -- -- ------ ------ ------ ------ ------ TOTAL, AS REPORTED.................................. $1,424 $1,566 $1,301 $1,135 $1,042 ====== ====== ====== ====== ======
2003 2003(B) 2002 2001(C) 2001(D) ------ ------- ------ ------- ------- OPERATING PROFIT MARGIN: (A) Cabinets and Related Products........................... 12.9% 14.6% 13.5% 10.5% 9.9% Plumbing Products....................................... 12.0% 13.3% 16.4% 14.2% 13.8% Installation and Other Services......................... 15.3% 15.3% 16.5% 17.0% 14.4% Decorative Architectural Products....................... 12.8% 14.4% 22.9% 22.3% 21.2% Other Specialty Products................................ 15.7% 18.1% 19.5% 19.4% 17.6% North America........................................... 16.4% 16.4% 17.5% 16.0% 15.0% International, principally Europe....................... 2.2% 8.7% 13.6% 11.9% 10.0% TOTAL............................................... 13.5% 14.8% 16.9% 15.4% 14.2% TOTAL OPERATING PROFIT MARGIN, AS REPORTED.............. 13.0% N/A 14.2% N/A 13.0%
(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 (charge) regarding the Behr litigation settlement (related to the Decorative Architectural Products segment) in 2003 and 2002. (B) Excluding goodwill impairment charge. The 2003 goodwill impairment charge was as follows: Cabinets and Related Products -- $51 million; Plumbing Products -- $36 million; Decorative Architectural Products -- $24 million and Other Specialty Products -- $31 million. (C) Excluding goodwill amortization. (D) Including goodwill amortization. 20 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/charge for the litigation settlement, net, the goodwill impairment charge in 2003 and goodwill amortization expense in 2001. CABINETS AND RELATED PRODUCTS Net sales of Cabinets and Related Products increased 9 percent in 2003 compared with 2002 due primarily 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. Net sales of Cabinets and Related Products increased 9 percent in 2002 compared with 2001 due to increased sales volume of cabinets largely through expansion of North American retail distribution channels at major home centers as well as new product introductions. This segment was favorably influenced by a weaker U.S. dollar in 2003 and 2002, which affected the translation of local currencies of European operations included in this segment. Operating profit margins were 14.6 percent, 13.5 percent and 10.5 percent for the years ended December 31, 2003, 2002 and 2001, respectively. Operating profit margins in 2003 reflect the positive effect of higher sales volume as well as lower fixed costs resulting from the rationalization of existing manufacturing capacity. Operating profit margins in 2002 were positively influenced by increased unit sales volume, profit improvement initiatives and the reduction of both plant shutdown costs and other asset write-downs, offset in part by costs related to a discontinued product line. Operating profit margins in 2001 were negatively influenced by plant shutdown costs, the under-absorption of fixed costs, higher energy costs, increased bad debt expense and the lower results of European operations. PLUMBING PRODUCTS Net sales of Plumbing Products increased 30 percent in 2003 compared with 2002 primarily due to acquisitions (principally the acquisition of the majority interest in Hansgrohe in December 2002) as well as the effect of a weaker U.S. dollar which had a favorable impact on the translation of local currencies of European operations included in this segment. Net sales of Plumbing Products increased 17 percent in 2002 compared with 2001 due to the favorable influence of new product introductions, which contributed to higher unit sales volume of faucets to retailers in 2002 as well as increased growth in the wholesale distribution channels. The increase in sales of Plumbing Products in 2002 also includes the influence of inventory reduction programs of certain key customers in the first six months of 2001, which reduced sales in 2001 and favorably influenced the 2002 versus 2001 comparisons. Operating profit margins were 13.3 percent, 16.4 percent and 14.2 percent for the years ended December 31, 2003, 2002 and 2001, respectively. Operating profit margins in 2003 include the effect of a recently acquired company that has lower margins than the segment average as well as inventory adjustments and a decline in operating margins of certain European operations, including a non-cash, pre-tax charge of approximately $4 million relating to a United Kingdom business unit as discussed below. Operating profit margins in 2002 include the favorable effect of a $16 million pre-tax gain relating to the reclassification of certain assets to held and used in accordance with SFAS No. 144. Operating profit margins in 2002 were favorably affected by the leveraging of fixed costs over increased unit sales volume as well as the Company's profit improvement initiatives. Operating profit margins in 2001 were negatively affected by competitive pricing pressures and the lower results of European companies. During 2003, the Company detected that an employee at a United Kingdom business unit in the Plumbing Products segment had circumvented internal controls and overstated operating 21 results by approximately $4 million in 2002. This overstatement was corrected in the third quarter of 2003. The Company made the appropriate personnel changes and completed its review of the business unit in the fourth quarter of 2003 and determined that no further adjustment was necessary. INSTALLATION AND OTHER SERVICES Net sales of Installation and Other Services increased 31 percent in 2003 compared with 2002 and 9 percent in 2002 compared with 2001. The increase in net sales for this segment in 2003 and 2002 was principally attributable to acquisitions (principally the acquisition of Service Partners in September 2002) and a stronger new-housing market as well as increased sales of non-insulation products. Operating profit margins were 15.3 percent, 16.5 percent and 17.0 percent for the years ended December 31, 2003, 2002 and 2001, respectively. The decline in operating profit margins in 2003 is primarily attributable to adverse weather conditions (which reduced sales) experienced in the first half of 2003 as well as increased sales of generally lower-margin non-insulation products. DECORATIVE ARCHITECTURAL PRODUCTS Net sales of Decorative Architectural Products increased 12 percent in 2003 compared with 2002. Net sales of Decorative Architectural Products increased 10 percent in 2002 compared with 2001. The increases in net sales in 2003 and 2002 are primarily due to higher unit sales volume of paints, stains and decorative hardware through North American retail distribution channels. Operating profit margins were 14.4 percent, 22.9 percent and 22.3 percent for the years ended December 31, 2003, 2002 and 2001, respectively. Operating profit margins for this segment in 2003 were impacted by increased advertising 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 2003 also include the effect of a non-cash, pre-tax charge of approximately $55 million related to a United Kingdom business unit discussed below. 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 to circumvent internal controls and artificially inflate the unit's operating profit in years prior to 2003. The Company also determined that goodwill was impaired and recorded a $5 million charge in the third quarter of 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 charges aggregating approximately $15 million principally related to inventories and receivables. The Company is implementing changes to its operational and financial structure in Europe which include: 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 both external and internal audit involvement. OTHER SPECIALTY PRODUCTS Net sales of Other Specialty Products increased 16 percent in 2003 compared with 2002, principally due to acquisitions as well as increased sales of vinyl windows. Net sales of Other Specialty Products increased 42 percent in 2002 compared with 2001, principally due to acquisitions as well as increased sales of vinyl windows. A weaker U.S. dollar in 2003 also had a 22 favorable effect on the translation of local currencies of European operations included in this segment. Operating profit margins were 18.1 percent, 19.5 percent and 19.4 percent for the years ended December 31, 2003, 2002 and 2001, respectively. The operating margin decline in this segment is primarily due to increased material and insurance costs as well as lower results of European operations. The improvement in operating profit margins in 2002 was primarily due to lower levels of bad debt expense and asset write-downs in 2002 compared with 2001. The operating profit margins in 2001 were also negatively affected by the lower results of European operations. GEOGRAPHIC AREA RESULTS DISCUSSION NORTH AMERICA Net sales from North American operations increased 14 percent in 2003 over 2002, primarily due to acquisitions as well as increased unit sales volume of assembled cabinets, installed sales of non-insulation products, paints and stains, and vinyl windows. Net sales from North American operations increased 14 percent in 2002 over 2001, primarily due to acquisitions as well as increased sales of certain products, including cabinets, paints and stains, vinyl windows and faucets. Operating profit margins were 16.4 percent, 17.5 percent and 16.0 percent for the years ended December 31, 2003, 2002 and 2001, respectively. The decline in operating profit margins for 2003 principally reflects increased sales in segments that have somewhat lower operating profit margins, increased energy costs as well as increased advertising and promotion costs. The improvement in operating profit margins for 2002 principally reflects the leveraging of fixed costs over increased sales volume, product mix and the influence of the Company's profit improvement initiatives. INTERNATIONAL, PRINCIPALLY EUROPE Net sales of the Company's International operations increased 49 percent in 2003 compared with 2002, primarily due to acquisitions as well as a weaker U.S. dollar which had a favorable influence on the translation of International sales in 2003. A weaker U.S. dollar had a positive effect on the translation of European results in 2003 compared with 2002, increasing European net sales in 2003 by approximately 17 percent. Net sales of the Company's International operations increased 15 percent in 2002 compared with 2001 primarily due to acquisitions as well as the favorable impact of foreign exchange rates. Operating profit margins were 8.7 percent, 13.6 percent and 11.9 percent for the years ended December 31, 2003, 2002 and 2001, respectively. Operating profit margins for International operations for 2003 were adversely affected by the non-cash, pre-tax charges relating to accounting irregularities discussed previously, as well as lower margins of recently acquired companies. Operating profit margins for International operations for 2002 benefited from profit improvement initiatives. Operating profit margins for 2001 include the effect of plant start-up and system implementation costs. 23 OTHER MATTERS 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. Note T to the consolidated financial statements discusses the settlements in 2002 of claims pending in the United States against the Company and its subsidiary, Behr Process Corporation, with respect to several exterior wood coating products previously manufactured by Behr. Other Commitments With respect to the Company's investments in private equity funds, the Company, at December 31, 2003, has, under certain circumstances, commitments to contribute additional capital to such funds of up to $88 million. 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. Participants in the Program financed their purchases with five-year full recourse personal loans, at a market interest rate, from a bank syndicate. Each participant is fully responsible at all times for repaying their bank loans when they become due and is personally responsible for 100 percent of any loss in the market value of the purchased stock. The Company has guaranteed repayment of the loans, for which the aggregate amount outstanding was approximately $160 million at December 31, 2003, in the event of a default by a participant. The Company believes that the likelihood of any significant defaults by participants on payment of these loans is remote. 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 against builders 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 generally covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to the lifetime, under certain circumstances, of the original purchaser. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or service 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 T to the consolidated financial statements for the tabular disclosure. 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 24 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 income, and deductions are recorded at the time of sale. Acquisition-Related Commitments The Company, as part of recent purchase agreements for certain companies acquired, provides for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions are met, including the operating performance of the acquired business and the price of the Company's common stock. Shares that are contingently issuable under these guarantees are included in the calculation of diluted earnings per common share. See Note T to the consolidated financial statements for additional information. As part of other recent acquisition agreements, the Company has additional consideration payable in cash of approximately $40 million contingent on the operating performance of the acquired businesses. CONTRACTUAL OBLIGATIONS The following table provides payment obligations related to current contracts for the year ended December 31, 2003, in millions:
PAYMENTS DUE BY PERIOD ----------------------------------------------- LESS THAN 2-3 4-5 MORE THAN 1 YEAR YEARS YEARS 5 YEARS TOTAL --------- ------ ----- --------- ------ Long-term debt....................... $334 $1,655 $412 $1,781 $4,182 Operating leases..................... 95 124 38 115 372 Private equity funds................. 30 30 28 -- 88 Acquisition-related commitments...... 27 13 -- -- 40 Defined-benefit plans................ 57 -- -- -- 57 Purchase commitments (A)............. 28 7 -- -- 35 ---- ------ ---- ------ ------ Total...................... $571 $1,829 $478 $1,896 $4,774 ==== ====== ==== ====== ======
(A) Does not include contracts that do not require volume commitments or open or pending purchase orders. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 requires that a company that has a controlling financial interest in a variable interest entity consolidate the assets, liabilities and results of operations of the variable interest entity in the company's consolidated financial statements. The adoption of certain provisions of FIN 46, relating to variable interest entities formed prior to February 2003, has been extended to 2004. The Company believes that FIN 46 will not have a material impact on the Company's consolidated financial statements. In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revisions to SFAS No. 132 require enhanced disclosures regarding pensions and other postretirement benefits. Most of the enhanced disclosure requirements were effective for the year ended December 31, 2003; certain disclosure provisions are effective beginning in 2004. 25 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 equity securities, bond funds and other investments. The Company has limited involvement with derivative financial instruments and uses such instruments only to the extent necessary to manage exposure to fluctuations in interest rates and foreign currency fluctuations. The Company does not use derivatives for trading purposes. See Note G 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, 2003 consist of interest rate swaps entered into late in 2003, for the purpose of effectively converting a portion of fixed-rate debt to floating-rate debt which is expected to reduce interest expense, given current interest rates. Certain of the Company's European operations also entered into foreign exchange forward contracts for the purpose of managing exposure to currency fluctuations related to the United States dollar and the Great Britain pound. At December 31, 2003, 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 financial position, results of operations or cash flows. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Masco Corporation: 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 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 auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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. As discussed in Note A of the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets. PRICEWATERHOUSECOOPERS LLP Detroit, Michigan February 18, 2004 27 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2003 AND 2002
(IN MILLIONS, EXCEPT SHARE DATA) ASSETS 2003 2002 ------- ------- Current Assets: Cash and cash investments................................. $ 795 $ 1,067 Receivables............................................... 1,674 1,546 Inventories............................................... 1,019 1,056 Prepaid expenses and other................................ 316 281 ------- ------- Total current assets.............................. 3,804 3,950 Property and equipment, net................................. 2,339 2,315 Goodwill.................................................... 4,491 4,297 Other intangible assets, net................................ 344 354 Other assets................................................ 1,171 1,134 ------- ------- Total Assets...................................... $12,149 $12,050 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ 334 $ 321 Accounts payable.......................................... 715 541 Accrued liabilities....................................... 1,050 1,070 ------- ------- Total current liabilities......................... 2,099 1,932 Long-term debt.............................................. 3,848 4,316 Deferred income taxes and other............................. 746 508 ------- ------- Total Liabilities................................. 6,693 6,756 ------- ------- Commitments and contingencies Shareholders' Equity: Preferred shares authorized: 1,000,000; issued: 20,000.... -- -- Common shares authorized: 1,400,000,000; issued: 2003 -- 458,380,000; 2002 -- 488,890,000............... 458 489 Paid-in capital........................................... 1,443 2,207 Retained earnings......................................... 3,299 2,784 Accumulated other comprehensive income (loss)............. 421 (22) Less: Restricted stock awards............................. (165) (164) ------- ------- Total Shareholders' Equity........................ 5,456 5,294 ------- ------- Total Liabilities and Shareholders' Equity........ $12,149 $12,050 ======= =======
See notes to consolidated financial statements. 28 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN MILLIONS, EXCEPT PER SHARE DATA) 2003 2002 2001 ------- ------ ------ Net sales................................................... $10,936 $9,149 $8,015 Cost of sales............................................... 7,586 6,258 5,586 ------- ------ ------ Gross profit......................................... 3,350 2,891 2,429 Selling, general and administrative expenses................ 1,856 1,459 1,294 (Income) from planned disposition of a business............. -- (16) -- (Income) charge for litigation settlement, net.............. (72) 147 -- Goodwill impairment charge.................................. 142 -- -- Amortization of goodwill.................................... -- -- 93 ------- ------ ------ Operating profit..................................... 1,424 1,301 1,042 ------- ------ ------ Other income (expense), net: Impairment charge for: Securities of Furnishings International Inc............ -- -- (460) Investments............................................ (19) (24) (70) Other, net................................................ 73 (39) 32 Interest expense.......................................... (262) (237) (239) ------- ------ ------ (208) (300) (737) ------- ------ ------ Income from continuing operations before income taxes and minority interest............................. 1,216 1,001 305 Income taxes................................................ 463 337 102 ------- ------ ------ Income from continuing operations before minority interest.......................................... 753 664 203 Minority interest........................................... 13 -- -- ------- ------ ------ Income from continuing operations.................... 740 664 203 Income (loss) from discontinued operations and gain, net of income taxes.............................................. 66 18 (4) Cumulative effect of accounting change, net................. -- (92) -- ------- ------ ------ Net income........................................... $ 806 $ 590 $ 199 ======= ====== ====== Earnings per common share: Basic: Income from continuing operations...................... $1.54 $1.37 $ .44 Income (loss) from discontinued operations and gain, net of income taxes.................................. .14 .04 (.01) Cumulative effect of accounting change, net............ -- (.19) -- ------- ------ ------ Net income............................................. $1.68 $1.22 $ .43 ======= ====== ====== Diluted: Income from continuing operations...................... $1.51 $1.29 $ .43 Income (loss) from discontinued operations and gain, net of income taxes.................................. .13 .04 (.01) Cumulative effect of accounting change, net............ -- (.18) -- ------- ------ ------ Net income............................................. $1.64 $1.15 $ .42 ======= ====== ======
See notes to consolidated financial statements. 29 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN MILLIONS) 2003 2002 2001 ------- ------- ------- Cash Flows From (For): Operating Activities: Net income............................................. $ 806 $ 590 $ 199 Depreciation and amortization.......................... 244 220 269 Interest on pay-in-kind notes receivable............... -- -- (29) Deferred income taxes.................................. 179 64 (95) Gain on disposition of businesses, net................. (89) -- -- Loss on early retirement of debt....................... 7 -- -- (Gain) loss on disposition of investments, net......... (40) 53 (17) European charges....................................... 54 -- -- Cumulative effect of accounting change, net............ -- 92 -- Litigation settlement, net............................. (72) 147 -- Impairment charges: Securities of Furnishings International Inc. ........ -- -- 460 Investments.......................................... 19 24 70 Goodwill............................................. 142 -- -- Other non-cash items, net.............................. 135 47 72 Increase in receivables................................ (126) (99) (87) Decrease in inventories................................ 39 11 48 Increase in accounts payable and accrued liabilities, net.................................................. 123 76 77 ------- ------- ------- Net cash from operating activities................ 1,421 1,225 967 ------- ------- ------- Financing Activities: Increase in principally bank debt...................... 46 375 474 Payment of principally bank debt....................... (135) (1,179) (2,235) Retirement of notes.................................... (452) -- (87) Purchase of Company common stock for: Retirement........................................... (779) (166) (67) Long-term stock incentive award plan................. (48) (31) (49) Issuance of Company common stock....................... 37 598 -- Issuance of notes, net................................. -- 1,438 2,050 Cash dividends paid.................................... (286) (268) (244) ------- ------- ------- Net cash (for) from financing activities.......... (1,617) 767 (158) ------- ------- ------- Investing Activities: Acquisition of businesses, net of cash acquired........ (239) (736) (589) Capital expenditures................................... (271) (285) (274) Purchases of marketable securities..................... (377) (582) (425) Proceeds from disposition of: Marketable securities................................ 421 306 422 Businesses, net of cash disposed..................... 284 21 232 Equity investment.................................... 75 -- -- Proceeds (purchases) of other investments, net......... 11 (51) (30) Decrease (increase) in long-term notes receivable, net.................................................. 19 (22) 8 Other, net............................................. (51) 53 (11) ------- ------- ------- Net cash (for) investing activities............... (128) (1,296) (667) ------- ------- ------- Effect of exchange rates on cash and cash investments..... 52 59 1 ------- ------- ------- (Decrease) increase for the year.......................... (272) 755 143 Balance at January 1...................................... 1,067 312 169 ------- ------- ------- Balance at December 31.................................... $ 795 $ 1,067 $ 312 ======= ======= =======
See notes to consolidated financial statements. 30 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(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 (LOSS) AWARDS ------ -------------- -------------- ------- -------- ------------- ---------- Balance, January 1, 2001......... $3,286 $ -- $445 $ 631 $2,520 $(170) $(140) Net income....................... 199 199 Cumulative translation adjustments.................... (46) (46) Unrealized gain on marketable securities, net of income tax of $16......................... 27 27 ------ Total comprehensive income..... 180 Shares issued.................... 816 17 799 Shares repurchased............... (67) (3) (64) Cash dividends declared.......... (250) (250) Stock-based compensation......... (7) 15 (22) ------ ------ ---- ------ ------ ----- ----- Balance, December 31, 2001....... 3,958 -- 459 1,381 2,469 (189) (162) Net income....................... 590 590 Cumulative translation adjustments.................... 239 239 Unrealized loss on marketable securities, net of income tax credit of $9................... (14) (14) Minimum pension liability, net of income tax credit of $34....... (58) (58) ------ Total comprehensive income..... 757 Shares issued.................... 1,016 38 978 Shares repurchased............... (166) (8) (158) Cash dividends declared.......... (275) (275) Stock-based compensation......... 4 6 (2) ------ ------ ---- ------ ------ ----- ----- Balance, December 31, 2002....... 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) ====== ====== ==== ====== ====== ===== =====
See notes to consolidated financial statements. 31 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. Corporations that are 20 to 50 percent owned are accounted for using the equity method of accounting. Corporations that are less than 20 percent owned are accounted for using the cost method of accounting unless the Company exercises significant influence over the investee. 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 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 cooperative 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 maintains 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 maintained 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 $84 million and $69 million at December 31, 2003 and 2002, 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 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 32 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A. ACCOUNTING POLICIES -- (CONTINUED) sheets and are amortized over the expected useful life of three years; related amortization expense is classified in selling expense in the consolidated statements of income. Depreciation. Depreciation 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 $206 million, $175 million and $155 million in 2003, 2002 and 2001, respectively. Goodwill and Other Intangible Assets. On January 1, 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," became effective. In accordance with SFAS No. 142, the Company is no longer recording amortization expense related to goodwill and other indefinite-lived intangible assets. The Company has provided a supplemental disclosure of adjusted net income and basic and diluted earnings per common share for the twelve months ended December 31, 2001 in Note I to the consolidated financial statements. The Company performs impairment testing of goodwill and other indefinite-lived 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 compares fair value of the reporting units to the carrying value of the reporting units. Fair value is determined using a discounted cash flow method. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. 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 (other than those accounted for using the equity method of accounting) 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, 2003 was approximately $956 million and $4,129 million, as compared with the aggregate carrying value of $980 million and $3,849 million, respectively, and at December 31, 2002 such aggregate market value was approximately $875 million and $4,572 million, as compared with the aggregate carrying value of $963 million and $4,316 million, respectively. The Company has limited involvement with derivative financial instruments and does not use derivatives for trading purposes. The Company may use derivative financial instruments to manage exposures 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 sheet 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. 33 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 2003, 5,121,800 option shares, including restoration option shares, net of cancellations, were awarded and the related expense of $3 million was included in the Company's consolidated statement of income for the year ended December 31, 2003. The following table illustrates the pro forma effect on net income and earnings per common share as if the fair value method were applied to all previously issued stock options, in millions, except per common share amounts:
2003 2002 2001 ----- ----- ---- Net income, as reported................................ $ 806 $ 590 $199 Add: Stock-based employee compensation expense included in reported net income, net of tax................... 41 21 20 Deduct: Stock-based employee compensation expense, net of tax............................................... (41) (21) (20) Stock-based employee compensation expense determined under the fair value based method for stock options granted prior to 2003, net of tax......... (12) (17) (18) ----- ----- ---- Pro forma net income................................... $ 794 $ 573 $181 ===== ===== ==== Earnings per common share: Basic as reported.................................... $1.68 $1.22 $.43 Basic pro forma...................................... $1.66 $1.18 $.39 Diluted as reported.................................. $1.64 $1.15 $.42 Diluted pro forma.................................... $1.62 $1.12 $.38
For SFAS No. 123 calculation purposes, the weighted average grant date fair values of option shares, including restoration options, granted in 2003, 2002 and 2001, were $8.89, $6.66 and $7.94, 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 2003, 2002 and 2001, respectively: risk-free interest rate -- 3.3%, 3.8% and 5.2%; dividend yield -- 2.3%, 2.7% and 2.1%; volatility factor -- 37%, 37% and 36%; and expected option life -- 7 years, 6 years and 6 years. Reclassifications. Certain prior-year amounts have been reclassified to conform to the 2003 presentation in the consolidated financial statements. The results of operations related to 2003 dispositions of businesses have been reclassified in the consolidated statements of income for 2003, 2002 and 2001. The assets and liabilities of these discontinued operations as of December 31, 2002 have not been reclassified in the accompanying consolidated balance sheet and related notes. In the Company's consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified. 34 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A. ACCOUNTING POLICIES -- (CONCLUDED) Recently Issued Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 requires that a company that has a controlling interest in a variable interest entity consolidate the assets, liabilities and results of operations of the variable interest entity in the company's consolidated financial statements. The adoption of certain provisions of FIN 46, relating to variable interest entities formed prior to February 2003, has been extended to 2004. The Company believes that FIN 46 will not have a material impact on the Company's consolidated financial statements. In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revisions to SFAS No. 132 require enhanced disclosures regarding pensions and other postretirement benefits. Most of the enhanced disclosure requirements were effective for the year ended December 31, 2003; certain disclosure provisions are effective beginning in 2004. B. DISCONTINUED OPERATIONS On September 30, 2003, the Company completed the sale of its Baldwin Hardware and Weiser Lock businesses. Baldwin and Weiser were included in the Decorative Architectural Products segment and manufacture a wide range of architectural and decorative products, including builders' hardware and locksets. In a separate transaction on September 30, 2003, the Company also completed the sale of the Marvel Group. Marvel manufactures office workstations and machine stands, and was included in the Other Specialty Products segment. The sale of these businesses reflects the Company's continuing commitment to deploy the Company's assets in businesses that support its operating strategies and provide the greatest opportunities to create value for the Company's shareholders. Total proceeds from the sale of these companies were $289 million, including cash of $286 million and notes receivable of $3 million. On January 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," became effective. This statement 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. Based on SFAS No. 144, the Company has accounted for the 2003 dispositions of businesses as discontinued operations. Selected financial information for these discontinued operations is as follows for the years ended December 31, 2003 (prior to disposition), 2002 and 2001, in millions:
2003 2002 2001 ---- ---- ---- Net sales................................................... $198 $271 $269 ---- ---- ---- Income (loss) before income taxes........................... $ 21 $ 29 $ (4) Gain on dispositions of businesses, net..................... 89 -- -- Income taxes................................................ (44) (11) -- ---- ---- ---- Income (loss) from discontinued operations and gain, net of income taxes........................................ $ 66 $ 18 $ (4) ==== ==== ====
35 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. DISCONTINUED OPERATIONS -- (CONCLUDED) Income taxes in the table above include income taxes on the gain on disposal of discontinued operations of $37 million in the year ended December 31, 2003. Total assets of discontinued operations sold in September 2003 consisted primarily of accounts receivable of $44 million, inventories of $41 million, property and equipment, net of $114 million and other assets of $18 million (including goodwill of $16 million). Total liabilities of discontinued operations consisted primarily of accounts payable of $12 million, accrued salaries, wages and related benefits of $5 million and other accrued expenses of $3 million. C. ACQUISITIONS During 2003, the Company acquired PowerShot Tool Company, Inc. (Other Specialty Products segment), and several relatively small installation service companies (Installation and Other Services segment). PowerShot Tool Company is a manufacturer of fastening products, including staple guns, glue guns, hammer tackers and riveting products, headquartered in New Jersey. The results of these acquisitions are included in the consolidated financial statements from the respective dates of acquisition. The aggregate net purchase price of these acquisitions was $63 million, and included cash of $57 million and debt of $6 million. Certain recent purchase agreements provide for the payment of additional consideration in either cash or common stock, contingent upon whether certain conditions are met, including the operating performance of the acquired business and the price of the Company's common stock. Common shares that are contingently issuable at December 31, 2003 have been included in the computation of diluted earnings per common share for 2003. The Company also paid an additional $182 million of acquisition-related consideration, including amounts to satisfy share price guarantees, contingent consideration and other purchase price adjustments, in 2003, relating to previously acquired companies. During 2002, the Company acquired several businesses. The aggregate net purchase price of these 2002 acquisitions was $1.2 billion, including cash of $699 million, assumed debt of $81 million and Company common stock valued at $399 million. The excess of the aggregate acquisition costs for these purchase acquisitions over the fair value of identifiable net assets acquired, totaling approximately $1 billion, represented acquired goodwill. The results of these 2002 acquisitions are included in the consolidated financial statements from the respective dates of acquisition. Had these companies been acquired effective January 1, 2001 and 2002, pro forma unaudited consolidated net sales, income before cumulative effect of accounting change, net income and diluted earnings per common share would have been as follows, in millions, except per common share amounts:
TWELVE MONTHS ENDED DECEMBER 31 ----------------- 2002 2001 ------- ------ Net sales.................................................. $10,259 $9,403 Income before cumulative effect of accounting change, net.. $ 728 $ 259 Net income................................................. $ 636 $ 259 Diluted earnings per common share.......................... $ 1.21 $ .53
36 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. ACQUISITIONS -- (CONCLUDED) During 2001, the Company acquired several businesses through purchase acquisitions. The aggregate net purchase price of these acquisitions was $1.7 billion, including cash of $560 million, assumed debt of $312 million and Company capital stock valued at $785 million. The excess of the aggregate costs for these acquisitions over the fair value of identifiable net assets acquired, totaling approximately $1.2 billion, represented acquired goodwill. As a result of recent acquisition agreements, the Company leases operating facilities from certain related parties, primarily former owners (and current General Managers) of companies acquired. D. 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 the third quarter of 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 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 is implementing changes to its operational and financial structure in Europe which include: 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 both external and internal audit involvement. E. INVENTORIES
