IN RE STO CORP. EIFS LITIGATION

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

COUNTY OF NEW HANOVER 96 CVS 5902

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IN RE STO CORP. )

EIFS LITIGATION )

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FINAL ORDER AND JUDGMENT GRANTING

FINAL APPROVAL OF SETTLEMENT

THIS CAUSE coming on for hearing before the undersigned Special Superior Court Judge For Complex Business Cases on March 17, 2000, pursuant to this Court’s Order of December 23, 1999, in order for this Court to conduct a final fairness hearing to determine whether the proposed settlement with Settling Defendant Sto Corp. (hereafter “Settling Defendant”) is fair, reasonable and adequate, and to address Class Counsel’s application for an award of attorney’s fees and costs; and the Settlement Class Members being represented by Class Counsel, including Gary K. Shipman, Marvin K. Blount, Jr., Everette L. Doffermyre, Kent M. Williams, Gary E. Mason, Carl W. Thurman III and William M. Audet, and the Settling Defendant being represented by its attorneys, Andrew W. Copenhaver and F. Bruce Williams;

AND THE COURT having read and considered the Settlement Agreement, the Notice Plan, and Memoranda submitted by Class Counsel, having received evidence at the hearing, having heard arguments from Class Counsel and the Settling Defendant, and being further advised in the premises, now makes the following:

FINDINGS OF FACT

1. This action was commenced on January 5, 1996, and on January 9, 1996, this action was certified as a class action, pursuant to Rule 23 of the North Carolina Rules of Civil Procedure, by the Honorable Ernest B. Fullwood, Superior Court Judge.

2. On September 18, 1996, Judge Fullwood re-certified this action as a class action, and defined the class as: “all individuals, proprietorships, partnerships, corporations, and other entities (hereinafter “persons and entities”) that own or previously owned any structure used as a single family or multi-family residential dwelling (herein referred to as “structure”) located in the State of North Carolina, which structure had an EIFS system installed as an exterior wall cladding during the period 1969 through the present.”

3. On June 16, 1999, this Court, although questioning whether the action would be certified as a class action were the issue presented today, denied defendants’ motion to decertify the class, ordered a separate trial for each defendant, and set the first phase of the trial for October 4, 1999. Settling Defendant appealed this Court’s June 16, 1999, Order, and the North Carolina Court of Appeals denied a stay pending appeal. The Settlement Agreement was executed prior to a decision being reached by the Court of Appeals on Settling Defendant’s appeal.

4. After more than four years of intensive litigation in this action and as a result of more than three years of intensive, arm’s length negotiations between Class Counsel and Settling Defendant, the parties have reached accord with respect to a settlement that provides substantial benefits to Settlement Class Members, in return for a release and dismissal of the claims at issue in this case against the Settling Defendant (“Settlement Agreement”). The resulting Settlement Agreement was preliminarily approved by the Court on December 23, 1999.

5. As part of the Order Granting Preliminary Approval, this Court approved a proposed Notice Plan and Class Notice, which provided Settlement Class Members notice of this and other proposed settlements with other Defendants. The Notice Plan provided an opportunity for class members to file objections to the settlement by March 6, 2000. In approving the Notice Plan, the Court was particularly attuned to the significance of the Notice reaching homeowners in North Carolina and the need to reach homeowners whose property is clad with Sto EIFS in light of the shorter Sto claim period and implementation of the Plan of Distribution. Thus, the Court approved a Notice Plan that relied on a combination of television, radio, and print advertising, an interactive website which provides access to the Notice and Claim Forms, and direct mail to provide the best notice practicable under the circumstances to reach North Carolina homeowners. The number of requests for the Notice and Claim Forms indicate that the Notice Plan has been successful.

6. As of the deadline for the filing of objections, only one objection was filed and that objection was withdrawn prior to the March 17, 2000, Fairness Hearing. It is noteworthy that the single objection was not by a Settlement Class Member. Given the magnitude of this settlement, and the saturated notice described above, this Court finds that the single objection is indicative of the fairness, reasonableness and adequacy of the settlement with the Settling Defendant.

7. The settling Parties have filed with the Court a declaration from Kinsella Communications declaring that the mailing and publication of the Court-approved notice, consistent with the Notice Plan, has been completed. According to this declaration, an estimated 94.5% of adults older than 25 in North Carolina were exposed to advertising about the settlement an estimated average of 4.24 times.

