STOCKHOLDERS' AGREEMENT

 =======================

                             STOCKHOLDERS' AGREEMENT

                                      among

                         FURNISHINGS INTERNATIONAL INC.

                                       and

                                ITS STOCKHOLDERS

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                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----

RECITALS.....................................................................  1

ARTICLE I
     CERTAIN DEFINITIONS.....................................................  2
     1.1  Defined Terms......................................................  2

ARTICLE II
     RESTRICTIONS ON TRANSFERS .............................................. 24
     2.1  Restrictions Generally; Securities Act............................. 24
     2.2  Legend............................................................. 24
     2.3  Limitations on Repurchases, Dividends, Etc......................... 24
     2.4  Transfer Restrictions.............................................. 25
     2.5  Right of First Refusal............................................. 27
     2.6  Involuntary Transfers.............................................. 29
     2.7  Drag-Along Rights.................................................. 31
     2.8  Special Right of First Offer....................................... 34

ARTICLE III
     RIGHTS OF INCLUSION..................................................... 36
     3.1  Rights of Inclusion................................................ 36
     3.2  Article III Sales.................................................. 39

ARTICLE IV
     REPURCHASE OF SECURITIES................................................ 40
     4.1  Sale Event......................................................... 40
     4.2  Purchase Price..................................................... 41
     4.3  Closing............................................................ 42
     4.4  Postponement....................................................... 42

ARTICLE V
     CORPORATE GOVERNANCE.................................................... 43
     5.1  Board of Directors................................................. 43
     5.2  Removal............................................................ 45
     5.3  Vacancies.......................................................... 46
     5.4  Weighted Board Voting.............................................. 46
     5.5  Special Approval Rights............................................ 47
     5.6  Committees of the Board; Subsidiary Boards......................... 47
     5.7  Observer's Rights.................................................. 48
     5.8  Action by Written Consent of Stockholders.......................... 49
     5.9  Regulatory Right................................................... 49

                                       -i-

     5.10 Post-Qualifying Offering Board..................................... 49

ARTICLE VI
     CERTAIN COVENANTS OF THE PARTIES........................................ 50
     6.1  Registration....................................................... 50
     6.2  Management Stockholders; Additional Stockholders................... 50
     6.3  Stockholder List; Certain Notices.................................. 51
     6.4  Regulatory Compliance Cooperation.................................. 51
     6.5  Rights Offering.................................................... 52

ARTICLE VII
     MISCELLANEOUS........................................................... 53
     7.1  Governing Law...................................................... 53
     7.2  Entire Agreement; Amendments....................................... 53
     7.3  Term............................................................... 54
     7.4  Certain Actions.................................................... 54
     7.5  Inspection......................................................... 55
     7.6  Compliance with Regulations........................................ 55
     7.7  Waiver............................................................. 56
     7.8  Successors and Assigns............................................. 56
     7.9  Remedies........................................................... 57
     7.10 Income Tax Withholding............................................. 58
     7.11 Invalid Provisions................................................. 58
     7.12 Headings........................................................... 58
     7.13 Further Assurances................................................. 58
     7.14 Gender............................................................. 58
     7.15 Counterparts....................................................... 59
     7.16 Payment............................................................ 59
     7.17 Notices............................................................ 59
     7.18 Consent to Jurisdiction and Service of Process..................... 61
     7.19 Waiver of Jury Trial............................................... 62
     7.20 Omnibus Signature Page............................................. 62

Exhibit A  Form of Joinder Agreement

Exhibit B  Legends

Exhibit C  Directors

                                      -ii-

     Stockholders' Agreement (this "Agreement") dated as of August 5, 1996 by
and among FURNISHINGS INTERNATIONAL INC., a Delaware corporation (the
"Company"), MASCO Corporation, a Delaware corporation ("Masco"), 399 Venture
Partners, Inc., a Delaware corporation ("399"), Associated Madison Companies,
Inc., a Delaware corporation ("AMC"), TRV Employees Fund, L.P., a Delaware
limited partnership ("TRV"), Greenwich Street Capital Partners, L.P., a Delaware
limited partnership ("Greenwich Street"), GSCP Offshore Fund Ltd., a British
Virgin Islands corporation ("GSCP"), The Travelers Insurance Company, a
Connecticut corporation ("Travelers"), The Travelers Life and Annuity Company, a
Connecticut corporation ("TLAC" and together with 399, AMC, TRV, Greenwich
Street, GSCP, Travelers and TLAC, each individually, an "Institutional
Stockholders Group Member"), and each of the individuals whose name appears on
the omnibus signature pages hereto (individually, a "Management Group Member"
and collectively, the "Management Group"). Capitalized terms are used as defined
in Article I hereto.

                                    RECITALS

     WHEREAS, the Company and Masco have entered into an Acquisition Agreement
dated as of March 29, 1996 as amended by Amendment No. 1 thereto dated as of
June 21, 1996 (as so amended and as may be further amended, supplemented or
modified from time to time, the "Acquisition Agreement"), pursuant to which the
Company is acquiring all of the issued and outstanding capital stock of the HFG
Companies (as such term is defined in the Acquisition Agreement);

     WHEREAS, at the Closing under the Acquisition Agreement (the "Closing") and
immediately prior to the execution and delivery of this Agreement (but after the
effectiveness of the mergers of each of Masco Home Furnishings, Inc. and Lineage
Furnishings, Inc. into the Company), the Company has amended and restated its
Certificate of Incorporation;

     WHEREAS, in connection with the consummation of the transactions
contemplated by the Acquisition Agreement and pursuant to the Subscription
Agreements, the Company will issue shares of its capital stock to the
Institutional Stockholders, the Masco Stockholders and the Management
Stockholders, Wayne B. Lyon will sell shares of the Company's capital stock to
certain Management Stockholders pursuant to the Stock Purchase Agreements and
Masco will sell shares of the Company's capital stock to certain Management
Stockholders pursuant to the Stock Purchase Agreements all as set forth in Annex
I hereto;

     WHEREAS, the Company, 399, Masco and certain other stockholders named
therein (collectively, the "Existing Stockholders") and the Company are parties
to a Securities Purchase and Holders Agreement dated as of November 28, 1995, as
amended by Amendment No. 1 dated as of March 4, 1996, Amendment No. 2 dated as
of March 22, 1996, and Amendment

                                                         Stockholders' Agreement

No. 3 dated as of the date hereof (as so amended and as may be further amended,
supplemented or modified from time to time, the "Share Purchase Agreement"); and

     WHEREAS, pursuant to the Certificate of Incorporation, the shares of
capital stock of the Company authorized, issued and outstanding as of the date
hereof have been reclassified into shares of Class D Common; and

     WHEREAS, each of the Stockholders and the Company desire to enter into this
Agreement to regulate certain aspects of their relationship and to provide for,
among other things, restrictions on the transfer or other disposition of
securities of the Company and matters relating to the corporate governance of
the Company and its Subsidiaries.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

                                    ARTICLE I
                               CERTAIN DEFINITIONS

     1.1 Defined Terms.

          (a) The following capitalized terms, when used in this Agreement, have
the respective meanings set forth below (such definitions to be equally
applicable to both singular and plural forms of the terms defined):

          "Additional Management Stockholder" means an Additional Stockholder
     who is an employee, officer or director of the Company or any of its
     subsidiaries.

          "Additional Stockholder" means any Person (other than any
     Institutional Stockholder, Masco Stockholder or Management Stockholder), to
     whom the Company issues Restricted Securities or Restricted Preferred
     Securities after the date hereof other than pursuant to a public offering
     registered under the Securities Act, in each case who has executed a
     Joinder Agreement as an Additional Stockholder pursuant to Section 6.2, and
     its direct and indirect Permitted Transferees, so long as any such Person
     shall hold (directly or indirectly through the Voting Trust) Restricted
     Securities or Restricted Preferred Securities.

          "Affiliate" means, with respect to any Person, any other Person that
     controls, is controlled by or is under common control with such Person. For
     the purposes of this definition, "control" (including, with its correlative
     meanings, the terms "controlled by" and "under common control with"), as
     used with respect to any Person, shall mean the

                                       -2-

                                                         Stockholders' Agreement

     possession, directly or indirectly, of the power to direct or cause the
     direction of the management and policies of such Person, whether through
     the ownership of securities, by contract or otherwise. For purposes of this
     Agreement, employees, officers and directors of 399 and its Affiliates
     shall be "Affiliates" of 399.

          "Affirmative Board Vote" means the affirmative vote of at least a
     majority of the weighted votes of the Board, which majority shall include,
     unless the Institutional Stockholders have elected in writing not to
     designate the Institutional Directors, at least one-half of the weighted
     votes of the Institutional Directors.

          "Associate" means, with respect to any Person, (i) any trust or other
     estate in which such Person has a substantial beneficial interest or as to
     which such Person serves as trustee or in a similar fiduciary capacity and
     (ii) any relative or spouse of such Person, or any relative of such spouse,
     who has the same home as such Person.

          "Board" means the Board of Directors of the Company.

          "Call" means the right of the Company to purchase Restricted
     Securities and Restricted Preferred Securities from 399 pursuant to the
     Call Agreement dated as of the date hereof between 399 and the Company.

          "Cause" means, with respect to a Management Stockholder or an
     Additional Management Stockholder, (i) a material breach by such Management
     Stockholder of this Agreement or any employment, non-compete or
     confidentiality agreement with the Company or any of its Subsidiaries to
     which such person is a party (including without limitation any Management
     Subscription Agreement), if such breach has continued unremedied for a
     period of twenty-one (21) days following notice from the Company (unless
     the Company reasonably determines in good faith that such breach is not
     capable of remedy or unless under such employment agreement or
     confidentiality agreement, as a result of such breach, the Company may
     terminate the employment of such person without an opportunity to remedy
     such breach) or (ii) the commission by such person of a felony, a crime
     involving moral turpitude or any other willful act causing material harm to
     the business, financial condition, standing or reputation of the Company or
     any of its Subsidiaries.

          "Certificate of Incorporation" means the Restated Certificate of
     Incorporation of the Company, as amended and restated as of the Closing
     Date and as the same thereafter may be amended or restated from time to
     time.

          "Change of Control" means the occurrence of

                                       -3-

                                                         Stockholders' Agreement

               (i) a sale in one or more transactions of more than 66 2/3% of
          the consolidated assets of the Company and its Subsidiaries,

               (ii) any transaction as a result of which the 399 Stockholders
          cease to own at least ten percent (10%) of the HFG Common Stock on a
          Fully-Diluted Basis,

               (iii) any transaction as a result of which any Person other than
          an Institutional Stockholder, a Masco Stockholder or a Management
          Stockholder (or any group consisting of such Persons who (x) shall
          have agreed in writing (other than pursuant to this Agreement) to act
          as a group with respect to the acquisition or voting of securities of
          the Company or the power to designate and elect members of the Board,
          with a copy of such agreement having been provided to the Company, (y)
          shall have advised the Company that such group is acting as a group
          with respect to the acquisition or voting of securities of the Company
          or the power to designate and elect members of the Board, or (z) in
          connection with the purchase of securities of the Company, shall have
          filed or notified the Company that it will file as a group, a Schedule
          13D or 13G) has the power to designate and elect members of the Board
          with weighted votes constituting a majority of the weighted votes on
          the Board (or, if no such weighting is then in effect, the power to
          designate and elect a majority of the members of the Board),
          excluding, however, any such Person or group that would not have held
          such power if it had not acquired from a Masco Stockholder securities
          of the Company having rights and privileges conferring such power,
          other than by a transfer from a Masco Stockholder through the exercise
          of Rights of Inclusion under Article III in connection with a transfer
          by the 399 Stockholders, provided, that no Change of Control under the
          circumstances set forth in this clause (iii) shall be deemed to have
          occurred under any circumstances solely as a result of the acquisition
          by any such Person or group of the right to designate and elect the
          Management Directors and the Masco Director, or

               (iv) the 399 Stockholders (x) have sold in one or more
          transactions to Persons other than their Permitted Transferees in
          excess of 66 2/3% of the HFG Common Stock, on a Fully-Diluted Basis
          (excluding HFG Common Stock which is subject to transfer by 399
          Stockholders to the Company pursuant to the Call), owned by the 399
          Stockholders on the Closing Date (subject to adjustment for any stock
          dividends, stock splits, combinations, reclassifications, mergers,
          consolidations and the like) and (y) following such sales, the
          percentage of HFG Common Stock on a Fully-Diluted Basis owned by the
          399 Stockholders on the date of the last of such sales is less than
          the percentage thereof owned by the Masco Stockholders on the date of
          the last of such sales.

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                                                         Stockholders' Agreement

     For purposes of this definition of Change of Control only, the term "399
     Stockholders" and the term "Permitted Transferees" do not include any
     Permitted Transferee of a 399 Stockholder pursuant to clauses (iii) (C) and
     (iii) (D) of the definition of Permitted Transferee (unless such Permitted
     Transferee is, with respect to 399, a Person described in clauses (iii)(A)
     and (iii)(B) of such definition).

          "Class A Common" means the Company's Class A Common Stock, par value
     $.01 per share, consisting of four series of Class A Common Stock, the
     Series A-1 Common Stock, the Series A-2 Common Stock, the Series A-3 Common
     Stock and the Series I Common Stock, and any securities into which such
     Class A Common shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Class A Common.

          "Class B Common" means the Company's Class B Common Stock, par value
     $.01 per share, consisting of four series of Class B Common Stock, the
     Series B-1 Common Stock, the Series B-2 Common Stock, the Series B-3 Common
     Stock and the Series II Common Stock, and any securities into which such
     Class B Common shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Class B Common.

          "Class C Common" means the Company's Class C Common Stock, par value
     $.01 per share, and any securities into which such Class C Common shall
     have been changed or any securities resulting from any reclassification or
     recapitalization of such Class C Common.

          "Class D Common" means the Company's Class D Common Stock, par value
     $.01 per share, and any securities into which such Class D Common shall
     have been changed or any securities resulting from any reclassification or
     recapitalization of such Class D Common.

          "Class D Equity Equivalents" means securities exercisable, convertible
     or exchangeable for or into Class D Common.

          "Closing Date" has the meaning ascribed thereto in the Acquisition
     Agreement.

          "Commission" means the Securities and Exchange Commission and any
     other similar or successor agency of the federal government administering
     the Securities Act or the Exchange Act.

          "Common Stock" means the Class A Common, the Class B Common, the Class
     C Common and the Class D Common, any securities into which such Class A
     Common,

                                       -5-

                                                         Stockholders' Agreement

     the Class B Common, the Class C Common or the Class D Common shall have
     been changed, and all other securities of any class or classes (however
     designated) of the Company, the holders of which have the right, without
     limitation as to amount, after payment on any securities entitled to a
     preference on dividends or other distributions upon any dissolution,
     liquidation or winding-up, either to all or to a share of the balance of
     payments upon such dissolution, liquidation or winding-up.

          "Credit Agreement" means the Credit Agreement dated as of the date
     hereof among the Company, LIFESTYLE FURNISHINGS INTERNATIONAL LTD., the
     Subsidiary Borrowers named therein, the Lenders named therein, The Chase
     Manhattan Bank, as Administrative Agent and Collateral Agent, and Chase
     Manhattan Bank Delaware, as Issuing Bank.

          "Debentures" means the Company's Junior Subordinated Debentures issued
     or issuable in exchange for shares of the Restricted Preferred Securities
     or in payment of interest on any such Junior Subordinated Debentures
     (including Junior Subordinated Debentures so issued in payment of
     interest).

          "Equity Equivalents" means securities exercisable, convertible or
     exchangeable for or into HFG Common Stock, including without limitation the
     Series B Preferred and the Series C Preferred.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended
     from time to time, and the rules and regulations of the Commission
     thereunder.

          "Fair Market Value" means (i) with respect to each share of Common
     Stock as of a particular date, the average of the closing prices of such
     Common Stock on the New York Stock Exchange, Inc. on each of the thirty
     (30) trading days next preceding such date or, if such Common Stock is not
     then listed or admitted to trading on such exchange, on the principal
     national securities exchange on which such Common Stock is listed or
     admitted to trading or, if not listed or admitted to trading on any
     national securities exchange, on the Nasdaq National Market, or if such
     Common Stock is not then listed or admitted to trading on a national
     securities exchange or quoted on the Nasdaq National Market, the average of
     the closing bid and asked prices in the over-the-counter market as
     furnished by any New York Stock Exchange member firm selected by the
     Company or if no such prices are available, the fair market value per share
     as determined in good faith by the Board acting by Affirmative Board Vote;
     and (ii) with respect to Restricted Preferred Securities, the fair market
     value per share as determined in good faith by the Board acting by
     Affirmative Board Vote.

                                       -6-

                                                         Stockholders' Agreement

          "Fully-Diluted Basis" means, (A) with respect to the calculation of
     the number of shares of HFG Common Stock, (i) all shares of HFG Common
     Stock outstanding at the time of determination and (ii) all shares of HFG
     Common Stock issuable upon the exercise, conversion or exchange of Equity
     Equivalents and (B) with respect to the calculation of the number of shares
     of Class D Common, (i) all shares of Class D Common outstanding at the time
     of determination and (ii) all shares of Class D Common issuable upon the
     exercise, conversion or exchange of Class D Equity Equivalents.

          "Funded Debt" means, without duplication, with respect to any Person
     (i) all indebtedness for borrowed money or for the deferred purchase price
     of property, (ii) the face amount of all letters of credit, banker's
     acceptances and other credit facilities issued for the account of such
     Person and, without duplication, all drafts drawn thereunder, (iii) all
     indebtedness secured by any lien on any property owned by such Person, to
     the extent attributable to such Person's interest in such property, even
     though such Person has not assumed or become liable for the payment
     thereof, (iv) lease obligations of such Person which, in accordance with
     generally accepted accounting principles, should be capitalized, (v)
     obligations with respect to any conditional sale agreement or title
     retention agreement and (vi) guarantees by such Person of the Funded Debt
     of another Person; but excluding in each case trade and other accounts
     payable in the ordinary course of business.

          "HFG Common Stock" means the Common Stock, but excluding the Class D
     Common.

          "HFG Restricted Securities" means the Restricted Securities, but
     excluding the Class D Common and Class D Equity Equivalents.

          "Institutional Stockholders" means each Institutional Stockholder
     Group Member and their respective direct and indirect Permitted
     Transferees, so long as any such Person shall hold Restricted Securities or
     Restricted Preferred Securities.

          "Involuntary Transfer" means, with respect to Restricted Securities or
     Restricted Preferred Securities of any Stockholder, any involuntary
     Transfer or Transfer by operation of law of such Restricted Securities or
     Restricted Preferred Securities (other than to a Permitted Transferee of
     such Stockholder) by or in which such Stockholder shall be deprived or
     divested of any right, title or interest in or to Restricted Securities or
     Restricted Preferred Securities, including without limitation by seizure
     under levy of attachment or execution, by foreclosure upon a pledge, in
     connection with any voluntary or involuntary bankruptcy or other court
     proceeding to a debtor in possession, trustee in bankruptcy or receiver or
     other officer or agency, pursuant to any statute pertaining to escheat or
     abandoned property, pursuant to a divorce or separation agreement or a
     final decree of a court in a divorce action, upon or occasioned by the
     incompetence of any

                                       -7-

                                                         Stockholders' Agreement

     Stockholder and to a legal representative of any Stockholder; provided that
     "Involuntary Transfer" shall not include any Transfer effected pursuant to
     the exercise by Institutional Stockholders of Drag-Along Rights under
     Section 2.7 hereof, any Transfer effected pursuant to Article IV hereof,
     any Transfer to the Company solely resulting from a reclassification of the
     capital stock of the Company or a recapitalization of the Company and any
     Transfer effected as a result of a merger of the Company with or into any
     other person.

          "Joinder Agreement" means a Joinder Agreement substantially in the
     form attached hereto as Exhibit A.

          "Lien" means any lien, claim, option, charge, encumbrance, security
     interest or other adverse claim of any kind.

