Exhibit 10.1
ACQUISITION AGREEMENT
BETWEEN
FURNISHINGS INTERNATIONAL INC.
AND
MASCO CORPORATION
March 29, 1996
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
(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
(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
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
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 representations,
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 ss.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 ss.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 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 ss.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 ss.9(j) below.
(c) The Closing. Subject to the satisfaction or waiver of the conditions
set forth in ss.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
ss.5(h) and (i) below and in ss.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
ss.7(b) below and (B) the consideration specified in the first sentence of
ss.2(b) above, which shall be applied as specified in the second sentence of
such ss.2(b). If the Parties agree that the Buyer will acquire one or more of
the HFG Companies or their Subsidiaries through one or more mergers, as
contemplated by ss.2(a), then each of the Parties will deliver (or, in the case
of Masco, as
2
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 ss.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, (x) any asset, deferred credit or
liability of the HFG Companies and their Subsidiaries for current and
deferred income
3
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 ss.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
(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 thisss.2(e)(iii). The "Closing
Date Balance Sheet" shall mean the Proposed Closing Date Balance Sheet
together with any revisions thereto pursuant to thisss.2(e)(iii). The
"Revised Adjusted NIA
5
Report" shall mean the Adjusted NIA Report together with any revisions
thereto pursuant to this ss.2(e)(iii).
(iv) In the event the Parties submit any unresolved disputes to the
Independent Accounting Firm as provided in ss.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 ss.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 ss.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
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 ss.2(e).
The Preliminary Purchase Price as so adjusted is referred to herein as the
"Purchase Price."
Section 3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of Masco. Masco represents and warrants
to the Buyer that the statements contained in this ss.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 ss.3(a)), except for the matters reflected in the
accompanying Schedule of Disclosures Regarding Masco's Representations and
Warranties (the "Disclosure Schedule"), which Disclosure Schedule shall be
construed in accordance with ss.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 Agreement 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
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 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 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 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 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 ss.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
(b) Representations and Warranties of the Buyer. The Buyer represents and
warrants to Masco that the statements contained in this ss.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 ss.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 ss.12(s), and any matters reflected in any
written notice delivered in accordance with ss.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
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
(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 validly issued, fully paid
and nonassessable. Except as contemplated by this Agreement
11
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 ss.5(e)(ii) below), as of the Closing Date there will
be no contingent liabilities of the Buyer and its Subsidiaries, other than
(i) liabilities which arise in the Ordinary Course of Business of the Buyer
and its
12
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
(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
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
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
ss.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 ss.4), except for the
matters reflected in the Disclosure Schedule, which Disclosure Schedule shall be
construed in accordance with ss.12(s), and any matters reflected in any written
notice delivered pursuant to ss.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.
ss.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. ss.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 or exercisable or
16
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 ss.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 ss.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. ss.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 ss.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
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 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 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 corporation, partnership, trust,
or other business association other than their respective Subsidiaries
identified in ss.4(b) of the Disclosure Schedule.
(f) Financial Statements. ss.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
resulting from a written notice delivered pursuant to ss.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
(vii) none of the HFG Companies and their Subsidiaries has committed
to any of the foregoing.
(h) Litigation. ss.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
(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) ss.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, ss. 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
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) ss.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 restrictions 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 the property or impose any
22
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 ss. 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) ss.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 ss.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 ss.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, fraudulent conveyance,
23
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 ss.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) ss.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, identifies 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. ss.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 ss.4(l)(i) of the Disclosure
Schedule, with respect to each item of Intellectual Property
24
identified in ss.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) ss.4(l)(iii) of the Disclosure Schedule identifies 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 ss.4(l)(i) of the Disclosure Schedule, with respect to each
item of Intellectual Property identified in ss.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 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 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
ss.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 ss.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.
(iv) Each representation and warranty in this ss.4(l) is deemed made
to the Knowledge of Masco to the extent that such representation and
warranty relates to any
25
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. ss.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;
(vii) any collective bargaining agreement or other similar contract
with any labor organization;
26
(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.
ss.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 ss.4(n)(1) of the
Disclosure Schedule (except as indicated). Except as set forth in ss.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.
(p) Employee Benefits.
(i) ss.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
27
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 ss.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 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.
