PURCHASE AND CONTRIBUTION AGREEMENT

Exhibit 2.1

 

PURCHASE AND CONTRIBUTION AGREEMENT

 

Between

CARRIER CORPORATION

AND

WATSCO, INC.

May 3, 2009

TABLE OF CONTENTS

 

 

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PURCHASE AND CONTRIBUTION AGREEMENT

This PURCHASE AND CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into on May 3, 2009, by and between (i) Carrier Corporation, a Delaware corporation (“Seller”) and (ii) Watsco, Inc., a Florida corporation (“Buyer”) (collectively, the “Parties,” and each individually, a “Party”).

Recitals

A. WHEREAS, Seller is the record and beneficial owner of all of the equity interests in each of Carrier Sales and Distribution, LLC, a Delaware limited liability company to be renamed “Carrier Enterprises, LLC” (the “Company”), Carrier InterAmerica Corporation, a United States Virgin Islands corporation (“CIAC”), and Carrier (Puerto Rico), Inc., a Delaware corporation (“CPR”, and together with CIAC, the “Division Entities”);

B. WHEREAS, prior to the Closing, all of Seller’s equity interests in the Division Entities shall be held directly by the Company;

C. WHEREAS, prior to the Closing Date, Seller will contribute membership interests in the Company to a wholly-owned Subsidiary of the Seller (which Subsidiary shall be a corporation) (the “1% Holder”) such that following the consummation of the transactions contemplated hereby the 1% Holder will own 1% of the Company;

D. WHEREAS, Buyer through its wholly-owned subsidiary, Watsco Holdings, Inc., a Delaware corporation (“WHI”), owns all of the equity interests in Comfort Products Distributing LLC, a Delaware limited liability company (“Comfort Products”);

E. WHEREAS, the Parties intend for Buyer to cause the Comfort Products Contributed Assets to be contributed to the Company and for the Company to assume the Comfort Products Liabilities, in each case at the Closing, as provided herein; and

F. WHEREAS, Seller and Buyer desire for Buyer to acquire, directly or indirectly, a 60% membership interest in the Company, following which Buyer will own, directly or indirectly, 60% of the Company, Seller will own 39% of the Company, the 1% Holder will own 1% of the Company and the Company will own the Comfort Products Contributed Assets and will have assumed the Comfort Products Liabilities.

Agreement

NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the Parties agree as follows:

ARTICLE I

RESTRUCTURING; SALE AND PURCHASE OF MEMBERSHIP INTEREST

1.01 Restructuring Transactions . Seller shall, and, to the extent applicable, shall cause its Subsidiaries to (a) before the Closing, transfer and convey to the Company all of Seller’s right, title and interest in and to the equity interests in the Division Entities and, prior to the Closing Date, contribute membership interests in the Company which after giving effect to the issuance of

membership interests pursuant to Section 1.02(b) will be equal to one percent (1%) of the outstanding membership interests in the Company immediately after Closing to the 1% Holder and (b) take all actions necessary such that, from and after the Closing, the Company and Division Entities shall not contain the assets or liabilities comprising the California Business, the Northeast Business or the Applied Business (the California Business, the Northeast Business and the Applied Business together comprising the “Seller Excluded Businesses”) or the inventory subject to the Consignment Agreement (collectively, the “Restructuring”).

1.02 Sale and Purchase of Membership Interest . Subject to the terms and conditions of this Agreement, at the Closing, Seller shall:

(a) Sell, assign, transfer and convey to Buyer all of its right, title and interest in and to a membership interest in the Company, free and clear of Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements, representing 51.3% of all outstanding membership interests in the Company (excluding the issuance described Section 1.02(b) ) (the “Transferred Interest”); and

(b) Cause the Company to issue to Comfort Products a number of membership interests in the Company (the “Issued Interest”), free and clear of Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements, such that immediately following such issuance, the aggregate of the Transferred Interest and the Issued Interest shall represent 60% of all outstanding membership interests in the Company (the “60% Interest”), Seller shall own membership interests in the Company representing 39% of all outstanding membership interests in the Company and the 1% Holder shall own membership interests in the Company representing 1% of all outstanding membership interests in the Company.