(IN MILLIONS) AT DECEMBER 31 ---------------- 2003 2002 ------ ------ Finished goods.............................................. $ 472 $ 497 Raw material................................................ 405 410 Work in process............................................. 142 149 ------ ------ $1,019 $1,056 ====== ======
Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. Cost in inventory includes purchased parts, materials, direct labor and applied manufacturing overhead. 37 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) F. INVESTMENTS EQUITY INVESTMENTS In April 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. In December 2002, the Company acquired an additional 37 percent ownership of Hansgrohe AG, a German manufacturer of plumbing-related products, resulting in a majority ownership of approximately 64 percent. Accordingly, the assets and liabilities of Hansgrohe AG have been included in the Company's consolidated financial statements at December 31, 2003 and 2002. For the year ended December 31, 2002, the Company recorded equity earnings from Hansgrohe AG; the Company began consolidating the majority interest in the operating results of Hansgrohe AG in January 2003. FINANCIAL INVESTMENTS The Company maintains investments in marketable securities (including marketable equity securities and bond funds) and a number of private equity funds principally as part of its tax planning strategies, as any gains enhance the utilization of tax capital loss carryforwards. Included in other long-term assets are the following financial investments, in millions:
AT DECEMBER 31 --------------- 2003 2002 ---- ---- Marketable equity securities................................ $392 $216 Bond funds.................................................. 125 230 Private equity funds........................................ 332 346 Metaldyne Corporation....................................... 76 68 TriMas Corporation.......................................... 25 25 Equity investments.......................................... -- 68 Other investments........................................... 9 9 ---- ---- Total..................................................... $959 $962 ==== ====
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 Industrial Partners, L.P. The Company currently owns 6 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 6 percent of TriMas Corporation for $25 million. 38 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) F. INVESTMENTS -- (CONTINUED) The Company's investments in marketable equity securities and bond funds at December 31, 2003 and 2002 were as follows, in millions:
PRE-TAX ------------------------ UNREALIZED UNREALIZED RECORDED COST BASIS GAINS LOSSES BASIS ---------- ---------- ---------- -------- DECEMBER 31, 2003 Marketable equity securities...... $361 $35 $ (4) $392 Bond funds........................ $115 $10 $ -- $125 DECEMBER 31, 2002 Marketable equity securities...... $264 $ 2 $(50) $216 Bond funds........................ $225 $ 5 $ -- $230
The following table summarizes the gross unrealized losses and fair value of the Company's investments in marketable securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2003, in millions:
12 MONTHS OR MORE ------------------------ UNREALIZED FAIR VALUE LOSS ---------- ---------- Marketable equity securities........................... $117 $(4) ---- --- Total temporarily impaired securities.................. $117 $(4) ==== ===
Investments in marketable equity securities and bond funds 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 effects, through shareholders' equity, as a component of other comprehensive income (loss). 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 has investments in over 100 different equity securities and bond funds at December 31, 2003; the unrealized loss is primarily related to one marketable equity security, Furniture Brands International common stock, which was received in June 2002 from the Company's investment in Furnishings International Inc. debt. 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. The unrealized loss related to this security is three percent of the market value of this investment and one percent of the total market value of the Company's investments in marketable equity securities. Based on the Company's review, the Company considers the unrealized loss related to this investment to be temporary. The Company's investments in private equity funds and other investments are carried at cost and are evaluated for impairment at each reporting period or when circumstances, including the maturity of the fund, indicate an impairment may exist. At December 31, 2003, the 39 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) F. INVESTMENTS -- (CONCLUDED) carrying value of the Company's investments in private equity funds exceeded the estimated market value, as determined by the fund managers, by approximately $24 million. Income (loss) from financial investments is included in other, net within other income and (expense), net, and is summarized as follows, in millions:
2003 2002 2001 ---- ---- ---- Realized gains from marketable securities................. $ 38 $ 13 $ 45 Realized losses from marketable securities................ (15) (52) (32) Dividend income from marketable securities................ 16 9 3 Income (expense) from other investments, net.............. 17 -- 4 Dividend income from other investments.................... 9 8 5 Termination of interest ratelock.......................... -- (14) -- ---- ---- ---- Income (loss) from financial investments................ $ 65 $(36) $ 25 ==== ==== ==== Impairment charge: Marketable equity securities............................ $ (3) $ (6) $(70) Private equity funds.................................... (16) (18) -- ---- ---- ---- Total................................................ $(19) $(24) $(70) ==== ==== ====
During 2003, the Company recognized impairment charges aggregating $19 million related to investments in an equity security and private equity funds. In the fourth quarter of 2002, the Company recognized impairment charges of $24 million principally related to certain of its investments in private equity funds and other financial investments. During 2001, the Company recognized impairment charges of $70 million related to principally technology-related marketable equity securities. G. DERIVATIVES During 2003, the Company entered into interest rate swaps for the purpose of reducing interest expense related to certain fixed-rate debt. The derivative contracts are with two major creditworthy institutions, thereby minimizing the risk of credit loss. The interest rate swaps are designated 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 or income over the term of the agreement. The average variable rates are based on the London Interbank Offered Rate ("LIBOR") plus a fixed adjustment factor. The average effective rate on the interest rate swaps is 2.25%. At December 31, 2003, 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 amount recognized as a reduction of interest expense was approximately $3 million for the year ended December 31, 2003. The interest rate swaps are considered 100 percent effective; therefore, the favorable market valuation adjustment of $7 million is recorded in other assets with a corresponding increase in long-term debt in the Company's consolidated balance sheet at December 31, 2003. At December 31, 2003, certain of the Company's European operations had entered into foreign currency forward contracts with notional amounts of $10 million and $7 million to manage exposure to currency fluctuations in the United States dollar and Great Britain pound, respectively. Based on year-end market prices, no asset or liability was recorded, as the forward 40 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. DERIVATIVES -- (CONCLUDED) 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 contract, the Company's exposure is limited to the foreign currency rate differential. H. PROPERTY AND EQUIPMENT
(IN MILLIONS) AT DECEMBER 31 ---------------- 2003 2002 ------ ------ Land and improvements....................................... $ 197 $ 180 Buildings................................................... 979 930 Machinery and equipment..................................... 2,421 2,351 ------ ------ 3,597 3,461 Less: accumulated depreciation.............................. 1,258 1,146 ------ ------ $2,339 $2,315 ====== ======
The Company leases certain equipment and plant facilities under noncancellable operating leases. Rental expense, recorded in the consolidated statements of income, for the Company totaled approximately $129 million, $137 million and $122 million during 2003, 2002 and 2001, respectively. Future minimum lease payments at December 31, 2003 were approximately as follows: 2004 -- $95 million; 2005 -- $72 million; 2006 -- $52 million; 2007 -- $38 million; and 2008 and beyond -- $115 million. I. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002, by segment, are as follows, in millions:
BALANCE PRE-TAX BALANCE DEC. 31, IMPAIRMENT DEC. 31, 2001 ADDITIONS (A) CHARGE OTHER (B) 2002 -------- ------------- ---------- --------- -------- Cabinets and Related Products................... $ 521 $ 26 $ (19) $ 58 $ 586 Plumbing Products............................... 215 204 (8) 30 441 Installation and Other Services................. 958 746 -- (11) 1,693 Decorative Architectural Products............... 455 5 (31) -- 429 Other Specialty Products........................ 1,085 78 (59) 44 1,148 ------ ------ ----- ---- ------ Total......................................... $3,234 $1,059 $(117) $121 $4,297 ====== ====== ===== ==== ======
BALANCE PRE-TAX BALANCE DEC. 31, DISCONTINUED IMPAIRMENT DEC. 31, 2002 ADDITIONS (A) OPERATIONS CHARGE OTHER (B) 2003 -------- ------------- ------------ ---------- --------- -------- Cabinets and Related Products.......... $ 586 $ 99 $ -- $ (51) $ 74 $ 708 Plumbing Products...................... 441 17 -- (36) 57 479 Installation and Other Services........ 1,693 14 -- -- (6) 1,701 Decorative Architectural Products...... 429 -- (16) (24) 12 401 Other Specialty Products............... 1,148 38 -- (31) 47 1,202 ------ ---- ---- ----- ---- ------ Total................................. $4,297 $168 $(16) $(142) $184 $4,491 ====== ==== ==== ===== ==== ======
41 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. GOODWILL AND OTHER INTANGIBLE ASSETS -- (CONTINUED) (A) Additions principally include acquisitions and contingent consideration for prior acquisitions of $45 million and $123 million, respectively, for 2003 and $1,016 million and $43 million, respectively, for 2002. (B) Other principally includes foreign currency translation adjustments, reclassifications and other purchase price adjustments related to the finalization of certain purchase price allocations. The Company completed the annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarter of 2003. 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 a non-cash, pre-tax impairment charge of $137 million ($113 million after-tax). The Company also recorded a non-cash goodwill impairment charge of $5 million related to a European business, as discussed in Note D. The Company completed the transitional goodwill and other indefinite-lived intangible assets impairment testing in 2002. This evaluation indicated that other indefinite-lived intangible assets were not impaired; however, goodwill recorded for certain of the Company's businesses, principally in Europe, was impaired. Certain of the Company's European businesses had been affected by weak market and economic conditions. On adoption of SFAS No. 142, a non-cash, pre-tax impairment charge of $117 million ($92 million, net of income tax credit of $25 million), was recognized as a cumulative effect of change in accounting principle, effective January 1, 2002. The income tax credit for 2003 and 2002 was reduced due to a portion of the impaired goodwill being non-deductible for tax purposes. Other indefinite-lived intangible assets of $255 million at December 31, 2003 primarily include registered trademarks. The carrying value of the Company's definite-lived intangible assets is $89 million at December 31, 2003 (net of accumulated amortization of $53 million) and principally includes customer relationships and non-compete agreements, with a weighted average amortization period of nine years. Amortization expense related to the definite-lived intangible assets was $26 million in both 2003 and 2002. At December 31, 2003, amortization expense related to the definite-lived intangible assets during each of the next five years was approximately as follows: 2004 -- $20 million; 2005 -- $15 million; 2006 -- $11 million; 2007 -- $8 million; and 2008 -- $6 million. 42 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. GOODWILL AND OTHER INTANGIBLE ASSETS -- (CONCLUDED) The following table illustrates 2001 net income and earnings per common share assuming goodwill was not subject to amortization during 2001, in millions, except per share data: Net income as reported...................................... $199 Goodwill amortization, net of tax........................... 78 ---- Net income as adjusted...................................... $277 ==== Earnings per common share: Basic as reported......................................... $.43 Goodwill amortization, net of tax......................... .17 ---- Basic as adjusted......................................... $.60 ==== Diluted as reported....................................... $.42 Goodwill amortization, net of tax......................... .16 ---- Diluted as adjusted....................................... $.58 ====
J. OTHER ASSETS
(IN MILLIONS) AT DECEMBER 31 ---------------- 2003 2002 ------ ------ Financial investments (Note F).............................. $ 959 $ 962 In-store displays........................................... 99 53 Debenture expense........................................... 23 27 Notes receivable............................................ 13 32 Other, net.................................................. 77 60 ------ ------ Total..................................................... $1,171 $1,134 ====== ======
K. ACCRUED LIABILITIES The Company's accrued liabilities were comprised as follows, in millions:
AT DECEMBER 31 ---------------- 2003 2002 ------ ------ Salaries, wages and commissions............................. $ 191 $ 167 Insurance................................................... 157 128 Advertising and sales promotion............................. 128 133 Employee retirement plans................................... 89 93 Dividends payable........................................... 76 71 Interest.................................................... 75 83 Litigation.................................................. 69 146 Property, payroll and other taxes........................... 48 39 Contingent acquisition-related payments..................... 27 37 Income taxes................................................ 15 4 Other....................................................... 175 169 ------ ------ $1,050 $1,070 ====== ======
43 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) L. LONG-TERM DEBT
(IN MILLIONS) AT DECEMBER 31 ---------------- 2003 2002 ------ ------ Notes and debentures: 6.125%, due Sept. 15, 2003................................ $ -- $ 200 6 %, due May 3, 2004................................... 266 500 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 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............... 798 773 Notes payable to banks...................................... -- -- Other....................................................... 158 204 ------ ------ 4,182 4,637 Less: current portion....................................... 334 321 ------ ------ $3,848 $4,316 ====== ======
All of the notes and debentures above are senior indebtedness and, other than bank notes and Zero Coupon Convertible Senior Notes, are nonredeemable. In July 2001, the Company issued Zero Coupon Convertible Senior Notes due 2031 ("Notes"), resulting in gross proceeds of approximately $750 million. If the Notes were outstanding in July 2031, the accreted value would be $1.9 billion. The issue price per Note was $394.45 per $1,000 principal amount which represents a yield to maturity of 3 1/8% compounded semi-annually. The Company will not pay cash interest on the Notes prior to maturity except in certain circumstances, including possible contingent interest payments that are not expected to be material. Holders of the Notes in the aggregate can convert the Notes into approximately 24 million shares of Company common stock if the average price of Company common stock for a period of 20 trading days exceeds 119 1/3%, declining by 1/3% each year hereafter, of the accreted value of a Note ($426 per $1,000 principal amount at maturity as of December 31, 2003) divided by the conversion rate of 12.7243 shares for each $1,000 principal amount at maturity of the Note or $39.94 per common share at December 31, 2003. The 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. In 2002, the Company amended the terms of the Notes to permit an additional date, April 20, 2004, on which holders, at their option, can cause the Company to repurchase the Notes, at the then accreted value of $429.57 per Note, payable by the Company in cash on April 26, 2004. Under the original terms of the Notes, holders of $26.4 million of Notes required the Company to repurchase, for $10.7 million cash, the accreted value of such Notes in July 2002. In addition, holders of the Notes have the option to require that the Notes be repurchased by the Company on January 20, 2005 and 2007; July 20, 2011; and every five years thereafter. The Company at its option can satisfy any such repurchase with Company common stock or cash. If the Notes were to be put back to the Company, the Company expects to settle the Notes for cash, 44 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) L. LONG-TERM DEBT -- (CONCLUDED) and accordingly, the Notes are not included in the calculation of diluted earnings per common share. The Company currently has the ability to refinance any such repurchase with other long-term debt. Before July 20, 2002, the Company could not redeem the Notes. From July 20, 2002 to January 25, 2007, the Company may redeem all, but not part, of the Notes at their accreted value subject to the Company's stock price achieving the conversion price as noted above. The Company may, at any time on or after January 25, 2007, redeem all or part of the Notes at their accreted value. Debt issuance costs related to the Notes totaled $15 million and were amortized using the straight-line method through July 20, 2002. At December 31, 2003, debt agreements with banks syndicated in the United States relate to a $1.25 billion Amended and Restated 5-year Revolving Credit Agreement with a group of banks due and payable in November 2005 and a $750 million 364-day Revolving Credit Agreement that expires in November 2004. These agreements allow for borrowings denominated in U.S. dollars or European euros. There were no borrowings under either agreement during 2003. Interest is payable on borrowings under these agreements based on various floating rate options as selected by the Company (approximately 2.4 percent for the year ended December 31, 2002). Certain debt agreements contain limitations on additional borrowings; at December 31, 2003, the Company had additional borrowing capacity, subject to availability, of up to $2.5 billion. Certain debt agreements also contain a requirement for maintaining a certain level of net worth; at December 31, 2003, the Company's net worth exceeded such requirement by approximately $2 billion. At December 31, 2003, the maturities of long-term debt during each of the next five years (assuming the Company will finance the put option, if exercised, related to the Zero Coupon Notes with the 5-year Revolver) were approximately as follows: 2004 -- $334 million; 2005 -- $842 million; 2006 -- $813 million; 2007 -- $307 million; and 2008 -- $105 million. In December 2002, the Company replenished the amount of debt and equity securities issuable under its unallocated shelf registration statement with the Securities and Exchange Commission pursuant to which the Company is able to issue up to a combined $2 billion of debt and equity securities. In addition, the Company increased its shelf registration related to common stock that can be issued in connection with acquisitions to 50 million shares. Interest paid was approximately $282 million, $204 million and $246 million in 2003, 2002 and 2001, respectively. M. SHAREHOLDERS' EQUITY In December 2003, the Company's Board of Directors authorized the repurchase of up to 50 million shares of the Company's common stock in open-market transactions or otherwise, replacing a previous Board of Directors authorization established in 2002. At December 31, 2003, the Company had remaining authorization to repurchase up to 48 million shares of its common stock in open-market transactions or otherwise. Approximately 35 million, 8 million and 3 million common shares were repurchased and retired in 2003, 2002 and 2001, respectively, at a cost aggregating approximately $779 million, $166 million and $67 million in 2003, 2002 and 2001, respectively. 45 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. SHAREHOLDERS' EQUITY -- (CONTINUED) On the basis of amounts paid (declared), cash dividends per common share were $.58 ($.60) in 2003, $.54 1/2 ($.55) in 2002 and $.52 1/2 ($.53) in 2001, respectively. In 2003, the Company increased its quarterly cash dividend by 14 percent (a larger percentage than in recent years) to $.16 per common share from $.14 per common share. In May 2002, the Company sold 22 million shares of Company common stock in a public offering, resulting in proceeds to the Company of $598 million (net of issuance costs of $14 million). 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 will expire in December 2005. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The Company's total comprehensive income (loss) was as follows, in millions:
TWELVE MONTHS ENDED DECEMBER 31 -------------- 2003 2002 ------ ---- Net income.................................................. $ 806 $590 Other comprehensive income (loss): Cumulative translation adjustments........................ 393 239 Unrealized gain (loss) on marketable securities, net of income tax effect...................................... 53 (14) Minimum pension liability, net of income tax credit....... (3) (58) ------ ---- Total comprehensive income............................. $1,249 $757 ====== ====
The unrealized gain (loss) on marketable equity securities and bond funds is net of income tax (credit) of $31 million and $(9) million for the years ended December 31, 2003 and 2002, respectively. The minimum pension liability is net of income tax (credit) of $(1) million and $(34) million for the years ended December 31, 2003 and 2002, respectively. The components of accumulated other comprehensive income (loss) were as follows, in millions:
AT DECEMBER 31 ------------ 2003 2002 ---- ---- Unrealized gain (loss) on marketable securities............. $ 26 $(27) Minimum pension liability................................... (61) (58) Cumulative translation adjustments.......................... 456 63 ---- ---- Accumulated other comprehensive income (loss)............... $421 $(22) ==== ====
Unrealized loss on marketable equity securities and bond funds is reported net of income tax (credit) of $15 million and $(16) million at December 31, 2003 and 2002, respectively. 46 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. SHAREHOLDERS' EQUITY -- (CONCLUDED) The minimum pension liability is reported net of tax credit of $35 million and $34 million at December 31, 2003 and 2002, respectively. Realized gains (losses) on marketable securities of $13 million and $(30) million, net of tax effect, for 2003 and 2002, respectively, were included in determining net income and were reclassified from accumulated other comprehensive income. N. STOCK OPTIONS AND AWARDS The Company's 1991 Long Term Stock Incentive Plan (the "Plan") provides for the issuance of stock-based incentives in various forms. At December 31, 2003, outstanding stock-based incentives were primarily 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 compensation to non-employee Directors partially in Company common stock. RESTRICTED LONG-TERM STOCK AWARDS The Company granted long-term stock awards, net of cancellations, for 2,153,000 shares, 1,315,000 shares and 2,582,000 shares of Company common stock during 2003, 2002 and 2001, respectively, to key employees and non-employee Directors of the Company. These long-term stock awards do not cause net share dilution inasmuch as the Company reacquires an equal number of shares on the open market. The weighted average grant date fair value per share of long-term stock awards granted during 2003, 2002 and 2001 was $19, $23 and $23, respectively. Compensation expense for the annual vesting of long-term stock awards was $50 million (including $15 million of accelerated expense due to the unexpected passing of the Company's President and Chief Operating Officer), $29 million and $26 million in 2003, 2002 and 2001, respectively. The unvested stock awards, aggregating approximately $165 million (10 million common shares) and $164 million (10 million common shares) at December 31, 2003 and 2002, respectively, are included in shareholders' equity and are being expensed over the respective vesting periods, principally 10 years. STOCK APPRECIATION RIGHTS AND PHANTOM STOCK AWARDS In 2003 and 2002, the Company issued stock appreciation rights ("SARs") to foreign employees with cash compensation linked to the value of 287,800 shares and 332,000 shares, respectively, of Company common stock. The Company also issued phantom stock awards linked to the value of 160,500 shares, 25,700 shares and 64,600 shares of Company common stock for the years ended December 31, 2003, 2002 and 2001, respectively. Compensation expense related to SARs and phantom stock awards for 2003, 2002 and 2001 was $12 million, $3 million and $5 million, respectively. STOCK OPTIONS Fixed stock options are granted to key employees and non-employee Directors of the Company. The 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 or second anniversary from the date of grant and expire no later than 10 years after the grant date. 47 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. STOCK OPTIONS AND AWARDS -- (CONCLUDED) During 2003, the Company granted stock options for 4,509,100 shares of Company common stock and restoration stock options for 567,200 shares with grant date exercise prices ranging from $23 to $28 (the market prices on the grant dates). During 2002, the Company granted stock options for 4,980,600 shares of Company common stock and restoration stock options for 1,051,400 shares with grant date exercise prices ranging from $20 to $29 (the market prices on the grant dates). During 2001, the Company granted stock options for 3,251,000 shares of Company common stock and restoration stock options for 717,600 shares with grant date exercise prices ranging from $21 to $26 (the market prices on the grant dates). The Company also granted stock options for 48,000 shares, 48,000 shares and 128,000 shares of Company common stock in 2003, 2002 and 2001, respectively, to non-employee Directors of the Company with exercise prices of $23, $27 and $22, respectively (the market prices on the grant dates). The Company recorded $3 million of stock option expense in the consolidated statement of income for the year ended December 31, 2003, for stock options granted, modified or settled subsequent to January 1, 2003. A summary of the status of the Company's fixed stock options for the three years ended December 31, 2003 is presented below, shares in millions:
2003 2002 2001 ---- ---- ---- Option shares outstanding, January 1........................ 26 22 22 Weighted average exercise price........................... $21 $21 $19 Option shares granted, including restoration options........ 5 6 4 Weighted average exercise price........................... $27 $21 $22 Option shares exercised..................................... 4 2 3 Weighted average exercise price........................... $20 $19 $12 Option shares canceled...................................... 1 -- 1 Weighted average exercise price........................... $22 $20 $25 Option shares outstanding, December 31...................... 26 26 22 Weighted average exercise price........................... $22 $21 $21 Weighted average remaining option term (in years)......... 6 7 7 Option shares exercisable, December 31...................... 10 9 6 Weighted average exercise price........................... $22 $23 $23
The following table summarizes information for option shares outstanding and exercisable at December 31, 2003, 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 - -------- --------- ----------- -------- ------------ ----------- $14-18 2 2 Years $16 1 $16 19-22 16 7 Years 20 6 20 23-27 1 6 Years 25 -- 25 28-31 7 7 Years 28 3 29 - -------- --------- ----------- -------- ------------ ----------- $14-31 26 6 Years $22 10 $22 ======== ========= =========== ======== ============ ===========
At December 31, 2003, a total of 10,167,000 shares and 503,000 shares of Company common stock were available under the Plan and the 1997 Plan, respectively, for the granting of stock options or restricted long-term stock awards. 48 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. EMPLOYEE RETIREMENT PLANS The Company sponsors defined-benefit and defined-contribution pension plans for most of its employees. In addition, substantially all salaried employees participate in non-contributory profit-sharing plans, to which payments are determined annually by the Compensation Committee of the Board of Directors. Aggregate charges to earnings under the Company's pension, retirement and profit-sharing plans were $106 million in 2003, $74 million in 2002 and $64 million in 2001. Net periodic pension cost for the Company's domestic qualified defined-benefit pension plans includes the following components, in millions:
2003 2002 2001 ---- ---- ---- Service cost............................................... $12 $10 $ 9 Interest cost.............................................. 30 19 15 Expected return on plan assets............................. (24) (17) (13) Amortization of transition asset........................... -- -- (1) Amortization of prior-service cost......................... -- -- 1 Amortization of net loss................................... 6 2 1 --- --- --- Net periodic pension cost.................................. $24 $14 $12 === === ===
The following table provides a reconciliation of changes in the projected benefit obligation, fair value of plan assets and funded status of the Company's domestic qualified defined-benefit pension plans at December 31, in millions:
2003 2002 ----- ----- Changes in projected benefit obligation: Projected benefit obligation at January 1................. $ 456 $ 204 Service cost.............................................. 11 9 Interest cost............................................. 30 16 Plan amendments........................................... 3 -- Actuarial loss............................................ 30 24 Business combinations..................................... -- 212 Settlements............................................... (4) -- Benefit payments.......................................... (29) (9) ----- ----- Projected benefit obligation at December 31............ $ 497 $ 456 ===== ===== Changes in fair value of plan assets: Fair value of plan assets at January 1.................... $ 273 $ 146 Actual return on plan assets.............................. 77 (15) Business combinations..................................... -- 129 Company contributions..................................... 43 23 Settlements............................................... (4) -- Benefit payments.......................................... (29) (9) Expenses/other............................................ -- (1) ----- ----- Fair value of plan assets at December 31............... $ 360 $ 273 ===== =====
49 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. EMPLOYEE RETIREMENT PLANS -- (CONTINUED)
2003 2002 ----- ----- Funded status of qualified defined-benefit pension plans: Plan assets (less than) projected benefit obligation at December 31............................................ $(137) $(183) Unamortized prior-service cost............................ 7 5 Unamortized net loss...................................... 98 127 ----- ----- Net (liability) recognized............................. $ (32) $ (51) ===== =====
The following represents amounts recognized in the Company's consolidated balance sheets at December 31, in millions:
2003 2002 ----- ----- Prepaid benefit cost........................................ $ 23 $ 15 Accrued benefit liability................................... (120) (161) Intangible assets........................................... 7 6 Accumulated other comprehensive income...................... 58 89 ----- ----- Net (liability) recognized............................. $ (32) $ (51) ===== =====
Information for domestic qualified defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets is as follows at December 31, in millions:
2003 2002 ---- ---- Projected benefit obligation................................ $497 $456 Accumulated benefit obligation.............................. 457 419 Fair value of plan assets................................... 360 273
PLAN ASSETS Following is a summary of the Company's domestic qualified defined-benefit pension plan weighted average asset allocation at December 31:
2003 2002 ---- ---- Equity securities........................................... 87% 85% Debt securities............................................. 8% 8% Real estate................................................. -- -- Other....................................................... 5% 7% ---- ---- Total.................................................. 100% 100% ==== ====
The investment objectives of the Company's domestic qualified defined-benefit pension plans are: 1) to invest the portfolio to earn a return, net of fees, greater than or equal to the long-term rate of return used by the Plan's actuary; and 2) to maintain liquidity sufficient to meet Plan obligations. Target allocations are: equity securities (84%), debt securities (10%) and other investments (6%). Plan assets include approximately 1.4 million shares of Company common stock valued at $39 million at December 31, 2003 and 629,000 shares of Company common stock valued at $13 million at December 31, 2002. 50 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. EMPLOYEE RETIREMENT PLANS -- (CONCLUDED) CASH FLOWS The Company expects to contribute approximately $54 million to its domestic qualified defined-benefit pension plans in 2004. The Company also expects to contribute $3 million to its non-qualified supplemental defined-benefit pension plans in 2004. The major assumptions used in accounting for the Company's domestic defined-benefit pension plans are as follows:
2003 2002 2001 ----- ----- ----- Discount rate for obligations....................... 6.25% 6.75% 7.5 % Expected return on plan assets...................... 8.5 % 8.5 % 9.0 % Rate of compensation increase....................... 4.5 % 4.5 % 4.5 % Discount rate for net periodic pension cost......... 6.75% 7.5 % 7.75%
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 trust assets. The measurement date used to determine the defined-benefit pension expense is January 1. OTHER The Company also sponsors qualified defined-benefit pension plans for certain of its foreign employees. Net periodic pension cost for these plans was approximately $5 million in 2003 and $2 million in 2002. The projected benefit obligation and fair value of plan assets was approximately $101 million and $59 million at December 31, 2003 and $59 million and $37 million at December 31, 2002, respectively. The projected benefit obligation exceeded the plan assets by approximately $42 million at December 31, 2003 and a net liability of approximately $16 million was recognized. The projected benefit obligation exceeded the plan assets by approximately $22 million at December 31, 2002 and a net liability of approximately $1 million was recognized. In addition to the Company's qualified defined-benefit pension and retirement plans, the Company has non-qualified unfunded supplemental 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 $105 million and $110 million at December 31, 2003 and $74 million and $82 million at December 31, 2002, respectively. Net periodic pension cost for these plans was $13 million, $10 million and $9 million in 2003, 2002 and 2001, respectively. 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 $5 million at both December 31, 2003 and 2002. 51 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; 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; staple gun tackers, staples and other fastening tools; hydronic radiators and heat convectors; pumps; and venting and ventilation systems. 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 and expense related to the Behr litigation has also been excluded from the evaluation of segment operating profit. 52 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)(11) ASSETS AT DECEMBER 31 (6)(10) ------------------------- --------------------------- ------------------------------ 2003 2002 2001 2003 2002 2001 2003 2002 2001 ------- ------ ------ ------- ------- ------- -------- -------- ------- The Company's operations by segment are: Cabinets and Related Products...... $ 3,058 $2,798 $2,567 $ 396 $ 379 $ 255 $ 2,353 $ 2,123 $1,984 Plumbing Products.................. 2,645 2,031 1,742 317 334 241 2,117 1,910 1,238 Installation and Other Services.... 2,411 1,845 1,692 368 304 243 2,378 2,314 1,400 Decorative Architectural Products......................... 1,522 1,358 1,229 195 311 261 1,109 1,311 1,247 Other Specialty Products........... 1,300 1,117 785 204 218 138 2,218 2,085 1,901 ------- ------ ------ ------ ------ ------ ------- ------- ------ Total.......................... $10,936 $9,149 $8,015 $1,480 $1,546 $1,138 $10,175 $ 9,743 $7,770 ======= ====== ====== ====== ====== ====== ======= ======= ====== The Company's operations by geographic area are: North America...................... $ 8,763 $7,686 $6,745 $1,433 $1,347 $1,011 $ 7,081 $ 6,995 $5,886 International, principally Europe........................... 2,173 1,463 1,270 47 199 127 3,094 2,748 1,884 ------- ------ ------ ------ ------ ------ ------- ------- ------ Total, as above................ $10,936 $9,149 $8,015 1,480 1,546 1,138 10,175 9,743 7,770 ======= ====== ====== General corporate expense, net (7)................................ (112) (98) (96) Income (charge) for litigation settlement, net (8)................ 72 (147) -- Expense related to accelerated benefits........................... (16) -- -- ------ ------ ------ Operating profit, as reported..................................... 1,424 1,301 1,042 Other income (expense), net....................................... (208) (300) (737) ------ ------ ------ Income from continuing operations before income taxes and minority interest........................................................ $1,216 $1,001 $ 305 ====== ====== ====== Corporate assets................................................................................ 1,974 2,307 1,251 ------- ------- ------ Total assets............................................................................ $12,149 $12,050 $9,021 ======= ======= ======