8. The Court finds that the mailing, state-wide publication of notice and Internet posting constitutes the best practicable notice of the Fairness Hearing, the proposed settlement, Class Counsel’s application for fees and expenses, and other matters set forth in the Class Notice and the Summary Notice; and that such mailing and publication of notice constituted valid, due and sufficient notice to all members of the Settlement Class, and complied fully with the requirements of Rule 23 of the North Carolina Rules of Civil Procedure, the Constitution of the United States, the laws of North Carolina and any other applicable law.

9. The Settling Defendant has paid the cost and expense of implementing its share of the Notice Plan, including mailing the Class Notice.

10. Any persons who wished to be excluded from this Action were provided an opportunity to opt out pursuant to the initial notice, and any persons who complied with the Court’s June 16, 1999, Order were permitted a second opportunity to exclude themselves from this Action. All persons who have validly excluded themselves from this Action have no rights under the Settlement Agreement and shall not be bound by the Settlement Agreement or the final judgment herein.

11. Any class member who has timely and properly elected to be excluded from the Action shall be permitted to revoke such election by mailing a Request for Revocation of Prior Election to the Claims Administrator. Upon submission of the Request for Revocation of Prior Election, the former class member will be a Settlement Class Member for all purposes. Any person who has elected to be excluded from the Action and who does not seek to revoke such election as provided above has no rights under the Settlement Agreement.

12. Settlement Class Members are bound by the settlement, the Settlement Agreement and releases contained therein, and the Final Order and Judgment, and do not have any further opportunity to opt out of the Action.

13. Any class member who did not timely file and serve an objection in writing to the Settlement Agreement, to the entry of Final Order and Judgment, or to Plaintiffs’ Class Counsel’s application for fees, costs, and expenses, in accordance with the procedure set forth in the Class Notice and mandated in the Order Granting Preliminary Approval of Settlement, is deemed to have waived any such objection by appeal, collateral attack, or otherwise.

14. On the basis of all of the issues in this litigation, and the provisions of the Settlement Agreement, the Court is of the opinion that the settlement is a fair, reasonable and adequate compromise of the claims against the Settling Defendant in this case, pursuant to Rule 23(c) of the North Carolina Rules of Civil Procedure. There are a number of factors which the Court has considered in affirming this Settlement, including:

a. The liability issues in this case have been hotly contested. There have been delays in dealing with these issues, and the Court has been concerned and continues to be concerned about the effect of these delays on the parties.

b. There are numerous individual EIFS cases pending before the various Courts in North Carolina and other states, most of which involve claims against contractors and parties other than EIFS manufacturers. The Court notes that for settlement purposes, this settlement has the benefit of providing some relief to North Carolina homeowners now, without further litigation, under circumstances where the liability issues are still very hotly debated among the parties to this litigation and among the parties to the individual litigation. This settlement provides homeowners the opportunity for a substantial cash benefit, which because of the financial impact in this and other litigation, might not have been available were this litigation to continue.

c. This Court has been concerned from the outset of this class action with the possibility that prolonged litigation could severely impact the financial condition of the Settling Defendant, resulting in the potential loss of significant protection to homeowners, if this were to occur. Class Counsel have submitted an affidavit indicating that they have reviewed the resources available to the Settling Defendant to fund the Settlement. Based on that review, as well as additional considerations set forth below, the Settling Defendant was required to secure its financial obligation under the settlement with an irrevocable Letter of Credit. The Court has retained jurisdiction to review this settlement should Settling Defendant’s continuing ability to fund this settlement be called into question, notwithstanding these assurances.

d. There have been, other than the single objection previously noted (which has been withdrawn) no objections to the proposed settlement, after adequate notice to class members.

e. The fact that the North Carolina Attorney General’s office was privy to the particular circumstance of the Settling Defendant and does not object to the settlement, is further indication that some independent objective parties have reviewed the settlement and determined that it is in the best interests of consumers. The North Carolina Attorney General’s office has expressed great interest in the resolution of the issues in this litigation, and has participated in several of the meetings held by the Court with Class Counsel and counsel for the Defendants, and the position advanced by the North Carolina Attorney General’s office have been very supportive of the Settlement Agreement.