1.03 Consideration for the 60% Interest . As consideration for the 60% Interest, at the Closing, Buyer shall:

(a) deliver to Seller:

(i) Subject to adjustment as provided in Section 1.04 , four million five hundred thousand (4,500,000) shares of Capital Stock (the “Maximum Stock Consideration”), with the allocation between shares of Common Stock and Class B Common Stock as determined by Exhibit A . The calculated per share value of the Capital Stock shall be the Volume Weighted Average Trading Price of the Common Stock on the New York Stock Exchange (the “NYSE”) for the ten (10) consecutive trading days ending on and including the second (2 ^nd ) trading day immediately prior to the Closing Date (the “Measurement Period”) (the “Average Trading Price”); provided , that if the Average Trading Price is less than $20, by not later than the trading day prior to the Closing Date Buyer may give Seller a notice requesting that Seller accept an Average Trading Price of $20, in which case, (A) if Seller gives the Buyer a notice accepting the request before Closing, the Average Trading Price will be deemed to be $20 for purposes of this Agreement and (B) otherwise, this Agreement will terminate in accordance with Section 11.01(g) .

 

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(ii) Cash, in an amount equal to the difference between (A) One Hundred Seventy-Two Million Dollars ($172,000,000) (the “Purchase Price”) and (B) the sum of (1) the product (rounded down to nearest $.01) of (x) the Stock Consideration and (y) the Average Trading Price (the “Cash Consideration”) and (2) Twenty-Five Million Dollars ($25,000,000) (which dollar amount represents forty percent (40%) of the value of the Comfort Products Contributed Assets (taking into account the assumption of the Comfort Products Liabilities)). Such sum shall be paid via wire transfer of immediately available funds to an account or accounts designated by Seller. As used herein, the term “Stock Consideration” shall mean the Maximum Stock Consideration as the same may be reduced pursuant to Section 1.04 ; and

(b) cause Comfort Products, or any other Subsidiary of the Buyer that holds any Comfort Products Contributed Assets, to, and it shall (as the case may be), transfer, assign and deliver to the Company, as a capital contribution to the Company, all of Comfort Products’, any such Subsidiary’s and its right, title and interest in and to the Comfort Products Contributed Assets, free and clear of Liens, other than Permitted Liens. At the Closing, the Parties shall cause the Company to assume all of the Comfort Products Liabilities.

1.04 Determination of the Stock Consideration . At the discretion of Buyer, the Stock Consideration to be delivered at the Closing shall be reduced from the Maximum Stock Consideration (to not less than 3,000,000 shares of Capital Stock), with the allocation between shares of Common Stock and Class B Common Stock as determined by Exhibit A , and the Cash Consideration shall be increased in accordance with Section 1.03(a)(ii) to provide for payment at the Closing of the entire Purchase Price amount. Notwithstanding the foregoing, any determination by Buyer to reduce the Stock Consideration from the Maximum Stock Consideration shall be made by providing notice thereof (which notice shall specify the Stock Consideration to be delivered at the Closing) no later than on the second (2 ^nd ) trading day immediately prior to the Closing Date to Seller at the address set forth herein in accordance with Section 12.02 .

1.05 Final Statements on Working Capital . As promptly as practicable, but in any event within sixty (60) calendar days following the Closing Date, (i) Seller shall deliver to Buyer (A) a statement (the “Final Statement on Company Working Capital”) setting forth the Final Company Working Capital and (B) an accurate, true and complete calculation of the Company Purchase Price Adjustment, and (ii) Buyer shall deliver to Seller (A) a statement (the “Final Statement on Comfort Products Working Capital” and, together with the Final Statement on Company Working Capital, the “Final Statements on Working Capital”) setting forth the Final Comfort Products Working Capital and (B) an accurate, true and complete calculation of the Comfort Products Purchase Price Adjustment. Each Party (the “Preparing Party”) shall make reasonably available to the other Party (the “Receiving Party”) and its representatives all books and records used in connection with the preparation of the Final Statement of Working Capital prepared by the Preparing Party and the calculation of the applicable Purchase Price Adjustment (the “Reports”). Buyer shall make reasonably available to Seller and its representatives all books and records of the Company and its Subsidiaries as reasonably required by Seller

 

