AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 2004
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
MASCO CORPORATION
(Exact name of Registrant as Specified in Its Charter)
DELAWARE 3430 38-1794485
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
21001 VAN BORN ROAD
TAYLOR, MI 48180
(313) 274-7400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JOHN R. LEEKLEY
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
MASCO CORPORATION
21001 VAN BORN ROAD
TAYLOR, MI 48180
(313) 274-7400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
COPIES TO:
BRUCE K. DALLAS
DAVIS POLK & WARDWELL
1600 EL CAMINO REAL
MENLO PARK, CALIFORNIA 94025
(650) 752-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED TO BE REGISTERED NOTE(1) PRICE(1) FEE
---------------------------------------------------------------------------------------------------------------------------------
Zero Coupon Convertible Senior Notes, Series B due
2031............................................ $1,874,978,000 48.63% $911,801,801 $115,525
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $1.00 per share(2)........ (2) (2) -- (3)
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
Pursuant to Rule 457(c) the price per note is based on the market prices of
the Zero Coupon Convertible Senior Notes due 2031.
(2) Includes the shares of common stock, if any, to be issued upon conversion of
the Zero Coupon Convertible Senior Notes, Series B due 2031.
(3) Pursuant to Rule 457(i), there is no additional filing fee with respect to
the shares of common stock, if any, issuable upon conversion of the Zero
Coupon Convertible Senior Notes, Series B due 2031 because no additional
consideration will be received by the registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT CONSUMMATE THE EXCHANGE OFFER UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
(SUBJECT TO COMPLETION)
PROSPECTUS
ISSUED NOVEMBER 12, 2004
MASCO CORPORATION
OFFER TO EXCHANGE
ZERO COUPON CONVERTIBLE SENIOR NOTES, SERIES B DUE 2031 FOR
ZERO COUPON CONVERTIBLE SENIOR NOTES DUE 2031
THE EXCHANGE OFFER
Masco Corporation is offering to exchange, upon the terms and subject to the
conditions set forth in this prospectus and the accompanying letter of
transmittal, our newly issued Zero Coupon Convertible Senior Notes, Series B due
2031, which we refer to as the new notes, for validly tendered and accepted Zero
Coupon Convertible Senior Notes due 2031, which we refer to as the old notes.
- Tenders of old notes may be withdrawn at any time before midnight, New
York City time, on the expiration date of the exchange offer.
- The exchange offer expires at midnight, New York City time, on December
, 2004, which date we refer to as the expiration date, unless earlier
terminated or extended by us.
- As consideration for exchanging old notes for new notes, holders of new
notes will receive an exchange fee of $1.25 per $1,000 principal amount at
maturity of the new notes. The exchange fee will be payable to holders of
new notes on the exchange date.
THE NEW NOTES
- Comparison: The terms of the new notes differ from the terms of the old
notes in the following ways:
- The new notes are convertible into cash and, at our option, in part in
shares of our common stock having a combined aggregate value equal to the
conversion rate multiplied by the applicable stock price described
herein, subject to adjustment, under the circumstances and during the
periods described herein. The old notes are convertible only into common
stock.
- The conversion rate for the new notes will be adjusted, subject to
certain limitations, for cash dividends or distributions on shares of our
common stock declared on or before January 20, 2007. The old notes have a
more limited dividend protection feature.
- The new notes contain a change of control make whole under which the
conversion rate will be adjusted for conversions in connection with a
change of control or, if such change of control constitutes a public
acquirer change of control, we may elect to modify the conversion
obligation as described in this prospectus. The old notes do not contain
a change of control make whole.
- Maturity: The new notes will mature on July 20, 2031.
- Yield to Maturity: Except under circumstances described below, we will not
pay cash interest on the new notes prior to maturity. Instead, on the
maturity date of the new notes, holders will receive $1,000 for each
$1,000 principal amount at maturity of the notes. Each new note will be
issued at an initial principal amount of $ per $1,000 principal amount
at maturity which represents a yield to maturity of 3.125% per year
calculated from December , 2004.
- Optional Conversion to Cash Pay Notes Upon Tax Events: If certain
tax-related events were to occur and we so elect, the new notes will
cease to accrete, and cash interest will accrue at a rate of 3.125% per
annum on the restated principal amount and be payable semi-annually in
arrears.
- Contingent Interest: Commencing January 20, 2007, we will pay contingent
interest to the holders of new notes during specified six-month periods
if the average market price of a new note for the five trading days
ending on the second trading day immediately preceding the relevant
six-month period equals 120% or more of the accreted value of a new note
on the day immediately preceding the relevant six-month period.
- Optional Redemption: We may redeem all, but not part of, the new notes
prior to January 25, 2007 only if our common stock price reaches 130% of
the applicable conversion price for a specified time period. We may, at
any time on or after January 25, 2007, redeem the new notes for cash in an
amount equal to the accreted value of the new notes.
- Optional Repurchase: Holders may require us to purchase the new notes on
the following dates at the following prices: January 20, 2005 at $439.67;
January 20, 2007 at $467.80; July 20, 2011 at $537.85; July 20, 2016 at
$628.06; July 20, 2021 at $733.39; and July 20, 2026 at $856.38.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY YOU PRIOR TO TENDERING YOUR OLD NOTES IN THE
EXCHANGE OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in the
exchange offer or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
The co-dealer managers for the exchange offer are:
CITIGROUP MERRILL LYNCH & CO.
November , 2004
TABLE OF CONTENTS
PAGE
----
Special Note Regarding Forward-Looking Statements........... ii
Summary..................................................... 1
Risk Factors................................................ 12
Use of Proceeds............................................. 16
Price Range of Old Notes and Common Stock................... 16
Dividend Policy............................................. 16
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends................................................. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
The Exchange Offer.......................................... 21
Description of the New Notes................................ 28
Description of Other Indebtedness........................... 47
Description of Capital Stock................................ 48
Material United States Tax Consequences..................... 50
Legal Opinions.............................................. 53
Experts..................................................... 53
Where You Can Find More Information......................... 53
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this prospectus and in the documents we incorporate by reference, we
state our views about our future performance. These views involve risks and
uncertainties that are difficult to predict and, accordingly, our actual results
may differ materially from the results discussed in such forward-looking
statements. We have no obligation to update any forward-looking statements as a
result of new information, future events or otherwise.
Factors that affect our results of operations include the levels of home
improvement and residential construction activity principally in North America
and Europe (including repair, remodeling and new construction), our ability to
effectively manage our overall cost structure, fluctuations in European
currencies (primarily the euro and British pound), the importance of and our
relationships with home centers (including The Home Depot, which represented
approximately 22 percent of our sales in 2003) as distributors of home
improvement and building products, and our ability to maintain our leadership
positions in our markets in the face of increasing global competition.
Historically, we have been able to largely offset cyclical declines in housing
markets through new product introductions and acquisitions as well as market
share gains. Additional factors that may significantly affect our performance
are discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Current Report on Form 8-K filed with the SEC
on November 12, 2004 (which supersedes the corresponding sections in our Annual
Report on Form 10-K for the year ended December 31, 2003) and in our Quarterly
Reports on Form 10-Q that are on file with the SEC as well as under the heading
"Risk Factors" in this prospectus.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN
MATERIAL WE FILE WITH THE SEC. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
ii
SUMMARY
This summary highlights information contained, or incorporated by
reference, in this prospectus. It is qualified in its entirety by the more
detailed information contained, or incorporated by reference, in this
prospectus. You should read the full text of, and consider carefully the more
specific details contained, or incorporated by reference, in this prospectus
before you decide whether to tender your old notes in the exchange offer. In
addition, you should carefully consider the information set forth or referred to
under the heading "Risk Factors." Unless the context otherwise requires, the
terms "Masco," the "Company," "we" and "our" refer to Masco Corporation, a
Delaware corporation, and its predecessors and subsidiaries.
MASCO CORPORATION
Masco Corporation manufactures, sells and installs home improvement and
building products, with emphasis on brand name products and services holding
leadership positions in their markets. Masco is among the largest manufacturers
in North America of brand name consumer products designed for the home
improvement and home construction markets. Our business segments are: cabinets
and related products; plumbing products; installation and other services;
decorative architectural products; and other specialty products.
Our executive offices are located at 21001 Van Born Road, Taylor, Michigan
48180. Our telephone number is (313) 274-7400 and our website address is
http://www.masco.com. The information on our website is not a part of this
prospectus.
THE EXCHANGE OFFER
Purpose of the Exchange
Offer......................... The purpose of this exchange offer is to change
certain of the terms of the old notes,
including the type of consideration we will use
to pay holders of old notes who convert their
old notes. We believe this will reduce the
likelihood of dilution to our shareholders. For
a more detailed description of these changes,
see the section of this prospectus entitled
"Summary -- Material Differences Between the
Old Notes and the New Notes."
The Exchange Offer............ We are offering to exchange $1,000 principal
amount at maturity of new notes for each $1,000
principal amount at maturity of old notes
accepted for exchange.
Conditions to the Exchange
Offer......................... The exchange offer is subject to certain
customary conditions, including that the
registration statement and any post-effective
amendment to the registration statement
covering the new notes be effective under the
Securities Act of 1933, as amended. See the
section of this prospectus entitled "The
Exchange Offer -- Conditions to the Exchange
Offer."
Expiration Date............... The exchange offer will expire at midnight, New
York City time, on December , 2004, which
date we refer to as the expiration date, unless
extended or earlier terminated by us. We may
extend the expiration date for any reason. If
we decide to extend it, we will announce such
extension by press release or other permitted
means no later than 9:00 a.m., New York City
time, on the business day after the scheduled
expiration of the exchange offer.
Tenders of Old Notes;
Withdrawals of Tenders........ In order to tender old notes, you will need to
follow the instructions in this prospectus on
how to instruct the broker or other third party
through whom you hold your notes to tender the
old notes on your behalf, as well as submit a
letter of transmittal and the other
1
documents described in this prospectus. We will
determine in our sole discretion whether any
old notes have been properly tendered. Please
carefully follow the instructions contained in
this prospectus on how to tender your old
notes.
Tenders of old notes may be withdrawn in
writing at any time prior to midnight, New York
City time, on the expiration date.
Please see pages 21 through 27 for instructions
on how to exchange your old notes for new
notes.
Acceptance of Old Notes....... We will accept all old notes validly tendered
and not withdrawn as of the expiration date and
will issue the new notes promptly after the
expiration date, upon the terms and subject to
the conditions in this prospectus and the
letter of transmittal. We will accept old notes
for exchange after the exchange agent has
received a timely book-entry confirmation of
transfer of old notes into the exchange agent's
DTC account and a properly completed and
executed letter of transmittal. Our oral or
written notice of acceptance to the exchange
agent will be considered our acceptance of all
validly tendered old notes in the exchange
offer. We will return any old notes not
accepted for exchange without expense to you
promptly after the termination or withdrawal,
if any, of the exchange offer.
Amendment of the Exchange
Offer......................... We reserve the right to interpret or modify the
terms of this exchange offer, provided that we
will comply with applicable laws that require
us to extend the period during which old notes
may be tendered or withdrawn as a result of
changes in the terms of or information relating
to the exchange offer.
Use of Proceeds............... We will not receive any cash proceeds from this
exchange offer. Old notes that are validly
tendered and exchanged for new notes pursuant
to the exchange offer will be canceled.
Fees and Expenses of the
Exchange Offer................ We estimate that the approximate total cost of
the exchange offer, assuming all of the old
notes are exchanged for new notes, will be
approximately $2.6 million.
Material United States Tax
Consequences.................. The U.S. federal income tax consequences of the
exchange offer and the ownership and
disposition of the new notes are not entirely
clear. We intend to take the position that the
modifications to the old notes resulting from
the exchange of old notes for new notes should
not constitute a significant modification of
the old notes for tax purposes. If, consistent
with our position, the exchange of old notes
for new notes does not constitute a significant
modification of the old notes, the new notes
should be treated as a continuation of the old
notes, and there should be no U.S. federal
income tax consequences to a holder who
exchanges old notes for new notes pursuant to
the exchange offer (except with respect to the
exchange fee). If, contrary to our position,
the exchange constitutes a significant
modification, the tax consequences to you could
materially differ.
See the section of this prospectus entitled
"Material United States Tax Consequences"
beginning on page 50.
2
Dealer Managers............... Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are
the co-dealer managers for this exchange offer.
Their addresses and telephone numbers are
located on the back cover of this prospectus.
Exchange Agent................ J.P. Morgan Trust Company, National Association
is the exchange agent for this exchange offer.
Its address and telephone numbers are located
on the back cover of this prospectus.
3
MATERIAL DIFFERENCES BETWEEN THE OLD NOTES AND THE NEW NOTES
The material differences between the old notes and the new notes are
illustrated in the table below. The table below is qualified in its entirety by
the information contained in this prospectus and the documents governing the old
notes and the new notes, copies of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. For a more
detailed description of the new notes, see the section of this prospectus
entitled "Description of the New Notes." On November 2, 2004, we amended the
indenture governing the old notes to remove our right to deliver shares of our
common stock upon the exercise by holders of their right to require us to
purchase the old notes on certain dates.
OLD NOTES NEW NOTES
--------- ---------
Accreted Value... The accreted value of the old notes The accreted value of the new notes
on December , 2004 will be $ on any date will be identical to
per $1,000 principal amount at that of the old notes.
maturity, and such old notes will As consideration for exchanging old
continue to accrete at a rate of notes for new notes, holders of new
3.125% per year (computed on a notes will receive an exchange fee
semi-annual bond equivalent basis). of $1.25 per $1,000 principal
amount at maturity of the new
notes. The exchange fee will be
payable to holders of new notes on
the exchange date.
Settlement upon
Conversion....... Upon conversion of the old notes, Upon conversion of the new notes,
we will deliver shares of our we will deliver, in respect of each
common stock at the applicable $1,000 principal amount at maturity
conversion rate. of new notes:
- cash in an amount (the "principal
return") equal to the lesser of
(1) the accreted value of each
new note to be converted and (2)
the "conversion value," which is
equal to (a) the applicable
conversion rate, multiplied by
(b) the applicable stock price,
as defined under "Description of
the New Notes -- Conversion
Settlement," and
- if the conversion value is
greater than the accreted value of
each new note, a number of shares
of our common stock (the "net
shares") equal to the sum of the
daily share amounts, calculated
as described under "Description
of the New Notes -- Conversion
Settlement"; provided that, at
our option, we may deliver cash
or a combination of cash and
shares of our common stock equal
to the value of the net shares.
4
OLD NOTES NEW NOTES
--------- ---------
Conversion Rate
Adjustments for
Cash Dividends... The conversion rate will only be Until January 20, 2007, the
adjusted for cash dividends to the conversion rate will be adjusted
extent that the aggregate amount of for any cash dividend or other
cash dividends per share of our distribution consisting exclusively
common stock ("excess dividends") of cash made to all holders of our
in any twelve month period exceeds common stock based on the following
10% of the closing sale price per formula:
share of common stock on the date CR(1) = CR(0) x SP(0)
preceding the date of declaration ---------
of such cash dividend, provided, SP(0) - ED
however, that no adjustment to the where,
conversion rate will be made in CR(0) = the conversion rate in
respect of any such dividends that effect immediately prior to the
are paid during any period for record date for such dividend;
which we are paying contingent CR(1) = the conversion rate in
interest to holders. effect immediately after the ex
The formula for adjusting the dividend date for such cash
conversion rate upon any such dividend or distribution;
dividend is: SP(0) = the average of the closing
CR(1) = CR(0) x SP(0) sale prices of our common stock for
--------- the ten consecutive trading days
SP(0) - ED prior to the trading day
where, immediately preceding the ex
CR(0) = the conversion rate in dividend date of such cash dividend
effect immediately prior to the or distribution; and
record date for such dividend; ED = the amount by which such cash
CR(1) = the conversion rate in dividend or distribution together
effect immediately after the ex with all other such cash dividends
dividend date for such dividend; or distributions made during the
SP(0) = the closing sale price per fiscal quarter (and for which no
share of our common stock on the adjustment has been made), exceeds
date preceding the date of $0.18 per share (appropriately
declaration of such cash dividend; adjusted from time to time for any
and share dividends on or subdivisions
ED = the amount of such excess of our common stock).
dividends. On and after January 20, 2007, the
conversion rate adjustments for
cash dividends will be the same as
the old notes.
5
OLD NOTES NEW NOTES
--------- ---------
Make Whole Amount
and Change of
Control.......... Holders of old notes will have the Holders of new notes will have the
right to convert notes upon the right to convert notes upon the
occurrence of a fundamental change occurrence of a change of control.
at the applicable conversion rate. If certain transactions that
There is no adjustment to the constitute a change of control
conversion rate upon any such occur on or prior to January 20,
event. 2007, under certain circumstances,
The right of holders to require us we will increase the conversion
to purchase such holder's old notes rate by a number of additional
upon a fundamental change lapsed on shares for any conversion of new
July 20, 2002. notes in connection with such
transactions, as described under
"Description of New Notes -- Make
Whole Amount and Change of
Control." The amount of additional
shares will be determined based on
the date such transaction becomes
effective and the price paid per
share of our common stock in such
transaction. However, if such
transaction constitutes a public
acquirer change of control, in lieu
of increasing the conversion rate,
we may elect to adjust our
conversion obligation such that
upon conversion of the new notes,
we will deliver cash and acquirer
common stock as described under
"Description of New Notes -- Make
Whole Amount and Change of
Control."
