SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
August 5, 1996
Date of report (Date of earliest event reported)
MASCO CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 1-5794 38-1794485
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification
Incorporation) Number)
21001 Van Born Road, Taylor, Michigan 48180
(Address of Principal Executive Offices) (Zip Code)
(313) 274-7400
(Registrant's telephone number, including area code)
<PAGE>
Item 2. OTHER EVENTS
On August 5, 1996, Registrant completed the sale of its Home Furnishings
Group ("HFG") to Furnishings International Inc., a Delaware corporation
("FII"), pursuant to the terms of an Acquisition Agreement between FII and
Registrant dated as of March 29, 1996, and amended as of June 29, 1996 and
August 5, 1996. HFG is a manufacturer and marketer of residential furniture
and a designer, marketer and distributor of decorative home furnishing
fabrics. HFG consists of the following companies and their direct and
indirect subsidiaries: Ametex Fabrics; Ametex U.K. Limited; The Berkline
Corporation; Dixie Furniture Company, Incorporated; Drexel Heritage
Furnishings Inc.; Hanhill (Great Britain) Limited; Henredon Furniture
Industries, Inc.; Henry Link Corporation; Interior Fabric Design, Inc.; Intro
Europe, Inc.; La Barge, Inc.; Lexington Furniture Industries, Inc.; Lineage
Home Furnishings, Inc.; Link-Taylor Corporation; Maitland-Smith, Inc.; Marbro
Lamp Company; Masco Home Furnishings, Inc.; Ramm, Son & Crocker, Inc.; Ramm,
Son & Crocker Limited; Robert Allen Fabrics, Inc.; Robert Allen Fabrics
(Canada) Ltd.; Robert Allen Fabrics of N.Y., Inc.; Sunbury Textile Mills,
Inc.; Universal Furniture Limited and Young-Hinkle Corporation.
The aggregate purchase price for HFG was approximately $1.050 billion,
consisting of approximately $710 million in cash, $285 million in 12% junior
debt securities, and the balance in 13% cumulative preferred stock and 15
percent of the common stock of FII. In addition, Registrant received certain
transferable rights to acquire additional equity in FII. In connection with the
transaction, FII assumed approximately $30 million of bank and other third party
indebtedness. FII is owned by a group of investors including 399 Venture
Partners, Inc., Registrant, certain affiliates of Travelers Group, Inc., and
certain members of FII's management, including Wayne B. Lyon, the former
President and a current Director of Registrant. Mr. Lyon is the chief executive
officer and a Director of FII. John Morgan, a director of Registrant, has been
designated by Registrant to be a Director of FII.
The determination of the amount of consideration received by Registrant
from FII for HFG and the terms of the transaction resulted from extensive
negotiations between the parties. Mr. Lyon abstained from voting at the
meeting of the Board of Directors of Registrant at which the transaction was
reviewed and approved. Registrant received an opinion from Merrill Lynch,
Pierce, Fenner & Smith Incorporated that, based upon the provisions contained
therein, the consideration received by Registrant in the HFG sale transaction
was fair, from a financial point of view, to the Registrant.
The press release issued by Registrant is filed as Exhibit 99.a hereto.
<PAGE>
Item 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Unaudited Proforma Financial Information. The following
unaudited proforma financial information is included herein.
Introduction
Unaudited Proforma Condensed Consolidated Statement of
Income for the year ended December 31, 1995
Unaudited Proforma Condensed Consolidated Statement of
Income for the six months ended June 30, 1996
Unaudited Proforma Condensed Consolidated Balance Sheet
as of June 30, 1996
(c) Exhibits. The following exhibits are filed herewith:
2.a Acquisition Agreement dated as of March 29, 1996
between Furnishings International Inc. and Masco
Corporation.(1)
2.b Amendment No. 1 dated as of June 29, 1996 to
Acquisition Agreement dated as of March 29, 1996
between Furnishings International Inc. and Masco
Corporation.(1)
2.c Amendment No. 2 dated as of August 5, 1996 to Acquisition
Agreement dated as of March 29, 1996 between Furnishings
International Inc. and Masco Corporation.(1)
99.a Press Release dated August 5, 1996
____________________
(1) Omitted schedules will be furnished supplementally to the Commission
upon request.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MASCO CORPORATION
By:/s/ RICHARD G. MOSTELLER
Richard G. Mosteller
Senior Vice President-Finance
Date: August 20, 1996
<PAGE>
EXHIBIT INDEX
2.a Acquisition Agreement dated as of March 29, 1996 between Furnishings
International Inc. and Masco Corporation.
2.b Amendment No. 1 dated as of June 29, 1996 to Acquisition Agreement dated
as of March 29, 1996 between Furnishings International Inc. and Masco
Corporation.
2.c Amendment No. 2 dated as of August 5, 1996 to Acquisition Agreement
dated as of March 29, 1996 between Furnishings International Inc. and
Masco Corporation.
99.a Press Release dated August 5, 1996
<PAGE>
Masco Corporation
Unaudited Proforma Condensed Consolidated Financial Statements
The following unaudited proforma condensed consolidated balance sheet and
income statements give effect to the Company's sale of its home furnishings
products segment. Proceeds from the sale include approximately $710 million
cash, $285 million in notes and $55 million in common and preferred equity.
The home furnishings products segment was classified as discontinued operations
in 1995 (See "Discontinued Operations" note in the Company's 1995 Form 10-K).
The proforma condensed consolidated financial statements reflect the sale as
if it occurred at the beginning of the period presented for the condensed
consolidated statements of income and as of June 30, 1996 for the condensed
consolidated balance sheet.
The proforma data do not purport to be indicative of the results which would
actually have been reported if the sale had occurred on such date or which may
be reported in the future. The proforma data should be read in conjunction
with the historical financial statements of the Company and the related notes
thereto.
F-1
<PAGE>
Masco Corporation
Proforma Condensed Consolidated Statement of Income
for the year ended December 31, 1995
(In thousands except per share amounts)
Assumed
Disposition
of Home
Masco Furnishings
Corporation Products Proforma
Historical Segment Adjusted
(A) (B)(C)
Net sales $2,927,000 $2,927,000
Cost of sales 1,846,330 1,846,330
Gross profit 1,080,670 1,080,670
Selling, general and
administrative expenses 678,330 678,330
Operating profit 402,340 402,340
Other (income) expense, net:
Interest expense 73,800 73,800
Other, net (23,250) ($34,200) (57,450)
50,550 (34,200) 16,350
Income from continuing
operations before income
taxes 351,790 34,200 385,990
Income taxes 151,740 13,000 164,740
Income from continuing
operations $200,050 $21,200 $221,250
Earnings per share,
continuing operations $1.25 $1.39
Average shares outstanding 159,600 159,600
(A) The Company classified its home furnishings products segment as
discontinued operations in 1995 (See "Discontinued Operations" note in
the Company's 1995 Form 10-K) and included for the year 1995 a $44
million reduction of interest expense allocated to discontinued
operations.
(B) To reflect additional investment income earned from the $285 million of
junior debt securities as part of the proceeds from the disposition; and
the related net tax liability of the proforma adjustment at the
appropriate U.S. federal and state statutory rates.
(C) Excludes: interest income from the use of cash proceeds in excess of the
amount applied to debt reduction; and income from equity securities.
F-2
<PAGE>
Masco Corporation
Proforma Condensed Consolidated Statement of Income
for the six months ended June 30, 1996
(In thousands except per share amounts)
Assumed
Disposition
of Home
Masco Furnishings
Corporation Products Proforma
Historical Segment Adjusted
(A) (B)(C)
Net sales $1,551,000 $1,551,000
Cost of sales 976,900 976,900
Gross profit 574,100 574,100
Selling, general and
administrative expenses 344,600 344,600
Operating profit 229,500 229,500
Other (income) expense, net:
Interest expense 34,000 34,000
Other, net (21,200) ($17,100) (38,300)
12,800 (17,100) (4,300)
Income before income taxes 216,700 17,100 233,800
Income taxes 86,700 6,500 93,200
Net income $130,000 $10,600 $140,600
Earnings per share $0.81 $0.88
Average shares outstanding 160,500 160,500
(A) The Company classified its home furnishings products segment as
discontinued operations in 1995 (See "Discontinued Operations" note in
the Company's 1995 Form 10-K and notes to condensed consolidated
financial statements in the Company's June 30, 1996 Form 10-Q) and
included for the six months ended June 30, 1996 a $19.3 million
reduction of interest expense allocated to discontinued operations.
(B) To reflect additional investment income earned from the $285 million of
junior debt securities as part of the proceeds from the disposition; and
the related net tax liability of the proforma adjustment at the
appropriate U.S. federal and state statutory rates.
(C) Excludes: interest income from the use of cash proceeds in excess of the
amount applied to debt reduction; and income from equity securities.
F-3
<PAGE>
Masco Corporation
Proforma Condensed Consolidated Balance Sheet
as of June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Assumed
Disposition
of Home
Masco Furnishings
Corporation Products Proforma
Historical Segment Adjusted
ASSETS (A) (B)
<S> <C> <C> <C>
Current assets:
Cash and cash investments $73,030 $160,000 $233,030
Accounts and notes receivable, net 492,600 492,600
Inventories 399,370 399,370
Prepaid expenses and other 73,030 73,030
Total current assets 1,038,030 160,000 1,198,030
Equity investments in MascoTech, Inc. 201,360 201,360
Equity investments in other affiliates 59,340 59,340
Property and equipment, net 884,050 884,050
Excess of cost over acquired net assets 414,730 414,730
Other noncurrent assets 288,050 340,000 628,050
Net assets of discontinued operations 1,033,200 (1,033,200) -
Total assets $3,918,760 ($533,200) $3,385,560
LIABILITIES
Current liabilities:
Notes payable $23,220 $23,220
Accounts payable 118,910 118,910
Accrued liabilities 334,710 $16,800 351,510
Total current liabilities 476,840 16,800 493,640
Long-term debt 1,622,040 (550,000) 1,072,040
Deferred income taxes and other 106,410 106,410
Total liabilities 2,205,290 (533,200) 1,672,090
SHAREHOLDERS' EQUITY
Common stock 160,540 160,540
Preferred stock - -
Paid-in capital 131,800 131,800
Retained earnings 1,434,550 1,434,550
Cumulative translation adjustments (13,420) (13,420)
Total shareholders' equity 1,713,470 1,713,470
Total liabilities and shareholders'
equity $3,918,760 ($533,200) $3,385,560
(A) The Company classified its home furnishings products segment as discontinued operations in 1995 (See "Discontinued
Operations" note in the Company's 1995 Form 10-K and notes to condensed consolidated financial statements in the
Company's June 30, 1996 Form 10-Q).
(B) To reflect the elimination of net assets of discontinued operations with proceeds of approximately $1,050 million,
net of assumed indebtedness, from the sale - approximately $710 million cash, $285 million in notes and $55 million
in common and preferred equity; and debt reduction of $550 million from a portion of the proceeds from the sale.
</TABLE>
F-4
Exhibit 99.a
August 5, 1996
For Immediate Release
MASCO CORPORATION COMPLETES
SALE OF HOME FURNISHINGS GROUP
Masco Corporation (NYSE: MAS) reported today that it has completed the
previously announced sale of MASCO'S Home Furnishings Group to FURNISHINGS
INTERNATIONAL INC.
FURNISHINGS INTERNATIONAL'S investors include 399 Venture Partners,
certain members of FURNISHINGS INTERNATIONAL'S management, MASCO CORPORATION
and certain affiliates of Travelers Group, Inc. The Chase Manhattan
Corporation arranged $825 million of debt financing for the acquisition.
Total proceeds to MASCO from the sale are in excess of $1.0 billion with
approximately $710 million of the purchase price in cash. The balance
consists of junior debt securities, preferred stock and 15 percent of the
common stock of FURNISHINGS INTERNATIONAL. In addition, MASCO received
certain transferable rights to acquire additional equity in FURNISHINGS
INTERNATIONAL.
MASCO Chairman Richard A. Manoogian commented, "The divestiture allows
us to better focus on our traditional home improvement and building products
businesses which have historically achieved outstanding operating performance.
At the same time, the structure of the transaction allows us to participate,
through ownership of FURNISHINGS INTERNATIONAL'S common stock and transferable
rights, in the future growth and profitability of these fine companies.
"We acquired the leadership companies comprising the Home Furnishings
Group over the last 10 years and have melded them into the finest group of
home furnishings companies in the world. We are pleased that this excellent
group of companies has been acquired as a single entity, a transaction
benefiting both MASCO and the employees and customers of the Home Furnishings
Group," Manoogian said.
MASCO CORPORATION is one of the world's leading manufacturers of home
improvement and building products. The Company's well-known brands include
Delta and Peerless faucets, Merillat, KraftMaid and StarMark cabinets, Baldwin
hardware, Weiser locks, Thermador appliances and Watkins Hot Springs spas.
EXHIBIT 2.a
ACQUISITION AGREEMENT
BETWEEN
FURNISHINGS INTERNATIONAL INC.
AND
MASCO CORPORATION
March 29, 1996
<PAGE>
TABLE OF CONTENTS
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Definitions. . . . . . . . . . . . . . . . 1
Section 2. Acquisition of Shares. . . . . . . . . . . 1
(a) Basic Transaction. . . . . . . . . . . . . 1
(b) Purchase Price . . . . . . . . . . . . . . 1
(c) The Closing. . . . . . . . . . . . . . . . 2
(d) Deliveries at the Closing. . . . . . . . . 2
(e) Preparation of Closing Date Balance Sheet. 3
(f) Adjustment to Preliminary Purchase Price . 6
Section 3. Representations and Warranties Concerning
the Transaction. . . . . . . . . . . . . . . 7
(a) Representations and Warranties of Masco. . . 7
(b) Representations and Warranties of the Buyer. 8
Section 4. Representations and Warranties Concerning
the HFG Companies . . . . . . . . . . . . . 16
(a) Organization, Qualification, and Corporate
Power . . . . . . . . . . . . . . . . . . . 16
(b) Capitalization. . . . . . . . . . . . . . . 16
(c) Noncontravention. . . . . . . . . . . . . . 17
(d) Brokers' Fees . . . . . . . . . . . . . . . 18
(e) Investments . . . . . . . . . . . . . . . . 18
(f) Financial Statements. . . . . . . . . . . . 18
(g) Events Subsequent to December 31, 1995. . . 19
(h) Litigation. . . . . . . . . . . . . . . . . 20
(i) Legal Compliance. . . . . . . . . . . . . . 20
(j) Tax Matters . . . . . . . . . . . . . . . . 20
(k) Real Property . . . . . . . . . . . . . . . 22
(l) Intellectual Property . . . . . . . . . . . 24
(m) Personal Property . . . . . . . . . . . . . 26
(n) Contracts . . . . . . . . . . . . . . . . . 26
(o) Employees . . . . . . . . . . . . . . . . . 27
(p) Employee Benefits . . . . . . . . . . . . . 28
(q) Environmental Laws and Liabilities. . . . . 31
(r) Insurance . . . . . . . . . . . . . . . . . 31
Section 5. Pre-Closing Covenants . . . . . . . . . . . 31
(a) General . . . . . . . . . . . . . . . . . . 32
(b) Notices and Consents. . . . . . . . . . . . 32
(c) Operation of Business . . . . . . . . . . . 32
(d) Reasonable Access . . . . . . . . . . . . . 33
i
<PAGE>
(e) Notice of Developments. . . . . . . . . . . 33
(f) Exclusivity . . . . . . . . . . . . . . . . 35
(g) Financing . . . . . . . . . . . . . . . . . 35
(h) Certain Resignations. . . . . . . . . . . . 36
(i) FIRPTA Certificates . . . . . . . . . . . . 36
(j) Clear Title . . . . . . . . . . . . . . . . 36
(k) Transitional Services . . . . . . . . . . . 36
Section 6. Employees and Employee Benefits . . . . . . 37
(a) Continuation of Benefits. . . . . . . . . . 37
(b) Certain Statutory Requirements. . . . . . . 37
(c) Employee Pension Benefit Plans. . . . . . . 37
(d) Employee Welfare Benefit Plans. . . . . . . 40
(e) Employee Benefit Arrangements . . . . . . . 40
(f) Plan Contributions. . . . . . . . . . . . . 41
(g) Transitional Services . . . . . . . . . . . 41
(h) Conflict. . . . . . . . . . . . . . . . . . 42
Section 7. Conditions to Obligation to Close . . . . . 42
(a) Conditions to Obligation of the Buyer . . . 42
(b) Conditions to Obligation of Masco . . . . . 43
Section 8. Indemnification . . . . . . . . . . . . . . 45
(a) Survival of Representations and Warranties. 45
(b) Indemnification Provisions for Benefit of
the Buyer . . . . . . . . . . . . . . . . . 46
(c) Indemnification Provisions for Benefit of
Masco . . . . . . . . . . . . . . . . . . . 48
(d) Matters Involving Third Parties . . . . . . 49
(e) Miscellaneous . . . . . . . . . . . . . . . 50
Section 9. Tax Matters . . . . . . . . . . . . . . . . 51
(a) Tax Sharing Agreements. . . . . . . . . . . 51
(b) Allocation of Tax Liability . . . . . . . . 51
(c) Consolidated and Similar Taxes and Tax
Returns for Periods Through the Closing
Date. . . . . . . . . . . . . . . . . . . . 52
(d) Tax Contests. . . . . . . . . . . . . . . . 53
(e) Cooperation . . . . . . . . . . . . . . . . 54
(f) Payments of Transfer Taxes and Fees . . . . 54
(g) Carrybacks. . . . . . . . . . . . . . . . . 54
(h) Retention of Carryovers . . . . . . . . . . 55
(i) Post-Closing Elections. . . . . . . . . . . 55
(j) Allocation of Purchase Price. . . . . . . . 55
(k) Certain Transactions on the Closing Date. . 56
(l) Separate Returns, Straddle Period Returns
and Allocation of Certain Taxes . . . . . . 56
ii
<PAGE>
(m) Refunds and Related Matters . . . . . . . . 57
(n) Requested Transactions. . . . . . . . . . . 59
(o) Miscellaneous . . . . . . . . . . . . . . . 59
(p) Conflict. . . . . . . . . . . . . . . . . . 59
(q) Survival. . . . . . . . . . . . . . . . . . 59
Section 10. Environmental Matters . . . . . . . . . . . 60
(a) General . . . . . . . . . . . . . . . . . . 60
(b) Reporting, Remediation, and Compliance. . . 60
(c) Certain Responsibilities of the Buyer . . . 61
(d) Third Party Actions . . . . . . . . . . . . 62
(e) Resolution of Certain Disputes. . . . . . . 62
(f) Certain Recoveries. . . . . . . . . . . . . 63
Section 11. Termination . . . . . . . . . . . . . . . . 63
(a) Termination of Agreement. . . . . . . . . . 63
(b) Effect of Termination . . . . . . . . . . . 64
Section 12. Miscellaneous . . . . . . . . . . . . . . . 64
(a) Press Releases and Public Announcements . . 64
(b) No Third Party Beneficiaries. . . . . . . . 64
(c) Specific Performance. . . . . . . . . . . . 65
(d) Entire Agreement. . . . . . . . . . . . . . 65
(e) Non-Competition, Non-Interference and
Non-Solicitation. . . . . . . . . . . . . . 65
(f) Confidentiality . . . . . . . . . . . . . . 66
(g) Succession and Assignment . . . . . . . . . 67
(h) Counterparts. . . . . . . . . . . . . . . . 67
(i) Headings. . . . . . . . . . . . . . . . . . 67
(j) Notices . . . . . . . . . . . . . . . . . . 67
(k) Governing Law . . . . . . . . . . . . . . . 68
(l) Amendments and Waivers. . . . . . . . . . . 68
(m) Severability. . . . . . . . . . . . . . . . 68
(n) Expenses. . . . . . . . . . . . . . . . . . 68
(o) Further Assurances. . . . . . . . . . . . . 68
(p) Risk Management and Litigation Support. . . 69
(q) Certain Intercompany Relationships. . . . . 69
(r) Certain Releases, Assignments, and
Assumptions . . . . . . . . . . . . . . . . 70
(s) Construction. . . . . . . . . . . . . . . . 71
(t) Incorporation of Exhibits and Schedules . . 72
(u) Limited Recourse. . . . . . . . . . . . . . 72
(v) Waiver of Jury Trial. . . . . . . . . . . . 72
(w) No Offset . . . . . . . . . . . . . . . . . 72
iii
<PAGE>
Schedule of HFG Companies
Schedule of Defined Terms
Schedule of Disclosures Regarding Masco's Representations and Warranties
Schedule of Disclosures Regarding the Buyer's Representations and Warranties
Schedule of Tax Allocations
Schedule 2(b) - PIK Payments Schedule
Schedule 2(b)(ii) - Sample Adjustment Schedule
Schedule 8(b) - Environmental Sites
Exhibit A - Terms of PIK Note
Exhibit B - Summary of Terms of Capital Stock of the Buyer
Exhibit C - Terms of Stockholders' Agreement
Exhibit D - Form of Opinion of Counsel to Masco
Exhibit E - Form of Opinion of Counsel to the Buyer
iv
<PAGE>
ACQUISITION AGREEMENT
This Agreement is entered into as of March 29, 1996, by and
between FURNISHINGS INTERNATIONAL INC., a Delaware corporation (the
"Buyer"), and Masco Corporation, a Delaware corporation ("Masco"). The
Buyer and Masco are referred to collectively herein as the "Parties."
Masco (or, in certain cases, its indirect Subsidiary Masco
Corporation Limited) owns all of the outstanding capital stock of each of
the corporations listed on the attached Schedule of HFG Companies
(collectively, the "HFG Companies").
This Agreement contemplates a transaction in which the Buyer will
purchase from Masco (or, as appropriate, Masco Corporation Limited), and
Masco will sell (or, as appropriate, will cause Masco Corporation Limited to
sell) to the Buyer, all of the outstanding capital stock of each of the HFG
Companies in return for the consideration specified below. The Parties
contemplate that prior to the Closing Date they will agree that, in lieu of
or in addition to the sale of the capital stock of one or more of the HFG
Companies, such HFG Company or one or more of its Subsidiaries will merge
into the Buyer or one or more wholly owned Subsidiaries of the Buyer.
Now, therefore, in consideration of the premises and the represen-
tations, warranties, and covenants herein contained, the Parties agree as
follows.
Section 1. Definitions. Defined terms used in this Agreement are
set forth in the attached Schedule of Defined Terms.
Section 2. Acquisition of Shares.
(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from Masco (or,
as appropriate, Masco Corporation Limited), and Masco agrees to sell (or, as
appropriate, cause Masco Corporation Limited to sell) to the Buyer, all of
the outstanding capital stock in each of the HFG Companies for the
consideration specified below in this Section 2. The Parties contemplate
that prior to the Closing Date they will agree that, in lieu of or in
addition to the sale of the capital stock of one or more of the HFG
Companies, such HFG Company or one or more of its Subsidiaries will merge
into the Buyer or one or more wholly owned Subsidiaries of the Buyer. Any
such merger will be effected pursuant to mutually agreeable merger
documentation and on a basis that is economically equivalent for both
Parties.
(b) Purchase Price. The "Preliminary Purchase Price" shall
consist of (i) $757,808,900 in cash, (ii) a promissory note (the "PIK Note")
of the Buyer having a principal amount equal to $235,000,000 and an interest
rate equal to 12% per annum and having the terms (including the maturity and
amortization schedule) set forth in the attached Exhibit A; provided that
(x) the principal amount of the PIK Note will be further adjusted as
provided in Section 2(f) and (y) if on the Closing Date the Maximum
Permitted Rate is less than 12%, the interest
<PAGE>
rate on the PIK Note will be reduced to the Maximum Permitted Rate and the
principal amount of the PIK Note will be increased consistent with the
sample calculation provided in Schedule 2(b) in an amount such that the
discounted present value of all scheduled cash payments (assuming interest
will be paid in cash commencing on the eighth anniversary of the Closing
Date) under the PIK Note following such adjustment (calculated using 12% as
the discount factor) will be equal to the discounted present value of all
such payments under the PIK Note prior to such adjustment (calculated using
the same discount factor), (iii) 548,571 shares of Series A Preferred Stock
(the "Series A Preferred Stock") of the Buyer having the terms set forth in
the attached Exhibit B under the caption "Series A Preferred Stock", (iv)
347,917 shares of Series B Preferred Stock (the "Series B Preferred Stock")
of the Buyer having the terms set forth in the attached Exhibit B under the
caption "Series B Preferred Stock" and (v) 15,000 shares of Class A Common
Stock (the "Class A Common Stock") and 37,083 shares of Class B Common Stock
(the "Class B Common Stock") of the Buyer (in each case to be allocated
evenly among the three series thereof). The Preliminary Purchase Price will
be applied as follows: first, to the repayment by the HFG Companies and
their Subsidiaries (as set forth in the Schedule of Tax Allocations) of the
Net Intercompany Balance and, second, to the payment in full for the
outstanding capital stock of the HFG Companies. All cash transfers on the
Closing Date pursuant to this Section 2(b) will be made by wire transfer of
immediately available funds to Masco (for Masco's own account or, as
appropriate, for the account of Masco Corporation Limited). The Preliminary
Purchase Price will be subject to certain adjustments as described below in
arriving at the Purchase Price. The Parties agree that the Purchase Price
shall be allocated for all purposes among the capital stock and assets of
the HFG Companies and their Subsidiaries in accordance with Section 9(j)
below.
(c) The Closing. Subject to the satisfaction or waiver of the
conditions set forth in Section 7 below, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Davis Polk & Wardwell in New York, N.Y., commencing at 9:00 a.m.
local time on the second business day following the expiration or
termination of all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act or such other date as the Buyer and Masco
may mutually determine (the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) Masco will
deliver (or, as appropriate, will cause Masco Corporation Limited to
deliver) to the Buyer (A) the various certificates, instruments, and other
documents referred to in Section 5(h) and (i) below and in Section 7(a)
below and (B) stock certificates representing all of the outstanding capital
stock of each of the HFG Companies, endorsed in blank or accompanied by duly
executed assignment documents, with requisite stock transfer tax stamps, if
any, attached, in each case free and clear of any Security Interests,
equities, claims and demands (other than those created by the Buyer and its
Affiliates (determined assuming that Masco, the HFG Companies and their
respective Subsidiaries are not Affiliates of the Buyer)), and (ii) the
Buyer will deliver or cause to be delivered to Masco (for Masco's own
account or, as appropriate, for the account of Masco Corporation Limited)
(A) the various certificates, instruments, and other documents referred to
in Section 7(b) below and (B) the consideration specified in the first
sentence of Section 2(b) above, which shall be applied as specified in the
second sentence of such Section 2(b). If the Parties agree that the Buyer
will acquire one or more of the HFG Companies or their Subsidiaries through
one or
2
<PAGE>
more mergers, as contemplated by Section 2(a), then each of the Parties will
deliver (or, in the case of Masco, as appropriate, will cause Masco
Corporation Limited to deliver) such additional documents and instruments as
may be required to accomplish each such merger.
(e) Preparation of Closing Date Balance Sheet.
(i) Within 60 days after the Closing Date, Masco will
prepare and deliver to the Buyer an audited combined balance sheet (the
"Proposed Closing Date Balance Sheet") for the HFG Companies and their
Subsidiaries as of the close of business on the Closing Date (determined
as though the Parties had not consummated the transactions contemplated
by this Agreement), together with a written report thereon of Coopers &
Lybrand L.L.P., including their unqualified opinion, stating that the
Proposed Closing Date Balance Sheet (x) has been audited by them using
the same audit scope (including methods, principles, practices and
location visits) as was used in the audit of the Financial Statements as
of and for the period ended December 31, 1995 (except that the location
visits will be expanded to include Bench Craft and The Berkline
Corporation) and (y) fairly presents the combined financial position of
the HFG Companies and their Subsidiaries as of the Closing Date in
conformity with GAAP. The Buyer shall be responsible for all of the fees
and expenses payable to Coopers & Lybrand L.L.P. in connection with the
preparation of such report. The Proposed Closing Date Balance Sheet
(and the Closing Date Balance Sheet referred to below) will be prepared
in accordance with GAAP applied on a basis consistent with the methods,
principles, practices and policies (including the same procedures and
scope with respect to any taking of a physical inventory and any
physical inspection of assets) employed in the preparation of the
Financial Statements; provided, however, that the physical inventories
in connection with the Proposed Closing Date Balance Sheet shall be
taken no earlier than 92 days prior to the Closing Date.
(ii) Concurrently with the delivery of the Proposed
Closing Date Balance Sheet, Masco will prepare and deliver to the Buyer
a report (the "Adjusted NIA Report") setting forth Masco's calculation
of the Adjusted Net Investment and Advances as of the Closing Date.
"Adjusted Net Investment and Advances" means "Masco Corporation Net
Investment and Advances," as set forth on the Proposed Closing Date
Balance Sheet or on the Closing Date Balance Sheet, adjusted
consistently with the sample reconciliation calculation (which assumes a
Closing Date of May 31, 1996) provided for in Schedule 2(e) (ii) (the
"Adjustment Schedule") to reflect the following: (A) (w) any contingent
liability (it being understood that, for purposes of this clause (w) and
clause (C) below, the phrase "contingent liability" will not include
loss contingencies related to the collectibility of receivables, the
quantity or quality of inventory or product returns) of the HFG
Companies and their Subsidiaries that neither reduced the Year-end Net
Investment and Advances nor will be the responsibility of any of the
Buyer, the HFG Companies and their Subsidiaries after the Closing (after
giving effect to Masco's obligations under this Agreement, but without
regard to any limitations on such obligations under Section 8(b) below),
provided that such contingent liability does not arise from facts and
circumstances existing and in the Knowledge of Masco as of the Closing
Date,
3
<PAGE>
(x) any asset, deferred credit or liability of the HFG Companies and
their Subsidiaries for current and deferred income taxes, (y) any
liability of the HFG Companies and their Subsidiaries for ERISA
funding obligations with respect to defined benefit and defined
contribution employee pension benefit plans administered by Masco
(and any asset or liability of the HFG Companies and their
Subsidiaries with respect to defined benefit and defined
contribution employee pension benefit plans that would be required
under FAS 87 but that did not increase or decrease Year-end Net
Investments and Advances) and (z) any liabilities, accruals or
reserves for general/product liability, automobile liability and
domestic workers' compensation of the HFG Companies and their
Subsidiaries (whether or not administered by Masco) and any
liabilities, accruals or reserves for health, medical, dental,
disability or life insurance benefits, to the extent administered by
Masco through a welfare benefit trust fund maintained by Masco (or,
in the case of life insurance benefits, to the extent covered by
third party insurance maintained by Masco), will, in each case, be
excluded in determining the "Adjusted Net Investment and Advances";
(B) neither the assets included in "Property and equipment, net" and
"Excess of cost over acquired net assets," nor the Robert Allen
sample books included in "Other Assets," will be written up or down
from their historic depreciated or amortized carrying cost to
reflect any higher or lower market value (other than (i) decreases
for depreciation and amortization required by GAAP, consistently
applied, (ii) increases as a result of the capitalization of
interest under GAAP, consistently applied, and (iii) decreases as a
result of damage to or destruction of property, plant, or
equipment), and any such adjustment that is not reflected in the
combined balance sheet as of December 31, 1995 included in the
Financial Statements, but is reflected in the Proposed Closing Date
Balance Sheet or the Closing Date Balance Sheet, will be reversed;
(C) no reserves will be established (or, if reserves were already
established as of December 31, 1995, will be increased or decreased)
with respect to any contingent liability reflected in the Disclosure
Schedule or in any written notice pursuant to Section 5(e)(i) below
(other than with respect to (x) the Specified Masco Representations
and (y) facts and circumstances existing and in the Knowledge of
Masco as of the date of this Agreement); and (D) no adjustments will
be made in order to reflect the occurrence of any event or
development subsequent to the Closing (regardless of whether any
such event or development relates back in any manner to the period
ending on the Closing Date); provided, however, that adjustments
will be made to correct any arithmetical and similar errors. The
calculation of the Adjusted Net Investment and Advances set forth in
the Adjusted NIA Report shall be prepared on a basis consistent with
the methods, principles, practices and policies employed in the
calculation of the Year-end Net Investment and Advances set forth in
the Adjustment Schedule; provided, however, that while a portion of
the cash and cash investments of the HFG Companies and their
Subsidiaries was excluded in determining Year-end Net Investment and
Advances, all of the cash and cash investments of the HFG Companies
and their Subsidiaries reflected on the Closing Date Balance Sheet
will be included in determining the Adjusted Net Investment and
Advances. The Adjusted NIA Report shall be accompanied by a written
report of Coopers & Lybrand L.L.P. confirming the accuracy of the
adjustments set forth therein. The Buyer shall be responsible for
all of the fees and expenses of Coopers & Lybrand L.L.P. in
connection with the preparation of such report.
