Document:

EX-10.38

EXHIBIT 10.38

USG CORPORATION

PERFORMANCE SHARES AGREEMENT

     WHEREAS, the “Grantee” is an employee of USG Corporation, a Delaware corporation (the
“Company”) or a Subsidiary;

     WHEREAS, the Board of Directors of the Company (the “Board”) has granted to the Grantee, as
set forth in the Award Summary on the Smith Barney website on the “Date of Grant”, the number of
Performance Shares (as defined in the Plan) pursuant to the Company’s Long-Term Incentive Plan, as
amended (the “Plan”), subject to the terms and conditions of the Plan and the terms and conditions
hereinafter set forth; and

     WHEREAS, the execution of a Performance Shares Agreement substantially in the form hereof to
evidence such grant has been authorized by a resolution of the Board.

     NOW, THEREFORE, the Company and the Grantee agree as follows:

	1.	 	Grant of Performance Share Right. Subject to the terms of the Plan, the Company hereby
grants to the Grantee a targeted number of performance shares (the “Target Performance
Shares”), payment of which depends on the Company’s performance as set forth in this Agreement
and in the Statement of Performance Goals (the “Statement of Performance Goals”) approved by
the Board.
	 
	2.	 	Earning of Award.

     (a) Performance Measure. The Grantee’s right to receive all, any portion of,
or more than, the Target Performance Shares will be contingent upon the achievement of
specified levels of performance of the Company’s total stockholder return (including
reinvestment of dividends) relative to the performance of the Dow Jones U.S. Construction
and Materials Index (“Total Stockholder Return”), as set forth in the Statement of
Performance Goals and will be measured over the period from December 1, 2007 through
December 31, 2010 (the “Performance Period”).

     (b) Below Threshold. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period falls below the threshold level, as set forth
in the Performance Matrix contained in the Statement of Performance Goals, no performance
shares for the Performance Period shall become earned.

     (c) Threshold. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the threshold level, as set forth in
the Performance Matrix contained in the Statement of Performance Goals, 35% of the Target
Performance Shares for the Performance Period shall become earned.

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     (d) Between Threshold and Target. If, upon the conclusion of the Performance
Period, Total Stockholder Return exceeds the threshold level, but is less than the target
level, as set forth in the Performance Matrix contained in the Statement of Performance
Goals, the Target Performance Shares shall become earned based on performance during the
Performance Period, as determined by mathematical straight-line interpolation between 35% of
the Target Performance Shares and 100% of the Target Performance Shares.

     (e) Target. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the target level, as set forth in the
Performance Matrix contained in the Statement of Performance Goals, 100% of the Target
Performance Shares for the Performance Period shall become earned.

     (f) Between Target and Intermediate. If, upon the conclusion of the
Performance Period, Total Stockholder Return exceeds the target level, but is less than the
intermediate level, as set forth in the Performance Matrix contained in the Statement of
Performance Goals the Target Performance Shares shall become earned based on performance
during the Performance Period, as determined by mathematical straight-line interpolation
between 100% of the Target Performance Shares and 150% of the Target Performance Shares.

     (g) Intermediate. If, upon the conclusion of the Performance Period, Total
Stockholder Return for the Performance Period equals the intermediate level, as set forth in
the Performance Matrix contained in the Statement of Performance Goals, 150% of the Target
Performance Shares for the Performance Period shall become earned.

     (h) Between Intermediate and Maximum. If, upon the conclusion of the
Performance Period, Total Stockholder Return exceeds the intermediate level, but is less
than the maximum level, as set forth in the Performance Matrix contained in the Statement of
Performance Goals the Target Performance Shares shall become earned based on performance
during the Performance Period, as determined by mathematical straight-line interpolation
between 150% of the Target Performance Shares and 200% of the Target Performance Shares.

     (i) Equals or Exceeds Maximum. If, upon the conclusion of the Performance
Period, Total Stockholder Return for the Performance Period equals or exceeds the maximum
level, as set forth in the Performance Matrix contained in the Statement of Performance
Goals, 200% of the Target Performance Shares shall become earned.

