EXHIBIT 2.1(iv)
SECURITYHOLDERS' AGREEMENT
THIS SECURITYHOLDERS' AGREEMENT (this "Agreement") is made
and entered into as of February 29, 2000 by and among HON
INDUSTRIES INC., an Iowa corporation ("HON"), HEARTH TECHNOLOGIES
INC., an Iowa corporation ("HTI"), ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇▇"), ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), MADISON FIRE PLACE,
INC., a Wisconsin corporation ("Madison"), FIREPLACE & SPA, INC.,
a Wisconsin corporation ("FPSI"), THE MINOCQUA FIREPLACE COMPANY,
a Wisconsin corporation ("Minocqua", and collectively with
Skoronski, Sorensen, Madison and FPSI, the "Allied Sellers"),
AMERICAN FIREPLACE COMPANY, a Maryland corporation ("AFC"),
HEARTH & HOME, INC., a Maryland corporation ("H&H", and
collectively with AFC, the "AFC Sellers") and each of the other
persons who will become securityholders of HTI and who are set
forth on Exhibit 1.1(b) to this Agreement (the "Additional
Securityholders"). The Allied Sellers, the AFC Sellers and the
Additional Securityholders are hereinafter sometimes referred to
individually each as a "Securityholder" and collectively as the
"Securityholders". Capitalized terms used herein but not defined
herein shall have the meanings set forth in the Purchase
Agreements referred to below.
W I T N E S S E T H:
WHEREAS, the authorized capital stock of HTI consists of
10,000,000 shares of Common Stock, $1.00 par value per share (the
"Shares");
WHEREAS, pursuant to the Purchase Agreement dated as of the
January 28, 2000 among HON, HTI and the Allied Sellers (the
"Allied Purchase Agreement"), and the Purchase Agreement dated as
of January 28, 2000 among HON, HTI and the AFC Sellers (the "AFC
Purchase Agreement", and collectively with the Allied Purchase
Agreement, the "Purchase Agreements"), HTI acquired substantially
all the assets of Madison, FPSI, Minocqua and the AFC Sellers and
all issued and outstanding stock of Allied Fireside, Inc., a
Wisconsin corporation (the "Acquisitions"), as of the date
hereof;
WHEREAS, as a result of the Acquisitions, the
Securityholders will receive $53,000,000 in aggregate principal
amount of 5.5% Convertible Debentures due February 28, 2005 of
HTI ("Debentures"), convertible into 67,358 Shares as of the date
hereof;
WHEREAS, after the AFC Sellers' acquisition pursuant to the
AFC Purchase Agreement of Debentures in an aggregate principal
amount of $26,500,000, the AFC Sellers will distribute all such
Debentures to the Additional Securityholders in the respective
amounts set forth on Exhibit 1.1(b) hereto;
WHEREAS, HON owns all of the issued and outstanding Shares;
and
WHEREAS, it is a condition precedent to the consummation of
the Acquisitions that HON, HTI and the Securityholders enter into
this Agreement.
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties herein contained, the
parties agree as follows:
ARTICLE I - REPRESENTATIONS AND WARRANTIES
1.1 Representations and Warranties of the Securityholders.
The Securityholders hereby severally, but not jointly, represent
and warrant to HON and HTI that:
(a) Power and Authority. Each of the Securityholders
has the full legal right, capacity and power, and all
authorization and approval, if any, required to enter into
this Agreement.
(b) Ownership of Debentures. (i) Immediately after
the Effective Time, the Allied Sellers and the AFC Sellers
(collectively, the "Sellers") will own beneficially and of
record the respective principal amount of Debentures set
forth opposite their respective names on Exhibit 1.1(b)
attached hereto, in each case with valid marketable title
thereto, free and clear of all Liens other than Permitted
Pledges (as hereinafter defined).
(ii) Following the receipt by the AFC Sellers of
their Debentures, the AFC Sellers will distribute to
the Additional Securityholders the respective principal
amount of Debentures set forth opposite their
respective names on Exhibit 1.1(b) attached hereto, who
will then own beneficially and of record such
Debentures, in each case with valid marketable title
thereto, free and clear of all Liens other than
Permitted Pledges.
(c) Investment Matters. (i) Each Securityholder is
a resident of the state set forth opposite their respective
name on Exhibit 1.1(b) and, if acquiring Debentures, is
acquiring the Debentures solely for investment, for such
Securityholder's own account, and has no present intention
of reselling or otherwise distributing the Debentures or the
Shares into which the Debentures are convertible
(collectively, the "Debenture Securities"). Except for this
Agreement, the Securityholders have no present or
contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for, or
that is likely to compel, a disposition in any manner of any
of the Debenture Securities except as described in Section
1.1(b)(ii). Each Securityholder has been represented by
First Union Securities, Inc. (f/k/a Bowles, Hollowell,
▇▇▇▇▇▇) as such Securityholder's "purchaser representative"
("Purchaser Representative") within the meaning of
Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(ii) Each Securityholder, alone or with such
Securityholders' Purchaser Representative, has
sufficient knowledge and experience in financial and
business matters that he, she or it is capable of
evaluating the economic risks of an investment in the
Debenture Securities (including, without limitation,
the information described in Section 1.1(x)). Each
Securityholder's financial condition is currently
adequate to bear the economic risks of an investment in
the Debenture Securities. Each Securityholder has
received such written information respecting the
business and financial condition of HTI and the
Companies as is necessary to evaluate the merits and
risks of an investment in the Debenture Securities
(including, without limitation, the information
described in Section 1.1(x)). Each Securityholder has
read and understands such information in its entirety,
and is not relying on any other information (whether
written or oral) with respect to his, her or its
decision to invest in the Debenture Securities. Each
Securityholder has had an opportunity to ask questions
of officers of HON and HTI regarding the financial
merits and risks of the investment in the Debenture
Securities, and, to the extent any Securityholder has
taken advantage of such opportunity, such
Securityholder has received satisfactory answers
concerning such matters.
(iii) Each Securityholder is aware that the
Debenture Securities have not been registered under the
Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws ("Blue Sky Laws"),
based in part on the Securityholders' representations
herein. Each Securityholder is aware that such
Debenture Securities may therefore not be sold or
transferred unless (A) subsequently registered under
the Act and/or the Blue Sky Laws, or (B) in the written
opinion of counsel (in form and substance reasonably
satisfactory to HTI), a sale or transfer may be made
without registration thereunder. Each Securityholder
understands that he, she or it must bear the economic
risk of the investment in the Debenture Securities
until either condition (A) or (B) of this paragraph is
satisfied.
(iv) Each Securityholder understands and
acknowledges that, in accordance with the requirements
of the Act, the rules and regulations thereunder and
the Blue Sky Laws, a legend will be placed on any
certificate representing the Debenture Securities to
the effect that such Debenture Securities have not been
registered under the Act or any applicable Blue Sky
Laws and that such Debenture Securities may not be
resold unless registered under the Act and any
applicable Blue Sky Laws or is exempt therefrom.
(v) Each Securityholder understands that there is
no public market for the Debenture Securities and,
accordingly, it may not be possible for him, her or it
to liquidate his, her or its interest in the Debenture
Securities for a substantial period of time. Each
Securityholder understands that there can be no
assurance that any public market for the Debenture
Securities will exist at any time in the future, and
that HON has no present plan or intention of "spinning
off" HTI or otherwise making an initial public offering
of any or all of its Shares. In addition, each
Securityholder understands that immediately after the
Acquisitions, HON will be the owner of more than 99% of
the issued and outstanding shares of capital stock of
HTI and that even after conversion of all Debentures,
HON will be entitled to elect all members of the Board
of Directors of HTI.