4
<PAGE>
(iii) If the Buyer has any objections that Masco has
not prepared the Proposed Closing Date Balance Sheet (including the
cash and cash investments reflected thereon) or the Adjusted NIA
Report in accordance with the provisions of this Agreement, then the
Buyer may deliver a statement describing its objections in
reasonable detail to Masco within 60 days after receiving the
Proposed Closing Date Balance Sheet and the Adjusted NIA Report.
Masco and the Buyer will use reasonable efforts to resolve any
disputes themselves through the exchange of written proposals
setting forth their respective determinations of the Adjusted Net
Investment and Advances and of the cash and cash investments of the
HFG Companies and their Subsidiaries as of the Closing Date (the
"Closing Date Cash"). During this period (not to exceed 30 days
after Masco has received the statement of objections) in which the
Parties are attempting to resolve any such disputes themselves,
neither Party shall be constrained by any position it has previously
taken with respect to the determination of the Adjusted Net
Investment and Advances and the Closing Date Cash (nor shall Masco
be constrained by any position it has taken in the preparation of
the Proposed Closing Date Balance Sheet or the Adjusted NIA Report);
provided, however, that neither Party may take any position that is
inconsistent with the provisions of this Agreement. If the Parties
do not obtain a final resolution within 30 days after Masco has
received the statement of objections, the Parties shall submit the
items remaining in dispute for resolution to a nationally recognized
accounting firm (other than Coopers & Lybrand L.L.P. or Ernst &
Young L.L.P.) reasonably acceptable to each of the Parties (the
"Independent Accounting Firm"). Within 10 days after the selection
of the Independent Accounting Firm, each Party shall submit to the
Independent Accounting Firm a written statement describing each item
subject to dispute in reasonable detail. The Independent Accounting
Firm shall, within 60 days after such submission, resolve any
remaining disputes. Any such resolution by the Independent
Accounting Firm will be set forth in writing and will be conclusive
and binding upon the Parties; provided, however, that (A) the
Adjusted Net Investment and Advances or the Closing Date Cash, as
the case may be, shall be deemed to equal the amount set forth in
the final written proposal of the Buyer prior to the involvement of
the Independent Accounting Firm (the "Low Value") if the Independent
Accounting Firm determines that such Adjusted Net Investment and
Advances or Closing Date Cash is less than or equal to the Low Value
and (B) such Adjusted Net Investment and Advances or Closing Date
Cash, as the case may be, shall be deemed to equal the amount set
forth in the final written proposal of Masco prior to the
involvement of the Independent Accounting Firm (the "High Value") if
the Independent Accounting Firm determines that such Adjusted Net
Investment and Advances or Closing Date Cash is greater than or
equal to the High Value. In any event, if the Proposed Closing Date
Balance Sheet or the Adjusted NIA Report (taking into account any
change in Closing Date Cash) is to be revised in any respect, the
Parties (or the Independent Accounting Firm) shall also make any
appropriate corresponding offsets and adjustments elsewhere in the
Proposed Closing Date Balance Sheet and the Adjusted NIA Report.
Masco (or the Independent Accounting Firm) will revise the Proposed
Closing Date Balance Sheet and the Adjusted NIA Report as
appropriate to reflect the final resolution of any disputes referred
to in this Section 2(e)(iii). The "Closing Date Balance Sheet"
shall mean the Proposed Closing Date Balance Sheet together with any
revisions thereto pursuant to this Section 2(e)(iii).
5
<PAGE>
The "Revised Adjusted NIA Report" shall mean the Adjusted NIA Report
together with any revisions thereto pursuant to this Section
2(e)(iii).
(iv) In the event the Parties submit any unresolved
disputes to the Independent Accounting Firm as provided in Section
2(e)(iii) above, the Buyer will be responsible for all of the fees
and expenses of the Independent Accounting Firm in resolving such
disputes.
(v) The Buyer will make the books, records and
personnel of the HFG Companies and their Subsidiaries available to
Masco and its accountants and other representatives, and Masco will
make its, and will cause Coopers & Lybrand L.L.P. to make its, work
papers, back-up materials and personnel used in preparing the
Proposed Closing Date Balance Sheet and the Adjusted NIA Report
available to the Buyer and its accountants and other
representatives, at reasonable times and upon reasonable notice at
any time during (A) the preparation by Masco of the Proposed Closing
Date Balance Sheet and the Adjusted NIA Report (including the taking
of any physical inventory), (B) the review by the Buyer of the
Proposed Closing Date Balance Sheet and the Adjusted NIA Report, and
(C) the resolution by the Parties and, if necessary, the Independent
Accounting Firm of any disputes involving the Proposed Closing Date
Balance Sheet or the Adjusted NIA Report.
(f) Adjustment to Preliminary Purchase Price. The
Preliminary Purchase Price will be adjusted as follows:
(i) if the Closing Date Cash is less than $14,000,000
(the amount of such shortfall being referred to as the "Masco Cash
Payment"), Masco will pay to the Buyer an amount equal to the Masco
Cash Payment, together with interest thereon at the Applicable Rate
from the Closing Date, by wire transfer of immediately available
funds within three business days after the date on which Adjusted
Net Investment and Advances finally is determined pursuant to
Section 2(e).
(ii) following any payment contemplated by clause (i)
above, the Adjusted Net Investment and Advances (as set forth in the
Revised Adjusted NIA Report) will be increased by the amount of any
Masco Cash Payment (as contemplated by the Adjustment Schedule). If
the Adjusted Net Investment and Advances (as so adjusted) exceeds
$1,691,400,000 (such amount being referred to as "Year-end Net
Investment and Advances"), the principal amount of the PIK Note will
be increased, effective as of the Closing Date, by the amount of
such excess; provided, however, that the principal amount of the PIK
Note shall be appropriately modified in the same manner as the
adjustment to the original principal amount of the PIK Note in
accordance with clause (y) of the proviso to Section 2(b)(ii).
(iii) If the Adjusted Net Investment and Advances as
of the Closing Date (as so adjusted) is less than the Year-end Net
Investment and Advances, Masco (for its own account or, as
appropriate, for the account of Masco Corporation Limited) will pay
6
<PAGE>
to the Buyer an amount equal to such deficiency, together with
interest thereon at the Applicable Rate from the Closing Date, by
wire transfer of immediately available funds within three business
days after the date on which such Adjusted Net Investment and
Advances finally is determined pursuant to Section 2(e).
The Preliminary Purchase Price as so adjusted is referred to herein as the
"Purchase Price."
Section 3. Representations and Warranties Concerning the Transac-
tion.
(a) Representations and Warranties of Masco. Masco represents
and warrants to the Buyer that the statements contained in this Section 3(a)
are correct as of the date of this Agreement, and will be correct as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(a)),
except for the matters reflected in the accompanying Schedule of Disclosures
Regarding Masco's Representations and Warranties (the "Disclosure Sched-
ule"), which Disclosure Schedule shall be construed in accordance with
Section 12(s).
(i) Organization. Each of Masco and Masco Corporation
Limited is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
(ii) Authorization of Transaction. Masco has full
corporate power and authority, including all necessary approvals of
its directors and shareholders, to execute and deliver this
Agreement and the other Transaction Documents to which Masco is a
party and to perform Masco's obligations hereunder and thereunder
(including by causing Masco Corporation Limited to take all actions
contemplated to be taken by it under this Agreement). This Agree-
ment has been duly and validly executed and delivered by Masco and
constitutes the valid and legally binding obligation of Masco,
enforceable against it in accordance with its terms, and each of the
other Transaction Documents to which Masco or Masco Corporation
Limited is a party, upon its execution and delivery, will constitute
the valid and legally binding obligation of Masco or Masco
Corporation Limited (as the case may be), enforceable against Masco
or Masco Corporation Limited (as the case may be) in accordance with
its terms. As of the Closing Date, Masco Corporation Limited will
have full corporate power and authority, including all necessary
approvals of its directors and shareholders, to take all actions
contemplated to be taken by it under this Agreement (including the
execution, delivery and performance of each Transaction Document to
which it is a party and the sale to the Buyer of all the outstanding
capital stock in certain HFG Companies).
(iii) Noncontravention. Neither the execution and the
delivery by Masco of this Agreement and the other Transaction
Documents to which Masco is a party, nor the execution and delivery
by Masco Corporation Limited of the Transaction Documents to which
it is a party, nor the consummation by Masco and Masco Corporation
Limited of the transactions contemplated hereby and thereby, will
(A) violate any constitution, statute, law, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other
7
<PAGE>
restriction of any foreign, federal, state or local government,
governmental agency or court to which Masco or Masco Corporation
Limited is subject or any provision of their respective charters or
bylaws or (B) conflict with, result in a breach of, constitute a
default (or an event which with the giving of notice or lapse of
time, or both, would become a default) under, result in the accel-
eration, termination, modification or cancellation of, create in any
party the right to accelerate, terminate, modify or cancel, or
require any notice under, any agreement, contract, lease, license,
instrument, permit or other arrangement to which Masco or Masco
Corporation Limited is a party or by which either of them is bound
or to which any of Masco's remaining Subsidiaries or assets is
subject (or result in the imposition of any Security Interest upon
any of the capital stock of the HFG Companies and their
Subsidiaries), except for such violations, conflicts, breaches,
defaults, accelerations, terminations, modifications, cancellations,
rights, and failures to give notice which, individually and in the
aggregate, would not have a material adverse effect on the ability
of any Party to consummate the transactions contemplated by this
Agreement and the other Transaction Documents. Neither Masco nor
Masco Corporation Limited will be required to give any notice to,
make any filing with, or obtain any authorization, consent or
approval of any government, governmental agency or court in order to
consummate the transactions contemplated by this Agreement and the
other Transaction Documents to which Masco or Masco Corporation
Limited is a party, except where failures to give any such notice,
to make any such filing or to obtain any such authorization, consent
or approval would not, individually and in the aggregate, have a
material adverse effect on the ability of any Party to consummate
the transactions contemplated by this Agreement and the other
Transaction Documents.
(iv) Brokers' Fees. Neither Masco nor Masco Corporation
Limited has any liability or obligation to pay any fees or commis-
sions to any broker, finder, or agent with respect to the transac-
tions contemplated by this Agreement and the other Transaction
Documents for which any of the Buyer and its Affiliates (including
the HFG Companies and their Subsidiaries, but excluding Masco and
its remaining Subsidiaries) could become liable or obligated.
(v) HFG Company Shares. Masco (or, as indicated, Masco
Corporation Limited) holds of record and owns beneficially the
number of shares of each class of capital stock of each HFG Company
as set forth in Section 4(b) of the Disclosure Schedule, free and
clear of any Security Interests, equities, claims and demands and,
except with respect to wholly owned Subsidiaries of the HFG
Companies, free of all preemptive rights.
(vi) Acquisition for Investment. Neither Masco nor Masco
Corporation Limited is acquiring any of the PIK Note, the Series A
Preferred Stock, the Series B Preferred Stock or the Common Stock
with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act; provided, however,
that the disposition of Masco's or Masco Corporation Limited's
property (including any of the PIK Note, the Series A Preferred
Stock, the Series B Preferred Stock or the Common Stock) will at all
times remain within its control.
8
<PAGE>
(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to Masco that the statements contained in this
Section 3(b) are correct as of the date of this Agreement, and will be
correct as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(b)), except for the matters reflected in the accompanying Schedule
of Disclosures Regarding the Buyer's Representations and Warranties (the
"Buyer Disclosure Schedule"), which Buyer Disclosure Schedule shall be
construed in accordance with Section 12(s), and any matters reflected in any
written notice delivered in accordance with Section 5(e)(ii) below (other
than with respect to (x) the Specified Buyer Representations and (y) facts
and circumstances existing and in the knowledge of the Buyer as of the date
of this Agreement).
(i) Organization, Qualification, and Corporate Power. Each
of the Buyer and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may
be, and has the requisite power and authority and all necessary
governmental approvals to own, lease, and operate its properties and
to carry on its business as it is now being conducted, except for
such failures to be so organized, existing, or in good standing or
to have such power, authority, and governmental approvals that,
individually and in the aggregate, would not have a Buyer Material
Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this
Agreement and the other Transaction Documents. Each of the Buyer
and its Subsidiaries is duly qualified or licensed to do business,
and is in good standing (to the extent applicable), in each
jurisdiction where the character of the properties owned, leased, or
operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that, individually and
in the aggregate, would not have a Buyer Material Adverse Effect or
a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement and the
other Transaction Documents. The Buyer has heretofore delivered to
Masco true and complete copies of the charter and bylaws of each of
the Buyer and its Subsidiaries as currently in effect and will
deliver to Masco true and complete copies of all corporate documents
of any Person (other than the HFG Companies and their Subsidiaries)
that is a Subsidiary of the Buyer on the Closing Date but is not in
existence as of the date of this Agreement.
(ii) Authorization of Transaction. The Buyer has full
corporate power and authority, including all necessary approvals of
its directors and shareholders, to execute and deliver this
Agreement and the other Transaction Documents to which it is a party
and to perform its obligations hereunder and thereunder. This
Agreement has been duly and validly executed and delivered by the
Buyer and constitutes the valid and legally binding obligation of
the Buyer, enforceable against the Buyer in accordance with its
terms, and each of the other Transaction Documents to which the
Buyer or any of the Affiliates of the Buyer (determined assuming
that Masco is not an Affiliate of the Buyer) is a party, upon its
execution and delivery, will constitute the valid and legally
binding obligation of the Buyer or such Affiliate (as the case may
be), enforceable against the Buyer or such Affiliate (as the case
may be) in accordance with its terms. As of the
9
<PAGE>
Closing Date, each of the Affiliates of the Buyer (determined
assuming that Masco is not an Affiliate of the Buyer) will have all
corporate or other requisite power and authority, including all
necessary approvals of its directors, shareholders, partners or
other governing bodies of such person, as applicable, to take all
actions contemplated to be taken by it under this Agreement
(including the execution, delivery and performance of each
Transaction Document to which it is a party).
(iii) Noncontravention. Neither the execution and the
delivery by the Buyer or any of the Affiliates of the Buyer
(determined assuming that Masco is not an Affiliate of the Buyer) of
this Agreement and the other Transaction Documents to which such
Person is a party, nor the consummation by the Buyer and such
Affiliates of the transactions contemplated hereby and thereby, will
(i) violate any constitution, statute, law, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other
restriction of any foreign, federal, state or local government,
governmental agency or court to which any such Person is subject, or
violate any provision of the charter or bylaws (or similar
organizational documents) of any such Person or (ii) conflict with,
result in a breach of, constitute a default (or an event which with
the giving of notice or lapse of time, or both, would become a
default) under, result in the acceleration, termination,
modification or cancellation of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice
under, any agreement, contract, lease, license, instrument, permit
or other arrangement to which any such Person is a party or by which
it is bound or to which any of its assets is subject (or, other than
Security Interests required to be granted in connection with the
Financing, result in the imposition of any Security Interest upon
any of the capital stock of any such Person or such Person's
assets), except for such violations, conflicts, breaches, defaults,
accelerations, terminations, modifications, cancellations, rights,
failures to give notice and Security Interests that, individually
and in the aggregate, would not have a Buyer Material Adverse Effect
or a material adverse effect on the ability of any Party to
consummate the transactions contemplated by this Agreement and the
other Transaction Documents. None of the Buyer or any of the
Affiliates of the Buyer (determined assuming that Masco is not an
Affiliate of the Buyer) will be required to give any notice to, make
any filing with, or obtain any authorization, consent, or approval
of, any government, governmental agency or court in order for the
Buyer to consummate the transactions contemplated by this Agreement
and the other Transaction Documents to which any of the Buyer or
such Affiliates is a party, except where failures to give any such
notice, to make any such filing or to obtain any such authorization,
consent or approval would not, individually and in the aggregate,
have a Buyer Material Adverse Effect or a material adverse effect on
the ability of any Party to consummate the transactions contemplated
by this Agreement and the other Transaction Documents.
(iv) Brokers' Fees. The Buyer has no liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement and the other Transaction Documents for which any of Masco
and its Affiliates (determined assuming that the Buyer is not an
Affiliate of Masco) could become liable or obligated.
10
<PAGE>
(v) Investment. The Buyer is not acquiring the capital
stock of any of the HFG Companies with a view to or for sale in
connection with any distribution thereof within the meaning of the
Securities Act; provided, however, that the disposition of the
Buyer's property (including the capital stock of the HFG Companies)
shall at all times remain within the Buyer's control.
(vi) Financing. The Buyer has delivered to Masco true and
complete copies of the following letters received in connection with
the financing of the transactions contemplated by this Agreement and
payment of the related fees and expenses (the "Financing"):
(A) FURNISHINGS INTERNATIONAL INC. Senior Secured
Credit Facilities and Receivables Purchase Facility Commitment
Letter dated as of March 29, 1996 from Chemical Bank addressed
to the Buyer (and accompanying Fee Letter);
(B) FURNISHINGS INTERNATIONAL INC. Engagement Letter
dated as of March 29, 1996 from Chemical Securities Inc.
addressed to the Buyer;
(C) Senior Subordinated Notes Engagement Letter and the
related "highly confident" letter, each dated as of March 29,
1996 from Chemical Securities Inc. addressed to the Buyer; and
(D) Commitment Letter dated as of March 29, 1996 from
399 Venture Partners, Inc. addressed to the Buyer;
in each case as in effect on the date of this Agreement, and the
Buyer will deliver to Masco, promptly following the execution and
delivery thereof, true and complete copies of all final agreements
and instruments implementing the Financing that are executed after
the date of this Agreement. Assuming the satisfaction or waiver of
the conditions contained in the letters, the aggregate net proceeds
of the capital contributions, credit facilities and debt described
in such letters will be sufficient for Buyer to consummate the
transactions contemplated hereby and to pay all related fees and
expenses. As of the date hereof, the Buyer has no reason to believe
that the conditions contained in such letters will not be satisfied.
(vii) Capitalization. Except in the case of any wholly-
owned Subsidiary of the Buyer that is formed after the date hereof
in connection with the Financing or the transactions contemplated by
the Transaction Documents, the Buyer Disclosure Schedule sets forth
the authorized, issued and outstanding shares of each class of
capital stock of each of the Buyer and its Subsidiaries, the names
of the record holders of each class of its capital stock, and the
number of shares of each class held of record by each such holder,
in each case as of the date hereof. All of the issued and
outstanding shares of capital stock of each of the Buyer and its
Subsidiaries have been duly authorized, and are
11
<PAGE>
validly issued, fully paid and nonassessable. Except as
contemplated by this Agreement and the other Transaction Documents,
there are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights or
other contractual commitments (or, to the knowledge of the Buyer,
non-contractual commitments) that could require any of the Buyer or
its Subsidiaries to issue, sell, redeem, repurchase or otherwise
acquire any of its capital stock or any securities convertible into
or exercisable or exchangeable for any of its capital stock. None
of the issued and outstanding shares of capital stock of any of the
Buyer or its Subsidiaries was issued in violation of any preemptive
rights. The shares set forth in the Buyer Disclosure Schedule
constitute all the issued and outstanding capital stock of the
Buyer. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange
rights, or other commitments that could require any of the Buyer and
its Subsidiaries to sell, transfer, or otherwise dispose of any
capital stock of any of their Subsidiaries. Except in the case of
any wholly-owned Subsidiary of the Buyer that is formed after the
date hereof in connection with the Financing or the transactions
contemplated by the Transaction Documents, the shares set forth in
the Buyer Disclosure Schedule constitute all the issued and
outstanding capital stock of each of the Subsidiaries of the Buyer
and (other than directors' qualifying shares) are owned of record
and beneficially solely by the Buyer or a Subsidiary of the Buyer
free and clear of all Security Interests, equities, claims and
demands (other than Security Interests required to be granted in
connection with the Financing). Except for the Transaction
Documents, as of the Closing Date there will be no voting trusts,
proxies, or other agreements or understandings with respect to the
voting or disposition of any capital stock of (or any other voting
interest in) the Buyer. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting or
disposition of any capital stock of (or any other voting interest
in) any Subsidiary of the Buyer.
(viii) Investments. None of the Buyer and its Subsidiaries
has any direct or indirect equity participation in any corporation,
partnership, trust, or other business association other than their
respective Subsidiaries.
(ix) Financial Statements. The Buyer Disclosure Schedule
contains copies of the following financial statements (collectively,
the "Buyer Financial Statements"): (i) an unaudited consolidated
balance sheet as of December 31, 1995 and (ii) unaudited
consolidated statements of operations and cash flow for the fiscal
period ended December 31, 1995, in each case for the Buyer and its
Subsidiaries. The Buyer Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the period covered thereby and present
fairly the consolidated financial position of the Buyer and its
Subsidiaries as of such date and the consolidated results of
operations of the Buyer and its Subsidiaries for such period.
Except (x) as reflected or reserved against in the audited
consolidated balance sheet as of December 31, 1995 (including the
notes thereto) or (y) as reflected in any subsection of the Buyer
Disclosure Schedule (including any amendment or supplement to the
Buyer Disclosure Schedule resulting from a notice delivered pursuant
to Section 5(e)(ii) below), as of the Closing Date there will be no
contingent liabilities of the Buyer and its Subsidiaries,
12
<PAGE>
other than (i) liabilities which arise in the Ordinary Course of
Business of the Buyer and its Subsidiaries and (ii) other
liabilities which, individually and in the aggregate, would not have
a Buyer Material Adverse Effect.
(x) Subsequent Events. Since December 31, 1995, there has
not been any Buyer Material Adverse Effect.
(xi) Litigation. The Buyer Disclosure Schedule sets forth
each instance in which any of the Buyer and its Subsidiaries (i) is
subject to any outstanding injunction or judgment or any final
order, decree or ruling or (ii) is a party or, to the knowledge of
the Buyer, is threatened to be made a party to any action, suit,
proceeding, hearing or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local
or foreign jurisdiction or before any arbitrator, except for such
injunctions, judgments, orders, decrees, rulings, threats, actions,
suits, proceedings, hearings and investigations that, individually
and in the aggregate, would not reasonably be expected to have a
Buyer Material Adverse Effect or a material adverse effect on the
ability of any Party to consummate the transactions contemplated by
this Agreement and the other Transaction Documents.
(xii) Legal Compliance. Each of the Buyer and its
Subsidiaries has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings and charges thereunder) of foreign, federal, state and local
governments (and all agencies thereof) and, to the knowledge of the
Buyer, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure so to comply, except in
each such case for failures to comply that, individually and in the
aggregate, would not have a Buyer Material Adverse Effect or a
material adverse effect on the ability of any Party to consummate
the transactions contemplated by this Agreement and the other
Transaction Documents.
(xiii) Investment Company. The Buyer is not an "investment
company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as
amended.
(xiv) Environmental Laws and Liabilities.
(A) Each of the Buyer and its Subsidiaries (i) complies
with the Environmental Laws in all applicable respects, (ii) has
obtained and complies in all applicable respects with all of the
terms and conditions of all Environmental Permits and (iii)
complies in all applicable respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables which are contained in the
Environmental Laws except in each case for such failures to
comply or to obtain any Environmental Permit that, individually
and in the aggregate, would not have a Buyer Material Adverse
Effect.
13
<PAGE>
(B) None of the Buyer and its Subsidiaries has any
liability, and none of the Buyer and its Subsidiaries has
handled, transported, treated, stored or disposed of any
substance or arranged for the handling, transportation,
treatment, storage or disposal of any substance so as to give
rise to any liability, for damage to any site, location or body
of water (surface or subsurface), for investigation, removal or
cleanup of Releases or threatened Releases of Hazardous
Materials, or for damage or injury to any Person or property
under any applicable Environmental Law, except in each case for
such liabilities that, individually and in the aggregate, would
not have a Buyer Material Adverse Effect.
(xv) Employee Benefits.
(A) The Buyer Disclosure Schedule lists each Employee
Benefit Plan covered by or subject to ERISA and each significant
Employee Benefit Arrangement that any of the Buyer or its
Subsidiaries maintains or administers, or to which any of them
contributes. Each such Employee Benefit Plan and Employee
Benefit Arrangement (and each related trust, VEBA trust,
insurance contract, or fund) has complied in form and in
operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws and
has been administered in accordance with its terms, in each case
since September 11, 1995.
(B) Each such Employee Benefit Plan which is an
employee pension benefit plan and which is intended to meet the
requirements of a qualified plan under Code Sec. 401(a) is, and
at all times since September 11, 1995 has been, so qualified and
has either (1) received a favorable determination letter from
the Internal Revenue Service covering such Employee Benefit Plan
for the Tax Reform Act of 1986, as amended, the Unemployment
Compensation Act of 1992, and the Omnibus Budget Reconciliation
Act of 1993 or (2) timely applied to the Internal Revenue
Service for a favorable determination letter so covering such
plan.
(C) As of the date hereof, the estimated market value
of assets under such Employee Benefit Plans which are employee
pension benefit plans subject to the minimum funding
requirements of Code Sec. 412 equals or exceeds in the aggregate
the present value of all currently accrued benefits thereunder
determined on an on-going basis in accordance with the actuarial
methods, factors and assumptions used by such plans' actuaries
for the purpose of meeting the minimum funding requirements.
(D) With respect to each such Employee Benefit Plan
which is an employee pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code, in each such case since
September 11, 1995, no such employee pension benefit plan has
been completely or partially terminated or been the subject of a
Reportable Event as to which notices are required to be filed
with the PBGC, and
14
<PAGE>
no proceeding by the PBGC to terminate any such employee pension
benefit plan has been instituted or, to the knowledge of the
Buyer, threatened, subject to such exceptions which, taken
together, would not result in a material liability for the Buyer
and its Subsidiaries, considered as a single combined business.
(E) No significant liability (other than for PBGC
premiums) has been incurred or, to the knowledge of the Buyer,
would reasonably be expected to be incurred by the Buyer with
respect to the period prior to the Closing Date under Title IV
of ERISA (including withdrawal liability) or under Sections 4971
through 4980B of the Code with respect to any Employee Benefit
Plan (including a Multiemployer Plan) presently, or since
January 1, 1988, maintained or contributed to by any of the
Buyer, its Subsidiaries or any predecessor of the Buyer or by
any other entity that is, or at any time since January 1, 1988
was, an ERISA Affiliate of such entities.
(F) No other liability has been incurred or, to the
knowledge of the Buyer, would reasonably be expected to be
incurred by any of the Buyer or its Subsidiaries with respect to
any Employee Benefit Plan or Employee Benefit Arrangement which
any ERISA Affiliate of the Buyer and its Subsidiaries (other
than the Buyer and its Subsidiaries) maintains or administers or
to which any such ERISA Affiliate contributes.
(xvi) Taxes.
(A) Each of the Buyer and its Subsidiaries has filed
with the relevant Taxing Authority all federal income tax and
other material Returns that it has been required to file. All
such Returns were correct and complete in all material
respects. All Taxes due and owing by any of the Buyer or its
Subsidiaries (whether or not shown on any Return) have been
paid.
(B) There is no pending dispute or claim raised by any
Taxing Authority concerning any Tax liability of any of the
Buyer or its Subsidiaries. Neither the Buyer nor any of its
Subsidiaries has received any Tax examination reports or
statements of deficiencies.
(C) No claim by any Taxing Authority in a jurisdiction
in which any of the Buyer or its Subsidiaries do not file
Returns is currently pending or, to the knowledge of the Buyer,
threatened to the effect that any of them is or may be subject
to Tax by that jurisdiction.
(D) None of the Buyer or its Subsidiaries is a party to
any Tax allocation or sharing agreement.
(E) None of the Buyer or its Subsidiaries has received
any written ruling of a Taxing Authority related to Taxes, or
entered into any written and
15
<PAGE>
legally binding agreement with a Taxing Authority relating to
Taxes, which in either case would have a Buyer Material Adverse
Effect for any Post-Closing Period.
(F) None of the Buyer or its Subsidiaries has agreed or
is required to make any adjustments pursuant to Section 481(a)
of the Code or any similar provision of state, local, or foreign
law, and none of such entities has any application pending with
any Taxing Authority requesting permission for any changes in
accounting methods that relate to the business of the Buyer or
any of its Subsidiaries.
Section 4. Representations and Warranties Concerning the HFG
Companies. Masco represents and warrants to the Buyer that the statements
contained in this Section 4 are correct as of the date of this Agreement,
and will be correct as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except for the matters reflected in the
Disclosure Schedule, which Disclosure Schedule shall be construed in
accordance with Section 12(s), and any matters reflected in any written
notice delivered pursuant to Section 5(e)(i) below (other than with respect
to (x) the Specified Masco Representations and (y) facts and circumstances
existing and in the Knowledge of Masco as of the date of this Agreement).
(a) Organization, Qualification, and Corporate Power. Each of
the HFG Companies and their Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, as the case may be, and has the requisite
power and authority and all necessary governmental approvals to own, lease,
and operate its properties and to carry on its business as it is now being
conducted, except for such failures to be so organized, existing, or in good
standing or to have such power, authority, and governmental approvals that,
individually and in the aggregate, would not have a Material Adverse Effect.
Section 4(b) of the Disclosure Schedule sets forth the jurisdiction of
incorporation or organization (as the case may be) of each of the HFG
Companies and their Subsidiaries. Each of the HFG Companies and their
Subsidiaries is duly qualified or licensed to do business, and is in good
standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased, or operated by it or the nature
of its business makes such qualification or licensing necessary, except for
such failures to be so qualified or licensed and in good standing that,
individually and in the aggregate, would not have a Material Adverse Effect.
(b) Capitalization. Section 4(b) of the Disclosure Schedule
sets forth the authorized, issued, and outstanding shares of each class of
capital stock of each of the HFG Companies. All of the issued and
outstanding shares of capital stock of each of the HFG Companies have been
duly authorized, and are validly issued, fully paid, and nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other contractual
commitments (or, to the Knowledge of Masco, non-contractual commitments)
that could require (i) any of the HFG Companies to issue, sell, redeem,
repurchase or otherwise acquire any of its capital stock or any securities
convertible into
16
<PAGE>
or exercisable or exchangeable for any of its capital stock or (ii) Masco or
Masco Corporation Limited to sell, pledge, encumber or otherwise dispose of
any capital stock of any HFG Company or any securities convertible into or
exercisable or exchangeable for any such capital stock. None of the issued
and outstanding shares of capital stock of any of the HFG Companies was
issued in violation of any preemptive rights. The shares set forth in
Section 4(b) of the Disclosure Schedule constitute all the issued and
outstanding capital stock of each of the HFG Companies and are owned of
record and beneficially solely by Masco (or to the extent indicated in
Section 4(b) of the Disclosure Schedule, solely by Masco Corporation
Limited) free and clear of all Security Interests, equities, claims and
demands. Upon consummation of the transactions contemplated by this
Agreement and registration of the shares of capital stock of each of the HFG
Companies in the name of the Buyer in the stock records of each of the HFG
Companies, the Buyer, assuming it shall have purchased such shares in good
faith and without notice of any adverse claim, will own all the issued and
outstanding capital stock of each of the respective HFG Companies free and
clear of all Security Interests (other than those created by the Buyer or
its Subsidiaries (other than the HFG Companies and their Subsidiaries)).
