CONTRIBUTION AGREEMENT

Exhibit 2.2

 

 

 

CONTRIBUTION AGREEMENT

dated as of December 13, 2006

among

CPG INTERNATIONAL HOLDINGS L.P.

and

CHRISTOPHER BARDASIAN, KEVIN SLOAN, AND LARRY SLOAN

 

 

CONTRIBUTION AGREEMENT

This CONTRIBUTION AGREEMENT (this “Agreement”), dated as of December 13, 2006, by and among CPG International Holdings LP, a Delaware limited partnership (the “Partnership”), Christopher Bardasian, Kevin Sloan, and Larry Sloan (each, a “Subscriber” and together, the “Subscribers”).

RECITALS

WHEREAS, the Partnership is the indirect owner of all of the capital stock of CPG International I, Inc. (“CPG International”).

WHEREAS, CPG International has entered into a Unit Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”), that provides for, among other things, the purchase by CPG International, or its designee, of certain of the membership interests of Pro-Cell, LLC, an Alabama limited liability company (the “Company”), from the Subscribers.

WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, immediately prior to the closing of the transactions contemplated by the Purchase Agreement, the Subscribers desire to contribute membership interests in the Company in an amount specified opposite each Subscriber’s name in Schedule 1 hereto (the “Transferred Units”) to the Partnership in exchange for the number of Parent Units set forth opposite each Subscriber’s name in Schedule 1 hereto (such contributions by the Subscribers, the “Contributions”).

WHEREAS, the parties hereto intend that the Contributions contemplated by this Agreement will be treated for income tax purposes as transfers pursuant to Section 721 of the Internal Revenue Code of 1986, as amended, and any corresponding provisions of applicable state income or franchise tax status.

WHEREAS, in connection with the consummation of the transactions contemplated by this Agreement, the Subscribers will become parties to an Agreement of Limited Partnership of the Partnership dated as of March 8, 2005, as amended, a copy of which is attached hereto as Exhibit A (the “Partnership Agreement”).

WHEREAS, the Partnership and the Subscribers desire to provide for the Contributions and to establish certain rights and obligations in connection herewith.

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

1.1  Definitions. The following terms, whenever used herein, shall have the following meanings for all purposes of this Agreement.

 

 

“Affiliate” means as to any Person (a) any Person which directly or indirectly controls, is controlled by, or is under common control with such Person, and (b) any Person who is a director, officer, partner or principal of such Person or of any Person which directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of this definition, (i) “control” of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by ownership of voting stock, by contract or otherwise and (ii) an “Affiliate” of an individual will be his spouse, children, parents and siblings and his spouse’s, parents and siblings.

“Americhem Change of Control Agreement” means the change of control agreement, dated April 1, 2006 among Americhem Inc., the Company and the Subscribers.

“Antitrust Laws” means the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other United States federal or state or foreign statutes, rules, regulations, orders, decrees, administrative or judicial doctrines or other laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

“Approved Capex” means the capital expenditures set forth on Schedule 1.1 in the amounts set forth thereon.

“Benefit Plan” means any “employee benefit plan” as defined in ERISA Section 3(3), including any (a) nonqualified deferred compensation or retirement plan or arrangement which is an employee pension benefit plan (as defined in ERISA Section 3(2)), (b) qualified defined contribution retirement plan or arrangement which is an employee pension benefit plan, (c) qualified defined benefit retirement plan or arrangement which is an employee pension benefit plan, (d) employee welfare benefit plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or program, or (e) stock purchase, stock option, restricted stock, performance award, severance pay, employment, change in control, vacation pay, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA, and whether written or oral, funded or unfunded, under which any present or former director, officer, consultant, independent contractor or employee of the Company has any present or future right to benefits sponsored or maintained, or in the case of (a) through (e) sponsored or maintained by the Subscribers, the Company or any ERISA Affiliate.

“Business Day” means any day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law or executive order to close.

“Code” means the Internal Revenue Code of 1986, as amended.

“date hereof” and “date of this Agreement” means the date first written above.

 

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“Encumbrance” means any and all liens, encumbrances, charges, mortgages, options, pledges, restrictions on transfer, security interests, hypothecations, easements, rights-of-way or encroachments of any nature whatsoever, whether voluntarily incurred or arising by operation of law.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ERISA Affiliate” means each business or entity which is a member of a “controlled group of corporations,” under “common control” or an “affiliated service group” with the Company within the meaning of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the Company under Section 414(o) of the Code, or is under “common control” with the Company, within the meaning of Section 4001(a)(14) of ERISA.