(vi) Each Securityholder, alone or with such
Securityholder's Purchaser Representative, has such
knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the
merits and risks of the transactions contemplated by
the Purchase Agreement to which such Securityholder is
party.
(vii) Each Securityholder understands that any
financial projections provided by HON or HTI should be
considered speculative and qualified by the assumptions
stated therein. Each Securityholder understands that
such projections are based on assumptions believed to
be reasonable at the time of their preparation, but
they are subject to a high degree of uncertainty and
cannot be relied upon as a prediction of future
results.
(viii) Each Securityholder understands and
acknowledges that none of HON, HTI, or any of their
officers, directors, affiliates, employees, agents or
advisors, has made any representation, warranty or
assurance regarding the tax consequences of the
Acquisitions, and that he, she or it is relying upon
the advice of his, her or its own tax advisor with
respect to the tax consequences of the Acquisitions.
(ix) Each Securityholder qualifies as an
"accredited investor" under Regulation D promulgated by
the Securities and Exchange Commission under the Act.
(x) Each Securityholder has been provided with
copies of HON's 1998 Annual Report to Shareholders and
Form 10-K for the fiscal year ended January 2, 1999,
Notice of Annual Meeting and Proxy Statement dated
March 29, 1999, and Form 10-Qs for each of the fiscal
quarters ended April 3, 1999, July 3, 1999, and
October 2, 1999, which include, among other things,
information regarding HTI.
1.2 Representations and Warranties of HON and HTI. HON and
HTI hereby jointly and severally represent and warrant to each of
the other Securityholders that each of the representations and
warranties made in Sections 5.3 and 5.4 of the Purchase
Agreements are true and correct, each of which are incorporated
herein by reference, but which representations and warranties
shall expire on the respective dates set forth in Section 11.5 of
the Purchase Agreements.
ARTICLE II - RESTRICTIONS ON TRANSFER; ADVISORY BOARD
2.1 Restriction Prior to Fifth Anniversary. Except for
Transfers of Securities to HON or HTI in accordance with this
Agreement or as provided in Section 1.1(b)(ii), during the period
ending on the fifth anniversary of this Agreement, no
Securityholder shall sell, assign, transfer, give away or in any
other manner dispose of or alienate, whether by operation of law
or otherwise (hereinafter sometimes collectively referred to as a
"Transfer") any securities of HTI including, without limitation,
any capital stock or any securities evidencing the right to
acquire capital stock, any convertible debentures or other
convertible debt, that now is or hereafter may be owned by such
Securityholder, including the Debenture Securities (collectively,
the "Securities").
2.2 Restriction On and After Fifth Anniversary. Except for
Transfers of Securities to HON or HTI in accordance with this
Agreement or as provided in Section 1.1(b)(ii), on and after the
fifth anniversary of the date of this Agreement, no
Securityholder shall Transfer (as defined in Sections 2.1 and
2.3) any Securities which now or hereafter may be owned by him,
her or it until such Securityholder (hereinafter sometimes
referred to as the "Offeror") first shall have offered in writing
to HON the Securities which he, she or it then so desires to
Transfer, and HON shall have rejected the offer in writing or
shall have failed to accept the offer to purchase all such
Securities within 20 days of receipt of the offer or failed after
such acceptance to purchase all such Securities in violation of
Section 2.6. Any Transfer occurring after such rejection or
failure to accept or close by HON shall be subject to the terms
of Section 2.12.
2.3 Definition of "Transfer". For purposes of this
Agreement, a Transfer of Securities shall include what is
normally and customarily considered a sale, exchange, assignment,
transfer, distribution, gift, disposition or alienation.
Notwithstanding the foregoing, a Transfer of Securities shall not
include a transfer, assignment or gift of Securities to or from
any other Securityholder, or to any member of the Immediate
Family of a Securityholder during the life of the Securityholder
or upon the death of the Securityholder, provided that such
transferee agrees in writing to be bound by the terms of this
Agreement. "Immediate Family", as used herein, shall mean (a)
the spouse, any child or grandchild, any sibling and any child of
any such sibling, of a Securityholder, and (b) any trust or
limited partnership created for the benefit of the
Securityholder, or any of the persons described in clause (a) of
this Section 2.3. Notwithstanding the foregoing, a Transfer
shall not be deemed to include any conversion of Debentures into
Shares by any Securityholder pursuant to the terms of the
Debentures.
2.4 Terms of Offer. The offer of the sale of the
Securities by the Offeror to HON shall be signed by the Offeror,
and shall include a statement of intention to Transfer said
Securities, the name and address of the prospective purchaser of
said Securities, if any, the number of Securities involved, and
the price and terms of any such transaction (including a copy of
any written offer or purchase contract). The purchase price for
the Securities offered by the Offeror shall be equal to the price
that the prospective purchaser has offered or agreed to pay.
2.5 Acceptance of Offer. If HON accepts such offer within
the applicable time period, the acceptance shall create a legally
binding contract between the Offeror and HON to acquire the
Securities on the same terms and conditions as those agreed to by
the third party prospective purchaser (excluding any due
diligence conditions or contingencies required by such
purchaser).
2.6 Transfer Closing. The closing of a Transfer of
Securities pursuant to an offer that has been validly accepted by
HON shall take place within 30 days after the acceptance of the
offer. At the closing, the Offeror shall deliver to HON the
certificate(s) evidencing the Securities subject to the Transfer,
properly endorsed for transfer or accompanied by stock powers
endorsed to HON or its designated assignee, and HON shall deliver
to the Offeror such certified or cashier's checks and such other
documents as are reasonably necessary and customary to consummate
such transaction.
2.7 Release From Restriction. If HON does not purchase all
the Securities proposed to be transferred by the Offeror, the
Offeror may (a) sell to HON such number of offered Securities as
HON has agreed to purchase pursuant to the terms of this
Article II, (b) make a bona fide Transfer of all the Securities
so offered to the prospective purchaser named in the offer
theretofore made by the Offeror to HON, or (c) sell to HON such
number of offered Securities as HON has agreed to purchase
pursuant to the terms of this Article II and Transfer the
remainder of the Securities to the prospective purchaser in a
bona fide Transfer; provided, however, that any such Transfer
shall not be made at any price or on any terms that are more
favorable than those stipulated in such offer. If the Offeror
shall fail to make any such Transfer within 90 days following the
expiration of the periods of time provided above for the election
by HON, such Securities shall again become subject to the
Transfer restrictions of this Article II.
2.8 Restrictions on Pledging; Improper Transfer.
Notwithstanding any other provision of this Agreement, except for
a pledge to HON or the lender making the loan referred to in
Section 4.5 of the AFC Purchase Agreement by a Securityholder who
is an Affiliate of an AFC Seller (a "Permitted Pledge"), no
Securityholder may pledge or hypothecate all or any portion of
the Securities in any manner without the prior written consent of
HON. Any purported Transfer, pledge or hypothecation in
violation of this Agreement shall be null and void and of no
force or effect.
2.9 Involuntary Transfers. In the event of a Transfer of
any Securities owned by any Securityholder by operation of law or
pursuant to or by virtue of any proceeding at law, in equity or
otherwise, or by the involuntary act of the holder or owner of
said Securities and such Securities shall not have been offered
to HON pursuant to this Article II, then the right of first
refusal provided for in Section 2.2 shall become effective upon
the happening of any such event and the period of time within
which HON may exercise its rights to acquire said Securities
shall commence as of the date HON actually receives notice of the
occurrence of any such event. The purchase of such Securities
shall be effected in the same manner as provided in this
Article II, except that the purchase price of such Securities
shall be the Put Price (as hereinafter defined).
