-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WudIew+sEWqMmtDJq40+PfijlMAkga2ABByDreZUPh2J3BOYpOSaAJy6eoJm192p tqP/587eVtEpFfeWZP2AtQ== 0000950124-01-502598.txt : 20010808 0000950124-01-502598.hdr.sgml : 20010808 ACCESSION NUMBER: 0000950124-01-502598 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 0405 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05794 FILM NUMBER: 1700009 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747400 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO SCREW PRODUCTS CO DATE OF NAME CHANGE: 19731025 10-Q 1 k64100e10-q.txt FORM 10-Q FOR PERIOD ENDING JUNE 30, 2001 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 2001. Commission File Number 1-5794 MASCO CORPORATION - -------------------------------------------------------------------------------- (Exact Name of Registrant as specified in its Charter) Delaware 38-1794485 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21001 Van Born Road, Taylor, Michigan 48180 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (313) 274-7400 - -------------------------------------------------------------------------------- (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Shares Outstanding at Class July 30, 2001 ----- ---------------------- Common Stock, Par Value $1 Per Share 460,199,000
2 MASCO CORPORATION INDEX
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheet - June 30, 2001 and December 31, 2000 1 Condensed Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 2001 and 2000 2 Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 Part II. Other Information and Signature 14-16
3 MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31, ASSETS 2001 2000 ------ ---------- ------------ Current assets: Cash and cash investments $ 106,490 $ 169,430 Accounts and notes receivable, net 1,336,820 1,099,150 Prepaid expenses and other 150,430 126,620 Inventories: Raw material 394,960 348,420 Finished goods 441,840 377,270 Work in process 186,370 187,270 ---------- ---------- 1,023,170 912,960 ---------- ---------- Total current assets 2,616,910 2,308,160 Equity investments in affiliates 83,910 87,460 Securities of Furnishings International Inc. 572,550 533,670 Property and equipment, net 1,949,610 1,906,840 Acquired goodwill, net 2,745,480 2,190,770 Other noncurrent assets 856,520 717,100 ---------- ---------- Total assets $8,824,980 $7,744,000 ========== ========== LIABILITIES Current liabilities: Notes payable $ 208,950 $ 210,950 Accounts payable 313,340 250,460 Accrued liabilities 662,120 616,640 ---------- ---------- Total current liabilities 1,184,410 1,078,050 Long-term debt 3,685,760 3,018,240 Deferred income taxes and other 226,290 221,650 Commitments and contingencies --- --- ---------- ---------- Total liabilities 5,096,460 4,317,940 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, par value $1 per share Authorized shares: 900,000,000 459,860 444,750 Preferred shares authorized: 1,000,000 --- --- Paid-in capital 863,270 631,120 Retained earnings 2,652,420 2,519,940 Other comprehensive income (loss) (247,030) (169,750) ---------- ---------- Total shareholders' equity 3,728,520 3,426,060 ---------- ---------- Total liabilities and shareholders' equity $8,824,980 $7,744,000 ========== ==========
See notes to condensed consolidated financial statements. 1 4 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Net sales $2,085,000 $1,871,000 $3,996,000 $3,617,000 Cost of sales 1,429,100 1,244,200 2,766,600 2,415,400 ---------- ---------- ---------- ---------- Gross profit 655,900 626,800 1,229,400 1,201,600 Selling, general and administrative expenses 354,300 309,600 688,000 601,700 Amortization of acquired goodwill 23,100 15,900 46,100 30,100 ---------- ---------- ---------- ---------- Operating profit 278,500 301,300 495,300 569,800 ---------- ---------- ---------- ---------- Other income (expense), net: Interest expense (59,400) (47,700) (117,700) (86,500) Equity earnings from MascoTech, Inc. --- 4,200 --- 8,500 Other, net (5,100) 36,600 13,400 78,600 ---------- ---------- ---------- ---------- (64,500) (6,900) (104,300) 600 ---------- ---------- ---------- ---------- Income before income taxes 214,000 294,400 391,000 570,400 Income taxes 75,000 109,000 137,000 211,000 ---------- ---------- ---------- ---------- Net income $ 139,000 $ 185,400 $ 254,000 $ 359,400 ========== ========== ========== ========== Earnings per share: Basic $ .31 $ .42 $ .56 $ .82 ===== ===== ===== ===== Diluted $ .30 $ .41 $ .55 $ .80 ===== ===== ===== ===== Cash dividends declared and paid per share $ .13 $ .12 $ .26 $ .24 ===== ===== ===== =====
See notes to condensed consolidated financial statements. 2 5 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 ------------------------- 2001 2000 ----------- --------- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $ 376,990 $ 360,580 Increase in receivables (128,460) (117,640) Increase in inventories (79,130) (110,400) Increase in accounts payable and accrued liabilities, net 43,520 68,550 ----------- --------- Total cash from operating activities 212,920 201,090 ----------- --------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Issuance of 6.75% notes 800,000 --- Issuance of 6% notes 500,000 --- Increase in debt 407,950 841,010 Payment of debt (1,324,890) (136,820) Purchase of Company common stock for: Retirement (34,460) --- Long-term stock incentive award plan (22,950) (20,560) Cash dividends paid (119,560) (107,260) ----------- --------- Total cash from financing activities 206,090 576,370 ----------- --------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies, net of cash acquired (233,650) (509,950) Capital expenditures (132,810) (169,840) Investments in non-operating assets, net (100,080) (160,600) Other, net (15,410) (45,030) ----------- --------- Total cash (for) investing activities (481,950) (885,420) ----------- --------- CASH AND CASH INVESTMENTS: (Decrease) for the period (62,940) (107,960) At January 1 169,430 230,780 ----------- --------- At June 30 $ 106,490 $ 122,820 =========== =========
See notes to condensed consolidated financial statements. 3 6 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at June 30, 2001 and the results of operations for the three months and six months ended June 30, 2001 and 2000 and changes in cash flows for the six months ended June 30, 2001 and 2000. The condensed consolidated balance sheet at December 31, 2000 was derived from audited financial statements. As a result of the Financial Accounting Standards Board Emerging Issues Task Force ("EITF") Issue Number 00-10, "Accounting for Shipping and Handling Fees and Costs," in late 2000, the Company changed its policy for the classification of shipping and handling costs. The change resulted in the reclassification of shipping and handling costs from selling, general and administrative expenses to cost of sales. Prior year amounts have been reclassified for this change in policy. This reclassification did not result in a change in net income or earnings per share. B. The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per share, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Numerator: Net income $139,000 $185,400 $254,000 $359,400 ======== ======== ======== ======== Denominator: Basic shares (based on weighted average) 451,000 441,500 451,300 440,400 Add: Contingent shares 9,000 7,100 8,900 7,100 Stock option dilution 2,800 1,600 2,900 1,600 -------- -------- -------- -------- Diluted shares 462,800 450,200 463,100 449,100 ======== ======== ======== ========
C. In the first quarter of 2001, the Company completed the previously announced acquisition of BSI Holdings, Inc. BSI Holdings is headquartered in Carmel, California and is a provider of installed insulation and other products within the United States and Canada. During the second quarter of 2001, the Company acquired several small companies. In July 2001, the Company completed the acquisition of Milgard Manufacturing, Inc., a manufacturer of vinyl windows in the western United States, headquartered in Tacoma, Washington. These acquisitions have combined annualized net sales of over $1.2 billion. The aggregate net purchase price of these acquisitions was approximately $1.7 billion, including assumed debt of approximately $310 million, and shares of Company capital stock (15 million common shares in the first six months of 2001 and 16,700 convertible preferred shares (convertible into 16.7 million common shares)) with an aggregate value of $725 million. The convertible preferred shares carry the same attributes as Company common stock, including voting rights and dividends and will be treated as if converted at a 1 share of preferred stock to 1,000 shares of common stock ratio for earnings per share computations. Certain recent acquisition agreements provide for the payment of additional consideration, contingent upon certain conditions being met. Such additional consideration totaled $30 million during the first half of 2001, and has been recorded as additional acquired goodwill. 4 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. In December 2000, the Company adopted a plan to dispose of several businesses that the Company believes are not core to its long-term growth strategies. In the third quarter of 2001, the Company is expected to report a modest gain, net from the July 2001 sale of Inrecon, a Birmingham, Michigan-based company specializing in the repair, remodeling and restoration of residential, commercial and institutional facilities damaged by fire, wind, water and other disasters. Inrecon has annual sales of approximately $200 million. E. Other income (expense), net consists of the following, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- --------------------- 2001 2000 2001 2000 -------- -------- --------- -------- Interest expense $(59,400) $(47,700) $(117,700) $(86,500) Equity earnings from MascoTech, Inc. --- 4,200 --- 8,500 Equity earnings, other 2,100 700 700 1,700 Income from cash and cash investments 1,100 800 2,800 2,200 Other interest income 17,300 14,900 33,400 29,000 Other, net (25,600) 20,200 (23,500) 45,700 -------- -------- --------- -------- $(64,500) $ (6,900) $(104,300) $ 600 ======== ======== ========= ========
Other interest income for the three months and six months ended June 30, 2001 and 2000 included $15.6 million and $30.3 million and $12.8 million and $25.6 million, respectively, of interest income from indebtedness of Furnishings International Inc. Other, net expense for the three months and six months ended June 30, 2001 includes expense related to the disposition of certain non-operating assets. Other, net for the three months and six months ended June 30, 2000 results primarily from income and gains, net regarding certain non-operating assets. Interest expense for the three months and six months ended June 30, 2001 increased $11.7 million and $31.2 million, respectively, compared with interest expense for the three months and six months ended June 30, 2000. The increase in interest expense pertains to borrowings primarily related to recent acquisitions. 5 8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. The following table presents information about the Company by segment and geographic area, in millions.
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 ------------------------------------ ------------------------------------ 2001 2000 2001 2000 2001 2000 2001 2000 ------------------------------------ ------------------------------------ Net Sales (1) Operating Profit(2) Net Sales (1) Operating Profit(2) ------------------------------------ ------------------------------------ The Company's operations by segment were: Cabinets and Related Products $ 625 $ 655 $ 74 $ 101 $1,230 $1,286 $ 141 $ 188 Plumbing Products 449 489 64 94 868 962 115 186 Decorative Architectural Products 430 377 87 79 760 684 144 143 Installation and Other Services 449 199 65 28 875 382 116 53 Other Specialty Products 132 151 12 25 263 303 27 50 ------ ------ ------ ------ ------ ------ ------ ------ Total $2,085 $1,871 $ 302 $ 327 $3,996 $3,617 $ 543 $ 620 ====== ====== ====== ====== ====== ====== ====== ====== The Company's operations by geographic area were: North America $1,796 $1,532 $ 272 $ 282 $3,404 $2,946 $ 481 $ 533 International, principally Europe 289 339 30 45 592 671 62 87 ------ ------ ------ ------ ------ ------ ------ ------ Total $2,085 $1,871 302 327 $3,996 $3,617 543 620 ====== ====== ====== ====== General corporate expense, net (24) (25) (48) (50) ------ ------ ------ ------ Operating profit, after general corporate expense 278 302 495 570 Other income (expense), net (64) (7) (104) 1 ------ ------ ------ ------ Income before income taxes $ 214 $ 295 $ 391 $ 571 ====== ====== ====== ======
(1) Intra-company sales among segments were not material. (2) Amortization of acquired goodwill is included in determining operating profit. 6 9 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) G. The Company's total comprehensive income was as follows, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Net income $139,000 $185,400 $254,000 $359,400 Other comprehensive income (loss) (20,990) (70,710) (77,280) (89,860) -------- -------- -------- -------- Total comprehensive income $118,010 $114,690 $176,720 $269,540 ======== ======== ======== ========
H. During March 2001, the Company issued $800 million of 6 3/4% notes due 2006. Early in the second quarter of 2001, the Company increased its shelf registration to $2 billion of debt and equity securities. In early May 2001, the Company issued $500 million of 6% notes due 2004. In July 2001, the Company issued Zero Coupon Convertible Senior Notes due 2031 ("Notes"), resulting in gross proceeds of approximately $750 million. The Notes have a stated annual yield to maturity of 3 1/8 percent. Holders of the Notes can convert each $1,000 principal amount at maturity note into 12.72 shares of Company common stock if the closing price of Company common stock exceeds specified levels or if other specified events occur. This conversion ratio is the equivalent of an initial conversion price of $31 per share. Holders of the Notes can also require the Company to purchase their Notes on certain specified dates. The Company may not redeem the Notes before July 20, 2002, and may redeem all of the Notes after such date subject to certain conditions specified in the indenture relating thereto. Additionally, beginning January 20, 2007, subject to specified conditions relating to the market price of the Notes, the Company may be required to pay contingent interest at the greater of the Company's regular quarterly cash dividend for equivalent common shares or .125% of the average market price of a note over a specified period of time. Proceeds from the debt issuances were used principally to retire outstanding variable-rate bank debt. The Company now has on file with the Securities and Exchange Commission an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $750 million of debt and equity securities. I. On January 1, 2001, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" became effective. SFAS No. 133 did not have a material effect on the Company's financial statements. In June 2001, the Financial Accounting Standards Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires, among other things, that the purchase method of accounting for business combinations be used for all business combinations initiated after June 30, 2001. SFAS 142 addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 requires, among other things, that goodwill and other indefinite-lived intangible assets no longer be amortized and that such assets be tested for impairment at least annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Effective January 1, 2002, the Company will no longer amortize goodwill, although periodic tests for possible impairment will be made. For the remainder of 2001, the Company will continue to amortize goodwill related to business combinations that occurred prior to July 1, 2001. The Company is currently evaluating the impact these standards will have on its financial statements. 7 10 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) J. The Company is subject to lawsuits and claims pending or asserted with respect to matters arising in the ordinary course of business. In May 1998, a civil suit was filed in the Grays Harbor County, Washington Superior Court against Behr Process Corporation, a subsidiary of the Company. The case involves four exterior wood coating products, which represent a relatively small part of Behr's total sales. The plaintiffs allege, among other things, that after applying these products, the wood surfaces suffered excessive mildewing in the very humid climate of western Washington. The trial court certified the case as a class action, including all purchasers of the products who reside in nineteen counties in western Washington. Behr denies the allegations. Although Behr believes that the subject products have been purchased by thousands of consumers in western Washington, consumer complaints in the past have been relatively small compared to the total volume of products sold. In May 2000, the court entered a default against Behr as a discovery sanction. Thereafter, the jury returned a verdict awarding damages to the named plaintiffs. The damages awarded for the eight homeowner claims (excluding one award to the owners of a vacation resort) ranged individually from $14,500 to $38,000. The awards were calculated using a formula based on the product used, the nature and square footage of wood surface and certain other allowances. Under the verdict, the same formula will be used for calculating awards on claims that may be submitted by the subject purchasers of these products. In July 2000, the court awarded additional damages of $10,000 per claim to the eight homeowner claims under the Washington Consumer Protection Act. This increased the total damages awarded on the homeowner claims to approximately $263,000. The court denied the plaintiffs' request for an award of additional damages on claims that may be submitted by other class members. In addition, the court granted the plaintiffs' motion for attorneys' fees. Behr is appealing the judgment. At this time, the Company is not in a position to estimate reliably the number of class members, the number of claims that may be filed or the awards that class members may seek. Although Behr is not able to estimate the amount of any potential liability, Behr believes that there have been numerous rulings by the trial court that constitute reversible error and that there are valid defenses to the lawsuit. The Company has made no provision for any potential loss in the Company's consolidated financial statements. Behr has also been served with 21 complaints filed by consumers in the state courts in Alabama, Alaska, California, Illinois, New Jersey, New York, Oregon, and Washington, and in British Columbia and Ontario, Canada. The complaints allege that some of Behr's exterior wood coating products fail to perform as warranted, resulting in damage to the plaintiffs' wood surfaces. Some of the complaints seek nationwide class action certification; others seek class action certification for one state or region. Discovery in the lawsuits has only recently begun. Proceedings in the eleven California actions will be coordinated in the San Joaquin, California Superior Court. Behr and the Company are defending the lawsuits and believe that there are substantial grounds for denial of class action certification and that there are substantial defenses to the claims. Two of Behr's liability insurers are participating in Behr's defense of the class actions subject to a reservation of rights. One insurer has filed a declaratory judgment action in the Orange County, California Superior Court seeking a declaration that the claims asserted in the class action complaints are not covered by Behr's insurance policies. The other insurer was named as a defendant in the suit and has filed cross-claims against Behr seeking a similar declaration. 8 11 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2001 AND THE FIRST SIX MONTHS 2001 VERSUS SECOND QUARTER 2000 AND THE FIRST SIX MONTHS 2000 SALES AND OPERATIONS The following tables set forth the Company's net sales and operating profit margin information by segment and geographic area, dollars in millions:
Percent Increase (Decrease) Three Months Ended ---------------- June 30, 2001 2001 ------------------ vs. vs. 2001 2000 2000 2000(A) ------------------ ---------------- NET SALES: Cabinets and Related Products $ 625 $ 655 (5%) (3%) Plumbing Products 449 489 (8%) (7%) Decorative Architectural Products 430 377 14% 8% Installation and Other Services 449 199 126% 18% Other Specialty Products 132 151 (13%) (8%) ------ ------ Total $2,085 $1,871 11% 0% ====== ====== North America $1,796 $1,532 17% 2% International, principally Europe 289 339 (15%) (12%) ------ ------ Total $2,085 $1,871 11% 0% ====== ======
Six Months Ended June 30, ---------------- 2001 2000 ---------------- NET SALES: Cabinets and Related Products $1,230 $1,286 (4%) (4%) Plumbing Products 868 962 (10%) (10%) Decorative Architectural Products 760 684 11% 4% Installation and Other Services 875 382 129% 19% Other Specialty Products 263 303 (13%) (8%) ------ ------ Total $3,996 $3,617 10% (2%) ====== ====== North America $3,404 $2,946 16% 0% International, principally Europe 592 671 (12%) (13%) ------ ------ Total $3,996 $3,617 10% (2%) ====== ======
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2001 2000 2001 2000 ------------------ ------------------ OPERATING PROFIT MARGIN: (B) Cabinets and Related Products 11.8% 15.4% 11.5% 14.6% Plumbing Products 14.3% 19.2% 13.2% 19.3% Decorative Architectural Products 20.2% 21.0% 18.9% 20.9% Installation and Other Services 14.5% 14.1% 13.3% 13.9% Other Specialty Products 9.1% 16.6% 10.3% 16.5% North America 15.1% 18.4% 14.1% 18.1% International, principally Europe 10.4% 13.3% 10.5% 13.0% Total 14.5% 17.4% 13.6% 17.1%
(A) Percentage change in sales, excluding acquisitions and divestitures. (B) Before general corporate expense, but including goodwill amortization. 9 12 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET SALES Net sales for the three months and six months ended June 30, 2001 increased 11 percent and 10 percent, respectively, from the comparable periods in 2000. Excluding acquisitions and divestitures, net sales were flat and decreased 2 percent for the three months and six months ended June 30, 2001, respectively, compared with the comparable periods of the prior year. While the Company experienced some moderation of the negative influence of customer inventory reduction programs in the second quarter of 2001, the Company continued to experience weak economic and business conditions in its markets, including a softening in sales of home improvement products in North America and Europe, competitive market conditions and pricing pressures and the continued effect of a strong U.S. dollar. Changes in net sales in the following segment and geographic area discussion exclude the influence of acquisitions and divestitures. The previously mentioned conditions contributed to sales declines for the three months and six months ended June 30, 2001 from the comparable periods of the prior year of 3 percent and 4 percent, respectively, in the Cabinets and Related Products segment, 7 percent and 10 percent, respectively, in the Plumbing Products segment, and 8 percent for both periods in the Other Specialty Products segment. For the three months and six months ended June 30, 2001, net sales of the Company's Installation and Other Services segment increased 18 percent and 19 percent, respectively, principally due to broader geographic U.S. market penetration, and net sales of the Company's Decorative Architectural Products segment increased 8 percent and 4 percent, respectively, due largely to higher unit sales volume of paints and stains. Net sales from North American operations increased 2 percent for the second quarter of 2001 and were flat for the six months ended June 30, 2001 as compared with the comparable periods of 2000. Net sales from International operations decreased 12 percent for the second quarter of 2001 and 13 percent for the six months ended June 30, 2001 as compared with the comparable periods of 2000. A stronger U.S. dollar, principally against the Euro, had an unfavorable effect on the translation of International sales, lowering International sales by 6 percent for both the second quarter and six months ended June 30, 2001. OPERATING PROFIT MARGIN Cost of sales as a percentage of sales increased to 68.5 percent and 69.2 percent for the three months and six months ended June 30, 2001, respectively, from 66.5 percent and 66.8 percent for the comparable periods in 2000. Including amortization of acquired goodwill ($23.1 million and $46.1 million for the three months and six months ended June 30, 2001, respectively), selling, general and administrative expenses as a percentage of sales for the three months and six months ended June 30, 2001 increased to 18.1 percent and 18.4 percent, respectively, from 17.4 percent and 17.5 percent for the comparable periods in 2000. Excluding amortization of acquired goodwill, selling, general and administrative expenses as a percentage of sales were 17.0 percent and 17.2 percent for the three months and six months ended June 30, 2001, respectively, as compared with 16.5 percent and 16.6 percent for the comparable periods of the prior year. The Company's operating profit margin, before general corporate expense, for the three months and six months ended June 30, 2001 was 14.5 percent and 13.6 percent, respectively, as compared with 17.4 percent and 17.1 percent for the comparable periods of 2000. Operating profit margin, after general corporate expense, for the three months and six months ended June 30, 2001, was 13.3 percent and 12.4 percent, respectively, as compared with 16.1 percent and 15.8 percent for the comparable periods of 2000. The Company's operating profit margin decreased in the second quarter and the first six months of 2001 as compared with the comparable periods of 2000, due principally to higher cost of sales and selling, general and administrative expenses as a percentage of sales and higher goodwill amortization related to recent acquisitions. 10 13 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The increase in cost of sales as a percentage of sales reflects the under-absorption of fixed costs, in part related to the higher level of capital expenditures in recent years, as well as sales declines in all of the Company's business segments except the Installation and Other Services segment and the Decorative Architectural Products segment. Cost of sales as a percentage of sales was also negatively influenced by overall product mix, including a higher percentage of lower gross-margin installation sales to total sales, the lower results of the Company's Plumbing Products segment and European businesses, new product launch costs in the Cabinets and Related Products segment and higher energy costs. Gross margin of the Company's Plumbing Products segment continues to be negatively affected by competitive market conditions, pricing pressures and product mix. Recent initiatives including investments in new product and system development and the re-pricing of certain of the Company's faucet units have also contributed to the recent increase in the cost of sales percentage for the Plumbing Products segment. Such initiatives should serve to increase unit sales volume which should lower the cost of sales percentage in future periods. The increase in selling, general and administrative expenses as a percentage of sales results largely from the allocation of fixed costs over a lower than expected sales base, increased goodwill amortization and an increase in the Company's provision for uncollectible accounts receivable. OTHER INCOME (EXPENSE), NET Other interest income for the three months and six months ended June 30, 2001 and 2000 included $15.6 million and $30.3 million and $12.8 million and $25.6 million, respectively, of interest income from indebtedness of Furnishings International Inc. The Company's investment in Furnishings International at June 30, 2001 was $594 million, consisting of $537 million of pay-in-kind debt securities and other indebtedness and $57 million of preferred and common stock. The furniture industry in general continues to be adversely affected by the ongoing economic weakness in its markets as well as by import competition. As a result, the Company continues to review whether a non-cash charge should be taken with respect to a portion of this investment. Other, net expense for the three months and six months ended June 30, 2001 includes expense related to the disposition of certain non-operating assets. Other, net for the three months and six months ended June 30, 2000 results primarily from income and gains, net regarding certain non-operating assets. Interest expense for the three months and six months ended June 30, 2001 increased $11.7 million and $31.2 million, respectively, compared with interest expense for the three months and six months ended June 30, 2000. The increase in interest expense pertains to borrowings primarily related to recent acquisitions. NET INCOME AND EARNINGS PER SHARE Net income for the second quarter of 2001 decreased 25 percent to $139.0 million from $185.4 million in the comparable 2000 period. Diluted earnings per share for the second quarter of 2001 decreased 27 percent to $.30 from $.41 for the comparable period of 2000. Net income for the six months ended June 30, 2001 decreased 29 percent to $254.0 million from $359.4 million in the comparable 2000 period. Diluted earnings per share for the six months ended June 30, 2001 decreased 31 percent to $.55 from $.80 for the comparable period of 2000. 11 14 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's effective tax rate for both the second quarter and six months ended June 30, 2001 was 35 percent as compared with 37 percent for both of the comparable periods of the prior year. The Company estimates that its effective tax rate should approximate or be slightly below 35.0 percent for the year 2001. OTHER FINANCIAL INFORMATION The Company's current ratio was 2.2 to 1 at June 30, 2001 as compared with 2.1 to 1 at December 31, 2000. For the six months ended June 30, 2001, cash of $212.9 million was provided by operating activities. Cash provided by financing activities was $206.1 million, including $383.1 million from a net increase in long-term debt. Cash used for financing activities included $34.5 million for the acquisition of Company common stock in open-market transactions, $22.9 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan, and $119.6 million for cash dividends paid. Cash used for investing activities was $481.9 million, including $233.6 million for acquisitions, $132.8 million for capital expenditures, $100.1 million for investments in non-operating assets and $15.4 million for other cash outflows. The aggregate of the preceding items represents a net cash outflow of $62.9 million. Changes in working capital and debt as indicated on the statement of cash flows exclude the working capital and debt of acquired companies at the time of acquisition. First and second quarter 2001 cash from operations was affected by an expected and annually recurring seasonal first-half increase in accounts receivable (although there was no significant increase in receivable days). Typically, accounts receivable reach their lowest level at year-end. During the first six months of 2001, the Company repurchased approximately 1.4 million of its shares in open-market transactions for retirement. At June 30, 2001, the Company had remaining Board of Directors authorization to repurchase up to an additional 26 million shares of its common stock for retirement in open-market transactions or otherwise. During March 2001, the Company issued $800 million of 6 3/4% notes due 2006. Early in the second quarter of 2001, the Company increased its shelf registration to $2 billion. In early May 2001, the Company issued $500 million of 6% notes due 2004. In July 2001, the Company issued Zero Coupon Convertible Senior Notes due 2031 ("Notes"), resulting in gross proceeds of approximately $750 million. Note H of the Consolidated Financial Statement sets forth additional information regarding these notes. Proceeds from the debt issuances were used principally to retire outstanding variable-rate bank debt. The Company now has on file with the Securities and Exchange Commission an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $750 million of debt and equity securities. The Company is subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. Note J of the Consolidated Financial Statements discusses specific claims pending against the Company and its subsidiary, Behr Process Corporation, with respect to several of Behr's exterior wood coating products. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund its working capital and other investment needs. 12 15 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") approved Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires, among other things, that the purchase method of accounting for business combinations be used for all business combinations initiated after June 30, 2001. SFAS 142 addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 requires, among other things, that goodwill and other indefinite-lived intangible assets no longer be amortized and that such assets be tested for impairment at least annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Effective January 1, 2002, the Company will no longer amortize goodwill, although periodic tests for possible impairment will be made. For the remainder of 2001, the Company will continue to amortize goodwill related to business combinations that occurred prior to July 1, 2001. The Company is currently evaluating the impact these standards will have on its financial statements. OUTLOOK FOR THE COMPANY The Company believes that net sales of its North American businesses have generally bottomed early in the 2001 second quarter. Although the Company expects that economic recovery in North America may be slow and gradual, the Company should begin to show at least moderate improvement in future quarters. The Company anticipates that its European businesses may continue to experience economic softness for the next several quarters. 13 16 PART II. OTHER INFORMATION MASCO CORPORATION ITEM 1. LEGAL PROCEEDINGS Information regarding this item is set forth in Note J to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 31, 2001, the Company completed its previously announced acquisition of Milgard Manufacturing, Inc. The shareholders of the acquired company received 16,700 unregistered shares of Masco convertible preferred stock as part of the consideration paid for this acquisition. The convertible preferred shares carry the same attributes as Masco common stock, including voting rights and dividends. The Company relied on the exemption from registration under Section 4(2) of the Securities Act of 1933. ITEMS 3 AND 5 ARE NOT APPLICABLE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders was held on May 16, 2001 at which the stockholders voted upon the election of three nominees for Class I Directors; approval of an amendment to Article Fourth of the Company's Certificate of Incorporation; and ratification of the selection of PricewaterhouseCoopers LLP as independent auditors for the Company for 2001. The following is a tabulation of the votes.