Calculation of
Earnings per
Share............ The full number of shares The number of shares of our common
underlying the old notes will be stock deemed to be outstanding for
reflected in our diluted earnings the purpose of calculating diluted
per share, whether or not the old earnings per share will not be
notes may be converted pursuant to increased unless the closing sale
their terms. price of our common stock exceeds
the base conversion price of the
new notes and whenever the closing
sale price of our common stock
exceeds the base conversion price,
the number of dilutive shares will
be determined by the formula
described below.
(closing sale price on the last trading day of the applicable reporting period X
applicable conversion rate) -- accreted value
[ ---------------------------------------------------------------- ] X the number of outstanding new notes
closing sale price on the last trading day of the applicable reporting period
6
THE NEW NOTES
New Notes..................... Up to $1,874,978,000 principal amount at
maturity of Zero Coupon Convertible Senior
Notes, Series B Due 2031. We will not pay cash
interest on the new notes prior to maturity,
other than as described below under
"Description of the New Notes -- Optional
Conversion to Semi-Annual Cash Pay Notes upon
Tax Event." Each new note will be issued at an
initial principal amount of $ with a
principal amount at maturity of $1,000.
Maturity...................... July 20, 2031.
Yield to Maturity of New
Notes......................... The accreted value of the notes on December ,
2004 will be $ per $1,000 principal amount
at maturity and the notes will accrete at a
value of 3.125% per year (computed on a
semi-annual bond equivalent basis) from an
initial principal amount of $ to $1,000
principal amount at maturity. If certain
tax-related events were to occur and we so
elect, the new notes will cease to accrete, and
cash interest will accrue at a rate of 3.125%
per annum on the restated principal amount and
be payable semi-annually in arrears.
Exchange Fee.................. As consideration for exchanging old notes for
new notes, holders of new notes will receive an
exchange fee of $1.25 per principal amount at
maturity of the new notes. The exchange fee
will be payable to holders of new notes on the
exchange date.
Conversion Rights............. Holders may convert their new notes at any time
prior to the close of business on July 20, 2031
if any of the "conversion conditions" listed
below are satisfied.
For each new note of $1,000 principal amount at
maturity converted, we will deliver cash and
shares of our common stock, if any, to be
received by tendering holders as described in
"-- Settlement Upon Conversion" below.
Your right to surrender new notes for
conversion will expire at the close of business
on July 20, 2031.
The conversion rate may be adjusted under
certain circumstances, but will not be adjusted
for increases in accreted value.
The "conversion conditions" are as follows:
- the average per share sale price of our
common stock for the 20 trading days
immediately prior to the conversion date is
at least a specified percentage, beginning at
119% and declining 1/3% each year thereafter
until it reaches 110 1/3% for the year
beginning July 20, 2030, of the accreted
value of a new note, divided by the
conversion rate;
- the credit rating assigned to the new notes
by either Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings
Group ("S&P") is reduced to below investment
grade, as defined;
- we call the new notes for redemption;
- we make specified distributions to our
shareholders; or
- we become a party to a consolidation, merger
or binding share exchange pursuant to which
our common stock would be converted into
cash, securities or other property.
Settlement upon Conversion.... Subject to certain exceptions, at the time the
new notes are tendered for conversion, the
aggregate value (the "conversion value") of the
7
cash and shares of our common stock, if any, to
be received by the tendering holders will be
determined by multiplying the applicable
conversion rate by the applicable stock price.
Upon conversion of new notes, we will deliver
the conversion value for each $1,000 principal
amount at maturity of new notes as follows:
- cash in an amount (the "principal return")
equal to the lesser of (1) the accreted value
of each new note to be converted and (2) the
conversion value, and
- if the conversion value is greater than the
applicable accreted value of each new note, a
number of shares of our common stock (the
"net shares") equal to the sum of the daily
share amounts, calculated as described under
"Description of the New Notes -- Conversion
Settlement" below; provided that, at our
option, we may deliver cash or a combination
of cash and shares of our common stock with a
value equal to the net shares.
We will pay the principal return and cash for
fractional shares and deliver net shares no
later than the third business day following the
determination of the applicable stock price.
Conversion Rate Adjustments
for Cash Dividends............ Until January 20, 2007, the conversion rate
will be adjusted for any dividend or other
distribution consisting exclusively of cash
made to all holders of our common stock based
on the following formula:
SP(0)
CR(1) = CR(0) X ---------
SP(0) - ED
where,
CR(0) = the conversion rate in effect
immediately prior to the record date
for such cash dividend or
distribution;
CR(1) = the conversion rate in effect
immediately after the ex dividend date
for such cash dividend or
distribution;
SP(0) = the average of the closing sale prices
of our common stock for the ten
consecutive trading days prior to the
trading day immediately preceding the
ex dividend date of such cash dividend
or distribution; and
ED = the amount by which such cash dividend or
distribution together with all other such
cash dividends or distributions made
during the fiscal quarter (and for which
no adjustment has been made), exceeds
$0.18 per share (appropriately adjusted
from time to time for any share dividends
on or subdivisions of our common stock).
Contingent Interest........... We will pay contingent interest to the holders
of new notes during any six-month period from
January 20 to July 19 and from July 20 to
January 19, commencing January 20, 2007, if the
average market price of a new note for the five
trading days ending on the second trading day
immediately preceding the beginning of the
relevant six-month period equals 120% or more
of the accreted value of such note on the day
immediately preceding the beginning of the
relevant six-month period. The amount of
contingent interest payable per new note in
respect of any six-month period will equal the
greater of
8
(1) cash dividends paid by us per share on our
common stock during that six-month period
multiplied by the number of shares of common
stock equal to the sum of (A) the number of
shares of common stock with a value equal to
the principal return on such date and (B) the
net share amount and (2) 0.125% of such average
market price of a new note for the
five-trading-day period referred to above.
Optional Redemption........... Prior to January 25, 2007, we may redeem all
but not part of the new notes, at their
accreted value, only if the closing price for
our common stock on the New York Stock Exchange
exceeds the conversion price of the new notes,
as defined in this prospectus, by 130% for a
specified period of time. We may, at any time
on or after January 25, 2007, redeem for cash
all or a portion of the new notes at their
accreted value. Indicative redemption
conditions and prices are set forth in this
prospectus beginning on page 36.
Purchase of New Notes by Us at
the Option of the Holder...... Holders may require us to purchase their new
notes for cash on any one of the following
dates at the following prices:
- On January 20, 2005 at a price of $439.67 per
new note;
- On January 20, 2007 at a price of $467.80 per
new note;
- On July 20, 2011 at a price of $537.85 per
new note, plus accrued and unpaid contingent
interest, if any;
- On July 20, 2016 at a price of $628.06 per
new note, plus accrued and unpaid contingent
interest, if any;
- On July 20, 2021 at a price of $733.39 per
new note, plus accrued and unpaid contingent
interest, if any; and
- On July 20, 2026 at a price of $856.38 per
new note plus accrued and unpaid interest, if
any.
Optional Conversion to
Semi-Annual Cash Pay Notes
upon a Tax Event.............. From and after the occurrence of a Tax Event,
as defined in this prospectus, at our option,
the new notes will cease to accrete, and cash
interest will accrue on each new note from the
date on which we exercise such option at the
rate of 3.125% per year on the restated
principal amount (i.e., the accreted value of
the new note on the later of the date of the
Tax Event and the date we exercise such option)
and shall be payable semi-annually on the
interest payment dates of January 20 and July
20 of each year to holders of record at the
close of business on each regular record date
immediately preceding such interest payment
date. Interest will be computed upon a 360-day
year comprised of twelve 30-day months and will
initially accrue from the option exercise date,
as defined in this prospectus, and thereafter
from the last date to which interest has been
paid. In such an event, the redemption prices
will be adjusted as described herein. However,
there will be no changes in a holder's
conversion rights.
Make Whole Amount and Change
of Control.................... If certain transactions that constitute a
change of control occur on or prior to January
20, 2007, under certain circumstances, we will
9
increase the conversion rate by a number of
additional shares for any conversion of new
notes in connection with such transactions, as
described under "Description of the New
Notes -- Make Whole Amount and Change of
Control."
The amount of additional shares will be
determined based on the date such transaction
becomes effective and the price paid per share
of our common stock in such transaction. A
description of how the additional shares will
be determined and a table showing the
additional shares that would apply at various
stock prices and change of control effective
dates based on assumed interest and conversion
rates are set forth under "Description of the
New Notes -- Make Whole Amount and Change of
Control." No additional shares will be added to
the conversion rate if the stock price is less
than $25.51 per share or if the stock price
exceeds $50.00 per share, subject to
adjustment.
If such transaction constitutes a public
acquirer change of control, in lieu of
increasing the conversion rate, we may elect to
adjust our conversion obligation such that upon
conversion of the new notes, we will deliver
cash and acquirer common stock as described
under "Description of the New Notes -- Make
Whole Amount and Change of Control."
Ranking....................... These notes are Masco's general obligations and
will not be secured by any collateral. Your
right to payment under the new notes will be:
- junior to the rights of Masco's secured
creditors to the extent of their security in
Masco's assets;
- equal with the rights of creditors under
Masco's other unsecured unsubordinated debt,
including our old notes and revolving credit
facility; and
- senior to the rights of creditors under debt
expressly subordinated to the new notes
Sinking Fund.................. None.
Material United States Tax
Consequences.................. Each holder will agree, for U.S. federal income
tax purposes, to treat the new notes as
"contingent payment debt instruments" and to be
bound by our application of the Treasury
Regulations that govern contingent payment debt
instruments, including our determination that
the rate at which interest will be deemed to
accrue for federal income tax purposes will be
8.125% compounded semi-annually, which was, at
the time of the issuance of the old notes, the
rate comparable to the rate at which we would
have borrowed on a noncontingent,
nonconvertible borrowing with terms and
conditions otherwise comparable to the old
notes (including the rank, term and general
market conditions). Accordingly, each U.S.
holder will be subject to federal income tax
consequences that are consistent with the
description of the contingent payment debt
instrument regulations contained in the
registration statement relating to the old
notes.
See the section of this prospectus entitled
"Material United States Tax Consequences"
beginning on page 50.
10
Certain Covenants............. We will issue the new notes under the indenture
referred to in "Description of the New Notes"
as the Senior Debt Indenture. For a description
of certain covenants or restrictions under the
indenture, see "Description of the New
Notes -- Covenants Restricting Pledges, Mergers
and Other Significant Corporate Actions."
Global Securities............. The new notes will be issued only in book-entry
form, which means that they will be represented
by one or more permanent global securities
registered in the name of The Depository Trust
Company. The global securities will be
deposited with the trustee as custodian for the
Depositary.
Listing....................... Our common stock is listed on the New York
Stock Exchange under the symbol "MAS." We will
apply for listing of the new notes on the New
York Stock Exchange.
11
RISK FACTORS
Before tendering any old notes in the exchange offer, you should carefully
consider the following risks, together with all of the other information
contained, or incorporated by reference, in this prospectus. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occurs, our business, financial condition and results
of operations could be materially adversely affected.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, the risk factors set forth below.
See also "Special Note Regarding Forward-Looking Statements" above.
RISKS RELATED TO OUR BUSINESS
WE CANNOT ASSURE YOU THAT OUR GROWTH STRATEGIES WILL BE SUCCESSFUL.
While the Company's current strategy emphasizes organic growth,
historically mergers and acquisitions have historically contributed
significantly to our long-term growth, after the initial impact on earnings of
transaction-related costs and expenses such as interest and added depreciation
and amortization. Successful strategic acquisitions require the integration of
operations and management and other efforts to realize the benefits that may be
available to us following the acquisition. Although we believe that we have been
successful in doing so in the past, we can give no assurance that we will
continue to be able to identify, acquire and integrate successful strategic
acquisitions in the future or be able to implement successfully our operating
and growth strategies within our existing markets or with respect to any future
product or geographic diversification efforts.
OUR BUSINESS HAS BEEN AFFECTED BY ECONOMIC WEAKNESS AND BUSINESS CONDITIONS.
Factors that affect our results of operations include the levels of home
improvement and residential construction activity, principally in North America
and Europe (including repair and remodeling and new construction), our ability
to effectively manage our overall cost structure, fluctuations in European
currencies (primarily the euro and British pound), and our ability to maintain
our leadership positions in our markets in the face of increasing global
competition. Historically, we have been able largely to offset cyclical declines
in housing markets through new product introductions and acquisitions as well as
market share gains. The Company's current strategy emphasizes organic growth
rather than acquisitions. We can give no assurance that we will be able to
offset these cyclical declines in the future.
WE RELY ON OUR KEY CUSTOMERS.
Our relationships with home centers are important to us. Direct sales of
our product lines to home center retailers have increased substantially in
recent years and, in 2003, sales to our largest customer, The Home Depot, were
$2.5 billion (approximately 22 percent). Although builders, dealers and other
retailers represent other channels of distribution for our products, we believe
that the loss of a substantial portion of our sales to The Home Depot would have
a material adverse impact on our company.
OUR INTERNATIONAL BUSINESS HAS SPECIAL RISKS.
Our international operations outside of North America, principally in
Europe, are subject to political, monetary, economic and other risks attendant
generally to international businesses. These risks generally vary from country
to country. Results of existing European operations have been adversely
influenced in recent years, in part due to softness in our European markets,
competitive pricing pressures on certain products, the effect of a higher
percentage of lower margin sales to total European sales and fluctuating U.S.
dollar exchange rate.
OUR MARKETS ARE HIGHLY COMPETITIVE.
The major markets for our products are highly competitive. Competition in
all of our product lines is based primarily on performance, quality, style,
delivery, customer service and price, with the relative importance of such
factors varying among product categories.
12
WE HAVE FINANCIAL COMMITMENTS AND INVESTMENTS IN FINANCIAL ASSETS.
As part of our acquisition strategy we often structure acquisition and
other transactions to provide, in addition to the consideration paid at closing,
contingent consideration to be paid in cash or stock if specified conditions are
met. These conditions may include the operating performance of the acquired
business in the case of an acquisition, the price of our common stock, or both.
In addition to possibly increasing the consideration we ultimately pay for an
acquisition, these conditions may also affect the number of contingently
issuable shares that are included in our periodic computation of diluted
earnings per common share, the amount of our accrued liabilities and our results
of operations.
We also maintain investments in a number of private equity funds and in
marketable securities. These investments are generally carried as long-term
assets on our balance sheet. We record investments in marketable securities at
fair value, which is subject to adjustment based on market fluctuations.
Unrealized losses that do not represent other-than-temporary declines in fair
value and unrealized gains are recognized, net of taxes, through shareholders'
equity as a component of other comprehensive income. Realized gains and losses
and charges for other-than-temporary declines in fair value are included in
other income.
Our investments in private equity funds have no readily ascertainable
market value. These equity funds may invest in transactions that have an above
average degree of financial leverage or business risk. Our investments in these
funds are carried at cost and are periodically evaluated for impairment or when
circumstances indicate an impairment may exist. Income and gains, net realized
from these investments are included in other income when distributed or
received. In addition, we have commitments that may require us to contribute
additional capital to these private equity funds.
WE ARE IN THE PROCESS OF EVALUATING OUR INTERNAL CONTROL SYSTEM OVER FINANCIAL
REPORTING IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002.
We are in the process of evaluating our internal control system over
financial reporting in accordance with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. Because of our historical growth through acquisition
and our decentralized organizational structure with over 50 reporting units and
over 600 operating locations worldwide, we estimate that we have well in excess
of 20,000 key controls over financial reporting. As part of this initiative, we
have invested a substantial amount of time and resources in documenting and
testing our system of internal control. During the course of this comprehensive
process, we and our independent auditors have identified control deficiencies.
We have corrected a number and we are remediating others of these control
deficiencies. However, there can be no assurance that one or more deficiencies
will not constitute what we or our independent auditors conclude is a material
weakness in internal control over financial reporting. Additionally, there can
be no assurance in light of our decentralization, the number of our operating
units and magnitude of the overall initiative, that we will be able to complete
the process in time to allow our independent auditors to finish their assessment
and issue their audit report on a timely basis. We believe, however, based on
our current knowledge, that our documentation, testing and final assessment will
be completed on a timely basis.
RISKS ASSOCIATED WITH THE NEW NOTES
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW
NOTES.
The new notes are a new issue of securities. There is no active public
trading market for the new notes. We will apply for listing of the new notes and
the shares of common stock issuable upon conversion of the new notes on the New
York Stock Exchange; however, we can give no assurance that the new notes or the
underlying shares of common stock will be so listed. The dealer managers have
also advised us that they currently intend to make a market in the new notes,
but they are not obligated to do so and may discontinue any such market-making
at any time. As a consequence, we cannot assure you that an active trading
market will develop for your new notes, that you will be able to sell your new
notes, or that, even if you can sell your new notes, you will be able to sell
them at an acceptable price.
13
THE TRADING PRICES FOR THE NEW NOTES WILL BE DIRECTLY AFFECTED BY THE TRADING
PRICES FOR OUR COMMON STOCK, WHICH ARE IMPOSSIBLE TO PREDICT.
The price of our common stock could be affected by possible sales of our
common stock by investors who view the new notes as a more attractive means of
equity participation in our company and by hedging or arbitrage trading activity
that may develop involving our common stock. This hedging or arbitrage could, in
turn, affect the trading prices of the new notes.