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in connection with Seller’s preparation of the Reports. The Receiving Party and its accountants shall be entitled to review the Reports prepared by the Preparing Party, including the Preparing Party’s calculations of the applicable Purchase Price Adjustment, and the Preparing Party shall make reasonably available any working papers, trial balances and similar materials relating to the Reports prepared by the Preparing Party or its accountants. The Preparing Party shall also provide the Receiving Party and its accountants with reasonable access, upon reasonable notice and during normal business hours, to the Preparing Party’s accountants and personnel to the extent related to the Reports prepared by the Preparing Party, including the determination of the applicable Purchase Price Adjustment. The Preparing Party shall use commercially reasonable efforts to cause its accountants and personnel to communicate and cooperate in connection with the foregoing.

1.06 Purchase Price Adjustments .

(a) Upon final determination of the Company Purchase Price Adjustment pursuant to the procedures set forth herein and in Section 1.07 , (i) in the event that the Company Reference Working Capital exceeds the Final Company Working Capital, then the Purchase Price shall be adjusted downward in an amount equal to 60% of such excess, and Seller shall, within five (5) business days of such determination, pay such amount to Buyer by wire transfer in immediately available funds to an account designated by Buyer in writing; or (ii) in the event that the Final Company Working Capital exceeds the Company Reference Working Capital, then the Purchase Price shall be adjusted upward in an amount equal to 60% of such excess, and Buyer shall, within five (5) business days of such determination, pay such amount to Seller by wire transfer in immediately available funds to an account designated by Seller in writing. Any such adjustment shall be referred to as the “Company Purchase Price Adjustment.”

(b) Upon final determination of the Comfort Products Purchase Price Adjustment pursuant to the procedures set forth herein and in Section 1.07 , (i) in the event that the Comfort Products Reference Working Capital exceeds the Final Comfort Products Working Capital, then the Purchase Price shall be adjusted upward in an amount equal to 40% of such excess, and Buyer shall, within five (5) business days of such determination, pay such amount to Seller by wire transfer in immediately available funds to an account designated by Seller in writing; or (ii) in the event that the Final Comfort Products Working Capital exceeds the Comfort Products Reference Working Capital, then the Purchase Price shall be adjusted downward in an amount equal to 40% of such excess, and Seller shall, within five (5) business days of such determination, pay such amount to Buyer by wire transfer in immediately available funds to an account designated by Buyer in writing. Any such adjustment shall be referred to as the “Comfort Products Purchase Price Adjustment.”

(c) Any disputes with respect to the calculation of the Purchase Price Adjustments shall be resolved in accordance with the procedures contemplated by Section 1.07 .

 

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1.07 Final Determination of Purchase Price; Dispute Resolution . The following clauses (a) and (b) set forth the procedures for making the final determination of the Purchase Price Adjustments, including resolving disputes, if any, among the Parties with respect to the determination of the Purchase Price Adjustments:

(a) Within thirty (30) days after delivery to the Receiving Party of the Reports prepared by the Preparing Party, the Receiving Party may deliver to the Preparing Party a written report (the “Receiving Party’s Report”) prepared by the Receiving Party’s accountants (the “Receiving Party’s Accountants”) advising the Preparing Party either that the Receiving Party’s Accountants (i) agree with the Preparing Party’s calculations of the applicable Purchase Price Adjustment, or (ii) deem that one or more adjustments are required. The costs and expenses of the services of the Receiving Party’s Accountants shall be borne by the Receiving Party. If the Preparing Party shall concur with the adjustments proposed by the Receiving Party’s Accountants, or if the Preparing Party shall not object thereto in a writing delivered to the Receiving Party within thirty (30) days after the Preparing Party’s receipt of the Receiving Party’s Report, the calculations of the applicable Purchase Price Adjustment set forth in the Receiving Party’s Report shall become final and shall not be subject to further review, challenge or adjustment absent fraud. If the Receiving Party does not submit a Receiving Party’s Report within the 30-day period provided herein, or the Receiving Party’s Accountants agree with the Preparing Party’s calculations of the applicable Purchase Price Adjustment, then the Purchase Price Adjustment as calculated by the Preparing Party shall become final and shall not be subject to further review, challenge or adjustment absent fraud.