2.10 Debenture Certificate Legend. Upon the execution of
this Agreement, certificates evidencing the Debentures subject to
this Agreement issued to the respective Securityholders shall be
endorsed with the following notice:
"NOTICE: This debenture and the rights represented
hereby are subject to the restrictions and options stated
in, and may not be sold, transferred, encumbered, or
otherwise disposed of in any manner, voluntarily or
involuntarily, except upon compliance with the provisions of
the Securityholders' Agreement (and any amendments thereto)
dated February 29, 2000, by and among HON INDUSTRIES Inc.,
Hearth Technologies Inc., and certain Securityholders
thereof. Copies of such agreement are on file in the
offices of Hearth Technologies Inc., and the provisions of
such agreement are incorporated herein by reference."
2.11 Stock Certificate Legend. Following the execution of
this Agreement, certificates evidencing any Securities, other
than Debentures, subject to this Agreement which may be issued
from time to time to the respective Securityholders shall be
endorsed with the following notice:
"NOTICE: This certificate and the shares of stock
represented hereby are subject to the restrictions and
options stated in, and may not be sold, transferred,
encumbered, or otherwise disposed of in any manner,
voluntarily or involuntarily, except upon compliance with
the provisions of the Securityholders' Agreement (and any
amendments thereto) dated February 29, 2000, by and among
HON INDUSTRIES Inc., Hearth Technologies Inc., and certain
Securityholders thereof. Copies of such agreement are on
file in the offices of Hearth Technologies Inc., and the
provisions of such agreement are incorporated herein by
reference."
2.12 Rights of Transferees. The Transfer of Securities by
a Securityholder to any transferee (other than as provided in
Section 1.1(b)(ii)) shall not be deemed to have been consummated
until the transferee executes and delivers to HTI, HON and to
each of the other Securityholders a written agreement to be bound
by all of the terms and conditions of this Agreement (including,
without limitation, the terms and conditions of this Article II).
2.13 Securities Owned by HON. Nothing in this Agreement
shall be construed to restrict or prevent HON from any Transfer
of any or all Securities owned by it in any manner whatsoever.
2.14 Termination of Restriction on Transfer. Following the
consummation of a Public Offering prior to the third anniversary
of the date of this Agreement, the restrictions on transfer set
forth in this Article II, and the right of HTI to purchase
Debenture Securities pursuant to Section 4.2, shall terminate as
to the following percentages of the original principal amount of
the Debenture Securities on the dates set forth below provided
that during the period from the Closing through such dates (each
a "Release Date") and with respect to holders of Debenture
Securities who have executed an Employment Agreement (as
hereinafter defined), such holders shall have been continuously
employed pursuant to such holder's Employment Agreement:
Percentage Released Date Through Which
Securityholder Must Be
Employed
33 1/3% First Anniversary of Closing
33 1/3% Second Anniversary of Closing
33 1/3% Third Anniversary of Closing
The restrictions on transfer set forth in this Article II shall
terminate upon the consummation of a Public Offering after the
third anniversary of the date of this agreement. "Public
Offering" means the consummation of the sale of Shares of HTI
pursuant to an effective registration statement filed by HTI
under the Securities Act of 1933 in connection with the initial
firm commitment underwritten offering to the general public of
Shares following which the Shares are either listed on a national
securities exchange or authorized for quotation on NASDAQ.
2.15 Advisory Board. The AFC Sellers and any Additional
Securityholders receiving Debentures upon any dissolution of an
AFC Seller (the "AFC Group") shall be entitled to designate, by
vote of holders of a majority of Securities held by the AFC Group
(which shall be measured as to debt securities (including Related
Debentures) on the basis of the principal amount of the debt
securities held by the Securityholders), one representative
member of HTI's advisory board (the "Advisory Board") so long as
Securities held by the AFC Group remain outstanding and are
subject to the provisions of Section 3.1, 4.1 or 4.2. The Allied
Sellers and any Additional Securityholders receiving Debentures
upon any dissolution of an Allied Seller (the "Allied Group")
shall also be entitled to designate, by vote of holders of a
majority of Securities held by the Allied Group (measured as
aforesaid), one representative member of the Advisory Board so
long as Securities held by the Allied Group remain outstanding
and are subject to the provisions of Sections 3.1, 4.1 or 4.2.
Any such designee must be a full-time employee of HTI or one of
its subsidiaries (or, if the Allied Group designates ▇▇▇▇▇▇▇▇▇,
serving in accordance with the terms of his Employment Agreement)
to be eligible to serve on the Advisory Board.
ARTICLE III - PUT RIGHT
3.1 Put Right. After the third and prior to the fifth
anniversary of the date of this Agreement, each Securityholder
shall have the right (the "Put Option"), exercisable by giving
written notice to HTI (a "Put Notice"), to require HTI to
purchase from such Securityholder, at a price equal to the Put
Price (as defined in Section 3.2), all or any portion of the
Securities owned by such Securityholder; provided, however, that
if the Securityholder or any Affiliate or shareholder of such
Securityholder has executed an Employment and Non-Competition
Agreement with HTI or one of its Affiliates (a "Restricted
Holder"), such Securityholder may not exercise the Put Option
under the circumstances entitling HTI to a First Call Option.
3.2 Put Price. The purchase price for any Securities
subject to a Put Option (the "Put Price") shall be equal, as
applicable, to: (a) in the case of Debenture Securities subject
to the Put Option, the greater of (I) the face value of the
Debentures plus accrued but unpaid interest thereon to the date
of redemption, and in the case of Shares converted from
Debentures that are subject to the Put Option, the face value of
the Debentures from which such Shares were converted, plus
accrued but unpaid interest thereon, if any, to the date of
conversion (such Debentures, the "Related Debentures"), or (II)
the Equity Value (as hereinafter defined) of the Shares (on an as
converted basis) subject to the Put Option; (b) with respect to
Securities, other than Debenture Securities described in (a)
above, which are non-convertible debt ("Nonconvertible Debt"),
the face amount of such debt, plus accrued and compound interest
thereon, if any, to the date of redemption, without any
discount; (c) with respect to Shares other than Debenture
Securities set forth in (a) above ("Additional Shares"), the
Equity Value of such Shares, and (d) with respect to debt
securities, other than Debenture Securities, that are convertible
into Shares ("Additional Convertible Securities"), the applicable
price as may be agreed to by the Securityholders and HTI and set
forth in such Additional Convertible Securities.
"Equity Value" shall be equal to (a) (i) 7.25 times the
Consolidated EBITDA (as defined on Exhibit 3.2) of HTI for the
four full fiscal quarters immediately preceding the month in
which the Put Option is exercised (the "Measurement Period"),
minus (ii) total Average Indebtedness of HTI on a consolidated
basis for the applicable Measurement Period, plus (iii) total
Average Cash of HTI on a consolidated basis during the applicable
Measurement Period, multiplied by (b) (i) the number of Shares
(on an as converted basis) subject to the Put Option divided by
(ii) the number of issued and outstanding Shares (on a fully-
diluted, as converted basis) at the time the Put Option is
exercised. The Equity Value shall be increased by the amount, if
any, of Pro Rata Disposition Proceeds (as defined below) if the
amount of Pro Rata Disposition Proceeds is a positive amount.