THE AMOUNT YOU MUST INCLUDE IN YOUR INCOME FOR UNITED STATES FEDERAL INCOME
TAX PURPOSES WILL EXCEED THE STATED YIELD ON THE NEW NOTES.
We and each holder will agree to treat the notes as contingent payment debt
instruments for United States federal income tax purposes. As a result, despite
some uncertainty as to the proper application of the applicable Treasury
regulations, U.S. holders will be required to include in their gross income,
each year, amounts of interest in excess of the stated yield of the notes. U.S.
holders will recognize gain or loss on the sale of a new note, repurchase by us
of a new note at the U.S. holder's option, conversion of a new note or
redemption of a new note, in an amount equal to the difference between the
amount realized on the sale, repurchase by us at the U.S. holder's option,
conversion or redemption (including the fair market value of our common stock
received upon conversion or otherwise) and the U.S. holder's adjusted tax basis
in the new note. Any gain recognized by the U.S. holders on the sale, repurchase
by us at the U.S. holder's option, conversion or redemption of a new note
generally will be ordinary interest income; any loss will be ordinary loss to
the extent of interest previously included in income and, thereafter, capital
loss. See "Material United States Tax Consequences."
THE MAKE-WHOLE AMOUNT PAYABLE UPON THE OCCURRENCE OF A CHANGE OF CONTROL MAY
NOT ADEQUATELY COMPENSATE YOU FOR THE LOST OPTION TIME VALUE OF YOUR NEW NOTES
AS A RESULT OF SUCH CHANGE OF CONTROL AND MAY NOT BE ENFORCEABLE.
If a change of control occurs on or prior to January 20, 2007, we may
increase the conversion rate for new notes converted in connection with the
change of control. The amount of such increase to the conversion rate, if any,
will be based on the price paid per share of our common stock in the transaction
constituting the change of control. A description of how the make-whole amount
will be determined is described under "Description of the New Notes -- Make
Whole Amount and Change of Control." While the make-whole amount is designed to
compensate you for the lost option time value of your new notes as a result of a
change of control, the make-whole amount is only an approximation of such lost
value and may not adequately compensate you for such loss. In addition, if the
change of control occurs after January 20, 2007 or if the price paid per share
of our common stock in the change of control is less than $25.51 or more than
$50.00 (subject to adjustment), there will be no such make-whole amount.
Furthermore, our obligation to pay the make-whole amount could be considered a
penalty, in which case the enforceability thereof would be subject to general
principles of reasonableness of economic remedies.
RISKS RELATING TO THE EXCHANGE OFFER
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OF THE OLD
NOTES FOR THE NEW NOTES ARE NOT ENTIRELY CLEAR.
The U.S. federal income tax consequences of the exchange offer and of the
ownership and disposition of the new notes are not entirely clear. We intend to
take the position that the modifications to the old notes resulting from the
exchange of old notes for new notes should not constitute a significant
modification of the old notes for tax purposes. If, consistent with our
position, the exchange of old notes for new notes does not constitute a
significant modification of the old notes. Consistent with our position, the new
notes should be treated as a continuation of the old notes and there should be
no U.S. federal income tax consequences to a holder who exchanges old notes for
new notes pursuant to the exchange offer except for the exchange fee. If,
contrary to our position, the exchange constitutes a significant modification,
the tax consequences to you could materially differ.
See the section of this prospectus entitled "Material United States Tax
Consequences" beginning on page 50.
14
IF YOU DO NOT EXCHANGE YOUR OLD NOTES, THE OLD NOTES YOU RETAIN MAY BECOME
LESS LIQUID AS A RESULT OF THE EXCHANGE OFFER.
If a significant number of old notes are exchanged in the exchange offer,
the liquidity of the trading market for the old notes, if any, after the
completion of the exchange offer may be substantially reduced. Any old notes
exchanged will reduce the aggregate number of old notes issued and outstanding.
This reduction may in turn increase the volatility of the market price for the
old notes. In addition, the old notes may trade at a discount to the price at
which they would trade if the transactions contemplated by this prospectus were
not consummated, subject to prevailing interest rates, the market for similar
securities and other factors. We cannot assure you that an active market in the
old notes will exist or be maintained and we cannot assure you as to the prices
at which the old notes may be traded.
15
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes.
The new notes will be exchanged for old notes as described in this prospectus
upon our receipt of old notes. We will cancel all of the old notes surrendered
in exchange for the new notes.
PRICE RANGE OF OLD NOTES AND COMMON STOCK
Our old notes and common stock are listed on the New York Stock Exchange
(the "NYSE") under the symbols "MAS ZR31" and "MAS," respectively. The following
table sets forth the high and low trading sale prices for our old notes as
reported by published financial sources, high and low trading prices for our
common stock for the periods indicated as reported on the NYSE Composite Tape
and the cash dividends declared on the common stock during such periods.
OLD COMMON
NOTES PRICE STOCK PRICE
------------- --------------- DIVIDENDS ON
HIGH LOW HIGH LOW COMMON STOCK
----- ----- ------ ------ ------------
(% OF PAR) (IN DOLLARS)
YEAR ENDED 2002
First Quarter.......................... 43.00 36.88 $28.99 $24.10 $0.135
Second Quarter......................... 43.00 40.00 29.43 25.39 0.135
Third Quarter.......................... 42.00 32.00 27.05 19.00 0.14
Fourth Quarter......................... 42.50 36.00 22.60 17.25 0.14
YEAR ENDED 2003
First Quarter.......................... 42.25 36.13 $21.96 $16.59 $0.14
Second Quarter......................... 44.00 36.00 25.58 18.60 0.14
Third Quarter.......................... 43.00 39.00 25.99 22.45 0.16
Fourth Quarter......................... 43.50 40.00 28.44 24.61 0.16
YEAR ENDED 2004
First Quarter.......................... 46.00 42.50 $30.80 $25.88 $0.16
Second Quarter......................... 46.25 41.00 31.47 26.29 0.16
Third Quarter.......................... 48.00 41.00 35.00 29.69 0.18
Fourth Quarter (through November 11)... 49.00 45.00 36.29 33.05 --
On November 11, 2004, the last reported sale price of our old notes and
common stock was 48.00% per note and $35.88 per share, respectively. At November
11, 2004, there were approximately 6,500 holders of record of our common stock.
DIVIDEND POLICY
As shown in the table above, we declared quarterly cash dividends on our
common stock in each of the years ended December 31, 2003 and 2002 and in the
quarters ended March 31, June 30 and September 30, 2004. We expect that our
practice of paying quarterly dividends on our common stock will continue,
although the payment of future dividends is at the discretion of our board of
directors and will depend upon our earnings, capital requirements, financial
condition and other factors.
16
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratio of earnings to fixed charges for the years ended December 31,
1999 through 2003 and the nine months ended September 30, 2004 are set forth in
the table below.
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2004 2003 2002 2001 2000 1999
------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges(1).... 8.0 5.3 4.6 2.0 4.7 6.7
Ratio of earnings to combined fixed
charges and preferred stock
dividends(2)........................... 7.7 5.0 4.4 2.0 4.7 6.7
---------------
(1) Ratio of earnings to fixed charges means the ratio of income before income
taxes, extraordinary income and fixed charges to fixed charges, where fixed
charges are the aggregate of interest expense, including amortization of
debt expense and the estimated interest factor for rentals. Years prior to
2002 have not been adjusted to exclude goodwill amortization expense.
(2) Ratio of earnings to combined fixed charges and preferred stock dividends
means the ratio of income before income taxes, extraordinary income and
fixed charges to fixed charges and preferred stock dividends.
17
CAPITALIZATION
The following table sets forth certain unaudited information regarding our
capitalization as of September 30, 2004 on an actual basis and as adjusted,
assuming all of the old notes are exchanged pursuant to the exchange offer. This
information should be read in conjunction with our consolidated financial
statements, including the notes thereto, and the other financial information
incorporated by reference in this prospectus. See the section of this prospectus
entitled "Where You Can Find More Information."
AS OF SEPTEMBER 30, 2004
------------------------
ACTUAL AS ADJUSTED
------- ------------
(UNAUDITED)
(IN MILLIONS,
EXCEPT SHARE DATA)
Cash and cash investments................................... $ 969 $ 969
====== ======
Long-term debt:
Zero Coupon Convertible Senior Notes due 2031(1).......... $ 817 $ --
Zero Coupon Convertible Senior Notes, Series B due
2031(1)................................................ -- 817
Other long-term liabilities............................... 3,393 3,393
------ ------
Total long-term debt................................... 4,210 4,210
------ ------
Shareholders' equity:
Common shares, par value $1.00 per share, 1,400,000,000
authorized, 449,220,000 issued......................... 449 449
Paid-in capital........................................... 724 724
Retained earnings......................................... 3,856 3,856
Accumulated other comprehensive income.................... 409 409
Less: Restricted stock awards............................. (196) (196)
Shareholders' equity................................... 5,242 5,242
------ ------
Total capitalization................................. $9,452 $9,452
====== ======
---------------
(1) Accreted value at September 30, 2004.
18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Masco are derived
from and should be read in conjunction with our audited financial statements
incorporated by reference to our Current Report on Form 8-K filed with the SEC
on November 12, 2004 (which supersedes the corresponding financial data in our
Annual Report on Form 10-K for the year ended December 31, 2003.) The
consolidated statement of income data for the years ended December 31, 2003,
2002 and 2001, and the balance sheet data as of December 31, 2003 and 2002 are
derived from and should be read in conjunction with our audited financial
statements incorporated by reference to our Current Report on Form 8-K filed
with the SEC on November 12, 2004. The consolidated statement of income data for
the years ended December 31, 2000 and 1999 are derived from our accounting
records. The consolidated statement of income data for the nine month periods
ended September 30, 2004 and 2003 and the consolidated balance sheet data as of
September 30, 2004 and 2003 are derived from our unaudited financial statements
which, in our opinion, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations and financial position.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -----------------
2003 2002 2001 2000 1999 2004 2003
------- ------- ------ ------- ------- ------- -------
(IN MILLIONS)
STATEMENT OF INCOME DATA(1):
Net sales................... $10,571 $ 8,831 $7,705 $ 6,506 $ 5,577 $ 9,040 $ 7,803
Cost of sales............... 7,330 6,040 5,377 4,438 3,717 6,224 5,414
Selling, general and
administrative expenses... 1,776 1,393 1,230 1,030 1,014 1,491 1,312
(Income) charge from planned
disposition of a
business(2)............... -- (16) -- 90 -- -- --
(Income) regarding
litigation
settlement(3)............. (72) 147 -- -- -- (30) (71)
Goodwill impairment
charge(4)................. 53 -- -- -- -- -- --
Amortization of goodwill.... -- -- 87 60 39 -- --
Other income (expense),
net(5).................... (204) (301) (733) (64) (2) (43) (147)
------- ------- ------ ------- ------- ------- -------
Income from continuing
operations before income
taxes and minority
interest.................. 1,280 966 278 824 805 1,312 1,001
Income taxes................ 477 327 95 284 303 474 357
Minority interest......... (13) -- -- -- -- (14) (8)
(Loss) income from
discontinued operations,
after income taxes........ 16 43 16 52 68 (36) 78
Cumulative effect of
accounting change,
net(6).................... -- (92) -- -- -- -- --
------- ------- ------ ------- ------- ------- -------
Net income.................. $ 806 $ 590 $ 199 $ 592 $ 570 $ 788 $ 714
======= ======= ====== ======= ======= ======= =======
Earnings per common share:
Basic:
Income from continuing
operations........... $ 1.65 $ 1.32 $ 0.40 $ 1.22 $ 1.15 $ 1.84 1.32
Income (loss) from
discontinued
operations........... 0.03 0.09 0.03 0.12 0.16 (0.08) 0.16
Cumulative effect of
accounting change,
net............... -- (0.19) -- -- -- -- --
------- ------- ------ ------- ------- ------- -------
Net income........... $ 1.68 $ 1.22 $ 0.43 $ 1.34 $ 1.31 $ 1.76 $ 1.48
======= ======= ====== ======= ======= ======= =======
19
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -----------------
2003 2002 2001 2000 1999 2004 2003
------- ------- ------ ------- ------- ------- -------
(IN MILLIONS EXCEPT PER SHARE DATA)
Diluted:
Income from continuing
operations........... $ 1.61 $ 1.24 $ 0.39 $ 1.20 $ 1.12 $ 1.81 $ 1.28
Income (loss) from
discontinued
operations and gain,
net of income
taxes................ 0.03 0.08 0.03 0.11 0.15 (0.08) 0.16
Cumulative effect of
accounting change,
net.................. -- (0.18) -- -- -- -- --
------- ------- ------ ------- ------- ------- -------
Net income........... $ 1.64 $ 1.15 $ 0.42 $ 1.31 $ 1.28 $ 1.73 $ 1.44
======= ======= ====== ======= ======= ======= =======
CASH FLOW DATA:
Net cash from operating
activities................ $ 1,421 $ 1,225 $ 967 $ 734 $ 491 $ 973 $ 924
Net cash from (for)
financing activities...... $(1,617) $ 767 $ (158) $ 380 $ 319 $ (964) $(1,166)
Net cash from (for)
investing activities...... $ (128) $(1,296) $ (667) $(1,175) $(1,132) $ 204 $ 55
BALANCE SHEET DATA:
Total assets................ $12,149 $12,050 $9,021 $ 7,604 $ 6,517 $12,389 $12,201
------- ------- ------ ------- ------- ------- -------
Long-term debt.............. $ 3,848 $ 4,316 $3,628 $ 3,018 $ 2,431 $ 4,210 $ 3,836
Total liabilities........... $ 6,693 $ 6,756 $5,064 $ 4,318 $ 3,498 $ 7,147 $ 6,796
------- ------- ------ ------- ------- ------- -------
Shareholder's equity........ $ 5,456 $ 5,294 $3,958 $ 3,286 $ 3,019 $ 5,242 $ 5,405
------- ------- ------ ------- ------- ------- -------
---------------
(1) Statement of income data has been restated to reclassify discontinued
operations as reported in our Current Report on Form 8-K filed with the SEC
on November 12, 2004.
(2) Includes a pre-tax gain of $16 million for the year ended December 31, 2002
related to certain long-lived assets which were written down in 2000.
Includes a $145 million pre-tax, non-cash charge for the planned disposition
of businesses and write down of certain investments for the year ended
December 31, 2000.
(3) Includes the litigation settlement pre-tax (income) charge, net, of $(30)
million, $(71) million, $(72) million and $147 million in the nine months
ended September 30, 2004 and 2003 and for the years ended December 31, 2003
and 2002, respectively, pertaining to the Decorative Architectural Products
segment.
(4) Includes a $53 million pre-tax goodwill impairment charges as follows:
Plumbing Products -- $17 million; Decorative Architectural Products -- $5
million and Other Specialty Products -- $31 million.
(5) Includes a $530 million pre-tax, non-cash charge related to the write down
of certain investments, principally, securities of Furnishings
International, Inc. for the year ended December 31, 2001.
(6) On adoption of SFAS No. 142, a non-cash, pre-tax impairment charge of $117
million ($92 million, net of income tax credit of $25 million) relating
primarily to certain of our European businesses that had been affected by
weak market and economic conditions, was recognized as a cumulative effect
of change in accounting principle, effective January 1, 2002.
20
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The purpose of the exchange offer is to change certain terms of the old
notes including the type of consideration we will pay holders of the new notes
who convert their new notes. We believe that changing the consideration payable
upon conversion of the old notes will reduce the likelihood of dilution to our
shareholders, which is in the best interests of the company and our
shareholders.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of it would not be in compliance with the securities or
blue sky laws of such jurisdiction.
EXCHANGE FEE
As consideration for exchanging old notes for new notes, holders of new
notes will receive an exchange fee payment of $1.25 per $1,000 principal amount
at maturity of new notes. The exchange fee will be payable to holders of new
notes on the exchange date.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together are the exchange offer, we will accept for exchange
old notes which are properly tendered on or prior to the expiration date, unless
you have previously withdrawn them.
- When you tender to us old notes as provided below, our acceptance of the
old notes will constitute a binding agreement between you and us upon the
terms and subject to the conditions in this prospectus and in the
accompanying letter of transmittal.
- For each $1,000 principal amount at maturity of old notes you tender
accepted by us in the exchange offer, we will give you that principal
amount at maturity of new notes.
- The exchange offer expires at midnight New York City time on December ,
2004. We may, however, in our sole discretion, extend the period of time
for which the exchange offer is open. References in this prospectus to
the expiration date mean midnight New York City time on December , 2004
or, if extended by us, the latest time and date to which the exchange
offer is extended by us.
- We will keep the exchange offer open for no fewer than 20 business days,
or longer if required by applicable law, after the date that we first
mail notice of the exchange offer to the holders of the old notes. We are
sending this prospectus, together with the letter of transmittal, on or
about the date of this prospectus to all of the registered holders of old
notes at their addresses listed in the trustee's security register with
respect to the old notes.
- We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and thereby delay acceptance of
any old notes, by giving oral or written notice of an extension to the
exchange agent and notice of that extension to the holders as described
below. During any extension, all old notes previously tendered will
remain subject to the exchange offer unless withdrawal rights are
exercised. Any old notes not accepted for exchange for any reason will be
returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
- We expressly reserve the right to amend or terminate the exchange offer
at any time prior to the expiration date, and not to accept for exchange
any old notes that we have not yet accepted for exchange, if any of the
conditions of the exchange offer specified below under "Conditions to the
Exchange Offer" are not satisfied.