DEPRECIATION AND PROPERTY ADDITIONS AMORTIZATION (5) --------------------- -------------------- 2003 2002 2001 2003 2002 2001 ---- ----- ---- ---- ---- ---- The Company's operations by segment are: Cabinets and Related Products............ $ 54 $ 69 $ 93 $ 63 $ 59 $ 71 Plumbing Products........................ 76 175 55 62 45 48 Installation and Other Services.......... 31 66 66 33 27 61 Decorative Architectural Products........ 35 46 62 24 22 25 Other Specialty Products................. 82 74 92 38 33 32 ---- ----- ---- ---- ---- ---- 278 430 368 220 186 237 Unallocated amounts principally related to corporate assets.................... 7 17 4 17 24 22 Assets of acquisitions................... (14) (162) (98) -- -- -- ---- ----- ---- ---- ---- ---- Total................................ $271 $ 285 $274 $237 $210 $259 ==== ===== ==== ==== ==== ====
53 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) P. SEGMENT INFORMATION -- (CONCLUDED) (1) Included in net sales in 2003, 2002 and 2001 were export sales from the U.S. of $184 million, $153 million and $151 million, respectively. (2) Intra-company sales between segments represented less than one percent of consolidated net sales in 2003, 2002 and 2001. (3) Includes net sales to one customer in 2003, 2002 and 2001 of $2,457 million, $2,277 million and $2,039 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 $8,561 million, $7,479 million and $6,613 million in 2003, 2002 and 2001, respectively. (5) Net sales, operating profit and depreciation and amortization for 2003, 2002 and 2001 exclude the results of businesses sold in 2003. (6) Long-lived assets of the Company's operations in the U.S. and Europe were $4,859 million and $2,130 million, $4,875 million and $1,848 million and $3,999 million and $1,335 million at December 31, 2003, 2002 and 2001, respectively. (7) General corporate expense includes those expenses not specifically attributable to the Company's business segments. (8) The income (charge) for litigation settlement relates to litigation discussed in Note T regarding the Company's subsidiary, Behr Process Corporation, which is included in the Decorative Architectural Products segment. (9) Included in segment operating profit for 2003 are goodwill impairment charges as follows: Cabinets and Related Products -- $51 million, Plumbing Products -- $36 million, Decorative Architectural Products -- $24 million and Other Specialty Products -- $31 million. The goodwill impairment charges were related to the Company's European businesses. (10) Assets at December 31, 2002 and 2001 include the assets of businesses sold in 2003. (11) Operating profit excluding goodwill amortization expense for 2001 was as follows: Cabinets and Related Products -- $270 million, Plumbing Products -- $248 million, Installation and Other Services -- $287 million, Decorative Architectural Products -- $274 million and Other Specialty Products -- $152 million. Q. OTHER INCOME (EXPENSE), NET Other, net, which is included in other income (expense), net, included the following, in millions:
2003 2002 2001 ---- ---- ---- Income from cash and cash investments....................... $ 8 $ 8 $ 5 Other interest income....................................... 8 6 36 Income (loss) from financial investments (Note F)........... 65 (36) 25 Loss on early retirement of debt............................ (7) -- -- Gain from sale of equity investment......................... 5 -- -- Equity earnings............................................. -- 14 6 Other items, net............................................ (6) (31) (40) ---- ---- ---- Total other, net.......................................... $ 73 $(39) $ 32 ==== ==== ====
54 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Q. OTHER INCOME (EXPENSE), NET -- (CONCLUDED) Other items, net in 2003, 2002 and 2001 include realized foreign currency exchange transaction losses of $5 million, $4 million and $7 million, respectively, as well as other miscellaneous expenses. Other interest income for 2001 includes $29 million from the 12% pay-in-kind junior debt securities of FII. R. INCOME TAXES
(IN MILLIONS) 2003 2002 2001 ------ ------ ------ Income from continuing operations before income taxes and minority interest: U.S. ............................................ $1,172 $ 827 $ 209 Foreign.......................................... 44 174 96 ------ ------ ------ $1,216 $1,001 $ 305 ====== ====== ====== Provision for income taxes on income from continuing operations before minority interest: Currently payable: U.S. Federal................................... $ 214 $ 220 $ 148 State and local................................ 44 29 17 Foreign........................................ 26 26 30 Deferred: U.S. Federal................................... 174 43 (95) Foreign........................................ 5 19 2 ------ ------ ------ $ 463 $ 337 $ 102 ====== ====== ====== Deferred tax assets at December 31: Receivables......................................... $ 22 $ 9 Inventories......................................... 21 24 Accrued liabilities................................. 146 152 Long-term liabilities............................... 57 70 Capital loss carryforward........................... 62 109 Other assets........................................ 12 42 ------ ------ 320 406 ------ ------ Deferred tax liabilities at December 31: Property and equipment.............................. 360 339 Intangibles......................................... 114 52 Other............................................... 75 30 ------ ------ 549 421 ------ ------ Net deferred tax liability at December 31............. $ 229 $ 15 ====== ======
State and local taxes were lower in 2001 due principally to an $8 million ($5 million, net of federal tax) favorable settlement of contested liabilities. At December 31, 2003 and 2002, net deferred tax liability consisted of net short-term deferred tax assets included in prepaid expenses and other of $181 million and $171 million, 55 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) R. INCOME TAXES -- (CONCLUDED) respectively, and net long-term deferred tax liabilities of $410 million and $186 million, respectively. During 2001, the Company recorded a non-cash charge for the write-down of certain investments, including securities of Furnishings International Inc. and principally technology-related marketable equity securities that created a capital loss carryforward for tax purposes of $109 million ($311 million pre-tax) at December 31, 2002. Principally as a result of the gain from the sale of certain operating assets in 2003, this capital loss carryforward decreased to $62 million ($176 million pre-tax) at December 31, 2003. The Company believes that the capital loss carryforward will be utilized before its expiration on December 31, 2007, principally through future income and gains from investments and other identified tax-planning strategies, including the potential sale of certain operating assets. As a result, a valuation allowance was not recorded at December 31, 2003 or 2002. 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:
2003 2002 2001 ---- ---- ---- U.S. Federal statutory rate................................ 35% 35% 35% State and local taxes, net of federal tax benefit.......... 2 2 4 Higher (lower) taxes on foreign earnings................... (1) (2) 3 Foreign goodwill impairment providing no tax benefit....... 2 -- -- Amortization in excess of tax.............................. -- -- 4 Change in valuation allowance, net......................... -- -- (11) Other, net................................................. -- (1) (2) -- -- --- Effective tax rate....................................... 38% 34% 33% == == ===
Income taxes paid were approximately $328 million, $302 million and $193 million in 2003, 2002 and 2001, respectively. Earnings of non-U.S. subsidiaries generally become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. Provision has not been made at December 31, 2003 for U.S. or additional foreign withholding taxes on approximately $739 million of remaining undistributed net income of non-U.S. subsidiaries, as such income is intended to be permanently reinvested; it is not practical to estimate the amount of deferred tax liability on such income. 56 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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:
2003 2002 2001 ---- ---- ---- Numerator (basic and diluted): Income from continuing operations...................... $740 $664 $203 Income (loss) from discontinued operations and gain, net................................................. 66 18 (4) Cumulative effect of accounting change, net............ -- (92) -- ---- ---- ---- Net income............................................. $806 $590 $199 ==== ==== ==== Denominator: Basic common shares (based on weighted average)........ 479 485 459 Add: Contingent common shares............................ 9 26 13 Stock option dilution............................... 3 3 3 ---- ---- ---- Diluted common shares.................................. 491 514 475 ==== ==== ====
The 16,667 shares of outstanding preferred stock, which are convertible into 16,667,000 shares of Company common stock and carry substantially the same attributes as Company common stock, including voting rights and dividends, have been treated as if converted in the computation of basic and diluted common shares. Approximately 24 million common shares for 2003, 2002 and 2001, related to the Zero Coupon Convertible Senior Notes due 2031, were not included in the computation of diluted earnings per common share since, at December 31, 2003, 2002 and 2001, they were not convertible according to their terms. Additionally, 7.9 million common shares, 3.5 million common shares and 2.4 million common shares for 2003, 2002 and 2001, respectively, 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 was greater than the Company's average common stock price during the period. T. OTHER COMMITMENTS AND CONTINGENCIES LITIGATION The Company is subject to lawsuits and pending or asserted claims with respect to matters 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 Settlement) to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr. As a result, in the third quarter of 2002, the Company took a litigation charge of approximately $68 million for the estimated cost of the Washington Settlement. This charge did not reflect any offsets for amounts the Company expected to receive from Behr's insurers. The charge included $55 million for the payment of claims, notice, claims administration and plaintiff's litigation costs, and $13 million for Class Counsel fees. In the first quarter of 2003, the Company recorded income of approximately $14 million, principally to reflect an agreement with Behr's insurers to fund a portion of the Class Counsel fees, notice and claims administration costs and plaintiff's litigation 57 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) T. OTHER COMMITMENTS AND CONTINGENCIES -- (CONTINUED) costs. Pursuant to the terms of the Washington Settlement and orders entered by the trial court in October and December 2003, the Company and Behr's insurers made partial payments totaling $2 million on 412 claims that had been recommended for payment by the claims administrator. The deadline for claims in the Washington Settlement was January 17, 2004. Until all claims are processed, the Company has determined that no further adjustment of its original estimate would be appropriate. The Company expects that the evaluation, processing and payment of claims will be completed by September 30, 2004. The total amount of the insurers' contribution related to these claims will not be reasonably estimable until the claims process is completed. The remaining accrual for claims and administration costs is approximately $53 million, reflecting the receipt of approximately $14 million in 2003 from Behr's insurers. In the third quarter of 2002, the Company also took a litigation charge of $96 million for the estimated cost of the National Settlement, which included $66 million for the payment of claims, $25 million for Class Counsel fees and $5 million for notice and claims administration costs. As with the Washington Settlement, the charge did not reflect any offsets for amounts the Company expected to receive from Behr's insurers. In the fourth quarter of 2002, the Company recorded income of $19 million to reflect an agreement with Behr's insurers to fund a portion of the Class Counsel fees, and notice and claims administration costs. The filing deadline for claims in the National Settlement was September 2, 2003 and the Company received approximately 3,700 claims, which was a fraction of the number originally projected. The Company estimated the average cost per claim received and, as a result, estimated that the total cost of claims related to the National Settlement will approximate $8 million compared with the $66 million recorded in the third quarter of 2002. Accordingly, the Company reduced the litigation accrual by $58 million in the third quarter of 2003. The total amount of the insurers' contribution related to these claims will not be reasonably estimable until the claims process is completed. The remaining accrual at December 31, 2003 related to claims and administrative costs is approximately $10 million. The Company expects to complete the processing, evaluation and payment of such claims by June 30, 2004. In addition, the Company recorded $2 million in 2002 for additional legal costs; the $2 million was paid by the Company in 2003. WARRANTY Certain of the Company's products and product finishes and services are generally covered by a warranty to be free from defects in material and workmanship for periods ranging from one year to lifetime, under certain circumstances, of the original purchaser. At the time of sale, the Company accrues a warranty liability for estimated costs to provide products, parts or service 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. 58 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) T. OTHER COMMITMENTS AND CONTINGENCIES -- (CONTINUED) The following is a reconciliation of the Company's warranty liability, in millions:
2003 2002 ---- ---- Balance at January 1........................................ $ 65 $ 57 Accruals for warranties issued during the year.............. 34 26 Accruals related to pre-existing warranties................. 23 11 Settlements made (in cash or kind) during the year.......... (35) (30) Other, net (foreign exchange impact)........................ 3 1 ---- ---- Balance at December 31...................................... $ 90 $ 65 ==== ====
ACQUISITION-RELATED COMMITMENTS The Company, as part of certain recent acquisition agreements, provides for the payment of additional consideration in either cash or Company common stock, contingent upon whether certain conditions are met, including the operating performance of the acquired business and the price of the Company's common stock. STOCK PRICE GUARANTEES Stock price guarantees as of December 31, 2003 are summarized as follows, in millions, except per share data:
SHARES ISSUED - --------------- SETTLEMENT MINIMUM OPTIONS (A) # OF ISSUE STOCK PRICE ------------- SHARES PRICE GUARANTEE SHARES CASH MATURITY DATE - ------ ------ ----------- ------ ---- ---------------- 17 $25.21 $31.20 2 $ 62 7/31/04 1 $30.00 $40.00 1 20 12/31/04-4/30/05 - ------ ------ ---- 18 3 $ 82 ====== ====== ====
(A) Amounts computed based on the ten-day average of the high and low Company common stock prices ending December 31, 2003 of $27.50. Shares contingently issuable under these guarantees are included in the calculation of diluted earnings per common share. CONTINGENT PURCHASE PRICE As part of certain recent acquisition agreements, the Company has additional consideration payable in cash of approximately $40 million contingent on the operating performance of the acquired businesses. As part of the acquisition agreement, certain minority shareholders of Hansgrohe AG hold an option expiring in December 2007 to require the Company to purchase additional shares in Hansgrohe either with cash or common stock. The option value is based on Hansgrohe's operating results and, if exercised at December 31, 2003, would have approximated $21 million; if the option were settled in stock, the common shares to be issued at December 31, 2003 would have approximated 824,000. The Company continues to guarantee the value of 1.6 million shares of Company common stock at a stock price of $40 per share related to a 2001 divestiture (through June 2004). The liability for this guarantee, which approximated $20 million and $30 million at December 31, 2003 and 2002, respectively, has been recorded in accrued liabilities and is marked to market each reporting period. 59 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) T. OTHER COMMITMENTS AND CONTINGENCIES -- (CONCLUDED) INVESTMENTS With respect to the Company's investments in private equity funds, the Company, at December 31, 2003, has, under certain circumstances, commitments to contribute additional capital to such funds of up to $88 million. 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. Participants in the Program financed their purchases with five-year full recourse personal loans, at a market interest rate, from a bank syndicate. Each participant is fully responsible at all times for repaying their bank loans when they become due and is personally responsible for 100 percent of any loss in the market value of the purchased stock, except that in the event of death, if the participant is in a loss position, the participant's estate may transfer the purchased stock to the Company and require the Company to assume responsibility for the loan. The Company has guaranteed repayment of the loans, for which the aggregate amount outstanding was approximately $160 million at December 31, 2003, only in the event of a default by a participant. As a further inducement for continued employment beyond the end of this five-year Program, each participant received, as part of the Program, a restricted stock award vesting over a ten-year period. All of these key employees, in order to participate in this Program, were also required to sign a one-year post-employment non-competition agreement with the Company businesses that employ them. 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 12 months and are renewable monthly after the first 12 months. At the end of the first 12 months, 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 trucks. The aggregate value of the residual value guarantees, assuming the fair value at lease termination is zero, is approximately $76 million at December 31, 2003. 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 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. 60 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) U. PLANNED DISPOSITION OF BUSINESSES -- 2000 In December 2000, the Company adopted a plan to dispose of several businesses that the Company believed were not core to its long-term growth strategies. A non-cash, pre-tax charge of $90 million was recorded in December 2000. During 2002 and 2001, the Company completed the sale of its StarMark Cabinetry, Inc., Inrecon and American Metal Products businesses for cash proceeds of $247 million, which approximated their combined book values. In the fourth quarter of 2002, the Company recognized a pre-tax gain of $16 million related to certain long-lived assets which were written down in December 2000 as part of the Company's plan for disposition. The sales and results of operations of the businesses sold in 2002 and 2001 are included in the Company's results of continuing operations through the date of disposition. These businesses contributed sales of $11 million and $237 million in 2002 and 2001, respectively, and operating (loss) profit of $(.4) million and $13 million in 2002 and 2001, respectively; the changes in sales and operating (loss) profit include the effect of dispositions completed in 2002 and 2001. V. SECURITIES OF FURNISHINGS INTERNATIONAL INC. During 2001, management of Furnishings International Inc. ("FII") advised the Company that it was pursuing the disposition of all of its businesses and that the expected consideration from the sale of such businesses would not be sufficient to pay amounts due to the Company in accordance with the terms of the junior debt securities. Accordingly, the Company reevaluated the carrying value of its securities of FII and, in the third quarter of 2001, recorded a $460 million pre-tax, non-cash charge to write down this investment to approximately $133 million, which represented the approximate fair value of the consideration ultimately expected to be received from FII for the repayment of the indebtedness. During 2002, FII substantially completed the disposition of its operations. The fair value of the remaining net assets of FII represented proceeds for the Company's investment in securities of FII. The remaining net assets were primarily comprised of notes receivable and other assets of $75 million, four million shares of Furniture Brands International common stock valued at $121 million (which was the market value at June 28, 2002), net of pension obligations of approximately $75 million and other accrued liabilities of $12 million. W. SUBSEQUENT EVENT (UNAUDITED) The Company reviews its business portfolio on an ongoing basis as part of its corporate strategic planning and, in the first quarter of 2004, has determined that several European businesses are not core to the Company's long-term growth strategy and, accordingly, has embarked on a plan of disposition. These businesses had combined 2003 net sales in excess of $350 million and an approximate net book value of $330 million. The Company expects net proceeds from the dispositions to exceed $300 million. The dispositions are expected to be completed within the next twelve months and the Company expects to recognize a modest net loss upon the disposition of all of these businesses. First quarter 2004 results will include a charge to reflect those businesses that are expected to be divested at a loss. Any gains resulting from the disposition of individual businesses will be recognized as such transactions are completed. 61 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) X. INTERIM FINANCIAL INFORMATION (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA) QUARTERS ENDED TOTAL -------------------------------------------------- YEAR DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ------- ----------- ------------ ------- -------- 2003: Net sales............................ $10,936 $2,862 $2,918 $2,724 $2,432 Gross profit......................... $ 3,350 $ 880 $ 903 $ 835 $ 732 Income from continuing operations.... $ 740 $ 93 $ 262 $ 225 $ 160 Net income........................... $ 806 $ 92 $ 319 $ 229 $ 166 Earnings per common share: Basic: Income from continuing operations.................... $1.54 $.20 $.55 $.47 $.33 Net income...................... $1.68 $.20 $.67 $.48 $.34 Diluted: Income from continuing operations.................... $1.51 $.19 $.53 $.45 $.31 Net income...................... $1.64 $.19 $.65 $.46 $.32 2002: Net sales............................ $ 9,149 $2,421 $2,447 $2,245 $2,036 Gross profit......................... $ 2,891 $ 736 $ 780 $ 745 $ 630 Income from continuing operations.... $ 664 $ 190 $ 117 $ 209 $ 148 Net income........................... $ 590 $ 195 $ 123 $ 214 $ 58 Earnings per common share: Basic: Income from continuing operations.................... $1.37 $.38 $.24 $.44 $.32 Net income...................... $1.22 $.39 $.25 $.45 $.12 Diluted: Income from continuing operations.................... $1.29 $.36 $.22 $.42 $.31 Net income...................... $1.15 $.37 $.24 $.43 $.12
Income per common share amounts for the four quarters of 2003 and 2002 do not total to the per common share amounts for the years ended December 31, 2003 and 2002 due to the timing of common stock repurchases and the effect of contingently issuable common shares. Fourth quarter 2003 net income includes a $113 million after-tax ($137 million pre-tax), non-cash goodwill impairment charge. Third quarter 2003 net income includes a $54 million after-tax ($91 million pre-tax) gain from the disposition of certain businesses. Third quarter 2003 also includes adjustments of $59 million related to European accounting charges including a $5 million non-cash goodwill impairment charge. First quarter 2002 net income includes a $92 million after-tax ($117 million pre-tax), non-cash goodwill impairment charge recognized as a cumulative effect of accounting change effective January 1, 2002. Third quarter 2002 net income includes a $104 million after-tax ($166 million pre-tax) charge for the Behr litigation settlement. Fourth quarter 2002 net income includes a $12 million after-tax ($19 million pre-tax) insurance recovery relating to the Behr litigation settlement. 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable ITEM 9A. CONTROLS AND PROCEDURES. The Company's Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the Company's disclosure controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 as of the end of the period covered by this report. Based upon that evaluation: a. they have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) are designed to be and are adequate to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission; and b. they have identified no change in the Company's internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Reference is made in this regard to the discussion in Management's Discussion and Analysis regarding United Kingdom businesses in the Decorative Architectural Products segment and the Plumbing Products segment, although such officers do not believe that the matters described in that discussion are reasonably likely to materially affect the Company's internal controls over financial reporting. 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). Other information required by this Item will be contained in the Company's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, and such information is incorporated herein by reference. The Company's Code of Business Ethics, which applies to all employees, officers and directors including the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, is posted on the Company's website at http://www.masco.com. The Code of Business Ethics is compliant with Item 406 of Regulation S-K as required by the SEC and the New York Stock Exchange corporate governance rules. Any change to the Code of Business Ethics that affects the provisions required by Item 406 of Regulation S-K will also be disclosed on our website within five business days following such amendment. Any waivers of the Code of Business Ethics for our executive officers or senior financial officers must be approved by the Company's Audit Committee or by the Board of Directors and any waivers for directors must be approved by the Corporate Governance and Nominating Committee or by the Board of Directors. Those waivers, if any were ever granted, would be disclosed on our website within five business days following such waiver. The Board of Directors has adopted Corporate Governance Guidelines and charters for its Audit Committee, Corporate Governance and Nominating Committee and Organization and Compensation Committee, each of which are posted on the Company's website. Investors may obtain a free copy of the Code of Business Ethics, the Corporate Governance Guidelines or the 63 committee charters by contacting the Investor Relations Department at 21001 Van Born Road, Taylor, Michigan 48180, Att: Samuel Cypert or by telephoning (313) 274-7400. ITEM 11. EXECUTIVE COMPENSATION. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, 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 two equity based compensation plans, the 1991 Long Term Stock Incentive Plan and the 1997 Non-Employee Directors Stock Plan. The following table sets forth information as of December 31, 2003 concerning the Company's two equity compensation plans, both of which were approved by stockholders. The Company does not have any equity compensation plans that are not approved by stockholders.
WEIGHTED NUMBER OF AVERAGE PER NUMBER OF SECURITIES SECURITIES TO BE SHARE EXERCISE REMAINING AVAILABLE FOR ISSUED UPON PRICE OF FUTURE ISSUANCE UNDER EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS OUTSTANDING OPTIONS, (EXCLUDING SECURITIES OPTIONS, WARRANTS WARRANTS AND REFLECTED IN THE FIRST PLAN CATEGORY AND RIGHTS RIGHTS COLUMN) ------------- ----------------- -------------- ------------------------- Equity compensation plans approved by stockholders.................. 26,206,200 $22.00 10,670,000
The remaining information required by this Item will be contained in the Company's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, 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 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, 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 2004 Annual Meeting of Stockholders, to be filed on or before April 29, 2004, and such information is incorporated herein by reference. 64 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) LISTING OF DOCUMENTS. (1)Financial Statements. The Company's Consolidated Financial Statements included in Item 8 hereof, as required at December 31, 2003 and 2002, and for the years ended December 31, 2003, 2002 and 2001, 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 Schedules. (i) Financial Statement Schedule of the Company appended hereto, as required for the years ended December 31, 2003, 2002 and 2001, consists of the following: II. Valuation and Qualifying Accounts (3)Exhibits. 3.i Restated Certificate of Incorporation of Masco Corporation and amendments thereto (7). 3.ii Bylaws of Masco Corporation, as amended December 5, 2001 (7). 4.ai Indenture dated as of December 1, 1982 between Masco Corporation and Morgan Guaranty Trust Company of New York, as Trustee (5), and Directors' resolutions establishing Masco Corporation's: (i) 7 1/8% Debentures Due August 15, 2013 (filed herewith); (ii) 6.625% Debentures Due April 15, 2018 (filed herewith); (iii) 5.75% Notes Due October 15, 2008 (filed herewith); and (iv) 7 3/4% Debentures Due August 1, 2029 (1). 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 (1). 4.a.iii Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and The First National Bank of Chicago (1). 4.bi Indenture dated as of February 12, 2001 between Masco Corporation and J.P. Morgan Trust Company, National Association (successor in interest to Bank One, National Association), as Trustee (3), and Directors' Resolutions establishing Masco Corporation's: (i) 6 3/4% Notes Due March 15, 2006 (3); (ii) 6% Notes Due May 3, 2004 (4); (iii) 5 7/8% Notes Due July 15, 2012 (7); (iv) 4 5/8% Notes Due August 15, 2007 (7); and (v) 6 1/2% Notes Due August 15, 2032 (7). 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, National Association), as Trustee, relating to the Company's Zero Coupon Convertible Senior Notes Due July 20, 2031 (4), and Amendment No. 1 dated as of July 19, 2002 (6).
65
4.c Rights Agreement dated as of December 6, 1995, between Masco Corporation and The Bank of New York, as Rights Agent (3); and Amendment No. 1 dated September 23, 1998 (3). 4.d U.S. $750,000,000 364-day Revolving Credit Agreement dated as of November 7, 2003 among Masco Corporation and Masco Europe S.A.R.L., as borrowers, the banks party thereto, as lenders, Commerzbank AG, Barclays Bank PLC and Keybank, National Association, as Documentation Agents, Citibank, N.A., as Syndication Agent, and Bank One, NA, as Administrative Agent (filed herewith). 4.e U.S. $1.25 billion 5-Year Revolving Credit Agreement dated as of November 8, 2002 among Masco Corporation and Masco Europe S.A.R.L., as borrowers, the banks party thereto, Commerzbank AG, New York and Grand Cayman Branches, and Citibank, N.A., as Syndication Agents, BNP Paribas, as Documentation Agent, and Bank One, NA, as Administrative Agent (7). 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. 10.a Shareholders Agreement by and among Heartland Industrial Partners, L.P., 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 (3). NOTE: Exhibits 10.b through 10.g constitute the management contracts and executive compensatory plans or arrangements in which certain of the directors and executive officers of the Company participate. 10.b Masco Corporation 1991 Long Term Stock Incentive Plan (as amended and restated February 10, 2004) (filed herewith). 10.c Masco Corporation Supplemental Executive Retirement and Disability Plan, dated October 21, 2000, as amended November 18, 2002 (7) and December 5, 2003 (filed herewith). 10.d Masco Corporation 2002 Annual Incentive Compensation Plan (7). 10.e Masco Corporation 1997 Non-Employee Directors Stock Plan (as amended February 10, 2004) (filed herewith). 10.f Description of the Masco Corporation Program for Estate, Financial Planning and Tax Assistance (7). 10.g Masco Corporation Executive Stock Purchase Program (2). 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 PricewaterhouseCoopers LLP relating to Masco Corporation's Consolidated Financial Statements and Financial Statement Schedule (filed herewith).
66 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).
(1) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. (2) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (3) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. (4) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. (5) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. (6) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. (7) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. 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. (B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of the year ended December 31, 2003. 67 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 February 27, 2004 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, 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/ THOMAS G. DENOMME Director - -------------------------------------- Thomas G. Denomme /s/ PETER A. DOW Director - -------------------------------------- Peter A. Dow /s/ ANTHONY F. EARLEY, JR Director February 27, 2004 - -------------------------------------- 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/ WAYNE B. LYON Director - -------------------------------------- Wayne B. Lyon /s/ MARY ANN VAN LOKEREN Director - -------------------------------------- Mary Ann Van Lokeren
68 MASCO CORPORATION SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(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: 2003........................... $69 $23 $(2) $ (6) $84 === === === ==== === 2002........................... $56 $16 $ 4 $ (7) $69 === === === ==== === 2001........................... $36 $33 $ 5 $(18) $56 === === === ==== ===
(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. 69 EXHIBIT INDEX 3.i Restated Certificate of Incorporation of Masco Corporation and amendments thereto (7). 3.ii Bylaws of Masco Corporation, as amended December 5, 2001 (7). 4.ai Indenture dated as of December 1, 1982 between Masco Corporation and Morgan Guaranty Trust Company of New York, as Trustee (5), and Directors' resolutions establishing Masco Corporation's: (i) 7 1/8% Debentures Due August 15, 2013 (filed herewith); (ii) 6.625% Debentures Due April 15, 2018 (filed herewith); (iii) 5.75% Notes Due October 15, 2008 (filed herewith); and (iv) 7 3/4% Debentures Due August 1, 2029 (1). 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 (1). 4.a.iii Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and The First National Bank of Chicago (1). 4.bi Indenture dated as of February 12, 2001 between Masco Corporation and J.P. Morgan Trust Company, National Association (as successor in interest to Bank One, National Association), as Trustee (3), and Directors' Resolutions establishing Masco Corporation's: (i) 6 3/4% Notes Due March 15, 2006 (3); (ii) 6% Notes Due May 3, 2004 (4); (iii) 5 7/8% Notes Due July 15, 2012 (7); (iv) 4 5/8% Notes Due August 15, 2007 (7); and (v) 6 1/2% Notes Due August 15, 2032 (7). 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 (as successor in interest to Bank One, National Association), as Trustee, relating to the Company's Zero Coupon Convertible Senior Notes Due July 20, 2031 (4), and Amendment No. 1 dated as of July 19, 2002 (6). 4.c Rights Agreement dated as of December 6, 1995, between Masco Corporation and The Bank of New York, as Rights Agent (3); and Amendment No. 1 dated September 23, 1998 (3). 4.d U.S. $750,000,000 364-day Revolving Credit Agreement dated as of November 7, 2003 among Masco Corporation and Masco Europe S.A.R.L., as borrowers, the banks party thereto, as lenders, Commerzbank AG, Barclays Bank PLC and Keybank, National Association, as Documentation Agents, Citibank, N.A., as Syndication Agent, and Bank One, NA, as Administrative Agent (filed herewith). 4.e U.S. $1.25 billion 5-Year Revolving Credit Agreement dated as of November 8, 2002 among Masco Corporation and Masco Europe S.A.R.L., as borrowers, the banks party thereto, Commerzbank AG, New York and Grand Cayman Branches, and Citibank, N.A., as Syndication Agents, BNP Paribas, as Documentation Agent, and Bank One, NA, as Administrative Agent (7). 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. 10.a Shareholders Agreement by and among Heartland Industrial Partners, L.P., 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 (3).
NOTE: Exhibits 10.b through 10.g constitute the management contracts and executive compensatory plans or arrangements in which certain of the directors and executive officers of the Company participate. 10.b Masco Corporation 1991 Long Term Stock Incentive Plan (as amended and restated February 10, 2004) (filed herewith). 10.c Masco Corporation Supplemental Executive Retirement and Disability Plan, dated October 21, 2000, as amended November 18, 2002 (7) and December 5, 2003 (filed herewith). 10.d Masco Corporation 2002 Annual Incentive Compensation Plan (7). 10.e Masco Corporation 1997 Non-Employee Directors Stock Plan (as amended February 10, 2004) (filed herewith). 10.f Description of the Masco Corporation Program for Estate, Financial Planning and Tax Assistance (7). 10.g Masco Corporation Executive Stock Purchase Program (2). 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 PricewaterhouseCoopers LLP 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).