"Indebtedness" means (i) any obligation for money borrowed,
including any money borrowed from any Affiliate of HTI, (ii) any
obligation evidenced by bonds, debentures, notes, or other
similar instruments, including, without limitation, any such
obligations incurred in connection with the acquisition of
property, assets or businesses, excluding trade accounts payable
made in the ordinary course of business, (iii) any obligation
issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable arising in the
ordinary course of business), (iv) any capital lease obligation,
and (v) any indebtedness with respect to any sale and leaseback
transaction that would appear on the balance sheet of HTI in
accordance with generally accepted accounting principles;
provided, however, any convertible Indebtedness which is treated
as Shares in the Equity Value calculation shall be excluded from
the calculation of Indebtedness.
"Average Indebtedness" means the average monthly balance of
Indebtedness owing by HTI during the applicable Measurement
Period (measured on the basis of month-end balances during the
Measurement Period); provided, however, that if Indebtedness is
incurred to finance any acquisition completed during a
Measurement Period the financial results of which are included in
Consolidated EBITDA for such Measurement Period, "Average
Indebtedness" shall include the amount of such acquisition
Indebtedness owing by HTI as of the end of the applicable
Measurement Period.
"Average Cash" means the lesser of (a) the sum of (i) the
average monthly cash (or cash equivalents) balance during the
applicable Measurement Period of HTI (measured on the basis of
month-end balances during the Measurement Period), (ii) the
average monthly amount owing after the date hereof to HTI from
Affiliates of HTI in respect of intercompany advances to such
Affiliates (measured on the basis of month-end balances during
the Measurement Period), and (iii) amounts distributed after the
date hereof to shareholders of HTI as a dividend on, or otherwise
in respect of, ownership of shares ("Distributions") (other than
(A) any amounts that are otherwise accounted for in computing
Equity Value, including as Disposition Proceeds, or (B) any
Distributions that are made to or in respect of shareholders of
HTI, which are Distributions to the Securityholders in accordance
with their pro rata fully diluted, as converted, equity
interest), or (b) the total Average Indebtedness during the
applicable Measurement Period.
"Average Indebtedness" and "Average Cash" shall be measured
without regard to any Indebtedness, or cash or other amounts
described in clauses (i), (ii) and (iii) of the definition of
Average Cash, existing, incurred, made or distributed, as the
case may be, or otherwise set forth on the Financial Statements
of HTI, prior to the date of this Agreement.
"Disposition" means any sale or disposition, whether by
stock sale, asset sale, merger, consolidation, spin-off or other
sale transaction or series of related sale transactions, prior to
the third anniversary of the Closing of any business unit or line
of business of HTI which had total annual revenues for the four
(4) fiscal quarters completed immediately prior to the
consummation of the sale or disposition equal to or greater than
ten percent (10%) of the consolidated revenues of HTI for such
four (4) fiscal quarters, adjusted to give effect to the
transactions contemplated by the Purchase Agreements as if they
had been consummated as of the first day of such four (4) fiscal
quarter period, to an entity or individual which or who is not an
affiliate of HTI or HON (an "Unrelated Acquiror").
"Pro Rata Disposition Proceeds" shall be equal to (DP
divided by FDS) times SS.
As used in this Section:
"DP" or "Disposition Proceeds" equals the proceeds
ultimately received by HTI from a Disposition, net of (1) all
fees, taxes, repayment of Indebtedness, legal costs, incurred or
reserved indemnification amounts, and similar costs, expenses and
reserves paid or payable, or that arise or accrue, in connection
with such Disposition ("Transaction Costs"), and (2) all
Protection Amounts paid or payable, or that arise or accrue,
pursuant to the Securityholders' Agreement dated as of October 2,
1996, as amended by Amendment No. 1 to Securityholders' Agreement
dated September 30, 1999 and Amendment No. 2 to Securityholders'
Agreement dated February 28, 2000 (the "Heat-N-Glo
Securityholders' Agreement"). For the avoidance of doubt,
"Protection Amounts" shall be computed and disclosed prior to or
at the time at which any Put Price is actually paid to a
Securityholder whose payments are being reduced by any Protection
Amounts. The value of the Disposition Proceeds received and the
Transaction Costs shall be reasonably determined in good faith by
the Board of Directors of HTI, and an internally prepared
computation thereof will be delivered, at the request of any
Securityholder, to any such requesting Securityholder, which
Schedule shall be considered HTI Information as defined in
Section 7.10. To the extent Disposition Proceeds are based upon
consideration that is deferred or contingent, including any
reserves ultimately released, the inclusion in Equity Value of
Pro Rata Disposition Proceeds attributable to such Disposition
Proceeds shall be deferred until the receipt of such
consideration.
"FDS" has the meaning set forth in Section 4.5.
"SS" means the number of fully-diluted Shares held by
persons who, at the time the Disposition is consummated, hold
securities of HTI, including without limitation, any capital
stock or any securities evidencing the right to acquire capital
stock, any convertible debentures or other convertible debt that
now is or hereafter may be issued, assuming conversion of all
options, warrants, debentures and other rights to acquire Shares.
3.3 Put Closing. The closing of the purchase of Securities
pursuant to a Put Option shall take place at the offices of HON
at 10:00 a.m. local time on a date not more than thirty (30) days
after the later to occur of (a) the date the Put Notice is
received by HTI or (b) the date on which any dispute as to the
Relevant EBITDA Report (as hereinafter defined) shall have been
resolved pursuant to Section 3.6, as HTI shall specify by notice
to each Securityholder that has delivered a Put Notice. HTI
shall be entitled to receive customary representations and
warranties as to title, no liens, authority and capacity to sell
from the selling Securityholder regarding such sale. At the
closing, the selling Securityholder shall deliver to HTI a
certificate or certificates evidencing the number of Securities
then to be purchased by HTI (properly endorsed or accompanied by
stock powers or similar appropriate documentation of authority to
transfer) against payment at Closing of the Put Price for the
Securities subject to the Put Option to such Securityholder by
certified or cashier's check or wire transfer.
3.4 Termination and Limitation of Put Right. (a) The right
of Securityholders to put Securities to HTI pursuant to Section
3.1 shall terminate upon the consummation after the third
anniversary of this Agreement of a Public Offering.
(b) HTI shall have no obligation to purchase Securities
under Section 3.1 so long as, immediately after giving effect to
such purchase, HTI or any of its Affiliates, in the good faith
judgment of HTI's or any of its Affiliates' Board of Directors,
violates, or is likely to violate, any provision of the Iowa
Business Corporation Act or any agreement to which HTI or any of
its Affiliates is subject in respect of indebtedness for borrowed
money or the deferred purchase price of property, in either of
which events HON shall instead purchase such Securities in
accordance with the terms and conditions of this Agreement.
3.5 Adjustment of Equity Value. HTI or its Board of
Directors shall adjust the Equity Value as may be necessary to
equitably reflect any stock split, stock dividend or similar
recapitalization or reorganization of HTI (other than in
connection with a business combination, merger, sale of assets or
similar transaction) that results in a change in the number of
issued and outstanding shares of Common Stock of HTI in order to
prevent any dilution or enlargement of Securityholders' rights
and obligations under this Article III upon exercise of any Put
Option hereunder.