(b) In the event that the Receiving Party submits a Receiving Party’s Report and the Preparing Party and the Receiving Party are unable to resolve the disagreements set forth in such report within thirty (30) days after the date of the Receiving Party’s Report (the “Reconciliation Period”), then such disagreements shall be referred to a nationally recognized firm of independent certified public accountants selected by mutual agreement of the Preparing Party and the Receiving Party (the “Settlement Accountants”), and the determination of the Settlement Accountants shall be final and shall not be subject to further review, challenge or adjustment absent fraud. The Receiving Party and the Preparing Party shall request the Settlement Accountants to use their best efforts to reach a determination not more than forty-five (45) days after such referral. Each of the Preparing Party and the Receiving Party shall have the right, within five (5) business days after such referral, to meet with representatives of the Settlement Accountants and present its position as to the calculations of the applicable Purchase Price Adjustment. The costs and expenses of the services of the Settlement Accountants shall be paid by the Receiving Party if the difference between (i) (A) the Purchase Price Adjustment resulting from the determinations of the Settlement Accountants and (B) the Purchase Price Adjustment resulting from the determinations set forth in the Receiving Party’s Report, is greater than the difference between (ii) (A) the Purchase Price Adjustment resulting from the determinations of the Settlement Accountants and (B) the Purchase Price Adjustment resulting from the Preparing Party’s calculations of the Purchase Price Adjustment; otherwise, such costs and expenses of the Settlement Accountants shall be paid by the Preparing Party; provided , that such costs and expenses shall be borne equally between the Parties if the difference between (i) (A) the Purchase Price Adjustment resulting from the determinations of the Settlement Accountants and (B) the Purchase Price Adjustment resulting from the determinations set forth in the Receiving Party’s Report, is equal to the difference between (ii) (A) the Purchase Price Adjustment resulting from the determinations of the Settlement Accountants and (B) the Purchase Price Adjustment

 

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resulting from the Preparing Party’s calculations of the Purchase Price Adjustment. If the Receiving Party and the Preparing Party are unable to agree upon Settlement Accountants, then within seven (7) days after the Reconciliation Period, either the Receiving Party or the Preparing Party may request the American Arbitration Association (the “AAA”) to appoint a nationally recognized firm of independent certified public accountants to perform the services required under this Section 1.07(b) . For purposes of this Section 1.07(b) , the term “Settlement Accountants” shall include such other accounting firm chosen in accordance with this Section 1.07(b) .

1.08 Certain Tax Items .

(a) Tax Treatment of Transaction . The Parties acknowledge that, for United States federal income tax purposes, the sale of the Transferred Interest pursuant to this Agreement is intended to be treated as a sale by Seller of a partnership interest in the Company to Buyer and the issuance of the Issued Interest is intended to be treated as a contribution of property by a Subsidiary of Buyer to a partnership in exchange for a partnership interest. The Parties agree to treat the transaction for such purposes consistent with such intent and not to take any action inconsistent therewith, except as may be required by a Determination.

(b) Purchase Price Allocation . The Stock Consideration and the Cash Consideration (the “Allocable Purchase Price”) (plus any liabilities of the Company that are considered to be an increase to the Purchase Price for federal income tax purposes) shall be allocated among the assets of the Company (other than the Comfort Products Contributed Assets) for federal income tax purposes, in the manner agreed to by Seller and Buyer, based on the fair market value of such assets. No later than one hundred twenty (120) days after the Closing Date or, if pursuant to Section 1.07(b) the Receiving Party submits a Receiving Party’s Report and the Preparing Party and the Receiving Party are unable to resolve the disagreement set forth on such report within the Reconciliation Period, then within thirty (30) days following the date of the determination by the Settlement Accountants pursuant to Section 1.07(b) , Buyer shall deliver to Seller an allocation of the Allocable Purchase Price among the assets of the Company (other than the Comfort Products Contributed Assets), which allocation shall be reasonable, based on fair market values, consistent with the Code (including Code Section 1060) (the “Proposed Allocation”). Seller will review such Proposed Allocation and if, within ninety (90) days after the receipt of such Proposed Allocation, Seller has not informed Buyer of any disagreement with the content of the Proposed Allocation, the Proposed Allocation shall become the Final Allocation. If Seller disagrees with the content of the Proposed Allocation, Seller will inform Buyer of such disagreement within such ninety (90) day period. Buyer and Seller shall negotiate in good faith to resolve any such dispute. If the Parties fail to agree on such allocation before the date that is thirty (30) days following the receipt of Seller’s notice of disagreement, such allocation shall be determined, within a reasonable time by a nationally recognized firm of independent certified public accountants mutually selected by the Parties. If the Parties are unable to agree upon a nationally recognized firm of independent certified public accountants, then within seven (7) days after the thirtieth (30 ^th ) day following the receipt of Seller’s notice of disagreement, either Buyer or Seller may request the AAA to appoint a nationally recognized firm of independent certified public accountants to perform the services required under this Section 1.08(b) . The allocation of the Purchase