“Financial Statements” means (i) the reviewed balance sheet of the Company for the fiscal years ended December 31, 2004 and December 31, 2005 (the “2005 Financial Statements”) including the notes thereto, and the reviewed statements of income and retained earnings, stockholders’ equity and cash flow for the period ended December 31, 2004 and December 31, 2005, (ii) the unaudited balance sheet of the Company as of October 31, 2006 (the “Interim Balance Sheet”) and the related unaudited consolidated statements of income, shareholders’ equity and cash flows of the Company for the ten (10) months ended October 31, 2006 (the “Interim Financial Statements”).

“GAAP” means United States generally accepted accounting principles.

“Governmental Authority” means any nation or government, any state, province or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administration functions of or pertaining to government, or any government authority, agency, department, board, tribunal, commission or instrumentality of the United State of America, any foreign government, any state of the United States of America, or any municipality or other political subdivision thereof, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any governmental or non-governmental self-regulatory organization, agency or authority.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

“IRS” means the United States Internal Revenue Service.

“Indebtedness” means, of any Person, without duplication, (i) indebtedness for borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money, (ii) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security, (iii) obligations under any interest rate, currency or other currency hedging agreement, (iv) obligations under any performance bond or letter of credit, but only to the extent drawn or called prior to the Closing, (v) all capitalized lease obligations as determined under GAAP, (vi)

 

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all obligations in respect of purchase money obligations for the acquisition of equipment and fixed assets, but in no event including trade payables in the ordinary course of business, (vii) all obligations secured by an Encumbrance on any property or asset owned by such Person regardless of whether the obligations secured thereby shall have been assumed by that Person or are non-recourse to the credit of that Person, (viii) all obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (ix) all guarantees with respect to any indebtedness of any other Person of a type described in clauses (i) through (viii) above, and (x) for clauses (i) through (ix) above, all accrued interest thereon, if any, and any termination fees, prepayment penalties, “breakage” cost or similar payments or contractual charges associated with the repayments of such Indebtedness on the Closing Date. For the avoidance of doubt, Indebtedness shall not include any Indebtedness incurred in connection with Approved Capex or, to the extent in excess of the amount of Approved Capex, authorized by the Partnership in writing.

“Indemnitor” means any party hereto from which any Indemnitee is seeking indemnification pursuant to the provisions of this Agreement.

“Interim Balance Sheet” shall have the meaning as set forth in the definition of Financial Statements.

“Interim Financial Statements” shall have the meaning as set forth in the definition of Financial Statements.

“knowledge of the Company” or “knowledge of the Subscribers” or any similar phrase means the actual knowledge of each of the Subscribers after reasonable inquiry.

“Material Adverse Effect” means a material adverse effect on the business, results of operations, properties or assets of the Company; provided, however, that “Material Adverse Effect” shall not include the impact on such business, results of operations, properties or assets arising out of or attributable to (except, in the case of clauses (i), (ii), or (iii) below to the extent disproportionately affecting the Company relative to all other Persons operating in the same industries as the Company taken as a whole): (i) conditions or effects that generally affect the industries in which the Company operates, (ii) general economic conditions affecting the United States, (iii) effects arising from changes in laws or GAAP after the date hereof, (iv) effects relating to the announcement of the execution of this Agreement or the transactions contemplated hereby, (v) effects related to the Company’s compliance with and performance of the terms and conditions of this Agreement or any other agreement entered into in connection herewith, or (vi) any acts of war, other hostilities or terrorism involving the United States.

“Multiemployer Plan” has the meaning set forth in Sections 3(37) or 4001(a)(3) of ERISA.

“Net Revenues” means the sales of the Company of composite decking, decking related trim/rail and specialty Kvaerner extrusions and all other products and

 

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services sold as of the date of this Agreement by the Company, calculated as the sum of all invoiced sales, plus reimbursable shipping charges, and less any royalties or similar payments.

“Parent Units” means Class A Units of Parent, as defined in the agreement of Partnership Agreement.

“Permitted Encumbrances” means, (i) Encumbrances for Taxes, assessments and other government charges not yet due and payable or which are being contested in good faith by appropriate proceedings, (ii) mechanics’, workmens’, repairmens’, warehousemens’, carriers’ or other like Encumbrances arising in the ordinary course of business of the Company, (iii) Encumbrances to be removed prior to or at Closing, (iv) the Encumbrances set forth on Schedule 1.2; (v) other Encumbrances which are not, individually or in the aggregate, material in character, amount or extent and which do not materially detract from the value or materially interfere with the present use of the assets subject thereto or affected thereby and (vi) any Encumbrances incurred in connection with any Indebtedness that Buyer elects not to pay-off at Closing.

“Person” means any individual, corporation (including any not for profit corporation), general or limited partnership, limited liability partnership, joint venture, estate, trust, firm, company (including any limited liability company or joint stock company), association, organization, entity or Governmental Authority.

“Pre-Closing Tax Period” means any tax period (or the portion of any Straddle Period) ending on or prior to the Closing Date.