Election of Class I Directors: For Withheld ----------- ----------- Peter A. Dow 356,498,507 4,439,285 Anthony F. Earley, Jr. 356,472,431 4,465,361 Wayne B. Lyon 356,351,867 4,585,925
Approval of an Amendment to Article Fourth of the Company's Certificate of Incorporation:
Abstentions and For Against Broker Non-Votes ----------- ----------- ---------------- 341,915,233 17,548,718 1,473,841
Approval of the appointment of PricewaterhouseCoopers LLP as independent auditors for the Company for 2001:
Abstentions and For Against Broker Non-Votes ----------- ----------- ---------------- 357,954,995 1,373,341 1,263,400
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: 3.i - Restated Certificate of Incorporation of Masco Corporation and amendments thereto (filed herewith). 4.a.v.- Director's resolutions establishing the Company's 6% Notes Due 2004 (filed herewith) under the Indenture dated as of February 12, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000). 14 17 PART II. OTHER INFORMATION MASCO CORPORATION 4.a.vi.- First Supplemental Indenture dated as of July 20, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee, relating to the Company's Zero Coupon Convertible Senior Notes Due 2031 (filed herewith), to the Indenture dated as of February 12, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000). 12 - Computation of Ratio of Earnings to Fixed Charges (b) REPORTS ON FORM 8-K: None. 15 18 PART II. OTHER INFORMATION MASCO CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASCO CORPORATION ----------------- (Registrant) DATE: AUGUST 7, 2001 BY: /s/ Richard G. Mosteller ---------------------- -------------------------------------- Richard G. Mosteller Senior Vice-President - Finance (Chief Financial Officer and Authorized Signatory) 16 19 MASCO CORPORATION EXHIBIT INDEX EXHIBIT ------- Exhibit 3.i Restated Certificate of Incorporation of Masco Corporation and amendments thereto (filed herewith). Exhibit 4.a.v. Director's resolutions establishing the Company's 6% Notes Due 2004 (filed herewith) under the Indenture dated as of February 12, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000). Exhibit 4.a.vi. First Supplemental Indenture dated as of July 20, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee, relating to the Company's Zero Coupon Convertible Senior Notes Due 2031 (filed herewith), to the Indenture dated as of February 12, 2001 between Masco Corporation and Bank One Trust Company, National Association, as Trustee (which Indenture has been filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 2000). Exhibit 12 Computation of Ratio of Earnings to Fixed Charges EX-3.I 3 k64100ex3-i.txt RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.i RESTATED CERTIFICATE OF INCORPORATION OF MASCO CORPORATION * * * * * MASCO CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is MASCO CORPORATION. The date of filing its original Certificate of Incorporation with the Secretary of State was June 15, 1962. 2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the corporation is MASCO CORPORATION. SECOND: Its registered office in the State of Delaware is located at the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on are: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 2 FOURTH: The total number of shares of stock the Corporation shall have authority to issue is four hundred one million (401,000,000) shares. Four hundred million (400,000,000) of such shares shall consist of common shares, par value one dollar ($1.00) per share, and one million (1,000,000) of such shares shall consist of preferred shares, par value one dollar ($1.00) per share. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof are as follows: A. Each share of common stock shall be equal in all respects to all other shares of such stock, and each share of outstanding common stock is entitled to one vote. B. Each share of preferred stock shall have or not have voting rights as determined by the Board of Directors prior to issuance. Dividends on all outstanding shares of preferred stock must be declared and paid, or set aside for payment, before any dividends can be declared and paid, or set aside for payment, on the shares of common stock with respect to the same dividend period. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of the preferred stock shall be entitled, before any assets of the Corporation shall be distributed among or paid over to the holders of the common stock, to an amount per share to be determined before issuance by the Board of Directors, together with a sum of money equivalent to the amount of any dividends declared thereon and remaining unpaid at the date of such liquidation, dissolution or winding up of the Corporation. After the making of such payments to the holders of the preferred stock, the remaining assets of the Corporation shall be distributed among the holders of the common stock alone, according to the number of shares held by each. If, upon such liquidation, dissolution or winding up, the assets of the Corporation distributable as aforesaid among the holders of the preferred stock shall be insufficient to permit the payment to them of said amount, the entire assets shall be distributed ratably among the holders of the preferred stock. The Board of Directors shall have authority to divide the shares of preferred stock into series and fix, from time to time, before issuance, the number of shares to be included in any series and the designation, relative rights, preferences and limitations of all shares of such series. The authority of the Board of Directors with respect to each series shall include the determination of any or all of the following, and the shares of each series may vary from the shares of any other in the following respects: (a) the number of shares constituting such series and the designation thereof to distinguish the shares of such series from the shares of all other series; (b) the rate of dividend, cumulative or noncumulative, and the extent of further participation in dividend distribution, if any; (c) the prices at which issued (at not less than par) and the terms and conditions upon which the shares may be redeemable by the Corporation; (d) sinking -2- 3 fund provisions for the redemption or purchase of shares; (e) the voting rights; and (f) the terms and conditions upon which the shares are convertible into other classes of stock of the Corporation, if such shares are to be convertible. C. No holder of any class of stock issued by this Corporation shall be entitled to pre-emptive rights. FIFTH: The Corporation is to have perpetual existence. SIXTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SEVENTH: (a) The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than five nor more than twelve directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1988 Annual Meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding Annual Meeting of stockholders beginning in 1989, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. Except as otherwise required by law, any vacancy on the Board of Directors that results from an increase in the number of directors shall be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors shall be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall serve for the remaining term of his predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Designation with respect to such stock, such directors so elected shall not be divided into classes pursuant to this Article SEVENTH, and the number of such directors shall not be counted in determining the maximum -3- 4 number of directors permitted under the foregoing provisions of this Article SEVENTH, in each case unless expressly provided by such terms. (b) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote in the election of directors. Any stockholder entitled to vote in the election of directors, however, may nominate one or more persons for election as director only if written notice of such stock- holder's intent to make such nomination or nominations has been given either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an Annual Meeting of stockholders, 45 days in advance of the date on which the Corporation's proxy statement was released to stockholders in connection with the previous year's Annual Meeting of stockholders and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the day on which notice of such meeting is first given to stockholders. Each such notice shall include: (A) the name and address of the stockholder who intends to make the nomination or nominations and of the person or persons to be nominated; (B) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (C) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations is or are to be made by the stockholder; (D) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if the nominee had been nominated by the Board of Directors; and (E) the written consent of each nominee to serve as a director of the Corporation if elected. The chairman of any meeting of stockholders may refuse to acknowledge the nomination of any person if not made in compliance with the foregoing procedure. (c) Notwithstanding any other provision of this Certificate of Incorporation or the by-laws (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the by-laws), and in addition to any affirmative vote required by law, the affirmative vote of the holders of at least 80% of the voting power of the outstanding capital stock of the Corporation entitled to vote, voting together as a single class, shall be required to amend, adopt in this Certificate of Incorporation or in the by-laws any provision inconsistent with, or repeal this Article SEVENTH. EIGHTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by any such holders. Except as otherwise required by law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the President or a majority of the Board of Directors, subject to the rights of holders of any one or more classes or series of preferred stock or any other class of stock issued by the Corporation which shall have the right, voting separately by class or series, to elect directors. Notwithstanding any other provision of this Certificate of -4- 5 Incorporation or the by-laws (and notwithstanding that a lesser percentage may be specified by law, this Certificate of Incorporation or the by-laws), and in addition to any affirmative vote required by law, the affirmative vote of the holders of at least 80% of the voting power of the outstanding capital stock of the Corporation entitled to vote, voting together as a single class, shall be required to amend, adopt in this Certificate of Incorporation or in the by-laws any provision inconsistent with, or repeal this Article EIGHTH. NINTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the by-laws of the Corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By resolution passed by a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the Directors of the Corporation, which, to the extent provided in the resolution or in the by-laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the Corporation or as may be determined from time to time by resolution adopted by the Board of Directors. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called for that purpose, to sell, lease or exchange all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock in, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the Corporation. TENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement -5- 6 and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. ELEVENTH: Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. Elections of Directors need not be by ballot unless the by-laws of the Corporation shall so provide. TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. THIRTEENTH: 1. The affirmative vote of the holders of 95% of all shares of stock of the Corporation entitled to vote in elections of directors, considered for the purposes of this Article THIRTEENTH as one class, shall be required for the adoption or authorization of a business combination (as hereinafter defined) with any other entity (as hereinafter defined) if, as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon, such other entity is the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors considered for the purposes of this Article THIRTEENTH as one class; provided that such 95% voting requirement shall not be applicable if: (a) The cash, or fair market value of other consideration, to be received per share by common stockholders of the Corporation in such business combination bears the same or a greater percentage relationship to the market price of the Corporation's common stock immediately prior to the announcement of such business combination as the highest per share price (including brokerage commissions and soliciting dealers' fees) which such other entity has theretofore paid for any of the shares of the Corporation's common stock already owned by it bears to the market price of the common stock of the Corporation immediately prior to the commencement of acquisition of the Corporation's common stock by such other entity; (b) The cash, or fair market value of other consideration, to be received per share by common stockholders of the Corporation in such business combination (i) is not less than the highest per share price (including brokerage commissions and soliciting dealers' fees) paid by such other entity in acquiring any of its holdings of the Corporation's common stock, and (ii) is not less than the earnings per share of common stock of the Corporation for the four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes on such business combination, multiplied by the then price/earnings multiple (if any) of such other entity as customarily computed and reported in the financial community; -6- 7 (c) After such other entity has acquired a 30% interest and prior to the consummation of such business combination: (i) such other entity shall have taken steps to ensure that the Corporation's Board of Directors included at all times representation by continuing director(s) (as hereinafter defined) proportionate to the stockholdings of the Corporation's public common stockholders not affiliated with such other entity (with a continuing director to occupy any resulting fractional board position); (ii) there shall have been no reduction in the rate of dividends payable on the Corporation's common stock except as necessary to insure that a quarterly dividend payment does not exceed 5% of the net income of the Corporation for the four full consecutive fiscal quarters immediately preceding the declaration date of such dividend, or except as may have been approved by a unanimous vote of the directors; (iii) such other entity shall not have acquired any newly issued shares of stock, directly or indirectly, from the Corporation (except upon conversion of convertible securities acquired by it prior to obtaining a 30% interest or as a result of a pro rata stock dividend or stock split); and (iv) such other entity shall not have acquired any additional shares of the Corporation's outstanding common stock or securities convertible into common stock except as a part of the transaction which results in such other entity acquiring its 30% interest; (d) Such other entity shall not have (i) received the benefit, directly or indirectly (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits of or provided by the Corporation, or (ii) made any major change in the Corporation's business or equity capital structure without the unanimous approval of the directors, in either case prior to the consummation of such business combination; and (e) A proxy statement responsive to the requirements of the United States securities laws shall be mailed to all common stock- holders of the Corporation for the purpose of soliciting stock- holder approval of such business combination and shall contain on its first page thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the business combination which the continuing directors, or any of them, may choose to state and, if deemed advisable by a majority of the continuing directors, an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such business combination, from the point of view of the remaining public stockholders of the Corporation (such investment banking firm to be selected by a majority of the continuing directors and to be paid a reasonable fee for their services by the Corporation upon receipt of such opinion). The provisions of this Article THIRTEENTH shall also apply to a business combination with any other entity which at any time has been the beneficial owner, directly or indirectly, of 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors considered for the purposes of this Article THIRTEENTH as one class, notwithstanding the fact that such other entity has reduced its shareholdings below 30% if, as of the record date for the determination of stockholders entitled to notice of and to vote on to the business combination, such other entity is an "affiliate" of the Corporation (as hereinafter defined). 2. As used in this Article THIRTEENTH, (a) the term "other entity" shall include any corporation, person or other entity and any other entity with which it or its "affiliate" or -7- 8 "associate" (as defined below) has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of stock of the Corporation, or which is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on March 31, 1981, together with the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the Corporation's stock within the meaning of the Securities Act of 1933; (b) an other entity shall be deemed to be the beneficial owner of any shares of stock of the Corporation which the other entity (as defined above) has the right to acquire pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise; (c) the outstanding shares of any class of stock of the Corporation shall include shares deemed owned through application of clause (b) above but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (d) the term "business combination" shall include any merger or consolidation of the Corporation with or into any other entity, or the sale or lease of all or any substantial part of the assets of the Corporation to, or any sale or lease to the Corporation or any subsidiary thereof in exchange for securities of the Corporation of any assets (except assets having an aggregate fair market value of less than $5,000,000) of any other entity; (e) the term "continuing director" shall mean a person who was a member of the Board of Directors of the Corporation elected by stockholders prior to the time that such other entity acquired in excess of 10% of the stock of the Corporation entitled to vote in the election of directors, or a person recommended to succeed a continuing director by a majority of continuing directors; and (f) for the purposes of subparagraphs l(a) and (b) of this Article THIRTEENTH the term "other consideration to be received" shall mean, in addition to other consideration received, if any, capital stock of the Corporation retained by its existing public stockholders in the event of a business combination with such other entity in which the Corporation is the surviving corporation. 3. A majority of the continuing directors shall have the power and duty to determine for the purposes of this Article THIRTEENTH on the basis of information known to them whether (a) such other entity beneficially owns 30% or more of the outstanding shares of stock of the Corporation entitled to vote in elections of directors; (b) an other entity is an "affiliate" or "associate" (as defined above) of another; (c) an other entity has an agreement, arrangement or understanding with another; or (d) the assets being acquired by the Corporation, or any subsidiary thereof, have an aggregate fair market value of less than $5,000,000. 4. No amendment to the Certificate of Incorporation of the Corporation shall amend or repeal any of the provisions of this Article THIRTEENTH, unless the amendment effecting such amendment or repeal shall receive the affirmative vote of the holders of 95% of all shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article THIRTEENTH as one class; provided that this paragraph 4 shall not apply to, and such 95% vote shall not be required for, any amendment or repeal unanimously recommended to the stockholders by the Board of Directors of the Corporation if all of such directors are persons who would be eligible to serve as "continuing directors" within the meaning of paragraph 2 of this Article THIRTEENTH. -8- 9 5. Nothing contained in this Article THIRTEENTH shall be construed to relieve any other entity from any fiduciary obligation imposed by law. FOURTEENTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further limitation or elimination of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on liability provided herein, shall be limited to the fullest extent permitted by the Delaware General Corporation Law, as amended. Any repeal or modification of this Article FOURTEENTH shall not increase the liability of any director of this Corporation for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. FIFTEENTH: 1. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or employee of the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer, or employee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of such person's heirs, executors and administrators. The Corporation shall indemnify a director, officer or employee in connection with an action, suit or proceeding (other than an action, suit or proceeding to enforce indemnification rights provided for herein or elsewhere) initiated by such director, officer or employee only if such action, suit or proceeding was authorized by the Board of Directors. The right to indemnification conferred in this Paragraph 1 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any action, suit or proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in such person's capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person) in advance of the final disposition of an action, suit or proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which -9- 10 there is no further right to appeal that such director or officer is not entitled to be indemnified for such expenses under this Article FIFTEENTH or otherwise. 2. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide indemnification and the advancement of expenses, to any agent of the Corporation and to any person (other than directors, officers and employees of the Corporation, who shall be entitled to indemnification under Paragraph 1 above) who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, to such extent and to such effect as the Board of Directors shall determine to be appropriate and permitted by applicable law, as the same exists or may hereafter be amended. 3. The rights to indemnification and to the advancement of expenses conferred in this Article FIFTEENTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or by-laws of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise. 4. This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of Delaware. IN WITNESS WHEREOF, said MASCO CORPORATION has caused its corporate seal to be affixed and this Certificate to be signed by Richard A. Manoogian, its Chairman of the Board, and attested by Gerald Bright, its Secretary, this 25th day of May, 1988. MASCO CORPORATION BY /s/ Richard A. Manoogian ------------------------ Richard A. Manoogian Chairman of the Board ATTEST: /s/ Gerald Bright - ----------------- Gerald Bright Secretary -10- 11 STATE OF MICHIGAN ) ) COUNTY OF WAYNE ) I, , a notary public, do hereby certify that on this 25th day of May, 1988, personally appeared before me Richard A. Manoogian, who, being by me first duly sworn, declared that he is the Chairman of the Board of Masco Corporation, that he signed the foregoing document as the act and deed of said corporation, and that the statements therein contained are true. /s/ Terry Lynn Przybylo ----------------------- Notary Public Wayne County, Michigan My commission expires: -11- 12 CERTIFICATE OF MERGER OF WASTE KING, INC. INTO MASCO CORPORATION Masco Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "GCL"), certifies that: FIRST: The name and state of incorporation of each of the constituent corporations is as follows:
State of Name Incorporation ---- ------------- Masco Corporation ("Masco") Delaware Waste King, Inc. ("Waste King") Delaware
SECOND: An Agreement of Merger between Masco and Waste King with respect to the merger of Waste King into Masco (the "Merger"), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 251 of the GCL. THIRD: That the name of the surviving corporation of the Merger is Masco Corporation, a Delaware corporation. FOURTH: That the Restated Certificate of Incorporation of Masco, which is the surviving corporation, shall continue in full force and effect as the Restated Certificate of Incorporation of the surviving corporation. FIFTH: The executed Agreement is on file at the principal place of business of the surviving corporation, 21001 Van Born Road, Taylor, Michigan 48180. SIXTH: A copy of the Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of the constituent corporations. SEVENTH: This Certificate of Merger shall be effective as of January 1, 1993. MASCO CORPORATION By /s/ Richard G. Mosteller ------------------------ Richard G. Mosteller Senior Vice President - Finance ATTEST: By /s/ Gerald Bright - -------------------- Gerald Bright Secretary 13 CERTIFICATE OF DESIGNATION OF SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK OF MASCO CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Richard G. Mosteller, Senior Vice President - Finance, and Eugene A. Gargaro, Jr., Vice President and Secretary, of Masco Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware ("Delaware Law"), in accordance with the provisions thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on December 6, 1995, adopted the following resolution creating a series of Preferred Stock in the amount and having the designation, voting powers, preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof as follows: Section 1. Designation and Number of Shares. The shares of such series shall be designated as "Series A Participating Cumulative Preferred Stock" (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 175,106. Such number of shares of the Series A Preferred Stock may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares issuable upon exercise or conversion of outstanding rights, options or other securities issued by the Corporation. Section 2. Dividends and Distributions. (A) The holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable on February 15, May 15, August 15 and November 15 of each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of any share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends or other distributions and 1,000 times the aggregate per share amount of all non-cash dividends or other distributions (other than (i) a dividend payable in shares of Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock") or (ii) a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise)), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. If the 14 Corporation shall at any time after December 6, 1995 (the "Rights Declaration Date") pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than as described in clauses (i) and (ii) of the first sentence of paragraph (A)); provided that if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date (or, with respect to the first Quarterly Dividend Payment Date, the period between the first issuance of any share or fraction of a share of Series A Preferred Stock and such first Quarterly Dividend Payment Date), a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is on or before the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue and be cumulative from the date of issue of such shares, or unless the date of issue is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and on or before such Quarterly Dividend Payment Date, in which case dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall not be more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. In addition to any other voting rights required by law, the holders of shares of Series A Preferred Stock shall have the following voting rights: 15 (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of stockholders of the Corporation. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as a single class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock and any other series of Preferred Stock then entitled as a class to elect directors, voting together as a single class, irrespective of series, shall have the right to elect two Directors. (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of 10% in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of holders of Common Stock shall not affect the exercise by holders of Preferred Stock of such voting right. At any meeting at which holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two Directors or, if such right is exercised at an annual meeting, to elect two Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Preferred Stock. 16 (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or bylaws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or bylaws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) The Certificate of Incorporation of the Corporation shall not be amended in any manner (whether by merger or otherwise) so as to adversely affect the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock, voting separately as a class. (E) Except as otherwise provided herein, holders of Series A Preferred Stock shall have no special voting rights, and their consent shall not be required for taking any corporate action. 17 Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding shares of Series A Preferred Stock shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, or make any other distributions on, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions on, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such other parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem, purchase or otherwise acquire for value any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem, purchase or otherwise acquire for value any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Preferred Stock and all such other parity stock upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for value any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors as permitted by the Certificate of Incorporation or as otherwise permitted under Delaware Law. 18 Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, or (2) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such other parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. If the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash or any other property, as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank junior (as to dividends and upon liquidation, dissolution and winding up) to all other series of the Corporation's preferred stock except any series that specifically provides that such series shall rank junior to the Series A Preferred Stock. Section 10. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, 19 to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate this 12th day of December, 1995. /s/ Richard G. Mosteller ------------------------------- Richard G. Mosteller Senior Vice President - Finance Masco Corporation Attest: /s/ Eugene A. Gargaro, Jr. - -------------------------- Eugene A. Gargaro, Jr. Vice President and Secretary Masco Corporation 20 CERTIFICATE OF MERGER OF LA GARD, INC. INTO MASCO CORPORATION Masco Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "GCL"), certifies that: FIRST: The name and state of in corporation of each of the constituent corporation are as follows:
State of Name Incorporation ---- ------------- La Gard, Inc. ("La Gard") California Masco Corporation ("Masco") Delaware
SECOND: An Agreement and Plan of Reorganization dated February 21, 1997 (the "Agreement"), among Masco, La Gard and the Shareholders of La Gard, with respect to, among other things, the merger of La Gard into Masco (the "Merger"), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252 of the GCL. THIRD: That the name of the surviving corporation of the Merger is Masco Corporation, a Delaware corporation. FOURTH: That the Restated Certificate of Incorporation of Masco Corporation, a Delaware corporation which is surviving the merger, shall be the Certificate of Incorporation of the surviving corporation. FIFTH: The executed Agreement is on file at the principal place of business of the surviving corporation 21001 Van Born Road, Taylor, Michigan 48180. SIXTH: A copy of the Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of Masco and La Gard. SEVENTH: The authorized capital stock of LaGard, Inc., the foreign corporation which is a party to the merger is 1,000,000 shares of Common Stock, no par value, of which 134,000 shares are issued, outstanding and owned by the Stockholders. EIGHTH: The Merger has been approved by the Shareholders of LaGard, Inc. 21 This Certificate of Merger shall be effective as of filing with the Secretary of State of Delaware. MASCO CORPORATION By /s/ Richard G. Mosteller ------------------------ Richard G. Mosteller Vice President ATTEST: By /s/ Eugene A. Gargaro, Jr. -------------------------------- Eugene A. Gargaro, Jr. Secretary 22 CERTIFICATE OF MERGER OF TEXWOOD INDUSTRIES, INC. INTO MASCO CORPORATION Masco Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "GCL"), certifies that: FIRST: The name and state of incorporation of each of the constituent corporations are as follows:
State of Name Incorporation ---- ------------- Texwood Industries, Inc. Texas Masco Corporation Delaware
SECOND: An Agreement and Plan of Reorganization dated July 24, 1997 (the "Agreement") among Masco Corporation, Texwood Industries, Inc. and the shareholders of Texwood Industries, Inc., with respect to, among other things, the merger of Texwood Industries, Inc. into Masco Corporation (the "Merger"), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 252 of the GCL. THIRD: That the name of the surviving corporation of the Merger is Masco Corporation, a Delaware corporation. FOURTH: That the Restated Certificate of Incorporation of Masco Corporation, a Delaware corporation which is surviving the merger, shall be the Certificate of Incorporation of the surviving corporation. FIFTH: The executed Agreement is on file at the principal place of business of the surviving corporation, the address of which is 21001 Van Born Road, Taylor, Michigan 48180. SIXTH: A copy of the Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of either constituent corporation. SEVENTH: The authorized capital stock of Texwood Industries, Inc., the foreign corporation which is a party to the Merger, is 100,000 share of common stock, $1 par value. EIGHTH: The Merger shall become effective upon filing the Certificate of Merger with the Secretary of State of Delaware and the Articles of Merger with the Secretary of State of Texas. 23 IN WITNESS WHEREOF, Masco Corporation has caused this Certificate of Merger to be signed by a Vice President and attested by its Secretary this 25th day of July, 1997. MASCO CORPORATION By /s/ John R. Leekley ---------------------- John R. Leekley Senior Vice President ATTEST: By /s/ Eugene A. Gargaro, Jr. -------------------------- Eugene A. Gargaro, Jr. Secretary 24 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MASCO CORPORATION MASCO CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Company"), does hereby certify: FIRST: That the Board of Directors of the Company, by consent resolution dated April 20, 1998, adopted a resolution declaring advisable and proposing for stockholder approval an amendment to the Company's Certificate of Incorporation as follows: The first two paragraphs of ARTICLE FOURTH shall be amended to read as follows: "FOURTH: The total number of shares of stock the Corporation shall have authority to issue is nine hundred one million (901,000,000) shares. Nine hundred million (900,000,000) of such shares shall consist of common shares, par value one dollar ($1.00) per share, and one million (1,000,000) of such shares shall consist of preferred shares, par value one dollar ($1.00) per share." SECOND: That the amendment to ARTICLE FOURTH of the Company's Certificate of Incorporation was approved by a majority of the issued and outstanding shares of common stock entitled to vote thereon in accordance with Section 242 of the General Corporation Law of Delaware. IN WITNESS WHEREOF, MASCO CORPORATION has caused its seal to be affixed and the Certificate to be signed by Richard A. Manoogian, its Chairman of the Board, and attested by Eugene A. Gargaro, Jr., its Secretary, this 20th day of May, 1998. MASCO CORPORATION By: /s/ Richard A. Manoogian ------------------------------------------- Richard A. Manoogian, Chairman of the Board [Corporate Seal] Attest: By: /s/ Eugene A. Gargaro, Jr. ----------------------------------- Eugene A. Gargaro, Jr., Secretary STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) I, Maxine E. Crandall, a Notary Public do hereby certify that on this 20th day of May, 1998, personally appeared before me Richard A. Manoogian, who being by me first duly sworn, declared that he is the Chairman of the Board of Masco Corporation, that he signed the foregoing document as the act and deed of said corporation, and that the statements herein contained are true. My commission expires: 10-19-2000 /s/ Maxine E. Crandall ---------- ----------------------- 25 CERTIFICATE OF MERGER OF BSI HOLDINGS, INC. INTO MASCO CORPORATION ******** The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the names and states of incorporation of each of the constituent corporations of the merger are as follows:
NAME STATE OF INCORPORATION BSI Holdings, Inc. Delaware Masco Corporation Delaware
SECOND: That an Agreement and Plan of Merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the General Corporation Law of the State of Delaware. THIRD: That the name of the surviving corporation of the merger is Masco Corporation. FOURTH: That the Certificate of Incorporation of Masco Corporation, as in effect immediately prior to the Merger, shall continue in full force and effect as the Certificate of Incorporation of the surviving corporation. FIFTH: That an executed Agreement and Plan of Merger is on file at the principal place of business of the surviving corporation, the address of which is 21001 Van Born Road, Taylor, Michigan 48180. SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by Masco Corporation, on request and without cost, to any stockholder or member of any constituent corporation. SEVENTH: That this Certificate of Merger shall be effective upon filing. IN WITNESS WHEREOF, Masco Corporation has caused this certificate to be signed as of this 4th day of January, 2001. MASCO CORPORATION By: /s/ Eugene A. Gargaro, Jr. ------------------------------ Name: Eugene A. Gargaro, Jr. Office: Secretary 26 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF MASCO CORPORATION MASCO CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Company"), does hereby certify: FIRST: That the Board of Directors of the Company, by consent resolution dated April 18, 2001, adopted a resolution declaring advisable and proposing for stockholder approval an amendment to the Company's Restated Certificate of Incorporation as follows: The first two sentences of ARTICLE FOURTH shall be amended to read as follows: "FOURTH: The total number of shares of stock the Corporation shall have authority to issue is one billion four hundred one million (1,401,000,000). One billion four hundred million (1,400,000,000) of such shares shall consist of common shares, par value one dollar ($1.00) per share, and one million (1,000,000) of such shares shall consist of preferred shares, par value one dollar ($1.00) per share." SECOND: That the amendment to ARTICLE FOURTH of the Company's Certificate of Incorporation was approved by a majority of the issued and outstanding shares of common stock entitled to vote thereon in accordance with Section 242 of the General Corporation Law of Delaware. IN WITNESS WHEREOF, MASCO CORPORATION has caused this Certificate of Amendment to be signed by Richard G. Mosteller, its Senior Vice President - Finance and by Eugene A. Gargaro, Jr., its Secretary, this 31st day of May, 2001. MASCO CORPORATION By: /s/ Richard G. Mosteller -------------------------------------- Richard G. Mosteller Senior Vice President - Finance By: /s/ Eugene A. Gargaro, Jr. -------------------------------------- Eugene A. Gargaro, Jr. Secretary 27 CERTIFICATE OF DESIGNATION OF SERIES B PARTICIPATING PREFERRED STOCK OF MASCO CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Raymond F. Kennedy, President and John L. Leekley, Senior Vice President, General Counsel and Assistant Secretary of Masco Corporation (the "CORPORATION"), a corporation organized and existing under the General Corporation Law of the State of Delaware ("DELAWARE LAW"), in accordance with the provisions hereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on June 6, 2001, adopted the following resolution creating a series of Preferred Stock in the amount and having the designation, voting powers, preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof as follows and as set forth in Section 7.13 of the Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") dated as of June 12, 2001, as amended from time to time, by and among the Corporation, Manufacturing Acquisition Corp., a Washington corporation, Tempering Acquisition Corp, a Washington corporation, Milgard Manufacturing Incorporated, a Washington corporation, Milgard Tempering Incorporated, a Washington corporation and, for the purposes set forth in the Reorganization Agreement, the Principal Shareholders parties thereto, the provisions of which are incorporated by reference into this Certificate of Designation: Section 1. Designation and Number of Shares. The shares of such series shall be designated as "Series B Participating Preferred Stock" (the "SERIES B PREFERRED STOCK"), and the number of shares constituting such series shall be 16,666.666. Such number of shares of the Series B Preferred Stock may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of the Series B Preferred Stock to a number less than the number of shares then outstanding. Section 2. Dividends and Distributions. Except as provided in Section 5 below, the holders of shares of Series B Preferred Stock shall be entitled to receive out of funds legally available for the purpose, immediately prior to the time paid to the holders of Common Stock, dividends (whether payable in cash, securities or assets, but excluding (x) any dividend payable in shares of Common 28 Stock, par value $1.00 per share, of the Corporation ("COMMON STOCK") and (y) any subdivision of the outstanding shares of Common Stock (by reclassification or otherwise) in which event the number of shares of Common Stock into which each share of Series B Preferred Stock shall be adjusted pursuant to Section 7(A)-(C) of this Certificate of Designation) in an aggregate amount per share equal to the product of (i) the aggregate amount to be declared and distributed (immediately after the distribution of dividends to holders of shares of Series B Preferred Stock in accordance with this Section 2) per share to holders of Common Stock, and (ii) the number of shares of Common Stock into which such share of Series B Preferred Stock would then be convertible for purposes of transfer as determined under Section 6(E) of this Certificate of Designation. Accrued but unpaid dividends shall not bear interest. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be the same as the record date for the Common Stock and shall not be more than 60 days prior to the date fixed for the payment thereof. Notwithstanding the foregoing, the holders of shares of Series B Preferred Stock shall not be entitled to receive any dividends in connection with the dividends declared on June 29, 2001 and payable on August 13, 2001 to holders of record of Common Stock as of July 13, 2001. Section 3. Voting Rights. Except as required by law, the holders of shares of Series B Preferred Stock shall have the following voting rights and shall have no other voting rights: (A) Each share of Series B Preferred Stock shall entitle the holder thereof to a number votes on all matters submitted to a vote of stockholders of the Corporation equal to the number of votes of the shares of Common Stock into which such share of Series B Preferred Stock would then be convertible for purposes of transfer as determined under Section 6(E) of this Certificate of Designation. (B) Except as otherwise provided herein or required by law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock shall vote together as a single class on all matters submitted to a vote of stockholders of the Corporation. (C) Without the written consent of holders of a majority of the outstanding shares of Series B Preferred Stock or the vote of holders of a majority of the outstanding shares of Series B Preferred Stock at a meeting of the holders of the Series B Preferred Stock called for such purpose, the Corporation shall not have the right to amend, alter or repeal any provision of this Certificate of Designation so as to materially adversely affect the preferences, rights or powers of the Series B Preferred Stock. Section 4. Reacquired Shares. Any shares of Series B Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in 2 29 any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors as permitted by the Certificate of Incorporation or as otherwise permitted under Delaware Law. Section 5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of Common Stock unless prior thereto, the holders of Series B Preferred Stock shall have received an aggregate amount per share equal to declared but unpaid dividends and distributions thereon plus an amount per share equal to the product of (i) the aggregate amount to be distributed per share to holders of Common Stock (taking into account the assumed conversion of the Series B Preferred Stock into Common Stock) and (ii) the number of shares of Common Stock into which such share of Series B Preferred Stock would then be convertible for purposes of transfer, as determined pursuant to Section 6(E) of this Certificate of Designation. Section 6. Ownership; Transfer; Conversion. (A) Holders of shares of Series B Preferred Stock may (i) sell or otherwise dispose of or transfer any or all of the shares of such Series B Preferred Stock held by them only to persons who at the time of transfer are Permitted Transferees (as defined herein), and to no other persons, or (ii) convert any or all of such shares into shares of Common Stock for the purpose of effecting the sale or disposition of such shares of Common Stock to any person as provided in subparagraph (C) below. No one other than those persons in whose names shares of Series B Preferred Stock become registered on the stock ledger of the Corporation upon original issuance by the Corporation ("INITIAL HOLDERS"), or transferees or successive transferees who at the time of transfer are Permitted Transferees, shall by virtue of the acquisition of a certificate for shares of Series B Preferred Stock have the status of an owner or holder of shares of Series B Preferred Stock or be recognized as such by the Corporation or be otherwise entitled to enjoy for such person's benefit the rights and powers of a holder of shares of Series B Preferred Stock. "PERMITTED TRANSFEREE" shall mean, any Initial Holder, any Initial Holder's spouse, siblings or lineal descendants, any estate of any of the foregoing but only to the extent that the beneficiaries thereof are another Initial Holder or an Initial Holder's spouse or siblings or lineal descendants of an Initial Holder, any trust for the exclusive benefit of an Initial Holder or an Initial Holder's spouse, siblings or lineal descendants (or any combination of the foregoing) and any "private foundation" within the meaning of Sections 509 and 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "CODE") with respect to which an Initial Holder is a "disqualified person" within the meaning of Section 4946(a)(1)(A) of the Code (provided, however, that "50%" shall be substituted for "2%" where the latter figure appears in the definition of "substantial contributor" set forth in Section 507(d)(2) of the Code) 3 30 or Section 4946(a)(1)(B) of the Code (provided, however, that for purposes of defining "foundation manager," Section 4946(b)(2) of the Code shall be disregarded). For purposes of determining whether an Initial Holder is a "substantial contributor" pursuant to the preceding sentence, (x) contributions made by all of the Initial Holder's Permitted Transferees (other than private foundations) shall be taken into account and (y) an Initial Holder will be considered a "substantial contributor" only if during the five-year period ending with the year in question, such Initial Holder has contributed (taking into account the contributions attributed to such person under clause (x) above) more than 50% of the total contributions received by the foundation since the foundation's inception. (B) Every certificate for shares of Series B Preferred Stock shall bear a legend reading as follows: "The shares of Series B Preferred Stock represented by this certificate may not be transferred to any person who is not a "Permitted Transferee" as defined in Section 6(A) of the Certificate of Designation of Series B Participating Preferred Stock of Masco Corporation as amended, and no person who does not qualify as a Permitted Transferee is entitled to own or to be registered as the record holder of such shares of Series B Preferred Stock, but the record holder may at any time convert such shares of Series B Preferred Stock into a number of shares of Common Stock as determined pursuant to Section 6(E) of the Certificate of Designation of Series B Participating Preferred Stock of Masco Corporation for the purpose of effecting the sale or other disposition of such shares of Common Stock to any person. Each holder of this certificate, by accepting the same, accepts and agrees to all of the foregoing. The shares of Series B Preferred Stock represented by this certificate are subject to certain other restrictions on transfer set forth in the Certificate of Designation of Series B Participating Preferred Stock of Masco Corporation, including certain provisions of the Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") dated as of June 12, 2001, as amended from time to time, by and among Masco Corporation, Manufacturing Acquisition Corp., a Washington corporation, Tempering Acquisition Corp, a Washington corporation, Milgard Manufacturing Incorporated, a Washington corporation, Milgard Tempering Incorporated, a Washington corporation and, for the purposes set forth in the Reorganization Agreement, the Principal Shareholders parties thereto, that are incorporated by reference therein, a copy of which Reorganization Agreement may be obtained at the principal office of Masco Corporation." (C) Upon the sale or disposition (including deemed sales and dispositions as provided in Section 7.13 of the Reorganization Agreement) of any shares of Series B Preferred Stock to any person who is not a Permitted Transferee, such shares of Series B Preferred Stock shall be automatically converted into a number of shares of Common Stock determined pursuant to Section 6(E)(1) of this Certificate of Designation. All certificates evidencing shares of Series B Preferred Stock that have been automatically converted in accordance with the provisions hereof shall, from and after the date of such 4 31 conversion, be deemed to have been retired and canceled and the shares of Series B Preferred Stock represented thereby converted at the time of such sale or disposition into Common Stock in accordance with this Section 6 for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates. Upon request for transfer of any Series B Preferred Stock certificate and upon delivery to the Corporation of the certificates evidencing the shares of Series B Preferred Stock to be converted upon such transfer, the Corporation shall issue certificates for the shares of Common Stock into which such shares of Series B Preferred Stock are convertible as determined pursuant to Section 6(E) of this Certificate of Designation. (D) The Corporation may elect, by written notice (the "CORPORATION CONVERSION NOTICE") delivered to each holder of record of shares of Series B Preferred Stock by first class mail, postage prepaid at such holder's address as the same appears on the stock register of the Corporation, to cause all of the shares of Series B Preferred Stock to be converted into a number of shares of Common Stock determined pursuant to Section 6(E) of this Certificate of Designation. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date the Corporation Conversion Notice shall have been mailed, and the person in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder of record of the shares of Common Stock determined pursuant to Section 6(E) of this Certificate of Designation represented thereby at such time on such date. All certificates evidencing shares of Series B Preferred Stock that have been converted in accordance with this Section 6(D) shall, from and after the date of such conversion, be deemed to have been retired and canceled and the shares of Series B Preferred Stock represented thereby converted into Common Stock in accordance with this Section 6(D) for all purposes, notwithstanding the failure of the holder or holders thereof to surrender certificates for such shares. Upon delivery to the Corporation of the certificates evidencing the shares of Series B Preferred Stock so converted by the Corporation, the Corporation shall issue certificates for the shares of Common Stock into which such shares of Series B Preferred Stock have been converted as determined pursuant to Section 6(E) of this Certificate of Designation. (E) (1) Upon a conversion in accordance with subparagraph (C) or (D) above, each share of Series B Preferred Stock shall be converted into 1,000 shares of Common Stock (the "INITIAL CONVERSION RATE"). The Initial Conversion Rate shall be subject to adjustment as provided in Section 7(A)-(C) below. (2) If (x) the Corporation exercises its right to give a Corporation Conversion Notice (as provided in Section 6(D) of this Certificate of Designation) and (y) on the date of such Corporation Conversion Notice the Market Value Trigger has not been achieved, then, notwithstanding Section 6(E)(1) of this Certificate of Designation, each share of Series B Preferred Stock so converted shall be converted into a number of shares of Common Stock equal to the product 5 32 obtained by multiplying (a) the Initial Conversion Rate (adjusted as provided pursuant to Section 7(A)-(C) of this Certificate of Designation) by (b) a fraction (which shall in no event be less than 1.00) of which the numerator is the Price Target (adjusted as provided pursuant to Section 7(D) of this Certificate Designation), and of which the denominator is the Adjustment Price on the date of such Corporation Conversion Notice (the "DELIVERABLE COMMON STOCK AMOUNT"). If the Corporation desires to give a Corporation Conversion Notice on a date when the Adjustment Price is equal to or greater than the Dollar Price, then the Corporation shall have the option either to (x) give a Corporation Conversion Notice on that date, in which event the Adjustment Price will be deemed to be the Dollar Price or (y) give notice (the "DOLLAR CONVERSION NOTICE") to the holders that it will give a Corporation Conversion Notice on a date no later than 60 days after the Dollar Conversion Notice. If the Corporation gives a Dollar Conversion Notice, then the Corporation will be required to give a Corporation Conversion Notice on a date selected by the Corporation in its sole discretion, which date must be on or after the 10th trading day and on or before the 60th day after the date of the Dollar Conversion Notice, it being understood that, for purposes of that Corporation Conversion Notice, the Adjustment Price shall be the greater of the average of the Daily Per Share Prices of the Common Stock for the 10 trading days ending on the trading day immediately preceding the date of the Corporation Conversion Notice and the Dollar Price; provided, however, that if a Market Value Trigger is achieved after the Corporation gives a Dollar Conversion Notice but before a Corporation Conversion Notice is given pursuant to this sentence, the Dollar Conversion should be null and void and such Corporation Conversion Notice shall not be required. Notwithstanding Section 6(D) of this Certificate of Designation, the Corporation shall not have the right without the prior consent of holders of at least a majority of the Series B Preferred Stock to give a Corporation Conversion Notice on any date on or prior to the first anniversary of the Effective Time if the applicable Adjustment Price on that date is less than the Minimum Price. Notwithstanding Section 6(D) of this Certificate of Designation, if the Corporation gives a Corporation Conversion Notice on a date on or prior to the earlier of the Adjustment Date and the date on which a Market Value Trigger has been achieved, such notice shall apply only to shares of Series B Preferred Stock which, on the date of such Corporation Conversion Notice, are convertible into shares of Common Stock that are Freely Tradeable, it being understood that (x) the Corporation shall be entitled to give a Corporation Conversion Notice which shall apply to all shares of Series B Preferred Stock that are convertible into Freely Tradeable Common Stock on the date of the Corporation Conversion Notice and (y) the Corporation shall be entitled to give a Corporation Conversion Notice from time to time with respect to any remaining shares of Series B Preferred Stock at such time as the shares of Common Stock into which such shares of Series B Preferred Stock are convertible are Freely Tradeable, it being understood that the Corporation shall use all reasonable efforts to assure that there will be no more than two Corporation Conversion Notices given. 