     (j) Conditions; Determination of Earned Award. Except as otherwise provided
herein, the Grantee’s right to receive any performance shares is contingent upon his or her
remaining in the continuous employ of the Company or a Subsidiary through the end of the
Performance Period. Following the Performance Period, the Board shall determine whether and
to what extent the goals relating to Total Stockholder Return have been satisfied for the
Performance Period and shall determine the number of performance shares that shall have
become earned hereunder.

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	3.	 	Effect of Change in Control. In the event a Change of Control occurs during the Performance
Period, but before the payment of any performance shares as set forth in Section 6, below, the
Company shall pay to the Grantee, as soon as practicable following the Change of Control but
in no event later than two and one-half months following the end of the year in which the
Change of Control occurs, a pro rata number of the Target Performance Shares based on the
number of full months that have elapsed during the Performance Period prior to the Change of
Control, and the remaining performance shares will be forfeited.
	 
	4.	 	Termination Due to Death, Disability, Retirement. If the Grantee’s employment with the
Company or a Subsidiary terminates during the Performance Period, but before the payment of
any performance shares as set forth in Section 6, below, due to (a) the Grantee’s death or (b)
the Grantee becoming permanently and totally disabled while in the employ of the Company or
any Subsidiary or (c) the Grantee’s Retirement, the Company shall pay to the Grantee or his or
her executor or administrator, as the case may be, at the time described in Section 6 and
based on the level of achievement of Total Stockholder Return during the Performance Period, a
pro rata number of the Target Performance Shares based on the number of full months during the
Performance Period during which the Grantee was employed by the Company, and the remaining
performance shares will be forfeited. The Grantee shall be considered to have become
permanently and totally disabled if the Grantee has suffered a total disability within the
meaning of the Company’s Long Term Disability Plan for Salaried Employees. “Retirement” shall
mean the Grantee’s retirement under a retirement plan (including, without limitation, any
supplemental retirement plan) of the Company or any Subsidiary, or the Grantee’s retirement
from employment with the Company or any Subsidiary after completing at least three years of
continuous service with the Company or any Subsidiary and attaining the age of 62.
	 
	5.	 	Forfeiture. If either (i) the Grantee’s employment with the Company or a Subsidiary
terminates before the end of the Performance Period, and before the occurrence of a Change of
Control, for any reason other than as set forth in Section 4 hereof or (ii) the Board (or a
committee of the Board) finds that the Grantee has engaged in any fraud or intentional
misconduct as described in Section 20 hereof, the Performance Shares will be forfeited.
	 
	6.	 	Form and Time of Payment of Performance Shares. Payment of any performance shares that
become earned as set forth herein will be made in the form of Common Shares. Except as
otherwise provided in Section 3, payment will be made as soon as practicable after the end of
the Performance Period and the determination by the Board of the level of attainment of Total
Stockholder Return, but in no event shall such payment occur later than two and one-half
months after the end of the Performance Period. Performance shares will be forfeited if they
are not earned at the end of the Performance Period and, except as otherwise provided in this
Agreement, if the Grantee ceases to be employed by the Company or a Subsidiary at any time
prior to such performance shares becoming earned at the end of the Performance Period. To the
extent that the Company or any Subsidiary is required to withhold any federal, state, local or
foreign tax in connection with the payment of earned performance shares pursuant to this
Agreement, it shall be a condition to the

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	 	 	receipt of such performance shares that the Grantee make arrangements satisfactory to the
Company or such Subsidiary for payment of such taxes required to be withheld, which may
include by having the Company withhold Common Shares otherwise payable pursuant to this
award.
	 
	7.	 	Payment of Dividends. No dividends shall be accrued or earned with respect to the
performance shares until such performance shares are earned by the Grantee as provided in this
Agreement.
	 
	8.	 	Performance Shares Nontransferable. Until payment is made to the Grantee as provided herein,
neither the Performance Shares granted hereby nor any interest therein or in the Common Shares
related thereto shall be transferable other than by will or the laws of descent and
distribution prior to payment.
	 