21
- We will give oral or written notice of any extension, amendment, waiver,
termination or non-acceptance described above to holders of the old notes
as promptly as practicable. If we amend this exchange offer in any
respect or waive any condition to the exchange offer, we will give
written notice of the amendment or waiver to the exchange agent and will
make a public announcement of the amendment or waiver as promptly as
practicable afterward. If we extend the expiration date, we will give
notice by means of a press release or other public announcement no later
than 9:00 a.m., New York City time, on the business day after the
previously scheduled expiration date. Without limiting the manner in
which we may choose to make any public announcement and subject to
applicable law, we will have no obligation to publish, advertise or
otherwise communicate any public announcements other than by issuing a
release to the Dow Jones News Service.
- Holders of old notes do not have any appraisal or dissenters rights in
connection with the exchange offer.
- We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934, as amended and the
applicable rules and regulations of the United States Securities and
Exchange Commission.
IMPORTANT RESERVATION OF RIGHTS REGARDING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, time of receipt and
acceptance of old notes tendered for exchange will be determined by Masco
in its sole discretion, which determination shall be final and binding.
- We reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any
particular old notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
- We also reserve the absolute right to waive any defects or irregularities
or conditions of the exchange offer as to any particular old notes either
before or after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender old notes in the exchange
offer. Unless we agree to waive any defect or irregularity in connection
with the tender of old notes for exchange, you must cure any defect or
irregularity within any reasonable period of time as we shall determine.
- Our interpretation of the terms and conditions of the exchange offer as
to any particular old notes either before or after the expiration date
shall be final and binding on all parties.
- Neither Masco, the exchange agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to
any tender of old notes for exchange, nor shall any of them incur any
liability for failure to give any notification.
CONDITIONS TO THE EXCHANGE OFFER
We will accept for exchange all old notes validly tendered and not
withdrawn. We will not be required to accept for exchange any old notes and may
terminate, amend or extend the exchange offer before the acceptance of the old
notes, if, on or before the expiration date:
- We determine in our sole discretion prior to the expiration of the
exchange offer that the exchange will result in adverse tax consequences
to us;
- We or any of our subsidiaries do not receive or obtain any consent,
authorization, approval or exemption of or from any governmental
authority that may be required or advisable in connection with the
completion of this exchange offer, including that the registration
statement of which this prospectus is a part shall not have been
declared, or shall not continue to be, effective;
- any action, proceeding or litigation seeking to enjoin, make illegal,
delay the completion of or challenge in any respect the exchange offer,
or otherwise relating in any manner to the exchange offer, is instituted
or threatened;
22
- any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect or any statute, rule, regulation, governmental order or
injunction shall have been proposed, enacted, enforced or deemed
applicable to the exchange offer, any of which would or might restrain,
prohibit or delay completion of the exchange offer or impair the
contemplated benefits of the exchange offer, to us;
- any tender or exchange offer, other than this exchange offer, with
respect to some or all of the outstanding old notes, or any merger,
acquisition or other business combination proposal involving us or a
substantial portion of our assets, shall have been proposed, announced or
made by any person or entity; or
- there has occurred:
- any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States or the European Union;
- the declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States;
- any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in our reasonable
judgment, have a material adverse effect on our business, condition
(financial or other), income, operations or prospects or otherwise
materially impair in any way our contemplated future conduct; or
- in the case of any of the foregoing existing at the time of the
commencement of the exchange offer, a material acceleration or worsening
thereof.
The conditions listed above are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any of these conditions. On or
before the expiration date, we may waive these conditions in our sole discretion
in whole or in part at any time and from time to time. The failure by us at any
time to exercise any of the above rights will not be considered a waiver of that
right, and these rights will be considered to be ongoing rights which may be
asserted, before the expiration date, at any time and from time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- refuse to accept any old notes, return all tendered old notes to the
tendering holders, and terminate the exchange offer;
- extend the exchange offer and retain all old notes tendered before the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw these old notes (see "-- Withdrawal Rights" below);
or
- waive unsatisfied conditions relating to the exchange offer and accept
all properly tendered old notes that have not been withdrawn.
PROCEDURES FOR TENDERING
WHAT TO SUBMIT AND HOW
If you, as the registered holder of old notes, wish to tender your old
notes for exchange in the exchange offer, you must transmit a properly completed
and duly executed letter of transmittal (or agent's message in lieu thereof as
described below under "-- Book-Entry Transfer") to J.P. Morgan Trust Company,
National Association, as exchange agent at the address set forth below under
"-- Exchange Agent" on or prior to the expiration date.
23
In addition,
(1) a timely confirmation of a book-entry transfer of old notes, if
such procedure is available, into the exchange agent's account at DTC using
the procedure for book-entry transfer described below, must be received by
the exchange agent prior to the expiration date; or
(2) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and notices of
guaranteed delivery is at your election and risk. If delivery is by mail, we
recommend that registered mail, properly insured, with return receipt requested,
be used. In all cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or old notes should be sent to us.
HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes being surrendered for
exchange are tendered either:
(1) by a registered holder of the old notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, the guarantees must be guaranteed by an
"eligible guarantor institution" meeting the requirements of the exchange agent,
which requirements include membership or participation in the Security Transfer
Agent Medallion Program, referred to in this prospectus as STAMP, or such other
"signature guarantee program" as may be determined by the exchange agent in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
If the letter of transmittal or powers of attorney are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers or
corporations or others acting in a fiduciary or representative capacity, the
person should so indicate when signing and, unless waived by us, proper evidence
satisfactory to us of its authority to so act must be submitted.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer old notes into the exchange agent's account in accordance with DTC's
Automated Tender Offer Program procedures for transfer. However, the exchange
for the old notes so tendered will only be made after timely confirmation of
book-entry transfer of old notes into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message, transmitted by DTC and
received by the exchange agent and forming a part of a book-entry confirmation.
The agent's message must state that DTC has received an express acknowledgment
from the participant tendering old notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce the agreement
against that participant.
Although delivery of old notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal, or a
facsimile copy, properly completed and duly executed, with any required
signature guarantees, must in any case be delivered to and received by the
exchange agent at its address listed under "-- Exchange Agent" on or prior to
the expiration date.
Since your old notes are held through DTC, you must complete a form called
"instructions to registered holder and/or book-entry participant", which will
instruct the DTC participant through whom you hold your notes of your intention
to tender your old notes or not tender your old notes. Please note that delivery
of documents to DTC in accordance with its procedures does not constitute
delivery to the exchange agent and we
24
will not be able to accept your tender of notes until the exchange agent
receives a letter of transmittal (or an agent's message in lieu thereof) and a
book-entry confirmation from DTC with respect to your notes. A copy of that form
is available from the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you are a holder of old notes and you want to tender your old notes but
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if
(1) the tender is made through an eligible institution;
(2) prior to the expiration date, the exchange agent receives, by
facsimile transmission, mail or hand delivery, from that eligible
institution a properly completed and duly executed letter of transmittal
and notice of guaranteed delivery, substantially in the form provided by us
and stating:
- the name and address of the holder of old notes;
- the amount of old notes tendered; and
- that the tender is being made by delivering that notice and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery,
confirmation of a book-entry transfer of the tendered old notes to the
exchange agent; and
(3) confirmation of a book-entry transfer is received by the exchange
agent within three New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Once all of the conditions to the exchange offer are satisfied or waived,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "-- Conditions to the Exchange Offer". For purposes of the exchange
offer, our giving of oral or written notice of our acceptance to the exchange
agent will be considered our acceptance of the exchange offer.
In all cases, we will issue new notes in exchange for old notes that are
accepted for exchange only after timely receipt by the exchange agent of:
- a book-entry confirmation of transfer of old notes into the exchange
agent's account at DTC using the book-entry transfer procedures described
below; and
- a properly completed and duly executed letter of transmittal (or agent's
message in lieu thereof).
We will have accepted validly tendered old notes if and when we have given
oral or written notice to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purposes of receiving the new notes from
us, and will make the exchange on, or promptly after, the expiration date.
Following this exchange the holders in whose names the new notes will be
issuable upon exchange will be deemed the holders of record of the new notes.
The reasons we may not accept tendered old notes are:
- the old notes were not validly tendered pursuant to the procedures for
tendering. See "-- Procedures for Tendering";
- we determine in our reasonable discretion that any of the conditions to
the exchange offer have not been satisfied. See "-- Conditions to the
Exchange Offer";
- a holder has validly withdrawn a tender of old notes as described under
"Withdrawal Rights"; or
- we have prior to the expiration date of the exchange offer and in our
sole discretion, delayed or terminated the exchange offer. See "-- Terms
of the Exchange Offer; Period for Tendering";
If we do not accept any tendered old notes for any reason, we will return
any unaccepted or non-exchanged old notes tendered as promptly as practicable
after the expiration or termination of the exchange offer.
25
Old notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding and
remain subject to their original terms under the indenture.
WITHDRAWAL RIGHTS
You can withdraw your tender of old notes at any time on or prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"-- Exchange Agent". Any notice of withdrawal must specify:
- the name of the person having tendered the old notes to be withdrawn;
- the principal amount at maturity of the old notes to be withdrawn; and
- if old notes have been tendered using the procedure for book-entry
transfer described above, the name and number of the account at DTC to be
credited with the withdrawn old notes, and otherwise comply with the
procedures of that facility.
Please note that all questions as to the validity, form, eligibility and
time of receipt of notices of withdrawal will be determined by us, and our
determination shall be final and binding on all parties. Any old notes so
withdrawn will be considered not to have been validly tendered for exchange for
purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you
may do so by following one of the procedures described under "-- Procedures for
Tendering" above at any time on or prior to the expiration date.
EXCHANGE AGENT
J.P. Morgan Trust Company, National Association has been appointed as the
Exchange Agent for the exchange offer. All executed letters of transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the Exchange Agent, addressed as
follows:
Deliver to:
J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION
Institutional Trust Services
2001 Bryan Street, 9th Floor
Dallas, Texas 75201
Attention: Exchanges, Frank Ivins
Masco Corporation Offer to Exchange Zero Coupon Convertible Senior Notes,
Series B due 2031 for
Zero Coupon Convertible Senior Notes due 2031
FACSIMILE TRANSMISSIONS:
(By Eligible Institutions Only)
Fax: (214) 468-6494
Attention: Frank Ivins
Masco Corporation Offer to Exchange Zero Coupon Convertible Senior Notes,
Series B due 2031 for
Zero Coupon Convertible Senior Notes due 2031
TO CONFIRM BY TELEPHONE:
(800) 275-2048
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
26
DEALER MANAGERS
We have retained Citigroup Global Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated to act as co-dealer managers in connection with the
exchange offer. We will pay a fee to the dealer managers as described below in
"-- Fees and Expenses." The obligations of the dealer managers to perform such
functions are subject to certain conditions. We have agreed to indemnify the
dealer managers against certain liabilities, including liabilities under the
federal securities laws or to contribute to payments that the dealer managers
may be required to make in respect thereof. Questions regarding the terms of the
exchange offer may be directed to the dealer managers at the address and
telephone number set forth on the back cover of this prospectus.
The dealer managers, and their respective affiliates have provided, from
time to time, and may in the future provide, investment banking, commercial
banking, financial and other services to us for which we have paid, and intend
to pay, customary fees. The dealer managers, in the ordinary course of business,
also make markets in our securities, including the old notes. As a result, from
time to time, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated may own certain of our securities, including the old notes.
Questions concerning tender procedures and requests for additional copies
of this prospectus or the letter of transmittal should be directed to the dealer
managers at the address set forth on the back cover of this prospectus. Holders
of old notes may also contact their custodian bank, depositary, broker, trust
company or other nominee for assistance concerning the exchange offer.
FEES AND EXPENSES
The expenses of soliciting tenders of old notes will be borne by us. We
will pay the dealer managers a fee of $0.88 per $1,000 principal amount at
maturity of old notes exchanged pursuant to the exchange offer, payable on the
exchange date, or if we terminate the exchange offer, on the date of such
termination. If the aggregate principal amount at maturity of old notes
exchanged is more than 90% of the aggregate principal amount at maturity of the
old notes, we will pay an additional fee of $0.22 per $1,000 principal amount at
maturity of old notes exchanged. We will also reimburse the dealer managers for
reasonable out-of-pocket expenses. The exchange agent will mail solicitation
materials on our behalf. The total expense expected to be incurred by us in
connection with the exchange offer is estimated to be approximately $2.6 million
assuming all old notes are tendered in the exchange offer.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes, except that holders who instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder, will be responsible for the payment of any applicable transfer tax.
CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE OFFER
Issuance of the new notes in exchange for the old notes under the exchange
offer will be made only after timely receipt by the exchange agent of such old
notes, a properly completed and duly executed letter of transmittal (or agent's
message in lieu thereof) and all other required documents. Therefore, holders
desiring to tender old notes in exchange for new notes should allow sufficient
time to ensure timely delivery. We are under no duty to give notification of
defects or irregularities of tenders of old notes for exchange. To the extent
that old notes are tendered and accepted in connection with the exchange offer,
any trading markets for the remaining old notes could be adversely affected. See
"Risk Factors -- Risks Relating to the Exchange Offer". To the extent that any
old notes remain outstanding following completion of the exchange offer, they
will remain our obligations.
27
DESCRIPTION OF THE NEW NOTES
The new notes will be issued under an indenture dated as of February 12,
2001, among the Company and J.P. Morgan Trust Company, National Association (as
successor in interest to Bank One Trust Company, National Association), as
trustee (the "Trustee"), as supplemented (the "Indenture"). The base Indenture,
referred to in this prospectus as the Senior Debt Indenture and a form of the
Supplemental Indenture relating specifically to the new notes, have been filed
as exhibits to the registration statement of which this prospectus forms a part.
The following is a summary of the material terms and provisions of the new
notes. The terms of the new notes include those set forth in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The new notes are subject to all such terms, and prospective
purchasers of the new notes are referred to the Indenture and the Trust
Indenture Act for a statement of such terms. As used in this "Description of the
New Notes," the term "Company" refers to Masco Corporation and not any of its
Subsidiaries.
Definitions of certain terms are set forth under "-- Certain Definitions"
and throughout this description. Capitalized terms that are used but not
otherwise defined herein have the meanings assigned to them in the Indenture,
and those definitions are incorporated herein by reference.
GENERAL
The new notes:
- will be our unsecured senior obligations and will rank equally with all
of our other unsecured senior indebtedness and be junior to all of our
current and future secured indebtedness;
- will be limited to the aggregate principal amount at maturity of old
notes exchanged for new notes, not to exceed $1,874,978,000 aggregate
principal amount at maturity; and
- will mature on July 20, 2031.
Except under circumstances described under "-- Optional Conversion to
Semi-Annual Cash Pay Note Upon Tax Event" and "-- Contingent Interest" ," we
will not pay cash interest on the new notes; rather the new notes will accrete
to a principal amount of $1,000 per new note upon maturity, at a rate equal to
3.125% per annum from an initial principal amount of $ .
The new notes are redeemable prior to maturity only in specified
circumstances prior to January 25, 2007, and freely on or after January 25,
2007, as described below under "-- Optional Redemption," and do not have the
benefit of a sinking fund. Principal of the new notes will be payable, and the
transfer of new notes will be registrable, at the office of the Trustee. The
Trustee will initially serve as paying agent for the new notes.
The new notes are being offered at a substantial discount from their
principal amount at maturity. Except as described below, we will not make
periodic cash payments of interest on the new notes. Each new note of $1,000
principal amount at maturity will be issued at an initial principal amount of
$ . For United States federal income tax purposes, we will report the
accrual of original issue discount at the comparable yield of 8.125% under the
contingent payment debt regulations while the new notes remain outstanding. The
issue date for the new notes and the commencement date for the accrual of
original issue discount will be the exchange date. See "Material United States
Tax Consequences."
The new notes will be issued only in registered form without coupons in
denominations of $1,000 principal amount at maturity and any multiple of $1,000
above that amount. No service charge will be made for any registration of
transfer or exchange of new notes, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The new notes will be represented by one or more global securities
registered in the name of a nominee of The Depositary. See "-- Book Entry,
Delivery and Form."
Except as noted below, all notices with respect to the new notes will be
deemed given upon publication on Bloomberg or our website or by any other
electronic means of publication reasonably calculated to constitute notice.
28
EXCHANGE FEE
As consideration for exchanging old notes for new notes, holders of new
notes will receive an exchange fee of $1.25 per $1,000 principal amount at
maturity of the new notes. The exchange fee will be payable to holders of new
notes on the exchange date.
RANKING
The new notes are Masco's general obligations and will not be secured by
any collateral. Your right to payment under the new notes will be junior to the
rights of Masco's secured creditors to the extent of their security in Masco's
assets; equal with the rights of creditors under Masco's other unsecured
unsubordinated debt, including our old notes and our revolving credit facility;
and senior to the rights of creditors under debt expressly subordinated to the
new notes.