          "Management Note" means a promissory note (i) issued by the Company
     pursuant to Section 4.2 in payment of the purchase price for shares of
     Management Securities purchased pursuant to Section 4.1, (ii) bearing
     interest at the rate of 12% per annum, compounded semiannually (subject to
     reduction as may be required to preserve the deductibility of interest for
     tax purposes), (iii) pursuant to which payments of principal and interest
     may be made only to the extent permitted from time to time under any
     agreement evidencing Funded Debt of the Company on any of its direct or
     indirect subsidiaries, (iv) subordinated in right of payment to the Senior
     Notes and all other "Senior Indebtedness" as defined in the Debentures and
     (v) which otherwise ranks pari passu in right of payment with the
     Debentures.

          "Management Securities" means all shares of Restricted Securities and
     Restricted Preferred Securities issued to or acquired by Management
     Stockholders and Additional Management Stockholders, unless otherwise
     agreed between the Company and any Management Stockholder or Additional
     Management Stockholder.

          "Management Stockholders" means the Management Group and their
     respective direct and indirect Permitted Transferees, so long as any such
     Person shall hold (directly or indirectly through the Voting Trust)
     Restricted Securities or Restricted Preferred Securities.

          "Management Subscription Agreement" means any Management Subscription
     Agreement dated as of the date hereof between the Company and a member of
     the Management Group.

                                       -8-

                                                         Stockholders' Agreement

          "Masco Approval Transaction" means:

               (i) any amendment to or modification or repeal of any provision
          of the Certificate of Incorporation or By-Laws of the Company (whether
          effected directly or through a merger or other transaction (other than
          any merger or other transaction which would result in a Change of
          Control (including any merger or other transaction to be effected
          pursuant to the exercise of the Drag-Along Right))) which (A)
          disparately (relative to other holders of the same class or series of
          securities) and adversely affects the rights and privileges of any HFG
          Restricted Securities or Restricted Preferred Securities held by a
          Masco Stockholder or which would disparately (relative to other
          holders of the same class or series of securities) and adversely
          affect any rights or benefits of a Masco Stockholder under this
          Agreement; provided, however, that nothing contained in this clause
          (A) shall restrict the ability of the Company (I) to increase the
          authorized shares of its Common Stock, (II) to so amend, modify or
          repeal (subject to the rights and privileges set forth in the Series
          A-1 Preferred and Series B Preferred and in clause (B) below) to the
          extent customary and reasonably necessary in order to facilitate a
          Qualifying Offering and to become effective upon the closing of such
          Qualifying Offering, (III) to authorize the issuance of any preferred
          stock ranking junior to the Series A-1 Preferred or (IV) to so amend,
          modify or repeal in connection with the exercise of the Drag-Along
          Right, or (B) has the primary purpose of hindering an unsolicited
          takeover of the Company (e.g., fair price provision, staggered board,
          poison pills and similar provisions);

               (ii) any transaction between (x) the Company or any of its
          Subsidiaries (other than a Simmons Entity) on the one hand, and (y)
          one or more of its Stockholders (or any Affiliate of any Stockholder
          other than the Company or any of its Subsidiaries (other than a
          Simmons Entity)) other than a Masco Stockholder (including its
          Permitted Transferees and its and their Affiliates) on the other hand,
          except that no such approval shall be required for the following:

                    (A) transactions with Stockholders or their Affiliates
               contemplated or required by (X) this Agreement, the Registration
               Rights Agreement, the Certificate of Incorporation or the By-laws
               of the Company (including any transaction involving the
               Drag-Along Right or a Rights Offering under Section 6.5) or (Y)
               any other agreement approved by the Board without violation of
               the requirements of Section 5.5(b),

                                       -9-

                                                         Stockholders' Agreement

                    (B) transactions with Stockholders in their capacity as
               Stockholders where all stockholders of the Company receive pro
               rata treatment in accordance with their rights and privileges,

                    (C) transactions with any Management Stockholder (other than
               transactions resulting in the issuance of shares of HFG Common
               Stock or Equity Equivalents to the Management Stockholders
               representing in the aggregate more than five percent (5%) of the
               outstanding shares of HFG Common Stock on a Fully-Diluted Basis,
               but excluding from such five percent (5%) calculation any
               reissuance of shares of HFG Common Stock to any Management
               Stockholder following repurchase by the Company pursuant to
               Article IV),

                    (D) transactions with any Stockholder or any of its
               Affiliates if (x) such Stockholder or one or more of its
               Affiliates is a financial institution (other than an
               Institutional Stockholder or an Affiliate thereof) which holds
               preferred stock of the Company or indebtedness of the Company or
               its subsidiaries having an original stated value or original
               principal amount in excess of $10,000,000 and (y) such
               Stockholder, together with its Affiliates, hold(s) shares of HFG
               Common Stock or Equity Equivalents which do not represent more
               than fifteen percent (15%) of the HFG Common Stock on a
               Fully-Diluted Basis,

                    (E) transactions with a Stockholder (other than an
               Institutional Stockholder or an Affiliate thereof) who (x) has
               acquired HFG Common Stock or Equity Equivalents in connection
               with an arm's-length acquisition by the Company or one of its
               Subsidiaries of a company or business and (y) holds shares of HFG
               Common Stock or Equity Equivalents which do not represent more
               than fifteen percent (15%) of the HFG Common Stock on a
               Fully-Diluted Basis, or

                    (F) any transaction concerning the Class D Common and not
               involving any other class of capital stock;

          (iii) any of the following:

                    (I) the amendment or modification by the Company or its
               subsidiaries in any material respect of (A) the definition of the
               term "Excess Cash Flow," which amendment or modification would
               cause such definition to be more limiting or restrictive or (B)
               the "Restricted

                                      -10-

                                                         Stockholders' Agreement

               Payments" covenants which restrict the ability of the Company's
               subsidiaries to distribute funds to the Company in order to make
               current interest payments in cash when due under the terms of the
               Senior Notes, which amendment or modification would cause such
               covenant to be more restrictive, as such definition is defined
               in, and as such covenants are set forth in, the Credit Agreement
               (as in effect on the Closing Date) or in any indenture pertaining
               to the Senior Subordinated Notes (as in effect on the Closing
               Date), it being understood that the foregoing shall not be deemed
               to require the affirmative vote of the Masco Director for the
               amendment or modification of any other covenants in the Credit
               Agreement or such indenture,

                    (II) the entry by the Company or any of its Subsidiaries
               into any agreement or instrument which contains covenants
               expressly restricting the ability of the Company's Subsidiaries
               to distribute funds to the Company in order to make current
               interest payments in cash when due under the terms of the Senior
               Notes, which covenants are more restrictive than such "Restricted
               Payments" covenants described in the preceding clause (I)(B),

                    (III) the amendment or modification by the Company or its
               Subsidiaries of the definition of "Change of Control" as such
               term is defined in the Credit Agreement (as in effect on the
               Closing Date) or in any indenture pertaining to the Senior
               Subordinated Notes (as in effect on the Closing Date), if such
               amendment or modification would expand such definition as it
               relates to the securities of the Company owned by the Masco
               Stockholders, or

                    (IV) the entry by the Company or any of its Subsidiaries
               into any agreement or instrument evidencing third party
               indebtedness, capitalized leases or other financings (in each
               case in an amount where a default under such agreement or
               instrument would be a cross-default under the Credit Agreement)
               that contains a change of control provision, event of default or
               other prepayment obligation based upon the transfer of securities
               of the Company that is more restrictive of the rights of the
               Masco Stockholders to transfer the securities of the Company than
               the more restrictive of the "Change of Control" provisions
               described in the preceding clause (III);

                                      -11-

                                                         Stockholders' Agreement

                    (iv) any material transaction between the Company (or any of
               its Subsidiaries (other than Simmons and its Subsidiaries)) and
               Simmons or any of its Subsidiaries (each, a "Simmons Entity"),
               including:

                         (A) any guaranty of any obligation of any Simmons
                    Entity (unless the recourse under such guaranty is limited
                    to a pledge of the stock of a Simmons Entity or the Class D
                    Common, in which case no such approval will be required);

                         (B) any capital contribution or loan by the Company to
                    a Simmons Entity (unless such capital contribution or loan
                    is directly funded by a contemporaneous capital contribution
                    from a stockholder of the Company in connection with a
                    purchase of shares of Class D Common by such stockholder, in
                    which case no such approval will be required); and

                         (C) any repurchase, redemption, dividend or
                    distribution to holders of the Class D Common (unless such
                    transaction is directly funded by a distribution in kind of
                    the common stock of a Simmons Entity or is directly funded
                    by distributions upon the capital stock of the Simmons
                    Entity held by the Company and is pursuant to the provisions
                    of the Class D Common as set forth in the Certificate of
                    Incorporation, in which case no such approval will be
                    required);

               provided, that no affirmative vote of the Masco Director under
               Section 5.5(b) is required for any offering or sale of shares of
               Class D Common.

          "Masco Stockholders" means Masco and its direct and indirect Permitted
     Transferees, so long as any such Person shall hold Restricted Securities,
     Restricted Preferred Securities or Debentures.

          "New Common Stock" means any HFG Common Stock or Equity Equivalent,
     other than any;

               (i) HFG Common Stock and Equity Equivalents issued in connection
          with any stock split, stock dividend or reclassification of any
          Restricted Securities, Restricted Preferred Securities or Equity
          Equivalents;

               (ii) HFG Common Stock or Equity Equivalents issuable in a public
          offering registered under the Securities Act;

                                      -12-

                                                         Stockholders' Agreement

               (iii) HFG Common Stock or Equity Equivalents issuable upon
          conversion of the Class A Common, the Class B Common or the Class C
          Common or upon conversion, exchange or exercise of the Series B
          Preferred or Series C Preferred or any other Equity Equivalents;

               (iv) issuances of stock options and HFG Common Stock to
          Management Stockholders or Additional Management Stockholders (I) with
          respect to shares of HFG Common Stock repurchased by the Company from
          Management Stockholders or Additional Management Stockholders under
          Article IV hereof or (II) pursuant to stock option plans or similar
          stock purchase plans provided to management of the Company and its
          Subsidiaries which plans have been approved by the Board;

               (v) issuances of HFG Common Stock or Equity Equivalents to
          financial institution(s) on arm's-length terms in connection with (and
          ancillary to) an extension of credit by such financial institution;
          and

               (vi) issuances of HFG Common Stock or Equity Equivalents to an
          unaffiliated seller or sellers of another company or business in
          connection with an arm's-length acquisition by the Company or one or
          more of its Subsidiaries of such company or business.

          "Original Cost" means, (i) as to each share of HFG Common Stock issued
     to Management Stockholders or Additional Management Stockholders in
     consideration of services, $0.01, and (ii) as to each share of HFG Common
     Stock purchased or otherwise acquired by Management Stockholders or
     Additional Management Stockholders after the Closing Date, the price paid
     therefor, in each case appropriately adjusted to reflect all stock splits,
     stock dividends, recapitalizations or similar events affecting the HFG
     Common Stock subsequent to the date of purchase thereof.

          "Permitted Transferee" means:

               (i) with respect to any Stockholder who is a natural person, the
          spouse or any lineal descendant (including by adoption and
          stepchildren) of such Stockholder, or any trust of which such
          Stockholder is the trustee and which is established solely for the
          benefit of any of the foregoing individuals and whose terms are not
          inconsistent with the terms of this Agreement, or any partnership, all
          of the general partner(s) and limited partner(s) (if any) of which are
          one or more Persons identified in this clause (i) (or any other trust
          or partnership established by any such Stockholder to the extent
          approved in writing by the Company

                                      -13-

                                                         Stockholders' Agreement

          (acting with approval of the Board, including the consent of the Masco
          Director and the Institutional Directors);

               (ii) with respect to a Masco Stockholder, (x) any direct or
          indirect Subsidiary of Masco (including any such Subsidiary which
          ceases to be a Subsidiary of Masco after the Closing Date) unless such
          Subsidiary or former Subsidiary does not qualify as (A) a "Permitted
          Transferee" of Masco, under the more restrictive of the definitions of
          such term with respect to Masco ("Permitted Transferee Definitions"),
          under the Credit Agreement (as in effect on the Closing Date) and the
          indenture pertaining to the Senior Subordinated Notes (as in effect on
          the Closing Date), or (B) in the event that the agreements referred to
          in clause (A) above are no longer in effect, a "Permitted Transferee"
          of Masco under the most restrictive Permitted Transferee Definition in
          any other material agreement or instrument evidencing indebtedness for
          borrowed money of the Company or any of its Significant Subsidiaries,
          which Permitted Transferee Definition is no more restrictive in scope
          with respect to "Permitted Transferees" of Masco than the most
          restrictive of the Permitted Transferee Definitions referred to in
          clause (A) above ("Masco Subsidiary"), and (y) subject to the prior
          written consent of the Institutional Stockholders (which consent shall
          be in their sole discretion), any corporation (I) in which Masco owns
          shares of capital stock representing at least 19% of the total
          ordinary voting power of such corporation and (II) which is
          "controlled" (within the meaning under Rule 12b-2 of the regulations
          under the Exchange Act) by Masco (such corporation, a "Permitted Masco
          Subsidiary");

               (iii) with respect to the Institutional Stockholders, (A) any
          Associate or Affiliate of any such Institutional Stockholder and any
          officer, director or employee of any Institutional Stockholders or
          such Associate or Affiliate, (B) any spouse or lineal descendant
          (including by adoption and stepchildren) of the officers, directors
          and employees referred to in clause (A) above, and any trust (where a
          majority in interest of the beneficiaries thereof are any of the
          persons described in this clause (B) and in clause (A) above),
          corporations or partnerships (where a majority in interest of the
          stockholders or limited partners, or where the managing general
          partner, is one of more of the persons described in clause (A) above),
          (C) any other Institutional Stockholder or (D) if, after taking
          commercially reasonable steps, with the cooperation of the Company,
          such Institutional Stockholder is unable to restructure its ownership
          of the Company's securities in a manner which avoids a Regulatory
          Problem and which is not materially adverse to such Institutional
          Stockholder, upon the giving of notice to the Company and the Masco
          Stockholders that the Institutional Stockholders have determined that
          such Regulatory Problem may not be avoided, then to any third party to
          avoid such Regulatory Problem;

                                      -14-

                                                         Stockholders' Agreement

               (iv) with respect to any Travelers Stockholder, in addition to
          any Permitted Transferee described in paragraph (iii) above, any
          Permitted Assignee (as defined in the Reciprocal Call Agreement) which
          shall have acquired from such Travelers Stockholder in a single
          transaction prior to the close of business on August 1, 1997 (x)
          shares of HFG Restricted Securities and (y) the right to acquire
          Restricted Preferred Securities, in each case pursuant to the
          Reciprocal Call Agreement;

               (v) with respect to any Additional Stockholder who is not a
          natural person, any Affiliate of such Additional Stockholder; and

               (vi) with respect to any Management Stockholder and any
          Additional Management Stockholder, the Voting Trust established
          pursuant to the Voting Trust Agreement.

          "Person" or "person" means an individual, partnership, corporation,
     trust, unincorporated organization, joint venture, government (or agency or
     political subdivision thereof) or any other entity of any kind.

          "Pro Rata" means, with respect to one or more Stockholders (i) as it
     relates to the HFG Restricted Securities, the New Common Stock, the HFG
     Common Stock or Equity Equivalents, in proportion to the number of shares
     of HFG Restricted Securities on a Fully-Diluted Basis owned by such
     Stockholder or Stockholders, (ii) as it relates to the Class D Common or
     Class D Equity Equivalents, in proportion to the number of shares of Class
     D Common on a Fully-Diluted Basis owned by such Stockholder or Stockholders
     and (iii) as it relates to Restricted Preferred Securities (or any class or
     series thereof), in proportion to the number of shares of Series A-1
     Preferred and Series A-2 Preferred (taken together) owned by such
     Stockholder or Stockholders.

          "Purchased Shares" means Management Securities, (i) which have been
     purchased for cash by a Management Stockholder or Additional Management
     Stockholder after the Closing Date and which have been designated as
     "Purchased Shares" hereunder by agreement between the Company and such
     Management Stockholder or Additional Management Stockholder or (ii) which
     have been purchased for cash in units consisting of Restricted Preferred
     Securities and HFG Restricted Securities (the "Units") by a Management
     Stockholder on the Closing Date.

          "Qualifying Offering" means the consummation by the Company of an
     underwritten primary or secondary public offering of HFG Common Stock
     pursuant to an effective registration statement under the Securities Act,
     covering the offer and sale of the HFG Common Stock (i) which (taken
     together with all similar previous public

                                      -15-

                                                         Stockholders' Agreement

     offerings) raises at least $100,000,000 of aggregate net proceeds to the
     Company (after underwriters' fees, commissions and discounts and offering
     expenses) and (ii) as a result of which, at that time, at least 25% of the
     HFG Common Stock on a Fully-Diluted Basis has been sold to the public.

          "Reciprocal Call Agreement" means the Reciprocal Call Agreement, dated
     as of the date hereof, among the Travelers Stockholders and 399, as in
     effect on the date hereof.

          "Registration Rights Agreement" means the Registration Rights
     Agreement, dated as of the date hereof, among the parties hereto as the
     same may be amended, modified or supplemented from time to time.

          "Restricted Preferred Securities" means the Series A-1 Preferred and
     the Series A-2 Preferred.

          "Restricted Securities" means the Common Stock, the Class D Equity
     Equivalents, the Equity Equivalents and any securities issued with respect
     thereto as a result of any stock dividend, stock split, reclassification,
     recapitalization, reorganization, merger, consolidation or similar event or
     upon the conversion, exchange or exercise thereof.

          "Rule 144 Transaction" means a transfer of Common Stock (A) complying
     with Rule 144 under the Securities Act as such Rule is in effect on the
     date of such transfer (but not including a sale other than pursuant to a
     "brokers transaction" as defined in clauses (1) and (2) of paragraph (g) of
     such Rule as in effect on the date hereof) and (B) occurring at a time when
     shares of such Common Stock are registered pursuant to Section 12 of the
     Exchange Act (or any successor to such Section).

          "Sale Transaction" means any transaction of the type described in
     clause (i) or clause (ii) of Section 2.7(a) (whether or not effected
     pursuant to an exercise of a Drag-Along Right).

          "Securities Act" means the Securities Act of 1933, as amended from
     time to time, and the rules and regulations of the Commission thereunder.

          "Senior Debt" means "Senior Indebtedness" as such term is defined in
     the Senior Notes and any obligations in respect of "Permitted Receivables
     Financing" as such term is defined in the Credit Agreement (as the same may
     be amended, modified or supplemented from time to time).

          "Senior Notes" means the Company's Senior PIK Notes in an initial
     aggregate principal amount of $285,000,000 (subject to adjustment as
     provided in the Acquisition

                                      -16-

                                                         Stockholders' Agreement

     Agreement) issued to Masco on the date hereof and any Senior PIK Note
     issued thereafter in accordance with the terms thereof.

          "Senior Subordinated Notes" means the Senior Subordinated Notes due
     2006 issued by Lifestyle Furnishings International Ltd. in an initial
     aggregate principal amount of $200,000,000 issued on the date hereof.

          "Series A-1 Common Stock" means the Company's Series A-1 Common Stock,
     par value $.01 per share, and any securities into which such Series A-1
     Common Stock shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Series A-1 Common Stock.

          "Series A-2 Common Stock" means the Company's Series A-2 Common Stock,
     par value $.01 per share, and any securities into which such Series A-2
     Common Stock shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Series A-2 Common Stock.

          "Series A-3 Common Stock" means the Company's Series A-3 Common Stock,
     par value $.01 per share, and any securities into which such Series A-3
     Common Stock shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Series A-3 Common Stock.

          "Series A-1 Preferred" means the Company's Series A-1 Preferred Stock,
     par value $.01 per share, and any securities (other than the Debentures)
     into which such Series A-1 Preferred shall have been changed or any
     securities resulting from any reclassification or recapitalization of such
     Series A-1 Preferred.

          "Series A-2 Preferred" means the Company's Series A-2 Preferred Stock,
     par value $.01 per share, and any securities (other than the Debentures)
     into which such Series A-2 Preferred shall have been changed or any
     securities resulting from any reclassification or recapitalization of such
     Series A-2 Preferred.

          "Series B Preferred" means the Company's Series B Convertible
     Preferred Stock, par value $.01 per share, and any securities into which
     such Series B Preferred shall have been changed or any securities resulting
     from any reclassification or recapitalization of such Series B Preferred.