There are no voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock or any other voting interest
of any of the HFG Companies, other than by nominees or directors holding
shares of capital stock for the benefit of Masco. Section 4(b) of the
Disclosure Schedule also sets forth for each Subsidiary of the HFG Companies
the number of authorized, issued, and outstanding shares of each class of
its capital stock, the names of the record holders of each class of its
capital stock, and the number of shares of each class held of record by each
such holder. All of the issued and outstanding shares of capital stock of
each such Subsidiary have been duly authorized and are validly issued, fully
paid and nonassessable. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contractual commitments (or, to the Knowledge of Masco,
non-contractual commitments) that could require any of the HFG Companies and
their Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of their Subsidiaries or that could require any of the
Subsidiaries of the HFG Companies to issue, sell, redeem, repurchase or
otherwise acquire any of its own capital stock or any securities convertible
into or exercisable or exchangeable for any of its capital stock. None of
the issued and outstanding shares of capital stock of any of the
Subsidiaries of the HFG Companies was issued in violation of any preemptive
rights. The shares set forth in Section 4(b) of the Disclosure Schedule
constitute all the issued and outstanding capital stock of each of the
Subsidiaries of the HFG Companies and (other than directors' qualifying
shares) are owned of record and beneficially solely by the listed HFG
Company or Subsidiary of an HFG Company free and clear of all Security
Interests, equities, claims and demands. Except for the Transaction
Documents, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting or disposition of any capital
stock of (or any other voting interest in) any Subsidiary of the HFG
Companies, other than with respect to voting by nominees or directors
holding shares of capital stock for the benefit of such HFG Companies.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement and the other Transaction Documents, nor the consummation
of the transactions contemplated hereby and thereby, will (i) violate any
constitution, statute, law, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any federal, state or local
17
<PAGE>
government, governmental agency or court (or, to the Knowledge of Masco, any
foreign government, governmental agency or court) to which any of the HFG
Companies and their Subsidiaries is subject, or violate any provision of the
charter or bylaws (or similar organizational documents) of any of the HFG
Companies and their Subsidiaries, or (ii) conflict with, result in a breach
of, constitute a default (or an event which with the giving of notice or
lapse of time, or both, would become a default) under, result in the accel-
eration, termination, modification or cancellation of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any agreement, contract, lease, license, instrument, permit or other
arrangement to which any of the HFG Companies and their Subsidiaries is a
party or by which any of them is bound or to which any of their respective
assets is subject (or result in the imposition of any Security Interest
(other than Security Interests required to be granted in connection with the
Financing) upon any of the capital stock of any of the HFG Companies and
their Subsidiaries or any of their respective assets), except for such
violations, conflicts, breaches, defaults, accelerations, terminations,
modifications, cancellations, rights, failures to give notice and Security
Interests upon assets (other than capital stock) that, individually and in
the aggregate, would not have a Material Adverse Effect. None of the HFG
Companies and their Subsidiaries will be required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of,
any government, governmental agency or court in order for the Parties to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents, except for where failures to give any such notice, to
make any such filing, or to obtain any such authorization, consent, or
approval would not, individually and in the aggregate, have a Material
Adverse Effect.
(d) Brokers' Fees. None of the HFG Companies and their
Subsidiaries has any liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement and the other Transaction Documents.
(e) Investments. None of the HFG Companies and their
Subsidiaries has any direct or indirect equity participation in any corpora-
tion, partnership, trust, or other business association other than their
respective Subsidiaries identified in Section 4(b) of the Disclosure
Schedule.
(f) Financial Statements. Section 4(f) of the Disclosure
Schedule contains copies of the audited combined balance sheets as of
December 31, 1994 and December 31, 1995, and audited combined statements of
operations and cash flow for the fiscal years ended December 31, 1993,
December 31, 1994 and December 31, 1995, for the HFG Companies and their
Subsidiaries (collectively, the "Financial Statements"), in each case
together with the report thereon of Coopers & Lybrand L.L.P., including
their unqualified opinion thereon. The Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly
the combined financial position of the HFG Companies and their Subsidiaries
as of such dates and the combined results of operations of the HFG Companies
and their Subsidiaries for such periods. Except (x) as reflected or
reserved against in the audited combined balance sheet as of December 31,
1995 included within the Financial Statements (including the notes thereto)
or (y) as reflected or reserved against in the Closing Date Balance Sheet or
(z) as reflected in any subsection of the Disclosure Schedule (including any
amendment or supplement to the Disclosure Schedule
18
<PAGE>
resulting from a written notice delivered pursuant to Section 5(e)(i)
below), as of the Closing Date, there will be no contingent liabilities of
the HFG Companies and their Subsidiaries which are required by GAAP (applied
on a consistent basis with the methods, principles, practices and policies
used in preparing the Financial Statements) to be reflected or reserved
against in a combined balance sheet of the HFG Companies and their
Subsidiaries as of that date, other than (i) liabilities which arise in the
Ordinary Course of Business of the HFG Companies and their Subsidiaries and
(ii) other liabilities which, individually and in the aggregate, would not
have a Material Adverse Effect.
(g) Events Subsequent to December 31, 1995. No events or
circumstances have occurred or arisen since December 31, 1995 which, taken
together, would have a Material Adverse Effect. Without limiting the
generality of the foregoing, since that date:
(i) none of the HFG Companies and their Subsidiaries has
sold, leased, transferred, encumbered, assigned or otherwise
disposed of any material assets, tangible or intangible, outside of
the Ordinary Course of Business;
(ii) none of the HFG Companies and their Subsidiaries has
entered into, amended, modified, or terminated any material
agreement, contract, lease, permit or license outside of the
Ordinary Course of Business;
(iii) no third party has accelerated, terminated, modified
or canceled (or, to the Knowledge of Masco, notified any of the HFG
Companies and their Subsidiaries of its intention to accelerate,
terminate, modify or cancel) any material agreement, contract,
lease, permit or license to which any of the HFG Companies and their
Subsidiaries is a party, or by which any of them is bound, outside
of the Ordinary Course of Business;
(iv) none of the HFG Companies and their Subsidiaries has
made any material capital expenditures outside of the Ordinary
Course of Business or, to the Knowledge of Masco, experienced any
material damage, destruction or loss (whether or not covered by
insurance) to its property;
(v) none of the HFG Companies and their Subsidiaries has
adopted, entered into, amended, modified, or terminated any
collective bargaining agreement, Employee Benefit Plan or material
Employee Benefit Arrangement, granted any material increase in
compensation, or made any other material change in employment terms
for any of its directors, officers and employees, in each case
outside of the Ordinary Course of Business;
(vi) none of the HFG Companies and their Subsidiaries has
(x) been a party to any merger, consolidation or similar business
combination or (y) other than in the Ordinary Course of Business,
acquired all or substantially all of the assets of any other Person;
and
19
<PAGE>
(vii) none of the HFG Companies and their Subsidiaries has
committed to any of the foregoing.
(h) Litigation. Section 4(h) of the Disclosure Schedule sets
forth each instance in which any of the HFG Companies and their Subsidiaries
(or Masco to the extent relating to this Agreement or any other Transaction
Document) (i) is subject to any outstanding injunction or judgment or any
final order, decree, or ruling or (ii) is a party or, to the Knowledge of
Masco, is threatened to be made a party to any action, suit, proceeding,
hearing or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
or before any arbitrator, except for such injunctions, judgments, orders,
decrees, rulings, threats, actions, suits, proceedings, hearings and
investigations that would not reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents, and, in the case of (ii) above, except for claims
arising in the Ordinary Course of Business and administered under Masco's
risk management program for general liability, product liability, automobile
liability, workers' compensation, and health, medical, dental, disability
and life insurance benefits.
(i) Legal Compliance. Each of the HFG Companies and their
Subsidiaries has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings
and charges thereunder) of federal, state, local, and, to the Knowledge of
Masco, foreign governments (and all agencies thereof), and, to the Knowledge
of Masco, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any
of them alleging any failure so to comply, except in each such case for
failures to comply that would not have a Material Adverse Effect or a
material adverse effect on the ability of any Party to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents.
(j) Tax Matters.
(i) Each Affiliated Group headed by Masco or any other
Seller Party has filed with the relevant Taxing Authority all federal
income tax and other material Returns that it has been required to file
for each taxable period during which any of the HFG Companies and their
Subsidiaries was a member of such Affiliated Group. All such Returns
were correct and complete in all material respects to the extent they
relate to any of the HFG Companies and their Subsidiaries. Each of the
HFG Companies and their Subsidiaries has filed with the relevant Taxing
Authority all Returns that it has been required to file other than as
part of such Affiliated Group, and all such Returns were correct and
complete in all respects, except in each such case where the failure to
file a Return or of such Return to be correct or complete in all
respects, individually or together with other such failures, would not
have a Material Adverse Effect. All Taxes due and owing by any of the
HFG Companies and their Subsidiaries (whether or not shown on any
Return) have been paid.
20
<PAGE>
(ii) No Affiliated Group headed by Masco or any other
Seller Party has waived any statute of limitations in respect of Taxes,
or agreed to any extension of time with respect to a Tax assessment or
deficiency, in either case to the extent relating to any of the HFG
Companies and their Subsidiaries. None of the HFG Companies and their
Subsidiaries has waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(iii) Section 4(j)(iii) of the Disclosure Schedule lists
all federal, state, local, and foreign Income Tax Returns and sales and
use tax Returns filed by or with respect to any of the HFG Companies and
their Subsidiaries for taxable periods ended on or after December 31,
1991, and indicates those Income Tax Returns and sales and use tax
Returns filed by or with respect to any of the HFG Companies and their
Subsidiaries that currently are the subject of audit.
(iv) Neither any of the HFG Companies or their
Subsidiaries nor the common parent of any Affiliated Group of which any
of the HFG Companies or their Subsidiaries is a member has agreed or is
required to make any adjustments pursuant to Section 481(a) of the Code
or any similar provision of state, local, or foreign law, and none of
such entities has any application pending with any Taxing Authority
requesting permission for any changes in accounting methods that relate
to the business of any of the HFG Companies or their Subsidiaries.
(v) No claim by any Taxing Authority in a jurisdiction in
which any of the HFG Companies and their Subsidiaries do not file
Returns is currently pending or, to the Knowledge of Masco, threatened
to the effect that any of them is or may be subject to Tax by that
jurisdiction.
(vi) There is no pending dispute or claim raised by any
Taxing Authority concerning any Tax liability of any of the HFG
Companies or their Subsidiaries. Masco has delivered to Buyer complete
and correct copies of all Income Tax Returns filed by, and summaries of
all Tax examination reports and statements of deficiencies assessed
against or agreed to by, the HFG Companies and their Subsidiaries since
December 31, 1991.
(vii) None of the HFG Companies or their Subsidiaries is
obligated to make any payments or is a party to any agreement that under
certain circumstances could require it to make any payments, that are
not deductible under Section 280G of the Code.
(viii) Other than an agreement or arrangement described in,
and to be terminated pursuant to, Section 9(a) below, none of the HFG
Companies or their Subsidiaries is a party to any Tax allocation or
sharing agreement.
(ix) None of the HFG Companies or their Subsidiaries is a
"consenting corporation" within the meaning of Section 341(f)(1) of the
Code or comparable provisions of any state statutes, and none of the
assets of any of the HFG Companies or
21
<PAGE>
their Subsidiaries is subject to an election under Section 341(f) of the
Code or comparable provisions of any state statutes.
(x) None of the HFG Companies or their Subsidiaries has
received any written ruling of a Taxing Authority or entered into any
written and legally binding agreement with a Taxing Authority, in each
case related to Income Taxes which would have an adverse effect on, or
related to Taxes which would have a Material Adverse Effect on, the HFG
Companies and their Subsidiaries for any Post-Closing Period.
(xi) Neither any foreign HFG Company nor any foreign
Subsidiary of a HFG Company is, or at any time has been, a passive
foreign investment company within the meaning of Section 1296 of the
Code, and none of the HFG Companies or their Subsidiaries is a
shareholder, directly or indirectly, in a passive foreign investment
company.
(xii) None of the HFG Companies or their Subsidiaries is,
or at any time has been, subject to (x) the dual consolidated loss
provisions of Section 1503(d) of the Code or (y) the overall foreign
loss provisions of Section 904 (f) of the Code (other than with respect
to overall foreign losses which may arise with respect to any tax year
beginning on or after January 1, 1995).
(k) Real Property.
(i) Section 4(k)(i) of the Disclosure Schedule lists and
briefly describes all real property owned by any of the HFG Companies
and their Subsidiaries, including a description of (A) the street
address of each parcel of owned real property, (B) the current record
owner of each such parcel of owned real property, and (C) the principal
current use of each such parcel of owned real property. Each such
description is correct in all material respects. With respect to each
such parcel of owned real property which contains a manufacturing,
warehouse, assembly or distribution facility or a showroom or which has
a market value in excess of $250,000:
(A) the identified owner has good and marketable title
to the parcel of real property, free and clear of any lien,
mortgage, encumbrance, security interest, easement, covenant, or
other restriction or title matter, except for (w) any mechanic's,
materialmen's, and similar liens, (x) any liens for real estate
taxes or assessments not yet due and payable or for real estate
taxes or assessments that the taxpayer is contesting in good faith
through appropriate proceedings (provided the applicable real
property is not subject to imminent threat of loss), (y) any
recorded and unrecorded easements, covenants, and other similar
restrictions and (z) any utility easements, building and use
restrictions, zoning restrictions and other easements and restric-
tions existing generally with respect to properties of a similar
character, in each case that, individually and in the aggregate, do
not materially interfere with, restrict or limit the current use of
22
<PAGE>
the property or impose any material financial or performance
obligation on the owner or user of such property;
(B) there are no pending condemnation proceedings,
lawsuits, or administrative actions relating to the parcel of real
property (and, to the Knowledge of Masco, there are no threatened
condemnation proceedings, lawsuits or administrative actions
relating to the property) that would reasonably be expected to
materially and adversely affect the current use, occupancy or value
thereof;
(C) the legal description for the parcel contained in
the deed, survey, title commitment, or title opinion relating
thereto and included in Section 4(k)(i) of the Disclosure Schedule
describes such parcel fully and adequately, and the buildings and
improvements are located within the boundary lines of the described
parcels of land in all material respects, are not in violation of
applicable setback requirements, zoning laws and ordinances in any
material respect and do not encroach in any material respect on any
easement or right-of-way which may burden the land;
(D) there are no outstanding options or rights of
first refusal to purchase the parcel of real property, or any
portion thereof or interest therein;
(E) there are no leases or grants of occupancy rights
to others affecting the parcel of real property, in each case of any
significance; and
(F) there are no material casualty events affecting
the parcel of real property not fully covered by insurance (except
for customary deductibles).
Masco has made available to the Buyer true and complete copies, to the
extent available to Masco, of (x) property surveys, title commitments
(including copies of recorded agreements and matters) and deeds for each
parcel of owned real estate located in the United States, and (y)
property surveys, title opinion letters and deeds, certificates of title
and similar documents, as applicable in the relevant jurisdiction, for
each parcel of owned real estate located outside of the United States.
(ii) Section 4(k)(ii) of the Disclosure Schedule lists and
briefly describes all real property leased or subleased to or by any of the
HFG Companies and their Subsidiaries. Each such description is correct in
all material respects. Masco has delivered to the Buyer correct and
complete copies of the leases and subleases listed in Section 4(k)(ii) of
the Disclosure Schedule (except as indicated). There are no amendments,
consents for alterations, or other documents recording variations to such
leases which materially and adversely affect the rental payments, the term,
or the current use of the properties subject thereto. With respect to each
lease and sublease listed in Section 4(k)(ii) of the Disclosure Schedule,
(A) the lease or sublease is legal, valid, binding, enforceable, and in full
force and effect, except as (x) the enforceability may be subject to
bankruptcy, insolvency,
23
<PAGE>
fraudulent conveyance, reorganization, moratorium, or other laws relating to
creditors' rights generally, and (y) such property may be subject to prior
or superior leases, mortgages, deeds of trust, or other liens against the
lessor's interest in such property, (B) none of the HFG Companies and their
Subsidiaries is in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default by any of the
HFG Companies and their Subsidiaries or permit termination, modification or
acceleration by any third party thereunder, and (C) to the Knowledge of
Masco, no third party has repudiated or has the right to terminate or
repudiate (except for the normal exercise of remedies in connection with a
default thereunder or any termination rights set forth in the lease or
sublease) any provision thereof, except in each case for such illegality,
invalidity, failures to be binding, unenforceability, ineffectiveness,
breaches, defaults, terminations, modifications, accelerations and
repudiations that, individually and in the aggregate, would not have a
Material Adverse Effect. The representations set forth in this Section
4(k)(ii) shall apply only to those leases and subleases for which the base
rent is more than $50,000 per annum or which are material to the HFG Company
or the Subsidiary of the HFG Company named as the tenant, subtenant, lessor
or sublessor therein.
(iii) Each representation and warranty in this Section 4(k)
is deemed made to the Knowledge of Masco to the extent that such
representation and warranty relates to any real property located outside
of the United States.
(l) Intellectual Property.
(i) None of the HFG Companies and their Subsidiaries has
interfered with, infringed upon, misappropriated or violated any
Intellectual Property rights of third parties and, to the Knowledge of
Masco, no third party has interfered with, infringed upon,
misappropriated or violated any Intellectual Property rights of any of
the HFG Companies and their Subsidiaries, except in each case for such
interferences, infringements, misappropriations and violations that,
individually and in the aggregate, would not have a Material Adverse
Effect.
(ii) Section 4(l)(ii) of the Disclosure Schedule
identifies each material unexpired patent or trademark or copyright
registration which has been issued to any of the HFG Companies and their
Subsidiaries with respect to any of its Intellectual Property, identi-
fies each material pending patent application or application for
trademark or copyright registration which any of the HFG Companies and
their Subsidiaries has made with respect to any of its Intellectual
Property, and identifies each material unexpired license, agreement or
other permission which any of the HFG Companies and their Subsidiaries
has granted to any third party with respect to any of its Intellectual
Property; provided, however, that no copyright for a fabric design will
be deemed material for this purpose unless the Combined Company receives
more than $200,000 per year from sales of fabric incorporating the
particular design. Section 4(l)(ii) of the Disclosure Schedule also
identifies each material trade name or unregistered trademark used by
any of the HFG Companies and their Subsidiaries in connection with any
of their businesses. Except as set forth in
24
<PAGE>
Section 4(l)(i) of the Disclosure Schedule, with respect to each item of
Intellectual Property identified in Section 4(l)(ii) of the Disclosure
Schedule, (A) the HFG Companies and their Subsidiaries possess all
right, title and interest in and to the item, free and clear of any
Security Interest, license or other restriction, (B) the item is not
subject to any outstanding injunction, judgment, order, decree, ruling,
or charge, and (C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
Masco, threatened, which challenges the legality, validity,
enforceability, use, or ownership of such item, except in each case for
such lack of any right, title or interest in and to such item, and such
Security Interests, licenses, restrictions, injunctions, judgments,
orders, decrees, rulings, charges, actions, suits, proceedings,
hearings, investigations, complaints, claims and demands that,
individually and in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
(iii) Section 4(l)(iii) of the Disclosure Schedule identi-
fies each material item of Intellectual Property that any third party
owns and that any of the HFG Companies and their Subsidiaries uses
pursuant to any license, sublicense, agreement, or permission (other
than licenses to use standard software applications and other broadly
distributed use rights). Masco has delivered to the Buyer correct and
complete copies of all such licenses, sublicenses, agreements, and
permissions (except as indicated). Except as set forth in Section
4(l)(i) of the Disclosure Schedule, with respect to each item of Intel-
lectual Property identified in Section 4(l)(iii) of the Disclosure
Schedule, assuming that each licensor of such item had and continues to
have all requisite rights with respect to the relevant Intellectual
Property required under applicable law to grant a legal, valid, binding,
and enforceable license in respect of such Intellectual Property,
(A) the license, sublicense, agreement or permission covering such item
is legal, valid, binding, enforceable, and in full force and effect,
except as the enforceability may be subject to bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws
relating to creditors' rights generally, (B) none of the HFG Companies
and their Subsidiaries is in breach or default, and no event has oc-
curred which, with notice or lapse of time, would constitute a breach or
default by any of the HFG Companies and their Subsidiaries or permit
termination, modification or acceleration by any third party thereunder,
and (C) to the Knowledge of Masco, no third party to the license,
sublicense, agreement, or permission has repudiated any provision
thereof, except in each case for such illegality, invalidity, failures
to be binding, unenforceability, ineffectiveness, breaches, defaults,
terminations, modifications, accelerations and repudiations that,
individually and in the aggregate, would not have a Material Adverse
Effect. Except as indicated in Section 4(l)(iii) of the Disclosure
Schedule, neither Masco nor, to the Knowledge of Masco, any of the HFG
Companies and their Subsidiaries has received written notice of any
claim to the effect that the licensor of an item of Intellectual
Property identified in Section 4(l)(iii) of the Disclosure Schedule does
not have all relevant rights to such Intellectual Property required
under applicable law to grant a legal, valid, binding and enforceable
license in respect of such Intellectual Property.
25
<PAGE>
(iv) Each representation and warranty in this Section 4(l)
is deemed made to the Knowledge of Masco to the extent that such
representation and warranty relates to any Intellectual Property
governed by the laws of any jurisdiction, or relates to any operations,
outside of the United States.
(m) Personal Property. The HFG Companies and their
Subsidiaries will have good and marketable title to the personal property
that will be shown on the Closing Date Balance Sheet, free and clear of all
Security Interests. The owned and leased buildings, machinery, equipment,
and other tangible assets that the HFG Companies and their Subsidiaries use
in their business have been maintained in accordance with normal industry
practice, and are in good operating condition and repair (subject to normal
wear and tear), in each such case considered in the aggregate.
(n) Contracts. Section 4(n)(1) of the Disclosure Schedule
lists the following instruments, contracts and other agreements currently in
effect to which any of the HFG Companies and their Subsidiaries is a party
(or, to the extent involving any of the HFG Companies and their
Subsidiaries, to which any of Masco and its remaining Subsidiaries is a
party):
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $100,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products,
or other personal property, or for the furnishing or receipt of
services, the performance of which will involve consideration in excess
of $100,000;
(iii) any agreement related to any branded design product
the sales of which during 1993 or 1994 exceeded $5,000,000;
(iv) any partnership agreement, joint venture agreement,
shareholders' agreement or similar arrangement;
(v) any instrument or agreement (or group of related
instruments and agreements) under which it has created, incurred,
assumed, collateralized or guaranteed any indebtedness for borrowed
money, any indebtedness evidenced by notes, bonds, debentures or similar
instruments, or any capitalized lease obligation, in excess of $100,000;
(vi) any agreement of any significance that limits or
purports to limit the ability of any of the HFG Companies and their
Subsidiaries to compete in any line of business or with any Person or in
any geographic area or during any period of time;
26
<PAGE>
(vii) any collective bargaining agreement or other similar
contract with any labor organization;
(viii) any written agreement for the employment (or
engagement as a consultant) of any Person on a full-time, part-time, or
other basis providing annual compensation (or other cash consideration)
in excess of $50,000 or providing severance benefits in excess of
$50,000; and
(ix) any other instrument or agreement (or group of
related instruments and agreements) the performance of which involves
consideration in excess of $250,000.
Section 4(n)(1) of the Disclosure Schedule also lists each other instrument
and agreement (or group of related instruments and agreements) currently in
effect between any of the HFG Companies and their Subsidiaries, on the one
hand, and any of Masco, its Affiliates (provided that the HFG Companies and
their Subsidiaries shall not be deemed Affiliates of Masco for the purposes
of this sentence), its remaining Subsidiaries, and its and such
Subsidiaries' officers and directors, on the other hand, which instrument or
agreement (or group of related instruments and agreements) is material to
the relevant HFG Company or Subsidiary of an HFG Company. Masco has
delivered to the Buyer a correct and complete copy of each instrument and
agreement listed in Section 4(n)(1) of the Disclosure Schedule (except as
indicated). Except as set forth in Section 4(n)(2) of the Disclosure
Schedule with respect to each such instrument and agreement, (A) the
instrument or agreement is legal, valid, binding, enforceable, and in full
force and effect, except as the enforceability may be subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or other laws
relating to creditors' rights generally, (B) none of the HFG Companies and
their Subsidiaries is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default by any of
the HFG Companies and their Subsidiaries or permit termination, modification
or acceleration by any third party thereunder, and (C) to the Knowledge of
Masco, no third party to the instrument or agreement has repudiated any
provision thereof, except in each case for such illegality, invalidity,
failures to be binding, unenforceability, ineffectiveness, breaches,
defaults, terminations, modifications, accelerations and repudiations that,
individually and in the aggregate, would not have a Material Adverse Effect.
(o) Employees. To the Knowledge of Masco, none of the HFG
Companies and their Subsidiaries has experienced any labor strike, lock-out
or picketing or any material grievance, claim of unfair labor practices, or
other collective bargaining dispute since December 31, 1992, none of the HFG
Companies and their Subsidiaries has committed any material unfair labor
practice, and there are no significant organizational efforts or demands for
recognition or collective bargaining presently being made or threatened by
or on behalf of any labor union with respect to employees of any of the HFG
Companies and their Subsidiaries. No domestic employees of any of the HFG
Companies and their Subsidiaries are represented by a labor union, no labor
union has been certified or recognized as a representative of any such
domestic employees, and none of the HFG Companies or their Subsidiaries is a
party to or has any obligation in respect of any domestic collective
bargaining agreement or other domestic labor union contract.
27
<PAGE>
(p) Employee Benefits.
(i) Section 4(p)(i) of the Disclosure Schedule lists each
Employee Benefit Plan covered by or subject to ERISA that any of Masco,
the HFG Companies, and their respective Subsidiaries maintains or
administers, or to which any of them contributes, in each such case
covering any employee or former employee of any of the HFG Companies and
their Subsidiaries. No such Employee Benefit Plan is a Multiemployer
Plan.
(A) Each such Employee Benefit Plan (and each related
trust, VEBA trust, insurance contract, or fund) has complied in form
and in operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws and has
been administered in accordance with its terms, in each case since
January 1, 1988.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, Forms PBGC-1, and
Summary Plan Descriptions) have, where required, been filed or
distributed with respect to each such Employee Benefit Plan and each
Employee Benefit Arrangement listed in Section 4(p)(vi) of the
Disclosure Schedule. The requirements of Part 6 of Subtitle B of
Title I of ERISA and of Code Sec. 4980B have been met in all
material respects with respect to each such Employee Benefit Plan
that is a group health plan (within the meaning of ERISA Sec. 601
and Code Sec. 4980B).
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due and payable to any such Employee Benefit Plan which is an
employee pension benefit plan (as defined in ERISA) on or prior to
the date hereof have been paid to such employee pension benefit
plan. All premiums and other payments due on or before the date
hereof have been paid with respect to each such Employee Benefit
Plan which is an employee welfare benefit plan (as defined in
ERISA).
(D) Each such Employee Benefit Plan which is an
employee pension benefit plan and which is intended to meet the
requirements of a qualified plan under Code Sec. 401(a) is, and at
all times since January 1, 1988 has been, so qualified and has
either (1) received a favorable determination letter from the
Internal Revenue Service covering such Employee Benefit Plan for the
Tax Reform Act of 1986, as amended, the Unemployment Compensation
Act of 1992, and the Omnibus Budget Reconciliation Act of 1993 or
(2) timely applied to the Internal Revenue Service for a favorable
determination letter so covering such plan.
(E) As of the date hereof, the estimated market value
of assets under such Employee Benefit Plans which are employee
pension benefit plans subject to the minimum funding requirements of
Code Sec. 412 equals or exceeds
28
<PAGE>
in the aggregate the present value of all currently accrued benefits
thereunder determined on an on-going basis in accordance with the
actuarial methods, factors and assumptions used by the plans'
actuaries for the purpose of meeting the minimum funding
requirements.
(F) Masco has delivered to the Buyer correct and
complete copies of the current plan document and summary plan
description, the most recent favorable determination letter received
from the Internal Revenue Service, the most recent Form 5500 Annual
Report filed with the Internal Revenue Service, and all related
trust agreements, insurance contracts and other funding agreements
which implement each such Employee Benefit Plan, in each case as
applicable to such Employee Benefit Plan.
(G) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan and, to the Knowledge of
Masco, no plan fiduciary has any liability for material breach of
fiduciary duty or any other material failure to act or comply in
connection with the administration or investment of the assets of
any such Employee Benefit Plan. No action, suit, proceeding,
hearing or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or, to the Knowledge of
Masco, threatened.
(ii) Section 4(p)(ii) of the Disclosure Schedule lists
each employee welfare benefit plan providing medical, health or life
insurance and any other welfare benefit plan providing significant
welfare-type benefits for currently (or future) retired or terminated
United States employees of any of the HFG Companies and their
Subsidiaries, their spouses, or their dependents (other than in
accordance with Code Sec. 4980B).
(iii) With respect to each such Employee Benefit Plan
which is an employee pension benefit plan subject to Title IV of ERISA
or Section 412 of the Code, in each such case since January 1, 1988, no
such employee pension benefit plan has been completely or partially
terminated or been the subject of a Reportable Event as to which notices
are required to be filed with the PBGC, and no proceeding by the PBGC to
terminate any such employee pension benefit plan has been instituted or,
to the Knowledge of Masco, threatened, subject to such exceptions which,
taken together, would not result in a material liability for the
Combined Company.
(iv) No significant liability (other than for PBGC
premiums) has been incurred or, to the Knowledge of Masco, would
reasonably be expected to be incurred with respect to the period prior
to the Closing Date under Title IV of ERISA (including withdrawal
liability) or under Sections 4971 through 4980B of the Code with respect
to any Employee Benefit Plan (including a Multiemployer Plan) presently,
or since January 1, 1988, maintained or contributed to by Masco, any of
the HFG Companies, any of their respective Subsidiaries or any entity
that is, or at any time since January 1, 1988 was, an ERISA Affiliate.
29
<PAGE>
(v) No benefit under any Employee Benefit Plan listed in
Section 4(p)(i) of the Disclosure Schedule or under any Employee Benefit
Arrangement listed in Section 4(p)(vi) of the Disclosure Schedule,
including any retention agreement or severance or parachute payment plan
or agreement, will be established or become accelerated, vested or
payable by reason of any transaction contemplated by this Agreement or
any other Transaction Document.
(vi) Section 4(p)(vi) of the Disclosure Schedule lists
each significant Employee Benefit Arrangement, other than any Foreign
Benefit Plan, that has been entered into, maintained, or administered,
as the case may be, by any of Masco, the HFG Companies and their
respective Subsidiaries and that currently covers any employee or former
employee of any of the HFG Companies and their Subsidiaries. Each such
Employee Benefit Arrangement complies in all material respects with its
terms and with the requirements of applicable statutes, laws, orders,
rules and regulations.
(vii) To the Knowledge of Masco, Section 4(p)(vii) of the
Disclosure Schedule lists all significant Foreign Benefit Plans that any
of Masco, the HFG Companies and their respective Subsidiaries maintains
or administers, or to which any of them contributes, in each such case
covering any employee or former employee of any of the HFG Companies and
their Subsidiaries (other than plans, programs, arrangements and
agreements required to be sponsored, maintained or contributed to by
applicable laws). Further, and in each case to the Knowledge of Masco:
(A) Any employer and employee contributions required
by law or required by the terms of any such Foreign Benefit Plan to
be made to or provided for such Foreign Benefit Plan on or before
the date hereof have been made, or provided for in accordance with
the past practices of Masco, the HFG Companies and their respective
Subsidiaries.
(B) The fair market value of the assets of each such
funded Foreign Benefit Plan equals or exceeds the present value of
the benefits accrued to the Closing Date payable to all current and
former participants, determined on an ongoing basis according to the
actuarial assumptions and valuations most recently used to determine
employer contributions to such Foreign Benefit Plan, and the
transactions contemplated by this Agreement and the other
Transaction Documents shall not cause the funded status of any such
Foreign Benefit Plan to be insufficient to procure or provide for
the benefits accrued to the Closing Date on an ongoing basis.
(C) Each such Foreign Benefit Plan has been maintained
and administered in all material respects in compliance with the
requirements of applicable laws, and if required to be registered
with applicable regulatory authorities, such Foreign Benefit Plan
has been so registered and has been maintained in good standing with
applicable regulatory authorities and is operated in substantial
compliance with such applicable authority.
30
<PAGE>
(q) Environmental Laws and Liabilities.
(i) Each of the HFG Companies and their Subsidiaries
(A) complies with the Environmental Laws in all applicable respects,
(B) has obtained and complies in all applicable respects with all of the
terms and conditions of all Environmental Permits and (C) complies in
all applicable respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules and timetables which are contained in the Environmental Laws,
except in each case for such failures to comply or to obtain any
Environmental Permit that, individually and in the aggregate, would not
have a Material Adverse Effect.
(ii) None of the HFG Companies and their Subsidiaries has
any liability, and none of the HFG Companies and their Subsidiaries has
handled, transported, treated, stored or disposed of any substance or
arranged for the handling, transportation, treatment, storage or
disposal of any substance so as to give rise to any liability, for
damage to any site, location or body of water (surface or subsurface),
for investigation, removal or cleanup of Releases or threatened Releases
of Hazardous Materials, or for damage or injury to any Person or
property under any applicable Environmental Law, except in each case for
such liabilities that, individually and in the aggregate, would not have
a Material Adverse Effect.
(iii) To the Knowledge of Masco, Section 4(q)(iii) of the
Disclosure Schedule lists all underground storage tanks either in use or
which have not been closed in compliance with the Environmental Laws in
all applicable respects and which are present on any of the Properties.
