10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to       

Commission file number 1-8974

Honeywell International Inc.
(Exact name of registrant as specified in its charter)

DELAWARE	22-2640650
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
101 Columbia Road Morris Township, New Jersey	07962
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (973)455-2000
Securities registered pursuant to Section 12(b) of the Act:

	Name of Each Exchange
Title of Each Class	on Which Registered
Common Stock, par value $1 per share*	New York Stock Exchange
	Chicago Stock Exchange
	Pacific Exchange
Zero Coupon Serial Bonds due 2009	New York Stock Exchange
91⁄2% Debentures due June 1, 2016	New York Stock Exchange

* The common stock is also listed for trading on the London stock exchange.

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 (or for such shorter period that the Registrant was required to file such reports), 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. S

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No 

The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $31.5 billion at June 30, 2004.

There were 850,772,327 shares of Common Stock outstanding at January 31, 2005.

Documents Incorporated by Reference

Part III: Proxy Statement for Annual Meeting of Shareowners to be held April 25, 2005.

[THIS PAGE INTENTIONALLY LEFT BLANK]

TABLE OF CONTENTS

	Item		Page
Part I.	1.	Business		1
	2.	Properties		11
	3.	Legal Proceedings		12
	4.	Submission of Matters to a Vote of Security Holders		12
	Executive Officers of the Registrant			12
Part II.	5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
	6.	Selected Financial Data		15
	7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		15
	7A.	Quantitative and Qualitative Disclosures About Market Risk		42
	8.	Financial Statements and Supplementary Data		42
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		92
	9A.	Controls and Procedures		92
	9B.	Other Information		93
Part III.	10.	Directors and Executive Officers of the Registrant		93
	11.	Executive Compensation		93
	12.	Security Ownership of Certain Beneficial Owners and Management		93
	13.	Certain Relationships and Related Transactions		96
	14.	Principal Accounting Fees and Services		96
Part IV.	15.	Exhibits and Financial Statement Schedules		96
Signatures				97

      This report contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements.

PART I.

Item 1. Business

      Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, fibers, and electronic and advanced materials. Honeywell was incorporated in Delaware in 1985.

      We maintain an internet website at http://www.honeywell.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website under the heading “Investor Relations” (see “SEC Filings and Reports”) immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). Honeywell's Code of Business Conduct, Corporate Governance Guidelines and Charters of the Committees of the Board of Directors are also available, free of charge, on our website under the heading “Investor Relations” (see “Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell's Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees.

      The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 about the disclosure contained in this Annual Report on Form 10-K are included as Exhibits 31.1 and 31.2 to this Annual Report and are available free of charge on our website under the heading “Investor Relations” (see “SEC Filings and Reports”). Our Chief Executive Officer certified to the New York Stock Exchange (NYSE) on May 20, 2004, pursuant to Section 303A.12 of the NYSE's listing standards, that he was not aware of any violation by Honeywell of the NYSE's corporate governance listing standards as of that date.

Major Businesses

      We globally manage our business operations through strategic business units, which have been aggregated under four reportable segments: Aerospace, Automation and Control Solutions, Specialty Materials and Transportation Systems. Financial information related to our reportable segments is included in Note 23 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

      Following is further information about our four reportable segments which are comprised of various strategic business units and product classes that serve multiple end markets:

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
Aerospace
Engines, Systems and Services	Turbine propulsion engines	TFE731 turbofan TPE331 turboprop TFE1042 turbofan ATF3 turbofan F124 turbofan LF502 turbofan LF507 turbofan CFE738 turbofan HTF 7000 turbofan T53, T55 turboshaft LTS101 turboshaft T800 turboshaft AGT1500 turboshaft Repair, overhaul and spare parts	Business, regional, general aviation and military trainer aircraft Commercial and military helicopters Military vehicles	United Technologies (Pratt & Whitney Canada) Rolls Royce/ Allison Turbomeca Williams
	Auxiliary power units (APUs)	Airborne auxiliary power units Jet fuel starters Secondary power systems Ground power units Repair, overhaul and spare parts	Commercial, regional, business and military aircraft Ground power	United Technologies (Pratt & Whitney Canada) United Technologies (Hamilton Sundstrand)

1

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
	Environmental control systems	Air management systems:    Air conditioning    Bleed air    Cabin pressure control    Air purification and treatment Electrical power systems:    Power distribution and control    Emergency power generation    Repair, overhaul and spare parts	Commercial, regional and general aviation aircraft Military aircraft Ground vehicles Spacecraft	Auxilec Barber Colman Dukes Eaton-Vickers Goodrich (Lucas Aerospace) Liebherr Litton Breathing Systems Pacific Scientific Parker Hannifin United Technologies (Hamilton Sundstrand) Smiths TAT
	Engine systems and accessories	Electronic and hydromechanical fuel controls Engine start systems Electronic engine controls Sensors Electric and pneumatic power generation systems Thrust reverser actuation, pneumatic and electric	Commercial, regional and general aviation aircraft Military aircraft	BAE Controls Goodrich (Chandler-Evans) Goodrich (Lucas Aerospace) Parker Hannifin United Technologies (Hamilton Sundstrand)
	Aircraft hardware distribution	Fasteners, including nuts, bolts, rivets, clamps and pins Bearings, including ball, roller, spherical, needle and ceramic Electrical hardware, including connectors, components, lighting products, terminals, and wire and wiring accessories Seals, including seals, o-rings, gaskets and packings Value-added services, repair and overhaul kitting and point-of-use replenishment	Commercial, regional, business and military aviation aircraft	Anixter (Pentacon) Arrow Pemco Avnet BE Aerospace (M&M Aerospace) Fairchild Direct Satair Wencor Wesco Aircraft
Aerospace Electronic Systems	Avionics systems	Flight safety systems:    Enhanced Ground Proximity Warning    Systems    (EGPWS)    Traffic Alert and    Collision Avoidance Systems (TCAS)    Windshear detection systems    Flight data and cockpit voice    recorders    Weather Radar Communication, navigation and surveillance systems:    Weather radar    Navigation & communication radios    Air-to-ground telephones    Global positioning systems    Automatic flight control systems    Satellite systems    Surveillance systems Integrated systems Flight management systems	Commercial, business and general aviation aircraft Government aviation	BAE Boeing/Jeppesen Garmin Goodrich Kaiser L3 Lockheed Martin Northrop Grumman Rockwell Collins Smiths Thales Trimble/Terra Universal Avionics Universal Weather
		Cockpit display systems

2

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
		Data management and aircraft performance monitoring systems Vehicle management systems Aircraft information systems
		Network file servers Wireless network transceivers Satellite TV systems Audio/Video equipment Weather information network Navigation database information Cabin management systems Vibration detection and monitoring Mission management systems Tactical data management systems
	Aircraft, Obstruction and Airport lighting	Inset lights Control and monitoring systems Regulators Tower and obstruction lights Interior and exterior aircraft lighting Visual docking guidance systems	Airports Commercial, regional, business, helicopter and military aviation aircraft (operators, OEMs, parts distributors and MRO service providers) General contractors (building and tower manufacturers), cell phone companies	Bruce Hella/Goodrich LSI Luminator Safegate Siemens Thorn Whelen
	Inertial sensor	Inertial sensor systems for guidance, stabilization, navigation and control Gyroscopes, accelerometers, inertial measurement units and thermal switches	Military and commercial vehicles Commercial spacecraft and launch vehicles Commercial, regional, business and military aircraft Transportation Missiles Munitions	Astronautics- Kearfott BAE Ball GEC L3 Com KVH Northrop Grumman Rockwell Smiths
	Automatic test equipment	EW ATE Avionics ATE Vehicle health Management	Boeing USAF Foreign air forces	Northrop Grumman Lockheed
	Control products	Radar altimeters Pressure products Air data products Thermal switches Magnetic sensors	Military aircraft Missiles, UAVs Commercial applications	Ball Brothers BAE Druck Goodrich NavCom Northrop Grumman Rosemount Solarton
	Space products and subsystems	Guidance subsystems Control subsystems Processing subsystems Radiation hardened electronics and integrated circuits GPS-based range safety systems	Commercial and military-spacecraft DoD FAA NASA	BAE Ithaco L3 Northrop Grumman Raytheon

3

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
	Management and technical services	Maintenance/operation and provision of space systems, services and facilities Systems engineering and integration Information technology services Logistics and sustainment	U.S. government space (NASA) DoD (logistics and information services) DoE Local governments Commercial space ground segment systems and services	Bechtel Boeing Computer Sciences Dyncorp ITT Lockheed Martin Raytheon SAIC The Washington Group United Space Alliance
Aircraft Landing Systems	Landing systems	Wheels and brakes Friction products Wheel and brake repair and overhaul services	Commercial airline, regional, business and military aircraft High performance commercial vehicles USAF, DoD, DoE Boeing, Airbus, Lockheed Martin	Aircraft Braking Systems Dunlop Standard Aerospace Goodrich Messier-Bugatti NASCO Various smaller repair and overhaul companies
Automation and Control Solutions
Products	Environmental controls and combustion; sensing and controls	Heating, ventilating and air conditioning controls and components for homes and buildings Indoor air quality products including zoning, air cleaners, humidification, heat and energy recovery ventilators Controls plus integrated electronic systems for burners, boilers and furnaces Consumer household products including humidifiers and thermostats Water controls Sensors, measurement, control and industrial components	Original equipment manufacturers (OEMs) Distributors Contractors Retailers System integrators Commercial customers and homeowners served by the distributor, wholesaler, contractor, retail and utility channels Package and materials handling operations Appliance manufacturers Automotive companies Aviation companies Food and beverage processors Medical equipment Heat treat processors Computer and business equipment manufacturers	Bosch Carrier Cherry Danfoss Eaton Emerson Endruss & Hauser Holmes Invensys Johnson Controls Motorola Omron Schneider Siemens Yokogawa
	Security and life safety products and services	Security products and systems Fire products and systems Access controls and closed circuit television Home health monitoring	OEMs Retailers Distributors Commercial customers and homeowners served by the distributor, wholesaler, contractor, retail and utility channels Health care organizations	Bosch GE Pelco Phillips Siemens SPX Tyco
Process Solutions	Industrial automation solutions	Advanced control software and industrial automation systems for control and monitoring of continuous, batch and hybrid operations Production management software Communications systems for Industrial Control equipment and systems Consulting, networking engineering and installation Process control instrumentation Field instrumentation	Refining and petrochemical companies Chemical manufacturers Oil and gas producers Food and beverage processors Pharmaceutical companies Utilities Film and coated producers Pulp and paper industry Continuous web producers in the paper, plastics, metals, rubber, non-wovens and printing industries Mining and mineral industries	Asea Brown Boveri Aspen Tech Emerson Invensys Siemens Yokogawa

4

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
		Analytical instrumentation Recorders Controllers Critical environment control solutions and services Aftermarket maintenance, repair and upgrade
Building Solutions	Solutions and services	HVAC and building control solutions and services Energy management solutions and services Security and asset management solutions and services Enterprise building integration solutions Building information services	Building managers and owners Contractors, architects and developers Consulting engineers Security directors Plant managers Utilities Large, global corporations Public school systems Universities Local governments	GroupMac Invensys Johnson Controls Local contractors and utilities Siemens Trane
Specialty Materials
Specialty Materials	Nylon	Nylon filament and staple yarns Nylon bulk continuous filament Nylon polymer Caprolactam Ammonium sulfate Cyclohexanol Cyclohexanone Sulfuric acid Ammonia	Commercial, residential and specialty carpet markets Nylon for fibers, engineered resins and film Fertilizer ingredients Specialty chemicals	BASF DSM Enichem Hoechst Invista Monsanto Rhodia Solutia
	Advanced Fibers & Composites	High molecular weight polyethylene fiber and shield composites Aramid shield composites	Bullet resistant vests, helmets and other armor applications Cut-resistant gloves Rope & cordage	DuPont DSM Teijin
	Specialty Films	Cast nylon film Bi-axially oriented nylon film Fluoropolymer film	Food and pharmaceutical packaging	American Biaxis CFP Daikan Kolon Unitika
	Specialty additives	Polyethylene waxes Petroleum waxes and blends PVC lubricant systems Plastic additives Luminescent photodyes	Coatings and inks PVC Plastics Reflective coatings Security and safe applications	BASF Clarient Eastman
	Fluorocarbons	Genetron® refrigerants, aerosol and insulation foam blowing agents Genesolv® solvents Oxyfume sterilant gases Ennovate 3000 blowing agent for refrigeration insulation	Refrigeration Air conditioning Polyurethane foam Precision cleaning Optical Metalworking Hospitals Medical equipment manufacturers	Arkema INEOS Fluor Solvay-Solexis
	Hydrofluoric acid (HF)	Anhydrous and aqueous hydrofluoric acid	Fluorocarbons Steel Oil refining Chemical intermediates	Ashland Atofina E. Merck Hashimoto Norfluor Quimica Fluor
	Fluorine specialties	Sulfur hexafluoride (SF6) Iodine pentafluoride (IF5) Antimony pentafluoride (SbF5)	Electric utilities Magnesium Gear manufacturers	Air Products Asahi Glass Atofina Solvay-Solexis

5

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
	Nuclear services	UF6 conversion services	Nuclear fuel Electric utilities	British Nuclear Fuels Cameco Cogema
	Research and life sciences	Active pharmaceutical ingredients Pharmaceutical intermediates Pharmaceutical formulations Oxime-based fine chemicals Fluoroaromatics Bromoaromatics High-purity solvents	Agrichemicals Pharmaceuticals Biotech	Avecia Degussa DSM E. Merck Fisher Scientific Lonza Sigma-Aldrich
	Performance chemicals   Imaging chemicals   Chemical processing   Display chemicals   Surface treatment   Catalysts   Sealants	HF derivatives Fluoroaromatics Phosphors Catalysts Oxime-silanes Hydroxylamine	Diverse by product type	Atotech BASF Solvay-Solexis
	Electronic chemicals	Ultra high-purity HF Inorganic acids Hi-purity solvents	Semiconductors	Air Products Arch E. Merck
	Semiconductor materials and services	Interconnect- dielectrics Interconnect-metals Semiconductor packaging materials Advanced polymers Sapphire substrates Anti-reflective coatings Thermo-couplings	Semiconductors Microelectronics Telecommunications	ATMI Dow Chemical Dow Corning Japan Energy JSR Sumitomo Tokyo-Ohka Tosoh SMD
	UOP (50%-owned joint venture)	Catalysts Molecular sieves Adsorbents Design of process, plants and equipment Customer catalyst manufacturing	Petroleum, petrochemical, gas processing and chemical industries	ABB Lummus Axens Exxon-Mobil Procatalyse Shell/Criterion Stone & Webster Zeochem
Transportation Systems
Honeywell Turbo Technologies	Charge-air systems	Turbochargers Remanufactured components	Passenger car, truck and off-highway OEMs Engine manufacturers Aftermarket distributors and dealers	ABB Borg-Warner Hitachi Holset IHI MHI Tianyan
	Thermal systems	Exhaust gas coolers Charge-air coolers Aluminum radiators Aluminum cooling modules	Passenger car, truck and off-highway OEMs Engine manufacturers Aftermarket distributors and dealers	Behr/McCord Modine Valeo

6

Strategic Business Units	Product Classes	Major Products/Services	Major Customers/Uses	Key Competitors
Consumer Products Group	Aftermarket filters, spark plugs, electronic components and car care products	Oil, air, fuel, transmission and coolant filters PCV valves Spark plugs Wire and cable Antifreeze/coolant Ice-fighter products Windshield washer fluids Waxes, washes and specialty cleaners	Automotive and heavy vehicle aftermarket channels, OEMs and OES Auto supply retailers Specialty installers Mass merchandisers	AC Delco Bosch Champion Champ Labs Havoline/Texaco Mann & Hummel NGK Peak/Old World Industries Pennzoil-Quaker State Purolator/Arvin Ind STP/ArmorAll/ Clorox Turtle Wax Various Private Label Wix/Dana Zerex/Valvoline
Friction Materials	Friction materials Aftermarket brake hard parts	Disc brake pads and shoes Drum brake linings Brake blocks Disc and drum brake components Brake hydraulic components Brake fluid Aircraft brake linings Railway linings	Automotive and heavy vehicle OEMs, OES, brake manufacturers and aftermarket channels Mass merchandisers Installers Railway and commercial/ military aircraft OEMs and brake manufacturers	Akebono Dana Delphi Federal-Mogul ITT Galfer JBI Nisshinbo TMD Roulunds

Aerospace Sales

      Our sales to aerospace customers were 38, 38 and 40 percent of our total sales in 2004, 2003 and 2002, respectively. Our sales to commercial aerospace original equipment manufacturers were 8, 7 and 9 percent of our total sales in 2004, 2003 and 2002, respectively. If there are large changes in sales of aircraft that use our components, operating results could be impacted. In addition, our sales to commercial aftermarket customers of aerospace products and services were 16, 15 and 16 percent of our total sales in 2004, 2003, and 2002, respectively. If there are large changes in the number of global flying hours or landings for aircraft that use our components or services, operating results could be impacted. The terrorist attacks on September 11, 2001 resulted in an abrupt downturn in the aviation industry which was already negatively impacted by a weak economy. This dramatic downturn in the commercial air transport industry significantly impacted the operating results of our Aerospace segment in 2002 and 2003. We began to see some recovery at the end of 2003, which continued in 2004, aided by continued improvement in the commercial aerospace market segment and the favorable impact of safety mandates.

U.S. Government Sales

      Sales to the U.S. Government (principally by our Aerospace segment), acting through its various departments and agencies and through prime contractors, amounted to $3,464, $3,111 and $2,730 million in 2004, 2003 and 2002, respectively, which included sales to the U.S. Department of Defense, as a prime contractor and subcontractor, of $2,808, $2,564 and $2,046 million in 2004, 2003 and 2002, respectively. U.S. defense spending increased in 2004 and is also expected to increase in 2005.

      In addition to normal business risks, companies engaged in supplying military and other equipment to the U.S. Government are subject to unusual risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and regulations and other policies that may reflect military and political developments, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity for constant design improvements, intense competition for U.S. Government business necessitating increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work and other factors characteristic of the industry. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments of contract prices.

7

      Our contracts with the U.S. Government are subject to audits. Like many other government contractors, we have received audit reports that recommend downward price adjustments to certain contracts to comply with various government regulations. We have made adjustments and paid voluntary refunds in appropriate cases. In addition, we accrue for liabilities associated with these government contract matters that are probable and can be reasonably estimated.

      U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our failure to perform under the applicable contract. In the case of a termination for convenience, we are typically entitled to reimbursement for our allowable costs incurred, plus termination costs and a reasonable profit. If a contract is terminated by the government for our failure to perform, we could be liable for additional costs incurred by the government in acquiring undelivered goods or services from another source and any other damages suffered by the government.

      We, like other government contractors, are subject to government investigations of business practices and compliance with government procurement regulations. If Honeywell or one of its businesses were charged with wrongdoing as a result of any such investigation or other government investigations (including violation of certain environmental or export laws), it could be suspended from bidding on or receiving awards of new government contracts pending the completion of legal proceedings. The U.S. Government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other egregious misconduct. Debarment generally does not exceed three years. Although the outcome of pending government investigations cannot be predicted with certainty, we are not aware of any investigations that we expect will have a material adverse effect on us.

Backlog

      Our total backlog at year-end 2004 and 2003 was $8,229 and $7,191 million, respectively. We anticipate that approximately $6,339 million of the 2004 backlog will be filled in 2005. We believe that backlog is not necessarily a reliable indicator of our future sales because a substantial portion of the orders constituting this backlog may be canceled at the customer's option.

Competition

      We are subject to active competition in substantially all product and service areas. Competition is expected to continue in all geographic regions. Competitive conditions vary widely among the thousands of products and services provided by us, and vary country by country. Depending on the particular customer or market involved, our businesses compete on a variety of factors, such as price, quality, reliability, delivery, customer service, performance, applied technology, product innovation and product recognition. Brand identity, service to customers and quality are generally important competitive factors for our products and services, and there is considerable price competition. Other competitive factors for certain products include breadth of product line, research and development efforts and technical and managerial capability. While our competitive position varies among our products and services, we believe we are a significant competitor in each of our major product and service classes. However, a number of our products and services are sold in competition with those of a large number of other companies, some of which have substantial financial resources and significant technological capabilities. In addition, some of our products compete with the captive component divisions of original equipment manufacturers.

International Operations

      We are engaged in manufacturing, sales, service and research and development mainly in the United States, Europe, Canada, Asia and Latin America. U.S. exports and foreign manufactured products are significant to our operations. U.S. exports comprised 9 and 10 percent of our total net sales in 2004 and 2003, respectively. Foreign manufactured products and services, mainly in Europe, were 35 and 34 percent of our total net sales in 2004 and 2003, respectively.

      Our international operations, including U.S. exports, are potentially subject to a number of unique risks and limitations, including: fluctuations in currency value; exchange control regulations; wage and price controls; employment regulations; foreign investment laws; import and trade restrictions, including embargoes; and governmental instability.

      Approximately 18 percent of total 2004 net sales of Aerospace-related products and services were exports of U.S. manufactured products and systems and performance of services such as aircraft

8

repair and overhaul. Exports were principally made to Europe, Asia and Canada. Foreign manufactured products and systems and performance of services comprised 14 percent of total 2004 Aerospace net sales.

      Approximately 3 percent of total 2004 net sales of Automation and Control Solutions products were exports of U.S. manufactured products. Foreign manufactured products and performance of services accounted for 49 percent of total 2004 net sales of Automation and Control Solutions. The principal manufacturing facilities outside the U.S. are in Europe and Mexico, with less significant operations in Asia and Canada.

      Approximately 11 percent of total 2004 net sales of Specialty Materials were exports of U.S. manufactured products. Exports were principally made to Asia, Europe, Latin America and Canada. Foreign manufactured products comprised 29 percent of total 2004 net sales of Specialty Materials. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada.

      Exports of U.S. manufactured products comprised 1 percent of total 2004 net sales of Transportation Systems products. Foreign manufactured products accounted for 62 percent of total 2004 net sales of Transportation Systems. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia, Latin America and Canada.

Raw Materials

      The principal raw materials used in our operations are generally readily available. We experienced no significant or unusual problems in the purchase of key raw materials and commodities in 2004. We are not dependent on any one supplier for a material amount of our raw materials. However, we are highly dependent on our suppliers and subcontractors in order to meet commitments to our customers. In addition, many major components and product equipment items are procured or subcontracted on a sole-source basis with a number of domestic and foreign companies. We maintain a qualification and performance surveillance process to control risk associated with such reliance on third parties. While we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. The costs of certain key raw materials, including natural gas and benzene, in our Specialty Materials' business were at historically high levels in 2004 and are expected to remain at those levels in 2005. We will continue to attempt to offset raw material cost increases with price increases where feasible. At present, we have no reason to believe a shortage of raw materials will cause any material adverse impact during 2005.

Patents, Trademarks, Licenses and Distribution Rights

      Our business as a whole, and that of our strategic business units, are not dependent upon any single patent or related group of patents, or any licenses or distribution rights. We own, or are licensed under, a large number of patents, patent applications and trademarks acquired over a period of many years, which relate to many of our products or improvements to those products and which are of importance to our business. From time to time, new patents and trademarks are obtained, and patent and trademark licenses and rights are acquired from others. We also have distribution rights of varying terms for a number of products and services produced by other companies. In our judgment, those rights are adequate for the conduct of our business. We believe that, in the aggregate, the rights under our patents, trademarks and licenses are generally important to our operations, but we do not consider any patent, trademark or related group of patents, or any licensing or distribution rights related to a specific process or product, to be of material importance in relation to our total business.

      We have registered trademarks for a number of our products, including such consumer brands as Honeywell, Prestone, FRAM, Anso, Autolite, Bendix, Jurid and Garrett.

Research and Development

      Our research activities are directed toward the discovery and development of new products and processes and the development of new uses for existing products.

      Research and development expense totaled $917, $751 and $757 million in 2004, 2003 and 2002, respectively. The increase in research and development expense in 2004 compared with 2003 results primarily from design and developments costs associated with new aircraft platforms in Aerospace and new product development costs in Automation and Control Solutions. Customer-sponsored (principally the U.S. Government) research and development activities amounted to an additional $593, $608 and $603 million in 2004, 2003 and 2002, respectively.

9

Environment

      We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is our policy to comply with these requirements, and we believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with our business. Some risk of environmental damage is, however, inherent in some of our operations and products, as it is with other companies engaged in similar businesses.

      We are and have been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous or toxic by one or more regulatory agencies. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury, and that our handling, manufacture, use and disposal of these substances are in accord with environmental and safety laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect substances in the environment or increasingly strict environmental laws and standards and enforcement policies, could bring into question our current or past handling, manufacture, use or disposal of these substances.

      Among other environmental requirements, we are subject to the federal superfund and similar state and foreign laws and regulations, under which we have been designated as a potentially responsible party that may be liable for cleanup costs associated with various hazardous waste sites, some of which are on the U.S. Environmental Protection Agency's superfund priority list. Although, under some court interpretations of these laws, there is a possibility that a responsible party might have to bear more than its proportional share of the cleanup costs if it is unable to obtain appropriate contribution from other responsible parties, we have not had to bear significantly more than our proportional share in multi-party situations taken as a whole.

      In the matter entitled Interfaith Community Organization, et al. v. Honeywell International Inc., et al., the United States District Court for the District of New Jersey held in May 2003 that a predecessor Honeywell site located in Jersey City, New Jersey constituted an imminent and substantial endangerment and ordered Honeywell to conduct the excavation and transport for offsite disposal of approximately one million tons of chromium residue present at the site. Honeywell appealed the Court's decision to the Third Circuit Court of Appeals (Appeals Court). As disclosed in prior SEC filings, we believed that the District Court-ordered remedy would be remanded, reversed or replaced and, accordingly, provisions previously made in our financial statements for remedial costs at this site did not assume excavation and offsite removal of chromium. On February 18, 2005, the Appeals Court denied Honeywell's appeal. In light of the Appeals Court decision, we recorded a pre-tax charge of $278 million in the fourth quarter of 2004, which reflects the incremental cost of implementing the Court-ordered remedy. Implementation of the excavation and offsite removal remedy is expected to take place over a five-year period, and the cost of implementation is expected to be incurred evenly over that period. We do not expect implementation of the remedy to have a material adverse effect on our future consolidated results of operations, operating cash flows or financial position.

      In accordance with a 1992 consent decree with the State of New York, Honeywell is studying environmental conditions in and around Onondaga Lake (the Lake) in Syracuse, New York. The purpose of the study is to identify, evaluate and propose remedial measures that can be taken to remedy historic industrial contamination in the Lake. A predecessor company to Honeywell operated a chemical plant which is alleged to have contributed mercury and other contaminants to the Lake. In November 2004, the New York State Department of Environmental Conservation (the DEC) issued its Proposed Plan for remediation of industrial contamination in the Lake. There will be a public comment period until March 1, 2005, and the Proposed Plan is subject to review by the U.S. Environmental Protection Agency. The DEC is currently expected to issue its Record of Decision in the first half of 2005.

      The Proposed Plan calls for a combined dredging/capping remedy generally in line with the approach recommended in the Feasibility Study submitted by Honeywell in May 2004 (the May 2004 Feasibility Study). Although the Proposed Plan calls for additional remediation in certain parts of the Lake, it would not require the most extensive dredging alternatives described in the May 2004 Feasibility Study. The DEC's aggregate cost estimate is based on the high end of the range of potential costs for major elements of the Proposed Plan and includes a contingency. The actual cost of the

10

Proposed Plan will depend upon, among other things, the resolution of certain technical issues during the design phase of the remediation, expected to occur sometime in 2007 and beyond.

      Based on currently available information and analysis performed by our engineering consultants, our estimated cost of implementing the remedy set forth in the Proposed Plan is consistent with amounts previously provided for in our financial statements. Our estimating process considered a range of possible outcomes and amounts recorded reflect our best estimate at this time. We do not believe that this matter will have a material adverse impact on our consolidated financial position. Given the scope and complexity of this project, it is possible that actual costs could exceed estimated costs by an amount that could have a material adverse impact on our consolidated results of operations and operating cash flows in the periods recognized or paid. At this time, however, we cannot identify any legal, regulatory or technical reason to conclude that a specific alternative outcome is more probable than the outcome for which we have made provisions in our financial statements.

      Further information regarding environmental matters is included in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Employees

      We have approximately 109,000 employees at December 31, 2004, of which approximately 60,000 were located in the United States.

Item 2.    Properties

      We have 1,152 locations consisting of plants, research laboratories, sales offices and other facilities. Our headquarters and administrative complex is located at Morris Township, New Jersey. Our plants are generally located to serve large marketing areas and to provide accessibility to raw materials and labor pools. Our properties are generally maintained in good operating condition. Utilization of these plants may vary with sales to customers and other business conditions; however, no major operating facility is significantly idle. We own or lease warehouses, railroad cars, barges, automobiles, trucks, airplanes and materials handling and data processing equipment. We also lease space for administrative and sales staffs. Our properties and equipment are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.

11

      Our principal plants, which are owned in fee unless otherwise indicated, are as follows:

	Aerospace
Glendale, AZ (partially leased) Phoenix, AZ Tempe, AZ Tucson, AZ Torrance, CA (partially leased) Clearwater, FL	South Bend, IN Olathe, KS Minneapolis, MN Plymouth, MN Teterboro, NJ	Rocky Mount, NC Urbana, OH Redmond, WA (leased) Toronto, Canada Raunheim, Germany
	Automation and Control Solutions
Phoenix, AZ San Diego, CA	Northford, CT Freeport, IL Golden Valley, MN	Chihuahua, Mexico Juarez, Mexico Newhouse, Scotland
	Specialty Materials
Baton Rouge, LA Geismar, LA	Pottsville, PA Chesterfield, VA	Hopewell, VA Seelze, Germany
	Transportation Systems
Mexicali, Mexico	Thaon-Les-Vosges, France Glinde, Germany	Atessa, Italy

Item 3.    Legal Proceedings

      We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a discussion of environmental, asbestos and other litigation matters in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

Item 4.    Submission of Matters to a Vote of Security Holders

      Not Applicable.

Executive Officers of the Registrant

      The executive officers of Honeywell, listed as follows, are elected annually by the Board of Directors. There are no family relationships among them.

Name, Age, Date  First Elected an Executive Officer	Business Experience
David M. Cote (a), 52       2002	Chairman of the Board and Chief Executive Officer since July 2002. President and Chief Executive Officer from February 2002 to June 2002. Chairman of the Board, President and Chief Executive Officer of TRW (manufacturer of aerospace and automotive products) from August 2001 to February 2002. President and Chief Executive Officer of TRW from February 2001 to July 2001. President and Chief Operating Officer of TRW from November 1999 to January 2001. Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999.
Adriane M. Brown, 46       2005	President and Chief Executive Officer Transportation Systems since January 2005. Vice President and General Manager of Engine Systems & Accessories from September 2001 to December 2004. Vice President and General Manager of Aircraft Landing Systems from October 1999 to August 2001.

(a) Also a Director.

12

Name, Age,
Date  First
Elected an
Executive Officer                                    Business Experience                                   

Dr. Nance K. Dicciani, 57       2001	President and Chief Executive Officer Specialty Materials since November 2001. Senior Vice President and Business Group Executive of Chemical Specialties and Director, European Region of Rohm and Haas (chemical company) from June 1998 to October 2001.
Roger Fradin, 51       2004	President and Chief Executive Officer Automation and Control Solutions since January 2004. President of Automation and Control Products from June 2002 to December 2003. President and Chief Executive Officer of Security and Fire Solutions from February 2000 to May 2002. President of The Security Group of The Pittway Corporation from September 1995 to April 2002.
Robert J. Gillette, 44       2001	President and Chief Executive Officer Aerospace since January 2005. President and Chief Executive Officer Transportation Systems from July 2001 to December 2004. President of Honeywell Turbo Technologies from July 2000 to June 2001. Vice President and General Manager of Engineering Plastics from December 1996 to June 2000.
David J. Anderson, 55       2003	Senior Vice President and Chief Financial Officer since June 2003. Senior Vice President and Chief Financial Officer of ITT Industries (global manufacturing company) from December 1999 to June 2003.
Larry E. Kittelberger, 56       2001	Senior Vice President Administration and Chief Information Officer since August 2001. Senior Vice President and Chief Information Officer of Lucent Technologies Inc. from November 1999 to August 2001.
Peter M. Kreindler, 59       1992	Senior Vice President and General Counsel since March 1992. Secretary from December 1994 through November 1999.
Thomas W. Weidenkopf, 46       2002	Senior Vice President Human Resources and Communications since April 2002. Vice President of Human Resources, Aerospace, from March 1999 to March 2002.

13

Part II.

Item 5.    Market for Registrant's Common Equity, Related Stockholder
                 Matters and Issuer Purchases of Equity Securities

      Market and dividend information for Honeywell's common stock is included in Note 26 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

      The number of record holders of our common stock at December 31, 2004 was 83,995.

      The following table summarizes Honeywell's purchases of its common stock, par value $1 per share, for the quarter ending December 31, 2004:

Issuer Purchases of Equity Securities

	(a)		(b)		(c)		(d)
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under Plans or Programs
October 2004		4,250,000	$	33.32		4,250,000		(A)
November 2004		6,750,000	$	35.61		6,750,000		(A)
December 2004		—		—		—		(A)

(A) In November 2003, Honeywell announced its intention to repurchase sufficient outstanding shares of its common stock to offset the dilutive impact of employee stock based compensation plans, including future option exercises, restricted unit vesting and matching contributions under our savings plans. We estimate the issuance of approximately 10 million shares annually under such plans. Total repurchases may vary depending on market conditions and the level of other investing activities. In response to market conditions, in the fourth quarter of 2004, we repurchased shares to offset the anticipated 2005 dilutive impact of employee stock based compensation plans, bringing the total number of shares repurchased in 2004 to 20,072,650. Accordingly, we do not anticipate the need for additional share repurchases in 2005 under this program.

14

Item 6.    Selected Financial Data

	Years Ended December 31,
	2004		2003		2002			2001			2000		1999
	(Dollars in millions, except per share amounts)
Results of Operations
Net sales	$	25,601	$	23,103	$	22,274		$	23,652		$	25,023	$	23,735
Net income (loss)(1)		1,281		1,324		(220	)		(99	)		1,659		1,541
Per Common Share
Net earnings (loss):
Basic		1.49		1.54		(0.27	)		(0.12	)		2.07		1.95
Assuming dilution		1.49		1.54		(0.27	)		(0.12	)		2.05		1.90
Dividends		0.75		0.75		0.75			0.75			0.75		0.68
Financial Position at Year-End
Property, plant and equipment—net		4,331		4,295		4,055			4,933			5,230		5,630
Total assets		31,062		29,314		27,565			24,226			25,175		23,527
Short-term debt		1,204		199		370			539			1,682		2,609
Long-term debt		4,069		4,961		4,719			4,731			3,941		2,457
Total debt		5,273		5,160		5,089			5,270			5,623		5,066
Shareowners' equity		11,252		10,729		8,925			9,170			9,707		8,599

Note: Commencing January 1, 2002, we ceased amortization of goodwill and indefinite-lived intangible assets.

(1) In 2004, includes net repositioning, environmental, litigation, business impairment and other charges, gains on sales of non-strategic businesses and a gain related to the settlement of a patent infringement lawsuit resulting in a net after-tax charge of $315 million, or $0.36 per share. In 2003, includes the cumulative after-tax charge of $20 million, or $0.02 per share, for the adoption of SFAS No. 143. In 2003, also includes net repositioning, environmental and other charges, gains on sales of non-strategic businesses and a gain related to the settlement of a patent infringement lawsuit resulting in a net after-tax charge of $22 million, or $0.03 per share. In 2002, includes net repositioning, litigation, business impairment and other charges and gains on sales of non-strategic businesses resulting in a net after-tax charge of $1,864 million, or $2.27 per share. In 2001, includes net repositioning, litigation, business impairment and other charges resulting in an after-tax charge of $1,771 million, or $2.18 per share. In 2000, includes net repositioning, litigation, business impairment and other charges and a gain on the sale of the TCAS product line of Honeywell Inc. resulting in a net after-tax charge of $634 million, or $0.78 per share. In 1999, includes merger, repositioning and other charges and gains on the sales of our Laminate Systems business and our investment in AMP Incorporated common stock resulting in a net after-tax charge of $624 million, or $0.78 per share.

Item 7.    Management's Discussion and Analysis of Financial Condition and
                 Results of Operations

BUSINESS OVERVIEW

      This Business Overview provides a summary of Honeywell's four reportable operating segments (Aerospace, Automation and Control Solutions, Specialty Materials and Transportation Systems), including how they generate income, the relevant economic and other factors impacting their results, and business challenges and areas of focus in both the short- and long-term. Each of these segments is comprised of various business units and product classes that serve multiple end markets. See Note 23 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information on our reportable segments and our definition of segment profit.

15

Aerospace

	2004			2003			2002
	(Dollars in millions)
Net sales	$	9,748		$	8,813		$	8,855
Segment profit	$	1,479		$	1,221		$	1,308
Segment profit %		15.2	%		13.9	%		14.8	%

      Aerospace is a leading global supplier of aircraft engines, avionics, and related products and services for commercial airlines, business and regional aircraft, manned and unmanned military aircraft, and spacecraft. Our Aerospace portfolio includes Engines, Systems and Services (auxiliary power units; propulsion engines; environmental control systems; engine controls; repair and overhaul services; hardware; logistics; and electric power systems); Aerospace Electronic Systems (flight safety, communications, navigation, radar and surveillance systems; aircraft and airport lighting; management and technical services and advanced systems and instruments); and Aircraft Landing Systems (aircraft wheels and brakes). Aerospace sells its products to original equipment (OE) manufacturers in the commercial air transport and business and regional aircraft segments, as well as spare parts into the aftermarket (principally to aircraft operators). The United States Government is also a major customer for our defense and space products.

      Economic and Other Factors—Aerospace's operating results are principally driven by the global demand for air travel as reflected in new aircraft production, as well as spare parts and maintenance and repair services for aircraft currently in use. Aircraft production by commercial air transport OE manufacturers, business and regional jet deliveries, as well as global flying hours and airline profitability, are the principal factors that drive our commercial aerospace operating results. U.S. Government appropriations for defense and space programs and military activity are critical factors impacting our defense and space operating results.

      Business Challenges/Areas of Focus—Aerospace's primary business challenges and areas of focus include:

• Continuing to grow the sales and profitability of the commercial aerospace aftermarket as the worldwide airline industry struggles to regain and maintain profitable operations.

• Securing Honeywell product content on new aircraft platforms.

• Making our product development process faster and less costly to meet increasing customer requirements while continuing to reduce recurring manufacturing costs.

• Continuing to design equipment that enhances the safety, performance and durability of aircraft, while reducing weight and operating costs.

• Utilizing our systems engineering expertise for continued growth in Network Centric Warfare initiatives with the U.S. Government.

Automation and Control Solutions (ACS)

	2004			2003			2002
	(Dollars in millions)
Net sales	$	8,031		$	7,464		$	6,978
Segment profit	$	894		$	843		$	860
Segment profit %		11.1	%		11.3	%		12.3	%

      ACS provides innovative solutions that make homes, buildings, industrial sites and airport facilities more efficient, safe and comfortable. Our ACS portfolio includes Automation and Control Products (controls for heating, cooling, indoor air quality, ventilation, humidification and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature, electrical current; and security and fire detection, access control, video surveillance and remote patient monitoring systems); Building Solutions (installs, maintains and upgrades systems that keep buildings safe, comfortable and productive); and Process Solutions (provides a full range of automation and control solutions for

16

industrial plants, offering advanced software and automation systems that integrate, control and monitor complex processes in many types of industrial settings).

      Economic and Other Factors—ACS' operating results are principally driven by global residential and nonresidential construction, industrial production, capital spending on process and building automation, and fire and security concerns and regulations.

      Business Challenges/Areas of Focus—ACS' primary business challenges and areas of focus include:

• Extending technology leadership: lowest total installed cost, integrated solutions within our security, fire and sensors product portfolios.

• Defending and extending our installed base through customer productivity and globalization.

• Sustaining strong brand recognition.

• Continuing to invest in sales and marketing resources and new product development capabilities to drive profitable growth.

• Integrating Novar plc's Intelligent Building Systems division into our life safety, building controls, security and related service businesses (acquisition of Novar plc expected to be completed in the first quarter of 2005).

Specialty Materials

	2004			2003			2002
	(Dollars in millions)
Net sales	$	3,497		$	3,169		$	3,205
Segment profit	$	184		$	136		$	90
Segment profit %		5.3	%		4.3	%		2.8	%

      Specialty Materials develops and manufactures high-purity, high-quality and high-performance chemicals and materials for applications in the automotive, healthcare, agricultural, packaging, fibers, refrigeration, semiconductor, wax and adhesives markets. Specialty Materials' product portfolio includes fluorocarbons, specialty films, advanced fibers, customized research chemicals and intermediates and electronic materials and chemicals. Specialty Materials' core growth businesses are Chemicals, Electronic Materials and Performance Products.

      Economic and Other Factors—Specialty Materials' operating results are principally driven by global gross domestic product, plant capacity utilization and the costs of raw materials including natural gas and benzene. We expect raw material costs to remain at historically high levels in 2005 and will continue to attempt to offset raw material cost increases with price increases where feasible.

      Business Challenges/Areas of Focus—Specialty Materials' primary business challenges and areas of focus include:

• Sharpening the focus on core growth platforms to drive improved profitability through new product applications and introductions.

• Continuing to restructure and exit non-core commodity lines of business with minimal or no differentiating technology and/or exposure to raw material cost volatility.

• Continuing to improve manufacturing productivity.

Transportation Systems

	2004			2003			2002
	(Dollars in millions)
Net sales	$	4,323		$	3,650		$	3,184
Segment profit	$	575		$	461		$	393
Segment profit %		13.3	%		12.6	%		12.3	%

17

      Transportation Systems provides automotive products that improve the performance, efficiency, and appearance of cars, trucks, and other vehicles through state-of-the-art technologies, world class brands and global solutions to our customers needs. Our Transportation Systems' portfolio includes Honeywell Turbo Technologies (Garrett® turbochargers and charge-air and thermal systems); the Consumer Products Group (car care products including anti-freeze (Prestone®), filters (Fram®), spark plugs (Autolite®), and cleaners, waxes and additives (Holts®)); and Friction Materials (friction materials and related brake system components (Bendix® and Jurid®)). Transportation Systems sells its products to OE automotive and truck manufacturers (e.g., BMW, Caterpillar, Daimler-Chrysler, Ford, Volkswagen), wholesalers and distributors and through the retail aftermarket.

      Economic and Other Factors—Transportation Systems' operating results are principally driven by worldwide automobile and truck production and the global demand for automobiles and trucks equipped with turbochargers to enhance power, increase engine efficiency and lower emissions.

      Business Challenges/Areas of Focus—Transportation Systems' primary business challenges and areas of focus include:

• Sustaining superior turbocharger technology.

• Increasing market penetration and share of diesel and gasoline turbocharger OEM demand.

• Expanding and strengthening established strong product brands in the Consumer Products Group business.

• Revitalizing our Friction Materials business.

CRITICAL ACCOUNTING POLICIES

      The preparation of our consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our consolidated financial statements.

      We have discussed the selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors and our Independent Registered Public Accountants. There were no new accounting standards effective in 2004 which had a material impact on our consolidated financial statements.

      Contingent Liabilities—We are subject to a number of lawsuits, investigations and claims (some of which involve substantial dollar amounts) that arise out of the conduct of our global business operations or those of previously owned entities. These contingencies relate to product liabilities, including asbestos, commercial transactions, government contracts and environmental health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future (where estimable) asbestos claims, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments or changes in our settlement strategy. For a discussion of our contingencies related to shareowners litigation, environmental and asbestos matters, including management's judgment applied in the recognition and measurement of specific liabilities, see Notes 1 and 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”.

      Insurance for Asbestos Related Liabilities—In connection with recognition of liabilities for asbestos related matters, we record asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage

18

that we believe are reasonable and consistent with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding insurers and various judicial determinations relevant to our insurance programs. We have approximately $1.3 billion in insurance coverage remaining that can be specifically allocated to North American Refractories Company (NARCO) related asbestos liabilities. We also have $1.9 billion in coverage remaining for Bendix related asbestos liabilities although there are gaps in our coverage due to insurance company insolvencies, a comprehensive policy buy-back settlement with Equitas and certain uninsured periods, resulting in approximately 50 percent of these claims being reimbursable by insurance. Our insurance is with both the domestic insurance market and the London excess market. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. Projecting future events is subject to various uncertainties that could cause the insurance recovery on asbestos related liabilities to be higher or lower than that projected and recorded. Given the inherent uncertainty in making future projections, we reevaluate our projections concerning our probable insurance recoveries in light of any changes to the projected liability, our recovery experience or other relevant factors that may impact future insurance recoveries. See Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of management's judgments applied in the recognition and measurement of insurance recoveries for asbestos related liabilities.

      Defined Benefit Pension Plans—We maintain defined benefit pension plans covering a majority of our employees and retirees. For financial reporting purposes, net periodic pension expense (income) is calculated based upon a number of actuarial assumptions including a discount rate for plan obligations and an expected rate of return on plan assets. We consider current market conditions, including changes in investment returns and interest rates, in making these assumptions. We determine the expected long-term rate of return on plan assets utilizing historic plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations (see Note 22 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for actual and targeted asset allocation percentages for our pension plans). The expected rate of return on plan assets is a long-term assumption and generally does not change annually. The discount rate reflects the market rate for high-quality fixed-income investments on our annual measurement date (December 31) and is subject to change each year. The expected rate of return on pension assets and discount rate were determined in accordance with consistent methodologies as described in Note 22 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”.

      The key assumptions used in developing our 2004, 2003 and 2002 net periodic pension expense (income) for our U.S. plans included the following:

	2004			2003			2002
Discount rate		6.00	%		6.75	%		7.25	%
Assets:
Expected rate of return		9	%		9	%		10	%
Actual rate of return		13	%		23	%		(8	)%
Actual 10 year average annual compounded rate of return		11	%		10	%		9	%

      The reduction in the discount rate in both 2004 and 2003 reflects the lower market interest rate environment for high-quality fixed income debt instruments. The discount rate is also volatile because it is determined based upon the prevailing rate as of the measurement date. Due to continuing declines in interest rates, we will use a 5.875 percent discount rate in 2005. The expected rate of return on plan assets was reduced from 10 to 9 percent for 2003 to reflect the impact of the poor performance of the equity markets during the three year period ended December 31, 2002. As equity markets have stabilized in 2003 and 2004, we plan to continue to use an expected rate of return of 9 percent for 2005. The unrecognized net losses for our U.S. pension plans were $2.6 billion at December 31, 2004, down from $3.2 billion at December 31, 2003. These unrecognized losses mainly result from actual plan asset returns below expected rates of return during 2002, 2001 and 2000 and from lower discount rates and are being systematically recognized in future net periodic pension expense in accordance with Statement of Financial Accounting Standards No. 87, “Employers Accounting for Pensions” (SFAS

19

No. 87). Under SFAS No. 87, we use the market-related value of plan assets reflecting changes in the fair value of plan assets over a three-year period. Further, unrecognized losses in excess of 10 percent of the greater of the market-related value of plan assets or the plans projected benefit obligation are recognized over a six-year period. Net periodic pension expense for our U.S. pension plans is expected to be $320 million in 2005, a $56 million decrease from 2004 due principally to a decrease in the amortization of unrecognized losses. The decline in the amortization of unrecognized losses results principally from actual plan asset returns higher than the expected rate of return in 2003 and 2004.

      We made voluntary contributions of $40, $670 and $830 million to our U.S. pension plans in 2004, 2003 and 2002, respectively. The 2003 and 2002 voluntary contributions were made to improve the funded status of the plans which had been impacted by the poor performance of the equity markets during the three-year period ended December 31, 2002, as well as the declining interest rate environment. Future plan contributions are dependent upon actual plan asset returns and interest rates. Assuming that actual plan returns are consistent with our expected plan return of 9 percent in 2005 and beyond, and that interest rates remain constant, we would not be required to make any contributions to our U.S. pension plans for the foreseeable future.

      Changes in net periodic pension expense may occur in the future due to changes in our expected rate of return on plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of our U.S. pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:

Change in Assumption	Impact on Annual Pension Expense	Impact on PBO
0.25 percentage point decrease in discount rate	Increase $50 million	Increase $300 million
0.25 percentage point increase in discount rate	Decrease $50 million	Decrease $300 million
0.25 percentage point decrease in expected rate of return on assets	Increase $25 million	—
0.25 percentage point increase in expected rate of return on assets	Decrease $25 million	—

      SFAS No. 87 requires recognition of an additional minimum pension liability if the fair value of plan assets is less than the accumulated benefit obligation at the end of the plan year. In 2004, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $15 million ($19 million on a pretax basis) which increased the additional minimum pension liability. In 2003, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $369 million ($604 million on a pretax basis) to reduce the additional minimum pension liability by $304 million and reinstate a portion of our pension assets ($300 million) written off as a result of the prior year's minimum pension liability adjustment. The 2003 adjustment resulted from an increase in our pension assets in 2003 due to the improvement in equity markets and our contribution of $670 million to our U.S. plans. In 2002, due to the poor performance of the equity markets which adversely affected our pension assets and a decline in the discount rate, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $606 million ($956 million on a pretax basis) which increased the additional minimum pension liability. Equity market returns and interest rates significantly impact the funded status of our pension plans. Based on future plan asset performance and interest rates, additional adjustments to equity may be required.

      Long-Lived Assets (including Tangible and Definite-Lived Intangible Assets)—To conduct our global business operations and execute our business strategy, we acquire tangible and intangible assets. We periodically evaluate the recoverability of the carrying amount of our long-lived assets (including property, plant and equipment and definite-lived intangible assets) whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be fully recoverable. These events or changes in circumstances include business plans and forecasts, economic or competitive positions within an industry, as well as current operating performance and anticipated future performance based on a business' competitive position. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of a long-lived asset exceeds its fair value and are recognized in earnings. We continually apply our best judgment

20

when applying the impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairment, and the fair value of an impaired long-lived asset group. The dynamic economic environment in which each of our businesses operate and the resulting assumptions used to estimate future cash flows, such as economic growth rates, industry growth rates, product life cycles, selling price changes and cost inflation can significantly influence and impact the outcome of all impairment tests. For a discussion of the result of management's judgment applied in the recognition and measurement of impairment charges see the repositioning and other charges section of this MD&A.

      Income Taxes—The future tax benefit arising from net deductible temporary differences and tax carryforwards was $1.7 and $1.8 billion at December 31, 2004 and 2003, respectively. We believe that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided.

      In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. Significant management judgment is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against our deferred tax assets. Additionally, valuation allowances related to deferred tax assets can be impacted by changes to tax laws and future taxable income levels. In the event we determine that we will not be able to realize our deferred tax assets in the future, we will reduce such amounts through a charge to income in the period that such determination is made. Conversely, if we determine that we will be able to realize deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a credit to income in the period that such determination is made.

      Sales Recognition on Long-Term Contracts—In 2004, we recognized approximately 8 percent of our total net sales using the percentage-of-completion method for long-term contracts in our Automation and Control Solutions and Aerospace reportable segments. The percentage-of-completion method requires us to make judgments in estimating contract revenues, contract costs and progress toward completion. These judgments form the basis for our determinations regarding overall contract value, contract profitability and timing of revenue recognition based on measured progress toward contract completion. Revenue and cost estimates are monitored on an ongoing basis and revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized when such losses become evident. We maintain financial controls over the customer qualification, contract pricing and cost estimation processes to reduce the risk of contract losses.

      Aerospace Customer Incentives—Consistent with other suppliers to commercial aircraft manufacturers and airlines, we provide sales incentives to commercial aircraft manufacturers and airlines in connection with their selection of our aircraft wheel and braking system hardware and auxiliary power units for installation on commercial aircraft. These incentives consist of free or deeply discounted products, product credits and upfront cash payments. The cost of these incentives are capitalized at the time we deliver the products to our customers or, in the case of product credits, at the time the credit is issued, or in the case of upfront cash payments, at the time the payment is made. In the case of free or deeply discounted product, the cost to manufacture less any amount recovered from the airframe manufacturer or airline is capitalized. Product credits and upfront cash payments are capitalized at exchanged value. Research, design, development and qualification costs related to these products are expensed as incurred, unless contractually guaranteed of reimbursement. The cost of the sales incentives described above is capitalized because the selection of our aircraft wheel and braking system hardware and auxiliary power units for installation on commercial aircraft results in the creation of future revenues and cash flows through aftermarket sales to fulfill long-term product maintenance requirements mandated by the Federal Aviation Administration (FAA) and other similar international organizations over the useful life of the aircraft. Once our products are certified and selected on an aircraft, the recovery of our investment is virtually guaranteed over the useful life of the aircraft. The likelihood of displacement by an alternative supplier is remote due to contractual sole-sourcing, the high cost to alternative suppliers and aircraft operators of product retrofits, and/or rigorous regulatory

21

specifications, qualification and testing requirements. Amounts capitalized at December 31, 2004, 2003 and 2002 were $776, $719 and $662 million, respectively, and are being amortized over their useful lives on a straight-line basis, up to 25 years, representing the estimated minimum service life of the aircraft. This useful life is the period over which we are virtually assured to earn revenues from the aftermarket sales of certified products necessary to fulfill the maintenance required by the FAA and other similar international organizations. We classify the amortization expense associated with free and discounted products as cost of goods sold and the amortization expense associated with product credits and upfront cash payments as a reduction of sales. We regularly evaluate the recoverablitity of capitalized amounts whenever events or changes in circumstances indicate that the carrying amount of the incentives may not be fully recoverable. There were no impairment charges related to these capitalized incentives recognized during 2004, 2003 and 2002. For additional information see Note 13 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

RESULTS OF OPERATIONS

Net Sales

	2004			2003			2002
	(Dollars in millions)
Net sales	$	25,601		$	23,103		$	22,274
% change compared with prior year		11	%		4	%		(6	)%

      The change in net sales in 2004 and 2003 is attributable to the following:

	2004 Versus 2003			2003 Versus 2002
Acquisitions		1	%		3	%
Divestitures		(1	)		(2	)
Price		—			—
Volume		8			—
Foreign Exchange		3			3
		11	%		4	%

      A discussion of net sales by reportable segment can be found in the Review of Business Segments section of this MD&A.

Cost of Products and Services Sold

	2004			2003			2002
	(Dollars in millions)
Cost of products and services sold	$	20,585		$	18,235		$	17,615
Gross Margin %		19.6	%		21.1	%		20.9	%

      Gross margin decreased in 2004 by 1.5 percentage points compared with 2003. The decrease resulted primarily from an increase in net repositioning and other charges of $349 million, higher pension and other postretirement benefits expense of $249 million and an increase in research and development expense of $166 million, partially offset by an increase in sales of higher-margin products and services, mainly in our Aerospace reportable segment. Gross margin increased in 2003 by 0.2 percentage points compared with 2002. The increase resulted primarily from a decrease in net repositioning and other charges of $289 million partially offset by higher pension expense and a decrease in sales of higher-margin products and services, mainly in our Aerospace and Automation and Control Solutions reportable segments.

22

Selling, General and Administrative Expenses

	2004			2003			2002
	(Dollars in millions)
Selling, general and administrative expenses	$	3,316		$	2,950		$	2,757
Percent of sales		13.0	%		12.8	%		12.4	%

      Selling, general and administrative expenses increased by $366 million, or 12 percent in 2004 compared with 2003 due to an increase in general and administrative expenses of $155 million due in part to higher spending for information technology systems, an increase in selling expenses of $136 million from higher sales and an increase in pension and other postretirement benefits expense of $54 million. Selling, general and administrative expenses increased by $193 million, or 7 percent in 2003 compared with 2002 due primarily to an increase in general and administrative expenses of $120 million due in part to an increase in other employee benefit expenses, and higher pension and other postretirement benefits expense of $56 million.

	2004		2003		2002
	(Dollars in millions)
Pension and other postretirement benefits expense (income) included in cost of goods sold and selling, general and administrative expenses	$	628	$	325	$	(11	)
Increase compared with prior year	$	303	$	336	$	154

      Pension expense increased by $276 and $290 million in 2004 and 2003, respectively, mainly due to the following:

• A decrease in the market-related value of our pension plan assets during the period 2000 to 2002 due to the poor performance of the equity markets which adversely affected our pension fund assets during this period.

• A systematic recognition of higher losses resulting mainly from actual plan asset returns below the expected rate of return during the period 2000 to 2002.

• A reduction in 2003 in the expected rate of return on plan assets from 10 to 9 percent in response to the continued deterioration in financial market returns in 2002.

• A decrease in the discount rate for each of the years 2001 (7.75 percent), 2002 (7.25 percent), 2003 (6.75 percent) and 2004 (6.00 percent).

      Using an expected long-term rate of return of 9 percent and a discount rate of 5.875 percent, pension expense for our U.S. plans is expected to be $320 million in 2005, a decrease of $56 million compared with 2004.

(Gain) Loss on Sale of Non-Strategic Businesses

	2004			2003			2002
	(Dollars in millions)
(Gain) loss on sale of non-strategic businesses	$	(255	)	$	(38	)	$	124

      Gain on sale of non-strategic businesses of $255 million in 2004 represents the pretax gains on the sales of our Security Monitoring and VCSEL Optical Products businesses in our Automation and Control Solutions reportable segment of $215 and $36 million, respectively. The gain also includes adjustments of $19 million related to businesses sold in prior periods and the pretax loss of $15 million on the sale of our Performance Fibers business in our Specialty Materials reportable segment. The dispositions of these businesses did not materially impact net sales and segment profit in 2004 compared with 2003. Gain on sale of non-strategic businesses of $38 million in 2003 represents the net pretax gain on the dispositions of certain Specialty Materials (Engineering Plastics, Rudolstadt and Metglas) and Aerospace (Honeywell Aerospace Defense Services) businesses. The dispositions of these businesses did not materially impact net sales and segment profit in 2003 compared with 2002.

23

Asbestos Related Litigation Charges, Net of Insurance

	2004		2003		2002
	(Dollars in millions)
Asbestos related litigation charges, net of insurance	$	76	$	—	$	1,548

      In 2004, we recognized charges totaling $76 million primarily for Bendix related asbestos claims filed and defense costs incurred during 2004, net of insurance recoveries. The charges include an update of expected resolution values for pending Bendix claims and are net of an additional $47 million of NARCO insurance deemed probable of recovery. In 2002, asbestos related litigation charges, net of insurance related to costs associated with asbestos claims related to NARCO. See Asbestos Matters in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion.

Business Impairment Charges

	2004		2003		2002
	(Dollars in millions)
Business impairment charges	$	42	$	—	$	877

      Business impairment charges in 2004 relates principally to the write-down of property, plant and equipment of our Performance Fibers business in our Specialty Materials reportable segment. The Performance Fibers business was sold in the fourth quarter of 2004. Business impairment charges in 2002 related to the write-down of property, plant and equipment of businesses in our Specialty Materials and Automation and Control Solutions reportable segments and of our Friction Materials business. See the repositioning and other charges section of this MD&A for further details.

Equity in (Income) Loss of Affiliated Companies

	2004			2003			2002
	(Dollars in millions)
Equity in (income) loss of affiliated companies	$	(82	)	$	(38	)	$	(42	)

      Equity income increased by $44 million in 2004 compared with 2003 due primarily to an improvement in earnings from our UOP process technology joint venture (UOP). Equity income decreased by $4 million in 2003 compared with 2002 due to a charge of $2 million in 2003 related to the sale of a Specialty Materials' equity investee's investment. Also, 2002 included income of $15 million resulting from exiting joint ventures in our Aerospace and Transportation Systems reportable segments partially offset by a charge of $13 million for severance actions by UOP.

Other (Income) Expense

	2004			2003		2002
	(Dollars in millions)
Other (income) expense	$	(92	)	$	19	$	(4	)

      Other income increased by $111 million in 2004 compared with 2003 due principally to a decrease in foreign exchange losses of $93 million in the current year due to a reduction in foreign exchange exposures resulting in losses in 2003 due to a weak U.S. dollar, a gain of $27 million related to the settlement of a patent infringement lawsuit and an increase in interest income of $13 million from higher cash balances, partially offset by the inclusion of a gain of $20 million in the prior year related to the settlement of a patent infringement lawsuit. Other expense increased by $23 million in 2003 compared with 2002 due principally to an increase of $65 million in foreign exchange losses resulting from weakness in the U.S. dollar mainly against the EURO partially offset by a gain of $20 million related to a settlement of a patent infringement lawsuit and an increase of $19 million in interest income from higher cash balances.

24

Interest and Other Financial Charges

	2004			2003			2002
	(Dollars in millions)
Interest and other financial charges	$	331		$	335		$	344
% change compared with prior year		(1	)%		(3	)%		(15	)%

      Interest and other financial charges decreased by 1 percent in 2004 compared with 2003 due principally to lower average short-term debt outstanding in the current year. Interest and other financial charges decreased by 3 percent in 2003 compared with 2002 due principally to lower average interest rates.

Tax Expense (Benefit)

	2004			2003			2002
	(Dollars in millions)
Tax expense (benefit)	$	399		$	296		$	(725	)
Effective tax (benefit) rate		23.8	%		18.0	%		(76.7	)%

      The effective tax (benefit) rate in 2004, 2003 and 2002 was different than the statutory rate of 35 percent due in part to tax benefits from export sales, favorable tax audit settlements and foreign tax planning strategies. The effective tax rate in 2003 also includes tax benefits expected to be realized as a result of the redesignation of our Friction Materials business from held for sale to held and used resulting from the termination of discussions with Federal-Mogul Corp. The effective (benefit) rate in 2002 included the tax benefit resulting from a higher deductible tax basis than book basis related to sales of our Advanced Circuits, PFC and Consumer Products businesses. The impact of tax benefits from export sales, U.S. tax credits and favorable audit settlements had a more favorable impact on our effective (benefit) rate in 2002 principally due to the relative amount of these benefits in comparison to the amount of our pretax loss in 2002. See Note 7 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information on taxes including a detailed effective tax rate reconciliation.

      The American Jobs Creation Act of 2004, signed into law in October 2004, provides for a variety of changes in the tax law including incentives to repatriate undistributed earnings of foreign subsidiaries, a phased elimination of the extra-territorial income exclusion, and a domestic manufacturing benefit. More specifically, the Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned outside the U.S. by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and currently, uncertainty remains as to how to interpret numerous provisions in the Act. As such, we are not in a position to determine whether, and to what extent, we might repatriate foreign earnings. Based on our analysis to date, however, it is reasonably possible that we may repatriate some amount up to approximately $2.6 billion. We estimate the income tax effects of repatriating $2.6 billion to be approximately $150 to $350 million. Honeywell has not provided for U.S. federal income and foreign withholding taxes on $3.9 billion of undistributed earnings from non-U.S. operations as of December 31, 2004. Until our analysis of the Act is completed, we will continue to permanently reinvest those earnings. We expect to finalize our assessment later in 2005.

      The extra-territorial income exclusion (ETI) for foreign sales will be phased-out over two years beginning in 2005. The deduction for income from qualified domestic production activities will be phased-in from 2005 through 2010. Similar to the ETI benefit, the domestic manufacturing benefit has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on our federal income tax return. We are currently assessing the details of the Act and the net effect of the phase-out of the ETI and the phase-in of this new deduction. We expect to complete our analysis later in 2005. Until such time, it is not possible to determine what impact this legislation will have on our consolidated tax accruals or effective tax rate.

25

Net Income (Loss)

	2004		2003		2002
	(Dollars in millions, except per share amounts)
Net income (loss)	$	1,281	$	1,324	$	(220	)
Earnings (loss) per share of common stock—assuming dilution	$	1.49	$	1.54	$	(0.27	)

      The decrease of $0.05 per share in 2004 compared with 2003 relates primarily to increased charges for environmental matters primarily attributable to the denial of our appeal in the matter entitled Interfaith Community Organization et. al. v. Honeywell International Inc. et. al. (See Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”) and higher pension and other postretirement benefits expense, partially offset by an increase in segment profit across all reportable segments. The increase of $1.81 per share in 2003 compared with 2002 mainly relates to a decrease in repositioning and other charges partially offset by the impact of higher pension expense and lower sales of higher-margin products and services, principally in our Aerospace and Automation and Control Solutions reportable segments.

Review of Business Segments

	2004			2003			2002
	(Dollars in millions)
Net Sales
Aerospace	$	9,748		$	8,813		$	8,855
Automation and Control Solutions		8,031			7,464			6,978
Specialty Materials		3,497			3,169			3,205
Transportation Systems		4,323			3,650			3,184
Corporate		2			7			52
	$	25,601		$	23,103		$	22,274
Segment Profit
Aerospace	$	1,479		$	1,221		$	1,308
Automation and Control Solutions		894			843			860
Specialty Materials		184			136			90
Transportation Systems		575			461			393
Corporate		(158	)		(142	)		(154	)
	$	2,974		$	2,519		$	2,497

      A reconciliation of segment profit to income (loss) before taxes and cumulative effect of accounting change follows:

	2004			2003			2002
	(Dollars in millions)
Segment profit	$	2,974		$	2,519		$	2,497
Gain (loss) on sale of non-strategic businesses		255			38			(124	)
Asbestos related litigation charges, net of insurance		(76	)		—			(1,548	)
Business impairment charges		(42	)		—			(877	)
Repositioning and other charges(1)		(646	)		(276	)		(606	)
Pension and other postretirement benefits (expense) income(1)		(628	)		(325	)		11
Equity in income (loss) of affiliated companies		82			38			42
Other income (expense)		92			(19	)		4
Interest and other financial charges		(331	)		(335	)		(344	)
Income (loss) before taxes and cumulative effect of accounting change	$	1,680		$	1,640		$	(945	)

26

(1) Amounts included in cost of products and services sold and selling, general and administrative expenses.