	9.	 	Adjustments. In the event of any change in the aggregate number of outstanding Common Shares
by reason of (a) any stock dividend, extraordinary dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the Company, or (b) any
Change in Control, merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization or partial or complete liquidation, or other distribution of assets, issuance
of rights or warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing, then the Board shall adjust the number of
Performance Shares then held by the Grantee in such manner as to prevent dilution or
enlargement of the rights of the Grantee that otherwise would result from such event.
Moreover, in the event of any such transaction or event, the Board (or a committee of the
Board), in its discretion, may provide in substitution for any or all of the Grantee’s rights
under this Agreement such alternative consideration as it may determine to be equitable in the
circumstances.
	 
	10.	 	Compliance with Section 409A of the Code. To the extent applicable, it is intended that this
Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the
income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the
Grantee. This Agreement and the Plan shall be administered in a manner consistent with this
intent. Reference to Section 409A of the Code is to Section 409A of the Internal Revenue Code
of 1986, as amended, and will also include any regulations or any other formal guidance
promulgated with respect to such Section by the U.S. Department of the Treasury or the
Internal Revenue Service.
	 
	11.	 	No Right to Future Grants; No Right of Employment; Extraordinary Item: In accepting the
grant, Grantee acknowledges that: (a) the Plan is established voluntarily by the Company, it
is discretionary in nature and it may be modified, suspended or terminated by the Company at
any time, as provided in the Plan and this Award Agreement; (b) the grant of the Performance
Shares is voluntary and occasional and does not create any contractual or other right to
receive future grants of Performance Shares or benefits in lieu of Performance Shares, even
if Performance Shares have been granted repeatedly in the past; (c) all decisions with respect
to future grants, if any, will be at the sole discretion of the Company; (d) your
participation in the Plan is voluntary; (e) the Performance Shares are an extraordinary item
that does not constitute compensation of any kind for services of

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	 	 	any kind rendered to the Company, its Affiliates and/or Subsidiaries, and which is outside
the scope of Grantee’s employment contract, if any; (f) the Performance Shares are not part
of normal or expected compensation or salary for any purposes, including, but not limited
to, calculating any severance, resignation, termination, redundancy, end of service
payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(g) in the event that Grantee is an employee of an Affiliate or Subsidiary of the Company,
the grant will not be interpreted to form an employment contract or relationship with the
Company; and furthermore, the grant will not be interpreted to form an employment contract
with the Affiliate or Subsidiary that is Grantee’s employer; (h) the future value of the
underlying Shares is unknown and cannot be predicted with certainty; (i) no claim or
entitlement to compensation or damages arises from forfeiture or termination of the
Performance Shares or diminution in value of the Performance Shares or the Shares and
Grantee irrevocably releases the Company, its Affiliates and/or its Subsidiaries from any
such claim that may arise; and (j) notwithstanding any terms or conditions of the Plan to
the contrary, in the event of involuntary termination of Grantee’s employment, Grantee’s
right to receive Performance Shares and vest in Performance Shares under the Plan, if any,
will terminate effective as of the date that Grantee is no longer actively employed and will
not be extended by any notice period mandated under local law (e.g., active employment would
not include a period of “garden leave” or similar period pursuant to local law);
furthermore, in the event of involuntary termination of employment, Grantee’s right to vest
in the Performance Shares after termination of employment, if any, will be measured by the
date of termination of Grantee’s active employment and will not be extended by any notice
period mandated under local law.
	 
	12.	 	Continuous Employment. For purposes of this Agreement, the continuous employment of the
Grantee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the
Grantee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by
reason of (a) the transfer of the Grantee’s employment among the Company and its Subsidiaries
or (b) an approved leave of absence.
	 