CONVERSION RIGHTS
Holders may convert new notes, in multiples of $1,000 principal amount at
maturity, at the conversion rate at any time prior to the close of business on
July 20, 2031 if any of the following conditions are met:
- Common Stock Price. The average Sale Price of the Company Common Stock
for the 20 trading days immediately prior to the conversion date is at
least a specified percentage, beginning at 119% and declining 1/3% each
year thereafter until it reaches 110 1/3% for the year beginning July 20,
2030, of the Accreted Value as of such date of conversion, divided by the
conversion rate;
- Credit Ratings. The credit ratings assigned to the new notes by either
Moody's or S&P is reduced to below Investment Grade;
- Redemption of New Notes. If the new notes are called for redemption, at
any time prior to the close of business on the business day prior to the
redemption date; or
- Occurrence of Specified Corporate Transactions. If we elect to:
(1) distribute to all holders of Company Common Stock certain rights
entitling them to purchase, for a period expiring within 60 days
after the date of such distribution, Company Common Stock at less
than the Sale Price at the time of such distribution; or
(2) distribute to all holders of Company Common Stock assets, debt,
securities or certain rights to purchase our securities, which
distribution has a per share value as determined by the Board of
Directors exceeding 15% of the Sale Price of Company Common Stock on
the day preceding the declaration date for such distribution; or
(3) become a party to a consolidation, merger or binding share exchange
pursuant to which Company Common Stock would be converted into cash,
securities or other property, in which case a holder may surrender
new notes for conversion at any time from and after the date which
is 15 days prior to the anticipated effective date for the
transaction until 15 days after the actual effective date of such
transaction. After the effective date, settlement of the new notes
and the conversion value and the net share amount, as defined below,
will be based on the kind and amount of cash, securities or other
property of Masco or another person that the holder of new notes
would have received had the holder converted its new notes
immediately prior to the transaction, unless we have elected to
adjust the conversion rate for a public acquirer change of control
as described below under "-- Make Whole Amount and Change of
Control." If you elect to convert your new notes in accordance with
this paragraph and you are entitled to an adjustment for additional
shares as described below under "-- Make Whole Amount and Change of
Control," conversion of the new notes will settle after the
effective date of such transaction.
We may adjust the conversion rate for new notes tendered for
conversion in connection with a change of control, as described
below under "-- Make Whole Amount and Change of Control." However,
we will not make such an adjustment if such change of control also
constitutes a public acquirer change of control and we elect to
modify the conversion obligation as described below under "-- Make
Whole Amount and Change of Control." We will specify in the notice
to holders,
29
as described below, whether we will adjust the conversion rate or
elect to modify the conversion obligation, as described under
"-- Make Whole Amount and Change of Control" below.
In the event of a change of control, as promptly as practicable, but
in no event less than 15 days prior to the effective date of such
transaction, we will provide to all holders of the new notes and the
trustee a notice by registered mail, and will publish on Bloomberg
or our website, or by any other electronic means of publication
reasonably calculated to constitute notice.
In the case of clause (1) or (2), we must notify the holders of new notes at
least 20 days prior to the ex-dividend date for such distribution. Once we have
given such notice, holders may surrender their new notes for conversion at any
time until the earlier of the close of business on the business day prior to the
ex-dividend date or our announcement that such distribution will not take place.
CONVERSION SETTLEMENT
Subject to certain exceptions described under clause (3) of "-- Conversion
Rights -- Occurrence of Specified Corporate Transactions" above, if a holder
surrenders its new notes for conversion, such holder will receive, in respect of
each $1,000 principal amount at maturity of new notes:
- cash in an amount (the "principal return") equal to the lesser of (a) the
applicable accreted value and (b) the conversion value (as described
below); and
- if the conversion value is greater than the applicable accreted value, a
number of shares of our common stock (the "net shares") equal to the sum
of the daily share amounts (calculated as described below) for each
trading day during the applicable conversion reference period (described
below) (the "net share amount"). However, in lieu of delivering net
shares, we may at our option, deliver cash or a combination of cash and
shares of our common stock equal to the value of the sum of the daily
share amounts. For this purpose, the value of each daily share amount
shall be calculated using the Sale Price of Company Common Stock on each
trading day in the applicable conversion reference period. If we make
such an election, references below to the "net share amount" shall be
deemed to be references to such amount in cash or cash and shares of
Company Common Stock, as applicable.
The "applicable conversion reference period" means:
- for new notes that are converted after we have specified a redemption
date, the five consecutive trading days beginning on the third trading
day following the redemption date (in the case of a partial redemption,
this clause applies only to those new notes that would be actually
redeemed); or
- in all other cases, the five consecutive trading days beginning on the
third trading day following the date the new notes are tendered for
conversion.
The "applicable accreted value" means the Accreted Value of $1,000
principal amount at maturity of new notes on the redemption date for notes
called for redemption and on the date the new note is tendered for conversion,
in all other cases.
The "conversion value" is equal to (a) the applicable conversion rate,
multiplied by (b) the applicable stock price. The cash payment for fractional
shares will be based on the applicable stock price.
The "applicable stock price" is equal to the average of the Sale Prices
during the applicable conversion reference period.
The "Sale Price" of Company 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 the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which
Company Common Stock is traded or, if Company Common Stock is not listed on a
United States national or regional securities exchange, as reported on the
Nasdaq Stock Market.
30
The "daily share amount," per new note with a principal amount at maturity
of $1,000 and for each trading day in the applicable conversion reference
period, is equal to the greater of:
- zero; or
- a number of shares of our common stock determined by the following
formula:
(Sale Price on such day X applicable conversion rate) - the
applicable accreted value
[ ------------------------------------------------------------ ]
5 X Sale Price on such day
The "applicable conversion rate" shall mean the conversion rate on any
trading day. The initial conversion rate is 12.7243 shares of Company Common
Stock per new note with a principal amount at maturity of $1,000, and is subject
to adjustment upon the occurrence of certain events described under
"-- Conversion Rate Adjustments." The conversion rate will not be adjusted for
accretion of principal.
The conversion value, principal return and net share amount will be
determined by us promptly after the end of the applicable conversion reference
period. We will pay the principal return and cash for fractional shares and
deliver the net share amount, if any, no later than the third business day
following the determination of the applicable stock price.
Our delivery to the holder of the principal return, cash for fractional
shares and the net share amount will be deemed:
- to satisfy our obligation to pay the principal amount at maturity of the
new note; and
- to satisfy our obligation to pay the increase in Accreted Value from the
Issue Date through the conversion date.
As a result, Accreted Value is deemed to be paid in full rather than
canceled, extinguished or forfeited.
CONVERSION RATE ADJUSTMENTS
The conversion rate will be adjusted for:
- distributions on Company Common Stock payable in Company Common Stock or
our other capital stock;
- subdivisions, combinations or certain reclassifications of Company Common
Stock;
- distributions to all holders of Company Common Stock of certain rights to
purchase Company Common Stock for a period expiring within 60 days at
less than the Sale Price at the time;
- certain distributions to such holders of our assets or debt securities or
certain rights to purchase our securities (excluding (a) cash dividends
or other cash distributions from current or retained earnings unless,
beginning January 20, 2007 the annualized amount per share of any such
dividend or distribution made on or after January 20, 2007 exceeds 10% of
the Sale Price on the day preceding the date of declaration of such
dividend or other distribution; provided, however; that no adjustment to
the conversion rate will be made in respect of any such dividends or
distributions that are paid during any period for which we are paying
contingent interest to holders and (b) distributions in connection with a
transaction described in the third succeeding paragraph);
- Company self-tenders; and
- If prior to January 20, 2007 we make a dividend or other distribution
consisting exclusively of cash to all holders of Company Common Stock,
the conversion rate will be adjusted based on the following formula:
SP(0)
CR(1) --------
= CR(0) X SP(0) -
ED
31
where,
CR(0) = the conversion rate in effect immediately prior to the record
date for such cash dividend or distribution;
CR(1) = the conversion rate in effect immediately after the ex dividend
date for such cash dividend or distribution;
SP(0) = the average of the closing sale prices of our common stock for
the ten consecutive trading days prior to the trading day
immediately preceding the ex dividend date of such cash dividend
or distribution; and
ED = the amount by which such cash dividend or distribution together with
all other such cash dividends or distributions made during the
fiscal quarter (and for which no adjustment has been made), exceeds
$0.18 per share (appropriately adjusted from time to time for any
share dividends on or subdivisions of our common stock).
However, no adjustment need be made if holders may participate in the
transaction (without exercising their conversion option) that would otherwise
give rise to such an adjustment. In cases where the fair market value of assets,
debt securities or certain rights, warrants or options to purchase our
securities distributed to stockholders (a) equals or exceeds the Market Price of
Company Common Stock, or (b) such Market Price exceeds the fair market value of
such assets, debt securities or rights, warrants or options so distributed by
less than $1.00, rather than being entitled to an adjustment in the conversion
rate, the holder will be entitled to receive upon conversion, in addition to the
shares of Company Common Stock, the kind and amount of assets, debt securities
or rights, warrants or options comprising the distribution that such holder
would have received if such holder had converted such holder's new notes
immediately prior to the record date for determining the stockholders entitled
to receive the distribution. The Indenture will permit us to increase the
conversion rate from time to time.
Unless the provisions of "-- Make Whole Amount and Change of Control shall
apply," if we are party to a consolidation, merger or binding share exchange or
a transfer of all or substantially all of our assets, the right to convert a new
note into cash and, if applicable, shares of Company Common Stock as described
in "-- Conversion Settlement" may be changed into a right to convert it into the
kind and amount of securities, cash or other assets of the Company or another
Person which the holder would have received if the holder had converted the
holder's new notes immediately prior to the transaction.
Holders of the new notes may, in certain circumstances, be deemed to have
received a distribution treated as a dividend for U.S. Federal income tax
purposes as the result of:
- a taxable distribution to holders of Company Common Stock which results
in an adjustment of the conversion rate; or
- an increase in the conversion rate at our discretion.
If we exercise our option to have cash interest accrue on a new note
following a Tax Event, the holder will be entitled on conversion to receive the
same amount of cash and, if applicable, shares of Company Common Stock or other
property that the holder would have received if we had not exercised this
option.
If we exercise this option, new notes surrendered for conversion by a
holder during the period from the close of business on any regular record date
to the opening of business of the next interest payment date, except for new
notes to be redeemed on a date within this period or on the next interest
payment date, must be accompanied by payment of an amount equal to the
contingent interest or interest that the holder is to receive on the new note.
Except where new notes surrendered for conversion must be accompanied by
payment as described above, we will not pay contingent interest or interest on
converted new notes on any interest payment date subsequent to the date of
conversion. See "-- Optional Conversion to Semi-Annual Cash Pay Note Upon Tax
Event."
32
MAKE WHOLE AMOUNT AND CHANGE OF CONTROL
On or prior to January 20, 2007, if and only to the extent you elect to
convert your new notes in connection with a change of control, we will increase
the conversion rate for the new notes surrendered for conversion by a number of
additional shares (the "additional shares") as described below. The number of
additional shares will be determined by reference to the table below, based on
the date on which such change of control becomes effective (the "effective
date") and the price (the "stock price") paid per share for Company Common Stock
in such change of control. If holders of Company Common Stock receive only cash
in such change of control, the stock price will be the cash amount paid per
share. Otherwise, the stock price will be the average of the Sale Prices on the
five trading days prior to but not including the effective date of such change
of control. Holders will not be entitled to receive additional shares if a
change of control occurs after January 20, 2007.
The stock prices set forth in the first row of the table below (i.e.,
column headers) will be adjusted as of any date on which the conversion rate of
the new notes is adjusted, as described above under "-- Conversion Rate
Adjustments." The adjusted stock prices will equal the stock prices applicable
immediately prior to such adjustment, multiplied by a fraction, the numerator of
which is the conversion rate immediately prior to the adjustment and the
denominator of which is the conversion rate as so adjusted. The number of
additional shares will be adjusted in the same manner as the conversion rate as
set forth under "-- Conversion Rate Adjustments."
The following table sets forth the hypothetical stock price and number of
additional shares issuable per $1,000 principal amount at maturity of new notes:
STOCK PRICE ON THE EFFECTIVE DATE
------------------------------------------------------------------------------
$25.50 $25.51 $30.00 $32.50 $35.00 $37.50 $40.00 $42.50 $50.00
EFFECTIVE DATE ------ ------ ------ ------ ------ ------ ------ ------ ------
December 15, 2004.... 0.0000 4.8591 2.6499 1.8227 1.2060 0.7489 0.4104 0.1623 0.0000
January 20, 2005..... 0.0000 4.9569 2.7003 1.8546 1.2274 0.7683 0.4339 0.1855 0.0000
January 20, 2006..... 0.0000 5.3338 2.8216 1.8635 1.1656 0.6806 0.3600 0.1588 0.0000
January 20, 2007..... 0.0000 5.6136 2.8690 1.6695 0.6414 0.0000 0.0000 0.0000 0.0000
The exact stock price and effective dates may not be set forth on the
table, in which case, if the stock price is:
- between two stock price amounts on the table or the effective date is
between two dates on the table, the number of additional shares will be
determined by straight-line interpolation between the number of
additional shares set forth for the higher and lower stock price amounts
and the two dates, as applicable, based on a 365 day year;
- $50.00 or more per share (subject to adjustment), no additional shares
will be issued upon conversion; and
- less than $25.51 per share (subject to adjustment), no additional shares
will be issued upon conversion.
Notwithstanding the foregoing, in no event will the total number of shares
of Company Common Stock issuable upon conversion exceed 47.91 per $1,000
principal amount at maturity of new notes, subject to adjustments in the same
manner as the conversion rate as set forth under "-- Conversion Rate
Adjustments."
Our obligation to pay the make-whole amount could be considered a penalty,
in which case the enforceability thereof would be subject to general principles
of reasonableness of economic remedies.
Notwithstanding the foregoing, and in lieu of adjusting the conversion rate
as set forth above, in the case of a "public acquirer change of control" (as
defined below) we may elect that, from and after the effective date of such
public acquirer change of control, the right to convert a new note into cash and
shares of Company Common Stock will be changed into a right to convert a new
note into a number of shares of "acquirer common stock" (as defined below). The
conversion rate following the effective date of such transaction will be a
number of shares of acquirer common stock equal to the product of:
- the conversion rate in effect immediately prior to the effective date of
such change of control, times
33
- the average of the quotients obtained, for each trading day in the five
consecutive trading day period commencing on the trading day next
succeeding the effective date of such public acquirer change of control
(the "valuation period"), of:
(i) the "acquisition value" of Company Common Stock on each such trading
day in the valuation period, divided by
(ii) the closing sale price of the acquirer common stock on each such
trading day in the valuation period.
The "acquisition value" of Company Common Stock means, for each trading day
in the valuation period, the value of the consideration paid per share of
Company Common Stock in connection with such public acquirer change of control,
as follows:
- for any cash, 100% of the face amount of such cash;
- for any acquirer common stock, 100% of the closing sale price of such
acquirer common stock on each such trading day; and
- for any other securities, assets or property, 102% of the fair market
value of such security, asset or property on each such trading day, as
determined by two independent nationally recognized investment banks
selected by the trustee for this purpose.
After the adjustment of the conversion rate in connection with a public acquirer
change of control, the conversion rate will be subject to further similar
adjustments in the event that any of the events described above occur
thereafter.
A "change of control" will be deemed to have occurred at such time after
the Issue Date when the following has occurred:
(1) a "person" or "group" within the meaning of Section 13(d) of the
Exchange Act other than us, our subsidiaries or our or their
employee benefit plans, files a Schedule TO or any schedule, form
or report under the Exchange Act disclosing that such person or
group has become the direct or indirect "beneficial owner," as
defined in Rule 13d-3 under the Exchange Act, of Company Common
Stock representing more than 50% of the voting power of Company
Common Stock entitled to vote generally in the election of
directors;
(2) consummation of any transaction or event (whether by means of a
liquidation, share exchange, tender offer, consolidation,
recapitalization, reclassification, merger of us or any sale,
lease or other transfer of the consolidated assets of ours and our
subsidiaries) or a series of related transactions or events
pursuant to which Company Common Stock is exchanged for, converted
into or constitutes solely the right to receive cash, securities
or other property more than 10% of which consists of cash,
securities or other property that are not, or upon issuance will
not be, traded on the New York Stock Exchange or quoted on the
Nasdaq National Market; or
(3) continuing directors (as defined below in this section) cease to
constitute at least a majority of our board of directors.
The beneficial owner shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group which would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
The definition of change of control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of our consolidated assets
"substantially as an entirety." There is no precise, established definition of
the phrase "substantially as an entirety," under applicable law.
A "continuing director" means a director who either was a member of the
Board of Directors of the Company on the date of the 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
34
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.
A "public acquirer change of control" is any change of control where the
acquirer, or any entity that is a direct or indirect "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total
voting power of all shares of such acquirer's capital stock that are entitled to
vote generally in the election of directors, but in each case other than us, has
a class of common stock traded on a national securities exchange or quoted on
the Nasdaq National Market or which will be so traded or quoted when issued or
exchanged in connection with such change of control. We refer to such acquirer's
or other entity's class of common stock traded on a national securities exchange
or quoted on the Nasdaq National Market or which will be so traded or quoted
when issued or exchanged in connection with such change of control as the
"acquirer common stock."
In the event of a change of control, as promptly as practicable, but in no
event less than 15 days prior to the effective date of such transaction, we will
provide to all holders of the new notes and the Trustee a notice, by registered
mail, and will publish on Bloomberg or our website, or by any other electronic
means of publication reasonably calculated to constitute notice. The notice
shall specify whether we will adjust the conversion rate or elect to modify the
conversion obligation. Upon a public acquirer change of control, in connection
with which we have elected to change our conversion obligation, we shall provide
notice, promptly and in any event within three business days after the end of
the valuation period, of the number of shares of acquirer common stock into
which the new notes are convertible into after the effective date.