Aerospace

	2004			2003			2002
	(Dollars in millions)
Net sales	$	9,748		$	8,813		$	8,855
% change compared with prior year		11	%		—	%		(8	)%
Segment profit	$	1,479		$	1,221		$	1,308
% change compared with prior year		21	%		(7	)%		(18	)%

      Aerospace sales by major customer end-markets were as follows:

	% of Aerospace Sales									% Change in Sales
Market Segment	2004			2003			2002			2004 Versus 2003			2003 Versus 2002
Commercial:
Air transport aftermarket		22	%		21	%		20	%		19	%		(1	)%
Air transport original equipment		9			9			11			5			(16	)
Regional transport aftermarket		8			9			9			11			(8	)
Regional transport original equipment		3			2			2			48			(15	)
Business and general aviation aftermarket		8			8			8			13			6
Business and general aviation original equipment		7			6			8			27			(21	)
Defense and Space:
Defense and space aftermarket		13			13			11			7			16
Defense and space original equipment		30			32			31			6			4
Total		100	%		100	%		100	%		11	%		—	%

      Details of the changes in sales for both 2004 and 2003 by customer end-markets were as follows:

• Despite the continuing financial problems being experienced by many of the commercial airlines, air transport aftermarket sales improved substantially in 2004 primarily related to a 10 percent increase in global flying hours, the reintroduction of aircraft into service which were previously parked in the desert, a replenishment of spare parts inventories by the airlines and growth in low cost carriers. Additionally, global flying hours in 2003 were adversely impacted as a result of the SARS epidemic. Sales also improved due to an increase in upgrades and retrofits of avionics equipment (ground proximity warning systems) to meet new regulatory standards. Air transport aftermarket sales were adversely impacted in 2003 by a decrease in global flying hours of 1 percent and the financial problems being experienced by many of the commercial airlines. The global flying hours and sales decline trends began in 2001 and was exacerbated by the abrupt downturn in the aviation industry following the terrorists attacks on September 11, 2001 and the SARS epidemic in 2003. While sales of repair and overhaul services started to improve in 2003 signaling increased maintenance and out-sourcing activity by the major airlines, discretionary spending by airlines for purchases of spare parts for replacements and upgrades continued to be weak.

• Air transport original equipment (OE) sales increased in 2004 primarily reflecting higher aircraft deliveries by our OE customers (primarily Airbus and Boeing) as aircraft orders by the commercial airlines began to improve. Air transport OE sales decreased significantly in 2003 reflecting dramatically lower deliveries by our OE customers due to reduced aircraft orders by commercial airlines.

• Regional transport aftermarket sales increased in 2004 due primarily to an increase in fleet sizes and routes of regional carriers and the introduction of the Primus Epic integrated avionics

27

	system. Regional aftermarket sales decreased in 2003 due mainly to lower sales of spare parts to regional airline operators.
•	Business and general aviation aftermarket sales were higher in 2004 as an improving economy drove increased utilization of corporate aircraft. Also, there was an increase in upgrade activity in avionics equipment (RVSM) to meet new regulatory standards. Business and general aviation aftermarket sales also increased in 2003 largely due to higher repair and overhaul activity in the fractional jet market.
•	Business and general aviation OE sales improved in 2004 due primarily to deliveries of the Primus Epic integrated avionics system and HTF7000 engine to business jet OE manufacturers. Business and general aviation OE sales were lower in 2003 reflecting a decline in projected deliveries of business jet airplanes due to weakness in the demand for fractional interests in aircraft and corporate profitability.
•	Defense and space OE sales increased in both 2004 and 2003 due principally to war-related activities, continued growth in precision munitions and increases in restricted space programs.
•	Defense and space aftermarket sales were strong in both 2004 and 2003 driven by war-related activities resulting in increases in repairs, platform upgrades and modifications for fixed, rotary wing and ground vehicles.

      Aerospace segment profit in 2004 increased by 21 percent compared with 2003 due primarily to an increase in sales of higher margin commercial aftermarket products and services and volume growth. This increase was partially offset by higher development expense associated with new programs and an increase in spending for information technology systems. Aerospace segment profit in 2003 decreased by 7 percent compared with 2002 due mainly to lower sales of commercial original equipment and higher-margin commercial aftermarket spare parts.

      Trends which may impact Aerospace operating results in 2005 include:

• Global flying hours improved by 10 percent in 2004 and are expected to increase again in 2005 (5 to 6 percent).

• The financial condition of major commercial airlines continues to be a concern due mainly to high fuel costs and intense fare competition.

• The extent to which increased military activity is offset by lower OE sales due to program completions and reductions.

• The magnitude of an expected increase in aircraft orders and deliveries in the air transport, business and general aviation segments.

Automation and Control Solutions

	2004			2003			2002
	(Dollars in millions)
Net sales	$	8,031		$	7,464		$	6,978
% change compared with prior year		8	%		7	%		(3	)%
Segment profit	$	894		$	843		$	860
% change compared with prior year		6	%		(2	)%		11	%

      Automation and Control Solutions sales in 2004 increased by 8 percent compared with 2003 due to higher volumes of 5 percent and the favorable effect of foreign exchange of 4 percent, partially offset by the impact of lower prices of 1 percent. Sales increased by 9 percent for our Automation and Control Products businesses due principally to strong sales of fire solutions, environmental controls and sensor products, and the favorable effects of foreign exchange and acquisitions. Sales for our Process Solutions business increased by 8 percent due primarily to the favorable effect of foreign exchange and improvement in industrial production and capital spending. Sales for our Building Solutions business increased by 5 percent due primarily to the favorable effect of foreign exchange and the impact of investments in sales and marketing initiatives, partially offset by the divestiture of our Security

28

Monitoring business. Automation and Control Solutions sales in 2003 increased by 7 percent compared with 2002 due to favorable effects of foreign exchange of 5 percent and acquisitions, net of the disposition of our Consumer Products business, of 4 percent, partially offset by the impact of lower prices and volumes of 1 percent each. Sales increased by 11 percent for our Automation and Control Products businesses as the favorable effects of foreign exchange and acquisitions, mainly Invensys Sensor Systems (Invensys), more than offset the impact of the disposition of our Consumer Products business and lower volumes. Sales for our Process Solutions business increased by 4 percent due to the favorable effect of foreign exchange partially offset by lower unit volumes. Sales for our Building Solutions business increased by 2 percent as the favorable effect of foreign exchange more than offset lower volumes due to continued softness in the non-residential construction market.

      Automation and Control Solutions segment profit in 2004 increased by 6 percent compared with 2003 due to the favorable effect of higher sales volumes partially offset by increased investments in sales and marketing initiatives and higher research and development costs to support new product introductions. Automation and Control Solutions segment profit in 2003 decreased by 2 percent compared with 2002 due mainly to the decline in higher-margin energy-retrofit and discretionary spot sales in our Building Solutions business, and increased research and development expense and investments in sales and marketing initiatives, mainly in our Automation and Control Products and Building Solutions businesses, respectively. Segment profit was also adversely impacted in 2003 by pricing pressures mainly in our Automation and Control Products and Process Solutions businesses.

      Trends which may impact Automation and Control Solutions operating results in 2005 include:

• Extent, if any, of recovery in non-residential construction spending and capital spending on building and process automation.

• Consolidation in the fire and security industry may result in increased competition.

Specialty Materials

	2004			2003			2002
	(Dollars in millions)
Net sales	$	3,497		$	3,169		$	3,205
% change compared with prior year		10	%		(1	)%		(3	)%
Segment profit	$	184		$	136		$	90
% change compared with prior year		35	%		51	%		61	%

      Specialty Materials sales in 2004 increased by 10 percent compared with 2003 due to the impact of higher prices of 6 percent (mainly in our Nylon System business), higher volumes of 5 percent and the favorable effect of foreign exchange of 1 percent, partially offset by prior year divestitures, net of acquisitions, of 2 percent. Sales for our Chemicals business improved by 19 percent driven principally by continuing strong demand for our non-ozone depleting HFC products for refrigeration and air conditioning applications, as well as for blowing agents for insulation applications. Sales for our Electronic Materials business increased by 13 percent driven by improvement in the semiconductor industry. Sales for our Performance Products business were also higher by 13 percent due to strong demand for our Spectra fiber, principally from the U.S. military. Specialty Materials sales in 2003 decreased by 1 percent compared with 2002 due to the impact of the divestitures of our Advanced Circuits, PFC and Engineering Plastics businesses, net of the acquisition of BASF's nylon fiber business, of 6 percent partially offset by the favorable effects of foreign exchange of 3 percent and higher volumes of 2 percent. Higher volumes were principally driven by strong demand for Spectra fiber from the U.S. military, increasing demand for HFCs, a key component of many non-ozone depleting refrigerants and foam blowing agents and increased demand for electronic materials from the semiconductor industry. Volumes were adversely affected in 2003 by the temporary plant shutdowns in our Fluorocarbons and Nylon System businesses.

      Specialty Materials segment profit in 2004 increased by 35 percent compared with 2003 due principally to higher sales volumes and price increases, partially offset by higher raw material costs (principally phenol resulting from increases in benzene prices) mainly in our Nylon System business.

29

Additionally segment profit in 2003 was adversely impacted by temporary plant shutdowns in our Fluorocarbons and Nylon System businesses. Specialty Materials segment profit in 2003 increased by 51 percent compared with 2002 due mainly to the impact of the prior year write-down of property, plant and equipment in several businesses, the benefits of cost actions including synergies from the nylon transaction, divestitures of non-strategic businesses and higher sales volumes. The increase was partially offset by higher raw material costs (mainly natural gas and phenol resulting from increases in benzene prices) and the impact of the temporary plant shutdowns in our Fluorocarbons and Nylon System businesses.

      Trends which may impact Specialty Materials operating results in 2005 include:

• Continued excess global capacity in the production of nylon. The Nylon System business did not perform in accordance with our operating plan in 2004. We have taken certain repositioning actions in 2004 (see repositioning section of this MD&A) and are evaluating other alternatives. Additionally, we continue to evaluate strategic alternatives to maximize the value of this business.

• Degree of volatility in significant raw material costs (natural gas and benzene).

• Extent of change in order rates from global semiconductor customers.

Transportation Systems

	2004			2003			2002
	(Dollars in millions)
Net sales	$	4,323		$	3,650		$	3,184
% change compared with prior year		18	%		15	%		(8	)%
Segment profit	$	575		$	461		$	393
% change compared with prior year		25	%		17	%		28	%

      Transportation Systems sales in 2004 increased by 18 percent compared with 2003 due primarily to a favorable sales mix and higher volumes of 12 percent and the favorable effect of foreign exchange of 6 percent. The increase in sales for the segment resulted principally from a 29 percent increase in sales in our Honeywell Turbo Technologies business due to a favorable sales mix and volume growth driven by increasing diesel penetration in Europe and strength in the North American truck segment, and the favorable effect of foreign exchange. Sales for our Consumer Products Group business increased by 7 percent driven by strong retail demand for our high-end products and recent introductions of new Autolite, FRAM and Prestone products and the favorable effect of foreign exchange and higher prices (offsetting incremental ethylene glycol raw material costs). Sales for our Friction Materials business increased by 7 percent largely due to the favorable effect of foreign exchange. Transportation Systems sales in 2003 increased by 15 percent compared with 2002 due mainly to the favorable effects of foreign exchange of 9 percent and a favorable sales mix and volume growth of 5 percent. The increase resulted mainly from a 27 percent increase in sales in our Honeywell Turbo Technologies business due to a favorable sales mix and volume growth of 15 percent as worldwide demand for our turbochargers continued to be strong and the favorable effect of foreign exchange of 12 percent.

      Transportation Systems segment profit in 2004 increased by 25 percent compared with 2003 due primarily to the effect of favorable sales mix and volume growth in our Honeywell Turbo Technologies business partially offset by higher raw material costs (mostly steel and other metals in each of the segment's businesses and ethylene glycol in our Consumer Products Group business). Transportation Systems segment profit in 2003 increased by 17 percent compared with 2002 as the effect of higher sales in our Honeywell Turbo Technologies business was partially offset by higher new product development and introduction and facility relocations expenses, and lower aftermarket sales at our Friction Materials business.

      Trends which may impact Transportation Systems operating results in 2005 include:

30

• Rate of increase in global diesel and gasoline turbocharger OEM demand arising from continued penetration of diesel passenger cars into the European market, and North America truck shipments.

• The adoption of regulations aimed at reducing emissions.

• Change in consumer spending for automotive aftermarket products.

Repositioning and Other Charges

      A summary of repositioning and other charges follows:

	2004			2003			2002
	(Dollars in millions)
Severance	$	85		$	69		$	270
Asset impairments		21			6			121
Exit costs		10			7			62
Reserve adjustments		(28	)		(69	)		(76	)
Total net repositioning charge		88			13			377
Asbestos related litigation charges, net of insurance		76			—			1,548
Other probable and reasonably estimable legal and environmental liabilities		565			261			30
Business impairment charges		42			—			877
Customer claims and settlements of contract liabilities		(10	)		—			152
Write-offs of receivables, inventories and other assets		14			2			60
Investment impairment charges		—			2			15
Total net repositioning and other charges	$	775		$	278		$	3,059

      The following table summarizes the pretax distribution of total net repositioning and other charges by income statement classification:

	2004		2003		2002
	(Dollars in millions)
Cost of products and services sold	$	621	$	272	$	561
Selling, general and administrative expenses		25		4		45
Asbestos related litigation charges, net of insurance		76		—		1,548
Business impairment charges		42		—		877
Equity in (income) loss of affiliated companies		6		2		13
Other (income) expense		5		—		15
	$	775	$	278	$	3,059

      In 2004, we recognized repositioning charges totaling $116 million primarily for severance costs related to workforce reductions of 2,272 manufacturing and administrative positions across all of our reportable segments. Also, $28 million of previously established accruals, primarily for severance, were returned to income in 2004, due to fewer employee separations than originally planned associated with certain prior repositioning actions, resulting in reduced severance liabilities principally in our Automation and Control Solutions reportable segment.

      In 2003, we recognized repositioning charges totaling $82 million primarly for severance costs related to workforce reductions of 1,501 manufacturing and administrative positions across all of our reportable segments. Also, $69 million of previously established accruals, primarily for severance, were returned to income in 2003, due to fewer employee separations than originally planned associated with certain prior repositioning actions, resulting in reduced severance liabilities in our Automation and Control Solutions, Aerospace and Specialty Materials reportable segments.

31

      In 2002, we recognized repositioning charges totaling $453 million for workforce reductions across all of our reportable segments and our UOP process technology joint venture. The charge also related to costs for the planned shutdown and consolidation of manufacturing plants in our Specialty Materials and Automation and Control Solutions reportable segments. Severance costs related to announced workforce reductions of approximately 8,100 manufacturing and administrative positions. Asset impairments principally related to manufacturing plant and equipment held for sale and capable of being taken out of service and actively marketed in the period of impairment. Exit costs related principally to incremental costs to exit facilities, including lease termination losses negotiated or subject to reasonable estimation related mainly to closed facilities in our Automation and Control Solutions and Specialty Materials reportable segments. Also, $76 million of previously established severance accruals were returned to income in 2002, due to fewer employee separations than originally planned associated with certain prior repositioning actions and higher than expected voluntary employee attrition, resulting in reduced severance liabilities in our Aerospace, Automation and Control Solutions and Specialty Materials reportable segments.

      Our 2004 repositioning actions are expected to generate incremental pretax savings of approximately $75 million in 2005 compared with 2004 principally from planned workforce reductions. Cash expenditures for severance and other exit costs necessary to execute our repositioning actions were $164, $200 and $447 million in 2004, 2003 and 2002, respectively. Such expenditures for severance and other exit costs have been funded principally through operating cash flows. Cash expenditures for severance and other exit costs necessary to execute the remaining actions will approximate $100 million in 2005 and will be funded principally through operating cash flows.

      In 2004, we recognized a charge of $565 million for other probable and reasonably estimable legal and environmental liabilities. This includes $536 million for legacy environmental liabilities, primarily related to the denial of our appeal of the matter entitled Interfaith Community Organization, et. al. v. Honeywell International Inc., et al., and estimated liabilities for remediation of environmental conditions in and around Onondaga Lake in Syracuse, New York. Both of these environmental matters are discussed in further detail in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.” We recognized a charge of $29 million for various legal settlements including property damage claims in our Automation and Control Solutions reportable segment. We recognized a charge of $76 million primarily for Bendix related asbestos claims and defense costs incurred in 2004 including an update of expected resolution values with respect to pending claims. The charge was net of probable Bendix related insurance recoveries and an additional $47 million of NARCO insurance deemed probable of recovery. See Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion. We recognized an impairment charge of $42 million in the second quarter of 2004 related principally to the write-down of property, plant and equipment of our Performance Fibers business in our Specialty Materials reportable segment. This business was sold in December 2004. We recognized a charge of $14 million for the write-off of receivables, inventories and other assets. We also reversed a reserve of $10 million established in the prior year for a contract settlement.

      In 2003, we recognized a charge of $261 million for other probable and reasonably estimable legal and environmental liabilities. This included $235 million for environmental liabilities mainly related to the matter entitled Interfaith Community Organization, et al. v. Honeywell International Inc., et al. and for remediation of environmental conditions in and around Onondaga Lake in Syracuse, New York, both as discussed in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.” We also recognized a charge of $4 million in our Specialty Materials reportable segment including a loss on sale of an investment owned by an equity investee.

      In 2002, we recognized business impairment charges of $877 million related to businesses in our Specialty Materials and Automation and Control Solutions reportable segments, as well as our Friction Materials business. Based on current operating losses and deteriorating economic conditions in certain chemical and telecommunications end-markets, we performed impairment tests and recognized impairment charges of $785 million principally related to the write-down of property, plant and equipment held and used in our Nylon System, Performance Fibers and Metglas Specialty Materials businesses, as well as an Automation and Control Solutions communication business. We also

32

recognized impairment charges of $92 million related principally to the write-down of property, plant and equipment of our Friction Materials business, which was classified as assets held for disposal in Other Current Assets as of December 31, 2002. A plan of disposal of Friction Materials was adopted in 2001; in January 2003, we entered into a letter of intent to sell this business to Federal-Mogul Corp. The assets were reclassified from held for sale to held and used as of December 31, 2003 following the cessation of negotiations to sell our Friction Materials business to Federal-Mogul Corp. At that time, no adjustment to the carrying value of Friction Materials' assets was required based on a current reassessment of the fair value of those assets. Such reassessment of the fair value of the property, plant and equipment was performed using discounted estimated future cash flows of the business. The fair value approximated the written-down held for sale value and was also less than the carrying amount of the property, plant and equipment prior to being classified as held for sale, adjusted for depreciation expense that would have otherwise been recognized had these assets been classified as held and used (see Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion). We recognized asbestos related litigation charges of $1,548 million principally related to costs associated with the potential resolution of asbestos claims of NARCO (see Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion). We also recognized other charges consisting of customer claims and settlements of contract liabilities of $152 million and write-offs of receivables, inventories and other assets of $60 million. These other charges related mainly to our Advanced Circuits business, bankruptcy of a customer in our Aerospace reportable segment, and customer claims in our Aerospace and Automation and Control Solutions reportable segments. Additionally, we recognized other charges consisting of other probable and reasonably estimable environmental liabilities of $30 million and write-offs related to an other than temporary decline in the value of certain equity investments of $15 million.

      The following tables provide details of the pretax impact of total net repositioning and other charges by reportable segment.

Aerospace

	2004			2003		2002
	(Dollars in millions)
Net repositioning charge	$	5		$	10	$	15
Customer claims and settlements of contract liabilities		(10	)		—		99
Write-offs of receivables, inventories and other assets		—			—		21
Investment impairment charges		—			—		11
	$	(5	)	$	10	$	146

Automation and Control Solutions

	2004		2003			2002
	(Dollars in millions)
Net repositioning charge	$	15	$	(22	)	$	131
Other probable and reasonably estimable legal and environmental liabilities		13		—			—
Business impairment charges		—		—			22
Customer claims and settlements of contract liabilities		—		—			42
Write-offs of receivables, inventories and other assets		—		—			17
	$	28	$	(22	)	$	212

33

Specialty Materials

	2004		2003		2002
	(Dollars in millions)
Net repositioning charge	$	36	$	16	$	167
Other probable and reasonably estimable legal and environmental liabilities		9		—		23
Business impairment charges		42		—		763
Customer claims and settlements of contract liabilities		—		—		11
Write-offs of receivables, inventories and other assets		3		2		12
Investment impairment charges		—		2		—
	$	90	$	20	$	976

Transportation Systems

	2004		2003		2002
	(Dollars in millions)
Net repositioning charge	$	26	$	5	$	26
Asbestos related litigation charges, net of insurance		120		—		167
Other probable and reasonably estimable legal and environmental liabilities		—		11		—
Business impairment charges		—		—		92
Write-offs of receivables, inventories and other assets		1		—		10
	$	147	$	16	$	295

Corporate

	2004			2003		2002
	(Dollars in millions)
Net repositioning charge	$	6		$	4	$	38
Asbestos related litigation charges, net of insurance		(44	)		—		1,381
Other probable and reasonably estimable legal and environmental liabilities		543			250		7
Write-offs of receivables, inventories and other assets		10			—		—
Investment impairment charges		—			—		4
	$	515		$	254	$	1,430

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

      Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows, are summarized as follows:

	2004			2003			2002
	(Dollars in millions)
Cash provided by (used for):
Operating activities	$	2,253		$	2,199		$	2,380
Investing activities		(584	)		(680	)		(870	)
Financing activities		(1,223	)		(895	)		(932	)
Effect of exchange rate changes on cash		190			305			50
Net increase in cash and cash equivalents	$	636		$	929		$	628

      Cash provided by operating activities increased by $54 million during 2004 compared with 2003 due primarily to increased cash earnings and a decrease in voluntary U.S. pension contributions of

34

$630 million. The increase in cash provided by operating activities was partially offset by an increase in net asbestos related liability payments of $558 million as the prior year included $472 million in cash received from Equitas related to a comprehensive policy buy-back settlement, and an increase in working capital (receivables, inventories and accounts payable), usage of $268 million principally related to higher sales and a weakening of the U.S. dollar versus the Euro and Canadian dollar throughout 2004. Cash provided by operating activities decreased by $181 million during 2003 compared with 2002 mainly due to a $540 million increase in voluntary U.S. pension contributions as well as an increase in working capital usage due primarily to a weakening of the U.S. dollar versus the Euro and Canadian dollar throughout 2003. The decrease was partially offset by reduced severance and exit costs payments of $247 million, lower litigation payments of $222 million, as well as insurance receipts in excess of asbestos liability payments of $107 million during 2003.

      Cash used for investing activities decreased by $96 million during 2004 compared with 2003 due primarily to an increase in proceeds from sales of businesses of $289 million largely from the dispositions of our Security Monitoring and VCSEL Optical Products businesses in the current year. Additionally, proceeds from the maturity of investment securities were $80 million in 2004. The decrease in cash used for investing activities was partially offset by an increase in spending for acquisitions of $185 million due principally to various acquisitions in our Automation and Control Solutions reportable segment and an investment of $115 million in auction rate securities. Cash used for investing activities decreased by $190 million during 2003 compared with 2002 due mainly to reduced spending of $321 million for acquisitions, principally reflecting the acquisition of Invensys in October 2002. The decrease was partially offset by reduced proceeds from sales of investments of $91 million related to the disposition of a cost investment in our Automation and Control Solutions reportable segment in 2002, and reduced proceeds from sales of businesses of $46 million. Proceeds from business sales in 2003 resulted from the sale of certain non-core Specialty Materials (Engineering Plastics, Rudolstadt and Metglas) and Aerospace (Honeywell Aerospace Defense Services) businesses.

      Cash used for financing activities increased by $328 million during 2004 compared with 2003 due primarily to an increase in repurchases of common stock of $687 million in connection with our stock repurchase program announced in November 2003 partially offset by a reduction in debt repayments, net of issuances, of $337 million in 2004. Total debt of $5,273 million at December 31, 2004 was $113 million, or 2 percent higher than at December 31, 2003 principally reflecting higher commercial paper borrowings to fund our share repurchases in 2004. Cash used for financing activities decreased by $37 million during 2003 compared with 2002 mainly due to lower net debt repayments in 2003, partially offset by cash used to repurchase shares in the fourth quarter of 2003. Total debt of $5,160 million at December 31, 2003 was $71 million, or 1 percent higher than at December 31, 2002 principally reflecting the assumption of $267 million of debt associated with the purchase of assets under operating leases partially offset by lower short-term borrowings.

      We had approximately $3.4 and $2.6 billion of cash and cash equivalents held by non-U.S. subsidiaries mainly in local currencies (principally the Euro, Canadian dollar, and Australian dollar) at December 31, 2004 and 2003, respectively. The $190 and $305 million increases in cash and cash equivalents in 2004 and 2003, respectively, due to exchange rate changes, principally resulted from a weakening of the U.S. dollar mainly against the Euro and Canadian dollar throughout 2004 and 2003. We manage our worldwide cash requirements considering available cash balances and the most cost effective method to access those cash balances. The repatriation of cash balances from some non-U.S. subsidiaries to the U.S. could have U.S. tax consequences (see discussion of American Jobs Creation Act of 2004 in Note 7 of Notes fo Financial Statements in “Item 8. Financial Statements and Supplementary Data”); however, substantially all cash balances held by non-U.S. subsidiaries are available without legal restrictions to fund business operations.

Liquidity

      We manage our businesses to maximize operating cash flows as the primary source of our liquidity. Operating cash flows were $2.3 billion in 2004. We have approximately $3.6 billion in cash and cash equivalents and $4.8 billion in working capital (receivables, inventories and accounts payable).

35

Each of our businesses continues to focus on strategies to improve working capital turnover in 2005 to increase operating cash flows. Considering the current economic environment in which each of our businesses operate and our business plans and strategies, including our focus on growth, cost reduction and productivity initiatives, we believe that our cash balances and operating cash flows will remain our principal source of liquidity. In addition to our available cash and operating cash flows, additional sources of liquidity include committed credit lines, access to the public debt and equity markets using debt and equity securities, including commercial paper, as well as our ability to sell trade accounts receivables.

      A source of liquidity is our ability to issue short-term debt in the commercial paper market. Our ability to access the commercial paper market, and the related cost of these borrowings, is affected by the strength of our credit ratings and our $2.3 billion of committed bank revolving credit facilities (Revolving Credit Facilities). Our credit ratings are periodically reviewed by the major independent debt-rating agencies. In 2004, Standard and Poor's and Fitch Rating Services affirmed their corporate ratings on our long-term debt, A and A+, respectively, and short-term debt A-1 and F1, respectively, and revised Honeywell's outlook from “negative” to “stable”. Moody's Investors Service affirmed its corporate rating on our long-term and short-term debt of A2 and P-1, respectively. Our credit rating provided by Moody's Investors Service reflects a “negative outlook” due principally to the cyclical market conditions in the commercial air transport industry, our potential exposure to asbestos liabilities, and the existence of integration risk associated with our recently announced acquisition of Novar plc (expected to be completed in the first quarter of 2005). The “negative outlook” has not impaired, nor do we expect it to impair, our access to the commercial paper markets.

      Commercial paper notes are sold at a discount and have a maturity of not more than 270 days from date of issuance. Borrowings under the commercial paper program are available for general corporate purposes as well as for financing potential acquisitions. There was $220 million of commercial paper outstanding at December 31, 2004.

      Our $2.3 billion of Revolving Credit Facilities are maintained with a group of banks, arranged by Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., and comprises: (a) a $1 billion Five-Year Credit Agreement and (b) a $1.3 billion Five-Year Credit Agreement. The credit agreements are maintained for general corporate purposes, including support for the issuance of commercial paper. The $1 billion Five-Year Credit Agreement was put in place on October 22, 2004, replacing a $1 billion 364-Day Credit Agreement which was expiring on November 24, 2004. This newly established Five-Year credit facility includes a $200 million sub-limit for the potential issuance of letters of credit. The $1.3 billion Five-Year Credit Agreement was increased in November 2003 with the addition of a $300 million sub-limit for the potential issuance of letters of credit. See Note 15 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

      We also have a shelf registration statement filed with the Securities and Exchange Commission which allows us to issue up to $3 billion in debt securities, common stock and preferred stock that may be offered in one or more offerings on terms to be determined at the time of the offering. Net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, capital expenditures and acquisitions.

      We also sell interests in designated pools of trade accounts receivables to third parties. The sold receivables were over-collateralized by $120 million at December 31, 2004 and we retain a subordinated interest in the pool of receivables representing that over-collateralization as well as an undivided interest in the balance of the receivables pools. New receivables are sold under the agreement as previously sold receivables are collected. The retained interests in the receivables are reflected at the amounts expected to be collected by us, and such carrying value approximates the fair value of our retained interests. The sold receivables were $500 million at both December 31, 2004 and 2003.

      In addition to our normal operating cash requirements, our principal future cash requirements will be to fund capital expenditures, debt repayments, employee benefit obligations, environmental remediation costs, asbestos claims, severance and exit costs related to repositioning actions, share repurchases and any strategic acquisitions. Our total capital expenditures in 2005 are currently projected at approximately $775 million. These expenditures are primarily intended for maintenance,

36

replacement, production capacity expansion, cost reduction and growth. There are $956 million of long-term debt repayments scheduled for 2005. Assuming that actual pension plan returns are consistent with our expected rate of return of 9 percent in 2005 and beyond and that interest rates remain constant, we would not be required to make any contributions to our U.S. pension plans for the foreseeable future. Due to share repurchases made in the fourth quarter of 2004 to offset the anticipated 2005 dilutive impact of employee stock-based compensation plans, we do not anticipate the need for additional share repurchases in 2005 under the program initiated in the fourth quarter of 2003. Total repurchases may vary depending on market conditions and the level of other investing activities. Cash expenditures for severance and other exit costs necessary to execute the remaining repositioning actions will approximate $100 million in 2005. We expect our cash expenditures for asbestos claims in 2005 to be approximately $744 million and insurance recoveries to be approximately $150 million in 2005. See Asbestos Matters in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion. As discussed in Note 2 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data,” we expect to complete our acquisition of Novar plc in the first quarter of 2005. We expect to fund the acquisition with existing cash resources.

      We continuously assess the relative strength of each business in our portfolio as to strategic fit, market position, profit and cash flow contribution in order to upgrade our combined portfolio and identify business units that will most benefit from increased investment. We identify acquisition candidates that will further our strategic plan and strengthen our existing core businesses. We also identify business units that do not fit into our long-term strategic plan based on their market position, relative profitability or growth potential. These business units are considered for potential divestiture, restructuring or other repositioning actions subject to regulatory constraints. In 2004, we realized $426 million in cash proceeds from sales of non-strategic businesses.

      We believe that our operating cash flows will be sufficient to meet our future cash needs. Our available cash, committed credit lines, access to the public debt and equity markets using debt and equity securities, including commercial paper, as well as our ability to sell trade accounts receivables, provide additional sources of short-term and long-term liquidity to fund current operations and future investment opportunities. Based on our current financial position and expected economic performance, we do not believe that our liquidity will be adversely impacted by an inability to access our sources of financing.

Contractual Obligations and Probable Liability Payments

      Following is a summary of our significant contractual obligations and probable liability payments at December 31, 2004:

	Payments by Period
	Total			2005			2006- 2007			2008- 2009			Thereafter
	(Dollars in millions)
Long-term debt, including capitalized leases(1)	$	5,025		$	956		$	1,385		$	611		$	2,073
Minimum operating lease payments		1,028			289			369			197			173
Purchase obligations(2)		2,663			334			1,104			302			923
Estimated environmental liability payments		895			267			260			260			108
Asbestos related liability payments(3)		2,750			744			860			286			860
		12,361			2,590			3,978			1,656			4,137
Asbestos insurance recoveries(4)		(1,562	)		(150	)		(280	)		(240	)		(892	)
	$	10,799		$	2,440		$	3,698		$	1,416		$	3,245

(1)	Assumes all long-term debt is outstanding until scheduled maturity.
(2)	Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

37

(3)

These amounts are estimates of asbestos related cash payments for NARCO and Bendix. NARCO estimated payments are based on the terms and conditions, including evidentiary requirements, specified in the definitive agreements or agreements in principle and pursuant to Trust Distribution Procedures. Bendix payments are based on our estimate of pending claims. Projecting future events is subject to many uncertainties that could cause asbestos liabilities to be higher or lower than those projected and recorded. There is no assurance that NARCO or Bendix insurance recoveries will be timely, that a NARCO plan of reorganization will be proposed or confirmed, or whether there will be any NARCO related asbestos claims beyond 2018. See Asbestos Matters in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”.

(4)

These amounts represent probable insurance recoveries through 2018. See Asbestos Matters in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

      The table excludes our pension and other postretirement benefits (OPEB) obligations. We made voluntary contributions of $40, $670 and $830 million to our U.S. pension plans in 2004, 2003 and 2002, respectively. Future plan contributions are dependent upon actual plan asset returns and interest rates. Assuming that actual plan asset returns are consistent with our expected plan return of 9 percent in 2005 and beyond, and that interest rates remain constant, we would not be required to make any contributions to our U.S. pension plans for the foreseeable future. Payments due under our OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under our plans. We expect our OPEB payments to approximate $208 million in 2005. See Note 22 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further discussion of our pension and OPEB plans.

Off-Balance Sheet Arrangements

      Following is a summary of our off-balance sheet arrangements:

      Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31, 2004:

	Maximum Potential Future Payments
	(Dollars in millions)
Operating lease residual values	$	47
Other third parties' financing		4
Unconsolidated affiliates' financing		7
Customer and vendor financing		35
	$	93

      We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial position or liquidity.

      In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated.

      Retained Interests in Factored Pools of Trade Accounts Receivables—As a source of liquidity, we sell interests in designated pools of trade accounts receivables to third parties. The sold receivables ($500 million at December 31, 2004) are over-collateralized and we retain a subordinated interest in the pool of receivables representing that over-collateralization as well as an undivided interest in the balance of the receivables pools. The over-collateralization provides credit support to the purchasers of the receivable interest by limiting their losses in the event that a portion of the

38

receivables sold becomes uncollectible. At December 31, 2004, our retained subordinated and undivided interests at risk were $120 and $440 million, respectively. Based on the underlying credit quality of the receivables placed into the designated pools of receivables being sold, we do not expect that any losses related to our retained interests at risk will have a material adverse effect on our consolidated results of operations, financial position or liquidity.

Environmental Matters

      We are subject to various federal, state, local and foreign government requirements relating to the protection of the environment. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental and safety laws and regulations. However, mainly because of past operations and operations of predecessor companies, we, like other companies engaged in similar businesses, have incurred remedial response and voluntary cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing toxic substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future.

      With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with other responsible parties, to determine the feasibility of various remedial techniques to address environmental matters. It is our policy (see Note 1 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”) to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonable possible environmental loss in excess of our accrual. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties.

      Remedial response and voluntary cleanup expenditures were $248, $77 and $81 million in 2004, 2003, and 2002, respectively, and are currently estimated to be approximately $267 million in 2005. We expect to fund such expenditures from operating cash flow.

      Remedial response and voluntary cleanup costs charged against pretax earnings were $536, $235 and $60 million in 2004, 2003 and 2002, respectively. At December 31, 2004 and 2003, the recorded liability for environmental matters was $895 and $593 million, respectively. In addition, in 2004 and 2003 we incurred operating costs for ongoing businesses of approximately $116 and $80 million, respectively, relating to compliance with environmental regulations.

      Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on our consolidated financial position.

      See Note 3 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of our legal and environmental charges and Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of our commitments and contingencies, including those related to environmental matters and toxic tort litigation.

39

Financial Instruments

      As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments. A summary of our accounting policies for derivative financial instruments is included in Note 1 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”.

      We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and anticipated transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency cash flows. We attempt to have all transaction exposures hedged with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency forward and option agreements with third parties. Our principal currency exposures relate to the Euro, the Canadian dollar, British pound, and the U.S. dollar.

      Our exposure to market risk from changes in interest rates relates primarily to our debt obligations. As described in Notes 15 and 17 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”, we issue both fixed and variable rate debt and use interest rate swaps to manage our exposure to interest rate movements and reduce overall borrowing costs.

      Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience using such derivative instruments. We monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities.

      The following table illustrates the potential change in fair value for interest rate sensitive instruments based on a hypothetical immediate one-percentage-point increase in interest rates across all maturities, the potential change in fair value for foreign exchange rate sensitive instruments based on a 10 percent weakening of the U.S. dollar versus local currency exchange rates across all maturities, and the potential change in fair value of contracts hedging commodity purchases based on

40

a 20 percent decrease in the price of the underlying commodity across all maturities at December 31, 2004 and 2003.

	Face or Notional Amount			Carrying Value(1)			Fair Value(1)			Estimated Increase (Decrease) In Fair Value
	(Dollars in millions)
December 31, 2004
Interest Rate Sensitive Instruments
Long-term debt (including current maturities)	$	(4,994	)	$	(5,025	)	$	(5,411	)	$	(131	)
Interest rate swap agreements		1,218			39			39			(15	)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2)		790			16			16			(21	)
Commodity Price Sensitive Instruments
Forward commodity contracts(3)		87			8			8			(11	)
December 31, 2003
Interest Rate Sensitive Instruments
Long-term debt (including current maturities)	$	(4,947	)	$	(5,008	)	$	(5,508	)	$	(148	)
Interest rate swap agreements		1,189			67			67			(26	)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2)		641			1			1			(32	)
Commodity Price Sensitive Instruments
Forward commodity contracts(3)		50			18			18			(13	)

(1)	Asset or (liability).
(2)	Changes in the fair value of foreign currency exchange contracts are offset by changes in the fair value or cash flows of underlying hedged foreign currency transactions.
(3)	Changes in the fair value of forward commodity contracts are offset by changes in the cash flows of underlying hedged commodity transactions.

      The above discussion of our procedures to monitor market risk and the estimated changes in fair value resulting from our sensitivity analyses are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to actual developments in the global financial markets. The methods used by us to assess and mitigate risk discussed above should not be considered projections of future events.

OTHER MATTERS

Litigation

      See Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of environmental, asbestos and other litigation matters.

Sales to the U.S. Government

      Sales to the U.S. Government, acting through its various departments and agencies and through prime contractors, amounted to $3,464, $3,111 and $2,730 million in 2004, 2003 and 2002, respectively. This included sales to the Department of Defense (DoD), as a prime contractor and subcontractor, of $2,808, $2,564 and $2,046 million in 2004, 2003 and 2002, respectively. Sales to the DoD accounted for 11.0, 11.1 and 9.2 percent of our total sales in 2004, 2003 and 2002, respectively. U.S. defense spending increased in 2004 and is also expected to increase in 2005.

41

Backlog

      Our total backlog at year-end 2004 and 2003 was $8,229 and $7,191 million, respectively. We anticipate that approximately $6,339 million of the 2004 backlog will be filled in 2005. We believe that backlog is not necessarily a reliable indicator of our future sales because a substantial portion of the orders constituting this backlog may be canceled at the customer's option.

Inflation

      Highly competitive market conditions have minimized inflation's impact on the selling prices of our products and the costs of our purchased materials. Except for the costs of certain raw materials in our Specialty Materials reportable segment (See Business Overview section of this MD&A for further discussion), cost increases for materials and labor have generally been low, and productivity enhancement programs, including repositioning actions and Six Sigma initiatives, have largely offset any impact.

Recent Accounting Pronouncements

      See Note 1 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of recent accounting pronouncements.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

      Information relating to market risk is included in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Financial Instruments”.

Item 8.    Financial Statements and Supplementary Data

42

HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS

	Years Ended December 31,
	2004			2003			2002
	(Dollars in millions, except per share amounts)
Product sales	$	20,408		$	18,234		$	17,608
Service sales		5,193			4,869			4,666
		25,601			23,103			22,274
Costs, expenses and other
Cost of products sold		16,904			14,753			14,168
Cost of services sold		3,681			3,482			3,447
Selling, general and administrative expenses		3,316			2,950			2,757
(Gain) loss on sale of non-strategic businesses		(255	)		(38	)		124
Asbestos related litigation charges, net of insurance		76			—			1,548
Business impairment charges		42			—			877
Equity in (income) loss of affiliated companies		(82	)		(38	)		(42	)
Other (income) expense		(92	)		19			(4	)
Interest and other financial charges		331			335			344
		23,921			21,463			23,219
Income (loss) before taxes and cumulative effect of accounting change		1,680			1,640			(945	)
Tax expense (benefit)		399			296			(725	)
Income (loss) before cumulative effect of accounting change		1,281			1,344			(220	)
Cumulative effect of accounting change		—			(20	)		—
Net income (loss)	$	1,281		$	1,324		$	(220	)
Earnings (loss) per share of common stock—basic:
Income (loss) before cumulative effect of accounting change	$	1.49		$	1.56		$	(0.27	)
Cumulative effect of accounting change		—			(0.02	)		—
Net income (loss)	$	1.49		$	1.54		$	(0.27	)
Earnings (loss) per share of common stock—assuming dilution:
Income (loss) before cumulative effect of accounting change	$	1.49		$	1.56		$	(0.27	)
Cumulative effect of accounting change		—			(0.02	)		—
Net income (loss)	$	1.49		$	1.54		$	(0.27	)

The Notes to Financial Statements are an integral part of this statement.

43

HONEYWELL INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET

	December 31,
	2004			2003
	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	3,586		$	2,950
Accounts, notes and other receivables		4,243			3,643
Inventories		3,160			3,040
Deferred income taxes		1,289			1,526
Other current assets		542			465
Total current assets		12,820			11,624
Investments and long-term receivables		542			569
Property, plant and equipment—net		4,331			4,295
Goodwill		6,013			5,789
Other intangible assets—net		1,241			1,098
Insurance recoveries for asbestos related liabilities		1,412			1,317
Deferred income taxes		613			342
Prepaid pension benefit cost		2,985			3,173
Other assets		1,105			1,107
Total assets	$	31,062		$	29,314
LIABILITIES
Current liabilities:
Accounts payable	$	2,564		$	2,240
Short-term borrowings		28			152
Commercial paper		220			—
Current maturities of long-term debt		956			47
Accrued liabilities		4,971			4,314
Total current liabilities		8,739			6,753
Long-term debt		4,069			4,961
Deferred income taxes		397			316
Postretirement benefit obligations other than pensions		1,713			1,683
Asbestos related liabilities		2,006			2,279
Other liabilities		2,886			2,593
CONTINGENCIES
SHAREOWNERS' EQUITY
Capital—common stock—Authorized 2,000,000,000 shares (par value $1 per share):
—issued 957,599,900 shares		958			958
—additional paid-in capital		3,574			3,486
Common stock held in treasury, at cost:
2004—107,586,616 shares; 2003—95,269,642 shares		(4,185	)		(3,655	)
Accumulated other nonowner changes		138			(189	)
Retained earnings		10,767			10,129
Total shareowners' equity		11,252			10,729
Total liabilities and shareowners' equity	$	31,062		$	29,314

The Notes to Financial Statements are an integral part of this statement.

44

HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

	Years Ended December 31,
	2004			2003			2002
	(Dollars in millions)
Cash Flows from Operating Activities
Net income (loss)	$	1,281		$	1,324		$	(220	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of accounting change		—			20			—
(Gain) loss on sale of non-strategic businesses		(255	)		(38	)		124
Repositioning and other charges		657			278			634
Severance and exit cost payments		(164	)		(200	)		(447	)
Environmental and non-asbestos litigation payments		(273	)		(91	)		(313	)
Business impairment charges		42			—			877
Asbestos related litigation charges, net of insurance		76			—			1,548
Asbestos related liability payments		(518	)		(557	)		(135	)
Insurance receipts for asbestos related liabilities		67			664			76
Depreciation and amortization		650			661			730
Undistributed earnings of equity affiliates		(75	)		(38	)		(55	)
Deferred income taxes		223			344			(775	)
Pension and other postretirement benefits expense (income)		628			325			(11	)
Pension contributions—U.S. plans		(40	)		(670	)		(130	)
Other postretirement benefit payments		(207	)		(203	)		(199	)
Other		(121	)		(16	)		(133	)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts, notes and other receivables		(470	)		(236	)		105
Inventories		(84	)		118			333
Other current assets		(77	)		(20	)		51
Accounts payable		408			240			63
Accrued liabilities		505			294			257
Net cash provided by operating activities		2,253			2,199			2,380
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(629	)		(655	)		(671	)
Proceeds from disposals of property, plant and equipment		38			37			41
Decrease in investments		80			—			91
(Increase) in investments		(115	)		—			—
Cash paid for acquisitions		(384	)		(199	)		(520	)
Proceeds from sales of businesses		426			137			183
Decrease in short-term investments		—			—			6
Net cash (used for) investing activities		(584	)		(680	)		(870	)
Cash Flows from Financing Activities
Net increase (decrease) in commercial paper		220			(201	)		198
Net (decrease) increase in short-term borrowings		(121	)		81			(96	)
Proceeds from issuance of common stock		74			54			41
Proceeds from issuance of long-term debt		—			—			6
Payments of long-term debt		(29	)		(147	)		(428	)
Repurchases of common stock		(724	)		(37	)		—
Cash dividends on common stock		(643	)		(645	)		(614	)
Other		—			—			(39	)
Net cash (used for) financing activities		(1,223	)		(895	)		(932	)
Effect of foreign exchange rate changes on cash and cash equivalents		190			305			50
Net increase in cash and cash equivalents		636			929			628
Cash and cash equivalents at beginning of year		2,950			2,021			1,393
Cash and cash equivalents at end of year	$	3,586		$	2,950		$	2,021

The Notes to Financial Statements are an integral part of this statement.

45

HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY

	Common Stock Issued							Common Stock Held in Treasury
	Shares		Amount		Additional Paid-in Capital			Shares			Amount			Accumulated Other Non- owner Changes			Retained Earnings			Total Shareowners' Equity
	(In millions, except per share amounts)
Balance at December 31, 2001		957.6	$	958	$	3,015			(142.6	)	$	(4,252	)	$	(835	)	$	10,284		$	9,170
Net loss																		(220	)		(220	)
Foreign exchange translation adjustments															310						310
Minimum pension liability adjustment															(606	)					(606	)
Change in fair value of effective cash flow hedges															22						22
Nonowner changes in shareowners' equity																					(494	)
Common stock issued for employee savings and option plans (including related tax expense of $28)						138			7.7			54									192
Common stock contributed to pension plans						286			31.5			414									700
Cash dividends on common stock ($0.75 per share)																		(614	)		(614	)
Other owner changes						(30	)		.3			1									(29	)
Balance at December 31, 2002		957.6		958		3,409			(103.1	)		(3,783	)		(1,109	)		9,450			8,925
Net income																		1,324			1,324
Foreign exchange translation adjustments															551						551
Minimum pension liability adjustment															369						369
Change in fair value of effective cash flow hedges															—						—
Nonowner changes in shareowners' equity																					2,244
Common stock issued for employee savings and option plans (including related tax benefits of $19)						75			9.3			182									257
Repurchases of common stock									(1.9	)		(62	)								(62	)
Cash dividends on common stock ($0.75 per share)																		(645	)		(645	)
Other owner changes						2			.4			8									10
Balance at December 31, 2003		957.6		958		3,486			(95.3	)		(3,655	)		(189	)		10,129			10,729
Net income																		1,281			1,281
Foreign exchange translation adjustments															351						351
Minimum pension liability adjustment															(15	)					(15	)
Change in fair value of effective cash flow hedges															(9	)					(9	)
Nonowner changes in shareowners' equity																					1,608
Common stock issued for employee savings and option plans (including related tax benefits of $19)						79			7.5			162									241
Repurchases of common stock									(20.1	)		(699	)								(699	)
Cash dividends on common stock ($0.75 per share)																		(643	)		(643	)
Other owner changes						9			.3			7									16
Balance at December 31, 2004		957.6	$	958	$	3,574			(107.6	)	$	(4,185	)	$	138		$	10,767		$	11,252

The Notes to Financial Statements are an integral part of this statement.

46

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)

Note 1—Summary of Significant Accounting Policies

      Honeywell International Inc. is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, fibers, and electronic and advanced materials. The following is a description of the significant accounting policies of Honeywell International Inc.

      Principles of Consolidation—The consolidated financial statements include the accounts of Honeywell International Inc. and all of its subsidiaries and entities in which a controlling interest is maintained. Our consolidation policy requires the consolidation of entities where a controlling financial interest is obtained as well as consolidation of variable interest entities in which we are designated as the primary beneficiary in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), as amended. See Recent Accounting Pronouncements in this Note for further discussion of FIN 46. All intercompany transactions and balances are eliminated in consolidation.

      Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash investments with an original maturity of three months or less.

      Inventories—Inventories are valued at the lower of cost or market using the first-in, first-out or the average cost method and the last-in, first-out (LIFO) method for certain qualifying domestic inventories.

      Investments—Investments in affiliates over which we have a significant influence, but not a controlling interest, are accounted for using the equity method of accounting. Other investments are carried at market value, if readily determinable, or cost. All equity investments are periodically reviewed to determine if declines in fair value below cost basis are other-than-temporary. Significant and sustained decreases in quoted market prices and a series of historic and projected operating losses by investees are considered in the review. If the decline in fair value is determined to be other-than-temporary, an impairment loss is recorded and the investment is written down to a new carrying value.

      Property, Plant and Equipment—Property, plant and equipment are recorded at cost less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment.

      Goodwill and Indefinite-Lived Intangible Assets—Goodwill represents the excess of acquisition costs over the fair value of net assets of businesses acquired. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142) requires that goodwill and certain other intangible assets having indefinite lives no longer be amortized to income, but instead be periodically tested for impairment. Intangible assets determined to have definite lives will continue to be amortized over their useful lives. When we adopted SFAS No. 142, we reassessed the useful lives and residual values of all acquired intangible assets to make any necessary amortization period adjustments. Based on that assessment, an amount related to a trademark in our automotive consumer products business was determined to be an indefinite-lived intangible asset because it is expected to generate cash flows indefinitely. There were no other adjustments made to the amortization period or residual values of other intangible assets. We also completed our goodwill impairment testing during the three months ended March 31, 2002 and determined that there was no impairment as of January 1, 2002. This initial impairment assessment was updated as of March 31, 2004 and no impairment was determined. Impairment tests for our reporting units are performed annually as of March 31 or when events or changes in circumstances occur. See Note 13 for additional details.

      Other Intangible Assets with Determinable Lives—Other intangible assets with determinable lives consist of Aerospace customer incentives, patents and trademarks and other intangibles and are amortized over weighted average service periods of 25, 19 and 15 years, respectively.

47

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      Long-Lived Assets—We periodically evaluate the recoverability of the carrying amount of long-lived assets (including property, plant and equipment, and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. We evaluate events or changes in circumstances based on a number of factors including operating results, business plans and forecasts, general and industry trends and, economic projections and anticipated cash flows. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in earnings. We also continually evaluate the estimated useful lives of all long-lived assets and periodically revise such estimates based on current events.

      Sales Recognition—Product and service sales are recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service sales, principally representing repair, maintenance and engineering activities in our Aerospace and Automation and Control Solutions reportable segments, are recognized over the contractual period or as services are rendered. Sales under long-term contracts in the Aerospace and Automation and Control Solutions reportable segments are recorded on a percentage-of-completion method measured on the cost-to-cost basis for engineering-type contracts and the units-of-delivery basis for production-type contracts. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident. Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value of each element and when the delivered elements have value to customers on a standalone basis. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately or competitor prices for similar products or services.

      Aerospace Customer Incentives—We provide sales incentives to commercial aircraft manufacturers and airlines in connection with their selection of our aircraft wheel and braking system hardware and auxiliary power units for installation on commercial aircraft. These incentives consist of free or deeply discounted products, product credits and upfront cash payments. The cost of these incentives are capitalized at the time we deliver the products to our customers or, in the case of product credits, at the time the credit is issued, or in the case of upfront cash payments, at the time the payment is made. In the case of free or deeply discounted product, the cost to manufacture less any amount recovered from the airframe manufacturer or airline is capitalized. Product credits and upfront cash payments are capitalized at exchanged value. Research, design, development and qualification costs related to these products are expensed as incurred, unless contractually guaranteed of reimbursement. The cost of the sales incentives described above is capitalized because the selection of our aircraft wheel and braking system hardware and auxiliary power units for installation on commercial aircraft results in the creation of future revenues and cash flows through aftermarket sales to fulfill long-term product maintenance requirements mandated by the Federal Aviation Administration (FAA) and other similar international organizations over the useful life of the aircraft. Once our products are certified and selected on an aircraft, the recovery of our investment is virtually guaranteed over the useful life of the aircraft. The likelihood of displacement by an alternative supplier is remote due to contractual sole-sourcing, the high cost to alternative suppliers and aircraft operators of product retrofits, and/or rigorous regulatory specifications, qualification and testing requirements. We amortize the cost of these capitalized sales incentives over their useful lives on a straight-line basis, up to 25 years, representing the estimated minimum service life of the aircraft. This useful life is the period over which we are virtually assured to earn revenues from the aftermarket sales of certified products necessary to fulfill the maintenance required by the FAA and other similar international organizations. We classify the amortization expense associated with free and discounted products as cost of goods sold and the amortization expense associated with product credits and upfront cash payments as a

48

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

reduction of sales. We regularly evaluate the recoverability of capitalized amounts whenever events or changes in circumstances indicate that the carrying amount of the incentives may not be fully recoverable. There were no impairment charges related to these capitalized incentives recognized during 2004, 2003 and 2002. See Note 13 for additional details.

      Environmental Expenditures—Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not provide future benefits, are expensed as incurred. Liabilities are recorded when environmental remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our accruals. The undiscounted liabilities for environmental costs recorded in Accrued Liabilities and Other Liabilities at December 31, 2004 were $267 and $628 million, respectively, and at December 31, 2003 were $90 and $503 million, respectively.

      Asbestos Related Contingencies and Insurance Recoveries—Honeywell is a defendant in personal injury actions related to asbestos containing products (refractory products and friction products). We recognize a liability for any asbestos related contingency that is probable of occurrence and reasonably estimable. Regarding North American Refractories Company (NARCO) asbestos related claims, we accrue for pending claims based on terms and conditions, including evidentiary requirements, in definitive agreements or agreements in principle with current claimants. We also accrued for the probable value of future asbestos related claims through 2018 based on the disease criteria and payment values contained in the NARCO trust as described in Note 21. In light of the inherent uncertainties in making long term projections regarding claims filing rates and disease manifestation, we do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018 under Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (SFAS No. 5). Regarding Bendix asbestos related claims, we accrue for the estimated value of pending claims based on expected claim resolution values and dismissal rates. We have not accrued for future Bendix asbestos related claims as we cannot reasonably predict how many additional claims may be brought against us, the allegations in such claims or their probable outcomes and resulting settlement values in the tort system. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential ranges of probable losses and recognize a liability, if any, for these contingencies based on a careful analysis of each individual issue with the assistance of outside legal counsel and, if applicable, other experts.

      In connection with the recognition of liabilities for asbestos related matters, we record asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding insurers and various judicial determinations relevant to our insurance programs.

      Research and Development—Research and development costs for company-sponsored research and development projects are expensed as incurred. Such costs are principally included in Cost of Products Sold and were $917, $751 and $757 million in 2004, 2003 and 2002, respectively.

      Stock-Based Compensation Plans—We account for our fixed stock option plans under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). Under APB No. 25, there is no compensation cost recognized for our fixed stock option plans, because the options granted under these plans have an exercise price equal to the market value of the

49

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

underlying stock at the grant date. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended, allows, but does not require, companies to record compensation cost for fixed stock option plans using a fair value based method. As permitted by SFAS No. 123, we elected to continue to account for compensation cost for our fixed stock option plans using the intrinsic value based method under APB No. 25. See Recent Accounting Pronouncements section of this Note for discussion of recently issued rules regarding accounting for share-based payments. The following table sets forth pro forma information as if compensation cost had been determined consistent with the requirements of SFAS No. 123.

	2004			2003			2002
Net income (loss), as reported	$	1,281		$	1,324		$	(220	)
Deduct: Total stock-based employee compensation cost determined under fair value method for fixed stock option plans, net of related tax effects		(42	)		(48	)		(64	)
Pro forma net income (loss)	$	1,239		$	1,276		$	(284	)
Earnings (loss) per share of common stock:
Basic—as reported	$	1.49		$	1.54		$	(0.27	)
Basic—pro forma	$	1.44		$	1.48		$	(0.35	)
Earnings (loss) per share of common stock:
Assuming dilution—as reported		1.49		$	1.54		$	(0.27	)
Assuming dilution—pro forma	$	1.44		$	1.48		$	(0.35	)

      The following table sets forth fair value per share information, including related assumptions, used to determine compensation cost consistent with the requirements of SFAS No. 123.

	2004			2003			2002
Weighted average fair value per share of options granted during the year(1)	$	10.97		$	8.82		$	12.64
Assumptions:
Historical dividend yield		2.1	%		2.0	%		1.9	%
Historical volatility		37.9	%		46.7	%		43.8	%
Risk-free rate of return		3.3	%		2.9	%		4.2	%
Expected life (years)		5.0			5.0			5.0

(1) Estimated on date of grant using Black-Scholes option-pricing model.

      Foreign Currency Translation—Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Sales, costs and expenses are translated at the average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of Accumulated Other Nonowner Changes. For subsidiaries operating in highly inflationary environments, inventories and property, plant and equipment, including related expenses, are remeasured at the exchange rate in effect on the date the assets were acquired, while monetary assets and liabilities are remeasured at year-end exchange rates. Remeasurement adjustments for these subsidiaries are included in earnings.

      Derivative Financial Instruments—Derivative financial instruments are accounted for under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended (SFAS No. 133). Under SFAS No. 133, all derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the

50

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated Other Nonowner Changes and subsequently recognized in earnings when the hedged items impact earnings. Changes in the fair value of derivatives not designated as hedges and the ineffective portion of cash flow hedges are recorded in current earnings.

      Transfers of Financial Instruments—Sales, transfers and securitization of financial instruments are accounted for under Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. We sell interests in designated pools of trade accounts receivables to third parties. The receivables are removed from the Consolidated Balance Sheet at the time they are sold. The value assigned to our subordinated interests and undivided interests retained in trade receivables sold is based on the relative fair values of the interests retained and sold. The carrying value of the retained interests approximates fair value due to the short-term nature of the collection period for the receivables.

      Income Taxes—Deferred tax liabilities or assets reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

      Earnings Per Share—Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.

      Use of Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures in the accompanying notes. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

      Reclassifications—Certain prior year amounts have been reclassified to conform with the current year presentation.

      Recent Accounting Pronouncements—In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised), “Share-Based Payment (Revised 2004)” (SFAS 123R) requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is to be measured based on the fair value of the equity or liability instruments issued. SFAS 123R is effective as of the first interim or annual reporting period beginning after June 15, 2005. We currently expect that the adoption of SFAS 123R will reduce 2005 diluted earnings per share by $0.04 to $0.05.

      In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS No. 151) which amends Accounting Research Bulletin (ARB) No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently assessing the impact of SFAS No. 151 on our consolidated financial statements.

      In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP No. 106-2) which provides guidance on accounting for the effects of the Medicare

51

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for employers that sponsor postretirement health care plans that provide prescription drug coverage that is at least actuarially equivalent to that offered by Medicare Part D. We have determined that the enactment of the Act does not have a material impact on our accumulated postretirement benefit obligation and, therefore, is not a “significant event” as defined in FSP No. 106-2 for our postretirement health care plans. Accordingly, as permitted, we adopted FSP No. 106-2 on December 31, 2004 and such adoption did not have a material effect on our consolidated financial statements.

      In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (Revised 2003), “Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106” (SFAS No. 132-Revised 2003) which revises employers' disclosures about pension plans and other postretirement benefit plans. All provisions of this statement are effective for the year ended December 31, 2004. See Note 22 for further information.

      In January 2003, the FASB issued FIN 46, which provides guidance on consolidation of variable interest entities. In December 2003, the FASB deferred the effective date of FIN 46 for certain variable interest entities (i.e., non-special purpose entities) until the first quarter of 2004. Our full adoption of the provisions of FIN 46 did not have a material effect on our consolidated financial statements.

      In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), which requires us to recognize a liability for the fair value of an obligation assumed by issuing a guarantee. FIN 45 was effective for guarantees issued or modified on or after January 1, 2003. The adoption of FIN 45 did not have a material effect on our consolidated financial statements. See Note 21 for further information.

      In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. EITF Issue No. 00-21 provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We adopted EITF Issue No. 00-21 prospectively in the quarter beginning July 1, 2003. The adoption of EITF Issue No. 00-21 did not have a material effect on our consolidated financial statements.

      In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146), the provisions of which were effective for any exit or disposal activities initiated by us after December 31, 2002. SFAS No. 146 provides guidance on the recognition and measurement of liabilities associated with exit or disposal activities and requires that such liabilities be recognized when incurred. The adoption of the provisions of SFAS No. 146 impacted the measurement and timing of costs associated with any exit or disposal activities initiated after December 31, 2002.

      In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143) which requires recognition of the fair value of obligations associated with the retirement of tangible long-lived assets when there is a legal obligation to incur such costs. Upon initial recognition of a liability the cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset's useful life. SFAS No. 143 primarily impacts our accounting for costs associated with the future retirement of nuclear fuel conversion facilities in our Specialty Materials reportable segment. Upon adoption on January 1, 2003, we recorded an increase in property, plant and equipment, net of $16 million and recognized an asset retirement obligation of $47 million. This resulted in the recognition of a non-cash charge of $31 million ($20 million after-tax, or $0.02 per share) that was reported as a cumulative effect of an accounting

52

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

change. This accounting change did not have a material impact on results of operations for 2004 and 2003. Pro forma effects for 2002 assuming adoption of SFAS No. 143 as of January 1, 2002, were not material to net income or per share amounts.

Note 2—Acquisitions

      We acquired businesses for an aggregate cost of $396, $199 and $520 million in 2004, 2003 and 2002, respectively. All of our acquisitions were accounted for under the purchase method of accounting, and accordingly, the assets and liabilities of the acquired businesses were recorded at their estimated fair values at the dates of acquisition. Significant acquisitions made in these years are discussed below.

      In May 2003, Honeywell sold its Engineering Plastics business to BASF in exchange for BASF's nylon fiber business and $90 million in cash. BASF's nylon fiber business became part of Specialty Materials' nylon business. Since the cash consideration received from BASF was in excess of 25 percent of the fair value of this exchange, this transaction was viewed as “monetary” in accordance with Issue 8(a) of EITF 01-2, “Interpretations of APB Opinion No. 29”. Accordingly, the pre-tax gain on the sale of our Engineering Plastics business of $38 million was based on the fair value of the consideration received from BASF less the sum of the net book value of our Engineering Plastics business and related transaction costs. We recorded the assets and liabilities acquired in the BASF business at fair market value based on a valuation performed by an independent appraisal firm at the acquistion date which corresponded to the value agreed upon in the asset purchase agreement for this transaction. Specialty Materials' Engineering Plastics business and BASF's nylon fiber business both had annual sales of approximately $400 million.

      In October 2002 we acquired Invensys Sensor Systems (ISS) for approximately $416 million in cash with $115 million allocated to tangible net assets, $206 million allocated to goodwill and $95 million allocated to other intangible assets with determinable lives. ISS is a global supplier of sensors and controls used in the medical, office automation, aerospace, HVAC, automotive, off-road vehicle and consumer appliance industries. ISS is part of our Automation and Control Products business in our Automation and Control Solutions reportable segment. ISS had sales of approximately $253 million in 2002.

      In connection with all acquisitions in 2004, 2003 and 2002, the amounts recorded for transaction costs and the costs of integrating the acquired businesses into Honeywell were not material. The results of operations of all acquired businesses have been included in the consolidated results of Honeywell from their respective acquisition dates. The pro forma results for 2004, 2003 and 2002, assuming these acquisitions had been made at the beginning of the year, would not be materially different from reported results.

      On December 13, 2004, we announced that we had reached agreement with the board of directors of Novar plc (Novar) on the terms of recommended Offers for the entire issued and ordinary preference share capital of Novar. The aggregate value of the Offers is $2.4 billion (fully diluted for the exercise of all outstanding options), including the assumption of approximately $580 million of outstanding debt, net of cash. The Novar board has unanimously recommended the Offers. We expect to complete the transaction in the first quarter of 2005 and to fund the acquisition with existing cash resources.

      Novar is a UK listed holding company which operates globally in the electrical, electronic and control products, the aluminum extrusion and the security printing businesses and had reported 2003 revenues of $2.7 billion. We do not intend to hold the aluminum extrusion and security printing businesses in the long-term and expect to pursue strategic alternatives for these units as soon as practical.

53

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 3—Repositioning and Other Charges

      A summary of repositioning and other charges follows:

	Years Ended December 31,
	2004			2003			2002
Severance	$	85		$	69		$	270
Asset impairments		21			6			121
Exit costs		10			7			62
Reserve adjustments		(28	)		(69	)		(76	)
Total net repositioning charge		88			13			377
Asbestos related litigation charges, net of insurance		76			—			1,548
Other probable and reasonably estimable legal and environmental liabilities		565			261			30
Business impairment charges		42			—			877
Customer claims and settlements of contract liabilities		(10	)		—			152
Write-offs of receivables, inventories and other assets		14			2			60
Investment impairment charges		—			2			15
Total net repositioning and other charges	$	775		$	278		$	3,059

      The following table summarizes the pretax distribution of total net repositioning and other charges by income statement classification.

	Years Ended December 31,
	2004		2003		2002
Cost of products and services sold	$	621	$	272	$	561
Selling, general and administrative expenses		25		4		45
Asbestos related litigation charges, net of insurance		76		—		1,548
Business impairment charges		42		—		877
Equity in (income) loss of affiliated companies		6		2		13
Other (income) expense		5		—		15
	$	775	$	278	$	3,059

      The following table summarizes the pretax impact of total net repositioning and other charges by reportable segment.

	Years Ended December 31,
	2004			2003			2002
Aerospace	$	(5	)	$	10		$	146
Automation and Control Solutions		28			(22	)		212
Specialty Materials		90			20			976
Transportation Systems		147			16			295
Corporate		515			254			1,430
	$	775		$	278		$	3,059

      In 2004, we recognized repositioning charges totaling $116 million primarily for severance costs related to workforce reductions of 2,272 manufacturing and administrative positions across all of our reportable segments. Also, $28 million of previously established accruals, primarily for severance, were returned to income in 2004, due to fewer employee separations than originally planned associated with certain prior repositioning actions, resulting in reduced severance liabilities principally in our Automation and Control Solutions reportable segment.