          "Series C Preferred" means the Company's Series C Convertible
     Preferred Stock, par value $.01 per share, and any securities into which
     such Series C Preferred shall have been changed or any securities resulting
     from any reclassification or recapitalization of such Series C Preferred.

                                      -17-

                                                         Stockholders' Agreement

          "Series I Common Stock" means the Company's Series I Common Stock,
     $.01 par value per share, and any securities into which such Series I
     Common Stock shall have been changed or any security resulting from any
     reclassification or recapitalization of such Series I Common Stock.

          "Series II Common Stock" means the Company's Series II Common Stock,
     $.01 par value per share, and any securities into which such Series II
     Common Stock shall have been changed or any securities resulting from any
     reclassification or recapitalization of such Series II Common Stock.

          "Significant Subsidiaries" means those Subsidiaries of the Company
     which constitute a "Significant Subsidiary" as defined in Regulation S-X
     promulgated by the Commission under the Securities Act, as such Regulation
     is in effect on the date hereof.

          "Significant Transaction" means:

               (i) any merger, consolidation or other business combination of
     the Company or any of its Significant Subsidiaries with or into any Person
     or any formation by the Company or any of its Significant Subsidiaries of
     any subsidiary which would, upon such formation, be a Significant
     Subsidiary;

               (ii) any sale, lease, exchange or other disposition by the
     Company or any of its Significant Subsidiaries of a significant portion of
     the Company's assets on a consolidated basis, in a single transaction or a
     series of related transactions, to or with any person;

               (iii) any amendment to or modification or repeal of any provision
     of the Certificate of Incorporation or the By-Laws of the Company;

               (iv) any acquisition by the Company or any of its Significant
     Subsidiaries of securities or assets, in a single transaction or a series
     of related transactions, if such securities or assets will represent a
     substantial portion of the total assets of the Company, as reflected on the
     Company's most recent consolidated balance sheet, as such is determined in
     accordance with the generally accepted accounting principles used to
     prepare such balance sheet;

               (v) any increase or reduction of the capital of the Company or
     any of its Significant Subsidiaries or the creation of any additional class
     of capital stock of the Company or any of its Significant Subsidiaries, or
     the issuance by the Company or any of its Significant Subsidiaries of
     Equity Equivalents on a basis other than pro rata to the holders of capital
     stock other than (A) the issuance of Common Stock upon the exercise

                                      -18-

                                                         Stockholders' Agreement

     or conversion of Equity Equivalents where the issuance of such securities
     has been approved by the Board and (B) the issuance of Common Stock upon
     the conversion of any outstanding class of Common Stock, Series B Preferred
     or Series C Preferred;

               (vi) the incurrence or guaranty after the Closing Date by the
     Company or any of its subsidiaries of any material Funded Debt or any
     modification or amendment to any agreement governing the extension or
     guaranty thereof (other than any incurrence under the terms of the Credit
     Agreement, the Senior Notes, the Senior Subordinated Notes, the Debentures
     or an agreement previously approved by the Board or the incurrence of
     Funded Debt as permitted under any such agreement);

               (vii) the dissolution of the Company (or any of its
     Subsidiaries), the adoption of a plan of liquidation by the Company (or any
     of its Subsidiaries), any action by the Company (or any of its
     Subsidiaries) to commence any suit, case, proceeding or other action (A)
     under any existing or future law of any jurisdiction relating to
     bankruptcy, insolvency, reorganization or relief of debtors seeking to have
     an order for relief of debtors entered with respect to it, or seeking to
     adjudicate it a bankrupt or insolvent, or seeking reorganization,
     arrangement, adjustment, winding-up, liquidation, dissolution, composition
     or other relief with respect to it, or (B) seeking appointment of a
     receiver, trustee, custodian or other similar official for it or for all or
     any substantial part of its assets, or making a general assignment for the
     benefit of its creditors;

               (viii) any increase, decrease or change in the compensation or
     benefits of the senior management of the Company or any of its
     Subsidiaries, or the issuance of any Management Note; and

               (ix) any transaction or dealing between the Company or any of it
     subsidiaries and one or more of its Stockholders (or any Affiliate of any
     Stockholder) not entered into in the ordinary course of business or on an
     arm's-length basis or which is material to the Company or any of its
     Subsidiaries (including without limitation any amendment, modification,
     supplement or waiver of the Voting Trust Agreement).

          "Simmons" means Simmons Upholstered Furniture Corporation, a Delaware
     corporation.

          "Simmons Business" has the meaning provided in the Certificate of
     Incorporation.

          "Stockholders" means each of the Institutional Stockholders, the Masco
     Stockholders, the Management Stockholders and the Additional Stockholders.

                                      -19-

                                                         Stockholders' Agreement

          "Stock Purchase Agreements" means, collectively, (i) each of the Stock
     Purchase Agreements, each dated as of the date hereof, by and between Wayne
     B. Lyon and the Purchaser named therein and (ii) each of the Stock Purchase
     Agreements, each dated as of the date hereof, by and between Masco and the
     Purchaser named therein.

          "Subscription Agreements" means, collectively, the following
     agreements, each dated as of the date hereof: the Lyon Unit Purchase
     Agreement between Wayne B. Lyon and the Company, the Lyon Subscription
     Agreement between Wayne B. Lyon and the Company, each of the Management
     Subscription Agreements between the Company and the members of the
     Management Group named therein, the Stock Purchase Agreements, the
     Travelers Subscription Agreements dated as of the date hereof between the
     Company and each of the Travelers Stockholders and the 399 Subscription
     Agreement dated as of the date hereof between the Company and 399.

          "Subsidiary" means, with respect to any Person, any corporation,
     partnership, association or other business entity of which (i) if a
     corporation, a majority of the total voting power of shares of stock
     entitled (without regard to the occurrence of any contingency) to vote in
     the election of directors, managers or trustees thereof is at the time
     owned or controlled, directly or indirectly, by that Person or one or more
     of the other Subsidiaries of that Person or a combination thereof, or (ii)
     if a partnership, association or other business entity, a majority of the
     partnership or other similar ownership interest thereof is at the time
     owned or controlled, directly or indirectly, by any Person or one or more
     Subsidiaries of that Person or a combination thereof. For purposes hereof,
     a Person or Persons shall be deemed to have a majority ownership interest
     in a partnership, association or other business entity if such Person or
     Persons shall be allocated a majority of partnership, association or other
     business entity gains or losses or shall be or control the managing
     director or general partner of such partnership, association or other
     business entity.

          "399 Stockholders" means 399 and each of its respective direct and
     indirect Permitted Transferees, so long as any such Person shall hold
     Restricted Securities or Restricted Preferred Securities.

          "Transfer" means, directly or indirectly, any sale, transfer,
     assignment, grant of a participation in, gift, hypothecation, pledge or
     other disposition of any securities or any interests therein or, as the
     context may require, to sell, transfer, assign, grant a participation in,
     give as a gift, hypothecate, pledge or otherwise dispose of any securities
     or any interests therein; provided that the exercise of any conversion or
     exchangeability right provided for in the terms of any security (including
     without limitation the right of the Company to exchange shares of Series
     A-1 Preferred and Series A-2 Preferred for the Debentures) shall not be
     deemed a "Transfer."

                                      -20-

                                                         Stockholders' Agreement

          "Travelers Stockholders" means each of AMC, TRV, Greenwich Street,
     GSCP, Travelers and TLAC and each of their respective Permitted Transferees
     (other than (A) a Permitted Transferee pursuant to clauses (iii)(C) and
     (iii)(D) of the definition of Permitted Transferee (unless such Permitted
     Transferee is, with respect to a Travelers Stockholder, a Person described
     in clause (iii)(A) and (iii)(B) of such definition) and (B) a Permitted
     Transferee pursuant to clause (iv) of the definition of Permitted
     Transferee), so long as any such Person shall hold Restricted Securities or
     Restricted Preferred Securities.

          "Unvested Shares" shall mean, with respect to each Management
     Stockholder or Additional Management Stockholder, all Management Securities
     other than Purchased Shares, Vested Shares and Restricted Preferred
     Securities.

          "Vested Shares" means:

               (i) with respect to each Management Stockholder that portion of
          Management Securities (other than Purchased Shares, Restricted
          Preferred Securities and Management Securities acquired by any
          Management Stockholder after the Closing) held by such person and by
          such person's Permitted Transferees who hold such Management
          Securities which are attributable to such person which is the product
          of:

                    (x) the number of such Management Securities listed on the
               omnibus signature pages hereto executed and delivered by such
               Management Stockholder next to the caption "Shares Subject to
               Vesting", and

                    (y) the fraction in which the numerator is the number of
               anniversaries that have elapsed after the Closing Date and the
               denominator is five (5);

          provided, however, that in the event such fraction is greater than one
          it shall be deemed to equal one; and provided, further, that
          simultaneously with a Sale Transaction, all Unvested Shares shall
          become Vested Shares; and

               (ii) with respect to Management Securities (other than Restricted
          Preferred Securities) acquired by any Management Stockholder or
          Additional Management Stockholder after the Closing, the shares which
          are "Vested Shares" as provided by written agreement approved by the
          Board (acting by Affirmative Board Vote) between the Company and such
          Management Stockholder or Additional Management Stockholder, as the
          case may be (it being understood that

                                      -21-

                                                         Stockholders' Agreement

          all such acquired shares shall be Unvested Shares in the absence of
          any such agreement that such acquired shares constitute "Purchased
          Shares" or "Vested Shares").

          "Voting Trust" means the Voting Trust created under the Voting Trust
     Agreement.

          "Voting Trust Agreement" means the Voting Trust Agreement dated as of
     the date hereof by and among the Company, the Stockholders named therein
     and the trustee named therein (the "Trustee"), as such agreement may be
     amended, supplemented or modified from time to time.

     (b) Unless otherwise provided herein, all accounting terms used in this
Agreement shall be interpreted in accordance with generally accepted accounting
principles as in effect from time to time, applied on a consistent basis.

     (c) The following terms, when used in this Agreement, shall have the
meanings defined for such terms in the Section set forth below (such definitions
to be equally applicable to both singular and plural forms of the terms
defined):

     Term                                      Section
     ----                                      -------

"Acceptance Date"                              6.5(b)
"Accounting Determination"                     2.8(a)
"Acquiror"                                     2.7(a)
"Agreement"                                    Preamble
"Acquisition Agreement"                        Recitals
"AMC"                                          Preamble
"Article III Offer"                            3.1(a)
"Buyer"                                        3.1(a)
"Class D Tag-Along Transfer"                   3.1(a)
"Closing"                                      Recitals
"Company"                                      Preamble
"Company Designee"                             4.1(a)
"Company Notice"                               2.5(b)
"Disinterested Director"                       5.1(a)
"Drag-Along Right"                             2.7(a)
"Drag-Along Sale"                              2.7(a)
"Existing Stockholders"                        Recitals
"GSCP"                                         Preamble
"Inclusion Notice"                             3.1(a)

                                      -22-

                                                         Stockholders' Agreement

"Inclusion Right"                              3.1(b)
"Institutional Director"                       5.1(a)
"Institutional Stockholders Group Member"      Preamble
"Management Director"                          5.1(a)
"Management Group"                             Preamble
"Management Group Member"                      Preamble
"Masco"                                        Preamble
"Masco Director"                               5.1(a)
"Masco Subsidiary"                             Def'n of Permitted Transferee
"Masco Tag-Along Transfer"                     3.1(a)
"New Common Stock Notice"                      6.5
"New Common Stock Offer"                       6.5
"New Common Stock Units"                       6.5
"Nominating Committee"                         5.1(a)
"Notice of Intention"                          2.5(a)
"Observer"                                     5.7
"Offered Securities"                           2.5(a)
"Offerees"                                     3.1(a)
"Offer Price"                                  2.5(a)
"Other Businesses"                             2.7(d)
"Permitted Masco Subsidiary"                   Def'n of Permitted Transferee
"Prospective Buyers"                           2.5(a)
"Prospective Buyer Notice"                     2.5(c)
"Purchase Notice"                              4.1(a)
"Regulatory Problem"                           6.4(c)
"Regulatory Right"                             5.9
"Sale Event"                                   4.1(a)
"Section 2.8 Notice"                           2.8(a)
"Section 2.8 Securities"                       2.8(a)
"Sellers"                                      4.1(a)
"Selling Stockholder"                          2.5(a)
"Share Purchase Agreement"                     Recitals
"Simmons Entity"                               Def'n of Masco Approval
                                                    Transaction
"Subject Securities"                           2.6(b)
"Third Party"                                  2.5(e)
"399"                                          Preamble
"TLAC"                                         Preamble
"Transferor"                                   3.1(a)
"Transferor Shares"                            3.1(a)
"Travelers"                                    Preamble
"Travelers Amount"                             3.1(a)

                                      -23-

                                                         Stockholders' Agreement

"Trustee"                                      Def'n of Voting Trust
                                                    Agreement
"TRV"                                          Preamble
"Units"                                        Def'n of Purchased Shares

                                   ARTICLE II
                            RESTRICTIONS ON TRANSFERS

     2.1 Restrictions Generally; Securities Act.

     (a) Each Stockholder agrees that it will not, directly or indirectly,
Transfer any Restricted Securities or Restricted Preferred Securities except in
accordance with the terms of this Agreement. Any attempt to Transfer or any
purported Transfer of any Restricted Securities or Restricted Preferred
Securities not in accordance with the terms of this Agreement shall be null and
void and neither the Company nor any transfer agent of such securities shall
give any effect to such attempted Transfer in its stock records.

     (b) Each Stockholder agrees that, in addition to the other requirements set
forth herein and in each Stockholder's respective subscription agreement between
such Stockholder and the Company relating to Transfer, it will not Transfer any
Restricted Securities or Restricted Preferred Securities except (i) pursuant to
an effective registration statement under the Securities Act, or (ii) unless
such requirement is waived by the Company, upon receipt by the Company of an
opinion of counsel to the Stockholder (which opinion and counsel are reasonably
satisfactory to the Company) or of an opinion of counsel to the Company, or of a
no-action letter from the Commission addressed to the Company or such
Stockholder, to the effect that no registration statement is required because of
the availability of an exemption from registration under the Securities Act.

     2.2 Legend.

     (a) Each certificate representing Restricted Securities or Restricted
Preferred Securities shall be endorsed with the legends set forth in Exhibit B
hereto and such other legends as may be required by applicable state securities
laws.

     (b) Any certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon the
completion of a Transfer pursuant to a registered public offering under the
Securities Act and made in accordance with the Securities Act) shall also bear
such legends, unless the Restricted Securities or Restricted Preferred
Securities, as the case may be, represented thereby are no longer subject to the
provisions of this Agreement or, in the opinion of the Company (with advice from
counsel to the Company, as the Company

                                      -24-

                                                         Stockholders' Agreement

may deem appropriate), the restrictions imposed under the Securities Act or
state securities laws, in which case the applicable legend (or legends) may be
removed.

     2.3 Limitations on Repurchases, Dividends, Etc. Each Stockholder
understands that the Company is entering or has entered into certain financing
agreements which will or do contain prohibitions, restrictions and limitations,
among other things, on the ability of the Company to purchase any Restricted
Securities and/or Restricted Preferred Securities (whether pursuant to this
Agreement or otherwise), to pay dividends and to waive, modify or discharge any
rights or obligations under this Agreement.

     2.4 Transfer Restrictions.

     (a) Each of the Management Stockholders and the Additional Stockholders
severally agrees that it will not Transfer any HFG Restricted Securities, except
(i) to a Permitted Transferee who shall have executed a Joinder Agreement and
thereby become a party to this Agreement; (ii) pursuant to Section 2.6
(Involuntary Transfers); (iii) pursuant to 2.7 (Drag-Along Rights); (iv) in
accordance with Article III (Rights of Inclusion) in the capacity of an Offeree
thereunder; (v) pursuant to Article IV (Repurchase of Securities); (vi) in a
registered public offering of such Restricted Securities or in a Rule 144
Transaction; (vii) pursuant to Section 2.5 (Right of First Refusal) or (viii)
for the Transfer by Wayne B. Lyon of certain HFG Restricted Securities to
Management Stockholders on the Closing Date pursuant to the terms of the Stock
Purchase Agreements; provided, however, that no Management Stockholder shall
Transfer any HFG Restricted Securities pursuant to Section 2.5 for a period of
five years following the Closing Date, and provided, further, that no Management
Stockholder or Additional Management Stockholder shall transfer any Unvested
Shares except (x) to a Permitted Transferee who shall have executed a Joinder
Agreement and thereby become a party to this Agreement or (y) pursuant to
Section 2.6 (Involuntary Transfers), Section 2.7 (Drag-Along Rights) or Article
IV (Repurchase of Securities).

     (b) Each of the Masco Stockholders severally agrees that it will not
Transfer any HFG Restricted Securities, except (i) to a Permitted Transferee who
shall have executed a Joinder Agreement and thereby become a party to this
Agreement; (ii) pursuant to Section 2.8 (Special Right of First Offer); (iii)
pursuant to Section 2.5 (Right of First Refusal); (iv) pursuant to Section 2.7
(Drag-Along Rights); (v) in accordance with Article III (Rights of Inclusion) in
the capacity of an Offeree thereunder; (vi) in a registered public offering or
in a Rule 144 Transaction; or (vii) for the Transfer by Masco of certain HFG
Restricted Securities to Management Stockholders on the Closing Date pursuant to
the terms of the Stock Purchase Agreements.

     (c) Each of the Institutional Stockholders severally agrees that it will
not Transfer any HFG Restricted Securities, except (i) to a Permitted Transferee
who shall have executed a Joinder Agreement and thereby become a party to this
Agreement (subject to any required

                                      -25-

                                                         Stockholders' Agreement

compliance with Section 3.1(a)); (ii) to any other person in a transaction which
has been effected without violation of the terms of Article III (Rights of
Inclusion); (iii) pursuant to Section 2.7 (Drag-Along Rights); (iv) in a
registered public offering or in a Rule 144 Transaction; or (v) to the Company
pursuant to the Call.

     (d) Each of the Stockholders severally agrees that it will not Transfer any
shares of Class D Common or any Class D Equity Equivalents, except (i) to a
Permitted Transferee who shall have executed a Joinder Agreement and thereby
become a party to this Agreement; (ii) to any other person in a transaction
which has been effected without violation of the terms of Article III (Rights of
Inclusion) in the capacity of a Transferor or of an Offeree thereunder; (iii)
pursuant to Section 2.6 (Involuntary Transfers); (iv) pursuant to Section 2.7
(Drag-Along Rights); (v) pursuant to Section 2.5 (Right of First Refusal); (vi)
in a registered public offering or in a Rule 144 Transaction; (vii) pursuant to
the terms of the Share Purchase Agreement providing for the repurchase of shares
of Class D Common or any Class D Equity Equivalents; (viii) to the Company
pursuant to a redemption, exchange or repurchase of such Class D Common or any
Class D Equity Equivalents as may be provided for under the terms of the
Certificate of Incorporation; or (ix) as may otherwise agreed by the Company,
the Masco Stockholders and the Institutional Stockholders; provided, however,
that no Management Stockholder or Additional Management Stockholder shall
Transfer any shares of Class D Common or Class D Equity Equivalents pursuant to
Section 2.5 or pursuant to the preceding clause (ii) (other than in its capacity
as an Offeree thereunder) prior to November 28, 1999.

     (e) Each of the Stockholders severally agrees that it will not Transfer any
Restricted Preferred Securities, except (i) to a Permitted Transferee who shall
have executed a Joinder Agreement and thereby become a party to this Agreement;
(ii) in a transaction which has been effected without violation of the terms of
Article III (Rights of Inclusion) in the capacity of a Transferor or of an
Offeree thereunder; (iii) pursuant to Section 2.6 (Involuntary Transfers); (iv)
pursuant to Section 2.7 (Drag-Along Rights); (v) pursuant to Article IV
(Repurchase of Securities); (vi) to the Company pursuant to a mandatory
redemption of such Restricted Preferred Securities as may be provided for under
the Certificate of Incorporation; (vii) to the Company pursuant to the Call;
(viii) for the Transfer by Wayne B. Lyon of certain Restricted Preferred
Securities to Management Stockholders on the Closing Date pursuant to the terms
of the Stock Purchase Agreements; or (ix) for the Transfer by Masco of certain
Restricted Preferred Securities to Management Stockholders on the Closing Date
pursuant to the terms of the Stock Purchase Agreements.