 

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Price, as agreed upon by the Parties or determined by a firm of accountants under this Section 1.08(b) , (the “Final Allocation”) shall be final and binding upon the Parties. Each of Seller and Buyer shall bear all fees and costs incurred by it in connection with the determination of the allocation of the Purchase Price, except that the Parties shall each pay fifty percent (50%) of the fees and expenses of such accounting firm. Notwithstanding anything herein to the contrary in this Section 1.08(b) , the Final Allocation shall be consistent with the allocation of the acquisition price among the assets of the Company under GAAP for financial reporting purposes, except to the extent such allocation under GAAP is not based on the fair market value of such assets. The Parties agree to file (or cause to be filed) all statements of adjustments and other Tax Returns (including amended Tax Returns and claims for refund) in a manner consistent with the Final Allocation, subject to adjustments to correlate with any adjustments to the Purchase Price provided for in this Agreement, and except as otherwise required by a determination within the meaning of Section 1313 of the Code (or any comparable provision of state, local or foreign law) (a “Determination”). Except as otherwise required by a Determination, the Parties agree to refrain from taking any position that is inconsistent with the Final Allocation and agree to use their commercially reasonable efforts to sustain such allocation in any subsequent Tax audit or Tax dispute.

ARTICLE II

CLOSING

2.01 Closing . The closing of the transactions contemplated hereby (the “Closing”) shall be held at 10:00 a.m., Miami time, on the second (2 ^nd ) business day after the date on which the conditions set forth in Article X have been satisfied or waived (as permitted by this Agreement and applicable law), excluding conditions that by their terms are to be satisfied on the Closing Date, at the offices of Akerman Senterfitt, One S.E. 3rd Avenue, 28th Floor, Miami, Florida 33131, or at such other place, time and/or date as may be mutually agreeable to the Parties, or by the exchange of documents and instruments by mail, courier, telecopy, email and wire transfer to the extent mutually acceptable to the Parties. The date upon which the Closing occurs is hereinafter referred to as the “Closing Date.”

2.02 Deliveries by Seller . On the Closing Date, Seller shall deliver, or cause to be delivered, to Buyer (or Comfort Products, as applicable) the following (where applicable, executed by the applicable parties thereto):

(a) certificates of membership interests representing the 60% Interest, duly endorsed or accompanied by assignment documents reasonably acceptable to Buyer;

(b) the Ancillary Agreements;

(c) such certificates as to incumbency, as to corporate and limited liability company actions, and documents as to good standing and otherwise as Buyer shall have reasonably requested;

(d) the certificate of Seller referred to in Section 10.02(c) ; and

(e) documentation reasonably necessary to evidence the consummation of all transactions of the Restructuring prior to the Closing.

 

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2.03 Deliveries by Buyer . On the Closing Date, Buyer shall:

(a) deliver to Seller the following (where applicable, executed by the applicable party thereto):

(i) certificates registered in the name of Seller, representing the Stock Consideration,

(ii) the Cash Consideration,

(iii) a certificate of Buyer signed by the Senior Vice President or the Chief Financial Officer of Buyer confirming that there has not been any communication between the NYSE or the American Stock Exchange (“AMEX”) and Buyer during the one hundred eighty (180) calendar day period ending on and including the Closing Date with respect to the actual or potential de-listing of the Common Stock or the Class B Common Stock, respectively,