3.6 Review of Relevant EBITDA Report. Any Securityholder
exercising his, her or its Put Option or whose Securities are
called pursuant to Article IV shall have 10 business days from
the date of such exercise or call in which to review the EBITDA
Report (as defined on Exhibit 3.2) setting forth the Consolidated
EBITDA for the measurement period governing the computation of
the Put Price payable in connection with such exercise or call
(the "Relevant EBITDA Report"), and if, in such Securityholder's
reasonable judgment, the Relevant EBITDA Report does not fairly
present Consolidated EBITDA for the Measurement Period in
accordance with Section 3.2 and Exhibit 3.2, any such
Securityholder shall have the right to propose an adjustment
thereto within such 10-day period. HTI shall, during such 10-day
period, provide access to the objecting Securityholders, at such
Securityholders' cost, to such supporting documentation as is
reasonably requested to evaluate the Relevant EBITDA Report
(which documentation shall be considered HTI Information for
purposes of Section 7.10). Any such proposed adjustment shall be
in writing (the "Adjustment Request"), shall be submitted to HTI
within the 10-day period referred to in the preceding sentence of
this Section 3.6, and shall specify (i) the amount of the
proposed adjustment, (ii) the item to which such proposed
adjustment relates, and (iii) the facts and circumstances
supporting the reasonableness and propriety of such adjustment
under the standards set forth in Section 3.2 and Exhibit 3.2.
Unless a Securityholder exercising his, her or its Put Option
notifies HTI within such 10-day period that such Securityholder
objects to the findings contained in the Relevant EBITDA Report,
the Relevant EBITDA Report shall be binding upon all such
Securityholders and HTI. HTI and all such Securityholders shall
use their best efforts for 15 business days after the submission
of any Adjustment Request to agree upon any proposed adjustments
to the Relevant EBITDA Report. Any dispute as to any item or
items set forth in the Adjustment Request of the Relevant EBITDA
Report that is not resolved by HTI and the Securityholders during
such 15-day period shall be submitted for resolution of such item
or items to a mutually acceptable "Big Five" independent public
accounting firm (other than the accounting firm then serving HON,
HTI, or their Affiliates), whose costs shall be borne half by HTI
and half by the objecting Securityholder(s). The decision of
such firm shall be final and binding on HTI and such
Securityholders.
ARTICLE IV - CALL RIGHTS
4.1 First Call Right. (a) If Hearth Services Inc., an
Iowa corporation ("HSI"), or HTI terminates the employment of any
Restricted Holder pursuant to Section 9(e)(ii) or (iii) of the
Employment and Non-Competition Agreement between the terminated
Restricted Holder and HSI or one of its Affiliates (any
Restricted Holder's "Employment Agreement") or if a Restricted
Holder terminates his employment with HSI or any Affiliate of
HSI, other than on account of (x) death or (y) Disability (as
defined in Section 9(f) of such Restricted Holder's Employment
Agreement), HTI shall have the right (the "First Call Option"),
exercisable by giving written notice to such Restricted Holder
(the "First Call Notice") within 90 days after the date of such
termination, to purchase from such Restricted Holder, at a price
equal to the First Call Price, all (but not less than all) of the
Securities owned by such Restricted Holder.
(b) Except as otherwise provided in Section 4.1(c), the
purchase price for any Securities subject to the First Call
Option (the "First Call Price") shall be equal to the Applicable
Repurchase Price (as defined below) of such Restricted Holder's
Securities.
(c) The "Applicable Repurchase Price" shall be equal:
(i) with respect to Debentures, the percentage of the principal
amount of such Debentures as is set forth below for the period in
which the Restricted Holder of such Debentures was terminated,
plus accrued but unpaid interest thereon, if any (or the Put
Price, if applicable); (ii) with respect to Shares converted from
Debentures, the percentage of the principal amount of such
Share's Related Debentures as is set forth below for the period
in which the Restricted Holder of such Shares was terminated,
plus accrued but unpaid interest thereon, if any (or the Put
Price, if applicable); (iii) with respect to Nonconvertible Debt,
the face amount of such Securities plus accrued but unpaid
interest thereon, if any, to the date of redemption, without any
discount; (iv) with respect to Additional Shares, the amount paid
for such Additional Shares, without any discount; and (v) with
respect to Additional Convertible Securities, the applicable
price as may be agreed to by the Securityholders and HTI and set
forth in such Additional Convertible Securities.
If Terminated: Repurchase Price as a
Percentage of Principal
Amount
Before the first anniversary 70%
of the date of this Agreement
On or after the first 80%
anniversary of the date of
this Agreement but before the
second anniversary of the date
of this Agreement
On or after the second 90%
anniversary of the date of
this Agreement but before the
third anniversary of the date
of this Agreement
On or after the third The greater of 100% or
anniversary of the date of the Put Price
this Agreement
provided, however, that in the case of a Restricted Holder, HTI
may repurchase such Restricted Holder's Debenture Securities for
an amount equal to the Applicable Repurchase Price less any
damages, as determined by a judgment which has become final and
non-appealable of a court of competent jurisdiction (which shall,
for purposes of this Agreement, be deemed to include any
mediation to which the Restricted Holder and the Company have
consented, and any arbitration decision rendered, pursuant to
Section 11.8 of either Purchase Agreement) that (i) such
Restricted Holder materially breached Section 10 or 11 of such
Restricted Holder's Employment Agreement and (ii) in the event
such breach was of a type or nature which is susceptible to cure,
such Restricted Holder did not cure such breach within 10 days of
written notice of such breach; provided further, however, that
pending any such judgment, (i) the Restricted Holder may not
exercise any rights he may have as a Securityholder and (ii) the
subject Debenture Securities and any principal or interest, and
dividends or distributions, thereon shall be deposited into an
interest bearing escrow account with a financial institution
designated by HTI. If such judgment holds that HTI is not
entitled to repurchase Debenture Securities pursuant to the first
proviso of this Section 4.1(c) and (i) that HTI had reasonable
grounds for its assertion that it was entitled to repurchase such
Debenture Securities pursuant to the first proviso of this
Section 4.1(c), then HTI shall return to the appropriate
Restricted Holder all wrongfully escrowed Debenture Securities,
principal, interest, dividends and distributions, plus a total of
10% interest (i.e., including interest earned on the escrow
account) computed thereon (in the case of Debenture Securities,
on such Debenture Securities' face value) from the date of escrow
to the date of return or (ii) that HTI did not have reasonable
grounds for its assertion that it was entitled to repurchase
Debenture Securities pursuant to the first proviso of this
Section 4.1(c), then HTI shall return to the appropriate
Restricted Holder all wrongfully escrowed Debenture Securities,
principal, interest, dividends and distributions, plus interest
earned on the escrow account, plus 15% interest computed on all
escrowed Debenture Securities, principal, interest, dividends and
distributions (in the case of Debenture Securities, on such
Debenture Securities' face value) from the date of escrow to the
date of return. If such judgment holds that HTI was entitled to
repurchase Debenture Securities pursuant to the first proviso of
this Section 4.1(c), the appropriate Restricted Holder shall pay
HTI 10% interest on all escrowed amounts (less any interest
thereon from the date of escrow to the date of such judgment).