54

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      In 2003, we recognized repositioning charges totaling $82 million primarily for severance costs related to workforce reductions of 1,501 manufacturing and administrative positions across all of our reportable segments. Also, $69 million of previously established accruals, primarily for severance, were returned to income in 2003, due to fewer employee separations than originally planned associated with certain prior repositioning actions, resulting in reduced severance liabilities in our Automation and Control Solutions, Aerospace and Specialty Materials reportable segments.

      In 2002, we recognized repositioning charges totaling $453 million for workforce reductions across all of our reportable segments and our UOP process technology joint venture. The charge also related to costs for the planned shutdown and consolidation of manufacturing plants in our Specialty Materials and Automation and Control Solutions reportable segments. Severance costs related to workforce reductions of approximately 8,100 manufacturing and administrative positions. Asset impairments principally related to manufacturing plant and equipment held for sale and capable of being taken out of service and actively marketed in the period of impairment. Exit costs related principally to incremental costs to exit facilities, including lease termination losses negotiated or subject to reasonable estimation related mainly to closed facilities in our Automation and Control Solutions and Specialty Materials reportable segments. Also, $76 million of previously established severance accruals were returned to income in 2002, due to fewer employee separations than originally planned associated with certain prior repositioning actions and higher than expected voluntary employee attrition, resulting in reduced severance liabilities in our Aerospace, Automation and Control Solutions and Specialty Materials reportable segments.

      The following table summarizes the status of our total repositioning costs.

	Severance Costs			Asset Impairments			Exit Costs			Total
Balance at December 31, 2001	$	484		$	—		$	113		$	597
2002 charges		270			121			62			453
2002 usage		(355	)		(121	)		(92	)		(568	)
Adjustments		(74	)		—			(2	)		(76	)
Balance at December 31, 2002		325			—			81			406
2003 charges		69			6			7			82
2003 usage		(166	)		(6	)		(34	)		(206	)
Adjustments		(57	)		—			(12	)		(69	)
Balance at December 31, 2003		171			—			42			213
2004 charges		85			21			10			116
2004 usage		(138	)		(21	)		(26	)		(185	)
Adjustments		(21	)		—			(7	)		(28	)
Balance at December 31, 2004	$	97		$	—		$	19		$	116

      In 2004, we recognized a charge of $565 million for other probable and reasonably estimable legal and environmental liabilities. This includes $536 million for legacy environmental liabilities, primarily related to the denial of our appeal of the matter entitled Interfaith Community Organization, et. al. v. Honeywell International Inc., et al., and estimated liabilities for remediation of environmental conditions in and around Onondaga Lake in Syracuse, New York. Both of these environmental matters are discussed in further detail in Note 21. We recognized a charge of $29 million for various legal settlements including property damage claims in our Automation and Control Solutions reportable segment. We recognized a charge of $76 million primarily for Bendix related asbestos claims and defense costs incurred in 2004 including an update of expected resolution values with respect to pending claims. The charge was net of probable Bendix related insurance recoveries and an additional $47 million of NARCO insurance deemed probable of recovery. See Note 21 for further discussion. We recognized an impairment charge of $42 million in the second quarter of 2004 related principally to the

55

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

write-down of property, plant and equipment of our Performance Fibers business in our Specialty Materials reportable segment. This business was sold in December 2004. We recognized a charge of $14 million for the write-off of receivables, inventories and other assets. We also reversed a reserve of $10 million established in the prior year for a contract settlement.

      In 2003, we recognized a charge of $261 million for other probable and reasonably estimable legal and environmental liabilities. This included $235 million for environmental liabilities mainly related to the matter entitled Interfaith Community Organization, et al. v. Honeywell International Inc., et al. and for remediation of environmental conditions in and around Onondaga Lake in Syracuse, New York, both as discussed in Note 21. We also recognized a charge of $4 million in our Specialty Materials reportable segment including a loss on sale of an investment owned by an equity investee.

      In 2002, we recognized business impairment charges of $877 million related to businesses in our Specialty Materials and Automation and Control Solutions reportable segments, as well as our Friction Materials business. Based on current operating losses and deteriorating economic conditions in certain chemical and telecommunications end markets, we performed impairment tests and recognized impairment charges of $785 million principally related to the write-down of property, plant and equipment held and used in our Nylon System, Performance Fibers and Metglas Specialty Materials businesses, as well as an Automation and Control Solutions communication business. We also recognized impairment charges of $92 million related principally to the write-down of property, plant and equipment of our Friction Materials business, which was classified as assets held for disposal in Other Current Assets as of December 31, 2002. A plan of disposal of Friction Materials was adopted in 2001; in January 2003, we entered into a letter of intent to sell this business to Federal-Mogul Corp. The assets were reclassified from held for sale to held and used as of December 31, 2003 following the cessation of negotiations to sell our Friction Materials business to Federal-Mogul Corp. At that time, no adjustment to the carrying value of Friction Materials' assets was required based on a current reassessment of the fair value of those assets. Such reassessment of the fair value of the property, plant and equipment was performed using discounted estimated future cash flows of the business. The fair value approximated the written-down held for sale value and was also less than the carrying amount of the property, plant and equipment prior to being classified as held for sale, adjusted for depreciation expense that would have otherwise been recognized had these assets been classified as held and used (See Note 21). We recognized asbestos related litigation charges of $1,548 million principally related to costs associated with the potential resolution of asbestos claims of NARCO (see Note 21). We also recognized other charges consisting of customer claims and settlements of contract liabilities of $152 million and write-offs of receivables, inventories and other assets of $60 million. These other charges related mainly to our Advanced Circuits business, bankruptcy of a customer in our Aerospace reportable segment, and customer claims in our Aerospace and Automation and Control Solutions reportable segments. Additionally, we recognized other charges consisting of other probable and reasonably estimable environmental liabilities of $30 million and write-offs related to an other than temporary decline in the value of certain equity investments of $15 million.

56

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 4—Gain (Loss) on Sale of Non-Strategic Businesses

      The following is a summary of non-strategic businesses sold:

	Year Ended December 31, 2004
	Pretax Gain (Loss)			After-tax Gain (Loss)
Automation and Control Solutions—Security Monitoring and VSCEL Optical Products	$	251		$	133
Specialty Materials—Performance Fibers		(15	)		(3	)
Adjustments related to businesses sold in prior years		19			14
	$	255		$	144

      In 2004, we realized proceeds of $426 million in cash on the sale of these businesses. The sales of these businesses did not materially impact net sales and segment profit in 2004 compared with 2003.

	Year Ended December 31, 2003
	Pretax Gain (Loss)		After-tax Gain (Loss)
Specialty Materials—Engineering Plastics, Rudolstadt and Metglas	$	25	$	(5	)
Aerospace—Honeywell Aerospace Defense Services		13		9
	$	38	$	4

      In 2003, we realized proceeds of $137 million in cash on the sales of these businesses. The sales of these businesses did not materially impact net sales and segment profit in 2003 compared with 2002. The after-tax loss on the sale of our Specialty Materials' businesses resulted mainly from tax benefits associated with prior capital losses.

	Year Ended December 31, 2002
	Pretax Gain (Loss)			After-tax Gain (Loss)
Automation and Control Solutions—Consumer Products	$	(131	)	$	(10	)
Specialty Materials—Advanced Circuits		(83	)		18
Specialty Materials—Pharmaceutical Fine Chemicals (PFC)		(35	)		108
Transportation Systems—Bendix Commercial Vehicle Systems (BCVS)		125			79
	$	(124	)	$	195

      In 2002, we realized proceeds of approximately $435 million in cash and investment securities on the sales of these businesses. Our Advanced Circuits and PFC businesses had a higher deductible tax basis than book basis which resulted in an after-tax gain. The sales of these businesses reduced net sales and increased segment profit in 2002 compared with 2001 by approximately $500 and $31 million, respectively.

57

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 5—Other (Income) Expense

	Years Ended December 31,
	2004			2003			2002
Interest income and other	$	(130	)	$	(109	)	$	(68	)
Minority interests		10			7			8
Foreign exchange loss		28			121			56
	$	(92	)	$	19		$	(4	)

Note 6—Interest and Other Financial Charges

	Years Ended December 31,
	2004			2003			2002
Total interest and other financial charges	$	349		$	350		$	365
Less—capitalized interest		(18	)		(15	)		(21	)
	$	331		$	335		$	344

      The weighted average interest rate on short-term borrowings and commercial paper outstanding at December 31, 2004 and 2003 was 2.81 and 6.81 percent, respectively.

Note 7—Income Taxes

Income (loss) before taxes and cumulative effect of accounting change

	Years Ended December 31,
	2004		2003		2002
United States	$	878	$	925	$	(1,262	)
Foreign		802		715		317
	$	1,680	$	1,640	$	(945	)

Tax expense (benefit)

	Years Ended December 31,
	2004		2003		2002
United States	$	170	$	98	$	(894	)
Foreign		229		198		169
	$	399	$	296	$	(725	)

58

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

	Years Ended December 31,
	2004		2003			2002
Tax expense (benefit) consist of:
Current:
United States	$	26	$	(251	)	$	(175	)
State		16		(1	)		28
Foreign		134		204			197
		176		(48	)		50
Deferred:
United States		109		347			(679	)
State		19		3			(68	)
Foreign		95		(6	)		(28	)
		223		344			(775	)
	$	399	$	296		$	(725	)

	Years Ended December 31,
	2004			2003			2002
The U.S. statutory federal income tax rate is reconciled to our effective income tax rate as follows:
Statutory U.S. federal income tax rate		35.0	%		35.0	%		(35.0	)%
Taxes on foreign earnings over (under) U.S. tax rate (1)		(7.1	)		(5.0	)		10.0
Asset basis differences		(.6	)		(2.2	)		(33.1	)
Nondeductible amortization		1.1			1.9			2.4
State income taxes (1)		1.4			.4			(2.6	)
Tax benefits on export sales		(4.5	)		(3.6	)		(8.5	)
ESOP dividend tax benefit		(1.2	)		(1.2	)		(1.9	)
Tax credits		(.6	)		(1.0	)		(1.5	)
Equity income		(.5	)		(.8	)		(1.7	)
Redesignation of Friction Materials business from held for sale to held and used		—			(6.6	)		—
All other items—net		.8			1.1			(4.8	)
		23.8	%		18.0	%		(76.7	)%

(1) Net of changes in valuation allowance.

59

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Deferred tax assets (liabilities)

	December 31,
	2004			2003
Deferred income taxes represent the future tax effects of transactions which are reported in different periods for tax and financial reporting purposes. The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:
Property, plant and equipment basis differences	$	(509	)	$	(570	)
Postretirement benefits other than pensions and postemployment benefits		748			707
Investment and other asset basis differences		(205	)		(215	)
Other accrued items		558			535
Net operating losses		706			967
Tax credits		440			373
Undistributed earnings of subsidiaries		(34	)		(33	)
All other items—net		(33	)		52
		1,671			1,816
Valuation allowance		(338	)		(299	)
	$	1,333		$	1,517

      The amount of federal tax net operating losses available for carryforward at December 31, 2004 was $213 million, including $79 million of charitable contributions deductions converted to federal net operating losses under the Internal Revenue Code. Also, included are $86 million of loss carryforwards that were generated by certain subsidiaries prior to their acquisition and have expiration dates through 2022. The use of pre-acquisition operating losses is subject to limitations imposed by the Internal Revenue Code. We do not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration. Various subsidiaries have state tax net operating loss carryforwards of $3.5 billion at December 31, 2004 with varying expiration dates through 2024. We also have foreign net operating losses of $1.9 billion which are available to reduce future income tax payments in several countries, subject to varying expiration rules.

      We have U.S. tax credit carryforwards of $170 million at December 31, 2004, including carryforwards of $90 million with various expiration dates through 2024, and tax credits of $80 million which are not subject to expiration. In addition, we have $270 million of foreign tax credits available for carryback or carryforward at December 31, 2004 with varying expiration dates through 2014.

      The valuation allowance was increased by $39, $108 and $80 million in 2004, 2003 and 2002, respectively. The increase in 2004 was primarily due to an increase in state tax net operating loss carryforwards (net of federal impact) and foreign net operating and capital losses that are not expected to be realized of $40 and $27 million, respectively, offset by a decrease of $30 million for foreign tax credits which we now believe will be utilized due to the extension of the foreign tax credit carryforward period from five to 10 years under the American Jobs Creation Act of 2004. The increase in 2003 was primarily due to an increase in foreign net operating losses that are not expected to be utilized. The increase in 2002 was primarily due to foreign tax credits which are not expected to be realized and state tax net operating loss carryforwards (net of federal impact) which we believe will expire unutilized.

      The American Jobs Creation Act of 2004, signed into law in October 2004, provides for a variety of changes in the tax law including incentives to repatriate undistributed earnings of foreign subsidiaries, a phased elimination of the extra-territorial income exclusion, and a domestic manufacturing benefit. More specifically, the Act creates a temporary incentive for U.S. corporations to repatriate accumulated

60

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

income earned outside the U.S. by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and currently, uncertainty remains as to how to interpret numerous provisions in the Act. As such, we are not in a position to determine whether, and to what extent, we might repatriate foreign earnings. Based on our analysis to date, however, it is reasonably possible that we may repatriate some amount up to approximately $2.6 billion. We estimate the income tax effects of repatriating $2.6 billion to be approximately $150 to $350 million. Honeywell has not provided for U.S. federal income and foreign withholding taxes on $3.9 billion of undistributed earnings from non-U.S. operations as of December 31, 2004. Until our analysis of the Act is completed, we will continue to permanently reinvest those earnings. We expect to finalize our assessment later in 2005.

The extra-territorial income exclusion (ETI) for foreign sales will be phased-out over two years beginning in 2005. The deduction for income from qualified domestic production activities will be phased-in from 2005 through 2010. Similar to the ETI benefit, the domestic manufacturing benefit has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on our federal income tax return. We are currently assessing the details of the Act and the net effect of the phase-out of the ETI and the phase-in of this new deduction. We expect to complete our analysis later in 2005. Until such time, it is not possible to determine what impact this legislation will have on our consolidated tax accruals or effective tax rate.

Note 8—Earnings (Loss) Per Share

      The following table sets forth the computations of basic and diluted earnings (loss) per share:

	2004				2003						2002
	Basic		Assuming Dilution		Basic			Assuming Dilution			Basic			Assuming Dilution
Income (loss)
Income (loss) before cumulative effect of accounting change	$	1,281	$	1,281	$	1,344		$	1,344		$	(220	)	$	(220	)
Cumulative effect of accounting change		—		—		(20	)		(20	)		—			—
Net income (loss)	$	1,281	$	1,281	$	1,324		$	1,324		$	(220	)	$	(220	)
Average shares
Average shares outstanding		858,857,721		858,857,721		860,671,264			860,671,264			820,292,870			820,292,870
Dilutive securities issuable in connection with stock plans		—		3,475,613		—			1,423,992			—			—
Total average shares		858,857,721		862,333,334		860,671,264			862,095,256			820,292,870			820,292,870
Earnings (loss) per share of common stock
Income (loss) before cumulative effect of accounting change	$	1.49	$	1.49	$	1.56		$	1.56		$	(0.27	)	$	(0.27	)
Cumulative effect of accounting change		—		—		(0.02	)		(0.02	)		—			—
Net income (loss)	$	1.49	$	1.49	$	1.54		$	1.54		$	(0.27	)	$	(0.27	)

      In 2004 and 2003, the diluted earnings per share calculation excludes the effect of stock options when the options' exercise prices exceed the average market price of the common shares during the period. In 2004 and 2003, the number of stock options not included in the computation were 41,656,606 and 41,908,964, respectively. These stock options were outstanding at the end of each of the respective years. As a result of the net loss for 2002, 2,527,229 of dilutive securities issuable in connection with stock plans have been excluded from the diluted loss per share calculation because their effect would reduce the loss per share.

61

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 9—Accounts, Notes and Other Receivables

	December 31,
	2004			2003
Trade	$	3,656		$	3,230
Other		724			563
		4,380			3,793
Less—Allowance for doubtful accounts		(137	)		(150	)
	$	4,243		$	3,643

      We sell interests in designated pools of trade accounts receivables to third parties. The sold receivables are over-collateralized by $120 million at December 31, 2004 and we retain a subordinated interest in the pool of receivables representing that over-collateralization as well as an undivided interest in the balance of the receivables pools. New receivables are sold under the agreement as previously sold receivables are collected. Losses are recognized when our interest in the receivables are sold. The retained interests in the receivables are shown at the amounts expected to be collected by us, and such carrying value approximates the fair value of our retained interests. We are compensated for our services in the collection and administration of the receivables.

	December 31,
	2004			2003
Designated pools of trade receivables	$	1,060		$	995
Interest sold to third parties		(500	)		(500	)
Retained interest	$	560		$	495

      Losses on sales of receivables were $9, $7 and $10 million in 2004, 2003 and 2002, respectively. No credit losses were incurred during those years.

Note 10—Inventories

	December 31,
	2004			2003
Raw materials	$	1,153		$	972
Work in process		779			802
Finished products		1,382			1,412
		3,314			3,186
Less—
Progress payments		(24	)		(20	)
Reduction to LIFO cost basis		(130	)		(126	)
	$	3,160		$	3,040

      Inventories valued at LIFO amounted to $108 and $144 million at December 31, 2004 and 2003, respectively. Had such LIFO inventories been valued at current costs, their carrying values would have been approximately $130 and $126 million higher at December 31, 2004 and 2003, respectively.

Note 11—Investments and Long-Term Receivables

	December 31,
	2004		2003
Investments	$	305	$	181
Long-term receivables		237		388
	$	542	$	569

62

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      There were no marketable equity securities classified as available-for-sale at December 31, 2004 and 2003.

Note 12—Property, Plant and Equipment

	December 31,
	2004			2003
Land and improvements	$	356		$	335
Machinery and equipment		8,935			9,011
Buildings and improvements		2,027			1,964
Construction in progress		344			435
		11,662			11,745
Less—Accumulated depreciation and amortization		(7,331	)		(7,450	)
	$	4,331		$	4,295

      Depreciation expense was $572, $595 and $671 million in 2004, 2003 and 2002, respectively.

Note 13—Goodwill and Other Intangibles—Net

      The change in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 by reportable segment are as follows:

	December 31, 2003		Acquisitions		Divestitures			Currency Translation Adjustment		December 31, 2004
Aerospace	$	1,641	$	64	$	—		$	16	$	1,721
Automation and Control Solutions		2,832		162		(60	)		20		2,954
Specialty Materials		781		—		(12	)		10		779
Transportation Systems		535		—		—			24		559
	$	5,789	$	226	$	(72	)	$	70	$	6,013

	December 31, 2002		Acquisitions		Divestitures			Currency Translation Adjustment		December 31, 2003
Aerospace	$	1,644	$	—	$	(3	)	$	—	$	1,641
Automation and Control Solutions		2,678		136		—			18		2,832
Specialty Materials		849		5		(89	)		16		781
Transportation Systems		527		—		—			8		535
	$	5,698	$	141	$	(92	)	$	42	$	5,789

63

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      Intangible assets are comprised of:

	December 31, 2004							December 31, 2003
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets with determinable lives:
Investments in Aerospace customer incentives	$	952	$	(176	)	$	776	$	860	$	(141	)	$	719
Patents and trademarks		445		(310	)		135		425		(295	)		130
Other		512		(219	)		293		398		(186	)		212
		1,909		(705	)		1,204		1,683		(622	)		1,061
Trademark with indefinite life		46		(9	)		37		46		(9	)		37
	$	1,955	$	(714	)	$	1,241	$	1,729	$	(631	)	$	1,098

      Intangible assets amortization expense was $78, $66 and $59 million in 2004, 2003 and 2002, respectively. Estimated intangible assets amortization expense for each of the five succeeding years approximates $75 million.

Note 14—Accrued Liabilities

	December 31,
	2004		2003
Compensation and benefit costs	$	538	$	386
Customer advances		545		516
Income taxes		216		145
Environmental costs		267		90
Asbestos related liabilities		744		730
Severance		97		171
Product warranties and performance guarantees		270		242
Other		2,294		2,034
	$	4,971	$	4,314

64

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 15—Long-term Debt and Credit Agreements

	December 31,
	2004		2003
6.875% notes due 2005	$	—	$	750
5.25% notes due 2006		368		339
85⁄8% debentures due 2006		100		100
51⁄8% notes due 2006		500		500
7.0% notes due 2007		350		350
71⁄8% notes due 2008		200		200
6.20% notes due 2008		200		200
Zero coupon bonds and money multiplier notes, 13.0%–14.26%, due 2009		100		100
Floating rate notes due 2009-2011		252		267
7.50% notes due 2010		1,000		1,000
61⁄8% notes due 2011		500		500
Industrial development bond obligations, 1.1%–2.4%, maturing at various dates through 2037		66		66
65⁄8% debentures due 2028		216		216
9.065% debentures due 2033		51		51
Other (including capitalized leases), 0.53%–15.69%, maturing at various dates through 2020		166		322
	$	4,069	$	4,961

      The schedule of principal payments on long-term debt is as follows:

	At December 31, 2004
2005	$	956
2006		999
2007		386
2008		402
2009		209
Thereafter		2,073
		5,025
Less—current portion		(956	)
	$	4,069

      We maintain $2.3 billion of bank revolving credit facilities with a group of banks, arranged by Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., and comprises: (a) a $1.3 billion Five-Year Credit Agreement, with a $300 million letter of credit sub-limit and (b) a $1 billion Five-Year Credit Agreement with a $200 million letter of credit sub-limit. The credit agreements are maintained for general corporate purposes, including support for the issuance of commercial paper. We had no borrowings outstanding under either agreement at December 31, 2004. We have issued $115 million of letters of credit under the $1.3 billion Five-Year Credit Agreement at December 31, 2004.

      Neither of the credit agreements restricts our ability to pay dividends and neither contains financial covenants. The failure to comply with customary conditions or the occurrence of customary events of default contained in the credit agreements would prevent any further borrowings and would generally require the repayment of any outstanding borrowings under such credit agreements. Such events of default include: (a) non-payment of credit agreement debt, interest or fees; (b) non-compliance with the terms of the credit agreement covenants; (c) cross-default to other debt in certain circumstances;

65

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

(d) bankruptcy; and (e) defaults upon obligations under Employee Retirement Income Security Act. Additionally, each of the banks has the right to terminate its commitment to lend additional funds or issue additional letters of credit under the credit agreements if any person or group acquires beneficial ownership of 30 percent or more of our voting stock, or, during any 12-month period, individuals who were directors of Honeywell at the beginning of the period cease to constitute a majority of the Board of Directors (the Board).

      Loans under the $1.3 billion Five-Year Credit Agreement are required to be repaid no later than November 26, 2008. Loans under the $1 billion Five-Year Credit Agreement are required to be repaid no later than October 22, 2009. We have agreed to pay a facility fee of 0.08 percent per annum on the aggregate commitment for both Five-Year Credit Agreements.

      Interest on borrowings under both Five-Year Credit Agreements would be determined, at Honeywell's option, by (a) an auction bidding procedure; (b) the highest of the floating base rate publicly announced by Citibank, N.A., 0.5 percent above the average CD rate, or 0.5 percent above the Federal funds rate; or (c) the Eurocurrency rate plus 0.22 percent (applicable margin).

      The facility fee, the applicable margin over the Eurocurrency rate on both Five-Year Credit Agreements and the letter of credit issuance fee in both Five-Year Credit Agreements, are subject to change, based upon a grid determined by our long-term debt ratings. Neither credit agreement is subject to termination based upon a decrease in our debt ratings or a material adverse change.

Note 16—Lease Commitments

      Future minimum lease payments under operating leases having initial or remaining noncancellable lease terms in excess of one year are as follows:

	At December 31, 2004
2005	$	289
2006		216
2007		153
2008		122
2009		75
Thereafter		173
	$	1,028

      We have entered into agreements to lease land, equipment and buildings. Principally all our operating leases have initial terms of up to 25 years, and some contain renewal options subject to customary conditions. At any time during the terms of some of our leases, we may at our option purchase the leased assets for amounts that approximate fair value. We do not expect that any of our commitments under the lease agreements will have a material adverse effect on our consolidated results of operations, financial position or liquidity.

      Rent expense was $321, $314 and $274 million in 2004, 2003 and 2002, respectively.

Note 17—Financial Instruments

      As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.

66

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      Credit and Market Risk—Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. We monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments.

      We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. While concentrations of credit risk associated with our trade accounts and notes receivable are considered minimal due to our diverse customer base, a significant portion of our customers are in the commercial air transport industry (aircraft manufacturers and airlines) accounting for approximately 13 percent of our consolidated sales in 2004. The terms and conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Our sales are not materially dependent on a single customer or a small group of customers.

      Foreign Currency Risk Management—We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and anticipated transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency denominated cash flows. We attempt to have all transaction exposures hedged with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency forward and option agreements with third parties. Our principal currency exposures relate to the Euro, the British pound, the Canadian dollar, and the U.S. dollar.

      We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S dollars, these assets and liabilities are remeasured at spot exchange rates in effect on the balance sheet date. The effects of changes in spot rates are recognized in earnings and included in Other (Income) Expense. We hedge our exposure to changes in foreign exchange rates principally with forward contracts. Forward contracts are marked-to-market with the resulting gains and losses similarly recognized in earnings offsetting the gains and losses on the non-functional currency denominated monetary assets and liabilities being hedged.

      We partially hedge forecasted 2005 sales and purchases denominated in non-functional currencies with currency forward contracts. When a functional currency strengthens against non-functional currencies, the decline in value of forecasted non-functional currency cash inflows (sales) or outflows (purchases) is partially offset by the recognition of gains (sales) and losses (purchases), respectively, in the value of the forward contracts designated as hedges. Conversely, when a functional currency weakens against non-functional currencies, the increase in value of forecasted non-functional currency cash inflows (sales) or outflows (purchases) is partially offset by the recognition of losses (sales) and gains (purchases), respectively, in the value of the forward contracts designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the hedged transaction is recognized. All open forward contracts mature by December 31, 2005.

      At December 31, 2004 and 2003, we had contracts with notional amounts of $790 and $641 million, respectively, to exchange foreign currencies, principally in the Euro countries and Great Britain.

      Commodity Price Risk Management—Our exposure to market risk for commodity prices arises from changes in our cost of production. We mitigate our exposure to commodity price risk through the

67

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

use of long-term, firm-price contracts with our suppliers and forward commodity purchase agreements with third parties hedging anticipated purchases of several commodities (principally natural gas). Forward commodity purchase agreements are marked-to-market, with the resulting gains and losses recognized in earnings when the hedged transaction is recognized.

      Interest Rate Risk Management—We use a combination of financial instruments, including medium-term and short-term financing, variable-rate commercial paper, and interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At December 31, 2004 and 2003, interest rate swap agreements designated as fair value hedges effectively changed $1,218 and $1,189 million, respectively, of fixed rate debt at an average rate of 6.42 and 6.45 percent, respectively, to LIBOR based floating rate debt. Our interest rate swaps mature through 2007.

      Fair Value of Financial Instruments—The carrying value of cash and cash equivalents, trade accounts and notes receivables, payables, commercial paper and short-term borrowings contained in the Consolidated Balance Sheet approximates fair value. Summarized below are the carrying values and fair values of our other financial instruments at December 31, 2004 and 2003. The fair values are based on the quoted market prices for the issues (if traded), current rates offered to us for debt of the same remaining maturity and characteristics, or other valuation techniques, as appropriate.

	December 31, 2004						December 31, 2003
	Carrying Value			Fair Value			Carrying Value			Fair Value
Assets
Long-term receivables	$	237		$	218		$	388		$	369
Interest rate swap agreements		39			39			67			67
Foreign currency exchange contracts		22			22			12			12
Forward commodity contracts		10			10			18			18
Liabilities
Long-term debt and related current maturities	$	(5,025	)	$	(5,411	)	$	(5,008	)	$	(5,508	)
Foreign currency exchange contracts		(6	)		(6	)		(11	)		(11	)
Forward commodity contracts		(2	)		(2	)		—			—

Note 18—Capital Stock

      We are authorized to issue up to 2,000,000,000 shares of common stock, with a par value of one dollar. Common shareowners are entitled to receive such dividends as may be declared by the Board, are entitled to one vote per share, and are entitled, in the event of liquidation, to share ratably in all the assets of Honeywell which are available for distribution to the common shareowners. Common shareowners do not have preemptive or conversion rights. Shares of common stock issued and outstanding or held in the treasury are not liable to further calls or assessments. There are no restrictions on us relative to dividends or the repurchase or redemption of common stock.

      In November 2003, Honeywell announced its intention to repurchase sufficient outstanding shares of its common stock to offset the dilutive impact of employee stock based compensation plans, including future option exercises, restricted unit vesting and matching contributions under our savings plans. While we estimate the issuance of approximately 10 million shares annually under such plans, in 2004, we repurchased 20.1 million shares for $699 million, which included shares repurchased in response to market conditions in the fourth quarter to offset the anticipated 2005 dilutive impact of employee stock based compensation plans.

68

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      We are authorized to issue up to 40,000,000 shares of preferred stock, without par value, and can determine the number of shares of each series, and the rights, preferences and limitations of each series. At December 31, 2004, there was no preferred stock outstanding.

Note 19—Other Nonowner Changes in Shareowners' Equity

      Total nonowner changes in shareowners' equity are included in the Consolidated Statement of Shareowners' Equity. The changes in Accumulated Other Nonowner Changes are as follows:

	Pretax			Tax			After- Tax
Year Ended December 31, 2004
Foreign exchange translation adjustments	$	351		$	—		$	351
Change in fair value of effective cash flow hedges		(15	)		6			(9	)
Minimum pension liability adjustment		(19	)		4			(15	)
	$	317		$	10		$	327
Year Ended December 31, 2003
Foreign exchange translation adjustments	$	551		$	—		$	551
Change in fair value of effective cash flow hedges		—			—			—
Minimum pension liability adjustment		604			(235	)		369
	$	1,155		$	(235	)	$	920
Year Ended December 31, 2002
Foreign exchange translation adjustments	$	310		$	—		$	310
Change in fair value of effective cash flow hedges		35			(13	)		22
Minimum pension liability adjustment		(956	)		350			(606	)
	$	(611	)	$	337		$	(274	)

      The components of Accumulated Other Nonowner Changes are as follows:

	December 31,
	2004			2003			2002
Cumulative foreign exchange translation adjustments	$	489		$	138		$	(413	)
Fair value of effective cash flow hedges		8			17			17
Minimum pension liability		(359	)		(344	)		(713	)
	$	138		$	(189	)	$	(1,109	)

Note 20—Stock-Based Compensation Plans

      We have stock plans available to grant incentive stock options, non-qualified stock options and stock appreciation rights to officers and employees.

      Fixed Stock Options—The exercise price, term and other conditions applicable to each option granted under the stock plans are generally determined by the Management Development and Compensation Committee of the Board. The options are granted at a price equal to our stock's fair market value on the date of grant. The options generally become exercisable over a three-year period and expire after ten years.

69

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      The following table summarizes information about stock option activity for the three years ended December 31, 2004:

	Number of Options			Weighted Average Exercise Price
Outstanding at December 31, 2001		53,879,625		$	39.37
Granted		2,996,005			33.61
Exercised		(1,692,005	)		18.15
Lapsed or canceled		(3,168,916	)		43.14
Outstanding at December 31, 2002		52,014,709			39.50
Granted		9,372,850			23.70
Exercised		(2,361,930	)		18.34
Lapsed or canceled		(4,735,283	)		39.58
Outstanding at December 31, 2003		54,290,346			37.68
Granted		9,409,800			35.49
Exercised		(2,947,232	)		21.20
Lapsed or canceled		(2,433,985	)		39.41
Outstanding at December 31, 2004		58,318,929			38.09

      The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:

	Options Outstanding						Options Exercisable
Range of exercise prices	Number Outstanding		Weighted Average Life(1)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$17.79–$29.86		11,088,429		6.3	$	23.67		6,151,309	$	23.66
$30.03–$39.94		30,819,327		6.5		35.90		20,812,117		36.17
$40.02–$49.97		9,156,099		4.0		43.47		9,124,599		43.48
$50.13–$66.73		7,255,074		4.9		62.62		7,255,074		62.62
		58,318,929		5.9		38.09		43,343,099		40.36

(1) Average remaining contractual life in years.

      There were 40,547,240 and 38,179,208 options exercisable at weighted average exercise prices of $41.14 and $39.58 at December 31, 2003 and 2002, respectively. There were 20,173,109 shares available for future grants under the terms of our stock option plans at December 31, 2004.

      Restricted Stock Units—Restricted stock unit (RSU) awards entitle the holder to receive one share of common stock for each unit when the units vest. RSU's are issued to certain key employees as compensation and as incentives tied directly to the achievement of certain performance objectives.

      RSU's issued were 980,706, 1,578,000 and 1,777,700 in 2004, 2003 and 2002, respectively. Compensation expense related to these RSUs was $24, $27 and $36 million in 2004, 2003 and 2002, respectively. There were 3,691,556, 3,103,513 and 2,342,960 RSU's outstanding, with a weighted average grant date fair value per share of $31.18, $30.10 and $37.12 at December 31, 2004, 2003 and 2002, respectively.

      Non-Employee Directors' Plan—We also have a Stock Plan for Non-Employee Directors (Directors' Plan) under which restricted shares and options are granted. Each new director receives a one-time grant of 3,000 shares of common stock, subject to specific restrictions.

      The Directors' Plan also provides for an annual grant to each director of options to purchase 5,000 shares of common stock at the fair market value on the date of grant. We have set aside 450,000

70

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

shares for issuance under the Directors' Plan. Options generally become exercisable over a three-year period and expire after ten years.

Note 21—Commitments and Contingencies

      Shareowner Litigation—Honeywell and three of its former officers were defendants in a class action lawsuit filed in the United States District Court for the District of New Jersey. Plaintiffs alleged, among other things, that the defendants violated federal securities laws by purportedly making false and misleading statements and by failing to disclose material information concerning Honeywell's financial performance, thereby allegedly causing the value of Honeywell's stock to be artificially inflated. The Court certified a class consisting of all purchasers of Honeywell stock between December 20, 1999 and June 19, 2000. On June 4, 2004 Honeywell and the lead plaintiffs agreed to a settlement of this matter which required a payment to the class of $100 million. Honeywell's contribution to the settlement was $15 million, which amount had previously been fully reserved. Honeywell's insurance carriers paid the remainder of the settlement. The settlement was approved by the Court on August 16, 2004. A small number of class members, including the Florida State Board of Administration (FSBA), opted out of the settlement. The FSBA claims have been settled for $1.25 million. Honeywell believes that all opt-out claims, including that of the FSBA, are fully insured.

      ERISA Class Action Lawsuit—Honeywell and several of its current and former officers and directors are defendants in a purported class action lawsuit filed in the United States District Court for the District of New Jersey. The complaint principally alleges that the defendants breached their fiduciary duties to participants in the Honeywell Savings and Ownership Plan (the “Savings Plan”) by purportedly making false and misleading statements, failing to disclose material information concerning Honeywell's financial performance, and failing to diversify the Savings Plan's assets and monitor the prudence of Honeywell stock as a Savings Plan investment. In September 2004, Honeywell reached an agreement in principle to settle this matter for $14 million plus an agreement to permit Savings Plan participants greater diversification rights. The settlement will be paid in full by Honeywell's insurers. The settlement will require Court approval, which is expected in 2005.

      Environmental Matters—We are subject to various federal, state, local and foreign government requirements relating to the protection of the environment. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental and safety laws and regulations. However, mainly because of past operations and operations of predecessor companies, we, like other companies engaged in similar businesses, have incurred remedial response and voluntary cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing toxic substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future.

      With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with other responsible parties, to determine the feasibility of various remedial techniques to address environmental matters. It is our policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our accruals. We expect to fund expenditures for these matters from operating cash flow. The timing

71

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

of cash expenditures depends on a number of factors, including the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties.

      Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that these environmental matters will have a material adverse effect on our consolidated financial position.

      In the matter entitled Interfaith Community Organization, et al. v. Honeywell International Inc., et al., the United States District Court for the District of New Jersey held in May 2003 that a predecessor Honeywell site located in Jersey City, New Jersey constituted an imminent and substantial endangerment and ordered Honeywell to conduct the excavation and transport for offsite disposal of approximately one million tons of chromium residue present at the site. Honeywell appealed the Court's decision to the Third Circuit Court of Appeals (Appeals Court). As disclosed in prior SEC filings, we believed that the District Court-ordered remedy would be remanded, reversed or replaced and, accordingly, provisions previously made in our financial statements for remedial costs at this site did not assume excavation and offsite removal of chromium. On February 18, 2005, the Appeals Court denied Honeywell's appeal. In light of the Appeals Court decision, we recorded a pre-tax charge of $278 million in the fourth quarter of 2004, which reflects the incremental cost of implementing the Court-ordered remedy. Implementation of the excavation and offsite removal remedy is expected to take place over a five-year period, and the cost of implementation is expected to be incurred evenly over that period. We do not expect implementation of the remedy to have a material adverse effect on our future consolidated results of operations, operating cash flows or financial position.

      In accordance with a 1992 consent decree with the State of New York, Honeywell is studying environmental conditions in and around Onondaga Lake (the Lake) in Syracuse, New York. The purpose of the study is to identify, evaluate and propose remedial measures that can be taken to remedy historic industrial contamination in the Lake. A predecessor company to Honeywell operated a chemical plant which is alleged to have contributed mercury and other contaminants to the Lake. In November 2004, the New York State Department of Environmental Conservation (the DEC) issued its Proposed Plan for remediation of industrial contamination in the Lake. There will be a public comment period until March 1, 2005, and the Proposed Plan is subject to review by the U.S. Environmental Protection Agency. The DEC is currently expected to issue its Record of Decision in the first half of 2005.

      The Proposed Plan calls for a combined dredging/capping remedy generally in line with the approach recommended in the Feasibility Study submitted by Honeywell in May 2004 (the May 2004 Feasibility Study). Although the Proposed Plan calls for additional remediation in certain parts of the Lake, it would not require the most extensive dredging alternatives described in the May 2004 Feasibility Study. The DEC's aggregate cost estimate is based on the high end of the range of potential costs for major elements of the Proposed Plan and includes a contingency. The actual cost of the Proposed Plan will depend upon, among other things, the resolution of certain technical issues during the design phase of the remediation, expected to occur sometime in 2007 and beyond.

      Based on currently available information and analysis performed by our engineering consultants, our estimated cost of implementing the remedy set forth in the Proposed Plan is consistent with amounts previously provided for in our financial statements. Our estimating process considered a range of possible outcomes and amounts recorded reflect our best estimate at this time. We do not believe that this matter will have a material adverse impact on our consolidated financial position.

72

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Given the scope and complexity of this project, it is possible that actual costs could exceed estimated costs by an amount that could have a material adverse impact on our consolidated results of operations and operating cash flows in the periods recognized or paid. At this time, however, we cannot identify any legal, regulatory or technical reason to conclude that a specific alternative outcome is more probable than the outcome for which we have made provisions in our financial statements.

      Asbestos Matters—Like many other industrial companies, Honeywell is a defendant in personal injury actions related to asbestos. We did not mine or produce asbestos, nor did we make or sell insulation products or other construction materials that have been identified as the primary cause of asbestos related disease in the vast majority of claimants. Products containing asbestos previously manufactured by Honeywell or by previously owned subsidiaries fall into two general categories; refractory products and friction products.

      Refractory Products—Honeywell owned North American Refractories Company (NARCO) from 1979 to 1986. NARCO produced refractory products (high temperature bricks and cement) which were sold largely to the steel industry in the East and Midwest. Less than 2 percent of NARCO's products contained asbestos.

      When we sold the NARCO business in 1986, we agreed to indemnify NARCO with respect to personal injury claims for products that had been discontinued prior to the sale (as defined in the sale agreement). NARCO retained all liability for all other claims. NARCO had resolved approximately 176,000 claims through January 4, 2002, the date NARCO filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code, at an average cost per claim of two thousand two hundred dollars. Of those claims, 43 percent were dismissed on the ground that there was insufficient evidence that NARCO was responsible for the claimant's asbestos exposure. As of the date of NARCO's bankruptcy filing, there were approximately 116,000 remaining claims pending against NARCO, including approximately 7 percent in which Honeywell was also named as a defendant. Since 1983, Honeywell and our insurers have contributed to the defense and settlement costs associated with NARCO claims.

      As a result of the NARCO bankruptcy filing, all of the claims pending against NARCO are automatically stayed pending the reorganization of NARCO. Because the claims pending against Honeywell necessarily will impact the liabilities of NARCO, because the insurance policies held by Honeywell are essential to a successful NARCO reorganization, and because Honeywell has offered to commit the value of those policies to the reorganization, the bankruptcy court has temporarily enjoined any claims against Honeywell, current or future, related to NARCO, except one claim which is not material as to which the stay was lifted in August 2003. Although the stay has remained in effect continuously since January 4, 2002, there is no assurance that such stay will remain in effect. In connection with NARCO's bankruptcy filing, we paid NARCO's parent company $40 million and agreed to provide NARCO with up to $20 million in financing. We also agreed to pay $20 million to NARCO's parent company upon the filing of a plan of reorganization for NARCO acceptable to Honeywell, and to pay NARCO's parent company $40 million, and to forgive any outstanding NARCO indebtedness, upon the confirmation and consummation of such a plan.

      As a result of negotiations with counsel representing NARCO related asbestos claimants regarding settlement of all pending and potential NARCO related asbestos claims against Honeywell, we have reached definitive agreements with approximately 260,000 claimants, which represents in excess of 90 percent of the anticipated current claimants who are expected to file a claim as part of the NARCO reorganization process. We are also in discussions with the NARCO Committee of Asbestos Creditors and the Court-appointed legal representative for future asbestos claimants on Trust Distribution Procedures for NARCO. We believe that, as part of the NARCO plan of reorganization, a trust will be established pursuant to these Trust Distribution Procedures for the benefit of all asbestos claimants, current and future. If the trust is put in place and approved by the Court as fair and equitable, Honeywell as well as NARCO will be entitled to a permanent channeling injunction barring

73

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

all present and future individual actions in state or federal courts and requiring all asbestos related claims based on exposure to NARCO products to be made against the federally-supervised trust. NARCO has deferred filing its plan of reorganization pending resolution of the bankruptcy proceedings related to one of its sister companies. We now expect the NARCO plan of reorganization and the NARCO trust to be approved by the Court in 2005. As part of its ongoing settlement negotiations, Honeywell has reached agreement in principle with the representative for future NARCO claimants to cap its annual contributions to the trust with respect to future claims at a level that would not have a material impact on Honeywell's operating cash flows. Given the substantial progress of negotiations between Honeywell and NARCO related asbestos claimants and between Honeywell and the Committee of Asbestos Creditors during the fourth quarter of 2002, Honeywell developed an estimated liability for settlement of pending and future asbestos claims and recorded a charge of $1.4 billion for NARCO related asbestos litigation charges, net of insurance recoveries. This charge consisted of the estimated liability to settle current asbestos related claims, the estimated liability related to future asbestos related claims through 2018 and obligations to NARCO's parent, net of insurance recoveries of $1.8 billion.

      The estimated liability for current claims is based on terms and conditions, including evidentiary requirements, in definitive agreements with in excess of 90 percent of current claimants. Substantially all settlement payments with respect to current claims are expected to be made by the end of 2007.

      The liability for future claims estimates the probable value of future asbestos related bodily injury claims asserted against NARCO through 2018 and obligations to NARCO's parent as discussed above. The estimate is based upon the disease criteria and payment values contained in the NARCO Trust Distribution Procedures negotiated with the NARCO Committee of Asbestos Creditors and the NARCO future claimants representative. In light of the uncertainties inherent in making long-term projections we do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018 under Statement of Financial Accounting Standards No. 5. Honeywell retained the expert services of Hamilton, Rabinovitz and Alschuler, Inc. (HR&A) to project the probable number and value, including trust claim handling costs, of asbestos related future liabilities based upon historical experience with similar trusts. The methodology used to estimate the liability for future claims has been commonly accepted by numerous courts and is the same methodology that is utilized by an expert who is routinely retained by the asbestos claimants committee in asbestos related bankruptcies. The valuation methodology includes an analysis of the population likely to have been exposed to asbestos containing products, epidemiological studies to estimate the number of people likely to develop asbestos related diseases, NARCO claims filing history, the pending inventory of NARCO asbestos related claims and payment rates expected to be established by the NARCO trust.

      Honeywell has approximately $1.3 billion in insurance limits remaining that reimburses it for portions of the costs incurred to settle NARCO related claims and court judgments as well as defense costs. This coverage is provided by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the London excess market. At December 31, 2004, a significant portion of this coverage is with insurance companies with whom we have agreements to pay full policy limits based on corresponding Honeywell claims costs. This includes agreements with a substantial majority of the London-based insurance companies entered into primarily in the first quarter of 2004. We conduct analyses to determine the amount of insurance that we estimate is probable that we will recover in relation to payment of current and projected future claims. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. In the second quarter of 2004, based on our ongoing evaluation of our ability to enforce our rights under the various insurance policies, we concluded that we had additional probable insurance recoveries of $47 million, net of solvency reserves, which has been reflected in insurance receivables. We made judgments

74

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

concerning insurance coverage that we believe are reasonable and consistent with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding insurers and various judicial determinations relevant to our insurance programs.

      Projecting future events is subject to many uncertainties that could cause the NARCO related asbestos liabilities to be higher or lower than those projected and recorded. There is no assurance that a plan of reorganization will be proposed or confirmed, that insurance recoveries will be timely or whether there will be any NARCO related asbestos claims beyond 2018. Given the inherent uncertainty in predicting future events, we review our estimates periodically, and update them based on our experience and other relevant factors. Similarly we will reevaluate our projections concerning our probable insurance recoveries in light of any changes to the projected liability or other developments that may impact insurance recoveries.

      Friction Products—Honeywell's Bendix Friction Materials (Bendix) business manufactured automotive brake pads that contained chrysotile asbestos in an encapsulated form. There is a group of existing and potential claimants consisting largely of individuals that allege to have performed brake replacements.

      From 1981 through December 31, 2004, we have resolved approximately 71,000 Bendix related asbestos claims including trials covering 120 plaintiffs, which resulted in 115 favorable verdicts. Trials covering five individuals resulted in adverse verdicts; however, two of these verdicts were reversed on appeal and the remaining three claims were settled.

      Through the second quarter of 2002, Honeywell had no out-of-pocket costs for Bendix related asbestos claims since its insurance deductible was satisfied many years ago. Beginning with claim payments made in the third quarter of 2002, Honeywell began advancing indemnity and defense claim costs. Those indemnity and defense costs were approximately $165, $112 and $70 million in 2004, 2003 and 2002, respectively. In 2004 and 2003 Honeywell collected approximately $8 and $90 million, respectively, in insurance reimbursements and settlements for Bendix related asbestos claims. See further discussion of insurance coverage below.

      The following tables present information regarding Bendix related asbestos claims activity during the past two years:

	Years Ended December 31,
Claims Activity	2004			2003
Claims Unresolved at beginning of year		72,976			50,821
Claims Filed		10,504			25,765
Claims Resolved		(7,132	)		(3,610	)
Claims Unresolved at end of year		76,348			72,976

	December 31,
Disease Distribution of Unresolved Claims	2004		2003
Mesothelioma and Other Cancer Claims		3,534		3,277
Other Claims		72,814		69,699
Total Claims		76,348		72,976

      Approximately 30 percent of the approximately 76,000 pending claims at December 31, 2004 are on the inactive, deferred, or similar dockets established in some jurisdictions for claimants who allege minimal or no impairment. The approximately 76,000 pending claims also include claims filed in jurisdictions such as Texas, Virginia and Mississippi that allow for consolidated filings. In these

75

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

jurisdictions, plaintiffs are permitted to file complaints against a pre-determined master list of defendants, regardless of whether they have claims against each individual defendant. Many of these plaintiffs may not actually have claims against Honeywell. Based on state rules and prior experience in these jurisdictions, we anticipate that many of these claims will ultimately be dismissed. During 2003, Honeywell was served with numerous complaints filed in Mississippi in advance of the January 1, 2003 effective date for tort reform in that state. Also during 2003, Honeywell experienced an increase in nonmalignancy filings that we believe were in response to the possibility of federal legislation. Based on prior experience, we anticipate that many of these claims will be placed on deferred, inactive or similar dockets or be dismissed. Honeywell has experienced average resolution values excluding legal costs as follows:

	Years Ended December 31,
	2004		2003		2002
	(in whole dollars)
Malignant claims	$	90,000	$	95,000	$	166,000
Nonmalignant claims	$	1,600	$	3,500	$	1,300

       It is not possible to predict whether resolution values for Bendix related asbestos claims will increase, decrease or stabilize in the future.

      We have accrued for the estimated cost of pending Bendix related asbestos claims. The estimate is based on the number of pending claims at December 31, 2004, disease classifications, expected settlement values and historic dismissal rates. Honeywell retained the expert services of HR&A (see discussion of HR&A under Refractory products above) to assist in developing the estimated expected settlement values and historic dismissal rates. We cannot reasonably estimate losses which could arise from future Bendix related asbestos claims because we cannot predict how many additional claims may be brought against us, the allegations in such claims or their probable outcomes and resulting settlement values in the tort system.

      Honeywell presently has approximately $1.9 billion of insurance coverage remaining with respect to pending Bendix related asbestos claims as well as claims which may be filed against us in the future. This coverage is provided by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the London excess market. Although Honeywell has approximately $1.9 billion in insurance, there are gaps in our coverage due to insurance company insolvencies, a comprehensive policy buy-back settlement with Equitas in 2003 and certain uninsured periods. We analyzed the amount of insurance that we estimate is probable that we will recover in relation to payment of asbestos related claims and determined that approximately 50 percent of expenditures for such claims are recoverable by insurance. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. We made judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding insurers and various judicial determinations relevant to our insurance programs. Based on our analysis, at December 31, 2004 we had amounts receivable from our insurers of approximately $340 million representing probable reimbursements associated with our liability for pending claims as well as amounts due to us for previously settled and paid claims related to the estimated liabilities for pending claims.

      In the fourth quarter of 2002, we recorded a charge of $167 million which consisted of a $127 million accrual for our Bendix related asbestos liabilities to be settled by the then contemplated sale of Bendix to Federal-Mogul, net of insurance recoveries, and a $40 million accrual for other costs which we expected to be required in order to complete the transaction (completion costs). In 2003, we paid $112 million to settle Bendix related asbestos claims, which were charged to this accrual. When the deal negotiations ended, the $40 million accrual for the expected completion costs was reversed and

76

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

an additional asbestos accrual was recorded to reflect our current estimate of the asbestos exposure, net of expected insurance coverage.

      Honeywell believes it has sufficient insurance coverage and reserves to cover all pending Bendix related asbestos claims. Although it is impossible to predict the outcome of pending claims or to reasonably estimate losses which could arise from future Bendix related asbestos claims, we do not believe that such claims would have a material adverse effect on our consolidated financial position in light of our insurance coverage and our prior experience in resolving such claims. If the rate and types of claims filed, the average indemnity cost of such claims and the period of time over which claim settlements are paid (collectively, the “Variable Claims Factors”) do not substantially change, Honeywell would not expect future Bendix related asbestos claims to have a material adverse effect on our results of operations or operating cash flows in any fiscal year. No assurances can be given, however, that the Variable Claims Factors will not substantially change.

      NARCO and Bendix asbestos related balances are included in the following balance sheet accounts:

	December 31,
	2004		2003
Other current assets	$	150	$	130
Insurance recoveries for asbestos related liabilities		1,412		1,317
	$	1,562	$	1,447
Accrued liabilities	$	744	$	730
Asbestos related liabilities		2,006		2,279
	$	2,750	$	3,009

      During 2004, we paid $518 million in indemnity and defense costs related to NARCO and Bendix claims. Additionally, we recognized charges totaling $76 million primarily for Bendix related asbestos claims filed and defense costs incurred during 2004, net of probable insurance recoveries. The charges include an update of expected resolution values for pending Bendix claims and are net of an additional $47 million of NARCO insurance deemed probable of recovery.

      We are monitoring proposals for federal asbestos legislation pending in the United States Congress. Due to the uncertainty surrounding the proposed legislation, it is not possible at this point in time to determine what impact such legislation would have on the NARCO bankruptcy strategy or our asbestos liabilities and related insurance recoveries.

      Warranties and Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31, 2004:

	Maximum Potential Future Payments
Operating lease residual values	$	47
Other third parties' financing		4
Unconsolidated affiliates' financing		7
Customer and vendor financing		35
	$	93

      We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial position or liquidity.

      In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the

77

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated.

      In the normal course of business we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes in the obligations become reasonably estimable. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees:

	Years Ended December 31,
	2004			2003			2002
Beginning of year	$	275		$	217		$	217
Accruals for warranties/guarantees issued during the year		236			215			158
Adjustment of pre-existing warranties/guarantees		1			35			(18	)
Settlement of warranty/guarantee claims		(213	)		(192	)		(140	)
End of year	$	299		$	275		$	217

      Product warranties and product performance guarantees are included in the following balance sheet accounts:

	December 31,
	2004		2003
Accrued liabilities	$	270	$	242
Other liabilities		29		33
	$	299	$	275

      Other Matters—We are subject to a number of other lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, and health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of probable losses, based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Given the uncertainty inherent in litigation, we do not believe it is possible to develop estimates of the range of reasonably possible loss in excess of current accruals for these matters. Considering our past experience and existing accruals, we do not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our consolidated financial position. Because most contingencies are resolved over long periods of time, potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause us to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on our results of operations or operating cash flows in the periods recognized or paid.

Note 22—Pension and Other Postretirement Benefits

      We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees. Pension benefits for substantially all U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit pension plans. U.S. defined benefit pension plans comprise 86 percent of our projected benefit obligation. Non-U.S. employees, who are not U.S. citizens, are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes. Non-U.S. defined benefit pension plans comprise 14 percent of our projected benefit obligation.

78

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      We also sponsor postretirement benefit plans that provide health care benefits and life insurance coverage to eligible retirees. Our retiree medical plans mainly cover U.S. employees who retire with pension eligibility for hospital, professional and other medical services. All non-union hourly and salaried employees joining Honeywell after January 1, 2000 are not eligible to participate in our retiree medical and life insurance plans. Most of the U.S. retiree medical plans require deductibles and copayments, and virtually all are integrated with Medicare. Retiree contributions are generally required based on coverage type, plan and Medicare eligibility. Honeywell has limited its subsidy of its retiree medical plans to a fixed-dollar amount for substantially all future retirees and for almost half of its current retirees. This cap of retiree medical benefits under our plans limits our exposure to the impact of future health care cost increases. The retiree medical and life insurance plans are not funded. Claims and expenses are paid from our general assets.

79

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension and other postretirement benefit plans at December 31, 2004 and 2003. We use a December 31 measurement date for the majority of our pension and postretirement benefit plans.

	Pension Benefits						Other Postretirement Benefits
	2004			2003			2004			2003
Change in benefit obligation:
Benefit obligation at beginning of year	$	12,993		$	11,660		$	2,421		$	2,241
Service cost		222			201			17			17
Interest cost		755			757			138			145
Plan amendments		1			30			(19	)		(92	)
Actuarial losses		361			1,010			3			313
Acquisitions (divestitures)		(9	)		15			—			—
Benefits paid		(905	)		(883	)		(207	)		(203	)
Settlements and curtailments		1			(2	)		—			—
Other		168			205			—			—
Benefit obligation at end of year		13,587			12,993			2,353			2,421
Change in plan assets:
Fair value of plan assets at beginning of year		12,265			10,178			—			—
Actual return on plan assets		1,461			2,072			—			—
Company contributions		111			725			—			—
Acquisitions (divestitures)		(9	)		15			—			—
Benefits paid		(905	)		(883	)		—			—
Other		147			158			—			—
Fair value of plan assets at end of year		13,070			12,265			—			—
Funded status of plans		(517	)		(728	)		(2,353	)		(2,421	)
Unrecognized net obligation at transition		11			11			—			—
Unrecognized net loss		3,245			3,666			679			779
Unrecognized prior service cost (credit)		151			187			(196	)		(215	)
Net amount recognized	$	2,890		$	3,136		$	(1,870	)	$	(1,857	)
Amounts recognized in Consolidated Balance Sheet consist of:
Prepaid pension benefit cost	$	2,985		$	3,173		$	—		$	—
Intangible asset(1)		88			101			—			—
Accrued liabilities		—			—			(197	)		(197	)
Postretirement benefit obligations other than pensions(2)		—			—			(1,673	)		(1,660	)
Accrued benefit liability(3)		(225	)		(170	)		—			—
Additional minimum liability(3)		(462	)		(453	)		—			—
Accumulated other nonowner changes		504			485			—			—
Net amount recognized	$	2,890		$	3,136		$	(1,870	)	$	(1,857	)

(1)	Included in Other Assets—Non-Current on Consolidated Balance Sheet.
(2)	Excludes Non-U.S. plans of $40 and $23 million in 2004 and 2003, respectively.
(3)	Included in Other Liabilities—Non-Current on Consolidated Balance Sheet.

80

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      The accumulated benefit obligation for our defined benefit pension plans was $12,996 and $12,391 million at December 31, 2004 and 2003, respectively.

      Net periodic pension and other postretirement benefit costs (income) for our significant plans include the following components:

	Pension Benefits
	Years Ended December 31,
	2004			2003			2002
Service cost	$	222		$	201		$	201
Interest cost		755			757			753
Expected return on plan assets		(1,042	)		(1,030	)		(1,164	)
Amortization of transition asset		—			(7	)		(7	)
Amortization of prior service cost		38			37			43
Recognition of actuarial losses		413			178			13
Net periodic benefit cost (income)		386			136			(161	)
Settlements and curtailments		—			—			14
Net periodic benefit cost (income) after settlements and curtailments	$	386		$	136		$	(147	)

	Other Postretirement Benefits
	Years Ended December 31,
	2004			2003			2002
Service cost	$	17		$	17		$	21
Interest cost		138			145			141
Expected return on plan assets		—			—			—
Amortization of prior service (credit)		(37	)		(30	)		(22	)
Recognition of actuarial losses		101			62			10
Net periodic benefit cost		219			194			150
Settlements and curtailments		—			—			(30	)
Net periodic benefit cost after settlements and curtailments	$	219		$	194		$	120

81

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      Major actuarial assumptions used in determining the benefit obligations and net periodic benefit cost (income) for our U.S. benefit plans are presented in the following table. For non-U.S. benefit plans, no one of which was material, assumptions reflect economic assumptions applicable to each country.

	Pension Benefits						Other Postretirement Benefits
	2004		2003		2002		2004		2003		2002
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate		5.875%		6.00%		6.75%		5.50%		6.00%		6.75%
Expected annual rate of compensation increase		4.00%		4.00%		4.00%		—		—		—
Actuarial assumptions used to determine net periodic benefit cost (income) for years ended December 31:
Discount rate		6.00%		6.75%		7.25%		6.00%		6.75%		7.25%
Expected rate of return on plan assets		9.00%		9.00%		10.00%		—		—		—
Expected annual rate of compensation increase		4.00%		4.00%		4.00%		—		—		—

      We considered the available yields on high-quality fixed-income investments with maturities corresponding to the expected payment dates of our benefit obligations to determine our discount rates at each measurement date.

Pension Benefits

      Pension plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:

	December 31,
	2004		2003
Projected benefit obligation	$	1,801	$	1,639
Accumulated benefit obligation		1,720		1,566
Fair value of plan assets		950		906

      Statement of Financial Accounting Standards No. 87, “Employers Accounting for Pensions” (SFAS No. 87) requires recognition of an additional minimum pension liability if the fair value of plan assets is less than the accumulated benefit obligation at the end of the plan year. In 2004, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $15 million ($19 million on a pretax basis) which increased the additional minimum pension liability. In 2003, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $369 million ($604 million on a pretax basis) to reduce the additional minimum pension liability by $304 million and reinstate a portion of the pension assets ($300 million) written off in the prior year's minimum pension liability adjustment. This 2003 adjustment resulted from an increase in our pension assets in 2003 due to the improvement in equity markets and our contribution of $670 million to our U.S. plans. In 2002, due to the poor performance of the equity markets which adversely affected our pension assets and a decline in the discount rate, we recorded a non-cash adjustment to equity through accumulated other nonowner changes of $606 million ($956 million on a pretax basis) which increased the additional minimum pension liability.

      Under SFAS No. 87, for our U.S. pension plans, we use the market-related value of plan assets reflecting changes in the fair value of plan assets over a three-year period. Further, unrecognized

82

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

losses in excess of 10 percent of the greater of the market-related value of plan assets or the plans projected benefit obligation are recognized over a six-year period.

      Our U.S. pension plans assets were $11.5 and $10.9 billion and our non-U.S. pension plans assets were $1.6 and $1.4 billion at December 31, 2004 and 2003, respectively. Our asset allocation and target allocation for our pension plans assets are as follows:

	Percentage of Plans Assets at December 31,						Long-term Target Allocation
Asset Category	2004			2003
Equity securities		61	%		58	%		40-65	%
Debt securities, including cash		33			35			30-45
Real estate		4			5			2-8
Other		2			2			2-6
		100	%		100	%

      Equity securities include Honeywell common stock of $214 and $544 million at December 31, 2004 and 2003, respectively. An independent fiduciary holds and makes all investment decisions with respect to the Honeywell common stock.

      Our asset investment strategy focuses on maintaining a diversified portfolio, using various asset classes, in order to achieve our long-term investment objectives on a risk adjusted basis. Our actual invested positions in various securities change over time based on short and longer-term investment opportunities. To achieve our objectives, our U.S. investment policy requires that our U.S. Master Retirement Trust be invested as follows: (a) no less than 30 percent be invested in fixed income securities; (b) no more than 10 percent in high-yield securities; (c) no more than 10 percent in private real estate investments; and (d) no more than 6 percent in other investment alternatives involving limited partnerships of various types. There is no stated limit on investments in publically-held U.S. and international equity securities. Our non-U.S. investment policies are different for each country, but the long-term investment objectives remain the same.

      Our expected rate of return on plan assets of 9 percent is a long-term rate based on historic plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations. The expected rate of return is a long-term assumption and generally does not change annually.

      Our general funding policy for qualified pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2004, 2003 and 2002, we made voluntary contributions of $40, $670 and $830 million, respectively, to our U.S. defined benefit pension plans to improve the funded status of our plans. The contributions in 2002 included $700 million of Honeywell common stock. Assuming that actual plan asset returns are consistent with our expected rate of 9 percent in 2005 and beyond, and that interest rates remain constant, we would not be required to make any contributions to our U.S. pension plans for the foreseeable future. We expect to contribute approximately $28 million in cash to our non-U.S. defined benefit pension plans in 2005. These contributions do not reflect benefits to be paid directly from Company assets.

83

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

2005	$	912
2006		918
2007		924
2008		933
2009		942
2010-2014		4,938

Other Postretirement Benefits

	December 31,
	2004			2003
Assumed health care cost trend rate:
Health care cost trend rate assumed for next year		10.0	%		11.0	%
Rate that the cost trend rate gradually declines to		5.0	%		5.0	%
Year that the rate reaches the rate it is assumed to remain at		2010			2010

      The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

	1 percentage point
	Increase		Decrease
Effect on total of service and interest cost components	$	8	$	(7	)
Effect on postretirement benefit obligation	$	123	$	(111	)

      Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

2005	$	208
2006		198
2007		199
2008		201
2009		197
2010-2014		902

      Employee Savings Plans—We sponsor employee savings plans under which we match, in the form of our common stock, certain eligible U.S. employee savings plan contributions. Shares issued under the stock match plans were 4.3, 6.5 and 5.6 million at a cost of $151, $173 and $173 million in 2004, 2003 and 2002, respectively.

Note 23—Segment Financial Data

      We globally manage our business operations through strategic business units (SBUs) serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, automotive products and chemicals. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Based on similar economic and operational characteristics, our SBUs are aggregated and managed in four reportable segments as follows:

• Aerospace includes Engines, Systems and Services (auxiliary power units; propulsion engines; environmental control systems; engine controls; repair and overhaul services; hardware;

84

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

	logistics and electric power systems); Aerospace Electronic Systems (flight safety, communications, navigation, radar and surveillance systems; aircraft and airport lighting; management and technical services and advanced systems and instruments); and Aircraft Landing Systems (aircraft wheels and brakes).
•	Automation and Control Solutions includes Automation and Control Products (controls for heating, cooling, indoor air quality, ventilation, humidification and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature, electrical current; and security and fire detection, access control, video surveillance and remote patient monitoring systems); Building Solutions (installs, maintains and upgrades systems that keep buildings safe, comfortable and productive); and Process Solutions (provides a full range of automation and control solutions for industrial plants, offering advanced software and automation systems that integrate, control and monitor complex processes in many types of industrial settings).
•	Specialty Materials includes fluorocarbons, specialty films, advanced fibers, customized research chemicals and intermediates, and electronic materials and chemicals.
•	Transportation Systems includes Honeywell Turbo Technologies (turbochargers and charge-air and thermal systems); the Consumer Products Group (car care products including anti-freeze, filters, spark plugs, and cleaners, waxes and additives); and Friction Materials (friction materials and related brake system components).