28
(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) ss.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.
(v) No benefit under any Employee Benefit Plan listed in ss.4(p)(i) of
the Disclosure Schedule or under any Employee Benefit Arrangement listed in
ss.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
29
by reason of any transaction contemplated by this Agreement or any other
Transaction Document.
(vi) ss.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, ss.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
(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, ss.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, ss.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 ss.4(q)(iv) of the
Disclosure Schedule.
(v) Each representation and warranty in ss.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, ss.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 ss.8(e); provided that Masco is not
representing or warranting the actual availability or extent of coverage under
any such policies listed on ss.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
(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 ss.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 ss.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 ss.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 ss.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 Companies and
32
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 ss.3(a)(v) or
ss.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 ss.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 ss.5(c). The Parties understand and
agree that Masco's indemnification obligation for Adverse Consequences resulting
from any breach of this ss.5(c) shall be governed by ss.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 ss.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 ss. 5(c) to the extent related to breaches of ss.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 ss.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 ss.5(e)(i); provided
that Masco's determination that any notice delivered under this ss.5(e)(i) is an
optional notice shall not be binding on the Buyer for purposes of ss.7(a) or
ss.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 ss.11(a)(ii). If the Buyer receives a notice
designated by Masco as a mandatory notice under this ss.5(e)(i) (other than with
respect to facts
33
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 ss.11(a)(ii) below, or receives a
notice designated by Masco as an optional notice under this ss.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
ss.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 ss.4 above and all qualifications in ss.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
ss.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 ss.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 ss.5(e)(ii); provided that the Buyer's
determination that any notice delivered under this ss.5(e)(ii) is an optional
notice shall not be binding on Masco for purposes of ss.7(b) or ss.
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 ss.11(a)(iii). If Masco receives a notice designated
by the Buyer as a mandatory notice under this ss.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 ss.11(a)(iii) below, or
receives a notice designated by the Buyer as an optional notice under this
ss.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 ss.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 ss.3(b) above and all
qualifications in ss.3(b) above requiring a Buyer 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 ss.5(e)(ii).
34
(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 ss.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
ss.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 ss.7(a) (other than ss.7(a)(vii)) below. The Buyer
agrees that it (x) will exercise all of its rights to enforce performance of the
letters described in ss.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 ss.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 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
35
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 ss.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 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.
36
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 ss.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 ss.4(p)(i) of the Disclosure Schedule) which is a
defined 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
37
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 ss.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
ss.4(p)(i) of the Disclosure Schedule and the HFG Plan, after giving effect
to the provisions of the foregoing ss.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
38
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 ss.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.
(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
39
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 ss.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 ss.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 ss.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 ss.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 ss.4(n)(1) and ss.4(p)(vi) of the Disclosure Schedule, and (ii)
effective as of the Closing Date, any claim for workers' 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
40
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 ss. 12(p) hereof.
(f) Plan Contributions. With respect to each employee pension benefit plan
listed on ss.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 ss.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
ss.6 and any other provision of this Agreement, the provisions of this ss.6
shall control. Without limiting the generality of the foregoing, the
indemnification obligations of the Parties under this ss.6 shall not be subject
to the limitations (including time and amount limitations) set forth in ss.8(a),
8(b) and 8(c) below.
Section 7. Conditions to Obligation to Close.
41
(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 ss.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 ss.4 above shall
be correct in all respects at and as of the Closing Date, disregarding for
this purpose (A) any materiality qualification in ss.4 above, and (B) any
qualification in ss.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 ss.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 ss.7(a)(vi)) as 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;
42
(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 ss.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 ss.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 ss.3(b)
above and (B) any qualification in ss.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;
(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;
43
(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 ss.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 ss.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 ss.7(b) if it executes a writing
so stating at or prior to the Closing.
Section 8. Indemnification.