(iv) To the Knowledge of Masco, Section 4(q)(iv) of the
Disclosure Schedule lists all potentially applicable insurance policies
of the HFG Companies and their Subsidiaries for any environmental
matters; provided, however, that Masco is not representing or warranting
the actual availability or extent of coverage under any such policies
listed in Section 4(q)(iv) of the Disclosure Schedule.
(v) Each representation and warranty in Section 4(q)(i)
and (ii) above is deemed made to the Knowledge of Masco to the extent
that such representation and warranty relates to any Properties and
operations outside of the United States and Western Europe (including
the United Kingdom, Sweden and Germany).
(r) Insurance. To the Knowledge of Masco, Section 4(r) of the
Disclosure Schedule lists and describes in reasonable detail the current
insurance policies of Masco under which any of the HFG Companies or their
Subsidiaries may make claims after the Closing Date pursuant to Section
8(e); provided that Masco is not representing or warranting the actual
availability or extent of coverage under any such policies listed on Section
4(r) of the Disclosure Schedule.
Section 5. Pre-Closing Covenants. The Parties agree as follows
with respect to the period between the execution of this Agreement and the
Closing.
31
<PAGE>
(a) General. Each of the Parties will (and in the case of
Masco, will cause Masco Corporation Limited to) take all reasonable action
and do all things reasonably necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 7 below). Without limiting the generality of the
preceding sentence, each of the Parties will (and in the case of Masco, will
cause Masco Corporation Limited to) use its best efforts and will instruct
its officers, directors, employees, representatives, investment bankers,
financial advisors, and other agents and Affiliates to use their respective
best efforts to achieve a Closing on or before June 15, 1996; provided,
however, that such obligation shall be subject to the limitations set forth
in Section 5(g) below and shall not require any Affiliate of the Buyer to
provide financing for the transactions contemplated by this Agreement. In
addition, to the extent necessary or appropriate, Masco shall cause Masco
Corporation Limited to take all actions required to be taken by Masco
Corporation Limited under this Agreement as if Masco Corporation Limited
were a party to this Agreement. If the Buyer or any of its Affiliates
becomes aware of any event or development that the Buyer, in its good faith
judgment, believes may reasonably be expected to delay or prevent the
Closing hereunder, including any such event or development relating to the
Financing, the Buyer shall inform Masco as promptly as possible of such
event or development and the Parties shall consult with each other in good
faith about alternative actions that may be taken by the Parties in
connection with such event or development.
(b) Notices and Consents. Masco will, and will cause each of
the HFG Companies and their Subsidiaries to, give any notices to third
parties, and use all commercially reasonable efforts to obtain any third
party consents, that the Buyer may request in connection with the matters
described in Section 3(a)(iii) or 4(c) of the Disclosure Schedule or that
the Buyer may otherwise reasonably request. Each of the Parties will (and
Masco will cause each of the HFG Companies and their Subsidiaries to) give
any notices to, make any filings with, and use commercially reasonable
efforts to obtain any authorizations, consents and approvals of governments
and governmental agencies, in each case to the extent the same are required
to be given, made or obtained by it (or by any of the HFG Companies and
their Subsidiaries, as the case may be) in order to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents. Without limiting the generality of the foregoing, each of the
Parties will file, if required, any Notification and Report Forms and
related material that it may be required to file with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use commercially
reasonable efforts to obtain early termination of the applicable waiting
period, and will make any further filings and provide any additional
information that the government may request or require in connection
therewith.
(c) Operation of Business. Except as set forth on Section
4(g)(2) of the Disclosure Schedule, and except for cash infusions or
withdrawals by Masco, Masco will cause the HFG Companies and their
Subsidiaries to conduct their respective businesses and operations
(including the management of their working capital consistent with past
practices) in all material respects only in the Ordinary Course of Business;
provided, however, that Masco will take all necessary steps to cause the Net
Intercompany Balance to be no greater than $757,808,900 as of the Closing
Date and to allocate the Net Intercompany Balance appropriately among the
HFG
32
<PAGE>
Companies and their Subsidiaries as the Buyer may reasonably request.
Without limiting the generality of the foregoing, Masco will not, and will
not cause or permit any of the HFG Companies and their Subsidiaries to, (i)
take any action that would result in a breach of any representation or
warranty contained in Section 3(a)(v) or Section 4(b) of this Agreement or
clauses (i), (ii), (v), (vi) and (vii) and the first part of clause (iv) of
the second sentence of Section 4(g) of this Agreement or (ii) engage in any
practice, take any action, or enter into any transaction outside of the
Ordinary Course of Business that would have a material adverse effect on the
ability of Masco to consummate the transactions contemplated by this
Agreement and the other Transaction Documents or that would have a Material
Adverse Effect. Masco agrees that, promptly after the date of this
Agreement, it shall notify the divisional heads of the HFG Companies and
their Subsidiaries regarding the restrictions set forth in this Section
5(c). The Parties understand and agree that Masco's indemnification
obligation for Adverse Consequences resulting from any breach of this
Section 5(c) shall be governed by Section 8(b) of this Agreement. In
addition, Masco will cause (x) the aggregate amount of Third Party
Indebtedness to be no greater than $30,000,000 and (y) the aggregate amount
of outstanding letters of credit in respect of which any of the HFG
Companies or their Subsidiaries has reimbursement obligations to be no
greater than $30,000,000, in each case as of the Closing Date.
(d) Reasonable Access. Masco will permit representatives of
the Buyer (including representatives of any Person that the Buyer identifies
to Masco as a prospective provider of financing for the transactions
contemplated by this Agreement) to have reasonable access at reasonable
times and upon reasonable notice to all premises, properties, personnel,
books, records, contracts and other documents of or pertaining to the HFG
Companies and their Subsidiaries; provided, however, that such access shall
not interfere with normal business operations. Such access shall be subject
in all respects to the terms and conditions of the Confidentiality
Agreement.
(e) Notice of Developments. (i) If at any time after the date
of this Agreement, Masco becomes aware of any inaccuracy or omission in its
representations and warranties in Section 4 of this Agreement (other than a
Specified Masco Representation) as a result of the discovery of facts or
circumstances existing as of the date of this Agreement or the occurrence of
any events or developments after the date of this Agreement, and such
inaccuracy or omission did not result from a breach of any covenant of Masco
(other than the covenant set forth in Section 5(c) to the extent related to
breaches of Section 4(g)), Masco may, and, if the particular matter (taken
together with all other inaccuracies and omissions not previously disclosed
to the Buyer in a mandatory notice pursuant to this Section 5(e)(i)) would
have a material adverse effect on the ability of any Party to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents or would have a Material Adverse Effect, shall, notify the Buyer
in a written notice describing the inaccuracy or omission in reasonable
detail. Any such notice shall specify whether, in Masco's good faith
judgment, such notice is optional or mandatory under this Section 5(e)(i);
provided that Masco's determination that any notice delivered under this
Section 5(e)(i) is an optional notice shall not be binding on the Buyer for
purposes of Section 7(a) or Section 11(a)(ii)(B) of this Agreement, so long
as (A) the Buyer notifies Masco within 15 days of receipt of such notice
that the Buyer disagrees with Masco's determination and (B) the Buyer
immediately proceeds to exercise any rights the Buyer claims to have
pursuant to Section 11(a)(ii). If the Buyer receives a
33
<PAGE>
notice designated by Masco as a mandatory notice under this Section 5(e)(i)
(other than with respect to facts and circumstances existing and in the
Knowledge of Masco as of the date of this Agreement) and thereafter fails to
exercise its right to terminate this Agreement within the period specified
in Section 11(a)(ii) below, or receives a notice designated by Masco as an
optional notice under this Section 5(e)(i) (other than with respect to facts
and circumstances existing and in the Knowledge of Masco as of the date of
this Agreement), such written notice pursuant to this Section 5(e)(i) will
be deemed to have amended and supplemented the Disclosure Schedule (except
as the Disclosure Schedule relates to Specified Masco Representations), to
have qualified such representations and warranties of Masco, and to have
cured such inaccuracy or omission in all respects (except as it relates to
the Specified Masco Representations). All materiality qualifications in
Section 4 above and all qualifications in Section 4 above requiring a
Material Adverse Effect in order for a particular representation and
warranty to have been breached shall be disregarded in determining whether
there is an inaccuracy or omission in such representation and warranty for
purposes of this Section 5(e)(i).
(ii) If at any time after the date of this Agreement, the Buyer
becomes aware of any inaccuracy or omission in its representations and
warranties in this Agreement (other than any of the Specified Buyer
Representations) as a result of the discovery of facts or circumstances
existing as of the date of this Agreement or the occurrence of any events or
developments after the date of this Agreement, and such inaccuracy or
omission did not result from a breach of any covenant of the Buyer, the
Buyer may, and, if the particular matter (taken together with all other
inaccuracies and omissions not previously disclosed to Masco in a mandatory
notice pursuant to this Section 5(e)(ii)) would have a material adverse
effect on the ability of any Party to consummate the transactions
contemplated by this Agreement and the other Transaction Documents or would
have a Buyer Material Adverse Effect, shall, notify Masco in a written
notice describing the inaccuracy or omission in reasonable detail. Any such
notice shall specify whether, in the Buyer's good faith judgment, such
notice is optional or mandatory under this Section 5(e)(ii); provided that
the Buyer's determination that any notice delivered under this Section
5(e)(ii) is an optional notice shall not be binding on Masco for purposes of
Section 7(b) or Section 11(a)(iii)(B) of this Agreement, so long as (A)
Masco notifies the Buyer within 15 days of receipt of such notice that Masco
disagrees with the Buyer's determination and (B) Masco immediately proceeds
to exercise any rights Masco claims to have pursuant to Section 11(a)(iii).
If Masco receives a notice designated by the Buyer as a mandatory notice
under this Section 5(e)(ii) (other than with respect to facts and
circumstances existing and in the knowledge of the Buyer as of the date of
this Agreement) and thereafter fails to exercise its right to terminate this
Agreement within the period specified in Section 11(a)(iii) below, or
receives a notice designated by the Buyer as an optional notice under this
Section 5(e)(ii) (other than with respect to facts and circumstances
existing and in the knowledge of the Buyer as of the date of this
Agreement), such written notice pursuant to this Section 5(e)(ii) will be
deemed to have amended and supplemented the Buyer Disclosure Schedule
(except as the Buyer Disclosure Schedule relates to Specified Buyer
Representations), to have qualified such representations and warranties of
the Buyer, and to have cured such inaccuracy or omission in all respects
(except as it relates to the Specified Buyer Representations). All
materiality qualifications in Section 3(b) above and all qualifications in
Section 3(b) above requiring a Buyer Material Adverse Effect in order for a
particular representation and warranty to have been breached shall
34
<PAGE>
be disregarded in determining whether there is an inaccuracy or omission in
such representation and warranty for purposes of this Section 5(e)(ii).
(f) Exclusivity. Masco will not (nor will Masco authorize or
permit any of the HFG Companies, their Subsidiaries, and its or their
respective officers, directors, employees, representatives, investment
bankers, financial advisors and other agents and Affiliates to) directly or
indirectly (i) take any action to solicit, initiate or encourage the
submission of any proposal or offer from any Person, or the entering into of
any agreement with any Person, relating to the acquisition of any of the
capital stock or all, or substantially all, of the assets of any of the HFG
Companies and their Subsidiaries (including any such acquisition structured
as a merger, consolidation, or share exchange) or (ii) participate in any
discussions or negotiations with, or furnish any non-public information to,
any Person in connection with any such actual or possible proposal, offer or
agreement.
(g) Financing. The Buyer will use its best efforts to obtain
the Financing; provided, however, that nothing in this Section 5(g) shall
require the Buyer (x) to agree to any terms (including with respect to
interest rates and amortization) or conditions that, in the aggregate, are
more onerous in any material respect than those contemplated by, or to pay
any fees or other amounts not within the range of fees and other amounts
contemplated by, the letters referred to in Section 3(b)(vi) above or (y) to
use such best efforts if a portion of the Financing has become unavailable
because of the occurrence of one or more events or the existence of one or
more conditions that make it impossible to satisfy the conditions contained
in Section 7(a) (other than Section 7(a)(vii)) below. The Buyer agrees that
it (x) will exercise all of its rights to enforce performance of the letters
described in Section 3(b)(vi) and (y) will not waive, modify or amend any of
its rights under such letters in any material respect. In the event that
any portion of the Financing becomes unavailable, regardless of the reason
therefor, the Buyer will use its best efforts to obtain alternative
financing from other sources (other than its Affiliates) on and subject to
substantially the same terms and conditions as the portion of the Financing
that has become unavailable; provided, however, that nothing in this Section
5(g) shall require the Buyer, in attempting to obtain alternative financing,
to agree to any terms (including with respect to interest rates and
amortization) or conditions that, in the aggregate, are more onerous in any
material respect than those applicable to, or to pay any fees or other
amounts in excess of the range of the fees and other amounts that would have
been payable in connection with, the portion of the Financing that has
become unavailable. The Buyer shall use its best efforts (x) to satisfy at
or prior to the Closing Date all requirements of the agreements related to
the Financing which are conditions to closing under such agreements and to
drawing down the proceeds of the Financing; (y) to defend all lawsuits or
other legal proceedings challenging such agreements related to the Financing
or the consummation of the transactions contemplated thereby; and (z) to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated thereby. The Buyer agrees that it will undertake all necessary
actions so that as of the Closing Date and upon completion of the Closing,
the issued and outstanding capital stock of the Buyer and the ownership of
the capital stock of the Buyer will be as set forth in Annex I to Exhibit B.
Masco will (and will cause Masco Corporation Limited and each of the HFG
Companies and their Subsidiaries to) cooperate with the Buyer and take all
reasonable actions necessary in order to assist the Buyer in obtaining
35
<PAGE>
the Financing (or any alternative financing in the event that any portion of
the Financing becomes unavailable); provided, however, that under no
circumstances shall Masco be required to expend any funds for any purposes
related to the Financing. Masco shall prepare and deliver to the Buyer, as
soon as reasonably practicable after March 31, 1996, an unaudited combined
balance sheet for the HFG Companies and their Subsidiaries as of March 31,
1996, and the related unaudited combined statements of operations and cash
flow for the three months ending March 31, 1996. Masco represents that such
financial statements shall be prepared in accordance with GAAP applied on a
consistent basis with the Financial Statements and present fairly the
combined financial position and combined results of operations of the HFG
Companies and their Subsidiaries as of and for such date and period (except
for the absence of footnotes and subject to changes resulting from normal
year-end adjustments).
(h) Certain Resignations. Concurrently with the Closing,
Masco will deliver to the Buyer duly signed resignations, effective as of
the Closing, from such members of the boards of directors (or similar
governing bodies) of the HFG Companies and their Subsidiaries as are
designated in a written notice delivered by the Buyer to Masco at least ten
business days prior to the Closing Date.
(i) FIRPTA Certificates. Concurrently with the Closing, Masco
will (and, if requested by the Buyer, will cause Masco Corporation Limited
to) deliver to the Buyer a duly executed FIRPTA certificate in a form that
satisfies the requirements set forth in Section 1.1445-2(b)(2) of the
Treasury regulations.
(j) Clear Title. Promptly after the execution of this
Agreement, and in order to assist the Buyer in obtaining the Financing,
Masco and the Buyer shall cooperate with each other and the respective title
insurance companies and surveyors, and shall use their commercially
reasonable efforts (including providing copies of the relevant surveys to
the appropriate title insurance companies), to obtain and agree upon
insurable legal descriptions reasonably acceptable to the Parties for each
parcel of owned real property located in the United States and identified in
Section 4(k)(i) of the Disclosure Schedule. The failure to obtain or agree
upon such legal descriptions shall not constitute a breach of this Agreement
by either Masco or the Buyer.
(k) Transitional Services. Prior to or at the Closing, the
Parties will enter into a transitional services agreement pursuant to which
Masco will agree to perform transitional services for the HFG Companies and
their Subsidiaries through March 31, 1997 and the Buyer will agree to make
payments for such services as provided in the next sentence. The services
to be provided by Masco will be consistent with the services provided by
Masco to the HFG Companies and their Subsidiaries in the Ordinary Course of
Business prior to the Closing Date (other than legal and litigation support
services) and the payments by the Buyer to Masco shall be made monthly and
at an annualized rate of $6,000,000 (which amount shall be reduced for
personnel (other than the chief executive officer of the HFG Companies and
their Subsidiaries) transferred to the HFG Companies and their Subsidiaries
from Masco and its remaining Subsidiaries after the Closing Date). If
requested by the Buyer, the Parties will negotiate in good faith as to the
provision by Masco of transitional services after March 31, 1997; provided
that the fees for any such services provided by Masco after March 31, 1997
shall be based on
36
<PAGE>
Masco's costs (including overhead and other allocated costs). Any
transitional services to be provided by Masco (whether before or after March
31, 1997) shall be provided subject to exculpation, indemnification and
other provisions customary for transitional services agreements.
Section 6. Employees and Employee Benefits.
(a) Continuation of Benefits. For the period from the Closing
Date through December 31, 1996, the Buyer will cause the HFG Companies and
their Subsidiaries to use their best efforts to maintain Employee Benefit
Plans, Employee Benefit Arrangements, and levels of employee compensation
that, in the Buyer's reasonable judgment, are substantially comparable in
the aggregate to what is in effect for employees of the HFG Companies and
their Subsidiaries as of the Closing Date. With respect to any individuals
who after the Closing Date continue to be employees of the HFG Companies and
their Subsidiaries and who were covered by an employee welfare benefit plan
maintained by Masco, the Buyer will establish a similar plan providing
comparable benefits as well as comparable pre-existing condition, waiting
period, co-insurance and deductible provisions (collectively "eligibility
provisions"), to be effective as of the Closing Date for such employees, or
extend coverage to such employees as of the Closing Date under any similar
plan (or plans) maintained by the Buyer providing comparable benefits and
eligibility provisions. For purposes of satisfying any eligibility
provisions under such plans, the Buyer will credit such employees with all
past service with (and, where applicable, amounts paid to) Masco, the HFG
Companies, and their respective Subsidiaries and ERISA Affiliates.
(b) Certain Statutory Requirements. From and after the
Closing, the Buyer will indemnify and hold harmless Masco from and against
any Adverse Consequences resulting from any violation after the Closing Date
by the Buyer or by any of the HFG Companies and their Subsidiaries of any
provision of the Worker Adjustment and Retraining Notification Act of 1988,
as amended (the "WARN Act"); provided, however, that in order for such
indemnification to be effective, Masco shall deliver a certificate to the
Buyer at the Closing representing that, during the 180 days prior to the
Closing Date, none of Masco or its Affiliates has taken any action in
respect of the HFG Companies and their Subsidiaries that, as of the Closing
Date, creates WARN Act liability.
(c) Employee Pension Benefit Plans. As soon as practicable
after the Closing Date, and after giving and receiving appropriate
governmental notifications and approvals, the Parties shall take the
following actions with regard to those employee pension benefit plans listed
on Section 4(p)(i) of the Disclosure Schedule (or shall cause the following
actions to be taken by the trustees, custodians, and, where appropriate,
actuaries and other professionals retained by such plans) in which any
participant is, as of the Closing Date, an employee of or, prior to the
Closing Date, was terminated with a deferred vested benefit from or was a
retiree from, any of the HFG Companies and their Subsidiaries (or their
respective predecessors) (such participants, together with their
beneficiaries, are referred to collectively herein as "HFG Participants"):
(i) with respect to each such plan (indicated by an "A" in
parentheses alongside its listing on Section 4(p)(i) of the Disclosure
Schedule) which is a defined
37
<PAGE>
contribution plan and which covers HFG Participants as well as other
participants ("Non-HFG Participants"), Masco shall direct to the Buyer's
successor plan and trustee a transfer in cash or, if acceptable to the
Buyer, securities, other property, or any combination thereof (or in
particular investments if such plan permitted participant-directed
investments and both such plan and the Buyer's successor plan and
trustee will permit such transfer of particular investments) of that
portion of such plan's assets (including all outstanding HFG Participant
loans, if any, and including allocable earnings and losses of such plan
or, in the case of participant-directed investments, including earnings
and losses of the individual HFG Participant accounts), valued as of the
date of such transfer, for those HFG Participants with an account
(whether or not vested) under such plan (other than accounts which have
been distributed in the normal course as of the date of such transfer),
and thereafter the Buyer shall assume (or the applicable HFG Company or
Subsidiary of an HFG Company shall retain) all liabilities and
responsibilities relating to such HFG Participant accounts and the
assets so transferred;
(ii) with respect to each such plan (indicated by a "B" in
parentheses alongside its listing on Section 4(p)(i) of the Disclosure
Schedule) which is a defined benefit plan and which covers HFG
Participants as well as Non-HFG Participants, other than the Masco
Corporation Home Furnishings and Building Products Pension Plan (the
"HFG Plan") and the Masco Benefits Restoration Plan, Masco shall direct
to the Buyer's successor plan and trustee a transfer in cash (or, if
acceptable to the Buyer, in kind) of the proportion of such plan's
assets allocable to liabilities accrued to the Closing Date to all HFG
Participants (including earnings and losses to the date of such transfer
allocable to such assets), which proportion shall be deemed to equal the
quotient of (x) the present value of benefits accrued on the Closing
Date for all HFG Participants in such plan calculated on a termination
basis pursuant to Code Sec. 414(l) divided by (y) the present value of
benefits accrued on the Closing Date for all HFG Participants and Non-
HFG Participants in such plan calculated on a termination basis pursuant
to Code Sec. 414(l), all as mutually determined by Masco's and Buyer's
actuaries, and thereupon the Buyer shall assume all such liabilities and
responsibilities relating to all HFG Participants under such plan and
the assets so transferred;
(iii) with respect to the HFG Plan, as of the Closing
Date, Non-HFG Participants in the HFG Plan shall be removed from the HFG
Plan and its assets allocable to liabilities accrued to the Closing Date
to such Non-HFG Participants shall be determined by the same methodology
as set forth in subsection (ii) above (except that "Non-HFG
Participants" shall be substituted for "HFG Participants" in clause (x)
of such subsection (ii)) and Masco shall direct to Masco's successor
plan and trustee the transfer of the proportion of the HFG Plan's assets
so determined to be allocable to such liability to such Non-HFG
Participants, and thereupon Masco shall assume all such liabilities and
responsibilities relating to all Non-HFG Participants under the HFG Plan
and the assets so transferred;
(iv) with respect to the Berkline Associates Pension Plan
listed on Section 4(p)(i) of the Disclosure Schedule and the HFG Plan,
after giving effect to the provisions of the
38
<PAGE>
foregoing Section 6(c)(iii), Masco shall direct the resignation of such
plans' trustees, and shall direct to the Buyer's successor trustee a
transfer in cash of all such plans' assets (including all outstanding
participant loans if any), and thereafter the Buyer shall assume (or, in
the case of the Berkline Associates Pension Plan, the Berkline
Corporation shall retain) the sponsorship of such plans together with
all liabilities and responsibilities relating to such plans and the
assets so transferred (except as provided in clause (iii) above and
clause (viii) below);
(v) with respect to the Masco Benefits Restoration Plan,
the Buyer shall assume the liabilities incurred thereunder through the
Closing Date by Masco, the HFG Companies, and their Subsidiaries for HFG
Participants in such plan, and in connection therewith shall establish
and maintain plans or other contractual arrangements in order to provide
to such eligible HFG Participants the supplemental pension benefits
accrued to the Closing Date for such HFG Participants under the terms of
such plan, but no assets shall be transferred by Masco with respect to
any such liabilities or benefits;
(vi) with respect to all such directions for transfer,
each Party represents that each and every successor plan and trust to
which transfer is requested by such Party will be tax-qualified under
applicable provisions of Code Secs. 401(a) and 501(a), and each Party
will comply in all applicable respects with Code Sec. 414(l);
(vii) from and after each such transfer of assets with
respect to each such plan (and, with respect to the liabilities assumed
by the Buyer for HFG Participants in the Masco Benefits Restoration
Plan, from and after the Closing Date), Masco shall cease to have any
liability or responsibility for, and the Buyer shall indemnify and hold
harmless Masco from and against, any Adverse Consequences resulting from
such liabilities and responsibilities that the Buyer has assumed (or
that any of the HFG Companies and their Subsidiaries has retained) with
respect to each such plan, its assets, and the HFG Participants under
such plan; provided, however, that neither the Buyer nor the HFG
Companies and their Subsidiaries shall indemnify Masco for, and Masco
shall continue to be liable to the extent provided in Section 8 below in
respect of, Adverse Consequences (including any fiduciary breach
liability) resulting from violations of laws or breaches of fiduciary
duties (if any) of Masco, its trustees, or any other plan fiduciaries in
administering any such plan prior to the Closing Date or breach by Masco
of any representation contained in this Agreement; and
(viii) from and after each such transfer of assets with
respect to each such plan (and, with respect to the liabilities and
responsibilities retained by Masco for Non-HFG Participants in the Masco
Benefits Restoration Plan, from and after the Closing Date), the Buyer
shall cease to have any liability or responsibility for, and Masco shall
indemnify and hold harmless the Buyer from and against, any Adverse
Consequences resulting from such liabilities and responsibilities that
Masco has assumed or retained with respect to each such plan, its
assets, and the Non-HFG Participants.
39
<PAGE>
(d) Employee Welfare Benefit Plans. Effective as of the
Closing, Masco shall cease to have any liability or responsibility for
(including liabilities and responsibilities for COBRA, for incurred but not
paid claims outstanding as of the Closing Date, for disabilities or periods
of sickness commencing prior to the Closing Date, and for accidents and
deaths occurring prior to the Closing Date), and the Buyer shall assume (as
necessary where none of the HFG Companies and their Subsidiaries will
retain), be solely responsible for, and indemnify and hold harmless Masco
from and against, any Adverse Consequences resulting from liabilities and
responsibilities arising under the employee welfare benefit plans and
Foreign Benefit Plans listed in Section 4(p)(i), (ii) and (vii) of the
Disclosure Schedule covering individuals who, as of the Closing Date, are
employees of or, prior to the Closing Date, were terminated or retired from,
the HFG Companies and their Subsidiaries, regardless of whether such
individuals continue in the employ of the HFG Companies and their
Subsidiaries after the Closing Date (collectively, the "HFG Employees");
provided, however, that neither the Buyer nor the HFG Companies and their
Subsidiaries shall indemnify Masco for, and Masco shall continue to be
liable to the extent provided in Section 8 below in respect of, Adverse
Consequences (including any fiduciary breach liability) resulting from
violations of laws or breaches of fiduciary duties (if any) of Masco, its
trustees, or any other plan fiduciaries in administering any such plan prior
to the Closing Date or breach by Masco of any representation contained in
this Agreement. In connection therewith, at or promptly following the
Closing Date, Masco will cause (or, as appropriate, assist with) the
transfer to the Buyer's successor plans and trustees of any assets
attributable to any welfare benefit plan covering HFG Employees that are
held in any welfare benefit trust fund currently maintained by Masco, the
HFG Companies, and their respective Subsidiaries. With respect to the
welfare benefit trust funds maintained by Masco for certain HFG Companies
and their Subsidiaries, the assets attributable to HFG employees are deemed
to be those equal to 35.55% of medical claims paid by such welfare benefit
trust for the year ending December 31, 1995 for each such HFG Company or
Subsidiary, but in no event shall the amount of the assets attributable to
the HFG Employees be less than $4.3 million.
(e) Employee Benefit Arrangements. Effective as of the
Closing, Masco shall cease to have any liability or responsibility for, and
the Buyer shall assume (as necessary where none of the HFG Companies and
their Subsidiaries will retain), be solely responsible for, and indemnify
and hold harmless Masco from and against, any Adverse Consequences resulting
from liabilities and responsibilities arising under the Employee Benefit
Arrangements (other than workers' compensation programs) listed in Section
4(p)(vi) of the Disclosure Schedule covering HFG Employees; provided,
however, that neither the Buyer nor the HFG Companies and their Subsidiaries
shall indemnify Masco for, and Masco shall continue to be liable to the
extent provided in Section 8 below in respect of, Adverse Consequences
(including any fiduciary breach liability) resulting from violations of laws
or breaches of fiduciary duties (if any) of Masco, its trustees, or any
other plan fiduciaries in administering any such arrangement prior to the
Closing Date or breach by Masco of any representation contained in this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, the Buyer shall not have any liability or
responsibility for, and Masco shall be solely responsible for, and indemnify
and hold harmless Buyer from and against, all Adverse Consequences resulting
from (i) the Special Incentive Arrangements in connection with the HFG
divestiture listed on Section 4(n)(1) and Section 4(p)(vi) of the Disclosure
Schedule, and (ii) effective as of the Closing Date, any claim for workers'
40
<PAGE>
compensation benefits arising from any sickness or accident of any domestic
employee of the HFG Companies and their Subsidiaries occurring prior to the
Closing Date (whether known or unknown at the Closing Date). After the
Closing Date, the Buyer and the HFG Companies and their Subsidiaries will
cooperate as reasonably requested by Masco in administering such claims for
domestic workers' compensation benefits, and Masco will administer such
claims, in a manner consistent with the past practices of Masco and
Universal (as the case may be). Such cooperation will include (x) assigning
to Masco any pertinent contracts and insurance policies (together with all
claims made as of the Closing Date, and the right to make any additional
claims concerning the obligations assumed by Masco hereunder, against such
contracts and insurance policies or the companies issuing such policies),
providing claim files, employee, financial, underwriting and other
information, assisting Masco in contesting such claims and returning
employees to work, all as reasonably requested by Masco, and (y) providing
the other support contemplated by Section 12(p) hereof.
(f) Plan Contributions. With respect to each employee pension
benefit plan listed on Section 4(p)(i) of the Disclosure Schedule that is
intended to be a tax-qualified plan, prior to the Closing Date, Masco shall
(i) contribute thereto the full amount attributable to the HFG Participants
for the plan year ended immediately prior to the Closing Date, and (ii) with
respect to the period from the beginning of the plan year in which the
Closing Date occurs to the Closing Date, contribute an amount attributable
to the HFG Participants for such period, subject, in the case of clause
(ii), to the discretion of the Masco Board of Directors (which will be
exercised consistent with past practices) to determine the amount
attributable to such period with respect to discretionary contributions
under profit-sharing plans; provided that to the extent contributions made
pursuant to clauses (i) and (ii) above are made earlier than such
contributions would have been made in accordance with Masco's past
practices, each such contribution shall be discounted to the date on which
it is made, using a present value factor of 9% per annum, in each case from
the date such early contribution would otherwise have been made consistent
with past practices and in compliance with applicable law; and provided
further that with respect to clause (ii), in the case of a defined
contribution plan, such amount shall be based on services performed during
such period, and, in the case of a defined benefit plan, such amount shall
be the pro rata portion of the contribution attributable to the entire plan
year determined in a manner consistent with past practices.
(g) Transitional Services. The Parties shall cooperate as
needed to ensure the smooth transfer of assets, liabilities and plan
administration contemplated in this Section 6, including continued plan
administration by Masco as reasonably requested by the Buyer and the
exchange of pertinent employee information and records. Any continued
administration of plans by Masco for the convenience of the Buyer shall be
the subject of good faith negotiations and shall be accompanied by
appropriate indemnifications of Masco by the Buyer.
(h) Conflict. In the event of a conflict between the
provisions of this Section 6 and any other provision of this Agreement, the
provisions of this Section 6 shall control. Without limiting the generality
of the foregoing, the indemnification obligations of the Parties under this
Section 6 shall not be subject to the limitations (including time and amount
limitations) set forth in Section 8(a), 8(b) and 8(c) below.