6 33 The "ADJUSTMENT PRICE" shall mean on any date the average of the Daily Per Share Prices of the Common Stock for the 10 trading days ending on the trading day immediately preceding such date, provided that if such date is after the third anniversary of the Effective Time (such third anniversary being referred to herein as the "ADJUSTMENT DATE"), the Adjustment Price shall mean the average of the Daily Per Share Prices of the Common Stock for the 10 trading days ending on the trading day immediately preceding the Adjustment Date (the "THIRD ANNIVERSARY ADJUSTMENT PRICE"). The "DAILY PER SHARE PRICE" of Common Stock on any date shall mean the average of the high and low prices of a share of Common Stock on the New York Stock Exchange or such other securities exchange on which the Common Stock is listed or quoted on such date. The "DOLLAR PRICE" shall have the meaning set forth in Section 7.13(a) of the Reorganization Agreement, subject to adjustment as provided below in Section 7(D) of this Certificate of Designation. The "EFFECTIVE TIME" shall have the meaning set forth in Section 2.1 of the Reorganization Agreement. The "PRICE TARGET" shall have the meaning set forth in Section 7.13(b) of the Reorganization Agreement, subject to adjustment as provided in Section 7(D) of this Certificate of Designation. The "MINIMUM PRICE" shall have the meaning set forth in Section 7.13(c) of the Reorganization Agreement, subject to adjustment as provided below in Section 7(D). The "MARKET VALUE TRIGGER" shall have the meaning set forth in Section 7.13(d) of the Reorganization Agreement. The Corporation shall give written notice (which notice may, but is not required to, be given in a Corporation Conversion Notice) to the holders of shares of the Series B Preferred Stock as soon as practicable upon the achievement of the Market Value Trigger, it being understood that any failure to deliver such notice shall be irrelevant in determining whether the Market Value Trigger has been achieved. Series B Preferred Stock shall be deemed to be "FREELY TRADEABLE" to the extent that (a) a registration statement on Form S-3 (or other applicable form) is effective with respect to the shares of Common Stock into which the outstanding shares of Series B Preferred Stock are convertible, and will remain effective until the earlier of the date 90 days after such effective date or the date on which all registered shares have been sold or holders request withdrawal of registration; or 7 34 (b) the holder of the Series B Preferred Stock can freely sell the Common Stock into which such Series B Preferred Stock is convertible within 90 days pursuant to Rule 144. It is understood and agreed that, if the Corporation is relying on this clause (b) to satisfy the Market Value Trigger, then, for any holder of shares of Series B Preferred Stock who, after converting such holder's shares into Common Stock, would not be permitted to sell all of such shares of Common Stock within 90 days because of the volume limitations set forth in Rule 144, the Market Value Trigger shall be achieved only with respect to the shares of Series B Preferred Stock that, upon conversion into Common Stock, could be sold within such 90 day period, and shall not be achieved with respect to the remaining shares of Series B Preferred Stock held by such holder (such remaining shares being referred to as the "VOLUME LIMITED SHARES"). The Market Value Trigger shall be deemed to be achieved with respect to any such Volume Limited Shares if the average of the Daily Per Share Prices of Common Stock for any five trading days (whether or not consecutive) during any period of 20 consecutive trading days beginning on or after the ninety-first day following the achievement of a Market Value Trigger with respect to non-Volume Limited Shares, is equal to or greater than the Price Target. Notwithstanding the foregoing, if any Series B Preferred Stock would have been Freely Tradeable if still held by the Initial Holder of such Series B Preferred Stock, then such Series B Preferred Stock shall be deemed Freely Tradeable even if such Series B Preferred Stock has been or later is transferred to a Permitted Transferee. The holders of Series B Preferred Stock will cooperate with the Corporation in any of the Corporation's efforts to register the shares of Common Stock into which the Series B Preferred Stock is convertible. (3) If on or after the Adjustment Date (x) any holder of Series B Preferred Stock causes, after the earlier of the 30th day after the Adjustment Date and the 10th day after written notice to the Corporation by such holder of Series B Preferred Stock, the conversion of such Series B Preferred Stock into Common Stock pursuant to Section 6(C) of this Certificate of Designation, (y) the Market Value Trigger has not been achieved and (z) the Corporation has not given a Corporate Conversion Notice, then, notwithstanding Section 6(E)(1) of this Certificate of Designation, each share of Series B Preferred Stock so converted shall be converted into a number of shares of Common Stock equal to the product obtained by multiplying (a) the Initial Conversion Rate (as adjusted pursuant to Section 7(A)-(C) of this Certificate of Designation) by (b) a fraction (which shall in no event be less than 1.00) of which the numerator is the Price Target, and of which the denominator is the Third Anniversary Adjustment Price. (4) If the Corporation gives a Corporation Conversion Notice on any date (a) after the first anniversary of the Effective Time, (b) prior to the first date subsequent to such first anniversary on which a Market Value Trigger is achieved and (c) prior to the end of the 60th day following the Adjustment Date, and if, at 8 35 such time the Adjustment Price is less than the Price Target, then the Corporation shall have the option (by notice given in the Corporation Conversion Notice) to require a portion of the Deliverable Common Stock Amount to be delivered into an escrow account established with Chase Manhattan or another nationally recognized escrow agent selected by the Corporation (the "CONVERSION ESCROW ACCOUNT"), which portion may not exceed the quotient obtained by dividing (i) the difference equal to (x) the Price Target minus (y) the Adjustment Price by (ii) the Price Target. The Corporation shall be required to repurchase the shares of Common Stock so delivered into the Conversion Escrow Account on the third day (or, if such day is not a business day, then on the next succeeding business day) for an amount per share in cash equal to the Adjustment Price. Notwithstanding anything to the contrary herein, the Corporation shall not be permitted to make the election described in this Section 6(E)(4) unless it has delivered an Officers' Certificate to the effect that, at the time that the applicable Corporation Conversion Notice is given, there has been no Actual Repurchase nor is there a Planned Repurchase that individually or in the aggregate would result in the Actual Ownership being equal to or greater than the Original Ownership. The cash delivered by the Corporation into the Conversion Escrow Account shall be promptly delivered by the escrow agent to the appropriate holders. "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board of Directors or the President or any Vice President (whether or not designated by a number or numbers or a word or words added before or after the title "Vice President") and by the Treasurer or the Secretary or any Assistant Secretary of the Corporation. "ACTUAL OWNERSHIP" means a fraction (x) the numerator of which is the difference equal to the Deliverable Common Stock Amount minus the number of shares of Common Stock to be repurchased by the Corporation pursuant to, as applicable, Section 6(E)(4) or 6(E)(7) and (y) the denominator of which is the total outstanding shares of Common Stock immediately after the applicable repurchase (taking into account any Actual Repurchase and Planned Repurchase). "ORIGINAL OWNERSHIP" means a fraction (x) the numerator of which is the Deliverable Common Stock Amount and (y) the denominator of which is the sum of (I) the total outstanding shares of Common Stock immediately before the applicable conversion and (II) the Deliverable Common Stock Amount (without taking into account any Actual Repurchase and Planned Repurchase). "PLANNED REPURCHASE" means any purchase of Common Stock by the Corporation or any affiliate from stockholders (other than holders of Series B Preferred Stock) made within six (6) months after the applicable Corporation Conversion Notice is given and pursuant to a plan which exists at the time such notice is given. "ACTUAL REPURCHASE" means any purchase of Common Stock by the Corporation or any affiliate from stockholders (other than holders of Series B Preferred Stock) made within six (6) months prior to the date that the applicable Corporation Conversion Notice is given but only if such purchase is made 9 36 pursuant to a plan that (i) exists at the time of such purchase and continues through the date of the applicable Corporation Conversion Notice and (ii) that includes the applicable repurchase of shares in the Conversion Escrow Account. (5) If the Corporation has not given a Corporation Conversion Notice on or after the Adjustment Date with respect to any shares of Series B Preferred Stock then outstanding, then, prior to the end of the sixtieth (60th) day following the Adjustment Date, the holders of a majority of the shares of Series B Preferred Stock then outstanding may require, by written notice, the Corporation to deliver as soon as practicable a Corporation Conversion Notice with respect to the conversion of all outstanding shares of the Series B Preferred Stock, it being understood that if the Corporation gives a Corporation Conversion Notice within 10 days after receipt by the Corporation of a written notice from a majority of the shares of Series B Preferred Stock then outstanding, then the Corporation shall have the option (by notice given in such Corporation Conversion Notice) to require a portion of the shares of Common Stock that would otherwise be delivered upon conversion of such shares to be delivered into a Conversion Escrow Account in accordance with Section 6(E)(4) of this Certificate of Designation. (6) The Corporation shall give a Corporation Conversion Notice immediately prior to the consummation of any Significant Business Transaction. A "SIGNIFICANT BUSINESS TRANSACTION" shall mean the sale of all or substantially all of the Corporation's assets to another corporation in a single transaction or series of related transactions or a merger, consolidation or other business combination in which, following such transaction, Common Stock (or, if in such transaction, the holders of the Common Stock receive stock of another corporation, the stock of such other corporation) is not listed on the New York Stock Exchange, NASDAQ or another national securities exchange. (7) If the Corporation gives a Corporation Conversion Notice at any time after the first anniversary of the Effective Time and before the end of the 60th day after the Adjustment Date, and if, at such time the Adjustment Price is less than the Minimum Price, then, without limiting the Corporation's rights under Section 6(E)(4) above and notwithstanding Sections 6(D) and 6(E)(1) of this Certificate of Designation, if a majority of the outstanding shares of Series B Preferred Stock subject to such Corporation Conversion Notice elect, the Corporation shall be required to deliver into the Conversion Escrow Account a portion of the Deliverable Common Stock Amount. Such portion shall be equal to a fraction of which the numerator is the Minimum Price minus the Adjustment Price and of which the denominator is the Minimum Price. In determining whether to make the election set forth in the first sentence of this Section 6(E)(7), each holder of such Series B Preferred Stock subject to such Corporation Conversion Notice shall be entitled to request and rely upon an Officers' Certificate to the effect that, at the time that the applicable Corporation Conversion Notice is given, there has been no Actual Repurchase nor is there a 10 37 Planned Repurchase that would result in the holder's Actual Ownership being equal to or greater than such holder's Original Ownership. The Corporation shall be required to repurchase the shares of Common Stock so delivered into the Conversion Escrow Account as determined above in this Section 6(E)(7) on the third day after such delivery (or, if such day is not a business day, then on the next succeeding business day) for an amount per share (in cash) or a principal amount per share (in 3-year notes of the Corporation (bearing a market rate of interest to be agreed between the Corporation and the Principal Shareholders and without financial covenants)) equal to the Adjustment Price. The cash or notes delivered by the Corporation into the Conversion Escrow Account shall be promptly delivered by the escrow agent to the appropriate holders. (F) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, such number of shares of Common Stock as would become issuable upon the conversion of all shares of Series B Preferred Stock then outstanding. Section 7. Anti-Dilution and Adjustment Provisions. (A) In case the Corporation shall (i) pay a dividend or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, the Initial Conversion Rate in effect immediately prior to such action shall be adjusted so that the holder of any shares of the Series B Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such holder would have owned or have been entitled to receive immediately following such action had such shares been converted immediately prior thereto. An adjustment made pursuant to this Section 7(A) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. (B) In case the Corporation shall consolidate with or merge into any other Person (other than in a transaction constituting a Significant Business Transaction as set forth in Section 6(E)(6) of this Certificate of Designation), then the Initial Conversion Rate in effect at the time of consolidation or merger shall be adjusted so that the holder of any shares of the Series B Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other securities of the Corporation (or shares or other securities of any person into which such shares of Common Stock have been converted in such consolidation or merger) and the amount of cash or other property which such holder would have owned or have been entitled to receive immediately following such action had such shares been converted immediately prior to such consolidation or merger, assuming such holder of Common Stock failed to exercise any rights of election as to the kind or amount of securities, cash and other property receivable upon such consolidation or merger (provided, that if 11 38 the kind or amount of securities, cash and other property receivable upon such consolidation or merger is not the same for each share of Common Stock held immediately prior to such consolidation or merger by other than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of this subparagraph the kind and amount of securities, cash and other property receivable upon such consolidation or merger by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such adjustment shall be made successively whenever any event listed above shall occur. (C) Notwithstanding the foregoing, the Corporation will not be required to make any adjustment to the Initial Conversion Rate unless such adjustment would result in an increase or decrease of at least 1% in such rate; provided, however, that all smaller adjustments will be carried forward and taken into account in any subsequent adjustment. All adjustments to the Initial Conversion Rate will be calculated to the nearest 1/100 of a share of Common Stock (with 5/1000 of a share being rounded down to the next lower 1/100 of a share). (D) The Price Target, Minimum Price, Dollar Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price as set forth in Section 7.13 of the Reorganization Agreement and for purposes of Section 6(C) and 6(E) of this Certificate of Designation, as the case may be, shall be subject to adjustment from time to time as follows: (1) In case the Initial Conversion Rate shall be adjusted pursuant to Section 7(A)-(C) of this Certificate of Designation, the Price Target, Minimum Price, Dollar Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price shall each be adjusted to a price, computed to the nearest cent, so that the same shall equal the price determined by multiplying the Price Target, Minimum Price, Dollar Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price, respectively, by a fraction the numerator of which is the Initial Conversion Rate in effect immediately preceding such adjustment and the denominator of which is the Initial Conversion Rate in effect immediately following such adjustment. (2) In case the Corporation shall issue rights or warrants to all holders of Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (as determined pursuant to Section 8(C) of this Certificate of Designation) of the Common Stock on the record date mentioned below, the Price Target, Minimum Price, Dollar 12 39 Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price shall each be adjusted so that the same shall equal the number determined by multiplying such prices as in effect immediately prior to the date of issuance of such rights or warrants by a fraction, of which (x) the numerator shall be (A) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus (B) the number of shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such current market price), and of which (y) the denominator shall be (A) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus (B) the number of additional shares of Common Stock which are so offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of holders entitled to receive such rights and warrants. (3) In case the Corporation shall distribute to substantially all holders of Common Stock evidences of indebtedness, equity securities (including equity interests in the Corporation's Subsidiaries (as hereinafter defined)) other than the Common Stock, or other assets (other than cash dividends in an amount not in excess of 200% of the Corporation's regular quarterly cash dividends for the last 4 quarters preceding the date of the Reorganization Agreement, as adjusted for any stock splits, dividends or combinations or other similar events after the date of the Reorganization Agreement), or shall distribute to substantially all holders of Common Stock rights or warrants to subscribe for securities (other than those referred to in Section 7(D)(2) of this Certificate of Designation), then in each such case the Price Target shall be adjusted so that the same shall equal the Price Target in effect on the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive such distribution less the then fair market value (as determined in good faith by the Board of Directors, whose determination thereof shall be conclusive) of the portion of the assets, evidences of indebtedness and equity securities so distributed or of such subscription rights or warrants applicable to one share of Common Stock. As used herein, the term 13 40 "Subsidiary" means (x) any corporation or other entity of which securities or other ownership interest having ordinary voting power to elect a majority of the board of directors or other person performing similar functions are at the time directly or indirectly owned by the Corporation or (y) any partnership of which more than 50% of the partnership interests are owned by the Corporation or any Subsidiary. Upon such Price Target adjustment, the Minimum Price, Dollar Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price shall each be adjusted to a price, computed to the nearest cent, so that the same shall equal the price determined by multiplying the Minimum Price, Dollar Price, Permitted Hedging Lower Price and Permitted Hedging Higher Price respectively, by a fraction of which the numerator is the Price Target immediately following such adjustment and of which the denominator is the Price Target immediately prior to such adjustment. Section 8. Fractional Shares. (A) Series B Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Preferred Stock. (B) No fractional shares of Common Stock will be issued upon conversion of the Series B Preferred Stock. In lieu of any fractional share otherwise issuable in respect of all Series B Preferred Stock of any holder which is converted on any conversion date, such holder shall be entitled to receive an amount in cash equal to the same fraction of the current market price per share (as determined pursuant to Section 8(C) below) of the Common Stock on the second trading day immediately preceding the conversion. (C) For purposes of any computation under Section 7(D) of this Certificate of Designation and this Section 8, the current market price per share of Common Stock on any date shall be deemed to be the average of the high and low prices of a share of Common Stock on the New York Stock Exchange or such other securities exchange on which the Common Stock is listed or quoted on such day for the 10 trading days ending on the trading day prior to such date. 14 41 Section 9. Waiver. (A) To the fullest extent permitted by law, any provision of this Certificate of Designation may be waived as to the Corporation or any holder or holders of Series B Preferred Stock without the consent of the holders of Common Stock or the other holders of Series B Preferred Stock if, but only if, that waiver is in writing and is signed, in the case of a waiver, by the party or parties against whom the waiver is to be effective; provided that any waiver that would materially adversely affect the preferences, rights or powers of the other holders of Series B Preferred Stock shall also require the prior written consent of the holders of a majority of the Series B Preferred Stock. (B) No failure or delay on the part of the Corporation in exercising any right, power or privilege under this Certificate of Designation shall operate as a waiver, nor shall any single or partial exercise preclude any other or further exercise of any other right, power or privilege. 15 42 IN WITNESS WHEREOF, we have executed and subscribed this Certificate this 30th day of July, 2001. MASCO CORPORATION By: /s/ Raymond F. Kennedy ---------------------------------- Name: Raymond F. Kennedy Title: President Attest: By: /s/ John L. Leekley ------------------------------------- Name: John L. Leekley Title: Senior Vice President, General Counsel and Secretary EX-4.A.V 4 k64100ex4-a_v.txt DIRECTOR'S RESOLUTIONS ESTABLISHING 6% NOTES DUE 1 EXHIBIT 4.a.v RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF MASCO CORPORATION APRIL 26, 2001 In lieu of a meeting, the undersigned, being all of the members of the Pricing Committee of the Board of Directors of Masco Corporation, a Delaware corporation, (the "Company") adopt the resolutions attached on Exhibit A hereto. Dated: April 26, 2001 /s/Richard A. Manoogian ----------------------------------- Richard A. Manoogian /s/Wayne B. Lyon ----------------------------------- Wayne B. Lyon /s/John A. Morgan ----------------------------------- John A. Morgan 2 RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF MASCO CORPORATION APRIL 26, 2001 WHEREAS, Masco Corporation, a Delaware corporation (the "Company") the Company has filed Registration Statements (Nos. 333-40122 and 333-58034) on Form S-3 with the Securities and Exchange Commission, which are in effect; WHEREAS, the Company desires to create a series of securities under the indenture dated as of February 12, 2001 (the "Indenture"), with Bank One Trust Company, National Association, (the "Trustee"), providing for the issuance from time to time of unsecured debentures, notes or other evidences of indebtedness of this Company ("Securities") in one or more series under such Indenture; and WHEREAS, capitalized terms used in these resolutions and not otherwise defined are used with the same meaning ascribed to such terms in the Indenture; THEREFORE, BE IT RESOLVED, that there is established a series of Securities under the Indenture, the terms of which shall be as follows: 1. The Securities of such series shall be designated as the "6% Notes Due 2004." 2. The aggregate principal amount of Securities of such series which may be authenticated and delivered under the Indenture is limited to Five Hundred Million Dollars ($500,000,000), except for Securities of such series authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07 of the Indenture. 3. The date on which the principal of the Securities of such series shall be payable is May 3, 2004. 4. The Securities of such series shall bear interest from May 1, 2001 at the rate of 6% per annum, payable semi-annually on May 3 and November 3 of each year commencing on November 3, 2001 until the principal thereof is paid or made available for payment. The April 17 or October 17 (whether or not a business day), as the case may be, next preceding each such interest payment date shall be the "record date" for the determination of holders to whom interest is payable. 5. The Securities shall be issued initially in the form of global securities registered in the name of Cede & Co., as nominee of The Depository 3 Trust Company ("DTC"), and will be held by the Trustee as custodian for DTC. The Securities shall be subject to the procedures of DTC and will not be issued in definitive registered form. 6. The principal of and interest on the Securities of such series shall be payable at the office or agency of this Company maintained for such purpose in Chicago, Illinois or at any other office or agency designated by the Company for such purpose pursuant to the Indenture. 7. The Securities of such series shall not be subject to redemption prior to maturity. 8. The Securities of such series shall be issuable in denominations of One Thousand Dollars ($1,000) and any integral multiples thereof. 9. The Securities shall be issuable at a price such that this Company shall receive Four Hundred Ninety-six Million, Eight Hundred Twenty-five Thousand Dollars ($496,825,000) after an underwriting discount of Two Million, Two Hundred Fifty Thousand Dollars ($2,250,000). 10. The Securities shall be subject to Defeasance and discharge pursuant to Section 4.02 of the Indenture and to Covenant Defeasance pursuant to Section 10.06 of the Indenture with respect to any term, provision or condition set forth in any negative or restrictive covenant of the Company applicable to the Securities. FURTHER RESOLVED, that the Securities of such series are declared to be issued under the Indenture and subject to the provisions hereof; FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice President of the Company is authorized to execute, on the Company's behalf and in its name, and the Secretary or any Assistant Secretary of the Company is authorized to attest to such execution and under the Company's seal (which may be in the form of a facsimile of the Company's seal), $500,000,000 aggregate principal amount of the Securities of such series (and in addition Securities to replace lost, stolen, mutilated or destroyed Securities and Securities required for exchange, substitution or transfer, all as provided in the Indenture) and to deliver such Securities to the Trustee for authentication, and the Trustee is authorized and directed thereupon to authenticate and deliver the same to or upon the written order of this Company as provided in the Indenture; FURTHER RESOLVED, that the signatures of the Company officers so authorized to execute the Securities of such series may be the manual or facsimile signatures of the present or any future authorized officers and may be imprinted or otherwise reproduced thereon, and the Company for such purpose adopts each facsimile signature as binding upon it notwithstanding the fact that at the time the respective 4 Securities shall be authenticated and delivered or disposed of, the individual so signing shall have ceased to hold such office; FURTHER RESOLVED, that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc One Capital Markets, Inc., Commerzbank Capital Markets Corp., BNP Paribas Securities Corp., Barclays Capital Inc., McDonald Investments, Inc. and Wachovia Securities, Inc. are appointed underwriters for the issuance and sale of the Securities of such series, and the Chairman of the Board, the President or any Vice President of the Company is authorized, in the Company's name and on its behalf, to execute and deliver an Underwriting Agreement, substantially in the form heretofore approved by the Company's Board of Directors, with such underwriters, with such changes and insertions therein as are appropriate to conform such Underwriting Agreement to the terms set forth herein or otherwise as the officer executing such Underwriting Agreement shall approve and as are not inconsistent with these resolutions, such approval to be conclusively evidenced by such officer's execution and delivery of the Underwriting Agreement; FURTHER RESOLVED, that Bank One Trust Company, National Association, the Trustee under the Indenture, is appointed trustee for Securities of such series, and as Agent of this Company for the purpose of effecting the registration, transfer and exchange of the Securities of such series as provided in the Indenture, and the corporate trust office of Bank One Trust Company, National Association, in Chicago, Illinois is designated pursuant to the Indenture as the office or agency of the Company where such Securities may be presented for registration, transfer and exchange and where notices and demands to or upon this Company in respect of the Securities and the Indenture may be served; FURTHER RESOLVED, that Bank One Trust Company, National Association, is appointed Paying Agent of this Company for the payment of interest on and principal of the Securities of such series, and the corporate trust office of Bank One Trust Company, National Association, is designated, pursuant to the Indenture, as the office or agency of the Company where Securities may be presented for payment; and FURTHER RESOLVED, that each of the Company's officers is authorized and directed, on behalf of the Company and in its name, to do or cause to be done everything such officer deems advisable to effect the sale and delivery of the Securities of such series pursuant to the Underwriting Agreement and otherwise to carry out the Company's obligations under the Underwriting Agreement, and to do or cause to be done everything and to execute and deliver all documents as such officer deems advisable in connection with the execution and delivery of the Underwriting Agreement and the execution, authentication and delivery of such Securities (including, without limiting the generality of the foregoing, delivery to the Trustee of the Securities for authentication and of requests or orders for the authentication and delivery of Securities). EX-4.A.VI 5 k64100ex4-a_vi.txt FIRST SUPPLEMENTAL INDENTURE DATED JULY 20, 2001 1 EXHIBIT 4.a.vi ================================================================================ MASCO CORPORATION ZERO COUPON CONVERTIBLE SENIOR NOTES DUE 2031 ---------------------- FIRST SUPPLEMENTAL INDENTURE DATED AS OF JULY 20, 2001 ---------------------- BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION TRUSTEE ================================================================================ 2 ARTICLE ONE Scope of Supplemental Indenture; General ARTICLE TWO Certain Definitions ARTICLE THREE Covenants Section 3.01. Reports to Holders of Notes......................................................10 ARTICLE FOUR REDEMPTION AND CONVERSIONS Section 4.01. Optional Redemption by the Company...............................................11 Section 4.02. Purchase at Option of the Holder upon a Fundamental Change.......................13 Section 4.03. Purchase of Notes at the Option of the Holder; Payment of Purchase Price or Fundamental Change Purchase Price in Stock....................................14 Section 4.04. Further Conditions for Purchase at the Option of Holders upon a Fundamental Change and Purchase of Notes at the Option of the Holder......................21 Section 4.05. Conversion of Notes..............................................................24 Section 4.06. Adjustments to Conversion Rate...................................................26 Section 4.07. Miscellaneous Provisions Relating to Conversion..................................31 Section 4.08. Optional Conversion to Semi-Annual Cash Pay Note upon Tax Event..................35 Section 4.09. Calculation of Original Issue Discount for U.S. Federal Income Tax Purposes......36 Section 4.10. Payment of Interest..............................................................36