     (f) Notwithstanding anything to the contrary contained herein, no Transfer
(including without limitation any Involuntary Transfer) or entry into any
agreement or other arrangement with respect to Transfer or the exercise of
rights under Article V hereof (including without limitation any agreement or
arrangement entered into by Masco Stockholders which would cause the Masco
Stockholders to cease to have the full right and power to designate the

                                      -26-

                                                         Stockholders' Agreement

Masco Director or any agreement or arrangement entered into by the Management
Stockholders which would cause the Management Stockholders to cease to have the
full right and power to designate the Management Directors) by a Masco
Stockholder, Management Stockholder or Additional Management Stockholder of
Restricted Securities, Restricted Preferred Securities or Debentures will be
permitted or will be effective (other than pursuant to Rights of Inclusion
exercised in connection with a Transfer by the Institutional Stockholders,
pursuant to the exercise of a Drag-Along Right by the Institutional Stockholders
or in connection with any registered public offering) to the extent such
Transfer, agreement or other arrangement would result in (i) a change of
control, event of default or other prepayment obligation by the Company (or any
of its Subsidiaries) under (A) any agreement or instrument (including amendments
to any such agreement or instrument) evidencing Senior Debt (including without
limitation the Credit Agreement), the Senior Subordinated Notes, the Senior
Notes, the Debentures or the Restricted Preferred Securities or (B) any
agreement or instrument that contains such a provision which is no more
restrictive of the rights of a Masco Stockholder, Management Stockholder or
Additional Management Stockholder (as the case may be) to transfer the
securities of the Company than the most restrictive provision contained in the
agreements and instruments referred to in clause (A) above or (C) any other
agreement or instrument that contains such a provision which agreement or
instrument has been approved by vote of the Board which vote includes the
affirmative vote of the Masco Director, (ii) the Masco Stockholders no longer
having the right to designate the Masco Director pursuant to Section 5.1 or
(iii) the Management Stockholders and the Additional Management Stockholders no
longer having the right to designate the Management Directors pursuant to
Section 5.1 by virtue of their ownership of shares of Class C Common.

     (g) Prior to the consummation of any transaction that would result in (A)
any Permitted Transferee of a Masco Stockholder which is a Masco Subsidiary no
longer constituting a Masco Subsidiary or (B) any Permitted Transferee of a
Masco Stockholder which is a Permitted Masco Subsidiary no longer constituting a
Permitted Masco Subsidiary, Masco shall cause any Restricted Securities or
Restricted Preferred Securities held by such person to be Transferred to, in the
case of clause (A), Masco or any Person which will thereafter qualify as a Masco
Subsidiary, and in the case of clause (B), Masco or any Person which will
thereafter qualify as either a Masco Subsidiary or, subject to the consent
requirements set forth in clause (ii) of the definition of "Permitted
Transferees," a Permitted Masco Subsidiary.

     2.5 Right of First Refusal.

     (a) Except for Transfers permitted pursuant to Section 2.4(a), Section
2.4(b) or 2.4(d), if pursuant to a bona fide third party offer a Stockholder
(other than any Institutional Stockholder) desires to Transfer (i) any HFG
Restricted Securities or (ii) any shares of Class D Common or Class D Equity
Equivalents (such transferring Stockholder under clause (i) or clause (ii), as
the case may be, a "Selling Stockholder" and such securities proposed to be so
Transferred, the "Offered Securities"), prior to any Transfer it shall give
written notice of the proposed

                                      -27-

                                                         Stockholders' Agreement

Transfer (the "Notice of Intention") to the Company, each of the Institutional
Stockholders and the Masco Stockholders (such parties other than the Company to
whom notice is given, but excluding the Selling Stockholder, the "Prospective
Buyers"), specifying the type and number of Offered Securities which such
Selling Stockholder wishes to Transfer, the proposed purchase price (the "Offer
Price") therefor and all other material terms and conditions of the proposed
Transfer.

     (b) For a period of thirty (30) days following its receipt of the Notice of
Intention, the Company shall have the right to purchase all or any portion of
the Offered Securities at the Offer Price and on the other terms specified in
the Notice of Intention, exercisable by delivery of an irrevocable notice (the
"Company Notice") to the Selling Stockholder, with a copy to each of the
Prospective Buyers, specifying the number of Offered Securities with respect to
which the Company is exercising its option.

     (c) For a period of thirty (30) days following its receipt of the Company
Notice or, if no Company Notice is so received, for a period of sixty (60) days
following its receipt of the Notice of Intention, each of the Prospective Buyers
shall have the right to purchase at the Offer Price and on the other terms
specified in the Notice of Intention addressed to it, any or all of the Offered
Securities which the Company has elected not to purchase, Pro Rata (with respect
to the HFG Securities, the Class D Common Stock or Class D Equity Equivalents,
as the case may be) among the Prospective Buyers; provided, however, that in the
event any Prospective Buyer does not purchase any or all of its Pro Rata portion
of the Offered Securities, the other Prospective Buyers shall have the right to
purchase such portion, Pro Rata, until all of such Offered Securities are
purchased or until such other Prospective Buyers do not desire to purchase any
more Offered Securities. The right of the Prospective Buyers pursuant to this
Section 2.5(c) shall be exercisable by delivery of a notice (the "Prospective
Buyer Notice") setting forth the maximum number of Offered Securities that such
Prospective Buyer wishes to purchase, to the Selling Stockholder, the Company
and the other Prospective Buyers and shall expire if unexercised within such
30-day or 60-day period, as applicable.

     (d) Notwithstanding the foregoing provisions of this Section 2.5, unless
the Selling Stockholder shall have consented to the purchase of less than all of
the Offered Securities, neither the Company nor any Prospective Buyer may
purchase any Offered Securities unless all of the Offered Securities are to be
purchased (whether by the Company or the Prospective Buyers, or any combination
thereof).

     (e) If all notices required to be given pursuant to this Section 2.5 have
been duly given, and the Company and the Prospective Buyers determine not to
exercise their respective options to purchase the Offered Securities at the
Offer Price and on the other terms specified in the Notice of Intention or
determine, with the consent of the Selling Stockholder, to exercise their
options to purchase less than all of the Offered Securities, then the Selling
Stockholder shall

                                      -28-

                                                         Stockholders' Agreement

have the right, for a period of ninety (90) days from the earlier of (i) the
expiration of the last applicable option period pursuant to this Section 2.5 or
(ii) the date on which such Selling Stockholder receives notice from the Company
and the Prospective Buyers that they will not exercise in whole or in part the
options granted pursuant to this Section 2.5, to sell to a third party (a "Third
Party") the Offered Securities remaining unsold under this Section 2.5 at a
price not less than the Offer Price and on other terms which shall not be
materially more favorable to the Third Party in the aggregate than those terms
set forth in the Notice of Intention; provided that prior to any such Transfer
to a Third Party, such Third Party executes and delivers to the Company a
Joinder Agreement and thereby becomes a party to this Agreement.

     (f) The closing of any purchase and sale pursuant to this Section 2.5 shall
take place on such date, not later than fifteen (15) business days after the
later of delivery to the Selling Stockholder of (i) the Company Notice or (ii)
the Prospective Buyer Notice, as the parties to such purchase and sale shall
select. At the closing of such purchase and sale, the Selling Stockholder shall
deliver certificates evidencing the Offered Securities being sold duly endorsed,
or accompanied by written instruments of Transfer in form satisfactory to the
purchasers thereof, duly executed by the Selling Stockholder, free and clear of
any Liens, against delivery of the Offer Price therefor.

     2.6 Involuntary Transfers.

     (a) Upon the occurrence of any event which would cause any Restricted
Securities or Restricted Preferred Securities owned by a Management Stockholder
or an Additional Management Stockholder to be Transferred by Involuntary
Transfer, such Stockholder (or his or its legal representative or successor)
shall give the Company, the Masco Stockholders and the Institutional
Stockholders written notice thereof stating the terms of such Involuntary
Transfer, the identity of the transferee or proposed transferee, the price or
other consideration, if readily determinable, for which the Restricted
Securities or Restricted Preferred Securities are proposed to be or have been
Transferred and the number of Restricted Securities or Restricted Preferred
Securities which are the subject of such Transfer, and the Company shall notify
the Masco Stockholders and the Institutional Stockholders of the same. After its
receipt of such notice or, failing such receipt, after the Company otherwise
obtains actual knowledge of such a proposed or completed Involuntary Transfer,
the Company shall have the right and option to purchase (or to have any designee
purchase) all or any portion of such Restricted Securities or Restricted
Preferred Securities, which right shall be exercised by written notice given by
the Company to the transferor (or transferee following the occurrence of any
Involuntary Transfer) and to the Masco Stockholders and the Institutional
Stockholders within thirty (30) days following the later of (i) the Company's
receipt of such notice or, failing such receipt, the Company's obtaining actual
knowledge of such proposed or completed Transfer and (ii) the date of such
Involuntary Transfer.

                                      -29-

                                                         Stockholders' Agreement

     (b) In the event that the Company elects not to purchase all of such
Restricted Securities or Restricted Preferred Securities, then the Company shall
on or prior to the end of such thirty (30) day period, notify the Masco
Stockholders and the Institutional Stockholders thereof, such notice to identify
the Securities not purchased by the Company (the "Subject Securities"). For a
period of thirty (30) days after receipt of such notice from the Company, each
of the Masco Stockholders and the Institutional Stockholders shall have the
irrevocable right to purchase any or all of the Subject Securities, pro rata
(based on the proportion as between the Masco Stockholders and the Institutional
Stockholders or the number of shares of Restricted Securities or Restricted
Preferred Securities (as the case may be) owned by the Masco Stockholders or
Institutional Stockholders); provided, however, that in the event any Masco
Stockholder or Institutional Stockholder does not purchase any or all of its pro
rata portion of the Subject Securities, the remaining Masco Stockholders and
Institutional Stockholders shall have the right to purchase such portion pro
rata as among themselves until all of the Subject Securities are purchased or
until such persons do not desire to purchase any more Subject Securities. The
right of the Masco Stockholders and the Institutional Stockholders to purchase
Subject Securities pursuant to this Section 2.5 shall be exercisable by delivery
of a notice to the transferor (or transferee following the occurrence of any
Involuntary Transfer) setting forth the maximum number of Subject Securities
that such person wishes to purchase including any number which would be
allocated in the event that any Masco Stockholder or Institutional Stockholder
does not purchase all or any portion of its pro rata portion.

     (c) Any purchase pursuant to this Section 2.6 shall be at the price and on
the terms applicable to such Involuntary Transfer; provided, however, that if
the nature of the event giving rise to such Involuntary Transfer is such that no
readily determinable consideration is to be paid for or assigned to the Transfer
of the Restricted Securities, the price to be paid by the Company, the Masco
Stockholders or the Institutional Stockholders, as the case may be, and the
applicable terms shall be the purchase price and terms applicable to a Sale
Event pursuant to Section 4.2. The closing of the purchase and sale of such
Restricted Securities or Restricted Preferred Securities pursuant to this
Section 2.6 shall be held at the place and on the date to be established by the
Company, the Masco Stockholders and/or the Institutional Stockholders, as the
case may be, which in no event shall be less than ten (10) nor more than
forty-five (45) days from the date on which the Company (or the Masco
Stockholders and/or the Institutional Stockholders, as the case may be) gives
notice of its election to purchase such Restricted Securities or Restricted
Preferred Securities. At such closing, the Stockholder (or his or its legal
representative or successor) shall deliver the certificates evidencing the
Restricted Securities or Restricted Preferred Securities to be purchased by the
Company (or the Masco Stockholders and/or the Institutional Stockholders, as the
case may be), as applicable, accompanied by stock powers, duly endorsed in
blank, or duly executed instruments of transfer, and any other documents that
are necessary to Transfer to the Company (or the Masco Stockholders and/or the
Institutional Stockholders, as the case may be) good title to such Restricted
Securities or Restricted Preferred Securities free and clear of all Liens and,
concurrently with such delivery, the Company (or the Masco Stockholders and/or
the

                                      -30-

                                                         Stockholders' Agreement

Institutional Stockholders, as the case may be) shall deliver to the transferor
thereof the full amount of the purchase price therefor by certified or bank
cashier's check.

     (d) Notwithstanding anything to the contrary contained herein, in the event
a purchase (or the payment of the purchase price) by the Company pursuant to
this Section 2.6 would violate or conflict with any statute, rule, injunction,
regulation, order, judgment or decree applicable to the Company or any of its
Subsidiaries or by which any of them or their respective properties may be bound
or affected or would result in any breach of, or constitute a change of control
or a default (or an event which with notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the property or assets of the Company or any of its Subsidiaries pursuant to any
note, bond, mortgage, indenture, contract, agreement, lease, license, franchise
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of their respective properties is bound
or affected, with the prior written consent of the Institutional Stockholders,
the rights of the Company to purchase (or to have any designee purchase) the
Restricted Securities or Restricted Preferred Securities of any Stockholder
shall be suspended until the earlier of (i) the date which falls thirty (30)
days following such time as such prohibition first lapses or is waived and no
such default would be caused or (ii) the date which is one hundred eighty (180)
days after the date of the Involuntary Transfer. For the purposes of this
Section 2.6 only, the date of such lapse or waiver shall be deemed the date of
the Involuntary Transfer for purposes of the purchase and sale of Restricted
Securities pursuant to this Section 2.6. The Company shall use its reasonable
efforts to obtain a waiver of any such prohibition, but shall not be obligated
to incur any additional interest or other costs or charges or to make any
prepayment with respect to any indebtedness in connection with such efforts.

     (e) Notwithstanding anything to the contrary contained in this Section 2.6,
any event giving rise to an Involuntary Transfer which is also subject to the
provisions of Article IV shall be governed by the provisions of Article IV.

     2.7 Drag-Along Rights.

     (a) Unless, prior to the exercise of the Drag-Along Rights set forth below,
there shall have occurred:

          (A) a transaction described in clause (ii) of the definition of Change
     of Control or

          (B) a transaction described in clause (iii) of the definition of
     Change of Control and the percentage of HFG Common Stock on a Fully-Diluted
     Basis owned by the 399 Group (which for purposes of these Drag-Along Rights
     does not include any "Permitted Transferee" pursuant to clauses (iii)(C)
     and (D) of the definition of Permitted Transferee

                                      -31-

                                                         Stockholders' Agreement

     (unless such Permitted Transferee is, with respect to 399, a Person
     described in clauses (iii)(A) and (B) of such definition)) is at the time
     of and after giving effect to such occurrence less than the percentage
     thereof owned by the Masco Stockholders,

if the Institutional Stockholders (i) propose to Transfer to a third party
(which is not an Affiliate of any of such Institutional Stockholders) (the
"Acquiror") all of their Restricted Securities and Restricted Preferred
Securities, the Institutional Stockholders shall have the right to require the
Stockholders to sell or transfer all of their Restricted Securities and
Restricted Preferred Securities to such third party on the same terms; or (ii)
propose the Transfer of all or substantially all of the assets or business
(whether by merger, sale or otherwise) of the Company to any such third party,
the Institutional Stockholders shall have the right (a "Drag-Along Right") to
require (x) the Stockholders to take all action necessary or appropriate
(including without limitation replacement of the director or directors
designated by such Stockholders) in order to cause the Company to take all
action necessary or appropriate to give effect to such transaction and (y) the
Stockholders to approve such transaction in their capacity as stockholders of
the Company (a transaction described in clause (i) or (ii), a "Drag-Along
Sale"); provided that upon the consummation of any transaction resulting in a
sale or transfer of all or substantially all of the assets or business of the
Company (whether by merger, sale or otherwise) the Company will immediately
distribute all of the net proceeds of such transaction to the Stockholders, in
accordance with their respective rights and privileges.

     (b) Notwithstanding the foregoing, in the event that (A) pursuant to an
exercise of the Drag-Along Rights the Company (or one or more of its
Subsidiaries) proposes to voluntarily sell all or substantially all of the
consolidated assets of the Company to a third party in a transaction and (B) the
Company intends to pay the net proceeds therefrom to its stockholders in a
distribution which is taxable as a dividend (and not pursuant to a plan of
liquidation) resulting in disparate tax treatment to the Masco Stockholders (in
relation to the Institutional Stockholders), then the Institutional Stockholders
shall only have the right to effect such transaction if the Masco Stockholders
have consented thereto (which consent shall not be unreasonably withheld or
delayed). If ten (10) days after the consent is requested, such consent is
withheld (i) it must be on the basis that the Masco Stockholders are not
reasonably satisfied, based upon information that they have received from the
Institutional Stockholders regarding the transaction, that the Masco
Stockholders would receive in such transaction no less on an after-tax basis
than they are likely to receive on an after-tax basis in an otherwise comparable
carry-over basis transaction (taking into account market conditions and the
condition of the business and assets being sold) and (ii) for a period of ten
(10) days thereafter, the Masco Stockholders and the Institutional Stockholders
shall undertake good faith negotiations to determine an appropriate resolution.
If, after such ten (10) day period, the Institutional Stockholders determine
that the Masco Stockholders have unreasonably withheld its consent, the
Institutional Stockholders shall have the right to require the Masco
Stockholders to provide promptly written advice to the Institutional
Stockholders from a disinterested nationally recognized investment banking firm

                                      -32-

                                                         Stockholders' Agreement

which sets forth the basis for, confirms and supports the position taken by the
Masco Stockholders in withholding their consent. If such written advice is so
furnished within ten (10) days following the request for such written advice,
the Company shall not effect the transaction.

     (c) In order to exercise a Drag-Along Right, the Institutional Stockholders
shall notify each Stockholder, such notice to set forth the terms and conditions
of such proposed sale. Subject to Section 2.7(b), each such Stockholder will
take all actions reasonably requested by the Institutional Stockholders in
connection with the consummation of such sale, and within ten (10) business days
of the receipt of such notice (or such longer period of time as the
Institutional Stockholders shall designate in such notice), if such transaction
is structured as a sale of assets or a merger, such Stockholders shall approve
the transaction in their capacities as stockholders of the Company (subject to
Section 2.7(b)), and if such transaction is a sale of Restricted Securities and
Restricted Preferred Securities, such Stockholders shall cause all of their
respective Restricted Securities and Restricted Preferred Securities to be sold
to the designated purchaser on the same terms and conditions and for the same
per share consideration as the Restricted Securities and Restricted Preferred
Securities being sold by the Institutional Stockholders; provided, however, that
if any of such Restricted Securities are Equity Equivalents (or Class D Equity
Equivalents), the purchase price of such Equity Equivalents (or Class D Equity
Equivalents) shall equal the aggregate price that would be paid for the shares
of Common Stock issuable upon the exercise thereof minus the aggregate exercise
or conversion price under such Equity Equivalents (or Class D Equity
Equivalents) for such shares of Common Stock and if any Stockholders are given a
choice as to the type or amount of consideration to be received in respect of a
specific security of the Company, all Stockholders will be given the same
choice. In furtherance of, and not in limitation of the foregoing, in connection
with a Drag-Along Sale, subject to Section 2.7(b), Section 2.7(d) and Section
2.7(e) each Stockholder will (i) raise no objections against the Drag-Along Sale
or the process pursuant to which it was arranged, (ii) waive any appraisal
rights under Section 262 of the Delaware General Corporation Law and other
similar rights, and (iii) execute all documents containing such terms and
conditions as those executed by other Stockholders as reasonably directed by the
Institutional Stockholders.

     (d) In a transaction effected pursuant to the exercise of the Drag-Along
Rights pursuant to this Section 2.7 in which either (x) the Class D Common is
then outstanding, or (y) it is contemplated that, as part of such transaction,
the Acquiror shall acquire from the Institutional Stockholders or their
Affiliates one or more businesses which are not owned or operated by the Company
or any of its Subsidiaries (the "Other Businesses"), then, the Masco
Stockholders may elect, upon notice to the Institutional Stockholders and the
Company, to require the Board to provide a written valuation of the Class D
Common, the assets and liabilities of the Simmons Business proposed to be sold
or otherwise transferred in the proposed Drag-Along Sale or the Other Businesses
(as the case may be) addressed to the Company from a nationally recognized
investment banking firm jointly selected by the Institutional Stockholders and
the Masco Stockholders, which selection shall be made promptly and in good faith
by such

                                      -33-

                                                         Stockholders' Agreement

Stockholders. Such notice must be given within five (5) days after receipt of
the notice of exercise of Drag-Along Rights under Section 2.7(c). If the
consideration proposed to be paid to holders of the Class D Common, in respect
of the Simmons Business or in respect of the Other Businesses (as the case may
be), (A) does not exceed the valuation established by such investment banking
firm, then the Institutional Stockholders shall have the right to proceed with
such Drag-Along Sale in accordance with the provisions of this Section 2.7 or
(B) does exceed such valuation, then the Institutional Stockholders shall not
have the right to effect such Drag-Along Sale pursuant to this Section 2.7
without the consent of the Masco Stockholders. The fees and expenses of such
investment banking firm shall be treated as a transaction expense.