“Proceeding” means any action, suit, litigation, arbitration, proceeding, hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority.

“Representatives” means any director, officer, agent, employee, general partner, member, stockholder, advisor or representative of such Person.

“Straddle Periods” In the case of any taxable period that includes (but does not end on) the Closing Date: (1) the amount of any Taxes of the Company based on or measured by income or receipts for the Pre-Closing Period shall be computed as if such taxable period ended as of the close of business on the Closing Date, provided that exemptions, allowances, credits or deductions that are calculated on an annual basis (including, but not limited to, depreciation and amortization deductions) shall be allocated between the period ending on the Closing Date and the period after the Closing Date in proportion to the number of days in each period and (2) the amount of other Taxes of the Company for the Pre-Closing Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period prior to and including the Closing Date and the denominator of is the number of days in the Straddle Period.

 

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“Return” means with respect to a specified amount, interest thereon at 7.5% per annum, calculated from the Closing Date to the actual date the specified amount is paid.

“Tax Returns” means any report, declaration, return, information return, claim for refund, election, disclosure, estimate or statement required to be supplied to a taxing authority in connection with Taxes, including any schedule or attachment thereto, and including any amendments thereof.

“Tax” or “Taxes” means taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including, without limitation, income, gross receipts, ad valorem, value added, excise, real or personal property, asset, sales, use, license, payroll, transaction, capital, net worth and franchise taxes, estimated taxes, withholding, employment, social security, workers compensation, utility, severance, production, unemployment compensation, occupation, premium, windfall profits, unclaimed or abandoned property, transfer and gains taxes or other governmental taxes imposed or payable to the United States, or any state, county, local or foreign government or subdivision or agency thereof, and, in each instance, such term shall include any interest, penalties or additions to tax attributable to any such Tax or requirement to report information with respect thereto and in each instance shall include any liability for Taxes of any other Person in respect of any items described by contract, as a transferee or successor to another Person, under U.S. Treasury Reg. Section 1.1502-6 or analogous state, local or foreign provisions or otherwise.

“Third Party Claim” means any claim or demand for which an Indemnitor may be liable to an Indemnitee hereunder which is asserted by a third party.

1.2

Interpretive Provisions. Unless the express context otherwise requires:

(a)   the words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(b)   terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa;

(c)

the terms “dollars” and “$” mean United States Dollars;

(d)   references herein to a specific Section, Subsection, Recital, Schedule or Exhibit shall refer, respectively, to Sections, Subsections, Recitals, Schedules or Exhibits of this Agreement;

(e)   wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”;

 

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(f)    references herein to any gender shall include each other gender;

(g)   references herein to any Person shall include such Person’s heirs, executors, personal representatives, administrators, successors and assigns; provided, however, that nothing contained in this clause (g) is intended to authorize any assignment or transfer not otherwise permitted by this Agreement;

(h)   references herein to a Person in a particular capacity or capacities shall exclude such Person in any other capacity;

(i)    references herein to any contract or agreement (including this Agreement) mean such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof;

(j)    with respect to the determination of any period of time, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”;

(k)   references herein to any law or any license mean such law or license as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time;

(l)    references herein to any law shall be deemed also to refer to all rules and regulations promulgated thereunder; and

(m) whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a day that is not a Business Day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a Business Day.

ARTICLE 2

 

SUBSCRIPTION AND EARN OUT CONSIDERATION

2.1

Subscription and Earn-Out.

(a)   Upon the terms and subject to the conditions set forth herein, (i) each Subscriber agrees to irrevocably and unconditionally subscribe for, and the Partnership agrees to issue to each Subscriber the number of Parent Units set forth opposite each Subscriber’s name in Schedule 1 in exchange for the amount of Transferred Units set forth opposite each Subscriber’s name in Schedule 1 and the Partnership agrees to pay the Unit Earn Out Consideration (if any) as described in Section 2.1(c) below.

(b)   “Unit Earn Out Consideration” means a one-time payment to the Subscribers as consideration for the Transferred Units, payable on the later of January

 

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1, 2008 and 5 Business Days’ after the completion of the CPG International, Inc. audit for the year ending December 31, 2007, calculated as follows:

If the Net Revenues for the year ending December 31, 2007 are:

(i)           at least $45,000,000 and less than $50,000,000, then the Subscribers shall receive $945,000 plus the Return thereon in additional Parent Units valued at $1,832.6667 per Parent Unit;

(ii)          at least $50,000,000 and less $55,000,000, then the Subscribers shall receive $3,195,000 plus the Return thereon in additional Parent Units valued at $1,832.6667 per Parent Unit;

(iii)         at least $55,000,000 and less than $70,000,000, then the Subscribers shall receive an additional $5,445,000 plus the Return thereon in additional Parent Units valued at $1,832.6667 per Parent Unit;

(iv)         at least $70,000,000 and less than $75,000,000, then the Subscribers shall receive an additional $9,945,000 plus the Return on $5,445,000 in additional Parent Units valued at $1,832.6667 per Parent Unit;

(v)          at least $75,000,000 and less than $80,000,000, then the Subscribers shall receive an additional $12,195,000 plus the Return on $5,445,000 in additional Parent Units valued at $1,832.6667 per Parent Unit; or

(vi)         at least $80,000,000, then the Subscribers shall receive an additional $14,445,000 plus the Return on $5,445,000 in additional Parent Units valued at $1,832.6667 per Parent Unit.