	13.	 	Employee Data Privacy: Grantee hereby explicitly and unambiguously consents to the
collection, use and transfer, in electronic or other form, of Grantee’s personal data as
described in this document by and among, as applicable, the Company, its Affiliates and its
Subsidiaries (“the Company Group”) for the exclusive purpose of implementing, administering
and managing your participation in the Plan. Grantee’s understands that the Company Group
holds certain personal information about Grantee, including, but not limited to, Grantee’s
name, home address and telephone number, date of birth, social insurance number or other
identification number, salary, nationality, job title, any Shares of stock or directorships
held in the Company, details of all Restricted Stock Units or any other entitlement to Shares
of stock awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for
the purpose of implementing, administering and managing the Plan (“Data”). Grantee understands
that Data may be transferred to any third parties assisting in the implementation,
administration and management of the Plan, that these recipients may be located in your
country or elsewhere, and that the recipient’s country may have different data privacy laws
and protections than your country. You understand that you may request a list with the names
and addresses of any potential recipients of the Data by contacting Grantee’s local human
resources representative.

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	 	 	Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in
electronic or other form, for the purposes of implementing, administering and managing
Grantee’s participation in the Plan, including any requisite transfer of such Data as may be
required to a broker or other third party with whom Grantee may elect to deposit any Shares
acquired. Grantee understands that Data will be held only as long as is necessary to
implement, administer and manage Grantee’s participation in the Plan. Grantee understands
that Grantee may, at any time, view Data, request additional information about the storage
and processing of Data, require any necessary amendments to Data or refuse or withdraw the
consents herein, in any case without cost, by contacting in writing Grantee’s local human
resources representative. Grantee understands, however, that refusing or withdrawing
Grantee’s consent may affect Grantee’s ability to participate in the Plan. For more
information on the consequences of Grantee’s refusal to consent or withdrawal of consent,
Grantee understand that Grantee may contact Grantee’s local human resources representative.
	 
	14.	 	Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the
event of any inconsistency between the provisions of this Agreement and the Plan, the Plan
shall govern. All terms used herein with initial capital letters and not otherwise defined
herein that are defined in the Plan shall have the meanings assigned to them in the Plan. The
Board acting pursuant to the Plan, as constituted from time to time, shall, except as
expressly provided otherwise herein, have the right to determine any questions which arise in
connection with the grant of the Performance Shares.
	 
	15.	 	Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement
to the extent that the amendment is applicable hereto; provided, however, that
no amendment shall adversely affect the rights of the Grantee under this Agreement without the
Grantee’s consent. Notwithstanding the foregoing, the limitation requiring the consent of a
Grantee to certain amendments shall not apply to any amendment that is deemed necessary by the
Company to ensure compliance with Section 409A of the Code.
	 
	16.	 	Severability. Subject to Section 20, if any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such provision to
any other person or circumstances shall not be affected, and the provisions so held to be
invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the
extent) necessary to make it enforceable, valid and legal.
	 
	17.	 	Successors and Assigns. Without limiting Section 8 hereof, the provisions of this Agreement
shall inure to the benefit of, and be binding upon, the successors, administrators, heirs,
legal representatives and assigns of the Grantee, and the successors and assigns of the
Company.

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	18.	 	Governing Law. This Agreement shall be governed by and construed in accordance with the
internal substantive laws of the State of Delaware, without giving effect to any principle of
law that would result in the application of the law of any other jurisdiction.
	 
	19.	 	The Optionee acknowledges that by clicking on the “Accept” button on the Smith Barney web
page titled “Step 3: Confirm the Review/Acceptance of your Award,” the Optionee agrees to be
bound by the electronic execution of this Award Agreement.
	 
	20.	 	In accordance with Section 20(d) of the Plan, if the Board (or a committee of the Board) has
determined that any fraud or intentional misconduct by the Grantee was a significant
contributing factor to the Company having to restate all or a portion of its financial
statement(s), to the extent permitted by applicable law the Grantee shall: (a) return to the
Company all Performance Shares that the Grantee has not disposed of that were paid out
pursuant to this Agreement; and (b) with respect to any Performance Shares that the Grantee
has disposed of that were paid out pursuant to this Agreement, pay to the Company in cash the
value of such Performance Shares on the date such Performance Shares were paid out. The
remedy specified herein shall not be exclusive, and shall be in addition to every other right
or remedy at law or in equity that may be available to the Company. Notwithstanding any other
provision of this Agreement or the Plan to the contrary, if this Section 20 is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement shall be deemed to be
unenforceable due to a failure of consideration, and the Grantee’s rights to the Performance
Shares that would otherwise be granted under this Agreement shall be forfeited.