(a) Survival of Representations and Warranties. All of the representations
and warranties of Masco contained in ss.ss.3, 4(b) and 4(d) and the
representations and warranties contained in ss.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 ss.6(c)(vi) shall survive the
44
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 ss.4(j) (but only to the extent that such representations and
warranties in ss.4(j) relate to Specified Non-Income Taxes), ss.4(p) (except to
the extent that the survival of such representations and warranties in ss.4(p)
is governed by the first sentence of this ss.8(a)) and ss.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 ss.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 ss.9, the representations and
warranties of Masco contained in ss.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 ss.4, and
the representations and warranties of Masco contained in the last sentence of
ss.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 ss.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 ss.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 ss.ss.4(b),
4(d) or 4(p) (but, in the case of the representations and warranties contained
in ss.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
ss.3(b)(i) - (v), ss.3(b)(vii), ss.3(b)(xiii), ss.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),
ss.3(b)(xvi) (but only to the extent that such representations and warranties
relate to Income Taxes) and ss.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 ss.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
45
warranties of the Buyer contained in ss.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)
ss.3(b)(xiv), (B) ss.3(b)(xv) (except to the extent that the survival of such
representations and warranties in ss.3(b)(xv) is governed by the first sentence
of this paragraph) and (C) ss.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
ss.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 ss.8(a) or in ss.ss.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 ss.4(j) to the extent related to
Income Taxes (which are governed by ss.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 ss.4, the
representation and warranty contained in the last sentence of ss.5(g) and (to
the extent related to breaches of ss.4(g)) the covenant contained in ss.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 ss.ss.4(b), 4(d) and 4(p)
(but, with respect to ss.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 of the covenant contained in ss.5(c) (to
the extent related to breaches of ss.4(g)), except that such $15,000,000
limitation will apply to any such breach of the covenant contained in
ss.5(c) which is not caused by Masco so long as Masco has satisfied its
obligation in ss.5(c) to notify the divisional heads of HFG Companies
regarding the restrictions contained in ss.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
46
designated as an optional notice pursuant to ss.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 ss.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 ss.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 ss.ss.4(b), 4(d), 4(j) (but, with respect to ss.
4(j), only to the extent that such breaches relate to Specified Non-Income
Taxes) and ss.4(p) or (B) breaches of the covenant contained in ss.5(c),
except that the Cap will apply to any breach of the covenant contained in
ss.5(c) (to the extent related to breaches of ss.4(g)) which is not caused
by Masco so long as Masco has satisfied its obligation in ss.5(c) to notify
the divisional heads of the HFG Companies regarding the restrictions
contained in ss.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 ss. 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 ss.ss.4(b), 4(d) and 4(p) (but
in the case of ss.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 survival period referred to in ss.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 ss.5(e)(i) prior to the Closing (other than with respect to
(x) the Specified Masco Representations
47
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
ss.8(b), the "Knowledge of Masco" qualification contained in ss.4(p)(vii)
shall be disregarded.
To the extent necessary in order to avoid double counting, all qualifications in
ss.4 above (other than the first sentence of ss.4(g) and the last sentence of
ss.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 ss.8. Notwithstanding anything in ss.8(a) or this ss.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 ss.4(j)(i) and ss.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 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 ss.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
48
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 ss.ss.6 or 8(b) above or ss.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
ss.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 ss.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 Indemnifying 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 Indemnified 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 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
49
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 ss.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 unreasonably).
(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 ss.ss.6, 9 and 10 will govern in the
event of any conflict with the general provisions of this ss.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 ss.9(j)
and, to the extent relevant, ss.9(i)(B) below. The indemnification provisions in
this Agreement, and the remedy of specific performance contemplated by ss.12(c)
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)
50
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 ss.8, ss.6 above or ss.ss.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 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;
51
(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
ss. 4(j)(vii), (ix), (x), (xi) or (xii), regardless of whether a notice
disclosing such breach was delivered pursuant to ss. 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 ss. 9(d) below, payment in full of any
amount due from Masco under this ss. 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 ss.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. ss.1.1502-13
and Treas. Reg. ss.1.1502-14 and any excess loss accounts taken into income
under Treas. Reg. ss.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 Subsidiary. Subject to ss.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
52
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 ss.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 ss.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 ss.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 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,
53
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 ss. 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. ss.1.1502-20(g). At the request of
Masco, the Buyer will cause any of the HFG Companies and their Subsidiaries to
join with Masco in filing any necessary elections under Treas. Reg.
ss.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 ss.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
54
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 ss. 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 ss.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 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. ss.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
55
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 ss.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 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 ss.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 ss.9, any Tax resulting from the departure of any of the HFG Companies and
their Subsidiaries from
56
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 Pre-Closing
Period and (C) ss.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.