f. This settlement is clearly a byproduct of hard-fought litigation between the parties, and not a result of any collusion on the part of Class Counsel or Counsel for the Settling Defendant.

g. In light of the particular financial limitations of the Settling Defendant, it is particularly important that homeowners continue to have the ability to pursue claims against any other parties that they might feel are responsible for damages to their homes, and as such, this settlement is not a final decision with respect to the rights of homeowners as to those parties; however, it does provide homeowners with substantial monetary compensation, in light of the Settling Defendant’s financial circumstances, which the Court finds to be very valuable. In order to retain the ability to pursue claims against other parties while still providing the Settling Defendant with the peace and protection from contribution and indemnity claims which it seeks through this settlement, Settlement Class Members have agreed in Paragraph 19 of the Settlement Agreement to reduce any judgment obtained against any such other person by whatever amount is necessary under applicable law to eliminate contribution and indemnity claims against the Settling Defendant. Thus, there would be no possibility of a judgment for contribution or indemnity being entered against Settling Defendant, no justiciable issue of contribution or indemnity would exist in a third party claim, and Settling Defendant would achieve its goal of peace. The Court finds that this agreement by the Settlement Class Members is fair and reasonable in light of both the value to be received by Settlement Class Members pursuant to the Settlement Agreement and the potential value available to them through retention of the ability to pursue claims against other persons. The Court also finds that this approach for providing protection to the Settling Defendant against contribution and indemnity claims is preferable to other alternatives available.

h. The following procedures are to be followed in implementing the judgment reduction provisions of Paragraph 19 of the Settlement Agreement for the following reasons: It is anticipated that Settlement Class Members will pursue separate actions against builders or other third parties who may be responsible for damages to their homes, including damages for which those third parties may contend that the Settling Defendant is liable in whole or in part. It is the intent of the Settlement Agreement that the participation of the Settling Defendant not be required in such actions because its participation is not necessary for a determination of the issues in such individual actions. If claims for indemnity or contribution are brought against the Settling Defendant despite the provisions of Paragraph 19, the Settling Defendant shall:

1. notify the counsel for the Settlement Class Member of the assertion of the claims. Such notice shall be given before the expiration of time for the Settling Defendant to answer or otherwise respond to any such contribution or indemnity claim, including any extension thereof, or as soon as practicable after an answer or other response, if any, is filed by the Settling Defendant.

2. expressly authorize and acknowledge the right of the Settlement Class Member to intervene in his or her own name or in the name of the Settling Defendant in any proceeding asserting a contribution or indemnity claim against the Settling Defendant as described above in order to plead any matter in defense of such contribution and indemnity claim or in avoidance of any determination of liability which would case a reduction to such Settlement Class Member’s judgment as provided in Paragraph 19.2 of the Settlement Agreement.

i. Class Counsel have requested an award of attorneys’ fees, costs and expenses to be paid from, and in the amount of, thirty percent (30%) of the Settlement Fund.

15. Richard Reyes, General Counsel of Sto Corp., gave sworn testimony by way of direct and cross examination regarding the financial condition and resources of Settling Defendant. The Court also has received under seal audited financial statements prepared by Ernst & Young, an independent accounting firm, as of December 31, 1999 and 1998. The audited financial statements will be made available for review to any Settlement Class Members or their counsel who request the same and execute a protective Order which will be approved by the Court.

16. Based on that testimony and other matters of record, the Court finds that the following factors also support approval of the Settlement:

a. Settling Defendant settled coverage litigation with certain of its insurance carriers. The settlements have resulted in no insurance being available to Settling Defendant for Settled Claims.

b. Settling Defendant has spent millions of dollars in each of the past two years to settle claims and pay defense costs. Based on its assets and resources, the Court is convinced that Settling Defendant cannot remain a going concern if it does not reduce its litigation expenses or receive additional capital.

c. Settling Defendant now is wholly owned by Sto A.G. Sto A.G has declined to provide additional capital to Settling Defendant to fund a settlement of this or any other litigation. Class Counsel have investigated the possibility of piercing the corporate veil and other avenues to reach the assets of Sto A.G., but have determined and represented to the Court, that, under North Carolina law as it presently stands, they do not deem that pursuing such a course of action would be in the best interests of the Settlement Class Members. The Court is aware that Sto A.G. could provide funding as a parent company if it chose to do so and had such assets available, but the Court is not privy to the assets of Sto A.G., nor is it aware of any basis to force Sto A.G. to provide any such funds.