41
<PAGE>
Section 7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(a) above shall be correct in all material respects at and as
of the Closing Date;
(ii) the representations and warranties set forth in
Section 4 above shall be correct in all respects at and as of the
Closing Date, disregarding for this purpose (A) any materiality
qualification in Section 4 above, and (B) any qualification in Section 4
above requiring a Material Adverse Effect in order for a particular
representation and warranty to have been breached, except, in the case
of both (A) and (B), where all such failures of the representations and
warranties to be correct in all respects at and as of the Closing Date
would not have a Material Adverse Effect;
(iii) Masco shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iv) Masco shall have delivered to the Buyer a certificate
dated as of the Closing Date to the effect that each of the conditions
specified above in Section 7(a)(i)-(iii) above is satisfied in all
respects;
(v) there shall not be any pending action, suit, or other
judicial proceeding brought by the United States Federal Trade
Commission, by the Antitrust Division of the United States Department of
Justice or (if such pending action, suit, or other judicial proceeding
is reasonably likely to have a material adverse effect on the ability of
any Party to consummate the transactions contemplated by this Agreement
and other Transaction Documents) by any other governmental agency
against any of the Parties with respect to any of the transactions
contemplated by this Agreement and the other Transaction Documents, and
there shall not be in effect any law or any judgment, injunction, order
or decree of any governmental agency or court preventing any of the
Parties from consummating in any material respect the transactions
contemplated by this Agreement and the other Transaction Documents
where, under the circumstances of the transactions contemplated hereby
and thereby, such law, judgment, injunction, order or decree would
materially diminish the benefits of such transactions to the Buyer or is
reasonably likely to involve the imposition of felony or significant
misdemeanor penalties on the Buyer;
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated; the Buyer or Masco, as applicable, shall have received
any required governmental authorizations or approvals that have been
specifically identified (by cross-reference to this Section 7(a)(vi)) as
42
<PAGE>
closing conditions for the Buyer on the Disclosure Schedule or the Buyer
Disclosure Schedule; and Masco shall have received any required consent
under its credit agreement with Morgan Guaranty Trust Company of New
York;
(vii) the Buyer shall have entered into definitive
agreements providing for the Financing, and shall have received, in
immediately available funds, proceeds of the Financing in an aggregate
amount at least sufficient to consummate the transactions contemplated
by this Agreement and to pay all related fees and expenses;
(viii) Masco and Masco Corporation Limited shall have
executed and delivered to the Buyer one or more agreements pursuant to
which each of Masco and Masco Corporation Limited, effective as of the
Closing, permanently waives and releases any claims relating to the
period ending on the Closing Date which it has or may have against any
of the current or former officers and directors of any of the HFG
Companies and their Subsidiaries, but in each case only to the extent
such HFG Company or such Subsidiary has an indemnity obligation to such
current or former officers and directors with respect to the claims so
released;
(ix) each of the Transaction Documents to which Masco or
Masco Corporation Limited is a party shall have been duly executed and
delivered by Masco or Masco Corporation Limited, as the case may be; and
(x) the Buyer shall have received from the Vice President
and General Counsel of Masco an opinion in form and substance
substantially as set forth in Exhibit D attached hereto, addressed to
the Buyer, and dated as of the Closing Date.
The Buyer may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Masco. The obligation of
Masco to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be correct in all respects at and as of the
Closing Date, disregarding for this purpose (A) any materiality
qualification in Section 3(b) above and (B) any qualification in Section
3(b) above requiring a Buyer Material Adverse Effect in order for a
particular representation and warranty to have been breached, except, in
the case of both (A) and (B), where all such failures of the
representations and warranties to be correct in all respects at and as
of the Closing Date would not have a Material Adverse Effect (determined
for this purpose as if the Buyer and its Subsidiaries were included in
the Combined Company with the HFG Companies and their Subsidiaries);
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
43
<PAGE>
(iii) neither the Buyer nor any of its Subsidiaries shall
have filed for relief under any provision of the U.S. Bankruptcy Code or
any similar state law or have taken any affirmative steps in
contemplation of the foregoing;
(iv) the Buyer shall have delivered to Masco a certificate
dated as of the Closing Date to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) there shall not be any pending action, suit or other
judicial proceeding brought by the United States Federal Trade
Commission, by the Antitrust Division of the United States Department of
Justice or (if such pending action, suit, or other judicial proceeding
is reasonably likely to have a material adverse effect on the ability of
any Party to consummate the transactions contemplated by this Agreement
and the other Transaction Documents) by any other governmental agency
against any of the Parties with respect to any of the transactions
contemplated by this Agreement and the other Transaction Documents, and
there shall not be in effect any law or any judgment, injunction, order
or decree of any governmental agency or court preventing any of the
Parties from consummating in any material respect the transactions
contemplated by this Agreement and the other Transaction Documents
where, under the circumstances of the transactions contemplated hereby
and thereby, such law, judgment, injunction, order or decree would
materially diminish the benefits of such transactions to Masco or is
reasonably likely to involve the imposition of felony or significant
misdemeanor penalties on Masco or the Buyer;
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated; Masco or the Buyer, as applicable, shall have received
any required governmental authorizations or approvals that have been
specifically identified (by cross-reference to this Section 7(b)(vi)) as
closing conditions for Masco on the Disclosure Schedule; and Masco shall
have received any required consent under its credit agreement with
Morgan Guaranty Trust Company of New York;
(vii) each of the Transaction Documents to which the Buyer
or any of its Affiliates is a party shall have been duly executed and
delivered by the Buyer or such Affiliate, as the case may be; and
(viii) Masco shall have received from counsel to the Buyer
an opinion in form and substance substantially as set forth in Exhibit E
attached hereto, addressed to Masco, and dated as of the Closing Date.
Masco may waive any condition specified in this Section 7(b) if it executes
a writing so stating at or prior to the Closing.
44
<PAGE>
Section 8. Indemnification.
(a) Survival of Representations and Warranties. All of the
representations and warranties of Masco contained in Sections 3, 4(b) and
4(d) and the representations and warranties contained in Section 4(p) (but
only to the extent that they relate to liabilities due to the PBGC, the U.S.
Internal Revenue Service or the U.S. Department of Labor) and Section
6(c)(vi) shall survive the Closing and continue in full force and effect
forever thereafter (subject to any applicable statutes of limitations). The
representations and warranties of Masco contained in Section 4(j) (but only
to the extent that such representations and warranties in Section 4(j)
relate to Specified Non-Income Taxes), Section 4(p) (except to the extent
that the survival of such representations and warranties in Section 4(p) is
governed by the first sentence of this Section 8(a)) and Section 4(q) shall
survive the Closing and continue in full force and effect until June 30,
1999; provided that the representations and warranties of Masco contained in
Section 4(q), to the extent that such representations and warranties relate
to the operations of HFG Companies and their Subsidiaries located in the
Western Europe, shall survive only until June 30, 1997, except with respect
to any matters related thereto as to which the Buyer establishes that Masco
had Knowledge as of the Closing Date. Except as otherwise expressly
provided in Section 9, the representations and warranties of Masco contained
in Section 4(j), to the extent that such representations and warranties
relate to Income Taxes, shall not survive the Closing and, from and after
the Closing, shall be of no further force or effect. All of the other
representations and warranties of Masco contained in Section 4, and the
representations and warranties of Masco contained in the last sentence of
Section 5(g), shall survive the Closing and continue in full force and
effect only until June 30, 1997. Notwithstanding the foregoing, if the
Buyer sells a majority of the capital stock of any of the HFG Companies or
any of their Subsidiaries, or any of the HFG Companies or any of their
Subsidiaries sells substantially all of its assets (or any of its real
property), during any applicable survival period to any third party (other
than any Affiliate of the Buyer), regardless of how such sale is structured
(including any such sale structured as a merger, consolidation,
reorganization, exchange, or issuance of capital stock), then all of the
representations and warranties of Masco contained in Section 4, insofar as
such representations and warranties relate to the entity or assets sold,
shall expire on the earlier of (i) the date such representations and
warranties would otherwise expire in accordance with the preceding sentences
of this Section 8(a) or (ii) June 30, 1998, it being understood that if such
sale or transaction takes place after June 30, 1998, such representations
and warranties which have not theretofore expired shall expire immediately
prior to the consummation of such sale or other transaction; provided that
this sentence shall not apply to any claim (x) resulting from a breach of
the representations and warranties of Masco contained in Sections 4(b), 4(d)
or 4(p) (but, in the case of the representations and warranties contained in
Section 4(p), only to the extent that they relate to liabilities due to the
PBGC, the U.S. Internal Revenue Service or the U.S. Department of Labor) or
(y) by a third party (other than a third party purchasing all or a portion
of such stock or assets or any Affiliate of such third party) against any of
the Indemnified Buyer Parties, except to the extent such claim relates to or
arises from the offering or sale of such stock or assets.
All of the representations and warranties of the Buyer contained
in Section 3(b)(i) - (v), Section 3(b)(vii), Section 3(b)(xiii), Section
3(b)(xv) (but only to the extent that such representations and warranties
relate to liabilities due to the PBGC, the U.S. Internal Revenue Service or
the U.S. Department of Labor), Section 3(b)(xvi) (but only to the extent
that such representations and warranties relate to
45
<PAGE>
Income Taxes) and Section 6(c)(vi) shall survive the Closing and continue in
full force and effect forever thereafter (subject to any applicable statutes
of limitations). The representations and warranties of the Buyer set forth
in the preceding sentence (subject to the limitations set forth in such
sentence) are referred to herein as the "Specified Buyer Representations."
The representations and warranties contained in Section 3(b)(vi) shall not
survive the Closing and, from and after the Closing, shall be of no further
force or effect. All of the other representations and warranties of the
Buyer contained in Section 3(b) shall survive the Closing and continue in
full force and effect until June 30, 1997 (or June 30, 1999, in the case of
the representations and warranties of the Buyer contained in (A) Section
3(b)(xiv), (B) Section 3(b)(xv) (except to the extent that the survival of
such representations and warranties in Section 3(b)(xv) is governed by the
first sentence of this paragraph) and (C) Section 3(b)(xvi) (but only to the
extent that such representations and warranties relate to Specified Non-
Income Taxes)).
Notwithstanding the foregoing, any such representation or warranty
shall survive the time at which it would otherwise expire in accordance with
this Section 8(a) to the extent that the Buyer or Masco, as the case may be,
makes a written claim for indemnification for breach of that representation
or warranty (setting forth in reasonable detail the factual and contractual
bases upon which such Party is entitled to indemnification under this
Agreement) prior to the time at which that representation or warranty would
otherwise expire.
Except as set forth in this Section 8(a) or in Sections 9(q) or
11, the provisions of this Agreement shall survive the Closing and shall
continue indefinitely.
(b) Indemnification Provisions for Benefit of the Buyer. If
Masco breaches any of its representations, warranties or covenants contained
herein, other than any representations and warranties contained in Section
4(j) to the extent related to Income Taxes (which are governed by Section 9)
or to the extent any breach thereof results in any liability related to any
other Tax arising in the Post-Closing Period, Masco agrees to indemnify the
Buyer, on a Grossed-up Basis, from and against any Adverse Consequences that
any of the Buyer and its Affiliates (determined assuming that Masco is not
an Affiliate of the Buyer following the Closing, but including the HFG
Companies and their Subsidiaries) and their respective officers, employees,
directors, agents and representatives (collectively, the "Indemnified Buyer
Parties") shall have suffered to the extent resulting from the breach;
provided, however, that, with respect to breaches of such representations
and warranties contained in Section 4, the representation and warranty
contained in the last sentence of Section 5(g) and (to the extent related to
breaches of Section 4(g)) the covenant contained in Section 5(c):
(i) Masco shall not be obligated to make payments to the
Buyer for the first $15,000,000 of Adverse Consequences resulting from
such breaches, it being understood that the $15,000,000 limitation will
not apply to (A) breaches of the representations and warranties in
Sections 4(b), 4(d) and 4(p) (but, with respect to Section 4(p), only to
the extent that such breaches relate to liabilities due to the PBGC, the
U.S. Internal Revenue Service or the U.S. Department of Labor) (the
representations and warranties of Masco set forth in this clause (A)
(subject to the limitations set forth in this clause (A)) being referred
to herein as the "Specified Masco Representations") and (B) breaches
46
<PAGE>
of the covenant contained in Section 5(c) (to the extent related to
breaches of Section 4(g)), except that such $15,000,000 limitation will
apply to any such breach of the covenant contained in Section 5(c) which
is not caused by Masco so long as Masco has satisfied its obligation in
Section 5(c) to notify the divisional heads of HFG Companies regarding
the restrictions contained in Section 5(c); provided that for purposes
of this subparagraph (i): (x) any Adverse Consequences resulting from
any matter disclosed by Masco prior to the Closing by delivery of a
notice designated as an optional notice pursuant to Section 5(e)(i)
above that relates to facts or circumstances existing but not in the
Knowledge of Masco as of the date of this Agreement, or that relates to
the occurrence of any events or developments after the date of this
Agreement to the extent that such events or developments have resulted
in the accrual of a reserve or liability on the Closing Date Balance
Sheet and, but for the exclusion specified in clause (C) of Section
2(e)(ii) above, would have resulted in a reduction of the Adjusted Net
Investment and Advances, shall be taken into account (notwithstanding
the fact that Masco has no indemnity obligations in respect of such
facts or circumstances) in determining whether the $15,000,000 amount is
exceeded and (y) except for matters referred to in the immediately
preceding clause (x), only individual claims (or groups of related
claims or claims of the same Person having substantially similar factual
and legal bases) resulting in Adverse Consequences in excess of $100,000
will be considered in determining whether the $15,000,000 amount is
exceeded;
(ii) Masco shall not be obligated to make payments to the
Buyer of more than $100,000,000 (such number, as reduced to reflect the
application of clause (y) of the final proviso of this Section 8(b)
being referred to as the "Cap") in respect of Adverse Consequences
resulting from all such breaches, it being understood, however, that (1)
the Cap shall not apply to any Adverse Consequences resulting from (A)
breaches of the representations and warranties contained in Sections
4(b), 4(d), 4(j) (but, with respect to Section 4(j), only to the extent
that such breaches relate to Specified Non-Income Taxes) and Section
4(p) or (B) breaches of the covenant contained in Section 5(c), except
that the Cap will apply to any breach of the covenant contained in
Section 5(c) (to the extent related to breaches of Section 4(g)) which
is not caused by Masco so long as Masco has satisfied its obligation in
Section 5(c) to notify the divisional heads of the HFG Companies
regarding the restrictions contained in Section 5(c), and (2) any
payments made by Masco in respect of Adverse Consequences for breaches
of the representations and warranties referred to in clause (1) above
(other than the first $25,000,000 in payments made by Masco in respect
of Adverse Consequences resulting from breaches of the representations
and warranties contained in Section 4(j) that relate to Specified Non-
Income Taxes and other than any payments made by Masco in respect of
Adverse Consequences resulting from breaches of representations and
warranties contained in Sections 4(b), 4(d) and 4(p) (but in the case of
Section 4(p), only to the extent that such breaches relate to
liabilities due to the PBGC, the U.S. Internal Revenue Service or the
U.S. Department of Labor)) shall nonetheless be taken into account in
determining whether the Cap is exceeded;
(iii) Masco shall not be obligated to indemnify the Buyer
with respect to any Adverse Consequences resulting from such breaches
except to the extent that the Buyer makes a written claim for such
indemnification against Masco within the applicable
47
<PAGE>
survival period referred to in Section 8(a) above setting forth in
reasonable detail the factual and contractual bases upon which the Buyer
is entitled to indemnification hereunder;
(iv) Masco shall not be obligated to indemnify the Buyer
with respect to any Adverse Consequences resulting from any matter
disclosed in accordance with Section 5(e)(i) prior to the Closing (other
than with respect to (x) the Specified Masco Representations and (y)
facts and circumstances existing and in the Knowledge of Masco as of the
date of this Agreement); and
(v) In determining Masco's indemnification obligations
under this Section 8(b), the "Knowledge of Masco" qualification
contained in Section 4(p)(vii) shall be disregarded.
To the extent necessary in order to avoid double counting, all
qualifications in Section 4 above (other than the first sentence of Section
4(g) and the last sentence of Section 4(f)) requiring a Material Adverse
Effect in order for a particular representation or warranty to have been
breached shall be disregarded for purposes of this Section 8.
Notwithstanding anything in Section 8(a) or this Section 8(b) to the
contrary, Masco also agrees to indemnify the Buyer from and against any and
all Adverse Consequences that any Indemnified Buyer Party shall have
suffered to the extent relating to (i) the Caldwell Environmental Matter or
the Norfolk Veneer Environmental Matter, (ii) any Multiemployer Plan
covering employees of Masco and its Subsidiaries other than employees of the
HFG Companies and their Subsidiaries, (iii) the New York State use and sales
Tax matters disclosed in Item No. 6 of Section 4(j)(i) and Section 4(j)(vi)
of the Disclosure Schedule, (iv) any matter listed on Schedule 8(b) to this
Agreement, provided that (x) with respect to clause (iv) above Masco shall
not be obligated to make payments to the Buyer for the first $3,000,000 of
Adverse Consequences relating to the matters described in such clause (iv)
and (y) if as of the fifth anniversary of the Closing Date the Buyer has
suffered an aggregate of less than $3,000,000 in Adverse Consequences
relating to the matters described in such clause (iv), the Cap shall be
reduced by an amount equal to the difference between $3,000,000 and the
actual amount of the Adverse Consequences suffered by the Buyer relating to
the matters described in such clause (iv), and (v) the matter entitled Cal-
Style Furniture & Universal Furniture v. Kemper and any related appeals,
counter-claims and successor claims.
(c) Indemnification Provisions for Benefit of Masco. In the
event (A) the Buyer breaches any of its representations, warranties or
covenants contained herein, or (B) any of the Buyer, the HFG Companies, and
the Subsidiaries of the HFG Companies (collectively, the "Covered
Companies") is, or is asserted by any third party to be, jointly (or jointly
and severally) liable with any of the other Subsidiaries of the Buyer with
respect to any matter for which the Covered Companies would not have any
liability but for the fact of their affiliation with the other Subsidiaries
of the Buyer, the Buyer agrees to indemnify Masco from and against any
Adverse Consequences that any of Masco and its Affiliates (determined
assuming that the Buyer, the HFG Companies and their respective Subsidiaries
are not Affiliates of Masco) and its and their respective officers,
employees, directors, agents and representatives (collectively, the
"Indemnified Seller Parties") shall have suffered resulting from such breach
or relating to such matter except, in each case, to the extent that such
Adverse Consequence is merely a diminution in the value of the equity
interests of the Buyer in its Subsidiaries (other than any of
48
<PAGE>
the HFG Companies and their Subsidiaries); provided that the Buyer shall not
be obligated to indemnify Masco with respect to any Adverse Consequences
resulting from any breach of a representation or warranty except to the
extent that Masco makes a written claim for such indemnification against the
Buyer within the applicable survival period referred to in Section 8(a)
above setting forth in reasonable detail the factual and contractual bases
upon which Masco is entitled to indemnification hereunder. The Buyer also
agrees to indemnify Masco following the Closing from and against any Adverse
Consequences that any Indemnified Seller Party shall have suffered with
respect to any actual or asserted obligation or liability of or relating to
the businesses or properties of any of the HFG Companies and their
Subsidiaries with respect to the period prior to the Closing Date as to
which such Indemnified Seller Party is, or is asserted by any third party to
be, jointly (or jointly and severally) liable with any of the HFG Companies
and their Subsidiaries, except in each such case to the extent that Masco is
obligated to make payments to the Buyer in respect of such Adverse
Consequences pursuant to the provisions of Sections 6 or 8(b) above or
Section 9 or 12(p)(i) below. Any payment by the Buyer pursuant to the
immediately preceding sentence shall be included in the first $15,000,000 of
Adverse Consequences described in clause (i) of the proviso to Section 8(b)
above. In addition, the Buyer agrees to indemnify Masco following the
Closing from and against any Adverse Consequences that any Indemnified
Seller Party shall have suffered to the extent relating to the matter
entitled Wyett Consulting Group v. Masco Corporation.
(d) Matters Involving Third Parties.
(i) If any third party (including any governmental agency
or authority) shall notify any Indemnified Buyer Party or Indemnified
Seller Party (the Buyer in the first instance or Masco in the second
instance being referred to herein as the "Indemnified Party" on behalf
of the applicable Indemnified Buyer Party or Indemnified Seller Party)
with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification (ignoring, for this purpose, the
limitations on such indemnification in the proviso to Section 8(b)
above) against the Party providing such indemnification (the
"Indemnifying Party") under this Agreement, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing and give
the Indemnifying Party such information with respect thereto as the
Indemnifying Party may reasonably request, but failure to give such
notice or information shall not relieve the Indemnifying Party of any
liability hereunder (except to the extent the Indemnifying Party has
suffered actual prejudice thereby).
(ii) The Indemnifying Party will have the right at any
time to assume and thereafter conduct the defense of the Third Party
Claim with counsel of its choice reasonably satisfactory to the
Indemnified Party; provided, however, that in each such case the Indem-
nifying Party will defend the Third Party Claim in a manner it
reasonably deems to be appropriate and will not consent to the entry of
any judgment or enter into any settlement or compromise with respect to
the Third Party Claim without the prior written consent of the Indemni-
fied Party (not to be withheld unreasonably) unless the judgment or
proposed settlement or compromise (A) involves only the payment of money
damages by the Indemnifying Party (without any payment by the
Indemnified Buyer
49
<PAGE>
Parties (where the Buyer is the Indemnified Party) or the Indemnified
Seller Parties (where Masco is the Indemnified Party)), (B) does not
impose an injunction or any other equitable relief upon the Indemnified
Buyer Parties (where the Buyer is the Indemnified Party) or the
Indemnified Seller Parties (where Masco is the Indemnified Party) and
(C) in the case of a settlement or compromise, constitutes a complete
and unconditional release of the Indemnified Buyer Parties (where the
Buyer is the Indemnified Party) or the Indemnified Seller Parties (where
Masco is the Indemnified Party). The Indemnified Buyer Parties (where
the Buyer is the Indemnified Party) or the Indemnified Seller Parties
(where Masco is the Indemnified Party) may, at their own expense,
participate in, but not control, the defense, settlement or compromise
of any Third Party Claim controlled by the Indemnifying Party pursuant
to this paragraph (ii); provided that if any Third Party Claim involves
allegations of criminal conduct by any Indemnified Buyer Party or
Indemnified Seller Party, such Person will have the right at its expense
to control jointly that portion of the Third Party Claim.
(iii) Unless and until the Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section 8(d)(ii) above,
the Indemnified Buyer Parties (where the Buyer is the Indemnified Party)
or the Indemnified Seller Parties (where Masco is the Indemnified Party)
may defend against the Third Party Claim in any manner they reasonably
may deem appropriate; provided, however, that the Indemnified Buyer
Parties (where the Buyer is the Indemnified Party) or the Seller
Indemnified Parties (where Masco is the Indemnified Party) will not
consent to the entry of any judgment or enter into any settlement or
compromise with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreason-
ably).
(iv) Whether or not the Indemnifying Party assumes the
defense of any Third Party Claim, the Parties shall cooperate in the
defense thereof. Such cooperation shall include (upon the defending
party's request) the retention and the provision to counsel of non-
privileged records and information which are reasonably relevant to such
Third Party Claim, and making employees reasonably available on a
mutually convenient basis to provide additional information and
explanation of any material so provided.
(v) The specific provisions of Sections 6, 9 and 10 will
govern in the event of any conflict with the general provisions of this
Section 8(d).
(e) Miscellaneous. The Buyer acknowledges and agrees that
Masco is not making any representation or warranty whatsoever with respect
to deferred taxes of the HFG Companies and their Subsidiaries or with
respect to the quantity, quality or collectibility of the accounts
receivable or inventory of the HFG Companies and their Subsidiaries, except
to the extent that presentation of such accounts receivable or inventory
(including any reserves related thereto) may affect the past results of
operations of the HFG Companies and their Subsidiaries. All post-Closing
indemnification payments under this Agreement shall be deemed adjustments to
the Purchase Price, and the Parties agree that such adjustments shall be
allocated for all purposes in accordance with Section 9(j) and, to the
extent relevant, Section 9(i)(B) below. The indemnification provisions in
this Agreement, and the remedy of specific performance contemplated by
Section 12(c)
50
<PAGE>
below, shall be the exclusive remedies for any breach of the
representations, warranties, and covenants contained in this Agreement.
Without limiting the generality of the foregoing, the Buyer explicitly
waives any rights and remedies under the common law, and any statutory
rights and remedies, that it otherwise might have against Masco or any of
its remaining Subsidiaries after the Closing with respect to any actual or
asserted obligation or liability of or relating to the business or
properties of any of the HFG Companies and their Subsidiaries with respect
to the period prior to the Closing Date as to which Masco may be jointly (or
jointly and severally) liable with any of the HFG Companies and their
Subsidiaries; provided, however, that no party waives its rights to commence
judicial proceedings to enforce its rights under this Section 8, Section 6
above or Sections 9 or 11(b) or 12(p)(i) below. After the Closing, the HFG
Companies and their Subsidiaries will have the right to make any claim (and
Masco shall cooperate in connection with such claim) for occurrences prior
to the Closing Date against any insurance policy that provides coverage on
an occurrence basis under which any of the HFG Companies and their
Subsidiaries is insured as of the Closing Date and under which coverage may
be afforded for occurrences prior to the Closing Date and which may be
collectible after the Closing Date by any of the HFG Companies and their
Subsidiaries; provided, however, that Masco does not represent or warrant
the actual availability or extent of coverage under any such policies.
However, the HFG Companies and their Subsidiaries will not have the right to
(and the Buyer will not cause or permit any of them to) make (x) any claim
against any other insurance policy maintained by Masco or its Affiliates
(determined assuming that the Buyer, the HFG Companies and their respective
Subsidiaries are not Affiliates of Masco), (y) any claim against any policy
which is retrospectively rated or is otherwise the economic equivalent of
self-insurance maintained by Masco or its Affiliates (determined assuming
that the Buyer, the HFG Companies and their respective Subsidiaries are not
Affiliates of Masco) or (z) any claim against any of Masco and its remaining
Subsidiaries on any theory of continuing intercompany "insurance" coverage.
The Buyer shall cause the HFG Companies and their Subsidiaries to use
commercially reasonable efforts to collect any insurance proceeds and
indemnification payments available under the policies and acquisition
agreements, respectively, referred to in the definition of "Adverse
Consequences."
Section 9. Tax Matters.
(a) Tax Sharing Agreements. Any Tax allocation or sharing
agreement, and each other agreement or arrangement relating to Tax matters,
between any of the HFG Companies and their Subsidiaries on the one hand and
any Seller Party on the other hand shall be terminated as of the Closing
(with no further payment thereunder, whether or not accrued, to be made
after the Closing) and will have no further effect for any taxable year
(whether the current year, a future year, or a past year).
(b) Allocation of Tax Liability. (A) Masco shall pay or cause
to be paid, and indemnifies the Buyer and agrees to protect, save and hold
harmless the Buyer from and against, on a Grossed-Up Basis, the following
liabilities suffered by any of the Tax Indemnitees:
(i) any liability of the HFG Companies and their
Subsidiaries for any Tax imposed upon (1) any Seller Party for any
period or (2) any Third Party for any Pre-Closing Period, in each case
for which any of the HFG Companies or their Subsidiaries
51
<PAGE>
may be liable (W) under Section 1.1502-6 of the Treasury regulations (or
any similar provision of state, local or foreign law), (X) as a
transferee or successor or (Y) by contract;
(ii) any Income Tax (other than those Taxes described in
paragraph (i) above) imposed upon any of the HFG Companies and their
Subsidiaries for any Pre-Closing Period;
(iii) any Section 338 Tax; and
(iv) any Income Tax of Buyer, the HFG Companies or the
Subsidiaries of the HFG Companies arising from a breach of a
representation or warranty in Section 4(j)(vii), (ix), (x), (xi) or
(xii), regardless of whether a notice disclosing such breach was
delivered pursuant to Section 5(e)(i).
Notwithstanding the foregoing, Masco shall not be obligated to
indemnify for any Tax imposed on any Third Party unless the HFG Companies
and their Subsidiaries are liable for such Tax as a result of their entering
into an arrangement or agreement with the Third Party during any Pre-Closing
Period.
(B) Except as otherwise provided in Section 9(d) below, payment
in full of any amount due from Masco under this Section 9(b) shall be made
by Masco to Buyer in immediately available funds at the later of (x) five
business days before the date payment of the Taxes to which such payment
relates is due or (y) fifteen business days after the date on which demand
for payment from Buyer has been delivered to Masco.
(c) Consolidated and Similar Taxes and Tax Returns for Periods
Through the Closing Date. Subject to Section 9(k) below, and to the extent
permitted by law, Masco will include the income of the HFG Companies and
their Subsidiaries (including any deferred income triggered into income by
Treas. Reg. Section 1.1502-13 and Treas. Reg. Section 1.1502-14 and any
excess loss accounts taken into income under Treas. Reg. Section 1.1502-19)
on its consolidated federal income tax Returns and on any applicable
combined or consolidated state or local income or franchise tax Returns to
the extent consistent with the past practice of Masco for all periods
through the Closing Date. The Buyer will cause the HFG Companies and their
Subsidiaries to furnish information to Masco for inclusion in Masco's
consolidated federal income tax Return (and any applicable combined or
consolidated state or local income or franchise tax Return) for the period
which includes the Closing Date in accordance with Masco's past custom and
practice. Masco will allow the Buyer an opportunity to review and comment
upon such income or franchise tax Returns (including any amended Returns) to
the extent that they relate to the HFG Companies and their Subsidiaries.
Masco will take no position on any Return for the Pre-Closing Period that
relates to any of the HFG Companies and their Subsidiaries (or in any
amended Return, audit adjustment or other filing or proceeding having
similar effect) that would adversely affect any of the HFG Companies and
their Subsidiaries after the Closing Date without the prior written consent
of the Buyer (which consent shall not be unreasonably withheld) unless such
position is consistent with positions previously taken by such HFG Company
or such
52
<PAGE>
Subsidiary. Subject to Section 9(k) below, the income of the HFG Companies
and their Subsidiaries will be apportioned between the Pre-Closing Period
and the Post-Closing Period by closing the books of the HFG Companies and
their Subsidiaries as of the end of the Closing Date.
(d) Tax Contests.
(i) If any Taxing Authority asserts a Tax Claim relating
to any Pre-Closing Period, then the Party (including any Subsidiary of
such Party) receiving any notice related to such Tax Claim shall
promptly provide written notice thereof to the other Party.
(ii) Masco shall have the sole right to diligently defend
or prosecute, at its sole expense, such Tax Claim; provided that (A)
Masco is obligated (either by Masco's written acknowledgment or by
determination as described below) to indemnify the Buyer for such Tax
Claim under this Section 9; (B) Masco shall not, without the prior
written consent of the Buyer (which consent shall not be unreasonably
withheld), enter into any compromise or settlement of such Tax Claim
that would result in any Tax detriment to any Tax Indemnitee for any
Post-Closing Period unless such position is consistent with positions
previously taken by the HFG Companies or their Subsidiaries, and (C) if
a Tax Indemnitee is requested by Masco to pay or cause to be paid the
Tax claimed and to sue for a refund, then Masco shall advance to the Tax
Indemnitee, on an interest-free basis and a Grossed-Up Basis, the amount
of the Tax claimed. Masco shall keep the Buyer informed of any
developments and events relating to such Tax Claim (including providing
the Buyer with copies of all written materials relating to such Tax
Claim), and the Buyer shall be entitled, at its own expense, to attend,
but not participate in or control, all conferences, meetings and
proceedings relating to such Tax Claim. Buyer agrees that it will
cooperate with Masco and its counsel in the defense or prosecution of
any such Tax Claim to the extent reasonably requested by Masco in
writing. If Masco contests its indemnification obligations with respect
to any Tax Claim under this Section 9, Masco and Buyer shall undertake
in good faith to resolve this issue. If Masco and Buyer are unable to
resolve the issue within 10 days, Masco and Buyer shall engage jointly
an independent nationally recognized law firm to determine whether
Masco's indemnification obligations under this Section 9 encompass such
Tax Claim. The determination of such law firm shall be final and
binding on the Parties solely for purposes of determining whether Masco
shall have the right to defend or prosecute a Tax Claim; provided,
however, that if the Party against whom the determination is made does
not offer the other Party the opportunity to control the defense or
prosecution of such Tax Claim, the determination shall be final and
binding on such Party. The fees and other costs charged by such law
firm in making such determination shall be paid by the Party against
whom the determination is made.
(iii) Masco and Buyer jointly shall defend or prosecute
any Tax Claim relating to any taxable period which includes (but does
not end on) the Closing Date, with control of the defense or prosecution
being undertaken by the Party with the greatest amount in interest based
upon the amount of Taxes asserted in such Tax Claim. All
53
<PAGE>
costs, fees and expenses paid to Third Parties in the course of the
defense or prosecution of such Tax Claim shall be borne by Masco and
Buyer in the same ratio as the ratio in which, pursuant to the terms of
this Agreement, Masco and Buyer would share the responsibility for
payment of such Taxes.