(1) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. (2) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (3) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. (4) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. (5) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. (6) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. (7) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. EX-4.A.I 3 k82538exv4wawi.txt INDENTURE DATED AS OF DECEMBER 1, 1982 RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF MASCO CORPORATION August 17, 1993 In lieu of a meeting, the undersigned being all of the members of the Pricing Committee of the Board of Directors of Masco Corporation, a Delaware corporation (the "Company"), adopt the following resolutions: WHEREAS, the Company has filed two Registration Statements (Nos. 33-40067 and 33-53330) on Form S-3 with the Securities and Exchange Commission, which are in effect; WHEREAS, the Company desires to create an additional series of securities under the Indenture dated as of December 1, 1982 (the "Indenture"), with Morgan Guaranty Trust Company of New York, as trustee (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, IT IS 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 "7 1/8% Debentures Due August 15, 2013". 2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Two Hundred Million Dollars ($200,000,000), 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 2.07, 2.08, 2.09, 9.04 or 14.03 of the Indenture. 3. The date on which the principal of the Securities of such series shall be payable is August 15, 2013. 4. The Securities of such series shall bear interest from August 15, 1993, at the rate of 7 1/8% per annum, payable semi-annually on February 15 and August 15 of each year commencing on February 15, 1994, until the principal thereof is paid or made available for payment. The February 1 or August 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 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 under Section 3.02 of the Indenture in the Borough of Manhattan, The City of New York, or at any other office or agency designated by the Company, for such purpose pursuant to the Indenture; 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 on the Company's registry books. 6. The Securities of such series shall not be redeemable prior to maturity. 7. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof. 8. The Securities shall be issuable at a price such that this Company shall receive $197,000,000 (plus accrued interest from August 15, 1993 to the date of delivery) after an underwriting discount of $1,750,000. 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 of any Vice President is authorized to execute, on the Company's behalf and in its name, and the Secretary or an Assistant Secretary 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) $200,000,000 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 debenture filed as an exhibit to the Company's Registration Statements on Form S-3 (No. 33-40067 and 33-53330), but with such changes and insertions therein as are appropriate to conform the Debentures 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 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 the 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 Salomon Brothers Inc and Smith Barney Shearson Inc. are appointed as the 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 and 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 Morgan Guaranty Trust Company of New York, 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 Morgan Guaranty Trust Company of New York in the Borough of Manhattan, The City of New York 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 Morgan Guaranty Trust Company of New York 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 Morgan Guaranty Trust Company of New York, 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 Company officer 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 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). Permanent Global Registered Fixed Rate Security THIS DEBENTURE IS A GLOBAL SECURITY AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR DEBENTURES IN CERTIFICATED FORM, THIS DEBENTURE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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. MASCO CORPORATION 7 1/8% Debenture Due August 15, 2013 REGISTERED CUSIP No. 574599AN6 No. R-1 Masco Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, the principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000) on August 15, 2013, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on February 15 and August 15 of each year, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Debenture, from the February 15 or August 15, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in the Indenture referred to on the reverse hereof) of this Debenture, in which case from the February 15 or August 15 next preceding such original issue date or if the original issue date is a February 15 or August 15 then from such original issue date, until 1 payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after February 1 or August 1, as the case may be, and before the following February 15 or August 15, this Debenture shall bear interest from such February 15 or August 15; provided, however, that if the Company shall default in the payment of interest on such February 15 or August 15, then this Debenture shall bear interest from the next preceding February 15 or August 15 to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in such Indenture) of this Debenture, from the February 15 or August 15 next preceding such original issue date unless the original issue date is a February 15 or August 15, in which case from the original issue date hereof. The interest so payable on any February 15 or August 15 will, subject to certain exceptions provided in such Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the February 1 or August 1, as the case may be, next preceding such February 15 or August 15, whether or not such February 1 or August 1 is a business day, and may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Debenture set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under such Indenture. 2 IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be executed in its corporate name by the facsimile signature of its Chairman of the Board or its President and imprinted with a facsimile of its corporate seal, attested by the facsimile signature of its Secretary or an Assistant Secretary. Dated: August 18, 1993 Masco Corporation By /s/Richard A. Manoogian ----------------------- Chairman of the Board Attest By /s/ Gerald Bright ----------------------- Assistant Secretary CERTIFICATE OF AUTHENTICATION THIS IS ONE OF THE SECURITIES OF THE SERIES DESIGNATED THEREIN REFERRED TO IN THE WITHIN-MENTIONED INDENTURE. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS TRUSTEE BY --------------------------------- AUTHORIZED OFFICER 3 REVERSE OF DEBENTURES This Debenture is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (hereinafter called the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of December 1, 1982 (herein called the "Indenture"), duly executed and delivered by the Company to Morgan Guaranty Trust Company of New York, Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Debenture is one of a series designated as the 7 1/8% Debentures Due August 15, 2013 of the Company, limited in aggregate principal amount to $200,000,000. In case an Event of Default with respect to the 7 1/8% Noes Due August 15, 2013 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66 2/3% in aggregate principal amount of the Securities at the time outstanding of all series to be affected (voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Securities of each such series; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest of premium thereon payable in any coin or currency other than that hereinbefore provided, or impair or affect the right of any holder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid principal amount of Securities of all series to be affected, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Securities so affected then outstanding. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the holders of a majority in aggregate principal amount of the Securities of such series at the time outstanding (or, 4 in the case of certain defaults or Events of Default, all the Securities) may on behalf of the holders of all of the Securities of such series (or all the Securities, as the case may be) waive any such past default or Event of Default under the Indenture and its consequences except a default in the payment of principal of, premium, if any, or interest, if any, on any of the Securities. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or transfer hereof or in substitution herefor, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. The Debentures are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000. Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company for such registration in the Borough of Manhattan, The City of New York, or any other location or locations as may be provided for pursuant to the Indenture, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Debentures may not be redeemed prior to maturity. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the holder hereof as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary. All payments made to or upon the order of such holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable hereon. No recourse for the payment of the principal of, or premium, if any, or interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or 5 any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Debenture which are defined in the Indenture shall have the respective meanings ascribed to them therein. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of that State. 6 The following abbreviations, where such abbreviations appear on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT- Custodian -------------- -------------------------------- (Cust) (Minor) under Uniform Gifts to Minors Act -------------------- (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE - -------------------------------------------------------------------------------- the within Debenture of MASCO CORPORATION and hereby does irrevocably constitute and appoint Attorney - ----------------------------------------------------------------- to transfer the said Debenture on the books of the within-named Company, with full power of substitution in the premises. Dated --------------------------- ------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 7 RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF MASCO CORPORATION April 16, 1998 In lieu of a meeting, the undersigned being all of the members of the Pricing Committee of the Board of Directors of Masco Corporation, a Delaware corporation (the "Company"), adopt the following resolutions: WHEREAS, the Company has filed a Registration Statement (No. 33-56043) on Form S-3 with the Securities and Exchange Commission, which is in effect; WHEREAS, the Company desires to create an additional series of securities under the Indenture dated as of December 1, 1982 (as amended to the date hereof, the "Indenture"), with The First National Bank of Chicago, as successor trustee to Morgan Guaranty Trust Company of New York (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 "6.625% Debentures Due April 15, 2018". 2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Two Hundred Fifty Million Dollars ($250,000,000), expect 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 2.07, 2.08, 2.09, 9.04 or 14.03 of the Indenture. 3. The date on which the principal of the Securities of such series shall be payable is April 15, 2018. 4. The Securities of such series shall bear interest from April 21, 1998, at the rate of 6.625% per annum, payable semi-annually on April 15 and October 15 of each year commencing on October 15, 1998, until the principal thereof is paid or made available for payment. The April 1 or October 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 one or more 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 described in the Company's prospectus supplement dated April 16, 1998 relating to the Securities and, except as described in such prospectus supplement, 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 under Section 3.02 of the Indenture in the Borough of Manhattan, The City of New York, or at any other office or agency designated by the Company, for such purpose pursuant to the Indenture; provided, however, that if Securities in definitive registered form are issued, then 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 on the Company's registry books. 7. The Securities of such series shall not be redeemable prior to maturity. 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 $247,460,000 after an underwriting discount of $2,187,500. 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), $250,000,000 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 2 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. 33-56043), 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 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 of disposed of, the individual so signing shall have ceased to hold such office; FURTHER RESOLVED, that Salomon Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are appointed as the 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 The First National Bank of Chicago, 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 The First National Bank of Chicago in the Borough of Manhattan, The City of New York 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; 3 FURTHER RESOLVED, that The First National Bank of Chicago 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 The First National Bank of Chicago, 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 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). Permanent Global Registered Fixed Rate Security THIS DEBENTURE IS A GLOBAL SECURITY AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS DEBENTURE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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. MASCO CORPORATION 6.625% Debenture Due April 15, 2018 REGISTERED CUSIP No. 574599 AR7 No. R-1 Masco Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, the principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000) on April 15, 2018, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on April 15 and October 15 of each year, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Debenture, from the April 15 or October 15, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no Interest has been paid or duly provided for on the Debentures since the original issue date (as defined in the Indenture referred to on the reverse hereof) of this Debenture, in which case from the original issue date, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after April 1 or October 1, as the case may be, and before the following April 15 or October 15, this Debenture shall bear interest from such April 15 or October 15; provided, however, 1 that if the Company shall default in the payment of interest on such April 15 or October 15, then this Debenture shall bear interest from the next preceding April 15 or October 15 to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in such Indenture) of this Debenture, from the original issue date hereof. The interest so payable on any April 15 or October 15 will, subject to certain exceptions provided in such Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the April 1 or October 1, as the case may be, next preceding such April 15 or October 15, whether or not such April 1 or October 1 is a business day, and may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Debenture set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under such Indenture. ****[end of page 2]*** 2 IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its Chairman of the Board or its President and imprinted with a manual or facsimile of its corporate seal, attested by the manual or facsimile signature of its Secretary or an Assistant Secretary. Dated: April 21, 1997 Masco Corporation By /s/Richard A. Manoogian Chairman of the Board Attest By /s/John R. Leekley Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the securities of the series designated therein referred to in the within-mentioned indenture. THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE BY________________________ AUTHORIZED OFFICER 3 REVERSE OF NOTES This Debenture is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (hereinafter called the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of December 1, 1982 (herein called the "Indenture"), duly executed and delivered by the Company to The First National Bank of Chicago (as successor trustee to Morgan Guaranty Trust Company of New York), Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Debenture is one of a series designated as the 6.625% Debentures Due April 15, 2018 of the Company, limited in aggregate principal amount to $250,000,000. In case an Event of Default with respect to the 6.625% Debentures Due April 15, 2018 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66-2/3% in aggregate principal amount of the Securities at the time outstanding of all series to be affected (voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Securities of each such series; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest of premium thereon payable in any coin or currency other than that hereinbefore provided, or impair or affect the right of any holder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid principal amount of Securities of all series to be affected, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Securities so affected then outstanding. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the holders of a majority in aggregate principal amount of the Securities of such series at the time outstanding 4 (or, in the case of certain defaults or Events of Default, all the Securities) may on behalf of the holders of all of the Securities of such series (or all the Securities, as the case may be) waive any such past default or Event of Default under the Indenture and its consequences except a default in the payment of principal of, premium, if any, or interest, if any, on any of the Securities. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or transfer hereof or in substitution herefor, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. The Debentures are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000. Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company for such registration in the Borough of Manhattan, The City of New York, or any other location or locations as may be provided for pursuant to the Indenture, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Debentures may not be redeemed prior to maturity. The Debentures will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the holder hereof as the absolute hereof (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary. All payments made to or upon the order of such holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable hereon. No recourse for the payment of the principal of, or premium, if any, or interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Debenture, or because of the creation of any indebtedness represented thereby, shall 5 be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Debenture which are defined in the Indenture shall have the respective meanings ascribed to them therein. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of that State. ***[end of page 6]*** The following abbreviations, where such abbreviations appear on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-..............Custodian.............. (Cust) (Minor) under Uniform Gifts to Minors Act........................ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _____________________________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE ________________________________________________________________________________ the within Debenture of MASCO CORPORATION and hereby does irrevocably constitute and appoint Attorney to transfer the said Debenture on the books of the within-named Company, with full power of substitution in the premises. Dated _______________ ____________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 6 Permanent Global Registered Fixed Rate Security THIS DEBENTURE IS A GLOBAL SECURITY AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS DEBENTURE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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. MASCO CORPORATION 6.625% Debenture Due April 15, 2018 REGISTERED CUSIP No. 574599 AR7 No. R-2 Masco Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, the principal sum of FIFTY MILLION DOLLARS ($50,000,000) on April 15, 2018, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on April 15 and October 15 of each year, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Debenture, from the April 15 or October 15, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no Interest has been paid or duly provided for on the Debentures since the original issue date (as defined in the Indenture referred to on the reverse hereof) of this Debenture, in which case from the original issue date, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after April 1 or October 1, as the case may be, and before the following April 15 or October 15, this Debenture shall bear interest from such April 15 or October 15; provided, however, 1 that if the Company shall default in the payment of interest on such April 15 or October 15, then this Debenture shall bear interest from the next preceding April 15 or October 15 to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Debentures since the original issue date (as defined in such Indenture) of this Debenture, from the original issue date hereof. The interest so payable on any April 15 or October 15 will, subject to certain exceptions provided in such Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the April 1 or October 1, as the case may be, next preceding such April 15 or October 15, whether or not such April 1 or October 1 is a business day, and may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Debenture set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under such Indenture. ****[end of page 2]*** 2 IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its Chairman of the Board or its President and imprinted with a manual or facsimile of its corporate seal, attested by the manual or facsimile signature of its Secretary or an Assistant Secretary. Dated: April 21, 1997 Masco Corporation By/s/Richard A. Manoogian Chairman of the Board Attest By/s/John R. Leekley Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the securities of the series designated therein referred to in the within-mentioned indenture. THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE BY________________________ AUTHORIZED OFFICER 3 REVERSE OF NOTES This Debenture is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (hereinafter called the ASecurities@) of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of December 1, 1982 (herein called the "Indenture"), duly executed and delivered by the Company to The First National Bank of Chicago (as successor trustee to Morgan Guaranty Trust Company of New York), Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Debenture is one of a series designated as the 6.625% Debentures Due April 15, 2018 of the Company, limited in aggregate principal amount to $250,000,000. In case an Event of Default with respect to the 6.625% Debentures Due April 15, 2018 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66 2/3% in aggregate principal amount of the Securities at the time outstanding of all series to be affected (voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Securities of each such series; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest of premium thereon payable in any coin or currency other than that hereinbefore provided, or impair or affect the right of any holder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid principal amount of Securities of all series to be affected, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Securities so affected then outstanding. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the holders of a majority in aggregate principal amount of the Securities of such series at the time outstanding 4 (or, in the case of certain defaults or Events of Default, all the Securities) may on behalf of the holders of all of the Securities of such series (or all the Securities, as the case may be) waive any such past default or Event of Default under the Indenture and its consequences except a default in the payment of principal of, premium, if any, or interest, if any, on any of the Securities. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or transfer hereof or in substitution herefor, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. The Debentures are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000. Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company for such registration in the Borough of Manhattan, The City of New York, or any other location or locations as may be provided for pursuant to the Indenture, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Debentures may not be redeemed prior to maturity. The Debentures will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the holder hereof as the absolute hereof (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary. All payments made to or upon the order of such holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable hereon. No recourse for the payment of the principal of, or premium, if any, or interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Debenture, or because of the creation of any indebtedness represented thereby, shall 5 be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Debenture which are defined in the Indenture shall have the respective meanings ascribed to them therein. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of that State. ***[end of page 6]*** 6 The following abbreviations, where such abbreviations appear on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-..............Custodian.............. (Cust) (Minor) under Uniform Gifts to Minors Act............................ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE ________________________________________________________________________________ the within Debenture of MASCO CORPORATION and hereby does irrevocably constitute and appoint Attorney to transfer the said Debenture on the books of the within named Company, with full power of substitution in the premises. Dated ___________________ ____________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 7 RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF MASCO CORPORATION October 6, 1998 WHEREAS, Masco Corporation, a Delaware corporation (the "Company") the Company has filed a Registration Statement (No. 33-56043) on Form S-3 with the Securities and Exchange Commission, which is in effect; WHEREAS, the Company desires to create an additional series of securities under the Indenture dated as of December 1, 1982 (as amended to the date hereof, the "Indenture"), with The First National Bank of Chicago, as successor trustee to Morgan Guaranty Trust Company of New York (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 "5.75% Notes Due 2008". 2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to One Hundred Million Dollars ($100,000,000), 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 2.07, 2.08, 2.09, 9.04 or 14.03 of the Indenture. 3. The date on which the principal of the Securities of such series shall be payable is October 15, 2008. 4. The Securities of such series shall bear interest from October 9, 1998, at the rate of 5.75% per annum, payable semi-annually on April 15 and October 15 of each year commencing on April 15, 1999, until the principal thereof is paid or made available for payment. The April 1 or October 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 one or more 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 described in the Company's prospectus supplement dated October 6, 1998 relating to the Securities and, except as described in such prospectus supplement, 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 under Section 3.02 of the Indenture in the Borough of Manhattan, the City of New York, or at any other office or agency designated by the Company, for such purpose pursuant to the Indenture; provided, however, that if Securities in definitive registered form are issued, then 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 on the Company's registry books. 7. The Securities of such series shall not be redeemable prior to maturity. 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 $99,350,000 after an underwriting discount of $650,000. 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), $100,000,000 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, 2 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. 33-56043), 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 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 and Salomon Smith Barney Inc. are appointed as the 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 The First National Bank of Chicago, 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 The First National Bank of Chicago in the Borough of Manhattan, The City of New York 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 The First National Bank of Chicago 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 The First National 3 Bank of Chicago, 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 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 Permanent Global Registered Fixed Rate Security THIS NOTE IS A GLOBAL SECURITY AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO MASCO CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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. MASCO CORPORATION 5.75% Note Due 2008 REGISTERED CUSIP No. 574599AS5 No. R-1 Masco Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, at the office or agency of the Company in the Borough of Manhattan, The City of New York, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) on October 15, 2008, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on April 15 and October 15 of each year, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from the April 15 or October 15, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no Interest has been paid or duly provided for on the Notes since the original issue date (as defined in the Indenture referred to on the reverse hereof) of this Note, in which case from the original issue date, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after April 1 or October 1, as the case may be, and 1 before the following April 15 or October 15, this Note shall bear interest from such April 15 or October 15; provided, however, that if the Company shall default in the payment of interest on such April 15 or October 15, then this Notes shall bear interest from the next preceding April 15 or October 15 to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Notes since the original issue date (as defined in such Indenture) of this Note, from the original issue date hereof. The interest so payable on any April 15 or October 15 will, subject to certain exceptions provided in such Indenture, be paid to the person in whose name this Note is registered at the close of business on the April 1 or October 1, as the case may be, next preceding such April 15 or October 15, whether or not such April 1 or October 1 is a business day, and may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under such Indenture. 2 IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be executed in its corporate name by the manual or facsimile signature of its Chairman of the Board or its President and imprinted with a manual or facsimile of its corporate seal, attested by the manual or facsimile signature of its Secretary or an Assistant Secretary. Dated: October 9, 1998 Masco Corporation By /s/Richard A. Manoogian ----------------------- Chairman of the Board Attest By /s/Richard G. Mosteller ----------------------- Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the securities of the series designated therein referred to in the within-mentioned indenture. THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE BY --------------------- AUTHORIZED OFFICER 3 REVERSE OF NOTES This Note is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (hereinafter called the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture dated as of December 1, 1982 (herein called the "Indenture"), duly executed and delivered by the Company to The First National Bank of Chicago (as successor trustee to Morgan Guaranty Trust Company of New York), Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and holders of the Securities. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Note is one of a series designated as the 5.75% Notes Due 2008 of the Company, limited in aggregate principal amount to $100,000,000. In case an Event of Default with respect to the 5.75% Notes Due 2008 shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66-2/3% in aggregate principal amount of the Securities at the time outstanding of all series to be affected (voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Securities of each such series; provided, however, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest of premium thereon payable in any coin or currency other than that hereinbefore provided, or impair or affect the right of any holder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid principal amount of Securities of all series to be affected, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Securities so affected then outstanding. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the holders of a majority in 4 aggregate principal amount of the Securities of such series at the time outstanding (or, in the case of certain defaults or Events of Default, all the Securities) may on behalf of the holders of all of the Securities of such series (or all the Securities, as the case may be) waive any such past default or Event of Default under the Indenture and its consequences except a default in the payment of principal of, premium, if any, or interest, if any, on any of the Securities. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or transfer hereof or in substitution herefor, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000. Upon due presentment for registration of transfer of this Note at the office or agency of the Company for such registration in the Borough of Manhattan, The City of New York, or any other location or locations as may be provided for pursuant to the Indenture, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Notes may not be redeemed prior to maturity. The Notes will be subject to defeasance and discharge and to defeasance of certain obligations as set forth in the Indenture. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the holder hereof as the absolute hereof (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary. All payments made to or upon the order of such holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable hereon. No recourse for the payment of the principal of, or premium, if any, or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the 5 Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Note which are defined in the Indenture shall have the respective meanings ascribed to them therein. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of that State. 6 The following abbreviations, where such abbreviations appear on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-..............Custodian.............. (Cust) (Minor) under Uniform Gifts to Minors Act......................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ____________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE ________________________________________________________________________________ the within Note of MASCO CORPORATION and hereby does irrevocably constitute and appoint Attorney ________________________________________________________________________ to transfer the said Note on the books of the within-named Company, with full power of substitution in the premises. Dated ___________________ ____________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 7 EX-4.D 4 k82538exv4wd.txt REVOLVING CREDIT AGREEMENT EXHIBIT 4.d EXECUTION COPY US $750,000,000 AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT DATED AS OF NOVEMBER 7, 2003 AMONG MASCO CORPORATION AND MASCO EUROPE S.A.R.L., AS BORROWERS THE BANKS PARTY HERETO AND CITIBANK, N.A., AS SYNDICATION AGENT AND COMMERZBANK AG, BARCLAYS BANK PLC AND KEYBANK NATIONAL ASSOCIATION, AS DOCUMENTATION AGENTS BANK ONE, NA (MAIN OFFICE - CHICAGO), AS ADMINISTRATIVE AGENT - -------------------------------------------------------------------------------- BANC ONE CAPITAL MARKETS, INC. CITIGROUP GLOBAL MARKETS INC. Joint Lead Arrangers - -------------------------------------------------------------------------------- SIDLEY AUSTIN BROWN & WOOD LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I: DEFINITIONS ...................................................................................... 1 SECTION 1.01. Definitions ............................................................................ 1 SECTION 1.02. Accounting Terms and Determinations .................................................... 11 SECTION 1.03. Types of Borrowings .................................................................... 12 SECTION 1.04. Amendment and Restatement .............................................................. 12 ARTICLE II: THE CREDITS ..................................................................................... 12 SECTION 2.01. Borrowings ............................................................................. 12 SECTION 2.02. Notice of Borrowing .................................................................... 13 SECTION 2.03. Notice to Banks; Funding of Loans ...................................................... 13 SECTION 2.04. Noteless Agreement; Evidence of Indebtedness ........................................... 15 SECTION 2.05. Maturity of Loans ...................................................................... 15 SECTION 2.06. Interest Rates ......................................................................... 15 SECTION 2.07. Facility Fees and Utilization Fees ..................................................... 16 SECTION 2.08. Optional Termination or Reduction of Commitments; Conversion to Term Loan ............................................................................. 17 SECTION 2.09. Mandatory Termination of Commitments ................................................... 18 SECTION 2.10. Prepayments ............................................................................ 18 SECTION 2.11. General Provisions as to Payments ...................................................... 18 SECTION 2.12. Funding Losses ......................................................................... 19 SECTION 2.13. Computation of Interest and Fees ....................................................... 20 SECTION 2.14. Withholding Tax Exemption .............................................................. 20 SECTION 2.15. Lending Installations .................................................................. 20 ARTICLE III: CONDITIONS ..................................................................................... 21 SECTION 3.01. Effectiveness of the Original Credit Agreement ......................................... 21 SECTION 3.02. Effectiveness of this Agreement ........................................................ 21 SECTION 3.03. All Borrowings ......................................................................... 22 ARTICLE IV: REPRESENTATIONS AND WARRANTIES .................................................................. 22 SECTION 4.01. Corporate Existence and Power .......................................................... 22 SECTION 4.02. Corporate and Governmental Authorization; No Contravention; Filing; No Immunity .................................................................. 23 SECTION 4.03. Binding Effect ......................................................................... 23 SECTION 4.04. Financial Information .................................................................. 24 SECTION 4.05. Litigation ............................................................................. 24 SECTION 4.06. Compliance with ERISA .................................................................. 24 SECTION 4.07. Environmental Matters .................................................................. 25 SECTION 4.08. Taxes .................................................................................. 25 SECTION 4.09. Not an Investment Company .............................................................. 25 SECTION 4.10. Compliance with Laws ................................................................... 25 SECTION 4.11. Foreign Employee Benefit Matters ....................................................... 25 ARTICLE V: COVENANTS ........................................................................................ 26 SECTION 5.01. Information ............................................................................ 26
SIDLEY AUSTIN BROWN & WOOD LLP i TABLE OF CONTENTS
Page ---- SECTION 5.02. Financial Covenants .................................................................... 28 SECTION 5.03. Limitations on Debt. ................................................................... 29 SECTION 5.04. Negative Pledge ........................................................................ 30 SECTION 5.05. Consolidations, Mergers and Sale of Assets ............................................. 31 SECTION 5.06. Compliance with Laws ................................................................... 31 SECTION 5.07. Use of Proceeds ........................................................................ 32 SECTION 5.08. Insurance .............................................................................. 32 SECTION 5.09. Inspection ............................................................................. 32 ARTICLE VI: DEFAULTS ........................................................................................ 32 SECTION 6.01. Events of Default ...................................................................... 32 SECTION 6.02. Notice of Default ...................................................................... 35 ARTICLE VII: THE AGENT ...................................................................................... 35 SECTION 7.01. Appointment and Authorization .......................................................... 35 SECTION 7.02. Agent and Affiliates ................................................................... 35 SECTION 7.03. Action by Agent ........................................................................ 35 SECTION 7.04. Consultation with Experts .............................................................. 35 SECTION 7.05. Liability of Agent ..................................................................... 35 SECTION 7.06. Indemnification ........................................................................ 36 SECTION 7.07. Credit Decision ........................................................................ 36 SECTION 7.08. Successor Agent ........................................................................ 36 SECTION 7.09. Agent's and Arrangers' Fees ............................................................ 36 SECTION 7.10. Agent, Arrangers, Documentation Agents, Syndication Agent, Senior Managing Agents, Co-Agent .................................................................... 36 ARTICLE VIII: CHANGE IN CIRCUMSTANCES ....................................................................... 36 SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair ............................... 36 SECTION 8.02. Illegality ............................................................................. 37 SECTION 8.03. Increased Cost and Reduced Return ...................................................... 37 SECTION 8.04. Substitute Loans ....................................................................... 39 SECTION 8.05. Substitution of Bank ................................................................... 40 ARTICLE IX: MISCELLANEOUS ................................................................................... 40 SECTION 9.01. Notices ................................................................................ 40 SECTION 9.02. No Waivers ............................................................................. 40 SECTION 9.03. Expenses; Documentary Taxes; Indemnification ........................................... 41 SECTION 9.04. Sharing of Set-Offs .................................................................... 41 SECTION 9.05. Amendments and Waivers ................................................................. 42 SECTION 9.06. Successors and Assigns ................................................................. 42 SECTION 9.07. Collateral ............................................................................. 45 SECTION 9.08. Confidentiality ........................................................................ 45 SECTION 9.09. Severalty of Obligations ............................................................... 46 SECTION 9.10. Illinois Law; Submission to Jurisdiction ............................................... 46 SECTION 9.11. Counterparts; Integration .............................................................. 46 SECTION 9.12. WAIVER OF JURY TRIAL; SERVICE OF PROCESS. .............................................. 46