57
(iv) If any adjustment to the Preliminary Purchase Price under ss. 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 ss. 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 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.
58
(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 ss. 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
ss.9 and any other provision of this Agreement, the provisions of this ss.9
shall control. Without limiting the generality of the foregoing, the
indemnification obligations of the Parties under this ss.9 shall not be subject
to (i) the limitations (including time and amount limitations) set forth in
ss.8(a), 8(b) and 8(c) above or (ii) the procedures relating to Third Party
Claims set forth in ss.8(d) above.
(q) Survival. All rights, obligations and covenants under this ss.9, and
the representations and warranties contained in ss.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 ss.10, or any exercise
by Masco of its rights under this ss.10, increase the obligations and
liabilities of Masco with respect to environmental matters involving the HFG
Companies and their Subsidiaries beyond what is provided in ss.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 ss.8 above (ignoring,
for this purpose, the limitations in the proviso to ss.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
59
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 ss. 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 ss. 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-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 ss.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
60
in this ss.10(b) and in ss.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 ss. 10. Until the Buyer has suffered $15,000,000 in Adverse Consequences
pursuant to clause (i) of the proviso in ss.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 ss.10
(other than the matters referred to in clauses (i) and (iv) of the last sentence
of ss.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 ss.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 ss.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 ss.8 above (ignoring, for this purpose, the limitations in the proviso to
ss.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 ss.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 matter of Masco, the HFG Companies and
their respective Subsidiaries for which Masco is responsible under ss.8 above
(ignoring, for this purpose, the limitations in the proviso in ss.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 ss.10, Masco shall notify the Buyer in writing of
the action it proposes to take, setting forth
61
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. ss.ss. 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 ss.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. 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 ss.8 (ignoring, for this
purpose, the limitations in the proviso in ss.8(b)
62
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 ss.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 ss.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 ss.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 pursuant to ss.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
ss.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 ss.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
63
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 ss.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 ss.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 ss.8 (d) (ii) and ss.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.
(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
64
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% 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.
65
(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 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
66
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
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
67
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
ss.ss.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
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
68
defending Party and its counsel in the contest or defense, (ii) make available
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 ss.ss.6, 8, 9 or 12(p)(i) above).
(q) Certain Intercompany Relationships. (i) Except as provided in ss.2(b)
or as set forth on the attached ss.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 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
69
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 ss.ss.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
ss.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 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 ss.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
70
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 ss.5(e) above (other than a
notice designated by such Party as a mandatory notice), or in the certificate
referred to in ss.7(a)(iv) or ss. 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.
(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.
71
(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
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
FURNISHINGS INTERNATIONAL INC.
By:____________________________
Title:_________________________
MASCO CORPORATION
By:____________________________
Title:_________________________
73
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.
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 ss.2(e)
of the Acquisition Agreement.
"Adjusted NIA Report" has the meaning set forth in ss.2(e) of the
Acquisition Agreement.
"Adjustment Schedule" has the meaning set forth in ss.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 ss.4(f) and the first sentence of ss.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 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 ss.3(b) of the
Acquisition Agreement.
"Buyer Financial Statements" has the meaning set forth in ss.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
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 ss.8(b) of the Acquisition Agreement.
"Class A Common Stock" has the meaning set forth in ss.2(b) of the
Acquisition Agreement.
"Class B Common Stock" has the meaning set forth in ss.2(b) of the
Acquisition Agreement.
"Closing" has the meaning set forth in ss.2(c) of the Acquisition
Agreement.
"Closing Date" has the meaning set forth in ss.2(c) of the Acquisition
Agreement.
"Closing Date Balance Sheet" has the meaning set forth in ss.2(e) of the
Acquisition Agreement.
"Closing Date Cash" has the meaning set forth in ss.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 ss.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
"Disclosure Schedule" has the meaning set forth in ss.3(a) of the
Acquisition Agreement.
"Dispute Notification" has the meaning set forth in ss.10(e) of the
Acquisition Agreement.
"Dispute Notification Period" has the meaning set forth in ss.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
"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 ss.4(f) of the
Acquisition Agreement.