(c)   All amounts to be paid to the Subscribers under this Agreement will, unless otherwise agreed, be paid one-third to each of them.

ARTICLE 3

 

THE CLOSING

3.1

Closing.

(a)   The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place immediately prior to the closing of the transactions contemplated by the Purchase Agreement, at the offices of Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, NY, or such other place determined by the parties.

(b)   At the Closing, (i) each Subscriber shall deliver to the Partnership Transferred Units in an amount set forth opposite such Subscriber’s name in

 

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Schedule 1 and shall become a party to the Partnership Agreement, and (ii) the Partnership shall deliver to each Subscriber the number of Parent Units set forth opposite such Subscriber’s name in Schedule 1.

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBERS

Each Subscriber hereby represents and warrants for himself only to the Partnership, as follows:

4.1          Authority; Execution; Enforceability. The Subscriber has all requisite capacity, power and authority to (a) execute and deliver this Agreement and the Purchase Agreement, (b) perform his obligations hereunder and thereunder, and (c) consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Purchase Agreement, the performance of his obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby, in each case by the Subscriber, has been duly authorized by all requisite action on the part of the Subscriber, and no other action on the part of the Subscriber is necessary for the execution, delivery and performance of this Agreement and the Purchase Agreement by the Subscriber or the consummation of the transactions contemplated hereby and thereby. Assuming the due authorization, execution and delivery of this Agreement and the Purchase Agreement by the Partnership, this Agreement constitutes the legal, valid and binding obligation of the Subscriber, enforceable against the Subscriber in accordance with their respect terms, subject to (x) bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and (y) general principles of equity.

4.2          Restricted Securities. The Subscriber is acquiring the Parent Units he is acquiring under this Agreement for his own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”), in any manner that would be in violation of the Securities Act. The Subscriber has not, directly or indirectly, offered any of the Parent Units to anyone or solicited any offer to buy any of the Parent Units from anyone, so as to bring the offer and sale of any of the Parent Units within the registration requirements of the Securities Act. The Subscriber will not sell, convey, transfer or offer for sale any of the Parent Units except as provided in the Partnership Agreement and upon compliance with the Securities Act and any applicable state securities or “blue sky” laws or pursuant to any exemption therefrom. The Subscriber understands that (i) except as provided in the Partnership Agreement, the Parent Units will not be registered under the Securities Act or any state securities laws by reason of their issuance by the Partnership in a transaction exempt from the registration requirements thereof and (ii) the Parent Units may not be sold or otherwise disposed of unless such sale or disposition is registered under the

 

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Securities Act and applicable state securities laws or such sale or other disposition is exempt from registration thereunder.

4.3          Accredited Investor. The Subscriber is an “accredited investor” (as defined in Rule 501(a) under the Securities Act). The Subscriber has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Parent Units and is capable of bearing the economic risks of such investment for an indefinite period of time. The Subscriber has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Parent Units and has had full access to such other information concerning the Partnership and its subsidiaries as it has requested.

4.4          No General Solicitation. The Subscriber has received no general solicitation or general advertisement in connection with its Contribution or an investment in the Partnership. The Subscriber has received no other representations or warranties from the Partnership or any other person acting on behalf of the Partnership, other than those contained in this Agreement.

4.5          Consents and Approvals. Except for such filings as are required under the HSR Act, and the termination of the waiting period thereunder, no notices, reports, registrations or other filings are required to be made by the Subscriber with, nor are any consents, approvals or authorizations required to be obtained by the Subscriber from, any Governmental Authority or any other Person under any contract, agreement or other obligation to which the Subscriber is party or by which its assets are bound, in connection with the valid execution, delivery or performance of this Agreement and the Purchase Agreement by the Subscriber or the consummation by the Subscriber of the transactions contemplated by this Agreement and the Purchase Agreement, in each case except for such notices, reports, registrations and other filings the failure of which to make or obtain, individually or in the aggregate, are not material to the Subscriber’s ability to perform its obligations hereunder and would not prohibit or restrict or delay, in any material respect, the performance by the Subscriber of its obligations hereunder.