SIDLEY AUSTIN BROWN & WOOD LLP ii TABLE OF CONTENTS
Page ---- SECTION 9.13. USA Patriot Act Notification ........................................................... 46 ARTICLE X: GUARANTY ........................................................................................ 47 SECTION 10.01. Guarantee of Obligations ............................................................... 47 SECTION 10.02. Nature of Guaranty ..................................................................... 48 SECTION 10.03. Waivers and Other Agreements ........................................................... 48 SECTION 10.04. Obligations Absolute ................................................................... 48 SECTION 10.05. No Investigation by Banks or Agent ..................................................... 49 SECTION 10.06. Indemnity .............................................................................. 49 SECTION 10.07. Subordination, Subrogation, Reinstatement, Etc ......................................... 49
EXHIBITS Exhibit A - Form of Note Exhibit B- 1 - Form of Opinion of Counsel for the Company Exhibit B-2 - Form of Opinion of Counsel for Masco Europe Exhibit C - Form of Assignment and Assumption Agreement Exhibit D - Form of Notice of Borrowing Exhibit E - Form of Designation Agreement SCHEDULES Commitment Schedule Pricing Schedule SIDLEY AUSTIN BROWN & WOOD LLP iii AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT This AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT dated as of November 7, 2003 is entered into among MASCO CORPORATION and MASCO EUROPE S.A.R.L., as borrowers, the BANKS party hereto as lenders, CITIBANK, N.A., as Syndication Agent, COMMERZBANK AG, BARCLAYS BANK PLC and KEYBANK NATIONAL ASSOCIATION, as Documentation Agents, and BANK ONE, NA (Main Office - -Chicago), as administrative agent. The parties hereto agree as follows: ARTICLE I: DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ACQUIRED DEBT" means, with respect to any Person which previously became or hereafter becomes a Subsidiary, Debt of such Person which was outstanding before such Person became a Subsidiary and which was not created in contemplation of such Person becoming a Subsidiary; provided that such Debt shall no longer constitute "Acquired Debt" at any time that is more than six months after such Person becomes a Subsidiary. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Company) duly completed by such Bank. "AFFECTED BANK" has the meaning set forth in Section 8.05. "AFFILIATE" means at any date a Person (other than a Consolidated Subsidiary) whose earnings or losses (or the appropriate proportionate share thereof) would be included in determining the Consolidated Net Income of the Company and its Consolidated Subsidiaries for a period ending on such date under the equity method of accounting for investments in common stock (and certain other investments). "AGENT" means Bank One, NA in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the Banks, as reduced from time to time pursuant to the terms hereof. "AGREEMENT" when used with reference to this Agreement, means this Amended and Restated 364-Day Revolving Credit Agreement dated as of November 7, 2003, as amended, modified, supplemented or restated from time to time after the date hereof. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Floating Rate Loans, its Domestic Lending Office and (ii) in the case of its Eurodollar Loans, its Eurodollar Lending Office. SIDLEY AUSTIN BROWN & WOOD LLP 1 "APPLICABLE MARGIN" means with respect to any Eurodollar Loan, Floating Rate Loan or the facility fees payable under Section 2.07, as the case may be at any time, the percentage which is applicable at such time as set forth in the Pricing Schedule. "ARRANGERS" means Bane One Capital Markets, Inc. and Citigroup Global Markets Inc. "ASSIGNEE" has the meaning set forth in Section 9.06(C). "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(C), and their respective successors. "BANK ONE" means Bank One, NA (Main Office Chicago), a national banking association. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWERS" means the Company and Masco Europe, and "Borrower" means each of them, as the context may require. "BORROWING" has the meaning set forth in Section 1.03. "CHANGE IN LAW" has the meaning set forth in Section 8.03(A). "CLOSING DATE" means November 7, 2003. "CO-AGENT" means Royal Bank of Canada. "COMMITMENT" means (i) with respect to any Bank listed on the Commitment Schedule, the amount set forth opposite the name of such Bank on the Commitment Schedule, or (ii) with respect to any Assignee, the amount of the transferor Bank's Commitment assigned to such Assignee pursuant to Section 9.06(C), in each case as such amount may be reduced from time to time pursuant to Section 2.08 or 2.09 or changed as a result of an assignment pursuant to Section 9.06(C). "COMMITMENT PERCENTAGE" means at any date of determination, with respect to any Bank, that percentage which the Commitment of such Bank then constitutes of the Aggregate Commitment or, if the Commitments have expired or been terminated, that percentage which the Commitment of such Bank constituted of the Aggregate Commitment immediately prior to such expiration or cancellation. "COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto. "COMMITMENT TERMINATION DATE" means the earlier to occur of (a) the Revolving Loan Termination Date, and (b) the date of termination in whole of the Aggregate SIDLEY AUSTIN BROWN & WOOD LLP 2 Commitment pursuant to Section 2.08 or 2.09 hereof or the Commitments pursuant to Article VI hereof. "COMPANY" means Masco Corporation, a Delaware corporation, and its successors. "COMPANY'S 2002 FORM 10-K" means the Company's annual report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "COMPANY'S EQUITY SECURITIES" means shares of any class of the Company's capital stock or options, warrants or other equity rights to acquire such shares. "CONSOLIDATED ADJUSTED NET WORTH" means at any date (i) Consolidated Net Worth at such date less (ii) the amount (if any) by which the aggregate amount of all equity and other investments in Affiliates of the Company reflected in such Consolidated Net Worth exceeds $250,000,000. "CONSOLIDATED CURRENT ASSETS" means at any date the consolidated current assets of the Company and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED DEBT" means at any date the Debt of the Company and its Consolidated Subsidiaries (other than the guarantee obligations of the Company pursuant to that certain Facility and Guaranty Agreement, dated as of July 10, 2000, by and among the Company, Bank One, NA, as agent, and the other financial institutions from time to time parties thereto), determined on a consolidated basis as of such date. "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income of the Company and its Consolidated Subsidiaries for such period (considered as a single accounting period), but excluding the net income or deficit of any Person (other than the equity in earnings or losses of an Affiliate previously included in such consolidated net income determined under the equity method of accounting for investments) prior to the effective date on which it becomes a Consolidated Subsidiary or is merged into or consolidated with the Company or a Consolidated Subsidiary. "CONSOLIDATED NET LOSS" has the meaning set forth in Section 5.02(A). "CONSOLIDATED NET WORTH" means at any date the consolidated shareholders' equity of the Company and its Consolidated Subsidiaries determined as of such date. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary the accounts of which would be consolidated with those of the Company in its consolidated financial statements as of such date. "CONSOLIDATED TOTAL LIABILITIES" means at any date the aggregate of all liabilities or other items which would appear on the liability side of a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of such date, except the amount so appearing which constitutes Consolidated Net Worth. SIDLEY AUSTIN BROWN & WOOD LLP 3 "CONTINUING DIRECTOR" means any member of the Company's board of directors who either (i) was a member of such board as of the Closing Date or (ii) has been thereafter or hereafter is elected to such board, or nominated for election by stockholders, by a vote of at least two-thirds of the directors who are Continuing Directors at the time of such vote; provided that an individual who is so elected or nominated in connection with a merger, consolidation, acquisition or similar transaction shall not be a Continuing Director unless such individual was a Continuing Director prior thereto. "CONVERSION/CONTINUATION NOTICE" is defined in Section 2.03(E). "CONVERSION DATE" is defined in Section 2.08(C). "CONVERTED LOAN TERMINATION DATE" means the date that is one year after the Conversion Date (or, if such date is not a Domestic Business Day, on the immediately preceding Domestic Business Day). "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property, except trade accounts payable, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (vi) all Debt of others for which such Person is contingently liable. In calculating the amount of any Debt at any date for purposes of this Agreement, accrued interest shall be excluded to the extent that it would be properly classified as a current liability for interest under the heading "Accrued liabilities" (and not under the heading "Notes payable") in a balance sheet prepared as of such date in accordance with the accounting principles and practices used in preparing the balance sheet referred to in Section 4.04(A) and the related footnotes thereto. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DESIGNATION AGREEMENT" has the meaning set forth in Section 9.06(F)(i). "DESIGNATED LENDER" means, with respect to each Designating Lender, each Eligible Designee designated by such Designating Lender pursuant to Section 9.06(F). "DESIGNATING LENDER" means, with respect to each Designated Lender, the Bank that designated such Designated Lender pursuant to Section 9.06(F). "DOCUMENTATION AGENT" shall mean the Documentation Agents named in the first paragraph of this Agreement. "DOLLARS" and "$" shall mean the lawful currency of the United States of America. SIDLEY AUSTIN BROWN & WOOD LLP 4 "DOMESTIC BUSINESS DAY" means any day on which banks generally are open in New York, Detroit and Chicago for the conduct of substantially all of their commercial lending activities and interbank wire transfers can be made on the Fedwire system. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Company and the Agent. "DOMESTIC SUBSIDIARY" means a Subsidiary which is incorporated under the laws of the United States of America or any state thereof. "ELIGIBLE DESIGNEE" means a special purpose corporation, partnership, limited partnership or limited liability company that is administered or sponsored by a Bank or an Affiliate of a Bank and (i) is organized under the laws of the United States or any state thereof, (ii) is engaged primarily in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's. "ENVIRONMENTAL LAWS" means any and all federal, state and local statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA GROUP" means the Company, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURODOLLAR BORROWING" is defined in Section 1.03. "EURODOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURODOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Eurodollar Lending Office) or such other office, branch or SIDLEY AUSTIN BROWN & WOOD LLP 5 affiliate of such Bank as it may hereafter designate as its Eurodollar Lending Office by notice to the Company and the Agent. "EURODOLLAR LOAN" means a Loan to be made by a Bank which is to bear interest at the Eurodollar Rate in accordance with the applicable Notice of Borrowing. "EURODOLLAR MARGIN" means a rate per annum determined in accordance with the Pricing Schedule. "EURODOLLAR RATE" means, with respect to a Eurodollar Loan for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Reference Rate applicable to such Interest Period, divided by (b) one minus the Eurodollar Reserve Percentage, plus (ii) the Eurodollar Margin. "EURODOLLAR REFERENCE RATE" means, with respect to a Eurodollar Loan for the relevant Interest Period, the applicable British Bankers' Association Interest Settlement Rate for deposits in Dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Eurodollar Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, (i) if Reuters Screen FRBD is not available to the Agent for any reason, the applicable Eurodollar Reference Rate for the relevant Interest Period shall instead be the applicable British Bankers' Association Interest Settlement Rate for deposits in Dollars as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two Eurodollar Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, and (ii) if no such British Bankers' Association Interest Settlement Rate is available, the applicable Eurodollar Reference Rate for the relevant Interest Period shall instead be the rate determined by the Agent to be the rate at which Bank One offers to place deposits in Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Eurodollar Business Days prior to the first day of such Interest Period, in the approximate amount of Bank One's relevant Eurodollar Loan and having a maturity equal to such Interest Period. "EURODOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurodollar liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day SIDLEY AUSTIN BROWN & WOOD LLP 6 is not a Domestic Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Effective Rate for such day shall be the average rate quoted to Bank One from three Federal funds brokers of recognized standing selected it on such day on such transactions as determined by the Agent in its sole discretion. "FISCAL QUARTER" means a fiscal quarter of the Company. "FISCAL YEAR" means a fiscal year of the Company. "5-YEAR REVOLVING CREDIT AGREEMENT" means that certain Amended and Restated 5-Year Revolving Credit Agreement, dated as of November 8, 2002 among the Borrowers, Bank One, NA, as Administrative Agent and the financial institutions from time to time parties thereto as lenders, as the same may be amended, restated, supplemented, renewed, extended, refinanced or otherwise modified from time to time. "FLOATING RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the Federal Funds Effective Rate plus 1/2% per annum for such day. "FLOATING RATE LOAN" means a Loan to be made by a Bank which is to bear interest at the Floating Rate in accordance with the applicable Notice of Borrowing or otherwise pursuant to this Agreement. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Company, and of its Subsidiaries or any members of its ERISA Group and is not covered by ERISA pursuant to ERISA Section 4b)(4). "FOREIGN PENSION PLAN" means any employee pension plan as described in Section 3(2) of ERISA for which any member of the ERISA Group is a sponsor or administrator and which (i) is maintained or contributed to for the benefit of employees of the Company, and of its Subsidiaries or any member of its ERISA Group, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law or terms of such Foreign Pension Plan, is required to be funded through a trust. "GUARANTEED OBLIGATIONS" has the meaning set forth in Section 10.01(A). "HIGH QUALITY INVESTMENT" means any investment in (i) direct obligations of the United States of America or any agency thereof, or obligations guaranteed by the United States of America or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and at least P-1 by Moody's or (iii) time deposits with, including certificates of deposit issued by, any Bank which was a party to this Agreement on the Closing Date or any office located in the United States of America of any bank or trust company which is organized under the laws of the United States of America or any State thereof and has capital, surplus and undivided profits aggregating at least $500,000,000; provided in each case that such investment matures within six months from the date of acquisition thereof by the Company or a Subsidiary. SIDLEY AUSTIN BROWN & WOOD LLP 7 "INTERCOMPANY INDEBTEDNESS" has the meaning set forth in Section 10.07. "INTEREST PERIOD" means: (A) with respect to each Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter (or such longer or shorter period requested by the Borrower and acceptable to all of the Banks), as the Borrower may elect in the applicable Notice of Borrowing; provided that: (i) any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day, (ii) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month, (iii) prior to the Commitment Termination Date, no Borrower may select an Interest Period that ends after the earlier of (a) the Revolving Loan Termination Date and (b) the Conversion Date, and (iv) from and after the Conversion Date, no Borrower may select an Interest Period that ends after the Converted Loan Termination Date, (B) with respect to each Floating Rate Borrowing, the period commencing on the date of such Borrowing and ending 90 days thereafter or other mutually agreeable period acceptable between Agent and the Borrower; provided that: (i) any Interest Period which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (ii) any Interest Period applicable prior to the occurrence of the Commitment Termination Date which would otherwise end after the Commitment Termination Date shall end on the Commitment Termination Date, and (iii) any Interest Period applicable after the Conversion Date but prior to the occurrence of the Converted Loan Termination Date which would otherwise end after the Converted Loan Termination Date shall end on the Converted Loan Termination Date. "LENDING INSTALLATION" means, with respect to a Bank or the Agent, the office, branch, subsidiary or affiliate of such Bank or the Agent with respect to Floating Rate Loans or Eurodollar Loans listed on the administrative information sheets provided to the Agent in connection herewith or otherwise selected by such Bank or the Agent pursuant to Section 2.15. SIDLEY AUSTIN BROWN & WOOD LLP 8 "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or similar encumbrance of any kind in respect of such asset; provided that a subordination agreement shall not be deemed to create a Lien. For the purposes of this Agreement, the Company or any Consolidated Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other similar title retention agreement relating to such asset. "LOAN" means a loan made by a Bank pursuant to Section 2.01. "MASCO EUROPE" means Masco Europe, S.a.r.l., a wholly-owned Subsidiary of the Company organized under the laws of the Grand Duchy of Luxembourg, and its successors. "MATERIAL ADVERSE CHANGE" means a material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its Subsidiaries, considered as a whole, from December 31, 2002, as reflected in the financial statements referred to in Section 4.04(A). "MATERIAL DEBT" means Debt (other than the Loans) of the Company and/or one or more of its Subsidiaries, arising (i) in one or more related or unrelated transactions, in an aggregate outstanding principal amount exceeding $50,000,000 or (ii) under the 5-Year Revolving Credit Agreement. "MATERIAL FOREIGN PENSION PLAN" has the meaning set forth in Section 6.01(I). "MATERIAL PLAN" has the meaning set forth in Section 6.01(I). "MOODY'S" has the meaning set forth in the Pricing Schedule. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or, pursuant to an applicable collective bargaining agreement, accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NOTES" means any promissory notes of the Borrowers, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrowers to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" is defined in Section 2.02. "NOTICE TO CONVERT" is defined in Section 2.08(C). "ORIGINAL CREDIT AGREEMENT" means that certain 364-Day Revolving Credit Agreement entered into as of the Original Closing Date among the Borrowers, the financial institutions parties thereto and Bank One, NA, as administrative agent, as amended or otherwise modified as of the date hereof. SIDLEY AUSTIN BROWN & WOOD LLP 9 "ORIGINAL CLOSING DATE" means November 8, 2002. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(B). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PRICING SCHEDULE" means the Pricing Schedule attached hereto. "PRIME RATE" means a rate per annum equal to the prime rate of interest announced from time to time by Bank One or its Parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. "PRIOR PLAN" means at any time (i) any Plan which at such time is no longer maintained or contributed to by any member of the ERISA Group or (ii) any Multiemployer Plan to which no member of the ERISA Group is at such time any longer making contributions or, pursuant to an applicable collective bargaining agreement, accruing an obligation to make contributions. "REFUNDING BORROWING" means a Borrowing which, after application of the proceeds thereof, results in no net increase in the aggregate outstanding principal amount of the Loans made by any Bank. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have terminated, holding more than 50% of the aggregate unpaid principal amount of the Loans. "REPLACEMENT BANK" has the meaning set forth in Section 8.05. "REVOLVING LOAN TERMINATION DATE" means November 4, 2004. SIDLEY AUSTIN BROWN & WOOD LLP 10 "S&P" has the meaning set forth in the Pricing Schedule. "SENIOR MANAGING AGENTS" means Comerica Bank and Merrill Lynch Bank USA "SIGNIFICANT SUBSIDIARIES" means any of Masco Europe or any one or more Subsidiaries which, if considered in the aggregate as a single Subsidiary, would be a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Exchange Act of 1934. For purposes of this Agreement, a type of event shall not be deemed to have occurred with respect to Significant Subsidiaries unless such type of event has occurred with respect to each of the Subsidiaries required to be included to constitute "Significant Subsidiaries" as defined in the preceding sentence. "SUBSIDIARY" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time owned by the Company or by the Company and one or more Subsidiaries or by one or more Subsidiaries. "SYNDICATION AGENT" shall mean the Syndication Agent named in the first paragraph of this Agreement. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "WHOLLY-OWNED SUBSIDIARY" of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Company's independent public accountants) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Company notifies the Agent (and the Agent shall promptly notify each Bank of the contents of any such notice) that the Company wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of SIDLEY AUSTIN BROWN & WOOD LLP 11 such covenant (or if the Agent notifies the Company that the Required Banks wish to amend Article V for such purpose), then the Company's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to a Borrower pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement as "types" of Borrowings either by reference to the pricing of the Loans comprising such Borrowing (e.g., a "Eurodollar Borrowing" is a Borrowing comprised of Eurodollar Loans) or by reference to the provisions of Article II under which participation therein is determined (e.g., a "Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments). SECTION 1.04. Amendment and Restatement. It is the intent of the parties hereto that this Agreement (i) shall re-evidence, in part, the Borrowers' obligations and indebtedness under the Original Credit Agreement, (ii) is entered into in substitution for, and not in payment of, the obligations and indebtedness of the Borrowers under the Original Credit Agreement and (iii) is in no way intended to constitute a novation of any of the Borrowers' obligations and indebtedness which were evidenced by the Original Credit Agreement or any of the other instruments, documents or agreements delivered or executed in connection therewith. Notwithstanding any suggestion herein to the contrary, all Loans made and obligations incurred under the Original Credit Agreement which are outstanding on the Closing Date shall continue as Loans and obligations under (and shall be governed by the terms of) this Agreement. All references herein to "hereunder," "hereof," or words of like import, and all references in any other instrument, document or agreement delivered or executed in connection with the Original Credit Agreement, to the "Credit Agreement" or words of like import shall mean and be a reference to the Original Credit Agreement as amended and restated hereby (and any section references in such instruments, documents or agreements to the Original Credit Agreement shall refer to the applicable equivalent provision set forth herein although the section number thereof may have changed). ARTICLE II: THE CREDITS SECTION 2.01. Borrowings. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to continue to make loans to the Company or Masco Europe in Dollars pursuant to this Section 2.01 from time to time on and after the Closing Date to but excluding the Commitment Termination Date; provided that the aggregate principal amount of the Loans made by such Bank at any one time outstanding shall not exceed the amount of its Commitment at that time. Each Borrowing under this Section 2.01 shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrowers may borrow under this Section, repay, or to the extent permitted by Section 2.10, prepay Loans and reborrow at any time under this Section (it being understood SIDLEY AUSTIN BROWN & WOOD LLP 12 and agreed that MASCO Europe shall be liable only to repay the Loans made to Masco Europe). Amounts repaid pursuant to Section 8.02 shall not be reborrowed except as provided therein. SECTION 2.02. Notice of Borrowing. Each Borrower shall give the Agent notice substantially in the form of Exhibit D (a "Notice of Borrowing") not later than 10:00 a.m. (Detroit time) on (x) the date of each Floating Rate Borrowing, (y) the third Eurodollar Business Day before each Eurodollar Borrowing to the Company, and (z) the fifth Eurodollar Business Day before each Eurodollar Borrowing to Masco Europe, specifying: (A) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Eurodollar Business Day in the case of a Eurodollar Borrowing, (B) the aggregate amount of such Borrowing, (C) whether the Loans comprising such Borrowing are to be Floating Rate Loans or Eurodollar Loans, and (D) in the case of a Eurodollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Notice to Banks; Funding of Loans. (A) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (B) Not later than 12:00 Noon (Detroit time) on the date of each Borrowing, and not later than 12:00 Noon (London time) on the date of each Borrowing requested by Masco Europe, each Bank participating therein shall (except as provided in subsection (C) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in Detroit or London, as the case may be, to the Agent at its relevant address referred to in Section 9.01 or otherwise specified in writing by the Agent to the Banks. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Company at the Agent's aforesaid address in the United States or, to Masco Europe by wire transfer in immediately available funds to Masco Europe's account maintained at Bank One in London, as applicable. (C) If any Bank makes a new Loan hereunder on a day on which the Borrower requesting such Loan is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (B) of this Section, or remitted by such Borrower to the Agent as provided in Section 2.11, as the case may be. SIDLEY AUSTIN BROWN & WOOD LLP 13 (D) Unless the Agent shall have received notice from a Bank prior to the time of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (B) and (C) of this Section and the Agent may, in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the relevant Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Effective Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Nothing in this Section 2.03(1)) shall relieve such Bank or any other Bank of its obligation to make its share of each Borrowing available to the Agent in accordance with the terms of this Agreement. (E) Floating Rate Loans shall continue as Floating Rate Loans unless and until such Floating Rate Loans are converted into Eurodollar Loans pursuant to this Section 2.03(E) or are repaid in accordance with Section 2.10. Each Eurodollar Loan shall continue as a Eurodollar Loan until the end of the then applicable Interest Period therefor, at which time, each such Eurodollar Loan shall be automatically converted into a Floating Rate Loan unless (x) such Eurodollar Loan is or was repaid in accordance with Section 2.10 or (y) the relevant Borrower shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Loan either continue as a Eurodollar Loan for the same or another Interest Period or be converted into a Floating Rate Loan. Subject to the terms of Section 2.01, the Borrowers may elect from time to time to convert all or any part of a Loan of any type into any other type or types of Loans denominated in Dollars; provided that any conversion of any Eurodollar Loan shall be made on, and only on, the last day of the Interest Period applicable thereto; provided, however, that from and after the Conversion Date, and only so long as no Event of Default shall have occurred and be continuing, the Borrowers may elect to convert or continue any Loan at any time, subject to Section 2.12. The relevant Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion or continuation of a Loan not later than 10:00 a.m. (Detroit time) at least one Domestic Business Day, in the case of a conversion into or continuation of a Floating Rate Loan, three Eurodollar Business Days, in the case of a conversion into or continuation by the Company of a Eurodollar Loan denominated in Dollars, or five Eurodollar Business Days, in the case of a conversion or continuation of any Eurodollar Loan by Masco Europe, prior to the date of the requested conversion or continuation, specifying: SIDLEY AUSTIN BROWN & WOOD LLP 14 (a) the requested date, which shall be a Domestic Business Day or in the case of a conversion into or continuation of a Eurodollar Loan, a Eurodollar Business Day, of such conversion or continuation, and (b) the amount and type(s) of Loan(s) into which such Loan is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Loan, the duration of the Interest Period applicable thereto. SECTION 2.04. Noteless Agreement; Evidence of Indebtedness. (A) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Bank resulting from each Loan made by such Bank from time to time, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder. (B) The Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Bank hereunder and (c) the amount of any sum received by the Agent hereunder from each Borrower and each Bank's share thereof. (C) The entries maintained in the accounts maintained pursuant to paragraphs (A) and (B) above shall be prima facie evidence of the existence and amounts of the Loans (including the principal and interest owing) therein recorded; provided, however, that the failure of the Agent or any Bank to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (including the principal and interest owing) in accordance with their terms. (D) Any Bank may request that its Loans be evidenced by a Note. In such event, each Borrower requested by such Bank shall prepare, execute and deliver to such Bank a Note payable to the order of such Bank in substantially the form of Exhibit A. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to this Agreement) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to this Agreement, except to the extent that any such Bank or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (A) and (B) above. SECTION 2.05. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.06. Interest Rates. (A) Each Floating Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Floating Rate for such day. Such interest shall be payable for SIDLEY AUSTIN BROWN & WOOD LLP 15 each Interest Period on the last day thereof. Any overdue principal of or overdue interest on any Floating Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Floating Rate for such day. (B) Each Eurodollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the Eurodollar Rate. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. (C) Any overdue principal of or interest on any Eurodollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the Eurodollar Rate applicable to such Loan prior to its maturity and (ii) the Eurodollar Rate which would be applicable to a Eurodollar Loan to the relevant Borrower hereunder made on such date for a period of one day (or, if such amount due remains unpaid more than three Eurodollar Business Days, then for such other period of time not longer than six months as the Agent may elect, or, if the circumstances described in Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the Floating Rate for such day). (D) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the relevant Borrowers and the participating Banks by telex, cable or facsimile of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error (provided that the determination of such amount or amounts is made on a reasonable basis). SECTION 2.07. Facility Fees and Utilization Fees. (A) The Company shall pay to the Agent, for the account of the Banks ratably in proportion to their Commitments, a facility fee calculated for each day at the facility fee rate for such day determined in accordance with the Pricing Schedule. Such facility fee shall accrue for each day (i) from and including the Closing Date to but excluding the Commitment Termination Date (or earlier date of termination of the Commitments in their entirety), on the Aggregate Commitment (whether used or unused) in effect on such day and (ii) from and including such date of termination of the Commitments to but excluding the date the Loans shall be repaid in their entirety, on the aggregate principal amount of the Loans outstanding on such day. (B) Prior to the earlier of (a) the date of termination of the "Commitments" and the repayment in full in cash of all of the "Loans" and "L/C Obligations" under (and as such terms are defined in) the 5-Year Revolving Credit Agreement and (b) the Conversion Date, for each day on which the sum of (x) the aggregate principal amount of outstanding Loans hereunder plus (y) the aggregate principal amount of outstanding "Loans" and "L/C Obligations" under (and as defined in) the 5-Year Revolving Credit Agreement exceeds 33% of the sum of (i) the Aggregate Commitment hereunder plus (ii) the "Aggregate Commitment" under (and as defined in) the 5-Year Revolving Credit SIDLEY AUSTIN BROWN & WOOD LLP 16 Agreement, a utilization fee at the applicable per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of outstanding Loans for the ratable benefit of the Banks. During the period from and after the date of termination of the "Commitments" and the repayment in full in cash of all of the "Loans" and "L/C Obligations" under (and as such terms are defined in) the 5-Year Revolving Credit Agreement, but prior to the Commitment Termination Date, for each day on which the aggregate principal amount of outstanding Loans exceeds 33% of the Aggregate Commitment, a utilization fee at the applicable per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of the Loans. From and after the Commitment Termination Date a utilization fee at the applicable per annum rate set forth on the Pricing Schedule will accrue on the aggregate principal amount of all outstanding Loans for the ratable benefit of the Banks (it being understood that if the Commitment Termination Date is caused by a termination in whole of the Aggregate Commitment on the Conversion Date pursuant to Section 2.08, then from and after the Conversion Date, a premium of 0.25% shall apply to the aggregate principal amount of all outstanding Loans, as more specifically described in the Pricing Schedule). (C) Fees accrued under this Section shall be payable quarterly in arrears on the date fifteen days after the last day of each March, June, September and December, whether occurring prior to or after the Conversion Date, and upon the termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.08. Optional Termination or Reduction of Commitments; Conversion to Term Loan. (A) The Company may, upon at least three Eurodollar Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. (B) Upon receipt of a notice of termination or reduction pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of the new amount (if any) of such Bank's Commitment and such notice shall not thereafter be revocable by the Company. (C) From and after the Closing Date to and including the Commitment Termination Date, at the Company's option upon written notice (a "Notice to Convert") to the Agent (who shall promptly notify each of the Banks), the Company, on behalf of itself and Masco Europe, may convert the then outstanding aggregate principal amount of the Borrowings hereunder to a term loan. The Notice to Convert shall (i) expressly state the date on which such conversion shall occur (such date being the "Conversion Date"), which date shall be a Domestic Business Day occurring on or before the Commitment Termination Date, (ii) be irrevocable once given and (iii) constitute a representation and warranty by the Company that the conditions contained in Section 3.03 have been satisfied as of the date of such Notice to Convert and as of the Conversion Date. Upon SIDLEY AUSTIN BROWN & WOOD LLP 17 delivery of such Notice to Convert, (i) the Borrowers' option to borrow and reborrow Revolving Loans hereunder, shall terminate, (ii) the Aggregate Commitment shall be reduced to zero, and (iii) the outstanding principal balance of all Loans hereunder shall be due and payable on the earlier of (a) the Converted Loan Termination Date and (b) the date on which all Loans shall become due and payable under Article VI. SECTION 2.09. Mandatory Termination of Commitments. The Commitments shall terminate on the Commitment Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date, unless the Borrowers shall have elected to convert the Loans to a term loan in accordance with the provisions of Section 2.08(C), in which case any Loans (together with all accrued interest thereon) shall be due and payable on the Converted Loan Termination Date (or such earlier date as the Loans shall become due and payable pursuant to Article VI). SECTION 2.10. Prepayments. (A) The Borrowers (i) may prepay any Floating Rate Borrowing at any time without penalty on the same day or (ii) upon at least five Eurodollar Business Days' notice to the Agent, subject to Section 2.12, prepay any Eurodollar Borrowing, in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (B) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.11. General Provisions as to Payments. (A) The Borrowers shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 1:00 p.m. (local time) in Dollars on the date when due to the Agent at its address referred to in Section 9.01 or at any other Lending Installation of the Agent with respect to such obligation as specified in writing by the Agent to the Borrowers. Whenever any payment of principal of, or interest on, the Floating Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Eurodollar Loans shall be due on a day which is not a Eurodollar Business Day, the date for payment thereof shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Eurodollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. SIDLEY AUSTIN BROWN & WOOD LLP 18 (B) Unless the Agent shall have received notice from the relevant Borrower prior to the date on which any payment is due to the Banks hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that such Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate for the first three days and at the Floating Rate thereafter. (C) Each Loan shall be repaid and each payment of interest thereon shall be paid in Dollars. All payments required to be made by the Borrowers hereunder will be made in immediately available funds and shall be applied ratably by the Agent among the Banks. Each payment delivered to the Agent for the account of any Bank shall be delivered promptly by the Agent to such Bank in the same type of funds that the Agent received at its address specified pursuant to Section 9.01 or at any Lending Installation specified in a notice received by the Agent from such Bank. The Agent is hereby authorized to charge any account of the relevant Borrower designated by such Borrower as the account from which payments are to be made and maintained with Bank One or any of its affiliates for each payment of principal, interest and fees as it becomes due hereunder. (D) Subject to Section 2.14, all payments of principal of and interest on the Loans and other amounts payable by the Borrowers to any Bank hereunder shall be made by the Borrowers without setoff, deduction or counterclaim and, subject to the next succeeding sentence, free and clear of, and without deduction or withholding for, or on account of, any present or future taxes, levies, imposts, duties, fees, assessments, or other charges of whatever nature, imposed by any governmental authority, or by any department, agency or other political subdivision or taxing authority. Subject to Section 2.14, if any such taxes, levies, imposts, duties, fees, assessments or other charges are imposed, the relevant Borrower will pay such additional amounts as may be necessary so that payment of principal of and interest on the Loans and other amounts payable hereunder, after withholding or deduction for or on account thereof, will not be less than any amount provided to be paid hereunder. SECTION 2.12. Funding Losses. If any Borrower makes any payment of principal with respect to any Eurodollar Loan (pursuant to Section 2.05, Section 2.10, Article VI, Article VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or if any Borrower fails to borrow any Eurodollar Loan after notice has been given to any Bank in accordance with Section 2.03(A) or if any Borrower fails to prepay any Eurodollar Loan after notice has been given to any Bank in accordance with Section 2.10(B), such Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, SIDLEY AUSTIN BROWN & WOOD LLP 19 provided that such Bank shall have delivered to such Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error, provided that the determination of such loss or expense is made on a reasonable basis. SECTION 2.13. Computation of Interest and Fees. Interest on Floating Rate Loans based on the Prime Rate paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.14. Withholding Tax Exemption. (A) At least five Domestic Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Bank, each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to each of the Company and the Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI and any additional forms necessary for claiming complete exemption from United States withholding taxes (or any successor or substitute forms), certifying in either case that such Bank is entitled to receive payments under this Agreement and the Loans without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form W-8BEN or W-8ECI and any additional forms necessary for claiming complete exemption from United States withholding taxes (or any successor or substitute forms) further undertakes to deliver to each of the Company and the Agent two additional copies of such forms (or any successor or substitute forms) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Company or the Agent to the extent it may lawfully do so, in each case certifying that such Bank is entitled to receive payments under this Agreement and the Loans without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Company and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (B) For any period with respect to which a Bank has failed to provide the Company, the Agent or the relevant Borrower with the appropriate form as required by the foregoing subsection (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided), such Bank shall not be entitled to compensation pursuant to the last sentence of Section 2. 11(D). SECTION 2.15. Lending Installations. Each Bank will book its Loans at the appropriate Lending Installation listed on the administrative information sheets provided to the SIDLEY AUSTIN BROWN & WOOD LLP 20 Agent in connection herewith or such other Lending Installation designated by such Bank in accordance with the penultimate sentence of this Section 2.15. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Bank for the benefit of any such Lending Installation. Each Bank may, by written notice to the Agent and the Borrowers in accordance with Article IX, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made. To the extent reasonably possible, each Bank shall designate a Lending Installation to reduce any liability of a Borrower to such Bank under Article VIII, so long as such designation is not disadvantageous to such Bank in any material respect. ARTICLE III: CONDITIONS SECTION 3.01. Effectiveness of the Original Credit Agreement. The Borrowers hereby confirm that on or prior to the Original Closing Date each of the conditions set forth in Section 3.01 of the Original Credit Agreement were satisfied (or waived in accordance with Section 9.05 of the Original Credit Agreement). SECTION 3.02. Effectiveness of this Agreement. The Banks shall not be required to make any Loans hereunder and this Agreement shall not become effective, unless the Agent shall have received each of the following (with sufficient copies for the Banks): (A) duly executed signature pages to this Agreement from each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of facsimile or other written confirmation from such party that it has executed a counterpart hereof); (B) written opinions of each of (i) John R. Leekley, Senior Vice President- General Counsel of the Company, substantially in the form of Exhibit B-l hereto and (ii) Linklaters Loesch, Luxembourg counsel of Masco Europe, substantially in the form of Exhibit B-2 hereto, and, in each case, covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (C) receipt by the Agent of a certificate of a duly authorized officer of the Company, dated the Closing Date, certifying that (i) as of such date no Default shall have occurred and be continuing, (ii) as of such date the representations and warranties of the Company contained in this Agreement are true in all material respects and (iii) as of such date there has been no Material Adverse Change; (D) receipt by the Agent of all documents it reasonably requested relating to the existence of the Company and Masco Europe, the corporate authority for and the validity of this Agreement and any other matters relevant hereto, including, without limitation, (i) copies of the Certificate of Incorporation or Articles of Association of each Borrower, together with all amendments thereto, each certified by the appropriate governmental officer in its respective jurisdiction of organization, (ii) (a) in the case of the Company, a certificate of good standing certified by the Secretary of State of Delaware and a certificate of good standing certified by the Secretary of State of SIDLEY AUSTIN BROWN & WOOD LLP 21 Michigan, and (b) in the case of Masco Europe, a duly certified excerpt from the Register of Commerce and Companies in Luxembourg, and a non-bankruptcy certificate with respect to Masco Europe, and (iii) a secretary certificate of each Borrower certifying (a) resolutions of the Board of Directors of such Borrower authorizing the execution, delivery and performance of this Agreement and the Notes, (b) the names and true signatures of the incumbent officers or Managers of such Borrower, as applicable, authorized to sign the Agreement and the Notes, (c) that there have been no changes in the Certificate of Incorporation or Articles of Association of such Borrower, as applicable, since the date of the certification thereof by the applicable governmental authority in clause (i) above, and (d) the By-laws or similar document as in effect on the date of such certification and (E) such other documents, instruments and agreements as the Agent may reasonably request. SECTION 3.03. All Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (A) receipt by the Agent of a Notice of Borrowing as required by Section 2.02; (B) the fact that, immediately after such Borrowing, the aggregate outstanding amount of the Loans will not exceed the Aggregate Commitment; (C) the fact that, immediately before and after such Borrowing, (i) in the case of a Refunding Borrowing, no Event of Default shall have occurred and be continuing and (ii) in the case of any other Borrowing, no Default shall have occurred and be continuing; and (D) the fact that the representations and warranties of the Borrowers contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.04(C), 4.05, 4.06 (other than clause (i) thereof), 4.07, 4.10 and 4.11) shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower requesting such Borrowing on the date of such Borrowing as to the facts specified in clauses (B), (C) and (D) of this Section. ARTICLE IV: REPRESENTATIONS AND WARRANTIES The Company represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Company and its Domestic Subsidiaries and Masco Europe are duly organized, validly existing and in good standing under the laws of their respective jurisdiction of formation, and have all requisite powers and all material governmental licenses, authorizations, consents and approvals required to carry on their businesses, considered as a whole, substantially as now conducted. SIDLEY AUSTIN BROWN & WOOD LLP 22 SECTION 4.02. Corporate and Governmental Authorization; No Contravention; Filing; No Immunity. (A) The execution, delivery and performance by the Company and Masco Europe of this Agreement and the Notes are within the Company's and Masco Europe's respective corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except filings under the Securities Exchange Act of 1934) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws or other constitutive documents of the Company or Masco Europe or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or Masco Europe or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. (B) To ensure the enforceability or admissibility in evidence of this Agreement and each Note to which Masco Europe is a party in Luxembourg, it is not necessary that this Agreement or any such Note to which Masco Europe is a party or any other document be filed or recorded with any court or other authority in Luxembourg or that any stamp or similar tax be paid to or in respect of this Agreement or any such Note. The qualification by any Bank or the Agent for admission to do business under the laws of Luxembourg does not constitute a condition to, and the failure to so qualify does not affect, the exercise by any Bank or the Agent of any right, privilege, or remedy afforded to any Bank or the Agent in connection with this Agreement or any Note to which such Masco Europe is a party or the enforcement of any such right, privilege, or remedy against Masco Europe. The performance by any Bank or the Agent of any action required or permitted under this Agreement or any Note will not (i) violate any law or regulation of Luxembourg or any political subdivision thereof, (ii) result in any tax or other monetary liability to such party pursuant to the laws of Luxembourg or political subdivision or taxing authority thereof (other than taxes on the overall net income of such Bank or its Applicable Lending Office or franchise or similar taxes imposed by Luxembourg to the extent such Bank or its Applicable Lending Office shall be situated in Luxembourg), or (iii) violate any rule or regulation of any federation or organization or similar entity of which Luxembourg is a member, except such violations or liabilities, or increases thereof which individually or in the aggregate could not reasonably be expected to have a material adverse effect on the business or financial position of the Company and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or the Notes. (C) Neither Masco Europe nor any of its assets is entitled to immunity from suit, execution, attachment or other legal process. Masco Europe's execution and delivery of this Agreement constitute, and the exercise of its rights and performance of and compliance with its obligations under this Agreement will constitute, private and commercial acts done and performed for private and commercial purposes. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Company and Masco Europe, enforceable against them in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting SIDLEY AUSTIN BROWN & WOOD LLP 23 creditors' rights generally and by general principles of equity, and the Notes when executed and delivered in accordance with this Agreement will constitute valid and binding obligations of the Company and Masco Europe enforceable against it in accordance with their terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. SECTION 4.04. Financial Information. (A) The consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 2002 and the related consolidated statements of income and cash flows for the Fiscal Year then ended, reported on by PricewaterhouseCoopers LLP and set forth in the Company's 2002 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and the consolidated results of their operations and their cash flows for such Fiscal Year. (B) The unaudited condensed consolidated balance sheet of the Company and its Consolidated Subsidiaries as of June 30, 2003 and the related unaudited condensed statements of consolidated income and consolidated cash flows for the three months then ended, set forth in the Company's quarterly report for the fiscal quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, on a basis consistent with the financial statements referred to in subsection (A) of this Section, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three-month period (subject to normal year-end adjustments). (C) No Material Adverse Change has occurred or is continuing. SECTION 4.05. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which, in the reasonable opinion of the Company, has resulted in or is likely to result in a Material Adverse Change or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group (i) has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and (ii) is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (x) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (y) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code, in each case securing an amount greater than SIDLEY AUSTIN BROWN & WOOD LLP 24 $10,000,000 or (z) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Company and its Consolidated Subsidiaries, considered as a whole. SECTION 4.07. Environmental Matters. In the ordinary course of its business, the Company conducts appropriate reviews of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates pertinent liabilities and costs (including, without limitation, capital or operating expenditures required for clean-up or closure of properties presently or previously owned or for the lawful operation of its current facilities, required constraints or changes in operating activities, and evaluation of liabilities to third parties, including employees, together with pertinent costs and expenses). On the basis of this review, the Company has reasonably concluded that Environmental Laws are not likely to have a material adverse effect on the business, financial position or results of operations of the Company and its Consolidated Subsidiaries, considered as a whole. SECTION 4.08. Taxes. United States Federal income tax returns of the Company and its Subsidiaries have been examined and/or closed through the Fiscal Year ended December 31,1999. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes shown as due pursuant to such returns or pursuant to any assessment received by the Company or any Subsidiary, except such taxes, if any, as are being contested in good faith and as to which, in the opinion of the Company, adequate reserves have been provided. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other like governmental charges are, in the opinion of the Company, adequate. SECTION 4.09. Not an Investment Company. The Company is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. Compliance with Laws. The Company complies, and has caused each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder), except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings, (ii) no officer of the Company is aware that the Company or the relevant Subsidiary has failed to comply therewith or (iii) the Company has reasonably concluded that failure to comply is not likely to have a material adverse effect on the business, financial position or results of operations of the Company and its Consolidated Subsidiaries, taken as a whole. SECTION 4.11. Foreign Employee Benefit Matters. (a) Each Material Employee Benefit Plan is in compliance with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan; (b) there are no deficiencies in contributions, payments or other funding required of the Company and its Subsidiaries by applicable law or the governing plan documents with respect to any governmental or statutory Foreign Pension Plan, and the present value of the aggregate accumulated benefit obligations SIDLEY AUSTIN BROWN & WOOD LLP 25 under all other Foreign Pension Plans does not exceed the current fair market value of the assets held in the trusts for such Plans; (c) with respect to any Foreign Employee Benefit Plan maintained or contributed to by any member of the ERISA Group (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained; and (d) there are no actions, suits or claims pending or, to the knowledge of the Company and its Subsidiaries, threatened against the Company or any Subsidiary of it or any member of the ERISA Group with respect to any Foreign Employee Benefit Plan, except in each case where such failure to comply, deficiencies, excess obligations, absence of reserves, or actions, suits or claims would not individually or in the aggregate have a material adverse effect on the business, consolidated financial position or consolidated results of operations of the Company and its Consolidated Subsidiaries, considered as a whole. ARTICLE V: COVENANTS The Company agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Loan or otherwise hereunder remains unpaid: SECTION 5.01. Information. The Company will deliver to each of the Banks: (A) as soon as available and in any event within 95 days after the end of each Fiscal Year, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income and cash flows for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of nationally recognized standing, whose report shall be without material qualification; (B) as soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, a condensed consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such quarter, the related condensed consolidated statement of income for such quarter and the related condensed consolidated statements of income and cash flows for the portion of such Fiscal Year ended at the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified, to the best of his knowledge (subject to normal year-end adjustments), as to fairness of presentation, and consistency with generally accepted accounting principles (except for changes concurred in by the Company's independent public accountants) by the chief financial officer or the treasurer of the Company; (C) simultaneously with the delivery of each set of financial statements referred to in clauses (A) and (B) above, a certificate of the chief financial officer or the treasurer of the Company (x) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 5.02 to 5.04, inclusive, on the date of such financial statements, (y) stating, to the best of his or her knowledge, whether any Default exists on the date of such certificate and (z) if any SIDLEY AUSTIN BROWN & WOOD LLP 26 Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (D) within 15 days after any officer of the Company becomes aware of the existence of any Default, unless such Default shall have been cured before the end of such 15 day period, a certificate of the chief financial officer or the treasurer of the Company setting forth the details of such Default and the action which the Company is taking or proposes to take with respect thereto; (E) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (F) promptly upon the filing thereof, copies of all reports on Forms 10-K, 10-Q and 8-K and similar regular and periodic reports which the Company shall have filed with the Securities and Exchange Commission; (G) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice, (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 404 l(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the treasurer of the Company setting forth details as to such occurrence and action, if any, which the Company or applicable member of the ERISA Group is required or proposes to take; provided that no such certificate shall be required unless the aggregate unpaid actual or potential liability of members of the ERISA Group involved in all events referred to in clauses (i) through (vii) above of which officers of the Company have obtained knowledge and have not previously reported under this clause (G) exceeds $25,000,000; (H) promptly and in any event not more than 5 days after any officer of the Company becomes aware of the occurrence of any event which would cause the representations and warranties set forth in Section 4.11 to be in breach as of such date, a certificate of the chief financial officer or treasurer of the Company setting forth details SIDLEY AUSTIN BROWN & WOOD LLP 27 as to such occurrence and action, if any, which the Company or applicable Subsidiary of the Company is required or proposes to take; (I) immediately after any officer of the Company obtains knowledge of a change in the rating of the Company's outstanding senior unsecured long-term debt securities by Moody's or S&P, a certificate of the chief financial officer or treasurer of the Company setting forth the details thereof; and (J) from time to time such additional information regarding the financial position or business of the Company as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Financial Covenants. (A) Minimum Consolidated Net Worth. At no time will Consolidated Net Worth be less than Minimum Consolidated Net Worth. "Minimum Consolidated Net Worth" means $2,650,000,000, as such amount has been adjusted under the Original Credit Agreement at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on March 31, 2001 and continuing through the Fiscal Quarter Ending on June 30, 2002, and shall continue to be adjusted at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending on September 30, 2002, as follows: (i) increased by 33% of Consolidated Net Income for such Fiscal Quarter; provided that, if Consolidated Net Income for such Fiscal Quarter is a negative number (a "Consolidated Net Loss"), an amount up to 33% of such Consolidated Net Loss shall be applied first to reduce Minimum Consolidated Net Worth to the extent of offsetting prior increases (if any) in Minimum Consolidated Net Worth made pursuant to this clause (i) during the same Fiscal Year and second to reduce (but not below zero) any future increase in Minimum Consolidated Net Worth that would otherwise be made pursuant to this clause (i) during the same Fiscal Year; and (ii) increased by an amount equal to 50% of all increases in Consolidated Net Worth during such Fiscal Quarter attributable to sales or issuances of the Company's Equity Securities; provided that an amount up to 50% of all decreases in Consolidated Net Worth during such Fiscal Quarter attributable to purchases or other retirements of the Company's Equity Securities shall be applied first to offset any increase in Minimum Consolidated Net Worth that would otherwise be made pursuant to this clause (ii) at the end of such Fiscal Quarter, second to reduce Minimum Consolidated Net Worth to the extent of offsetting prior increases (if any) in Minimum Consolidated Net Worth made pursuant to this clause (ii) and third to reduce (but not below zero) any future increase in Minimum Consolidated Net Worth that would otherwise be made pursuant to this clause (ii). (B) Maximum Debt to Capitalization. At no time will the ratio of (i) Consolidated Debt to (ii) the sum of Consolidated Debt and Consolidated Adjusted Net SIDLEY AUSTIN BROWN & WOOD LLP 28 Worth exceed 55%; provided, however, that for the purposes of the limitations provided in, and computations under, this Section 5.02(B), "Debt" shall not include any Debt that is exempt from the incurrence tests in Sections 5.03(A) and (B) as a result of the application of Section 5.03(C) or (D). The foregoing covenants will be tested on a consolidated basis as of the end of each Fiscal Quarter. SECTION 5.03. Limitations on Debt. (A) The Company will not at any time, and will not suffer or permit any Consolidated Subsidiary at any time to, create, incur, issue, guarantee or assume any Debt if, immediately after giving effect thereto, the ratio of (i) Consolidated Debt to (ii) the sum of Consolidated Debt and Consolidated Adjusted Net Worth would exceed 55%. (B) The Company will not at any time suffer or permit any Consolidated Subsidiary to create, incur, issue, guarantee or assume any Debt if, immediately after giving effect thereto, the aggregate outstanding amount (determined at that time) of Debt of all Consolidated Subsidiaries (other than Debt owed to the Company or one or more other Consolidated Subsidiaries) would exceed 30% of Consolidated Net Worth. (C) Subsections (A) and (B) above shall not prevent (i) the Company from creating, incurring, issuing, guaranteeing or assuming Debt for the purpose of extending, renewing or Refunding (as such term is defined in this subsection) an equal or greater principal amount of Debt then outstanding of the Company or of Debt then outstanding of a Consolidated Subsidiary, or (ii) a Consolidated Subsidiary from creating, incurring, issuing, guaranteeing or assuming Debt for the purpose of extending, renewing or Refunding an equal or greater principal amount of Debt then outstanding of such Consolidated Subsidiary, or (iii) the creation, incurrence, issuance, guarantee or assumption of Debt owed to or owned by the Company or a Consolidated Subsidiary; provided, that in no event shall the aggregate principal amount of any such extending, renewing or Refunding Debt under clause (i) or (ii) above exceed the aggregate principal amount of the Debt being extended, renewed or Refunded. For purposes of this subsection (C), Debt is deemed to be for the purpose of "Refunding" other Debt if and to the extent that (i) no later than 5 Domestic Business Days after the refunding Debt is incurred, the Company delivers to the Agent written notice stating that the purpose of such Debt is to refund outstanding Debt and specifying the Debt to be refunded, (ii) the proceeds of such refunding Debt are held in the form of cash or High Quality Investments (free of any Lien except a Lien securing the specified Debt to be refunded) until such specified Debt is repaid and (iii) such specified Debt to be refunded is repaid within 45 days after the refunding Debt is incurred. (D) For purposes of the limitations provided in, and computations under, Sections 5.03(A) and (B), (i) when an entity becomes a Consolidated Subsidiary it shall be deemed to create at such time all the Debt it has outstanding immediately after such time (provided that, if after giving effect to this clause (i), the aggregate outstanding amount of Debt of all Consolidated Subsidiaries (other than Debt owed to the Company SIDLEY AUSTIN BROWN & WOOD LLP 29 or one or more other Consolidated Subsidiaries) would be greater than 30% but less than 60% of Consolidated Net Worth, this clause (i) shall not apply at the time such entity becomes a Consolidated Subsidiary, but such entity shall be deemed to create on the 15th day after it becomes a Consolidated Subsidiary all the Debt it has outstanding on such 15th day), (ii) the disposition (other than to a Consolidated Subsidiary or the Company) by the Company or a Subsidiary of capital stock of any Consolidated Subsidiary which holds Debt of the Company or any other Consolidated Subsidiary so that the Consolidated Subsidiary ceases to be a Consolidated Subsidiary after such disposition shall be deemed the creation of such Debt, and (iii) the disposition (other than to a Consolidated Subsidiary or the Company) of Debt of the Company or any Consolidated Subsidiary by any Consolidated Subsidiary or the Company shall be deemed the creation of such Debt. SECTION 5.04. Negative Pledge. Neither the Company nor any Consolidated Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (A) Liens existing on June 30, 2000 securing Debt outstanding on June 30, 2000 in an aggregate principal amount not exceeding $50,000,000; (B) any Lien existing on any asset of any entity at the time such entity becomes a Consolidated Subsidiary and not created in contemplation of such event; (C) any Lien on any asset securing Debt incurred or assumed solely for the purpose of financing all or any part of the cost of acquiring such asset (or acquiring a corporation or other entity which owned such asset); provided that such Lien attaches to such asset concurrently with or within 90 days after such acquisition; (D) any Lien on any asset of any entity existing at the time such entity is merged or consolidated with or into the Company or a such Consolidated Subsidiary and not created in contemplation of such event; (E) any Lien existing on any asset prior to the acquisition thereof by the Company or a Consolidated Subsidiary and not created in contemplation of such acquisition; (F) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section; provided that such Debt is not increased and is not secured by any additional assets; (G) any Lien in favor of the holder of indebtedness (or any Person or entity acting for or on behalf of such holder) arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings and no Default under Section 6.01 (J) shall have occurred and is continuing in connection therewith; SIDLEY AUSTIN BROWN & WOOD LLP 30 (H) Liens incidental to the normal conduct of its business or the ownership of its assets which (i) do not secure Debt, (ii) do not secure any obligation in an amount exceeding $100,000,000 and (iii) do not in the aggregate materially detract from the value of the assets of the Company and its Consolidated Subsidiaries taken as a whole or in the aggregate materially impair the use thereof in the operation of the business of the Company and its Consolidated Subsidiaries taken as a whole; and (I) Liens securing Debt which are not otherwise permitted by the foregoing clauses of this Section; provided that (i) the aggregate outstanding principal amount of Debt secured by all such Liens on current assets shall not at any time exceed 20% of Consolidated Current Assets and (ii) the aggregate outstanding principal amount of Debt secured by all such Liens (including Liens referred to in clause (i) of this proviso) shall not at any time exceed the sum of (A) 20% of Consolidated Current Assets plus (B) 3% of Consolidated Net Worth. SECTION 5.05. Consolidations, Mergers and Sale of Assets. (A) Neither the Company nor Masco Europe will directly or indirectly sell, lease, transfer or otherwise dispose of all or substantially all of its assets, or merge or consolidate with any other Person, or acquire any other Person through purchase of assets or capital stock, unless either (i) the Company or Masco Europe, as applicable, shall be the continuing or surviving corporation or (ii) the successor or acquiring corporation (if other than the Company or Masco Europe, as applicable) shall be a corporation organized under the laws of (x) one of the States of the United States of America in the case of a merger or consolidation of the Company, or (y) the Grand Duchy of Luxembourg in the case of a merger or consolidation of Masco Europe, and shall assume, by a writing satisfactory in form and substance to the Required Banks, all of the obligations of the Company or Masco Europe, as applicable, under this Agreement and the Notes, including all covenants herein and therein contained, in which case such successor or acquiring corporation shall succeed to and be substituted for the Company or Masco Europe, as applicable, with the same effect as if it had been named herein as a party hereto. (B) No disposition of assets, merger, consolidation or acquisition referred to in subsection (A) of this Section shall be permitted if, immediately after giving effect thereto, the Company would be in Default under any of the terms or provisions of this Agreement. SECTION 5.06. Compliance with Laws. The Company will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings, (ii) no officer of the Company is aware that the Company or any Subsidiary has failed to comply therewith or (iii) the Company has reasonably concluded that failure to comply is not likely to have a material adverse effect on the business, financial position or results of operations the Company and its Consolidated Subsidiaries, taken as a whole. SIDLEY AUSTIN BROWN & WOOD LLP 31 SECTION 5.07. Use of Proceeds. The Borrowers shall use the proceeds of the Loans to provide funds for general corporate purposes, including, commercial paper liquidity, acquisitions, refinancing of Debt and working capital purposes. None of the proceeds of the Loans made under this Agreement will be used in violation of any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System). SECTION 5.08. Insurance. The Company and its Consolidated Subsidiaries considered as a whole will maintain with financially sound and reputable insurance companies insurance in such amounts and covering such risks as is consistent with sound business practice, and the Company will furnish to the Agent upon request full information as to the insurance carried; provided, that the Company and its Subsidiaries may self-insure to the extent the Company reasonably determines that such self insurance is consistent with prudent business practice. SECTION 5.09. Inspection. The Company will, and will cause each Subsidiary to, permit the Agent, by its representatives and agents, to inspect any of the property, books and financial records of the Company and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Subsidiary with, and to be advised as to the same by, their respective officers at such times and intervals, having due regard for the ongoing business of the Company and its Subsidiaries, as the Agent may reasonably request. ARTICLE VI: DEFAULTS SECTION 6.01. Events of Default. If one or more of the folio wing events ("Events of Default") shall have occurred and be continuing: (A) any Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five days of the due date thereof any interest or fees payable under this Agreement; (B) the Company shall fail to observe or perform any covenant contained in Sections 5.02 to 5.05, inclusive; (C) the Company or Masco Europe shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (A) or (B) above) for 30 days after written notice thereof has been given to the Company by the Agent at the request of any Bank; (D) any representation, warranty, certification or statement made by the Company or Masco Europe in this Agreement or any amendment hereof or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed to have been made; provided that, if any representation and warranty deemed to have been made by the Company or Masco Europe pursuant to the last sentence of Section 3.03 as to the satisfaction of the condition of borrowing set forth in clause (C)(i) of Section 3.03 shall have been incorrect solely by reason of the existence of an Event of Default of which the SIDLEY AUSTIN BROWN & WOOD LLP 32 Company was not aware when such representation and warranty was deemed to have been made and which was cured before or promptly after the Company became aware thereof, then such representation and warranty shall be deemed not to have been incorrect in any material respect; (E) the Company or any of its Consolidated Subsidiaries shall fail to make one or more payments in respect of any Material Debt (other than Acquired Debt in an aggregate outstanding principal amount not exceeding $75,000,000) when due or within any applicable grace period, and such failure has not been waived; (F) the Company or any Consolidated Subsidiary shall fail to observe or perform any term, covenant or agreement contained in (i) any instrument or agreement (other than this Agreement) by which it is bound relating to Debt (other than Acquired Debt in an aggregate outstanding principal amount not exceeding $75,000,000) or (ii) the 5-Year Revolving Credit Agreement, or any other event or condition referred to therein shall occur (including, without limitation, any "Default" or "Termination Event" as defined therein), and the effect of all such failures, events and conditions (each a "default") is to cause the maturity of any Material Debt to be accelerated or to permit (any applicable period of grace having expired and any required notice having been given) the holder or holders of any Material Debt (or any Person acting on their behalf) to accelerate the maturity thereof; (G) the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property under any such law, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it under any such law, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or a resolution shall be adopted by either the shareholders or the board of directors of such corporation to authorize any of the foregoing; (H) an involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiary in any United States Federal court or other court of competent jurisdiction seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property under any such law, and in each case such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Company or any Significant Subsidiary as debtors under the federal bankruptcy laws as now or hereafter in effect; (I) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it shall have become liable to pay to SIDLEY AUSTIN BROWN & WOOD LLP 33 the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Liabilities in excess of $50,000,000 (collectively, a "Material Plan") shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $50,000,000 or; the institution by the PBGC or any similar foreign governmental authority of proceedings to terminate a Foreign Pension Plan which could reasonably be expected to subject the Company and its Subsidiaries, taken as a whole, to liability in excess of $50,000,000 (a "Material Foreign Pension Plan"); or a foreign governmental authority shall appoint or institute proceedings to appoint a trustee to administer any Material Foreign Pension Plan in place of the existing administrator; provided that no Event of Default shall exist under this clause (I) with respect to any Prior Plan unless it is reasonably likely that one or more members of the ERISA Group is liable with respect to the relevant Unfunded Liabilities or current payment obligation, as the case may be; (J) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Company or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 45 days; or (K) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Company; or Continuing Directors shall cease to constitute a majority of the board of directors of the Company; or the Company shall cease to be (directly or through its wholly-owned Subsidiaries) the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission under the Act) directly or indirectly of at least 100% of the voting power of the outstanding capital stock of Masco Europe ordinarily having the right to vote at an election of directors; then, and in every such event, the Agent shall if requested by the Required Banks, by notice to the Borrowers, (i) terminate the Commitments and they shall thereupon terminate, and (ii) declare the Loans (together with accrued interest thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; provided that in the case of any of the Events of Default specified in clause (G) or (H) above with respect to the Company or any Significant Subsidiary, without any notice to any Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest SIDLEY AUSTIN BROWN & WOOD LLP 34 thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. SECTION 6.02. Notice of Default. The Agent shall give notice to the Company under Section 6.01 (C) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII: THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Bank One shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Bank One and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or affiliate of the Company as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its directors, officers, agents or employees shall be liable (i) to the Banks for any action taken or not taken by such Person in connection herewith with the consent or at the request of the Required Banks or all Banks, if applicable, or (ii) to the Banks or any Borrower for any action taken or not taken by such Person in the absence of such Person's own gross negligence or willful misconduct. Neither the Agent, the Arrangers nor any of their directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrowers; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SIDLEY AUSTIN BROWN & WOOD LLP 35 SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent (to the extent not reimbursed by the Borrowers) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Agent's gross negligence or willful misconduct) that the Agent may suffer or incur in connection with this Agreement or any action taken or omitted by the Agent hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrowers. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's and Arrangers' Fees. The Company shall pay to each of the Agent and the Arrangers for their own account such fees as agreed upon between the Company, the Agent and the Arrangers and set forth in a separate fee letter among the Agent, the Syndication Agent, the Arrangers and the Company. SECTION 7.10. Agent, Arrangers, Documentation Agents, Syndication Agent, Senior Managing Agents, Co-Agent. None of the Agent, the Arrangers, the Documentation Agents, Syndication Agent, Senior Managing Agents or Co-Agent shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of such Banks or the Agent shall have or be deemed to have a fiduciary relationship with any Bank. Each Bank hereby makes the same acknowledgments with respect to such Banks as it makes with respect to the Agent in Section 7.07. ARTICLE VIII: CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Eurodollar Borrowing: SIDLEY AUSTIN BROWN & WOOD LLP 36 (A) the Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or (B) the Required Banks advise the Agent that the Eurodollar Reference Rate, as determined by the Agent, will not adequately and fairly reflect the cost to such Banks of funding their Eurodollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrowers and the Banks, whereupon until the Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, (x) the obligations of the Banks to make, continue or convert Eurodollar Loans shall be suspended, and (y) each affected Loan shall be converted into a Floating Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the relevant Borrower notifies the Agent at least two Domestic Business Days before the date of any such Eurodollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Floating Rate Borrowing. SECTION 8.02. Illegality. If, after the Closing Date, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Eurodollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Eurodollar Lending Office) to honor its binding legal obligation hereunder to make, maintain or fund its Eurodollar Loans to any Borrower and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrowers, whereupon until such Bank notifies the Borrowers and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Eurodollar Loans to such Borrower or to continue outstanding Loans to such Borrower as Eurodollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Eurodollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. After giving such notice, such Loan of such Bank then outstanding shall be converted to a Floating Rate Loan either (a) on the last day of the then current Interest Period applicable to such Loan if such Bank may lawfully continue to maintain and fund such Loan as a Eurodollar Loan in Dollars to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such loan as a Eurodollar Loan in Dollars to such day. Interest and principal on any such Floating Rate Loan shall be payable on the same dates as, and on a pro rata basis with, the interest and principal payable on the related Eurodollar Loans of the other Banks. SECTION 8.03. Increased Cost and Reduced Return. (A) If on or after the Closing Date, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable SIDLEY AUSTIN BROWN & WOOD LLP 37 Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency (a "Change in Law"): (i) shall subject any Bank (or its Applicable Lending Office) to any tax, duty or other charge with respect to its Eurodollar Loans, its Note or its obligation to make Eurodollar Loans, or shall change the basis of taxation of payments to any Bank (or its Applicable Lending Office) of the principal of or interest on its Eurodollar Loans, or any other amounts due under this Agreement in respect of its Eurodollar Loans, or its obligation to make Eurodollar Loans (except for changes in the rate of tax on the overall net income of such Bank or its Applicable Lending Office or franchise or similar taxes imposed by the United States of America or any State or political subdivision thereof or imposed by the jurisdiction in which such Bank's principal executive office or Applicable Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding, with respect to any Eurodollar Loan, any such requirement included in an applicable Eurodollar Reserve Percentage, associated cost rate or other applicable reserve rate), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Eurodollar Loans, its Note or its obligation to make Eurodollar Loans; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Eurodollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the relevant Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided that, such Bank shall not be entitled to such compensation for increased costs or reductions incurred more than 90 days prior to the date on which it actually demands (or notifies the relevant Borrower that it will demand) such compensation, provided, further that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect. If any Bank demands compensation under this subsection (A), the relevant Borrower may at any time, upon at least five Eurodollar Business Days' prior notice to such Bank through the Agent, prepay in full each then outstanding affected Eurodollar Loan of such Bank, together with accrued interest thereon to the date of prepayment. Concurrently with prepaying each such Eurodollar Loan of such Bank, such Borrower shall borrow a Floating Rate Loan in an equal principal amount from such Bank for an Interest Period coinciding with the remaining term of the Interest Period SIDLEY AUSTIN BROWN & WOOD LLP 38 applicable to such Eurodollar Loan, and such Bank shall make such a Loan notwithstanding any provision herein to the contrary. (B) If any Bank shall have determined that, after the Closing Date, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; provided that such Bank shall not be entitled to such compensation for reductions incurred more than 90 days prior to the date on which it actually demands (or notifies the Company that it will demand) such compensation, provided, further that if the Change in Law giving rise to such reductions in retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof. (C) Each Bank will promptly notify the Borrowers and the Agent of any event of which it has knowledge, occurring after the Closing Date, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error, provided that the determination of such amount or amounts is made on a reasonable basis. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Substitute Loans. If (i) the obligation of any Bank to make Eurodollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 and the Company shall, by at least five Eurodollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section 8.04 shall apply to such Bank, then, unless and until such Bank notifies the Company and the Agent that the circumstances giving rise to such suspension or demand for compensation no longer apply, all Loans which would otherwise be made by such Bank as (or continued as or converted to) Eurodollar Loans shall be made instead as Floating Rate Loans (on which interest and principal shall be payable contemporaneously with the related Eurodollar Loans of the other Banks, as applicable). If such Bank notifies the Company that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Floating Rate Loan made in substitution of a Eurodollar Loan shall be converted into a SIDLEY AUSTIN BROWN & WOOD LLP 39 Eurodollar Loan on the first day of the next succeeding Interest Period applicable to the related Eurodollar Loans of the other Banks. SECTION 8.05. Substitution of Bank. If (i) any Bank shall have failed to fund its pro rata share of any Loan requested by any Borrower hereunder which such Bank is obligated to fund under the terms of this Agreement and which failure has not been cured, (ii) the obligation of any Bank to make Eurodollar Loans has been suspended pursuant to Section 8.02 or (iii) any Bank has demanded compensation under Section 2.11(D) or Section 8.03, (any such Bank affected by clauses (i), (ii) or (iii), herein an "Affected Bank"), the Company shall have the right, with the assistance of the Agent, to seek a mutually satisfactory substitute financial institution or institutions (which may be one or more of the Banks) to purchase the Loans and Notes and assume the Commitment of such Bank in accordance with the provisions of Section 9.06(C) and the Company may make written demand on such Affected Bank (with a copy to the Agent) for the Affected Bank to assign, and such Affected Bank shall use commercially reasonable efforts to assign pursuant to one or more duly executed Assignment and Assumption Agreements five (5) Eurodollar Business Days after the date of such demand, to one or more financial institutions which the Company or the Agent, as the case may be, shall have engaged for such purpose ("Replacement Bank"), all of such Affected Bank's rights and obligations under this Agreement and the other instruments, documents and agreements delivered or executed from time to time in connection herewith (including, without limitation, its Commitment and all Loans owing to it) in accordance with Section 9.06(C). No such assignment by an Affected Bank shall be required unless with respect to such assignment the Affected Bank shall have concurrently received, in cash, all amounts due and owing to the Affected Bank hereunder or under any other instruments, documents and agreements delivered or executed from time to time in connection herewith, including, without limitation, the aggregate outstanding principal amount of the Loans owed to such Bank, together with accrued interest and fees through the date of such assignment, amounts payable under Sections 2.11(D), 2.12, 8.03 and 9.03 with respect to such Affected Bank and compensation payable under Section 2.07. ARTICLE IX: MISCELLANEOUS SECTION 9.01. 