"Financing" has the meaning set forth in ss.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 ss.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
"HFG Companies" has the meaning set forth in the preface to the Acquisition
Agreement.
"HFG Employee" has the meaning set forth in ss.6(d) of the Acquisition
Agreement.
"HFG Participant" has the meaning set forth in ss.6(c) of the Acquisition
Agreement.
"High Value" has the meaning set forth in ss.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 ss.8(b) of the
Acquisition Agreement.
"Indemnified Party" has the meaning set forth in ss.8(d) of the Acquisition
Agreement.
"Indemnified Seller Party" has the meaning set forth in ss.8(c) of the
Acquisition Agreement.
"Indemnifying Party" has the meaning set forth in ss.8(d) of the
Acquisition Agreement.
"Independent Accounting Firm" has the meaning set forth in ss.2(e) of the
Acquisition Agreement.
"Intellectual Property" means (a) all inventions (whether patentable 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, registrations 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 techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments of any of the foregoing (in whatever form or medium).
Definitions Page 6
"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 ss.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 ss.2(f) of the
Acquisition Agreement.
"Masco Tradenames" has the meaning set forth in ss.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).
"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.
Definitions Page 7
"Non-HFG Participant" has the meaning set forth in ss.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 ss.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 ss.2(b) of the
Acquisition Agreement.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"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 ss.2(e)
of the Acquisition Agreement.
Definitions Page 8
"Purchase Price" has the meaning set forth in ss.2(f) of the Acquisition
Agreement.
"Recommended Action" has the meaning set forth in ss.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 ss.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 ss.2(e) of the
Acquisition Agreement.
"Section 338(h)(10) Election" has the meaning set forth in ss.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 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.
Definitions Page 9
"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 ss.ss.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 ss. 2(b) of the
Acquisition Agreement.
"Series B Preferred Stock" has the meaning set forth in ss. 2(b) of the
Acquisition Agreement.
"Specified Buyer Representations" has the meaning set forth in ss.8(a) of
the Acquisition Agreement.
"Specified Masco Representations" has the meaning specified in ss.8(b) of
the Acquisition Agreement.
"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 ss.9(l) of the Acquisition
Agreement.
Definitions Page 10
"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 ss.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 ss.8(d) of the Acquisition
Agreement.
"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).
Definitions Page 11
"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 ss.6(b) of the Acquisition
Agreement.
"Year-end Net Investment and Advances" has the meaning set forth in ss.2(f)
of the Acquisition Agreement.
Definitions Page 12
CONFIDENTIAL
SCHEDULE OF TAX ALLOCATIONS (IN 000's)
338(H)(10) PURCHASE
SUBSIDIARY ELECTION PRICE CONSIDERATION
SUBSIDIARY
DEBT OWED TO CLASS A CLASS B
MASCO PAID COMMON COMMON
AT CLOSING PIK NOTE STOCK STOCK
SERIES A SERIES B
PREFERRED PREFERRED
STOCK STOCK TOTAL
The Berkline Corporation No $ 56,500
Drexel Heritage Furnishings, Inc. No 125,000
Henredon Furniture Industries, Inc. No 70,000
Intro Europe, Inc. No 4,700
LaBarge, Inc. No 5,100
Lexington Furniture Industries, Inc. No 162,000
Lineage Home Furnishings, Inc. Yes** 25,700
Maitland-Smith, Inc. No 55,000
Masco Home Furnishings, Inc. Yes 40,000
Robert Allen Fabrics, Inc. Yes 74,570
Ametex Fabric, Inc. Yes 49,900
Interior Fabric Design, Inc. Yes 1,830
Robert Allen Fabrics of New York, No
Inc. 5,000
Robert Allen Fabrics (Canada) Ltd. No 1,000
Ramm, Son & Crocker, Inc. No 2,100
Sunbury Textile Mills, Inc. No 20,000
Universal Furniture Industries, Inc. No $195,000
Universal Foreign Subsidiaries No
171,600
---------
Universal Furniture Limited Yes 366,600
Ametex UK Limited No 1,000
Ramm Son & Crocker Limited No 4,000
$ 1,070,000 $757,809 $255,000* $75 $185
$54,857 $2,074 $1,070,000
* Estimated Amount At Closing.
** To be made only if favorable North Carolina ruling is obtained