4.2 Second Call Right. After the fourth anniversary of the
date hereof, HTI shall have the right (the "Second Call Option")
exercisable by giving written notice to a Securityholder (the
"Second Call Notice") to purchase from such Securityholder, at a
price equal to the Put Price, all (but not less than all) of the
Securities owned by such Securityholder; provided, however, that
(A) the purchase price for any Additional Shares shall be the
greater of the Put Price or the original purchase price paid by
the Securityholder for such Shares, and (B) in the case of a
Restricted Holder, HTI may repurchase such Restricted Holder's
Debenture Securities for an amount equal to the Applicable
Repurchase Price less any damages, as determined by a judgment
which has become final and non-appealable of a court of competent
jurisdiction (which shall, for purposes of this Agreement, be
deemed to include any mediation to which the Restricted Holder
and the Company have consented and any arbitration decision
rendered, pursuant to Section 11.8 of either Purchase Agreement)
that (i) such Restricted Holder materially breached Section 10 or
11 of such Restricted Holder's Employment Agreement and (ii) in
the event such breach was of a type or nature which is
susceptible to cure, such Restricted Holder did not cure such
breach within 10 days of written notice of such breach; provided
further, however, that pending any such judgment, (i) the
Restricted Holder may not exercise any rights he may have as a
Securityholder and (ii) the subject Debenture Securities and any
principal or interest, and dividends or distributions, thereon,
shall be deposited into an interest bearing escrow account with a
financial institution designated by HTI. If such judgment holds
that HTI is not entitled to repurchase Debenture Securities
pursuant to the first proviso of this Section 4.2 and (i) that
HTI had reasonable grounds for its assertion that it was entitled
to repurchase such Debenture Securities pursuant to the first
proviso of this Section 4.2, then HTI shall return to the
appropriate Restricted Holder all wrongfully escrowed Debenture
Securities, principal, interest, dividends and distributions,
plus a total of 10% interest (i.e., including interest earned on
the escrow account) computed thereon (in the case of Debenture
Securities, on such Debenture Securities' face value) from the
date of escrow to the date of return or (ii) that HTI did not
have reasonable grounds for its assertion that it was entitled to
repurchase Debenture Securities pursuant to the first proviso of
this Section 4.2, then HTI shall return to the appropriate
Restricted Holder all wrongfully escrowed Debenture Securities,
principal, interest, dividends and distributions, plus interest
earned on the escrow account plus 15% interest computed on all
escrowed Debenture Securities, principal, interest, dividends and
distributions (in the case of Debenture Securities, on such
Debenture Securities' face value) from the date of escrow to the
date of return. If such judgment holds that HTI was entitled to
repurchase Debenture Securities pursuant to the first proviso of
this Section 4.2, the appropriate Restricted Holder shall pay HTI
10% interest on all escrowed amounts (less any interest thereon
from the date of escrow to the date of such judgment).
4.3 Call Closing. The closing of the purchase of the
Securities pursuant to a First Call Option or Second Call Option
(each, a "Call Option") shall take place at the offices of HON at
10:00 a.m. local time on a date not more than thirty (30) days
after the later to occur of (a) the date the First Call Notice or
Second Call Notice, as applicable (each, a "Call Notice"), is
received by the Securityholder or (b) the date on which any
dispute as to the Relevant EBITDA Report shall have been resolved
pursuant to Section 3.2, as HTI shall specify in the Call Notice
or, if clause (b) is applicable, subsequent notice to the
applicable Securityholder(s). HTI shall be entitled to receive
customary representations and warranties as to title, no liens,
authority and capacity to sell from such Securityholder regarding
such sale. At the closing, the selling Securityholder shall
deliver to HTI a certificate or certificates evidencing the
Securities then to be purchased by HTI (properly endorsed or
accompanied by stock powers or similar appropriate documentation
of authority to transfer), against payment of the applicable
purchase price for the Securities subject to the Call Option to
such Securityholder by certified or cashier's check or wire
transfer.
4.4 Termination of Call Right. The right of HTI to
purchase Securities from Securityholders pursuant to Section 4.2
shall terminate upon the consummation after the third anniversary
of the Closing of a Public Offering.
4.5 Price Protection. If a Securityholder's Debenture
Securities have been repurchased by HTI pursuant to Sections 3.1
or 4.2 or at the final stated maturity date thereof (other than
in connection with a material breach by a Restricted Holder of
his obligations under Section 10 or 11 of such Restricted Holder
Employment Agreement which is not cured within the applicable
cure period) within 365 days prior to consummation of a Public
Offering or a Sale (as hereinafter defined) which Public Offering
or Sale is consummated during the Protection Period (as
hereinafter defined) (a "Qualifying Repurchase"), then HTI shall
pay to each Securityholder whose Debenture Securities were so
repurchased (the "Covered Securityholders"), such
Securityholder's Protection Amount (as hereinafter defined).
"Protection Period" shall mean the period commencing on the day
after the third anniversary of the date of this Agreement, and
ending one year following the final stated maturity date of the
Debentures. "Protection Amount" means:
(i) in the case of a Public Offering, the amount, if
positive, equal to (OP minus RP) times NS; and
(ii) in the case of a Sale, the amount, if positive,
equal to ((SP divided by FDS) minus RP) times NS.
As used in this Section:
(i) "OP" equals the per share offering price to the
public in connection with such Public Offering;
(ii) "RP" equals the applicable price paid per
Security in connection with such Qualifying Repurchase to
the Covered Securityholder;
(iii) "NS" equals the number of shares repurchased by
HTI from the Covered Securityholder in the Qualifying
Repurchase;
(iv) "SP" equals the value of the proceeds ultimately
received by the shareholders of HTI from the Sale, net of
(A) all Transaction Costs, and (B) any Protection Amounts
paid or payable, or that arise or accrue pursuant to, this
Agreement or the Heat-N-Glo Securityholders' Agreement; and
(v) "FDS" means the number of fully-diluted Shares,
assuming conversion of all options, warrants, debentures and
other rights to acquire Shares.
The value of the consideration received and the Transaction
Costs shall be reasonably determined in good faith by the Board
of Directors of HTI, and an internally prepared computation
thereof will be delivered, at the request of any Securityholder,
to any such requesting Securityholder, which Schedule shall be
considered HTI Information as defined in Section 7.10.
"Sale" means a transaction or a series of related
transactions in which: (A) all or substantially all of HTI's
assets are sold to an Unrelated Acquiror; (B) HTI is merged or
consolidated with or into an Unrelated Acquiror; or (C) one or
more stockholders of HTI sell, transfer or otherwise convey to an
Unrelated Acquiror more than 50% of the total outstanding equity
interests (assuming conversion of all options, warrants,
debentures and other rights to acquire Shares) in HTI.
Protection Amounts shall be payable no later than ten (10)
business days following the receipt by HTI or the shareholders of
HTI of proceeds of the Sale or Public Offering; provided,
however, that to the extent Protection Amounts are based upon
proceeds that are deferred or contingent, the payment of such
Protection Amounts shall be deferred until the receipt of such
consideration.
If a Sale is structured as a transaction described in
clauses (B) or (C) of the above definition of "Sale", each
Securityholder hereby acknowledges and agrees that any
consideration otherwise payable to such Securityholder in
connection with such Sale shall be reduced by such
Securityholder's pro rata amount of any amounts payable to
Covered Securityholders pursuant to this Section 4.5 or
comparable amounts payable to holders of shares who are parties
to the Heat-N-Glo Securityholders' Agreement.
4.6 Adjustment of First Call Price. HTI or its Board of
Directors shall adjust the First Call Price or the Put Price, as
the case may be, as may be necessary to equitably reflect any
stock split, stock dividend or similar recapitalization or
reorganization of HTI (other than in connection with a business
combination, merger, sale of assets or similar transaction) that
results in a change in the number of issued and outstanding
shares of Common Stock of HTI in order to prevent any dilution or
enlargement of Securityholders' rights and obligations under this
Article IV upon exercise of any First Call Option or Second Call
Option.
ARTICLE V - SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF
Any person against whom enforcement of this Agreement
is sought hereby declares that it is impossible to measure in
money the damages that will accrue to a party hereto by reason of
a failure to perform any of the obligations under this Agreement,
including but not limited to the failure to transfer Securities
to HON or HTI, and the attempted Transfer of Securities to a
third party in contravention of the terms of this Agreement.