     (e) Unless otherwise agreed by any Stockholder with respect to the
obligations of such Stockholder, all contractual indemnification and
contribution payments required to be made by any Stockholder in connection with
any Drag-Along Sale shall be limited to payments made from the proceeds of such
Drag-Along Sale set aside in an escrow account or similar arrangement, except
with respect to indemnification or contribution payments which arise from a
misrepresentation or breach by such Stockholder with respect to matters of title
to such Stockholders' securities and valid authorization by such Stockholder
with respect to the Drag-Along Sale. The amount of proceeds payable to each
Stockholder so set aside in respect of any such indemnification or contribution
payments shall be proportionate to the amount of consideration received or to be
received by such Stockholder in relation to all Stockholders. All Stockholders
will bear their pro rata share of the costs and expenses incurred in connection
with a Drag-Along Sale to the extent such costs are incurred for the benefit of
all Stockholders and are not otherwise paid by the Company or the purchaser and
so long as such costs and expenses are reimbursed solely out of the proceeds of
such Drag-Along Sale. Costs incurred by any Stockholder on its own behalf will
not be shared by any other Stockholder.

     2.8 Special Right of First Offer.

     (a) If Masco has made a good faith determination following consultation
with its independent accountants that (i) there is a reasonable likelihood that
it will be unable to continue the accounting treatment chosen by Masco to be
applied to the transactions contemplated hereby as a result of its holdings (or
the holdings of any other Masco Stockholder) of Restricted Securities or
Restricted Preferred Securities and (ii) after taking all commercially
reasonable steps, Masco, with the cooperation of the Company, is unable to
restructure its ownership (or the ownership of any other Masco Stockholder) of
such securities in a manner which continues such accounting treatment and is not
materially adverse to Masco (such determination, an "Accounting Determination")
then (A) Masco shall provide a notice to the Company and the Institutional
Stockholders of such determination, such notice to provide a brief summary
setting forth an explanation of the basis for the determination (except that no
summary shall be required if agreed by the Institutional Stockholders) and to
indicate that it is a notice under this Section 2.8 (a "Section 2.8 Notice") and
(B) Masco and the Masco Stockholders shall in such Section 2.8 Notice

                                      -34-

                                                         Stockholders' Agreement

offer to the Company and to the Institutional Stockholders the right to purchase
that quantity of the securities of the Company as is reasonably deemed necessary
by the Masco Stockholders (subject to the adjustment referred to in the next
succeeding sentence) to avoid such accounting problem (the "Section 2.8
Securities") at a price and upon the terms set forth in such Section 2.8 Notice.
The number of Section 2.8 Securities set forth in a Section 2.8 Notice shall
initially be calculated by the Masco Stockholders assuming purchase in full by
the Company and will be automatically adjusted downward, as appropriate, to
reflect purchases to be made by the Institutional Stockholders.

     (b) For a period of 20 days after receipt of such Section 2.8 Notice by
each of the Company and the Institutional Stockholders, the Company and the
Institutional Stockholders shall have the right to purchase all (but not less
than all) of the Section 2.8 Securities so offered on the terms set forth in the
Section 2.8 Notice (as may be adjusted in such Section 2.8 Notice as provided by
Section 2.8(a)); provided, that, the Company shall have a priority right to
purchase as many of such Section 2.8 Securities so offered (subject to any
adjustment under Section 2.8(a)) as it elects and the Institutional Stockholders
may purchase the remaining Section 2.8 Securities so offered not purchased by
the Company (subject to any adjustment under Section 2.8(a)), on a pro rata
basis (based upon the relative holdings of Restricted Securities among the
Institutional Stockholders). Acceptance of the offer set forth in the Section
2.8 Notice may be made at any time during such 20-day period (subject to the
priority accorded to the Company described above) by giving an irrevocable
written notice of the acceptance thereof on or prior to such 20th day to the
Masco Stockholders.

     (c) The closing of any purchase and sale pursuant to this Section 2.8 shall
take place on such date, not later than thirty (30) days after the expiration of
such 20-day period, as the parties to such purchase and sale shall select. At
the closing of such purchase and sale, the Masco Stockholders shall deliver
certificates evidencing the Section 2.8 Securities being sold duly endorsed, or
accompanied by written instruments of Transfer in form satisfactory to the
purchasers thereof, duly executed by the Masco Stockholders, free and clear of
any Liens, against delivery of the purchase price therefor as set forth in the
Section 2.8 Notice.

     (d) If the offers set forth in the Section 2.8 Notice are not accepted
within such period of 20 days, the Masco Stockholders may, for a period of 180
days after the date of such Section 2.8 Notice, sell its holdings of Section 2.8
Securities as to which such offers have not been accepted to a third party on
terms which are either substantially similar to the terms offered to the Company
and the Institutional Stockholders or which are more favorable to the Masco
Stockholders; provided that if the Masco Stockholders provide the Institutional
Stockholders and the Company with notice that (i) a third party has accepted
such offer within such 180-day period, (ii) a definitive agreement has been
entered into providing for the sale of the Section 2.8 Securities to such third
party, (iii) the closing of such sale was scheduled to occur within such 180-day
period, (iv) such closing has been delayed as a result of an assertion by the
Federal Trade

                                      -35-

                                                         Stockholders' Agreement

Commission or United States Department of Justice or other party that such sale
will constitute a violation of antitrust laws or as a result of the waiting
period applicable to such sale under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, having not expired as of the end of such
180-day period and (v) the sale is reasonably likely to occur notwithstanding
such delay in an additional period of 60-days from the end of such 180-day
period then such 180-day period shall be extended (once only) for a period of an
additional 60-days to allow for such sale to be consummated to such third party.
Upon the acceptance of any such offer of the Masco Stockholders by a third
party, the Masco Stockholders shall notify the Company thereof, such notice to
provide details as to the identity of the third party and the terms of such
sale.

                                   ARTICLE III
                               RIGHTS OF INCLUSION

     3.1 Rights of Inclusion.

     (a) Except for any Transfer of Restricted Securities or Restricted
Preferred Securities pursuant to clauses (i), (v) and (vi) of Section 2.4(b),
clauses (i), (iii), (iv) or (v) of Section 2.4(c), clauses (i), (iii), (iv),
(v), (vi), (vii), (viii) or (ix) of Section 2.4(d), or clauses (i), (iii), (iv),
(v), (vi) or (vii) of Section 2.4(e) (provided, that for purposes of this
exception, the term "Permitted Transferee", with respect to the 399
Stockholders, includes only Permitted Transferees of the 399 Stockholders which
are persons described in clauses (iii) (A) and (B) of the definition of
Permitted Transferee) and except for (X) any Transfer of HFG Restricted
Securities on or before the third anniversary of the Closing Date by one or more
of the Travelers Stockholders (or their Affiliates) to 399 in an amount not
exceeding the amount of HFG Common Stock on a Fully-Diluted Basis owned by the
Travelers Stockholders as of the Closing Date (subject to adjustment for any
stock dividends, stock splits, combinations, reclassifications, mergers,
consolidations and the like)(such amount, the "Travelers Amount"), (Y) any
Transfer by 399 of Restricted Preferred Securities to one or more of the
Travelers Stockholders (or their Affiliates) in an amount not exceeding $5.5
million of aggregate stated value (together with accrued and unpaid dividends
thereon) of such Restricted Preferred Securities and (Z) any Transfer by a Masco
Stockholder of Restricted Securities or Restricted Preferred Securities pursuant
to Section 2.8 to the Institutional Stockholders who have accepted an offer made
in a Section 2.8 Notice, if:

     (I) the Institutional Stockholders propose to Transfer HFG Restricted
     Securities; provided, that this clause (I) shall not apply if such Transfer
     is a Transfer in one or a series of related transactions of HFG Restricted
     Securities (A) which represent five percent (5%) or less of the HFG Common
     Stock on a Fully-Diluted Basis and (B) to the extent of the portion of any
     Transfers of HFG Restricted Securities by the Institutional Stockholders
     otherwise excluded from the Inclusion Right as a result of the exception
     set forth in clause (A) of this Section 3.1(a)(I) which, after

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                                                         Stockholders' Agreement

     giving effect to the proposed Transfer, represent, in the aggregate, not
     more than ten percent (10%) of the HFG Common Stock on a Fully-Diluted
     Basis; and provided, further, that this clause (I) shall not apply to, and
     the percentage calculations provided for in clauses (A) and (B) above shall
     not include, any Transfer(s) by one or more of the Travelers Stockholders
     of HFG Restricted Securities representing not more than the Travelers
     Amount (individually, or in the aggregate when taken together with all
     other such Transfers) unless one or more 399 Stockholders (other than a
     Travelers Stockholder) also Transferred or proposes to Transfer HFG
     Restricted Securities to the transferee in such Transfer or series of
     related Transfers; and provided further, that with respect to any proposed
     Transfer or Transfers by a 399 Stockholder to a Permitted Transferee which
     is a person described in clause (iii)(D) of the definition of Permitted
     Transferee, the exception set forth in clause (A) of this Section 3.1(a)(I)
     shall be calculated as if the percentage limitation contained therein were
     ten percent (10%);

     (II) the Institutional Stockholders propose to Transfer Restricted
     Securities in a transaction that would result in a Change of Control upon
     consummation thereof (other than pursuant to an exercise of a Drag-Along
     Right or pursuant to clause (iv) of Section 2.4(c));

     (III) the Institutional Stockholders, the Masco Stockholders, the
     Additional Stockholders or the Management Stockholders propose to Transfer
     Restricted Preferred Securities;

     (IV) the Institutional Stockholders propose to Transfer, in one or more
     transactions, shares of Class D Common or Class D Equity Equivalents
     representing more than ten percent (10%) of the Class D Common on a
     Fully-Diluted Basis (such Transfer under this clause (IV), a "Class D
     Tag-Along Transfer"); or

     (V) following a Qualifying Offering, the Masco Stockholders propose to
     Transfer HFG Restricted Securities (such Transfer under this clause (V), a
     "Masco Tag-Along Transfer"); provided, that this clause (V) shall not apply
     if such Transfer is a Transfer in one or a series of related transactions
     of HFG Restricted Securities (A) which represent five percent (5%) or less
     of the HFG Common Stock on a Fully-Diluted Basis and (B) to the extent of
     the portion of any Transfers of HFG Restricted Securities by the Masco
     Stockholders otherwise excluded from the Inclusion Right as a result of the
     exception set forth in clause (A) of this Section 3.1(a)(V) which, after
     giving effect to the proposed Transfer, represent, in the aggregate, not
     more than ten percent (10%) of the HFG Common Stock on a Fully-Diluted
     Basis; provided, that, with respect to any proposed Transfer or

                                      -37-

                                                         Stockholders' Agreement

     Transfers by a Masco Stockholder effected in order to avoid an accounting
     problem of the type described in Section 2.8(a) (which Transfer(s) has been
     effected after an Accounting Determination has been made and notice thereof
     (in the form of a Section 2.8 Notice) has been given to the Company and the
     Institutional Stockholders at least five (5) days prior to each such
     Transfer) the exception set forth in clause (a) of this Section 3.1(c)(V)
     shall be calculated as if the percentage limitation contained therein were
     ten percent (10%);

in each case to any Person (the "Buyer") (the transferor under clause (I), (II),
(III), (IV) or (V), the "Transferor" and the securities proposed to be so
transferred, the "Transferor Shares"), then, as a condition to such Transfer,
the Transferor shall cause the Buyer to include an offer (the "Article III
Offer") to each of the Stockholders holding shares of the same class (and
series) as the Transferor Shares who are not Transferors (collectively, the
"Offerees"), to sell to the Buyer, at the option of each Offeree, that number of
shares of the same class (and series) of Restricted Securities (or Restricted
Preferred Securities) as the Transferor, determined in accordance with Section
3.1(b), on the same terms and conditions as are applicable to the Transferor
Shares. (For purposes of this Section 3.1, (i) shares of all classes and series
of HFG Common Stock, together with Equity Equivalents (on an as-if-converted
basis), shall be deemed one and the same class and series of HFG Common Stock,
and (ii) shares of Series A-1 Preferred and Series A-2 Preferred shall be deemed
one and the same class and series of Restricted Preferred Securities.) The
Transferor shall provide a written notice (the "Inclusion Notice") of the
Article III Offer to each Offeree, which may accept the Article III Offer by
providing a written notice of acceptance of the Article III Offer to the
Transferor within thirty (30) days of delivery of the Inclusion Notice.
Notwithstanding the foregoing, (x) with respect to a Class D Tag-Along Transfer,
the Transferor shall only be required to cause the Buyer therefor to include an
Article III Offer to Offerees who are holders of shares of Class D Common or of
Class D Equity Equivalents, (y) with respect to Class D Tag-Along Transfers, the
Inclusion Rights provided under this Article III shall only apply to such
holders and their shares of Class D Common or Class D Equity Equivalents and (z)
with respect to Masco Tag-Along Transfers only, the term "Offerees" as used in
this Article III shall include only 399 Stockholders and the term "Pro-Rata" as
used in Section 3.1(b) shall be determined only with respect to the Masco
Stockholders and such 399 Stockholders (excluding any Permitted Transferee of a
399 Stockholder pursuant to clauses (iii)(C) and (iii)(D) of the definition of
Permitted Transferee, unless such Permitted Transfer is, with respect to 399, a
Person described in clauses (iii)(A) and (iii)(B) of such definition),

     (b) Each Offeree shall have the right (an "Inclusion Right") to sell
pursuant to the Article III Offer a Pro Rata number of its shares of HFG
Restricted Securities, Restricted Securities or Restricted Preferred Securities
or Class D Common and Class D Equity Equivalents (as the case may be) as is sold
by the Transferor. Any Offeree which owns Equity Equivalents (or Class D Equity
Equivalents) may sell pursuant to the Article III Offer, in lieu of shares of
Common Stock, Equity Equivalents (or Class D Equity Equivalents) representing
that number

                                      -38-

                                                         Stockholders' Agreement

of shares of Common Stock which it could sell pursuant to its Inclusion Right
and the purchase price therefor shall equal the aggregate price that would be
paid for the shares of Common Stock issuable upon the exercise, exchange or
conversion thereof minus the aggregate exercise, exchange or conversion price
under such Equity Equivalent (or Class D Equity Equivalents) for such shares of
Common Stock.

     3.2 Article III Sales.

     (a) Upon its exercise of an Inclusion Right, each Offeree shall, within a
reasonable period prior to the closing of such Article III Sale, deliver to the
Transferor a certificate or certificates representing the Restricted Securities
and/or Restricted Preferred Securities to be sold or otherwise disposed of
pursuant to the Article III Offer by such Offeree, free and clear of all Liens,
and a limited power-of-attorney authorizing the Transferor to sell or otherwise
dispose of such Restricted Securities and/or Restricted Preferred Securities
pursuant to the terms of the Article III Offer, provided that, in the event the
Article III Sale is not completed, such certificate(s) shall be returned
promptly upon request by the Offeree.

     The Transferor shall have one hundred twenty (120) days, commencing on the
expiration of the Inclusion Rights, in which to sell or otherwise dispose of, on
behalf of itself and the Offerees, up to the number of shares of Restricted
Securities and/or Restricted Preferred Securities covered by the Article III
Offer (and the number of Transferor Shares) to the Buyer. If all such shares are
not sold to the Buyer, the Transferor, at its option, may elect to sell on
behalf of itself and the Offerees such number of shares as the Buyer will
purchase, Pro Rata among the Transferor and the Offerees, as nearly as
practicable. The material terms of such sale, including, without limitation,
price and form of consideration, shall be as set forth in the Inclusion Notice.
If at the end of such 120-day period the Transferor has not completed the sale
or other disposition of all the Transferor Shares and all the Offerees'
Restricted Securities and/or Restricted Preferred Securities (if any) proposed
to be sold, the Transferor shall return to each of the Offerees its respective
certificates, if any, representing Restricted Securities and/or Restricted
Preferred Securities which the Offerees delivered for sale or other disposition
pursuant to this Article III and which were not sold pursuant thereto and the
provisions of this Article III shall continue to be in effect.

     (b) Promptly after the consummation of the sale or other disposition of the
Transferor Shares and Restricted Securities and/or Restricted Preferred
Securities of the Offerees to the Buyer pursuant to the Article III Offer, the
Transferor shall notify the Offerees thereof, and the Buyer shall pay to the
Transferor and each of the Offerees their respective portions of the sales price
of the Restricted Securities and/or Restricted Preferred Securities sold or
otherwise disposed of pursuant thereto, and shall furnish such other evidence of
the completion of such sale or other disposition and the terms thereof as may be
reasonably requested by the Offerees.

                                      -39-

                                                         Stockholders' Agreement

     (c) Notwithstanding anything to the contrary contained in this Article III,
except for the Transferor's obligation to return to each Offeree any
certificates representing the Offerees' Restricted Securities or Restricted
Preferred Securities, there shall be no liability on the part of the Transferor
to any Stockholder in the event that the proposed sale pursuant to this Article
III is not consummated for whatever reason. Whether a sale of HFG Restricted
Securities, Restricted Securities or Restricted Preferred Securities is effected
pursuant to this Article III by the Transferor is in the sole and absolute
discretion of the Transferor.

                                   ARTICLE IV
                            REPURCHASE OF SECURITIES

     4.1 Sale Event.

     (a) In the event that any Management Stockholder or any Additional
Management Stockholder shall cease to be employed by (or in the case of any
non-employee ceases to be a director of) the Company or any of its Subsidiaries
for any reason, including death, permanent disability, termination for cause or
without cause, voluntary termination, retirement or otherwise (such cessation of
employment or directorship being referred to herein as a "Sale Event"), but in
each case subject to Section 4.4, such Management Stockholder (or his personal
representative) or such Additional Management Stockholder (or his personal
representative) shall promptly notify the Company, the Masco Stockholders and
the Institutional Stockholders of the applicable Sale Event and, within ninety
(90) days after the Company's receipt of such notice, the Company or, at the
option of the Company, any employee or director of the Company or any of its
subsidiaries who shall have been designated by the Board acting by Affirmative
Board Vote (a "Company Designee") may, at its option, elect to purchase the
Securities described in the next sentence of this Section 4.1(a), exercisable by
written notice (a "Purchase Notice") delivered to such Management Stockholder
(or his personal representative) or such Additional Management Stockholder (or
his personal representative) (with copies thereof to the Institutional
Stockholders and the Masco Stockholders) and, in each case, his respective
Permitted Transferees who hold Management Securities which Management Securities
are attributable to the Management Stockholder or Additional Management
Stockholder whose employment or directorship has ceased (collectively, the
"Sellers") (with a copy to the Institutional Stockholders and the Masco
Stockholders). Upon the giving of such notice, the Sellers shall be obligated to
sell to the Company or the Company Designee those Restricted Preferred
Securities and Management Securities (whether Purchased Shares, Vested Shares or
Unvested Shares) of the Sellers which are designated in the Purchase Notice;
provided, however, that in the event notice of a Sale Event is not given, a
Purchase Notice (or notice from the Institutional Stockholders and/or Masco
Stockholders as described in Section 4.1(b)) may in any event be given at any
time following a Sale Event; provided, that, unless the Sale Event occurred as a
result of a termination for Cause, any Purchased Shares which were purchased as
a Unit must be repurchased as a Unit; and provided,

                                      -40-

                                                         Stockholders' Agreement

further, that notwithstanding anything in this Agreement to the contrary, the
Company, the Institutional Stockholders and the Masco Stockholders shall not be
entitled to purchase the last outstanding share of Class C Common Stock. The
time periods set forth herein and in Section 4.1(b) below shall be tolled for
the duration of any suspension period under Section 4.4 hereof and the remaining
balance of any such time period shall re-commence as of the end of any such
suspension period.