4.6          No Reliance. The Subscriber did not look to, or rely in any manner upon, the Partnership or its Affiliates, or its or their respective directors, officers, employees or representatives for advice about tax, financial or legal consequences of acquiring an interest in the Partnership, and none of the Partnership or its Affiliates, or its or their respective directors, officers, employees or representatives has made or is making any representations to the Subscriber about, or guaranties of, tax, financial or legal outcomes of acquiring an interest in or an investment in the Partnership.

4.7  No Defaults or Conflicts. The execution and delivery of this Agreement and the Purchase Agreement and the consummation of the transactions contemplated hereby and thereby by the Subscriber and performance by such Subscriber of his obligations hereunder and thereunder (i) except as set forth on Schedule 4.7, do not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under any material agreement or instrument to which the Subscriber is a party or

 

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by which he is bound or to which his properties are subject, and (ii) assuming compliance with the applicable requirements under the HSR Act, do not violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Authority having jurisdiction over the Subscriber or any of his properties.

4.8  No Governmental Authorization Required. Except for applicable requirements of the HSR Act or similar foreign competition or Antitrust Laws or as otherwise set forth in Schedule 4.8, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required to be obtained or made by the Subscriber in connection with the due execution, delivery and performance by the Subscriber of this Agreement and the Purchase Agreement and the consummation by the Subscriber of the transactions contemplated hereby and thereby.

4.9  The Transferred Units. Schedule 4.9 sets forth the Subscriber’s record and beneficial percentage interest in the Company. The Subscriber has good and valid title to the Transferred Units, free and clear of all Encumbrances, except Encumbrances on transfer imposed under applicable securities laws. Assuming the Partnership has the requisite power and authority to be the lawful owner of such transferred Units, upon transfer to the Partnership at the Closing of the Transferred Units, and upon receipt of the Parent Units by the Subscriber, good and valid title to the Transferred Units will pass to the Partnership, free and clear of any Encumbrances, other than those arising from acts of the Partnership or its Affiliates and Encumbrances on transfer imposed under applicable securities laws. Except as set forth in the Company’s organizational documents, the Transferred Units are not subject to any contract restricting or otherwise relating to the voting, dividend rights, transfer or other disposition of such Transferred Units.

4.10       Litigation. There is no claim, action, suit, investigation or legal proceeding pending or, to the knowledge of the Subscriber, threatened against the Subscriber, before any Governmental Authority which seeks to prevent, enjoin, alter or materially delay the Subscriber from consummating the transactions contemplated by this Agreement.

 

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBERS ON BEHALF OF THE COMPANY

The Subscribers jointly and severally represent and warrant to the Partnership as follows:

5.1  Organization and Qualification. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Alabama. The Company has all requisite organizational power and authority to own, lease and operate its properties and carry on its business as presently owned or conducted, except where the failure to be so organized, existing and in good standing or

 

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to have such power or authority would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has been qualified, licensed or registered to transact business as a foreign corporation and is in good standing (or the equivalent thereof) in each jurisdiction in which the ownership or lease of property or the conduct of their business requires such qualification, license or registration, except where the failure to be so qualified, licensed or registered or in good standing (or the equivalent thereof) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Subscribers have delivered to the Partnership true and correct copies of the limited liability company agreement and certificate of formation for the Company as in effect on the date hereof.

5.2

Capitalization of the Company.

(a)   Schedule 5.2 sets forth a complete and accurate list of the authorized, issued and outstanding units of the Company and the percentage interests beneficially and of record for all membership interests in the Company. Except as set forth on Schedule 5.2, there are no other membership interests of the Company outstanding and no outstanding or authorized options, warrants, convertible or exchangeable securities, subscriptions, rights (including any preemptive rights), calls or commitments of any character whatsoever, relating to the membership interests of, or other rights or voting interest in, the Company, to which the Company is a party or is bound requiring the issuance, delivery or sale of membership interests of the Company. There are no outstanding stock or membership interest appreciation, phantom stock, profit participation or similar rights with respect to the membership interests of, or other rights or voting interest in, the Company to which the Company is a party or is bound. The Company has no authorized or outstanding bonds, debentures, notes or other indebtedness the holders of which have the right to vote (or convertible into, exchangeable for, or evidencing the right to subscribe for or acquire securities having the right to vote) with the members of the Company on any matter. There are no contracts to which the Company is a party or by which it is bound to (i) issue additional membership interests, other securities of the Company, or other outstanding or authorized options, warrants, convertible or exchangeable securities, subscriptions, rights (including preemptive rights), calls or commitments of any character whatsoever, relating to the membership interests of, or other equity or voting interest in, the Company, (ii) repurchase, redeem or otherwise acquire any membership interest of, or other rights or voting interest in, the Company or (iii) vote or dispose of any membership interest of, or other rights or voting interest in, the Company. There are no irrevocable proxies and no voting agreements with respect to any membership interest of, or other rights or voting interest in, the Company.