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: (x) in the case of any Borrower or the Agent, at its address or its facsimile or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or its facsimile or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrowers. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section 9.01 and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section 9.01: provided that notices to the Agent under Article II or Article VIII shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver SIDLEY AUSTIN BROWN & WOOD LLP 40 thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Documentary Taxes; Indemnification. (A) The Company shall pay (i) all reasonable out-of-pocket expenses of the Agent and the Arrangers, including reasonable fees and disbursements of counsel for the Agent and the Arrangers, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent, the Arrangers and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Company shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Notes. (B) The Company agrees to indemnify and defend the Agent, the Arrangers and each Bank and their respective directors, officers, agents, employees and affiliates from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses substantially relating to or arising out of this Agreement or any Borrower's actual or proposed use of proceeds of Loans hereunder, including but not limited to reasonable attorney's fees and settlement costs; provided that (x) the foregoing indemnity shall not apply to any losses, liabilities, claims, damages or expenses that (i) do not relate to or arise out of this Agreement or (ii) relate to the activities of the parties hereto (other than the Company and its Affiliates) in connection herewith and (y) neither the Agent, the Arrangers nor any Bank shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. (C) In the event that any action taken by any Bank or Agent under this Agreement or any Note results in any tax or other monetary liability to such party pursuant to the laws of Luxembourg or political subdivision or taxing authority thereof (other than taxes on the overall net income of such Bank or its Applicable Lending Office or franchise or similar taxes imposed by Luxembourg to the extent such Bank or its Applicable Lending Office shall be situated in Luxembourg), Masco Europe hereby agrees to indemnify such Bank or the Agent, as the case may be, against (x) any such tax or other monetary liability and (y) any increase in any tax or other monetary liability which results from such action by such Bank or the Agent and, to the extent Masco Europe makes such indemnification, the incurrence of such liability by the Agent or any Bank will not constitute a Default. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of SIDLEY AUSTIN BROWN & WOOD LLP 41 principal and interest due with respect to any Loan held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of any Borrower other than its indebtedness under the Loans. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrowers and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent and no amendment of any provision of this Agreement which subjects any Designated Lender to any additional obligation hereunder shall be effective with respect to such Designated Lender without the written consent of such Designated Lender or its Designating Lender), provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all the Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for the termination of the Commitments, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (v) amend Article X, or (vi) amend this Section 9.05. SECTION 9.06. Successors and Assigns. (A) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks, except as provided in Section 5.05. (B) Any Bank may at any time grant to one or more banks or other institutions, including a Designated Lender, (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrowers and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrowers and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment modification or waiver of any provision of this SIDLEY AUSTIN BROWN & WOOD LLP 42 Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrowers agree that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (C) or (D) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (B). (C) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part of all, but not less than the lesser of (i) (x) $10,000,000 and in multiples of $1,000,000 or (y) if the Assignee is a Bank or an affiliate of such transferor Bank that is a financial institution, $5,000,000 and in multiples of $1,000,000 (or, in either case, such lesser amounts as shall be consented to by the Agent and the Company, which consents will not unreasonably be withheld or delayed) or (ii) the remaining amount of the assigning Bank's commitment (calculated as at the date of such assignment) of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit C hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Company and the Agent (which consents will not unreasonably be withheld or delayed); provided that (a) if an Assignee is a Bank or an affiliate of such transferor Bank that is a financial institution, no such consent of the Company or the Agent shall be required so long as the Agent and the Company are provided with prior written notice of the applicable assignment, and (b) if an Event of Default has occurred and is continuing, no such consent of the Company shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (C), the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $4,000. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Company and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.14. (D) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Loans and Notes, if any, to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. SIDLEY AUSTIN BROWN & WOOD LLP 43 (E) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (F) Designated Lender. (i) Subject to the terms and conditions set forth in this Section 9.06, any Bank may from time to time elect to designate an Eligible Designee to provide all or any part of the Loans to be made by such Bank pursuant to this Agreement; provided the designation of an Eligible Designee by any Bank for purposes of this Section 9.06 shall be subject to the approval of the Borrowers and the Agent (which consents shall not be unreasonably withheld or delayed). Upon the execution by the parties to each such designation of an agreement in the form of Exhibit E hereto (a "Designation Agreement") and the acceptance thereof by the Borrowers and the Agent, the Eligible Designee shall become a Designated Lender for purposes of this Agreement. The Designating Lender shall thereafter have the right to permit the Designated Lender to provide all or a portion of the Loans to be made by the Designating Lender pursuant to the terms of this Agreement and the making of such Loans or portion thereof shall satisfy the obligation of the Designating Lender to the same extent, and as if, such Loan was made by the Designating Lender. As to any Loan made by it, each Designated Lender shall have all the rights a Bank making such Loan would have under this Agreement and otherwise; provided, (x) that all voting rights under this Agreement shall be exercised solely by the Designating Lender and (y) each Designating Lender shall remain solely responsible to the other parties hereto for its obligations under this Agreement, including the obligations of a Bank in respect of Loans made by its Designated Lender. No additional Notes shall be required with respect to Loans provided by a Designated Lender; provided, however, to the extent any Designated Lender shall advance funds, the Designating Lender shall be deemed to hold the Notes in its possession as an agent for such Designated Lender to the extent of the Loan funded by such Designated Lender; provided, further, that any Designated Lender may request a Note in accordance with Section 2.05(.D). Such Designating Lender shall act as administrative agent for its Designated Lender and give and receive notices and communications hereunder. Any payments for the account of any Designated Lender shall be paid to its Designating Lender as administrative agent for such Designated Lender and neither the Borrowers nor the Agent shall be responsible for any Designating Lender's application of any such payments. In addition, any Designated Lender may (i) with notice to, but without the consent of the Borrowers and the Agent, assign all or portions of its interests in any Loans to its Designating Lender or to any financial institution consented to by the Borrowers and the Agent providing liquidity and/or credit facilities to or for the account of such Designated Lender and (ii) subject to advising any such Person that such SIDLEY AUSTIN BROWN & WOOD LLP 44 information is to be treated as confidential in accordance with such Person's customary practices for dealing with confidential, non-public information, disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any guarantee, surety or credit or liquidity enhancement to such Designated Lender. (ii) Each party to this Agreement hereby agrees that it shall not institute against, or join any other person in instituting against any Designated Lender any bankruptcy, reorganization, arrangements, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law for one year and a day after the payment in full of all outstanding senior indebtedness of any Designated Lender; provided that the Designating Lender for each Designated Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage and expense arising out of their inability to institute any such proceeding against such Designated Lender. This Section 9.06(F) shall survive the termination of this Agreement. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Confidentiality. The Agent and each Bank agree that all documentation and other information made available by the Borrowers to the Agent or such Bank, whether under the terms of this Agreement or any other loan agreement, shall (except to the extent required by legal or governmental process or otherwise by law, or if such documentation and other information is publicly available or hereafter becomes publicly available other than by action of the Agent or any Bank, or was theretofore known to the Agent or such Bank independent of any disclosure thereto by the Borrowers) be held in the strictest confidence by Agent or such Bank and used solely in connection with administration of loans from time to time outstanding from Agent or such Bank to the Borrowers; provided that (i) such Bank may disclose such documentation and other information to its affiliates or any other bank or other institution to which such Bank sells or proposes to sell a participation in its Loans hereunder, if such affiliate or other bank or institution, prior to such disclosure, agrees for the benefit of the Borrowers to comply with the provisions of this Section, (ii) such Bank may disclose the provisions of this Agreement and the Notes and the amounts, maturities and interest rates of its Loans to any purchaser or potential purchaser of such Bank's interest in any Loan and (iii) such Bank may disclose such documentation and other information to the extent required, in such Bank's good faith judgment, to enforce its rights under this Agreement and the Notes. The Borrowers agree that the terms of this Section 9.08 shall set forth the entire agreement between the Borrowers, the Agent and each Bank with respect to any confidential information previously or hereafter received by the Agent or such Bank in connection with this Agreement, and this Section 9.08 shall supersede any and all prior confidentiality agreements entered into by the Agent or such Bank with respect to such confidential information. Notwithstanding anything herein to the contrary, confidential information shall not include, and each party hereto (and each employee, representative or other agent of any party hereto) may disclose to any and all Persons, without limitation of any kind, the U.S. federal income tax treatment and U.S. federal income tax SIDLEY AUSTIN BROWN & WOOD LLP 45 structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to such party relating to such tax treatment or tax structure, and it is hereby confirmed that each party hereto has been authorized to make such disclosures since the commencement of discussions regarding the transactions contemplated hereby. SECTION 9.09. Severalty of Obligations. The obligations of the Banks hereunder are several. No failure by any Bank to perform its obligations hereunder shall relieve any other Bank of its obligations hereunder, and no Bank shall be responsible for the performance of any other Bank's obligations hereunder or for any action taken or omitted by any other Bank hereunder. SECTION 9.10. Illinois Law; Submission to Jurisdiction. This Agreement and each Note shall be construed in accordance with and governed by the laws of the State of Illinois. Each Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois State court sitting in Chicago for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.11. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.12. WAIVER OF JURY TRIAL; SER VICE OF PROCESS. (A) EACH OF THE BORROWERS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. (B) EACH BORROWER IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01. AND MASCO EUROPE HEREBY IRREVOCABLY APPOINTS THE COMPANY AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGES HEREOF AS ITS AGENT FOR SERVICE OF PROCESS OUT OF ANY OF THE COURTS REFERRED TO IN SECTION 9.10. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 9.13. USA Patriot Act Notification. The following notification is provided to the Borrowers pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: SIDLEY AUSTIN BROWN & WOOD LLP 46 IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for the Borrowers: When any Borrower opens an account, the Agent and the Banks will ask for such Borrower's name, tax identification number, business address, and other information that will allow the Agent and the Banks to identify such Borrower. The Agent and the Banks may also ask to see such Borrower's legal organizational documents or other identifying documents. ARTICLE X: GUARANTY As an inducement to the Banks and the Agent to enter into the transactions contemplated by this Agreement, the Company agrees with the Banks and the Agent as follows: SECTION 10.01. Guarantee of Obligations. (A) The Company hereby (i) guarantees, as principal obligor and not as surety only, to the Banks the prompt payment of the principal of and any and all accrued and unpaid interest (including interest which otherwise may cease to accrue by operation of any insolvency law, rule, regulation or interpretation thereof) on the Loans and all other obligations of Masco Europe to the Banks and the Agent under this Agreement when due, whether by scheduled maturity, acceleration or otherwise, all in accordance with the terms of this Agreement and the Notes, including, without limitation, fees, reimbursement obligations, default interest, indemnification payments and all reasonable costs and expenses incurred by the Banks and the Agent in connection with enforcing any obligations of Masco Europe hereunder, including without limitation the reasonable fees and disbursements of counsel, (ii) guarantees the prompt and punctual performance and observance of each and every term, covenant or agreement contained in this Agreement and the Notes to be performed or observed on the part of Masco Europe and (iii) agrees to make prompt payment, on demand, of any and all reasonable costs and expenses incurred by the Banks or the Agent in connection with enforcing the obligations of the Company hereunder, including, without limitation, the reasonable fees and disbursements of counsel (all of the foregoing being collectively referred to as the "Guaranteed Obligations"). (B) If for any reason any duty, agreement or obligation of Masco Europe contained in this Agreement shall not be performed or observed by Masco Europe as provided therein, or if any amount payable under or in connection with this Agreement shall not be paid in full when the same becomes due and payable, the Company undertakes to perform or cause to be performed promptly each of such duties, agreements and obligations and to pay forthwith each such amount to the Agent for the account of the Banks regardless of any defense or setoff or counterclaim which Masco Europe may have or assert, and regardless of any other condition or contingency. SIDLEY AUSTIN BROWN & WOOD LLP 47 SECTION 10.02. Nature of Guaranty. The obligations of the Company hereunder constitute an absolute and unconditional and irrevocable guaranty of payment and not a guaranty of collection and are wholly independent of and in addition to other rights and remedies of the Banks and the Agent and are not contingent upon the pursuit by the Banks and the Agent of any such rights and remedies, such pursuit being hereby waived by the Company. SECTION 10.03. Waivers and Other Agreements. The Company hereby unconditionally (a) waives any requirement that the Banks or the Agent, upon the occurrence of an Event of Default first make demand upon, or seek to enforce remedies against Masco Europe before demanding payment under or seeking to enforce the obligations of the Company hereunder, (b) covenants that the obligations of the Company hereunder will not be discharged except by complete performance of all obligations of Masco Europe contained in this Agreement and the Notes, (c) agrees that the obligations of the Company hereunder shall remain in full force and effect without regard to, and shall not be affected or impaired, without limitation, by any invalidity, irregularity or unenforceability in whole or in part of this Agreement or the Notes, or any limitation on the liability of Masco Europe thereunder, or any limitation on the method or terms of payment thereunder which may or hereafter be caused or imposed in any manner whatsoever (including, without limitation, usury laws), (d) waives diligence, presentment and protest with respect to, and any notice of default or dishonor in the payment of any amount at any time payable by Masco Europe under or in connection with this Agreement or the Notes, and further waives any requirement of notice of acceptance of, or other formality relating to, the obligations of the Company hereunder and (e) agrees that the Guaranteed Obligations shall include any amounts paid by Masco Europe to the Banks or the Agent which may be required to be returned to Masco Europe or to their representative or to a trustee, custodian or receiver for Masco Europe. SECTION 10.04. Obligations Absolute. The obligations, covenants, agreements and duties of the Company under this Agreement shall not be released, affected or impaired by any of the following whether or not undertaken with notice to or consent of the Company: (a) an assignment or transfer, in whole or in part, of the Loans made to Masco Europe or of this Agreement or any Note although made without notice to or consent of the Company, or (b) any waiver by any Bank or the Agent or by any other person, of the performance or observance by Masco Europe of any of the agreements, covenants, terms or conditions contained in this Agreement or in the Notes, or (c) any indulgence in or the extension of the time for payment by Masco Europe of any amounts payable under or in connection with this Agreement or any Note, or of the time for performance by Masco Europe of any other obligations under or arising out of this Agreement or any Note, or the extension or renewal thereof, or (d) the modification, amendment or waiver (whether material or otherwise) of any duty, agreement or obligation of Masco Europe set forth in this Agreement or any Note (the modification, amendment or waiver from time to time of this Agreement and the Notes being expressly authorized without further notice to or consent of the Company), or (e) the voluntary or involuntary liquidation, sale or other disposition of all or substantially all of the assets of Masco Europe or any receivership, insolvency, bankruptcy, reorganization, or other similar proceedings, affecting Masco Europe or any of its assets, or (f) the merger or consolidation of Masco Europe or the Company with any other person, or (g) the release of discharge of Masco Europe or the Company from the performance or observance of any agreement, covenant, term or condition contained in this Agreement or any Note, by operation of law, or (h) any other cause whether similar or dissimilar SIDLEY AUSTIN BROWN & WOOD LLP 48 to the foregoing which would release, affect or impair the obligations, covenants, agreements or duties of the Company hereunder. SECTION 10.05. No Investigation by Banks or Agent. The Company hereby waives unconditionally any obligation which, in absence of such provision, the Banks or the Agent might otherwise have to investigate or to assure that there has been compliance with the law of any jurisdiction with respect to the Guaranteed Obligations recognizing that, to save both time and expense, the Company has requested that the Banks and the Agent not undertake such investigation. The Company hereby expressly confirms that the obligations of the Company hereunder shall remain in full force and effect without regard to compliance or noncompliance with any such law and irrespective of any investigation or knowledge of any Bank or the Agent of any such law. SECTION 10.06. Indemnity. As a separate, additional and continuing obligation, the Company unconditionally and irrevocably undertakes and agrees with the Banks and the Agent that, should the Guaranteed Obligations not be recoverable from the Company under Section 10.01 for any reason whatsoever (including, without limitation, by reason of any provision of this Agreement or the Notes or any other agreement or instrument executed in connection herewith being or becoming void, unenforceable, or otherwise invalid under any applicable law) then, notwithstanding any knowledge thereof by any Bank or the Agent at any time, the Company as sole, original and independent obligor, upon demand by the Agent, will make payment to the Agent for the account of the Banks and the Agent of the Guaranteed Obligations by way of a full indemnity in such currency and otherwise in such manner as is provided in this Agreement and the Notes. SECTION 10.07. Subordination, Subrogation, Reinstatement, Etc. The Company agrees that any present or future indebtedness, obligations or liabilities of Masco Europe to Company (the "Intercompany Indebtedness") shall be fully subordinate and subject in right of payment to the prior payment, in full and in cash, of any and all present or future indebtedness, obligations or liabilities of Masco Europe to the Banks and the Agent; provided, that, and not in contravention of the foregoing, so long as no Default has occurred and is continuing the Company may make loans to and receive payments in the ordinary course with respect to such Intercompany Indebtedness to the extent not otherwise prohibited by the terms of this Agreement. Notwithstanding any right of the Company to ask, demand, sue for, take or receive any payment from Masco Europe, all rights, liens and security interests of the Company, whether now or hereafter arising and howsoever existing, in any assets of Masco Europe shall be and are subordinated to the rights of the Banks and the Agent in those assets. The Company agrees that until the Guaranteed Obligations (other than contingent indemnity obligations) have been paid in full (in cash) and satisfied and all financing arrangements pursuant to this Agreement have been terminated, the Company will not assign or transfer to any Person (other than the Agent) any claim the Company has or may have against Masco Europe. The Company waives any right of subrogation to the rights of any Bank or the Agent against Masco Europe or any other person obligated for payment of the Guaranteed Obligations and any right of reimbursement or indemnity whatsoever arising or accruing out of any payment which the Company may make pursuant to this Agreement and the Notes, and any right of recourse to security for the debts and obligations of Masco Europe, unless and until the entire principal balance of and interest on the Guaranteed Obligations shall have been paid in full, and to the SIDLEY AUSTIN BROWN & WOOD LLP 49 extent the Company is an "insider" as defined in Section 101(2) of the United States Bankruptcy Code, such waiver shall be permanent and shall not be revoked or terminated in any event, including payment in full and in cash of the principal and interest of the Guaranteed Obligations. If at any time any payment of any Guaranteed Obligations by Masco Europe is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Masco Europe or otherwise, each of the Company's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SIDLEY AUSTIN BROWN & WOOD LLP 50 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. MASCO CORPORATION, as a Borrower By: /s/ Robert B. Rosowski ----------------------------------- Name: Robert B. Rosowski Title: Vice President and Treasurer 21001 Van Born Road Taylor, Michigan 48180 Attention: President and Senior Vice President General Counsel Telecopy Number: (313) 792-6135 MASCO EUROPE S.A.R.L., as a Borrower By: /s/ Robert B. Rosowski ----------------------------------- Name: Robert B. Rosowski Title: Manager c/o Masco Corporation 21001 Van Born Road Taylor, Michigan 48180 Attention: President and Senior Vice President General Counsel Telecopy Number: (313) 792-6135 SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BANK ONE, NA, as Agent and as a Bank By: /s/ Joseph Perdenza ----------------------------------- Name: Joseph Perdenza Title: Director 333 South Grand Avenue Los Angeles, CA 90071 Attention: Joseph Perdenza Telephone Number: (213) 576-1523 Telecopy Number: (213) 576-1566 E-Mail: joe_perdenza@bankone.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT CITIBANK, N.A., as a Bank and as Syndication Agent By: /s/ Carolyn Kee ----------------------------------- Name: Carolyn Kee Title: Vice President 388 Greenwich Street, 21st Floor New York, NY 10013 Attention: Robert Kane Telephone Number: (212)816-8133 Telecopy Number: (212)816-8301 E-Mail: robert.j.kane@citigroup.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Bank and as a Documentation Agent By: /s/ Graham Warning ----------------------------------- Name: Graham Warning Title: Assistant Treasurer By: /s/ John Marlatt ----------------------------------- Name: John Marlatt Title: Senior Vice President 20 South Clark Street, Suite 2700 Chicago, IL 60603 Attention: John Marlatt Telephone Number: (312) 795-1625 Telecopy Number: (312) 236-2827 E-Mail: jmarlatt@cbkna.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BARCLAYS BANK PLC, as a Bank and as a Documentation Agent By: /s/ Nicholas Bell ------------------------------------ Name: Nicholas Bell Title: Director 200 Park Avenue, 4th Floor New York, NY 10166 Attention: David Barton Telephone Number: (212) 412-7693 Telecopy Number: (212) 412-7511 E-Mail: david.barton@barclayscapital.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT KEYBANK NATIONAL ASSOCIATION, as a Bank and as a Documentation Agent By: /s/ Thomas J. Purcell ----------------------------------- Name: Thomas J. Purcell Title: Senior Vice President 127 Public Square OH-01-27-0606 Cleveland, OH 44114 Attention: Joshua Mayers Telephone Number: (216) 689-0213 Telecopy Number: (216) 689-0489 E-Mail: joshua_mayers@keybank.com SIGNATURE PAGE TO AMENDED AMD RESTATED 364-DAY REVOLVING CREDIT AGREEMENT COMERICA BANK, as a Bank and as a Senior Managing Agent By: /s/ Chris Stergiadis ----------------------------------- Name: Chris Stergiadis Title: Assistant Vice President Comerica Tower 500 Woodward Avenue MC 3265 Detroit, MI 48226 Attention: Chris Stergiadis Telephone Number: (313) 222-9030 Telecopy Number: (313) 222-3776 E-Mail: chris_stergiadis@comerica.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT MERRILL LYNCH BANK USA, as a Bank and as a Senior Managing Agent By: /s/ Louis Alder ----------------------------------- Name: Louis Alder Title: Vice President 15 W. South Temple, Ste. 300 Salt Lake City, UT 84101 Attention: Derek Befus Telephone Number: (801) 526-6814 Telecopy Number: (801) 531-7470 E-Mail: derek_befus@ml.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT ROYAL BANK OF CANADA, as a Bank and as Co-Agent By: /s/ Suzanne Kaicher ----------------------------------- Name: Suzanne Kaicher Title: Manager One Liberty Plaza, 4th Floor New York, NY 10006-1404 Attention: Nigel Delph Telephone Number: (212) 428-6249 Telecopy Number: (212) 428-2319 E-Mail: nigel.delph@rbccm.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BANK HAPOALIM B.M., as a Bank By: /s/ James P. Surless ----------------------------------- Name: JAMES P. SURLESS Title: VICE PRESIDENT By: /s/ Laura Anne Raffa ----------------------------------- Name: LAURA ANNE RAFFA Title: SENIOR VICE PRESIDENT & CORPORATE MANAGER 225 N. Michigan Avenue, Suite 900 Chicago, IL 60601-7601 Attention: Thomas J. Hepperle Telephone Number: (312) 228-6420 Telecopy Number: (312) 228-6490 E-Mail: thepperle@hapoalimusa.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT SVENSKA HANDELSBANKEN AB (publ), as a Bank By: /s/ Nancy Carney ----------------------------------------- Name: Nancy Carney Title: Vice President By: /s/ Jonas Daun ----------------------------------------- Name: Jonas Daun Title: Senior Vice President 153 East 53rd Street New York, NY 10033 Attention: Nancy Carney and David Caceres Telephone Number: (D. Caceres) (212) 326-5171 Telephone Number: (N. Carney) (212) 326-5125 Telecopy Number: (212) 326-2705 E-Mail: naca01@handelsbanken.se dacaOl@handelsbanken.se SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH, as a Bank By: /s/ Shinichiro Munechika ----------------------------------- Name: Shinichiro Munechika Title: Deputy General Manager 227 W. Monroe Street, Suite 2300 Chicago, IL 60606 Attention: Thomas Denio Telephone Number: (312) 696-4665 Telecopy Number: (312) 696-4535 E-Mail: tdenio@btmna.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BNP PARIBAS, as a Bank By: /s/ Rosalie Hawley ------------------------------------------ Name: Rosalie Hawley Title: Director By: /s/ Peter Labrie ------------------------------------------ Name: Peter Labrie Title: Central Region Manager 209 S. LaSalle Street Chicago, IL 60604 Attention: Rosalie Hawley Telephone Number: (312) 977-2203 Telecopy Number: (312) 977-1380 E-Mail: rosalie.hawley@americas.bnpparibas.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT PNC BANK, NATIONAL ASSOCIATION, as a Bank By: /s/ Philip K. Liebscher ----------------------------------- Name: Philip K. Liebscher Title: Vice President 249 Fifth Avenue Pittsburgh, PA 15222-2707 Attention: Philip K. Liebscher Telephone Number: (412) 762-3202 Telecopy Number: (412) 762-6484 E-Mail: philip.liebscher@pncbank.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT DEXIA BANQUE INTERNATIONALE A LUXEMBOURG societe anonyme, as a Bank By: /s/ Marc Schronen ----------------------------------- Name: Marc Schronen Title: Assistant Vice President By: /s/ Charles Gosselin ----------------------------------- Name: Charles Gosselin Title: Senior Vice President Grandes Enterprises & Collectivites 69, route d'Esch L-2953 Luxembourg Europe Attention: Marc Schronen Telephone Number: (352) 4590 2705 Telecopy Number: (352) 4590 3444 E-Mail: marc.schronen@dexis-bil.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT DANSKE BANK AKTIESELSKAB, as a Bank By: /s/ John O'Neill ----------------------------------- Name: John O'Neill Title: Vice President By: /s/ Peter L. Hargraves ----------------------------------- Name: Peter L. Hargraves Title: Vice President 299 Park Avenue New York, NY 10017 Attention: Peter L. Hargraves Telephone Number: (212) 984-8433 Telecopy Number: (212) 984-9567 E-Mail: harg@us.danskebank.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT STANDARD FEDERAL BANK, N.A., as a Bank By: /s/ Andrew R. Craig ----------------------------------- Name: Andrew R. Craig Title: First Vice President 2600 W. Big Beaver Road Mailcode MO900-290 Troy, MI 48084 Attention: Andrew R. Craig Telephone Number: (248) 822-5701 Telecopy Number: (248) 816-4364 E-Mail: andy.craig@abnamro.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT WELLS FARGO BANK, N.A., as a Bank By: /s/ Melissa F. Nachman ----------------------------------- Name: Melissa F. Nachman Title: Vice President By: /s/ Mary D. Falck ----------------------------------- Name: Mary D. Falck Title: Senior Vice President 230 West Monroe Street, Suite 2900 Chicago, IL 60606 Attention: Melissa Nachman Telephone Number: (312) 553-2353 Telecopy Number: (312) 553-4783 E-Mail: mnachman@wellsfargo.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT KBC BANK, N.V., as a Bank By: /s/ Jean-pierre Diels ----------------------------------- Name: JEAN-PIERRE DIELS Title: First Vice President By: /s/ William Cavanaugh ----------------------------------- Name: William Cavanaugh Title: VICE PRESIDENT 125 West 55th Street New York, NY 10019 Attention: William Cavanaugh Telephone Number: (212) 541-0761 Telecopy Number: (212) 541-0793 E-Mail: william.cavanaugh@kbc.be SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT U.S. BANK, N.A., as a Bank By: /s/ Jeff Janza ----------------------------------- Name: Jeff Janza Title: Vice President 777 E. Wisconsin Avenue Galleria Level, MK-WI-TGCB Milwaukee, WI 53202 Attention: Jeff Janza Telephone Number: (414) 765-6999 Telecopy Number: (414) 765-4632 E-Mail: jeff.janza@usbank.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT SUMITOMO MITSUI BANKING CORPORATION, as a Bank By: /s/ Peter R. C. Knight ------------------------------------- Name: Peter R. C. Knight Title: Joint General Manager 277 Park Avenue - 6th Floor New York, NY 10172 Attention: Rohn M. Laudenschlager Telephone Number: (212) 224-4226 Telecopy Number: (212) 224-4384 E-Mail: rohn_laudenschlager@smbcgroup.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT THE NORTHERN TRUST COMPANY, as a Bank By: /s/ Russ Rockenbach ----------------------------------- Name: Russ Rockenbach Title: Vice President 50 S. LaSalle Street, L-8 Chicago, IL 60675 Attention: Russ Rockenbach Telephone Number: (312) 630-6414 Telecopy Number: (312) 444-4906 E-Mail: rrrl@ntrs.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT FIFTH THIRD BANK, Eastern Michigan, as a Bank By: /s/ Andre A. Nazareth ----------------------------------- Name: Andre A. Nazareth Title: Vice President 1000 Town Center, Suite 1500 Southfield, MI 48075 Attention: Andre A. Nazareth Telephone Number: (248) 603-0535 Telecopy Number: (248) 603-0548 E-Mail: andre.nazareth@53.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT NORDEA BANK FINLAND PLC, as a Bank By: /s/ Gerald Chelius ----------------------------------- Name: Gerald Chelius Title: Senior Vice President By: /s/ Thomas P. Hickey ----------------------------------- Name: Thomas P. Hickey Title: Vice President 437 Madison Avenue New York, NY 10022 Attention: Thomas P. Hickey Telephone Number: (212) 318-9306 Telecopy Number: (212) 318-9318 E-Mail: thomas.hickey@nordea.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT THE BANK OF NEW YORK, as a Bank By: /s/ Kenneth McDonnell ----------------------------------- Name: Kenneth McDonnell Title: Vice President 1 Wall Street, 21st Floor New York, NY 10286 Attention: Kenneth McDonnell Telephone Number: (212)635-1066 Telecopy Number: (212)635-7970 E-Mail: kmcdonnell@bankofny.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT UFJ BANK LIMITED, as a Bank By: /s/ Stephen C. Small ----------------------------------- Name: Stephen C. Small Title: Senior Vice President and Area Manager 55 East 52nd Street New York, NY 10055 Attention: Stephen Small Telephone Number: (212) 339-6201 Telecopy Number: (212) 754-1304 E-Mail: stephen_small@ufjbank.co.jp SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BANCA DI ROMA - CHICAGO BRANCH, as a Bank By: /s/ James Semonchik ----------------------------------- Name: James Semonchik Title: Vice President By: /s/ Enrico Verdoscia ----------------------------------- Name: Enrico Verdoscia Title: Senior Vice President 225 W. Washington, Suite 1200 Chicago, IL 60606 Attention: James Semonchik Telephone Number: (312) 704-2629 Telecopy Number: (312) 726-3058 E-Mail: bdrchjs@ameritech.net bdrchjb@ameritech.net SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT TAIPEI BANK, New York Agency, as a Bank By: /s/ Sophia Jing ----------------------------------- Name: Sophia Jing Title: Vice President and General Manager 100 Wall Street, 14th Floor New York, NY 10005 Attention: Dan Xu Telephone Number: (212) 968-9888 Ext.31 Telecopy Number: (212) 968-9800 E-Mail: danfxu@yahoo.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT BANCA NAZIONALE DEL LAVORO S.p.A., New York Branch, as a Bank By: /s/ Francesco Di Mario ----------------------------------- Name: Francesco Di Mario Title: Vice President By: /s/ Carlo Vecchi ----------------------------------- Name: Carlo Vecchi Title: Senior Vice President 25 West 51st Street New York, NY 10019 Attention: Franco Di Mario Telephone Number: (212) 314-0239 Telecopy Number: (212) 765-2978 E-Mail: francodimario@bnlmail.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT MANUFACTURERS AND TRADERS TRUST COMPANY, as a Bank By: /s/ Stewart Shettle ----------------------------------- Name: Stewart Shettle Title: Vice President National Division, 18th Floor 25 S. Charles Street Baltimore, MD 21201 Attention: John-Paul Purssord Telephone Number: (410) 244-4208 Telecopy Number: (410) 244-4239 E-Mail: jpurssord@mandtbank.com SIGNATURE PAGE TO AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT COMMITMENT SCHEDULE (AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT)
Name of Bank Commitment ------------ ---------- Bank One, NA (Main Office Chicago) $ 52,500,000 Citibank, N.A. $ 52,500,000 Commerzbank AG $ 42,500,000 Barclays Bank Plc $ 42,500,000 KeyBank National Association $ 42,500,000 Comerica Bank $ 36,500,000 Merrill Lynch Bank USA $ 36,500,000 Royal Bank of Canada $ 32,333,334 Bank Hapoalim B.M. $ 30,000,000 Svenska Handelsbanken AB $ 27,500,000 The Bank of Tokyo-Mitsubishi, LTD $ 24,500,000 BNP Paribas $ 24,500,000 PNC Bank, National Association $ 24,500,000 Dexia Banque Internationale a Luxembourg $ 24,500,000 Danske Bank $ 24,500,000 Standard Federal Bank $ 24,500,000 Wells Fargo Bank, National Association $ 24,500,000 KBC Bank, N.V. $ 24,500,000 U.S. Bank, National Association $ 24,500,000 Sumitomo Mitsui Banking Corporation $ 24,500,000 The Northern Trust Company $ 20,000,000 Fifth Third Bank $ 15,000,000 Nordea Bank Finland Plc $ 15,000,000 The Bank of New York $ 15,000,000 UFJ Bank Limited $ 10,000,000 Banca Di Roma $ 10,000,000 Taipeibank $ 10,000,000 Banca Nazionale Del Lavoro S.p.A. $ 8,000,000 M & T Bank $ 6,666,666 ------------ TOTAL COMMITMENTS: $750,000,000 ------------
SIDLEY AUSTIN BROWN & WOOD LLP PRICING SCHEDULE The Applicable Margin shall be as determined by the matrix below (expressed as basis points):
Level I Level II Level III Level IV Level V Status Status Status Status Status ------ ------ ------ ------ ------ Facility Fee 7.0 9.0 12.5 15.0 17.5 Eurodollar Margin 30.5 38.5 47.5 60.0 77.5 All-In Drawn Cost 37.5 47.5 60.0 75.0 95.0 Utilization Fee (>33%)(1) 12.5 15.0 15.0 15.0 20.0
(1) Should the Company exercise its option to convert the then outstanding aggregate principal amount of the Borrowings hereunder to a term loan, then pricing on the term loan will be increased to reflect the applicable utilization fee plus an additional 0.25% term loan premium, regardless of the amount converted to the term loan. For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "LEVEL I STATUS" exists at any date if, on such date, the Company's Moody's Rating is A2 or better and the Company's S&P Rating is A or better. "LEVEL II STATUS" exists at any date if, on such date, (i) the Company has not qualified for Level I Status and (ii) the Company's Moody's Rating is A3 or better and the Company's S&P Rating is A- or better. "LEVEL III STATUS" exists at any date if, on such date, (i) the Company has not qualified for Level I Status or Level II Status and (ii) the Company's Moody's Rating is Baal or better and the Company's S&P Rating is BBB+ or better. "LEVEL IV STATUS" exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Company's Moody's Rating is Baa2 or better and the Company's S&P rating is BBB or better. "LEVEL V STATUS" exists at any date if, on such date, the Company has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status. SIDLEY AUSTIN BROWN & WOOD LLP "MOODY'S RATING" means, at any time, the rating issued by Moody's Investors Service, Inc. and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "S&P RATING" means, at any time, the rating issued by Standard and Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and then in effect with respect to the Company's senior unsecured long-term debt securities without third-party credit enhancement. "STATUS" means either Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status. The credit ratings to be utilized for purposes of this Schedule are the ratings assigned to outstanding senior unsecured long-term debt securities of the Company without third party credit support. Ratings assigned to any obligation of the Company which is secured or which has the benefit of third party credit support shall be disregarded. The Applicable Margin shall be determined in accordance with the foregoing table based on the Company's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Company has no Moody's Rating and no S&P Rating, Level V Status shall exist. Notwithstanding the foregoing, if at any time there exists a difference between the Moody's Rating and the S&P Rating, the rating corresponding to the lower of the two ratings shall apply; provided, however, that if the difference is greater than one level, the Status shall be determined based upon the rating one level above the lower of the two ratings. SIDLEY AUSTIN BROWN & WOOD LLP EXHIBIT A FORM OF AMENDED AND RESTATED NOTE _______,_____ _____________ For value received, MASCO CORPORATION, a Delaware corporation MASCO EUROPE S.A.R.L., a corporation organized under the laws of Luxembourg (the "Borrower"), promises to pay to the order of____________________(the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in Dollars at the relevant office of the Agent and as required under the Credit Agreement referenced below. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding shall be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. It is expressly understood and agreed by the Borrower that (a) the original principal balance of this note may have been evidenced by a "Note" under and as defined in the Original Credit Agreement (the "Original Note") executed by the Borrower and payable to the Bank, and (b) in such event, this note (i) re-evidences a portion of the payment obligations previously evidenced by the Original Note, which obligations remain outstanding, (ii) is given in substitution for and not in repayment of the Original Note and (iii) is in no way intended to constitute a novation of the Original Note. This note is one of the Notes referred to in the Amended and Restated 364-Day Revolving Credit Agreement dated as of November 7, 2003 among the Borrower, Masco Corporation Masco Europe S.a.r.l. the banks party thereto and Bank One, NA (Main Office - Chicago), as Agent (as the same may be amended, modified, supplemented or restated from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. SIDLEY AUSTIN BROWN & WOOD LLP 1 This note shall be construed in accordance with and governed by the laws of the State of Illinois. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. MASCO CORPORATION MASCO EUROPE S.A.R.L. By: ___________________________________ Title _____________________________ SIDLEY AUSTIN BROWN & WOOD LLP 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
Amount of Amount of Principal Maturity Notation Date Loan Type of Loan Repaid Date Made By - -------------------------------------------------------------------------------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