(iv) the Ancillary Agreements, and

(v) the certificate of Buyer referred to in Section 10.03(c) ; and

(b) cause Comfort Products to deliver to the Company (i) all consents, waivers and approvals required under this Agreement or otherwise necessary or desirable to consummate the contribution of the Comfort Products Contributed Assets contemplated hereby, including, but not limited to, evidence of satisfaction of all Liens on the Comfort Products Contributed Assets, or release of such assets from all Liens, other than those created by this Agreement and the Ancillary Documents; (ii) a bill of sale and assignment and such other bills of sale, assignments and other instruments of transfer or conveyance as the Company may reasonably request or as may be otherwise necessary or desirable to evidence and effect the sale, assignment, transfer, conveyance and delivery of the Comfort Products Contributed Assets to the Company; and (iii) such novations, assignments and instruments of assumption as may be necessary or desirable for the assumption by the Company of the Comfort Products Liabilities, in each case, in a form reasonably satisfactory to Seller.

2.04 Comfort Products Assets and Liabilities . On the Closing Date, the Parties shall, and shall cause their respective Subsidiaries, as applicable, to, execute and deliver such additional bills of sale, assignments and other instruments of transfer or conveyance as are necessary or desirable to evidence and effect the sale, assignment, transfer, conveyance and delivery of the Comfort Products Contributed Assets to the Company, and such novations, assignments and instruments of assumption as may be necessary or desirable for the assumption by the Company of the Comfort Products Liabilities.

2.05 Transfer of California Business and Northeast Business . On the Closing Date, Seller shall, and shall cause the Company to, deliver such bills of sale, assignments and other instruments of transfer or conveyance as are necessary or desirable to evidence the sale, assignment, transfer, conveyance and delivery of the assets and liabilities of the California Business and the Northeast Business pursuant to Section 1.01 .

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth herein and in the corresponding sections of the disclosure schedule delivered by Seller to Buyer and dated as of the date of this Agreement (the “Seller Disclosure Schedule”), Seller hereby represents and warrants to Buyer as of the date hereof (it being understood, however, that no representation and warranty is deemed to be given with respect to, or to apply to any information, circumstances, events or other matters to the extent related to, the Seller Excluded Businesses or any inventory subject to the Consignment Agreement), that:

3.01 Existence and Qualification . Seller is a Delaware corporation and Company is a Delaware limited liability company. Each of Seller, the Company and the Division Entities is duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation and has the power to own, manage, lease and hold its properties and assets and to carry on its business as and where such properties and assets are presently located and such business is presently conducted. The Company and each of the Division Entities is duly qualified or licensed as a foreign entity and in good standing in each jurisdiction where the character of the properties and assets owned, managed, leased or held by it or the nature of its business makes such qualification or licensing necessary, except for any such failures to be so qualified or licensed and in good standing that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

3.02 Authority, Approval and Enforceability . This Agreement has been duly executed and delivered by Seller, and Seller has, and each of its Subsidiaries to become a party to an Ancillary Agreement will have at the Closing, all requisite corporate or comparable power and legal capacity to execute and deliver this Agreement and/or each Ancillary Agreement to be executed and delivered by it, to consummate the transactions contemplated hereby and by the Ancillary Agreements, and perform its obligations hereunder and under the Ancillary Agreements. The execution and delivery of this Agreement and the Ancillary Agreements to be executed and delivered by Seller or any of its Subsidiaries in connection with the transactions provided for hereby and thereby, the consummation of the transactions contemplated hereby and by the Ancillary Agreements, and the performance of their respective obligations hereunder and under the Ancillary Agreements have been, or in the case of the Ancillary Agreements, will be by the Closing, duly and validly authorized by all necessary corporate or comparable action on the part of Seller or such Subsidiary, as applicable. This Agreement and each Ancillary Agreement to which Seller or any of its Subsidiaries is (or will become) a party constitutes, or in the case of the Ancillary Agreements, will constitute by the Closing, the legal, valid and binding obligation of Seller or such Subsidiary, as applicable, enforceable against it in accordance with its terms, except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally.

 

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3.03 Capitalization and Records .