     (b) To the extent the Company or any Company Designee fails to deliver a
Purchase Notice or otherwise does not purchase all of the Management Securities
then owned by the Sellers, the Institutional Stockholders and the Masco
Stockholders may, at their option, exercisable by written notice delivered to
the Sellers within fifteen (15) days after delivery of the Purchase Notice (or
one hundred (100) days after written notice from the Sellers (or any legal
representative) to the Company of the applicable Sale Event, if no Purchase
Notice is given by the Company or any Company Designee), on a pro rata basis (in
proportion to the number of shares of HFG Common Stock on a Fully-Diluted Basis
owned by the Institutional Stockholders as compared with the number of such
shares owned by the Masco Stockholders (and including on such pro rata basis
with respect to the number of Vested Shares, Unvested Shares, Purchased Shares
and Restricted Preferred Securities purchasable by each such person)) purchase
the Management Securities not so purchased by the Company which are designated
in such written notice from the Institutional Stockholders and/or the Masco
Stockholders.

     4.2 Purchase Price. The purchase price for each share of Management
Securities to be purchased pursuant to Section 4.1 shall be as set forth below
(and such purchase price may be paid at the election of the Company in cash or
by a Management Note in an aggregate principal amount equal to such purchase
price):

     (a) as to each Vested Share (provided that the Sale Event did not occur as
a result of a termination for Cause), the Fair Market Value thereof as of the
date of the Sale Event,

     (b) as to each Unvested Share, and each Vested Share (if the Sale Event
occurred as a result of a termination for Cause), the lower of (x) the Fair
Market Value thereof as of the date of the Sale Event or (y) the Original Cost
thereof,

     (c) as to each Purchased Share other than Restricted Preferred Securities
(whether or not such Purchased Share is part of a Unit), the Fair Market Value
thereof as of the date of the Sale Event, and

     (d) as to each Restricted Preferred Security (whether or not such
Restricted Preferred Security is part of a Unit), the Fair Market Value thereof
together with accrued and unpaid dividends thereon as of the date of the Sale
Event.

                                      -41-

                                                         Stockholders' Agreement

Notwithstanding anything to the contrary contained herein, no provision of this
Agreement shall prevent or otherwise restrict the Board acting by Affirmative
Board Vote from determining (in its discretion) (i) that the Company will
purchase Management Securities from Management Stockholders or Additional
Management Stockholders pursuant to Section 4.1 at a price per share in excess
of the purchase price specified in this Section 4.2., (ii) that in connection
with a retirement of a Management Stockholder or Additional Management
Stockholder at or after normal retirement age all or any part of such
Stockholder's Unvested Shares may be treated as Vested Shares by the Company for
purposes of this Section 4.2 or (iii) that a Management Stockholder's or
Additional Management Stockholder's Management Securities may not be repurchased
pursuant to this Article IV by the Company, the Masco Stockholders or the
Institutional Stockholders.

     4.3 Closing.

     (a) Subject to Section 4.4, the closing for all purchases and sales of
Management Securities provided for in this Article IV shall be held at the
principal executive offices of the Company at 10:00 a.m., local time, on the
30th day after the determination of the purchase price in respect thereof
determined in accordance with Section 4.2 or at such other date and time as
shall have been agreed to by the Board (acting by Affirmative Board Vote) and
the Seller; provided, however, that if any Seller who has become obligated to
sell Management Securities is deceased on such 30th day as aforesaid and such
deceased person's personal representative shall not have been appointed and
qualified by such date, then unless otherwise agreed to as provided above, the
closing shall be postponed until the 10th day after the appointment and
qualification of such personal representative.

     (b) All Management Securities to be sold pursuant to this Article IV shall
be delivered to the purchaser at the aforesaid closing free and clear of all
Liens. The purchaser will be entitled to receive customary representations as to
title, authority and capacity to sell and to require a guaranteed signature of
the Seller, as applicable. Each Seller hereby appoints the Company as
attorney-in-fact to transfer such Management Securities on the books of the
Company in the event of a sale pursuant to this Article IV. Such Sellers shall
take all such actions as the Company or any other purchaser shall request as
necessary to vest in the Company or any other purchaser at such closing good
title to such Management Securities, free and clear of all Liens.

     4.4 Postponement. Notwithstanding anything to the contrary contained
herein, in the event a purchase (or the payment of the purchase price) by the
Company pursuant to this Article IV would

                                      -42-

                                                         Stockholders' Agreement

          (a) violate or conflict with any statute, rule, injunction,
     regulation, order, judgment or decree applicable to the Company or any of
     its Subsidiaries or by which any of them or their respective properties may
     be bound or affected,

          (b) result in a change of control under, any breach of, or a default
     (or an event which with notice or lapse of time, or both, would become a
     default) under, or give to others any rights of termination, amendment,
     acceleration or cancellation of, or result in the creation of a Lien on any
     of the property or assets of the Company or any of its Subsidiaries
     pursuant to any note, bond, mortgage, indenture, contract, agreement,
     lease, license, franchise or other instrument or obligation to which the
     Company or any of its Subsidiaries is a party or by which any of their
     respective properties is bound or affected or

          (c) in the judgment of the Board, jeopardize the financial condition
     of the Company or otherwise have a material adverse effect on the business,
     condition (financial or otherwise), results of operations or assets or
     properties of the Company,

with the prior written consent of the Institutional Stockholders, upon the
delivery by the Company of notice of suspension under this Section 4.4 to each
of the Sellers, the rights of the Company, the Institutional Stockholders and
the Masco Stockholders to purchase the Management Securities of the Sellers with
respect to whom the Sale Event has occurred pursuant to this Article IV shall be
suspended until the earlier of (I), in the case of clauses (a) or (b) above, the
date which falls thirty (30) days following such time as such prohibition first
lapses or is waived and no such default would be caused, and in the case of
clause (c) above, the date which falls thirty (30) days following such time as
the Board determines that such purchase (or payment of the purchase price) would
no longer jeopardize the financial condition of the Company or otherwise have a
material adverse effect on the business, condition (financial or otherwise),
results of operations or assets or properties of the Company or (II) the date
which is one hundred eighty (180) days after the date of such notice of
suspension. For the purposes of this Section 4.4 only, the earlier of the dates
under the preceding clause (I) or (II) shall be deemed to be the date of the
relevant Sale Event for purposes of the purchase and sale of Management
Securities pursuant to this Article IV.

                                    ARTICLE V
                              CORPORATE GOVERNANCE

     5.1 Board of Directors.

     (a) From and after the date hereof, each of the Stockholders shall vote or
cause to be voted all of its shares of voting Common Stock (in the Series or
Class as described below), at

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                                                         Stockholders' Agreement

any regular or special meeting of stockholders called for the purpose of filling
positions on the Board, or to execute a written consent in lieu of such a
meeting of stockholders for the purpose of filling positions on the Board, and
shall take all actions necessary, to ensure that the Board consists of seven (7)
members as follows:

          (i) shares of Series A-1 Common Stock shall be voted so as to elect
     two (2) individuals (individually, an "Institutional Director," and
     collectively, the "Institutional Directors") to be designated by the
     Institutional Stockholders for so long as the Institutional Stockholders
     own (x) shares of Series A-1 Preferred or (y) at least ten percent (10%) of
     the outstanding HFG Common Stock on a Fully-Diluted Basis, and thereafter
     by the Nominating Committee; provided, that, at any time, and from time to
     time, the Institutional Stockholders, in their sole discretion, may
     determine not to designate one or both of the Institutional Directors, in
     which case such Institutional Directors shall be designated by the
     Nominating Committee;

          (ii) two (2) individuals to be designated by vote of a majority of the
     outstanding shares of Class C Common, voting separately as a class
     (individually, a "Management Director," and collectively, the "Management
     Directors") each of whom must be either (A) the Chief Executive Officer (or
     President), the Chief Operating Officer, the Secretary, the General
     Counsel, the Chief Financial Officer (or Treasurer) or the Chief Accounting
     Officer of the Company, (B) a holder of Class C Common or (C) with the
     consent of the Nominating Committee, any person other than the persons
     described in clause (A) or clause (B),

          (iii) shares of Series A-2 Common Stock shall be voted so as to elect
     one (1) individual (the "Masco Director") to be designated by the Masco
     Stockholders, for so long as the Masco Stockholders own (x) shares of
     Series A-1 Preferred, (y) at least five percent (5%) of the outstanding HFG
     Common Stock on a Fully-Diluted Basis or (z) any Senior Notes; provided,
     that, at any time, and from time to time, the Masco Stockholders, in their
     sole discretion, may determine not to designate the Masco Director, in
     which case such Masco Director shall be designated by the Nominating
     Committee; and

          (iv) subject to the exercise of the Regulatory Right under Section
     5.9, shares of Series A-3 Common Stock shall be voted so as to elect two
     (2) individuals (each individually, a "Disinterested Director," and
     collectively, the "Disinterested Directors"), each of whom is not (A) an
     Affiliate of 399, (B) employed by the Company or any Subsidiary of the
     Company or (C) a Stockholder or an Affiliate of any Stockholder, such
     Disinterested Directors to be designated by the Nominating Committee;

provided, however, that (x) effective at the Closing, the Board shall consist of
the individuals set forth on Exhibit C hereto in the categories shown thereon
and (y) the Stockholders shall cause

                                      -44-

                                                         Stockholders' Agreement

the Institutional Director, the Masco Director and the Management Directors
named thereon to be designated and elected as directors, and not to be removed
by any Stockholder without cause, until January 1, 1998 unless such person
resigns, is otherwise unable to serve or ceases to qualify as a Management
Director under Section 5.1(a)(ii)). The Nominating Committee shall consist of
one (1) Management Director, one (1) Institutional Director and one (1)
Disinterested Director (collectively, the "Nominating Committee"), and upon the
Closing the Nominating Committee shall consist of the individuals set forth on
Exhibit C hereto in the categories shown thereon. The Nominating Committee shall
act by majority vote, provided that, if for any reason there shall be less than
three (3) directors on the Nominating Committee, it shall act by the unanimous
vote of the remaining director(s) on the Nominating Committee. In the event that
the Management Stockholders do not designate any or either of the Management
Directors, the Nominating Committee will select one (1) additional Disinterested
Director who shall also serve on the Nominating Committee which will then
consist of two (2) Disinterested Directors and one (1) Institutional Director.

     (b) If, prior to his election to the Board pursuant to Section 5.1(a), any
person shall be unable or unwilling to serve as a director of the Company, the
group of Stockholders or Nominating Committee who designated such person shall
be entitled to designate a replacement.

     (c) If at any time any person designated as an Institutional Director,
Masco Director or any Disinterested Director is not then serving as a director
of the Company, upon the written request of the Institutional Stockholders or
the Masco Stockholders, the Stockholders shall promptly take all action
necessary or appropriate to elect individuals designated by the Institutional
Stockholders (in the case of any Institutional Director), by the Masco
Stockholders (in the case of any Masco Director) and by the Nominating Committee
(in the case of any Disinterested Director) to serve as directors from and after
the time of such request.

     5.2 Removal. If (i) the Institutional Stockholders request that an
Institutional Director elected as a director be removed (with or without cause),
by written notice to the other Stockholders;

     (ii) the Management Stockholders request that a Management Director elected
as a director be removed (with or without cause), by written notice to the other
Stockholders;

     (iii) the Masco Stockholders request that the Masco Director elected as a
director be removed (with or without cause) by written notice to the other
Stockholders;

     (iv) the Nominating Committee requests that a Disinterested Director (or an
Institutional Director or Masco Director, if the Institutional Stockholders or
Masco Stockholders, as the case may be, have determined not to designate an
Institutional Director or Masco Director, as the case may be, and the Nominating
Committee has designated such Institutional Director or

                                      -45-

                                                         Stockholders' Agreement

such Masco Director) elected as a director be removed (with or without cause) by
written notice to other Stockholders, or such director ceases to qualify as a
Disinterested Director; or

     (v) a Management Director ceases to qualify as a Management Director;

then in each such case, such director shall be removed and each Stockholder
agrees to vote all shares of HFG Common Stock owned by such Stockholder and
other securities over which such Stockholder has voting control to effect such
removal or to consent in writing to effect such removal upon such request;
provided, that (A) prior to January 1, 1998, the Stockholders will not take any
action to remove any director without cause, unless such director resigns, is a
Disinterested Director or such director ceases to meet the qualifications under
Section 5.1(a)(ii), in which case such director may be removed as provided in
this Section 5.2 and (B) on and after January 1, 1998, the Stockholders will not
take any action to remove any Institutional Director or Masco Director without
cause except as provided in this Section 5.2.

     5.3 Vacancies. In the event that a vacancy is created on the Board at any
time by the death, disability, retirement, resignation or removal (with or
without cause) of a director, each Stockholder agrees to vote all shares of HFG
Common Stock owned by such Stockholder and other securities over which such
Stockholder has voting control for the individual designated to fill such
vacancy by whichever of the Stockholders or Nominating Committee designated
and/or approved (pursuant to Section 5.1 hereof) the director whose death,
disability, retirement, resignation or removal (with or without cause) resulted
in such vacancy on the Board in the manner set forth in Section 5.1 hereof;
provided, however, that such other individual so designated may not previously
have been a director of the Company who was removed for cause from the Board.

     5.4 Weighted Board Voting.

     (a) The directors on the Board shall have weighted votes which together
total 1,000 votes, with each director having a number of such votes equal to the
percentage set forth below:

          (i) each Management Director will have a weighted vote of 10.5%;

          (ii) the Masco Director will have a weighted vote of 15%;

          (iii) each of the Institutional Directors will have a weighted vote of
     24.5%, except that in the event there are more than 50 stockholders of the
     Company, such weighting shall, upon notice to the Company from the
     Institutional Stockholders, be shifted to 9.5% each, with a corresponding
     shift in the weighting of each of the Disinterested Director's weighted
     vote from 7.5% to 22.5%; thereafter the Institutional Stockholders shall
     have the

                                      -46-

                                                         Stockholders' Agreement

     right upon notice to the Company to increase the weighting back to its
     original position; and

          (iv) each Disinterested Director will have a weighted vote of 7.5%
     (subject to shifting as described in clause (iii) above); such weighting
     shall be unaffected if one or more of the Disinterested Directors is
     replaced or designated by the Institutional Stockholders pursuant to the
     Regulatory Right.

     (b) All actions taken by the Board shall require the vote of a majority of
the weighted votes of the Board, subject to Section 5.5. The weighted votes set
forth above in Section 5.4(a) shall not be adjusted or affected by a vacancy in
any directorship.

     5.5 Special Approval Rights.

     (a) In addition to any other action requiring an Affirmative Board Vote, so
long as the Institutional Stockholders have the right to designate directors
under Section 5.1(a), an Affirmative Board Vote shall be required prior to the
Company or any of its Subsidiaries entering into a Significant Transaction.

     (b) So long as the Masco Stockholders have the right to designate a
director under Section 5.1(a), the affirmative vote of the Masco Director,
unless the Masco Stockholders have elected in writing not to designate the Masco
Director, shall be required prior to the Company or any of its Subsidiaries
entering into a Masco Approval Transaction.

     5.6 Committees of the Board; Subsidiary Boards. For so long as the Board
shall be comprised of the individuals contemplated by Section 5.1, unless
otherwise consented to by the Institutional Stockholders and the Masco
Stockholders, the Stockholders shall take all action necessary or appropriate to
cause the Company to have an audit committee and a compensation committee of the
Board consisting of one (1) Institutional Director, one (1) Masco Director and
one (1) Disinterested Director. The Stockholders shall take all action necessary
or appropriate to cause each additional committee of the Board to have the same
number of directors and the same composition as such audit committee and
compensation committee. For so long as the Masco Stockholders and the
Institutional Stockholders, respectively, shall have the right to designate any
directors under Section 5.1(a), the Stockholders shall take all action necessary
or appropriate to cause one director designated by each of the Masco
Stockholders and the Institutional Stockholders, respectively, to be elected to
the board of directors of each Subsidiary. The Stockholders agree that they
shall take all actions necessary or appropriate to cause (i) such persons so
designated to be directors on each such Subsidiary's board of directors and (ii)
at the direction of the parties so designating each such director, the removal
or replacement of such director from any such board. The composition of the
boards of directors of such Subsidiaries of the Company shall otherwise be as
determined by the Board.

                                      -47-

                                                         Stockholders' Agreement

     5.7 Observer's Rights.

     (a) In the event

     (i) the Institutional Stockholders elect not to exercise, or are prohibited
     by applicable law from exercising, their rights to designate either or both
     of the Institutional Directors, or once appointed, the Institutional
     Stockholders desire to remove one or both of the Institutional Directors,
     the Institutional Stockholders shall have, and/or

     (ii) the Masco Stockholders elect not to exercise, or are prohibited by
     applicable law from exercising, their rights to designate the Masco
     Director, or once appointed, the Masco Stockholders desire to remove the
     Masco Director, the Masco Stockholders shall have,

the right to each have one (1) individual (each, an "Observer") attend any
meeting of the Board or any committee thereof. In addition, each of the
Institutional Stockholders and the Masco Stockholders shall have the right to
appoint an Observer to the board of directors of any Subsidiary in lieu of
designating a director thereto as provided by Section 5.6.

     (b) An Observer shall not have the right to vote on any matter presented to
the board of directors or any committee thereof. The Company shall give each
Observer written notice of each meeting thereof at the same time and in the same
manner as the members of the relevant board of directors or such committee
receive notice of such meetings, and the Company shall permit each Observer to
attend as an observer at all meetings thereof; provided that in the case of
telephonic meetings, such Stockholders need receive only actual notice thereof
at the same time and in the same manner as notice is given to the directors.

     (c) Each Observer shall be entitled to receive all written materials and
other information given to the directors in connection with such meetings at the
same time such materials and information are given to the directors, and each
Observer shall keep such materials and information confidential. If the Company
(or any Significant Subsidiary) proposes to take any action by written consent
in lieu of a meeting of its board of directors, the Company (or such Significant
Subsidiary) shall give written notice thereof to each Observer prior to the
effective date of such consent describing the nature and substance of such
action.

     5.8 Action by Written Consent of Stockholders. The parties hereto agree
that whenever any action is proposed to be taken by Stockholders without a
meeting, the Stockholders proposing to act by such consent shall, or shall cause
the Company to, give the Institutional Stockholders and the Masco Stockholders
at least seven (7) days' prior written notice

                                      -48-

                                                         Stockholders' Agreement

(or such shorter notice period as is agreed to in writing) of such proposed
action specifying the action to be taken and the purpose thereof (such notice
requirement shall be deemed satisfied by execution of such consent (i) by
Institutional Stockholders which hold in the aggregate more than fifty percent
(50%) of the shares of HFG Common Stock on a Fully-Diluted Basis held by all
Institutional Stockholders and (ii) by Masco Stockholders which hold in the
aggregate more than fifty percent (50%) of the shares of HFG Common Stock on a
Fully-Diluted Basis held by all Masco Stockholders; provided, that, unless the
Travelers Stockholders shall have received such prior written notice, then the
Institutional Stockholders referred to in clause (i) must include Travelers
Stockholders which hold in the aggregate more than fifty percent (50%) of the
HFG Common Stock on a Fully-Diluted Basis then held by the Travelers
Stockholders.

     5.9 Regulatory Right. If the Institutional Stockholders determine in their
sole discretion that applicable law permits the Institutional Stockholders to
have the right to designate a majority of the directors of the Board or
directors having a majority of the weighted votes on the Board, then
notwithstanding the provisions of Section 5.1 the Institutional Stockholders
may, upon the giving of notice thereof to the Company and the Masco
Stockholders, designate each of the Disinterested Directors instead of the
Nominating Committee and take any and all other actions otherwise permitted or
required to be taken by the Nominating Committee in this Agreement or otherwise
and provided that from and after the date such notice is given the
qualifications of a Disinterested Director set forth in clauses (A) - (C) of
Section 5.1(a)(iv) shall no longer be required. Such right exercised under this
Section 5.9 is referred to as the "Regulatory Right."