CONTINGENT INTEREST
Subject to the accrual and record date provisions described below, we will
pay contingent interest to the holders of new notes during any six-month period
from January 20 to July 19 and from July 20 to January 19, commencing January
20, 2007, if the averages of the Note Price for the five trading days ending on
the second trading day immediately preceding the relevant six-month period (the
"Average Note Price") equals 120% or more of the Accreted Value of such new note
on the day immediately preceding the relevant six-month period. See "-- Optional
Redemption" for some of these values. Notwithstanding the above, if we declare a
dividend for which the record date falls prior to the first day of a six month
period but the payment date falls within such six month period, then the five
trading day period for determining the Average Note Price will be the five
trading days ending on the second trading day immediately preceding such record
date. We will pay contingent interest only in cash.
The amount of contingent interest payable per new note in respect of any
six-month period will equal the greater of (1) cash dividends paid by us per
share on Company Common Stock during that six month period multiplied by the
number of shares of Company Common Stock equal to the sum of (A) the number of
shares of Company Common Stock with a value equal to the principal return on the
accrual date and (B) the net share amount and (2) 0.125% of such Average Note
Price for the five trading-day period referred to above.
Contingent interest, if any, will accrue and be payable to holders of notes
as of the record date for the related Company Common Stock dividend or, if no
cash dividend is paid by us during a quarter within the relevant six month
period, to holders of new notes as of the fifteenth day preceding the last day
of the relevant six-month period. Such payment will be paid on the payment date
of the related Company Common Stock dividend, or, if no cash dividend is paid by
us during a quarter within the relevant six month period, on the last day of the
relevant six-month period. For U.S. federal income tax purposes, original issue
discount will continue to accrue at the comparable yield, which we will report
as 8.125% under the contingent debt payment regulations, subject to adjustment
for actual payments of contingent interest. See "Material United States Tax
Consequences -- Tax Consequences to U.S. Holders."
For financial accounting purposes, our obligation to pay contingent
interest on the new notes will constitute an embedded derivative, which will be
accounted for at fair value in accordance with Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
Cash dividends are all cash dividends on Company Common Stock (whether
regular, periodic, extraordinary, special, nonrecurring or otherwise) as
declared by the Board of Directors.
35
The "Note Price" on any date of determination means the average of the
secondary market bid quotations per new note obtained by the bid solicitation
agent for $10 million principal amount at maturity of new notes at approximately
4:00 p.m., New York City time, on such determination date from three
unaffiliated securities dealers we select, provided that if:
- at least three such bids are not obtained by the bid solicitation agent,
or
- in our reasonable judgment, the bid quotations are not indicative of the
secondary market value of the new notes,
then the Note Price will equal (a) the then applicable conversion rate of the
new notes multiplied by (b) the average Sale Price of Company Common Stock on
the five trading days ending on such determination date.
The bid solicitation agent will initially be the Trustee. We may change the
bid solicitation agent, but the bid solicitation agent will not be our
Affiliate. The bid solicitation agent will solicit bids from securities dealers
that are believed by us to be willing to bid for the new notes.
Upon determination that holders will be entitled to receive contingent
interest which may become payable during a relevant six-month period, on or
prior to the start of such six-month period, we will provide notice to holders.
OPTIONAL REDEMPTION
No sinking fund is provided for the new notes.
Between the Issue Date and January 25, 2007 we can only redeem the new
notes for cash, in whole but not in part, at their redemption price if the Sale
Price of Company Common Stock is equal to or greater than 130% of the conversion
price in effect for at least 20 trading days in any consecutive 30-trading day
period, where the "conversion price" means the then applicable redemption price
divided by the conversion rate, and "redemption price" means the Accreted Value,
plus accrued and unpaid contingent interest, if any. We will give holders not
less than 30-days' nor more than 60-days' notice of redemption.
Beginning on January 25, 2007, at our option we may redeem the new notes
for cash at any time as a whole, or from time to time in part, at their
redemption price. We will give holders not less than 30-days' nor more than
60-days' notice of redemption.
The table below shows what the Accreted Value of a new note would be on the
Issue Date, and at specified dates thereafter prior to maturity and at maturity
on July 20, 2031. The Accreted Value, in dollars, of a new note of $1,000
principal amount at maturity redeemed between such dates would include an
additional amount reflecting the increase in Accreted Value since the next
preceding date in the table.
INITIAL PRINCIPAL INCREASE IN ACCRETED REDEMPTION
REDEMPTION DATE AMOUNT(1) VALUE AT 3.125%(2) PRICE (1+2)
--------------- ----------------- -------------------- -----------
December , 2004......................... $
July 20, 2005............................. $ 446.54
July 20, 2006............................. $ 460.61
January 20, 2007.......................... $ 467.80
January 25, 2007.......................... $ 468.01
July 20, 2007............................. $ 475.11
July 20, 2008............................. $ 490.08
July 20, 2009............................. $ 505.51
July 20, 2010............................. $ 521.43
July 20, 2011............................. $ 537.85
July 20, 2012............................. $ 554.79
July 20, 2013............................. $ 572.27
July 20, 2014............................. $ 590.29
36
INITIAL PRINCIPAL INCREASE IN ACCRETED REDEMPTION
REDEMPTION DATE AMOUNT(1) VALUE AT 3.125%(2) PRICE (1+2)
--------------- ----------------- -------------------- -----------
July 20, 2015............................. $ 608.88
July 20, 2016............................. $ 628.06
July 20, 2017............................. $ 647.84
July 20, 2018............................. $ 668.24
July 20, 2019............................. $ 689.28
July 20, 2020............................. $ 710.99
July 20, 2021............................. $ 733.39
July 20, 2022............................. $ 756.48
July 20, 2023............................. $ 780.31
July 20, 2024............................. $ 804.88
July 20, 2025............................. $ 830.23
July 20, 2026............................. $ 856.38
July 20, 2027............................. $ 883.35
July 20, 2028............................. $ 911.17
July 20, 2029............................. $ 939.87
July 20, 2030............................. $ 969.47
July 20, 2031............................. $1,000.00
If converted to semi-annual cash pay new notes following the occurrence of
a Tax Event (such new notes, "Cash Pay Notes"), the new notes will be redeemable
at the Restated Principal Amount plus accrued and unpaid interest from the date
of such conversion through the redemption date. See "-- Optional Conversion to
Semi-Annual Cash Pay Note Upon Tax Event."
If less than all of the outstanding new notes are to be redeemed, the
Trustee shall select the new notes to be redeemed in principal amounts at
maturity of $1,000 or multiples thereof. In this case the Trustee may select the
new notes by lot, pro rata or by any other method the Trustee considers fair and
appropriate. If a portion of a holder's new notes is selected for partial
redemption and the holder converts a portion of the new notes, the converted
portion shall be deemed to be the portion selected for redemption.
PURCHASE OF NEW NOTES AT THE OPTION OF THE HOLDER
On the purchase dates indicated below, we will, at the option of the
holder, be required to purchase for cash any outstanding new note for which a
written purchase notice has been properly delivered by the holder to the Trustee
and not withdrawn, subject to specified additional conditions. Holders may
submit their new notes for purchase to the paying agent at any time 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.
The purchase price of a new note will be:
- $439.67 per new note on January 20, 2005;
- $467.80 per new note on January 20, 2007;
- $537.85 per new note on July 20, 2011, plus accrued and unpaid contingent
interest, if any;
- $628.06 per new note on July 20, 2016, plus accrued and unpaid contingent
interest, if any;
- $733.39 per new note on July 20, 2021, plus accrued and unpaid contingent
interest, if any; and
- $856.38 per new note on July 20, 2026, plus accrued and unpaid contingent
interest, if any.
The foregoing dollar amounts equal the Accreted Value on the respective
purchase dates.
37
If prior to a purchase date the new notes have been converted to Cash Pay
Notes, 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.
See "-- Optional Conversion to Semi-Annual Cash Pay Note Upon Tax Event."
We will be required to give notice on a date not less than 30 business days
prior to each purchase date by giving notice to all holders and beneficial
owners as required by applicable law, stating among other things the procedures
that holders must follow to require us to purchase their new notes; provided
however, that we shall not be required to give such notice with respect to the
January 20, 2005 purchase date.
The purchase notice given by each holder electing to require us to purchase
new notes shall state:
- if certificated, the certificate numbers of the holder's new notes to be
delivered for purchase;
- the portion of the principal amount at maturity of new notes to be
purchased, which must be $1,000 or a multiple thereof; and
- that the new notes are to be purchased by us pursuant to the applicable
provisions of the new notes and the Indenture.
Any purchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
purchase date.
The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- if certificated, the certificate numbers of the new notes being
withdrawn; and
- the principal amount at maturity of the new notes that remain subject to
the purchase notice, if any.
In connection with any purchase offer pursuant to these provisions, we
will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
- file Schedule TO or any other required schedule under the Exchange Act.
Payment of the purchase price for a new note for which a purchase notice
has been delivered and not validly withdrawn is conditioned upon delivery of the
new note, together with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. Payment of the purchase price for the new
note will be made promptly following the later of the purchase date or the time
of delivery of the new note.
If the paying agent holds money sufficient to pay the purchase price of a
new note on the business day following the purchase date in accordance with the
terms of the Indenture, then, immediately after the purchase date, the new note
will cease to be outstanding and will cease to accrete, whether or not the new
note is delivered to the paying agent. Thereafter, all other rights of the
holder shall terminate, other than the right to receive the purchase price upon
delivery of the new note.
Our ability to purchase new notes may be limited by the terms of our then
existing indebtedness or financing agreements.
No new notes may be purchased at the option of holders 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 new notes.
OPTIONAL CONVERSION TO SEMI-ANNUAL CASH PAY NOTE UPON TAX EVENT
From and after the date of the occurrence of a Tax Event, we will have the
option to elect to have cash interest accrue on all, and not less than all of,
the new notes at the rate of 3.125% per year. The principal amount of each new
note will be restated (the "Restated Principal Amount") and will equal its
Accreted Value on the date of the Tax Event or the date on which we exercise the
option described herein, whichever is later (the "Option Exercise Date").
38
Such interest will accrue from the Option Exercise Date and will be payable
in cash semi-annually on the interest payment dates of July 20 and January 20 of
each year to holders of record at the close of business on July 1 or January 1
immediately preceding the interest payment date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Interest will
initially accrue from the Option Exercise Date and thereafter from the last date
to which interest has been paid. In the event we exercise this option to pay
cash interest, the redemption price and purchase price on the new notes will be
adjusted. Contingent interest payments will cease to accrue on the Option
Exercise Date. However, there will be no change in the holder's conversion
rights.
A "Tax Event" means that we shall have received an opinion from independent
tax counsel experienced in such matters to the effect that, on or after the date
of this prospectus, as a result of:
(1) any amendment to, or change (including any announced prospective
change) in, the laws, rules or regulations thereunder of the United States
or any political subdivision or taxing authority thereof or therein, or
(2) 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 the date of this prospectus, there is more than an
insubstantial risk that interest (including original issue discount or
contingent interest, if any) payable on the new notes either:
- would not be deductible on a current accrual basis, or
- would not be deductible under any other method,
in either case in whole or in part, by us (by reason of deferral, disallowance,
or otherwise) for U.S. Federal income tax purposes.
The modification of the terms of the new notes by us upon a Tax Event, as
described above, may alter the timing of income recognition by holders of the
new notes with respect to the semi-annual payments of interest due on the new
notes after the Option Exercise Date.
COVENANTS RESTRICTING PLEDGES, MERGERS AND OTHER SIGNIFICANT CORPORATE ACTIONS
Negative Pledge. Section 10.04 of the Senior Debt Indenture provides that
so long as the new notes remain outstanding, we will not, nor will we permit any
Consolidated Subsidiary to, issue, assume or guarantee any Debt if such Debt is
secured by a mortgage upon any Principal Property or upon any shares of stock or
indebtedness of any Consolidated Subsidiary which owns or leases any Principal
Property, whether such Principal Property is owned on the date of the Senior
Debt Indenture or is thereafter acquired, without in any such case effectively
providing that the new notes shall be secured equally and ratably with such
Debt, except that the foregoing restrictions shall not apply to:
- mortgages on property, shares of stock or indebtedness of any corporation
existing at the time such corporation becomes a Consolidated Subsidiary;
- mortgages on property existing at the time of acquisition thereof, or to
secure Debt incurred for the purpose of financing all or any part of the
purchase price of such property, or to secure any Debt incurred prior to
or within 120 days after the later of the acquisition, completion of
construction or improvement or the commencement of commercial operation
of such property, which Debt is incurred for the purpose of financing all
or any part of the purchase price thereof or construction or improvements
thereon;
- mortgages securing Debt owing by any Consolidated Subsidiary to Masco or
another Consolidated Subsidiary;
- mortgages on property of a corporation existing at the time such
corporation is merged or consolidated with us or a Consolidated
Subsidiary or at the time of a sale, lease or other disposition of the
properties of
39
the corporation or firm as an entirety or substantially as an entirety to
us or a Consolidated Subsidiary, provided that no such mortgage shall
extend to any other Principal Property of Masco or any Consolidated
Subsidiary or any shares of capital stock or any indebtedness of any
Consolidated Subsidiary which owns or leases a Principal Property;
- mortgages on our property or a Consolidated Subsidiary's property in
favor of the United States of America, any state thereof, or any other
country, or any political subdivision of any thereof, to secure payments
pursuant to any contract or statute, including Debt of the pollution
control or industrial revenue bond type, or to secure any indebtedness
incurred for the purpose of financing all or any part of the purchase
price or the cost of construction of the property subject to such
mortgages; or
- one or more extensions, renewals or replacements, in whole or in part, of
mortgages existing at the date of the Senior Debt Indenture or any
mortgage referred to in the preceding five bullet points as long as those
extensions, renewals or replacements do not increase the amount of Debt
secured by the mortgage or cover any additional property.
Notwithstanding the above, we may, and may permit any Consolidated
Subsidiary to, issue, assume or guarantee secured Debt which would otherwise be
subject to the foregoing restrictions, provided that after giving effect thereto
the total of the aggregate amount of such Debt then outstanding, excluding
secured Debt permitted under the foregoing exceptions, and the aggregate amount
of Attributable Debt in respect of sale and leaseback arrangements at such time,
does not exceed 5% of Consolidated Net Tangible Assets, determined as of a date
not more than 90 days prior thereto.
Limitation on Sale and Leaseback Arrangements. Under the Senior Debt
Indenture, we and our Consolidated Subsidiaries are not allowed to enter into
any sale and leaseback arrangement involving a Principal Property which has a
term of more than three years, except for sale and leaseback arrangements
between us and a Consolidated Subsidiary or between Consolidated Subsidiaries,
unless:
- we or the Consolidated Subsidiary could incur Debt secured by a mortgage
on that Principal Property at least equal to the amount of Attributable
Debt resulting from that sale and leaseback transaction without having to
equally and ratably secure the new notes in the manner described above
under "Negative Pledge"; or
- we apply an amount equal to the greater of the net proceeds of the sale
of the Principal Property or the fair market value of the Principal
Property within 120 days of the effective date of the sale and leaseback
arrangement to the retirement of our or a Consolidated Subsidiary's
Funded Debt, including the new notes.
However, we cannot satisfy the second test by retiring:
- Funded Debt that we were otherwise obligated to repay within the 120-day
period;
- Funded Debt owned by us or by a Consolidated Subsidiary; or
- Funded Debt that is subordinated in right of payment to new notes.
Consolidation, Merger or Sale of Assets. The Senior Debt Indenture
provides that we will not consolidate or merge with or into any other
corporation and will not sell or convey our property as an entirety, or
substantially as an entirety, to another corporation if, as a result of such
action, any Principal Property would become subject to a mortgage, unless
either:
- such mortgage could be created pursuant to Section 10.04 of the Senior
Debt Indenture without equally and ratably securing the new notes; or
- the new notes shall be secured prior to the Debt secured by such
mortgage.
The Indenture provides that we may consolidate or merge or sell all or
substantially all of our assets if:
- we are the continuing corporation or if we are not the continuing
corporation, such continuing corporation is organized and existing under
the laws of the United States of America or any state thereof or the
40
District of Columbia and assumes by supplemental indenture the due and
punctual payment of the principal of, and the premium, if any, and
interest on the new notes and the due and punctual performance and
observance of all of the covenants and conditions of the Indenture to be
performed by us; and
- we are not, or such continuing corporation is not, in default in the
performance of any such covenant or condition immediately after such
merger, consolidation or sale of assets.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
terms used in the Indenture.
"Accreted Value" means, at any date of determination, (1) prior to such
time as the new notes are converted to Cash Pay Notes, the sum of (x) the
initial offering price of each new note and (y) the portion of the excess of the
principal amount of each new note over such initial offering price which shall
have been amortized by the Company in accordance 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 new notes are
converted to Cash Pay Notes, the Restated Principal Amount.