d. Settling Defendant presently is a defendant in more than 100 other lawsuits, including cases in other states seeking class certification. Those cases continue to deplete the financial resources of the Settling Defendant.

e. As a result of the inherent nature of trial and appellate practice, there certainly would have been a substantial delay in Settlement Class Members recovering damages, were they successful, absent the Settlement Agreement.

f. Settling Defendant has indicated it would consider bankruptcy protection should its financial condition continue to deteriorate, and the Court believes that there is a substantial risk that litigation outside of this action could render Settling Defendant incapable of satisfying a judgment were one ultimately to be entered in favor of the Settlement Class Members.

g. Based upon all the factors present, and especially upon the financial condition of Settling Defendant, the Court finds the settlement to be fair and in the best interests of the Settlement Class Members.

17. On March 1, 2000, Settlement Class Counsel also submitted to the Court and served on the Settling Defendant their application for reasonable attorneys’ fees, costs, and expenses consistent with the terms of the Settlement Agreement. This Court is considering Class Counsel’s request and will enter an Order shortly regarding the petition by Class Counsel. Approval of the settlement is being made by this Order so that there will be no delay in implementation of settlement benefits to Class Members while the Court further reviews the Petition for fees and expenses.

18. Class Counsel have approved and has requested the Court that Settling Defendant, through Ms. Angie Rosser, shall act as the Claims Administrator in accordance with the Settlement Agreement. The claims procedure established under the Settlement Agreement is fair, a simplified process and workable. In any event, the Court will retain jurisdiction to work out any unanticipated problems.

NOW, THEREFORE, ON THE BASIS OF THE FOREGOING FINDINGS OF FACT, THE COURT HEREBY MAKES THE FOLLOWING:

CONCLUSIONS OF LAW

1. This Court has jurisdiction over the parties and the subject matter of this proceeding.

2. Pursuant to Rule 23(a) and (c) of the North Carolina Rules of Civil Procedure, the following Settlement Class is certified for purposes of final settlement:

All persons or entities who as of September 18, 1996, owned or formerly owned a one or two family residential dwelling or townhouse in the State of North Carolina clad, in whole or in part, with Sto Corp.’s Exterior Insulation and Finish System (“EIFS”).

3. The Court finds that, for the purpose of this Settlement, the requirements of Rule 23(a) of the North Carolina Rules of Civil Procedure are satisfied, and that a class action is an appropriate method for resolving the disputes in this litigation.

4. Settlement Class Representatives, Mary Frances Dillon and Charles Nicholson, are entitled to and are hereby awarded an additional payment of $7,500.00, over and above their claims for damages, in recognition of the efforts they have undertaken and the risk they have incurred in connection with this Action.

5. The Court grants final approval of the Settlement Agreement, including the Plan of Distribution, as being fair, reasonable and adequate, pursuant to Rule 23(c) of the North Carolina Rules of Civil Procedure.

NOW, THEREFORE, ON THE BASIS OF THE FOREGOING FINDINGS OF FACT AND CONCLUSIONS OF LAW, IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS:

1. The Motion for Final Approval of the Proposed Settlement is GRANTED.

2. Settlement Class Representatives, Mary Frances Dillon and Charles Nicholson, are entitled to and are hereby awarded an additional payment of $7,500.00 over and above their claims for damages, in recognition of the efforts they have undertaken and the risk they incurred in connection with this Action.

3. Settling Defendant shall act as the Claims Administrator.

4. This Action and all claims against the Settling Defendant are hereby dismissed with prejudice, but the Court shall retain exclusive and continuing jurisdiction of the Action, all Parties, and Settlement Class Members, to interpret and enforce the terms, conditions and obligations of this Settlement Agreement, and to enter an order regarding the petition by Class Counsel for the Award of Attorneys’ fees, costs and expenses consistent herewith.

This the 5th day of April, 2000.

THE HONORABLE BEN F. TENNILLE

SPECIAL SUPERIOR COURT JUDGE

FOR COMPLEX BUSINESS CASES