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Executed in the name and on behalf of the Company at Chicago, Illinois as of the       day
of                     , 20     .

	 	 	 	 	 
	 	USG CORPORATION

Name: Brian J. Cook

Title:   Senior Vice President,

            Human Resources

 	 
	 	 	 
	 	 	 
	 	 	 
	 

     The undersigned Grantee hereby accepts the award of Performance Shares evidenced by this
Performance Shares Agreement on the terms and conditions set forth herein and in the Plan.

PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS.

8EX-10.39

EXHIBIT 10.39

USG CORPORATION

Changes to Equity Awards for

     Compliance With Section 409A     

     1. Restricted stock units granted using the Restricted Stock Units Agreement (N. America)
dated February 13, 2008, which was posted to the Smith Barney website (“2008 Annual Grant RSUs”),
are modified for purposes of compliance with Section 409A of the Internal Revenue Code as follows
(terms used herein with initial capital letters that are defined terms for purposes of the 2008
Annual Grant RSUs are used herein as so defined):

	 	•	 	Common shares delivered in settlement of the 2008 Annual Grant RSUs that vest on a
Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does not constitute a
“change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code upon the
earliest of (a) the Grantee’s “separation from service” with the Company and its
Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i) of the Code) (or,
if the Grantee is a “specified employee” as determined pursuant to procedures adopted
by the Company in compliance with Section 409A of the Code, the date of issuance or
payment shall be the first day of the seventh month after the date of the Grantee’s
separation from service with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code), (b) an applicable vesting date under Section 2,
(c) the Grantee’s death, or (d) the Grantee’s permanent and total disability.

     2. Restricted stock units granted using the Restricted Stock Units Agreement (Annual Grant),
the form of which is filed as Exhibit 10.2 to the Company’s Form 8-K dated March 28, 2007 (“2007
Annual Grant RSUs”), are modified for purposes of compliance with Section 409A of the Internal
Revenue Code as follows (terms used herein with initial capital letters that are defined terms for
purposes of the 2007 Annual Grant RSUs are used herein as so defined):

	 	•	 	Common shares delivered in settlement of the 2007 Annual Grant RSUs that vest on a
Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does not constitute a
“change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code upon the
earliest of (a) the Grantee’s “separation from service” with the Company and its
Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i) of the Code) (or,
if the Grantee is a “specified employee” as determined pursuant to procedures adopted
by the Company in compliance with Section 409A of the Code, the date of issuance or
payment shall be the first day of

 

 

	 	 	 	the seventh month after the date of the Grantee’s separation from service with the
Company and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the
Code), (b) the applicable anniversary or anniversaries of the Date of Grant, (c) the
Grantee’s death, or (d) the Grantee’s permanent and total disability.

	 	•	 	The definition of “permanent and total disability” for purposes of vesting in
Section 4 of the 2007 Annual Grant RSUs shall mean that the Grantee has suffered a
total disability within the meaning of the Company’s Long Term Disability Plan for
Salaried Employees and is “disabled” within the meaning of Section 409A(a)(2)(C) of the
Code.
	 
	 	•	 	The definition of “retire” for purposes of vesting and settlement in Section 4 of
the 2007 Annual Grant RSUs shall mean the Grantee’s retirement (i) under a retirement
plan (including, without limitation, any supplemental retirement plan) of the Company
or a Subsidiary or (ii) from employment with the Company or any subsidiary after
completing at least three years of continuous service with the Company or any
Subsidiary and attaining the age of 62, provided that in either case if any such
retirement does not constitute a “separation from service” with the Company and its
subsidiaries within the meaning of Section 409A(a)(2)(A) of the Code, the Grantee’s
retirement shall be his or her later separation from service.
	 