-i- 3 ARTICLE FIVE Miscellaneous Section 5.01. No Adverse Interpretation of Other Agreements....................................38 Section 5.02. No Recourse Against Others.......................................................38 Section 5.03. Successors and Assigns...........................................................38 Section 5.04. Duplicate Originals..............................................................39 Section 5.05. Severability.....................................................................39 Exhibit A Form of Note
Projected Payment Schedule -ii- 4 FIRST SUPPLEMENTAL INDENTURE dated as of July 20, 2001 ("Supplemental Indenture"), to the Indenture dated as of February 12, 2001 (as amended, modified or supplemented from time to time in accordance therewith, the "Indenture"), by and among MASCO CORPORATION., a Delaware corporation (the "Company") and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Notes (as defined herein): WHEREAS, the Company and the Trustee have duly authorized the execution and delivery of the Indenture to provide for the issuance from time to time of senior debt securities (the "Securities") to be issued in one or more series as in the Indenture provided; WHEREAS, the Company desires and has requested the Trustee to join it in the execution and delivery of this Supplemental Indenture in order to establish and provide for the issuance by the Company of a series of Securities designated as its Zero Coupon Convertible Senior Notes Due 2031 in the aggregate principal amount at maturity of up to $1,901,360,000, substantially in the form attached hereto as Exhibit A (the "Notes"), on the terms set forth herein; WHEREAS, Section 2.01 of the Indenture provides that a supplemental indenture may be entered into by the Company and the Trustee for such purpose provided certain conditions are met; WHEREAS, the conditions set forth in the Indenture for the execution and delivery of this Supplemental Indenture have been complied with; and WHEREAS, all things necessary to make this Supplemental Indenture a valid agreement of the Company and the Trustee, in accordance with its terms, and a valid amendment of, and supplement to, the Indenture have been done; NOW, THEREFORE: In consideration of the premises and the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee, for the equal and ratable benefit of the holders, that the Indenture is supplemented and amended, to the extent expressed herein, as follows: 5 -2- ARTICLE ONE SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL The changes, modifications and supplements to the Indenture effected by this Supplemental Indenture shall be applicable only with respect to, and govern the terms of, the Notes, which shall be limited in aggregate principal amount to $1,654,183,000 (or up to $1,901,360,000 if the over-allotment option is exercised pursuant to the Underwriting Agreement) in one series, and shall not apply to any other Securities that may be issued under the Indenture unless a supplemental indenture with respect to such other Securities specifically incorporates such changes, modifications and supplements. Pursuant to this Supplemental Indenture, there is hereby created and designated a series of Securities under the Indenture entitled "Zero Coupon Convertible Senior Notes Due 2031." The Notes shall be in the form of Exhibit A hereto. The aggregate Principal Amount of the Notes shall be payable on the Final Maturity Date unless the Accreted Value or the Restated Principal Amount has been earlier repaid or the Notes have been converted in accordance with this Supplemental Indenture. The Notes shall be issued at an Issue Price of $394.45 per $1,000 Principal Amount. Except as provided for in Sections 4.08 and 4.10 and paragraphs 1, 5 and 10 of the Notes, there shall be no periodic payments of interest on the Notes. The calculation of the Accreted Value in the period during which each Note remains outstanding shall be on a semi-annual bond equivalent basis using a 360-day year composed of twelve 30-day months, and such accrual shall commence on the Issue Date of the Notes. In the event of the maturity, conversion, purchase by the Company at the option of a Holder or redemption of a Note, Accreted Value, if any, shall cease to accrue on such Note, under the terms and subject to the conditions of this Supplemental Indenture. The Notes shall be payable and may be presented for payment, purchase, conversion, registration of transfer and exchange, without service charge, at the office of the Company maintained for such purpose in New York, New York, which shall initially be the office or agency of the Trustee. ARTICLE TWO CERTAIN DEFINITIONS The following terms have the meanings set forth below in this Supplemental Indenture. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Indenture. To the extent terms defined herein differ from the Indenture, the terms defined herein will govern. 6 -3- "Accreted Conversion Price" as of any date means the price determined by dividing (x) the Accreted Value at such date, by (y) the Conversion Rate at such date. "Accreted Value" means, at any date of determination, (1) prior to such time as the Notes are converted to Cash Pay Notes, the sum of (x) the Issue Price of the Notes and (y) the portion of the excess of the Principal Amount of the Notes over the Issue Price which shall have been amortized by the Company in accordance with GAAP through such date, such amount to be so amortized on a daily basis and compounded semi-annually on each July 20 and January 20 at the rate of 3.125% per annum from the Issue Date through the date of determination computed on the basis of a 360-day year of twelve 30-day months and (2) at or after such time as the Notes are converted to Cash Pay Notes, the Restated Principal Amount. "Affiliate" means, when used with reference to a specified Person, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Person specified. "Bid Agent" means a bid solicitation agent appointed by the Company to act in such capacity pursuant to paragraph 3 of the Notes. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of or in such Person's capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Issue Date, including, without limitation, all Preferred Stock. "Cash" has the meaning provided in Section 4.03. "Cash Dividends" has the meaning assigned thereto in Exhibit A hereto. "Cash Pay Notes" means the Notes, after they have been converted to semi-annual cash pay Notes following the occurrence of a Tax Event. "Common Equity" of any Person means Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person. "Common Stock" means the common stock of the Company, par value $1.00 per share, as it exists on the Issue Date and any shares of any class or classes of capital stock of the Company resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided, however, that if at any time there shall be more 7 -4- than one such resulting class, the shares of each such class then so issuable on conversion of Notes shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Common Stock Record Date" means, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). "Company Notice" has the meaning provided in Section 4.03. "Company Notice Date" has the meaning provided in Section 4.03. "Continuing Director" means a director who either was a member of the Board of Directors of the Company on the date of this Supplemental Indenture or who became a director of the Company subsequent to such date and whose election, or nomination for election by the Company's stockholders, was duly approved by a majority of the Continuing Directors on the Board of Directors of the Company at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the entire Board of Directors of the Company in which such individual is named as nominee for director. "control", when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Conversion Agent" means the office or agency designated by the Company where Notes may be presented for conversion. "Conversion Date" has the meaning provided in Section 4.05. "Conversion Rate" has the meaning provided in Section 4.05. "Default" means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 4.10. 8 -5- "Distributed Securities" has the meaning provided in Section 4.06. "Dollars" and "$" mean United States Dollars. "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. "Expiration Time" has the meaning provided in Section 4.06. "Fair Market Value" means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) that would be negotiated in an arm's-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the Board of Directors of the Company or a duly authorized committee thereof, as evidenced by a resolution of such Board or committee. "Final Maturity" or "Final Maturity Date" means July 20, 2031. "Five-Day Period" has the meaning assigned thereto in Exhibit A hereto. "Fundamental Change" shall be deemed to have occurred at such time after the Issue Date as: (1) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Company and its Subsidiaries to any Person (other than a Subsidiary); provided, however, that a transaction where the Holders of all classes of Common Equity of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of such Person immediately after such transaction shall not be a Fundamental Change; (2) a "person" or "group" (within the meaning of Section 13(d) of the Exchange Act (other than the Company)) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Common Equity of the Company representing more than 50% of the voting power of the Common Equity of the Company; (3) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Company; or (4) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; provided, however, that a liquidation or dissolution of the Company which is part of a transaction that does not constitute a 9 -6- Fundamental Change under the proviso contained in clause (1) above shall not constitute a Fundamental Change. A Fundamental Change will not be deemed to have occurred, however, if either: (I) the Sale Price for (a) any 10 Trading Days within the 20 consecutive Trading Days ending immediately before the Fundamental Change, and (b) at least five Trading Days within the 10 consecutive Trading Days ending immediately before the Fundamental Change shall equal or exceed 105% of the Accreted Value divided by the Conversion Rate, or (II) both (a) at least 90% of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Fundamental Change consists of shares of Common Equity with full voting rights traded on a national securities exchange or quoted on the Nasdaq Stock Market (or which will be so traded or quoted when issued or exchanged in connection with such Fundamental Change) (such securities being referred to as "Publicly Traded Securities") and as a result of such transaction or transactions the Notes become convertible solely into such Publicly Traded Securities and (b) the consideration in the transaction or transactions constituting the Fundamental Change consists of cash, Publicly Traded Securities or a combination of cash and Publicly Traded Securities with an aggregate fair market value (which, in the case of Publicly Traded Securities, shall be equal to the average closing price of such Publicly Traded Securities during the five consecutive Trading Days commencing with the Trading Day following consummation of the transaction or transactions constituting the Fundamental Change) of at least 105% of the Accreted Conversion Price. "Fundamental Change Purchase Date" has the meaning provided in Section 4.02(a). "Fundamental Change Purchase Notice" has the meaning provided in Section 4.02(b). "Fundamental Change Purchase Price" has the meaning provided in Section 4.02(a). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a 10 -7- significant segment of the accounting profession of the United States, as in effect on the date of this Supplemental Indenture. "Holder" means the Person in whose name a Note is registered in the books of the Registrar for the Notes. "Indenture" has the meaning provided in the Recitals. "Interest Payment Date" has the meaning specified in Section 4.08. "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's or the successor or other equivalent of such ratings by S&P or Moody's. "Issue Date" means the date on which the Notes that constitute the Firm Securities (as defined in the Underwriting Agreement) are originally issued under this Supplemental Indenture. The Issue Date of the Additional Securities (as defined in the Underwriting Agreement) shall be deemed to be the same as the Issue Date of the Firm Securities. "Issue Price" of the Notes means, in connection with the original issuance of the Notes, the initial issue price at which the Notes were issued as set forth on the face of the Notes. "Market Price" means, on any date, the average of the Sale Prices of the Common Stock for the 20 Trading Day period ending on the third Business Day (if the third Business Day prior to the applicable Purchase Date is a Trading Day, or if not, then on the last Trading Day prior to such third Business Day) prior to such date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such 20 Trading Day period and ending on such date, of certain events with respect to the Common Stock that would result in an adjustment of the Conversion Rate under this Supplemental Indenture. "Marketable Securities" means (a) equity securities that are listed on the New York Stock Exchange, the American Stock Exchange or The Nasdaq National Market and (b) debt securities that are rated by a nationally recognized rating agency, listed on the New York Stock Exchange or the American Stock Exchange or covered by at least two reputable market makers. "Moody's" means Moody's Investors Service, Inc. or any successor to its debt rating business. "Note Price" has the meaning assigned thereto in Exhibit A hereto. 11 -8- "Notes" has the meaning provided in the Recitals. "Notice" shall mean, except where expressly otherwise noted herein or otherwise required by applicable law, the publication of relevant information on www.bloomberg.com or the Company's web site or by any other electronic means of publication reasonably calculated by the Company to constitute notice, except that in the case of delivery of information to the Trustee, "Notice" shall mean written notice delivered by first class mail or facsimile. "Option Exercise Date" has the meaning specified in Section 4.08. "Paying Agent" means the Trustee or any successor paying agent. "Preferred Stock" of any Person means all Capital Stock of such Person which has a preference in liquidation or with respect to the payment of dividends. "Principal Amount" of a Note means the principal amount of such Note at Final Maturity. "Publicly Traded Securities" has the meaning provided in the definition of "Fundamental Change." "Purchase Date" has the meaning provided in Section 4.03. "Purchase Notice" has the meaning provided in Section 4.03. "Purchase Price" has the meaning provided in Section 4.03. "Purchased Shares" has the meaning provided in Section 4.06. "Rating Agencies" shall mean (1) S&P and (2) Moody's. "Redemption Date" when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Supplemental Indenture. "Redemption Notice" has the meaning provided in Section 4.01(c). "Redemption Price" when used with respect to any Note to be redeemed, means, in the case of Notes converted to Cash Pay Notes, the Restated Principal Amount plus accrued and unpaid interest from the date of such conversion through the Redemption Date, and otherwise means the Accreted Value plus accrued and unpaid contingent interest, if any. 12 -9- "Registrar" means Bank One Trust Company, National Association or any successor registrar of the Notes. "Regular Record Date" has the meaning specified in Section 4.08. "Restated Principal Amount" has the meaning specified in Section 4.08. "S&P" means Standard and Poor's Ratings Group or any successor to its debt rating business. "Sale Price" of the Common Stock on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market. "Special Record Date" has the meaning specified in Section 4.10. "Stated Maturity", when used with respect to any Note or any installment of semi-annual or contingent interest thereon, means the date specified in such Note as the fixed date on which an amount equal to the Principal Amount of such Note or such installment of semi-annual or contingent interest is due and payable. "Supplemental Indenture" has the meaning provided in the Preamble. "Tax Event" means that the Company shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after July 13, 2001, as a result of: (a) any amendment to, or change (including any announced prospective change) in, the laws, rules or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application of such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after July 13, 2001, there is more than an insubstantial risk that interest (including original issue discount or contingent interest, if any) payable on the Notes either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either 13 -10- case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States Federal income tax purposes. "Tax Event Date" has the meaning specified in Section 4.08. "Trading Day" means (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or other national security exchange is open for business or (y) if the applicable security is quoted on the NASDAQ National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Trustee" means the party named as such above until a successor replaces such party in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Twenty-Day Average Price" means the average of the Sale Prices of the Common Stock for each Trading Day in the 20 Trading Day period ending on the last Trading Day prior to the applicable Conversion Date, appropriately adjusted to take into account the occurrence, during such 20 Trading Day period, of any event requiring adjustment of the Conversion Rate under this Supplemental Indenture. "Underwriting Agreement" means that certain underwriting agreement relating to the Notes by and among Masco Corporation and Salomon Smith Barney Inc. dated as of July 12, 2001. ARTICLE THREE COVENANTS Section 3.01. Reports to Holders of Notes. The Company will file with the Commission the annual reports and the information, documents and other reports required to be filed pursuant to Section 13 or 15(d) of the Exchange Act. The Company will file with the Trustee and mail to each Holder of record of Notes such annual and other regular and periodic reports within 15 days after it files them with the Commission. In the event that the Company is no longer subject to these periodic requirements of the Exchange Act, it will nonetheless continue to file reports with the Commission and the Trustee and mail such reports to each Holder of Notes as if it were subject to such reporting requirements. Regardless of whether the Company is required to 14 -11- furnish such reports to its stockholders pursuant to the Exchange Act, the Company will cause its consolidated financial statements and a "Management's Discussion and Analysis of Results of Operations and Financial Condition" written report, similar to those that would have been required to appear in annual or quarterly reports, to be delivered to Holders of Notes. ARTICLE FOUR REDEMPTION AND CONVERSIONS Section 4.01. Optional Redemption by the Company. (a) Right to Redeem; Notice to Trustee. The Company, at its option, may redeem the Notes in accordance with the provisions of paragraphs 6 and 8 of the Notes. If the Company elects to redeem Notes pursuant to paragraph 6 of the Notes, it shall notify the Trustee in writing of the Redemption Date, the Principal Amount of Notes to be redeemed, the Redemption Price and the amount of contingent interest, if any, payable on the Redemption Date. The Company shall give the Notice to the Trustee provided for in this Section 4.01(a) at least 30 days but not more than 60 days before the Redemption Date. (b) Selection of Notes to Be Redeemed. If any Note selected for partial redemption is thereafter surrendered for conversion in part before termination of the conversion right with respect to the portion of the Note so selected, the converted portion of such Note shall be deemed (so far as may be), solely for purposes of determining the aggregate Principal Amount of Notes to be redeemed by the Company, to be the portion selected for redemption. Notes which have been converted during a selection of Notes to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection. Nothing in this Section 4.01(b) shall affect the right of any Holder to convert any Note pursuant to Sections 4.05, 4.06 and 4.07 before the termination of the conversion right with respect thereto. (c) Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall provide Notice of redemption ("Redemption Notice") to the Trustee and to each Holder of Notes to be redeemed. The Notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price and, to the extent known at the time of such Notice, the amount of contingent interest, if any, payable on the Redemption Date; (iii) the then current Conversion Rate; 15 -12- (iv) the name and address of the Paying Agent and the Conversion Agent; (v) that Notes called for redemption must be presented and surrendered to the Paying Agent to collect the Redemption Price and contingent interest, if any; (vi) that the Notes called for redemption may be converted at any time before the close of business on the Business Day prior to the Redemption Date; (vii) that Holders who wish to convert Notes must comply with the procedures in paragraph 9 of the Notes; (viii) that, unless the Company defaults in making payment of such Redemption Price and contingent interest, if any, Accreted Value and interest (including contingent interest), if any, on the Notes called for redemption will cease to accrue on and after the Redemption Date and the only remaining right of the Holder will be to receive payment of the Redemption Price upon presentation and surrender to the Paying Agent of the Notes; (ix) if fewer than all the outstanding Notes are to be redeemed, the certificate number and Principal Amounts at Final Maturity of the particular Notes to be redeemed; and (x) the CUSIP number or numbers for the Notes called for redemption. At the Company's request, the Trustee shall give the Notice of redemption in the Company's name and at the Company's expense. (d) Effect of Notice of Redemption. Once Notice of redemption is given, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price (together with accrued and unpaid contingent interest, if any) stated in the Notice, except for Notes that are converted in accordance with the provisions of Sections 4.05, 4.06 and 4.07. Upon presentation and surrender to the Paying Agent, Notes called for redemption shall be paid at the Redemption Price (together with accrued contingent interest, if any). (e) Sinking Fund. There shall be no sinking fund provided for the Notes. (f) Deposit of Redemption Price. On or before 11:00 a.m. (New York City time) on the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or an Affiliate of the Company is acting as the Paying Agent, shall segregate and hold in trust) an amount of money sufficient to pay the aggregate Redemption Price of, and any accrued and unpaid contingent interest with respect to, all the Notes to be redeemed on that date other than the Notes or portions thereof called for redemption which on 16 -13- or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted in accordance with the provisions hereof. The Trustee and the Paying Agent shall, as promptly as practicable, return to the Company any money not required for that purpose because of conversion of the Notes in accordance with the provisions of Sections 4.05, 4.06 and 4.07. If such money is then held by the Company or a Subsidiary in trust and is not required for such purpose, it shall be discharged from such trust. Section 4.02. Purchase at Option of the Holder upon a Fundamental Change. (a) If a Fundamental Change shall occur at any time prior to July 20, 2002, each Holder of Notes shall have the right, at such Holder's option, to require the Company to purchase such Holder's Notes on the date (the "Fundamental Change Purchase Date") (or if such date is not a Business Day, the next succeeding Business Day) that is 95 days after the date of the Fundamental Change. The Notes shall be purchased in integral multiples of $1,000 of Principal Amount. The Company shall purchase such Notes for Cash at a price (the "Fundamental Change Purchase Price") equal to the Accreted Value on the Fundamental Change Purchase Date or for shares of Common Stock as set forth in Section 4.03. No Notes may be purchased at the option of the Holders due to a Fundamental Change if there has occurred and is continuing an Event of Default other than an Event of Default that is cured by the payment of the Purchase Price of all such Notes. (b) The Company, or at its request (which must be received by the Trustee at least three Business Days (or such lesser period as agreed to by the Trustee) prior to the date the Trustee is requested to give such Notice as described below) the Trustee in the name of and at the expense of the Company, shall mail to all Holders of record of the Notes a Notice (a "Fundamental Change Purchase Notice") of the occurrence of a Fundamental Change and of the purchase right arising as a result thereof, including the information required by Section 4.03(f), on or before the 30th day after the occurrence of such Fundamental Change. The Company shall promptly furnish to the Trustee a copy of such Notice. (c) For a Note to be so purchased at the option of the Holder, the Paying Agent must receive such Note with the form entitled "Fundamental Change Purchase Notice" on the reverse thereof duly completed, together with such Note duly endorsed for transfer, on or before the 60th day after the Fundamental Change Purchase Notice is delivered; provided, however, if the Notes are in book-entry form such transfer shall be made in accordance with the customary practices of the depository. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for redemption shall be determined by the Company, whose determination shall be final and binding. 17 -14- Section 4.03. Purchase of Notes at the Option of the Holder; Payment of Purchase Price or Fundamental Change Purchase Price in Stock. (a) Purchase of Notes at the Option of the Holder. On each of July 20, 2002, January 20, 2005, January 20, 2007, July 20, 2011, July 20, 2016, July 20, 2021 and July 20, 2026 (each, a "Purchase Date"), at the purchase price specified in paragraph 7 of the Notes (each, a "Purchase Price"), a Holder of Notes shall have the option to require the Company to purchase any outstanding Notes, upon: (i) delivery to the Paying Agent by the Holder of a written Notice of purchase (a "Purchase Notice") at any time from the opening of business on the date that is 30 Business Days prior to a Purchase Date until the close of business on such Purchase Date, stating: (A) if certificated, the certificate numbers of the Notes which the Holder shall deliver to be purchased; (B) the portion of the Principal Amount of the Notes which the Holder shall deliver to be purchased, which portion must be $1,000 in Principal Amount or a multiple thereof; (C) that such Notes shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in paragraph 7 of the Notes and in this Supplemental Indenture; and (D) if the Company elects, pursuant to a Company Notice, to pay the Purchase Price to be paid as of such Purchase Date, in whole or in part, in Common Stock but such portion of the Purchase Price shall ultimately be payable to such Holder in Cash because any of the conditions to the payment of the Purchase Price in Common Stock are not satisfied prior to or on the Purchase Date, as set forth in Section 4.03(e), whether such Holder elects (x) to withdraw such Purchase Notice as to some or all of the Notes to which such Purchase Notice relates (stating the Principal Amount and certificate numbers, if the Notes are in certificated form, of the Notes as to which such withdrawal shall relate), or (y) to receive Cash in respect of the entire Purchase Price for all Notes (or portions thereof) to which such Purchase Notice relates; and (ii) delivery or book-entry transfer of such Note to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery or transfer being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 4.03 only if the Note so delivered or 18 -15- transferred to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice. (b) Procedures. If a Holder, in such Holder's Purchase Notice or Fundamental Change Purchase Notice (and in any written notice of withdrawal of a portion of a Holder's Notes previously submitted for purchase pursuant to a Purchase Notice or Fundamental Change Purchase Notice, the portion that remains subject to the Purchase Notice or Fundamental Change Purchase Notice), fails to indicate such Holder's choice with respect to the election regarding a conditional withdrawal pursuant to the terms of clause (D) of Section 4.03(a)(i) or paragraph II of the Fundamental Change Purchase Notice such Holder shall be deemed to have elected to receive Cash in respect of all Notes subject to such Purchase Notice or Fundamental Change Purchase Notice in the circumstances set forth in such clause (D) and paragraph II of the Fundamental Change Purchase Notice. The Company shall purchase from the Holder thereof, pursuant to this Section 4.03, a portion of a Note if the Principal Amount of such portion is $1,000 or a multiple of $1,000 if so requested by the Holder. Provisions of this Supplemental Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note. Any purchase by the Company contemplated pursuant to the provisions of Section 4.02 or this Section 4.03 shall be consummated by the delivery of the consideration to be received by the Holder (together with accrued and unpaid contingent interest, if any) promptly following the later of the Purchase Date and the time of delivery or book-entry transfer of the Note. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice or Fundamental Change Purchase Notice contemplated by Section 4.02 or this Section 4.03(a) shall have the right at any time prior to the close of business on the Purchase Date or Fundamental Change Purchase Date to withdraw such Purchase Notice or Fundamental Change Purchase Notice (in whole or in part) by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 4.04(a). The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or Fundamental Change Purchase Notice or written notice of withdrawal thereof. (c) Company's Right to Elect Manner of Payment of Purchase Price. The Company may elect with respect to any Purchase Date or Fundamental Change Purchase Date to pay the Purchase Price or Fundamental Change Purchase Price in respect of the Notes to be purchased pursuant to Section 4.02 or Section 4.03(a) as of such Purchase Date or Fundamental Change Purchase Date, in U.S. legal tender ("Cash") or Common Stock, or in 19 -16- any combination of Cash and Common Stock, subject to the conditions set forth in Sections 4.03(d) and (e); provided, however, that any Purchase Price paid on July 20, 2002 pursuant to Section 4.03(a) must be paid fully in Cash. The Company shall designate, in the Company Notice delivered pursuant to Section 4.03(f), whether the Company shall purchase the Notes for Cash or Common Stock, or, if a combination thereof, the percentages of the Purchase Price or Fundamental Change Purchase Price of Notes in respect of which it shall pay in Cash and/or Common Stock; provided that the Company shall pay Cash for fractional interests in Common Stock. For purposes of determining the existence of potential fractional interests, all Notes subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Notes are purchased pursuant to this Section 4.03 shall receive the same percentage of Cash and/or Common Stock in payment of the Purchase Price or Fundamental Change Purchase Price for such Notes, except (i) as provided in Section 4.03(e) with regard to the payment of Cash in lieu of fractional interests in Common Stock and (ii) in the event that the Company is unable to purchase the Notes of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable federal or state securities laws cannot be obtained, the Company may purchase the Notes of such Holder or Holders for Cash. Once the Company has given its Company Notice to Holders, the Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid except pursuant to this Section 4.03(c) or Section 4.03(e). At least five Business Days before the Company Notice Date, the Company shall deliver an Officers' Certificate to the Trustee specifying: (i) the manner of payment selected by the Company; (ii) the information required by Section 4.03(f); (iii) if the Company elects to pay the Purchase Price or Fundamental Change Purchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 4.03(e) have been or shall be complied with; and (iv) whether the Company desires the Trustee to give the Company Notice required by Section 4.03(f). (d) Purchase with Cash. At the option of the Company, the Purchase Price or Fundamental Change Purchase Price of Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice pursuant to Section 4.02 or Section 4.03(a) has been given, or a specified percentage thereof, may be paid by the Company with Cash equal to the 20 -17- aggregate Purchase Price or Fundamental Change Repurchase Price, or such specified percentage thereof, as the case may be, of such Notes. (e) Payment by Issuance of Common Stock. At the option of the Company, subject to Section 4.03(c), the Purchase Price of Notes in respect of which a Purchase Notice pursuant to Section 4.03(a) or Fundamental Change Purchase Notice has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (x) the amount of Cash to which the Holders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price or Fundamental Change Purchase Price of such Notes in Cash by (y) the Market Price of a share of Common Stock, subject to the next succeeding paragraph. The Company shall not issue a fractional share of Common Stock in payment of the Purchase Price or Fundamental Change Purchase Price. Instead the Company shall pay Cash for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent. It is understood that if a Holder elects to have more than one Note purchased, the number of shares of Common Stock shall be based on the aggregate amount of Notes to be purchased. The Company's right to exercise its election to purchase the Notes pursuant to Section 4.02 or Section 4.03 through the issuance of shares of Common Stock shall be conditioned upon: (i) the Company having given timely Notice in accordance with Section 4.03(f) of its election to purchase all or a specified percentage of the Notes with Common Stock as provided herein; (ii) (A) (1) the registration of the shares of Common Stock to be issued in respect of the payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price under the Securities Act of 1933 or (2) the issuance of the shares of Common Stock in an action which is exempt from the registration requirements of the Securities Act of 1933 and which will not result in such shares of Common Stock being deemed "restricted securities" under the Securities Act of 1933 or otherwise, and (B) the registration of the shares of Common Stock under the Exchange Act, to the extent required thereby; (iii) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and 21 -18- (iv) the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the Common Stock are in conformity with this Supplemental Indenture and (B) the shares of Common Stock to be issued by the Company in payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price in respect of Notes have been duly authorized and, when issued and delivered pursuant to the terms of this Supplemental Indenture in payment of the specified percentage of the Purchase Price or Fundamental Change Purchase Price in respect of Notes, shall be validly issued, fully paid and nonassessable, and, to the best of such counsel's knowledge, free from preemptive rights, and in the case of such Officers' Certificate, stating that conditions (i), (ii) and (iii) above have been satisfied and, in the case of such Opinion of Counsel, stating that condition (ii) has been satisfied. Such Officers' Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 Principal Amount of Notes and the Sale Price of a share of Common Stock on each Trading Day during the period during which the Market Price is calculated and ending on the Purchase Date or Fundamental Change Purchase Date. The Company may elect to pay the Purchase Price or Fundamental Change Purchase Price (or any portion thereof) in Common Stock only if the information necessary to calculate the Market Price is publicly reported and the Common Stock is then listed on a national securities exchange or traded on the Nasdaq Stock Market (or any successor). If any of the conditions set forth in this Section 4.03(e) are not satisfied with respect to a Holder or Holders prior to or on the Purchase Date or Fundamental Change Repurchase Date and the Company elected to purchase the Notes to be purchased as of such Purchase Date or Fundamental Change Repurchase Date pursuant to Section 4.02 or this Section 4.03 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price or Fundamental Change Purchase Price in respect of such Notes of such Holder or Holders in Cash. Upon determination of the actual number of shares of Common Stock which the Holder of each $1,000 Principal Amount of the Notes shall receive, the Company shall provide Notice of such determination. (f) Notice of Election. The Company's Notices of election to purchase with Cash or Common Stock, or any combination thereof (each a "Company Notice"), shall be sent to the Holders (and to beneficial owners if required by applicable law) at their addresses shown in the Note register maintained by the Registrar, and delivered to the Trustee, not less than 30 Business Days prior to the Purchase Date (the "Company Notice Date") or on or before the 30th day after the occurrence of the Fundamental Change, as the case may be. Such Company Notices shall state the manner of payment elected and shall contain the following information. 22 -19- In the event the Company has elected to pay a Purchase Price or Fundamental Change Purchase Price (or a specified percentage thereof) with Common Stock, the Company Notice shall: (i) state that each Holder shall receive Common Stock in respect of the specified percentage of the Purchase Price or Fundamental Change Purchase Price of the Notes held by such Holder (except any Cash amount to be paid in lieu of fractional shares); (ii) state that the total number of shares of Common Stock to be issued to Holders will be equal to the quotient obtained by dividing (x) the amount of cash to which the Holders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price or Fundamental Change Purchase Price of such Notes in cash by (y) the Market Price of a share of Common Stock; (iii) set forth the method of calculating the Market Price of the Common Stock; and (iv) state that because the Market Price of Common Stock will be determined prior to the Purchase Date or Fundamental Change Purchase Date, Holders will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Purchase Date. In any case, each Company Notice shall include a form of Purchase Notice or Fundamental Change Repurchase Notice to be completed by a Holder and shall state: (i) the Purchase Price, the Fundamental Change Purchase Price, the Conversion Rate and, to the extent known at the time of such Notice, the amount of contingent interest, if any, that will be payable with respect to the Notes on the Purchase Date; (ii) the name and address of the Paying Agent and the Conversion Agent; (iii) that Notes as to which a Purchase Notice or Fundamental Change Purchase Notice has been given may be converted only if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Supplemental Indenture; (iv) that Notes must be surrendered to the Paying Agent to collect payment of the Purchase Price or Fundamental Change Purchase Price and contingent interest, if any; 23 -20- (v) that the Purchase Price or Fundamental Change Purchase Price for any Note as to which a Purchase Notice has been given and not withdrawn, together with any accrued contingent interest payable with respect thereto, shall be paid promptly following the later of the Purchase Date or Fundamental Change Purchase Date and the time of surrender of such Note as described in (iv); (vi) the procedures the Holder must follow under Section 4.02 and Section 4.03; (vii) briefly, the conversion rights of the Notes; (viii) that, unless the Company defaults in making payment of such Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, Accreted Value and interest (including contingent interest), if any, on Notes covered by any Purchase Notice or Fundamental Change Purchase Notice (or interest, if the Notes have been converted into Cash Pay Notes pursuant to Section 4.08 of this Supplemental Indenture, if any) will cease to accrue on and after the Purchase Date or the Fundamental Change Purchase Date, as the case may be; (ix) the CUSIP or ISIN number of the Notes; and (x) the procedures for withdrawing a Purchase Notice or Fundamental Change Purchase Notice (including, without limitation, for a conditional withdrawal pursuant to the terms of Section 4.03(a)(i)(D) or paragraph II of the Fundamental Change Purchase Notice). At the Company's request and at the Company's expense, the Trustee shall give the Company Notice in the Company's name; provided, however, that, in all cases, the text of the Company Notice shall be prepared by the Company. (g) Covenants of the Company. All shares of Common Stock delivered upon conversion or purchase of the Notes shall be newly issued shares or treasury shares, shall be fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim. The Company shall cause to have listed or quoted all such shares of Common Stock on each United States national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted. (h) Procedure upon Purchase. On or before 11:00 a.m. (New York City time) on the Business Day immediately following the Purchase Date or Fundamental Change Purchase Date, the Company shall deposit with the Paying Agent Cash (in respect of a Cash purchase under Section 4.03(d) or for fractional interests or contingent interest, as applicable), 24 -21- or shares of Common Stock, or a combination thereof, as applicable, sufficient to pay the aggregate Purchase Price or Fundamental Change Purchase Price of, and any accrued and unpaid contingent interest with respect to, the Notes to be purchased pursuant to this Section 4.03. If the Company is delivering Common Stock, the Company shall deliver to each Holder entitled to receive Common Stock, through the Paying Agent, a certificate for the number of full shares of Common Stock, as applicable, issuable in payment of such Purchase Price or Fundamental Change Purchase Price and Cash in lieu of any fractional interests. The Person in whose name the certificate for Common Stock is registered shall be treated as a holder of record following the Purchase Date or Fundamental Change Purchase Date. Subject to Section 4.03(e), no payment or adjustment shall be made for dividends on the Common Stock the Common Stock Record Date for which occurred on or prior to the Purchase Date or Fundamental Change Purchase Date. If the Paying Agent holds, in accordance with the terms of the Indenture, money or securities sufficient to pay the Purchase Price or Fundamental Change Purchase Price of such Note on the Business Day following the Purchase Date or Fundamental Change Purchase Date, then, on and after such date, such Note shall cease to be outstanding and Accreted Value on such Note shall cease to accrue, whether or not book-entry transfer of such Note is made or such Note is delivered to the Paying Agent, and all other rights of the Holder shall terminate (other than the right to receive the Purchase Price or Fundamental Change Purchase Price upon delivery or transfer of the Note). (i) Taxes. If a Holder of a Note is paid in Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of shares of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the shares of Common Stock to be issued in a name other than the Holder's name. The Paying Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Paying Agent receives a sum sufficient to pay any tax which shall be due because the shares of Common Stock are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations. Section 4.04. Further Conditions for Purchase at the Option of Holders upon a Fundamental Change and Purchase of Notes at the Option of the Holder. (a) Effect of Purchase Notice or Fundamental Change Purchase Notice. Upon receipt by the Company of the Purchase Notice or Fundamental Change Purchase Notice specified in Section 4.03(a) or Section 4.02(c), as applicable, the Holder of the Note in respect of which such Purchase Notice or Fundamental Change Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Fundamental Change Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest, if any, with respect to such Note. Such 25 -22- Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, shall be paid to such Holder promptly following the later of (x) the Purchase Date or the Fundamental Change Purchase Date, as the case may be, with respect to such Note (provided the conditions in Section 4.03(a) or Section 4.02(c), as applicable, have been satisfied) and (y) the time of delivery or book-entry transfer of such Note to the Paying Agent by the Holder thereof in the manner required by Section 4.03(a) or Section 4.02(c), as applicable. Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been given by the Holder thereof may not be converted for shares of Common Stock on or after the date of the delivery of such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be), unless such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be) has first been validly withdrawn as specified in the following two paragraphs. A Purchase Notice or Fundamental Change Purchase Notice, as the case may be, may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to the close of business on the Purchase Date or the Fundamental Change Purchase Date, as the case may be, to which it relates specifying: (i) if certificated, the certificate number of the Notes in respect of which such notice of withdrawal is being submitted; (ii) the Principal Amount of the Notes with respect to which such notice of withdrawal is being submitted; and (iii) the Principal Amount, if any, of the Notes which remain subject to the original Purchase Notice or Company Fundamental Change Notice, as the case may be, and which has been or shall be delivered for purchase by the Company. A written notice of withdrawal of a Purchase Notice or Fundamental Change Purchase Notice may be in the form of (i) a conditional withdrawal contained in a Purchase Notice pursuant to the terms of Section 4.03(a)(i)(D) or a Fundamental Change Purchase Notice pursuant to paragraph II thereof or (ii) a conditional withdrawal containing the information set forth in the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph. There shall be no purchase of any Notes pursuant to Section 4.02 or Section 4.03 (other than through the issuance of Common Stock in payment of the Purchase Price or Fundamental Purchase Price, including Cash in lieu of any fractional shares) or redemption pursuant to Section 4.01 if there has occurred prior to, on or after, as the case may be, the giving, by the Holders of such Notes, of the required Purchase Notice or Fundamental Change Purchase Notice, as the case may be, or the giving by the Company of the required Redemption Notice, and is continuing an Event of Default (other than an Event of Default that 26 -23- is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes). The Paying Agent will promptly return to the respective Holders thereof any Notes (x) with respect to which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been withdrawn in compliance with this Supplemental Indenture, or (y) held by it during the continuance of an Event of Default (other than an Event of Default that is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes) in which case, upon such return, the Purchase Notice or Fundamental Change Purchase Notice with respect thereto shall be deemed to have been withdrawn. (b) Deposit of Purchase Price or Fundamental Change Purchase Price. On or before 11:00 a.m. (New York City time) on the Business Day immediately following a Purchase Date or a Fundamental Change Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or an Affiliate of the Company is acting as the Paying Agent, shall segregate and hold in trust) an amount of money and/or Common Stock, if permitted hereunder, sufficient to pay the aggregate Purchase Price or Fundamental Change Purchase Price, as the case may be, of, and any accrued and unpaid contingent interest, with respect to, all the Notes or portions thereof which are to be purchased as of such Purchase Date or Fundamental Change Redemption Date, as the case may be. (c) Notes Purchased in Part. Any Note that is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note, without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder in aggregate Principal Amount equal to, and in exchange for, the portion of the Principal Amount of the Note so surrendered which is not purchased or redeemed. (d) Covenant to Comply with Securities Laws upon Purchase of Notes. In connection with any offer to purchase Notes under Section 4.02 or 4.03, the Company shall (i) comply with Rules 13e-4 and 14e-1 (which terms, as used herein, include any successor provision thereto) under the Exchange Act, if applicable; (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, if applicable; and (iii) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under Sections 4.02 and 4.03 to be exercised in the time and in the manner specified in Sections 4.02 and 4.03. 27 -24- (e) Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any Cash or shares of Common Stock that remain unclaimed as provided in paragraph 14 of the Notes, together with interest that the Trustee has agreed to pay, if any, or dividends, if any, paid thereon while such shares are held by the Trustee or the Paying Agent, held by them for the payment of a Purchase Price or Fundamental Change Purchase Price, as the case may be, or contingent interest, if any; provided, however, that to the extent that the aggregate amount of Cash or shares of Common Stock deposited by the Company pursuant to Section 4.04(b) exceeds the aggregate Purchase Price or Fundamental Change Purchase Price, as the case may be, of, and any accrued and unpaid contingent interest with respect to, the Notes or portions thereof which the Company is obligated to purchase as of the Purchase Date or Fundamental Change Purchase Date, as the case may be, then promptly after the Business Day following the Purchase Date or Fundamental Change Purchase Date, as the case may be, the Trustee and the Paying Agent shall return any such excess to the Company together with interest that the Trustee has agreed to pay, if any, or dividends, if any, paid thereon while such Cash or shares are held by the Trustee or the Paying Agent. Section 4.05. Conversion of Notes. (a) Right to Convert. A Holder of a Note may convert such Note for Common Stock at any time during which the conditions stated in paragraph 9 of the Notes are met. The number of shares of Common Stock issuable upon conversion of a Note per $1,000 of Principal Amount (the "Conversion Rate") shall be that set forth in paragraph 9 in the Notes, subject to adjustment as herein set forth. A Holder may convert a portion of the Principal Amount of a Note if the portion is $1,000 or a multiple of $1,000. Provisions of this Supplemental Indenture that apply to conversion of all of a Note also apply to conversion of a portion of a Note. (b) Conversion Procedures. To convert a Note a Holder must satisfy the requirements in paragraph 9 of the Notes. The date on which the Holder of Notes satisfies all those requirements is the conversion date (the "Conversion Date"). As soon as practicable, but in no event later than the fifth Business Day following the Conversion Date the Company shall deliver to the Holder, through the Conversion Agent, a certificate for the number of full shares of Common Stock issuable upon the conversion and Cash in lieu of any fractional share determined pursuant to Section 4.05(c). The Person in whose name the certificate is registered shall be treated as a stockholder of record on and after the Conversion Date; provided, however, that no surrender of a Note on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or 28 -25- holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the Conversion Rate in effect on the date that such Note shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Note, such Person shall no longer be a Holder of such Note. No payment or adjustment shall be made for dividends on or other distributions with respect to any Common Stock except as provided in Section 4.06. On conversion of a Note, that portion of Accreted Value (or interest, if the Company has exercised its option to convert the Notes to Cash Pay Notes pursuant to Section 4.08) attributable to the period from the Issue Date of the Note to the Conversion Date and accrued contingent interest with respect to the converted Note shall not be canceled, extinguished or forfeited, but rather shall be deemed to be paid in full (except as contemplated in paragraph 10 of the Notes) to the Holder thereof through delivery of the Common Stock (together with the Cash payment, if any, in lieu of fractional shares) in exchange for the Note being converted. If a Holder converts more than one Note at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total Principal Amount of the Notes converted. Upon surrender of a Note that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Note in an authorized denomination equal in Principal Amount (or the Restated Principal Amount, if applicable) to the unconverted portion of the Note surrendered. If the last day on which a Note may be converted is a legal holiday in a place where a Conversion Agent is located, the Note may be surrendered to that Conversion Agent on the next succeeding day that it is not a legal holiday. (c) Cash Payments in Lieu of Fractional Shares. The Company shall not issue a fractional share of Common Stock upon conversion of a Note. Instead the Company shall deliver Cash for the current market value of the fractional share. The current market value of a fractional share shall be determined to the nearest 1/10,000th of a share by multiplying the Sale Price of a full share of Common Stock on the Trading Day immediately preceding the Conversion Date by the fractional amount and rounding the product to the nearest whole cent. (d) Taxes on Conversion. If a Holder converts a Note, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the Common 29 -26- Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which shall be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulations. (e) Company to Provide Stock. The Company shall, prior to issuance of any Notes hereunder, and from time to time as may be necessary, reserve out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of the Notes. All shares of Common Stock delivered upon conversion of the Notes shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim. The Company shall endeavor promptly to comply with all federal and state securities laws regulating the order and delivery of shares of Common Stock upon the conversion of Notes, if any, and shall cause to have listed or quoted all such shares of Common Stock on each United States national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted. Section 4.06. Adjustments to Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company as follows: (a) In case the Company shall (i) pay a dividend, or make a distribution, in shares of Common Stock or other capital stock, on Common Stock; (ii) subdivide its outstanding Common Stock into a greater number of shares; or (iii) combine its outstanding Common Stock into a smaller number of shares, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holder of any Note thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Note been converted immediately prior to the happening of such event. If any dividend or distribution of the type described in clause (i) above is not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. An adjustment made pursuant to this Section 4.06 shall become effective immediately after the Common Stock Record Date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination. 30 -27- (b) In case the Company shall issue rights or warrants to all holders of any class or series of its Common Stock entitling them (for a period expiring within 60 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase Common Stock at a price per share less than the Sale Price per share of Common Stock on the day preceding the date of announcement of the Common Stock Record Date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the date of the issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Sale Price. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the Common Stock Record Date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such Common Stock Record Date for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Sale Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock (excluding any distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary) any evidences of its indebtedness or assets (other than Cash dividends or other Cash distributions from the Company's current or retained earnings) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in Section 4.06(b)) (any of the foregoing hereinafter in this Section 4.06(c) called the "Distributed Securities"), then, the Conversion Rate shall be adjusted so that the same 31 -28- shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Market Price per share of the Common Stock on the Common Stock Record Date mentioned below, and the denominator shall be the Sale Price per share of the Common Stock on such Common Stock Record Date less the fair market value on such Common Stock Record Date (as determined by the Board of Directors, whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the Distributed Securities so distributed applicable to one share of Common Stock. Such adjustment shall become effective immediately after the Common Stock Record Date for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event (a) the then fair market value (as so determined) of the portion of the Distributed Securities so distributed applicable to one share of Common Stock is equal to or greater than the Market Price of the Common Stock on the Common Stock Record Date or (b) such Market Price exceeds the fair market value of such Distributed Securities by less than $1.00, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Distributed Securities such Holder would have received had such Holder converted each Note on such Common Stock Record Date. In the event that such distribution is not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 4.06(c) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market on the same day used in computing the Sale Price of the Common Stock. Notwithstanding the foregoing provisions of this Section 4.06(c), no adjustment shall be made thereunder for any distribution of Distributed Securities if the Company makes proper provision so that each Holder of a Note who converts such Note (or any portion thereof) after the Common Stock Record Date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Distributed Securities that such Holder would have been entitled to receive if such Holder had, immediately prior to such Common Stock Record Date, converted such Note for Common Stock; provided that, with respect to any Distributed Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Distributed Securities receivable upon conversion of such Note would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Note. 32 -29- (d) In case the Company shall, by dividend or otherwise, distribute to all holders of any class of its Common Stock Cash (excluding any Cash that is distributed upon a merger or consolidation to which Section 4.07(f) applies) in an aggregate amount that, combined together with (i) the aggregate amount of any other such distributions to all holders of any class of its Common Stock made exclusively in Cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 4.06(d) has been made, and (ii) the aggregate of any Cash plus the fair market value of other consideration (as so determined by the Board of Directors, whose determination shall be conclusive, and described in a certificate filed with the Trustee) payable in respect of any tender offer by the Company for all or any portion of any class of its Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 4.06(e) has been made, exceeds 10% of the product of the Sale Price on the day preceding the date of declaration of such dividend or distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Rate shall be increased so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the Common Stock Record Date by a fraction of which the numerator shall be such Sale Price of the Common Stock and the denominator shall be such Sale Price of the Common Stock less the amount of Cash and the fair market value (as so determined) of such other consideration so distributed (and not excluded as provided above) applicable to one share of Common Stock, such increase to be effective immediately prior to the opening of business on the day following the Common Stock Record Date; provided, however, that no adjustment will be made in respect of any such dividends and distributions that are paid during any period for which the Company is paying contingent interest to Holders; provided, further, that, if the portion of the cash so distributed applicable to one share of Common Stock is (i) equal to or greater than the Market Price of the Common Stock on the day preceding the date of declaration of such dividend or distribution or (ii) the Market Price of the Common Stock on the day preceding the date of declaration of such dividend or distribution is greater than the fair market value of the consideration distributed pursuant to Section 4.06(e) by less than $1.00, then, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion, in addition to the shares of Common Stock, Cash and other consideration the Holder would have received had such Holder converted such Note immediately prior to such Common Stock Record Date. If such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 4.06(d) as a result of a distribution that is a quarterly dividend, such 33 -30- adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 4.06(d) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (e) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of any class of its Common Stock expires and such tender offer (as amended upon the expiration thereof) requires the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares) for an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that, combined together with (a) the aggregate of the Cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its subsidiaries for all or any portion of any class of its Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 4.06(e) has been made, and (b) the aggregate amount of any distributions to all holders of the Common Stock made exclusively in Cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 4.06(d) has been made (except as excluded by the first parenthetical phrase thereof), exceeds 10% of the product of the Market Price (determined as provided herein) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be increased so that the same shall equal the Conversion Rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to an maximum specified in the terms of the tender or exchanged offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Market Price of the Common Stock on the Trading Day next succeeding the 34 -31- Expiration Time, such increase (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender offer had not been made. (f) For purposes of this Section 4.06, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. Section 4.07. Miscellaneous Provisions Relating to Conversion. (a) When Adjustment May be Deferred. No adjustment in the Conversion Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Rate then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated in Section 4.06, the Conversion Rate will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. Any adjustments that are made shall be carried forward and taken into account any subsequent adjustment. All calculations under Sections 4.05, 4.06 and 4.07 shall be made to the nearest cent or to the nearest 1/10,000th of a share, as the case may be. (b) When No Adjustment Required. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Notes become convertible into cash, assets or property (other than securities of the Company or another Person), no adjustment need be made thereafter as to the cash, assets or property. Interest shall not accrue on the Cash. No adjustment need be made for a transaction referred to in Section 4.06(a), (b), (c), (d) or (e) if Holders participate in the transaction (without converting their Notes) by receiving the same Cash, assets, property or securities that they would have received had they converted their Notes immediately prior to the Common Stock Record Date or the effective date of the transaction as the case may be. (c) Notice of Adjustment. Whenever the Conversion Rate is adjusted, the Company shall promptly provide to Holders a Notice of the adjustment. The Company shall 35 -32- file with the Trustee and the Conversion Agent such Notice. The certificate shall, absent manifest error, be conclusive evidence that the adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof. (d) Voluntary Increase. The Company may make such increases in the Conversion Rate, in addition to those required by Section 4.06, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company may from time to time increase the Conversion Rate by any amount for any period of time if the period is at least 20 days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is so increased, the Company shall provide to Holders and file with the Trustee and the Conversion Agent a Notice of such increase. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any holder desiring inspection thereof. The Company shall provide the Notice at least 15 days before the date the increased Conversion Rate takes affect. The Notice shall state the increased Conversion Rate and the period it shall be in effect. (e) Notice to Holders Prior to Certain Actions. In case: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Rate pursuant to Section 4.06; (ii) the Company shall authorize the granting to all or substantially all the Holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants to purchase Common Stock; (iii) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (iv) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, 36 -33- the Company shall cause to be filed with the Trustee and to be provided to Holders of Notes, as promptly as possible but in any event at least 20 days prior to the applicable date hereinafter specified, a Notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such Notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. (f) Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash) with respect to or in exchange for such Common Stock; or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture, providing that each Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including Cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.07(f). The Company shall cause Notice of the execution of such supplemental indenture to be provided to Holders of Notes, within 20 days after execution thereof. Failure to deliver such Notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. 37 -34- If this Section 4.07(f) applies to any event or occurrence, Section 4.06 shall not apply. (g) Responsibility of Trustee. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Notes to either calculate the Conversion Rate or determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same and shall be protected in relying upon an Officer's Certificate with respect to the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note and the Trustee and any other Conversion Agent make no representations with respect thereto. Subject to the provisions of Article Six of the Indenture, neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or Cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Section. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 4.07(f) relating either to the kind or amount of shares of stock or securities or property (including Cash) receivable by Holders upon the conversion of their Notes after any event referred to in such Section 4.07(f) or to any adjustment to be made with respect thereto, but, subject to the provisions of Article Six of the Indenture, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officer's Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. (h) Simultaneous Adjustments. In the event that Sections 4.05, 4.06 or 4.07 require adjustments to the Conversion Rate under more than one of Section 4.06(a), (b), (c) or (d), and the Common Stock Record Dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 4.06(c), second, the provisions of Section 4.06(d), third, the provisions of Section 4.06(a), and fourth, the provisions of Section 4.06(b). (i) Successive Adjustments. After an adjustment to the Conversion Rate under Sections 4.05, 4.06 or 4.07, any subsequent event requiring an adjustment under Sections 4.05, 4.06 or 4.07 shall cause an adjustment to the Conversion Rate as so adjusted. (j) General Considerations. Whenever successive adjustments to the Conversion Rate are called for pursuant to Sections 4.05, 4.06 or 4.07, such adjustments shall 38 -35- be made to the Sale Price or Market Price as may be necessary or appropriate to effectuate the intent of Sections 4.05, 4.06 or 4.07 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (k) Stockholder Rights Plans. Upon conversion of the Notes the Holders shall receive, in addition to the Common Stock issuable upon such conversion, any rights issued under any stockholder rights plan the Company shall have implemented (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). Section 4.08. Optional Conversion to Semi-Annual Cash Pay Note upon Tax Event. From and after (i) the date (the "Tax Event Date") of the occurrence of a Tax Event and (ii) the date the Company exercises its option set forth in this 4.08, whichever is later (the "Option Exercise Date"), at the option of the Company, cash interest in lieu of future Accreted Value shall accrue at the rate of 3.125% per annum on a restated principal amount per $1,000 original Principal Amount (the "Restated Principal Amount") equal to its Accreted Value on the Option Exercise Date and shall be payable semi-annually on July 20 and January 20 of each year (each an "Interest Payment Date") to holders of record at the close of business on July 1 and January 1 (each a "Regular Record Date") immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the Option Exercise Date. Within 15 days of the occurrence of a Tax Event, the Company shall deliver a written Notice of such Tax Event by facsimile and first-class mail to the Trustee and within 15 days of their exercise of such option the Company shall deliver a written Notice of the Option Exercise Date by facsimile and first-class mail to the Trustee and provide Notice to the Holders of the Notes. From and after the Option Exercise Date, (i) the Company shall be obligated to pay at Maturity or upon a Redemption Date, Purchase Date or Fundamental Change Purchase Date, in lieu of the Principal Amount or Accreted Value, as applicable, of a Note, the Restated Principal Amount thereof plus accrued and unpaid interest and (ii) contingent interest shall cease to accrue on the Notes. Notes authenticated and delivered after the Option Exercise Date may, and shall if required by the Trustee, bear a notation in a form approved by the Trustee as to the conversion of the Notes to Cash Pay Notes. 39 -36- Section 4.09. Calculation of Original Issue Discount for U.S. Federal Income Tax Purposes. The Company agrees, and each Holder and any beneficial holder of a Note by its purchase thereof shall be deemed to agree, to treat (in the absence of an administrative determination or judicial ruling to the contrary), for United States federal income tax purposes, the Notes as contingent payment debt instruments subject to Section 1.1275-4 of the Treasury Regulations. For United States federal income tax purposes, interest will accrue on the Notes as original issue discount according to the "noncontingent bond method," set forth in Section 1.1275-4(b) of the Treasury Regulations, based on a comparable yield of 8.125% compounded semi-annually and the projected payment schedule attached hereto as Exhibit B. The Company acknowledges and agrees, and each Holder and any beneficial holder of a Note by its purchase thereof shall be deemed to acknowledge and agree, that (i) the comparable yield means the annual yield the Company would pay, as of the Issue Date, on a fixed-rate cash pay nonconvertible debt security with no contingent payments, but with terms and conditions otherwise comparable to those of the Notes; (ii) the schedule of projected payments attached hereto as Exhibit B is determined on the basis of the comparable yield and an assumption of linear growth of the stock price and a constant dividend yield; (iii) the comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustments thereof in respect of the Notes for United States federal income tax purposes; and (iv) the comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the future stock price or the amounts payable on the Notes. Section 4.10. Payment of Interest. (a) Paying Agent To Hold Money in Trust. Prior to 11:00 a.m. (New York City time) on any applicable Interest Payment Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay semi-annual or contingent interest when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal or interest on the Notes and shall notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. (b) Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of 40 -37- Holders. If the Trustee is not the Registrar, the Company shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders. (c) Payment of Interest; Interest Rights Preserved. (i) Semi-annual or contingent interest on any Note that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Note is registered at the close of business on the Regular Record Date or accrual date, as the case may be, for such interest at the office or agency of the Company maintained for such purpose. Each installment of semi-annual or contingent interest on any Note shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States. In the case of a Global Note, semi-annual or contingent interest payable on any applicable payment date will be paid to the depository, with respect to that portion of such Global Note held for its account by Cede & Co. for the purpose of permitting such party to credit the interest received by it in respect of such Global Note to the accounts of the beneficial owners thereof. (ii) Except as otherwise specified with respect to the Notes, any semi-annual or contingent interest on any Note that is payable, but is not punctually paid or duly provided for, within 30 days following any applicable payment date (herein called "Defaulted Interest", which term shall include any accrued and unpaid interest that has accrued on such defaulted amount in accordance with paragraph 1 of the Notes), shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date or accrual date, as the case may be, by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (A) or (B) below. (A) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes are registered at the close of business on a date for the payment of such Defaulted Interest (the "Special Record Date"), which shall be fixed in the following manner: The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment (which shall not be less than 20 days after such Notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the Notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the 41 -38- expense of the Company, shall cause Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Notes at his address as it appears on the list of Holders maintained pursuant to this Supplemental Indenture not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Notes are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (B). (B) Alternatively, the Company may make payment of any Defaulted Interest on the Notes in any other lawful manner not inconsistent with the requirements of any Notes exchange on which such Notes may be listed, and upon such Notice as may be required by such exchange, if, after Notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 4.10, each Note delivered under this Supplemental Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to semi-annual or contingent interest accrued and unpaid to, and to accrue, which were carried by such other Note. ARTICLE FIVE MISCELLANEOUS Section 5.01. No Adverse Interpretation of Other Agreements. This Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Supplemental Indenture. Section 5.02. No Recourse Against Others. All liability described in paragraph 18 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released. Section 5.03. Successors and Assigns. All covenants and agreements of the Company in this Supplemental Indenture and the Notes shall bind its successors and assigns. All agreements of the Trustee in this Supplemental Indenture shall bind its successors and assigns. 42 -39- Section 5.04. Duplicate Originals. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 5.05. Severability. In case any one or more of the provisions contained in this Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture or of the Notes. 43 SIGNATURES IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed, all as of the date first above written. MASCO CORPORATION By: /s/ John R. Leekley -------------------------- Name: John R. Leekley Title: Senior Vice President and General Counsel 44 -41- BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /s/ Benita A. Pointer -------------------------- Name: Benita A. Pointer Title: Account Executive 45 EXHIBIT A [FORM OF FACE OF GLOBAL SECURITY] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 46 -2- MASCO CORPORATION ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2031 No. ____________________ CUSIP: Issue Date: July 20, 2001 ISIN: Issue Price: $394.45 (for each $1,000 Principal Amount at Final Maturity) Masco Corporation, a Delaware corporation, promises to pay to __________ or registered assigns, on July 20, 2031 the Principal Amount of __________ Dollars ($__________). This Note shall not bear periodic interest except as specified on the other side of this instrument. This Note shall accrete as specified on the other side of this Note. This Note is convertible as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note. 47 -3- IN WITNESS WHEREOF, Masco Corporation has caused this instrument to be duly executed. MASCO CORPORATION By: Name: Title: Attest: By: _____________________ Name: Title: Dated: Bank One Trust Company, National Association as Trustee, certifies that this is one of the Securities referred to in the within mentioned Indenture Date: By: _____________________ Name: Title: 48 -4- [FORM OF REVERSE SIDE OF GLOBAL SECURITY] MASCO CORPORATION ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2031 1. INTEREST This Note shall not bear periodic interest, except as specified in this paragraph and in paragraphs 5 and 10 hereof. If the Principal hereof or any portion of such Principal is not paid when due (whether upon acceleration pursuant to the Indenture, upon the date set for payment of the Redemption Price pursuant to paragraph 6 hereof, upon the date set for payment of a Purchase Price or Fundamental Change Purchase Price pursuant to paragraph 7 hereof or upon the Final Maturity of this Note) or if interest (including contingent interest, if any) due hereon or any portion of such interest is not paid when due in accordance with paragraph 5 or 10 hereof, then in each such case the overdue amount shall bear interest at the rate of 3.125% per annum, compounded semiannually (to the extent that the payment of such interest shall be legally enforceable), which interest shall accrue from the date such overdue amount was due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. The accrual of such interest on overdue amounts shall be in lieu of, and not in addition to, the continued accretion. The Notes shall increase in Accreted Value commencing on the Issue Date. "Accreted Value" means, at any date of determination, (1) prior to such time as this Note is converted to a Cash Pay Note, the sum of (x) the Issue Price of this Note and (y) the portion of the excess of the Principal Amount of this Note over the Issue Price which shall have been amortized by the Company in accordance with GAAP through such date, such amount to be so amortized on a daily basis and compounded semi-annually on each July 20 and January 20 at the rate of 3.125% per annum from the Issue Date through the date of determination compounded on the basis of a 360-day year and twelve 30-day months and (2) at or after such time as this Note is converted to a Cash Pay Note, its Restated Principal Amount. 2. METHOD OF PAYMENT Subject to the terms and conditions of the Indenture, the Company shall make payments in respect of the Notes to the Persons who are registered Holders of Notes at the close of business on the Business Day preceding the Redemption Date or Final Maturity, as the case may be, or at the close of business on a Purchase Date or Fundamental Change Purchase Date, as the case may be. Holders must surrender Notes to a Paying Agent to collect such payments in respect of the Notes. The Company shall pay cash amounts in money of the 49 -5- United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check payable in such money. 3. PAYING AGENT, CONVERSION AGENT, BID AGENT AND REGISTRAR Initially, Bank One Trust Company, National Association (the "Trustee"), shall act as Paying Agent, Conversion Agent, Bid Agent and Registrar. The Company may appoint and change any Paying Agent, Conversion Agent, Bid Agent, Registrar or co-registrar without Notice, other than Notice to the Trustee except that the Company will maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent, Bid Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Notes under an Indenture dated as of February 12, 2001 between the Company and Trustee, as supplemented by a Supplemental Indenture relating to the Notes between the Company and Trustee dated July 20, 2001 (together, the "Indenture"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 ("TIA") as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of them. Capitalized terms not defined herein have the meanings given to those terms in the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and the applicable Authorizing Resolution or supplemental indenture. Requests may be made to: Masco Corporation, 21001 Van Born Road, Taylor Michigan, 48180, Attention: Samuel Cypert. 5. CONTINGENT INTEREST Subject to the accrual and Common Stock Record Date provisions specified in this paragraph 5, the Company shall pay contingent interest to the Holders during any six-month period (a "Contingent Interest Period") from January 20 to July 19 and from July 20 to January 19, commencing January 20, 2007, if the average Note Price for the Five-Day Period with respect to such Contingent Interest Period equals 120% or more of the Accreted Value of such Note to the Trading Day immediately preceding the first day of the relevant Contingent Interest Period. 50 -6- The amount of contingent interest payable per $1,000 Principal Amount hereof in respect of any Contingent Interest Period shall equal the greater of (x) Cash Dividends paid by the Company per share of Common Stock during that Contingent Interest Period multiplied by the number of shares of Common Stock into which $1,000 Principal Amount hereof is convertible pursuant to paragraph 9 hereof as of the accrual date for such contingent interest and (y) 0.125% of the average Note Price for the Five-Day Period with respect to such Contingent Interest Period. Contingent interest, if any, will accrue and be payable to Holders as of the Common Stock Record Date for the related Cash Dividend or, if no Cash Dividend is paid by the Company during a Contingent Interest Period, to Holders as of the 15th day preceding the last day of the relevant Contingent Interest Period. Such payments shall be paid on the payment date of the related Cash Dividend or, if no Cash Dividend is paid by the Company during a Contingent Interest Period, on the last day of the relevant Contingent Interest Period. In addition, on any Purchase Date or Redemption Date that occurs during a Contingent Interest Period for which a Holder is entitled to contingent interest pursuant to clause (y) of the preceding paragraph, contingent interest will be payable to such Holder in an amount equal to the amount that would have been otherwise payable to such Holder on the last day of such Contingent Interest Period divided by the actual number of days from the first day of such Contingent Interest Date to the Purchase Date or Redemption Date, as the case may be, using a 360-day year composed of twelve 30-day months. "Five-Day Period" means, with respect to any Contingent Interest Period, the five Trading Days ending on the second Trading Day immediately preceding the first day of such Contingent Interest Period; provided, however, if the Company shall have declared a Cash Dividend on its Common Stock that is payable during such Contingent Interest Period but for which the Common Stock Record Date for determining stockholders entitled thereto precedes the first day of such Contingent Interest Period, then "Five-Day Period" means, with respect to such Contingent Interest Period, the five Trading Days ending on the second Trading Day immediately preceding such Common Stock Record Date. "Cash Dividends" means all cash dividends on the Common Stock (whether regular, periodic, extraordinary, special, nonrecurring or otherwise) as declared by the Company's Board of Directors as part of its cash dividend payment practices. "Note Price" means, as of any date of determination, the average of the secondary market bid quotations per Note obtained by the Bid Agent for $10 million Principal Amount of Notes at approximately 4:00 p.m. (New York City time) on such determination date from three recognized securities dealers in The City of New York (none of which shall be an Affiliate of the Company) selected by the Company; provided, however, if (a) at least three such bids are not obtained by the Bid Agent or (b) in the Company's reasonable judgment, the bid quotations are not indicative of the secondary market value of the Notes as of such determination date, then the Note Price for such 51 -7- determination date shall equal (i) the Conversion Rate in effect as of such determination date multiplied by (ii) the average Sale Price of Common Stock for the five Trading Days ending on such determination date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such five Trading Day period and ending on such determination date, of any event described in Section 4.06(a), 4.06(b) or 4.06(c) (subject to the conditions set forth in Sections 4.07(a) and 4.07(b)) of the Supplemental Indenture. Upon determination that Holders will be entitled to receive contingent interest which may become payable during a Contingent Interest Period, on or prior to the first day of such Contingent Interest Period, the Company shall issue a press release and publish such information on its web site at www.masco.com, if such web site exists. 6. REDEMPTION AT THE OPTION OF THE COMPANY No sinking fund is provided for the Notes. Between July 20, 2002 and January 25, 2007 the Company may only redeem the Notes for cash, in whole but not in part, if the Sale Price of Common Stock is equal to or greater than the below specified percentage of the conversion price in effect for at least 20 Trading Days in any consecutive 30-Trading Day period, where "CONVERSION PRICE" means the Redemption Price divided by the Conversion Rate. The Company will give holders not less than 30-days' nor more than 60-days' Notice of redemption. The table below shows ranges of dates between July 20, 2002 and January 25, 2007 and the percentage of the conversion price Common Stock must attain within the specified date range before the Company may redeem the Notes.