(e) Cooperation. Each Party hereto shall, and shall cause its
Subsidiaries and Affiliates (determined assuming that Masco is not an
Affiliate of the Buyer following the Closing) to, provide to each of the
other Parties such cooperation and information as any such Party reasonably
may request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns (together with relevant accompanying schedules
and relevant workpapers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, in each case which any such Party,
Subsidiary or Affiliate may possess). Each Party shall, and shall cause its
Subsidiaries and Affiliates (determined as provided above) to, make its
employees reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided. Subject to
the preceding sentence, each Party required to file (or cause the filing of)
Returns pursuant to this Section 9 shall bear all costs of filing such
Returns.
(f) Payments of Transfer Taxes and Fees. Masco shall pay all
Transfer Taxes arising out of or payable in connection with the transactions
contemplated by this Agreement, and shall file all necessary documentation
and Returns with respect to such Transfer Taxes. The Buyer shall promptly,
upon receipt of written request therefor, reimburse Masco for 50% of all
amounts paid pursuant to the preceding sentence.
(g) Carrybacks. The Buyer shall not cause or permit any of
the HFG Companies or their Subsidiaries to carry any Post-Closing Period Tax
attribute back into Masco's consolidated federal income tax Return, or
consolidated or combined state or local income or franchise tax Return,
without the consent of Masco (not to be unreasonably withheld). If Masco
does consent to any such carryback, Masco will (i) cooperate with the Buyer
(at the Buyer's expense) in obtaining any refund (or reduction in Tax
liability) resulting from the carryback of such Post-Closing Period Tax
attribute of any of the HFG Companies and their Subsidiaries into Masco's
consolidated federal income tax Return or consolidated or combined state or
local income or franchise tax Return, including through the filing of
amended Returns or refund claims, and (ii) promptly pay to the Buyer any
incremental Tax refund (or reduction in Tax liability) resulting from such
carryback when such refund or reduction is realized by Masco. In any event,
the Buyer agrees to indemnify Masco from and against any Adverse
Consequences resulting from the disallowance of such Post-Closing Period Tax
attribute on audit or otherwise and from any Tax liability incurred by Masco
as a result of any such carryback.
(h) Retention of Carryovers. Masco will not elect to retain
any net operating loss carryovers or capital loss carryovers of any of the
HFG Companies and their Subsidiaries under Treas. Reg. Section 1.1502-20(g).
At the request of Masco, the Buyer will cause any of the HFG
54
<PAGE>
Companies and their Subsidiaries to join with Masco in filing any necessary
elections under Treas. Reg. Section 1.1502-20(g).
(i) Post-Closing Elections. (A) After the Closing, the Buyer
will join with Masco in making a timely, effective and irrevocable election
under Code Sec. 338(h)(10), and any corresponding elections under state,
local, or foreign tax law (collectively, a "Section 338(h)(10) Election"),
with respect to the purchase and sale of the capital stock of those HFG
Companies and their Subsidiaries indicated on the attached Schedule of Tax
Allocations. Masco will pay any Section 338 Tax (as specified in Section
9(b)(iii) above) and retain any Tax benefits derived therefrom. Provided
there are no adverse Tax consequences to Masco, the Buyer may make (or cause
or permit any of its Affiliates (determined assuming that Masco is not an
Affiliate of the Buyer following the Closing) to make) any election under
Code Section 338 or any similar election under state, local, or foreign tax
law with respect to the purchase and sale of the capital stock of any of the
HFG Companies and their Subsidiaries.
(B) With respect to each Section 338(h)(10) Election, as soon
as practicable after the date hereof and in any event within 120 days
following the Closing, Buyer and Masco shall agree on (i) MADSP, (ii) AGUB
and (iii) the allocation of MADSP and AGUB among the assets of each Affected
Corporation (collectively, the "Initial Allocation"). The Initial
Allocation shall be determined in accordance with Section 338 of the Code
and the applicable Treasury regulations thereunder. The Initial Allocation
shall be set forth on a statement (the "Initial Allocation Statement") dated
within 120 days following the Closing Date and signed by the president or
any vice president of each of the Buyer and Masco. If any increase or
decrease in MADSP or AGUB occurs as a result of an adjustment to the
Purchase Price pursuant to a purchase price adjustment provision or
otherwise, then Masco and Buyer shall agree on the amount of such increase
or decrease and the allocation thereof among the assets of each Affected
Corporation (collectively, the "Adjustment Allocation"). Masco and each
Seller Party will, to the maximum extent permitted under applicable law, (i)
file or cause to be filed all Returns in a manner consistent with the
Initial Allocation and any Adjustment Allocation and (ii) not take any
action inconsistent therewith.
(j) Allocation of Purchase Price. The Parties agree that the
Purchase Price and any adjustments thereto will be allocated among the
capital stock of the HFG Companies and their Subsidiaries for Tax purposes
in accordance with the provisions of the attached Schedule of Tax
Allocations, subject to applicable law. Because the allocation in the
Schedule of Tax Allocations was based upon information as of December 31,
1995 and the Preliminary Purchase Price available as of the date hereof, the
Parties agree to modify the allocation promptly following the Closing to
reflect modifications in that information. Amounts so allocated to the
stock of an Affected Corporation then shall serve as the basis for the
further allocation described in Section 9(i)(B). The Parties will file all
Returns (including amended Returns and claims for refund) and information
reports in a manner consistent with such allocation.
(k) Certain Transactions on the Closing Date. Except as
provided in Section 9(i) above with respect to Section 338(h)(10) Elections,
(i) the Buyer and Masco agree to report all transactions undertaken by
Buyer, or any of the HFG Companies or their Subsidiaries, not in
55
<PAGE>
the Ordinary Course of Business occurring on the Closing Date but after the
Closing on the Buyer's consolidated federal income tax Return to the extent
permitted by Treas. Reg. Section 1.1502-76(b)(1)(ii)(B) and (ii) the Buyer
agrees to indemnify Masco in this regard, on a Grossed-Up Basis, from and
against any Adverse Consequences resulting from any transaction undertaken
by Buyer, or any of the HFG Companies or their Subsidiaries, not in the
Ordinary Course of Business occurring on the Closing Date but after the
Closing.
(l) Separate Returns, Straddle Period Returns and Allocation
of Certain Taxes. (A) Masco shall file all separate Returns of the HFG
Companies and their Subsidiaries for Tax periods which end on or before the
Closing Date. The Buyer shall file all separate Returns of the HFG
Companies and their Subsidiaries for Tax periods which begin prior to the
Closing Date and end after the Closing Date (each such period, a "Straddle
Period") and for all Tax periods beginning and ending after the Closing
Date. If any Return is filed in respect of a Straddle Period by the Buyer,
Masco shall be liable for Taxes in such Return arising on or before the
Closing Date.
(B) With respect to any Return of any of the HFG Companies or
their Subsidiaries for a Straddle Period (a "Straddle Period Return"), Buyer
shall deliver a copy of such Return to Masco at least 45 calendar days prior
to the due date (giving effect to any extension thereof) for filing such
Return, accompanied by an allocation between the Pre-Closing Period and the
Post-Closing Period of the Taxes shown to be due on such Return. Such
Return and allocation shall be final and binding on Masco, unless, within 20
calendar days after the date of receipt by Masco of such Return and
allocation, Masco delivers to the Buyer a written request for changes to
such Return or allocation. If Masco delivers such a request, then Masco and
the Buyer shall undertake in good faith to resolve the issues raised in such
request prior to the due date (giving effect to any extension thereof) for
filing such Return. If Masco and the Buyer are unable to resolve any issue
prior to the earlier of (i) the tenth calendar day after the date of receipt
by the Buyer of the request for changes, or (ii) the tenth calendar day
prior to the due date (giving effect to any extension thereof) for filing of
such Return, then Masco and the Buyer shall engage jointly the Independent
Accounting Firm to determine the correct treatment of the item or items in
dispute. The Buyer shall pay all of the fees and other costs charged by the
Independent Accounting Firm in making such determination. The determination
of the Independent Accounting Firm shall be final and binding on the
Parties. If the Independent Accounting Firm is unable to make its
determination with respect to any disputed item prior to the due date
(giving effect to any extension thereof) for filing the Return in question,
then the Buyer may treat the item, for purposes of filing the Return, as it
determines in its sole discretion, and may cause the Return to be filed.
However, in such a case, the Independent Accounting Firm shall make its
determination with respect to the disputed items and the determination of
the Independent Accounting Firm shall control the rights of the Parties
under this Section 9.
(C) In the case of each Straddle Period Return, not later than
(i) five business days before the due date (giving effect to any extension
thereof) for payment of Taxes with respect to such Return or (ii) in the
event of a dispute, five business days after the resolution thereof either
by mutual agreement of the Parties or by a determination of the Independent
56
<PAGE>
Accounting Firm, Masco shall pay to the Buyer the portion of the Taxes set
forth on such Return that are allocable to the Pre-Closing Period, net of
any payments made prior to the Closing Date in respect of such Taxes,
whether as estimated Taxes or otherwise, after giving effect to any
agreement of the Parties or any determination by the Independent Accounting
Firm. For purposes of this Section 9(l), and except as provided for below
with respect to franchise and ad valorem Taxes, Taxes of the HFG Companies
and their Subsidiaries will be apportioned between the Pre-Closing Period
and the Post-Closing Period by closing the books of the HFG Companies and
their Subsidiaries as of the end of the Closing Date.
(D) For the avoidance of doubt, it is here specified that for
purposes of this Section 9, any Tax resulting from the departure of any of
the HFG Companies and their Subsidiaries from the Seller Group or any other
Affiliated Group of which a Seller Party is a member (to the extent that
such Tax results from the triggering into income of Pre-Closing Period
deferred intercompany transactions or excess loss accounts) is attributable
to the Pre-Closing Period.
(E) In the case of (i) franchise Taxes based on
capitalization, debt or shares of stock authorized, issued or outstanding
and (ii) ad valorem Taxes, in either case attributable to any taxable period
that includes but does not end on the Closing Date, the portion of such
Taxes attributable to the Pre-Closing Period shall be the amount of such
Taxes for the entire taxable period, multiplied by a fraction the numerator
of which is the number of days in such taxable period ending on and
including the Closing Date and the denominator of which is the entire number
of days in such taxable period; provided, however, that if any property,
asset or other right of any of the HFG Companies or their Subsidiaries is
sold or otherwise disposed of prior to the Closing Date, then ad valorem
Taxes pertaining to such property, asset or other right shall be
attributable entirely to the Pre-Closing Period; provided, further, that if
any property, asset or other right is acquired by any of the HFG Companies
or their Subsidiaries after the Closing, then ad valorem Taxes pertaining to
such property, asset or other right shall be attributable entirely to the
Post-Closing Period.
(m) Refunds and Related Matters.
(i) Any refund of Taxes (including any interest thereon)
that relate to any of the HFG Companies or their Subsidiaries and that
are attributable to a Post-Closing Period and that were paid by the
Buyer or any of the HFG Companies or their Subsidiaries in a Post-
Closing Period shall be the property of the applicable HFG Company or
Subsidiary and shall be retained by such HFG Company or Subsidiary (or,
if any such refund is received by Masco or any of its Affiliates,
promptly paid by Masco, net of any Taxes imposed on any Seller Party
with respect thereto, to such HFG Company or Subsidiary).
(ii) If (A) after the Closing Date, any of the HFG
Companies or their Subsidiaries receives a refund of any Tax that
relates to, and that was previously paid by or on behalf of, any of the
HFG Companies or their Subsidiaries and that is attributable to a Pre-
Closing Period, (B) the Tax was paid by (a) a Seller Party in a Post-
Closing Period or (b) a Seller Party or any of the HFG Companies and
their Subsidiaries in a
57
<PAGE>
Pre-Closing Period and (C) Section 9(g) above does not apply with
respect to such refund, then the applicable HFG Company or Subsidiary
promptly shall pay or cause to be paid to Masco the amount of such
refund together with any interest thereon, but net of any Taxes imposed
on the Buyer or any of the HFG Companies or their Subsidiaries with
respect thereto.
(iii) In applying paragraphs (i) and (ii) above, any
refund of Taxes (including any interest thereon) for a taxable period
that includes but does not end on the Closing Date shall be allocated
between the Pre-Closing Period and the Post-Closing Period in accordance
with paragraph (l) of this Section.
(iv) If any adjustment to the Preliminary Purchase Price
under Section 2 in favor of the Buyer, or any payment by Masco pursuant
to its indemnification obligations under this Agreement, is made in
respect of an item that results in a reduction in any Tax liability of
the Buyer, any Affiliate of the Buyer (determined assuming that Masco is
not an Affiliate of the Buyer following the Closing), or any of the HFG
Companies or their Subsidiaries, then the Buyer shall promptly pay Masco
the amount of such reduction, but only to the extent such reduction is
attributable to the portion of such item which results in such
adjustment or payment; provided, however, that if such reduction is
reasonably expected to occur within one year from the date of the
adjustment or the date on which Masco's indemnification payment is due,
then the amount of such reduction shall be taken into account in
determining such adjustment or Masco's indemnification obligation;
provided, further, that if the amount of such reduction is subsequently
determined to be less, Masco shall pay to the Buyer the amount of such
difference.
(v) If any adjustment to the Preliminary Purchase Price under
Section 2 in favor of Masco is made in respect of an item that results
in an increase in any Tax liability of the HFG Companies or their
Subsidiaries, then Masco shall promptly pay the Buyer the amount of such
increase, but only to the extent such increase is attributable to the
portion of such item which results in such adjustment; provided,
however, that if the increase is reasonably expected to occur within one
year from the date of the adjustment, then the amount of such increase
shall be taken into account in determining such adjustment; provided,
further, that if the amount of such increase is subsequently determined
to be less, the Buyer shall pay to Masco the amount of such difference.
(vi) If any payment by the Buyer pursuant to its
indemnification obligations under this Agreement is made in respect of
an item that results in a reduction in any Tax liability of Masco or any
Affiliate of Masco (determined assuming that none of the Buyer, the HFG
Companies, and their respective Subsidiaries is an Affiliate of Masco
following the Closing), then Masco shall promptly pay the Buyer the
amount of such reduction, but only to the extent such reduction is
attributable to the portion of such item which is attributable to such
payment; provided, however, that if such reduction is reasonably
expected to occur within one year from the date on which the Buyer's
indemnification payment is due, then the amount of such reduction shall
be taken into account in determining the Buyer's indemnification
obligation; provided, further, that if
58
<PAGE>
the amount of such reduction is subsequently determined to be less, the
Buyer shall pay to Masco the amount of such difference.
(n) Requested Transactions. At the request of the Buyer, on
or prior to the Closing Date, Masco shall cause all of the capital stock of
one or more of the HFG Companies (other than any Affected Corporation) to be
contributed to any other HFG Company (other than any Affected Corporation);
provided that such contribution does not have an adverse Tax effect on any
Seller Party or, with respect to any Pre-Closing Period, on any of the HFG
Companies or their Subsidiaries.
(o) Miscellaneous.
(i) Any provision of this Agreement to the contrary
notwithstanding, the Buyer will be responsible for any Taxes for the period
through and including the Closing Date to the extent of any Tax liability
that has been specifically reserved for on the Closing Date Balance Sheet
and that is treated as a reduction in calculating the Adjusted Net
Investment and Advances and will promptly reimburse Masco therefor to the
extent Masco pays any such Taxes.
(ii) If a Party to this Agreement takes any action which
constitutes a breach of this Section 9, such Party shall indemnify the other
Party, on a Grossed-Up Basis, for any incremental liability for Tax suffered
by such other Party (which (A) in the case of Masco, shall include its
Affiliates (determined assuming that none of the Buyer, the HFG Companies
and their respective Subsidiaries is an Affiliate of Masco following the
Closing) and (B) in the case of the Buyer, shall include Tax Indemnitees)
arising from such action.
(p) Conflict. In the event of a conflict between the
provisions of this Section 9 and any other provision of this Agreement, the
provisions of this Section 9 shall control. Without limiting the generality
of the foregoing, the indemnification obligations of the Parties under this
Section 9 shall not be subject to (i) the limitations (including time and
amount limitations) set forth in Section 8(a), 8(b) and 8(c) above or (ii)
the procedures relating to Third Party Claims set forth in Section 8(d)
above.
(q) Survival. All rights, obligations and covenants under
this Section 9, and the representations and warranties contained in Section
4(j)(vii), (ix), (x), (xi) and (xii) (but in each case only to the extent
such representations and warranties relate to Income Tax), shall survive the
Closing and continue indefinitely (subject to any applicable statutes of
limitations, but without regard to any extension or waiver of the applicable
statutory period of limitations granted without the consent of Masco, which
consent shall not be unreasonably withheld, by the Buyer or any of the HFG
Companies or their Subsidiaries after the Closing; provided that Masco's
consent shall not be required for a valid extension or waiver if Masco had
an opportunity to contest but did not contest).
Section 10. Environmental Matters.
(a) General. In no event will the provisions of this Section
10, or any exercise by Masco of its rights under this Section 10, increase
the obligations and liabilities of Masco with respect
59
<PAGE>
to environmental matters involving the HFG Companies and their Subsidiaries
beyond what is provided in Section 8 above.
(b) Reporting, Remediation, and Compliance. After the
Closing, and with respect to those environmental matters involving any of
the HFG Companies and their Subsidiaries for which Masco is responsible
under Section 8 above (ignoring, for this purpose, the limitations in the
proviso to Section 8(b) above), Masco shall have the exclusive right
(provided that Masco exercises such right in a timely and diligent manner)
to undertake the following activities with the prior written consent of the
Buyer, such consent not to be unreasonably withheld: (i) obtain any tests,
reports, and surveys necessary to define and delineate the extent of any
contamination or noncompliance, (ii) contact governmental authorities, make
any reports to such authorities, submit any remediation or compliance plans
to such authorities, negotiate with such authorities, and otherwise deal
with such authorities, (iii) prepare the work plan for any remediation or
correction of noncompliance, and (iv) conduct or direct any such remediation
or correction of noncompliance. Notwithstanding the foregoing, Masco agrees
to provide the Buyer with (i) copies of all workplans for, and test results,
surveys and other data generated by, the investigations performed by Masco
or its consultants promptly upon the availability thereof, (ii) final and
any prior drafts of all reports, plans and other documents to be filed with
any governmental authority upon the availability thereof and in any event
prior to any such filing being made, (iii) an opportunity to meet with Masco
and its representatives prior to and following any substantive
communications with governmental authorities, and (iv) an opportunity to
timely discuss and comment upon the foregoing and any other proposed
determinations or actions relating to the investigation, testing and
remediation of any sites (including the Properties) and the reporting
thereon with governmental authorities. In order to carry out its obligations
under this Agreement, Masco shall have continuing reasonable access to the
affected Properties; provided, however, that Masco shall provide the
relevant HFG Company or Subsidiary thereof with reasonable notice prior to
Masco or any of its agents, representatives, employees, consultants or
contractors entering the relevant Property. Masco shall have the right to
perform any remediation or actions necessary to achieve compliance by any
commonly accepted or reasonable means with the prior written consent of the
Buyer (such consent not to be unreasonably withheld) (including the right to
construct and maintain wells, dikes, "caps", covers and other impoundments,
barriers, pump and treat systems, soil vapor extraction systems, other
testing and treatment equipment and systems, related buildings and
structures, and supporting utility services on such Properties, the right to
perform excavations and exhumations of soils and subsurface materials and
withdrawals and reinjections of groundwater on such Properties, and the
right to impose deed and land use restrictions and institutional controls on
such Properties); provided, however, that Masco will not unreasonably
interfere with the normal business operations of any of the HFG Companies
and their Subsidiaries. Any investigation, remediation, correction of
noncompliance or other activities to be conducted, directed or performed by
Masco pursuant to this Section 10 shall be performed by an independent third
party environmental professional mutually agreed (or other Person mutually
agreed) upon by Buyer and Masco (subject to the dispute resolution
proceedings set forth in Section 10(e) below). Any such remediation or
actions necessary to achieve compliance shall be deemed sufficient to
satisfy Masco's corresponding obligations under this Agreement so long as
the result (x) meets or exceeds the least stringent standards (including any
lesser standards resulting from any site-
60
<PAGE>
specific risk assessments) acceptable under (A) all applicable Environmental
Laws as in effect on the Closing Date based on the use of the property on
the Closing Date and (B) all applicable Environmental Permits and (y) is
consistent with any third-party settlements entered into with the prior
written consent of Masco. Notwithstanding anything to the contrary in the
immediately preceding sentence, the Buyer may direct Masco, at the Buyer's
sole discretion, to undertake remedial action or such other action that (1)
exceeds the requirements set forth in clauses (x) and (y) of such sentence,
or (2) meets but does not exceed such requirements; provided, however, that
in the event the Buyer so directs Masco to undertake any action that exceeds
such requirements, the Buyer shall bear the incremental costs, if any,
incurred in implementing the more stringent remedy. To the extent Masco
fails to exercise its rights or perform its obligations under this Section
10(b) in a diligent and timely manner, the Buyer, upon written notice to
Masco, shall have the right to control, direct and perform the relevant
investigation or remediation or correct the relevant noncompliance, provided
that the procedures in this Section 10(b) and in Section 10(e) below shall
be complied with, substituting in each case the Buyer for Masco and vice
versa.
(c) Certain Responsibilities of the Buyer. The Buyer will
cooperate with Masco (including by making relevant personnel and records
available to Masco at all reasonable times without charge for any internal
costs) in connection with this Section 10. Until the Buyer has suffered
$15,000,000 in Adverse Consequences pursuant to clause (i) of the proviso in
Section 8(b) with respect to all matters referred to in such clause (i), the
Buyer agrees to reimburse Masco, within 30 days of receipt of an invoice,
for any reasonable out-of-pocket costs, expenses, fees or other amounts
incurred by Masco relating to services provided or activities performed with
respect to the matters referred to in this Section 10 (other than the
matters referred to in clauses (i) and (iv) of the last sentence of Section
8(b)); and, with respect to matters referred to in such clause (iv), the
Buyer agrees to reimburse Masco, within 30 days of receipt of an invoice,
for any reasonable out-of-pocket costs, expenses, fees or other amounts
incurred by Masco relating to services provided or activities performed with
respect to such matters until the Buyer has suffered $3,000,000 in Adverse
Consequences with respect to such matters). Once Buyer has suffered the
applicable amount of Adverse Consequences specified in the immediately
preceding sentence, then, subject to Section 8, Masco shall reimburse any
Indemnified Buyer Party for any reasonable out-of-pocket costs, expenses,
fees or other amounts incurred by such Indemnified Buyer Party pursuant to
this Section 10. Each of the Buyer and Masco shall use its reasonable
efforts to minimize the costs associated with Adverse Consequences relating
to environmental matters for which Masco is responsible under Section 8
above (ignoring, for this purpose, the limitations in the proviso to Section
8(b) above). In order to better delineate the respective obligations of
Masco and the Buyer with respect to environmental matters involving the HFG
Companies and their Subsidiaries, the Buyer will take reasonable steps to
cause the HFG Companies and their Subsidiaries to conduct their operations
so as not to take affirmative action that unreasonably compounds or
aggravates any environmental condition or noncompliance for which Masco is
responsible (ignoring, for this purpose, the limitations in the proviso to
Section 8(b) above) under this Agreement.
(d) Third Party Actions. Neither the Buyer nor Masco will
initiate or encourage any action by any third party, including any
governmental agency or authority, which could reasonably be expected to lead
to a claim by such third party with respect to any environmental
61
<PAGE>
matter of Masco, the HFG Companies and their respective Subsidiaries for
which Masco is responsible under Section 8 above (ignoring, for this
purpose, the limitations in the proviso in Section 8(b) above), except in
each case to the extent required (i) by Environmental Law, (ii) by any
Environmental Permit, (iii) by any settlement agreement, or (iv) in the
relevant Party's good faith judgment, in order to protect human health or
safety; provided, however, that nothing in this Agreement shall be construed
to limit Buyer's right (or the right of any of the HFG Companies or their
Subsidiaries) to investigate any suspected environmental condition or
noncompliance. If the Buyer or Masco determines that it is so required to
initiate or encourage any such action, such Party will promptly notify the
other party of such requirement.
(e) Resolution of Certain Disputes. (i) With respect to any
matter which requires action by Masco and the consent of the Buyer or the
agreement of Masco and the Buyer pursuant to this Section 10, Masco shall
notify the Buyer in writing of the action it proposes to take, setting forth
with particularity the nature of such action, the identity of the individual
or firm proposed to perform such action (if applicable), the proposed time
frame for commencing and completing such action, and the estimated cost
associated with such action (each such action, a "Recommended Action").
Masco shall provide the Buyer with copies of all sampling data,
environmental reports, proposals and correspondence (drafts and final)
relating to the subject matter of the Recommended Action. In the event the
Buyer disagrees with the Recommended Action, in whole or in part, the Buyer
shall notify Masco in writing of its specific disagreement regarding such
Recommended Action (a "Dispute Notification") within 15 days of its receipt
of notice of the Recommended Action in accordance with this paragraph (e)(i)
(the "Dispute Notification Period"). The Buyer and Masco shall thereafter
negotiate in good faith in an attempt to reach agreement as to the disputed
Recommended Action. In the event that the Buyer and Masco are unable to
resolve the dispute within 10 days after Masco's receipt of a Dispute
Notification, either the Buyer or Masco may provide written notice to the
other of its intent to submit the matter to arbitration, and such dispute
shall be resolved by arbitration.
(ii) In the event the Recommended Action (or portion thereof
subject to dispute) is submitted to arbitration, each of the Buyer and Masco
shall select an arbitrator, and a third arbitrator shall be chosen by the
other two arbitrators, provided that if the two arbitrators fail to agree
upon the third arbitrator within 30 days of receipt of notice to submit the
matter to arbitration, the additional arbitrator shall be appointed by the
American Arbitration Association, in the State in which the relevant site is
located; provided, however, that if the relevant site is not in the United
States, the "State" for this purpose shall be deemed to be North Carolina.
The provisions of the Federal Arbitration Act (9 U.S.C. Sections 1-14) and
commercial arbitration rules of the American Arbitration Association shall
be followed in any arbitration, unless modified pursuant to mutual agreement
of the Buyer and Masco with the concurrence of the arbitration panel.
(iii) Any arbitration conducted pursuant to this Section
10(e) shall be limited to resolution of the dispute set forth in the Dispute
Notification, and the arbitrators shall have no jurisdiction or authority to
resolve any claims not related to such dispute, whether arising by way of
asserted rights, offsets or otherwise. The arbitrators' decision shall be
final and binding on the Buyer and Masco. Any arbitration award shall be
enforceable in any court of competent jurisdiction.
62
<PAGE>
The Parties hereby consent to such jurisdiction and to entry of judgment
thereon. The costs of arbitration shall be borne by the Buyer.
(f) Certain Recoveries. Masco and the Buyer shall cooperate
with each other with respect to making claims under any occurrence-based
policies written by third party insurance companies, to the extent such
policies were owned by any of the HFG Companies and their Subsidiaries prior
to the Closing Date, under any acquisition agreements with third parties, to
the extent such agreements are in effect as of the Closing Date and afford
indemnification rights for the benefit of the HFG Companies and their
Subsidiaries, and under any underground storage tank or similar
environmental reimbursement program, to the extent such programs are
available to the HFG Companies and their Subsidiaries at any time after the
Closing Date, for reimbursement or contribution in connection with
environmental matters for which Masco may be responsible pursuant to Section
8 (ignoring, for this purpose, the limitations in the proviso in Section
8(b) above). Such cooperation shall include making all reasonable claims
and demands against such third parties with respect to such environmental
matters and pursuing such claims and demands in a commercially reasonable
manner.
Section 11. Termination.
(a) Termination of Agreement. One or both of the Parties may
terminate this Agreement under certain circumstances as provided below:
(i) the Buyer and Masco may terminate this Agreement by
mutual written agreement at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to Masco at any time prior to the Closing in the event
(A) Masco has within the then previous 15 days given the Buyer any
notice designated by Masco as a mandatory notice pursuant to Section
5(e)(i) above or (B) Masco has breached any representation, warranty or
covenant contained in this Agreement (other than any such breach that
has previously been disclosed to the Buyer in a notice designated by
Masco as a mandatory notice pursuant to Section 5(e)(i) above), and such
breach, together with all other such breaches by Masco that have not
been the subject of notices designated by Masco as mandatory notices
pursuant to Section 5(e)(i) above, has had a Material Adverse Effect or
a material adverse effect on the ability of the Buyer to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents (it being understood that any notice of termination given
pursuant to this clause (B) shall identify the breaches which are
believed by the Buyer to constitute adequate grounds for the termination
of this Agreement); provided, however, that Masco may elect to defer the
effectiveness of any such notice of termination for a period of up to 30
additional days within which Masco would attempt to cure the applicable
breach or breaches;
(iii) Masco may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing in the event (A)
the Buyer has within the then previous 15 days given Masco any notice
designated by the Buyer as a mandatory notice
63
<PAGE>
pursuant to Section 5(e)(ii) above or (B) the Buyer has breached any
representation, warranty, or covenant contained in this Agreement (other
than any such breach that has previously been disclosed to Masco in a
notice designated by the Buyer as a mandatory notice pursuant to Section
5(e)(ii) above), and such breach, together with all other such breaches
by the Buyer that have not been the subject of notices designated by the
Buyer as mandatory notices pursuant to Section 5(e)(ii) above, has had a
Material Adverse Effect (determined for this purpose as if the Buyer and
its Subsidiaries were included in the Combined Company with the HFG
Companies and their Subsidiaries) or a material adverse effect on the
ability of Masco to consummate the Transactions contemplated by this
Agreement and the other Transaction Documents (it being understood that
any notice of termination given pursuant to this clause (B) shall
identify the breaches which are believed by Masco to constitute adequate
grounds for the termination of this Agreement); provided, however, that
the Buyer may elect to defer the effectiveness of any such notice of
termination for a period of up to 30 additional days within which the
Buyer would attempt to cure the applicable breach or breaches; and
(iv) either the Buyer or Masco may terminate this Agreement by
giving written notice to the other Party at any time prior to the
Closing if the Closing shall not have occurred on or before July 31,
1996.
(b) Effect of Termination. If either Party terminates this
Agreement pursuant to Section 11(a) above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to the
other Party under or with respect to this Agreement (except for any
liability of any Party which has theretofore intentionally breached any
provision of this Agreement); provided, however, that the provisions of the
Buyer Confidentiality Agreement, the Confidentiality Agreement and Section
12(b), (d), (j), (k), (n), (s), (u) and (v) shall survive any termination of
this Agreement.
Section 12. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior
written approval of the other Party; provided, however, that Masco may make
any public disclosure it believes in good faith based on advice of counsel
is required by applicable law or any listing or trading agreement concerning
its publicly-traded securities or that it believes in good faith is
appropriate in order to preserve the business and value of the HFG Companies
and their Subsidiaries (it being understood that in each such case Masco
will use reasonable efforts to advise the Buyer prior to making the
disclosure and consult with the Buyer regarding the timing and content of
such disclosure).
(b) No Third Party Beneficiaries. With the exception of
certain procedural rights arising under Section 8 (d) (ii) and Section 8 (d)
(iii) relating to participation in the defense of Third Party Claims, this
Agreement shall not confer any rights or remedies upon any Person other than
the Parties and their respective successors and permitted assigns.
64
<PAGE>
(c) Specific Performance. The Parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the Parties
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity; provided, however, that each of the
Parties agrees to provide the other with written notice at least two
business days prior to filing any motion or other pleading seeking a
temporary restraining order, a temporary or permanent injunction, specific
performance, or any other equitable remedy and to give the other and its
counsel a reasonable opportunity to attend and participate in any judicial
or administrative hearing or other proceeding held to adjudicate or rule
upon any such motion or pleading.
(d) Entire Agreement. This Agreement (together with the other
Transaction Documents) constitutes the entire agreement among the Parties
with respect to the subject matter hereof and thereof and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof or thereof; provided, however, that the Confidentiality Agreement and
the Buyer Confidentiality Agreement shall remain in full force and effect.
(e) Non-Competition, Non-Interference and Non-Solicitation.