     5.10 Post-Qualifying Offering Board. Upon and after the occurrence of a
Qualifying Offering, for so long as the Institutional Stockholders own (x)
shares of Series A-1 Preferred, (y) Debentures or (z) at least ten percent (10%)
of the outstanding HFG Common Stock on a Fully-Diluted Basis, notwithstanding
the provisions of Section 5.1, each of the Stockholders shall vote or cause to
be voted shares of the Common Stock so as to elect (i) the maximum number of
individuals to the Board (subject to the right of the Masco Stockholders under
clause (ii) below) as may be designated by the Institutional Stockholders under
applicable law (and taking into account any independent director requirements
under the rules of any stock exchange or over-the-counter market upon which
shares of the Common Stock are listed for trading) and (ii), for so long as the
Masco Stockholders own (w) any Senior Notes, (x) any shares of Series A-1
Preferred, (y) any Debentures or (z) at least five percent (5%) of the HFG
Common Stock on a Fully-Diluted Basis, one (1) individual to the Board to be
designated by the Masco Stockholders. At the request of the persons so
designating any such director, each Stockholder agrees to take all action
necessary or appropriate (including without limitation voting all shares of HFG
Common Stock owned by such Stockholder and other securities over which such
Stockholder has voting control) to effect the removal of such director.

                                      -49-

                                                         Stockholders' Agreement

                                   ARTICLE VI
                        CERTAIN COVENANTS OF THE PARTIES

     6.1 Registration. In the event of, and in order to facilitate, a
registration by the Company of Common Stock under the Securities Act which will
constitute a Qualifying Offering, each Stockholder shall, at a meeting convened
for the purpose of amending the Certificate of Incorporation and the By-laws of
the Company, vote (in each case as recommended by the Board):

     (i) to increase the authorized shares of any or all classes or series of
the Company's Common Stock and if necessary or desirable, change the par value
of any class or series of Common Stock or change the number of issued and
outstanding shares of any class or series of Common Stock whether by stock
split, stock dividend, reclassification, combination or the like; and

     (ii) to amend, modify or repeal provisions of the Certificate of
Incorporation or Bylaws of the Company (subject to the rights and privileges set
forth in the terms of the Series A-1 Preferred) to the extent such amendments,
modifications or repeals are customary and reasonably necessary in order to
facilitate a Qualifying Offering and would be effective upon the closing of such
Qualifying Offering (except that amendments, modifications and repeals which
have the primary purpose of hindering an unsolicited takeover of the Company
(e.g., fair price provisions, staggered board, poison pills and similar
provisions) are deemed not to be customary or reasonably necessary).

     6.2 Management Stockholders; Additional Stockholders.

     (a) The parties hereto agree that as a condition precedent to the issuance
by the Company of shares of Common Stock or of securities convertible,
exchangeable or exercisable for or into shares of Common Stock (i) to any
employee of the Company or its Subsidiaries or (ii) to any Person other than any
such employee, any Institutional Stockholder, any Masco Stockholder or any
Management Stockholder, the Company shall require such employee or other Person
to execute a Joinder Agreement and thereby enter into and become a party to this
Agreement. From and after such time, the term "Additional Management
Stockholder" shall be deemed to include such employees and the term "Additional
Stockholder" shall be deemed to include such other Person. Nothing contained
herein nor the ownership of any Restricted Securities shall confer upon any
Management Stockholder or Additional Management Stockholder the right to
employment or to remain in the employ of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, to the extent approved by a majority of the
weighted votes of the Board (which shall include any members of the Board who
are Disinterested Directors) and specified in any Joinder Agreement (or
amendment thereto) pursuant to which any Additional Management Stockholder may
become a party hereto, the provisions of this

                                      -50-

                                                         Stockholders' Agreement

Agreement may be varied to be more or less restrictive with respect to any
Additional Management Stockholder.

     (b) Concurrently with the execution and delivery of this Agreement, each of
the Management Stockholders shall execute and deliver the Voting Trust
Agreement, and unless otherwise agreed by the Company and such Additional
Management Stockholder, concurrently with the execution and delivery of a
Joinder Agreement, each of the Additional Management Stockholders shall execute
and deliver the Voting Trust Agreement, providing for the establishment of the
Voting Trust granting the Trustee thereunder the power to vote at any meeting of
stockholders, or to take action by written consent in lieu of such meeting and
to take any actions on behalf of the Management Stockholders (and Additional
Management Stockholders who become parties thereto) under this Agreement with
respect to all of the shares of Restricted Securities and Restricted Preferred
Securities held by the Management Stockholders and such Additional Management
Stockholders.

     6.3 Stockholder List; Certain Notices. Upon the request of any
Institutional Stockholder or Masco Stockholder, the Company shall deliver
promptly to such Institutional Stockholder or Masco Stockholder a list setting
forth the names of all Stockholders and the number of shares of Common Stock and
Equity Equivalents owned by each Stockholder. In addition, the Company shall
give each of the Institutional Stockholders and the Masco Stockholders prior
written notice of (a) the proposed conversion of any shares of any class of
Common Stock or Equity Equivalents and (b) any proposed record transfer of
Restricted Securities or Restricted Preferred Securities, setting forth the name
of the transferee and the number and type of Restricted Securities or Restricted
Preferred Securities being so transferred.

     6.4 Regulatory Compliance Cooperation.

(a) Before the Company redeems, purchases or otherwise acquires, directly or
indirectly, or converts or takes any action with respect to the voting rights
of, any shares of any class of its capital stock (excluding Management
Securities) or any securities convertible, exchangeable or exercisable for or
into any shares of any class of its capital stock (excluding Management
Securities), the Company will give written notice of such pending action to the
Institutional Stockholders and to the Masco Stockholders. Upon the written
request of any Institutional Stockholder made within seven (7) days after its
receipt of any such notice, stating that after giving effect to such action such
Institutional Stockholder would have a Regulatory Problem (as defined below),
the Company will defer taking such action for such period (not to extend beyond
forty-five (45) days after such Institutional Stockholder's receipt of the
Company's original notice) as such Institutional Stockholder requests to permit
it and its Affiliates to reduce the quantity of securities owned by them in
order to avoid the Regulatory Problem. In the event the Company or any
Institutional Stockholder is precluded from taking any action under this
Agreement within

                                      -51-

                                                         Stockholders' Agreement

any allotted period of time as a consequence of this Section, such period of
time shall be extended by the number of days during which the Company or such
Institutional Stockholder is precluded from acting.

     (b) In the event that any Institutional Stockholder determines in its good
faith reasonable judgment that it has a Regulatory Problem (as defined below),
the Company agrees to take all such actions as are reasonably requested by such
Institutional Stockholder in order to effectuate and facilitate any Transfer by
such Institutional Stockholder of any securities of the Company then held by
such Institutional Stockholder to any Person designated by such Institutional
Stockholder, it being understood that Transfers pursuant to this subsection
shall only be for that quantity of the securities of the Company as is
reasonably deemed necessary by such Institutional Stockholder to remedy such
Regulatory Problem, and that such Transfer is to be at the expense of such
Institutional Stockholder and be subject to all other provisions of the
Stockholders' Agreement.

     (c) For purposes of this Agreement, "Regulatory Problem" means (i) the
Institutional Stockholder's investment in the Common Stock exceeds any
limitation to which it is subject, or is otherwise not permitted, under any law,
rule or regulation of any governmental authority (including any position to that
effect taken by such governmental authority), or (ii) restrictions are imposed
on the Institutional Stockholder as a result of any law, regulation, rule or
directive (whether or not having the force of law) of any governmental or
regulatory authority which, in the reasonable judgment of the Institutional
Stockholder, make it illegal or unduly burdensome for the Institutional
Stockholder to continue to hold such Common Stock.

     6.5 Rights Offering.

     (a) Prior to issuing any New Common Stock after the Closing (x) before the
occurrence of an underwritten public offering of HFG Common Stock registered
under the Securities Act, to any person or (y) after such offering, to any
Stockholder, the Company shall offer (the "New Common Stock Offer") each
Stockholder an opportunity to purchase in cash any or all of its Pro Rata
portion of such New Common Stock on the same terms and conditions as the New
Common Stock being offered and, if such New Common Stock is to be issued as a
part of a unit of securities, the Company shall offer each Stockholder an
opportunity to purchase any or all of its Pro Rata portion of such unit of
securities (together with the New Common Stock, the "New Common Stock Units") on
the same terms and conditions as the New Common Stock Units being offered. The
Company shall make such New Common Stock Offer by providing each Stockholder
with a notice (the "New Common Stock Notice") setting forth (i) each
Stockholder's Pro Rata portion of such New Common Stock or of such New Common
Stock Units, as the case may be, (ii) the cash consideration to be paid for each
share of New Common Stock or each New Common Stock Unit, as the case may be, and
(iii) all other material terms of such New Common Stock Offer.

                                      -52-

                                                         Stockholders' Agreement

     (b) In order for any Stockholder to accept the New Common Stock Offer, such
Stockholder shall give a notice of acceptance to the Company on or before twenty
(20) days following its receipt of a New Common Stock Notice (the expiration of
such twenty (20) days being referred to herein as the "Acceptance Date").

     (c) Within one hundred twenty (120) days following the Acceptance Date, the
Company (i) shall issue New Common Stock or New Common Stock Units, as the case
may be, to each Stockholder who timely accepted such New Common Stock Offer upon
the terms specified in such New Common Stock Offer and (ii) may issue New Common
Stock or New Common Stock Units, as the case may be, to any other Person or
Persons in an amount not to exceed the aggregate amount offered pursuant to the
New Common Stock Offer (less the aggregate amount of shares of New Common Stock
or units of New Common Stock Units, as the case may be, issued to Stockholders
pursuant to the foregoing clause (i)) and for a price which equals or exceeds
the price per share of New Common Stock or per unit of New Common Stock Units,
as the case may be, specified in the New Common Stock Offer.

                                   ARTICLE VII
                                  MISCELLANEOUS

     7.1 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of New York,
except to the extent that the General Corporation Law of the State of Delaware
applies as a result of the Company being incorporated in the State of Delaware,
in which case such General Corporation Law shall apply.

     7.2 Entire Agreement; Amendments. This Agreement (when read in conjunction
with the Voting Trust Agreement, each Travelers Stockholder's, 399's and each
Management Stockholder's applicable subscription agreement, the Stock Purchase
Agreements and in the case of the Masco Stockholders, those sections of the
Acquisition Agreement pertaining to the capital stock of the Company)
constitutes the entire agreement of the parties with respect to the subject
matter hereof and this Agreement may be amended, modified or supplemented only
by a written instrument duly executed by the Company, the Institutional
Stockholders and the Masco Stockholders, except that (i)(a) any amendment,
modification or supplement that materially, adversely and disproportionately
affects the Management Stockholders or the Additional Stockholders, as the case
may be, shall require the consent of the Management Stockholders or the
Additional Stockholders, respectively, and (b) any amendment, modification or
supplement that disproportionately affects less than all of the Management
Stockholders or the Additional Stockholders, as the case may be, shall require
the consent of the Management

                                      -53-

                                                         Stockholders' Agreement

Stockholders or the Additional Stockholders so affected and (ii) any amendment,
modification or supplement that (x) materially, adversely and disproportionately
affects the Travelers Stockholders which then hold Restricted Securities or
Restricted Preferred Securities, or (y) adversely affects the ability of the
Travelers Stockholders to Transfer Restricted Securities or Restricted Preferred
Securities pursuant to Article III hereof, shall also require the consent of the
Travelers Stockholders holding a majority of the HFG Common Stock on a
Fully-Diluted Basis then held by the Travelers Stockholders. In the event of an
amendment, modification or supplement of this Agreement in accordance with its
terms, the Stockholders shall take all action necessary or appropriate, within
thirty (30) calendar days following such amendment, modification or supplement,
or as soon thereafter as is practicable, to cause the adoption of any amendment
to the Certificate of Incorporation and By-Laws of the Company that may be
required as a result of such amendment, modification or supplement to this
Agreement. The Stockholders and the Additional Stockholders hereby agree to vote
their shares of Restricted Securities and Restricted Preferred Securities to
approve such amendments to the Certificate of Incorporation and By-Laws of the
Company.

     7.3 Term. Except as provided below in this Section 7.3, this Agreement
shall automatically and without further action terminate upon the earliest to
occur of (i) a Qualifying Offering or (ii) a Sale Transaction; provided that
upon the occurrence of a Qualifying Offering and prior to the occurrence of a
Sale Transaction, (x) the provisions of Article IV, Section 5.10, Article VII
and the prohibition on transfer by any Management Stockholder of any Unvested
Shares set forth in the second proviso to Section 2.4(a) shall continue in full
force and effect (together with related definitions), (y) the provisions of
Article III shall continue in full force and effect (together with related
definitions) with respect to Transfers of HFG Common Stock (A) by the
Institutional Stockholders until the first date as of which such Institutional
Stockholders no longer own at least twelve percent (12%) of the HFG Common Stock
on a Fully-Diluted Basis and (B) by the Masco Stockholders until the first date
as of which either the Masco Stockholders or the Institutional Stockholders no
longer own at least twelve percent (12%) of the HFG Common Stock on a
Fully-Diluted Basis and (z) the provisions of Section 2.4(g) shall continue in
full force and effect until the date determined pursuant to clause (B) of this
Section 7.3.

     7.4 Certain Actions. (a) Unless otherwise expressly provided herein,
whenever any action is required under this Agreement by:

          (i) the Institutional Stockholders (as a group, as opposed to the
     exercise by an Institutional Stockholder of its individual rights
     hereunder), it shall be by the affirmative vote of the holders of HFG
     Common Stock representing more than fifty percent (50%) of the HFG Common
     Stock on a Fully-Diluted Basis then held by the Institutional Stockholders
     as a group, or as otherwise agreed in writing by the Institutional
     Stockholders as a group (a copy of such writing to be supplied to the Masco
     Stockholders by the Company or the Institutional Stockholders);

                                      -54-

                                                         Stockholders' Agreement

          (ii) the Masco Stockholders (as a group, as opposed to the exercise by
     a Masco Stockholder of its individual rights hereunder), it shall be by the
     affirmative vote of the holders of HFG Common Stock representing more than
     fifty percent (50%) of the HFG Common Stock on a Fully-Diluted Basis then
     held by the Masco Stockholders as a group;

          (iii) the Management Stockholders (and Additional Management
     Stockholders who have become parties to the Voting Trust Agreement), it
     shall be by the Trustee acting in accordance with the terms of the Voting
     Trust Agreement; or

          (iv) the Additional Stockholders (exclusive of Additional Management
     Stockholders who have become parties to the Voting Trust Agreement) (as a
     group, as opposed to the exercise by an Additional Stockholder of its
     individual rights hereunder), it shall be by the affirmative vote of the
     holders of HFG Common Stock representing more than fifty percent (50%) of
     the HFG Common Stock on a Fully-Diluted Basis then held by the Additional
     Stockholders as a group.

     (b) For purposes of giving: (i) a Notice of Intention pursuant to Section
2.5(a), (ii) a notice pursuant to Section 2.6(a), (iii) a notice of acceptance
of an Article III Offer pursuant to Section 3.1(a), (iv) an Inclusion Notice
pursuant to Section 3.1(a), or (v) a notice of acceptance pursuant to Section
6.5(b), the Voting Trust shall be disregarded as a "Management Stockholder" or
"Additional Management Stockholder" and the Management Stockholder or Additional
Management Stockholder which Beneficially Owns (as defined in the Voting Trust
Agreement) through the Voting Trust the Restricted Securities or Restricted
Preferred Securities as to which such notice relates shall be treated as the
holder thereof; provided, that a copy of any such notice shall be furnished to
the Trustee concurrently with the giving thereof.

     7.5 Inspection. For so long as this Agreement shall remain in effect, this
Agreement shall be made available for inspection by any Stockholder at the
principal executive offices of the Company, except that the Company may elect to
maintain confidentiality over any portion of any exhibits, schedules or annexes
which show the stock ownership of any Management Stockholder or Additional
Management Stockholder.

     7.6 Compliance with Regulations. Whenever a Stockholder is entitled to
purchase Restricted Securities or Restricted Preferred Securities pursuant to
the provisions of this Agreement, any closing time period specified in such
provision shall be tolled until any necessary governmental approval is received,
including without limitation approval under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, provided that such tolling period shall not exceed
sixty (60) days.

                                      -55-

                                                         Stockholders' Agreement

     7.7 Waiver. No waiver by any party of any term or condition of this
Agreement, in one or more instances, shall be valid unless in writing, and no
such waiver shall be deemed to be construed as a waiver of any subsequent breach
or default of the same or similar nature.

     7.8 Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
permitted assigns (including without limitation transferees of Restricted
Securities and Restricted Preferred Securities); provided, however, that

     (a) nothing contained herein shall be construed as granting any Stockholder
the right to Transfer any of its Restricted Securities or Restricted Preferred
Securities except in accordance with this Agreement,

     (b) any Third Party which acquires Restricted Securities or Restricted
Preferred Securities in accordance with Section 2.5 (Right of First Refusal)
shall be bound by and shall have the benefit of the provisions of Sections 2.1,
2.2, 2.4 (but not 2.4(a)(i), 2.4(a)(v), 2.4(b)(i), 2.4(b)(ii) and 2.4(d)(i)),
2.5, 2.6, 2.7, Article III, Section 6.1 and Article VII, and shall be bound by
the obligations under Article V to vote securities and take other actions in
order to elect and/or remove directors designated under Article V by the
Institutional Stockholders, the Masco Stockholders, the Management Stockholders
and the Nominating Committee (but shall not have the benefit of any rights to
designate or remove any directors under Article V), to the same extent as the
transferor of such Restricted Securities or Restricted Preferred Securities, but
the remaining provisions of this Agreement shall not inure to the benefit of,
and the provisions of Article IV shall not apply to, the Restricted Securities
or Restricted Preferred Securities of, such Third Party,

     (c) unless otherwise provided in the terms of the Transfer, none of the
provisions of this Agreement, other than those set forth in Sections 2.1 and 2.2
to the extent those Sections require compliance with the Securities Act,
delivery of opinions of counsel and placement of Securities Act (or state
securities laws) legends, shall apply to any Transfer of Restricted Securities
or Restricted Preferred Securities (or to the transferee thereof) subsequent to
a Transfer of those securities pursuant to Article III,

     (d) none of the provisions of this Agreement shall apply to any Transfer of
Restricted Securities or Restricted Preferred Securities subsequent to a
Transfer thereof pursuant to a registered public offering made in accordance
with the Securities Act or pursuant to a Rule 144 Transaction,

                                      -56-

                                                         Stockholders' Agreement

     (e) notwithstanding any Transfer of Restricted Securities or Restricted
Preferred Securities by any Masco Stockholder, Management Stockholder or
Additional Stockholder to an Institutional Stockholder, only the provisions of
this Agreement which are expressly applicable to Institutional Stockholders
shall be applicable to such Institutional Stockholder and to such Restricted
Securities or Restricted Preferred Securities in the hands of such Institutional
Stockholder,

     (f) notwithstanding any Transfer of Restricted Securities or Restricted
Preferred Securities by any Institutional Stockholder, Management Stockholder or
Additional Stockholder to a Masco Stockholder, only the provisions of this
Agreement which are expressly applicable to such Masco Stockholder shall be
applicable to such Masco Stockholder and to such Restricted Securities or
Restricted Preferred Securities in the hands of such Masco Stockholder,

     (g) notwithstanding any Transfer of Restricted Securities or Restricted
Preferred Securities by any Institutional Stockholder, Masco Stockholder or
Additional Stockholder to a Management Stockholder, only the provisions of this
Agreement which are expressly applicable to such Management Stockholder shall be
applicable to such Management Stockholder and to such Restricted Securities or
Restricted Preferred Securities in the hands of such Management Stockholder,

     (h) notwithstanding any Transfer of Restricted Securities or Restricted
Preferred Securities by any Institutional Stockholder, Masco Stockholder or
Management Stockholder to an Additional Stockholder, only the provisions of this
Agreement which are expressly applicable to such Additional Stockholder shall be
applicable to such Additional Stockholder and to such Restricted Securities or
Restricted Preferred Securities in the hands of such Additional Stockholder.

     7.9 Remedies. In the event of a breach by any party to this Agreement of
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages and costs (including reasonable attorneys' fees), will be
entitled to specific performance of its rights under this Agreement. The parties
agree that the provisions of this Agreement shall be specifically enforceable,
it being agreed by the parties that the remedy at law, including monetary
damages, for breach of any such provision will be inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived. Such equitable remedies and all other
remedies are cumulative and not exclusive and shall be in addition to any
remedies which any party may have under this Agreement or otherwise.