      The accounting policies of the segments are the same as those described in Note 1. Honeywell's senior management evaluates segment performance based on segment profit. Segment profit is business unit income (loss) before taxes excluding general corporate unallocated expenses, gains (losses) on sales of non-strategic businesses, equity income (loss), other income (expense), interest and other financial charges, pension and other postretirement benefits (expense) income and repositioning and other charges and accounting changes. In 2003, Honeywell changed its definition of segment profit to exclude pension and other postretirement benefits (expense) income. Pension and other postretirement benefits (expense) income is significantly impacted by external factors such as investment returns, interest rates and other actuarial assumptions that Honeywell does not consider indicative of the underlying business segment operating performance under the control of business unit management. All periods presented in this annual report have been restated to reflect this change. Intersegment sales approximate market and are not significant. Reportable segment data follows:

85

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

	Years Ended December 31,
	2004			2003			2002
Net sales
Aerospace	$	9,748		$	8,813		$	8,855
Automation and Control Solutions		8,031			7,464			6,978
Specialty Materials		3,497			3,169			3,205
Transportation Systems		4,323			3,650			3,184
Corporate		2			7			52
	$	25,601		$	23,103		$	22,274
Depreciation and amortization
Aerospace	$	235		$	256		$	260
Automation and Control Solutions		159			168			190
Specialty Materials		141			133			180
Transportation Systems		80			80			66
Corporate		35			24			34
	$	650		$	661		$	730
Segment profit
Aerospace	$	1,479		$	1,221		$	1,308
Automation and Control Solutions		894			843			860
Specialty Materials		184			136			90
Transportation Systems		575			461			393
Corporate		(158	)		(142	)		(154	)
	$	2,974		$	2,519		$	2,497
Capital expenditures
Aerospace	$	168		$	218		$	182
Automation and Control Solutions		106			100			106
Specialty Materials		156			144			233
Transportation Systems		137			108			108
Corporate		62			85			42
	$	629		$	655		$	671
	December 31,
	2004			2003			2002
Total assets
Aerospace	$	8,441		$	7,792		$	7,006
Automation and Control Solutions		8,128			7,590			7,017
Specialty Materials		3,239			3,239			3,517
Transportation Systems		3,131			2,612			2,206
Corporate		8,123			8,081			7,819
	$	31,062		$	29,314		$	27,565

86

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

      A reconciliation of segment profit to consolidated income (loss) before taxes and cumulative effect of accounting change is as follows:

	Years Ended December 31,
	2004			2003			2002
Segment profit	$	2,974		$	2,519		$	2,497
Gain (loss) on sale of non-strategic businesses		255			38			(124	)
Asbestos related litigation charges, net of insurance		(76	)		—			(1,548	)
Business impairment charges		(42	)		—			(877	)
Repositioning and other charges(1)		(646	)		(276	)		(606	)
Pension and other postretirement benefits (expense) income(1)		(628	)		(325	)		11
Equity in income (loss) of affiliated companies		82			38			42
Other income (expense)		92			(19	)		4
Interest and other financial charges		(331	)		(335	)		(344	)
Income (loss) before taxes and cumulative effect of accounting change	$	1,680		$	1,640		$	(945	)

(1) Amounts included in cost of products and services sold and selling, general and administrative expenses.

Note 24—Geographic Areas—Financial Data

	Net Sales(1)						Long-lived Assets(2)
	Years Ended December 31,						Years Ended December 31,
	2004		2003		2002		2004		2003		2002
United States	$	16,633	$	15,178	$	15,522	$	9,083	$	8,963	$	8,665
Europe		6,097		5,433		4,483		2,044		1,833		1,756
Other International		2,871		2,492		2,269		458		386		406
	$	25,601	$	23,103	$	22,274	$	11,585	$	11,182	$	10,827

(1)	Sales between geographic areas approximate market and are not significant. Net sales are classified according to their country of origin. Included in United States net sales are export sales of $2,399, $2,246 and $2,249 million in 2004, 2003 and 2002, respectively.
(2)	Long-lived assets are comprised of property, plant and equipment, goodwill and other intangible assets.

Note 25—Supplemental Cash Flow Information

	Years Ended December 31,
	2004		2003		2002
Interest paid, net of amounts capitalized	$	330	$	367	$	352
Income taxes paid, net of refunds		178		31		(14	)
Non-cash investing and financing activities:
Common stock contributed to U.S. pension plans		—		—		700
Common stock contributed to U.S. savings plans		151		173		173
Debt assumed in the purchase of leased assets		—		267		—
Investment securities received in connection with sale of BCVS business		—		—		250

87

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

Note 26—Unaudited Quarterly Financial Information

	2004										2003
	Mar. 31(1)(2)		June 30(3)(4)		Sept. 30(5)(6)(7)		Dec. 31(8)(9)		Year		Mar. 31(10)		June 30(11)(12)(13)		Sept. 30(14)(15)		Dec. 31(16)(17)		Year
Net sales	$	6,178	$	6,388	$	6,395	$	6,640	$	25,601	$	5,399	$	5,749	$	5,768	$	6,187	$	23,103
Gross profit		1,259		1,209		1,332		1,216		5,016		1,159		1,235		1,259		1,215		4,868
Income before cumulative effect of accounting change		295		361		372		253		1,281		274		319		344		407		1,344
Net income		295		361		372		253		1,281		254		319		344		407		1,324
Earnings per share—basic:
Income before cumulative effect of accounting change		.34		.42		.43		.30		1.49		.32		.37		.40		.47		1.56
Net income		.34		.42		.43		.30		1.49		.30		.37		.40		.47		1.54
Earnings per share— assuming dilution:
Income before cumulative effect of accounting change		.34		.42		.43		.30		1.49		.32		.37		.40		.47		1.56
Net income		.34		.42		.43		.30		1.49		.30		.37		.40		.47		1.54
Dividends paid		.1875		.1875		.1875		.1875		.75		.1875		.1875		.1875		.1875		.75
Market price(18)
High		37.43		37.51		38.11		36.76		38.11		25.65		29.02		30.06		33.43		33.43
Low		31.75		32.60		34.58		32.23		31.75		20.73		21.61		26.22		26.56		20.73

(1)	Includes a $56 million provision for environmental, litigation and net repositioning charges. Total after-tax charge was $35 million, or $0.04 per share. The total pretax charge included in gross profit was $41 million.
(2)	Includes an after-tax gain of $14 million, or $0.02 per share, on the sale of our VCSEL Optical Products business.
(3)	Includes a $242 million provision for environmental, litigation, business impairment, net repositioning and other charges. Total after-tax charge was $158 million, or $0.18 per share. The total pretax charge included in gross profit was $183 million.
(4)	Includes an after-tax gain of $130 million, or $0.15 per share, on the sale of our Security Monitoring business.
(5)	Includes a $101 million provision for environmental, litigation and net repositioning charges. Total after-tax charge was $56 million, or $0.06 per share. The total pretax charge included in gross profit was $76 million.
(6)	Includes an after-tax gain of $3 million, with no effect on earnings per share, for adjustments related to businesses sold in prior periods.
(7)	Includes an after-tax gain of $17 million, or $0.02 per share, related to the settlement of a patent infringement lawsuit.
(8)	Includes a $376 million provision for environmental, litigation, business impairment, net repositioning and other charges. Total after-tax charge was $227 million, or $0.26 per share. The total pretax charge included in gross profit was $321 million.
(9)	Includes an after-tax loss of $3 million, with no effect on earnings per share, on the sale of our Performance Fibers business and for adjustments related to businesses sold in prior periods.
(10)	Includes the January 1, 2003 adoption of SFAS No. 143. This adoption resulted in an after-tax cumulative effect expense adjustment of $20 million, or $0.02 per share.

(footnotes continued on next page)

88

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)

(footnotes continued from previous page)
(11)	Includes a $34 million provision for environmental, net repositioning and other charges. Total after-tax charge was $21 million, or $0.03 per share. The total pretax charge included in gross profit was $29 million.
(12)	Includes an after-tax gain of $9 million, or $0.01 per share, on the sale of our Engineering Plastics business.
(13)	Includes an after-tax gain of $15 million, or $0.02 per share, related to the settlement of a patent infringement lawsuit.
(14)	Includes a $30 million provision for environmental, net repositioning and other charges. Total after-tax charge was $1 million, with no effect on earnings per share. The total pretax charge included in gross profit was $26 million.
(15)	Includes an after-tax loss of $3 million, with no effect on earnings per share, on the sale of several non-strategic businesses.
(16)	Includes a $214 million provision for environmental, net repositioning and other charges. Total after-tax charge was $19 million, or $0.02 per share. The total pretax charge included in gross profit was $217 million.
(17)	Includes an after-tax loss of $2 million, with no effect on earnings per share, for adjustments related to businesses sold in prior periods.
(18)	From composite tape–stock is primarily traded on the New York Stock Exchange.

89

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TOTHE BOARDOF DIRECTORSAND SHAREOWNERSOF
HONEYWELL INTERNATIONAL INC.:

      We have completed an integrated audit of Honeywell International Inc.'s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Honeywell International Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 1 to the consolidated financial statements, on January 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

Internal control over financial reporting

      Also, in our opinion, management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

90

      A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 25, 2005

91

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not Applicable.

Item 9A.    Controls and Procedures

      Honeywell management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K in alerting them on a timely basis to material information relating to Honeywell required to be included in Honeywell's periodic filings under the Exchange Act. There have been no changes that have materially affected, or are reasonably likely to materially affect, Honeywell's internal control over financial reporting that have occurred during the period covered by this Annual Report on Form 10-K.

Management's Report on Internal Control Over Financial Reporting

      Honeywell management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Honeywell's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Honeywell's internal control over financial reporting includes those policies and procedures that:

      (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Honeywell's assets;

      (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of Honeywell's management and directors; and

      (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Honeywell's assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Management assessed the effectiveness of Honeywell's internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

      Based on this assessment, management determined that Honeywell maintained effective internal control over financial reporting as of December 31, 2004.

      Management's assessment of the effectiveness of Honeywell's internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accouting firm, as stated in their report which is included in “Item 8. Financial Statements and Supplementary Data.”

92

Item 9B.    Other Information

      Not Applicable.

Part III.

Item 10.    Directors and Executive Officers of the Registrant

      Information relating to the Directors of Honeywell, as well as information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, will be contained in our definitive Proxy Statement involving the election of the Directors which will be filed with the SEC pursuant to Regulation 14A not later than 120 days after December 31, 2004, and such information is incorporated herein by reference. Certain other information relating to the Executive Officers of Honeywell appears in Part I of this Annual Report on Form 10-K under the heading “Executive Officers of the Registrant”.

      The members of the Audit Committee of our Board of Directors are: Russell E. Palmer (Chair), Marshall N. Carter, James J. Howard, Eric K. Shinseki, John R. Stafford, and Michael W. Wright. The Board has determined that Mr. Palmer satisfies the “audit committee financial expert” criteria established by the SEC and the “accounting or related financial management expertise” criteria established by the NYSE. All members of the Audit Committee are “independent” as that term is defined in applicable SEC Rules and NYSE listing standards.

      Honeywell's Code of Business Conduct is available, free of charge, on our website under the heading “Investor Relations” (see “Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell's Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments to or waivers of the Code of Business Conduct granted to any of Honeywell's directors or executive officers will be published on our website within five business days of such amendment or waiver.

Item 11.    Executive Compensation

      Information relating to executive compensation is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

      Information relating to security ownership of certain beneficial owners and management is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.

Equity Compensation Plans

      Information about our equity compensation plans is as follows:

Plan Category	Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a))
	(a)			(b)			(c)
Equity compensation plans approved by security holders		56,835,712	(1)	$	34.84	(2)		20,282,109	(3)
Equity compensation plans not approved by security holders		899,793	(4)		N/A	(5)		N/A	(6)
Total		57,735,505		$	34.84			20,282,109

(1)	Equity compensation plans approved by shareowners that are included in column (a) of the table are the 2003 Stock Incentive Plan of Honeywell International Inc. and its Affiliates (the 2003 Stock
	(footnotes continued on next page)

93

	(footnotes continued from previous page)
	Incentive Plan) (9,666,400 common shares to be issued for options; 2,241,706 restricted units subject to attainment of certain performance goals or continued employment; and 423,582 deferred restricted units of previously earned and vested awards under prior plans approved by shareowners where delivery of shares has been deferred); the 1993 Stock Plan for Employees of Honeywell International Inc. and its Affiliates (42,630,949 common shares to be issued for options; 169,225 shares to be issued for SARs; and 1,449,850 restricted units subject to attainment of certain performance goals or continued employment); and the Stock Plan for Non-Employee Directors of Honeywell International Inc. and predecessor plans (206,000 common shares to be issued for options and 48,000 shares of restricted stock). 822,060 growth plan units were issued in the first quarter of 2005 pursuant to a long-term compensation program established under the 2003 Stock Incentive Plan. The ultimate value of any growth plan award may be paid in cash or shares of Honeywell common stock and, thus, growth plan units are not included in the table above. The ultimate value of growth plan units depends upon the achievement of pre-established performance goals during a two-year performance cycle relating to growth in earnings per share, revenue and return on investment. The growth plan units issued in the first quarter of 2005 relate to the performance cycle commencing January 1, 2005 and ending December 31, 2006. Awards made with respect to the prior two-year performance cycle (January 1, 2003–December 31, 2004) were paid in cash.
(2)	Column (b) does not include any exercise price for restricted units or growth plan units granted to employees or non-employee directors under equity compensation plans approved by shareowners. Restricted units do not have an exercise price because their value is dependent upon attainment of certain performance goals or continued employment or service and they are settled for shares of Honeywell common stock on a one-for-one basis. Growth plan units are denominated in cash units and the ultimate value of the award is dependent upon attainment of certain performance goals.
(3)	The number of shares that may be issued under the 2003 Stock Incentive Plan as of December 31, 2004 is 20,173,109 which includes the following additional shares under the 2003 Stock Incentive Plan (or any Prior Plan as defined in the 2003 Stock Incentive Plan) that may again be available for issuance: shares that are settled for cash, expire, are cancelled, are tendered in satisfaction of an option exercise price or tax withholding obligations, are reacquired with cash tendered in satisfaction of an option exercise price or with monies attributable to any tax deduction enjoyed by Honeywell to the exercise of an option, and are under any outstanding awards assumed under any equity compensation plan of an entity acquired by Honeywell. The remaining 109,000 shares included in column (c) are shares remaining for future grants under the Stock Plan for Non-Employee Directors of Honeywell International Inc.
(4)	Equity compensation plans not approved by shareowners that are included in the table are the Supplemental Non-Qualified Savings Plans for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries, the AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries, and the Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc.
	The Supplemental Non-Qualified Savings Plans for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries are unfunded, nonqualified plans that provide benefits equal to the employee deferrals and company matching allocations that would have been provided under Honeywell's U.S. tax-qualified savings plan if the Internal Revenue Code limitations on compensation and contributions did not apply. The company matching contribution is credited to participants' accounts in the form of notional shares of Honeywell common stock. Additional notional shares are credited to participants' accounts equal to the value of any cash dividends payable on actual shares of Honeywell common stock. The notional shares are distributed in the form of actual shares of Honeywell common stock when payments are made to participants under the plans.
	(footnotes continued on next page)

94

	(footnotes continued from previous page)
	The AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries was a cash incentive compensation plan maintained by AlliedSignal Inc. This plan has expired. Employees were permitted to defer receipt of a cash bonus payable under the plan and invest the deferred bonus in notional shares of Honeywell common stock. The notional shares are distributed in the form of actual shares of Honeywell common stock when payments are made to participants under the plan. No further deferrals can be made under this plan. The number of Honeywell securities that remain to be issued under this expired plan is 55,658.
	The Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc. provides for mandatory and elective deferral of certain payments to non-employee directors. Mandatory deferrals are invested in notional shares of Honeywell common stock. Directors may also invest any elective deferrals in notional shares of Honeywell common stock. Additional notional shares are credited to participant accounts equal to the value of any cash dividends payable on actual shares of Honeywell common stock. Notional shares of Honeywell common stock are converted to an equivalent amount of cash at the time the distributions are made from the plan to directors. However, one former director is entitled to receive periodic distributions of actual shares of Honeywell common stock that were notionally allocated to his account in years prior to 1992. The number of Honeywell securities that remain to be issued to this director is 2,993.
(5)	Column (b) does not include any exercise price for notional shares allocated to employees under Honeywell's equity compensation plans not approved by shareowners because all of these shares are notionally allocated as a matching contribution under the non-qualified savings plans or as a notional investment of deferred bonuses or fees under the cash incentive compensation and directors' plans as described in note 4 and are only settled for shares of Honeywell common stock on a one-for-one basis.
(6)	No securities are available for future issuance under the AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries and the Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc. The cash incentive compensation plan has expired. All notional investments in shares of Honeywell common stock are converted to cash when payments are made under the directors' plan (other than with respect to 2,993 shares of Honeywell common stock included in column (a) that is payable to one former director). The amount of securities available for future issuance under the Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries is not determinable because the number of securities that may be issued under these plans depends upon the amount deferred to the plans by participants in future years.

The table does not contain information for the following plans and arrangements:

• Employee benefit plans of Honeywell intended to meet the requirements of Section 401(a) of the Internal Revenue Code and a small number of foreign employee benefit plans that are similar to such Section 401(a) plans.

• Equity compensation plans maintained by Honeywell Inc. immediately prior to the merger of Honeywell Inc. and AlliedSignal Inc. on December 1, 1999. The right to receive Honeywell International Inc. securities was substituted for the right to receive Honeywell Inc. securities under these plans. No new awards have been granted under these plans after the merger date. The number of shares to be issued under these plans upon exercise of outstanding options, warrants and rights is 5,852,355 and their weighted-average exercise price is $42.53.

95

• The Honeywell Global Employee Stock Purchase Plan. This plan is maintained solely for eligible employees of participating non-U.S. affiliates. Eligible employees can contribute between 2 and 8 percent of base pay from January through October of each year to purchase shares of Honeywell common stock in November of that year at a 15 percent discount. Honeywell has historically purchased shares through non-dilutive, open market purchases and intends to continue this practice. Employees purchased 351,283 shares of common stock at $21.233 per share in 2003 and 342,317 shares of common stock at $28.331 per share in 2004.

Item 13.    Certain Relationships and Related Transactions

      Information relating to certain relationships and related transactions is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.

Item 14.    Principal Accounting Fees and Services

      Information relating to fees paid to and services performed by PricewaterhouseCoopers LLP in 2004 and 2003 and our Audit Committee's pre-approval policies and procedures with respect to non-audit services are contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.

Part IV.

Item 15.    Exhibits and Financial Statement Schedules

(a)(1.) Consolidated Financial Statements:	Page Number in Form 10-K
Consolidated Statement of Operations for the years ended December 31, 2004, 2003 and 2002		43
Consolidated Balance Sheet at December 31, 2004 and 2003		44
Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002		45
Consolidated Statement of Shareowners' Equity for the years ended December 31, 2004, 2003 and 2002		46
Notes to Financial Statements		47
Report of Independent Registered Public Accounting Firm		90

(a)(2.) Consolidated Financial Statement Schedules:	Page Number in Form 10-K
Schedule II—Valuation and Qualifying Accounts		101

      All other financial statement schedules have been omitted because they are not applicable to us or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3.) Exhibits

      See the Exhibit Index on pages 98 through 100 of this Annual Report on Form 10-K.

96

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HONEYWELL INTERNATIONAL INC.
February 25, 2005	By:	/s/ THOMAS A. SZLOSEK Thomas A. Szlosek Vice President and Controller

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

Name		Name
*             David M. Cote             Chairman of the Board,             Chief Executive Officer             and Director                *             Hans W. Becherer             Director                *             Gordon M. Bethune             Director                *             Marshall N. Carter             Director                *             Jaime Chico Pardo             Director                *             Clive R. Hollick             Director                *             James J. Howard             Director                /s/ DAVID J. ANDERSON       David J. Anderson             Senior Vice President and             Chief Financial Officer             (Principal Financial Officer)		*             Bruce Karatz             Director                *             Russell E. Palmer             Director                *             Ivan G. Seidenberg             Director                *             Bradley T. Sheares, Ph.D.             Director                *             Eric K. Shinseki             Director                *             John R. Stafford             Director                *             Michael W. Wright             Director                /s/ THOMAS A. SZLOSEK       Thomas A. Szlosek             Vice President and Controller             (Principal Accounting Officer)
*By:	/s/ DAVID J. ANDERSON       (David J. Anderson             Attorney-in-fact)

February 25, 2005

97

EXHIBIT INDEX

Exhibit No.Description
	2		Omitted (Inapplicable)
	3	(i)	Restated Certificate of Incorporation of Honeywell International Inc. (incorporated by reference to Exhibit 3(i) to Honeywell's Form 8-K filed December 3, 1999 and modified by Exhibit 3(i) to Honeywell's Form 10-Q for quarter ended June 30, 2004)
	3	(ii)	By-laws of Honeywell, as amended (incorporated by reference to Exhibit 3(ii) to Honeywell's Form 10-Q for the quarter ended September 30, 2001)
	4		Honeywell International Inc. is a party to several long-term debt instruments under which, in each case, the total amount of securities authorized does not exceed 10% of the total assets of Honeywell and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Honeywell agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.
	9		Omitted (Inapplicable)
	10.	1*	2003 Stock Incentive Plan of Honeywell International Inc., and its Affiliates (incorporated by reference to Honeywell's Proxy Statement, dated March 17, 2003, filed pursuant to Rule 14a-6 of the Securities and Exchange Act of 1934 and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
	10.	2*	Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc., as amended and restated (incorporated by reference to Exhibit 10.2 to Honeywell's Form 10-Q for quarter ended June 30, 2003 and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
	10.	3*	Stock Plan for Non-Employee Directors of AlliedSignal Inc., as amended (incorporated by reference to Exhibit 10.3 to Honeywell's Form 10-Q for the quarter ended June 30, 2003)
	10.	4*	1985 Stock Plan for Employees of AlliedSignal Inc. and its Subsidiaries, as amended (incorporated by reference to Exhibit 19.3 to Honeywell's Form 10-Q for the quarter ended September 30, 1991)
	10.	5*	AlliedSignal, Inc. Incentive Compensation Plan for Executive Employees, as amended (incorporated by reference to Exhibit B to Honeywell's Proxy Statement, dated March 10, 1994, filed pursuant to Rule 14a-b of the Securities and Exchange Act of 1934 , and amended by Exhibit 10.5 to Honeywell's Form 10-Q for the quarter ended June 30, 1999)
	10.	6*	Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries as amended and restated (incorporated by reference to Exhibit 10.6 to Honeywell's Form 10-Q for the quarter ended June 30, 2004, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
	10.	7*	Honeywell International Inc., Severance Plan for Senior Executives, as amended and restated (incorporated by reference to Exhibit 10.7 to Honeywell's Form 10-K for the year ended December 31, 2003, and amended by Exhibit 10.7 to Honeywell's Form 10-Q for the quarter ended June 30, 2004)

98

Exhibit No.Description

10.	8*	Salary and Incentive Award Deferral Plan for Selected Employees of Honeywell International Inc., and its Affiliates, as amended and restated (incorporated by reference to Exhibit 10.8 to Honeywell's Form 10-Q for the quarter ended June 30, 2004, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
10.	9*	1993 Stock Plan for Employees of Honeywell International Inc. and its Affiliates, as amended (incorporated by reference to Exhibit A to Honeywell's Proxy Statement, dated March 10, 1994, filed pursuant to Rule 14a-6 of the Securities and Exchange Act of 1934, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
10.	10	Five-Year Credit Agreement dated as of October 22, 2004 among Honeywell, the initial lenders named therein, Citicorp USA, Inc., as administrative agent, JPMorgan Chase Bank, as syndication agent, and Bank of America, N.A., Barclays Bank plc, Deutsche Bank AG, New York branch, and UBS Securities LLC as documentation agents and CitiGroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-book managers (filed herewith)
10.	11	Five-Year Credit Agreement dated as of November 26, 2003 among Honeywell, the initial lenders named therein, Citibank, N.A., as administrative agent, JPMorgan Chase Bank, as syndication agent, and Deutsche Bank AG, New York Branch, Bank of America, N.A., and Barclays Bank PLC, as documentation agents, and CitiGroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-book managers (incorporated by reference to Exhibit 10.11 to Honeywell's Form 10-K for the year ended December 31, 2003)
10.	12*	Honeywell International Inc., Supplemental Pension Plan, as amended and restated (incorporated by reference to Exhibit 10.13 to Honeywell's Form 10-K for the year ended December 31, 2000, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
10.	13*	Employment Separation Agreement and Release between J. Kevin Gilligan and Honeywell International Inc. dated February 10, 2004 (incorporated by reference to Honeywell's Form 10-K for year ended December 31, 2003)
10.	14*	Honeywell International Inc. Supplemental Executive Retirement Plan for Executives in Career Band 6 and Above (incorporated by reference to Exhibit 10.14 to Honeywell's Form 10-Q for quarter ended June 30, 2004, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
10.	15*	Honeywell Supplemental Defined Benefit Retirement Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Honeywell's Form 10-Q for the quarter ended June 30, 2004, and amended by Exhibit 10.1 to Honeywell's Form 8-K filed December 21, 2004)
10.	16*	Letter between David J. Anderson and Honeywell International Inc. dated June 12, 2003 (incorporated by reference to Exhibit 10.26 to Honeywell's Form 10-Q for the quarter ended June 30, 2003)
10.	17*	Employment Separation Agreement and Release between Richard F. Wallman and Honeywell International Inc. dated July 17, 2003 (incorporated by reference to Exhibit 10.2 to Honeywell's Form 10-Q for the quarter ended September 30, 2003)

99

Exhibit No.Description

10.	18*	Honeywell International Inc. Severance Plan for Corporate Staff Employees (Involuntary Termination Following a Change in Control), as amended and restated (incorporated by reference to Exhibit 10.19 to Honeywell's Form 10-K for the year ended December 31, 2002)
10.	19*	Employment Agreement dated as of February 18, 2002 between Honeywell and David M. Cote (incorporated by reference to Exhibit 10.24 to Honeywell's Form 8-K filed March 4, 2002)
10.	20*	2003 Stock Incentive Plan for Employees of Honeywell International Inc. and its Affiliates Award Agreement (incorporated by reference to Exhibit 10.1 to Honeywell's Form 8-K filed on February 7, 2005)
10.	21*	2003 Stock Incentive Plan for Employees of Honeywell International Inc. and its Affiliates Restricted Unit Agreement (filed herewith)
10.	22*	2003 Stock Incentive Plan for Employees of Honeywell International Inc. and its Affiliates Growth Plan Agreement (filed herewith)
11		Omitted (Inapplicable)
12		Statement re: Computation of Ratio of Earnings to Fixed Charges (filed herewith)
16		Omitted (Inapplicable)
18		Omitted (Inapplicable)
21		Subsidiaries of the Registrant (filed herewith)
22		Omitted (Inapplicable)
23		Consent of PricewaterhouseCoopers LLP (filed herewith)
24		Powers of Attorney (filed herewith)
31	.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31	.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32	.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32	.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
99		Omitted (Inapplicable)

      The Exhibits identified above with an asterisk(*) are management contracts or compensatory plans or arrangements.

100

HONEYWELL INTERNATIONAL INC
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 2004
(In millions)

Allowance for Doubtful Accounts:
Balance December 31, 2001	$	128
Provision charged to income		109
Deductions from reserves(1)		(90	)
Balance December 31, 2002		147
Provision charged to income		72
Deductions from reserves(1)		(69	)
Balance December 31, 2003		150
Provision charged to income		100
Deductions from reserves(1)		(113	)
Balance December 31, 2004	$	137

(1) Represents uncollectible accounts written off, less recoveries, translation adjustments and reserves acquired.

101

EX-10

                                                                   Exhibit 10.10

                           FIVE YEAR CREDIT AGREEMENT

                          Dated as of October 22, 2004

            HONEYWELL INTERNATIONAL INC., a Delaware corporation (the
"Company"), the banks, financial institutions and other institutional lenders
(the "Initial Lenders") and initial issuing banks (the "Initial Issuing Banks")
listed on the signature pages hereof, and CITICORP USA, INC. ("CUSA"), as
administrative agent (the "Agent") for the Lenders (as hereinafter defined),
JPMORGAN CHASE BANK, as syndication agent, BANK OF AMERICA, N.A., BARCLAYS BANK
PLC, DEUTSCHE BANK AG NEW YORK BRANCH and UBS SECURITIES LLC, as documentation
agents, and CITIGROUP GLOBAL MARKETS INC. and J.P. MORGAN SECURITIES INC., as
joint lead arrangers and co-book managers, hereby agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

            SECTION 1.01. Certain Defined Terms.

            As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

            "Advance" means a Revolving Credit Advance or a Competitive Bid
      Advance.

            "Affiliate" means, as to any Person, any other Person that, directly
      or indirectly, controls, is controlled by or is under common control with
      such Person or is a director or officer of such Person. For purposes of
      this definition, the term "control" (including the terms "controlling",
      "controlled by" and "under common control with") of a Person means the
      possession, direct or indirect, of the power to direct or cause the
      direction of the management and policies of such Person, whether through
      the ownership of Voting Stock, by contract or otherwise.

            "Agent's Account" means (a) in the case of Advances denominated in
      Dollars, the account of the Agent maintained by the Agent at Citibank at
      its office at 388 Greenwich Street, New York, New York 10013, Account No.
      36852248, Attention: Bank Loan Syndications, (b) in the case of Advances
      denominated in any Foreign Currency, the account of the Sub-Agent
      designated in writing from time to time by the Agent to the Company and
      the Lenders for such purpose and (c) in any such case, such other account
      of the Agent as is designated in writing from time to time by the Agent to
      the Company and the Lenders for such purpose.







            "Alternate Currency" means any lawful currency other than Dollars
      and the Major Currencies that is freely transferrable and convertible into
      Dollars.

            "Applicable Lending Office" means, with respect to each Lender, such
      Lender's Domestic Lending Office in the case of a Base Rate Advance and
      such Lender's Eurocurrency Lending Office in the case of a Eurocurrency
      Rate Advance and, in the case of a Competitive Bid Advance, the office of
      such Lender notified by such Lender to the Agent as its Applicable Lending
      Office with respect to such Competitive Bid Advance.

            "Applicable Letter of Credit Rate" means, as of any date, a
      percentage per annum determined by reference to the Public Debt Rating in
      effect on such date as set forth below:

- ----------------------------------- -------------------------------------
        Public Debt Rating            Applicable Letter of Credit Rate
           S&P/Moody's
- ----------------------------------- -------------------------------------
Level 1
- -------
A+ or A1 or above                                  0.230%
- ----------------------------------- -------------------------------------
Level 2
- -------
Lower than Level 1 but at least A                  0.270%
or A2
- ----------------------------------- -------------------------------------
Level 3
- -------
Lower than Level 2 but at least                    0.360%
A- or A3
- ----------------------------------- -------------------------------------
Level 4
- -------
Lower than Level 3 but at least                    0.505%
BBB+ or Baa1
- ----------------------------------- -------------------------------------
Level 5
- -------
Lower than Level 4                                 0.725%
- ----------------------------------- -------------------------------------

            "Applicable Margin" means (a) for Base Rate Advances, 0% per annum
      and (b) for Eurocurrency Rate Advances, as of any date, a percentage per
      annum determined by reference to the Public Debt Rating in effect on such
      date as set forth below:

- ----------------------------------- -------------------------------------
        Public Debt Rating                 Applicable Margin for
           S&P/Moody's                   Eurocurrency Rate Advances
- ----------------------------------- -------------------------------------
Level 1
- -------
A+ or A1 or above                                  0.180%
- ----------------------------------- -------------------------------------
Level 2
- -------
Lower than Level 1 but at least A                  0.220%
or A2
- ----------------------------------- -------------------------------------
Level 3
- -------
Lower than Level 2 but at least                    0.260%
A- or A3
- ----------------------------------- -------------------------------------

                                        2






- ----------------------------------- -------------------------------------
Level 4
- -------
Lower than Level 3 but at least                    0.380%
BBB+ or Baa1
- ----------------------------------- -------------------------------------
Level 5
- -------
Lower than Level 4                                 0.600%
- ----------------------------------- -------------------------------------

            "Applicable Percentage" means, as of any date, a percentage per
      annum determined by reference to the Public Debt Rating in effect on such
      date as set forth below:

- ------------------------------------- -----------------------------------
         Public Debt Rating                       Applicable
            S&P/Moody's                           Percentage
- ------------------------------------- -----------------------------------
Level 1
- -------
A+ or A1 or above                                   0.070%
- ------------------------------------- -----------------------------------
Level 2
- -------
Lower than Level 1 but at least A                   0.080%
or A2
- ------------------------------------- -----------------------------------
Level 3
- -------
Lower than Level 2 but at least A-                  0.090%
or A3
- ------------------------------------- -----------------------------------
Level 4
- -------
Lower than Level 3 but at least                     0.120%
BBB+ or Baa1
- ------------------------------------- -----------------------------------
Level 5
- -------
Lower than Level 4                                  0.150%
- ------------------------------------- -----------------------------------

            "Applicable Utilization Fee" means, as of any date that the sum of
      the aggregate principal amount of the Advances plus the aggregate
      Available Amount of the Letters of Credit exceeds 50% of the aggregate
      Revolving Credit Commitments, a percentage per annum determined by
      reference to the Public Debt Rating in effect on such date as set forth
      below:

- ------------------------------------ ------------------------------------
        Public Debt Rating                       Applicable
            S&P/Moody's                        Utilization Fee
- ------------------------------------ ------------------------------------
Level 1
- -------
A+ or A1 or above                                  0.050%
- ------------------------------------ ------------------------------------
Level 2
- -------
Lower than Level 1 but at least A                  0.050%
or A2
- ------------------------------------ ------------------------------------
Level 3
- -------
Lower than Level 2 but at least A-                 0.100%
or A3
- ------------------------------------ ------------------------------------
Level 4
- -------
Lower than Level 3 but at least                    0.125%
BBB+ or Baa1
- ------------------------------------ ------------------------------------

                                       3






- ------------------------------------ ------------------------------------
Level 5
- -------
Lower than Level 4                                 0.125%
- ------------------------------------ ------------------------------------

            "Assignment and Acceptance" means an assignment and acceptance
      entered into by a Lender and an Eligible Assignee, and accepted by the
      Agent, in substantially the form of Exhibit C hereto.

            "Available Amount" of any Letter of Credit means, at any time, the
      maximum amount available to be drawn under such Letter of Credit at such
      time (assuming compliance at such time with all conditions to drawing),
      converting all non-Dollar amounts into the Dollar Equivalent thereof at
      such time.

            "Base Rate" means a fluctuating interest rate per annum in effect
      from time to time, which rate per annum shall at all times be equal to the
      highest of:

                  (a) the rate of interest announced publicly by Citibank in New
            York, New York, from time to time, as Citibank's base rate;

                  (b) the sum (adjusted to the nearest 1/32 of 1% or, if there
            is no nearest 1/32 of 1%, to the next higher 1/32 of 1%) of (i) 1/2
            of 1% per annum, plus (ii) the rate obtained by dividing (A) the
            latest three-week moving average of secondary market morning
            offering rates in the United States for three-month certificates of
            deposit of major United States money market banks, such three-week
            moving average (adjusted to the basis of a year of 360 days) being
            determined weekly on each Monday (or, if such day is not a Business
            Day, on the next succeeding Business Day) for the three-week period
            ending on the previous Friday by Citibank on the basis of such rates
            reported by certificate of deposit dealers to and published by the
            Federal Reserve Bank of New York or, if such publication shall be
            suspended or terminated, on the basis of quotations for such rates
            received by Citibank from three New York certificate of deposit
            dealers of recognized standing selected by Citibank, by (B) a
            percentage equal to 100% minus the average of the daily percentages
            specified during such three-week period by the Board of Governors of
            the Federal Reserve System (or any successor) for determining the
            maximum reserve requirement (including, but not limited to, any
            emergency, supplemental or other marginal reserve requirement) for
            Citibank with respect to liabilities consisting of or including
            (among other liabilities) three-month Dollar non-personal time
            deposits in the United States, plus (iii) the average during such
            three-week period of the annual assessment rates estimated by
            Citibank for determining the then current annual assessment payable
            by Citibank to the Federal Deposit Insurance Corporation (or any
            successor) for insuring Dollar deposits of Citibank in the United
            States; and

                  (c) 1/2 of one percent per annum above the Federal Funds Rate.

            "Base Rate Advance" means a Revolving Credit Advance denominated in
      Dollars that bears interest as provided in Section 2.08(a)(i).

                                       4






            "Borrower" means the Company or any Designated Subsidiary, as the
      context requires.

            "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
      Borrowing.

            "Business Day" means a day of the year on which banks are not
      required or authorized by law to close in New York City and, if the
      applicable Business Day relates to any Eurocurrency Rate Advance or LIBO
      Rate Advance, on which dealings are carried on in the London interbank
      market and banks are open for business in London and in the country of
      issue of the currency of such Eurocurrency Rate Advance or LIBO Rate
      Advance (or, in the case of an Advance denominated in Euros, on which the
      Trans-European Automated Real-Time Gross Settlement Express Transfer
      (TARGET) System is open) and, if the applicable Business Day relates to
      any Local Rate Advance, on which banks are open for business in the
      country of issue of the currency of such Local Rate Advance.

            "Change of Control" means that (i) any Person or group of Persons
      (within the meaning of Section 13 or 14 of the Securities Exchange Act of
      1934, as amended (the "Act")) (other than the Company, any Subsidiary of
      the Company or any savings, pension or other benefit plan for the benefit
      of employees of the Company or its Subsidiaries) which theretofore
      beneficially owned less than 30% of the Voting Stock of the Company then
      outstanding shall have acquired beneficial ownership (within the meaning
      of Rule 13d-3 promulgated by the Securities and Exchange Commission under
      the Act) of 30% or more in voting power of the outstanding Voting Stock of
      the Company or (ii) during any period of twelve consecutive calendar
      months commencing at the Effective Date, individuals who at the beginning
      of such twelve-month period were directors of the Company shall cease to
      constitute a majority of the Board of Directors of the Company.

            "Citibank" means Citibank, N.A.

            "Commitment" means a Revolving Credit Commitment or a Letter of
      Credit Commitment.

            "Competitive Bid Advance" means an advance by a Lender to any
      Borrower as part of a Competitive Bid Borrowing resulting from the
      competitive bidding procedure described in Section 2.03 and refers to a
      Fixed Rate Advance, a LIBO Rate Advance or a Local Rate Advance (each of
      which shall be a "Type" of Competitive Bid Advance).

            "Competitive Bid Borrowing" means a borrowing consisting of
      simultaneous Competitive Bid Advances from each of the Lenders whose offer
      to make one or more Competitive Bid Advances as part of such borrowing has
      been accepted under the competitive bidding procedure described in Section
      2.03.

            "Competitive Bid Note" means a promissory note of any Borrower
      payable to the order of any Lender, in substantially the form of Exhibit
      A-2 hereto, evidencing the indebtedness of such Borrower to such Lender
      resulting from a Competitive Bid Advance made by such Lender to such
      Borrower.

                                       5






            "Consolidated" refers to the consolidation of accounts in accordance
      with GAAP.

            "Consolidated Subsidiary" means, at any time, any Subsidiary the
      accounts of which are required at that time to be included on a
      Consolidated basis in the Consolidated financial statements of the
      Company, assuming that such financial statements are prepared in
      accordance with GAAP.

            "Convert", "Conversion" and "Converted" each refers to a conversion
      of Revolving Credit Advances of one Type into Revolving Credit Advances of
      the other Type pursuant to Section 2.09 or 2.12.

            "Debt" means, with respect to any Person: (i) indebtedness of such
      Person, which is not limited as to recourse to such Person, for borrowed
      money (whether by loan or the issuance and sale of debt securities) or for
      the deferred (for 90 days or more) purchase or acquisition price of
      property or services; (ii) indebtedness or obligations of others which
      such Person has assumed or guaranteed; (iii) indebtedness or obligations
      of others secured by a lien, charge or encumbrance on property of such
      Person whether or not such Person shall have assumed such indebtedness or
      obligations; (iv) obligations of such Person in respect of letters of
      credit (other than performance letters of credit, except to the extent
      backing an obligation of any Person which would be Debt of such Person),
      acceptance facilities, or drafts or similar instruments issued or accepted
      by banks and other financial institutions for the account of such Person;
      and (v) obligations of such Person under leases which are required to be
      capitalized on a balance sheet of such Person in accordance with GAAP.

            "Default" means any Event of Default or any event that would
      constitute an Event of Default but for the requirement that notice be
      given or time elapse or both.

            "Designated Subsidiary" means any corporate Subsidiary of the
      Company designated for borrowing privileges under this Agreement pursuant
      to Section 9.07.

            "Designation Letter" means, with respect to any Designated
      Subsidiary, a letter in the form of Exhibit D hereto signed by such
      Designated Subsidiary and the Company.

            "Disclosed Litigation" has the meaning specified in Section 3.01(b).

            "Dollars" and the "$" sign each mean lawful money of the United
      States of America.

            "Domestic Lending Office" means, with respect to any Initial Lender,
      the office of such Lender specified as its "Domestic Lending Office"
      opposite its name on Schedule I hereto and, with respect to any other
      Lender, the office of such Lender specified as its "Domestic Lending
      Office" in the Assignment and Acceptance pursuant to which it became a
      Lender, or such other office of such Lender as such Lender may from time
      to time specify to the Company and the Agent.

            "Domestic Subsidiary" means any Subsidiary whose operations are
      conducted primarily in the United States excluding any Subsidiary whose
      assets consist primarily of

                                       6






      the stock of Subsidiaries whose operations are conducted outside the
      United States of America.

            "Effective Date" has the meaning specified in Section 3.01.

            "Eligible Assignee" means (a) with respect to the Revolving Credit
      Facility (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial
      bank organized under the laws of the United States, or any State thereof,
      and having total assets in excess of $10,000,000,000; (iv) a savings and
      loan association or savings bank organized under the laws of the United
      States, or any State thereof, and having a net worth of at least
      $500,000,000, calculated in accordance with GAAP; (v) a commercial bank
      organized under the laws of any other country that is a member of the
      Organization for Economic Cooperation and Development or has concluded
      special lending arrangements with the International Monetary Fund
      associated with its General Arrangements to Borrow, or a political
      subdivision of any such country, and having total assets in excess of
      $10,000,000,000, so long as such bank is acting through a branch or agency
      located in the country in which it is organized or another country that is
      described in this clause (v); and (vi) the central bank of any country
      that is a member of the Organization for Economic Cooperation and
      Development and (b) with respect to the Letter of Credit Facility, a
      Person that is an Eligible Assignee under subclause (iii) or (v) of clause
      (a) of this definition and is approved by the Agent and, unless a Default
      has occurred and is continuing at the time any assignment is effected
      pursuant to Section 8.07, the Borrower, such approval not to be
      unreasonably withheld or delayed, provided, however, that neither the
      Borrower nor any Affiliate of the Borrower shall qualify as an Eligible
      Assignee under this definition.

            "Environmental Action" means any action, suit, demand, demand
      letter, claim, notice of non-compliance or violation, notice of liability
      or potential liability, investigation, proceeding, consent order or
      consent agreement relating in any way to any Environmental Law,
      Environmental Permit or Hazardous Materials or arising from alleged injury
      or threat of injury to health, safety or the environment, including,
      without limitation, (a) by any governmental or regulatory authority for
      enforcement, cleanup, removal, response, remedial or other actions or
      damages and (b) by any governmental or regulatory authority or any third
      party for damages, contribution, indemnification, cost recovery,
      compensation or injunctive relief.

            "Environmental Law" means any federal, state, local or foreign
      statute, law, ordinance, rule, regulation, code, order, judgment, decree
      or judicial or agency interpretation, policy or guidance relating to
      pollution or protection of the environment, health, safety or natural
      resources, including, without limitation, those relating to the use,
      handling, transportation, treatment, storage, disposal, release or
      discharge of Hazardous Materials.

            "Environmental Permit" means any permit, approval, identification
      number, license or other authorization required under any Environmental
      Law.

                                       7






            "Equivalent" in Dollars of any Foreign Currency on any date means
      the equivalent in Dollars of such Foreign Currency determined by using the
      quoted spot rate at which the Sub-Agent's principal office in London
      offers to exchange Dollars for such Foreign Currency in London prior to
      4:00 P.M. (London time) (unless otherwise indicated by the terms of this
      Agreement) on such date as is required pursuant to the terms of this
      Agreement, and the "Equivalent" in any Foreign Currency of Dollars means
      the equivalent in such Foreign Currency of Dollars determined by using the
      quoted spot rate at which the Sub-Agent's principal office in London
      offers to exchange such Foreign Currency for Dollars in London prior to
      4:00 P.M. (London time) (unless otherwise indicated by the terms of this
      Agreement) on such date as is required pursuant to the terms of this
      Agreement.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
      as amended from time to time, and the regulations promulgated and rulings
      issued thereunder.

            "ERISA Affiliate" of any Person means any other Person that for
      purposes of Title IV of ERISA is a member of such Person's controlled
      group, or under common control with such Person, within the meaning of
      Section 414 of the Internal Revenue Code.

            "ERISA Event" with respect to any Person means (a) (i) the
      occurrence of a reportable event, within the meaning of Section 4043 of
      ERISA, with respect to any Plan of such Person or any of its ERISA
      Affiliates unless the 30-day notice requirement with respect to such event
      has been waived by the PBGC, or (ii) an event described in paragraph (9),
      (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably
      expected to occur with respect to a Plan of such Person or any of its
      ERISA Affiliates within the following 30 days, and the contributing
      sponsor, as defined in Section 4001(a)(13) of ERISA, of such Plan is
      required under Section 4043(b)(3) of ERISA (taking into account Section
      4043(b)(2) of ERISA) to notify the PBGC that the event is about to occur;
      (b) the application for a minimum funding waiver with respect to a Plan of
      such Person or any of its ERISA Affiliates; (c) the provision by the
      administrator of any Plan of such Person or any of its ERISA Affiliates of
      a notice of intent to terminate such Plan in a distress termination
      pursuant to Section 4041(a)(2) of ERISA (including any such notice with
      respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
      the cessation of operations at a facility of such Person or any of its
      ERISA Affiliates in the circumstances described in Section 4062(e) of
      ERISA; (e) the withdrawal by such Person or any of its ERISA Affiliates
      from a Multiple Employer Plan during a plan year for which it was a
      substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
      conditions for the imposition of a lien under Section 302(f) of ERISA
      shall have been met with respect to any Plan of such Person or any of its
      ERISA Affiliates; (g) the adoption of an amendment to a Plan of such
      Person or any of its ERISA Affiliates requiring the provision of security
      to such Plan pursuant to Section 307 of ERISA; or (h) the institution by
      the PBGC of proceedings to terminate a Plan of such Person or any of its
      ERISA Affiliates pursuant to Section 4042 of ERISA, or the occurrence of
      any event or condition described in Section 4042 of ERISA that constitutes
      grounds for the termination of, or the appointment of a trustee to
      administer, such Plan.

                                       8






            "Escrow" means an escrow established with an independent escrow
      agent pursuant to an escrow agreement reasonably satisfactory in form and
      substance to the Person or Persons asserting the obligation of one or more
      Borrowers to make a payment to it or them hereunder.

            "EURIBO Rate" means, for any Interest Period for each Eurocurrency
      Rate Advance comprising part of the same Borrowing, the rate per annum
      appearing on Page 248 of the Moneyline Telerate Service (or on any
      successor or substitute page of such Service, or any successor to or
      substitute for such Service, providing rate quotations comparable to those
      currently provided on such page of such Service, as determined by the
      Agent from time to time for purposes of providing quotations of interest
      rates applicable to deposits in Euro by reference to the Banking
      Federation of the European Union Settlement Rates for deposits in Euro) at
      approximately 10:00 a.m., London time, two Business Days prior to the
      commencement of such Interest Period, as the rate for deposits in Euros
      with a maturity comparable to such Interest Period or, if for any reason
      such rate is not available, the average (rounded upward to the nearest
      whole multiple of 1/16 of 1% per annum, if such average is not such a
      multiple) of the respective rates per annum at which deposits in Euros are
      offered by the principal office of each of the Reference Banks in London,
      England to prime banks in the London interbank market at 11:00 A.M.
      (London time) two Business Days before the first day of such Interest
      Period in an amount substantially equal to such Reference Bank's
      Eurocurrency Rate Advance comprising part of such Borrowing to be
      outstanding during such Interest Period and for a period equal to such
      Interest Period (subject, however, to the provisions of Section 2.08).

            "Euro" means the lawful currency of the European Union as
      constituted by the Treaty of Rome which established the European
      Community, as such treaty may be amended from time to time and as referred
      to in the EMU legislation.

            "Eurocurrency Lending Office" means, with respect to any Initial
      Lender, the office of such Lender specified as its "Eurocurrency Lending
      Office" opposite its name on Schedule I hereto and, with respect to any
      other Lender, the office of such Lender specified as its "Eurocurrency
      Lending Office" in the Assignment and Acceptance pursuant to which it
      became a Lender (or, if no such office is specified, its Domestic Lending
      Office), or such other office of such Lender as such Lender may from time
      to time specify to the Company and the Agent.

            "Eurocurrency Liabilities" has the meaning assigned to that term in
      Regulation D of the Board of Governors of the Federal Reserve System, as
      in effect from time to time.

            "Eurocurrency Rate" means, for any Interest Period for each
      Eurocurrency Rate Advance comprising part of the same Revolving Credit
      Borrowing, an interest rate per annum equal to the rate per annum obtained
      by dividing (a) (i) in the case of any Advance denominated in Dollars or
      any Major Currency other than Euros, the rate per annum (rounded upwards,
      if necessary, to the nearest 1/100 of 1%) appearing on the applicable
      Telerate Page as the London interbank offered rate for deposits in Dollars
      or in the relevant Major Currency at approximately 11:00 A.M. (London
      time) two Business Days prior to the first day of such Interest Period for
      a term comparable to such Interest Period or, if for any reason such rate
      is not available, the average (rounded upward to the nearest whole
      multiple of 1/32 of 1% per annum, if such average is not such a multiple)
      of the rate per annum at which deposits in Dollars or in the relevant
      Major Currency are offered by the principal office of each of the
      Reference Banks in London, England to prime banks in the London interbank
      market at 11:00 A.M. (London time) two Business

                                        9






      Days before the first day of such Interest Period in an amount
      substantially equal to such Reference Bank's Eurocurrency Rate Advance
      comprising part of such Revolving Credit Borrowing to be outstanding
      during such Interest Period and for a period equal to such Interest Period
      or, (ii) in the case of any Advance denominated in Euros, the EURIBO Rate
      by (b) a percentage equal to 100% minus the Eurocurrency Rate Reserve
      Percentage for such Interest Period. If the Telerate Page is unavailable,
      the Eurocurrency Rate for any Interest Period for each Eurocurrency Rate
      Advance comprising part of the same Revolving Credit Borrowing shall be
      determined by the Agent on the basis of applicable rates furnished to and
      received by the Agent from the Reference Banks two Business Days before
      the first day of such Interest Period, subject, however, to the provisions
      of Section 2.09.

            "Eurocurrency Rate Advance" means a Revolving Credit Advance
      denominated in Dollars or in a Major Currency that bears interest as
      provided in Section 2.08(a)(ii).

            "Eurocurrency Rate Reserve Percentage" for any Interest Period for
      all Eurocurrency Rate Advances or LIBO Rate Advances comprising part of
      the same Borrowing means the reserve percentage applicable two Business
      Days before the first day of such Interest Period under regulations issued
      from time to time by the Board of Governors of the Federal Reserve System
      (or any successor) for determining the maximum reserve requirement
      (including, without limitation, any emergency, supplemental or other
      marginal reserve requirement) for a member bank of the Federal Reserve
      System in New York City with respect to liabilities or assets consisting
      of or including Eurocurrency Liabilities (or with respect to any other
      category of liabilities that includes deposits by reference to which the
      interest rate on Eurocurrency Rate Advances or LIBO Rate Advances is
      determined) having a term equal to such Interest Period.

            "Events of Default" has the meaning specified in Section 6.01.

            "Facility" means the Revolving Credit Facility or the Letter of
      Credit Facility.

            "Federal Funds Rate" means, for any period, a fluctuating interest
      rate per annum equal for each day during such period to the weighted
      average of the rates on overnight Federal funds transactions with members
      of the Federal Reserve System arranged by Federal funds brokers, as
      published for such day (or, if such day is not a Business Day, for the
      next preceding Business Day) by the Federal Reserve Bank of New York, or,
      if such rate is not so published for any day that is a Business Day, the
      average of the quotations for such day on such transactions received by
      the Agent from three Federal funds brokers of recognized standing selected
      by it.

                                       10






            "Fixed Rate Advance" has the meaning specified in Section
      2.03(a)(i), which Advance shall be denominated in Dollars or in any
      Foreign Currency.

            "Foreign Currency" means any Major Currency or any Alternate
      Currency.

            "GAAP" has the meaning specified in Section 1.03.

            "Hazardous Materials" means (a) petroleum and petroleum products,
      byproducts or breakdown products, radioactive materials,
      asbestos-containing materials, polychlorinated biphenyls and radon gas and
      (b) any other chemicals, materials or substances designated, classified or
      regulated as hazardous or toxic or as a pollutant or contaminant under any
      Environmental Law.

            "Insufficiency" means, with respect to any Plan, the amount, if any,
      of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
      ERISA.

            "Interest Period" means, for each Eurocurrency Rate Advance
      comprising part of the same Revolving Credit Borrowing and each LIBO Rate
      Advance comprising part of the same Competitive Bid Borrowing, the period
      commencing on the date of such Eurocurrency Rate Advance or LIBO Rate
      Advance or the date of the Conversion of any Base Rate Advance into such
      Eurocurrency Rate Advance and ending on the last day of the period
      selected by the Borrower requesting such Borrowing pursuant to the
      provisions below and, thereafter, with respect to Eurocurrency Rate
      Advances, each subsequent period commencing on the last day of the
      immediately preceding Interest Period and ending on the last day of the
      period selected by such Borrower pursuant to the provisions below. The
      duration of each such Interest Period shall be one, two, three or six
      months and, if available to all Lenders, nine months, as the Borrower
      requesting the Borrowing may, upon notice received by the Agent not later
      than 11:00 A.M. (New York City time) on the third Business Day prior to
      the first day of such Interest Period, select; provided, however, that:

                  (i) such Borrower may not select any Interest Period that ends
            after the scheduled Termination Date;

                  (ii) Interest Periods commencing on the same date for
            Eurocurrency Rate Advances comprising part of the same Revolving
            Credit Borrowing or for LIBO Rate Advances comprising part of the
            same Competitive Bid Borrowing shall be of the same duration;

                  (iii) whenever the last day of any Interest Period would
            otherwise occur on a day other than a Business Day, the last day of
            such Interest Period shall be extended to occur on the next
            succeeding Business Day, provided, however, that, if such extension
            would cause the last day of such Interest Period to occur in the
            next following calendar month, the last day of such Interest Period
            shall occur on the next preceding Business Day; and

                  (iv) whenever the first day of any Interest Period occurs on a
            day of an initial calendar month for which there is no numerically
            corresponding day in the

                                       11






            calendar month that succeeds such initial calendar month by the
            number of months equal to the number of months in such Interest
            Period, such Interest Period shall end on the last Business Day of
            such succeeding calendar month.

            "Internal Revenue Code" means the Internal Revenue Code of 1986, as
      amended from time to time, and the regulations promulgated and rulings
      issued thereunder.

            "Issuing Bank" means an Initial Issuing Bank or any Eligible
      Assignee to which a portion of the Letter of Credit Commitment hereunder
      has been assigned pursuant to Section 9.06 so long as such Eligible
      Assignee expressly agrees to perform in accordance with their terms all of
      the obligations that by the terms of this Agreement are required to be
      performed by it as an Issuing Bank and notifies the Agent of its
      Applicable Lending Office (which information shall be recorded by the
      Agent in the Register), for so long as the Initial Issuing Bank or
      Eligible Assignee, as the case may be, shall have a Letter of Credit
      Commitment.

            "L/C Cash Deposit Account" means an interest bearing cash deposit
      account to be established and maintained by the Agent, over which the
      Agent shall have sole dominion and control, upon terms as may be
      satisfactory to the Agent.

            "L/C Related Documents" has the meaning specified in Section
      2.07(b)(i).

            "Lenders" means, collectively, (i) Initial Lenders, (ii) the Issuing
      Banks and (iii) each Eligible Assignee that shall become a party hereto
      pursuant to Section 9.06(a), (b) and (c).

            "Letter of Credit" has the meaning specified in Section 2.01(b).

            "Letter of Credit Application" has the meaning specified in Section
      2.04(a).

            "Letter of Credit Commitment" means, with respect to each Issuing
      Bank, the obligation of such Issuing Bank to issue Letters of Credit to
      any Borrower in (a) the amount set forth opposite the Issuing Bank's name
      on the signature pages hereto under the caption "Letter of Credit
      Commitment" or (b) if such Issuing Bank has entered into one or more
      Assignment and Acceptances, the amount set forth for such Issuing Bank in
      the Register maintained by the Agent pursuant to Section 9.06(d) as such
      Issuing Bank's "Letter of Credit Commitment", in each case as such amount
      may be reduced prior to such time pursuant to Section 2.06.

            "Letter of Credit Facility" means, at any time, an amount equal to
      the least of (a) the aggregate amount of the Issuing Banks' Letter of
      Credit Commitments at such time, (b) $200,000,000 and (c) the aggregate
      amount of the Revolving Credit Commitments, as such amount may be reduced
      at or prior to such time pursuant to Section 2.06.

            "LIBO Rate" means, for any Interest Period for all LIBO Rate
      Advances comprising part of the same Competitive Bid Borrowing, an
      interest rate per annum equal to the rate per annum obtained by dividing
      (a) (i) in the case of any Advance denominated in Dollars or any Foreign
      Currency other than Euro, the rate per annum

                                       12






      (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
      the applicable Telerate Page as the London interbank offered rate for
      deposits in Dollars or in the relevant Foreign Currency at approximately
      11:00 A.M. (London time) two Business Days prior to the first day of such
      Interest Period or, if for any reason such rate is not available, the
      average (rounded upward to the nearest whole multiple of 1/32 of 1% per
      annum, if such average is not such a multiple) of the rate per annum at
      which deposits in Dollars or in the relevant Foreign Currency are offered
      by the principal office of each of the Reference Banks in London, England
      to prime banks in the London interbank market at 11:00 A.M. (London time)
      two Business Days before the first day of such Interest Period in an
      amount substantially equal to the amount that would be the Reference
      Banks' respective ratable shares of such Borrowing if such Borrowing were
      to be a Revolving Credit Borrowing to be outstanding during such Interest
      Period and for a period equal to such Interest Period or, (ii) in the case
      of any Advance denominated in Euros, the EURIBO Rate by (b) a percentage
      equal to 100% minus the Eurocurrency Rate Reserve Percentage for such
      Interest Period. If the Telerate Page is unavailable, the LIBO Rate for
      any Interest Period for each LIBO Rate Advance comprising part of the same
      Competitive Bid Borrowing shall be determined by the Agent on the basis of
      applicable rates furnished to and received by the Agent from the Reference
      Banks two Business Days before the first day of such Interest Period,
      subject, however, to the provisions of Section 2.09.

            "LIBO Rate Advance" means a Competitive Bid Advance denominated in
      Dollars or in any Foreign Currency and bearing interest based on the LIBO
      Rate.

            "Lien" means any lien, mortgage, pledge, security interest or other
      charge or encumbrance of any kind.

            "Local Rate Advance" means a Competitive Bid Advance denominated in
      any Foreign Currency sourced from the jurisdiction of issuance of such
      Foreign Currency and bearing interest at a fixed rate.

            "Major Currencies" means lawful currency of the United Kingdom of
      Great Britain and Northern Ireland, lawful currency of Japan and Euros.

            "Majority Lenders" means at any time Lenders holding at least 51% of
      the then aggregate principal amount (based on the Equivalent in Dollars at
      such time) of the Revolving Credit Advances owing to Lenders, or, if no
      such principal amount is then outstanding, Lenders having at least 51% of
      the Revolving Credit Commitments.

            "Material Adverse Change" means any material adverse change in the
      financial condition or results of operations of the Company and its
      Consolidated Subsidiaries taken as a whole.

            "Material Adverse Effect" means a material adverse effect on (a) the
      financial condition or results of operations of the Company and its
      Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of
      the Agent or any Lender under this Agreement

                                       13






      or any Note or (c) the ability of the Borrowers to perform their
      obligations under this Agreement or any Note.

            "Moody's" means Moody's Investors Service, Inc.

            "Multiemployer Plan" of any Person means a multiemployer plan, as
      defined in Section 4001(a)(3) of ERISA, to which such Person or any of its
      ERISA Affiliates is making or accruing an obligation to make
      contributions, or has within any of the preceding five plan years made or
      accrued an obligation to make contributions.

            "Multiple Employer Plan" of any Person means a single employer plan,
      as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
      employees of such Person or any of its ERISA Affiliates and at least one
      Person other than such Person or any of its ERISA Affiliates or (b) was so
      maintained and in respect of which such Person or any of its ERISA
      Affiliates could have liability under Section 4064 or 4069 of ERISA in the
      event such plan has been or were to be terminated.

            "Net Tangible Assets of the Company and its Consolidated
      Subsidiaries", as at any particular date of determination, means the total
      amount of assets (less applicable reserves and other properly deductible
      items) after deducting therefrom (a) all current liabilities (excluding
      any thereof which are by their terms extendible or renewable at the option
      of the obligor thereon to a time more than 12 months after the time as of
      which the amount thereof is being computed) and (b) all goodwill, trade
      names, trademarks, patents, unamortized debt discount and expense and
      other like intangible assets, as set forth in the most recent balance
      sheet of the Company and its Consolidated Subsidiaries and computed in
      accordance with GAAP.

            "Note" means a Revolving Credit Note or a Competitive Bid Note.

            "Notice of Competitive Bid Borrowing" has the meaning specified in
      Section 2.03(a).

            "Notice of Issuance" has the meaning specified in Section 2.04(a).

            "Notice of Revolving Credit Borrowing" has the meaning specified in
      Section 2.02(a).

            "Obligations" has the meaning specified in Section 7.01(b).

            "Payment Office" means, for any Foreign Currency, such office of
      Citibank as shall be from time to time selected by the Agent and notified
      by the Agent to the Borrowers and the Lenders.

            "PBGC" means the Pension Benefit Guaranty Corporation (or any
      successor).

            "Person" means an individual, partnership, corporation (including a
      business trust), joint stock company, trust, unincorporated association,
      joint venture, limited

                                       14






      liability company or other entity, or a government or any political
      subdivision or agency thereof.

            "Plan" means a Single Employer Plan or a Multiple Employer Plan.

            "Process Agent" has the meaning specified in Section 9.12(a).

            "Public Debt Rating" means, as of any date, the highest rating that
      has been most recently announced by either S&P or Moody's, as the case may
      be, for any class of non-credit enhanced long-term senior unsecured debt
      issued by the Company. For purposes of the foregoing, (a) if only one of
      S&P and Moody's shall have in effect a Public Debt Rating, the Applicable
      Letter of Credit Rate, the Applicable Margin, the Applicable Utilization
      Fee and the Applicable Percentage shall be determined by reference to the
      available rating; (b) if neither S&P nor Moody's shall have in effect a
      Public Debt Rating, the Applicable Margin, the Applicable Utilization Fee
      and the Applicable Percentage will be set in accordance with Level 5 under
      the definition of "Applicable Letter of Credit Rate", "Applicable Margin",
      "Applicable Utilization Fee" or "Applicable Percentage", as the case may
      be; (c) if the ratings established by S&P and Moody's shall fall within
      different levels, the Applicable Letter of Credit Rate, the Applicable
      Margin, the Applicable Utilization Fee and the Applicable Percentage shall
      be based upon the higher rating, provided that if the lower of such
      ratings is more than one level below the higher of such ratings, the
      Applicable Letter of Credit Rate, the Applicable Margin, the Applicable
      Utilization Fee and the Applicable Percentage shall be determined by
      reference to the level that is one level above such lower rating; (d) if
      any rating established by S&P or Moody's shall be changed, such change
      shall be effective as of the date on which such change is first announced
      publicly by the rating agency making such change; and (e) if S&P or
      Moody's shall change the basis on which ratings are established, each
      reference to the Public Debt Rating announced by S&P or Moody's, as the
      case may be, shall refer to the then equivalent rating by S&P or Moody's,
      as the case may be.

            "Ratable Share" of any amount means, with respect to any Lender at
      any time, the product of (a) a fraction the numerator of which is the
      amount of such Lender's Revolving Credit Commitment at such time and the
      denominator of which is the aggregate Revolving Credit Commitments at such
      time and (b) such amount.

            "Rating Condition" has the meaning specified in Section 2.06(c)(ii).

            "Rating Condition Notice" has the meaning specified in Section
      2.06(c)(ii).

            "Reference Banks" means Citibank, Bank of America, N.A., JPMorgan
      Chase Bank and Deutsche Bank AG New York Branch.

            "Register" has the meaning specified in Section 9.06(d).

            "Restricted Property" means (a) any property of the Company located
      within the United States of America that, in the opinion of the Company's
      Board of Directors, is a

                                       15






      principal manufacturing property or (b) any shares of capital stock or
      Debt of any Subsidiary owning any such property.

            "Revolving Credit Advance" means an advance by a Lender to any
      Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate
      Advance or a Eurocurrency Rate Advance (each of which shall be a "Type" of
      Revolving Credit Advance).

            "Revolving Credit Borrowing" means a borrowing consisting of
      simultaneous Revolving Credit Advances of the same Type made by each of
      the Lenders pursuant to Section 2.01.

            "Revolving Credit Commitment" means as to any Lender (i) the Dollar
      amount set forth opposite its name on the signature pages hereof under the
      caption "Revolving Credit Commitment" or (ii) if such Lender has entered
      into any Assignment and Acceptance, the Dollar amount set forth for such
      Lender in the Register maintained by the Administrative Agent pursuant to
      Section 9.06(d) as such Lender's Revolving Credit Commitment, in each case
      as the same may be terminated or reduced, as the case may be, pursuant to
      Section 2.06.

            "Revolving Credit Facility" means, at any time, the aggregate amount
      of the Revolving Credit Commitments, as such amount may be reduced at or
      prior to such time pursuant to Section 2.06.

            "Revolving Credit Note" means a promissory note of any Borrower
      payable to the order of any Lender, delivered pursuant to a request made
      under Section 2.17 in substantially the form of Exhibit A-1 hereto,
      evidencing the aggregate indebtedness of such Borrower to such Lender
      resulting from the Revolving Credit Advances made by such Lender to such
      Borrower.