	 	•	 	Shares delivered in settlement of the 2007 Annual Grant RSUs that vest on a
Grantee’s retirement shall be delivered to the Grantee upon retirement unless the
Grantee is a “specified employee” at the time of retirement as determined pursuant to
procedures adopted by the Company in compliance with Section 409A of the Code, in which
case the settlement date shall be the first day of the seventh month after the date of
the Grantee’s separation from service with the Company and its Subsidiaries within the
meaning of Section 409A(a)(2)(A)(i) of the Code.
	 
	 	•	 	The portion of the savings clause in Section 10 of the 2007 Annual Grant RSUs that
provided for certain default payment terms upon an event that does not constitute a
permissible payment event for purposes of Section 409A of the Code will no longer be in
effect.

     3. Restricted stock units granted using the Restricted Stock Units Agreement (Annual Grant),
the form of which is filed as Exhibit 10.10 to the Company’s Form 10-Q dated August 3, 2006 (“2006
Annual Grant RSUs”), are modified for purposes of compliance with Section 409A of the Internal
Revenue Code as follows (terms used herein with initial capital letters that are defined terms for
purposes of the Annual Grant RSUs are used herein as so defined):

	 	•	 	Common shares delivered in settlement of the 2006 Annual Grant RSUs that vest on a
Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does

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	 	 	 	not constitute a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the
Code upon the earliest of (a) the Grantee’s “separation from service” with the
Company and its Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i)
of the Code) (or, if the Grantee is a “specified employee” as determined pursuant to
procedures adopted by the Company in compliance with Section 409A of the Code, the
date of issuance or payment shall be the first day of the seventh month after the
date of the Grantee’s separation from service with the Company and its Subsidiaries
within the meaning of Section 409A(a)(2)(A)(i) of the Code), (b) the applicable
anniversary or anniversaries of the Date of Grant, (c) the Grantee’s death, or (d)
the Grantee’s permanent and total disability.

	 	•	 	The definition of “permanent and total disability” for purposes of vesting in
Section 4(a) of the 2006 Annual Grant RSUs shall mean that the Grantee is “disabled”
within the meaning of Section 409A(a)(2)(C) of the Code.
	 
	 	•	 	The definition of “retire” for purposes of vesting and settlement in Section 4(b) of
the 2006 Annual Grant RSUs shall mean the Grantee’s retirement under a retirement plan
(including, without limitation, any supplemental retirement plan) of the Company or a
Subsidiary, provided that if any such retirement does not constitute a “separation from
service” with the Company and its subsidiaries within the meaning of Section
409A(a)(2)(A) of the Code, the Grantee’s retirement shall be his or her later
separation from service.
	 
	 	•	 	Shares delivered in settlement of the 2006 Annual Grant RSUs that vest on a
Grantee’s retirement shall be delivered to the Grantee upon retirement unless the
Grantee is a “specified employee” at the time of retirement as determined pursuant to
procedures adopted by the Company in compliance with Section 409A of the Code, in which
case the settlement date shall be the first day of the seventh month after the date of
the Grantee’s separation from service with the Company and its Subsidiaries within the
meaning of Section 409A(a)(2)(A)(i) of the Code.
	 
	 	•	 	The portion of the savings clause in Section 10 of the 2006 Annual Grant RSUs that
provided for certain default payment terms upon an event that does not constitute a
permissible payment event for purposes of Section 409A of the Code will no longer be in
effect.

     4. Restricted stock units granted using the Restricted Stock Units Agreement (Retention) dated
February 13, 2008, the Restricted Stock Units Agreement dated August 1, 2008, and the Restricted
Stock Units Agreement dated December 1, 2008, which were posted to the Smith Barney website (“2008
Retention Grant RSUs”), are modified for purposes of compliance with Section 409A of the Internal
Revenue Code as follows (terms used herein with initial capital letters that are defined terms for
purposes of the 2008 Retention Grant RSUs are used herein as so defined):

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	 	•	 	Common shares delivered in settlement of the 2008 Retention Grant RSUs that vest on
a Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does not constitute a
“change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code upon the
earliest of (a) the Grantee’s “separation from service” with the Company and its
Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i) of the Code) (or,
if the Grantee is a “specified employee” as determined pursuant to procedures adopted
by the Company in compliance with Section 409A of the Code, the date of issuance or
payment shall be the first day of the seventh month after the date of the Grantee’s
separation from service with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code), (b) an applicable vesting date under Section 2,
(c) the Grantee’s death, or (d) the Grantee’s permanent and total disability.