(A) Masco agrees that it will not, during the period commencing on the
Closing Date and ending on the date that is five years after the Closing
Date, directly or indirectly, through its present or future Subsidiaries,
engage anywhere in the world in the design or manufacture of (i) wood,
wicker, metal or upholstered furniture for the living room, family room,
bedroom or dining room, for porch, deck or outdoor use or for the contract
furniture market, or (ii) decorative fabrics for such upholstered furniture
(the "Restricted Activities"); provided, however, that nothing in this
Agreement shall be construed to prevent or restrict Masco, directly or
indirectly through its present or future Subsidiaries, from (a) engaging in
any of the businesses, operations and activities currently conducted by
Masco and its Subsidiaries (as its Subsidiaries will exist after the
Closing) and the expansion of such businesses, operations and activities,
including the design, manufacture, and distribution of cabinets and
countertops, home theaters and other home entertainment centers, shelving
units and bookcases, office and computer furniture, ready-to-assemble
furniture, fireplace mantels, and various closets and closet organizers, or
(b) acquiring any business or equity interest in any Person that engages,
directly or indirectly, in any Restricted Activities, so long as the annual
revenues of Masco from Restricted Activities for its most recent fiscal year
prior to such acquisition (including the annual revenues of any previously
acquired business or Person), when combined with the annual revenues from
Restricted Activities of the business or Person to be acquired for its most
recent fiscal year, do not exceed $150,000,000, and either (x) the annual
revenue of such business or Person from such Restricted Activities in the
most recent fiscal year prior to the acquisition does not exceed $25,000,000
(or, if greater, 10% of the total annual revenue of such business or Person
in such fiscal year) or (y) if the annual revenue of such business or Person
from such Restricted Activities in the most recent fiscal year exceeds
$25,000,000 (or, if greater, 10% of the total annual revenue of such
businesses or Person in such fiscal year) but are less than 33 1/3% of the
total annual revenues of such businesses or Person, Masco divests sufficient
operations within 18 months after such acquisition (even if beyond the five
year non-compete period) so that clause (x) would have been satisfied on a
pro forma basis as of the date of such acquisition, or (c) owning less than
10%
65
<PAGE>
of the outstanding equity interests in any Person that engages directly or
indirectly in any Restricted Activities.
In the event that any of the restrictions set forth in this
subsection shall be determined by a court of competent jurisdiction to be
invalid or unenforceable by reason of its extending over too great a period
of time or over too great a geographical area or by reason of its being too
extensive in any other respect, such restriction shall be interpreted to
extend only over the maximum period of time for which it may be enforceable
and/or over the maximum geographical area as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action; provided,
however, that in each case such invalidity or unenforceability shall be
deemed to apply only with respect to the operation of such restriction in
the particular jurisdiction in which such determination is made and not with
respect to any other restriction or jurisdiction.
(B) Masco agrees that it will not, during the period
commencing on the Closing Date and ending on the date that is two years
after the Closing Date, directly or indirectly, through its present or
future Subsidiaries, cause or attempt to cause any customer or supplier of
any of the HFG Companies and their Subsidiaries to terminate or materially
reduce its business with such HFG Company or Subsidiary.
(C) Masco agrees that it will not, during the period
commencing on the Closing Date and ending on the date that is two years
after the Closing Date, directly or indirectly, through its present or
future Subsidiaries, initiate contact (other than through general
solicitation to the public for employment) with any person who is then an
officer of any of the HFG Companies or their Subsidiaries for the purpose of
said person being employed or being offered employment by Masco or any of
its Subsidiaries.
(f) Confidentiality. For a period of three years following
the Closing Date, Masco agrees to, and shall cause each of its Subsidiaries,
officers, directors, employees, attorneys, accountants, consultants and
other agents and advisors to, maintain in confidence all confidential and
proprietary information and data of the HFG Companies and their respective
Subsidiaries known to Masco as a result of its ownership of the HFG
Companies and their Subsidiaries prior to the Closing Date except any
information currently used by Masco and its remaining Subsidiaries in their
remaining businesses (the "Confidential Information") and agrees not to
disclose the Confidential Information to any Person other than its
Subsidiaries, officers, directors, employees, attorneys, accountants,
consultants and other agents and advisors that need to know such
Confidential Information. Masco further agrees that it shall not use the
Confidential Information for any purpose other than monitoring and
evaluating its investment in the Buyer and determining and performing its
obligations and exercising its rights under this Agreement and the other
Transaction Documents. The obligation to hold information in confidence
shall be satisfied if Masco exercises the same care with respect to such
information as if would take to preserve the confidentiality of its own
similar information. Nothing herein shall prevent Masco or its
Subsidiaries, officers, directors, employees, attorneys, accountants,
consultants and other agents and advisors from using, disclosing or
authorizing the disclosure of Confidential Information such Person receives
which (i) has been published or is in the public
66
<PAGE>
domain through no fault of Masco or any such other Person; (ii) is lawfully
received from a third party having rights therein without notice of any
restriction against its further disclosure or its disclosure to such Person;
(iii) is independently developed by Masco through parties who have not had,
either directly or indirectly, access to or knowledge of such Confidential
Information; (iv) is required to be produced under order of a court of
competent jurisdiction or other similar requirements of a governmental
agency; provided that such Confidential Information to the extent covered by
a protective order or its equivalent shall otherwise continue to be
Confidential Information; or (v) is required to be disclosed by applicable
law or a stock exchange or a securities trading association on which such
Person's securities (or those of its Affiliate) are listed.
(g) Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written consent of the other Party, such consent to be
within the sole discretion of such other Party.
(h) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(i) Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
(j) Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given
if and when it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed as set forth below:
If to Masco: Copy to:
Masco Corporation Masco Corporation
21001 Van Born Road 21001 Van Born Road
Taylor, MI 48180 Taylor, MI 48180
Attn: President Attn: General Counsel
If to the Buyer: Copy to:
FURNISHINGS INTERNATIONAL INC. Morgan, Lewis & Bockius LLP
1314 Hanley Industrial Court 101 Park Avenue
St. Louis, MO 63144 New York, NY 10178
Attn: President Attn: Philip H. Werner
67
<PAGE>
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy or ordinary mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received. Any Party may change its
address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(k) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York
without giving effect to any choice or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State
of New York.
(l) Amendments and Waivers. No amendment or waiver of any
provision of this Agreement shall be valid unless the same shall be in
writing and signed (i) in the case of an amendment, by the Buyer and Masco
or (ii) in the case of a waiver, by the Party against whom the waiver is to
be effective. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(m) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(n) Expenses. Except as otherwise provided herein, each of
the Parties will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(o) Further Assurances. In case at any time after the Closing
any further action is necessary to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as the other Party
reasonably may request, all at the sole cost and expense of the requesting
Party (except to the extent that the requesting Party is entitled to
indemnification therefor under Sections 6, 8 or 9 above).
(p) Risk Management and Litigation Support. (i)
Notwithstanding any other provision of this Agreement to the contrary, the
Buyer shall not have any liability or responsibility for, and Masco shall be
solely responsible for, and indemnify and hold harmless the Buyer from and
against, all Adverse Consequences resulting from any claim for general,
product and automobile "insurance-type" liabilities covered (whether
collectible or not) under Masco's comprehensive general, product and
automobile liability policies (including retrospectively rated insurance
policies and insurance programs that are an economic equivalent
68
<PAGE>
of self-insurance), in each case as in effect as of the date hereof, arising
from any occurrence prior to the Closing Date involving any of the HFG
Companies and their Subsidiaries (whether known or unknown at the Closing
Date). After the Closing Date, the Buyer and the HFG Companies and their
Subsidiaries will cooperate as reasonably requested by Masco in
administering such claims, and Masco will administer such claims, in a
manner consistent with the past practices of Masco. Such cooperation will
include (x) assigning to Masco any pertinent contracts and insurance
policies, providing claim files, financial, underwriting and other
information and assisting Masco in contesting such claims, all as reasonably
requested by Masco, and (y) providing the other support contemplated by
clause (ii) below.
(ii) In the event and for so long as either Party is actively
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand brought by any third party
in connection with any transaction contemplated under this Agreement or any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or
prior to the Closing Date involving any of the HFG Companies and their
Subsidiaries, the other Party shall (i) cooperate with the contesting or
defending Party and its counsel in the contest or defense, (ii) make avail-
able its personnel, and (iii) provide such testimony and access to its books
and records, in each case as the contesting or defending Party may
reasonably request, but all at the sole cost and expense of the contesting
or defending Party (except to the extent that the contesting or defending
Party is entitled to indemnification therefor under 6, 8, 9 or 12(p)(i)
above).
(q) Certain Intercompany Relationships. (i) Except as
provided in Section 2(b) or as set forth on the attached Section 12(q) of
the Disclosure Schedule, all leases, licenses, contracts, and other
agreements, undertakings, representations, obligations and transactions
between any of the HFG Companies and their Subsidiaries on the one hand and
any of Masco and its remaining Subsidiaries on the other hand shall be
deemed terminated as of the Closing, will have no further force or effect
and will result in no further obligations or liabilities. The Buyer will
cause the HFG Companies and their respective Subsidiaries, and Masco will
cause its remaining Subsidiaries, to act in all respects in accordance with
the next preceding sentence. The Buyer will cause the HFG Companies and
their Subsidiaries to cease using the name "Masco" and its derivatives (the
"Masco Tradenames") in their respective businesses promptly following the
Closing and, in any event, agrees to indemnify Masco and its remaining
Subsidiaries following the Closing from and against any Adverse Consequences
resulting from any such use; provided that the Buyer will have the right to
use existing stocks of stationery, supplies, catalogs and similar materials
which bear the Masco Tradenames until the earlier of (A) 6 months after the
Closing Date or (B) in the case of any particular product bearing a Masco
Tradename, the date existing stocks of such product are exhausted.
(ii) After the Closing, Masco shall deliver to the Buyer (or
its designated representatives) from time to time, as requested by the
Buyer, all books, records, contracts and other documents in its possession
that relate solely to one or more of the HFG Companies and their
Subsidiaries and will cooperate with the Buyer in providing copies of (or
excerpts from) the books, records, contracts and other documents, as
requested in reasonable detail by the
69
<PAGE>
Buyer, that have a material relationship to the business or activities of
any of the HFG Companies or their Subsidiaries after the Closing and that
remain in Masco's possession.
(r) Certain Releases, Assignments, and Assumptions. As soon
as practicable following the Closing, the Buyer will use its commercially
reasonable efforts to obtain the release of Masco and its remaining
Subsidiaries from all obligations and liabilities under all leases,
licenses, contracts, letters of credit, and other agreements between any of
Masco and its remaining Subsidiaries on the one hand and any third parties
on the other hand, including all guaranties by any of Masco and its
remaining Subsidiaries, in each such case to the extent relating to any of
the HFG Companies and their Subsidiaries. To the extent that the Buyer is
unable to obtain the release of Masco and its remaining Subsidiaries within
180 days following the Closing from any obligation or liability under any
such lease, license, contract, letter of credit, or other agreement, the
Buyer will pay to Masco a fee of $50,000 per annum, payable quarterly,
provided that the Buyer shall have no obligation to pay such fee to Masco
for any quarter if the discounted present value (using a 7.5% discount
rate), measured as of the Closing Date (the "Guaranteed Amount"), of the
aggregate amount of obligations or liabilities (including reimbursement
obligations for letters of credit) that remain guaranteed from time to time
by Masco and its remaining Subsidiaries as of the first day of such quarter
was less than 40% of the Guaranteed Amount of such obligations and
liabilities (including reimbursement obligations under letters of credit)
that are guaranteed by Masco and its remaining Subsidiaries as of the
Closing Date. In no event, however, will the Buyer or any of the HFG
Companies and their Subsidiaries expand upon or prolong any of Masco's
obligations and liabilities by extending, renewing, or failing to exercise
early termination rights which are unilaterally exercisable without the
payment of significant penalties, with respect to any such lease, license,
contract, letter of credit, or other agreement. In addition, and regardless
of whether any such release is obtained, the Buyer agrees to indemnify Masco
and its remaining Subsidiaries following the Closing from and against any
Adverse Consequences resulting from any obligation or liability referred to
in the first sentence, except in each such case to the extent that Masco is
obligated to indemnify the Buyer against such Adverse Consequences pursuant
to the provisions of Sections 6, 8, 9 or 12(p)(i) above. At or prior to the
Closing, and without limiting the generality of the foregoing, Masco and its
remaining Subsidiaries shall assign, and the Buyer, the HFG Companies, and
the Subsidiaries of the HFG Companies (as indicated) shall assume, all of
the rights, obligations, and liabilities of Masco and its remaining
Subsidiaries under those leases, licenses, contracts, and other agreements
with third parties listed on the Section 12(r) of the Disclosure Schedule,
in each such case to the extent relating to any of the HFG Companies and
their Subsidiaries.
Masco agrees that, from and after the Closing Date, it will
guarantee or otherwise provide up to $15,000,000 in standby letters of
credit or comparable credit enhancement arrangements (collectively,
"Guaranteed LCs") in support of any obligation as to which any of the HFG
Companies and their Subsidiaries is a primary obligor or an account party
(or an equivalent). The obligation of Masco to guarantee or otherwise
provide the Guaranteed LCs shall be irrevocably terminated upon the earlier
of (i) the date on which the PIK Note becomes due and payable and (ii) any
business day if on each business day of the preceding 18-month period the
aggregate amount of unused availability for borrowings under credit lines
available
70
<PAGE>
to the Buyer and its Subsidiaries equals at least $75,000,000. The Buyer
agrees to indemnify Masco and its remaining Subsidiaries following the
Closing from and against any Adverse Consequences resulting from any failure
or delay in making a payment under (or any other breach of its or its
Subsidiaries' obligations under) the Guaranteed LCs or any agreement or
instrument evidencing obligations or liabilities supported by the Guaranteed
LCs, as the case may be; provided that any such indemnification shall be
effected through the issuance to Masco of a promissory note of the Buyer
having a principal amount equal to the indemnification amount (provided that
such principal amount shall be appropriately modified in the same manner
used to modify the original principal amount of the PIK Note in accordance
with clause (y) of the proviso to Section 2(b)(ii)) and having terms
equivalent to the terms of the PIK Note, it being understood that the amount
of the Guaranteed LCs that Masco is obligated to provide will be reduced by
the amount of any such Adverse Consequences paid by Masco. Immediately upon
termination of Masco's obligations in respect of the Guaranteed LCs, the
Buyer shall obtain the release of all Guaranteed LCs from the beneficiaries
thereof, including, if necessary, through cash collateralization of the
underlying obligation or liability of the relevant HFG Company or its
Subsidiary.
(s) Construction. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties, and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. The word "including"
shall mean "including without limitation". Except where the context clearly
and convincingly requires otherwise, the word "material," when used to
qualify any of Masco's representations, warranties, and covenants contained
herein, shall mean material in the context of the Combined Company (rather
than with reference to any single corporation or business included within
the Combined Company) or the transactions contemplated hereby, as
applicable. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The fact
that a Party has disclosed any particular matter in the Disclosure Schedule
or the Buyer Disclosure Schedule, in a written notice pursuant to Section
5(e) above (other than a notice designated by such Party as a mandatory
notice), or in the certificate referred to in Section 7(a)(iv) or Section
7(b)(iv) above shall have no bearing on the issue of whether the disclosed
matter is "material" for any purpose under this Agreement. The Buyer
understands and acknowledges that a disclosure of any matter in the
Disclosure Schedule does not indicate such matter's materiality in the
context of the Combined Company or the transactions contemplated hereby, as
applicable. Any matter that Masco discloses in any section or subsection of
the Disclosure Schedule shall be deemed to have been disclosed by Masco only
for purposes of the corresponding section or subsection of this Agreement
unless this Agreement or the Disclosure Schedule expressly states otherwise.
Any matter that the Buyer discloses in any section or subsection of the
Buyer Disclosure Schedule shall be deemed to have been disclosed by the
Buyer only for purposes of the corresponding section or subsection of this
Agreement unless this Agreement or the Buyer Disclosure Schedule expressly
states otherwise.
(t) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
71
<PAGE>
(u) Limited Recourse. Notwithstanding anything in this
Agreement or any other Transaction Document to the contrary, (i) the
obligations and liabilities of the Parties hereunder and thereunder shall be
without recourse to any stockholder of such Party or any of such
stockholder's Affiliates, directors, employees, officers or agents and shall
be limited to the assets of such Party and (ii) the stockholders of the
Buyer (other than Masco) have made no (and shall not be deemed to have made
any) representations, warranties or covenants (express or implied) under or
in connection with this Agreement or any other Transaction Document.
(v) Waiver of Jury Trial. EACH OF MASCO AND THE BUYER HEREBY
WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS BETWEEN MASCO AND THE
BUYER CONTEMPLATED HEREBY OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER HEREOF. THIS WAIVER IS IRREVOCABLE AND SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR
ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED WITH THE COURT AS A WRITTEN CONSENT TO A TRIAL WITHOUT A JURY.
(w) No Offset. Notwithstanding anything to the contrary in
this Agreement, Masco shall not be entitled to satisfy any of its payment
obligations under this Agreement by means of an offset against the Buyer's
obligations under the PIK Note or any security evidencing indebtedness of
the Buyer issued in exchange for shares of the Buyer's Series A Preferred
Stock.
* * * * *
[Remainder of Page Intentionally Left Blank]
72
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By: /s/ ROBERT L. GEORGE
Robert L. George
Title: Executive Vice President
MASCO CORPORATION
By: /s/ JOHN R. LEEKLEY
John R. Leekley
Title: Vice President and
General Counsel
73
<PAGE>
SCHEDULE OF HFG COMPANIES
Ametex Fabrics, Inc. [DE]
Ametex U.K. Limited [United Kingdom] (1)
The Berkline Corporation [DE]
Dixie Furniture Company, Incorporated [DE]
Drexel Heritage Furnishings Inc. [NY]
Hanhill (Great Britain) Limited [England] (1)
Henredon Furniture Industries, Inc. [NC]
Henry Link Corporation [DE]
Interior Fabric Design, Inc. [NY]
Intro Europe, Inc. [NC]
La Barge, Inc. [MI]
Lexington Furniture Industries, Inc. [NC]
Lineage Home Furnishings, Inc. [DE]
Link-Taylor Corporation [DE]
Maitland-Smith, Inc. [NC]
Marbro Lamp Company [CA]
Masco Home Furnishings, Inc. [NC]
Ramm, Son & Crocker, Inc. [NY]
Ramm, Son & Crocker Limited [England] (1)
Robert Allen Fabrics, Inc. [DE]
Robert Allen Fabrics (Canada) Ltd. [Canada]
Robert Allen Fabrics of N.Y., Inc. [DE]
Sunbury Textile Mills, Inc. [DE]
Universal Furniture Limited [DE]
Young-Hinkle Corporation [DE]
____________________________________
(1) Ametex U.K. Limited, Hanhill (Great Britain) Limited, and Ramm, Son
& Crocker Limited are wholly-owned subsidiaries of Masco Corporation
Limited, which is a wholly-owned subsidiary of Masco Corporation of
Indiana, which is a wholly-owned subsidiary of Masco Corporation.
All of the other HFG Companies are wholly-owned subsidiaries of
Masco Corporation.
<PAGE>
SCHEDULE OF DEFINED TERMS
"Acquisition Agreement" means the Acquisition Agreement dated as
of March 29, 1996, among the Parties, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Adjusted Net Investment and Advances" has the meaning set forth
in Section 2(e) of the Acquisition Agreement.
"Adjusted NIA Report" has the meaning set forth in Section 2(e) of
the Acquisition Agreement.
"Adjustment Schedule" has the meaning set forth in Section 2(e) of
the Acquisition Agreement.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, Taxes (other than Income
Taxes), penalties, fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses; provided, however, that:
(i) Adverse Consequences shall not include any lost profits or any
exemplary, punitive, consequential or other similar damages (other than
exemplary, punitive, consequential or other similar damages awarded to any
third party); (ii) Adverse Consequences shall not be determined through any
multiple of earnings approach or variant thereof (except with respect to any
breach of the representations or warranties contained in Section 4(f) and
the first sentence of Section 4(g), in each case to the extent that such
breach relates to any matter that has resulted in a recurring loss of
earnings, and then only to the extent that at the time of assessing the
Adverse Consequences caused by that breach, there are no developments or
areas of earnings growth (whether or not related to the matters giving rise
to the breach) not specifically included in the Buyer's business plan as of
the date hereof for the segment exhibiting such growth which are then
reasonably anticipated to offset or compensate, in whole or in part, for the
Adverse Consequences caused by such breach); (iii) the Indemnified Buyer
Parties shall not be deemed to have suffered any Adverse Consequences with
respect to any matter for which a specific reserve or accrual of liabilities
was established in the determination of the Adjusted Net Investment and
Advances as of the Closing Date (including any such reserve or accrual of
liabilities established on or reflected in the Closing Date Balance Sheet)
to the extent of such reserve or accrual of liabilities, (iv) in determining
Adverse Consequences, the Parties shall make appropriate adjustments for (A)
insurance and indemnity recoveries actually received by the relevant
Indemnified Party (net of any out-of-pocket expenses, including court costs
and reasonable attorneys' fees and expenses, incurred in pursuing such
insurance and indemnity recoveries) under any occurrence-based policies
written by third party insurance companies, to the extent such policies are
owned by any of the HFG Companies and their Subsidiaries prior to the
Closing Date, under any acquisition agreements with third parties, to the
extent such agreements are in effect as of the Closing Date and afford
indemnification rights for the benefit of the HFG Companies and their
Subsidiaries, and under any underground storage tank or similar
environmental reimbursement program, to
<PAGE>
the extent such programs are available to the HFG Companies and their
Subsidiaries at any time after the Closing Date and (B) the time value of
money and (v) the Indemnified Buyer Parties shall not be deemed to have
suffered any Adverse Consequences which result from their continuation after
the Closing Date of any of the practices, policies and procedures of the HFG
Companies and their Subsidiaries, or which result from their institution of
new such practices, policies and procedures, in either case in detrimental
reliance upon the representations and warranties of Masco under the
Acquisition Agreement; and provided further that Adverse Consequences shall
not include (i) the loss of any Tax attribute or (ii) any Tax liability
resulting from the receipt of any indemnification payment made under this
Agreement.
"Affected Corporation" means any of the HFG Companies and their
Subsidiaries that is subject to a Section 338(g) Election or a Section
338(h)(10) Election.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group (within the meaning
of Code Section 1504 or any similar group defined under a similar provision
of state, local, or foreign law) filing a consolidated, combined or unitary
Return.
"AGUB" means the adjusted grossed-up basis at which an Affected
Corporation is deemed to have purchased its assets for Tax purposes as a
result of a Section 338(h)(10) Election.
"Applicable Rate" means simple interest at the rate of 6% per
annum based on a year of 360 days and actual days elapsed.
"Buyer" has the meaning set forth in the preface to the
Acquisition Agreement.
"Buyer Confidentiality Agreement" means the Confidentiality
Agreement between the Buyer and Masco dated as of February 26, 1996, as the
same may be amended, supplemented or otherwise modified from time to time.
"Buyer Disclosure Schedule" has the meaning set forth in Section
3(b) of the Acquisition Agreement.
"Buyer Financial Statements" has the meaning set forth in Section
3(b) of the Acquisition Agreement.
"Buyer Material Adverse Effect" means any circumstance relating
to, change in, or effect on any of the Buyer and its Subsidiaries that,
individually or in the aggregate with any other circumstances relating to,
changes in, or effects on, any of the Buyer and its Subsidiaries, is
materially adverse to the business (based on continuing operations
consistent with past practice), assets, financial condition or results of
operations of the Buyer and its Subsidiaries,
Definitions Page 2
<PAGE>
considered as a single combined business; provided that the HFG Companies
and their Subsidiaries shall not be considered Subsidiaries of the Buyer for
this purpose.
"Caldwell Environmental Matter" means any and all Adverse
Consequences relating to the site located in the town of Lenoir in Caldwell
County, North Carolina known as the Caldwell Superfund Site or to the
treatment, storage, disposal, presence, Release or threatened Release of
Hazardous Materials at, to or from such site, but only to the extent such
Adverse Consequences relate to personal injuries allegedly incurred by any
individual as a result of activities occurring or circumstances existing at
the site on or prior to the Closing Date; provided, however, that "Caldwell
Environmental Matter" shall not include any Adverse Consequences relating to
a claim made against any Indemnified Buyer Party (other than the HFG
Companies and their Subsidiaries) which does not relate to any of the HFG
Companies or their Subsidiaries.
"Cap" has the meaning set forth in Section 8(b) of the Acquisition
Agreement.
"Class A Common Stock" has the meaning set forth in Section 2(b)
of the Acquisition Agreement.
"Class B Common Stock" has the meaning set forth in Section 2(b)
of the Acquisition Agreement.
"Closing" has the meaning set forth in Section 2(c) of the
Acquisition Agreement.
"Closing Date" has the meaning set forth in Section 2(c) of the
Acquisition Agreement.
"Closing Date Balance Sheet" has the meaning set forth in Section
2(e) of the Acquisition Agreement.
"Closing Date Cash" has the meaning set forth in Section 2(e) of
the Acquisition Agreement.
"COBRA" means ERISA Sec. 162 and Code Sec. 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Company" means all of the HFG Companies and their
Subsidiaries considered as a single combined business.
"Confidential Information" has the meaning set forth in Section
12(f) of the Acquisition Agreement.
"Confidentiality Agreement" means the Confidentiality Agreement
between Citicorp Venture Capital, Ltd. and Masco dated as of June 22, 1995,
as the same may be amended, supplemented or otherwise modified from time to
time.
Definitions Page 3
<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 3(a) of
the Acquisition Agreement.
"Dispute Notification" has the meaning set forth in Section 10(e)
of the Acquisition Agreement.
"Dispute Notification Period" has the meaning set forth in Section
10(e) of the Acquisition Agreement.
"Employee Benefit Arrangement" means, with respect to any Person,
any employment, severance or similar contract, arrangement or policy
(exclusive of any such contract which is terminable within 30 days without
liability), or any plan or arrangement providing for severance benefits,
insurance coverage (including pursuant to any self-insured plan or
arrangement), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation
rights or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits, in each case for the benefit of any
current or former employee of such Person; provided, however, that the term
"Employee Benefit Arrangement" shall not include any Employee Benefit Plan
covered by or subject to ERISA or any other contract, arrangement, policy,
plan or arrangement required to be sponsored, maintained or contributed to
by applicable law (other than any domestic workers' compensation statute).
"Employee Benefit Plan" has the meaning set forth in ERISA
Sec. 3(3).
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the
Resource Conservation and Recovery Act of 1976, as amended, together with
all applicable common laws and other applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, consent
decrees, rulings, binding agreements and charges thereunder) of federal,
state, local and foreign governments (and all agencies thereof) concerning
pollution or protection of health and the environment, in each case whether
now existing or subsequently enacted, amended or superseded (except to the
extent that any additional requirements, financial or other obligations or
liabilities of any kind or character are more burdensome than those that
would have been imposed under Environmental Laws in effect as of the Closing
Date), including laws relating to Releases or threatened Releases of
Hazardous Materials into ambient air, surface water, ground water, or lands
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of Hazardous Materials;
provided, however, that Environmental Laws shall not include the
Occupational Health and Safety Act of 1970, as amended, nor any other law
(including any rule, regulation, code, plan, injunction, judgment, order,
decree, ruling or charge thereunder) of any federal, state, local or foreign
government (or any agency thereof) to the extent concerning the health and
safety of employees, except to the extent such laws relate to the presence,
Release, exposure or abatement of asbestos or asbestos-containing materials.
Definitions page 4
<PAGE>
"Environmental Permit" means any applicable federal, state, local
or foreign permits, licenses, approvals, consents, authorizations,
registrations and certificates of authority required, granted or issued by
any governmental agency under or in connection with any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any Person which would be treated as a
single employer together with any of the HFG Companies and their
Subsidiaries under Code Sec. 414.
"Financial Statements" has the meaning set forth in Section 4(f)
of the Acquisition Agreement.
"Financing" has the meaning set forth in Section 3(b)(vi) of the
Acquisition Agreement.
"Foreign Benefit Plan" means each employee benefit plan, program,
arrangement or agreement sponsored, maintained, or contributed to by any of
Masco, the HFG Companies and their respective Subsidiaries, that is subject
to laws of a country, state, or sovereignty other than the United States or
a state, territory, or district of the United States.
"GAAP" means United States generally accepted accounting
principles as in effect on the date of the Acquisition Agreement.
"Grossed-Up Basis" means, when used to describe the basis on which
the payment of a specified sum is to be made, a basis such that the amount
of such payment, after being reduced by the actual amount of all Taxes
imposed on and paid by the recipient of such payment as a result of the
receipt or accrual of such payment, will equal the specified sum.
"Guaranteed Amount" has the meaning set forth in Section 12(r) of
the Acquisition Agreement.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Materials" means petroleum, petroleum hydrocarbons,
petroleum products, petroleum by-products, asbestos or asbestos-containing
materials, gasoline, diesel fuel, pesticides, urea formaldehyde, lead or
lead-containing materials, polychorinated biphenyls or any other chemicals,
materials, substances or wastes in any amount or concentration which, in
each case, are regulated under any Environmental Law or defined as or
included in the definition of "hazardous substances," "hazardous materials,"
"hazardous wastes," "extremely hazardous wastes," "restricted wastes,"
"toxic substances," "toxic pollutants," "pollutants," "regulated
substances," "solid wastes," "contaminants" or "industrial waste," or words
of similar import, under any Environmental Law.
Definitions Page 5
<PAGE>
"HFG Companies" has the meaning set forth in the preface to the
Acquisition Agreement.
"HFG Employee" has the meaning set forth in Section 6(d) of the
Acquisition Agreement.
"HFG Participant" has the meaning set forth in Section 6(c) of the
Acquisition Agreement.
"High Value" has the meaning set forth in Section 2(e) of the
Acquisition Agreement.
"Income Tax" of a Person means any tax imposed on such Person
(other than tax imposed as a result of such Person's being a withholding
agent under the laws) by Subtitle A of the Code or any similar tax imposed
by any state, local or foreign jurisdiction, together with any interest,
penalties, additions to tax or additional amounts imposed by the applicable
Taxing Authorities with respect thereto.
"Indemnified Buyer Party" has the meaning set forth in Section
8(b) of the Acquisition Agreement.
"Indemnified Party" has the meaning set forth in Section 8(d) of
the Acquisition Agreement.
"Indemnified Seller Party" has the meaning set forth in Section
8(c) of the Acquisition Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(d) of
the Acquisition Agreement.
"Independent Accounting Firm" has the meaning set forth in Section
2(e) of the Acquisition Agreement.
"Intellectual Property" means (a) all inventions (whether patent-
able or unpatentable and whether or not reduced to practice), all
improvements thereto and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations-in-
part, revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names and corporate names, together
with all translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications, registra-
tions and renewals in connection therewith, (c) all copyrightable works, all
copyrights and all applications, registrations and renewals in connection
therewith, (d) all mask works and all applications, registrations and
renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and tech-
niques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals),
Definitions Page 6
<PAGE>
(f) all computer software (including data and related documentation),
(g) all other proprietary rights, and (h) all copies and tangible embodi-
ments of any of the foregoing (in whatever form or medium).
"Knowledge of Masco" (and any other phrase to substantially
similar effect) means the actual knowledge of any of Gerard W. Boylan, John
R. Leekley, Wayne B. Lyon, Richard A. Manoogian, Richard G. Mosteller and
Robert B. Rosowski and, (i) with respect to Tax matters, David Doran, (ii)
with respect to Universal Furniture Limited and its Subsidiaries, Paul Tu,
(iii) with respect to Lexington Furniture Industries, Inc. and its
Subsidiaries, Jeff Young, (iv) with respect to Drexel Heritage Furnishings
Inc. and its Subsidiaries, Dan Grow and (v) with respect to The Berkline
Corporation and its Subsidiaries, Alan Cole, in each case without the
necessity of any independent investigation; provided, however, that each
such named individual who has an employee reporting directly to him who is
principally responsible for the subject matter of any representation or
warranty given to the Knowledge of Masco shall review such representation or
warranty with such responsible employee.
"Low Value" has the meaning set forth in Section 2(e) of the
Acquisition Agreement.
"MADSP" means the modified aggregate deemed sales price at which
an Affected Corporation is deemed to have sold its assets for Tax purposes
as a result of a Section 338(h)(10) Election.
"Masco" has the meaning set forth in the preface to the
Acquisition Agreement.
"Masco Cash Payment" has the meaning set forth in Section 2(f) of
the Acquisition Agreement.
"Masco Tradenames" has the meaning set forth in Section 12(q) of
the Acquisition Agreement.
"Material Adverse Effect" means any circumstance relating to,
change in, or effect on any of the HFG Companies and their Subsidiaries
that, individually or in the aggregate with any other circumstances relating
to, changes in, or effects on, any of the HFG Companies or their
Subsidiaries, is materially adverse to the business (based on continuing
operations consistent with past practice), assets, financial condition, or
results of operations of the Combined Company.