            "Sale and Leaseback Transaction" means any arrangement with any
      Person (other than the Company or a Subsidiary of the Company), or to
      which any such Person is a party, providing for the leasing to the Company
      or to a Subsidiary of the Company owning Restricted Property for a period
      of more than three years of any Restricted Property that has been or is to
      be sold or transferred by the Company or such Subsidiary to such Person,
      or to any other Person (other than the Company or a Subsidiary of the
      Company) to which funds have been or are to be advanced by such Person on
      the security of the leased property. It is understood that arrangements
      pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as
      amended, or any successor provision having similar effect, are not
      included within this definition of "Sale and Leaseback Transaction".

            "Single Employer Plan" of any Person means a single employer plan,
      as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
      employees of such Person or any of its ERISA Affiliates and no Person
      other than such Person and its ERISA Affiliates or (b) was so maintained
      and in respect of which such Person or any of its

                                       16






      ERISA Affiliates could have liability under Section 4069 of ERISA in the
      event such plan has been or were to be terminated.

            "S&P" means Standard & Poor's Ratings Group, a division of The
      McGraw Hill Companies, Inc.

            "Sub-Agent" means Citibank International plc.

            "Subsidiary" of any Person means any corporation, partnership, joint
      venture, limited liability company, trust or estate of which (or in which)
      more than 50% of (a) the issued and outstanding capital stock having
      ordinary voting power to elect a majority of the Board of Directors of
      such corporation (irrespective of whether at the time capital stock of any
      other class or classes of such corporation shall or might have voting
      power upon the occurrence of any contingency), (b) the interest in the
      capital or profits of such limited liability company, partnership or joint
      venture or (c) the beneficial interest in such trust or estate is at the
      time directly or indirectly owned or controlled by such Person, by such
      Person and one or more of its other Subsidiaries or by one or more of such
      Person's other Subsidiaries.

            "Telerate Page" means, as applicable, page 3740 or 3750 (or any
      successor pages, respectively) of Moneyline Telerate Service.

            "Termination Date" means the earlier of (a) October 22, 2009 and (b)
      the date of termination in whole of the Commitments pursuant to Section
      2.06(a) or Section 6.01 or, if all Lenders elect to terminate their
      Commitments as provided therein, Section 2.06(d).

            "Threatened" means, with respect to any action, suit, investigation,
      litigation or proceeding, a written communication to the Company or a
      Designated Subsidiary, as the case may be, expressing an intention to
      immediately bring such action, suit, investigation, litigation or
      proceeding.

            "Unissued Letter of Credit Commitment" means, with respect to any
      Issuing Bank, the obligation of such Issuing Bank to issue Letters of
      Credit to any Borrower in an amount (converting all non-Dollar amounts
      into the then Dollar Equivalent thereof) equal to the excess of (a) the
      amount of its Letter of Credit Commitment over (b) the aggregate Available
      Amount of all Letters of Credit issued by such Issuing Bank.

            "Unused Commitment" means, with respect to each Lender at any time,
      (a) the amount of such Lender's Revolving Credit Commitment at such time
      minus (b) the sum of (i) the aggregate principal amount of all Revolving
      Credit Advances (based in respect of any Advances denominated in a Major
      Currency on the Equivalent in Dollars at such time) made by such Lender
      (in its capacity as a Lender) and outstanding at such time, plus (ii) such
      Lender's Ratable Share of (A) the aggregate principal amount of the
      Competitive Bid Advances (based in respect of any Advances denominated in
      a Foreign Currency on the Equivalent in Dollars at such time) and (B) the
      aggregate Available Amount of all the Letters of Credit outstanding at
      such time (based in respect of any Letters of Credit denominated in a
      Major Currency on the Equivalent in Dollars at such time).

                                       17






            "Voting Stock" means capital stock issued by a corporation, or
      equivalent interests in any other Person, the holders of which are
      ordinarily, in the absence of contingencies, entitled to vote for the
      election of directors (or persons performing similar functions) of such
      Person, even if the right so to vote has been suspended by the happening
      of such a contingency.

            "Withdrawal Liability" has the meaning specified in Part I of
      Subtitle E of Title IV of ERISA.

            SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".

            SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed, and all financial computations
and determinations pursuant hereto shall be made, in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(e) ("GAAP"); provided,
however, that, if any changes in accounting principles from those used in the
preparation of such financial statements have been required by the rules,
regulations, pronouncements or opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) and have been adopted by the Company
with the agreement of its independent certified public accountants, the Lenders
agree to consider a request by the Company to amend this Agreement to take
account of such changes.

                                   ARTICLE II

             AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT

            SECTION 2.01. The Revolving Credit Advances and Letters of Credit.
(a) Revolving Credit Advances. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make Revolving Credit Advances to any
Borrower from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an aggregate amount (based in
respect of any Revolving Credit Advance denominated in a Major Currency on the
Equivalent in Dollars determined on the date of delivery of the applicable
Notice of Revolving Credit Borrowing), not to exceed such Lender's Unused
Commitment. Each Revolving Credit Borrowing shall be in an aggregate amount not
less than $10,000,000 (or the Equivalent thereof in any Major Currency
determined on the date of delivery of the applicable Notice of Revolving Credit
Borrowing) or an integral multiple of $1,000,000 (or the Equivalent thereof in
any Major Currency determined on the date of delivery of the applicable Notice
of Revolving Credit Borrowing) in excess thereof and shall consist of Revolving
Credit Advances of the same Type made on the same day by the Lenders ratably
according to their respective Revolving Credit Commitments; provided, however,
that if there is no unused portion of the Commitment of one or more Lenders at
the time of any requested Revolving Credit Borrowing such Borrowing shall
consist of Revolving Credit Advances of the same Type made on the same day by
the Lender or Lenders who do then have an Unused Commitment ratably according to
the aggregate Unused Commitments. Notwithstanding anything herein to the
contrary, no

                                       18






Revolving Credit Borrowing may be made in a Major Currency if, after giving
effect to the making of such Revolving Credit Borrowing, the Equivalent in
Dollars of the aggregate amount of outstanding Revolving Credit Advances
denominated in Major Currencies, together with the Equivalent in Dollars of
the aggregate amount of outstanding Competitive Bid Advances denominated in
Foreign Currencies, would exceed $500,000,000. Within the limits of each
Lender's Revolving Credit Commitment, any Borrower may borrow under this
Section 2.01(a), prepay pursuant to Section 2.10 and reborrow under this
Section 2.01(a).

            (b) Letters of Credit. Each Issuing Bank agrees, on the terms and
conditions hereinafter set forth, to issue performance and financial letters of
credit (each, a "Letter of Credit") in any Major Currency for the account of any
Borrower from time to time on any Business Day during the period from the
Effective Date until 30 days before the Termination Date (i) in an aggregate
Available Amount for all Letters of Credit issued by all Issuing Banks not to
exceed at any time the Letter of Credit Facility at such time, (ii) in an amount
for each Issuing Bank not to exceed the amount of such Issuing Banks' Letter of
Credit Commitment at such time and (iii) in an amount for each such Letter of
Credit not to exceed an amount equal to the Unused Commitments of the Lenders at
such time, in each case, converting all non-Dollar amounts into the Dollar
Equivalent thereof; provided that any Borrower may request that Letters of
Credit be issued for the account of any of its Subsidiaries (without designating
such Subsidiary as a Designated Subsidiary) so long as such Borrower remains
obligated for the reimbursement of any drawings under such Letters of Credit
under the terms of this Agreement. No Letter of Credit shall have an expiration
date (including all rights of the applicable Borrower or the beneficiary to
require renewal) of later than the Termination Date. Within the limits referred
to above, any Borrower may request the issuance of Letters of Credit under this
Section 2.01(b), repay any Revolving Credit Advances resulting from drawings
thereunder pursuant to Section 2.04(c) and request the issuance of additional
Letters of Credit under this Section 2.01(b). Each letter of credit listed on
Schedule 2.01(b) shall be deemed to constitute a Letter of Credit issued
hereunder, and each Lender that is an issuer of such a Letter of Credit shall,
for purposes of Section 2.04, be deemed to be an Issuing Bank for each such
letter of credit, provided that any renewal or replacement of any such letter of
credit shall be issued by an Issuing Bank pursuant to the terms of this
Agreement. The terms "issue", "issued", "issuance" and all similar terms, when
applied to a Letter of Credit, shall include any renewal, extension or amendment
thereof.

            SECTION 2.02. Making the Revolving Credit Advances. (a) Each
Revolving Credit Borrowing shall be made on notice, given not later than (x)
10:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Eurocurrency Rate Advances denominated in any Major
Currency, (y) 11:00 A.M. (New York City time) on the third Business Day prior to
the date of the proposed Revolving Credit Borrowing in the case of a Revolving
Credit Borrowing consisting of Eurocurrency Rate Advances denominated in Dollars
or (z) 9:00 A.M. (New York City time) on the day of the proposed Revolving
Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base
Rate Advances, by any Borrower to the Agent (and the Agent shall, in the case of
a Revolving Credit Borrowing consisting of Eurocurrency Rate Advances,
immediately relay such notice to the Sub-Agent), which shall give to each Lender
prompt notice thereof by telecopier or telex. Each such notice of a Revolving
Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be by
telephone, confirmed

                                       19






immediately in writing, or telecopier or telex in substantially the form of
Exhibit B-1 hereto, specifying therein the requested (i) date of such Revolving
Credit Borrowing, (ii) Type of Advances comprising such Revolving Credit
Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and (iv)
in the case of a Revolving Credit Borrowing consisting of Eurocurrency Rate
Advances, initial Interest Period and currency for each such Revolving Credit
Advance. Each Lender shall, before 11:00 A.M. (New York City time) on the date
of such Revolving Credit Borrowing, in the case of a Revolving Credit Borrowing
consisting of Advances denominated in Dollars, and before 11:00 A.M. (London
time) on the date of such Revolving Credit Borrowing, in the case of a Revolving
Credit Borrowing consisting of Eurocurrency Rate Advances denominated in any
Major Currency, make available for the account of its Applicable Lending Office
to the Agent at the applicable Agent's account, in same day funds, such Lender's
ratable portion (as determined in accordance with Section 2.01) of such
Revolving Credit Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the Agent
will make such funds available to the Borrower requesting the Revolving Credit
Borrowing at the Agent's aforesaid address or at the applicable Payment Office,
as the case may be.

            (b) Anything in subsection (a) above to the contrary
notwithstanding, a Borrower may not select Eurocurrency Rate Advances for any
proposed Revolving Credit Borrowing if the obligation of the Lenders to make
Eurocurrency Rate Advances shall then be suspended pursuant to Section 2.09 or
2.12.

            (c) Each Notice of Revolving Credit Borrowing of any Borrower shall
be irrevocable and binding on such Borrower. In the case of any Revolving Credit
Borrowing that the related Notice of Revolving Credit Borrowing specifies is to
be comprised of Eurocurrency Rate Advances, the Borrower requesting such
Revolving Credit Borrowing shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure by such Borrower to
fulfill on or before the date specified in such Notice of Revolving Credit
Borrowing for such Revolving Credit Borrowing the applicable conditions set
forth in Article III, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the
Revolving Credit Advance to be made by such Lender as part of such Revolving
Credit Borrowing when such Revolving Credit Advance, as a result of such
failure, is not made on such date.

            (d) Unless the Agent shall have received notice from a Lender prior
to the time of any Revolving Credit Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Revolving Credit
Borrowing, the Agent may assume that such Lender has made such portion available
to the Agent on the date of such Revolving Credit Borrowing in accordance with
subsection (a) of this Section 2.02 and the Agent may, in reliance upon such
assumption, make available to the Borrower proposing such Revolving Credit
Borrowing on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the Agent, such
Lender and such 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 such Borrower, the higher
of (A) the interest rate applicable at the time to Revolving Credit Advances
comprising such

                                       20






Revolving Credit Borrowing and (B) the cost of funds incurred by the Agent in
respect of such amount and (ii) in the case of such Lender, (A) the Federal
Funds Rate in the case of Advances denominated in Dollars or (B) the cost of
funds incurred by the Agent in respect of such amount in the case of Advances
denominated in any Major Currency. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's
Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes
of this Agreement.

            (e) The failure of any Lender to make the Revolving Credit Advance
to be made by it as part of any Revolving Credit Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Revolving Credit
Advance on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.

            SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
severally agrees that any Borrower may request Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the date hereof until the date occurring seven days prior to the Termination
Date in the manner set forth below; provided that, following the making of each
Competitive Bid Borrowing, the aggregate amount (based in respect of any Advance
denominated in a Foreign Currency on the Equivalent in Dollars on such Business
Day) of the Advances then outstanding shall not exceed the aggregate amount of
the Unused Commitments. Notwithstanding anything herein to the contrary, no
Competitive Bid Borrowing may be made in a Foreign Currency if, after giving
effect to the making of such Revolving Credit Borrowing, the Equivalent in
Dollars of the aggregate amount of outstanding Competitive Bid Advances
denominated in Foreign Currencies, together with the Equivalent in Dollars of
the aggregate amount of outstanding Revolving Credit Advances denominated in
Major Currencies, would exceed $500,000,000.

            (i) Any Borrower may request a Competitive Bid Borrowing under this
      Section 2.03 by delivering to the Agent (and the Agent shall, in the case
      of a Competitive Bid Borrowing not consisting of Fixed Rate Advances or
      LIBO Rate Advances to be denominated in Dollars, immediately notify the
      Sub-Agent), by telecopier or telex, a notice of a Competitive Bid
      Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the
      form of Exhibit B-2 hereto, specifying therein the requested (A) date of
      such proposed Competitive Bid Borrowing, (B) aggregate amount of such
      proposed Competitive Bid Borrowing, (C) interest rate basis and day count
      convention to be offered by the Lenders, (D) currency of such proposed
      Competitive Bid Borrowing, (E) in the case of a Competitive Bid Borrowing
      consisting of LIBO Rate Advances, Interest Period of each Competitive Bid
      Advance to be made as part of such Competitive Bid Borrowing, or in the
      case of a Competitive Bid Borrowing consisting of Fixed Rate Advances or
      Local Rate Advances, maturity date for repayment of each Fixed Rate
      Advance or Local Rate Advance to be made as part of such Competitive Bid
      Borrowing (which maturity date may not be earlier than the date occurring
      five days after the date of such Competitive Bid Borrowing or later than
      the Termination Date), (F) interest payment date or dates relating
      thereto, (G) location of such Borrower's account to which funds are to be
      advanced, and (H) other terms (if any) to be applicable to such

                                       21






      Competitive Bid Borrowing, not later than (w) 10:00 A.M. (New York City
      time) at least one Business Day prior to the date of the proposed
      Competitive Bid Borrowing, if such Borrower shall specify in its Notice of
      Competitive Bid Borrowing that the rates of interest to be offered by the
      Lenders shall be fixed rates per annum (each Advance comprising any such
      Competitive Bid Borrowing being referred to herein as a "Fixed Rate
      Advance") and that the Advances comprising such proposed Competitive Bid
      Borrowing shall be denominated in Dollars, (x) 10:00 A.M. (New York City
      time) at least four Business Days prior to the date of the proposed
      Competitive Bid Borrowing, if such Borrower shall instead specify in its
      Notice of Competitive Bid Borrowing that the Advances comprising such
      Competitive Bid Borrowing shall be LIBO Rate Advances denominated in
      Dollars, (y) 3:00 P.M. (New York City time) at least three Business Days
      prior to the date of the proposed Competitive Bid Borrowing, if such
      Borrower shall specify in the Notice of Competitive Bid Borrowing that the
      Advances comprising such proposed Competitive Bid Borrowing shall be
      either Fixed Rate Advances denominated in any Foreign Currency or Local
      Rate Advances denominated in any Foreign Currency and (z) 3:00 P.M. (New
      York City time) at least five Business Days prior to the date of the
      proposed Competitive Bid Borrowing, if such Borrower shall instead specify
      in its Notice of Competitive Bid Borrowing that the Advances comprising
      such Competitive Bid Borrowing shall be LIBO Rate Advances denominated in
      any Foreign Currency. Each Notice of Competitive Bid Borrowing shall be
      irrevocable and binding on such Borrower. Any Notice of Competitive Bid
      Borrowing by a Designated Subsidiary shall be given to the Agent in
      accordance with the preceding sentence through the Company on behalf of
      such Designated Subsidiary. The Agent shall in turn promptly notify each
      Lender of each request for a Competitive Bid Borrowing received by it from
      such Borrower by sending such Lender a copy of the related Notice of
      Competitive Bid Borrowing.

            (ii) Each Lender may, if, in its sole discretion, it elects to do
      so, irrevocably offer to make one or more Competitive Bid Advances to the
      Borrower proposing the Competitive Bid Borrowing as part of such proposed
      Competitive Bid Borrowing at a rate or rates of interest specified by such
      Lender in its sole discretion, by notifying the Agent (which shall give
      prompt notice thereof to such Borrower and to the Sub-Agent, if
      applicable), (A) before 9:30 A.M. (New York City time) on the date of such
      proposed Competitive Bid Borrowing, in the case of a Competitive Bid
      Borrowing consisting of Fixed Rate Advances denominated in Dollars, (B)
      before 10:00 A.M. (New York City time) three Business Days before the date
      of such proposed Competitive Bid Borrowing, in the case of a Competitive
      Bid Borrowing consisting of LIBO Rate Advances denominated in Dollars, (C)
      before 10:00 A.M. (New York City time) on the second Business Day prior to
      the date of such proposed Competitive Bid Borrowing, in the case of a
      Competitive Bid Borrowing consisting of either Fixed Rate Advances
      denominated in any Foreign Currency or Local Rate Advances denominated in
      any Foreign Currency and (D) before 10:00 A.M. (New York City time) four
      Business Days before the date of such proposed Competitive Bid Borrowing,
      in the case of a Competitive Bid Borrowing consisting of LIBO Rate
      Advances denominated in any Foreign Currency, of the minimum amount and
      maximum amount of each Competitive Bid Advance which such Lender would be
      willing to make as part of such proposed Competitive Bid Borrowing (which
      amounts, or the Equivalent thereof in Dollars, as the case may be, may,
      subject to

                                       22






      the proviso to the first sentence of this Section 2.03(a), exceed such
      Lender's Commitment, if any), the rate or rates of interest therefor and
      such Lender's Applicable Lending Office with respect to such Competitive
      Bid Advance; provided that if the Agent in its capacity as a Lender shall,
      in its sole discretion, elect to make any such offer, it shall notify such
      Borrower of such offer at least 30 minutes before the time and on the date
      on which notice of such election is to be given to the Agent, by the other
      Lenders. If any Lender shall elect not to make such an offer, such Lender
      shall so notify the Agent, before 10:00 A.M. (New York City time) (and the
      Agent shall notify the Sub-Agent, if applicable) on the date on which
      notice of such election is to be given to the Agent by the other Lenders,
      and such Lender shall not be obligated to, and shall not, make any
      Competitive Bid Advance as part of such Competitive Bid Borrowing;
      provided that the failure by any Lender to give such notice shall not
      cause such Lender to be obligated to make any Competitive Bid Advance as
      part of such proposed Competitive Bid Borrowing.

            (iii) The Borrower proposing the Competitive Bid Advance shall, in
      turn, (A) before 10:30 A.M. (New York City time) on the date of such
      proposed Competitive Bid Borrowing, in the case of a Competitive Bid
      Borrowing consisting of Fixed Rate Advances denominated in Dollars, (B)
      before 11:00 A.M. (New York City time) three Business Days before the date
      of such proposed Competitive Bid Borrowing, in the case of a Competitive
      Bid Borrowing consisting of LIBO Rate Advances denominated in Dollars, (C)
      before 10:00 A.M. (New York City time) on the Business Day prior to the
      date of such Competitive Bid Borrowing, in the case of a Competitive Bid
      Borrowing consisting of either Fixed Rate Advances denominated in any
      Foreign Currency or Local Rate Advances denominated in any Foreign
      Currency and (D) before 10:00 A.M. (New York City time) three Business
      Days before the date of such proposed Competitive Bid Borrowing, in the
      case of a Competitive Bid Borrowing consisting of LIBO Rate Advances
      denominated in any Foreign Currency, either:

                  (x) cancel such Competitive Bid Borrowing by giving the Agent
            notice to that effect, or

                  (y) accept one or more of the offers made by any Lender or
            Lenders pursuant to paragraph (ii) above, in its sole discretion, by
            giving notice to the Agent (and the Agent shall give notice to the
            Sub-Agent, if applicable) of the amount of each Competitive Bid
            Advance (which amount shall be equal to or greater than the minimum
            amount, and equal to or less than the maximum amount, notified to
            such Borrower by the Agent on behalf of such Lender for such
            Competitive Bid Advance pursuant to paragraph (ii) above) to be made
            by each Lender as part of such Competitive Bid Borrowing, and reject
            any remaining offers made by Lenders pursuant to paragraph (ii)
            above by giving the Agent notice to that effect; provided, however,
            that such Borrower shall not accept any offer in excess of the
            requested bid amount for any maturity. Such Borrower shall accept
            the offers made by any Lender or Lenders to make Competitive Bid
            Advances in order of the lowest to the highest rates of interest
            offered by such Lenders. If two or more Lenders have offered the
            same interest rate, the amount

                                       23






            to be borrowed at such interest rate will be allocated among such
            Lenders in proportion to the amount that each such Lender offered at
            such interest rate.

            (iv) If the Borrower proposing the Competitive Bid Borrowing
      notifies the Agent that such Competitive Bid Borrowing is canceled
      pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice
      thereof to the Lenders and such Competitive Bid Borrowing shall not be
      made.

            (v) If the Borrower proposing the Competitive Bid Borrowing accepts
      one or more of the offers made by any Lender or Lenders pursuant to
      paragraph (iii)(y) above, the Agent shall in turn promptly notify (A) each
      Lender that has made an offer as described in paragraph (ii) above, of the
      date and aggregate amount of such Competitive Bid Borrowing and whether or
      not any offer or offers made by such Lender pursuant to paragraph (ii)
      above have been accepted by the Borrower, (B) each Lender that is to make
      a Competitive Bid Advance as part of such Competitive Bid Borrowing, of
      the amount of each Competitive Bid Advance to be made by such Lender as
      part of such Competitive Bid Borrowing, and (C) each Lender that is to
      make a Competitive Bid Advance as part of such Competitive Bid Borrowing,
      upon receipt, that the Agent has received forms of documents appearing to
      fulfill the applicable conditions set forth in Article III. Each Lender
      that is to make a Competitive Bid Advance as part of such Competitive Bid
      Borrowing shall, before 11:00 A.M. (New York City time), in the case of
      Competitive Bid Advances to be denominated in Dollars or 11:00 A.M.
      (London time), in the case of Competitive Bid Advances to be denominated
      in any Foreign Currency, on the date of such Competitive Bid Borrowing
      specified in the notice received from the Agent pursuant to clause (A) of
      the preceding sentence or any later time when such Lender shall have
      received notice from the Agent pursuant to clause (C) of the preceding
      sentence, make available for the account of its Applicable Lending Office
      to the Agent (x) in the case of a Competitive Bid Borrowing denominated in
      Dollars, at its address referred to in Section 9.02, in same day funds,
      such Lender's portion of such Competitive Bid Borrowing in Dollars, and
      (y) in the case of a Competitive Bid Borrowing in a Foreign Currency, at
      the Payment Office for such Foreign Currency as shall have been notified
      by the Agent to the Lenders prior thereto, in same day funds, such
      Lender's portion of such Competitive Bid Borrowing in such Foreign
      Currency. Upon fulfillment of the applicable conditions set forth in
      Article III and after receipt by the Agent of such funds, the Agent will
      make such funds available to such Borrower's account at the location
      specified by such Borrower in its Notice of Competitive Bid Borrowing.
      Promptly after each Competitive Bid Borrowing the Agent will notify each
      Lender of the amount and tenor of such Competitive Bid Borrowing.

            (vi) If the Borrower proposing the Competitive Bid Borrowing
      notifies the Agent that it accepts one or more of the offers made by any
      Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of
      acceptance shall be irrevocable and binding on such Borrower. Such
      Borrower shall indemnify each Lender against any loss, cost or expense
      incurred by such Lender as a result of any failure by such Borrower to
      fulfill on or before the date specified in the related Notice of
      Competitive Bid Borrowing for such Competitive Bid Borrowing the
      applicable conditions set forth in Article III, including, without
      limitation, any loss (including loss of anticipated profits), cost or
      expense

                                       24






      incurred by reason of the liquidation or reemployment of deposits or other
      funds acquired by such Lender to fund the Competitive Bid Advance to be
      made by such Lender as part of such Competitive Bid Borrowing when such
      Competitive Bid Advance, as a result of such failure, is not made on such
      date.

            (b) Each Competitive Bid Borrowing shall be in an aggregate amount
not less than $10,000,000 (or the Equivalent thereof in any Foreign Currency,
determined as of the time of the applicable Notice of Competitive Bid Borrowing)
or an integral multiple of $1,000,000 (or the Equivalent thereof in any Foreign
Currency, determined as of the time of the applicable Notice of Competitive Bid
Borrowing) in excess thereof and, following the making of each Competitive Bid
Borrowing, the Borrower that has borrowed such Competitive Bid Borrowing shall
be in compliance with the limitation set forth in the proviso to the first
sentence of subsection (a) above.

            (c) Within the limits and on the conditions set forth in this
Section 2.03, any Borrower may from time to time borrow under this Section 2.03,
repay or prepay pursuant to subsection (d) below, and reborrow under this
Section 2.03, provided that a Competitive Bid Borrowing shall not be made within
three Business Days of the date of any other Competitive Bid Borrowing.

            (d) Any Borrower that has borrowed through a Competitive Bid
Borrowing shall repay to the Agent for the account of each Lender that has made
a Competitive Bid Advance, on the maturity date of such Competitive Bid Advance
(such maturity date being that specified by such Borrower for repayment of such
Competitive Bid Advance in the related Notice of Competitive Bid Borrowing
delivered pursuant to subsection (a)(i) above and provided in the Competitive
Bid Note evidencing such Competitive Bid Advance), the then unpaid principal
amount of such Competitive Bid Advance. Such Borrower shall have no right to
prepay any principal amount of any Competitive Bid Advance unless, and then only
on the terms, specified by such Borrower for such Competitive Bid Advance in the
related Notice of Competitive Bid Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the Competitive Bid Note evidencing such
Competitive Bid Advance.

            (e) Each Borrower that has borrowed through a Competitive Bid
Borrowing shall pay interest on the unpaid principal amount of each Competitive
Bid Advance comprising such Competitive Bid Borrowing from the date of such
Competitive Bid Advance to the date the principal amount of such Competitive Bid
Advance is repaid in full, at the rate of interest for such Competitive Bid
Advance specified by the Lender making such Competitive Bid Advance in its
notice with respect thereto delivered pursuant to subsection (a)(ii) above,
payable on the interest payment date or dates specified by such Borrower for
such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing
delivered pursuant to subsection (a)(i) above, as provided in the Competitive
Bid Note evidencing such Competitive Bid Advance. Upon the occurrence and during
the continuance of an Event of Default under Section 6.01(a), such Borrower
shall pay interest on the amount of unpaid principal of and interest on each
Competitive Bid Advance owing to a Lender, payable in arrears on the date or
dates interest is payable thereon, at a rate per annum equal at all times to 1%
per annum above the rate per annum required to be paid on such Competitive Bid
Advance under the terms of the Competitive

                                       25






Bid Note evidencing such Competitive Bid Advance unless otherwise agreed in such
Competitive Bid Note.

            (f) The indebtedness of any Borrower resulting from each Competitive
Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall
be evidenced by a separate Competitive Bid Note of the Borrower payable to the
order of the Lender making such Competitive Bid Advance.

            SECTION 2.04. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. (i) Each Letter of Credit shall be
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit (or on such shorter notice as the applicable Issuing Bank may agree), by
any Borrower to any Issuing Bank, and such Issuing Bank shall give the Agent,
prompt notice thereof by facsimile. Each such notice of issuance of a Letter of
Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in
writing, or facsimile, specifying therein the requested (A) date of such
issuance (which shall be a Business Day), (B) Available Amount and currency
(which shall be a Major Currency or Dollars) of such Letter of Credit, (C)
expiration date of such Letter of Credit (which shall not be later than the
Termination Date), (D) name and address of the beneficiary of such Letter of
Credit and (E) form of such Letter of Credit, and shall be accompanied by such
customary application and agreement for letter of credit as such Issuing Bank
may specify to the Borrower requesting such issuance for use in connection with
such requested Letter of Credit (a "Letter of Credit Application"). If (A) the
requested form of such Letter of Credit, in the reasonable judgment of the
Issuing Bank, conforms to standard practices of financial institutions that
regularly issue letters of credit, (B) the issuance of a letter of credit to the
beneficiary of such Letter of Credit would not, in the reasonable judgment of
the Issuing Bank, violate or conflict with (y) any regulatory or legal
restriction applicable to the Issuing Bank, or (z) any internal policy,
procedure or guideline of, the Issuing Bank that is consistent with standard
practices of financial institutions that regularly issue letters of credit and
(C) the Issuing Bank has not received written notice form any Lender, the Agent
or the Borrower, at least one Business Day prior to the requested date of
issuance or amendment of the applicable Letter of Credit, that one or more
applicable conditions contained in Section 3.04 shall not be satisfied, then
such Issuing Bank will, upon fulfillment of the applicable conditions set forth
in Article III, make such Letter of Credit available to the Borrower requesting
such issuance at its office referred to in Section 9.02 or as otherwise agreed
with such Borrower in connection with such issuance. In the event and to the
extent that the provisions of any Letter of Credit Application shall conflict
with this Agreement, the provisions of this Agreement shall govern. An Issuing
Bank that issues a Letter of Credit which expires prior to the Termination Date
but provides for automatic extension of the expiry date will not exercise its
right to prevent the automatic extension of the expiry date unless (i) the
applicable conditions set forth in Section 3.04 are not satisfied as to the date
of such Issuing Bank's required notice of non-extension, or (ii) such automatic
extension would extend the expiry date beyond the Termination Date.

            (b) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the applicable Issuing Bank or the Lenders, such
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
such Issuing Bank, a participation in such Letter of Credit

                                       26






equal to such Lender's Ratable Share of the Available Amount of such Letter of
Credit. Each Borrower hereby agrees to each such participation. In consideration
and in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Agent, for the account of such Issuing
Bank, such Lender's Ratable Share of each drawing made under a Letter of Credit
funded by such Issuing Bank and not reimbursed by the applicable Borrower on the
date made, or of any reimbursement payment required to be refunded to any
Borrower for any reason. Each Lender acknowledges and agrees that its obligation
to acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Revolving Credit Commitments, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Each Lender further acknowledges and agrees that its participation
in each Letter of Credit will be automatically adjusted to reflect such Lender's
Ratable Share of the Available Amount of such Letter of Credit at each time such
Lender's Revolving Credit Commitment is amended pursuant to the operation of
Sections 2.06(b), (c) or (d), an assignment in accordance with Section 9.06 or
otherwise pursuant to this Agreement.

            (c) Drawing and Reimbursement. The payment by an Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by any such Issuing Bank of a Revolving Credit Advance,
which, in the case of Letters of Credit denominated in Dollars, shall be a Base
Rate Advance, in the amount of such draft or, in the case of a Letter of Credit
denominated in any Major Currency, shall be an Advance that bears interest at
the Overnight Eurocurrency Rate (as defined below) of such Issuing Bank for a
period of five Business Days and thereafter, shall be a Base Rate Advance in the
Equivalent in Dollars on such fifth Business Day for the amount of such draft.
Each Issuing Bank shall give prompt notice (and such Issuing Bank will use its
commercially reasonable efforts to deliver such notice within one Business Day)
of each drawing under any Letter of Credit issued by it to the Company, the
applicable Borrower (if not the Company) and the Agent. Upon written demand by
such Issuing Bank, with a copy of such demand to the Agent and the Company, each
Lender shall pay to the Agent such Lender's Ratable Share of such outstanding
Revolving Credit Advance, by making available for the account of its Applicable
Lending Office to the Agent for the account of such Issuing Bank, by deposit to
the Agent's Account, in same day funds, an amount equal to the portion of the
outstanding principal amount of such Revolving Credit Advance to be funded by
such Lender, provided that the Lenders shall not be required to fund such
Revolving Credit Advances resulting from drawings under a Letter of Credit
denominated in any Major Currency until such Advance is exchanged for the
Equivalent in Dollars and is a Base Rate Advance. Each Lender acknowledges and
agrees that its obligation to make Revolving Credit Advances pursuant to this
paragraph in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance
of a Default or reduction or termination of the Revolving Credit Commitments,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Promptly after receipt thereof, the Agent
shall transfer such funds to such Issuing Bank. Each Lender agrees to fund its
Ratable Share of an outstanding Revolving Credit Advance on (i) the Business Day
on which demand therefor is made by such Issuing Bank, provided that notice of
such demand is given not later than 11:00 A.M. (New York City time) on such
Business Day, or (ii) the first Business Day next

                                       27






succeeding such demand if notice of such demand is given after such time. If and
to the extent that any Lender shall not have so made the amount of such
Revolving Credit Advance available to the Agent, such Lender agrees to pay to
the Agent forthwith on demand such amount together with interest thereon, for
each day from the date of demand by any such Issuing Bank until the date such
amount is paid to the Agent, at the Federal Funds Rate for its account or the
account of such Issuing Bank, as applicable. If such Lender shall pay to the
Agent such amount for the account of any such Issuing Bank on any Business Day,
such amount so paid in respect of principal shall constitute a Revolving Credit
Advance made by such Lender on such Business Day for purposes of this Agreement,
and the outstanding principal amount of the Revolving Credit Advance made by
such Issuing Bank shall be reduced by such amount on such Business Day.
"Overnight Eurocurrency Rate" means the rate per annum applicable to an
overnight period beginning on one Business Day and ending on the next Business
Day equal to the sum of the Applicable Margin for Eurocurrency Rate Advances and
the rate per annum quoted by the Applicable Issuing Bank to the Agent as the
rate at which it is offering overnight deposits in the relevant currency in
amounts comparable to such Issuing Bank's Advances resulting from drawings on
Letters of Credit denominated in a Major Currency.

            (d) Letter of Credit Reports. Each Issuing Bank shall furnish (A) to
the Agent (with a copy to the Company) on the first Business Day of each month a
written report summarizing issuance and expiration dates of Letters of Credit
during the preceding month and drawings during such month under all Letters of
Credit and (B) to the Agent (with a copy to the Company) on the first Business
Day of each calendar quarter a written report setting forth the average daily
aggregate Available Amount during the preceding calendar quarter of all Letters
of Credit.

            (e) Failure to Make Advances. The failure of any Lender to make the
Revolving Credit Advance to be made by it on the date specified in Section
2.04(c) shall not relieve any other Lender of its obligation hereunder to make
its Revolving Credit Advance on such date, but no Lender shall be responsible
for the failure of any other Lender to make the Revolving Credit Advance to be
made by such other Lender on such date.

            SECTION 2.05. Fees. (a) Facility Fee. The Company agrees to pay to
the Agent for the account of each Lender a facility fee on the aggregate amount
of such Lender's Commitment from the date hereof in the case of each Initial
Lender and from the effective date specified in the Assignment and Acceptance
pursuant to which it became a Lender in the case of each other Lender until the
Termination Date at a rate per annum equal to the Applicable Percentage in
effect from time to time, payable in arrears quarterly on the last day of each
March, June, September and December, commencing December 31, 2004, and on the
Termination Date.

            (b) Letter of Credit Fees. (i) Each Borrower shall pay to the Agent
for the account of each Lender a fee on such Lender's Ratable Share of the sum
of (x) the average daily aggregate Available Amount of all Letters of Credit
issued at the request of such Borrower and outstanding from time to time and (y)
any Advances bearing interest at the Overnight Eurocurrency Rate as provided in
Section 2.04(c) and outstanding from time to time, at a rate per annum equal to
the Applicable Letter of Credit Rate in effect from time to time, during such
calendar quarter, payable in arrears quarterly on the third Business Day after
the last day of each

                                       28






March, June, September and December, commencing with the quarter ended December
31, 2004, and on and after the Termination Date payable upon demand; provided
that the Applicable Letter of Credit Rate shall be 1% above the Applicable
Letter of Credit Rate in effect upon the occurrence and during the continuation
of an Event of Default if the Borrowers are required to pay default interest
pursuant to Section 2.08(b).

            (ii) Each Borrower shall pay to each Issuing Bank for its own
      account such reasonable fees as have been agreed between the Company and
      such Issuing Bank.

            (c) Agent's Fees. The Company shall pay to the Agent for its own
account such fees, and at such times, as the Company and the Agent may
separately agree.

            SECTION 2.06. Termination or Reduction of the Commitments. (a)
Optional Ratable Termination or Reduction. The Company shall have the right,
upon at least three Business Days' notice to the Agent, to terminate in whole or
permanently reduce ratably in part the Unused Commitments of the Lenders,
provided that each partial reduction shall be in an aggregate amount not less
than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. The
aggregate amount of the Commitments, once reduced as provided in this Section
2.06(a), may not be reinstated.

            (b) Non-Ratable Termination by Assignment. The Company shall have
the right, upon at least ten Business Days' written notice to the Agent (which
shall then give prompt notice thereof to the relevant Lender), to require any
Lender to assign, pursuant to and in accordance with the provisions of Section
9.06, all of its rights and obligations under this Agreement and under the Notes
to an Eligible Assignee selected by the Company; provided, however, that (i) no
Event of Default shall have occurred and be continuing at the time of such
request and at the time of such assignment; (ii) the assignee shall have paid to
the assigning Lender the aggregate principal amount of, and any interest accrued
and unpaid to the date of such assignment on, the Note or Notes of such Lender;
(iii) the Company shall have paid to the assigning Lender any and all accrued
facility fees and Letter of Credit fees payable to such Lender and all other
accrued and unpaid amounts owing to such Lender under any provision of this
Agreement (including, but not limited to, any increased costs or other
additional amounts owing under Section 2.11 and any indemnification for Taxes
under Section 2.14) as of the effective date of such assignment; (iv) if the
assignee selected by the Company is not an existing Lender, such assignee or the
Company shall have paid the processing and recordation fee required under
Section 9.06(a) for such assignment and (v) if the assigning Lender is an
Issuing Bank, the Company shall pay to the Agent for deposit in the L/C Cash
Deposit Account an amount equal to the Available Amount of all Letters of Credit
issued by such Issuing Bank; provided further that the Company shall have no
right to replace more than three Lenders in any calendar year pursuant to this
Section 2.06(b); and provided further that the assigning Lender's rights under
Sections 2.11, 2.14 and 9.04, and, in the case of an Issuing Bank, Sections
2.04(b) and 6.02, and its obligations under Section 8.05, shall survive such
assignment as to matters occurring prior to the date of assignment.

            (c) Non-Ratable Reduction. (i) The Company shall have the right, at
any time other than during any Rating Condition, upon at least ten Business
Days' notice to a Lender (with a copy to the Agent), to terminate in whole such
Lender's Commitments. Such termination

                                       29






shall be effective, (x) with respect to such Lender's Unused Commitment, on the
date set forth in such notice, provided, however, that such date shall be no
earlier than ten Business Days after receipt of such notice and (y) with respect
to each Advance outstanding to such Lender, in the case of Base Rate Advances,
on the date set forth in such notice and, in the case of Eurocurrency Rate, on
the last day of the then current Interest Period relating to such Advance;
provided further, however, that such termination shall not be effective, if,
after giving effect to such termination, the Company would, under this Section
2.06(c), reduce the Lenders' Revolving Credit Commitments in any calendar year
by an amount in excess of the Revolving Credit Commitments of any three Lenders
or $240,000,000, whichever is greater on the date of such termination.
Notwithstanding the preceding proviso, the Company may terminate in whole the
Commitments of any Lender in accordance with the terms and conditions set forth
in Section 2.06(b). Upon termination of a Lender's Commitments under this
Section 2.06(c), the Company will pay or cause to be paid all principal of, and
interest accrued to the date of such payment on, Advances owing to such Lender
and pay any accrued facility fees or Letter of Credit fees payable to such
Lender pursuant to the provisions of Section 2.05, and all other amounts payable
to such Lender hereunder (including, but not limited to, any increased costs or
other amounts owing under Section 2.11 and any indemnification for Taxes under
Section 2.14); and upon such payments and, if such Lender is an Issuing Bank,
shall pay to the Agent for deposit in the L/C Cash Deposit Account an amount
equal to the Available Amount of all Letters of Credit issued by such Issuing
Bank, the obligations of such Lender hereunder shall, by the provisions hereof,
be released and discharged; provided, however, that such Lender's rights under
Sections 2.11, 2.14 and 9.04, and, in the case of an Issuing Bank, Sections
2.04(b) and 6.02, and its obligations under Section 8.05 shall survive such
release and discharge as to matters occurring prior to such date. The aggregate
amount of the Commitments of the Lenders once reduced pursuant to this Section
2.06(c) may not be reinstated.

            (ii) For purposes of this Section 2.06(c) only, the term "Rating
Condition" shall mean a period commencing with notice (a "Rating Condition
Notice") by the Agent to the Company and the Lenders to the effect that the
Agent has been informed that the rating of the senior public Debt of the Company
is unsatisfactory under the standard set forth in the next sentence, and ending
with notice by the Agent to the Company and the Lenders to the effect that such
condition no longer exists. The Agent shall give a Rating Condition Notice
promptly upon receipt from the Company or any Lender of notice stating, in
effect, that both of S&P and Moody's (or any successor by merger or
consolidation to the business of either thereof), respectively, then rate the
senior public Debt of the Company lower than BBB- and Baa3. The Company agrees
to give notice to the Agent forthwith upon any change in a rating by either such
organization of the senior public Debt of the Company; the Agent shall have no
duty whatsoever to verify the accuracy of any such notice from the Company or
any Lender or to monitor independently the ratings of the senior public Debt of
the Company and no Lender shall have any duty to give any such notice. The Agent
shall give notice to the Lenders and the Company as to the termination of a
Rating Condition promptly upon receiving a notice from the Company to the Agent
(which notice the Agent shall promptly notify to the Lenders) stating that the
rating of the senior public Debt of the Company does not meet the standard set
forth in the second sentence of this clause (ii), and requesting that the Agent
notify the Lenders of the termination of the Rating Condition. The Rating
Condition shall terminate upon the giving of such notice by the Agent.

                                       30






            (d) Termination by a Lender. In the event that a Change of Control
occurs, each Lender may, by notice to the Company and the Agent given not later
than 50 calendar days after such Change of Control, terminate its Revolving
Credit Commitment and its Unissued Letter of Credit Commitment, if any, which
Commitments shall be terminated effective as of the later of (i) the date that
is 60 calendar days after such Change of Control or (ii) the end of the Interest
Period for any Eurocurrency Rate Advance outstanding at the time of such Change
of Control or for any Eurocurrency Rate Advance made pursuant to the next
sentence of this Section 2.06(d). Upon the occurrence of a Change of Control,
each Borrower's right to make a Borrowing or request the issuance of a Letter of
Credit under this Agreement shall be suspended for a period of 60 calendar days,
except for Base Rate Advances and Eurocurrency Rate Advances having an Interest
Period ending not later than 90 calendar days after such Change of Control. A
notice of termination pursuant to this Section 2.06(d) shall not have the effect
of accelerating any outstanding Advance of such Lender and the Notes of such
Lender.

            (e) Funds deposited to the L/C Cash Deposit Account pursuant to
Section 2.06(b)(v) above (in the case of an assigning Lender thereunder that is
an Issuing Bank) or Section 2.06(c)(i) above (in the case of a Lender whose
Commitments are terminated thereunder that is an Issuing Bank) shall be applied
to reimburse any drawings made under any Letter of Credit issued by such
applicable Issuing Bank to the extent permitted by applicable law, and if so
applied then such reimbursement shall be deemed satisfaction of the obligations
of the Lenders and of the applicable Borrower to reimburse such drawing. After
all of the Letters of Credit issued by such Issuing Banks shall have expired or
been fully drawn upon and all other obligations of the Borrowers hereunder to
such Issuing Banks have been paid in full, the balance, if any, in the L/C Cash
Deposit Account shall be promptly returned to the Company.

            SECTION 2.07. Repayment of Advances. (a) Revolving Credit Advances.
Each Borrower shall repay to the Agent for the ratable account of the Lenders on
the Termination Date the aggregate principal amount of the Revolving Credit
Advances then outstanding.

            (b) Competitive Bid Advances. Each Borrower shall repay to the
Administrative Agent, for the account of each Lender that has made a Competitive
Bid Advance, the aggregate outstanding principal amount of each Competitive Bid
Advance made to such Borrower and owing to such Lender on the earlier of (i) the
maturity date therefor, specified in the related Notice of Competitive Bid
Borrowing delivered pursuant to Section 2.03(a)(i) and (ii) the Termination
Date.

            (c) Letter of Credit Reimbursements. The obligation of any Borrower
under this Agreement, any Letter of Credit Application and any other agreement
or instrument, in each case, to repay any Revolving Credit Advance that results
from payment of a drawing under a Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Application and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances (it being understood that any such payment by a Borrower is
without prejudice to, and does not constitute a waiver of, any rights such
Borrower might have or might acquire as a result of the payment by any Lender of
any draft or the reimbursement by the Borrower thereof as set forth in Section
9.16 or otherwise):

                                       31






            (i) any lack of validity or enforceability of this Agreement, any
      Note, any Letter of Credit Application, any Letter of Credit or any other
      agreement or instrument relating thereto (all of the foregoing being,
      collectively, the "L/C Related Documents");

            (ii) any change in the time, manner or place of payment of any
      Letter of Credit;

            (iii) the existence of any claim, set-off, defense or other right
      that any Borrower may have at any time against any beneficiary or any
      transferee of a Letter of Credit (or any Persons for which any such
      beneficiary or any such transferee may be acting), any Issuing Bank, the
      Agent, any Lender or any other Person, whether in connection with the
      transactions contemplated by the L/C Related Documents or any unrelated
      transaction;

            (iv) any statement or any other document presented under a Letter of
      Credit proving to be forged, fraudulent or invalid in any respect or any
      statement therein being untrue or inaccurate in any respect;

            (v) payment by any Issuing Bank under a Letter of Credit against
      presentation of a draft or certificate that does not substantially comply
      with the terms of such Letter of Credit;

            (vi) any exchange, release or non-perfection of any collateral, or
      any release or amendment or waiver of or consent to departure from any
      guarantee, for all or any of the obligations of any Borrower in respect of
      the L/C Related Documents; or

            (vii) any other circumstance or happening whatsoever, whether or not
      similar to any of the foregoing that might, but for the provisions of this
      Section, constitute a legal or equitable discharge of the Borrower's
      obligations hereunder.

            SECTION 2.08. Interest on Revolving Credit Advances. (a) Scheduled
Interest. Each Borrower shall pay interest on the unpaid principal amount of
each Revolving Credit Advance owing by such Borrower to each Lender from the
date of such Revolving Credit Advance until such principal amount shall be paid
in full, at the following rates per annum:

            (i) Base Rate Advances. During such periods as such Revolving Credit
      Advance is a Base Rate Advance, a rate per annum equal at all times to the
      sum of (x) the Base Rate in effect from time to time plus (y) the
      Applicable Margin in effect from time to time plus (z) the Applicable
      Utilization Fee, if any, in effect from time to time, payable in arrears
      quarterly on the last day of each March, June, September and December
      during such periods and on the date such Base Rate Advance shall be paid
      in full.

            (ii) Eurocurrency Rate Advances. During such periods as such
      Revolving Credit Advance is a Eurocurrency Rate Advance, a rate per annum
      equal at all times during each Interest Period for such Revolving Credit
      Advance to the sum of (x) the Eurocurrency Rate for such Interest Period
      for such Revolving Credit Advance plus (y) the Applicable Margin in effect
      from time to time plus (z) the Applicable Utilization Fee, if any, in
      effect from time to time, payable in arrears on the last day of such
      Interest

                                       32






      Period and, if such Interest Period has a duration of more than three
      months, on each day that occurs during such Interest Period every three
      months from the first day of such Interest Period and on the date such
      Eurocurrency Rate Advance shall be Converted or paid in full.

            (b) Default Interest. Upon the occurrence and during the continuance
of an Event of Default under Section 6.01(a), each Borrower shall pay interest
on (i) the unpaid principal amount of each Revolving Credit Advance owing by
such Borrower to each Lender, payable in arrears on the dates referred to in
clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 1% per
annum above the rate per annum required to be paid on such Revolving Credit
Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
hereunder by such Borrower that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to 1% per annum above the rate per annum required to be paid on
such Revolving Credit Advance pursuant to clause (a)(i) or (a)(ii) above.

            SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank
agrees to furnish to the Agent timely information for the purpose of determining
each Eurocurrency Rate and each LIBO Rate if the applicable Telerate Page is
unavailable. If any one or more of the Reference Banks shall not furnish such
timely information to the Agent for the purpose of determining any such interest
rate, the Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks. The Agent shall give
prompt notice to the Company and the Lenders of the applicable interest rate
determined by the Agent for purposes of Section 2.08(a)(i) or (ii), and the
rate, if any, furnished by each Reference Bank for the purpose of determining
the interest rate under Section 2.08(a)(ii).

            (b) If, with respect to any Eurocurrency Rate Advances, the Majority
Lenders notify the Agent that (i) they are unable to obtain matching deposits in
the London interbank market at or about 11:00 A.M. (London time) on the second
Business Day before the making of a Borrowing in sufficient amounts to fund
their respective Revolving Credit Advances as part of such Borrowing during its
Interest Period or (ii) the Eurocurrency Rate for any Interest Period for such
Advances will not adequately reflect the cost to such Majority Lenders of
making, funding or maintaining their respective Eurocurrency Rate Advances for
such Interest Period, the Agent shall forthwith so notify each Borrower and the
Lenders, whereupon (A) the Borrower will, on the last day of the then existing
Interest Period therefor, (1) if such Eurocurrency Rate Advances are denominated
in Dollars, either (x) prepay such Advances or (y) Convert such Advances into
Base Rate Advances and (2) if such Eurocurrency Rate Advances are denominated in
any Major Currency, either (x) prepay such Advances or (y) exchange such
Advances into an Equivalent amount of Dollars and Convert such Advances into
Base Rate Advances, and (B) the obligation of the Lenders to make Eurocurrency
Rate Advances in the same currency as such Eurocurrency Rate Advances shall be
suspended until the Agent shall notify each Borrower and the Lenders that the
circumstances causing such suspension no longer exist.

            (c) If any Borrower, in requesting a Revolving Credit Borrowing
comprised of Eurocurrency Rate Advances, shall fail to select the duration of
the Interest Period for such

                                       33






Eurocurrency Rate Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Agent will forthwith so
notify the Borrower and the Lenders and such Advances will (to the extent such
Eurocurrency Rate Advances remain outstanding on such day) automatically, on the
last day of the then existing Interest Period therefor, (i) if such Eurocurrency
Rate Advances are denominated in Dollars, Convert into Base Rate Advances and
(ii) if such Eurocurrency Rate Advances are denominated in any Major Currency,
be exchanged into an Equivalent amount of Dollars and be Converted into Base
Rate Advances.

            (d) Upon the occurrence and during the continuance of any Event of
Default under Section 6.01(a), (i) each Eurocurrency Rate Advance will (to the
extent such Eurocurrency Rate Advance remains outstanding on such day)
automatically, on the last day of the then existing Interest Period therefor,
(A) if such Eurocurrency Rate Advance is denominated in Dollars, be Converted
into a Base Rate Advance and (B) if such Eurocurrency Rate Advance is
denominated in any Major Currency, be exchanged into an Equivalent amount of
Dollars and Converted into a Base Rate Advance and (ii) the obligation of the
Lenders to make Eurocurrency Rate Advances shall be suspended.

            (e) If the applicable Telerate Page is unavailable and fewer than
two Reference Banks furnish timely information to the Agent for determining the
Eurocurrency Rate or LIBO Rate for any Eurocurrency Rate Advances or LIBO Rate
Advances, as the case may be,

            (i) the Agent shall forthwith notify the relevant Borrower and the
      Lenders that the interest rate cannot be determined for such Eurocurrency
      Rate Advances or LIBO Rate Advances, as the case may be,

            (ii) with respect to Eurocurrency Rate Advances, each such Advance
      will (to the extent such Eurocurrency Rate Advance remains outstanding on
      such day) automatically, on the last day of the then existing Interest
      Period therefor, (A) if such Eurocurrency Rate Advance is denominated in
      Dollars, be prepaid by the applicable Borrower or be automatically
      Converted into a Base Rate Advance and (B) if such Eurocurrency Rate
      Advance is denominated in any Major Currency, be prepaid by the applicable
      Borrower or be automatically exchanged into an Equivalent amount of
      Dollars and Converted into a Base Rate Advance (or if such Advance is then
      a Base Rate Advance, will continue as a Base Rate Advance), and

            (iii) the obligation of the Lenders to make Eurocurrency Rate
      Advances or LIBO Rate Advances shall be suspended until the Agent shall
      notify the Borrowers and the Lenders that the circumstances causing such
      suspension no longer exist.

            SECTION 2.10. Prepayments of Revolving Credit Advances. (a) Optional
Prepayments. Each Borrower may, upon notice to the Agent stating the proposed
date and aggregate principal amount of the prepayment, given not later than
11:00 A.M. (New York City time) on the second Business Day prior to the date of
such proposed prepayment, in the case of Eurocurrency Rate Advances, and not
later than 11:00 A.M. (New York City time) on the day of such proposed
prepayment, in the case of Base Rate Advances, and, if such notice is given,
such Borrower shall, prepay the outstanding principal amount of the Revolving
Credit Advances

                                       34






comprising part of the same Revolving Credit Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that (x) each partial prepayment
shall be in an aggregate principal amount not less than $10,000,000 or the
Equivalent thereof in a Major Currency (determined on the date notice of
prepayment is given) or an integral multiple of $1,000,000 or the Equivalent
thereof in a Major Currency (determined on the date notice of prepayment is
given) in excess thereof and (y) in the event of any such prepayment of a
Eurocurrency Rate Advance other than on the last day of the Interest Period
therefor, such Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to Section 9.04(c). Each notice of prepayment by a Designated
Subsidiary shall be given to the Administrative Agent through the Company.

            (b) Mandatory Prepayments. (i) If, on any date, the sum of (A) the
aggregate principal amount of all Advances denominated in Dollars then
outstanding plus (B) the Equivalent in Dollars (determined on the third Business
Day prior to such date) of the aggregate principal amount of all Advances
denominated in Foreign Currencies then outstanding plus (C) the aggregate
Available Amount of all Letters of Credit denominated in Dollars then
outstanding plus (D) the Equivalent in Dollars (determined on the third Business
Day prior to such date) of the aggregate Available Amount of all Letters of
Credit denominated in Major Currencies then outstanding exceeds 103% of the
aggregate Commitments of the Lenders on such date, the Company and each other
Borrower, if any, shall thereupon promptly prepay the outstanding principal
amount of any Advances owing by such Borrower in an aggregate amount (or deposit
an amount in the L/C Cash Deposit Account) sufficient to reduce such sum
(calculated on the basis of the Available Amount of Letters of Credit being
reduced by the amount in the L/C Cash Deposit Account) to an amount not to
exceed 100% of the aggregate Commitments of the Lenders on such date, together
with any interest accrued to the date of such prepayment on the principal
amounts prepaid and, in the case of any prepayment of a Eurocurrency Rate
Advance, a LIBO Rate Advance or a Local Rate Advance on a date other than the
last day of an Interest Period or at its maturity, any additional amounts which
such Borrower shall be obligated to reimburse to the Lenders in respect thereof
pursuant to Section 9.04(c). The Agent shall give prompt notice of any
prepayment required under this Section 2.10(b)(i) to the Borrowers and the
Lenders.

            (ii) If, on any date, the sum of (A) the Equivalent in Dollars of
the aggregate principal amount of all Eurocurrency Rate Advances denominated in
Major Currencies then outstanding plus (B) the Equivalent in Dollars of the
aggregate principal amount of all Competitive Bid Advances denominated in
Foreign Currencies then outstanding plus (C) the Equivalent in Dollars of the
aggregate Available Amount of all Letters of Credit denominated in Major
Currencies then outstanding (in each case, determined on the third Business Day
prior to such date), shall exceed 110% of $500,000,000, the Company and each
other Borrower shall prepay the outstanding principal amount of any such
Eurocurrency Rate Advances or any such LIBO Rate Advances owing by such
Borrower, on the last day of the Interest Periods relating to such Advances, in
an aggregate amount (or deposit an amount in the L/C Cash Deposit Account)
sufficient to reduce such sum (calculated on the basis of the Available Amount
of Letters of Credit being reduced by the amount in the L/C Cash Deposit
Account) to an amount not to exceed $500,000,000, together with any interest
accrued to the date of such prepayment on the principal amounts prepaid. The
Agent shall give prompt notice of any prepayment required under this Section
2.10(b)(ii) to the Borrowers and the Lenders.

                                       35






            SECTION 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority including, without limitation, any agency
of the European Union or similar monetary or multinational authority (whether or
not having the force of law), there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining Eurocurrency Rate
Advances or LIBO Rate Advances or agreeing to issue or of issuing or maintaining
or participating in Letters of Credit (excluding for purposes of this Section
2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to
which Section 2.14 shall govern) and (ii) changes in the basis of taxation of
overall net income or overall gross income by the United States or by the
foreign jurisdiction or state under the laws of which such Lender is organized
or has its Applicable Lending Office or any political subdivision thereof), then
the Borrower of such Advances shall from time to time, upon demand by such
Lender (with a copy of such demand to the Agent), pay to the Agent for the
account of such Lender additional amounts sufficient to compensate such Lender
for such increased cost. A certificate as to the amount of such increased cost,
submitted to such Borrower and the Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error.

            (b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority including, without limitation, any agency of the European
Union or similar monetary or multinational authority (whether or not having the
force of law) affects or would affect the amount of capital required or expected
to be maintained by such Lender or any corporation controlling such Lender and
that the amount of such capital is increased by or based upon the existence of
such Lender's commitment to lend or to issue or participate in Letters of Credit
hereunder and other commitments of this type or the issuance of or participation
in the Letters of Credit (or similar contingent obligations) hereunder, then,
upon demand by such Lender (with a copy of such demand to the Agent), the
Company shall pay to the Agent for the account of such Lender, from time to time
as specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital to be allocable
to the existence of such Lender's commitment to lend hereunder. A certificate as
to such amounts submitted to the Company and the Agent by such Lender shall be
conclusive and binding for all purposes, absent manifest error.

            (c) Any Lender claiming any additional amounts payable pursuant to
this Section 2.11 shall, upon the written request of the Company delivered to
such Lender and the Agent, assign, pursuant to and in accordance with the
provisions of Section 9.06, all of its rights and obligations under this
Agreement and under the Notes to an Eligible Assignee selected by the Company;
provided, however, that (i) no Default shall have occurred and be continuing at
the time of such request and at the time of such assignment; (ii) the assignee
shall have paid to the assigning Lender the aggregate principal amount of, and
any interest accrued and unpaid to the date of such assignment on, the Note or
Notes of such Lender; (iii) the Company shall have paid to the assigning Lender
any and all facility fees and other fees payable to such Lender and all other
accrued and unpaid amounts owing to such Lender under any provision of this
Agreement (including, but not limited to, any increased costs or other
additional amounts owing under this Section 2.11, and any indemnification for
Taxes under Section 2.14) as of the effective date of such assignment and (iv)
if the assignee selected by the Company is not an existing Lender, such

                                       36






assignee or the Company shall have paid the processing and recordation fee
required under Section 9.06(a) for such assignment; provided further that the
assigning Lender's rights under Sections 2.11, 2.14 and 9.04, and its
obligations under Section 8.05, shall survive such assignment as to matters
occurring prior to the date of assignment.

            SECTION 2.12. Illegality. Notwithstanding any other provision of
this Agreement, if any Lender shall notify the Agent that the introduction of or
any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that it is
unlawful, for any Lender or its Eurocurrency Lending Office to perform its
obligations hereunder to make Eurocurrency Rate Advances in Dollars or any Major
Currency or LIBO Rate Advances in Dollars or in any Foreign Currency or to fund
or maintain Eurocurrency Rate Advances in Dollars or in any Major Currency or
LIBO Rate Advances in Dollars or in any Foreign Currency hereunder, (a) each
such Eurocurrency Rate Advance or such LIBO Rate Advance, as the case may be,
will automatically, upon such demand, (i) if such Eurocurrency Rate Advance or
LIBO Rate Advance is denominated in Dollars, be Converted into a Base Rate
Advance or an Advance that bears interest at the rate set forth in Section
2.08(a)(i), as the case may be, and (ii) if such Eurocurrency Rate Advance or
LIBO Rate Advance is denominated in any Foreign Currency, be exchanged into an
Equivalent amount of Dollars and Converted into a Base Rate Advance or an
Advance that bears interest at the rate set forth in Section 2.08(a)(i), as the
case may be, and (b) the obligation of the Lenders to make such Eurocurrency
Rate Advances or such LIBO Rate Advances shall be suspended until the Agent
shall notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.

            SECTION 2.13. Payments and Computations. (a) Each Borrower shall
make each payment hereunder and under any Notes, except with respect to
principal of, interest on, and other amounts relating to, Advances denominated
in a Foreign Currency, not later than 11:00 A.M. (New York City time) on the day
when due in Dollars to the Agent at the applicable Agent's Account in same day
funds without set-off, counterclaim or deduction of any kind. Each Borrower
shall make each payment hereunder and under any Notes with respect to principal
of, interest on, and other amounts relating to Advances denominated in a Foreign
Currency not later than 12:00 Noon (at the Payment Office for such Foreign
Currency) on the day when due in such Foreign Currency to the Agent in same day
funds by deposit of such funds to the applicable Agent's Account without
set-off, counterclaim or deduction of any kind. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest, facility fees or Letter of Credit fees ratably (other than
amounts payable pursuant to Section 2.03, 2.04(c), 2.05(b)(ii), 2.06(b),
2.06(c), 2.11, 2.14 or 9.04(c)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 9.06(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under any Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.

                                       37






            (b) All computations of interest based on the Base Rate and of
facility fees shall be made by the Agent on the basis of a year of 365 or 366
days, as the case may be, all computations of interest based on the Eurocurrency
Rate (including the Overnight Eurocurrency Rate) or the Federal Funds Rate and
of Letter of Credit fees shall be made by the Agent on the basis of a year of
360 days and all computations in respect of Competitive Bid Advances shall be
made by the Agent or the Sub-Agent, as the case may be, as specified in the
applicable Notice of Competitive Bid Borrowing (or, in each case of Advances
denominated in Foreign Currencies where market practice differs, in accordance
with market practice), in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest, facility fees or Letter of Credit fees are payable. Each determination
by the Agent of an interest rate hereunder shall be conclusive and binding for
all purposes, absent manifest error.

            (c) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest, facility fee or
Letter of Credit fee, as the case may be; provided, however, that, if such
extension would cause payment of interest on or principal of Eurocurrency Rate
Advances or LIBO Rate Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.

            (d) Unless the Agent shall have received notice from any Borrower
prior to the date on which any payment is due to the Lenders 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 Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent such Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at (i) the Federal Funds Rate in the case of Advances
denominated in Dollars or (ii) the cost of funds incurred by the Agent in
respect of such amount in the case of Advances denominated in Foreign
Currencies.

            SECTION 2.14. Taxes. (a) Any and all payments by any Borrower
(including the Company in its capacity as a guarantor under Article VII hereof)
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, net income
taxes imposed by the United States or any State thereof and taxes imposed on its
overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction under the laws of which such Lender or the Agent (as
the case may be) is organized or any political subdivision thereof and, in the
case of each Lender, taxes imposed on its overall net income, and franchise
taxes imposed on it in lieu of net income taxes, by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "Taxes"). If any Borrower (including the Company in
its capacity as a guarantor under Article VII hereof) shall be required

                                       38






by law to deduct any Taxes from or in respect of any sum payable hereunder or
under any Note to any Lender or the Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.14) such Lender or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) such
Borrower shall make such deductions and (iii) such Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.

            (b) In addition, each Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Notes or
from the execution, delivery or registration of, performing under, or otherwise
with respect to, this Agreement or the Notes (hereinafter referred to as "Other
Taxes").

            (c) Each Borrower shall indemnify each Lender and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any taxes
imposed by any jurisdiction on amounts payable under this Section 2.14) imposed
on or paid by such Lender or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto; provided, however, that a Borrower shall not be obligated to pay any
amounts in respect of penalties, interest or expenses pursuant to this paragraph
that are payable solely as a result of (i) the failure on the part of the
pertinent Lender or the Agent to pay over those amounts received from the
Borrowers under this clause (c) or (ii) the gross negligence or willful
misconduct on the part of the pertinent Lender or the Agent. This
indemnification shall be made within 30 days from the date such Lender or the
Agent (as the case may be) makes written demand therefor. Each Lender agrees to
provide reasonably prompt notice to the Agent, the Company and any Borrower of
any imposition of Taxes or Other Taxes against such Lender; provided that
failure to give such notice shall not affect such Lender's rights to
indemnification hereunder. Each Lender agrees that it will, promptly upon a
request by the Company or a Borrower having made an indemnification payment
hereunder, furnish to the Company or such Borrower, as the case may be, such
evidence as is reasonably available to such Lender as to the payment of the
relevant Taxes or Other Taxes, and that it will, if requested by the Company or
such Borrower, cooperate with the Company or such Borrower, as the case may be,
in its efforts to obtain a refund or similar relief in respect of such payment.

            (d) Within 30 days after the date of any payment of Taxes by a
Borrower under subsection (a) above, each Borrower shall furnish to the Agent,
at its address referred to in Section 9.02, the original or a certified copy of
a receipt evidencing payment thereof. In the case of any payment hereunder or
under the Notes by or on behalf of any Borrower through an account or branch
outside the United States or by or on behalf of any Borrower by a payor that is
not a United States person, if such Borrower determines that no Taxes are
payable in respect thereof, such Borrower shall furnish, or shall cause such
payor to furnish, to the Agent, at such address, an opinion of counsel
acceptable to the Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.