PERCENTAGE OF CONVERSION PRICE THAT ----------------------------------- COMMON STOCK PRICE MUST ATTAIN FOR 20 OF ---------------------------------------- REDEMPTION DATE RANGE 30 TRADING DAYS - --------------------- --------------- July 20, 2002 through July 19, 2003 150% July 20, 2003 through July 19, 2004 140% July 20, 2004 through January 24, 2007 130%
Beginning on January 25, 2007, the Company may, at its option, redeem the Notes for cash at any time as a whole, or from time to time in part, at their Redemption Price. The table below shows what the Accreted Value of a Note would be on July 20, 2002, and at specified dates thereafter prior to maturity and at Final Maturity. The Accreted Value, in dollars, of a Note per $1,000 Principal Amount redeemed between such 52 -8- dates shall include an additional amount reflecting the increase in Accreted Value since the next preceding date in the table to but excluding the actual Redemption Date.
INCREASE IN ACCRETED REDEMPTION -------------------- ---------- REDEMPTION DATE ISSUE PRICE(1) VALUE AT 3.125% (2) PRICE (1+2) - --------------- -------------- ------------------- ----------- July 20, 2002 $394.45 $ 12.42 $ 406.88 July 20, 2003 $394.45 $ 25.24 $ 419.69 July 20, 2004 $394.45 $ 38.46 $ 432.91 January 20, 2005 $394.45 $ 45.22 $ 439.67 July 20, 2005 $394.45 $ 52.09 $ 446.54 July 20, 2006 $394.45 $ 66.15 $ 460.61 January 20, 2007 $394.45 $ 73.35 $ 467.80 July 20, 2007 $394.45 $ 80.66 $ 475.11 July 20, 2008 $394.45 $ 95.62 $ 490.08 July 20, 2009 $394.45 $111.06 $ 505.51 July 20, 2010 $394.45 $126.98 $ 521.43 July 20, 2011 $394.45 $143.40 $ 537.85 July 20, 2012 $394.45 $160.34 $ 554.79 July 20, 2013 $394.45 $177.81 $ 572.27 July 20, 2014 $394.45 $195.83 $ 590.29 July 20, 2015 $394.45 $214.43 $ 608.88 July 20, 2016 $394.45 $233.60 $ 628.06 July 20, 2017 $394.45 $253.38 $ 647.84 July 20, 2018 $394.45 $273.78 $ 668.24 July 20, 2019 $394.45 $294.83 $ 689.28 July 20, 2020 $394.45 $316.54 $ 710.99 July 20, 2021 $394.45 $338.93 $ 733.39 July 20, 2022 $394.45 $362.03 $ 756.48 July 20, 2023 $394.45 $385.85 $ 780.31 July 20, 2024 $394.45 $410.43 $ 804.88 July 20, 2025 $394.45 $435.78 $ 830.23 July 20, 2026 $394.45 $461.92 $ 856.38 July 20, 2027 $394.45 $488.90 $ 883.35 July 20, 2028 $394.45 $516.72 $ 911.17 July 20, 2029 $394.45 $545.41 $ 939.87 July 20, 2030 $394.45 $575.01 $ 969.47 July 20, 2031 $394.45 $605.55 $1,000.00
If this Note has been converted to Cash Pay Notes, the Redemption Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of such conversion to the Redemption Date; but in no event will this Note be redeemable before July 20, 2002. In addition to the Redemption Price payable with respect to all Notes or portions thereof to be redeemed as of a Redemption Date, the Holders of such Notes (or portions thereof) shall be entitled to receive accrued and unpaid contingent interest, if any, with respect thereto, which contingent interest shall be paid in cash on the Redemption Date. 7. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; PURCHASE AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE Subject to the terms and conditions of the Indenture, a Holder of Notes shall have the option to require the Company to purchase the Notes held by such Holder on the following Purchase Dates and at the following Purchase Prices per $1,000 Principal Amount, 53 -9- plus, in the case of purchases after July 20, 2007, accrued and unpaid contingent interest, if any, upon delivery of a Purchase Notice containing the information set forth in the Indenture, from the opening of business on the date that is 30 Business Days prior to such Purchase Date until the close of business on such Purchase Date and upon delivery of the Notes to the Paying Agent by the Holder as set forth in the Indenture. For any Purchase Date after July 20, 2002, such Purchase Prices may be paid, at the option of the Company, in cash or by the issuance and delivery of shares of Common Stock, or in any combination thereof. The Company will pay the Purchase Price for any purchase on July 20, 2002 only in cash. The purchase price of a Note will be: - $406.88 per Note on July 20, 2002; - $439.67 per Note on January 20, 2005; - $467.80 per Note on January 20, 2007; - $537.85 per Note on July 20, 2011, plus accrued and unpaid contingent interest, if any; - $628.06 per Note on July 20, 2016, plus accrued and unpaid contingent interest, if any; - $733.39 per Note on July 20, 2021, plus accrued and unpaid contingent interest, if any; and - $856.38 per Note on July 20, 2026, plus accrued and unpaid contingent interest, if any. Notes in denominations larger than $1,000 of Principal Amount may be purchased in part, but only in multiples of $1,000 of Principal Amount. If prior to a Purchase Date this Note has been converted to a Cash Pay Note, the Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Purchase Date. If a Fundamental Change shall occur at any time prior to July 20, 2002, each Holder shall have the right, at such Holder's option and subject to the terms and conditions of the Indenture, to require the Company to purchase such Holder's Notes on the Business Day that is 95 days after the date of the Fundamental Change for a Fundamental Change Purchase Price equal to Accreted Value to the Fundamental Change Purchase Date. If, prior to the Fundamental Change Purchase Date, the Notes were converted to Cash Pay Notes, the Fundamental Change Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Fundamental Change Purchase Date, which Fundamental Change Purchase Price shall be paid at the option of the Company in cash or by the issuance and delivery of shares of Common Stock or in any combination thereof. Notes in denominations larger than $1,000 of Principal Amount may be redeemed in 54 -10- part in connection with a Fundamental Change, but only in multiples of $1,000 of Principal Amount. In addition to the Purchase Price payable with respect to all Notes or portions thereof to be purchased as of the Purchase Date, the Holders of such Notes (or portions thereof) shall be entitled to receive accrued and unpaid contingent interest, if any, with respect thereto, which contingent interest shall be paid in cash promptly following the later of the Purchase Date and the time of delivery of such Notes to the Paying Agent pursuant to the Indenture. Holders have the right to withdraw any Purchase Notice or Fundamental Change Purchase Notice, as the case may be, by delivery to the Paying Agent of a written notice of withdrawal in accordance with the provisions of the Indenture. If cash (and/or Common Stock if permitted under the Indenture) sufficient to pay a Fundamental Change Purchase Price or, cash (and/or Common Stock if permitted under the Indenture) sufficient to pay a Purchase Price (together with any accrued and unpaid contingent interest), with respect to all Notes or portions thereof to be purchased as of the Purchase Date or the Fundamental Change Purchase Date, as the case may be, is deposited with the Paying Agent on the Business Day immediately following the Purchase Date or the Fundamental Change Purchase Date, as the case may be, such Notes will cease to accrete and interest (including, where applicable, contingent interest), if any, will cease to accrue on such Notes (or portions thereof) on and after such date, and the Holder thereof shall have no other rights as such (other than the right to receive the Purchase Price or Fundamental Change Purchase Price, as the case may be, and, where applicable, accrued and unpaid contingent interest, if any, upon surrender or such Note). 8. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY Notice of redemption at the option of the Company shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at the Holder's registered address. If money sufficient to pay the Redemption Price of, together with any accrued and unpaid contingent interest with respect to, all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the Redemption Date, on and after such date Accreted Value and interest (including contingent interest), if any, ceases to accrue on such Notes or portions thereof. Notes in denominations larger than $1,000 Principal Amount may be redeemed in part but only in multiples of $1,000 or Principal Amount. 55 -11- 9. CONVERSION A Holder of a Note may convert this Note for Common Stock at any time on or before the close of business on July 20, 2031 if at least one of the following conditions is satisfied: (a) the Twenty-Day Average Price on the Conversion Date is at least a specified percentage of the Accreted Conversion Price, such percentage beginning at 120% for the first year and declining 1/3% on July 20 each year thereafter, reaching 110-1/3% for the year beginning July 20, 2030 and declining to 110% at Final Maturity; (b) the credit rating assigned to the Notes by either Moody's Investors Service, Inc. or Standard & Poor's Ratings Services is reduced to below Investment Grade; (c) the Notes have been called for redemption by the Company, at any time prior to the close of business on the Business Day prior to the Redemption Date; or (d) (i) the Company elects to distribute to all holders of Common Stock rights entitling them to purchase, for a period expiring within 60 days after the date of such distribution, Common Stock at less than the Sale Price at the time of such distribution, (ii) the Company elects to distribute to all holders of Common Stock assets, debt, securities or rights to purchase securities of the Company, which distribution has a per share value as determined by the Company's Board of Directors exceeding 15% of the Sale Price of the Common Stock on the day preceding the declaration date for such distribution, or (iii) in the event the Company is a party to a consolidation, merger or binding share exchange pursuant to which the Common Stock would be converted into cash, securities or other property, at any time from and after the date which is 15 days prior to the date the Company announces as the anticipated effective time until 15 days after the actual effective date of such transaction. In the case of the foregoing clauses (d)(i) and (ii), the Company must notify the Holders of Notes at least 20 days prior to the Ex-Dividend Date for such distribution. Once the Company has given such Notice, Holders may surrender their Notes for conversion at any time thereafter until the earlier of the close of business on the Business Day prior to the Ex-Dividend Date or the Company's announcement that such distribution will not take place. If this Note is called for redemption, the Holder may convert it at any time before the close of business on the last Business Day prior to the Redemption Date. A Note in respect of which a Holder has delivered a notice of exercise of the option to require the 56 -12- Company to purchase such Note or to purchase such Note in the event of a Fundamental Change may be converted only if the notice of exercise is withdrawn in accordance with the terms of the Indenture. The initial Conversion Rate is 12.7243 shares of Common Stock per Note with a $1,000 Principal Amount, subject to adjustment in certain events described in the Indenture. The Company shall deliver cash or a check in lieu of any fractional share of Common Stock. In the event the Company exercises its option pursuant to Section 4.08 of the Supplemental Indenture to convert the Notes to Cash Pay Notes, the Holder will be entitled on conversion to receive the same number of shares of Common Stock such Holder would have received if the Company had not exercised such option. If the Company exercises such option, Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business of such Interest Payment Date (except Notes with respect to which the Company has provided a Notice of redemption) must be accompanied by payment of an amount equal to the interest thereon that the registered Holder is to receive. Except where Notes surrendered for conversion are so surrendered after a Regular Record Date but prior to the opening of business on the corresponding Interest Payment Date (in which case such converting Holder shall receive a final interest payment on such Interest Payment Date, which interest payment may be repayable to the Company upon conversion as described in this paragraph), no interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. Notes surrendered for conversion during the period from the close of business on any date on which contingent interest accrues to the opening of business on the date on which such contingent interest is payable (except Notes with respect to which the Company has provided a Notice of redemption) must be accompanied by payment of an amount equal to the contingent interest with respect thereto that the registered Holder is to receive. Except where Notes surrendered for conversion are so surrendered during the period from the close of business on any date on which contingent interest accrues to the opening of business on the date on which such contingent interest is payable (in which case such converting Holder shall receive a final contingent interest payment on the date such contingent interest is payable, which contingent interest payment may be repayable to the Company upon conversion as described in this paragraph), no contingent interest on converted Notes will accrue after the date of conversion. To convert this Note a Holder must (1) complete and manually sign the conversion notice on the back of this Note (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent at the office maintained by the Conversion Agent for such purpose, (2) surrender this Note to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Conversion 57 -13- Agent, the Company or the Trustee, (4) pay any transfer or similar tax, if required and (5) if required, pay any interest on the Note such Holder is to receive on the next Interest Payment Date by virtue of having been a Holder on the relevant Regular Record Date. A Holder may convert a portion of this Note only if the Principal Amount of such portion is $1,000 or a multiple of $1,000. No payment or adjustment shall be made for dividends on the Common Stock except as provided in the Indenture. On conversion of this Note, that portion of Accreted Value (or, interest, if the Company has exercised its option provided for in paragraph 10 hereof) attributable to the period from the Issue Date (or, if the Company has exercised the option referred to in paragraph 10 hereof, the later of (x) the date of such exercise and (y) the date on which interest was last paid) to the Conversion Date and (except as provided above) accrued contingent interest with respect to the converted portion of this Note shall not be canceled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with any cash payment in lieu of fractional shares) in exchange for the portion of this Note being converted pursuant to the terms hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for Accreted Value (or interest, if the Company has exercised its option provided for in paragraph 10 hereof) accrued through the Conversion Date and accrued contingent interest, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment) shall be treated as issued in exchange for the Issue Price of the Note being converted pursuant to the provisions hereof. 10. TAX EVENT (a) From and after (i) the date (the "Tax Event Date") of the occurrence of a Tax Event and (ii) the date the Company exercises such option, whichever is later (the "Option Exercise Date"), at the option of the Company, all of the Notes will cease to accrete, and cash interest shall accrue at the rate of 3.125% per annum on the restated principal amount (the "Restated Principal Amount"), equal to the Accreted Value on the Option Exercise Date, and shall be payable semiannually on July 20 and January 20 of each year (each an "Interest Payment Date") to holders of record at the close of business on July 1 or January 1 (each a "Regular Record Date") immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date. (b) Interest on any Note that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on 58 -14- any Note shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States. (c) From and after the Option Exercise Date, contingent interest provided for in paragraph 5 hereof shall cease to accrue on this Note. 11. DEFAULTED INTEREST Except as otherwise specified with respect to the Notes, any Defaulted Interest on any Note shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date or accrual date, as the case may be, by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company as provided for in Section 4.10(c)(ii) of the Supplemental Indenture. 12. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form, without coupons, in denominations of $1,000 of Principal Amount and multiples of $1,000. A Holder may transfer or convert Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice has been given and not withdrawn (except, in the case of a Note to be purchased in part, the portion of the Note not to be purchased) or any Notes for a period of 15 days before any selection of Notes to be redeemed. 13. PERSONS DEEMED OWNERS The registered Holder of this Note may be treated as the owner of this Note for all purposes. 14. UNCLAIMED MONEY OR PROPERTY If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment unless an abandoned property law designates another person. 15. AMENDMENT; SUPPLEMENT; WAIVER Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in Principal Amount of the 59 -15- outstanding Notes and any past default or compliance with any provision relating to the Notes may be waived in a particular instance with the consent of the Holders of a majority in Principal Amount of the outstanding Notes. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to create a Series and establish its terms, or to make any other change, provided such action does not adversely affect the rights of any Holder. 16. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 17. TRUSTEE DEALINGS WITH THE COMPANY Bank One Trust Company, National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 18. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 19. AUTHENTICATION This Note shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note. 20. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors Act). 60 -16- FORM OF CONVERSION NOTICE To: Masco Corporation The undersigned registered holder of this Note hereby exercises the option to convert this Note, or portion hereof (which is $1,000 Principal Amount or a multiple thereof) designated below, for shares of Common Stock of Masco Corporation in accordance with the terms of the Indenture referred to in this Note, and directs that the shares, if any, issuable and deliverable upon such conversion, together with any check for cash deliverable upon such conversion, and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. This notice shall be deemed to be an irrevocable exercise of the option to convert this Note. Dated: ----------------------------------- ----------------------------------- Signature(s) Fill in for registration of shares if to be delivered, and Notes if to be issued other than to and in the name of registered holder: Principal Amount to be converted (if less than all): 61 -17- - -------------------------------------------- (Name) $ ,000 - -------------------------------------------- -- (Street Address) Social Security or Other - -------------------------------------------- Taxpayer Number (City, state and zip code) Please print name and address 62 -18- FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE To: Masco Corporation (I) The undersigned registered holder of this Note hereby acknowledges receipt of a Notice from Masco Corporation (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to purchase this Note, or the portion hereof (which is $1,000 Principal Amount or a multiple thereof) designated below, in accordance with the terms of the Indenture referred to in this Note and directs that the check in payment for this Note or the portion thereof (or, if the Company elects in accordance with Section 4.03(c) of the Supplemental Indenture, Common Stock) and any Notes representing any unrepurchased principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If any portion of this Note not repurchased is to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. Dated: -------------------------------- Signature(s) Fill in for registration of shares if to be delivered, and Notes if to be issued other than to and in the name of registered holder: - ------------------------------------ (Name) - ------------------------------------ (Street Address) - ------------------------------------ (City, state and zip code) Please print name and address Principal Amount to be purchased (if less than all): $__,000 63 -19- (II) If the Company has elected to pay the Fundamental Change Purchase Price, in whole or in part, in Common Stock but such portion of the Fundamental Change Purchase Price shall ultimately be payable in Cash because any of the conditions to the payment of the Fundamental Change Purchase Price in Common Stock are not satisfied I elect [check one]: __ to withdraw such Purchase Notice as to the Notes to which such Fundamental Change Purchase Notice relates in the Principal Amount of $_____,000, with certificate numbers _________, or __ to receive Cash in respect of the entire Fundamental Change Purchase Price for all Notes (or portions thereof) to which such Purchase Notice relates. 64 -20- ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below: I or we assign and transfer this Note to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax ID number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address, and zip code) and irrevocably appoint - -------------------------------------------------------------------------------- agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your signature: ---------------- -------------------------------- (Sign exactly as your name appears on the others side of this Note) Signature Guarantee: ----------------------------------------------------------- Signature must be guaranteed by participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) 65 EXHIBIT B PROJECTED PAYMENT SCHEDULE*
Semi-annual Period Ending Projected Payment Per Note - ------------------------- -------------------------- July 20, 2001 $0.00 January 20, 2002 $0.00 July 20, 2002 $0.00 January 20, 2003 $0.00 July 20, 2003 $0.00 January 20, 2004 $0.00 July 20, 2004 $0.00 January 20, 2005 $0.00 July 20, 2005 $0.00 January 20, 2006 $0.00 July 20, 2006 $0.00 January 20, 2007 $0.00 July 20, 2007 $0.00 January 20, 2008 $0.00 July 20, 2008 $0.00 January 20, 2009 $3.31 July 20, 2009 $3.31 January 20, 2010 $3.31 July 20, 2010 $3.31 January 20, 2011 $3.31 July 20, 2011 $3.31 January 20, 2012 $3.31 July 20, 2012 $3.31 January 20, 2013 $3.31 July 20, 2013 $3.31 January 20, 2014 $3.31 July 20, 2014 $3.31 January 20, 2015 $3.31 July 20, 2015 $3.31 January 20, 2016 $3.31 July 20, 2016 $3.31 January 20, 2017 $3.31 July 20, 2017 $3.31 January 20, 2018 $3.31 July 20, 2018 $3.31 January 20, 2019 $3.31 July 20, 2019 $3.31 January 20, 2020 $3.31 July 20, 2020 $3.31
66 January 20, 2021 $3.31 July 20, 2021 $3.31 January 20, 2022 $3.31 July 20, 2022 $3.31 January 20, 2023 $3.31 July 20, 2024 $3.31 January 20, 2025 $3.31 July 20, 2025 $3.31 January 20, 2026 $3.31 July 20, 2026 $3.31 January 20, 2027 $3.33 July 20, 2027 $3.47 January 20, 2028 $3.62 July 20, 2028 $3.77 January 20, 2029 $3.93 July 20, 2029 $4.10 January 20, 2030 $4.27 July 20, 2030 $4.45 January 20, 2031 $4.64 July 20, 2031 $3,871.34
*The comparable yield means the annual yield the Company would pay, as of the Issue Date, on a fixed-rate cash-pay nonconvertible debt security with no contingent payments but with terms and conditions otherwise comparable to those of the Notes. The schedule of projected payments is determined on the basis of the comparable yield and an assumption of linear growth of the Company's stock price and a constant dividend yield. The comparable yield and the schedule of projected payments are not determined for any purpose other than for the determination of interest accruals and adjustment thereof in respect of the Notes for United States federal income tax purposes. The comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the future stock price or the amounts payable on the Notes. EX-12 6 k64100ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS) ---------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30, ------------------------------------------------------ 2001 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- -------- -------- EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES: Income from continuing operations before income taxes $391,000 $ 893,400 $ 904,100 $ 905,500 $733,800 $575,600 Deduct/add equity in undistributed (earnings)/loss of fifty-percent-or- less-owned companies 1,480 (9,640) (18,720) (24,070) (19,470) (12,310) Add interest on indebtedness, net 118,550 193,000 121,520 115,700 94,780 78,790 Add amortization of debt expense 1,440 2,430 1,350 2,130 2,310 1,400 Add estimated interest factor for rentals 11,500 18,760 16,080 11,430 9,270 7,120 -------- ---------- ---------- ---------- -------- -------- Earnings before income taxes and fixed charges $523,970 $1,097,950 $1,024,330 $1,010,690 $820,690 $650,600 ======== ========== ========== ========== ======== ======== FIXED CHARGES: Interest on indebtedness $123,100 $ 202,630 $ 129,860 $ 119,750 $ 97,910 $ 81,250 Amortization of debt expense 1,440 2,430 1,350 2,130 2,310 1,400 Estimated interest factor for rentals 11,500 18,760 16,080 11,430 9,270 7,120 -------- ---------- ---------- ---------- -------- -------- $136,040 $ 223,820 $ 147,290 $ 133,310 $109,490 $ 89,770 ======== ========== ========== ========== ======== ======== Ratio of earnings to fixed charges 3.9 4.9 7.0 7.6 7.5 7.2 === === === === === ===
-----END PRIVACY-ENHANCED MESSAGE-----