"Attributable Debt" in respect of a sale and leaseback arrangement is
defined in the Senior Debt Indenture to mean, at the time of determination, the
lesser of:
- the fair value of the property, as determined by our board of directors,
subject to such arrangement; or
- the present value, discounted at the rate per annum equal to the interest
borne by fixed rate senior debt securities or the yield to maturity at
the time of issuance of any Original Issue Discount Securities determined
on a weighted average basis, of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
arrangement, including any period for which such lease has been extended
or may, at the option of the lessor, be extended, or until the earliest
date on which the lessee may terminate such lease upon payment of a
penalty, in which case the rental payment shall include such penalty,
after excluding all amounts required to be paid on account of maintenance
and repairs, insurance, taxes, assessments, water and utility rates and
similar charges;
provided, however, that there shall not be deemed to be any Attributable Debt in
respect of a sale and leaseback arrangement if:
- such arrangement does not involve a Principal Property;
- we or a Consolidated Subsidiary would be entitled pursuant to the
provisions of Section 10.04(a) of the Senior Debt Indenture to issue,
assume or guarantee Debt secured by a mortgage upon the property involved
in such arrangement without equally and ratably securing the senior debt
securities; or
- the greater of the net proceeds of such arrangement or the fair market
value of the property so leased has been applied to the retirement, other
than any mandatory retirement or by way of payment at maturity, of our
Funded Debt or any Consolidated Subsidiary's Funded Debt, other than
Funded Debt owned by us or any Consolidated Subsidiary and other than
Funded Debt which is subordinated in payment of principal or interest to
the new notes.
"Company Common Stock" means the common stock of the Company, par value
$1.00 per share, as it exists on the date of the Indenture 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 than one such resulting class, the shares of each such class
then so issuable on conversion of new 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.
41
"Common Equity" of any Person means capital stock of such Person that is
generally entitled to (1) vote in the election of directors of such Person or
(2) 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.
"Consolidated Net Tangible Assets" is defined in the Senior Debt Indenture
as the aggregate amount of our assets less applicable reserves and the aggregate
amount of assets less applicable reserves of the Consolidated Subsidiaries after
deducting therefrom:
- all current liabilities, excluding any such liabilities deemed to be
Funded Debt;
- all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles; and
- all investments in any Subsidiary other than a Consolidated Subsidiary,
in all cases computed in accordance with the generally accepted
accounting principles and which under generally accepted accounting
principles would appear on a consolidated balance sheet of Masco and its
Consolidated Subsidiaries.
"Consolidated Subsidiary" is defined in the Senior Debt Indenture to mean
each Subsidiary other than any Subsidiary the accounts of which:
- are not required by generally accepted accounting principles to be
consolidated with our accounts for financial reporting purposes;
- were not consolidated with our accounts in our then most recent annual
report to stockholders; and
- are not intended by us to be consolidated with our accounts in our next
annual report to stockholders;
provided, however, that the term "Consolidated Subsidiary" shall not include:
- any Subsidiary which is principally engaged in
- owning, leasing, dealing in or developing real property, or
- purchasing or financing accounts receivable, making loans, extending
credit
- or other activities of a character conducted by a finance company, or
- any Subsidiary, substantially all of the business, properties or assets
of which were acquired after the date of the Senior Debt Indenture
whether by way of merger, consolidation, purchase or otherwise, unless in
each case our board of directors thereafter designates such Subsidiary a
Consolidated Subsidiary for the purposes of the Senior Debt Indenture.
"Continuing Director" means a director who either was a member of the Board
of Directors of the Company on the date of the 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.
"Debt" is defined in the Senior Debt Indenture to mean any indebtedness for
money borrowed and any Funded Debt.
"Funded Debt" is defined in the Senior Debt Indenture to mean indebtedness
maturing more than 12 months from the date of the determination thereof or
having a maturity of less than 12 months but renewable or extendible at the
option of the borrower beyond 12 months from the date of such determination:
- for money borrowed; or
- incurred in connection with the acquisition of property, to the extent
that indebtedness in connection with acquisitions is represented by any
notes, bonds, debentures or similar evidences of indebtedness, for
42
which we or any Consolidated Subsidiary is directly or contingently
liable or which is secured by our property or the property of a
Consolidated Subsidiary.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's.
The "Market Price" as of any date means the average of the Sale Prices of
Company Common Stock for the 20 trading-day period ending on the third business
day (if the third business day prior to the applicable date is a trading day or,
if not, then on the last trading 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 Company Common Stock that would result in an
adjustment of the conversion rate.
"mortgage" is defined in the Senior Debt Indenture to mean a mortgage,
security interest, pledge, lien or other encumbrance.
"Original Issue Discount Security" is defined in the Senior Debt Indenture
to mean any debt security which provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration of the
maturity thereof.
"Principal Property" is defined in the Senior Debt Indenture to mean any
manufacturing plant or research or engineering facility located within the
United States of America or Puerto Rico owned or leased by us or any
Consolidated Subsidiary unless, in the opinion of our board of directors, such
plant or facility is not of material importance to the total business conducted
by us and our Consolidated Subsidiaries as an entirety.
"Subsidiary" is defined in both indentures to mean any corporation of which
at least a majority of the outstanding stock having voting power under ordinary
circumstances to elect a majority of the board of directors of said corporation
shall at the time be owned by us, or by us and one or more Subsidiaries, or by
one or more Subsidiaries.
EVENTS OF DEFAULT, WAIVER AND NOTICE
The Indenture provides that the following events will be events of default
with respect to the new notes:
- we default in the payment of any interest on the new notes for more than
30 days;
- we default in the payment of any principal or premium on the new notes on
the date that payment was due;
- we breach any of the other covenants applicable to new notes and that
breach continues for more than 90 days after we receive notice from the
Trustee or the holders of at least 25% of the aggregate principal amount
at maturity of new notes;
- we commence bankruptcy or insolvency proceedings or consent to any
bankruptcy relief sought against us; or
- we become involved in involuntary bankruptcy or insolvency proceedings
and an order for relief is entered against us, if that order remains in
effect for more than 60 consecutive days.
The Trustee or the holders of 25% of the aggregate principal amount at
maturity of new notes may declare all of the debt securities of that series to
be due and payable immediately if an event of default with respect to a payment
occurs. The Trustee or the holders of 25% of the aggregate principal amount at
maturity of new notes may declare all of the new notes due and payable
immediately if an event of default with respect to a breach of a covenant
occurs. The Trustee or the holders of 25% of the aggregate principal amount at
maturity of new notes outstanding may declare all of the new notes outstanding
due and payable immediately if a bankruptcy event of default occurs. The holders
of a majority of the aggregate principal amount at maturity of the new notes may
annul a declaration or waive a past default except for a continuing payment
default. The holders of a majority in principal amount at maturity of the new
notes then outstanding shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee under the
Indenture. Notwithstanding
43
the foregoing, a Trustee shall have the right to decline to follow any such
direction if such Trustee is advised by counsel that the action so directed may
not lawfully be taken or if such Trustee determines that such action would be
unjustly prejudicial to the holders not taking part in such direction or would
involve such Trustee in personal liability.
The Senior Debt Indenture requires that we file a certificate each year
with the applicable Trustee stating that there are no defaults under the
Indenture. The Senior Debt Indenture permits the Trustee to withhold notice to
holders of new notes of any default other than a payment default if the Trustee
considers it in the best interests of the holders.
MODIFICATION OF THE INDENTURE
We can enter into a supplemental indenture with the Trustee to modify any
provision of the Indenture or the new notes without obtaining the consent of the
holders if the modification does not adversely affect the holders in any
material respect. In addition, we can generally enter into a supplemental
indenture with the Trustee to modify any provision of the Indenture or the new
notes if we obtain the consent of the holders of a majority of the aggregate
principal amount at maturity of the new notes. However, we need the consent of
each affected holder in order to:
- change the date on which any payment of principal or interest on the new
note is due;
- reduce the amount of any principal, interest or premium due on any the
new note;
- change the currency or location of any payment;
- impair the right of any holder to bring suit for any payment after its
due date; or
- reduce the percentage in principal amount at maturity of the new notes
required to consent to any modification or waiver of any provision of the
Indenture or the new notes.
BOOK ENTRY, DELIVERY AND FORM
The new notes offered hereby will be issued in the form of one or more
fully registered Global Notes (the "Global Notes"). The Global Notes will be
deposited on or about the Issue Date with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder").
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the dealer
managers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the exchange agents with portions of the
principal amount at maturity of the Global Notes and (ii) ownership of the new
notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to the
interests of the Depositary's Participants), the Depositary's Participants and
the Depositary's Indirect Participants. Holders are advised that the laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer new
notes will be limited to such extent.
44
So long as the Global Note Holder is the registered owner of any new notes,
the Global Note Holder will be considered the sole owner or holder of such new
notes outstanding under the Indenture. Except as provided below, owners of new
notes will not be entitled to have new notes registered in their names, will not
receive or be entitled to receive physical delivery of new notes in definitive
form, and will not be considered the holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a Person having
a beneficial interest in new notes represented by the Global Notes to pledge
such interest to Persons or entities that do not participate in the Depositary's
system or to otherwise take actions in respect of such interest may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company, the Trustee, the paying agent nor the Notes Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of new notes by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary relating to
such new notes.
Payments in respect of the principal, premium, if any, and interest on any
new notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the new notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of new notes (including principal, premium, if any, and
interest).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount at maturity of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owner of new notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
As long as the new notes are represented by one or more Global Notes, the
Depositary's nominee will be the holder of the new notes and therefore will be
the only entity that can exercise a right to repayment or repurchase of the new
notes. See "Purchase of Notes at the Option of the Holder" and "-- Limitations
on Dispositions of Assets." Notice by Participants or Indirect Participants or
by owners of beneficial interests in a Global Note held through such
Participants or Indirect Participants of the exercise of the option to elect
repayment of beneficial interests in new notes represented by a Global Note must
be transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to Participants. In order to ensure that
the Depositary's nominee will timely exercise a right to repayment with respect
to a particular new note, the beneficial owner of such new note must instruct
the broker or the Participant or Indirect Participant through which it holds an
interest in such new note to notify the Depositary of its desire to exercise a
right to repayment. Different firms have cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other Participant or Indirect Participant through which it
holds an interest in a new note in order to ascertain the cut-off time by which
such an instruction must be given in order for timely notice to be delivered to
the Depositary. The Company will not be liable for any delay in delivery of
notices of the exercise of the option to elect repayment.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for new notes in the form of Certificated Securities. Upon
any such issuance, the Trustee is required to register such new notes in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the Trustee in
writing that the Depositary is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of new notes in the form of Certificated Securities under the
Indenture,
45
then, upon surrender by the relevant Global Note Holder of its Global Notes, new
notes in such form will be issued to each Person that such Global Note Holder
and the Depositary identify as the beneficial owner of the related new notes.
Neither the Company nor the Trustee shall be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of new notes and each such Person may conclusively rely on and shall be
protected in relying on, instructions from the Global Note Holder or of the
Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts at maturity, of the new notes to
be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the new notes (including
principal, premium, if any, and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note
Holders. The Company expects that secondary trading in the Certificated Notes
also will be settled in immediately available funds.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the new notes in accordance with the
procedures set forth in 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 is not required to transfer or exchange any new note selected for
redemption. Also, the Registrar is not required to transfer or exchange any new
note for a period of 15 days before a selection of the new notes to be redeemed.
The registered holder of a new note will be treated as the owner of it for
all purposes.
APPLICABLE LAW
The notes and the Indenture will be governed by and construed in accordance
with the laws of the State of New York.
CONCERNING THE TRUSTEE
J.P. Morgan Trust Company, National Association is the Trustee under the
Indenture. The Trustee is an affiliate of a depository for funds of, makes loans
to and performs other services for us from time to time in the normal course of
business.
46
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary of our other material indebtedness. It may not
contain all of the information about this indebtedness that is important to you.
You should therefore read the debt instruments, copies of which are available as
described under "Where You Can Find More Information." This summary is qualified
in its entirety by reference to those debt instruments.
CREDIT FACILITY
On November 5, 2004, we entered into a U.S.$2 Billion 5-Year Revolving
Credit Agreement (the "new credit agreement") among Masco Corporation and Masco
Europe S.a r.l., as borrowers, the lenders party thereto, and Bank One, NA, as
administrative agent. The new credit agreement replaces two credit facilities:
(1) the U.S.$750 Million 364-Day Revolving Credit Agreement dated as of November
7, 2003 among Masco Corporation and Masco Europe S.a r.l., as borrowers, the
lenders party thereto, and Bank One, NA, as administrative agent, which
agreement expired by its own terms, and (2) the U.S.$1.25 Billion Amended and
Restated 5-Year Revolving Credit Agreement dated as of November 8, 2002 among
Masco Corporation and Masco Europe S.a r.l., as borrowers, the lenders party
thereto, and Citibank, N.A., as administration agent, which agreement was
terminated in connection with the execution of the new credit agreement.
The new credit agreement provides for a five-year unsecured revolving
credit facility available to each borrower in U.S. dollars and European euros
(with a sublimit for euro borrowings of U.S.$750 million equivalent). Standby
letters of credit may also be issued under the new credit agreement. We may, at
our option and subject to customary conditions, request an increase in the
aggregate commitment by up to $250 million without the consent of any
non-participation lenders. Borrowings will bear interest at various floating
rate options as selected by us. There are no loans outstanding under the new
credit agreement.
The new credit agreement contains customary terms and conditions
substantially consistent with those contained in the prior credit facilities,
including financial covenants requiring a leverage ratio and a minimum
consolidated net worth, and events of default based on payment obligations,
material inaccuracies of representations and warranties, covenant defaults,
insolvency proceedings, monetary judgments, change in control, certain ERISA
events and defaults under certain other indebtedness.
EXISTING SENIOR NOTES AND DEBENTURES
From time to time, we have offered notes and debentures under (1) the
indenture, dated as of February 12, 2001, between us and the trustee and (2) the
indenture dated as of March 1, 1982, between us and Morgan Guaranty Trust
Company of New York, as trustee, which we refer to as the "old senior debt
indenture". As of September 30, 2004, the outstanding portion of these debt
securities consisted of:
- $800 million aggregate principal amount of 6.75% senior notes debentures
due 2006
- $300 million aggregate principal amount of 4.625% senior notes due 2007
- $300 million aggregate principal amount of floating rate notes due 2007
- $100 million aggregate principal amount of 5.75% senior notes due 2008
- $850 million aggregate principal amount of 5.875% senior notes due 2012
- $200 million aggregate principal amount of 7.125% senior debentures due
2013
- $114 million aggregate principal amount of 6.625% senior debentures due
2018
- $296 million aggregate principal amount of 7.75% senior debentures due
2029
- $300 million aggregate principal amount of 6.5% senior notes due 2032
The indentures governing these series of debt securities include covenants,
events of default and other provisions that are substantially similar to those
described under "Description of the New Notes."
47
DESCRIPTION OF CAPITAL STOCK
The following description of the material terms of our capital stock is
based on the provisions of our amended and restated certificate of
incorporation. For more information as to how you can obtain a current copy of
our amended and restated certificate of incorporation, see "Where You Can Find
More Information."
Our amended and restated certificate of incorporation authorizes the
issuance of one million shares of preferred stock, par value $1.00 per share and
1.4 billion shares of common stock, par value $1.00 per share.
PREFERRED STOCK
We may issue preferred stock from time to time in one or more series,
without stockholder approval. Subject to limitations prescribed by law, our
board of directors is authorized to determine the voting powers, if any,
designations and powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, for each series of preferred stock that may
be issued and to fix the number of shares of each series of preferred stock. As
of September 30, 2004, there were no shares of preferred stock outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share on matters to be
voted on by our stockholders and, subject to the rights of the holders of any
preferred stock of Masco then outstanding, to receive dividends, if any, when
declared by our board of directors in its discretion out of legally available
funds. Upon any liquidation or dissolution of Masco, holders of common stock are
entitled to receive pro rata all assets remaining after payment of all
liabilities and liquidation of any shares of any preferred stock at the time
outstanding. Holders of common stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to common stock. As of September 30, 2004, there were
approximately 449,220,000 shares of our common stock outstanding and
approximately 27,400,000 shares reserved for issuance upon exercise of
outstanding stock options. All of our outstanding common stock is fully paid and
non-assessable and all of the shares of common stock that may be offered with
this prospectus will be fully paid and non-assessable.
The transfer agent and registrar for our common stock is The Bank of New
York, New York, New York.
SHAREHOLDER RIGHTS AGREEMENT
We have a shareholder rights agreement which provides that each share of
our outstanding common stock has one-half of one right to purchase one
one-thousandth of a share of preferred stock. The purchase price per one
one-thousandth of a preferred share under the shareholder rights agreement is
$100. Our board of directors may, at its option, redeem all of the outstanding
rights at a redemption price of $0.01 per right, subject to adjustment, prior to
the time that an acquiring person obtains 15% or more of our outstanding common
stock. The rights will expire on December 6, 2005 unless earlier redeemed or
exchanged by us.
The rights under our shareholder rights agreement are evidenced by the
outstanding certificates representing our common stock but will be represented
by separate certificates approximately 10 days after someone, other than we or
any of our subsidiaries or employee benefit plans, acquires at least 15% of our
outstanding common stock, or approximately 10 days after someone commences a
tender offer that would result in that person owning at least 15% of our
outstanding common stock.
If an acquiring person obtains or has the right to obtain at least 15% of
our outstanding common stock, then each right will entitle the holder to
purchase for $100 either a number of shares of our common stock having a then
current market value of $200 or a number of shares of common stock of the
acquiring person having a then current market value of $200. After an acquiring
person obtains 15% or more, but less than 50%, of our outstanding common stock,
our board of directors may, at its option, exchange all or part of the then
outstanding and exercisable rights for shares of our common stock, at an
exchange ratio of two shares of common stock per right. Any rights obtained by a
person acquiring at least 15% of our outstanding common stock will be null and
void.