                                       39






            (e) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender, on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender in the case of each other
Lender and on the date it changes its Applicable Lending Office in the case of
any Lender, and from time to time thereafter as requested in writing by any
Borrower (unless a change in law renders such Lender unable lawfully to do so),
shall provide the Agent and each Borrower with two original Internal Revenue
Service forms W-8ECI or W-8BEN, as appropriate, or any successor or other form
prescribed by the Internal Revenue Service, certifying that such Lender is
exempt from or entitled to a reduced rate of United States withholding tax on
payments pursuant to this Agreement or the Notes. In addition, each Lender
further agrees to provide any Borrower with any form or document as any Borrower
may reasonably request which is required by any taxing authority outside the
United States in order to secure an exemption from, or reduction in the rate of,
withholding tax in such jurisdiction, if available to such Lender. If the forms
provided by a Lender at the time such Lender first becomes a party to this
Agreement or changes its Applicable Lending Office indicate a United States
interest withholding tax rate in excess of zero, withholding tax at such rate
shall be considered excluded from Taxes unless and until such Lender provides
the appropriate forms certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form; provided, however, that, in the case of a
Lender that initially becomes a party to this Agreement pursuant to an
assignment in accordance with Section 9.06 or a Lender that undertakes a change
in its Applicable Lending Office, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable on the
date of such assignment or change with respect to the assignee Lender or Lender
after the change in Applicable Lending Office, but only to the extent of United
States withholding tax included in Taxes, if any, applicable on the date of such
assignment or change with respect to the assignor Lender or Lender prior to such
change in Applicable Lending Office . If any form or document referred to in
this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the
date hereof by Internal Revenue Service form W-8ECI or W-8BEN, that a Lender
reasonably considers to be confidential, such Lender shall give notice thereof
to each Borrower and shall not be obligated to include in such form or document
such confidential information.

            (f) For any period with respect to which a Lender has failed to
provide each Borrower with the appropriate form described in Section 2.14(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided), such Lender
shall not be entitled to indemnification under Section 2.14(a) or (c) with
respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender become subject to Taxes because of its
failure to deliver a form required hereunder, each Borrower shall take such
steps as such Lender shall reasonably request to assist such Lender to recover
such Taxes.

            (g) If any Borrower is required to pay any additional amount to any
Lender or to the Agent or on behalf of any of them to any taxing authority
pursuant to this Section 2.14, such Lender shall, upon the written request of
the Company delivered to such Lender and the Agent, assign, pursuant to and in
accordance with the provisions of Section 9.06, all of its rights

                                       40






and obligations under this Agreement and under the Notes to an Eligible Assignee
selected by the Company; provided, however, that (i) no Default shall have
occurred and be continuing at the time of such request and at the time of such
assignment; (ii) the assignee shall have paid to the assigning Lender the
aggregate principal amount of, and any interest accrued and unpaid to the date
of such assignment on, the Note or Notes of such Lender; (iii) the Company shall
have paid to the assigning Lender any and all facility fees and other fees
payable to such Lender and all other accrued and unpaid amounts owing to such
Lender under any provision of this Agreement (including, but not limited to, any
increased costs or other additional amounts owing under Section 2.11, and any
indemnification for Taxes under this Section 2.14) as of the effective date of
such assignment; and (iv) if the assignee selected by the Company is not an
existing Lender, such assignee or the Company shall have paid the processing and
recordation fee required under Section 9.06(a) for such assignment; provided
further that the assigning Lender's rights under Sections 2.11, 2.14 and 9.04,
and its obligations under Section 8.05, shall survive such assignment as to
matters occurring prior to the date of assignment.

            SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of setoff, if any, or otherwise) on account of the Revolving Credit Advances
owing to it (other than pursuant to Section 2.03, 2.04(c), 2.06(b), 2.06(c),
2.11, 2.14 or 9.04(c)) in excess of its Ratable Share of payments on account of
the Revolving Credit Advances obtained by all the Lenders, such Lender shall
forthwith purchase from the other Lenders such participations in the Revolving
Credit Advances owing to them as shall be necessary to cause such purchasing
Lender to share the excess payment ratably with each of them; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from each Lender shall be rescinded and
such Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such Lender's ratable
share (according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. Each Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.15
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff, if any) with respect to such participation as
fully as if such Lender were the direct creditor of such Borrower in the amount
of such participation.

            SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be
available (and each Borrower agrees that it shall use such proceeds) for general
corporate purposes of such Borrower and its Subsidiaries, including, without
limitation, backstop of commercial paper.

            SECTION 2.17. Evidence of Debt. (a) Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of each Borrower to such Lender resulting from each Revolving
Credit Advance owing to such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder in respect of Revolving Credit Advances. Each Borrower agrees that
upon request of any Lender to such Borrower (with a copy of such notice to the
Agent) that such Lender receive a Revolving Credit Note to evidence (whether for
purposes of pledge, enforcement or otherwise) the Revolving Credit Advances
owing to, or to be made by,

                                       41






such Lender, such Borrower shall promptly execute and deliver to such Lender a
Revolving Credit Note payable to the order of such Lender in a principal amount
up to the Revolving Credit Commitment of such Lender.

            (b) The Register maintained by the Agent pursuant to Section 9.06(d)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, the Type of Advances comprising such Borrowing
and, if appropriate, the Interest Period applicable thereto, (ii) the terms of
each Assignment and Acceptance delivered to and accepted by it, (iii) the amount
of any principal or interest due and payable or to become due and payable from
each Borrower to each Lender hereunder and (iv) the amount of any sum received
by the Agent from each Borrower hereunder and each Lender's share thereof.

            (c) Entries made in good faith by the Agent in the Register pursuant
to subsection (b) above, and by each Lender in its account or accounts pursuant
to subsection (a) above, shall be prima facie evidence of the amount of
principal and interest due and payable or to become due and payable from the
Borrowers to, in the case of the Register, each Lender and, in the case of such
account or accounts, such Lender, under this Agreement, absent manifest error;
provided, however, that the failure of the Agent or such Lender to make an
entry, or any finding that an entry is incorrect, in the Register or such
account or accounts shall not limit or otherwise affect the obligations of any
Borrower under this Agreement.

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

            SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01
and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and
as of the first date (the "Effective Date") on which the following conditions
precedent have been satisfied:

            (a) There shall have occurred no Material Adverse Change since
      December 31, 2003, except as otherwise publicly disclosed prior to the
      date hereof.

            (b) There shall exist no action, suit, investigation, litigation or
      proceeding affecting the Company or any of its Subsidiaries pending or to
      the knowledge of the Company Threatened before any court, governmental
      agency or arbitrator that (i) is reasonably likely to have a Material
      Adverse Effect, other than the matters described on Schedule 3.01(b)
      hereto (the "Disclosed Litigation") or (ii) purports to affect the
      legality, validity or enforceability of this Agreement or any Note of the
      Company or the consummation of the transactions contemplated hereby, and
      there shall have been no adverse change in the status, or financial effect
      on the Company or any of its Subsidiaries, of the Disclosed Litigation
      from that described on Schedule 3.01(b) hereto.

            (c) The Company shall have paid all accrued fees and expenses of the
      Agent and the Lenders in respect of this Agreement.

                                       42






            (d) On the Effective Date, the following statements shall be true
      and the Agent shall have received a certificate signed by a duly
      authorized officer of the Company, dated the Effective Date, stating that:

                  (i) The representations and warranties contained in Section
            4.01 are correct on and as of the Effective Date, and

                  (ii) No event has occurred and is continuing that constitutes
            a Default.

            (e) The Agent shall have received on or before the Effective Date
      the following, each dated such day, in form and substance satisfactory to
      the Agent:

                  (i) The Revolving Credit Notes of the Company to the order of
            the Lenders to the extent requested by any Lender pursuant to
            Section 2.17.

                  (ii) Certified copies of the resolutions of the Board of
            Directors of the Company approving this Agreement and the Notes of
            the Company, and of all documents evidencing other necessary
            corporate action and governmental approvals, if any, with respect to
            this Agreement and such Notes.

                  (iii) A certificate of the Secretary or an Assistant Secretary
            of the Company certifying the names and true signatures of the
            officers of the Company authorized to sign this Agreement and the
            Notes of the Company and the other documents to be delivered
            hereunder.

                  (iv) A favorable opinion of Gail E. Lehman, Assistant General
            Counsel of the Company, substantially in the form of Exhibit F
            hereto and as to such other matters as any Lender through the Agent
            may reasonably request.

                  (v) A favorable opinion of Shearman & Sterling LLP, counsel
            for the Agent, substantially in the form of Exhibit H hereto.

                  (vi) Such other approvals, opinions or documents as any
            Lender, through the Agent, may reasonably request.

            SECTION 3.02. Conditions Precedent to Initial Borrowing. The
obligation of each Lender to make an Advance on the occasion of the initial
Borrowing hereunder is subject to the following conditions precedent:

            (a) The Effective Date shall have occurred.

            (b) The Company shall have terminated the commitments and paid in
      full all outstanding obligations under the 364-Day Credit Agreement dated
      as of November 26, 2003 among the Company, the lenders parties thereto and
      Citibank, as administrative agent, as amended, and each Lender that is a
      party to said credit agreement hereby waives any requirement of prior
      notice to the termination of commitments or prepayment of obligations
      under said credit agreement.

                                       43






            (c) The Company shall have paid all accrued fees and expenses of the
      Agent (including the billed fees and expenses of counsel to the Agent).

            SECTION 3.03. Initial Loan to Each Designated Subsidiary. The
obligation of each Lender to make an initial Advance to each Designated
Subsidiary following any designation of such Designated Subsidiary as a Borrower
hereunder pursuant to Section 9.07 is subject to the Agent's receipt on or
before the date of such initial Advance of each of the following, in form and
substance satisfactory to the Agent and dated such date, and (except for the
Revolving Credit Notes) in sufficient copies for each Lender:

            (a) The Revolving Credit Notes of such Borrower to the order of the
      Lenders to the extent requested by any Lender pursuant to Section 2.17.

            (b) Certified copies of the resolutions of the Board of Directors of
      such Borrower (with a certified English translation if the original
      thereof is not in English) approving this Agreement and the Notes of such
      Borrower, and of all documents evidencing other necessary corporate action
      and governmental approvals, if any, with respect to this Agreement and
      such Notes.

            (c) A certificate of the Secretary or an Assistant Secretary of such
      Borrower certifying the names and true signatures of the officers of such
      Borrower authorized to sign this Agreement and the Notes of such Borrower
      and the other documents to be delivered hereunder.

            (d) A certificate signed by a duly authorized officer of the
      Company, dated as of the date of such initial Advance, certifying that
      such Borrower shall have obtained all governmental and third party
      authorizations, consents, approvals (including exchange control approvals)
      and licenses required under applicable laws and regulations necessary for
      such Borrower to execute and deliver this Agreement and the Notes and to
      perform its obligations thereunder.

            (e) The Designation Letter of such Designated Subsidiary,
      substantially in the form of Exhibit D hereto.

            (f) Evidence of the Process Agent's acceptance of its appointment
      pursuant to Section 9.12(a) as the agent of such Borrower, substantially
      in the form of Exhibit E hereto.

            (g) A favorable opinion of counsel to such Designated Subsidiary,
      dated the date of such initial Advance, substantially in the form of
      Exhibit G hereto.

            (h) Such other approvals, opinions or documents as any Lender,
      through the Agent, may reasonably request.

            SECTION 3.04. Conditions Precedent to Each Revolving Credit
Borrowing and Issuance. The obligation of each Lender to make a Revolving Credit
Advance (other than an Advance made by any Issuing Bank or any Lender pursuant
to Section 2.04(c)) on the occasion of each Revolving Credit Borrowing, and the
obligation of the Issuing Bank to issue a Letter of

                                       44






Credit, shall be subject to the conditions precedent that the Effective Date
shall have occurred and on the date of such Revolving Credit Borrowing or
issuance, as the case may be, (a) the following statements shall be true (and
each of the giving of the applicable Notice of Revolving Credit Borrowing,
Notice of Issuance and the acceptance by the Borrower requesting such Revolving
Credit Borrowing or issuance of the proceeds of such Revolving Credit Borrowing
or such issuance shall constitute a representation and warranty by such Borrower
that on the date of such Borrowing or issuance such statements are true):

            (i) the representations and warranties of the Company contained in
      Section 4.01 (except the representations set forth in the last sentence of
      subsection (e) thereof and in subsections (f), (h)-(l) and (n) thereof)
      are correct on and as of the date of such Revolving Credit Borrowing or
      issuance, before and after giving effect to such Revolving Credit
      Borrowing or issuance and to the application of the proceeds therefrom, as
      though made on and as of such date, and additionally, if such Revolving
      Credit Borrowing or issuance shall have been requested by a Designated
      Subsidiary, the representations and warranties of such Designated
      Subsidiary contained in its Designation Letter are correct on and as of
      the date of such Revolving Credit Borrowing or issuance, before and after
      giving effect to such Revolving Credit Borrowing or issuance and to the
      application of the proceeds therefrom, as though made on and as of such
      date, and

            (ii) no event has occurred and is continuing, or would result from
      such Revolving Credit Borrowing or issuance or from the application of the
      proceeds therefrom, that constitutes a Default;

and (b) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.

            SECTION 3.05. Conditions Precedent to Each Competitive Bid
Borrowing. The obligation of each Lender that is to make a Competitive Bid
Advance on the occasion of a Competitive Bid Borrowing to make such Competitive
Bid Advance as part of such Competitive Bid Borrowing is subject to the
conditions precedent that (i) the Agent shall have received the written
confirmatory Notice of Competitive Bid Borrowing with respect thereto, (ii) on
or before the date of such Competitive Bid Borrowing, but prior to such
Competitive Bid Borrowing, the Agent shall have received a Competitive Bid Note
payable to the order of such Lender and substantially in the form of Exhibit A-2
hereto for each of the one or more Competitive Bid Advances to be made by such
Lender as part of such Competitive Bid Borrowing, in a principal amount equal to
the principal amount of the Competitive Bid Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such Competitive Bid Advance in
accordance with Section 2.03, and (iii) on the date of such Competitive Bid
Borrowing the following statements shall be true (and each of the giving of the
applicable Notice of Competitive Bid Borrowing and the acceptance by the
Borrower requesting such Competitive Bid Borrowing of the proceeds of such
Competitive Bid Borrowing shall constitute a representation and warranty by such
Borrower that on the date of such Competitive Bid Borrowing such statements are
true):

            (a) the representations and warranties of the Company contained in
      Section 4.01 (except the representations set forth in the last sentence of
      subsection (e)

                                       45






      thereof and in subsections (f), (h)-(l) and (n) thereof) are correct on
      and as of the date of such Competitive Bid Borrowing, before and after
      giving effect to such Competitive Bid Borrowing and to the application of
      the proceeds therefrom, as though made on and as of such date, and, if
      such Competitive Bid Borrowing shall have been requested by a Designated
      Subsidiary, the representations and warranties of such Designated
      Subsidiary contained in its Designation Letter are correct on and as of
      the date of such Competitive Bid Borrowing, before and after giving effect
      to such Competitive Bid Borrowing and to the application of the proceeds
      therefrom, as though made on and as of such date,

            (b) no event has occurred and is continuing, or would result from
      such Competitive Bid Borrowing or from the application of the proceeds
      therefrom, that constitutes a Default, and

            (c) no event has occurred and no circumstance exists as a result of
      which the information concerning such Borrower that has been provided to
      the Agent and each Lender by such Borrower in connection herewith would
      include an untrue statement of a material fact or omit to state any
      material fact necessary to make the statements contained therein, in the
      light of the circumstances under which they were made, not misleading,

and (iv) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.

            SECTION 3.06. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Company,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

            SECTION 4.01. Representations and Warranties of the Company. The
Company represents and warrants as follows:

            (a) The Company is a corporation duly organized, validly existing
      and in good standing under the laws of the State of Delaware.

            (b) The execution, delivery and performance by the Company of this
      Agreement and the Notes of the Company, and the consummation of the
      transactions contemplated hereby, are within the Company's corporate
      powers, have been duly authorized by all necessary corporate action, and
      do not and will not cause or constitute a violation of any provision of
      law or regulation or any provision of the Certificate of Incorporation or
      By-Laws of the Company or result in the breach of, or constitute a default
      or require any consent under, or result in the creation of any lien,
      charge or

                                       46






      encumbrance upon any of the properties, revenues, or assets of the Company
      pursuant to, any indenture or other agreement or instrument to which the
      Company is a party or by which the Company or its property may be bound or
      affected.

            (c) No authorization, consent, approval (including any exchange
      control approval), license or other action by, and no notice to or filing
      or registration with, any governmental authority, administrative agency or
      regulatory body or any other third party is required for the due
      execution, delivery and performance by the Company of this Agreement or
      the Notes of the Company.

            (d) This Agreement has been, and each of the Notes when delivered
      hereunder will have been, duly executed and delivered by the Company. This
      Agreement is, and each of the Notes of the Company when delivered
      hereunder will be, the legal, valid and binding obligation of the Company
      enforceable against the Company in accordance with their respective terms,
      except to the extent that such enforcement may be limited by applicable
      bankruptcy, insolvency and other similar laws affecting creditors' rights
      generally.

            (e) The Consolidated balance sheet of the Company and its
      Consolidated Subsidiaries as at December 31, 2003, and the related
      Consolidated statements of income and cash flows of the Company and its
      Consolidated Subsidiaries for the fiscal year then ended (together with
      the notes to the financial statements of the Company and its Consolidated
      Subsidiaries and the Consolidated statements of cash flows of the Company
      and its Consolidated Subsidiaries), accompanied by an opinion of one or
      more nationally recognized firms of independent public accountants, and
      the Consolidated balance sheet of the Company and its Consolidated
      Subsidiaries as at June 30, 2004, and the related Consolidated statements
      of income and cash flows of the Company and its Consolidated Subsidiaries
      for the nine months then ended, duly certified by the principal financial
      officer of the Company, copies of which have been furnished to each
      Lender, are materially complete and correct, and fairly present, subject,
      in the case of said balance sheet as at June 30, 2004, and said statements
      of income and cash flows for the nine months then ended, to year-end audit
      adjustments, the Consolidated financial condition of the Company and its
      Consolidated Subsidiaries as at such dates and the Consolidated results of
      the operations of the Company and its Consolidated Subsidiaries for the
      periods ended on such dates, all in accordance with GAAP consistently
      applied, except as otherwise noted therein; the Company and its
      Consolidated Subsidiaries do not have on such date any material contingent
      liabilities, liabilities for taxes, unusual forward or long-term
      commitments or unrealized or anticipated losses from any unfavorable
      commitments, except as referred to or reflected or provided for in such
      balance sheet or the notes thereto as at such date. No Material Adverse
      Change has occurred since December 31, 2003, except as otherwise publicly
      disclosed prior to the date hereof.

            (f) There is no action, suit, investigation, litigation or
      proceeding, including, without limitation, any Environmental Action,
      pending or to the knowledge of the Company Threatened affecting the
      Company or any of its Subsidiaries before any court, governmental agency
      or arbitrator that (i) is reasonably likely to have a Material Adverse
      Effect (other than the Disclosed Litigation), or (ii) purports to affect
      the legality, validity

                                       47






      or enforceability of this Agreement or any Note or the consummation of the
      transactions contemplated hereby, and there has been no adverse change in
      the status, or financial effect on the Company or any of its Subsidiaries,
      of the Disclosed Litigation from that described on Schedule 3.01(b)
      hereto.

            (g) Following application of the proceeds of each Advance, not more
      than 25 percent of the value of the assets (either of the Borrower of such
      Advance or of such Borrower and its Subsidiaries on a Consolidated basis)
      subject to the provisions of Section 5.02(a) or subject to any restriction
      contained in any agreement or instrument between such Borrower and any
      Lender or any Affiliate of any Lender relating to Debt and within the
      scope of Section 6.01(e) will be margin stock (within the meaning of
      Regulation U issued by the Board of Governors of the Federal Reserve
      System).

            (h) The Company and each wholly-owned direct Subsidiary of the
      Company have, in the aggregate, met their minimum funding requirements
      under ERISA with respect to their Plans in all material respects and have
      not incurred any material liability to the PBGC, other than for the
      payment of premiums, in connection with such Plans.

            (i) No ERISA Event has occurred or is reasonably expected to occur
      with respect to any Plan of the Company or any of its ERISA Affiliates
      that has resulted in or is reasonably likely to result in a material
      liability of the Company or any of its ERISA Affiliates.

            (j) The Schedules B (Actuarial Information) to the 2003 annual
      reports (Form 5500 Series) with respect to each Plan of the Company or any
      of its ERISA Affiliates, copies of which have been filed with the Internal
      Revenue Service (and which will be furnished to any Bank through the
      Administrative Agent upon the request of such Bank through the
      Administrative Agent to the Company), are complete and accurate in all
      material respects and fairly present in all material respects the funding
      status of such Plans at such date, and since the date of each such
      Schedule B there has been no material adverse change in funding status.

            (k) Neither the Company nor any of its ERISA Affiliates has incurred
      or reasonably expects to incur any Withdrawal Liability to any
      Multiemployer Plan in an annual amount exceeding 6% of Net Tangible Assets
      of the Company and its Consolidated Subsidiaries.

            (l) Neither the Company nor any of its ERISA Affiliates has been
      notified by the sponsor of a Multiemployer Plan that such Multiemployer
      Plan is in reorganization or has been terminated, within the meaning of
      Title IV of ERISA. No such Multiemployer Plan is reasonably expected to be
      in reorganization or to be terminated, within the meaning of Title IV of
      ERISA, in a reorganization or termination which might reasonably be
      expected to result in a liability of the Company in an amount in excess of
      $5,000,000.

            (m) The Company is not, and immediately after the application by the
      Company of the proceeds of each Loan will not be, (a) an "investment
      company" within the meaning of the Investment Company Act of 1940, as
      amended, or (b) a "holding company" within the meaning of the Public
      Utility Holding Company Act of 1935, as amended.


                                       48







            (n) To the best of the Company's knowledge, the operations and
      properties of the Company and its Subsidiaries taken as a whole comply in
      all material respects with all Environmental Laws, all necessary
      Environmental Permits have been applied for or have been obtained and are
      in effect for the operations and properties of the Company and its
      Subsidiaries and the Company and its Subsidiaries are in compliance in all
      material respects with all such Environmental Permits. To the best of the
      Company's knowledge no circumstances exist that would be reasonably likely
      to form the basis of an Environmental Action against the Company or any of
      its Subsidiaries or any of their properties that could have a Material
      Adverse Effect.

                                    ARTICLE V

                            COVENANTS OF THE BORROWER

            SECTION 5.01. Affirmative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Company
will:

            (a) Compliance with Laws, Etc. Comply, and cause each Designated
      Subsidiary to comply with all applicable laws, rules, regulations and
      orders, such compliance to include, without limitation, compliance with
      ERISA and Environmental Laws as provided in Section 5.01(j), if failure to
      comply with such requirements would have a Material Adverse Effect.

            (b) Payment of Taxes, Etc. Pay and discharge, and cause each
      Designated Subsidiary to pay and discharge, all taxes, assessments and
      governmental charges or levies imposed upon it or on its income or profits
      or upon any of its property; provided, however, that neither the Company
      nor any of its Subsidiaries shall be required to pay or discharge any such
      tax, assessment, charge or claim that is being contested in good faith and
      by proper proceedings and as to which appropriate reserves are being
      maintained.

            (c) Maintenance of Insurance. Maintain, and cause each Designated
      Subsidiary to maintain, insurance with responsible and reputable insurance
      companies or associations in such amounts and covering such risks as is
      usually carried by companies engaged in similar businesses and owning
      similar properties in the same general areas in which the Company or such
      Subsidiary operates.

            (d) Preservation of Corporate Existence, Etc. Preserve and maintain,
      and cause each Designated Subsidiary to preserve and maintain, its
      corporate existence and all its material rights (charter and statutory)
      privileges and franchises; provided, however, that the Company and each
      Designated Subsidiary may consummate any merger, consolidation or sale of
      assets permitted under Section 5.02(b).

            (e) Visitation Rights. At any reasonable time and from time to time
      upon reasonable notice but not more than once a year unless an Event of
      Default has occurred and is continuing, permit the Agent or any of the
      Lenders or any agents or representatives thereof, to examine and make
      copies of and abstracts from the records and books of account of, and
      visit the properties of, the Company and any Designated Subsidiary, and to
      discuss the affairs, finances and accounts of the Company and any
      Designated

                                       49






      Subsidiary with any of their officers or directors and with their
      independent certified public accountants.

            (f) Keeping of Books. Keep, and cause each Designated Subsidiary to
      keep, proper books of record and account, in which full and correct
      entries shall be made of all financial transactions and the assets and
      business of the Company and each Designated Subsidiary in accordance with
      generally accepted accounting principles in effect from time to time.

            (g) Maintenance of Properties, Etc. Maintain and preserve, and cause
      each Designated Subsidiary to maintain and preserve, all of its properties
      that are used or useful in the conduct of its business in good working
      order and condition, ordinary wear and tear excepted; provided, however,
      that neither the Company nor any of its Designated Subsidiaries shall be
      required to maintain or preserve any property if the failure to maintain
      or preserve such property shall not have a Material Adverse Effect.

            (h) Reporting Requirements. Furnish to the Agent (with a copy for
      each Lender) and the Agent shall promptly forward the same to the Lenders:

                  (i) as soon as available and in any event within 60 days after
            the end of each of the first three quarters of each fiscal year of
            the Company, a Consolidated balance sheet of the Company and its
            Consolidated Subsidiaries as of the end of such quarter and a
            Consolidated statement of income and cash flows of the Company and
            its Consolidated Subsidiaries for the period commencing at the end
            of the previous fiscal year and ending with the end of such quarter,
            setting forth in each case in comparative form the corresponding
            figures as of the corresponding date and for the corresponding
            period of the preceding fiscal year, all in reasonable detail and
            certified by the principal financial officer, principal accounting
            officer, the Vice-President and Treasurer or an Assistant Treasurer
            of the Company, subject, however, to year-end auditing adjustments,
            which certificate shall include a statement that such officer has no
            knowledge, except as specifically stated, of any condition, event or
            act which constitutes a Default;

                  (ii) as soon as available and in any event within 120 days
            after the end of each fiscal year of the Company, 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 of the Company and its Consolidated
            Subsidiaries for such fiscal year setting forth in each case in
            comparative form the corresponding figures as of the close of and
            for the preceding fiscal year, all in reasonable detail and
            accompanied by an opinion of independent public accountants of
            nationally recognized standing, as to said financial statements and
            a certificate of the principal financial officer, principal
            accounting officer, the Vice-President and Treasurer or an Assistant
            Treasurer of the Company stating that such officer has no knowledge,
            except as specifically stated, of any condition, event or act which
            constitutes a Default;

                                       50






                  (iii) copies of the Forms 8-K and 10-K reports (or similar
            reports) which the Company is required to file with the Securities
            and Exchange Commission of the United States of America, promptly
            after the filing thereof;

                  (iv) copies of each annual report, quarterly report, special
            report or proxy statement mailed to substantially all of the
            stockholders of the Company, promptly after the mailing thereof to
            the stockholders;

                  (v) immediate notice of the occurrence of any Default of which
            the principal financial officer, principal accounting officer, the
            Vice-President and Treasurer or an Assistant Treasurer of the
            Company shall have knowledge;

                  (vi) as soon as available and in any event within 15 days
            after the Company or any of its ERISA Affiliates knows or has reason
            to know that any ERISA Event has occurred, a statement of a senior
            officer of the Company with responsibility for compliance with the
            requirements of ERISA describing such ERISA Event and the action, if
            any, which the Company or such ERISA Affiliate proposes to take with
            respect thereto;

                  (vii) at the request of any Lender, promptly after the filing
            thereof with the Internal Revenue Service, copies of Schedule B
            (Actuarial Information) to each annual report (Form 5500 series)
            filed by the Company or any of its ERISA Affiliates with respect to
            each Plan;

                  (viii) promptly after receipt thereof by the Company or any of
            its ERISA Affiliates, copies of each notice from the PBGC stating
            its intention to terminate any Plan or to have a trustee appointed
            to administer any Plan;

                  (ix) promptly after such request, such other documents and
            information relating to any Plan as any Lender may reasonably
            request from time to time;

                  (x) promptly and in any event within five Business Days after
            receipt thereof by the Company or any of its ERISA Affiliates from
            the sponsor of a Multiemployer Plan, copies of each notice
            concerning (A) (x) the imposition of Withdrawal Liability in an
            amount in excess of $5,000,000 with respect to any one Multiemployer
            Plan or in an aggregate amount in excess of $25,000,000 with respect
            to all such Multiemployer Plans within any one calendar year or (y)
            the reorganization or termination, within the meaning of Title IV of
            ERISA, of any Multiemployer Plan that has resulted or might
            reasonably be expected to result in Withdrawal Liability in an
            amount in excess of $5,000,000 or of all such Multiemployer Plans
            that has resulted or might reasonably be expected to result in
            Withdrawal Liability in an aggregate amount in excess of $25,000,000
            within any one calendar year and (B) the amount of liability
            incurred, or that may be incurred, by the Company or any of its
            ERISA Affiliates in connection with any event described in such
            subclause (x) or (y);

                  (xi) promptly after the commencement thereof, notice of all
            actions and proceedings before any court, governmental agency or
            arbitrator affecting the

                                       51






            Borrower or any Designated Subsidiary of the type described in
            Section 4.01(f); and

                  (xii) from time to time such further information respecting
            the financial condition and operations of the Company and its
            Subsidiaries as any Lender may from time to time reasonably request.

            (i) Authorizations. Obtain, and cause each Designated Subsidiary to
      obtain, at any time and from time to time all authorizations, licenses,
      consents or approvals (including exchange control approvals) as shall now
      or hereafter be necessary or desirable under applicable law or regulations
      in connection with its making and performance of this Agreement and, upon
      the request of any Lender, promptly furnish to such Lender copies thereof.

            (j) Compliance with Environmental Laws. Comply, and cause each of
      its Subsidiaries and all lessees and other Persons operating or occupying
      its properties to comply, in all material respects, with all applicable
      Environmental Laws and Environmental Permits; obtain and renew and cause
      each of its Subsidiaries to obtain and renew all Environmental Permits
      necessary for its operations and properties; and conduct, and cause each
      of its Subsidiaries to conduct, any investigation, study, sampling and
      testing, and undertake any cleanup, removal, remedial or other action
      necessary to remove and clean up all Hazardous Materials from any of its
      properties, in accordance with the requirements of all Environmental Laws;
      provided, however, that neither the Company nor any of its Subsidiaries
      shall be required to undertake any such cleanup, removal, remedial or
      other action to the extent that its obligation to do so is being contested
      in good faith and by proper proceedings and appropriate reserves are being
      maintained with respect to such circumstances.

            (k) Change of Control. If a Change of Control shall occur, within
      ten calendar days after the occurrence thereof, provide the Agent with
      notice thereof, describing therein in reasonable detail the facts and
      circumstances giving rise to such Change in Control.

            SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Company
will not:

            (a) Liens, Etc. Issue, assume or guarantee, or permit any of its
      Subsidiaries owning Restricted Property to issue, assume or guarantee, any
      Debt secured by Liens on or with respect to any Restricted Property
      without effectively providing that its obligations to the Lenders under
      this Agreement and any of the Notes shall be secured equally and ratably
      with such Debt so long as such Debt shall be so secured, except that the
      foregoing shall not apply to:

                  (i) Liens affecting property of the Company or any of its
            Subsidiaries existing on the Effective Date in effect as of the date
            hereof or of any corporation existing at the time it becomes a
            Subsidiary of the Company or at the time it is merged into or
            consolidated with the Company or a Subsidiary of the Company;

                                       52






                  (ii) Liens on property of the Company or its Subsidiaries
            existing at the time of acquisition thereof or incurred to secure
            the payment of all or part of the purchase price thereof or to
            secure Debt incurred prior to, at the time of or within 24 months
            after acquisition thereof for the purpose of financing all or part
            of the purchase price thereof;

                  (iii) Liens on property of the Company or its Subsidiaries (in
            the case of property that is, in the opinion of the Board of
            Directors of the Company, substantially unimproved for the use
            intended by the Company) to secure all or part of the cost of
            improvement thereof, or to secure Debt incurred to provide funds for
            any such purpose;

                  (iv) Liens which secure only Debt owing by a Subsidiary of the
            Company to the Company or to another Subsidiary of the Company;

                  (v) Liens in favor of the United States of America, any State,
            any foreign country, or any department, agency, instrumentality, or
            political subdivisions of any such jurisdiction, to secure partial,
            progress, advance or other payments pursuant to any contract or
            statute or to secure any Debt incurred for the purpose of financing
            all or any part of the purchase price or cost of constructing or
            improving the property subject thereto, including, without
            limitation, Liens to secure Debt of the pollution control or
            industrial revenue bond type; or

                  (vi) any extension, renewal or replacement (or successive
            extensions, renewals or replacements), in whole or in part, of any
            Lien referred to in the foregoing clauses (i) to (v) inclusive of
            any Debt secured thereby, provided that the principal amount of Debt
            secured thereby shall not exceed the principal amount of Debt so
            secured at the time of such extension, renewal or replacement, and
            that such extension, renewal or replacement Lien shall be limited to
            all or part of the property which secured the Lien extended, renewed
            or replaced (plus improvements on such property);

      provided, however, that, the Company and any one or more Subsidiaries
      owning Restricted Property may issue, assume or guarantee Debt secured by
      Liens which would otherwise be subject to the foregoing restrictions in an
      aggregate principal amount which, together with the aggregate outstanding
      principal amount of all other Debt of the Company and its Subsidiaries
      owning Restricted Property that would otherwise be subject to the
      foregoing restrictions (not including Debt permitted to be secured under
      clause (i) through (vi) above) and the aggregate value of the Sale and
      Leaseback Transactions in existence at such time, does not at any one time
      exceed 10% of the Net Tangible Assets of the Company and its Consolidated
      Subsidiaries; and provided further that the following type of transaction,
      among others, shall not be deemed to create Debt secured by Liens: Liens
      required by any contract or statute in order to permit the Company or any
      of its Subsidiaries to perform any contract or subcontract made by it with
      or at the request of the United States of America, any foreign country or
      any department, agency or instrumentality of any of the foregoing
      jurisdictions.

                                       53






            (b) Mergers, Etc. Merge or consolidate with or into, or convey,
      transfer, lease or otherwise dispose of (whether in one transaction or in
      a series of transactions) all or substantially all of its assets (whether
      now owned or hereafter acquired) to, any Person; provided, however, that
      the Company may merge or consolidate with any other Person so long as the
      Company is the surviving corporation and so long as no Default shall have
      occurred and be continuing at the time of such proposed transaction or
      would result therefrom.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

            SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:

            (a) Any Borrower shall fail to pay: (i) any principal of any Advance
      when the same becomes due and payable; (ii) any facility fees or any
      interest on any Advance payable under this Agreement or any Note within
      three Business Days after the same becomes due and payable; or (iii) any
      other fees or other amounts payable under this Agreement or any Notes
      within 30 days after the same becomes due and payable other than those
      fees and amounts the liabilities for which are being contested in good
      faith by such Borrower and which have been placed in Escrow by such
      Borrower; or

            (b) Any representation or warranty made (or deemed made) by any
      Borrower (or any of its officers) in connection with this Agreement or by
      any Designated Subsidiary in the Designation Letter pursuant to which such
      Designated Subsidiary became a Borrower hereunder shall prove to have been
      incorrect in any material respect when made (or deemed made); or

            (c) The Company shall repudiate its obligations under, or shall
      default in the due performance or observance of, any term, covenant or
      agreement contained in Article VII of this Agreement; or

            (d) (i) The Company shall fail to perform or observe Section
      5.01(h)(v), (ii) the Company shall fail to perform or observe any other
      term, covenant or agreement contained in Section 5.02(a) and such failure
      shall remain unremedied for a period of 30 days after any Lender shall
      have given notice thereof to the Company (through the Agent), or (iii) the
      Company or any other Borrower shall fail to perform or to observe any
      other term, covenant or agreement contained in this Agreement on its part
      to be performed or observed and such failure shall remain unremedied for a
      period of 30 days after any Lender shall have given notice thereof to the
      relevant Borrower or, in the case of the Company, any of the principal
      financial officer, the principal accounting officer, the Vice-President
      and Treasurer or an Assistant Treasurer of the Company, and in the case of
      any other Borrower, a responsible officer of such Borrower, first has
      knowledge of such failure; or

                                       54






            (e) (i) The Company or any of its Consolidated or Designated
      Subsidiaries shall fail to pay any principal of or premium or interest on
      any Debt (other than Debt owed to the Company or its Subsidiaries or
      Affiliates) that is outstanding in a principal amount of at least
      $150,000,000 in the aggregate (but excluding Debt outstanding hereunder
      and Debt owed by such party to any bank, financial institution or other
      institutional lender to the extent the Borrower or any Subsidiary has
      deposits with such bank, financial institution or other institutional
      lender sufficient to repay such Debt) of the Company or such Subsidiary
      (as the case may be), when the same becomes due and payable (whether by
      scheduled maturity, required prepayment, acceleration, demand or
      otherwise), and such failure shall continue after the applicable grace
      period, if any, specified in the agreement or instrument relating to such
      Debt, or (ii) any other event shall occur or condition shall exist under
      any agreement or instrument relating to any such Debt and shall continue
      after the applicable grace period, if any, specified in such agreement or
      instrument, if the effect of such event or condition is to accelerate, or
      to permit the acceleration of, the maturity of such Debt, or (iii) any
      such Debt shall be declared to be due and payable, or required to be
      prepaid or redeemed (other than by a regularly scheduled required
      prepayment or redemption), purchased or defeased, or an offer to prepay,
      redeem, purchase or defease such Debt shall be required to be made, in
      each case prior to the stated maturity thereof; provided, however, that,
      for purposes of this Section 6.0l(e), in the case of (x) Debt of any
      Person (other than the Company or one of its Consolidated Subsidiaries)
      which the Company has guaranteed and (y) Debt of Persons (other than the
      Company or one of its Consolidated Subsidiaries) the payment of which is
      secured by a Lien on property of the Company or such Subsidiary, such Debt
      shall be deemed to have not been paid when due or to have been declared to
      be due and payable only when the Company or such Subsidiary, as the case
      may be, shall have failed to pay when due any amount which it shall be
      obligated to pay with respect to such Debt; provided further, however,
      that any event or occurrence described in this subsection (e) shall not be
      an Event of Default if (A) such event or occurrence relates to the Debt of
      any Subsidiary of the Company located in China, India, the Commonwealth of
      Independent States or Turkey (collectively, the "Exempt Countries"), (B)
      such Debt is not guaranteed or supported in any legally enforceable manner
      by any Borrower or by any Subsidiary or Affiliate of the Company located
      outside the Exempt Countries, (C) such event or occurrence is due to the
      direct or indirect action of any government entity or agency in any Exempt
      Country and (D) as of the last day of the calendar quarter immediately
      preceding such event or occurrence, the book value of the assets of such
      Subsidiary does not exceed $150,000,000 and the aggregate book value of
      the assets of all Subsidiaries of the Company located in Exempt Countries
      the Debt of which would cause an Event of Default to occur but for the
      effect of this proviso does not exceed $500,000,000; or

            (f) The Company or any of its Designated or Consolidated
      Subsidiaries shall generally not pay its debts as such debts become due,
      or shall admit in writing its inability to pay its debts generally, or
      shall make a general assignment for the benefit of creditors; or any
      proceeding shall be instituted by or against the Company or any such
      Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
      liquidation, winding up, reorganization, arrangement, adjustment,
      protection, relief, or composition of it or its debts under any law
      relating to bankruptcy, insolvency or reorganization or relief of debtors,
      or seeking the entry of an order for relief or the appointment of a
      receiver,

                                       55






      trustee, custodian or other similar official for it or for any substantial
      part of its property and, in the case of any such proceeding instituted
      against it (but not instituted by it), either such proceeding shall remain
      undismissed or unstayed for a period of 30 days, or any of the actions
      sought in such proceeding (including, without limitation, the entry of an
      order for relief against, or the appointment of a receiver, trustee,
      custodian or other similar official for, it or for any substantial part of
      its property) shall occur; or the Company or any such Subsidiaries shall
      take any corporate action to authorize any of the actions set forth above
      in this subsection (f); provided, however, that any event or occurrence
      described in this subsection (f) shall not be an Event of Default if (A)
      such event or occurrence relates to any Subsidiary of the Company located
      in an Exempt Country, (B) the Debt of such Subsidiary is not guaranteed or
      supported in any legally enforceable manner by any Borrower or by any
      Subsidiary or Affiliate of the Company located outside the Exempt
      Countries, (C) such event or occurrence is due to the direct or indirect
      action of any government entity or agency in any Exempt Country and (D) as
      of the last day of the calendar quarter immediately preceding such event
      or occurrence, the book value of the assets of such Subsidiary does not
      exceed $150,000,000 and the aggregate book value of the assets of all
      Subsidiaries of the Company located in Exempt Countries with respect to
      which the happening of the events or occurrences described in this
      subsection (f) would cause an Event of Default to occur but for the effect
      of this proviso does not exceed $500,000,000; or

            (g) Any judgment or order for the payment of money in excess of
      $150,000,000 shall be rendered against the Company or any of its
      Subsidiaries and enforcement proceedings shall have been commenced by any
      creditor upon such judgment or order and there shall be any period of 10
      consecutive days during which a stay of enforcement of such judgment or
      order, by reason of a pending appeal or otherwise, shall not be in effect;
      provided, however, that any such judgment or order shall not be an Event
      of Default under this Section 6.01(g) if (A) such judgment or order is
      rendered against any Subsidiary of the Company located in an Exempt
      Country, (B) the Debt of such Subsidiary is not guaranteed or supported in
      any legally enforceable manner by any Borrower or by any Subsidiary or
      Affiliate of the Company located outside the Exempt Countries, (C) such
      judgment or order is due to the direct or indirect action of any
      government entity or agency in any Exempt Country and (D) as of the last
      day of the calendar quarter immediately preceding the tenth consecutive
      day of the stay period referred to above, the book value of the assets of
      such Subsidiary does not exceed $150,000,000 and the aggregate book value
      of the assets of all Subsidiaries of the Company located in Exempt
      Countries the judgments and orders against which would cause an Event of
      Default to occur but for the effect of this proviso does not exceed
      $500,000,000; or

            (h) Any non-monetary judgment or order shall be rendered against the
      Company or any of its Subsidiaries that is reasonably likely to have a
      Material Adverse Effect, and enforcement proceedings shall have been
      commenced by any Person upon such judgment or order and there shall be any
      period of 10 consecutive days during which a stay of enforcement of such
      judgment or order, by reason of a pending appeal or otherwise, shall not
      be in effect; or

                                       56






            (i) Any license, consent, authorization or approval (including
      exchange control approvals) now or hereafter necessary to enable the
      Company or any Designated Subsidiary to comply with its obligations herein
      or under any Notes of such Borrower shall be modified, revoked, withdrawn,
      withheld or suspended; or

            (j) (i) Any ERISA Event shall have occurred with respect to a Plan
      of any Borrower or any of its ERISA Affiliates and the sum (determined as
      of the date of occurrence of such ERISA Event) of the Insufficiency of
      such Plan and the Insufficiency of any and all other Plans of the
      Borrowers and their ERISA Affiliates with respect to which an ERISA Event
      shall have occurred and then exist (or the liability of the Borrowers and
      their ERISA Affiliates related to such ERISA Event) exceeds $150,000,000;
      or (ii) any Borrower or any of its ERISA Affiliates shall be in default,
      as defined in Section 4219(c)(5) of ERISA, with respect to any payment of
      Withdrawal Liability and the sum of the outstanding balance of such
      Withdrawal Liability and the outstanding balance of any other Withdrawal
      Liability that any Borrower or any of its ERISA Affiliates has incurred
      exceeds 6% of Net Tangible Assets of the Company and its Consolidated
      Subsidiaries; or (iii) any Borrower or any of its ERISA Affiliates shall
      have been notified by the sponsor of a Multiemployer Plan of such Borrower
      or any of its ERISA Affiliates that such Multiemployer Plan is in
      reorganization or is being terminated, within the meaning of Title IV of
      ERISA, and as a result of such reorganization or termination the aggregate
      annual contributions of the Borrowers and their ERISA Affiliates to all
      Multiemployer Plans that are then in reorganization or being terminated
      have been or will be increased over the amounts contributed to such
      Multiemployer Plans for the plan years of such Multiemployer Plans
      immediately preceding the plan year in which such reorganization or
      termination occurs by an amount exceeding $150,000,000; or

then, and (i) in any such event (except as provided in clause (ii) below), the
Agent (A) shall at the request, or may with the consent, of the Majority
Lenders, by notice to the Company, declare the obligation of each Lender to make
Advances (other than Advances by an Issuing Bank or a Lender pursuant to Section
2.04(c)) and of the Issuing Banks to issue Letters of Credit to be terminated,
whereupon the same shall forthwith terminate, and (B) shall at the request, or
may with the consent, of the Majority Lenders, by notice to the Company, declare
the Advances, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrowers and (ii) in the case of the
occurrence of any Event of Default described in clause (i) or (ii) of Section
6.01(a), the Agent shall, at the request, or may with the consent, of the
Lenders which have made or assumed under this Agreement at least 66-2/3% of the
aggregate principal amount (based in respect of Competitive Bid Advances
denominated in Foreign Currencies on the Equivalent in Dollars on the date of
such request) of Competitive Bid Advances then outstanding and to whom such
Advances are owed, by notice to the Company, declare the full unpaid principal
of and accrued interest on all Competitive Bid Advances hereunder and all other
obligations of the Borrowers hereunder to be immediately due and payable,
whereupon such Advances and such obligations shall be immediately due and
payable, without presentment, demand, protest or other further notice of any
kind, all of which are hereby expressly waived by the Borrowers; provided,
however, that in

                                       57






the event of an actual or deemed entry of an order for relief with respect to
any Borrower under the United States Bankruptcy Code of 1978, as amended, (x)
the obligation of each Lender to make Advances (other than Advances by an
Issuing Bank or a Lender pursuant to Section 2.04(c)) and of the Issuing Banks
to issue Letters of Credit shall automatically be terminated and (y) the
Advances, all such interest and all such amounts shall automatically become and
be due and payable, without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by the Borrowers.

            SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Agent may with the consent, or shall at the request, of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Company to, and forthwith upon such
demand the Company will, (a) pay to the Agent on behalf of the Lenders in same
day funds at the Agent's office designated in such demand, for deposit in the
L/C Cash Deposit Account, an amount equal to the aggregate Available Amount of
all Letters of Credit then outstanding or (b) make such other reasonable
arrangements in respect of the outstanding Letters of Credit as shall be
acceptable to the Required Lenders; provided, however, that in the event of an
actual or deemed entry of an order for relief with respect to any Borrower under
the United States Bankruptcy Code of 1978, as amended, the Borrowers shall
immediately pay to the Agent on behalf of the Lenders for deposit in the L/C
Cash Deposit Account, an amount equal to the aggregate Available Amount of all
Letters of Credit then outstanding, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrowers.
If at any time the Agent reasonably determines that any funds held in the L/C
Cash Deposit Account are subject to any right or interest of any Person other
than the Agent and the Lenders or that the total amount of such funds is less
than the aggregate Available Amount of all Letters of Credit, the Borrowers
will, forthwith upon demand by the Agent, pay to the Agent, as additional funds
to be deposited and held in the L/C Cash Deposit Account, an amount equal to the
excess of (a) such aggregate Available Amount over (b) the total amount of
funds, if any, then held in the L/C Cash Deposit Account that are free and clear
of any such right and interest. Upon the drawing of any Letter of Credit, to the
extent funds are on deposit in the L/C Cash Deposit Account, such funds shall be
applied to reimburse the Issuing Banks to the extent permitted by applicable
law, and if so applied, then such reimbursement shall be deemed a repayment of
the corresponding Advance in respect of such Letter of Credit. After all such
Letters of Credit shall have expired or been fully drawn upon and all other
obligations of the Borrowers hereunder and under the Notes shall have been paid
in full, the balance, if any, in such L/C Cash Deposit Account shall be promptly
returned to the Company.

                                   ARTICLE VII

                                    GUARANTEE

            SECTION 7.01. Unconditional Guarantee. For valuable consideration,
receipt whereof is hereby acknowledged, and to induce each Lender to make
Advances to the Designated Subsidiaries and to induce the Agent to act
hereunder, the Company hereby unconditionally and irrevocably guarantees to each
Lender and the Agent that:

                                       58







            (a) the principal of and interest on each Advance to each Designated
      Subsidiary shall be promptly paid in full when due (whether at stated
      maturity, by acceleration or otherwise) in accordance with the terms
      hereof, and, in case of any extension of time of payment, in whole or in
      part, of such Advance, that all such sums shall be promptly paid when due
      (whether at stated maturity, by acceleration or otherwise) in accordance
      with the terms of such extension; and

            (b) all other amounts payable hereunder by any Designated Subsidiary
      to any Lender or the Agent or the Sub-Agent, as the case may be, shall be
      promptly paid in full when due in accordance with the terms hereof (the
      obligations of the Designated Subsidiaries under these subsections (a) and
      (b) of this Section 7.01 being the "Obligations").

In addition, the Company hereby unconditionally and irrevocably agrees that upon
default in the payment when due (whether at stated maturity, by acceleration or
otherwise) of any principal of, or interest on, any Advance to any Designated
Subsidiary or such other amounts payable by any Designated Subsidiary to any
Lender or the Agent, the Company will forthwith pay the same, without further
notice or demand.

            SECTION 7.02. Guarantee Absolute. The Company guarantees that the
Obligations will be paid strictly in accordance with the terms of this
Agreement, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of any Lender or
the Agent with respect thereto. The liability of the Company under this
guarantee shall be absolute and unconditional irrespective of:

                  (a) any lack of validity or enforceability of this Agreement
            or any other agreement or instrument relating thereto;

                  (b) any change in the time, manner or place of payment of, or
            in any other term of, all or any of the Obligations, or any other
            amendment or waiver of or any consent to departure from this
            Agreement;

                  (c) any exchange, release or non-perfection of any collateral,
            or any release or amendment or waiver of or consent to departure
            from any other guaranty, for all or any of the Obligations; or

                  (d) any other circumstance which might otherwise constitute a
            defense available to, or a discharge of, the Company, any Borrower
            or a guarantor.

This guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by any of the Lenders or the Agent upon the insolvency,
bankruptcy or reorganization of the Company or any Borrower or otherwise, all as
though such payment had not been made.

            SECTION 7.03. Waivers. The Company hereby expressly waives
diligence, presentment, demand for payment, protest, any requirement that any
right or power be exhausted or any action be taken against any Designated
Subsidiary or against any other guarantor of all or any portion of the Advances,
and all other notices and demands whatsoever.

                                       59






            SECTION 7.04. Remedies. Each of the Lenders and the Agent may pursue
its respective rights and remedies under this Article VII and shall be entitled
to payment hereunder notwithstanding any other guarantee of all or any part of
the Advances to the Designated Subsidiaries, and notwithstanding any action
taken by any such Lender or the Agent to enforce any of its rights or remedies
under such other guarantee, or any payment received thereunder. The Company
hereby irrevocably waives any claim or other right that it may now or hereafter
acquire against any Designated Subsidiary that arises from the existence,
payment, performance or enforcement of the Company's obligations under this
Article VII, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Agent or the Lenders against any
Designated Subsidiary, whether or not such claim, remedy or right arises in
equity or under contract, statute or common law, including, without limitation,
the right to take or receive from the Designated Subsidiary, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or right. If any amount
shall be paid to the Company in violation of the preceding sentence at any time
when all the Obligations shall not have been paid in full, such amount shall be
held in trust for the benefit of the Lenders and the Agent and shall forthwith
be paid to the Agent for its own account and the accounts of the respective
Lenders to be credited and applied to the Obligations, whether matured or
unmatured, in accordance with the terms of this Agreement, or to be held as
collateral for any Obligations or other amounts payable under this Agreement
thereafter arising. The Company acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Agreement
and that the waiver set forth in this section is knowingly made in contemplation
of such benefits.

            SECTION 7.05. No Stay. The Company agrees that, as between (a) the
Company and (b) the Lenders and the Agent, the Obligations of any Designated
Subsidiary guaranteed by the Company hereunder may be declared to be forthwith
due and payable as provided in Article VI hereof for purposes of this Article
VII by declaration to the Company as guarantor notwithstanding any stay,
injunction or other prohibition preventing such declaration as against such
Designated Subsidiary and that, in the event of such declaration to the Company
as guarantor, such Obligations (whether or not due and payable by such
Designated Subsidiary), shall forthwith become due and payable by the Company
for purposes of this Article VII.

            SECTION 7.06. Survival. This guarantee is a continuing guarantee and
shall (a) remain in full force and effect until payment in full (after the
Termination Date) of the Obligations and all other amounts payable under this
guaranty, (b) be binding upon the Company, its successors and assigns, (c) inure
to the benefit of and be enforceable by each Lender (including each assignee
Lender pursuant to Section 9.06) and the Agent and their respective successors,
transferees and assigns and (d) shall be reinstated if at any time any payment
to a Lender or the Agent hereunder is required to be restored by such Lender or
the Agent. Without limiting the generality of the foregoing clause (c), each
Lender may assign or otherwise transfer its interest in any Advance to any other
person or entity, and such other person or entity shall thereupon become vested
with all the rights in respect thereof granted to such Lender herein or
otherwise.

                                       60





                                  ARTICLE VIII

                                    THE AGENT

            SECTION 8.01. Authorization and Action. Each Lender (in its
capacities as a Lender and an Issuing Bank, as applicable) hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender prompt notice of each notice given to it by any Borrower pursuant to
the terms of this Agreement.

            SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the Lender that made any Advance as the holder of the Debt resulting therefrom
until the Agent receives and accepts an Assignment and Acceptance entered into
by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided
in Section 9.06; (b) may consult with legal counsel (including 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 in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of any Borrower
or to inspect the property (including the books and records) of any Borrower;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, this Agreement or any other instrument
or document furnished pursuant hereto; and (f) shall incur no liability under or
in respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

            SECTION 8.03. CUSA and Affiliates. With respect to its Commitments,
the Advances made by it and the Note issued to it, CUSA shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include CUSA in its individual capacity.
CUSA and its Affiliates may accept deposits from, lend money to, act as trustee
under indentures of, accept investment banking engagements from and generally
engage in any kind of business with, the Company, any of its Subsidiaries and
any Person who

                                       61






may do business with or own securities of the Company or any such Subsidiary,
all as if CUSA were not the Agent and without any duty to account therefor to
the Lenders.

            SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender
and based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender 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 action under this Agreement.

            SECTION 8.05. Indemnification. (a) Each Lender severally agrees to
indemnify the Agent (to the extent not reimbursed by a Borrower), from and
against such Lender's Ratable Share of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Agent, in its capacity as such, in any way relating
to or arising out of this Agreement or any action taken or omitted by the Agent,
in its capacity as such, under this Agreement, provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse the Agent promptly upon demand
for its Ratable Share of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not reimbursed for such expenses by a Borrower.

            (b) Each Lender severally agrees to indemnify the Issuing Banks (to
the extent not promptly reimbursed by the Company) from and against such
Lender's Ratable Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against any such Issuing Bank, in its capacity as such, in any way relating to
or arising out of this Agreement or any action taken or omitted by such Issuing
Bank, in its capacity as such, hereunder or in connection herewith; provided,
however, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Issuing Bank's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse any such Issuing Bank promptly upon demand for its Ratable Share of
any costs and expenses (including, without limitation, fees and expenses of
counsel) payable by the Company under Section 9.04, to the extent that such
Issuing Bank is not promptly reimbursed for such costs and expenses by the
Company.

            (c) The failure of any Lender to reimburse the Agent or any Issuing
Bank promptly upon demand for its Ratable Share of any amount required to be
paid by the Lenders to the Agent as provided herein shall not relieve any other
Lender of its obligation hereunder to reimburse the Agent or any Issuing Bank
for its Ratable Share of such amount, but no Lender

                                       62






shall be responsible for the failure of any other Lender to reimburse the Agent
or any Issuing Bank for such other Lender's Ratable Share of such amount.
Without prejudice to the survival of any other agreement of any Lender
hereunder, the agreement and obligations of each Lender contained in this
Section 8.05 shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under the Notes. Each of the Agent and each
Issuing Bank agrees to return to the Lenders their respective Ratable Shares of
any amounts paid under this Section 8.05 that are subsequently reimbursed by the
Company or any Borrower. In the case of any investigation, litigation or
proceeding giving rise to any Indemnified Costs, this Section 8.04 applies
whether any such investigation, litigation or proceeding is brought by the
Agent, any Lender or a third party.

            SECTION 8.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Company and may be removed
at any time with or without cause by the Majority Lenders. The Company may at
any time, by notice to the Agent, propose a successor Agent (which shall meet
the criteria described below) specified in such notice and request that the
Lenders be notified thereof by the Agent with a view to their removal of the
Agent and their appointment of such successor Agent; the Agent agrees to forward
any such notice to the Lenders promptly upon its receipt by the Agent. Upon any
such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Lenders, and shall have accepted such appointment, within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a commercial bank
organized under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

            SECTION 8.07. Sub-Agent. The Sub-Agent has been designated under
this Agreement to carry out duties of the Agent. When acting on behalf of the
Agent, the Sub-Agent shall be subject to each of the obligations in this
Agreement to be performed by the Sub-Agent, and each of the Borrowers and the
Lenders agrees that when acting on behalf of the Agent, the Sub-Agent shall be
entitled to exercise each of the rights and shall be entitled to each of the
benefits of the Agent under this Agreement as relate to the performance of its
obligations hereunder.

            SECTION 8.08. Other Agents. Each Lender hereby acknowledges that
none of the syndication agent or any documentation agent nor any other Lender
designated as any "Agent" on the signature pages hereof (other than the Agent)
has any liability hereunder other than in its capacity as a Lender.

                                   ARTICLE IX

                                       63






                                  MISCELLANEOUS

            SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Revolving Credit Notes, nor consent to any
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Majority Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) increase the Commitments of the Lenders or subject the Lenders to
any additional obligations, (b) reduce the principal of, or interest on, the
Revolving Credit Advances or any fees or other amounts payable hereunder, (c)
postpone any date fixed for any payment of principal of, or interest on, the
Revolving Credit Advances or any fees or other amounts payable hereunder, (d)
release the Company from any of its obligations under Article VII, (e) require
the duration of an Interest Period to be nine months if such period is not
available to all Lenders or (f) amend this Section 9.01; and provided further
that no amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Lenders required above to take such action, affect the
rights or duties of the Agent under this Agreement or any Note and no amendment,
waiver or consent shall, unless in writing and signed by the Issuing Banks in
addition to the Lenders required above to take such action, adversely affect the
rights or obligations of the Issuing Banks in their capacities as such under
this Agreement.

            SECTION 9.02. Notices, Etc. (a) All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed (return receipt requested), telecopied,
telegraphed, telexed or delivered, if to the Company or to any Designated
Subsidiary, at the Company's address at 101 Columbia Road, Morristown, New
Jersey 07962-1219, Attention: Assistant Treasurer; if to any Initial Lender, at
its Domestic Lending Office specified opposite its name on Schedule I hereto; if
to any other Lender, at its Domestic Lending Office specified in the Assignment
and Acceptance pursuant to which it became a Lender; and if to the Agent, at its
address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan
Syndications Department, with a copy to 388 Greenwich Street, New York, New York
10013, Attention: Diane Pockaj; or, as to any Borrower or the Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Company and the Agent;
provided that materials as may be agreed between the Borrowers and the Agent may
be delivered to the Agent in accordance with clause (b) below. All such notices
and communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when deposited in the mails, telecopied, delivered to the telegraph
company or confirmed by telex answerback, respectively, except that notices and
communications to the Agent pursuant to Article II, III or VIII shall not be
effective until received by the Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.

            (b) So long as CUSA or any of its Affiliates is the Agent, such
      materials required to be delivered pursuant to Section 5.01(h)(i), (ii),
      (iii) and (iv) as may be agreed between the Borrowers and the Agent may be
      delivered to the Agent in an electronic

                                       64






      medium in a format acceptable to the Agent and the Lenders by e-mail at
      oploanswebadmin@citigroup.com. The Borrowers agree that the Agent may make
      such materials (the "Communications") available to the Lenders by posting
      such notices on Intralinks or a substantially similar electronic system
      (the "Platform"). The Borrowers acknowledge that (i) the distribution of
      material through an electronic medium is not necessarily secure and that
      there are confidentiality and other risks associated with such
      distribution, (ii) the Platform is provided "as is" and "as available" and
      (iii) neither the Agent nor any of its Affiliates warrants the accuracy,
      adequacy or completeness of the Communications or the Platform and each
      expressly disclaims liability for errors or omissions in the
      Communications or the Platform. No warranty of any kind, express, implied
      or statutory, including, without limitation, any warranty of
      merchantability, fitness for a particular purpose, non-infringement of
      third party rights or freedom from viruses or other code defects, is made
      by the Agent or any of its Affiliates in connection with the Platform.

            (c) Each Lender agrees that notice to it (as provided in the next
      sentence) (a "Notice") specifying that any Communications have been posted
      to the Platform shall constitute effective delivery of such information,
      documents or other materials to such Lender for purposes of this
      Agreement; provided that if requested by any Lender the Agent shall
      deliver a copy of the Communications to such Lender by email or
      telecopier. Each Lender agrees (i) to notify the Agent in writing of such
      Lender's e-mail address(es) to which a Notice may be sent by electronic
      transmission (including by electronic communication) on or before the date
      such Lender becomes a party to this Agreement (and from time to time
      thereafter to ensure that the Agent has on record an effective e-mail
      address for such Lender) and (ii) that any Notice may be sent to such
      e-mail address(es).

            SECTION 9.03. No Waiver; Remedies. No failure on the part of any
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

            SECTION 9.04. Costs and Expenses. (a) The Company agrees to pay on
demand all reasonable costs and expenses of the Agent in connection with the
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, (i)
all due diligence, syndication (including printing, distribution and bank
meetings), transportation, computer, duplication, appraisal, consultant, and
audit expenses and (ii) the reasonable fees and expenses of counsel for the
Agent with respect thereto. The Company further agrees to pay on demand all
costs and expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 9.04(a).

                                       65






            (b) Each Borrower agrees to indemnify and hold harmless the Agent
and each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with the Notes, this Agreement, any
of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances whether or not such investigation, litigation or
proceeding is brought by the Company, its directors, shareholders or creditors
or an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated, except to the extent any such claim, damage, loss,
liability or expense has resulted from such Indemnified Party's gross negligence
or willful misconduct.

The Company also agrees not to assert any claim against any Indemnified Party on
any theory of liability for special, indirect, consequential or punitive damages
arising out of or otherwise relating to the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances.

            (c) If any payment of principal of, or Conversion of, any
Eurocurrency Rate Advance or LIBO Rate Advance is made by the Borrower to or for
the account of a Lender other than on the last day of the Interest Period for
such Advance, as a result of a payment or Conversion pursuant to Section
2.03(d), 2.06(b), 2.10(a) or (b) or 2.12, acceleration of the maturity of the
Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.

            (d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes and the
termination in whole of any Commitment hereunder.

            SECTION 9.05. Binding Effect. This Agreement shall become effective
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Company and the Agent and when the Agent shall
have been notified by each Initial Lender that such Initial Lender has executed
it and thereafter shall be binding upon and inure to the benefit of each
Borrower, the Agent and each Lender and their respective successors and assigns,
except that no Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lenders.

                                       66






            SECTION 9.06. Assignments and Participations. (a) Each Lender may at
any time, with notice to the Company prior to making any proposal to any
potential assignee and with the consent of the Company, which consent shall not
be unreasonably withheld (and shall at any time, if requested to do so by the
Company pursuant to Section 2.06(b), 2.11 or 2.14) assign to one or more Persons
all or a portion of its rights and obligations under a Facility or all
Facilities under this Agreement (including, without limitation, all or a portion
of its Revolving Credit Commitment, Unissued Letter of Credit Commitment, the
Revolving Credit Advances owing to it, its participations in Letters of Credit
and the Revolving Credit Note or Notes held by it); provided, however, that (i)
the Company's consent shall not be required (A) in the case of an assignment of
Revolving Credit Commitment, Revolving Credit Advances and participations in
Letters of Credit to an Affiliate of such Lender, provided that notice thereof
shall have been given to the Company and the Agent or (B) in the case of an
assignment of the type described in subsection (g) below; (ii) each such
assignment shall be of a constant, and not a varying, percentage of the rights
and obligations under this Agreement specified in the applicable Assignment and
Acceptance; (iii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of (x) the
Revolving Credit Commitment of the assigning Lender being assigned pursuant to
each such assignment (determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall in no event be less than $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and (y) Unissued Letter of
Credit Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $1,000,000 or an
integral multiple thereof; (iv) each such assignment shall be to an Eligible
Assignee, (v) each such assignment made as a result of a demand by the Company
pursuant to this Section 9.06(a) shall be arranged by the Company after
consultation with, and subject to the approval of, the Agent, and shall be
either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (vi) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrower pursuant to this
Section 9.06(a) unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement and all of the obligations of the Borrower to such
Lender shall have been satisfied; and (vii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with a processing and
recordation fee of $3,500 and, if the assigning Lender is not retaining a
Commitment hereunder, any Revolving Credit Note subject to such assignment. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder and (y) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its

                                       67






obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto, provided, however, that such assigning Lender's rights under Sections
2.11, 2.14 and 9.04, and its obligations under Section 8.05, shall survive such
assignment as to matters occurring prior to the effective date of such
assignment).

            (b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other instrument or document furnished pursuant hereto or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, this Agreement or any other instrument
or document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Borrower or the performance or observance by such
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assigning Lender or any
other Lender 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 action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers and discretion as are reasonably incidental thereto; and (vii)
such assignee agrees that it will perform in accordance with their terms all of
the obligations that by the terms of this Agreement are required to be performed
by it as a Lender.

            (c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Company and to each other Borrower.

            (d) The Agent shall maintain at its address referred to in Section
9.02 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Company,
each other Borrower, the Agent and the Lenders may treat each Person whose name
is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register

                                       68






shall be available for inspection by the Company, any other Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.

            (e) Each Lender may sell participations to one or more banks or
other entities (other than the Company or any of its Affiliates) in or to all or
a portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and any
Note or Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Company and the other Borrowers hereunder) shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
any such Note for all purposes of this Agreement, (iv) the Company, any other
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by any
Borrower therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation and (vi) within 30 days of the
effective date of such participation, such Lender shall provide notice of such
participation to the Company.