SIDLEY AUSTIN BROWN & WOOD LLP 3 EXHIBIT B-1 OPINION OF COUNSEL FOR THE COMPANY Closing Date To the Banks and the Agent Referred to Below c/o Bank One, NA (Main Office - Chicago), as Agent Bank One Plaza Chicago, Illinois 60670 Dear Sirs: I am Senior Vice President-General Counsel of Masco Corporation (the "Company") and in that capacity have responsibility for the general legal affairs of the Company, Masco Europe S.a.r.l., a Wholly-Owned Subsidiary of the Company organized under the laws of Luxembourg ("Masco Europe") and the other Subsidiaries of the Company. I am familiar with the Amended and Restated 364-Day Revolving Credit Agreement dated as of November 7, 2003 (the "Credit Agreement") among the Company, Masco Europe, the Banks party thereto as lenders, Citibank, N.A., as Syndication Agent, Commerzbank AG, Barclays Bank Plc and KeyBank National Association, as Documentation Agents, and Bank One, NA (Main Office - Chicago), as Administrative Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you pursuant to Section 3.02(B) of the Credit Agreement. I, or members of the Company's legal staff, have examined originals or copies, certified or otherwise, identified to my or their satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its businesses substantially as now conducted. 2. The execution, delivery and performance by the Company of the Credit Agreement and the Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action of the Company, require no action in respect of the Company by, or filing in respect of the Company with, any governmental body, agency or official (except filings under the Securities Exchange Act of 1934) and do not contravene, or constitute a default under any provision of applicable law or regulation or of the certificate or by-laws of the Company or of any agreement, judgment, injunction, order, decree or other instrument known to SIDLEY AUSTIN BROWN & WOOD LLP 1 me to be binding upon the Company or result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries under any such agreement or instrument. 3. The Credit Agreement constitutes a valid and binding agreement of the Company and Masco Europe and the Notes constitute valid and binding obligations of the Company and Masco Europe, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which, in my opinion, has resulted in or is likely to result in a Material Adverse Change, or which in any manner draws into question the validity of the Credit Agreement or the Notes. My opinion in paragraph 3 as it relates to Masco Europe is based solely on the opinion of Linklaters Loesch, Luxembourg counsel of Masco Europe, and is limited, qualified and conditioned as provided therein. Very truly yours, John R. Leekley Senior Vice President- General Counsel SIDLEY AUSTIN BROWN & WOOD LLP 2 EXHIBIT B-2 OPINION OF COUNSEL FOR MASCO EUROPE Attached SIDLEY AUSTIN BROWN & WOOD LLP 1 [LINKLATERS LOESCH LETTERHEAD] To the Banks and the Agents referred to below c/o Bank One, NA (Main Office - Chicago), as Agent 7 November 2003 RE: MASCO EUROPE S.A.R.L. - USD $750,000,000 AMENDED AND RESTATED 364-DAY REVOLVING CREDIT AGREEMENT Dear Sirs, 1 INTRODUCTION We have acted as counsel to Masco Europe S.A.R.L., a corporation organized under the laws of the Grand-Duchy of Luxembourg (the "BORROWER") in connection with the Amended and Restated 364-Day Revolving Credit Agreement dated 7 November 2003 (the "AGREEMENT") among Masco Corporation ("MASCO"), the Borrower, the Banks party thereto as lenders, Citibank N.A. as Syndication Agent, Commerzbank AG, Barclays Bank PLC and Keybank National Association, as Documentation Agents, and Bank One, NA (Main Office - Chicago) as Administrative Agent. Terms defined in the Agreement are used herein as therein defined. This opinion is being rendered to you pursuant to Section 3.02 (B) of the Agreement. 2 LUXEMBOURG LAW This opinion is limited to Luxembourg law as applied by the Luxembourg courts and published and in effect on the date of this opinion. It is given on the basis that all matters relating to it will be governed by, and that it (including all terms used in it) will be construed in accordance with, Luxembourg law. In this opinion, Luxembourg legal concepts are expressed in English terms and not in their original French terms. The concepts concerned may not be identical to the concepts described by the same English terms as they exist under the law of other jurisdictions. 3 SCOPE OF INQUIRY For the purpose of this opinion, we have examined the following documents: 3.1 a final draft of the Agreement dated as of 7 November 2003; 3.2 certified coordinated Articles of Incorporation of the Borrower dated 23 January 2003; Linklaters is a partnership under English law. A list of the partners in Linklaters is available on request from the above address. Please refer www.linklaters.com/regulation for important information on the regulatory position of the firm LINKLATERS LOESCH 3.3 an excerpt from the Luxembourg Register of Commerce and Companies concerning the Borrower dated 26 August 2003; 3.4 minutes of resolutions of the Board of Managers of the Borrower dated 4 November 2003; and 3.5 a certificate signed by Mr. Andre Pesch on behalf of the Board of Managers of the Borrower dated 4 November 2003. 4 ASSUMPTIONS For the purpose of this opinion, we have made the following assumptions; 4.1 All copy and draft documents conform to the originals and all originals are genuine and complete. 4.2 Each signature on the originals is the genuine signature of the individual concerned. 4.3 The Agreement constitutes valid and binding obligations of the Borrower under the laws of the State of Illinois applicable thereto. 4.4 The resolutions referred to in paragraph 3.4 have been duly and validly taken and remain in full force and effect without modification. 4.5 The Agreement has been executed in or substantially in the form of the draft examined by us. 4.6 The facts stated in the certificate referred to in paragraph 3.5 are correct. 5 OPINION Based on the documents referred to and the assumptions in paragraph 4 and subject to the qualifications in paragraph 6 and to any matters not disclosed to us, we are of the following opinion: 5.1 The Borrower has been duly incorporated and is existing as a "societe a responsabilite limitee" under the laws of the Grand-Duchy of Luxembourg. 5.2 The Borrower has the corporate power to enter into the Agreement and to execute the Notes. 5.3 The execution, delivery and performance by the Borrower of the Agreement and the Notes have been duly authorised by all necessary corporate action of the Borrower and do not contravene, or constitute a default under any provision of applicable law or regulation or of the Articles of Incorporation of the Borrower. 5.4 Under Luxembourg law, there are no governmental or regulatory filings, consents, approvals or authorisations required by the Borrower for the entering into of the Agreement or the execution of the Notes. 5.5 The execution, delivery and performance of the Agreement and the Notes do not violate Luxembourg law. 5.6 The courts of Luxembourg will recognise and give effect to the jurisdiction clause contained in section 9.10 of the Agreement. Page 2 of 5 LINKLATERS LOESCH 5.7 A judgment of a State or Federal Court located in the State of Illinois would be recognised and enforced by the Courts of Luxembourg subject to applicable exequatur proceedings and the satisfaction of the following criteria: - The foreign Court must properly have had jurisdiction to hear and determine the matter, - The decision of the foreign Court must have been final and conclusive, - The decision of the foreign Court must not have been obtained by fraud, and - The decision of the foreign Court must not be contrary to public policy or have been given in proceedings of criminal nature. 5.8 The courts of Luxembourg will recognise and give effect to the choice of the laws of the State of Illinois as the governing law of the Agreement. 5.9 No stamp duty or registration or similar tax is payable under Luxembourg law in connection with the parties entering into the Agreement or the Borrower executing the Notes, save that registration may be ordered and a registration fee might become payable if and when the Agreement were adduced as evidence in a Luxembourg court or submitted to another Luxembourg public authority ("autorite constituee"). 5.10 It is not necessary under the laws of Luxembourg in order to enable the Agent or the Banks to enforce their rights under the Agreement or any Notes to which the Borrower is a party against the Borrower that the Agent or the Banks should be licensed, qualified or otherwise entitled to carry on business in Luxembourg. By reason of the execution, delivery and performance of the Agreement and the Notes to which it is a party, neither the Agent nor any Bank will be deemed to be resident domiciled or carrying out business in Luxembourg or the subject of taxation under the laws of Luxembourg. 5.11 Neither the Borrower nor any of its properties or assets have any immunity from the jurisdiction of any court or from legal process under the laws of Luxembourg. 5.12 The Borrower is not required by the existing laws of Luxembourg to make any deduction or withholding from any amount due under the Agreement or the Notes. 6 QUALIFICATIONS This opinion is subject to the following qualifications: 6.1 This opinion is subject to all limitations arising from bankruptcy, insolvency, liquidation, moratorium, reorganisation and other laws of general application relating to or affecting the rights of creditors. 6.2 In Luxembourg, remedies such as specific performance and injunction may not be available. 6.3 In Luxembourg, enforcement may be limited by general principles of good faith. 6.4 Claims may become barred under the statutes of limitation or may be or become subject to defences of set-off and counterclaim. Page 3 of 5 LINKLATERS LOESCH 6.5 Where obligations are to be performed in a jurisdiction outside Luxembourg, they may not be enforceable in Luxembourg to the extent that performance would be illegal under the laws of that other jurisdiction. 6.6 Any obligation to pay a sum of money in a currency other than the EURO will be enforceable in Luxembourg in terms of Luxembourg francs or EURO only. Monetary judgments may be expressed in a foreign currency or its EURO equivalent at the time of judgment or payment. 6.7 Obligations to make payments that may be regarded as penalties might not be enforceable under Luxembourg law. 6.8 The admissibility in evidence of the Agreement and/or the Notes before a Luxembourg court or another Luxembourg public authority ("autorite constituee") may require a complete or partial translation of such document into French or German. 6.9 Contractual provisions allowing the service of process against the Borrower could not prevent a Luxembourg court from holding as valid the service of process against the Borrower in accordance with applicable laws at the registered office of the Borrower. 6.10 Luxembourg courts will not necessarily award costs and disbursements in litigation in accordance with contractual provisions in this regard. 6.11 A certificate, determination, calculation or designation of any party to the Agreement as to any matter provided therein might be held by a Luxembourg court not to be conclusive, final and binding if, for example, it could be shown to have an unreasonable or arbitrary basis or in the event of manifest error. 6.12 Any term of the Agreement may be amended orally by the parties thereto or by the conduct of the parties thereto, notwithstanding any provision to the contrary contained therein. 6.13 We reserve our opinion as to the extent to which a Luxembourg court would, in the event of any relevant illegality, sever the offending provisions and enforce the remainder of the transaction of which such provisions form a part, notwithstanding any express contractual provisions in this regard. 6.14 Our opinion that the Borrower is existing is based on the excerpt from the Register of Commerce and Companies. It should be noted that a search in such Register is not capable of revealing conclusively whether or not a winding up petition has been presented because notice of a winding up order or a winding up resolution passed may not be filed immediately with the Register of Commerce and Companies. 6.15 We have not been instructed to review any tax matters (other than those matters expressly mentioned in this opinion) and any reference to Luxembourg law herein shall exclude the laws relating to such matters. 6.16 We express no opinion as to the accuracy of any warranties and representations given on made by the Borrower (expressly or impliedly), save and insofar as the matters warranted are the subject matter of specific opinions in this letter. Page 4 of 5 LINKLATERS LOESCH 7 RELIANCE This opinion is solely for your benefit and the benefit of the Banks and solely for the purpose of the execution and performance of the Agreement and/or the Notes. It is not to be transmitted to anyone else nor is it to be relied upon by anyone else or for any other purpose or quoted or referred to in any public document or filed with anyone without our written consent; provided, that notwithstanding anything in this opinion letter to the contrary, (a) the Borrower and Masco may refer to and file a copy of this opinion as required by applicable securities laws and (b) you may disclose this opinion (i) to prospective successors and assigns of the addressees hereof, (ii) to regulatory authorities having jurisdiction over any of the addressees hereof or their successors and assigns, and (iii) pursuant to valid legal process, in each case without our prior consent. Yours faithfully, Linklaters Loesch /s/ Janine Biver Janine BIVER Page 5 of 5 EXHIBIT C ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of__________ ______,______, among ASSIGNOR (the "Assignor"), ASSIGNEE (the "Assignee"), MASCO CORPORATION (the "Company") and Bank One, NA (Main Office - Chicago), as Agent (the "Agent"). WITNESSETH WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Amended and Restated 364-Day Revolving Credit Agreement dated as of November 7, 2003 among the Company, Masco Europe S.a.r.l., a wholly-owned subsidiary of the Company organized under the laws of Luxembourg, the Banks party thereto as lenders, Citibank, N.A., as Syndication Agent, Commerzbank AG, Barclays Bank Pic and KeyBank National Association, as Documentation Agents, and Bank One, NA (Main Office - Chicago), as Administrative Agent (the "Credit Agreement"). WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrowers in an aggregate principal amount at any time outstanding not to exceed $__________________; WHEREAS, Loans made to the Borrowers by the Assignor under the Credit Agreement in the aggregate principal amount of $_____________________are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $________________________(the "Assigned Amount"), together with a corresponding portion of its outstanding Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Company and the Agent and the payment of the amount specified in Section 3 required to be paid on the date hereof (1) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, SIDLEY AUSTIN BROWN & WOOD LLP 1 and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $___________________.(1) It is understood that facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount, are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. Consent of the Company and the Agent. This Agreement is conditioned upon the consent of the Company and the Agent pursuant to Section 9.06(C) of the Credit Agreement, the execution of this Agreement by the Company and the Agent is evidence of this consent. Pursuant to Section 9.06(C) the Company agrees to execute and deliver or cause to be executed and delivered a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Company, or the validity and enforceability of the obligations of the Company in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Company. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. - ------------------- (1) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. SIDLEY AUSTIN BROWN & WOOD LLP 2 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authored officers as of the date first above written. ASSIGNOR By_________________________________ Title:__________________________ ASSIGNEE By_________________________________ Title:__________________________ MASCO CORPORATION By_________________________________ Title:__________________________ BANK ONE, NA (MAIN OFFICE-CHICAGO), as Agent By_________________________________ Title:__________________________ SIDLEY AUSTIN BROWN & WOOD LLP 3 EXHIBIT D NOTICE OF BORROWING Date To each Bank party to the referenced Credit Agreement c/o Bank One, NA (Main Office - Chicago), as Administrative Agent for the Banks 611 Woodward Avenue Detroit, MI 48226 Attention: ______________________ The Borrower (as hereinafter named), hereby requests a Borrowing pursuant to Section 2.01 of the Amended and Restated 364-Day Revolving Credit Agreement, dated as of November 7, 2003, as amended, supplemented or otherwise modified from time to time (the "Credit Agreement"), by and among Masco Corporation, a Delaware corporation, Masco Europe S.a.r.l., a wholly-owned subsidiary of Masco Corporation organized under the laws of Luxembourg, the Banks party thereto, Citibank, N.A., as Syndication Agent, Commerzbank AG, Barclays Bank Plc and KeyBank National Association, as Documentation Agents, and Bank One, NA (Main Office - Chicago), as Administrative Agent (the "Agent"). Capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. Such Borrowing shall be evidenced by the Borrower's Note, as applicable. (i) Borrower's Name:_______________________________________________________ (ii) The Borrowing is in Dollars in the amount of:__________________________ Existing Loan amount:__________________________________________________ Repayment:_____________________________________________________________ Continuation of Eurodollar Loan (Interest Period ending:______________) Increased amount:______________________________________________________ Total Loan amount:_____________________________________________________ (iii)The Borrowing is to be funded on:_____________________________________ (iv) The Loans comprising such Borrowing shall be made as Floating Rate Eurodollar Loans, (v) In the case of a Eurodollar Borrowing, the Interest Period shall be____ _______________________________________________________________________ _______________________________________________________________________ ______________________________________________________________________. _____________________________ as Borrower SIDLEY AUSTIN BROWN & WOOD LLP 1 EXHIBIT E FORM OF DESIGNATION AGREEMENT Dated_______________, 200_ Reference is made to the $750,000,000 Amended and Restated 364-Day Revolving Credit Agreement dated as of November 7, 2003 (as amended, modified, supplemented or restated from time to time, the "Credit Agreement") among Masco Corporation, a Delaware corporation (the "Company"), Masco Europe S.a.r.l., a wholly-owned subsidiary of the Company organized under the laws of Luxembourg (together with the Company, the "Borrowers"), the Banks party thereto, Citibank, N.A., as Syndication Agent, Commerzbank AG, Barclays Bank Plc and KeyBank National Association, as Documentation Agents, and Bank One, NA (Main Office - Chicago), as Administrative Agent. Terms defined in the Credit Agreement are used herein as therein defined. ________________(the "Designator"), _________________(the "Designee"), and the Borrowers, agree as follows: 1. The Designator hereby designates the Designee, and the Designee hereby accepts such designation, as its Designated Lender under the Credit Agreement. 2. The Designator makes no representations or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by the Borrowers of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Designee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Article IV thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement; (ii) agrees that it will, independently and without reliance upon the Agent, the Designator or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action it may be permitted to take under the Credit Agreement; (iii) confirms that it is an Eligible Designee; (iv) appoints and authorizes the Designator as its administrative agent and attorney-in-fact and grants the Designator an irrevocable power of attorney to receive payments made for the benefit of the Designee under the Credit Agreement and to deliver and receive all communications and notices under the Credit Agreement, if any, that Designee is obligated to deliver or has the right to receive thereunder; (v) acknowledges that it is subject to and bound by the confidentiality provisions of the Credit Agreement (except as permitted under Section 9.08 thereof); and (vi) acknowledges that the Designator retains the sole right and responsibility to vote under the Credit Agreement, including, without limitation, the right to approve any amendment, modification or waiver of any provision of the Credit Agreement, and agrees that the Designee shall be bound by all such votes, approvals, amendments, modifications and waivers and all other agreements of the Designator pursuant to or in connection with the Credit Agreement, all subject to Section 9.05 of the Credit Agreement. SIDLEY AUSTIN BROWN & WOOD LLP 1 4. Following the execution of this Designation Agreement by the Designator, the Designee and the Borrowers, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date of this Designation Agreement shall be the date of acceptance thereof by the Agent, unless otherwise specified on the signature page hereto (the "Effective Date"). 5. Upon such acceptance and recording by the Agent, as of the Effective Date (a) the Designee shall have the right to make Loans as a Bank pursuant to Section 2.01 of the Credit Agreement and the rights of a Bank related thereto and (b) the making of any such Loans by the Designee shall satisfy the obligations of the Designator under the Credit Agreement to the same extent, and as if, such Loans were made by the Designator. 6. This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of Illinois. SIDLEY AUSTIN BROWN & WOOD LLP 2 IN WITNESS WHEREOF, the parties have caused this Designation Agreement to be executed by their respective officers hereunto duly authorized, as of the date first above written. Effective Date(2): NAME OF DESIGNATOR By: _______________________________ Name: _____________________________ Title: ____________________________ NAME OF DESIGNEE By: _______________________________ Name: _____________________________ Title: ____________________________ MASCO CORPORATION By: _______________________________ Name: _____________________________ Title: ____________________________ MASCO EUROPE S.A.R.L. By: _______________________________ Name: _____________________________ Title: ____________________________ Accepted and Approved this _____day of________, _____ BANK ONE, NA (MAIN OFFICE - CHICAGO), as Agent By: _______________________________ Title: ____________________________ _________________ (2) This date should be no earlier than the date of acceptance by the Administrative Agent. SIDLEY AUSTIN BROWN & WOOD LLP 3 EX-10.B 5 k82538exv10wb.txt 1991 LONG TERM STOCK INCENTIVE PLAN EXHIBIT 10.B MASCO CORPORATION 1991 LONG TERM STOCK INCENTIVE PLAN (Amended and Restated February 10, 2004) 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; (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 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. 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 ten 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 or if the employment or consulting relationship is terminated by reason of permanent and total disability, Options shall continue to become exercisable and shall remain exercisable in accordance with their terms and the provisions of this Plan. 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 foregoing provisions of clauses (ii)(D) and (ii)(E) with respect to death, disability and retirement shall apply to all outstanding Options granted prior to September 13, 2000 other than substitute Options granted in replacement of options issued by a company prior to its acquisition by the Company. (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 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 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. (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 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. (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 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 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. (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. 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. (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. EX-10.C 6 k82538exv10wc.txt SUPPLEMENTAL EXECUTIVE RETIREMENT/DISABILITY PLAN EXHIBIT 10.C 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. 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, 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 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. 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 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) 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 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. 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 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 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 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 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 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 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. 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:______________________ November 18, 2002 [Participant Address] Dear [Participant]: As you know the Compensation Committee has approved a revised bonus program for the executive group allowing year-end bonuses to fluctuate within a wide range above and below the normal 50% bonus opportunity historically used by the Company. This change is not, of course, intended to significantly increase or decrease your retirement or disability benefits under our Supplemental Executive Retirement Plan and to prevent such an effect a modification of your existing SERP Agreement is necessary. The amendment to your SERP Agreement set forth below limits the bonus paid with respect to any year included in the SERP retirement calculation to 50% of the salary paid during that year. The amount excluded, however, will be added to the bonus paid for any other year in the SERP retirement calculation, as long as the amount added does not adjust the bonus to an amount in excess of 50% of the salary paid during the year for which the adjusted bonus is paid. In the case of disability payments, in order to avoid a calculation based on a year for which the bonus was significantly higher or lower than the historical 50% level, the amendment would define "Total Compensation" as 150% of your then current salary and your overall disability payments would equal 60% of that amount. The amendments would consist of changing the definitions of "Average Compensation" and "Total Compensation" in your SERP Agreement to read, respectively, 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 50% 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 50% 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, and (z) 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." Total Compensation "If you become Disabled, "Total Compensation" shall mean 150% of your annual base salary rate at the time of your Disability, 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." Should you have any questions regarding the proposed amendment, please feel free to discuss them with Ray Kennedy, Dan Foley, John Leekley or me. If not, I would appreciate your execution and return of a copy of the enclosed amendment 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 the definition of "Average Compensation" and "Total Compensation" as set forth above ___________________________ 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. ________________________________ EX-10.E 7 k82538exv10we.txt 1997 NON-EMPLOYEE DIRECTORS STOCK PLAN EXHIBIT 10.E MASCO CORPORATION 1997 NON-EMPLOYEE DIRECTORS STOCK PLAN (Amended and Restated February 10, 2004) 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 1 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) Each 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 is terminated by reason of death or permanent and total disability, the restrictions on the Restricted Stock will lapse and such Eligible Director's rights to the Shares will become vested on the date of such termination. If an Eligible Director's term is terminated for any reason other than death or permanent and total disability, the Restricted Stock that has not vested shall 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. 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. 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 is terminated for any reason other than death or permanent and total disability at a time when such Director is entitled to exercise an outstanding Stock Option, then at any time or times within three months after termination 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. 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, 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 2 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. Forfeiture. If a Director's term is terminated for any reason other than death, permanent and total disability or following a Change in Control, as hereinafter defined, and if any installments of a Stock Option granted upon any exercise of the Stock Option became exercisable within the two year period prior to the date of such termination (such installments being referred to as the "Subject Options"), by accepting the Stock Option each Director agrees that the following provisions will apply: (1) Upon the demand of the Company such individual 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 such individual would otherwise have, pursuant to the terms of the Plan and the applicable Award 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 such individual by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by such individual hereunder. 6. 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. 7. 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. (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 3 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 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 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. 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 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 4 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 (and, in the case of a Stock Option, reduced by any amount already paid to the Company under Section 5(e) hereof), 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. (f) Applicability. The provisions of this Plan as amended and restated December 6, 2000 shall apply to all outstanding Stock Options and awards of Restricted Stock granted prior to December 6, 2000. (g) Term. No shares shall be awarded under this Plan after May 21, 2007. 5 EX-12 8 k82538exv12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 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 ------------------------------------------ 2003 2002 2001 2000 1999 ------ ------ ---- ------ ---- EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES: Income from continuing operations before income taxes and cumulative effect of accounting change, net.................................... $1,216 $1,001 $305 $ 873 $860 (Deduct) add equity in undistributed (earnings) loss of fifty-percent-or-less-owned companies...................................... -- (10) (1) (10) (19) Add interest on indebtedness, net................. 254 229 233 193 121 Add amortization of debt expense.................. 12 13 10 2 1 Add estimated interest factor for rentals......... 33 26 23 18 15 ------ ------ ---- ------ ---- Earnings before income taxes and cumulative effect of accounting change, net and fixed charges.... $1,515 $1,259 $570 $1,076 $978 ====== ====== ==== ====== ==== FIXED CHARGES: Interest on indebtedness.......................... $ 255 $ 228 $238 $ 201 $125 Amortization of debt expense...................... 12 13 10 2 1 Estimated interest factor for rentals............. 33 26 23 18 15 ------ ------ ---- ------ ---- Total fixed charges............................ $ 300 $ 267 $271 $ 221 $141 ------ ------ ---- ------ ---- PREFERRED STOCK DIVIDENDS (A)....................... $ 16 $ 14 7 -- -- ------ ------ ---- ------ ---- Combined fixed charges and preferred stock dividends...................................... $ 316 $ 281 $278 $ 221 $141 ====== ====== ==== ====== ==== RATIO OF EARNINGS TO FIXED CHARGES.................. 5.1 4.7 2.1 4.9 6.9 ====== ====== ==== ====== ==== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (B)(C).................. 4.8 4.5 2.1 4.9 6.9 ====== ====== ==== ====== ====
(A) Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company. (B) Excluding the 2003 pre-tax income for litigation settlement of $72 million and the non-cash, pre-tax goodwill impairment charge of $142 million, the 2002 pre-tax charge for litigation settlement, net of $147 million, the 2001 non-cash, pre-tax charge of $530 million and the 2000 non-cash, pre-tax charge of $145 million, the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends would be 5.0, 5.0, 4.0, and 5.5 for 2003, 2002, 2001 and 2000, respectively. (C) Prior years have not been adjusted to exclude goodwill amortization expense. EX-21 9 k82538exv21.txt LIST OF SUBSIDIARIES . . . EXHIBIT 21 MASCO CORPORATION (A DELAWARE CORPORATION) Subsidiaries as of January 31, 2004
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 Bath Unlimited, Inc. Delaware 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 Standard Brands Paint Company, Inc. California ColorAxis, Inc. California Brass-Craft Manufacturing Company Michigan Brass-Craft Canada Ltd. Canada Tempered Products, Inc. Taiwan Brasstech, Inc. California Brugman, L.L.C. Delaware 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 The Faucet-Queens Inc. Delaware
*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 - ---- ----------------------------- Gamco Products Company Delaware Hansgrohe AG (37.35%) * Masco GmbH owns 27% of Hansgrohe AG Germany (see subsidiaries listed under Hansgrohe AG under Masco GmbH) H & H Tube & Manufacturing Company Michigan Jarry Realty, Inc. Florida KraftMaid Cabinetry, Inc. Ohio KraftMaid Trucking, Inc. Ohio Landex, Inc. Michigan DM Land, LLC Michigan Tapicerias Pacifico, SA de CV (1%) Mexico Landex of Wisconsin, Inc. Wisconsin Liberty Hardware Mfg. Corp. Florida 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 Cabinetry Holdings, Inc. Delaware Masco Cabinetry, L.L.C. Delaware Texwood Industries, L.P. (99%) Delaware Texwood Industries, L.P. (1%) Delaware Masco Capital Corporation Delaware Masco Holdings Limited Delaware Masco Conference Training Center: Metamora, Inc. Michigan Masco Services Group Corp. Delaware Masco Contractor Services, LLC Delaware Masco Contractor Services Central, Inc. Florida ContractorProducts.com, Inc. Delaware SCE Services, Inc. Delaware Williams Consolidated Delaware, LLC Delaware Williams Consolidated I, Ltd. Texas Masco Contractor Services East, Inc. Delaware Cary Commercial Corporation Delaware Insulpro Industries Inc. Canada 894852 Ontario Ltd. Ontario Arctic Installations (1979) Ltd. British Columbia
*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 - ---- ----------------------------- FCI Insulation Systems, Ltd. British Columbia Ideal Insulation Ltd. Saskatchewan Inland Spray On Inc. British Columbia Insulpro (Kelowana) Ltd. British Columbia Masco Contractor Services West, Inc. California American National Services Corporation Delaware Coast Insulation Contractors, Inc. California InsulPro Projects, Inc. Washington Sacramento Insulation Contractors California Schmid Insulation Contractors, Inc. California Superior Contracting Corporation Delaware Thermac Insulation, Inc. Washington Service Partners, LLC Virginia Service Partners Distribution, LLC Virginia APEC, LLC Virginia Cell-Pak, LLC Alabama Denver Southwest, LLC North Carolina Denver Southwest, LP Virginia Houston Enterprises, LLC Virginia Industrial Products Co., LLC Virginia Insul-Mart, LLC Virginia Insulation Supply, LLC Virginia Insulation Wholesalers, LLC California Johnson Products, LLC Virginia All-Weather Insulation Co., LLC Virginia Moore Products, LLC Virginia R-Factor, 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 Thermoguard Insulation Company, LLC Virginia Virginia Gutter Supply, LLC Virginia United Contractors, LLC Virginia A-1 Insulation, LLC Virginia B & J Insulators of Virginia, LLC Virginia
*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 - ---- ----------------------------- B & J Insulators, LLC Virginia Badham Insulation, LLC Virginia Beard Insulation, LLC Virginia D's Insulation, LLC Virginia Dominion Insulation, Incorporated Virginia Fiberfoil Insulation Company, LLC Virginia Gede Insulation, LLC Virginia G. T. Duke Company, LLC Virginia L & H Insulation, LLC Virginia Lilienthal Insulation Company, LLC Virginia Polar Insulation, LLC Virginia Preferred Insulation & Fireplaces, LLC Virginia Renfrow Insulation, LLC Virginia Richmond Insulation Company, LLC Virginia Salem Insulation & Services, LLC North Carolina Sea Shores Insulation Co., LLC North Carolina Spokane Insulation, LLC Virginia Stafford Insulation and Home Products, LLC Virginia Taylor Insulating Company, LLC Virginia The Insulator, LLC Virginia U-Save Insulation and Fireplaces, LLC Virginia U-Save Insulation and Fireplaces of N.C., LLC Virginia Vest Insulation, LLC Virginia Washington Insulation, Inc. Washington Western Insulation, LP California Western Insulation Holdings, LLC California Masco Corporation of Indiana Indiana Delta Faucet (China) Co. Ltd. China Delta Faucet Company of Tennessee Delaware Delta Faucet of Oklahoma, Inc. Delaware Delta Faucet Services (Thailand) Thailand Hydrotech, Inc. Michigan Liberty Hardware Mfg U.K. United Kingdom Masco Canada Limited Ontario 3072002 Canada Limited Canada Masco Europe, Inc. Delaware Masco Europe SCS Luxembourg
*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 - ---- ----------------------------- Masco Europe S.a.r.l. Luxembourg Aran World s.r.l. Italy CSS Europe NV Belgium GESTMasco - SGdePS Lda Portugal Metalurgica Recor, S.A. Portugal Masco Denmark ApS Denmark Tvilum-Scanbirk A/S Denmark Tvilum-Scanbirk GmbH Germany GMU S.L. Spain Grumal, S.L. Spain Laguntzaille, S.A. Spain Pemec, S.A. Spain Perfima, S.A. Spain Pevac, S.A. Spain Seitu, S.A. Spain XEY Corp. Empresarial, S.L. Spain Burcosa, S.A. Spain Cobade, S.A. Spain Comercial XEY, S.A. Spain Decox, S.A. Spain Lindhogar, S.A. Spain Valcode, S.L. Spain Masco B.V. Netherlands Brugman International, B.V. Netherlands Brugman GmbH Germany Remeha Polska Poland Brugman Polska Sp. z.o.o. Poland Brugman Fabryka Grzejnikow Sp Poland Zoo Brugman Radiatorenfabriek B.V. Netherlands Brugman France SARL France Northor A/S Denmark Damixa A/S Denmark Damixa Armaturen GmbH Germany Damixa SARL France Damixa Nederland B.V. Netherlands Damixa N.V./S.A. 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 - ---- ----------------------------- Glass Idromassaggio Srl (49%) Italy Masco Corporation Limited United Kingdom A&J Gummers Limited United Kingdom Avocet Architectural Products Ltd. United Kingdom Avocet Hardware Limited United Kingdom Avocet Security Products (Hong Hong Kong Kong) Ltd. Avocet Hardware (Taiwan) Ltd. United Kingdom Avocet Security Products China (Dongguan) Ltd. Avocet Security Products (Suzhow) China Company Limited (51%) Berglen Group Limited United Kingdom Bristan Group Limited United Kingdom Bristan Holdings Ltd. United Kingdom Bristan Limited Ltd. United Kingdom Cambrian Windows Limited United Kingdom Duraflex Ltd 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 United Kingdom Ltd. Bristol CB Manufacturing Ltd. United Kingdom Imperial Towel Rails Ltd. United Kingdom Kiloheat Limited United Kingdom Moore Group Limited United Kingdom Moores Furniture Group Limited United Kingdom New Team Ltd. 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
*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 - ---- ----------------------------- Alma Kuechen Aloys Meyer Germany GmbH & Co. KG Dusakabin - Wien Austria Austria E. Missel GmbH & Co. Germany Gebhardt Flaektteknik Aktiebolag Sweden Horst Breuer GmbH & Co. KG Germany Gebhardt Ventilatoren GmbH & Germany Co. KG Gebhardt Singapore Pte Ltd Singapore Gebhart Ventiladores, S.L. Spain Glass Idromassaggio (51%) Italy Hansgrohe AG (27%) Germany Pontos GmbH Germany Hansgrohe International, Germany Gmbh Hans Grohe Pte. Singapore Ltd. Hansgrohe Ltd. China Hansgrohe A/S Denmark Hansgrohe S.A.R.L. France Hans Grohe Austria Hdl.ges.m.b.H. 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. Poland Z.o.o. Hans Grohe CS, Czech Republic s.r.o. Hans Grohe Kft Hungary Hans Grohe France Wasselonne, S.A. C.P.T. Holding B.V Netherlands
*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 - ---- ----------------------------- Hansgrohe Geberit France SAS Hansgrohe, Inc. Georgia 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 Intermart Insaat Malzemeleri Turkey Sanayi ve Ticaret AS Jung Pumpen Austria HandelsgesellschaftmbH Jung Pumpen GmbH & Co. Germany Masco Mobiliario S.L. Spain Reser SL Spain SKS Stakusit-Bautechnik Germany Beteiligungs GmbH SKS Stakusit Bautechnik GmbH Germany (99%) (1% owned by SKS Stakusit-Bautechnik Beteiligungs GmbH) *see attached Schedule A Vasco N.V. Belgium Vamic BV Netherlands Masco International Services B.V.B.A. Belgium Superia Radiatoren, N.V. Belgium Dura Radiatoren Netherlands B.V. Vasco GmbH Germany Vasco Ltd. UK Great Britain Vasco BC SA France Vasco sp z.o.o. Poland
*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
JURISDICTION OF NAME INCORPORATION OR ORGANIZATION - ---- ----------------------------- Masco Belgium BVBA Belgium Thermic N.V. Belgium Thermic Italia S.r.l. Italy Watkins Europe b.v.b.a. Belgium LTV Transport N.V. Belgium Masco de Puerto Rico, Inc. Puerto Rico Masco Japan Ltd. Delaware Masco ML, Inc. Delaware Masco Philippines Inc. Philippines Masco Retail Sales Support, Inc. Delaware KraftMaid Sales and Distribution, LLC Delaware Liberty Hardware Retail & Design Services LLC Delaware Mill's Pride Store Support, LLC Delaware Masco Services, Inc. Delaware Gebhardt Fans USA, LLC Delaware Masco Support Services, Inc. Delaware MascoFW Corporation Delaware Mascomex S.A. de C.V. Mexico Masterchem Industries, Inc. Missouri Merillat Industries, LLC Delaware Merillat Corporation Delaware Merillat Transportation Company Delaware Milgard Manufacturing Incorporated Washington Mill's Pride, Inc. Connecticut Mill's Pride Chile Limitada Chile Mill's Pride Limited Partnership Ohio Mill's Pride Pennsylvania, LLC (99%) Ohio Mill's Pride LLC 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 RDJ Limited Bahamas Arrow Fastener (U.K.) Ltd. 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. 9
JURISDICTION OF NAME INCORPORATION OR ORGANIZATION - ---- ----------------------------- 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 (99%) Mexico Zenith Products Corporation Delaware
*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. 10 SCHEDULE A
JURISDICTION OF NAME INCORPORATION OR ORGANIZATION - ---- ----------------------------- The following entities are owned by SKS Stakusit Bautechnik GmbH, a Germany company: Gielnik Komplett-Balkon Gmbh Germany SKS-Stakusit-Stahl-Kunststoff Gmbh Germany SKS GUS Russia SKS France France SKS Austria Austria SKS Statusit Sp. z.o.o. Polska Poland SKS Turkei Turkey SKS Stakusit Rumanien SRL Romania WEGO Dusseldorfer Finanz-Treuhand GmbH Germany Bauelemente Bertram GmbH Germany High Tech Fenster-und Rolladenbau GmbH Germany BBD GmbH Germany RH-Balkongelanderbau GmbH Germany Elket GmbH Germany
*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. 11 EX-23 10 k82538exv23.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS 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 and 333-110102) of Masco Corporation of our report dated February 18, 2004 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Detroit, Michigan February 27, 2004 EX-31.A 11 k82538exv31wa.txt SEC. 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.a MASCO CORPORATION CERTIFICATIONS 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) for the registrant and we 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) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986.] 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. Date: February 27, 2004 By: /s/ Richard A. Manoogian ------------------------ Richard A. Manoogian Chief Executive Officer EX-31.B 12 k82538exv31wb.txt SEC. 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.b MASCO CORPORATION CERTIFICATIONS 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) for the registrant and we 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) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986.] 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. Date: February 27, 2004 By: /s/ Timothy Wadhams ------------------------- Timothy Wadhams Senior Vice President and Chief Financial Officer EX-32 13 k82538exv32.txt SEC. 906 CERTIFICATIONS OF CEO AND CFO EXHIBIT 32 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT The certification set forth below is being submitted in connection with the Masco Corporation Annual Report on Form 10-K (the "Report") for the purpose of complying with Rule 13a-14b 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 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 13(a) of the Securities Exchange Act of 1934; 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: Chief Executive Officer /s/ Timothy Wadhams -------------------------------- Name: Timothy Wadhams Title: Senior Vice President and Chief Financial Officer 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. -----END PRIVACY-ENHANCED MESSAGE-----