     5. Restricted stock units granted using the Restricted Stock Units Agreement (Retention Grant
— 5 Years), the form of which is filed as Exhibit 10.3 to the Company’s Form 8-K dated March 28,
2007 (“5-Year Time Vesting RSUs”), are modified for purposes of compliance with Section 409A of the
Internal Revenue Code as follows (terms used herein with initial capital letters that are defined
terms for purposes of the 5-Year Time Vesting RSUs are used herein as so defined):

	 	•	 	Common shares delivered in settlement of the 5-Year Time Vesting RSUs that vest on a
Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does not constitute a
“change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code upon the
earliest of (a) the Grantee’s “separation from service” with the Company and its
Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i) of the Code) (or,
if the Grantee is a “specified employee” as determined pursuant to procedures adopted
by the Company in compliance with Section 409A of the Code, the date of issuance or
payment shall be the first day of the seventh month after the date of the Grantee’s
separation from service with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code), (b) the fifth anniversary of the Date of Grant
(i.e., the Vesting Date), (c) the Grantee’s death, or (d) the Grantee’s permanent and
total disability.
	 
	 	•	 	The definition of “permanent and total disability” for purposes of vesting under
Section 4 of the 5-Year Time Vesting RSUs shall mean that the Grantee has suffered a
total disability within the meaning of the Company’s Long Term Disability Plan for
Salaried Employees and is “disabled” within the meaning of Section 409A(a)(2)(C) of the
Code.
	 
	 	•	 	The portion of the savings clause in Section 10 of the 5-Year Time Vesting RSUs that
provided for certain default payment terms upon an event that does not

-4-

 

	 	 	 	constitute a permissible payment event for purposes of Section 409A of the Code will
no longer be in effect.

     6. Restricted stock units granted using the Restricted Stock Units Agreement (Retention Grant
— 4 Years) (“4-Year Time Vesting RSUs”) are modified for purposes of compliance with Section 409A
of the Internal Revenue Code as follows (terms used herein with initial capital letters that are
defined terms for purposes of the 4-Year Time Vesting RSUs are used herein as so defined):

	 	•	 	Common shares delivered in settlement of the 4-Year Time Vesting RSUs that vest on a
Change in Control shall be delivered to the Grantee (i) if the Change in Control
constitutes a “change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code,
upon the Change in Control and (ii) if the Change in Control does not constitute a
“change in control” for purposes of Section 409A(a)(2)(A)(v) of the Code upon the
earliest of (a) the Grantee’s “separation from service” with the Company and its
Subsidiaries (determined in accordance with Section 409A(a)(2)(A)(i) of the Code) (or,
if the Grantee is a “specified employee” as determined pursuant to procedures adopted
by the Company in compliance with Section 409A of the Code, the date of issuance or
payment shall be the first day of the seventh month after the date of the Grantee’s
separation from service with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code), (b) the fourth anniversary of the Date of Grant
(i.e., the Vesting Date), (c) the Grantee’s death, or (d) the Grantee’s permanent and
total disability.
	 
	 	•	 	The definition of “permanent and total disability” for purposes of vesting in
Section 4 of the 4-Year Time Vesting RSUs shall mean that the Grantee has suffered a
total disability within the meaning of the Company’s Long Term Disability Plan for
Salaried Employees and is “disabled” within the meaning of Section 409A(a)(2)(C) of the
Code.
	 
	 	•	 	The portion of the savings clause in Section 10 of the 4-Year Time Vesting RSUs that
provided for certain default payment terms upon an event that does not constitute a
permissible payment event for purposes of Section 409A of the Code will no longer be in
effect.

-5-

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