            (f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.06, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Company or any Borrower furnished
to such Lender by or on behalf of such Borrower; provided that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any confidential information
relating to such Borrower received by it from such Lender.

            (g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign or create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and any Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.

            SECTION 9.07. Designated Subsidiaries. (a) Designation. The Company
may at any time, and from time to time, by delivery to the Agent of a
Designation Letter duly executed by the Company and the respective Subsidiary
and substantially in the form of Exhibit D hereto, designate such Subsidiary as
a "Designated Subsidiary" for purposes of this Agreement and such Subsidiary
shall thereupon become a "Designated Subsidiary" for purposes of this Agreement
and, as such, shall have all of the rights and obligations of a Borrower
hereunder. The Agent shall promptly notify each Lender of each such designation
by the Company and the identity of the respective Subsidiary.

                                       69






            (b) Termination. Upon the payment and performance in full of all of
the indebtedness, liabilities and obligations under this Agreement and the Notes
of any Designated Subsidiary then, so long as at the time no Notice of Revolving
Credit Borrowing or Notice of Competitive Bid Borrowing in respect of such
Designated Subsidiary is outstanding, such Subsidiary's status as a "Designated
Subsidiary" shall terminate upon notice to such effect from the Agent to the
Lenders (which notice the Agent shall give promptly upon its receipt of a
request therefor from the Company). Thereafter, the Lenders shall be under no
further obligation to make any Advance hereunder to such Designated Subsidiary.

            SECTION 9.08. Confidentiality. Each of the Lenders and the Agent
hereby agrees that it will use reasonable efforts (e.g., procedures
substantially comparable to those applied by such Lender or the Agent in respect
of non-public information as to the business of such Lender or the Agent) to
keep confidential any financial reports and other information from time to time
supplied to it by the Company hereunder to the extent that such information is
not and does not become publicly available and which the Company indicates at
the time is to be treated confidentially, provided, however, that nothing herein
shall affect the disclosure of any such information (i) by the Agent to any
Lender, (ii) to the extent required by law (including statute, rule, regulation
or judicial process), (iii) to counsel for any Lender or the Agent or to their
respective independent public accountants, (iv) to bank examiners and auditors
and appropriate government examining authorities, (v) to the Agent or any other
Lender, (vi) in connection with any litigation to which any Lender or the Agent
is a party, (vii) to actual or prospective assignees and participants as
contemplated by Section 9.06(f), (viii) to any Affiliate of the Agent or any
Lender or to such Affiliate's officers, directors, employees, agents and
advisors, provided that, prior to any such disclosure, such Affiliate or such
Affiliate's officers, directors, employees, agents or advisors, as the case may
be, shall agree to preserve the confidentiality of any confidential information
relating to the Company received by it or (ix) any actual or prospective
counterparty (or its advisors) to any securitization, swap or derivative
transaction relating to the Borrowers, any Subsidiary of the Company, and the
Obligations; a determination by a Lender or the Agent as to the application of
the circumstances described in the foregoing clauses (i)-(viii) being conclusive
if made in good faith; and each of the Lenders and the Agent agrees that it will
follow procedures which are intended to put any transferee of such confidential
information on notice that such information is confidential.

            SECTION 9.09. Mitigation of Yield Protection. Each Lender hereby
agrees that, commencing as promptly as practicable after it becomes aware of the
occurrence of any event giving rise to the operation of Section 2.11(a), 2.12 or
2.14 with respect to such Lender, such Lender will give notice thereof through
the Agent to the respective Borrower. A Borrower may at any time, by notice
through the Agent to any Lender, request that such Lender change its Applicable
Lending Office as to any Advance or Type of Advance or that it specify a new
Applicable Lending Office with respect to its Commitment and any Advance held by
it or that it rebook any such Advance with a view to avoiding or mitigating the
consequences of an occurrence such as described in the preceding sentence, and
such Lender will use reasonable efforts to comply with such request unless, in
the opinion of such Lender, such change or specification or rebooking is
inadvisable or might have an adverse effect, economic or otherwise, upon it,
including its reputation. In addition, each Lender agrees that, except for
changes or specifications or rebookings required by law or effected pursuant to
the preceding sentence, if the result of any change or change of specification
of Applicable Lending Office or rebooking

                                       70






would, but for this sentence, be to impose additional costs or requirements upon
the respective Borrower pursuant to Section 2.11(a), Section 2.12 or Section
2.14 (which would not be imposed absent such change or change of specification
or rebooking) by reason of legal or regulatory requirements in effect at the
time thereof and of which such Lender is aware at such time, then such costs or
requirements shall not be imposed upon such Borrower but shall be borne by such
Lender. All expenses incurred by any Bank in changing an Applicable Lending
Office or specifying another Applicable Lending Office of such Lender or
rebooking any Advance in response to a request from a Borrower shall be paid by
such Borrower. Nothing in this Section 9.09 (including, without limitation, any
failure by a Lender to give any notice contemplated in the first sentence
hereof) shall limit, reduce or postpone any obligations of the respective
Borrower under Section 2.11(a), Section 2.12 or Section 2.14, including any
obligations payable in respect of any period prior to the date of any change or
specification of a new Applicable Lending Office or any rebooking of any
Advance.

            SECTION 9.10. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.

            SECTION 9.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

            SECTION 9.12. Jurisdiction, Etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each Designated Subsidiary hereby agrees that service of
process in any such action or proceeding brought in the any such New York State
court or in such federal court may be made upon CT Corporation System at its
offices at 1633 Broadway, New York, New York 10019 (the "Process Agent") and
each Designated Subsidiary hereby irrevocably appoints the Process Agent its
authorized agent to accept such service of process, and agrees that the failure
of the Process Agent to give any notice of any such service shall not impair or
affect the validity of such service or of any judgment rendered in any action or
proceeding based thereon. Each Borrower hereby further irrevocably consents to
the service of process in any action or proceeding in such courts by the mailing
thereof by any parties hereto by registered or certified mail, postage prepaid,
to such Borrower at its address specified pursuant to Section 9.02. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to serve legal process in any
other manner permitted by law or to bring any action or proceeding relating to
this Agreement or the Notes in the courts of any jurisdiction. To the extent
that each Designated

                                       71






Subsidiary has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, each Designated Subsidiary hereby irrevocably
waives such immunity in respect of its obligations under this Agreement.

            (b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any New York State or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

            SECTION 9.13. Substitution of Currency. If a change in any Foreign
Currency occurs pursuant to any applicable law, rule or regulation of any
governmental, monetary or multi-national authority, this Agreement (including,
without limitation, the definitions of Eurocurrency Rate and LIBO Rate) will be
amended to the extent determined by the Agent (acting reasonably and in
consultation with the Company) to be necessary to reflect the change in currency
and to put the Lenders and the Borrowers in the same position, so far as
possible, that they would have been in if no change in such Foreign Currency had
occurred.

            SECTION 9.14. Final Agreement. This written agreement represents the
full and final agreement between the parties with respect to the matters
addressed herein and supercedes all prior communications, written or oral, with
respect thereto. There are no unwritten agreements between the parties.

            SECTION 9.15. Judgment. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due hereunder or under
the Notes in any currency (the "Original Currency") into another currency (the
"Other Currency"), the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Agent could purchase the Original
Currency with the Other Currency at 9:00 A.M. (New York City time) on the first
Business Day preceding that on which final judgment is given.

            (b) The obligation of each Borrower in respect of any sum due in the
Original Currency from it to any Lender or the Agent hereunder or under the
Revolving Credit Note or Revolving Credit Notes held by such Lender shall,
notwithstanding any judgment in any Other Currency, be discharged only to the
extent that on the Business Day following receipt by such Lender or the Agent
(as the case may be) of any sum adjudged to be so due in such Other Currency,
such Lender or the Agent (as the case may be) may in accordance with normal
banking procedures purchase Dollars with such Other Currency; if the amount of
Dollars so purchased is less than the sum originally due to such Lender or the
Agent (as the case may be) in the Original Currency, such Borrower agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Lender or the Agent (as the case may be) against such loss, and if the amount of
Dollars so purchased exceeds the sum originally due to any Lender or the Agent
(as the case may be) in the Original Currency, such Lender or the Agent (as the
case may be) agrees to remit to such Borrower such excess.

                                       72






            SECTION 9.16. No Liability of the Issuing Banks. None of the Agent,
the Lenders nor any Issuing Bank, nor any of their Affiliates, or the respective
directors, officers, employees, agents and advisors of such Person or such
Affiliate, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder, or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical
terms or any consequence arising from causes beyond the control of the
applicable Issuing Bank; provided that the foregoing shall not be construed to
excuse any Issuing Bank from liability to the applicable Borrower to the extent
of any direct damages (as opposed to consequential damages, claims in respect of
which are hereby waived by the Borrowers to the extent permitted by applicable
law) suffered by such Borrower that are caused by such Issuing Bank's failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof or any failure to honor a
Letter of Credit where such Issuing Bank is, under applicable law, required to
honor it. The parties hereto expressly agree that, as long as the Issuing Bank
has not acted with gross negligence or willful misconduct, such Issuing Bank
shall be deemed to have exercised care in each such determination. In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, an
Issuing Bank may, in its reasonable discretion, either accept and make payment
upon such documents without responsibility for further investigation or refuse
to accept and make payment upon such documents if such documents are not in
strict compliance with the terms of such Letter of Credit.

            SECTION 9.17. Patriot Act Notice. Each Lender hereby notifies the
Company that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required
to obtain, verify and record information that identifies each borrower,
guarantor or grantor (the "Loan Parties"), which information includes the name
and address of each Loan Party and other information that will allow such Lender
to identify such Loan Party in accordance with the Act.

                                       73






            SECTION 9.18. Waiver of Jury Trial. Each Borrower, the Agent and
each Lender hereby irrevocably waive all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or the Notes or the actions of the
Agent or any Lender in the negotiation, administration, performance or
enforcement thereof.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.



                                                  
                                                     HONEYWELL INTERNATIONAL INC.

                                                     By:      /s/ John J. Tus
                                                     Title:   Treasurer

                                                     CITICORP USA, INC., as Agent

                                                     By:      /s/ Judith Green
                                                     Title:   Vice President

LETTER OF CREDIT COMMITMENT
- ---------------------------

$66,666,667                                          CITIBANK, N.A.

                                                     By:      /s/ Judith Green
                                                     Title:   Vice President

$66,666,666                                          BANK OF AMERICA, N.A.

                                                     By:      John W. Pocalyko
                                                     Title:   Managing Director

$66,666,666                                          JPMORGAN CHASE BANK

                                                     By:      /s/ Stephanie Parker
                                                     Title:   Vice President

$200,000,000 TOTAL OF LETTER OF CREDIT COMMITMENTS

REVOLVING CREDIT COMMITMENT                          ARRANGER AND ADMINISTRATIVE AGENT
- ---------------------------                          ---------------------------------

$105,000,000.00                                      CITICORP USA, INC.

                                                     By:      /s/ Judith Green
                                                     Title:   Vice President


                                       74








                                                  
                                                     ARRANGER AND SYNDICATION AGENT
                                                     ------------------------------

$105,000,000.00                                      JPMORGAN CHASE BANK

                                                     By:      /s/ Stephanie Parker
                                                     Title:   Vice President

                                                     DOCUMENTATION AGENTS
                                                     --------------------

$75,000,000.00                                       BANK OF AMERICA, N.A.

                                                     By:      John W. Pocalyko
                                                     Title:   Managing Director

$75,000,000.00                                       BARCLAYS BANK PLC

                                                     By:      /s/ Nicholas A. Bell
                                                     Title:   Director

$75,000,000.00                                       DEUTSCHE BANK AG NEW YORK BRANCH

                                                     By:      /s/ Joel Makowsky
                                                     Title:   Director

                                                     By:      /s/ Oliver Riedinger
                                                     Title:   Vice President

$75,000,000.00                                       UBS LOAN FINANCE LLC

                                                     By:      /s/ Barbara Ezell-McMichael
                                                     Title:   Associate Director

                                                     By:      /s/ Winslowe Ogbourne
                                                     Title:   Associate Director

                                                     SENIOR MANAGING AGENTS
                                                     ----------------------

$50,000,000.00                                       ABN AMRO BANK N.V.

                                                     By:      /s/ Eric Oppenheimer
                                                     Title:   Director

                                                     By:      /s/ Alexander M. Blodi
                                                     Title:   Director


                                       75








                                                  
$50,000,000.00                                       BANK OF TOKYO-MITSUBISHI TRUST
                                                     COMPANY

                                                     By:      /s/ P. Shah
                                                     Title:   Vice President

$50,000,000.00                                       BNP PARIBAS

                                                     By:      /s/ Bruno Lavole
                                                     Title:   Managing Director

                                                     By:      /s/ Richard Pace
                                                     Title:   Managing Director

$50,000,000.00                                       THE ROYAL BANK OF SCOTLAND PLC

                                                     By:      /s/ Philippe Sandmeier
                                                     Title:   Senior Vice President

$50,000,000.00                                       WACHOVIA BANK, N.A.

                                                     By:      Robert G. McGill, Jr.
                                                     Title:   Director

                                                     MANAGING AGENTS
                                                     ---------------

$34,000,000.00                                       ING CAPITAL LLC

                                                     By:      /s/ Willem Pijpers
                                                     Title:   Managing Director

$34,000,000.00                                       THE NORTHERN TRUST COMPANY

                                                     By:      /s/ Ashish S. Bhagwat
                                                     Title:   Vice President


                                       76







                                                  
                                                     LENDERS
                                                     -------

$20,000,000.00                                       CREDIT INDUSTRIEL ET COMMERCIAL

                                                     By:      /s/ Eric Dulot
                                                     Title:   Vice President

$20,000,000.00                                       MIZUHO CORPORATE BANK, LTD.

                                                     By:      /s/ Bertram H. Tang
                                                     Title:   Senior Vice President & Team Leader

$20,000,000.00                                       ROYAL BANK OF CANADA

                                                     By:      /s/ Howard Lee
                                                     Title:   Authorized Signatory

$20,000,000.00                                       SUMITOMO MITSUI BANKING CORPORATION

                                                     By:      /s/ Edward McColly
                                                     Title:   Vice President and Department Head

$20,000,000.00                                       UNICREDITO ITALIANO S.p.A., NEW YORK BRANCH

                                                     By:      /s/ Christopher J. Eldin
                                                     Title:   First Vice President and Deputy Manager

                                                     By:      /s/ Saiyed A. Abbas
                                                     Title:   Vice President

$12,000,000.00                                       BANCO BILBAO VIZCAYA ARGENTARIA S.A.

                                                     By:      /s/ John Martin
                                                     Title:   Vice President


                                       77








                                                  
$12,000,000.00                                       SANTANDER CENTRAL HISPANO, S.A.,
                                                     NEW YORK BRANCH

                                                     By:      /s/ Luis Pastor
                                                     Title:   Vice President

                                                     By:      /s/ Dom Rodriguez
                                                     Title:   Vice President

$12,000,000.00                                       DANSKE BANK A/S, CAYMAN ISLANDS BRANCH

                                                     By:      /s/ Angelor J. Balestrieri
                                                     Title:   Vice President

                                                     By:      /s/ John A. O'Neill
                                                     Title:   Assistant General Manager

$12,000,000.00                                       SKANDINAVISKA ENSKILDA BANKEN
                                                     AB (PUBL)

                                                     By:      Michael Dicks
                                                     Title:   Authorized Signatory

                                                     By:      Martin Lindeberg
                                                     Title:   Authorized Signatory

$12,000,000.00                                       SOCIETE GENERALE

                                                     By:      /s/ Ambrish D. Thanawala
                                                     Title:   Director

$12,000,000.00                                       WESTPAC BANKING CORPORATION

                                                     By:      /s/ Robert Bosse
                                                     Title:   Vice President

$1,000,000,000    TOTAL OF COMMITMENTS


                                       78






                                   SCHEDULE I
                           APPLICABLE LENDING OFFICES



- -------------------------------------- --------------------------------------- ------------------------------------------

       NAME OF INITIAL LENDER          DOMESTIC LENDING OFFICE                 EURODOLLAR LENDING OFFICE
- -------------------------------------- --------------------------------------- ------------------------------------------
                                                                         
ABN AMRO Bank N.V.                     208 South LaSalle Street                208 South LaSalle Street
                                       Suite 1500                              Suite 1500
                                       Chicago, IL 60604                       Chicago, IL 60604
                                       Attn: Credit Administration             Attn: Credit Administration
                                       Phone: (312) 992-51521                  Phone: (312) 992-51521
                                       Fax: (312) 992-5157                     Fax: (312) 992-5157
- -------------------------------------- --------------------------------------- ------------------------------------------
Banco Bilbao Vizcaya Argentarie S.A.   1345 Avenue of the Americas             1345 Avenue of the Americas
                                       45th Floor                              45th Floor
                                       New York, NY 10105                      New York, NY 10105
                                       Attn: Miguel Lara                       Attn: Miguel Lara
                                       Phone: (212) 728-1664                   Phone: (212) 728-1664
                                       Fax: (212) 333-2904                     Fax: (212) 333-2904
- -------------------------------------- --------------------------------------- ------------------------------------------
Bank of America, N.A.                  101 N. Tryon Street                     101 N. Tryon Street
                                       Charlotte, NC 28255                     Charlotte, NC 28255
                                       Attn: Carrie Cunder                     Attn: Carrie Cunder
                                       Phone: (704) 386-8382                   Phone: (704) 386-8382
                                       Fax: (704) 409-0064                     Fax: (704) 409-0064
- -------------------------------------- --------------------------------------- ------------------------------------------
The Bank of Tokyo-Mitsubishi           1251 Avenue of the Americas             1251 Avenue of the Americas
                                       12th Floor                              12th Floor
                                       New York, NY 10020                      New York, NY 10020
                                       Attn: Rolando Uy                        Attn: Rolando Uy
                                       Phone: (201) 413-8570                   Phone: (201) 413-8570
                                       Fax: (201) 521-2304                     Fax: (201) 521-2304
- -------------------------------------- --------------------------------------- ------------------------------------------
Barclays Bank PLC                      200 Park Avenue                         200 Park Avenue
                                       New York, NY  10163                     New York, NY  10163
                                       Attn:  Martin Duran                     Attn:  Martin Duran
                                       Phone:  (212) 412 6831                  Phone:  (212) 412 6831
                                       Fax:  (212) 412 5306                    Fax:  (212) 412 5306
- -------------------------------------- --------------------------------------- ------------------------------------------
BNP Paribas                            499 Park Avenue                         499 Park Avenue
                                       New York, NY  10022                     New York, NY  10022
                                       Attn: Andree Mitton/Robin               Attn: Andree Mitton/Robin Jackson-Bogner
                                       Jackson-Bogner                          Phone:  (212) 415-9617/9616
                                       Phone:  (212) 415-9617/9616             Fax:  (212) 415-9606
                                       Fax:  (212) 415-9606
- -------------------------------------- --------------------------------------- ------------------------------------------
Citicorp USA, Inc.                     388 Greenwich Street                    388 Greenwich Street
                                       New York, NY  10013                     New York, NY  10013
                                       Attn: Carolyn Sheridan                  Attn: Carolyn Sheridan
                                       Phone:  (212) 559-3245                  Phone:  (212) 559-3245
                                       Fax:  (212) 826-2371                    Fax:  (212) 826-2371
- -------------------------------------- --------------------------------------- ------------------------------------------
Credit Industriel et Commercial        520 Madison Avenue                      520 Madison Avenue
                                       New York, NY  10022                     New York, NY  10022
                                       Attn:  Eric Dulot                       Attn:  Eric Dulot
                                       Phone:  (212) 715-4430                  Phone:  (212) 715-4430
- -------------------------------------- --------------------------------------- ------------------------------------------










- -------------------------------------- --------------------------------------- ------------------------------------------
                                                                         
Danske Bank A/S, Cayman Islands        299 Park Avenue, 14th Floor             299 Park Avenue, 14th Floor
Branch                                 New York, NY  10171                     New York, NY  10171
                                       Attn:  Loan Administration              Attn:  Loan Administration
                                       Phone:  (212) 984-8462                  Phone:  (212) 984-8462
                                       Fax:  (212) 984-9570                    Fax:  (212) 984-9570
- -------------------------------------- --------------------------------------- ------------------------------------------
Deutsche Bank AG New York Branch       90 Hudson Street, Floor 1               90 Hudson Street, Floor 1
                                       Jersey City, NJ  07302                  Jersey City, NJ  07302
                                       Attn:  Joe Cusmai                       Attn:  Joe Cusmai
                                       Phone:  (201) 593-2202                  Phone:  (201) 593-2202
                                       Fax:  (201) 593-2313                    Fax:  (201) 593-2313
- -------------------------------------- --------------------------------------- ------------------------------------------
ING Capital LLC                        1325 Avenue of the Americas             1325 Avenue of the Americas
                                       New York, NY  10019                     New York, NY  10019
                                       Attn:  Jason Gallea                     Attn:  Jason Gallea
                                       Phone:  (646) 424-7214                  Phone:  (646) 424-7214
                                       Fax:  (646) 424-7229                    Fax:  (646) 424-7229
- -------------------------------------- --------------------------------------- ------------------------------------------
JPMorgan Chase Bank                    111 Fannin 10th Floor                   111 Fannin 10th Floor
                                       Houston, TX  77002                      Houston, TX  77002
                                       Attn: Autumn Mashue                     Attn: Autumn Mashue
                                       Phone: (713) 427-6199                   Phone: (713) 427-6199
                                       Fax: (713) 750-2932                     Fax: (713) 750-2932
- -------------------------------------- --------------------------------------- ------------------------------------------
Mizuho Corporate Bank, Ltd.            1251 Avenue of the Americas             1251 Avenue of the Americas
                                       New York, NY  10020                     New York, NY  10020
                                       Phone:  (212) 282-3000                  Phone:  (212) 282-3000
                                       Fax:  (212) 282-4250                    Fax:  (212) 282-4250
- -------------------------------------- --------------------------------------- ------------------------------------------
The Northern Trust Company             50 S. LaSalle Street                    50 S. LaSalle Street
                                       Chicago, IL 60675                       Chicago, IL 60675
                                       Attn: Linda Honda                       Attn: Linda Honda
                                       Phone: (312) 444-3532                   Phone: (312) 444-3532
                                       Fax: (312) 630-1566                     Fax: (312) 630-1566
- -------------------------------------- --------------------------------------- ------------------------------------------
Royal Bank of Canada                   One Liberty Plaza, 3rd Floor            One Liberty Plaza, 3rd Floor
                                       New York, NY 10006                      New York, NY 10006
                                       Attn: Karim Amr                         Attn: Karim Amr
                                       Phone: (212) 428-6369                   Phone: (212) 428-6369
                                       Fax: (212) 428-2372                     Fax: (212) 428-2372

                                       with a copy to:                         with a copy to:

                                       Attn: N. Delph                          Attn: N. Delph
                                       Phone: (212) 428-6249                   Phone: (212) 428-6249
                                       Fax: (212) 428-2319                     Fax: (212) 428-2319
- -------------------------------------- --------------------------------------- ------------------------------------------
The Royal Bank of Scotland plc         101 Park Avenue                         101 Park Avenue
                                       New York, NY  10178                     New York, NY  10178
                                       Attn:  Juanita Baird                    Attn:  Juanita Baird
                                       Phone:  (212) 401-1420                  Phone:  (212) 401-1420
                                       Fax:  (212) 401-1494                    Fax:  (212) 401-1494
- -------------------------------------- --------------------------------------- ------------------------------------------
Santander Central Hispano, S.A., New   45 East 53rd Street                     45 East 53rd Street
York Branch                            New York, NY  10022                     New York, NY  10022
                                       Attn:  Ugla Castro                      Attn:  Ugla Castro
                                       Phone:  (212) 350-3677                  Phone:  (212) 350-3677
                                       Fax:  (212) 350-3647                    Fax:  (212) 350-3647
- -------------------------------------- --------------------------------------- ------------------------------------------


                                       2








- -------------------------------------- --------------------------------------- ------------------------------------------
                                                                         
Skandinaviska Enskilda Banken AB       106 40 Stockholm                        106 40 Stockholm
Publ.                                  Sweden                                  Sweden
                                       Attn:  Foreign Credit Administration    Attn:  Foreign Credit Administration
                                       Phone:  (46) 8 763-3642                 Phone:  (46) 8 763-3642
                                       Fax:  (46) 8 611-0984                   Fax:  (46) 8 611-0984
- -------------------------------------- --------------------------------------- ------------------------------------------
Societe Generale                       2001 Ross Avenue                        2001 Ross Avenue
                                       Suite 4800                              Suite 4800
                                       Dallas, TX  75201                       Dallas, TX  75201
                                       Attn:  Lori Murphy                      Attn:  Lori Murphy
                                       Phone:  (214) 979-2770                  Phone:  (214) 979-2770
                                       Fax:  (214) 754-0171                    Fax:  (214) 754-0171
- -------------------------------------- --------------------------------------- ------------------------------------------
Sumitomo Mitsui Banking Corporation    277 Park Avenue                         277 Park Avenue
                                       New York, NY 10172                      New York, NY 10172
                                       Attn: Edward McColly                    Attn: Edward McColly
                                       Phone: (212) 224-4139                   Phone: (212) 224-4139
                                       Fax: (212) 224-4384                     Fax: (212) 224-4384
- -------------------------------------- --------------------------------------- ------------------------------------------
UBS Loan Finance LLC                   677 Washington Blvd.                    677 Washington Blvd.
                                       6th Floor South                         6th Floor South
                                       Stamford, CT  05901                     Stamford, CT  05901
                                       Attn:  Christopher Aitkin               Attn:  Christopher Aitkin
                                       Phone:  (203) 719-3845                  Phone:  (203) 719-3845
                                       Fax:  (203) 719-3888                    Fax:  (203) 719-3888
- -------------------------------------- --------------------------------------- ------------------------------------------
Unicredito Italiano                    375 Park Avenue                         375 Park Avenue
                                       New York, NY 10152                      New York, NY 10152
                                       Attn: Evangeline Blanco                 Attn: Evangeline Blanco
                                       Phone:  (212) 546-9615                  Phone:  (212) 546-9615
                                       Fax: (212) 546-9675                     Fax: (212) 546-9675
- -------------------------------------- --------------------------------------- ------------------------------------------
Wachovia Bank, N.A.                    201 S. College Street                   201 S. College Street
                                       Charlotte, NC                           Charlotte, NC
                                       Attn:  Romonia Lester                   Attn:  Romonia Lester
                                       Phone:  (704) 383-5364                  Phone:  (704) 383-5364
                                       Fax:  (704) 715-0096                    Fax:  (704) 715-0096
- -------------------------------------- --------------------------------------- ------------------------------------------
Westpac Banking Corporation            GMO Nightshift Operations               GMO Nightshift Operations
                                       255 Elizabeth St. 3rd Floor             255 Elizabeth St. 3rd Floor
                                       Sydney, NSW 2000                        Sydney, NSW 2000
                                       Australia                               Australia
                                       Attn:  Matt Healey                      Attn:  Matt Healey
                                       Phone:  011 612 9284-8241               Phone:  011 612 9284-8241
                                       Fax:   011 44 207 621 7608              Fax:   011 44 207 621 7608
- -------------------------------------- --------------------------------------- ------------------------------------------


                                       3






                                SCHEDULE 2.01(b)

                           EXISTING LETTERS OF CREDIT

                                      None







                                SCHEDULE 3.01(b)

                              DISCLOSED LITIGATION
                              --------------------

            While not giving an opinion as to whether any item is "reasonably
likely to have a Material Adverse Effect," we hereby disclose the litigation
matters as stated in our Form 10-Q for the quarter ended June 30, 2004, under
the heading "Legal Proceedings," as follows.

            Shareowner Litigation -- Honeywell and three of its former officers
are defendants in a class action lawsuit filed in the United States District
Court for the District of New Jersey. Plaintiffs allege, among other things,
that the defendants violated federal securities laws by purportedly making false
and misleading statements and by failing to disclose material information
concerning Honeywell's financial performance, thereby allegedly causing the
value of Honeywell's stock to be artificially inflated. The Court has certified
a class consisting of all purchasers of Honeywell stock between December 20,
1999 and June 19, 2000. On June 4, 2004 Honeywell and the lead plaintiffs agreed
to a settlement of this matter which requires a payment to the class of $100
million. Honeywell's contribution to the settlement is $15 million, which amount
had previously been fully reserved. Honeywell's insurance carriers will pay the
remainder of the settlement. The settlement is subject to court approval and
other contingencies. A court hearing on the terms of the settlement is scheduled
for August 16, 2004. Although members of the class may opt out of the
settlement, Honeywell believes that any such claims would be fully insured.

            ERISA Class Action Lawsuit -- Honeywell and several of its current
and former officers and directors are defendants in a purported class action
lawsuit filed in the United States District Court for the District of New
Jersey. The complaint principally alleges that the defendants breached their
fiduciary duties to participants in the Honeywell Savings and Ownership Plan
(the "Savings Plan") by purportedly making false and misleading statements,
failing to disclose material information concerning Honeywell's financial
performance, and failing to diversify the Savings Plan's assets and monitor the
prudence of Honeywell stock as a Savings Plan investment. In September 2003,
Honeywell filed a motion to dismiss this matter.

            Although it is not possible at this time to predict the outcome of
this matter, we believe that the allegations in this matter are without merit
and we expect to prevail. An adverse litigation outcome could, however, be
material to our consolidated financial position or results of operations. As a
result of the uncertainty regarding the outcome of this matter, no provision has
been made in our financial statements with respect to this contingent liability.

            Environmental Matters - We are subject to various federal, state and
local government requirements relating to the protection of the environment. We
believe that, as a general matter, our policies, practices and procedures are
properly designed to prevent unreasonable risk of environmental damage and
personal injury and that our handling, manufacture, use and disposal of
hazardous or toxic substances are in accord with environmental and safety laws
and regulations. However, mainly because of past operations and operations of
predecessor companies, we, like other companies engaged in similar businesses,
have incurred remedial response and voluntary cleanup costs for site
contamination and are a party to lawsuits and claims associated with
environmental and safety matters, including past production of products







containing toxic substances. Additional lawsuits, claims and costs involving
environmental matters are likely to continue to arise in the future.

            With respect to environmental matters involving site contamination,
we continually conduct studies, individually at our owned sites, and jointly as
a member of industry groups at non-owned sites, to determine the feasibility of
various remedial techniques to address environmental matters. It is our policy
to record appropriate liabilities for environmental matters when environmental
assessments are made or remedial efforts or damage claim payments are probable
and the costs can be reasonably estimated. With respect to site contamination,
the timing of these accruals is generally no later than the completion of
feasibility studies. We expect to fund expenditures for these matters from
operating cash flow. The timing of cash expenditures depends on a number of
factors, including the timing of litigation and settlements of personal injury
and property damage claims, regulatory approval of cleanup projects, remedial
techniques to be utilized and agreements with other parties.

            Although we do not currently possess sufficient information to
reasonably estimate the amounts of liabilities to be recorded upon future
completion of studies, litigation or settlements, and neither the timing nor the
amount of the ultimate costs associated with environmental matters can be
determined, they could be material to our consolidated results of operations or
operating cash flows in the periods recognized or paid. However, considering our
past experience and existing reserves, we do not expect that these environmental
matters will have a material adverse effect on our consolidated financial
position.

            In the matter entitled Interfaith Community Organization, et al. v.
Honeywell International Inc., et al., the United States District Court for the
District of New Jersey held in May 2003 that a predecessor Honeywell site
located in Jersey City, New Jersey constituted an imminent and substantial
endangerment and ordered Honeywell to conduct the excavation and transport for
offsite disposal of approximately one million tons of chromium residue present
at the site. Honeywell strongly disagrees with the Court's determinations and
has appealed the Court's decision to the Third Circuit Court of Appeals. In
October 2003, the District Court denied Honeywell's motion for a stay of certain
aspects of its May 2003 order, and we have appealed the ruling to the Third
Circuit. The site at issue is one of twenty-one sites located in Jersey City,
New Jersey which are the subject of an Administrative Consent Order (ACO)
entered into with the New Jersey Department of Environmental Protection (NJDEP)
in 1993. Under the ACO, Honeywell agreed to study and remediate these sites in
accordance with NJDEP's directions, provided that the total costs of such
studies and remediation do not exceed $60 million. Honeywell has cooperated with
the NJDEP under the ACO and believes that decisions regarding site cleanups
should be made by the NJDEP under the ACO. We are confident that proceeding
under the ACO will ensure a safe remediation and allow the property to be placed
back into productive use much faster and at a cost significantly less than the
remedies required by the Court's order. We have submitted a remedial action plan
for the excavation and offsite disposal directed under the Court's order to the
Special Master appointed by the Court, for which the estimated cost of
implementing such plan would be approximately $316 million. At trial,
plaintiff's expert testified that the excavation and offsite disposal cost might
be $400 million. However, there are significant variables in the implementation
of the Court's order and depending on the method of implementation chosen, the
estimate could increase or decrease. Provisions have been made in our financial
statements for remedial costs

                                       2






consistent with the ACO, additional costs which are likely to be incurred during
the pendency of our appeal and a potential resolution of the principal issues in
dispute related to such matter. Such provisions do not assume excavation and
offsite removal of chromium. There are alternative outcomes and remedies beyond
the scope of the ACO that could result from the remanding, reversal or
replacement of the Court's decision and order. At this time, we can neither
identify a probable alternative outcome nor reasonably estimate the cost of an
alternative remedy. Although we expect the Court's decision and order to be
remanded, reversed or replaced, should the remedies prescribed in the Court's
decision and order ultimately be upheld, such outcome could have a material
adverse impact on our consolidated results of operations or operating cash flows
in the periods recognized or paid. We do not expect that this matter will have a
material adverse effect on our consolidated financial position.

            In accordance with a 1992 consent decree with the State of New York,
Honeywell is studying environmental conditions in and around Onondaga Lake (the
Lake) in Syracuse, New York. The purpose of the study is to identify, evaluate
and propose remedial measures that can be taken to remedy historic industrial
contamination in the Lake. A predecessor company to Honeywell operated a
chemical plant which is alleged to have contributed mercury and other
contaminants to the Lake. In May 2003, Honeywell submitted to the New York State
Department of Environmental Conservation (DEC) a draft Feasibility Study for the
Lake. In November 2003, the DEC issued formal comments on the Feasibility Study.
Those comments included a request for further evaluation of remedies for the
Lake. Pursuant to the consent decree, Honeywell submitted a revised Feasibility
Study on May 3, 2004 (the May 2004 Feasibility Study). Provisions have been made
in our financial statements based on the remedy proposed by Honeywell in the May
2004 Feasibility Study. On July 30, 2004, the DEC requested that Honeywell
provide certain additional information regarding alternative remedial
approaches, site modeling and other technical questions raised by DEC, and
advised Honeywell that, upon receipt of such information, the May 2004
Feasibility Study would be sufficiently complete for DEC to prepare its proposed
remedial action plan for the Lake. When DEC issues its proposed remedial action
plan for the Lake, there will be a public comment period of at least sixty days
during which time Honeywell can also submit comments. Should Honeywell be
required to undertake a substantially more extensive remedy than that which we
proposed in the May 2004 Feasibility Study, such outcome could have a material
adverse impact on our consolidated results of operations and operating cash
flows in the periods recognized or paid. However, we do not expect that this
matter will have a material adverse effect on our consolidated financial
position.

            Asbestos Matters -- Like many other industrial companies, Honeywell
is a defendant in personal injury actions related to asbestos. We did not mine
or produce asbestos, nor did we make or sell insulation products or other
construction materials that have been identified as the primary cause of
asbestos related disease in the vast majority of claimants. Products containing
asbestos previously manufactured by Honeywell or by previously owned
subsidiaries fall into two general categories; refractory products and friction
products.

            Refractory Products -- Honeywell owned North American Refractories
Company (NARCO) from 1979 to 1986. NARCO produced refractory products (high
temperature bricks and cement) which were sold largely to the steel industry in
the East and Midwest. Less than 2 percent of NARCO's products contained
asbestos.

                                       3






            When we sold the NARCO business in 1986, we agreed to indemnify
NARCO with respect to personal injury claims for products that had been
discontinued prior to the sale (as defined in the sale agreement). NARCO
retained all liability for all other claims. NARCO had resolved approximately
176,000 claims through January 4, 2002, the date NARCO filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code, at an average cost per claim of
two thousand two hundred dollars. Of those claims, 43 percent were dismissed on
the ground that there was insufficient evidence that NARCO was responsible for
the claimant's asbestos exposure. As of the date of NARCO's bankruptcy filing,
there were approximately 116,000 remaining claims pending against NARCO,
including approximately 7 percent in which Honeywell was also named as a
defendant. Since 1983, Honeywell and our insurers have contributed to the
defense and settlement costs associated with NARCO claims.

            As a result of the NARCO bankruptcy filing, all of the claims
pending against NARCO are automatically stayed pending the reorganization of
NARCO, except one claim which is not material as to which the stay was lifted in
August 2003. Because the claims pending against Honeywell necessarily will
impact the liabilities of NARCO, because the insurance policies held by
Honeywell are essential to a successful NARCO reorganization, and because
Honeywell has offered to commit the value of those policies to the
reorganization, the bankruptcy court has temporarily enjoined any claims against
Honeywell, current or future, related to NARCO. Although the stay has been
extended twenty-nine times since January 4, 2002, there is no assurance that
such stay will remain in effect. In connection with NARCO's bankruptcy filing,
we paid NARCO's parent company $40 million and agreed to provide NARCO with up
to $20 million in financing. We also agreed to pay $20 million to NARCO's parent
company upon the filing of a plan of reorganization for NARCO acceptable to
Honeywell, and to pay NARCO's parent company $40 million, and to forgive any
outstanding NARCO indebtedness, upon the confirmation and consummation of such a
plan.

            As a result of negotiations with counsel representing NARCO related
asbestos claimants regarding settlement of all pending and potential NARCO
related asbestos claims against Honeywell, we have reached definitive agreements
with approximately 260,000 claimants, which represents in excess of 90 percent
of the approximately 275,000 current claimants who are now expected to file a
claim as part of the NARCO reorganization process. We are also in discussions
with the NARCO Committee of Asbestos Creditors on Trust Distribution Procedures
for NARCO. We believe that, as part of the NARCO plan of reorganization, a trust
will be established pursuant to these Trust Distribution Procedures for the
benefit of all asbestos claimants, current and future. If the trust is put in
place and approved by the Court as fair and equitable, Honeywell as well as
NARCO will be entitled to a permanent channeling injunction barring all present
and future individual actions in state or federal courts and requiring all
asbestos related claims based on exposure to NARCO products to be made against
the federally-supervised trust. We expect the NARCO plan of reorganization and
the NARCO trust to be approved by the Court in 2004. As part of its ongoing
settlement negotiations, Honeywell has reached agreement in principle with the
representative for future NARCO claimants to cap its annual contributions to the
trust with respect to future claims at a level that would not have a material
impact on Honeywell's operating cash flows. Given the substantial progress of
negotiations between Honeywell and NARCO related asbestos claimants and between
Honeywell and the Committee of Asbestos Creditors during the fourth quarter of
2002, Honeywell developed an estimated liability for settlement of pending and
future asbestos claims

                                       4






and recorded a charge of $1.4 billion for NARCO related asbestos litigation
charges, net of insurance recoveries. This charge consisted of the estimated
liability to settle current asbestos related claims, the estimated liability
related to future asbestos related claims through 2018 and obligations to
NARCO's parent, net of insurance recoveries of $1.8 billion.

            The estimated liability for current claims is based on terms and
conditions, including evidentiary requirements, in definitive agreements with in
excess of 90 percent of current claimants. Settlement payments with respect to
current claims are expected to be made through 2007.

            The liability for future claims estimates the probable value of
future asbestos related bodily injury claims asserted against NARCO through 2018
and obligations to NARCO's parent as discussed above. The estimate is based upon
the disease criteria and payment values contained in the NARCO Trust
Distribution Procedures negotiated with the NARCO Committee of Asbestos
Creditors and the NARCO future claimants representative. In light of the
uncertainties inherent in making long-term projections we do not believe that we
have a reasonable basis for estimating asbestos claims beyond 2018 under
Statement of Financial Accounting Standards No. 5. Honeywell retained the expert
services of Hamilton, Rabinovitz and Alschuler, Inc. (HR&A) to project the
probable number and value, including trust claim handling costs, of asbestos
related future liabilities based upon historical experience with similar trusts.
The methodology used to estimate the liability for future claims has been
commonly accepted by numerous courts and is the same methodology that is
utilized by an expert who is routinely retained by the asbestos claimants
committee in asbestos related bankruptcies. The valuation methodology includes
an analysis of the population likely to have been exposed to asbestos containing
products, epidemiological studies to estimate the number of people likely to
develop asbestos related diseases, NARCO claims filing history, the pending
inventory of NARCO asbestos related claims and payment rates expected to be
established by the NARCO trust.

            Honeywell has approximately $1.4 billion in insurance limits
remaining that reimburses it for portions of the costs incurred to settle NARCO
related claims and court judgments as well as defense costs. This coverage is
provided by a large number of insurance policies written by dozens of insurance
companies in both the domestic insurance market and the London excess market. At
June 30, 2004, a significant portion of this coverage is with insurance
companies with whom we have agreements to pay full policy limits based on
corresponding Honeywell claims costs. This includes agreements with a
substantial majority of the London-based insurance companies entered into
primarily in the first quarter of 2004. We conduct analyses to determine the
amount of insurance that we estimate is probable that we will recover in
relation to payment of current and projected future claims. While the
substantial majority of our insurance carriers are solvent, some of our
individual carriers are insolvent, which has been considered in our analysis of
probable recoveries. In the second quarter of 2004, based on our ongoing
evaluation of our ability to enforce our rights under the various insurance
policies, we concluded that we had additional probable insurance recoveries of
$47 million, net of solvency reserves, which has been reflected in insurance
receivables. We made judgments concerning insurance coverage that we believe are
reasonable and consistent with our historical dealings with our insurers, our
knowledge of any pertinent solvency issues surrounding insurers and various
judicial determinations relevant to our insurance programs.

                                       5






            Projecting future events is subject to many uncertainties that could
cause the NARCO related asbestos liabilities to be higher or lower than those
projected and recorded. There is no assurance that a plan of reorganization will
be proposed or confirmed, that insurance recoveries will be timely or whether
there will be any NARCO related asbestos claims beyond 2018. Given the inherent
uncertainty in predicting future events, we review our estimates periodically,
and update them based on our experience and other relevant factors. Similarly we
will reevaluate our projections concerning our probable insurance recoveries in
light of any changes to the projected liability or other developments that may
impact insurance recoveries.

            Friction Products -- Honeywell's Bendix Friction Materials (Bendix)
business manufactured automotive brake pads that contained chrysotile asbestos
in an encapsulated form. There is a group of existing and potential claimants
consisting largely of individuals that allege to have performed brake
replacements.

            From 1981 through June 30, 2004, we have resolved approximately
69,000 Bendix related asbestos claims including trials covering 120 plaintiffs,
which resulted in 115 favorable verdicts. Trials covering five individuals
resulted in adverse verdicts; however, two of these verdicts were reversed on
appeal and the remaining three claims were settled.

            Through the second quarter of 2002, Honeywell had no out-of-pocket
costs for Bendix related asbestos claims since its insurance deductible was
satisfied many years ago. Beginning with claim payments made in the third
quarter of 2002, Honeywell began advancing indemnity and defense claim costs.
During the first six months of 2004, those indemnity and defense costs were
approximately $72 million. During the years ended December 31, 2003 and 2002,
those indemnity and defense costs amounted to approximately $112 and $70
million, respectively. Approximately 50 percent of these amounts are deemed
probable to be reimbursed by insurance. During the year ended December 31, 2003
Honeywell collected $90 million in insurance reimbursements and settlements
related to asbestos claims. See further discussion of insurance coverage below.

            The following tables present information regarding Bendix related
asbestos claims activity:



                                                                                                  Years Ended
                                                                                                  December 31,
                                                                                                  ------------
Claims Activity                                                      Six Months Ended          2003          2002
- ---------------                                                       June 30, 2004            ----          ----
                                                                      -------------


                                                                                                   
Claims Unresolved at the beginning of period                             72,976               50,821        47,000
Claims Filed                                                              5,999               25,765        10,000
Claims Resolved                                                          (4,797)              (3,610)       (6,179)
                                                                         -------              -------       -------

Claims Unresolved at the end of period                                   74,178               72,976        50,821
                                                                         ======               ======        ======

                                                                                                  December 31,
                                                                                                  ------------

Disease Distribution of Unresolved Claims                             June 30, 2004            2003          2002
- -----------------------------------------                             -------------            ----          ----
Mesothelioma and Other Cancer Claims                                      3,731                3,277         3,810


                                       6








                                                                                                   
Other Claims                                                              70,447              69,699        47,011
                                                                          ------              ------        ------

         Total Claims                                                     74,178              72,976        50,821
                                                                          ======              ======        ======


            Approximately 30 percent of the 74,000 pending claims at June 30,
2004 are on the inactive, deferred, or similar dockets established in some
jurisdictions for claimants who allege minimal or no impairment. The
approximately 74,000 pending claims also include claims filed in jurisdictions
such as Texas, Virginia and Mississippi that allow for consolidated filings. In
these jurisdictions, plaintiffs are permitted to file complaints against a
pre-determined master list of defendants, regardless of whether they have claims
against each individual defendant. Many of these plaintiffs may not actually
have claims against Honeywell. Based on state rules and prior experience in
these jurisdictions, we anticipate that many of these claims will ultimately be
dismissed. During 2003, Honeywell was served with numerous complaints filed in
Mississippi in advance of the January 1, 2003 effective date for tort reform in
that state. Also during 2003, Honeywell experienced an increase in nonmalignancy
filings that we believe were in response to the possibility of federal
legislation. Based on prior experience, we anticipate that many of these claims
will be placed on deferred, inactive or similar dockets or be dismissed.
Honeywell has experienced average resolution values excluding legal costs for
malignant claims of approximately ninety five thousand and one hundred sixty six
thousand dollars in 2003 and 2002, respectively. Honeywell has experienced
average resolution values excluding legal costs for nonmalignant claims of
approximately three thousand five hundred and one thousand three hundred dollars
in 2003 and 2002, respectively. It is not possible to predict whether resolution
values for Bendix related asbestos claims will increase, decrease or stabilize
in the future.

            We have accrued for the estimated cost of pending asbestos related
claims. The estimate is based on the number of pending claims at June 30, 2004,
disease classifications, expected settlement values and historic dismissal
rates. Honeywell retained the expert services of HR&A (see discussion of HR&A
under Refractory products above) to assist in developing the estimated expected
settlement values and historic dismissal rates. We cannot reasonably estimate
losses which could arise from future Bendix related asbestos claims because we
cannot predict how many additional claims may be brought against us, the
allegations in such claims or their probable outcomes and resulting settlement
values in the tort system.

            Honeywell presently has approximately $1.9 billion of insurance
coverage remaining with respect to pending Bendix related asbestos claims as
well as claims which may be filed against us in the future. This coverage is
provided by a large number of insurance policies written by dozens of insurance
companies in both the domestic insurance market and the London excess market.
Although Honeywell has approximately $1.9 billion in insurance, there are gaps
in our coverage due to insurance company insolvencies, a comprehensive policy
buy-back settlement with Equitas in 2003 and certain uninsured periods. We
analyzed the amount of insurance that we estimate is probable that we will
recover in relation to payment of asbestos related claims and determined that
approximately 50 percent of expenditures for such claims are recoverable by
insurance. While the substantial majority of our insurance carriers are solvent,
some of our individual carriers are insolvent, which has been considered in our
analysis of probable recoveries. We made judgments concerning insurance coverage
that we believe are reasonable and consistent with our historical dealings with
our insurers, our knowledge of any pertinent solvency issues surrounding
insurers and various judicial determinations relevant to our

                                       7






insurance programs. Based on our analysis, at June 30, 2004 we had amounts
receivable from our insurers of approximately $300 million representing probable
reimbursements associated with our liability for pending claims as well as
amounts due to us for previously settled and paid claims related to the
estimated liabilities for pending claims.

            Honeywell believes it has sufficient insurance coverage and reserves
to cover all pending Bendix related asbestos claims. Although it is impossible
to predict the outcome of pending claims or to reasonably estimate losses which
could arise from future Bendix related asbestos claims, we do not believe that
such claims would have a material adverse effect on our consolidated financial
position in light of our insurance coverage and our prior experience in
resolving such claims. If the rate and types of claims filed, the average
indemnity cost of such claims and the period of time over which claim
settlements are paid (collectively, the "Variable Claims Factors") do not
substantially change, Honeywell would not expect future Bendix related asbestos
claims to have a material adverse effect on our results of operations or
operating cash flows in any fiscal year. No assurances can be given, however,
that the Variable Claims Factors will not substantially change.

            Refractory and Friction Products -- NARCO and Bendix asbestos
related balances are included in the following balance sheet accounts:



                                                                              June 30,             December 31,
                                                                                2004                   2003
                                                                                ----                   ----
                                                                                                
Other current assets                                                            $ 145                  $ 130
Insurance recoveries for asbestos related liabilities                           1,401                  1,317
                                                                                -----                  -----

                                                                               $1,546                 $1,447
                                                                               ======                 ======

Accrued liabilities                                                             $ 756                  $ 730
                                                                                -----                  -----
Asbestos related liabilities                                                    2,096                  2,279
                                                                                -----                  -----

                                                                               $2,852                 $3,009
                                                                               ======                 ======


            During the first six months of 2004, we paid $323 million in
indemnity and defense costs related to NARCO and Bendix claims. Additionally, we
recognized a charge of $9 million for Bendix related asbestos claims filed and
defense costs incurred during the second quarter of 2004 including an update of
expected resolution values with respect to claims pending as of June 30, 2004.
The charge is net of probable Bendix related insurance recoveries and an
additional $47 million of NARCO insurance deemed probable of recovery.

            We are monitoring proposals for federal asbestos legislation pending
in the United States Congress. Due to the uncertainty surrounding the proposed
legislation, it is not possible at this point in time to determine what impact
such legislation would have on the NARCO bankruptcy strategy or our asbestos
liabilities and related insurance recoveries.

                                       8






                              EXHIBIT A-1 - FORM OF
                                REVOLVING CREDIT
                                 PROMISSORY NOTE

                                                   Dated:  _______________, 200_

            FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER], a
_________________________ corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of _________________________ (the "Lender") for the account of its
Applicable Lending Office on the Termination Date (each as defined in the Credit
Agreement referred to below) the aggregate principal amount of the Revolving
Credit Advances made by the Lender to the Borrower pursuant to the Five Year
Credit Agreement dated as of October 22, 2004 among Honeywell International
Inc., the Lender and certain other lenders parties thereto, and Citicorp USA,
Inc., as Agent for the Lender and such other lenders (as amended or modified
from time to time, the "Credit Agreement"; the terms defined therein being used
herein as therein defined) outstanding on such date.

            The Borrower promises to pay interest on the unpaid principal amount
of each Revolving Credit Advance from the date of such Revolving Credit Advance
until such principal amount is paid in full, at such interest rates, and payable
at such times, as are specified in the Credit Agreement.

            Both principal and interest in respect of each Revolving Credit
Advance (i) in Dollars are payable in lawful money of the United States of
America to Citicorp USA, Inc., as Agent, at 388 Greenwich Street, New York, New
York, 10013, in same day funds and (ii) in any Major Currency are payable in
such currency at the applicable Payment Office in same day funds. Each Revolving
Credit Advance owing to the Lender by the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Promissory Note.

            This Promissory Note is one of the Revolving Credit Notes referred
to in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Revolving Credit
Advances by the Lender to the Borrower from time to time in an aggregate amount
not to exceed at any time outstanding the Dollar amount first above mentioned or
the Equivalent thereof in one or more Major Currencies, the indebtedness of the
Borrower resulting from each such Revolving Credit Advance being evidenced by
this Promissory Note, (ii) contains provisions for determining the Dollar
Equivalent of Revolving Credit Advances denominated in Major Currencies and
(iii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.







            The Borrower hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.

            This promissory note shall be governed by, and construed in
accordance with the laws of the State of New York.

                                                    [NAME OF BORROWER]

                                                    By
                                                      ------------------------
                                                       Name:
                                                       Title:

                                       2






                       ADVANCES AND PAYMENTS OF PRINCIPAL



- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------
      Date             Type of               Amount of           Interest Rate     Amount of      Unpaid Principal     Notation
                       Advance               Advance in                          Principal Paid       Balance           Made By
                                         Relevant Currency                         or Prepaid
- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------
                                                                                                  

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------

- ----------------- ------------------ --------------------------- -------------- ----------------- ----------------- ----------------








                              EXHIBIT A-2 - FORM OF
                                 COMPETITIVE BID
                                 PROMISSORY NOTE

                                                   Dated:  _______________, 200_

            FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER], a
_________________________ corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of _________________________ (the "Lender") for the account of its
Applicable Lending Office (as defined in the Five Year Credit Agreement dated as
of October 22, 2004 among Honeywell International Inc., the Lender and certain
other lenders parties thereto, and Citicorp USA, Inc., as Agent for the Lender
and such other lenders (as amended or modified from time to time, the "Credit
Agreement"; the terms defined therein being used herein as therein defined)), on
_______________, the principal amount of [U.S.$_______________] [for a
Competitive Bid Advance in a Foreign Currency, list currency and amount of such
Advance].

            The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:

            Interest Rate: [____% per annum (calculated on the basis of a year
of _____ days for the actual number of days elapsed)].

            Interest Payment Date or Dates: ______________

            Both principal and interest are payable in lawful money of
________________ to Citicorp USA, Inc., as Agent, for the account of the Lender
at the office of __________________, at __________________ in same day funds.

            This Promissory Note is one of the Competitive Bid Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events.

            The Borrower hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.

            This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.

                                                      [NAME OF BORROWER]

                                                      By
                                                        ------------------------
                                                         Name:
                                                         Title:







                         EXHIBIT B-1 - FORM OF NOTICE OF
                           REVOLVING CREDIT BORROWING

Citicorp USA, Inc., as Agent
  for the Lenders parties
  to the Credit Agreement
  referred to below
  Two Penns Way
  New Castle, Delaware  19720                                             [Date]

Attention:  Bank Loan Syndication

Ladies and Gentlemen:

            The undersigned, [Name of Borrower], refers to the Five Year Credit
Agreement, dated as of October 22, 2004 (as amended or modified from time to
time, the "Credit Agreement", the terms defined therein being used herein as
therein defined), among the undersigned, certain Lenders parties thereto, and
Citicorp USA, Inc., as Agent for said Lenders, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Revolving Credit Borrowing under the Credit
Agreement, and in that connection sets forth below the information relating to
such Revolving Credit Borrowing (the "Proposed Revolving Credit Borrowing") as
required by Section 2.02(a) of the Credit Agreement:

            (i) The Business Day of the Proposed Revolving Credit Borrowing is
      _______________.

            (ii) The Type of Advances comprising the Proposed Revolving Credit
      Borrowing is [Base Rate Advances] [Eurocurrency Rate Advances].

            (iii) The aggregate amount of the Proposed Revolving Credit
      Borrowing is [$_______________] [for a Revolving Credit Borrowing in a
      Major Currency, list currency and amount of Revolving Credit Borrowing].

            [(iv) The initial Interest Period for each Eurocurrency Rate Advance
      made as part of the Proposed Revolving Credit Borrowing is _____
      month[s].]







            The undersigned hereby certifies that the conditions precedent to
this Revolving Credit Borrowing set forth in Section 3.04 of the Credit
Agreement have been satisfied and the applicable statements contained therein
are true on the date hereof, and will be true on the date of the Proposed
Revolving Credit Borrowing.

                                                      Very truly yours,

                                                      [NAME OF BORROWER]

                                                      By
                                                        ------------------------
                                                         Name:
                                                         Title:

                                       2






                         EXHIBIT B-2 - FORM OF NOTICE OF
                            COMPETITIVE BID BORROWING

Citicorp USA, Inc., as Agent
  for the Lenders parties
  to the Credit Agreement
  referred to below
  Two Penns Way
  New Castle, Delaware  19720                                             [Date]

Attention:  Bank Loan Syndication

Ladies and Gentlemen:

            The undersigned, [Name of Borrower], refers to the Five Year Credit
Agreement, dated as of October 22, 2004 (as amended or modified from time to
time, the "Credit Agreement", the terms defined therein being used herein as
therein defined), among Honeywell International Inc., certain Lenders parties
thereto and Citicorp USA, Inc., as Agent for said Lenders, and hereby gives you
notice, irrevocably, pursuant to Section 2.03 of the Credit Agreement that the
undersigned hereby requests a Competitive Bid Borrowing under the Credit
Agreement, and in that connection sets forth the terms on which such Competitive
Bid Borrowing (the "Proposed Competitive Bid Borrowing") is requested to be
made:



                                                                    
            (A)      Date of Competitive Bid Borrowing                    __________________

            (B)      Aggregate Amount of Competitive Bid Borrowing        __________________

            (C)      [Maturity Date] [Interest Period]                    __________________

            (D)      Interest Rate Basis                                  __________________

            (E)      Day Count Convention                                 __________________

            (F)      Interest Payment Date(s)                             __________________

            (G)      [Currency]                                           __________________

            (H)      Borrower's Account Location                          __________________

            (I)      ___________________                                  __________________


            The undersigned hereby certifies that the conditions precedent to
this Competitive Bid Borrowing set forth in Section 3.05 of the Credit Agreement
have been satisfied and the applicable statements contained therein are true on
the date hereof, and will be true on the date of the Proposed Competitive Bid
Borrowing.







                  The undersigned hereby confirms that the Proposed Competitive
Bid Borrowing is to be made available to it in accordance with Section
2.03(a)(v) of the Credit Agreement.

                                                      Very truly yours,

                                                      [NAME OF BORROWER]

                                                      By
                                                        ------------------------
                                                         Name:
                                                         Title:

                                       2







                               EXHIBIT C - FORM OF
                            ASSIGNMENT AND ACCEPTANCE

                                                            Dated: _____________

            Reference is made to the Five Year Credit Agreement dated as of
October 22, 2004 (as amended or modified from time to time, the "Credit
Agreement") among Honeywell International Inc., a Delaware corporation (the
"Borrower"), the Lenders (as defined in the Credit Agreement), and Citicorp USA,
Inc., as agent (the "Agent") for the Lenders. Terms defined in the Credit
Agreement are used herein with the same meaning.

            ____________ (the "Assignor") and ____________ (the "Assignee")
agree as follows:

            1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof (other than in respect of Competitive Bid Advances and Competitive Bid
Notes) equal to the percentage interest specified on Schedule 1 hereto of the
outstanding rights and obligations under the Credit Agreement (including, in the
case of an assignment of any Revolving Credit Commitment, participations in
Letters of Credit held by the Assignor on the date hereof) set forth on Schedule
1 hereto. After giving effect to such sale and assignment, the Assignee's
Revolving Credit Commitment and Letter of Credit Commitment and the amount of
the Revolving Credit Advances in each relevant currency owing to the Assignee
will be as set forth on Schedule 1 hereto.

            2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or any other instrument or document furnished pursuant thereto or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, the Credit Agreement or any other
instrument or document furnished pursuant thereto; (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Borrower or the performance or observance by such Borrower of
any of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; [and (iv) attaches the Revolving Credit
Note held by the Assignor and requests that the Agent obtain from the Borrower a
new Revolving Credit Note payable to the order of the Assignee with respect to
the aggregate principal amount of the Revolving Credit Advances assumed by such
Assignee pursuant hereto, substantially in the form of Exhibit A-1 to the Credit
Agreement].

            3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01(e) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender 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 action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers and discretion under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Lender; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 2.14 of
the Credit Agreement.

            4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1 hereto.

            5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement, provided, however,
that the Assignor's rights under Sections 2.11, 2.14 and 9.04 of the Credit
Agreement, and its obligations under Section 8.05 of the Credit Agreement, shall
survive the assignment pursuant to this Assignment and Acceptance as to matters
occurring prior to the Effective Date.

            6. Upon such acceptance and recording by the Agent, from and after
the Effective Date, the Agent shall make all payments under the Credit Agreement
and the Revolving Credit Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and facility
fees with respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and any
Revolving Credit Notes for periods prior to the Effective Date directly between
themselves.

            7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.

            8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.

            IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.

                                       2






                                   Schedule 1
                                       to
                            Assignment and Acceptance



                                                                                          
                                                                                             Dated:  ______________
Section 1.

                  Percentage interest assigned:                                               _____%

                  Assignee's Revolving Credit Commitment:                                        $_____________

                  Assignee's Letter of Credit Commitment:                                        $_____________

Section 2.

(a)      Assigned Advances

                  Aggregate outstanding principal amount of Revolving Credit

                  Advances in Dollars assigned:                                                  $_____________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in lawful currency of the United Kingdom of Great
                  Britain and Northern Ireland assigned:                                         'L'___________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in lawful currency of Japan assigned:                                 'Y'___________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in Euros assigned:                                                    'E'___________

(b)      Retained Advances

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in Dollars retained:                                                  $_____________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in lawful currency of the United Kingdom of Great
                  Britain and Northern Ireland retained:                                         'L'___________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in lawful currency of Japan retained:                                 'Y'___________

                  Aggregate outstanding principal amount of Revolving Credit
                  Advances in Euros retained:                                                    'E'___________


                                       3






                  Effective Date(1):  _______________

                                             [NAME OF ASSIGNOR], as Assignor

                                             By_____________________________
                                                Title:

                                             Dated:_________________________

                                             [NAME OF ASSIGNEE], as Assignee

                                             By_____________________________
                                                Title:

                                             Dated:_________________________

                                             Domestic Lending Office:
                                                 [Address]

                                             Eurocurrency Lending Office:
                                                 [Address]

Consented to this __________ day
of _______________

[NAME OF BORROWER]

By__________________________________________]
Name:
Title:

- ------------------------
(1)   This date should be no earlier than five Business Days after the delivery
      of this Assignment and Acceptance to the Agent.

                                       4






                     EXHIBIT D - FORM OF DESIGNATION LETTER

                                                                          [DATE]

To each of the Lenders
  parties to the
  Credit Agreement (as defined
  below) and to Citicorp USA, Inc.,
  as Agent for such Lenders

Ladies and Gentlemen:

            Reference is made to the Five Year Credit Agreement dated as of
October 22, 2004 among Honeywell International Inc. (the "Company"), the Lenders
named therein, and Citicorp USA, Inc., as Agent for said Lenders (the "Credit
Agreement"). For convenience of reference, terms used herein and defined in the
Credit Agreement shall have the respective meanings ascribed to such terms in
the Credit Agreement.

            Please be advised that the Company hereby designates its undersigned
Subsidiary, ____________ ("Designated Subsidiary"), as a "Designated Subsidiary"
under and for all purposes of the Credit Agreement.

            The Designated Subsidiary, in consideration of each Lender's
agreement to extend credit to it under and on the terms and conditions set forth
in the Credit Agreement, does hereby assume each of the obligations imposed upon
a "Designated Subsidiary" and a "Borrower" under the Credit Agreement and agrees
to be bound by the terms and conditions of the Credit Agreement. In furtherance
of the foregoing, the Designated Subsidiary hereby represents and warrants to
each Lenders as follows:

            1. The Designated Subsidiary is a corporation duly incorporated,
      validly existing and in good standing under the laws of __________________
      and is duly qualified to transact business in all jurisdictions in which
      such qualification is required.

            2. The execution, delivery and performance by the Designated
      Subsidiary of this Designation Letter, the Credit Agreement, its Notes and
      the consummation of the transactions contemplated thereby, are within the
      Designated Subsidiary's corporate powers, have been duly authorized by all
      necessary corporate action, and do not and will not cause or constitute a
      violation of any provision of law or regulation or any provision of the
      charter or by-laws of the Designated Subsidiary or result in the breach
      of, or constitute a default or require any consent under, or result in the
      creation of any lien, charge or encumbrance upon any of the properties,
      revenues, or assets of the Designated Subsidiary pursuant to, any
      indenture or other agreement or instrument to which the Designated
      Subsidiary is a party or by which the Designated Subsidiary or its
      property may be bound or affected.

            3. This Designation Agreement and each of the Notes of the
      Designated Subsidiary, when delivered, will have been duly executed and
      delivered, and this







      Designation Letter, the Credit Agreement and each of the Notes of the
      Designated Subsidiary, when delivered, will constitute a legal, valid and
      binding obligation of the Designated Subsidiary enforceable against the
      Designated Subsidiary in accordance with their respective terms except to
      the extent that such enforcement may be limited by applicable bankruptcy,
      insolvency and other similar laws affecting creditors' rights generally.

            4. There is no action, suit, investigation, litigation or proceeding
      including, without limitation, any Environmental Action, pending or to the
      knowledge of the Designated Subsidiary Threatened affecting the Designated
      Subsidiary before any court, governmental agency or arbitration that (i)
      is reasonably likely to have a Material Adverse Effect, or (ii) purports
      to effect the legality, validity or enforceability of this Designation
      Letter, the Credit Agreement, any Note of the Designated Subsidiary or the
      consummation of the transactions contemplated thereby.

            5. No authorizations, consents, approvals, licenses, filings or
      registrations by or with any governmental authority or administrative body
      are required in connection with the execution, delivery or performance by
      the Designated Subsidiary of this Designation Letter, the Credit Agreement
      or the Notes of the Designated Subsidiary except for such authorizations,
      consents, approvals, licenses, filings or registrations as have heretofore
      been made, obtained or effected and are in full force and effect.

            6. The Designated Subsidiary is not, and immediately after the
      application by the Designated Subsidiary of the proceeds of each Advance
      will not be, (a) an "investment company" within the meaning of the
      Investment Company Act of 1940, as amended, or (b) a "holding company"
      within the meaning of the Public Utility Holding Company Act of 1935, as
      amended.

                                                    Very truly yours,

                                                    HONEYWELL INTERNATIONAL INC.