Therefore, if anyone shall institute any action or proceeding to
enforce the provisions hereof or to enjoin any Transfer in
contravention of the provisions hereof, any person against whom
such action or proceeding is brought hereby waives the claim or
defense therein that the person instituting such action or
proceeding has an adequate remedy at law, and such person shall
not urge in any such action or proceeding the claim or defense
that such remedy at law exists, and also waives any requirement
that the party instituting such action furnish a bond of any
type.
ARTICLE VI - CO-SALE PROVISIONS
6.1 Drag Along Rights.
(a) Applicability. In connection with a sale by HON
or issuance by HTI of more than fifty percent (50%) of the
outstanding Shares (assuming conversion of all options,
warrants, debentures and other rights to acquire shares) of
HTI (a "Majority Sale"), HON shall have the right to require
each Securityholder to transfer the portion of its Equity
Rights (as defined in Section 6.2) that represents (i) the
same percentage of the Shares held by such Securityholder on
a fully-diluted as converted basis as the Shares being
disposed of by HON represent of the Shares held by HON on a
fully-diluted basis; or, if applicable, (ii) the same
percentage of the Shares held by such Securityholder on a
fully diluted as converted basis as the shares being issued
by HTI represent to the total number of shares outstanding
before such issuance, calculated on a fully diluted as
converted basis. If HON exercises such right in accordance
with this Section 6.1(a), each Securityholder shall convert
his, her or its Equity Rights into Shares (to the extent a
sufficient number of such Equity Rights are not already so
converted) in an amount sufficient to satisfy such
Securityholder's obligations hereunder no later than
immediately prior to the consummation of such Majority Sale.
(b) Notice of Majority Sale. HON shall give each
Securityholder at least ten (10) days' prior written notice
of any Majority Sale as to which HON intends to exercise its
rights under this Section 6.1. If HON elects to exercise
its rights under this Section 6.1, each Securityholder shall
take such actions as may be reasonably required and
otherwise cooperate in good faith with HON in connection
with consummating the Majority Sale (including, without
limitation, the voting of any Shares or other voting capital
stock of HTI owned by such Securityholder or any affiliate
of such Securityholder to approve such Majority Sale). At
the closing of such Majority Sale, each Securityholder shall
deliver certificates for all Shares to be sold by such
Securityholder, duly endorsed for transfer, with the
signature guaranteed, to the purchaser against payment of
the appropriate purchase price.
6.2 Co-Sale Rights.
(a) Applicability. In the event HON proposes to
effect a Majority Sale, then at least ten (10) days prior to
the closing of such Majority Sale, HON shall make an offer
(the "Participation Offer") to each Securityholder to
include in the proposed Majority Sale a portion of each
Securityholder's Shares, Debenture Securities and Additional
Convertible Securities ("Equity Rights") which represents
the same percentage of the Shares held by such
Securityholder on a fully-diluted basis as the Shares being
sold by HON represent of the total number of Shares held by
HON; provided, that if the consideration to be received by
HON includes any securities, each Securityholder must
evidence to the reasonable satisfaction of HON that the
Securityholder meets applicable state and federal securities
law criteria in order to participate in such transfer.
(b) Terms of Participation Offer. The Participation
Offer shall describe the proposed Majority Sale and shall be
conditioned upon (i) the consummation of the transactions
contemplated in the Participation Offer with the transferee
named therein, (ii) the Securityholder's execution and
delivery of all agreements and other documents as HON is
required to execute and deliver in connection with such
Majority Sale, and (iii) converting its Equity Rights into
Shares (to the extent a sufficient number of such Debentures
are not already so converted) in an amount sufficient to
fulfill the Participation Offer no later than immediately
prior to the consummation of such Majority Sale. If any
Securityholder shall accept the Participation Offer, HON
shall reduce, to the extent necessary, the number of Shares
HON otherwise would have sold in the proposed Majority Sale
so as to permit each Securityholder who accepted the
Participation Offer to sell the number of Shares that it is
entitled to sell under this Section 6.2, and HON shall
Transfer, and each Securityholder who accepted the
Participation Offer shall Transfer, the number of Shares
specified in the Participation Offer to the proposed
transferee in accordance with the terms of such Transfer as
set forth in the Participation Offer.
6.3 Put and Call Inapplicable. The provisions of Articles
II and III shall not apply to any sale pursuant to this
Article VI.
6.4 Sale Other Than Majority Sales. In connection with any
Sale (other than a Majority Sale), each Securityholder shall vote
his or her Securities and take such actions as may be necessary
to consummate such sale.
6.5 Price and Terms. All Securities transferred by
Securityholders pursuant to this Article VI shall be sold at the
same price and terms and otherwise treated identically with the
Securities being sold by HON in all respects except as set forth
below. In the event of any Sale or Majority Sale (i) with
respect to indemnification obligations relating to or resulting
from any such Sale or Majority Sale, each such Securityholder
shall be liable for only (A) those indemnification obligations
relating to the business of HTI and its operating units and
divisions, and indemnification as to matters relating
individually to such Securityholder, and (B) that percentage of
the total indemnification obligations as is equal to the
percentage that the sale proceeds received by such Securityholder
bears to the overall consideration paid in such Sale or Majority
Sale, but in any event not to exceed the sales proceeds actually
received by such Securityholder, (ii) if the price per Security
paid in such Sale or Majority Sale, or the proceeds in any Sale
referred to in clause (A) of the definition of Sale, is less than
(x) the applicable Put Price, less (y) the amount of
indemnification required of a Securityholder (the "Adjusted Put
Price"), at the time of the such Sale or Majority Sale, HTI shall
pay the selling Securityholders an amount equal to the difference
between such price or proceeds and the Adjusted Put Price; and
(iii) in the case of a Sale or Majority Sale consummated before
the third anniversary of the Closing, if at the time such Sale or
Majority Sale is consummated HTI shall have met the EBITDA
criteria set forth in HTI's then-effective consolidated strategic
plan for the four fiscal quarters immediately preceding the
consummation of the Sale or Majority Sale or such shorter period
of combined operations as shall have elapsed since the Closing
(which strategic plan shall be consistent with the projected
financial statements set forth in the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇/First Union Capital Markets Corp. Confidential Information
Memorandum dated September 1999, attached as Exhibit 6.5(i), and
the Hearth Technologies Inc. Strategic Plan 2000-2002, attached
as Exhibit 6.5(ii)), HTI shall pay each Securityholders an amount
equal to fifteen percent (15%) of the principal amount of
Debentures held by such Securityholders at the time the Sale or
Majority Sale is consummated.
ARTICLE VII - MISCELLANEOUS
7.1 Term. This Agreement shall commence on the date hereof
and shall continue until terminated upon the first to occur of
either (a) dissolution of HTI or (b) the voluntary agreement, in
writing, of all parties who are then bound by the terms hereof.
7.2 Notices. All notices given under the terms of this
Agreement shall be in writing and shall be deemed given when
delivered in person or sent by courier or U.S. registered or
certified mail, postage prepaid, addressed to the party to be
notified at (a) the principal office of HTI, in case of notices
to HTI, (b) the principal office of HON, in case of notices to
HON, and (c) the address of the Securityholder set forth in the
records of HTI (or such other address as is notified to HTI in
accordance with this terms of this Section 7.2) or the address of
an attorney-in-fact of the Securityholder appointed pursuant to
Section 7.8 hereof, in the case of notices to any Securityholder.
7.3 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
heirs, personal representatives, successors and assigns, and such
other persons who may from time to time become owners of Shares.
7.4 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Iowa.
7.5 Amendments. No amendments or additions to this
Agreement shall be binding unless in writing and signed by all
the parties.