(b)   All of the outstanding membership interests of the Company are duly authorized, validly issued, fully paid, not in default under the Company’s limited liability company agreement and non-assessable and free of any preemptive rights in respect thereto.

5.3

Intentionally Blank.

 

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5.4  No Defaults or Conflicts. The execution and delivery of this Agreement and the Purchase Agreement and the consummation of the transactions contemplated hereby and thereby by the Subscribers and performance by the Subscribers of their obligations hereunder and thereunder (i) does not result in any violation of the Company’s limited liability company agreement, (ii) except as set forth on Schedule 5.4, does not conflict with, or result in a breach of any of the terms or provisions of, require any notice under, result in the right of termination under, or constitute a default under any contract, agreement, instrument or Lease to which the Company is a party or to which its assets, property or business are bound or subject, or result in the creation of any Encumbrance on any assets of the Company, and (iii) assuming compliance with the applicable requirements of the HSR Act, does not violate in any material respect any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Authority having jurisdiction over the Company or any of its properties.

5.5  No Governmental Authorization Required. Except for applicable requirements of the HSR Act or similar foreign competition or Antitrust Laws or as otherwise set forth in Schedule 5.5, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required to be obtained or made by the Company in connection with the due execution, delivery and performance by the Subscribers of this Agreement and the Purchase Agreement and the consummation by the Subscribers of the transactions contemplated hereby and thereby.

5.6

Financial Statements.

(a)   The balance sheets included in the Financial Statements fairly present, in all material respects, the financial position of the Company as of their respective dates, and the other related statements included in the Financial Statements, in all material respects, fairly present the results of the Company’s operations and cash flows for the periods indicated, in each case in accordance with GAAP applied on a consistent basis, with only such deviations from such accounting principles and/or their consistent application as are referred to in the notes to the Financial Statements or in Schedule 5.6(a) and subject to, in the case of the Interim Financial Statements, non-material year-end audit adjustments and the absence of related notes.

(b)   Except (i) as set forth in Schedule 5.6(b) or in the Interim Balance Sheet, (ii) for liabilities incurred in the ordinary course of business, consistent with past practice, since October 31, 2006 and (iii) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company does not have any liabilities, Indebtedness, debts or obligations of any nature whether absolute or contingent, matured or unmatured, or otherwise; provided, that this subsection (b) shall not apply to any matters arising under, in connection with or otherwise related to the Company’s product warranties and/or any claims made thereunder. The only representations and warranties regarding the Company’s product warranties are set forth in Section 5.21.

5.7

Intellectual Property.

 

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(a)   Schedule 5.7(a) sets forth a true and complete list of all registrations, issuances, filings and applications for all Intellectual Property Rights (as defined below) owned by, filed by, or issued or registered to, the Company and all license agreements relating to Intellectual Property Rights to which the Company is a party or a beneficiary (other than licenses for “off the shelf” or other software widely available on generally standard terms and conditions) (each such license, an “IP License”).

(b)   Except as set forth on Schedule 5.7(b), the Company owns, or possesses licenses or other rights to use, all U.S. and non-U.S. patents, patent applications (including divisions, continuations, reexamination and reissues thereof), trademarks and service marks (registered or unregistered), trade dress, trade names (including, without limitation, the Company’s corporate name and logo), uniform resource locators and Internet domain names, copyright applications and registrations therefor, unregistered copyrights, computer software programs, industrial designs, inventions, invention disclosures, business methods, data, databases, trade secrets, know how and other intellectual or industrial property, whether or not subject to statutory registration or protection (collectively, “Intellectual Property Rights”), that are material to the conduct of the business of the Company, free and clear of any Encumbrances other than Permitted Encumbrances. Each IP License to which the Company is a party (i) is a legal and binding obligation of the Company and to the knowledge of the Company, the other relevant parties thereto and (ii) is in full force and effect, and neither the Company nor, to the knowledge of the Company, any party thereto, is in default in the performance, observance or fulfillment of any obligation, covenant or condition or representation or warranties contained in any IP License, except in each case where any failure to be valid, binding or in full force and effect or any such default would not, individually or in the aggregate, reasonably be expected to be material to the Company.

(c)   The validity and enforceability of the Intellectual Property Rights and the title or rights to use thereof is not being challenged in any action, litigation or proceeding to which the Company is a party, nor to the knowledge of the Company, is any such action, litigation or proceeding threatened in writing against the Company.

(d)   Except as set forth on Schedule 5.7(d), to the knowledge of the Company, no Person is materially infringing upon or violating any of the Intellectual Property Rights owned by the Company, and the manufacture, marketing, license, distribution, sale and use of products currently sold or contemplated to be sold by the Company does not materially violate any IP License to which the Company is a party.