                                                    By _________________________
                                                        Name:
                                                        Title:

                                                    [THE DESIGNATED SUBSIDIARY]

                                                    By__________________________
                                                        Name:
                                                        Title:

                                       2






                 EXHIBIT E - FORM OF ACCEPTANCE BY PROCESS AGENT
                          [Letterhead of Process Agent]

                                                                          [Date]

To each of the Lenders parties
to the Credit
Agreement (as defined
below) and to Citicorp USA, Inc.,
as Agent for said Lenders

                         [Name of Designated Subsidiary]
                         -------------------------------

Ladies and Gentlemen:

            Reference is made to (i) that certain Five Year Credit Agreement
dated as of October 22, 2004 among Honeywell International Inc., the Lenders
named therein, and Citicorp USA, Inc., as Agent (such Credit Agreement as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "Credit Agreement"; the terms defined therein being used herein as
therein defined), and (ii) to the Designation Letter, dated _________, pursuant
to which __________ has become a Borrower.

            Pursuant to Section 9.12 of the Credit Agreement to which __________
has become subject pursuant to its Designation Letter, __________ has appointed
the undersigned (with an office on the date hereof at 1633 Broadway, New York,
New York 10019, United States) as Process Agent to receive on behalf of
______________ and its property service of copies of the summons and complaint
and any other process which may be served in any action or proceeding in any New
York State or Federal court sitting in New York City arising out of or relating
to the Credit Agreement.

            The undersigned hereby accepts such appointment as Process Agent and
agrees with each of you that (i) the undersigned will not terminate or abandon
the undersigned agency as such Process Agent without at least six months prior
notice to the Agent (and hereby acknowledges that the undersigned has been
retained for its services as Process Agent through __________ __, 2009), (ii)
the undersigned will maintain an office in New York City through such date and
will give the Agent prompt notice of any change of address of the undersigned,
(iii) the undersigned will perform its duties as Process Agent to receive on
behalf of ______________ and its property service of copies of the summons and
complaint and any other process which may be served in any action or proceeding
in any New York State or Federal court sitting in New York City arising out of
or relating to the Credit Agreement and (iv) the undersigned will forward
forthwith to ______________ at its address at ________________ or, if different,
its then current address, copies of any summons, complaint and other process
which the undersigned receives in connection with its appointment as Process
Agent.







            This acceptance and agreement shall be binding upon the undersigned
and all successors of the undersigned.

                                                         Very truly yours,

                                                         [PROCESS AGENT]

                                                         By_____________________

                                       2






                           EXHIBIT F - FORM OF OPINION
                               OF GAIL E. LEHMAN,
                    ASSISTANT GENERAL COUNSEL FOR THE COMPANY

                                                             __________ __, 2004

To each of the Lenders parties
   to the Credit Agreement
   (as defined below),
   and to Citicorp USA, Inc.,
   as Agent for said Lenders

                          Honeywell International Inc.
                          ----------------------------

Ladies and Gentlemen:

            This opinion is furnished to you pursuant to Section 3.01(e)(iv) of
the Five Year Credit Agreement dated as of October 22, 2004 among Honeywell
International Inc. (the "Company"), the Lenders parties thereto, and Citicorp
USA, Inc., as Agent for said Lenders (the "Credit Agreement"). Terms defined in
the Credit Agreement are, unless otherwise defined herein, used herein as
therein defined.

            I have acted as counsel for the Company in connection with the
preparation, execution and delivery of the Credit Agreement.

            In that connection I have examined:

            (1) The Credit Agreement.

            (2) The documents furnished by the Company pursuant to Article III
      of the Credit Agreement, including the Certificate of Incorporation of the
      Company and all amendments thereto (the "Charter") and the By-laws of the
      Company and all amendments thereto (the "By-laws").

            (3) A certificate of the Secretary of State of the State of
      Delaware, dated ____________, 2004, attesting to the continued corporate
      existence and good standing of the Company in that State.

I have also examined the originals, or copies certified to my satisfaction, of
such corporate records of the Company (including resolutions adopted by the
Board of Directors of the Company), certificates of public officials and of
officers of the Company, and agreements, instruments and documents, as I have
deemed necessary as a basis for the opinions hereinafter expressed. As to
questions of fact material to such opinions, I have, when relevant facts were
not







independently established by me, relied upon certificates of the Company or its
officers or of public officials. I have assumed the due execution and delivery,
pursuant to due authorization, of the Credit Agreement by the Initial Lenders
and the Agent.

            I am qualified to practice law in the State of New York, and I do
not purport to be expert in, or to express any opinion herein concerning, any
laws other than the laws of the State of New York, the General Corporation Law
of the State of Delaware and the Federal laws of the United States.

            Based upon the foregoing and upon such investigation as I have
deemed necessary, I am of the following opinion:

            1. The Company (a) is a corporation duly organized, validly existing
      and in good standing under the laws of the State of Delaware, (b) is duly
      qualified as a foreign corporation in each other jurisdiction in which it
      owns or leases property or in which the conduct of its business requires
      it to so qualify or be licensed and (c) has all requisite corporate power
      and authority to own or lease and operate its properties and to carry on
      its business as now conducted and as proposed to be conducted.

            2. The execution, delivery and performance by the Company of the
      Credit Agreement and the Notes of the Company, and the consummation of the
      transactions contemplated thereby, are within the Company's corporate
      powers, have been duly authorized by all necessary corporate action, and
      do not (i) contravene the Charter or the By-laws or (ii) violate any law
      (including, without limitation, the Securities Exchange Act of 1934 and
      the Racketeer Influenced and Corrupt Organizations Chapter of the
      Organized Crime Control Act of 1970), rule, regulation (including, without
      limitation, Regulation X of the Board of Governors of the Federal Reserve
      System) or any material order, writ, judgment, decree, determination or
      award or (iii) conflict with or result in the breach of, or constitute a
      default under, any material indenture, loan or credit agreement, lease,
      mortgage, security agreement, bond, note or any similar document. The
      Credit Agreement and the Notes of the Company have been duly executed and
      delivered on behalf of the Company.

            3. No authorization, approval, or other action by, and no notice to
      or filing with, any governmental authority, administrative agency or
      regulatory body, or any third party is required for the due execution,
      delivery and performance by the Company of the Credit Agreement or the
      Notes of the Company, or for the consummation of the transactions
      contemplated thereby.

            4. The Credit Agreement is, and each Note of the Company when
      delivered under the Credit Agreement will be, the legal, valid and binding
      obligation of the Company enforceable against the Company in accordance
      with their respective terms, except as the enforceability thereof may be
      limited by bankruptcy, insolvency, reorganization or moratorium or other
      similar laws relating to the enforcement of creditors' rights generally or
      by the application of general principles of equity (regardless of whether
      such enforceability is considered in a proceeding in equity or at law),
      and

                                       2






      except that I express no opinion as to (i) the subject matter jurisdiction
      of the District Courts of the United States of America to adjudicate any
      controversy relating to the Credit Agreement or the Notes of the Company
      or (ii) the effect of the law of any jurisdiction (other than the State of
      New York) wherein any Lender or Applicable Lending Office may be located
      or wherein enforcement of the Credit Agreement or the Notes of the Company
      may be sought which limits rates of interest which may be charged or
      collected by such Lender.

            5. There is no action, suit, investigation, litigation or proceeding
      against the Company or any of its Subsidiaries before any court,
      governmental agency or arbitrator now pending or, to the best of my
      knowledge, Threatened that is reasonably likely to have a Material Adverse
      Effect (other than the Disclosed Litigation) or that purports to affect
      the legality, validity or enforceability of the Credit Agreement or any
      Note of the Company or the consummation of the transactions contemplated
      thereby, and there has been no adverse change in the status, or financial
      effect on the Company or any of its Subsidiaries, of the Disclosed
      Litigation from that described on Schedule 3.01(b) of the Credit
      Agreement.

            6. The Company is not an "investment company" within the meaning of
      the Investment Company Act of 1940, as amended.

            7. The Company is not a "holding company" within the meaning of the
      Public Utility Holding Company Act of 1935, as amended.

            In connection with the opinions expressed by me above in paragraph
4, I wish to point out that (i) provisions of the Credit Agreement that permit
the Agent or any Lender to take action or make determinations may be subject to
a requirement that such action be taken or such determinations be made on a
reasonable basis and in good faith, (ii) that a party to whom an advance is owed
may, under certain circumstances, be called upon to prove the outstanding amount
of the Advances evidenced thereby and (iii) the rights of the Agent and the
Lenders provided for in Section 9.04(b) of the Credit Agreement may be limited
in certain circumstances.

                                                        Very truly yours,

                                       3






                     EXHIBIT G - FORM OF OPINION OF COUNSEL
                           TO A DESIGNATED SUBSIDIARY

                                                              ____________, 20__

To each of the Lenders parties
   to the Credit Agreement
   (as defined below),
   and to Citicorp USA, Inc., as Agent
   for said Lenders

Ladies and Gentlemen:

            In my capacity as counsel to _____________________ ("Designated
Subsidiary"), I have reviewed that certain Five Year Credit Agreement dated as
of October 22, 2004 among Honeywell International Inc., the Lenders named
therein, and Citicorp USA, Inc., as Agent for such Lenders (the "Credit
Agreement"). In connection therewith, I have also examined the following
documents:

            (i) The Designation Letter (as defined in the Credit Agreement)
      executed by the Designated Subsidiary.

            [such other documents as counsel may wish to refer to]

            I have also reviewed such matters of law and examined the original,
certified, conformed or photographic copies of such other documents, records,
agreements and certificates as I have considered relevant hereto.

            Except as expressly specified herein all terms used herein and
defined in the Credit Agreement shall have the respective meanings ascribed to
them in the Credit Agreement.

            Based upon the foregoing, I am of the opinion that:

            1. The Designated Subsidiary (a) is a corporation duly incorporated,
      validly existing and in good standing under the laws of
      _________________________, (b) is duly qualified in each other
      jurisdiction in which it owns or leases property or in which the conduct
      of its business requires it to so qualify or be licensed and (c) has all
      requisite corporate power and authority to own or lease and operate its
      properties and to carry on its business as now conducted and as proposed
      to be conducted.

            2. The execution, delivery and performance by the Designated
      Subsidiary of its Designation Letter, the Credit Agreement and its Notes,
      and the consummation of the transactions contemplated thereby, are within
      the Designated Subsidiary's corporate powers, have been duly authorized by
      all necessary corporate action, and do not and will







      not cause or constitute a violation of any provision of law or regulation
      or any material order, writ, judgment, decree, determination or award or
      any provision of the charter or by-laws or other constituent documents of
      the Designated Subsidiary or result in the breach of, or constitute a
      default or require any consent under, or result in the creation of any
      lien, charge or encumbrance upon any of the properties, revenues, or
      assets of the Designated Subsidiary pursuant to, any material indenture or
      other agreement or instrument to which the Designated Subsidiary is a
      party or by which the Designated Subsidiary or its property may be bound
      or affected. The Designation Letter and each Note of the Designated
      Subsidiary has been duly executed and delivered on behalf of the
      Designated Subsidiary.

            3. The Credit Agreement and the Designation Letter of the Designated
      Subsidiary are, and each Note of the Designated Subsidiary when delivered
      under the Credit Agreement will be, the legal, valid and binding
      obligation of the Designated Subsidiary enforceable in accordance with
      their respective terms, except as the enforceability thereof may be
      limited by bankruptcy, insolvency, reorganization or moratorium or other
      similar laws relating to the enforcement of creditors' rights generally or
      by the application of general principles of equity (regardless of whether
      such enforceability is considered in a proceeding in equity or at law),
      and except that I express no opinion as to (i) the subject matter
      jurisdiction of the District Courts of the United States of America to
      adjudicate any controversy relating to the Credit Agreement, the
      Designation Letter of the Designated Subsidiary or the Notes of the
      Designated Subsidiary or (ii) the effect of the law of any jurisdiction
      (other than the State of New York) wherein any Lender or Applicable
      Lending Office may be located or wherein enforcement of the Credit
      Agreement, the Designation Letter of the Designated Subsidiary or the
      Notes of the Designated Subsidiary may be sought which limits rates of
      interest which may be charged or collected by such Lender.

            4. There is no action, suit, investigation, litigation or proceeding
      at law or in equity before any court, governmental agency or arbitration
      now pending or, to the best of my knowledge and belief, Threatened against
      the Designated Subsidiary that is reasonably likely to have a Material
      Adverse Effect or that purports to affect the legality, validity or
      enforceability of the Designation Letter of the Designated Subsidiary, the
      Credit Agreement or any Note of the Designated Subsidiary or the
      consummation of the transactions contemplated thereby.

            5. No authorizations, consents, approvals, licenses, filings or
      registrations by or with any governmental authority or administrative body
      are required for the due execution, delivery and performance by the
      Designated Subsidiary of its Designation Letter, the Credit Agreement or
      the Notes of the Designated Subsidiary except for such authorizations,
      consents, approvals, licenses, filings or registrations as have heretofore
      been made, obtained or affected and are in full force and effect.

            6. The Designated Subsidiary is not an "investment company" within
      the meaning of the Investment Company Act of 1940, as amended.

                                       2





            7. The Designated Subsidiary is not a "holding company" within the
      meaning of the Public Utility Holding Company Act of 1935, as amended.

            In connection with the opinions expressed by me above in paragraph
3, I wish to point out that (i) provisions of the Credit Agreement which permit
the Agent or any Lender to take action or make determinations may be subject to
a requirement that such action be taken or such determinations be made on a
reasonable basis and in good faith, (ii) a party to whom an advance is owed may,
under certain circumstances, be called upon to prove the outstanding amount of
the Advances evidenced thereby and (iii) the rights of the Agent and the Lenders
provided for in Section 9.04(b) of the Credit Agreement may be limited in
certain circumstances.

                                                Very truly yours,

                                       3






                           EXHIBIT H - FORM OF OPINION
                           OF SHEARMAN & STERLING LLP,
                              COUNSEL TO THE AGENT

                                [S&S LETTERHEAD]

                                                             __________ __, 2004

To the Initial Lenders party to the Credit
Agreement referred to below and to
Citicorp USA, Inc., as Agent

                          Honeywell International Inc.
                          ----------------------------

Ladies and Gentlemen:

            We have acted as counsel to Citicorp USA, Inc., as Agent (the
"Agent"), in connection with the Credit Agreement, dated as of October 22, 2004
(the "Credit Agreement"), among Honeywell International Inc., a Delaware
corporation (the "Borrower"), and each of you. Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein defined.

            In that connection, we have reviewed originals or copies of the
following documents:

            (a)   The Credit Agreement.

            (b)   The Notes executed by the Borrower and delivered on the date
                  hereof.

The documents described in the foregoing clauses (a) and (b) are collectively
referred to herein as the "Opinion Documents."

            We have also reviewed originals or copies of such other agreements
and documents as we have deemed necessary as a basis for the opinion expressed
below.

            In our review of the Opinion Documents and other documents, we have
assumed:

                  (A)   The genuineness of all signatures.

                  (B)   The authenticity of the originals of the documents
                        submitted to us.

                  (C)   The conformity to authentic originals of any documents
                        submitted to us as copies.







                  (D)   As to matters of fact, the truthfulness of the
                        representations made in the Credit Agreement.

                  (E)   That each of the Opinion Documents is the legal, valid
                        and binding obligation of each party thereto, other than
                        the Borrower, enforceable against each such party in
                        accordance with its terms.

                  (F)   That:

                        (1) The Borrower is an entity duly organized and validly
                  existing under the laws of the jurisdiction of its
                  organization.

                        (2) The Borrower has full power to execute, deliver and
                  perform, and has duly executed and delivered, the Opinion
                  Documents.

                        (3) The execution, delivery and performance by the
                  Borrower of the Opinion Documents have been duly authorized by
                  all necessary action (corporate or otherwise) and do not:

                              (a) contravene its certificate or articles of
                        incorporation, by-laws or other organizational
                        documents;

                              (b) except with respect to Generally Applicable
                        Law, violate any law, rule or regulation applicable to
                        it; or

                              (c) result in any conflict with or breach of any
                        agreement or document binding on it.

                        (4) Except with respect to Generally Applicable Law, no
                  authorization, approval or other action by, and no notice to
                  or filing with, any governmental authority or regulatory body
                  or (to the extent the same is required under any agreement or
                  document binding on it of which an addressee hereof has
                  knowledge, has received notice or has reason to know) any
                  other third party is required for the due execution, delivery
                  or performance by the Borrower of any Opinion Document or, if
                  any such authorization, approval, action, notice or filing is
                  required, it has been duly obtained, taken, given or made and
                  is in full force and effect.

            We have not independently established the validity of the foregoing
assumptions.

            "Generally Applicable Law" means the federal law of the United
States of America, and the law of the State of New York (including the rules or
regulations promulgated thereunder or pursuant thereto), that a New York lawyer
exercising customary professional diligence would reasonably be expected to
recognize as being applicable to the Borrower, the Opinion Documents or the
transactions governed by the Opinion Documents. Without limiting the generality
of the foregoing definition of Generally Applicable Law, the term "Generally
Applicable Law" does not include any law, rule or regulation that is applicable
to the Borrower,

                                       2






the Opinion Documents or such transactions solely because such law, rule or
regulation is part of a regulatory regime applicable to the specific assets or
business of any party to any of the Opinion Documents or any of its affiliates.

            Based upon the foregoing and upon such other investigation as we
have deemed necessary and subject to the qualifications set forth below, we are
of the opinion that each Opinion Document is the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms.

            Our opinion expressed above is subject to the following
qualifications:

            (a) Our opinion is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally (including without limitation all laws relating to
fraudulent transfers).

            (b) Our opinion is subject to the effect of general principles of
      equity, including without limitation concepts of materiality,
      reasonableness, good faith and fair dealing (regardless of whether
      considered in a proceeding in equity or at law).

            (c) We express no opinion with respect to the enforceability of
      indemnification provisions, or of release or exculpation provisions,
      contained in the Opinion Documents to the extent that enforcement thereof
      is contrary to public policy regarding the indemnification against or
      release or exculpation of criminal violations, intentional harm or
      violations of securities laws.

            (d) We express no opinion with respect to the enforceability of any
      indemnity against loss in converting into a specified currency the
      proceeds or amount of a court judgment in another currency.

            (e) Our opinion is limited to Generally Applicable Law.

            A copy of this opinion letter may be delivered by any of you to any
person that becomes a Lender in accordance with the provisions of the Credit
Agreement. Any such person may rely on the opinion expressed above as if this
opinion letter were addressed and delivered to such person on the date hereof.

            This opinion letter is rendered to you in connection with the
transactions contemplated by the Opinion Documents. This opinion letter may not
be relied upon by you or any person entitled to rely on this opinion pursuant to
the preceding paragraph for any other purpose without our prior written consent.

            This opinion letter speaks only as of the date hereof. We expressly
disclaim any responsibility to advise you of any development or circumstance of
any kind, including any change of law or fact, that may occur after the date of
this opinion letter that might affect the opinion expressed herein.

                                                Very truly yours,

                                       3







                                                                  EXECUTION COPY

                               U.S. $1,000,000,000

                           FIVE YEAR CREDIT AGREEMENT

                          Dated as of October 22, 2004

                                      Among

                          HONEYWELL INTERNATIONAL INC.,

                                  as Borrower,
                                  ------------

                                       and

                        THE INITIAL LENDERS NAMED HEREIN,

                               as Initial Lenders,
                               -------------------

                                       and

                               CITICORP USA, INC.,

                             as Administrative Agent
                             -----------------------

                                       and

                               JPMORGAN CHASE BANK

                              as Syndication Agent
                              --------------------

                                       and

                              BANK OF AMERICA, N.A.
                                BARCLAYS BANK PLC
                        DEUTSCHE BANK AG NEW YORK BRANCH
                                       and
                               UBS SECURITIES LLC

                             as Documentation Agents
                             -----------------------

                                       and

                          CITIGROUP GLOBAL MARKETS INC.
                                       and
                           J.P.MORGAN SECURITIES INC.

                  as Joint Lead Arrangers and Co-Book Managers
                  --------------------------------------------







                                TABLE OF CONTENTS



                                                                                                   Page
                                                                                            
ARTICLE I

         SECTION 1.01.  Certain Defined Terms ..............................................          1

         SECTION 1.02.  Computation of Time Periods ........................................         18

         SECTION 1.03.  Accounting Terms ...................................................         18

ARTICLE II

         SECTION 2.01.  The Revolving Credit Advances and Letters of Credit ................         18

         SECTION 2.02.  Making the Revolving Credit Advances ...............................         19

         SECTION 2.03.  The Competitive Bid Advances .......................................         21

         SECTION 2.04.  Issuance of and Drawings and Reimbursement Under Letters of Credit .         26

         SECTION 2.05.  Fees ...............................................................         28

         SECTION 2.06.  Termination or Reduction of the Commitments ........................         29

         SECTION 2.07.  Repayment of Advances ..............................................         31

         SECTION 2.08.  Interest on Revolving Credit Advances ..............................         32

         SECTION 2.09.  Interest Rate Determination ........................................         33

         SECTION 2.10.  Prepayments of Revolving Credit Advances ...........................         34

         SECTION 2.11.  Increased Costs ....................................................         36

         SECTION 2.12.  Illegality .........................................................         37

         SECTION 2.13.  Payments and Computations ..........................................         37

         SECTION 2.14.  Taxes ..............................................................         38

         SECTION 2.15.  Sharing of Payments, Etc ...........................................         41

         SECTION 2.16.  Use of Proceeds ....................................................         41

         SECTION 2.17.  Evidence of Debt ...................................................         41










ARTICLE III
                                                                                            
         SECTION 3.01.  Conditions Precedent to Effectiveness of Sections 2.01 and 2.03 ....         42

         SECTION 3.02.  Conditions Precedent to Initial Borrowing ..........................         43

         SECTION 3.03.  Initial Loan to Each Designated Subsidiary .........................         44

         SECTION 3.04.  Conditions Precedent to Each Revolving Credit Borrowing and Issuance         44

         SECTION 3.05.  Conditions Precedent to Each Competitive Bid Borrowing .............         45

         SECTION 3.06.  Determinations Under Section 3.01 ..................................         46

ARTICLE IV

         SECTION 4.01.  Representations and Warranties of the Company ......................         46

ARTICLE V

         SECTION 5.01.  Affirmative Covenants ..............................................         49

         SECTION 5.02.  Negative Covenants .................................................         52

ARTICLE VI

         SECTION 6.01.  Events of Default ..................................................         54

         SECTION 6.02.  Actions in Respect of the Letters of Credit upon Default ...........         58

ARTICLE VII

         SECTION 7.01.  Unconditional Guarantee ............................................         58

         SECTION 7.02.  Guarantee Absolute .................................................         59

         SECTION 7.03.  Waivers ............................................................         59

         SECTION 7.04.  Remedies ...........................................................         60

         SECTION 7.05.  No Stay ............................................................         60

         SECTION 7.06.  Survival ...........................................................         60

ARTICLE VIII

         SECTION 8.01.  Authorization and Action ...........................................         61










                                                                                             
         SECTION 8.02.  Agent's Reliance, Etc ..............................................         61

         SECTION 8.03.  CUSA and Affiliates ................................................         61

         SECTION 8.04.  Lender Credit Decision .............................................         62

         SECTION 8.05.  Indemnification ....................................................         62

         SECTION 8.06.  Successor Agent ....................................................         63

         SECTION 8.07.  Sub-Agent ..........................................................         63

         SECTION 8.08.  Other Agents .......................................................         63

ARTICLE IX

         SECTION 9.01.  Amendments, Etc ....................................................         64

         SECTION 9.02.  Notices, Etc .......................................................         64

         SECTION 9.03.  No Waiver; Remedies ................................................         65

         SECTION 9.04.  Costs and Expenses .................................................         65

         SECTION 9.05.  Binding Effect .....................................................         66

         SECTION 9.06.  Assignments and Participations .....................................         67

         SECTION 9.07.  Designated Subsidiaries ............................................         69

         SECTION 9.08.  Confidentiality ....................................................         70

         SECTION 9.09.  Mitigation of Yield Protection .....................................         70

         SECTION 9.10.  Governing Law ......................................................         71

         SECTION 9.11.  Execution in Counterparts ..........................................         71

         SECTION 9.12.  Jurisdiction, Etc ..................................................         71

         SECTION 9.13.  Substitution of Currency ...........................................         72

         SECTION 9.14.  Final Agreement ....................................................         72

         SECTION 9.15.  Judgment ...........................................................         72











                                                                                            
         SECTION 9.16.  No Liability of the Issuing Banks ..................................         73

         SECTION 9.17.  Patriot Act Notice .................................................         73

         SECTION 9.18.  Waiver of Jury Trial ...............................................         74








SCHEDULES

Schedule I - List of Applicable Lending Offices

Schedule 2.01(b) - Existing Letters of Credit

Schedule 3.01(b) - Disclosed Litigation

EXHIBITS

Exhibit A-1  -   Form of Revolving Credit Note

Exhibit A-2  -   Form of Competitive Bid Note

Exhibit B-1  -   Form of Notice of Revolving Credit Borrowing

Exhibit B-2  -   Form of Notice of Competitive Bid Borrowing

Exhibit C    -   Form of Assignment and Acceptance

Exhibit D    -   Form of Designation Letter

Exhibit E    -   Form of Acceptance by Process Agent

Exhibit F    -   Form of Opinion of Gail E  Lehman, Assistant General Counsel of
                 the Company

Exhibit G    -   Form of Opinion of Counsel to a Designated Subsidiary

Exhibit H    -   Form of Opinion of Shearman & Sterling LLP, Counsel to the
                 Agent

EX-10

                                                                   EXHIBIT 10.21





                            2003 Stock Incentive Plan
                                  for Employees
               of Honeywell International Inc. and its Affiliates

                            Restricted Unit Agreement


         RESTRICTED UNIT AGREEMENT made in Morris Township, New Jersey, as of
the ____ day of ___________ (the "Date of Grant"), between Honeywell
International Inc. (the "Company") and _________________ (the "Employee").

1.       Grant of Award. The Company has granted you ______ Restricted Units,
         subject to the provisions of this Agreement. The Company will hold the
         Restricted Units in a bookkeeping account on your behalf until they
         become payable or are forfeited or cancelled.

2.       Payment Amount. Each Restricted Unit represents one (1) Share of Common
         Stock. Except as otherwise determined by the Management Development and
         Compensation Committee (the "Committee"), in its sole discretion, you
         will be paid a Dividend Equivalent in an amount equal to any cash or
         stock dividends paid by the Company upon one Share of Common Stock for
         each Restricted Unit credited to your account.

3.       Vesting. Except in the event of your Full Retirement, death,
         Disability, or a Change in Control, or as otherwise provided in this
         Agreement, the restrictions on the Restricted Units will lapse
         incrementally as follows: __________________________ (vesting schedule
         within seven-year period). Your vested right will be calculated on the
         relevant anniversary of the Date of Grant or upon your Termination of
         Employment, other than by reason of your Full Retirement, death,
         Disability, or a Change in Control if earlier. No partial credit will
         be given for partial years of employment.

4.       Form of Payment. Vested Restricted Units will be redeemed solely for
         Shares. Dividend Equivalents will always be paid in cash.

5.       Deferral of Payment. If you would like to defer payment on the
         Restricted Units, you may, in the calendar year prior to the date on
         which the restrictions on the Restricted Units lapse or terminate, make
         a request to the Committee in writing. You must submit a suggested
         payment schedule with the request for deferral, and may specify whether
         payment will continue to be deferred in the event of a Change in
         Control prior to the scheduled payment date. The Committee may, in its
         sole discretion, determine whether to permit deferral of payment in the
         manner requested. If the Committee does not accept your proposed
         payment schedule, then payment will be made as provided in paragraph 4.

6.       Termination of Employment. Any Restricted Units that have not vested as
         of your Termination of Employment, other than by reason of your Full
         Retirement, death, Disability, or a Change in



                                      1/6








         Control will immediately be forfeited, and your rights with respect to
         these Restricted Units will end.

7.       Retirement, Death or Disability. If your employment with the Company
         terminates because of your Full Retirement, death or Disability, any
         remaining restrictions on Restricted Units will lapse, and payment on
         the Award will be made as soon as practicable. If you are deceased, the
         Company will make a payment to your estate only after the Committee has
         determined that the payee is the duly appointed executor or
         administrator of your estate.

8.       Change in Control. In the event of a Change in Control, any
         restrictions on Restricted Units that have not lapsed or terminated as
         of the date of Change in Control will immediately lapse. No later than
         90 days after the date of Change in Control, you will receive for the
         Restricted Units a single payment in cash equal to the product of the
         number of outstanding Restricted Units as of the date of Change in
         Control (including any Restricted Units whose restrictions have
         terminated pursuant to this paragraph 8) and a multiplication factor,
         as set forth in the Plan. Any Restricted Units on which you elected to
         defer payment will also be paid in full as soon as practicable after
         the effective date of the Change in Control, unless you made a contrary
         election prior to the date of Change in Control. If you elected not to
         have the Award immediately paid in full, then the Restricted Units will
         continue to be deferred in accordance with paragraph 5.

9.       Withholdings. The Company will have the right, prior to any issuance or
         delivery of Shares on Restricted Units, to withhold or require from you
         the amount necessary to satisfy applicable tax requirements, as
         determined by the Committee.

10.      Transfer of Award. You may not transfer any interest in Restricted
         Units except by will or the laws of descent and distribution. Any other
         attempt to dispose of your interest in Restricted Units will be null
         and void.

11.      Forfeiture of Awards.

         (a) By accepting the Award, you expressly agree and acknowledge that
             the forfeiture provisions of subparagraph (b) will apply if, from
             the Date of Grant of these Restricted Units until the date that is
             twenty-four (24) months after your Termination of Employment, for
             any reason, you enter into an employment or consultation agreement
             or arrangement (including any arrangement for service as an agent,
             partner, stockholder, consultant, officer or director) with any
             entity or person engaged in a business in which the Company or any
             Affiliate is engaged if the business is competitive (in the sole
             judgment of the Committee) with the Company or an Affiliate and the
             Committee has not approved the arrangement in writing.

         (b) If the Committee determines, in its sole judgment, that you have
             engaged in an act that violates subparagraph (a) prior to the
             24-month anniversary of your Termination of Employment, your
             outstanding Restricted Units will immediately be rescinded, and you
             will forfeit any rights you have with respect to these Restricted
             Units as of the date of the Committee's determination. In addition,
             you hereby agree and promise immediately to deliver to the Company,
             Shares equal in value to the amount of any Restricted Units you
             received payment for during the period beginning six (6) months
             prior to your Termination of Employment and ending on the date of
             the Committee's determination.



                                      2/6








12.      Restrictions on Payment of Shares. Payment of Shares for your
         Restricted Units is subject to the conditions that, to the extent
         required at the time of exercise, (a) the Shares underlying the
         Restricted Units will be duly listed, upon official notice of
         redemption, upon the NYSE, and (b) a Registration Statement under the
         Securities Act of 1933 with respect to the Shares will be effective.
         The Company will not be required to deliver any Common Stock until all
         applicable federal and state laws and regulations have been complied
         with and all legal matters in connection with the issuance and delivery
         of the Shares have been approved by counsel for the Company.

13.      Adjustments. In the event of any stock split, reverse stock split,
         dividend or other distribution (whether in the form of cash, Shares,
         other securities or other property), extraordinary cash dividend,
         recapitalization, merger, consolidation, split-up, spin-off,
         reorganization, combination, repurchase or exchange of Shares or other
         securities, the issuance of warrants or other rights to purchase Shares
         or other securities, or other similar corporate transaction or event,
         the Committee may, in its sole discretion, adjust the number and kind
         of Shares covered by the Restricted Units and other relevant provisions
         to the extent necessary to prevent dilution or enlargement of the
         benefits or potential benefits intended to be provided by the
         Restricted Units. Any such determinations and adjustments made by the
         Committee will be binding on all persons.

14.      Disposition of Securities. By accepting the Award, you acknowledge that
         you have read and understand the Company's policy, and are aware of and
         understand your obligations under applicable securities laws in respect
         of trading in the Company's securities. The Company will have the right
         to recover, or receive reimbursement for, any compensation or profit
         you realize on the disposition of Shares received for Restricted Units
         to the extent that the Company has a right of recovery or reimbursement
         under applicable securities laws.

15.      Plan Terms Govern. The vesting and redemption of Restricted Units, the
         disposition of any Shares received for Restricted Units, and the
         treatment of gain on the disposition of these Shares are subject to the
         provisions of the Plan and any rules that the Committee may prescribe.
         The Plan document, as may be amended from time to time, is incorporated
         into this Agreement. Capitalized terms used in this Agreement have the
         meaning set forth in the Plan, unless otherwise stated in this
         Agreement. In the event of any conflict between the terms of the Plan
         and the terms of this Agreement, the Plan will control. By accepting
         the Award, you acknowledge receipt of the Plan and the prospectus, as
         in effect on the date of this Agreement.







                                      3/6








16.      Personal Data.

         (a) By entering into this Agreement, and as a condition of the grant of
             the Restricted Units, you expressly consent to the collection, use,
             and transfer of personal data as described in this Section to the
             full extent permitted by and in full compliance with applicable
             law.

         (b) You understand that your local employer holds, by means of an
             automated data file, certain personal information about you,
             including, but not limited to, name, home address and telephone
             number, date of birth, social insurance number, salary,
             nationality, job title, any shares or directorships held in the
             Company, details of all Restricted Units or other entitlement to
             shares awarded, canceled, exercised, vested, unvested, or
             outstanding in your favor, for the purpose of managing and
             administering the Plan ("Data").

         (c) You further understand that part or all of your Data may be also
             held by the Company and/or its Subsidiaries and Affiliates,
             pursuant to a transfer made in the past with your consent, in
             respect of any previous grant of restricted units or awards, which
             was made for the same purposes of managing and administering of
             previous award/incentive plans, or for other purposes.

         (d) You further understand that your local employer will transfer Data
             to the Company and/or its Subsidiaries and Affiliates among
             themselves as necessary for the purposes of implementation,
             administration, and management of the your participation in the
             Plan, and that the Company and/or its Subsidiaries and Affiliates
             may transfer data among themselves, and/or each, in turn, further
             transfer Data to any third parties assisting the Company in the
             implementation, administration, and management of the Plan ("Data
             Recipients").

         (e) You understand that the Company and/or its Subsidiaries and
             Affiliates, as well as the Data Recipients, are or may be located
             in your country of residence or elsewhere, such as the United
             States. You authorize the Company and/or its Subsidiaries and
             Affiliates, as well as Data Recipients, to receive, possess, use,
             retain, and transfer Data in electronic or other form, for the
             purposes of implementing, administering, and managing your
             participation in the Plan, including any transfer of such Data, as
             may be required for the administration of the Plan and/or the
             subsequent holding of Shares on your behalf, to a broker or third
             party with whom the Shares may be deposited.

         (f) You understand that you may show your opposition to the processing
             and transfer of your Data, and, may at any time, review the Data,
             request that any necessary amendments be made to it, or withdraw
             your consent herein in writing by contacting the Company. You
             further understand that withdrawing consent may affect your ability
             to participate in the Plan.

17.      Discretionary Nature and Acceptance of Award. By accepting this Award,
         you agree to be bound by the terms of this Agreement and acknowledge
         that:



                                      4/6








         (a) The Company (and not your local employer) is granting your
             Restricted Units. Furthermore, this Agreement is not derived from
             any preexisting labor relationship between you and the Company, but
             rather from a mercantile relationship.

         (b) The Company may administer the Plan from outside your country of
             residence and that United States law will govern all Restricted
             Units granted under the Plan.

         (c) That benefits and rights provided under the Plan are wholly
             discretionary and, although provided by the Company, do not
             constitute regular or periodic payments.

         (d) The benefits and rights provided under the Plan are not to be
             considered part of your salary or compensation under your
             employment with your local employer for purposes of calculating any
             severance, resignation, redundancy or other end of service
             payments, vacation, bonuses, long-term service awards,
             indemnification, pension or retirement benefits, or any other
             payments, benefits or rights of any kind. You waive any and all
             rights to compensation or damages as a result of the termination of
             employment with your local employer for any reason whatsoever
             insofar as those rights result, or may result, from the loss or
             diminution in value of such rights under the Plan or your ceasing
             to have any rights under, or ceasing to be entitled to any rights
             under, the Plan as a result of such termination.

         (e) The grant of Restricted Units hereunder, and any future grant of
             Restricted Units under the Plan, is entirely voluntary, and at the
             complete discretion of the Company. Neither the grant of the
             Restricted Units nor any future grant of any Restricted Units by
             the Company shall be deemed to create any obligation to grant any
             further Restricted Units, whether or not such a reservation is
             explicitly stated at the time of such a grant. The Company has the
             right, at any time and/or on an annual basis, to amend, suspend or
             terminate the Plan; provided, however, that no such amendment,
             suspension, or termination shall adversely affect your rights
             hereunder.

         (f) The Plan shall not be deemed to constitute, and shall not be
             construed by you to constitute, part of the terms and conditions of
             employment. The Company shall not incur any liability of any kind
             to you as a result of any change or amendment, or any cancellation,
             of the Plan at any time.

         (g) Participation in the Plan shall not be deemed to constitute, and
             shall not be deemed by you to constitute, an employment or labor
             relationship of any kind with the Company.

18.      Limitations. Nothing in this Agreement or the Plan gives you any right
         to continue in the employ of the Company or any of its Affiliates or to
         interfere in any way with the right of the Company or any Affiliate to
         terminate your employment at any time. Payment of your Restricted Units
         is not secured by a trust, insurance contract or other funding medium,
         and you do not have any interest in any fund or specific asset of the
         Company by reason of this Award or the account established on your
         behalf. You have no rights as a shareowner of the Company pursuant to
         the Restricted Units until Shares are actually delivered to you.

19.      Incorporation of Other Agreements. This Agreement and the Plan
         constitute the entire understanding between you and the Company
         regarding the Restricted Units. This Agreement supersedes any prior
         agreements, commitments or negotiations concerning the Restricted
         Units.



                                      5/6







20.      Severability. The invalidity or unenforceability of any provision of
         this Agreement will not affect the validity or enforceability of the
         other provisions of the Agreement, which will remain in full force and
         effect. Moreover, if any provision is found to be excessively broad in
         duration, scope or covered activity, the provision will be construed so
         as to be enforceable to the maximum extent compatible with applicable
         law.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
the facsimile signature of its Chairman of the Board and Chief Executive Officer
as of the day and year first above written. By consenting to this Agreement, you
agree to the following: (i) you have carefully read, fully understand and agree
to all of the terms and conditions described in this Agreement and the Plan; and
(ii) you understand and agree that this Agreement and the Plan constitute the
entire understanding between you and the Company regarding the Award, and that
any prior agreements, commitments or negotiations concerning the Restricted
Units are replaced and superseded. You will be deemed to consent to the
application of the terms and conditions set forth in this Agreement and the Plan
unless you contact Honeywell International Inc., Executive Compensation/AB-1D,
101 Columbia Road, Morristown, NJ 07962 in writing within thirty (30) days of
the date of this Agreement.


                                    Honeywell International Inc.



                                    By: David M. Cote
                                        Chairman of the Board and
                                        Chief Executive Officer




                                    -------------------------------------------

                                    Participant's Signature           Date







                                      6/6

EX-10

                                                                   EXHIBIT 10.22



                            2003 Stock Incentive Plan
                                  for Employees
               of Honeywell International Inc. and its Affiliates


                              GROWTH PLAN AGREEMENT


      GROWTH PLAN AGREEMENT made in Morris Township, New Jersey, United States
of America, as of the ____ day of _____________ between Honeywell International
Inc. (which together with its subsidiaries and affiliates, when the context so
indicates, is hereinafter referred to as the "Company") and ___________ (the
"Employee").

      1.    Grant of Awards. The Company has granted to you ________ Growth Plan
            Units, subject to the terms of this Agreement and the terms of the
            2003 Stock Incentive Plan for Employees of Honeywell International
            Inc. and its Affiliates (the "Stock Plan").

      2.    Target and Actual Award. The number of Growth Plan Units awarded to
            you represents a target award for the Performance Cycle (as defined
            below). Each Growth Plan Unit has a target value of $100 ("Target
            Value"). Your actual award value (the "Actual Award") is equal to
            the product of (i) the Target Value, (ii) the Plan Payout
            Percentage, and (iii) the number of Growth Plan Units awarded to you
            under this Agreement. For purposes of this Agreement, the "Plan
            Payout Percentage" shall be based on the achievement of the
            Performance Measures described in Section 3 below and may range from
            zero to a maximum of 200%.

      3.    Performance Measures. The Plan Payout Percentage shall be determined
            based on revenue growth and return on investment (collectively the
            "Performance Measures") for the Performance Cycle. Performance
            Measures shall be determined at the Company level for eligible
            employees not assigned to one of the Company's four strategic
            business groups ("SBG"), and at both the Company and SBG level for
            other eligible employees. For purposes of this determination, if you
            transfer from one of the Company's businesses during the Performance
            Cycle, your award will be prorated for the number of days actively
            employed in that business.

            Notwithstanding anything in this Agreement to the contrary, except
            in the event of a Change in Control (as defined in the Stock Plan),
            no Growth Plan Unit awards will be paid unless the Company attains a
            minimum level of earnings per share growth during the Performance
            Cycle. The minimum level of earnings per share growth shall be a
            ___% compound annual growth rate over the Performance Cycle. In
            determining earnings per share for this purpose, the Management
            Development and Compensation Committee of the Company's Board of
            Directors (the "Committee") shall exclude from its calculations
            unusual, infrequently occurring, and extraordinary items.

      4.    Performance Cycles. The ____ year performance cycle to which this
            Agreement applies commences on ___________ and ends on ____________
            (performance cycle between 12 months and 5 years) (the "Performance
            Cycle").










      5.    Timing of Payments. The payment of Growth Plan Unit awards is
            contingent upon (i) the achievement of the performance criteria
            outlined in Section 3 above, and (ii) you remaining actively
            employed by the Company on the applicable payment dates. Thus, for
            example, if you are receiving pay from the Company but not actively
            performing services therefore (including, but not limited to,
            severance periods, notice periods, grandfathered vacation periods,
            short or long-term disability periods), you will not be considered
            "active" for purposes of the payment of Growth Plan Unit awards. To
            the extent a Growth Plan Unit award is earned, you will receive it
            in two installments (subject, of course, to the active employment
            criteria described herein). One-half of your Actual Award will be
            paid in ___________; the second half of your Actual Award will be
            paid in ___________; provided, however, that in no event will a
            payment be made later than two and one-half months from the end of
            the year in which the payment vests.

      6.    Form of Payment. Growth Plan Units may be paid out in either cash or
            shares of the Company's common stock ("Shares"), at the discretion
            of the Committee. Payment shall be made in the same currency as your
            pay ("Local Currency"). In the event you receive pay in more than
            one currency, the currency used for payment will be at the
            discretion of the party responsible for payment. The Company will
            normalize your award value for any fluctuation in exchange rates
            between U.S. dollars and your Local Currency. The exchange rate used
            will be that which is in effect for compensation planning at the
            beginning of this Performance Cycle. Your award will be expressed in
            U.S. dollars. If your Actual Award is paid in Shares, the number of
            Shares shall be determined by dividing the Actual Award by the Fair
            Market Value (as defined in the Stock Plan) of the Shares as of the
            date the Committee determines the amount of your Actual Award.
            Fractional Shares will always be paid in cash. No payment amounts
            will be credited with interest, and you may not defer the payment of
            any awards hereunder.

      7.    Termination of Employment. If your employment with the Company is
            terminated for any reason other than death or Disability prior to
            the date a Growth Plan Unit payment is to be made pursuant to
            Section 5 above, any unpaid amounts shall be forfeited and your
            rights with respect to any Growth Plan Units will terminate unless
            the Committee, or its designee, determines otherwise in its sole and
            absolute discretion.

      8.    Death or Disability. If your employment with the Company terminates
            because of death or Disability (as defined in the Stock Plan) prior
            to the first installment payment of your Actual Award, you or your
            estate will receive the prorated value of your Actual Award. The
            prorated value of the Actual Award shall be determined by
            multiplying the Actual Award by a fraction, the numerator of which
            is the number of days you were actively employed by the Company
            during the Performance Cycle prior to your death or Disability, and
            the denominator of which is 730. Such prorated Actual Award shall be
            payable in a single lump sum at the time the first installment
            payment is paid to other Growth Plan grantees. If your death or
            Disability occurs after the first installment payment of your Actual
            Award has been made but before the second installment payment has
            been made, the Company shall pay the second installment payment in a
            lump sum as soon as practicable after the date of death or
            Disability.

      9.    Change in Control. In the event of a Change in Control (as defined
            in the Stock Plan), you will be deemed to have earned an Actual
            Award at a Performance Payout Percentage

                                       2








            of 100%. In such case, you shall receive both installments of your
            Actual Award in a single sum payment no later than the earlier of 90
            days after the date of the Change in Control or two and one-half
            months after the end of the calendar year in which the Change in
            Control occurs. Such single sum payment may be in cash or Shares, as
            determined by the Committee.

      10.   Change in Status. If your role within the Company changes during the
            Performance Cycle such that you would no longer be eligible to
            receive Growth Plan Units, this Agreement shall remain in full force
            and effect as if no such change had occurred.

      11.   Transfer of Awards. You may not transfer any interest in your Growth
            Plan Units. Any attempt to dispose of your interest in your Growth
            Plan Units shall be null and void.

      12.   Personal Data. By accepting the Growth Plan Unit award under this
            Agreement, you hereby consent to the Company's use, dissemination
            and disclosure of any information pertaining to you that the Company
            determines to be necessary or desirable for the implementation,
            administration, and management of the Stock Plan.

      13.   Discretionary Nature and Acceptance of Award. By accepting this
            Growth Plan Unit award, you agree to be bound by the terms of this
            Agreement and acknowledge that:

            a)    The benefits and rights provided under the Stock Plan are not
                  to be considered part of your salary or compensation with the
                  Company for purposes of calculating any (i) severance,
                  resignation, redundancy or termination related payments, (ii)
                  vacation amounts, (iii) bonus amounts, (iv) long-term service
                  awards, (v) pension or retirement benefits, or (vi) any other
                  payments, benefits or rights of any kind. You hereby waive any
                  and all rights to compensation or damages as a result of the
                  termination of your employment with the Company for any reason
                  whatsoever insofar as those rights result, or may result, from
                  the loss or diminution in value of such rights under the Stock
                  Plan or your ceasing to have any rights under, or ceasing to
                  be entitled to any rights under, the Stock Plan as a result of
                  such termination.

            b)    The grant of Growth Plan Units hereunder, and any future grant
                  of Growth Plan Units under the Stock Plan, is entirely
                  voluntary and at the complete and sole discretion of the
                  Company. Neither the grant of these Growth Plan Units nor any
                  future grant of Growth Plan Units by the Company shall be
                  deemed to create any obligation to grant any further Growth
                  Plan Units, whether or not such a reservation is explicitly
                  stated at the time of such grant. The Company has the right,
                  at any time and for any reason, to amend, suspend or terminate
                  the Stock Plan; provided, however, that no such amendment,
                  suspension, or termination shall adversely affect your rights
                  hereunder.

      14.   Limitations. Nothing in this Agreement or the Stock Plan gives you
            any right to continue in the employ of the Company or to interfere
            in any way with the right of the Company to terminate your
            employment at any time.

      15.   Agreement Changes. The Company reserves the right to change the
            terms of this Agreement without your consent to the extent necessary
            or desirable to comply with the requirements of Code section 409A,
            the Treasury regulations and other guidance thereunder.

                                       3








IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
the facsimile signature of its Chairman of the Board and Chief Executive Officer
as of the day and year first above written. By consenting to this Agreement, you
agree that (i) you have carefully read, fully understand and agree to all of the
terms and conditions described in this Agreement and the Stock Plan; and (ii)
you understand and agree that this Agreement and the Stock Plan constitute the
entire understanding between you and the Company regarding your award of Growth
Plan Units, and that any prior agreements, commitments or negotiations
concerning such Growth Plan Units are hereby replaced and superseded. You will
be deemed to consent to the application of the terms and conditions set forth in
this Agreement and the Stock Plan unless you contact Honeywell International
Inc., Executive Compensation/AB-1D, 101 Columbia Road, Morristown, NJ 07962, in
writing, within thirty (30) days of the date of this Agreement.


                                        HONEYWELL INTERNATIONAL INC.





                                        By: David M. Cote
                                            Chairman of the Board and
                                            Chief Executive Officer



                                        _________________________________
                                        Participant's signature




                                       4








This Agreement and the underlying Stock Plan represent the entire agreement
between the Company and you regarding your Growth Plan Units. This Agreement and
the Stock Plan should be reading conjunction so that they are not in conflict.
Nevertheless, in the event this Agreement and the Stock Plan cannot be
harmonized with each other, the terms of the Stock Plan shall control. You
should consult the Stock Plan for additional information with respect to your
rights, responsibilities and entitlements.

The Company reserves the right to amend, modify or terminate the Stock Plan at
its sole and absolute discretion, subject to shareowner approval if required.

This Agreement does not guarantee your eligibility for any Stock Plan benefit
now or in the future. Please keep in mind that neither the Stock Plan nor this
Agreement, or any amendments thereto, constitute a contract of employment with
the Company or otherwise give you the right to be retained in the employment of
the Company.















                                         5

EX-12

EXHIBIT 12

HONEYWELL INTERNATIONAL INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	2004			2003			2002			2001			2000
	(In millions)
Determination of Earnings:
Income (loss) before taxes	$	1,680		$	1,640		$	(945	)	$	(422	)	$	2,398
Add (Deduct):
Amortization of capitalized interest		24			24			24			25			25
Fixed charges		438			448			435			512			583
Equity income, net of distributions		(75	)		(38	)		(42	)		199			132
Total earnings, as defined	$	2,067		$	2,066		$	(528	)	$	314		$	3,138
Fixed Charges:
Rents(a)	$	107		$	105		$	91		$	107		$	102
Interest and other financial charges		331			335			344			405			481
		438			440			435			512			583
Capitalized interest		18			15			21			17			16
Total fixed charges	$	456		$	455		$	456		$	529		$	599
Ratio of earnings to fixed charges		4.53			4.54			(1.16	)(b)		0.59	(b)		5.24

(a)	Denotes the equivalent of an appropriate portion of rentals representative of the interest factor on all rentals other than for capitalized leases.
(b)	The ratio of earnings to fixed charges was less than 1:1 for the years ended December 31, 2002 and 2001. In order to have achieved a ratio of earnings to fixed charges of 1:1, we would have had to have generated an additional $984 and $215 million of earnings in the years ended December 31, 2002 and 2001, respectively.

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

		Securities Owned
Name	Country or State of Incorporation	Class	Percent Ownership
Honeywell Electronic Materials Inc.	Washington	Common Stock		100
Honeywell HomeMed L.L.C.	Delaware	Common Stock		100
Honeywell Nylon L.L.C.	Delaware	Common Stock		100
Honeywell Technology Solutions Inc.	Delaware	Common Stock		100
Honeywell Intellectual Properties Inc.	Arizona	Common Stock		100
Honeywell Specialty Wax & Additives Inc.	Delaware	Common Stock		100
Honeywell Specialty Materials, L.L.C.	Delaware	Common Stock		100
Grimes Aerospace Company	Delaware	Common Stock		100
Prestone Products Corporation	Delaware	Common Stock		100

      The names of Honeywell's other consolidated subsidiaries, which are primarily totally-held by Honeywell, are not listed because all such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-14071, 33-55425, 333-22355, 333-49455, 333-68847, 333-74075, 333-34760, 333-86874 and 333-101455), Form S-8 (Nos. 33-09896, 33-51455, 33-55410, 33-58347, 333-57515, 333-57517, 333-57519, 333-83511, 333-34764, 333-49280, 333-57868, 333-91582, 333-91736, 333-105065 and 333-108461), and Form S-4 (No. 333-82049) of Honeywell International Inc. of our report dated February 25, 2005 relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/S/ PRICEWATERHOUSECOOPERS LLP

Florham Park, New Jersey
February 25, 2005

EX-24

                                                                      Exhibit 24

                                POWER OF ATTORNEY
                                -----------------

     I, David M. Cote, a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David J. Anderson, Peter M.
Kreindler, Thomas F. Larkins and John J. Tus, each with power to act without the
other and with power of substitution and resubstitution, as my attorney-in-fact
and agent for me and in my name, place and stead in any and all capacities,

     (i) to sign the Company's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 2004,

     (ii) to sign any amendment to the Annual Report referred to in (i) above,
and

     (iii) to file the documents described in (i) and (ii) above and all
exhibits thereto and any and all other documents in connection therewith,

granting unto each said attorney and agent full power and authority to do and
perform every act and thing requisite, necessary or desirable to be done in
connection therewith, as fully to all intents and purposes as I might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.


                                                           /s/ David M. Cote
                                                           -----------------
                                                             David M. Cote

Dated: February 1, 2005








                                POWER OF ATTORNEY
                                -----------------

     I, David M. Cote, a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David J. Anderson, Peter M.
Kreindler, Thomas F. Larkins and John J. Tus, each with power to act without the
other and with power of substitution and resubstitution, as my attorney-in-fact
to sign on my behalf in my capacity as a director of the Company one or more
registration statements under the Securities Act of 1933, or any amendment or
post-effective amendment to any registration statement heretofore or hereafter
filed by the Company:

         (a) on Form S-8 or other appropriate form for the registration of
shares of the Company's Common Stock (or participations where appropriate) to be
offered under the savings, stock or other benefit plans of the Company, its
affiliates or any predecessor thereof, including the Honeywell Savings and
Ownership Plan I, Honeywell Savings and Ownership Plan II, the Honeywell
Supplemental Savings Plan, the Honeywell Executive Supplemental Savings Plan,
the UK Share Purchase Plan of the Company, the Ireland Employees Share Ownership
program of the Company, the Employee Stock Purchase Plan of the Company, the
Stock Plan for Non-Employee Directors of the Company, the 1993 Honeywell Stock
Plan for Employees of the Company and its Affiliates, the 2003 Stock Incentive
Plan of Honeywell International Inc., and any plan which is a successor to such
plans or is a validly authorized plan pursuant to which securities of the
Corporation are issued to employees, and

         (b) on Form S-3 or other appropriate form for the registration of
shares of the Company's Common Stock to be offered under the Dividend
Reinvestment and Share Purchase Plan of the Company and any plan which is a
successor to such plan.

     I hereby grant to each such attorney full power and authority to perform
every act necessary to be done as fully as I might do in person.

     I hereby revoke any or all prior appointments of attorneys-in-fact to sign
the above-described documents.

                                                           /s/ David M. Cote
                                                           -----------------
                                                             David M. Cote

Dated: February 1, 2005








                                POWER OF ATTORNEY
                                -----------------

     I, David M. Cote, a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David J. Anderson, Peter M.
Kreindler, Thomas F. Larkins and John J. Tus, each with power to act without the
other and with power of substitution and resubstitution, as my attorney-in-fact
to sign on my behalf in my capacity as a director of the Company one or more
registration statements under the Securities Act of 1933, or any amendment or
post-effective amendment to any registration statement heretofore or hereafter
filed by the Company on Form S-3 or other appropriate form for the registration
of:

     (i) debt securities of the Company (which may be convertible into or
exchangeable for or accompanied by warrants to purchase debt or equity
securities of the Company, it subsidiaries, joint ventures or affiliates or
another person or entity, provided the number of shares of the Company's Common
Stock into or for which such debt securities may be converted or exchanged or
which may be issued upon exercise of such warrants shall not exceed 25,000,000,
as adjusted for stock splits and dividends) with aggregate proceeds not to
exceed $3 billion (or the equivalent thereof in any foreign currency), including
any accompanying warrants and any guarantees by the Company of such debt
securities of its subsidiaries, joint ventures or affiliates;

     (ii) preferred stock of the Company (which may be convertible into or
redeemable or exchangeable for Common Stock or other securities or property of
the Company) with proceeds not to exceed $500 million;

     (iii) debt securities, Common Stock or preferred stock of the Company or
warrants to purchase such securities to be issued in exchange for debt or equity
securities of the Company, its subsidiaries, joint ventures or affiliates with
an aggregate principal amount, liquidation, preference or value not to exceed
$815,740,000;

     (iv) any securities into or for which any of the securities specified in
clauses (i), (ii) or (iii) are convertible or exchangeable or which may be
issued upon exercise thereof; and

     (v) shares of Common Stock of the Company sold or otherwise disposed of to
carry out transactions (a) which have been specifically authorized by the Board
of Directors, and any warrants to purchase such shares, or (b) not requiring
specific authorization by the Board of Directors (not to exceed in any one
transaction the lesser of (1) two percent of the Common Stock of the Company
issued and outstanding at the end of the preceding fiscal year, as adjusted for
stock splits and stock dividends, or (2) shares having a market value of
$200,000,000), and any warrants to purchase such shares.

     I hereby grant to each such attorney full power and authority to perform
every act necessary to be done as fully as I might do in person.

     I hereby revoke any or all prior appointments of attorneys-in-fact to the
extent that they confer authority to sign the above-described documents.

                                                           /s/ David M. Cote
                                                           -----------------
                                                             David M. Cote

Dated: February 1, 2005








                                POWER OF ATTORNEY
                                -----------------

     Each of the undersigned, as a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David M. Cote, Peter M.
Kreindler, David J. Anderson, Thomas F. Larkins and John J. Tus, each with power
to act without the other and with power of substitution and resubstitution, as
my attorney-in-fact and agent for me and in my name, place and stead in any and
all capacities,

     (i) to sign the Company's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 2004,

     (ii) to sign any amendment to the Annual Report referred to in (i) above,
and

     (iii) to file the documents described in (i) and (ii) above and all
exhibits thereto and any and all other documents in connection therewith,

granting unto each said attorney and agent full power and authority to do and
perform every act and thing requisite, necessary or desirable to be done in
connection therewith, as fully to all intents and purposes as I might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

     This Power of Attorney 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.

/s/ Hans W. Becherer                     /s/ Bruce Karatz
- --------------------                     ----------------
Hans W. Becherer, Director               Bruce Karatz, Director

/s/ Gordon M. Bethune                    /s/ Russell E. Palmer
- ---------------------                    ---------------------
Gordon M. Bethune, Director              Russell E. Palmer, Director

/s/ Marshall N. Carter                   /s/ Ivan G. Seidenberg
- ----------------------                   ----------------------
Marshall N. Carter, Director             Ivan G. Seidenberg, Director

/s/ Jaime Chico Pardo                    /s/ Bradley T. Sheares
- ---------------------                    ----------------------
Jaime Chico Pardo, Director              Bradley T. Sheares, Director

/s/ Clive R. Hollick                     /s/ Eric K. Shinseki
- --------------------                     --------------------
Clive R. Hollick, Director               Eric K. Shinseki, Director

/s/ James J. Howard                      /s/ John R. Stafford
- -------------------                      --------------------
James J. Howard, Director                John R. Stafford, Director

                                         /s/ Michael W. Wright
                                         ---------------------
                                         Michael W. Wright, Director

Dated: February 1, 2005








                                POWER OF ATTORNEY
                                -----------------

     Each of the undersigned, as a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David M. Cote, Peter M.
Kreindler, David J. Anderson, Thomas F. Larkins and John J. Tus, each with power
to act without the other and with power of substitution and resubstitution, as
my attorney-in-fact to sign on my behalf in my capacity as a director of the
Company one or more registration statements under the Securities Act of 1933, or
any amendment or post-effective amendment to any registration statement
heretofore or hereafter filed by the Company:

         (a) on Form S-8 or other appropriate form for the registration of
shares of the Company's Common Stock (or participations where appropriate) to be
offered under the savings, stock or other benefit plans of the Company, its
affiliates or any predecessor thereof, including the Honeywell Savings and
Ownership Plan I, Honeywell Savings and Ownership Plan II, the Honeywell
Supplemental Savings Plan, the Honeywell Executive Supplemental Savings Plan,
the UK Share Purchase Plan of the Company, the Ireland Employees Share Ownership
program of the Company, the Employee Stock Purchase Plan of the Company, the
Stock Plan for Non-Employee Directors of the Company, the 1993 Honeywell Stock
Plan for Employees of the Company and its Affiliates, the 2003 Stock Incentive
Plan of Honeywell International Inc., and any plan which is a successor to such
plans or is a validly authorized plan pursuant to which securities of the
Corporation are issued to employees, and

         (b) on Form S-3 or other appropriate form for the registration of
shares of the Company's Common Stock to be offered under the Dividend
Reinvestment and Share Purchase Plan of the Company and any plan which is a
successor to such plan.

     I hereby grant to each such attorney full power and authority to perform
every act necessary to be done as fully as I might do in person.

     I hereby revoke any or all prior appointments of attorneys-in-fact to sign
the above-described documents.

     This Power of Attorney 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.

/s/ Hans W. Becherer                     /s/ Bruce Karatz
- --------------------                     ----------------
Hans W. Becherer, Director               Bruce Karatz, Director

/s/ Gordon M. Bethune                    /s/ Russell E. Palmer
- ---------------------                    ---------------------
Gordon M. Bethune, Director              Russell E. Palmer, Director

/s/ Marshall N. Carter                   /s/ Ivan G. Seidenberg
- ----------------------                   ----------------------
Marshall N. Carter, Director             Ivan G. Seidenberg, Director

/s/ Jaime Chico Pardo                    /s/ Bradley T. Sheares
- ---------------------                    ----------------------
Jaime Chico Pardo, Director              Bradley T. Sheares, Director








/s/ Clive R. Hollick                     /s/ Eric K. Shinseki
- --------------------                     --------------------
Clive R. Hollick, Director               Eric K. Shinseki, Director

/s/ James J. Howard                      /s/ John R. Stafford
- -------------------                      --------------------
James J. Howard, Director                John R. Stafford, Director

                                         /s/ Michael W. Wright
                                         ---------------------
                                         Michael W. Wright, Director

Dated: February 1, 2005








                                POWER OF ATTORNEY
                                -----------------

     Each of the undersigned, as a director of Honeywell International Inc. (the
"Company"), a Delaware corporation, hereby appoint David M. Cote, Peter M.
Kreindler, David J. Anderson, Thomas F. Larkins and John J. Tus, each with power
to act without the other and with power of substitution and resubstitution, as
my attorney-in-fact to sign on my behalf in my capacity as a director of the
Company one or more registration statements under the Securities Act of 1933, or
any amendment or post-effective amendment to any registration statement
heretofore or hereafter filed by the Company on Form S-3 or other appropriate
form for the registration of:

     (i) debt securities of the Company (which may be convertible into or
exchangeable for or accompanied by warrants to purchase debt or equity
securities of the Company, it subsidiaries, joint ventures or affiliates or
another person or entity, provided the number of shares of the Company's Common
Stock into or for which such debt securities may be converted or exchanged or
which may be issued upon exercise of such warrants shall not exceed 25,000,000,
as adjusted for stock splits and dividends) with aggregate proceeds not to
exceed $3 billion (or the equivalent thereof in any foreign currency), including
any accompanying warrants and any guarantees by the Company of such debt
securities of its subsidiaries, joint ventures or affiliates;

     (ii) preferred stock of the Company (which may be convertible into or
redeemable or exchangeable for Common Stock or other securities or property of
the Company) with proceeds not to exceed $500 million;

     (iii) debt securities, Common Stock or preferred stock of the Company or
warrants to purchase such securities to be issued in exchange for debt or equity
securities of the Company, its subsidiaries, joint ventures or affiliates with
an aggregate principal amount, liquidation, preference or value not to exceed
$815,740,000;

     (iv) any securities into or for which any of the securities specified in
clauses (i), (ii) or (iii) are convertible or exchangeable or which may be
issued upon exercise thereof; and

     (v) shares of Common Stock of the Company sold or otherwise disposed of to
carry out transactions (a) which have been specifically authorized by the Board
of Directors, and any warrants to purchase such shares, or (b) not requiring
specific authorization by the Board of Directors (not to exceed in any one
transaction the lesser of (1) two percent of the Common Stock of the Company
issued and outstanding at the end of the preceding fiscal year, as adjusted for
stock splits and stock dividends, or (2) shares having a market value of
$200,000,000), and any warrants to purchase such shares.

     I hereby grant to each such attorney full power and authority to perform
every act necessary to be done as fully as I might do in person.

     I hereby revoke any or all prior appointments of attorneys-in-fact to the
extent that they confer authority to sign the above-described documents.








     This Power of Attorney 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.

/s/ Hans W. Becherer                     /s/ Bruce Karatz
- -------------------                      ----------------
Hans W. Becherer, Director               Bruce Karatz, Director

/s/ Gordon M. Bethune                    /s/ Russell E. Palmer
- ---------------------                    ---------------------
Gordon M. Bethune, Director              Russell E. Palmer, Director

/s/ Marshall N. Carter                   /s/ Ivan G. Seidenberg
- ----------------------                   ----------------------
Marshall N. Carter, Director             Ivan G. Seidenberg, Director

/s/ Jaime Chico Pardo                    /s/ Bradley T. Sheares
- --------------------                     ----------------------
Jaime Chico Pardo, Director              Bradley T. Sheares, Director

/s/ Clive R. Hollick                     /s/ Eric K. Shinseki
- --------------------                     --------------------
Clive R. Hollick, Director               Eric K. Shinseki, Director

/s/ James J. Howard                      /s/ John R. Stafford
- -------------------                      --------------------
James J. Howard, Director                John R. Stafford, Director

                                         /s/ Michael W. Wright
                                         ---------------------
                                         Michael W. Wright, Director

Dated: February 1, 2005

EX-31

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

      I, David M. Cote, Chief Executive Officer, certify that:

      1. I have reviewed this Annual Report on Form 10-K of Honeywell International Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

      5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the 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 25, 2005 By:                                          
/s/ DAVID M. COTE       David M. Cote
      Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

      I, David J. Anderson, Chief Financial Officer, certify that:

      1. I have reviewed this Annual Report on Form 10-K of Honeywell International Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

      5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the 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 25, 2005 By:                                                
      /s/ DAVID J. ANDERSON       David J. Anderson
      Chief Financial Officer

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Honeywell International Inc. (the Company) on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David M. Cote, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:                                           /s/ DAVID M. COTE       David M. Cote       Chief Executive Officer
February 25, 2005

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Honeywell International Inc. (the Company) on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David J. Anderson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:                                                 /s/ DAVID J. ANDERSON       David J. Anderson       Chief Financial Officer
February 25, 2005