7.6 Entire Agreement. This Agreement contains the entire
Agreement of the parties and supersedes all other agreements,
oral or written between the parties, with respect to the subject
matter hereof, except for any other agreements signed
contemporaneously herewith.
7.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, and all of which together will constitute one and the
same instrument.
7.8 Power of Attorney. (a) Each Securityholder who is an
Affiliate of an Allied Seller, by executing this Agreement or a
counterpart hereof, does hereby irrevocably constitute and
appoint ▇▇▇▇▇▇▇▇▇, with full power of substitution, as such
Securityholder's true and lawful attorney-in-fact, in his, her or
its name, place and stead, to execute, deliver and receive any
notices or any other instruments and documents contemplated by or
relating to this Agreement.
(b) Each Securityholder who is an Affiliate of an AFC
Seller, by executing this Agreement or a counterpart hereof, does
hereby irrevocably constitute and appoint, with full power of
substitution, ▇▇▇▇▇▇ as such Securityholder's true and lawful
attorney-in-fact, in his, her or its name, place and stead, to
execute, deliver and receive any notices or any other instruments
and documents contemplated by or relating to this Agreement.
7.9 Attorneys' Fees. In the event of any dispute among the
parties hereto arising out of or related to this Agreement
involving mediation, arbitration and/or litigation, HON, HTI and
the Securityholders agree that, except as may be otherwise agreed
by the parties or ordered by any mediator, arbitrator or court of
competent jurisdiction, the party or parties against whom a final
determination is made will reimburse the other party or parties
for all fees, costs and expenses of counsel incurred by such
party or parties with respect to such mediation, arbitration
and/or litigation.
7.10 HTI Information.
(a) Until the consummation of a Public Offering on or
after the third anniversary of this Agreement, HTI shall
mail to each Securityholder, at such Securityholder's
address as it appears on the records of HTI, (i) on a
quarterly basis, a copy of the EBITDA Report for the four
preceding fiscal quarters and (ii) on a monthly basis until
the occurrence of a Public Offering a copy of the regular
monthly financial report provided to HON by HTI
(collectively, "HTI Information"); provided, however, that
neither HON nor HTI shall have any liability with respect to
HTI Information, except to the extent HTI Information is
included in a Relevant EBITDA Report, and then only to the
extent provided in Articles III and IV.
(b) Each Securityholder agrees that he, she or it will
keep all HTI Information in strict confidence, and will
never directly or indirectly make known, divulge, reveal,
furnish, make available, or use any HTI Information (except
in the course of any regular authorized duties on behalf of
HTI such Securityholder may have). Each Securityholder
agrees that the obligations of confidentiality hereunder
shall survive termination of his, her or its status as a
Securityholder, until and unless any such HTI Information
shall have become, through no fault of such Securityholders,
generally known to the public or such Securityholder is
required by law to make disclosure (after giving HTI notice
and an opportunity to contest such requirement). Each
Securityholder's obligations under this Section 7.10 are in
addition to, and not in limitation of or preemption of, all
other obligations of confidentiality that such
Securityholder may have to HTI under general legal or
equitable principles.
(c) Except in the ordinary course of HTI's business,
no Securityholder shall make or cause to be made, any
copies, pictures, duplicates, facsimiles or other
reproductions or recordings or any abstracts or summaries
including or reflecting HTI Information. All such documents
and other property furnished to any Securityholder by HTI or
otherwise acquired or developed by HTI shall at all times be
the property of HTI. Upon termination of any
Securityholder's status as a Securityholder, such
Securityholder will return to HTI any HTI Information that
is in the possession, custody or control of such
Securityholder.
(d) Each Securityholder acknowledges and agrees that a
violation of the foregoing provisions of this Section 7.10
that results in material detriment to HTI would cause
irreparable harm to HTI, and that HTI's remedy at law for
any such violation would be inadequate. In recognition of
the foregoing, each Securityholder agrees that, in addition
to any other relief afforded by law or this Agreement,
including damages sustained by a breach of this Agreement,
and without any necessity or proof of actual damages, HTI
shall have the right to enforce this Agreement by specific
remedies, which shall include, among other things, temporary
and permanent injunctions, it being the understanding of the
undersigned parties hereto that damages, the forfeitures
described above and injunctions shall all be proper modes of
relief and are not to be considered as alternative remedies.
(e) Each Securityholder hereby acknowledges that such
Securityholder is aware HON is a public company, HTI is a
material subsidiary of HON, and that applicable securities
laws may prohibit any Person who has material, non-public
information from purchasing or selling securities of the
company to which such information relates or from
communicating the information to any other Person, and that
any such purchases or sales of a Securityholder when in
possession of material non-public HTI Information may
constitute a violation of federal securities laws.
(f) For the purposes of this Section 7.10, "HTI" shall
include its subsidiaries as they may exist from time to
time.
7.11 CFO Certificate. Upon the occurrence of any
adjustment of the First Call Price, the Equity Value or the Put
Price pursuant to Section 3.5 or 4.6, HTI at its expense promptly
shall furnish to each Securityholder a certificate signed by the
Chief Financial Officer of HTI disclosing the First Call Price,
Equity Value or Put Price, as the case may be, as adjusted, and
the basis upon which such adjustment was made.
7.12 Anniversary Date. In any year that is not a leap
year, the anniversary date of this Agreement shall be February
28th of such year.
IN WITNESS WHEREOF, the parties have executed this
Securityholders' Agreement on the date first above written.
HON INDUSTRIES INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President, General Counsel
and Secretary
HEARTH TECHNOLOGIES INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President and Secretary
SECURITYHOLDERS:
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. Skornonski, individually
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, individually
MADISON FIRE PLACE, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
FIREPLACE & SPA, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chairman
THE MINOCQUA FIREPLACE COMPANY
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
AMERICAN FIREPLACE COMPANY
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
HEARTH & HOME, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually
/s/ ▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇, individually
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., individually
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇, individually
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, individually
Exhibit 3.2 -- Consolidated EBITDA
"Consolidated EBITDA" shall mean, for any period,
Consolidated Operating Income (as defined below) (i) increased
by, to the extent deducted in arriving at Consolidated Operating
Income, the sum of (A) consolidated depreciation and amortization
expense, (B) non-recurring expense, (C) extraordinary losses (net
of extraordinary gains), and (D) extraordinary professional and
other similar sale expense (other than amortization) arising from
the transactions contemplated by the Purchase Agreements, (ii)
further increased by amortization expense associated with
goodwill that exists on HTI's balance sheet immediately prior to
the consummation of the Acquisitions, (iii) minus any non-
recurring income that is recognized during the Measurement Period
and is included in Consolidated Operating Income, all as
determined by HON (the "EBITDA Report"). "Consolidated Operating
Income" shall mean, for any period, the respective dollar amount
for the account titled "Operating Income" in HTI's internal
consolidated statement of income, calculated on a basis
consistent with the statement of income for the 11-month period
ended November 1999 of HTI. If, during the Measurement Period,
HTI, or any HTI subsidiary, (i) completes any acquisition
accounted for under the purchase method of accounting, or any
Disposition, then Consolidated EBITDA shall be adjusted to
reflect the consolidated EBITDA HTI would have generated had such
acquisition or Disposition been consummated immediately prior to
the Measurement Period, or (ii) operates the Business, the
Acquired Assets, the Allied Assets or any other operating
business unit of HTI other than as an entity or operating unit
consolidated with HTI, then Consolidated EBITDA shall be adjusted
to reflect such operations as if they had been included in HTI's
internal consolidated financial statements.