(e)   The operation of the businesses of the Company, including the manufacture, marketing, license, distribution, sale and use of products currently sold or contemplated to be sold by the Company, and the use of Intellectual Property Rights in connection therewith, does not infringe, misappropriate, dilute, violate or otherwise conflict with the Intellectual Property Rights of any third party in any material respect, and there is no claim, action or proceeding pending or threatened against the Company alleging any of the foregoing. The Company has taken reasonable measures to ensure the confidentiality and security of its trade secrets and other confidential and proprietary

 

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information. The consummation of the transactions contemplated by this Agreement will not alter, impair or diminish in any material respect, or result in the loss of, or result in any accelerated or additional payment to be made to any third party with respect to, any rights or interests of the Company in any Intellectual Property Rights. There are no outstanding judgments, orders, decrees or settlements that impair, in any material respect, the Company’s rights to use, or the validity or enforceability of any Intellectual Property Rights.

5.8  Compliance with the Laws. The business of the Company has not been and is not being conducted in violation of any federal, state, provincial, county, municipal, local laws, ordinances and regulations, except such violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

5.9

Contracts.

(a)   Schedule 5.9 lists or describes, as of the date hereof, and true and complete copies have been made available to the Partnership (including all amendments, modifications and supplements thereto), of all contracts, agreements and instruments (other than Company Benefit Plans and Leases) to which the Company is a party or to which its assets, property or business are bound or subject (collectively, the contracts listed on Schedule 5.9 are referred to herein as the “Material Contracts”):

(i)           for the purchase of materials, supplies, goods, services, equipment or other assets which (A) provides for annual payments by the Company of $50,000 or more, (B) has a residual term as of the date hereof of more than three (3) months and (C) is not terminable by the Company by notice of not more than 60 calendar days without penalty;

(ii)          for the sale by the Company of materials, supplies, goods, services, equipment or other assets, and which (A) provides for a specified annual minimum dollar sales amount by the Company of $50,000 or more, (B) has a residual term as of the date hereof of more than three (3) months and (C) is not terminable by the Company by notice of not more than 60 calendar days without penalty;

(iii)

in respect of any Indebtedness;

(iv)         that contains a covenant not to compete, or other covenant restricting the Company or Affiliate thereof from competing with any Person in any business, or from the development, manufacture, marketing or distribution of products or services;

(v)

with any Governmental Authority;

(vi)         that relates to the acquisition or disposition of any material business by the Company;

 

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(vii)       that imposes any confidentiality, standstill or similar obligation on the Company, except for those entered into with customers or suppliers in the ordinary course of business consistent with past practice or in connection with the current sale process of the Company;

(viii)      that contains a right of first refusal, first offer or first negotiation;

(ix)         in respect of any joint venture, partnership or strategic alliance;

(x)          pursuant to which the Company has granted any exclusive marketing, sales representative relationship, franchising, consignment or distribution right to any third party;

(xi)         that was entered into since December 31, 2005 involving any resolution or settlement of any actual or threatened litigation, arbitration, claim, action or other dispute with a value greater than $50,000;

(xii)       that was entered into outside of the ordinary course of business; or

(xiii)      that commits the Company to enter into any of the foregoing.

(b)   Each Material Contract is valid, binding and in full force and effect. With respect to all Material Contracts, neither the Company nor, to the knowledge of the Company, any other party to any such contract is in breach thereof or default thereunder and there does not exist under any Material Contract any event which, with the giving of notice or the lapse of time, would constitute such a breach or default by the Company or, to the knowledge of the Company, any other party, in each case except for such breaches, defaults and events as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, reasonably be expected to be material to the Company.

5.10       Litigation. Except as set forth in Schedule 5.10, there are no material claims, actions, investigations or legal proceedings pending, or to the knowledge of the Company, threatened against the Company or any material portion of its properties or assets before any Governmental Authority against or involving the Company. The Company is not subject to any unsatisfied order, judgment, injunction, ruling, decision, award or decree of any Governmental Authority. The Company has not, since January 1, 2005 received any written notice of any claim, action, investigation or legal proceeding against it alleging any failure to comply with any order, award, injunction, judgment, decree, ruling, subpoena, verdict or other decision of any Governmental Authority.