48
Our shareholder rights agreement has anti-takeover effects. The rights may
cause substantial dilution to a person or group that attempts to acquire us
without conditioning the offer on a substantial number of rights being acquired,
redeemed or declared invalid. Accordingly, the existence of the rights may deter
acquirors from making takeover proposals or tender offers. However, the rights
are not intended to prevent a takeover, but rather are designed to enhance the
ability of our board of directors to negotiate with an acquiror on behalf of all
of the shareholders. In addition, the rights should not interfere with a proxy
contest.
49
MATERIAL UNITED STATES TAX CONSEQUENCES
The following are the material U.S. federal income tax consequences of the
exchange offer. This discussion applies only to old notes and new notes held as
capital assets, and does not describe all of the tax consequences that may be
relevant to a holder in light of the holder's particular circumstances or to
holders subject to special rules, such as:
- certain financial institutions;
- insurance companies;
- dealers in securities or foreign currencies;
- persons holding old notes or new notes as part of a hedge;
- U.S. holders (as defined below) whose functional currency is not the U.S.
dollar;
- partnerships or other entities classified as partnerships for U.S.
federal income tax purposes; or
- persons subject to the alternative minimum tax.
This summary is based on the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), administrative pronouncements, judicial decisions
and final, temporary and proposed Treasury regulations, changes to any of which
subsequent to the date of this registration statement may affect the tax
consequences described herein. Persons considering participating in the exchange
offer are urged to consult their tax advisers with regard to the application of
the United States federal income tax laws to their particular situations as well
as any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used herein, the term "U.S. holder" means a beneficial owner of old
notes or new notes that is for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the
United States or of any political subdivision thereof; or
- an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
The term "U.S. holder" also includes certain former citizens and residents
of the United States.
TAX CONSEQUENCES TO U.S. HOLDERS
Tax Consequences for U.S. Holders Participating in the Exchange. The law
is unclear as to whether the exchange of the old notes for the new notes should
be treated as an "exchange" for U.S. federal income tax purposes. The exchange
of old notes for new notes would be treated as an "exchange" for U.S. federal
income tax purposes if the exchange is considered a "significant modification"
of the old notes. The exchange would be treated as a significant modification if
the differences between the old notes and the new notes were deemed to be
economically significant. We intend to take the position that the exchange of
old notes for new notes should not be treated as a significant modification for
U.S. federal income tax purposes. By participating in the exchange offer, each
holder will be deemed to have agreed pursuant to the indentures governing the
new notes to treat the exchange as not constituting a significant modification.
If, consistent with our position, the exchange of old notes for new notes
is not treated as a significant modification for U.S. federal income tax
purposes, the new notes received by a holder would be treated as a continuation
of the old notes in the hands of such holder. As a result, except to the extent
of the receipt of the exchange fee, there would be no U.S. federal income tax
consequences to holders who participate in the exchange as a result of such
participation. An exchanging holder of the old notes would have the same tax
basis and holding period in the new notes as such holder had in its old notes
immediately prior to the exchange.
50
Moreover, a holder of the new notes would have the same tax consequences as
would have applied if such holder had continued to hold its outstanding notes.
In particular, as the outstanding notes are "contingent payment debt
obligations" for U.S. federal income tax purposes, the new notes will continue
to be so treated. Pursuant to the terms of the indenture for the new notes,
holders will agree to treat the new notes as subject to the Treasury Regulations
that apply to contingent payment debt obligations and to continue to accrue
interest in the same manner and amount as for the outstanding notes.
We intend to treat the exchange fee as consideration to holders for
participating in the exchange offer. In that case, such payment would result in
ordinary income to holders participating in the exchange and we will report such
payments to holders and the IRS for information purposes in accordance with such
treatment.
Constructive Dividends. As discussed in the registration statement
relating to the old notes, if at any time we make a distribution of property to
our stockholders that would be taxable to the stockholders as a dividend for
U.S. federal income tax purposes and, in accordance with the anti-dilution
provisions of the new notes, the conversion rate of the notes is increased, such
increase may be deemed to be the payment of a taxable dividend to the U.S.
holders of the notes. For example, an increase in the conversion rate in the
event of cash dividends will generally result in deemed dividend treatment to
U.S. holders of the new notes. However, an increase in the conversion rate in
the event of stock dividends or distributions of rights to subscribe for our
common stock will generally not be a taxable dividend.
Tax Consequences for U.S. Holders Not Participating in the Exchange. A
holder that does not participate in the exchange will have no U.S. federal
income tax consequences as a result of the exchange.
Possible Alternative Tax Characterization of the Exchange. There can be no
assurances that the IRS will agree that the exchange does not constitute a
significant modification for U.S. federal income tax purposes. If, contrary to
our position described above, the exchange were to constitute a significant
modification, the U.S. federal income tax consequences of the exchange would
depend on whether the exchange were treated as a recapitalization. The exchange
would be treated as a recapitalization only if both the outstanding notes and
the new notes constitute "securities" within the meaning of the provisions of
the Code governing reorganizations. This, in turn, depends upon the terms and
conditions of, and other facts and circumstances relating to, the notes, and
upon the application of numerous judicial decisions. Of particular relevance to
the determination of whether the outstanding notes and the new notes are
securities for U.S. federal income tax purposes is the term of the particular
instrument.
In the event that, contrary to our position, the exchange did constitute a
significant modification for U.S. federal income tax purposes, it is unclear
whether it would be treated as a recapitalization. If the exchange did
constitute a significant modification but did not qualify as a recapitalization,
a U.S. holder may be required to recognize gain (taxable as ordinary income) in
an amount equal to the difference between the amount realized on the exchange
and the holder's adjusted basis in the old notes surrendered. For these
purposes, a U.S. holder's amount realized would equal the fair market value of
the new notes received plus the exchange fee. U.S. holders are recommended to
consult their own tax advisors with respect to the U.S. federal income tax
consequences of the exchange, including whether the exchange would be treated as
a recapitalization for U.S. federal income tax purposes.
In the event that, contrary to our position, the exchange did constitute a
"significant modification" for U.S. federal income tax purposes, we would need
to determine the comparable yield, and projected payment schedule for the new
notes. U.S. holders would be subject to U.S. federal income tax consequences
that are consistent with the description of the contingent payment debt
instrument regulations contained in the registration statement relating to the
outstanding notes, including, among other things, a requirement that U.S.
holders accrue interest for U.S. federal income tax purposes based on the
revised comparable yield. For purposes of the contingent payment debt instrument
regulations, the issue price of the new notes will be equal to their fair market
value at the time of the exchange and be adjusted in subsequent periods in a
manner consistent with the description contained in the registration statement
relating to the old notes.
51
TAX CONSEQUENCES TO NON-U.S. HOLDERS
As used herein, the term non-U.S. holder means a beneficial owner of old
notes or new notes that is for U.S. federal income tax purposes:
- an individual who is classified as a nonresident for U.S. federal income
tax purposes;
- a foreign corporation; or
- a foreign estate or trust.
If, consistent with our position, the exchange of old notes for new notes
is not treated as a significant modification for U.S. federal income tax
purposes, then, as discussed above, the new notes will be treated as a
continuation of the old notes. As a result, except to the extent of the receipt
of the exchange fee (the U.S. federal income tax consequences of which are
described below), there will be no U.S. federal income tax consequences to a
non-U.S. holder who participates in the exchange. If, contrary to our position,
the exchange of the old notes for new notes constitutes a significant
modification for U.S. federal income tax purposes, any gain realized by a
non-U.S. holder will be eligible for exemption from U.S. federal income or
withholding tax to the same extent as described in the registration statement
relating to the old notes for any sale or exchange of the outstanding notes. In
either case, a non-U.S. holder generally should have the same U.S. federal
income tax consequences of holding new notes as would have arisen if it
continued to hold outstanding notes, including withholding and other
consequences described in the registration statement relating to the outstanding
notes.
We intend to treat payment of the exchange fee as consideration to holders
for participating in the exchange. As such, we will withhold U.S. federal income
tax at a rate of 30% from the exchange fee paid to non-U.S. holders unless an
exemption from, or reduction of, withholding is applicable because such amounts
are effectively connected with the conduct of a trade or business by the
non-U.S. holder within the United States or because of an applicable income tax
treaty with the United States. In order to claim an exemption from, or reduction
of, such withholding, the non-U.S. holder must deliver a properly executed IRS
Form W-8ECI (with respect to amounts effectively connected with the conduct of a
trade or business within the United States) or IRS Form W-8BEN (with respect to
treaty benefits) claiming such exemption or reduction. Non-U.S. holders are
recommended to consult their own tax advisors regarding the application of the
withholding rules to their particular circumstances, including the possibility
of filing a claim for a refund of withholding tax.
Constructive Dividends. The conversion rate of the notes is subject to
adjustment in some circumstances. As discussed in the registration statement
relating to the old notes, such adjustment could, in some circumstances, give
rise to a deemed distribution to non-U.S. holders of the notes (see "Tax
Consequences to U.S. Holders -- Constructive Dividends" above). In such case,
the deemed distribution will constitute a dividend for U.S. federal income tax
purposes to the extent of our current or accumulated earnings and profits as
determined under U.S. federal income tax principles. Such dividends will
generally be subject to U.S. withholding tax at a 30% rate, subject to a
reduction by an applicable treaty. Any such withholding tax may be withheld from
payments of interest or principal made on the new notes. A non-U.S. holder who
is subject to withholding tax should consult his own tax advisors as to whether
he can obtain a refund for all or a portion of the withholding tax.
52
LEGAL OPINIONS
The legality of the securities in respect of which this prospectus is being
delivered will be passed on for us by John R. Leekley, Senior Vice President and
General Counsel of Masco. Certain tax matters relating to the securities in
respect of which this prospectus is being delivered will be passed on for us by
David A. Doran, Vice President, Taxes, of Masco. Mr. Leekley and Mr. Doran are
Masco shareholders and holders of options to purchase shares of our common
stock. Davis Polk & Wardwell, Menlo Park, California, is acting as counsel to
the dealer managers.
EXPERTS
The financial statements incorporated in this prospectus by reference to
Masco Corporation's Current Report on Form 8-K dated November 12, 2004 have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of said
firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may read and copy any
materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC.
This prospectus is a part of a registration statement filed by us with the
SEC under the Securities Act. As allowed by SEC rules, this prospectus does not
contain all of the information that you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
includes important business and financial information that is not included in
this document and is an important part of this prospectus, and information that
we file later with the SEC will automatically update and supersede the
information in the prospectus. We incorporate by reference the documents listed
below, all filings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the date
of the initial registration statement and prior to effectiveness of the
registration statement, and all documents subsequently filed with the SEC
pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act until the
termination of the offering under this prospectus.
(1) Annual Report of Form 10-K for the year ended December 31, 2003,
as filed with the SEC on February 27, 2004 (excluding such information that
was superseded by the corresponding information in our Current Report on
Form 8-K, as filed with the SEC on November 12, 2004);
(2) Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 2004, as filed with the SEC on May 6, August 5
and November 4, 2004, respectively; and
(3) Current Report on Form 8-K, as filed with the SEC on November 12,
2004
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Masco Corporation
21001 Van Born Road
Taylor, MI 48180
(313) 274-7400
Attention: Investor Relations
To obtain timely delivery of requested documents before the expiration of
the exchange offer, you must request them no later than December , 2004, which
is five business days before the date the exchange offer expires.
53
MASCO CORPORATION
OFFER TO EXCHANGE
ZERO COUPON CONVERTIBLE SENIOR NOTES, SERIES B DUE 2031 FOR
ZERO COUPON CONVERTIBLE SENIOR NOTES DUE 2031
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION
By Registered or Certified Mail, By Hand or Overnight Delivery:
J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION
Institutional Trust Services
2001 Bryan Street, 9th Floor
Dallas, Texas 75201
Attention: Exchanges, Frank Ivins
Masco Corporation Offer to Exchange Zero Coupon Convertible Senior Notes,
Series B due 2031 for
Zero Coupon Convertible Senior Notes due 2031
BY FACSIMILE:
Fax: (214) 468-6494
Attention: Frank Ivins
Masco Corporation Offer to Exchange Zero Coupon Convertible Senior Notes,
Series B due 2031 for
Zero Coupon Convertible Senior Notes due 2031
CONFIRM BY TELEPHONE:
(800) 275-2048
ONLINE:
www.jpmorgan.com/bondholder
Questions, requests for assistance and requests for additional copies of
this prospectus and related letter of transmittal may be directed to the dealer
managers at each of their addresses set forth below:
THE DEALER MANAGERS FOR THE EXCHANGE OFFER ARE:
CITIGROUP MERRILL LYNCH & CO.
388 Greenwich Street 4 World Financial Center
New York, New York 10013 New York, New York 10080
Attention: Equity-Linked Capital Markets Attention: Liability Management Group
(877) 531-8365 (toll free) (888) 654-8637 (toll free)
(212) 449-4906 (call collect)
November , 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware empowers the Company
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened by reason
of the fact that such person is or was a director, officer, employee or agent of
the Company or is or was serving as such with respect to another corporation or
other entity at the request of the Company. Article Fifteenth of the Company's
Restated Certificate of Incorporation provides that each person who was or is
made a party to (or is threatened to be made a party to) or is otherwise
involved in any action, suit or proceeding by reason of the fact that such
person is or was a director, officer or employee of the Company shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Corporation Law of Delaware against all expenses, 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. The rights conferred by Article Fifteenth are contractual rights and
include the right to be paid by the Company the expenses incurred in defending
such action, suit or proceeding in advance of the final disposition thereof.
Article Fourteenth of the Company's Restated Certificate of Incorporation
provides that the Company's directors will not be personally liable to the
Company or its shareholders for monetary damages resulting from breaches of
their fiduciary duty as directors except (a) for any breach of the duty of
loyalty to the Company or its shareholders, (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 General Corporation Law of Delaware, which
makes directors liable for unlawful dividends or unlawful stock repurchases or
redemptions, or (d) for transactions from which directors derive improper
personal benefit.
The Company's directors and officers are covered by insurance policies
indemnifying them against certain civil liabilities, including liabilities under
the federal securities laws (other than liability under Section 16(b) of the
Securities Exchange Act of 1934), which might be incurred by them in such
capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DOCUMENT
------- --------
4.1 Indenture, dated as of February 12, 2001 between Masco
Corporation and the Trustee (filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000)
4.2 Form of Supplemental Indenture between Masco Corporation and
the Trustee relating to the new notes
5 Opinion of John R. Leekley
8 Tax Opinion of David A. Doran
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
23.1 Consent of John R. Leekley (contained in his opinion filed
as Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of David A. Doran (contained in his opinion filed as
Exhibit 8)
24 Power of Attorney (included on signature page)
25 Statement of Eligibility of J.P. Morgan Trust Company,
National Association, as Trustee, on Form T-1.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Registered Holders and the Depository
Trust Company Participants
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
99.6 Guidelines for Certification of Taxpayer Identification
II-1
ITEM 22. UNDERTAKINGS
(a) The undersigned hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona file offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by one of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(d) The undersigned hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This
II-2
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(e) The undersigned hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Masco Corporation has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Taylor,
State of Michigan, on November 12, 2004.
MASCO CORPORATION
By: /s/ TIMOTHY WADHAMS
------------------------------------
Name: Timothy Wadhams
Title: Senior Vice President and
Chief
Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard A. Manoogian and Timothy Wadhams, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and any and
all additional registration statements pursuant to Rule 462(b) of the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he or she might or would do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them or their or his or her substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER
/s/ RICHARD A. MANOOGIAN Chairman and Chief Executive November 12, 2004
-------------------------------- Officer and Director
Richard A. Manoogian
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER
/s/ TIMOTHY WADHAMS Senior Vice President and Chief November 12, 2004
-------------------------------- Financial Officer
Timothy Wadhams
/s/ THOMAS G. DENOMME Director November 12, 2004
--------------------------------
Thomas G. Denomme
/s/ PETER A. DOW Director November 12, 2004
--------------------------------
Peter A. Dow
/s/ ANTHONY F. EARLEY, JR. Director November 12, 2004
--------------------------------
Anthony F. Earley, Jr.
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VERNE G. ISTOCK Director November 12, 2004
--------------------------------
Verne G. Istock
/s/ DAVID L. JOHNSTON Director November 12, 2004
--------------------------------
David L. Johnston
/s/ J. MICHAEL LOSH Director November 12, 2004
--------------------------------
J. Michael Losh
/s/ WAYNE B. LYON Director November 12, 2004
--------------------------------
Wayne B. Lyon
/s/ MARY ANN VAN LOKEREN Director November 12, 2004
--------------------------------
Mary Ann Van Lokeren
II-5
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
----------- --------
4.1 Indenture, dated as of February 12, 2001 between Masco
Corporation and the Trustee (filed as an exhibit to the
Company's Annual Report on Form 10K for the year ended
December 31, 2000)
4.2 Form of Supplemental Indenture, between Masco Corporation
and the Trustee relating to the new notes
5.1 Opinion of John R. Leekley
8 Tax Opinion of David A. Doran
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
23.1 Consent of John R. Leekley (contained in his opinion filed
as Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of David A. Doran (contained in his opinion filed as
Exhibit 8)
24 Power of Attorney (included on signature page)
25 Statement of Eligibility of J.P. Morgan Trust Company,
National Association, as Trustee, on Form T-1.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Registered Holders and the Depository
Trust Company Participants
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
99.6 Guidelines for Certification of Taxpayer Certification