                                      -57-

                                                         Stockholders' Agreement

     7.10 Income Tax Withholding. Each Management Stockholder and Additional
Management Stockholder authorizes the Company to make any required withholding
from such Management Stockholder's (or Additional Management Stockholder's, as
the case may be) compensation for the payment of any and all income taxes and
other sums that may be due any governmental authority as a result of the receipt
by the Management Stockholders (or the Additional Management Stockholders, as
the case may be) of compensation income under Section 83 of the Internal Revenue
Code of 1986, as amended, or similar provisions of state or local law, if
required by applicable law, and agrees, if requested by the Company, and in lieu
of all or a portion of such withholding, to pay the Company in a lump sum such
amounts as the Company may be required to remit to any governmental authority on
behalf of the Management Stockholder (or the Additional Management Stockholder,
as the case may be) in respect of any such taxes and other sums.

     7.11 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.

     7.12 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.

     7.13 Further Assurances; Subsidiaries. Each party hereto shall cooperate
and shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement. Any provision herein that by
its terms requires a Subsidiary of the Company to take any action or refrain
from taking any action shall be interpreted to require the Company to cause such
Subsidiary to take such action or to refrain from taking such action,
respectively, to the fullest extent permitted by law.

     7.14 Gender. Whenever the pronouns "he" or "his" are used herein they shall
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.

                                      -58-

                                                         Stockholders' Agreement

     7.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

     7.16 Payment. All payments hereunder shall be made in cash (or by
Management Note, as provided by Section 4.2 hereof), or by wire transfer of
immediately available funds, except that payments of amounts of less than
$500,000 may be by an official bank check.

     7.17 Notices. (a) All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission or mailed (by
registered or certified mail, return receipt requested) or by reputable
overnight courier, fee prepaid to the parties at the following addresses or
facsimile numbers:

     (i)   If to any Institutional Stockholder, to:

           399 Venture Partners, Inc.
           399 Park Avenue
           New York, New York 10043
           Facsimile No.:  212-888-2940
           Attn:  David F. Thomas

           and

           Greenwich Street Capital Partners, Inc.
           388 Greenwich Street
           New York, New York  10013
           Facsimile No.: 212-816-0166
           Attn:  Robert Hamwee

           with a copy to:

           Morgan, Lewis & Bockius LLP
           101 Park Avenue
           New York, New York 10178
           Facsimile No.:  212-309-6273
           Attn:  Philip H. Werner

                                      -59-

                                                         Stockholders' Agreement

     (ii)  if to any Travelers Stockholder to:

           [Name of Travelers Stockholder]
           Greenwich Street Capital Partners, Inc.
           388 Greenwich Street
           New York, New York  10013
           Facsimile No: 212-816-0166
           Attn:  Robert Hamwee

     (iii) If to any Masco Stockholder, to:

           MASCO Corporation
           21001 Van Born Road
           Taylor, Michigan  48180
           Facsimile No.:  313-374-6135
           Attn: President

           with a copy to:

           MASCO Corporation
           21011 Van Born Road
           Taylor, Michigan  48180
           Facsimile No.:  313-374-6135
           Attn:  General Counsel

     (iv)  If to any Management Stockholder, to:

           Voting Trustee
           c/o FURNISHINGS INTERNATIONAL INC.
           1300 National Highway
           Thomasville, North Carolina  27360
           Facsimile No.: 910-476-4551

           with a copy to:

           FURNISHINGS INTERNATIONAL INC.
           1300 National Highway
           Thomasville, North Carolina 27360
           Facsimile No.:  910-476-4551
           Attn:  General Counsel

                                      -60-

                                                         Stockholders' Agreement

     (vi)  If to the Company, to:

           FURNISHINGS INTERNATIONAL INC.
           1300 National Highway
           Thomasville, North Carolina 27360
           Facsimile No.:  910-476-4551
           Attn:  President

           with copies to:

           FURNISHINGS INTERNATIONAL INC.
           1300 National Highway
           Thomasville, North Carolina 27360
           Facsimile No.:  910-476-4551
           Attn:  General Counsel

           and

           Morgan, Lewis & Bockius LLP
           101 Park Avenue
           New York, New York 10178
           Facsimile No.:  212-309-6273
           Attn:  Philip H. Werner

     (v)  If to any Additional Stockholder, to the address of such Person set
          forth in the stock records of the Company.

     (b) All such notices, requests and other communications will be deemed
delivered upon receipt. Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto (subject to
Section 7.4).

     7.18 Consent to Jurisdiction and Service of Process.

     EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT
MAY BE LITIGATED IN SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES

                                      -61-

                                                         Stockholders' Agreement

ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES
HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PARTY AT THE
ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE FIFTEEN
(15) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO
OBTAIN JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST ANY
OF THE OTHER PARTIES HERETO IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER, AS
MAY BE PERMITTED BY ANY APPLICABLE LAW.

     7.19 Waiver of Jury Trial.

     EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY
UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF SUCH PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES
HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

     7.20 Omnibus Signature Page. The signature pages to this Agreement include
one signature page executed by the Company, the Institutional Stockholders and
the Masco

                                      -62-

                                                         Stockholders' Agreement

Stockholders and a series of omnibus signature pages executed by the Management
Group Members which constitute signature pages to this Agreement and to other
agreements.

                                      -63-

                                                         Stockholders' Agreement

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

                                            FURNISHINGS INTERNATIONAL INC.      

                                            
                                            By:_________________________________
                                                Name:
                                                Title:
                                            
                                            
                                            MASCO CORPORATION
                                            
                                            
                                            By:_________________________________
                                                Name:
                                                Title:
                                            
                                            
                                            399 VENTURE PARTNERS, INC.
                                            
                                            
                                            By:_________________________________
                                                David F. Thomas
                                                President
                                            
                                            
                                            ASSOCIATED MADISON COMPANIES, INC.
                                            
                                            
                                            By:_________________________________
                                                Name:
                                                Title:

                                      -64-

                                                         Stockholders' Agreement

[Signature Page to Stockholders' Agreement]

                                      -65-

                                                         Stockholders' Agreement

                               ____________________________________
                               M. Saleem Muqaddam
                               
                               
                               ____________________________________
                               David F. Thomas
                               
                               
                               ____________________________________
                               Richard M. Cashin
                               
                               
                               ____________________________________
                               Joseph M. Silvestri
                               
                               
                               NATASHA PARTNERS
                               
                               
                               By:_________________________________
                                   Name:
                                   Title:
                               
                               
                               ALCHEMY PARTNERS, L.P.
                               
                               
                               By:__________________________________
                                   Name:
                                   Title:

[Signature Page to Stockholders' Agreement]

                                      -66-

                                                         Stockholders' Agreement

                               ____________________________________
                               Stephen R. Lake
                               
                               
                               ____________________________________
                               Charles A. Lipsey
                               
                               
                               ____________________________________
                               Leonard S. Shane
                               
                               
                               ____________________________________
                               H. Guy Lipscomb
                               
                               
                                      -67-

                                                         Stockholders' Agreement

[Signature Page to Stockholders' Agreement]

                                      -68-

                                                         Stockholders' Agreement

                          TRV EMPLOYEES FUND, L.P.                           
                          By TRV Employees Investments Inc., General Partner
                          
                          
                              By:_________________________________
                                  Name:
                                  Title:
                          
                          GREENWICH STREET CAPITAL PARTNERS, L.P.
                          By Greenwich Street Investments, L.P., General Partner
                          
                          By Greenwich Street Investments, Inc., General Partner
                          
                          
                              By:_________________________________
                                  Name:
                                  Title:
                          
                          GSCP OFFSHORE FUND LTD.
                          By Greenwich Street Capital Partners, Inc.,
                                as Manager
                          
                          
                              By:_________________________________
                                  Name:
                                  Title:
                          
                          THE TRAVELERS INSURANCE COMPANY
                          
                          
                              By:_________________________________
                              Name:
                              Title:
                          
                          THE TRAVELERS LIFE AND ANNUITY COMPANY
                          
                          
                              By:_________________________________
                              Name:
                              Title:
                   

[Signature Page to Stockholders' Agreement]
[Omnibus Signature Page Follows]

                                      -69-

                                                         Stockholders' Agreement

                                                                       Exhibit A
                            Form of Joinder Agreement

FURNISHINGS INTERNATIONAL INC.
1300 National Highway
Thomasville, NC  27360

Attention: Chief Executive Officer

Ladies & Gentlemen:

     In consideration of the [transfer][issuance] to the undersigned of
[Describe security being transferred/issued] of FURNISHINGS INTERNATIONAL INC.,
a Delaware corporation (the "Company"), the undersigned [represents that it is a
Permitted Transferee of [Insert name of transferor] and]* agrees that, as of the
date written below, [he] [she] [it] shall become a party to[, and a Permitted
Transferee as defined in,]* that certain Stockholders' Agreement dated as of
______, __ 1996, as such agreement may have been amended, supplemented or
modified from time to time (the "Agreement"), among the Company and the persons
named therein, and [as a Permitted Transferee shall be fully bound by, and
subject to, all of the covenants, terms and conditions of the Agreement that
were applicable to the undersigned's transferor,]* [shall be fully bound by, and
subject to, the covenants, terms and conditions of the Agreement as provided
under Section 7.8 of the Agreement]** [shall be fully bound by, and subject to,
all of the covenants, terms and conditions of the Agreement,]*** as though an
original party thereto and shall be deemed a [Management Stockholder] [Masco
Stockholder] [Additional Stockholder] [Institutional Stockholder]**** for [all]*
[solely for]** [all]*** purposes thereof.

     Executed as of the       day of         ,      .

          SIGNATORY:_________________________

          Address:___________________________
                  ___________________________

          ACKNOWLEDGED AND ACCEPTED:

               FURNISHINGS INTERNATIONAL INC.

               By____________________________
                 Name:
                 Title:

                                      -70-

                                                         Stockholders' Agreement

*    Include if signatory is a Permitted Transferee
**   Include if signatory is a Third Party
***  Include if signatory is an Additional Stockholder
**** Include if signatory is receiving securities from a Management
     Stockholder, a Masco Stockholder, an Additional Stockholder or an
     Institutional Stockholder; if signatory is an Additional Stockholder
     receiving securities issued by the Company insert [Additional
     Stockholder]

                                       -i-

                                                         Stockholders' Agreement

                                                                       Exhibit B

                                     Legends

     1. Shares of Restricted Securities which are subject to the Voting Trust
Agreement shall bear the following legend:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
STOCKHOLDERS' AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG FURNISHINGS
INTERNATIONAL INC. (THE "COMPANY") AND ITS STOCKHOLDERS AS MAY BE AMENDED FROM
TIME TO TIME AND THE VOTING TRUST AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG THE
COMPANY, THE TRUSTEE NAMED THEREIN AND CERTAIN OF ITS STOCKHOLDERS AS MAY BE
AMENDED FROM TIME TO TIME, AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER") EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF SUCH STOCKHOLDERS' AGREEMENT AND SUCH VOTING TRUST AGREEMENT
AND ANY TRANSFEREE OF THESE SECURITIES SHALL BE SUBJECT TO THE TERMS OF SUCH
AGREEMENTS. COPIES OF THE STOCKHOLDERS' AGREEMENT AND VOTING TRUST AGREEMENT, IN
EACH CASE AS AMENDED, ARE MAINTAINED WITH THE CORPORATE RECORDS OF THE COMPANY
AND ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY. A COPY OF THE VOTING TRUST AGREEMENT AS AMENDED IS ALSO ON FILE AND
AVAILABLE FOR INSPECTION AT THE COMPANY'S REGISTERED OFFICE IN THE STATE OF
DELAWARE.

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR STATE SECURITIES
LAWS, AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT, AS
PROVIDED BY THE TERMS OF THE STOCKHOLDERS' AGREEMENT DESCRIBED ABOVE.

     THE POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND THE

                                      -ii-

                                                         Stockholders' Agreement

QUALIFICATIONS, LIMITATIONS, OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS
OF EACH CLASS OR SERIES OF CAPITAL STOCK OF THE COMPANY ARE SET FORTH IN THE
CERTIFICATE OF INCORPORATION. THE CORPORATION WILL FURNISH A COPY OF THE
CERTIFICATE OF INCORPORATION TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE
UPON REQUEST.

2. Shares of Restricted Securities not subject to the Voting Trust Agreement and
shares of Restricted Preferred Securities shall bear the following legend:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
STOCKHOLDERS' AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG FURNISHINGS
INTERNATIONAL INC. (THE "COMPANY") AND ITS STOCKHOLDERS AS MAY BE AMENDED FROM
TIME TO TIME, AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF (A "TRANSFER") EXCEPT IN ACCORDANCE WITH THE PROVISIONS
THEREOF AND ANY TRANSFEREE OF THESE SECURITIES SHALL BE SUBJECT TO THE TERMS OF
SUCH AGREEMENT. COPIES OF THE STOCKHOLDERS' AGREEMENT, AS AMENDED, ARE
MAINTAINED WITH THE CORPORATE RECORDS OF THE COMPANY AND ARE AVAILABLE FOR
INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR STATE SECURITIES
LAWS, AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT, AS
PROVIDED BY THE TERMS OF THE STOCKHOLDERS' AGREEMENT DESCRIBED ABOVE.

     THE POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS, OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS OF EACH CLASS OR SERIES OF CAPITAL STOCK OF THE
COMPANY ARE SET FORTH IN THE CERTIFICATE OF INCORPORATION. THE CORPORATION WILL
FURNISH A COPY OF THE CERTIFICATE OF INCORPORATION TO THE HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON REQUEST.

                                      -iii-

                                                         Stockholders' Agreement

3. Shares of Restricted Securities and Restricted Preferred Securities offered
and sold pursuant to Regulation S will also bear a legend substantially as
follows:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
REGULATION S PROMULGATED UNDER THE ACT AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON (AS THAT TERM
IS DEFINED IN REGULATION S) UNTIL THE FORTIETH (40TH) DAY FOLLOWING COMPLETION
OF THE REGULATION S OFFERING PURSUANT TO WHICH THESE SECURITIES HAVE BEEN
ISSUED. AFTER SUCH DATE, THIS LEGEND SHALL HAVE NO FURTHER FORCE AND EFFECT.

                                      -iv-

                                                         Stockholders' Agreement

                                    Exhibit C

                               Board of Directors

                             Institutional Directors

                                  Richard M. Cashin, Jr.
                                  David F. Thomas

                             Masco Director

                                  John Morgan

                             Management Directors

                                  Wayne B. Lyon
                                  Robert George

                             Disinterested Directors

                                  C. Sean Day
                                  Donald Roberts

                             Nominating Committee

                               1. Richard Cashin
                               2. Wayne B. Lyon
                               3. C. Sean Day

                                       -v- 

Basic Info X:

Name: STOCKHOLDERS' AGREEMENT
Type: Stockholders' Agreement
Date: Sept. 13, 1996
Company: BERKLINE CORP
State: Delaware

Other info:

Date:

  • March 29 , 1996
  • June 21 , 1996
  • November 28 , 1995
  • March 4 , 1996
  • March 22 , 1996
  • August 1 , 1997
  • November 28 , 1999
  • January 1 , 1998
  • AUGUST 5 , 1996

Organization:

  • 6.4 Regulatory Compliance Cooperation
  • Associated Madison Companies , Inc.
  • GSCP Offshore Fund Ltd.
  • Travelers Insurance Company
  • Masco Home Furnishings , Inc.
  • Lineage Furnishings , Inc.
  • Securities Purchase and Holders Agreement
  • Board of Directors of the Company
  • Restated Certificate of Incorporation of the Company
  • Securities and Exchange Commission
  • Chase Manhattan Bank Delaware
  • New York Stock Exchange , Inc.
  • Nasdaq National Market
  • Institutional Stockholder Group Member
  • Institutional Stockholders of Drag-Along
  • Management Stockholders and Additional Management Stockholders
  • Voting Trust Restricted Securities or Restricted Preferred Securities
  • HFG Restricted Securities or Restricted Preferred Securities
  • HFG Common Stock and Equity Equivalents
  • HFG Common Stock to Management Stockholders or Additional Management Stockholders
  • HFG Common Stock or Equity Equivalents
  • Permitted Transferee Definitions
  • Lifestyle Furnishings International Ltd.
  • Significant Subsidiaries of Equity Equivalents
  • Simmons Upholstered Furniture Corporation
  • Lyon Subscription Agreement
  • Management Subscription Agreements
  • Travelers Subscription Agreements
  • Vested Shares and Restricted Preferred Securities
  • HFG Restricted Securities to Management Stockholders
  • Share Purchase Agreement
  • Masco of certain Restricted Preferred Securities to Management Stockholders
  • Stock Purchase Agreements
  • Masco Stockholder , Management Stockholder or Additional Management Stockholder of Restricted Securities
  • Prospective Buyer Notice
  • definition of Change of Control
  • Delaware General Corporation Law
  • Special Right of First Offer
  • Masco Stockholder of Restricted Securities or Restricted Preferred Securities
  • United States Department of Justice
  • INCLUSION 3.1 Rights of Inclusion
  • Masco Stockholder of Restricted Securities or Restricted Preferred Securities
  • Travelers Stockholders of HFG Restricted Securities
  • Transfer HFG Restricted Securities
  • Transfers of HFG Restricted Securities
  • Masco Tag-Along Transfers
  • Transferor Shares and Restricted Securities andor Restricted Preferred Securities
  • Management Securities which Management Securities
  • Restricted Preferred Securities and Management Securities
  • Fair Market Value
  • Additional Management Stockholder 's Management Securities
  • All Management Securities
  • 5.1 Board of Directors
  • the Management Directors
  • Weighted Board Voting
  • Affirmative Board Vote
  • Masco Approval Transaction
  • Board ; Subsidiary Boards
  • Written Consent of Stockholders
  • Post-Qualifying Offering Board
  • Company of Common Stock
  • Management Stockholders ; Additional Stockholders
  • New Common Stock Units
  • General Corporation Law of the State of Delaware
  • the Management Stockholders
  • Travelers Stockholders to Transfer Restricted Securities or Restricted Preferred Securities
  • Transfers of HFG Common Stock
  • Notice of Intention
  • Transfer of Restricted Securities or Restricted Preferred Securities
  • Masco Stockholder or Management Stockholder
  • Venture Partners , Inc.
  • Name of Travelers Stockholder ] Greenwich Street Capital Partners , Inc.
  • FURNISHINGS INTERNATIONAL INC. 1300 National Highway Thomasville
  • Morgan , Lewis & Bockius LLP
  • Jurisdiction and Service of Process
  • the Management Group Members
  • TRV Employees Investments Inc.
  • General Partner By Greenwich Street Investments , Inc.
  • Voting Trust Agreement
  • Restricted Securities and Restricted Preferred Securities
  • John Morgan Management Directors Wayne B. Lyon Robert George Disinterested Directors C. Sean Day Donald Roberts Nominating Committee 1

Location:

  • British Virgin Islands
  • Connecticut
  • Lyon
  • Etc
  • Pro Rata
  • Greenwich Street New York
  • Michigan
  • North Carolina
  • L.P.
  • DELAWARE
  • U.S

Money:

  • $ 10,000,000
  • $ 0.01
  • $ 100,000,000
  • $ 285,000,000
  • $ 200,000,000
  • $ .01
  • $ 5.5 million
  • $ 500,000

Person:

  • Simmons
  • Robert Hamwee
  • Road Taylor
  • Philip H. Werner
  • M. Saleem Muqaddam
  • Joseph M. Silvestri NATASHA
  • Stephen R. Lake
  • Charles A. Lipsey
  • Richard M. Cashin
  • David F. Thomas Masco
  • Richard Cashin
  • Wayne B. Lyon

Time:

  • 10:00 a.m.

Percent:

  • 23 %
  • fifteen percent 15 %
  • 19 %
  • 25 %
  • 10.5 %
  • 24.5 %
  • 9.5 %
  • 22.5 %
  • 7.5 %
  • ten percent
  • 10 %
  • five percent 5 %
  • twelve percent 12 %
  • fifty percent
  • 50 %