 

5.11

Taxes. Except as set forth on Schedule 5.11:

 

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(a)          all Tax Returns required to have been filed by or with respect to the Company have been timely filed, each such Tax Return has been properly prepared and is true, correct and complete in all material respects, and the Company has fully and timely paid all Taxes due and payable by the Company (whether or not shown on any tax Return). The Financial Statements contain adequate provisions for any unpaid Taxes through the date of such Financial Statements;

(b)          The Company is not currently the subject of a Tax audit, examination, claim, or administrative or judicial proceeding with respect to Taxes, nor has any such audit, claim, examination or proceeding been proposed or threatened in writing;

(c)          the Company has not consented to extend the time, or is the beneficiary of any extension of time, in which any Tax may be assessed or collected by any Governmental Authority or in which any Tax Return may be filed;

(d)          no Governmental Authority with which the Company does not file Tax Returns has asserted that the Company is or may be required to pay Taxes to or file Tax Returns with that Governmental Authority;

(e)          the Company has not (A) participated in any “reportable transaction” or “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4 or 1.6011-4T; (B) been a party to or bound by any tax sharing, tax indemnity, or tax allocation agreement or arrangement or (C) requested or received any Tax ruling, transfer pricing agreements, closing agreement or similar agreements, in either case that would have continuing effect after the Closing Date;

(f)           the Company will not be required to recognize for tax purposes in a tax period ending after the Closing Date any income or gain as a result of (A) using the installment method of accounting or (B) making or being required to make any change in method of accounting;

(g)          the Company has withheld from its employees, independent contractors, creditors, members and third parties and timely paid to the appropriate taxing authority proper and accurate amounts in all respects for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting provisions of applicable laws and have each complied in all respects with all Tax information reporting provisions of all applicable laws;

(h)          There are no liens on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax, other than liens for Taxes not yet due and payable;

(i)           the Company has made available to the Partnership, at the Partnership’s request, true, correct and complete copies of all material income Tax Returns and related examination reports and statements of deficiency for all taxable periods for which the applicable statutory periods of limitations have not expired; and

 

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(j)           The Company is and always has been treated as a partnership for U.S. federal income tax purposes.

5.12       Permits. The Company has all material consents, authorizations, registrations, waivers, privileges, exemptions, qualifications, quotas, certificates, filings, franchises, licenses, notices, permits and rights necessary for the lawful conduct of the Company’s business as presently conducted, or the lawful ownership of properties and assets or the operation of their businesses (collectively, “Permits”). All such Permits are in full force and effect, and there has occurred no material default under any Permit by the Company.

5.13

Employee Benefit Plans.

(a)   Schedule 5.13(a) includes a true and complete list of all Benefit Plans and Multiemployer Plans maintained or contributed to by the Company or any ERISA Affiliate, and pursuant to which the Company or any ERISA Affiliate has or may have any liability, contingent or otherwise (collectively, the “Company Benefit Plans”).

(b)   Except as set forth in Schedule 5.13(b), no Company Benefit Plan is subject to Section 412 of the Code or Title IV of ERISA. Neither the Company nor any of its subsidiaries has incurred any liability under Title IV of ERISA or Section 412 of the Code nor is any such liability reasonably expected to be incurred.

(c)   Each Company Benefit Plan (other than a Multiemployer Plan) has been established and administered in all material respects in accordance with its terms. The Company, and all the Company Benefit Plans (other than a Multiemployer Plan), are in material compliance with all applicable provisions of ERISA, the Code, all other applicable laws, orders, rules, regulations and the terms of all applicable collective bargaining agreements. With respect to each Company Benefit Plan (other than a Multiemployer Plan) (i) all material reports, returns, notices and other documentation that are required to have been filed with or furnished to the IRS, the Department of Labor or any other governmental authority, or to the participants or beneficiaries of such Company Benefit Plan have been filed or furnished, and (ii) each Company Benefit Plan that is intended to be qualified within the meaning of section 401(a) of the Code has received a favorable determination letter from the IRS to the effect that such Company Benefit Plan satisfies the requirements of section 401(a) of the Code and that its related trust is exempt from taxation under section 501(a) of the Code, and no circumstances exist which would reasonably be expected to adversely affect this qualification or exemption. There are no investigations by any Governmental Authority, termination proceedings or other claims (except routine claims for benefits payable under the Company Benefit Plans) or actions pending or, to the knowledge of the Company or any ERISA Affiliate, threatened against or involving any Company Benefit Plan (other than a Multiemployer Plan) or asserting any rights to or claims for benefits under any Company Benefit Plan (other than a Multiemployer Plan) that could give rise to any material liability.

(d)   Except as provided in Schedule 5.13(d), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated

 

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hereby will (either alone or in combination with another event) (i) result in any payment becoming due, or increase the amount of any compensation due, to any current or former employee of Company, (ii) increase any benefits otherwise payable under any Company Benefit Plan, (iii) result in the acceleration of the time of payment or vesting of any such compensation or benefits, or (iv) result in the triggering or imposition of any restrictions or limitations on the right of the Company or the Partnership to amend or terminate any Company Benefit Plan and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will or may be made by the Company, the Subscribers, the Partnership or any of their respective affiliates with respect to any employee of the Company will be characterized as an “excess parachute payment,” within the meaning of section 280G(b)(1) of the Code.

(e)   The Company (i) is in compliance in all material respects with all applicable