"Maximum Permitted Rate" means the maximum rate permitted as of
the Closing Date pursuant to Section 163(i)(1) of the Code so as not to
cause the PIK Note to be an "applicable high yield debt obligation".
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37)
or ERISA Sec. 4001(a)(3).
Definitions Page 7
<PAGE>
"Net Intercompany Balance" means the amount by which (x) all
intercompany amounts owing as of the Closing by any of the HFG Companies and
their Subsidiaries to any of Masco and Masco's remaining Subsidiaries exceed
(y) all intercompany amounts owing as of the Closing by any of Masco and
Masco's remaining Subsidiaries to any of the HFG Companies and the
Subsidiaries of the HFG Companies, all as set forth on the Closing Date
Balance Sheet.
"Non-HFG Participant" has the meaning set forth in Section 6(c) of
the Acquisition Agreement.
"Norfolk Veneer Environmental Matter" means any and all Adverse
Consequences arising out of the existence of Hazardous Materials on, under
or migrating to or from the Norfolk Veneer property on or prior to the
Closing Date.
"Ordinary Course of Business" means, with respect to any Person,
the regular transaction of such Person's business consistent with past
practice (including with respect to quantity and frequency), including entry
into contracts, leases and other obligations.
"Party" has the meaning set forth in the preface to the
Acquisition Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor agency.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a trust, a joint venture, an
unincorporated organization, a governmental entity (or any department,
agency, or political subdivision thereof), or any other entity.
"PIK Note" has the meaning set forth in Section 2(b) of the
Acquisition Agreement.
"Post-Closing Period" means any taxable period or portion thereof
beginning after the Closing Date. If a taxable period begins on or before
the Closing Date and ends after the Closing Date, then the portion of the
taxable period that begins on the day following the Closing Date shall
constitute a Post-Closing Period.
"Pre-Closing Period" means any taxable period or portion thereof
ending on or before the Closing Date. If a taxable period begins on or
before the Closing Date and ends after the Closing Date, then the portion of
the taxable period to the end of the Closing Date shall constitute a Pre-
Closing Period.
"Preliminary Purchase Price" has the meaning set forth in Section
2(b) of the Acquisition Agreement.
"Prohibited Transaction" has the meaning set forth in ERISA
Sec. 406 and Code Sec. 4975.
Definitions Page 8
<PAGE>
"Properties" means the real properties currently owned, operated
or leased by any of the HFG Companies or their Subsidiaries, including all
soil, subsoil, surface waters and groundwater thereat.
"Proposed Closing Date Balance Sheet" has the meaning set forth in
Section 2(e) of the Acquisition Agreement.
"Purchase Price" has the meaning set forth in Section 2(f) of the
Acquisition Agreement.
"Recommended Action" has the meaning set forth in Section 10(e) of
the Acquisition Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into as of the Closing Date among the Parties and
certain other Persons and having the terms set forth in Exhibit C to the
Acquisition Agreement and such other terms as the Parties and such other
Persons shall mutually agree, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
of a Hazardous Material into the environment prior to the Closing Date.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Restricted Activities" has the meaning set forth in Section 12(e)
of the Acquisition Agreement.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed with a Taxing Authority for
purposes of a particular Tax.
"Revised Adjusted NIA Report" has the meaning set forth in Section
2(e) of the Acquisition Agreement.
"Section 338(h)(10) Election" has the meaning set forth in Section
9(i) of the Acquisition Agreement.
"Section 338 Tax" means a Tax imposed on any of the HFG Companies
or their Subsidiaries that results from (a) an election made pursuant to
this Agreement with respect to any of the HFG Companies or their
Subsidiaries under Section 338(g) of the Code or any corresponding election
under state, local or foreign Tax law (each such election, a "Section 338(g)
Election") or (b) a Section 338(h)(10) Election made pursuant to this
Agreement with respect to any of the HFG Companies or their Subsidiaries, in
each case irrespective of whether such Tax arises in a Pre-Closing Period or
a Post-Closing Period, and including (i) any Tax resulting from a Section
338(g) Election with respect to any of the HFG Companies or their
Subsidiaries, but not an accompanying Section 338(h)(10) Election, being
given effect for
Definitions Page 9
<PAGE>
purposes of a particular Tax and (ii) any Tax imposed on or as a result of
the deemed sale of assets resulting from a Section 338(g) Election or a
Section 338(h)(10) Election with respect to any of the HFG Companies or
their Subsidiaries or both; provided, however, that the term "Section 338
Tax" shall not include any Tax imposed because the Tax attributes (including
tax basis of assets and amounts of earnings and profits) of any of the HFG
Companies or their Subsidiaries are changed as a result of a Section 338(g)
Election or a Section 338(h)(10) Election.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings
(provided that the property subject to such lien is not subject to imminent
threat of loss), (c) purchase money liens and liens securing rental payments
under capital lease arrangements (but only to the extent that such liens
cover the property so purchased or leased), and (d) other items arising in
the Ordinary Course of Business and not incurred in connection with the
borrowing of money; provided, however, that for purposes of Sections
2(d), 3(a)(iii), 3(a)(v), 3(b)(iii), 3(b)(vii) and 4(b) of the Acquisition
Agreement, the items described in clauses (a), (b), (c) and (d) above shall
not be excluded from the definition of "Security Interests".
"Seller Group" means the affiliated group of corporations
(excluding the HFG Companies and their Subsidiaries) within the meaning of
Section 1504(a) of the Code, of which Masco is the common parent.
"Seller Party" means Masco and any Subsidiary or Affiliate of
Masco, other than the Buyer, the HFG Companies and their respective
Subsidiaries.
"Series A Preferred Stock" has the meaning set forth in Section
2(b) of the Acquisition Agreement.
"Series B Preferred Stock" has the meaning set forth in Section
2(b) of the Acquisition Agreement.
"Specified Buyer Representations" has the meaning set forth in
Section 8(a) of the Acquisition Agreement.
"Specified Masco Representations" has the meaning specified in
Section 8(b) of the Acquisition Agreement.
Definitions Page 10
<PAGE>
"Specified Non-Income Tax" means (i) any sales or use Tax or (ii)
any payroll Tax (including Taxes of any kind required to be withheld from
payments to providers of services).
"Stockholders' Agreement" means the Stockholders' Agreement to be
entered into as of the Closing Date among the Parties and certain other
Persons and having the terms set forth in Exhibit C to the Acquisition
Agreement and such other terms as the Parties and such other Persons shall
mutually agree, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Straddle Period" has the meaning set forth in Section 9(l) of the
Acquisition Agreement.
"Subsidiary" means any Person with respect to which a specified
Person (together with one or more Subsidiaries of such Person) owns a
majority of the common stock (or equivalent voting securities or, if no such
voting securities exist, equivalent equity interests) or has the power to
vote or direct the voting of sufficient securities to elect a majority of
the directors (or similar officials) on the board (or similar governing
body) of such Person.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
sales, use, property, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of
any nature whatever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts imposed by any Taxing
Authority responsible for the imposition of any such Tax with respect
thereto.
"Tax Claim" means any claim with respect to Taxes made by any
Taxing Authority or other Person that, if pursued successfully, could serve
as the basis for a claim for indemnification under Section 9 of the
Acquisition Agreement.
"Tax Indemnitees" means Buyer and its Subsidiaries and Affiliates
(including the HFG Companies and their Subsidiaries and Affiliates after the
Closing, but otherwise determined assuming that Masco is not an Affiliate of
the Buyer and its Subsidiaries following the Closing).
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any federal, state or local jurisdiction or
any foreign jurisdiction, having or purporting to exercise jurisdiction with
respect to any Tax.
"Third Party" means any Person other than (i) a Seller Party, (ii)
the Buyer and its Subsidiaries and Affiliates as of the date of the
Acquisition Agreement and (iii) the HFG Companies and their Subsidiaries.
"Third Party Claim" has the meaning set forth in Section 8(d) of
the Acquisition Agreement.
Definitions Page 11
<PAGE>
"Third Party Indebtedness" means, without duplication and
disregarding any obligations of any of the HFG Companies and their
Subsidiaries to any other HFG Company or Subsidiary thereof, (i) all
obligations of any of the HFG Companies and their Subsidiaries for borrowed
money, (ii) all obligations of any of the HFG Companies and their
Subsidiaries in respect of bankers' acceptances or other similar instruments
(other than letters of credit) or reimbursement obligations with respect
thereto, (iii) all obligations of any of the HFG Companies and their
Subsidiaries to pay the deferred purchase price of property and services
(excluding any trade payables in the Ordinary Course of Business), (iv) all
obligations of any of the HFG Companies and their Subsidiaries under
capitalized leases and (v) all obligations of other Persons of the types
described in clauses (i) through (iv) above guaranteed by any of the HFG
Companies and their Subsidiaries, in each case to any Person (other than
Masco and its remaining Subsidiaries).
"Transaction Documents" means the Acquisition Agreement, the
Stockholders' Agreement, the Registration Rights Agreement and the PIK Note.
"Transfer Taxes" means sales, use, transfer, real property
transfer, recording, gain, stock transfer and other similar taxes and fees.
"WARN Act" has the meaning set forth in Section 6(b) of the
Acquisition Agreement.
"Year-end Net Investment and Advances" has the meaning set forth
in Section 2(f) of the Acquisition Agreement.
Definitions Page 12
EXHIBIT 2.b
AMENDMENT NO. 1 TO ACQUISITION AGREEMENT
AMENDMENT NO. 1 (the "Amendment") dated as of June 21, 1996 by and
between FURNISHINGS INTERNATIONAL INC., a Delaware corporation (the "Buyer"),
and Masco Corporation, a Delaware corporation ("Masco").
W I T N E S S E T H :
WHEREAS, the Buyer and Masco have heretofore entered into an
Acquisition Agreement dated as of March 29, 1996 (the "Acquisition
Agreement"); and
WHEREAS, the Parties hereto desire to amend the Acquisition Agreement
to provide for a change to Section 11 thereof.
NOW, THEREFORE, in consideration of the premises and of the
respective agreements contained herein, the Parties agree to amend the
Acquisition Agreement as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Acquisition
Agreement shall have the meaning assigned to such term in the Acquisition
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Acquisition Agreement shall from and
after the date hereof refer to the Acquisition Agreement as amended hereby.
SECTION 2. Amendment of Section 11. Section 11 of the Acquisition
Agreement is amended by replacing the date "July 31, 1996" in Section
11(a)(iv) with the date "August 15, 1996".
SECTION 3. Counterparts, Effectiveness. This Amendment may be
executed in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same
instrument. This Amendment shall become effective as of the date hereof.
SECTION 4. Rights Otherwise Unaffected. This Amendment is limited
to the matters expressly set forth herein. Except to the extent specifically
amended hereby,
<PAGE>
all terms of the Acquisition Agreement shall remain in full force and effect.
SECTION 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the domestic laws of the State of New York
without giving effect to any choice or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By /s/ ROBERT L. GEORGE
Name: Robert L. George
Title: Executive Vice President
MASCO CORPORATION
By /s/ JOHN R. LEEKLEY
Name: John R. Leekley
Title: Vice President and
General Counsel
[Signature page to Amendment No. 1]
3
EXHIBIT 2.c
AMENDMENT NO. 2 TO ACQUISITION AGREEMENT
AMENDMENT NO.2 (the "Amendment") dated as of August 5, 1996 by and
between FURNISHINGS INTERNATIONAL INC., a Delaware corporation (the "Buyer"),
and Masco Corporation, a Delaware corporation ("Masco").
W I T N E S S E T H :
WHEREAS, the Buyer and Masco have heretofore entered into an Acquisition
Agreement dated as of March 29, 1996, as amended by Amendment No. 1 thereto
dated June 21, 1996 (as amended, the "Acquisition Agreement"); and
WHEREAS, the Parties hereto desire to amend the Acquisition Agreement to
provide for certain changes in consideration and other amendments as described
herein.
NOW, THEREFORE, in consideration of the premises and of the respective
agreements contained herein, the Parties agree to amend the Acquisition
Agreement as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Acquisition
Agreement shall have the meaning assigned to such term in the Acquisition
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Acquisition Agreement shall from and
after the date hereof refer to the Acquisition Agreement as amended hereby.
SECTION 2. Amendment of Section 2. Section 2 of the Acquisition
Agreement is amended by:
(i) deleting Section 2(b) and replacing it in its entirety with the
following:
(b) Purchase Price. The "Preliminary Purchase Price" shall
consist of (i) $705,348,913 in cash, (ii) a promissory note (the
"PIK Note") of the
<PAGE>
Buyer having a principal amount equal to $285,000,000 and an
interest rate equal to 12% per annum and having the terms
(including the maturity and amortization schedule) set forth in
the attached Exhibit A; provided that (x) the principal amount of
the PIK Note will be further adjusted as provided in Section 2(f)
and (y) if on the Closing Date the Maximum Permitted Rate is less
than 12%, the interest rate on the PIK Note will be reduced to the
Maximum Permitted Rate and the principal amount of the PIK Note
will be increased consistent with the sample calculation provided
in Schedule 2(b) in an amount such that the discounted present
value of all scheduled cash payments (assuming interest will be
paid in cash as scheduled commencing on the eighth anniversary of
the Closing Date) under the PIK Note following such adjustment
(calculated using 12% as the discount factor) will be equal to the
discounted present value of all such payments under the PIK Note
prior to such adjustment (calculated using the same discount
factor), (iii) 550,090 shares of Series A-1 Preferred Stock (the
"Series A-1 Preferred Stock") of the Buyer having the terms set
forth in the Amended and Restated Certificate of Incorporation of
the Buyer attached as Exhibit B hereto, (iv) 21,930 shares of
Series A-2 Preferred Stock (the "Series A-2 Preferred Stock") of
the Buyer having the terms set forth in the Amended and Restated
Certificate of Incorporation of the Buyer attached as Exhibit B
hereto, (v) 303,503 shares of Series B Preferred Stock (the
"Series B Preferred Stock") of the Buyer having the terms set
forth in the Amended and Restated Certificate of Incorporation of
the Buyer attached as Exhibit B hereto, (vi) 5,000 shares of
Series A-1 Common Stock, 5,000 shares of Series A-2 Common Stock
and 5,000 shares of Series A-3 Common Stock (collectively, the
"Class A Common Stock") of the Buyer and (vii) 29,161 shares of
Series B-1 Common Stock, 29,161 shares of Series B-2 Common Stock
and 29,161 shares of Series B-3 Common Stock (collectively, the
"Class B Common Stock") of the Buyer. The Preliminary Purchase
Price will be applied as follows: first, to the repayment by the
HFG Companies and their Subsidiaries (as set forth in the Schedule
of Tax Allocations) of the Net Intercompany Balance and, second,
to the payment in full for the outstanding capital stock of the
HFG Companies. All cash transfers on the Closing Date pursuant to
this Section 2(b) will be made
2
<PAGE>
by wire transfer of immediately available funds to Masco (for Masco's
own account or, as appropriate, for the account of Masco Corporation
Limited). The Preliminary Purchase Price will be subject to certain
adjustments as described below in arriving at the Purchase Price.
The Parties agree that the Purchase Price shall be allocated for all
purposes among the capital stock and assets of the HFG Companies and
their Subsidiaries in accordance with Section 9(j) below.
(ii) inserting the following as the final sentence of Section
2(e)(i):
Notwithstanding anything in this Agreement to the contrary, (i)
all amounts transferred to Masco or any Subsidiary thereof (other
than the HFG Companies and their Subsidiaries) on the Closing Date
from the lockbox and other deposit accounts maintained by any of
the HFG Companies and their Subsidiaries, to the extent that such
amounts constitute "Collections" (as defined in the Pooling
Agreement) received in any such lockbox or other deposit account
on the Closing Date, shall be held by Masco (or such Subsidiary)
for the benefit of the Trustee and the Investor Certificateholders
(each as defined in the Pooling Agreement) and transferred to the
Collection Account (as defined in the Pooling Agreement) by wire
transfer of immediately available funds on the first Business Day
after the Closing Date and (ii) for purposes of the calculation of
the Adjusted Net Investment and Advances and Closing Date Cash,
all such Collections shall be included as Closing Date Cash in the
assets of the HFG Companies and their Subsidiaries as of the
Closing Date.
SECTION 3. Amendment of Section 3. Section 3 of the Acquisition
Agreement is amended by:
(i) deleting Section 3(a)(vi) and replacing it in its entirety with
the following:
(vi) Acquisition for Investment. Except for the securities of
the Buyer which are to be sold to members of the Management Group
pursuant to the Masco Stock Purchase Agreements, neither Masco nor
Masco Corporation Limited is acquiring any of the PIK Note, the
Series A Preferred Stock, the Series B Preferred Stock or the
Common Stock with a view
3
<PAGE>
to or for sale in connection with any distribution thereof within
the meaning of the Securities Act; provided, however, that the
disposition of Masco's or Masco Corporation Limited's property
(including any of the PIK Note, the Series A Preferred Stock, the
Series B Preferred Stock or the Common Stock) will at all times
remain within its control, subject only to the obligations of
Masco to resell the Series A Preferred Stock and the Common Stock
under the Masco Stock Purchase Agreements.
(ii) adding a new Section 3(b)(xvii) to read as follows:
(xvii) No Additional Issuances.
(A) The Buyer has no present plan or intention to issue any
Series A-2 Preferred Stock to any Person except (i) (w) to Masco,
pursuant to the terms of this Agreement, (x) to Mr. Wayne B. Lyon,
an individual member of the Management Group, pursuant to the Lyon
Stock Purchase Agreement, (y) up to 800 shares of Series A-2
Preferred to certain members of management of the Buyer's
Subsidiaries and (z) to 399, pursuant to the 399 Stock Purchase
Agreement, in each case at the Closing, and (ii) in connection
with any employee stock purchase or option plan which may be
adopted by the Buyer in the future; provided that such plan will
not permit the issuance thereunder of shares of Series A-2
Preferred Stock in excess of 14,000 shares.
(B) The Buyer has no present plan or intention to issue the
Class C Common Stock (i) to (x) Masco, (y) any member of the
Institutional Stockholder Group or (z) Wayne B. Lyon or (ii) to
any other Person, except in consideration for services performed
by such other Person for the Buyer.
(C) The Buyer has no present plan or intention to issue any
Preferred Stock or any Common Stock or any interest, direct or
indirect, in such Preferred Stock or such Common Stock, for cash
or property, to any holder of the Class C Common Stock, except in
connection with an employee stock purchase or option plan which
may be adopted by the Buyer in the future.
SECTION 4. Amendment of Section 4. Section 4(p)(i)(D) of the
Acquisition Agreement is amended by replacing the
4
<PAGE>
word "or" between "1993" and "(2)" with a comma, and by deleting the period at
the end of the sentence and adding a final clause to read in its entirety as
follows:
or (3) with respect to the New Plans (as hereinafter defined),
become so qualified in the opinion of counsel to Masco.
SECTION 5. Amendment of Section 5. Section 5 of the Acquisition
Agreement is amended by adding a new Section 5(l) to read in its entirety as
follows:
(l) Notwithstanding any other provision of this Agreement,
Masco shall have the right prior to the Closing Date to cause (i)
the transfer by Intro Europe B.V. of all of its assets and
liabilities to Intro Europe Inc. and (ii) the dividend of all of
the capital stock of Intro Europe B.V. to Masco or one of its
Subsidiaries (other than the HFG Companies or their Subsidiaries).
Masco agrees to indemnify and hold harmless the Buyer from and
against any Adverse Consequences arising out of or resulting from
the transfers and the dividend described in the immediately
preceding sentence or any contribution of such assets and
liabilities to a new Dutch corporation, including any costs of
consummating such transfers, dividend and contribution and any
additional Taxes resulting from such transfers, dividend and
contribution, and the Buyer (i) agrees that such transfers and
dividend shall not be deemed to violate any provision of this
Agreement, including, without limitation, Sections 4(b), 4(f),
4(g), 4(j) and 5(c) of this Agreement, (ii) acknowledges that,
after the date of such dividend, Intro Europe B.V. shall not
constitute a Subsidiary of the HFG Companies for any purpose
whatsoever, (iii) acknowledges that such transfers and dividend
have occurred prior to the Closing Date and (iv) hereby consents
to such transfers and dividend.
SECTION 6. Amendment of Section 6. Section 6 of the Acquisition
Agreement is amended by:
(i) Deleting Section 6(c)(ii) and replacing it in its entirety with
the following:
(ii) with respect to the Masco Corporation Master Pension Plan
and the Masco Corporation Pension Plan (the "Masco Plans"), as of
the Closing Date, Masco shall remove the HFG
5
<PAGE>
Participants in the Masco Plans from the Masco Plans, and thereupon
Masco shall cause such HFG Participants to become participants in
newly established tax-qualified plans, the terms of which are
substantially identical to the terms of the Masco Plans (the "New
Plans") and, as soon as practicable thereafter, shall transfer to
each New Plan the proportion of each of the Masco Plan's assets
allocable to liabilities accrued to the Closing Date to all HFG
Participants (including earnings and losses to the date of such
transfer allocable to such assets), which proportion shall be deemed
to equal the quotient of (x) the present value of benefits accrued on
the Closing Date for all HFG Participants in such Masco Plan
calculated on a termination basis pursuant to Code Sec. 414(l)
divided by (y) the present value of benefits accrued on the Closing
Date for all HFG Participants and Non-HFG Participants in such Masco
Plan, in each case calculated on a termination basis pursuant to Code
Sec. 414(l), all as mutually determined by Masco's and Buyer's
actuaries, and thereupon Masco shall retain all liabilities and
responsibilities relating to all Non-HFG Participants under the Masco
Plans and all assets so retained;
(ii) Deleting Section 6(c)(iii) and replacing it in its entirety
with the following:
(iii) with respect to the Masco Corporation Home Furnishings
and Building Products Pension Plan (the "HFG Plan"), as of the
Closing Date, Non-HFG Participants in the HFG Plan shall be
removed from the HFG Plan and its assets allocable to liabilities
accrued to the Closing Date to such Non-HFG Participants shall be
determined by the same methodology as set forth in subsection (ii)
above (except that "Non-HFG Participants" shall be substituted for
"HFG Participants" in clause (x) of such subsection (ii)) and, as
soon as practicable thereafter, Masco shall direct to Masco's
successor plan and trustee the transfer of the proportion of the
HFG Plan's assets so determined to be allocable to such liability
to such Non-HFG Participants, and thereupon Masco shall assume all
such liabilities and responsibilities relating to all such Non-HFG
Participants and the assets so transferred;
6
<PAGE>
(iii) Deleting Section 6(c)(iv) and replacing it in its entirety with
the following:
(iv) with respect to the Berkline Associates Pension Plan
listed on Section 4(p)(i) of the Disclosure Schedule, the New
Plans (after giving effect to the provisions of the foregoing
Section 6(c)(ii)), and the HFG Plan (after giving effect to the
provisions of the foregoing Section 6(c)(iii)), Masco shall direct
the resignation of such plans' trustees, and shall direct to the
Buyer's successor trustee a transfer in cash of all such plans'
assets (including all outstanding participant loans if any), and
thereafter the Buyer shall assume (or, in the case of the Berkline
Associates Pension Plan, the Berkline Corporation shall retain)
the sponsorship of such plans together with all liabilities and
responsibilities relating to such plans and the assets so
transferred (except as provided in clauses (ii) and (iii) above
and clause (viii) below);
(iv) Inserting in the second line of Section 6(f) between the words
"plan" and "prior" the following clause: "(other than the Masco
Plans, for which the New Plans shall be substituted for the
purposes of this Section 6(f))".
SECTION 7. Amendment of Section 12. Section 12 of the Acquisition
Agreement is amended by deleting the second paragraph of Section 12(r) and
replacing it in its entirety with the following:
Masco agrees that, from and after the Closing Date, it will
guarantee or otherwise provide up to (A) $15,000,000 in letters of
credit (whether or not standby letters of credit) or comparable
credit enhancement arrangements in support of any obligation as to
which any of the HFG Companies and their Subsidiaries is a
primary obligor or an account party (or an equivalent) and (B) up
to an additional $6,500,000 in letters of credit or other
arrangements described in (A) above that are outstanding as of the
Closing Date (such letters of credit and other arrangements
described in clauses (A) and (B) above being referred to
collectively as the "Guaranteed LCs"); provided that after the
Closing Date (x) no Guaranteed LCs shall be extended (other than a
one-time extension for a period of ten days or less) or renewed,
7
<PAGE>
including automatic or evergreen extensions or renewals, and (y) no
additional Guaranteed LC shall be provided by Masco, in each case
unless the aggregate amount of the Guaranteed LCs outstanding
immediately after giving effect to such extension, renewal or
provision is less than or equal to $15,000,000. The respective
obligations of Masco and the Buyer under this paragraph shall be
subject to the following additional terms and conditions:
(i) The obligation of Masco to guarantee or otherwise
provide the Guaranteed LCs and its obligations in respect of
any then outstanding Guaranteed LCs shall be irrevocably
terminated (in each case in accordance with clause (iii) of
this paragraph) upon the earliest of (w) the date on which any
PIK Note becomes due and payable (whether upon maturity, by
acceleration or otherwise (other than as a result of
redemption)), (x) the date of any redemption, in whole or in
part, of any PIK Note (other than a redemption that is funded
solely through the substantially concurrent issuance by the
Buyer or any of its Subsidiaries of debt securities having a
maturity of at least one year from the date of issuance), (y)
the date of occurrence of a Change of Control (as defined in
the PIK Note) or (z) any business day if on each business day
of the preceding 18-month period the aggregate amount of unused
availability (exclusive of any such availability supported by a
Guaranteed LC (in an amount not to exceed the lesser of (i)
$15,000,000 and (ii) the amount of the Guaranteed LC) which
availability, by the express terms of any underlying agreement
or instrument, would be subject to termination by reason of the
termination of the related Guaranteed LC) for (A) borrowings
under credit lines and receivables facilities or (B) issuances
of letters of credit, in each case available to be borrowed by
or issued for the benefit of the Buyer or its Subsidiaries, as
the case may be, equals at least $75,000,000.
(ii) The Buyer agrees to indemnify and hold harmless Masco
and its remaining Subsidiaries following the Closing from and
against any Adverse Consequences resulting from any failure or
delay in making a payment under (or any
8
<PAGE>
other breach of its or its Subsidiaries' obligations under) the
Guaranteed LCs or any agreement or instrument evidencing
obligations or liabilities supported by the Guaranteed LCs, as
the case may be; provided that any such indemnification shall
be effected through the issuance to Masco (at the time and
pursuant to the procedures set forth in the PIK Note) of a
promissory note of the Buyer having a principal amount equal to
the indemnification amount (provided that such principal amount
shall be appropriately modified in the same manner used to
modify the original principal amount of the PIK Note in
accordance with clause (y) of the proviso to Section 2(b)(ii))
and having terms equivalent to the terms of the PIK Note, it
being understood that the amount of the Guaranteed LCs that
Masco is obligated to provide will be reduced by the amount of
any such Adverse Consequences paid by Masco.
(iii) Immediately upon termination of Masco's obligations in
respect of the Guaranteed LCs (or if outstanding Guaranteed LCs
exceed those that Masco is obligated to guarantee or provide
pursuant to this Section 12(r)), the Buyer shall obtain the
release of all Guaranteed LCs (or all such excess Guaranteed
LCs) from the beneficiaries thereof, including, if necessary,
through cash collateralization of the underlying obligation or
liability of the relevant HFG Company or its Subsidiary.
(iv) The Buyer agrees to furnish to Masco (A) within 30 days
after the end of each fiscal quarter, or more frequently as
reasonably requested by Masco, a summary report of the
Guaranteed LCs outstanding as of the end of such fiscal quarter
(or other period specified by Masco in its request) for the HFG
Companies and their Subsidiaries and (B) from time to time, as
requested by Masco (but not more than once in any calendar
month), reasonably detailed information concerning the
availability of credit lines, receivables facilities and
letters of credit described in clause (i)(z) above.
SECTION 8. Amendment of Schedule of Defined Terms. The Schedule of
Defined Terms is hereby amended by:
9
<PAGE>
(i) adding the following defined terms to be inserted in
alphabetical order within the Schedule of Defined Terms:
"Class C Common Stock" means the Class C Common Stock of the
Buyer having the terms set forth in the Amended and Restated
Certificate of Incorporation of the Buyer attached as Exhibit B
hereto.
"Class D Common Stock" means the Class D Common Stock having
the terms set forth in the Amended and Restated Certificate of
Incorporation of the Buyer attached as Exhibit B hereto.
"Common Stock" means the Class A Common Stock, the Class B
Common Stock, the Class C Common Stock and the Class D Common
Stock, any securities into which such Class A Common Stock,
Class B Common Stock, Class C Common Stock or Class D Common
Stock shall have been changed, any securities resulting from
any reclassification or recapitalization of such Class A Common
Stock, Class B Common Stock, Class C Common Stock or Class D
Common Stock, and all other securities of any class or classes
(however designated) of the Buyer, the holders of which have
the right, without limitation as to amount, after payment on
any securities entitled to a preference on dividends or other
distributions upon any dissolution, liquidation or winding-up,
either to all or to a share of the balance of payments upon
such dissolution, liquidation or winding-up.
"Guaranteed LCs" has the meaning set forth in Section 12(r)
of the Acquisition Agreement.
"HFG Plan" has the meaning set forth in Section 6(c)(iii) of
the Acquisition Agreement.
"Institutional Stockholder Group" means 399 Venture
Partners, Inc., Associated Madison Companies, Inc., TRV
Employees Fund, L.P., Greenwich Street Capital, L.P., GSCP
Offshore Fund Ltd., The Travelers Insurance Company, and The
Travelers Life and Annuity Company (each individually, an
"Institutional Stockholder Group Member").
10
<PAGE>
"Lyon Stock Purchase Agreement" means the Lyon Stock
Purchase Agreement to be entered into as of the Closing Date
between the Buyer and Wayne B. Lyon, which shall provide for
the purchase of certain securities of the Buyer by Wayne B.
Lyon.
"Management Group" means each of the individuals whose name
appears under the heading "Management Group" on the signature
pages to the Stockholders' Agreement.
"Masco Plans" has the meaning set forth in Section 6(c)(ii)
of the Acquisition Agreement.
"Masco Stock Purchase Agreements" means all of the Stock
Purchase Agreements to be entered into as of the Closing Date
between Masco and certain members of the Management Group for
the purchase of certain securities of the Buyer by such members
of the Management Group from Masco.
"New Plans" has the meaning set forth in Section 6(c)(ii) of
the Acquisition Agreement.
"Pooling Agreement" means the Pooling Agreement dated as of
the Closing Date among LFI Receivables Corporation, LFI
Servicing Corporation, as master servicer, and The Chase
Manhattan Bank, as trustee, as in effect on the Closing Date.
"Preferred Stock" means the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, any
securities into which such Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall have been
changed, any securities resulting from any reclassification or
recapitalization of such Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, and all other
securities of any class or classes (however designated) of the
Buyer, the holders of which have the right to a preference on
dividends or other distributions upon dissolution, liquidation
or winding-up; provided that the Class D Common Stock shall not
be deemed to be Preferred Stock.
11
<PAGE>
"Series A-1 Preferred Stock" has the meaning set forth in
Section 2(b) of the Acquisition Agreement.
"Series A-2 Preferred Stock" has the meaning set forth in
Section 2(b) of the Acquisition Agreement.
"Series C Preferred Stock" means the Series C Preferred
Stock having the terms set forth in the Amended and Restated
Certificate of Incorporation of the Buyer attached as Exhibit B
to the Acquisition Agreement.
(ii) deleting the definition of "Series A Preferred Stock" and
replacing it in its entirety with the following:
"Series A Preferred Stock" means the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock.
SECTION 9. Amendment of Exhibit A. Exhibit A to the Acquisition
Agreement is hereby replaced in its entirety by Exhibit A to this Amendment.
SECTION 10. Amendment of Exhibit B. Exhibit B to the Acquisition
Agreement is hereby replaced in its entirety by Exhibit B to this Amendment.
SECTION 11. Governing Law. This Amendment shall be governed by and
construed in accordance with the domestic laws of the State of New York
without giving effect to any choice or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
SECTION 12. Counterparts; Amendments; Effectiveness. This Amendment
may be executed in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same
instrument. No amendment of any provision of this Amendment shall be valid
unless the same shall be in writing and signed by the Buyer and Masco. This
Amendment shall become effective as of the date hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By /s/ ROBERT L. GEORGE
Title: Executive Vice President
MASCO CORPORATION
By /s/ JOHN R. LEEKLEY
Title: Vice President