(a) All issued and outstanding Company equity interests are owned beneficially and of record by Seller, free and clear of any preemptive rights or Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements (it being understood, however, that prior to the Closing membership interests which taking into account the issuance of membership interests pursuant to Section 1.02(b) will be equal to one percent (1%) of the outstanding membership interests in the Company immediately after Closing will be transferred as provided in Section 1.01 , and that on the Closing Date such one percent (1%) membership interest in the Company will be owned by the 1% Holder). The Company owns of record, or as of the Closing will own of record, and beneficially has, or as of Closing will have, valid title to 100% of the equity interests in the Division Entities, and such ownership is, or as of Closing will be, free and clear of any preemptive rights or Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements. Except as created pursuant to this Agreement or any of the Ancillary Agreements, there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which Seller, the Company or any of the Division Entities is a party or by which it is bound obligating Seller, the Company or any of the Division Entities to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of equity securities of any class or any equity interests of the Company or any of the Division Entities, or any securities or interests exchangeable into or exercisable for such equity securities or equity interests, or obligating Seller, the Company or any of the Division Entities to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement.

(b) The copies of the organizational documents, each as amended to date, of the Company and the Division Entities made available to Buyer are true, accurate, and complete and are in full force and effect. Neither the Company nor any of the Division Entities is in violation of its organizational documents.

3.04 No Seller Defaults or Consents . Except as set forth in Section 3.04 of the Seller Disclosure Schedule, the execution and delivery of this Agreement and the Ancillary Agreements by Seller and the performance by Seller of its obligations hereunder or thereunder will not violate any provision of any Legal Requirement or any judgment, award or decree or any indenture, agreement or other instrument to which Seller is a party, or by which the properties or assets of Seller are bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, except for such violations, conflicts, breaches or defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

3.05 No Company Defaults or Consents . Except as disclosed in Section 3.05 of the Seller Disclosure Schedule, neither the execution and delivery of this Agreement and the Ancillary Agreements nor the carrying out of any of the transactions contemplated hereby or thereby will:

(i) violate or conflict with any of the terms, conditions or provisions of any organizational document of the Company or any of the Division Entities;

 

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(ii) violate any Legal Requirements or Permits applicable to the Company or any of the Division Entities;

(iii) violate, conflict with, result in a breach of, constitute a material default under (whether with or without notice or the lapse of time or both), result in the creation of any Lien on any properties or assets of the Company or any of the Division Entities under, or accelerate or permit the acceleration of the performance required by, or give any other party the right to terminate, any Contract to which the Company or any of the Division Entities is a party or by which the Company or any of the Division Entities is bound;

except, in the cases of clauses (ii) and (iii), for such violations, conflicts, breaches, defaults, Liens, accelerations or rights that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

3.06 Government Approval . The execution, delivery, and performance of this Agreement or any of the Ancillary Agreements by Seller and its Subsidiaries and the consummation of the transactions by Seller and its Subsidiaries as contemplated by this Agreement or any of the Ancillary Agreements do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any Governmental Authority, except for (a)(i) those required under or in relation to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Securities Act of 1933, as amended (the “Securities Act”), (ii) compliance with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and (iii) as may be required under any applicable state securities or blue sky laws and (b) any such consent, approval, authorization, permit, action, filing or notification, the failure of which to be obtained, performed or made would not (i) individually or in the aggregate, be reasonably expected to result in a Company Material Adverse Effect or (ii) materially impair or delay the ability of Seller and its Subsidiaries to consummate the transactions contemplated by, or perform their obligations under, this Agreement or any of the Ancillary Agreements.

3.07 Employee Benefit Matters .

(a) For purposes of this Agreement, “Seller Plans” shall mean each of the following, if any, which is sponsored, maintained or contributed to by the Company, the Division Entities or Seller for the benefit of the Carrier Transferred Employees: each material (i) “employee benefit plan,” as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (including, but not limited to, employee benefit plans, such as foreign plans, which are not subject to the provisions of ERISA), (ii) personnel policy, employee manual or other written statement of rules or policies concerning employment, (iii) option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation and sick leave policy, medical, dental, disability or life insurance, severance pay policy or agreement, deferred compensation agreement or arrangement, consulting agreement, employment contract and (iv) other employee benefit plan, agreement, arrangement, program, practice or understanding; and

 

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(b) True, and accurate copies of each Seller Plan have been made available to Buyer.

(c) Except as otherwise set forth in Section 3.07(c) of the Seller Disclosure Schedule, except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:

(i) With respect to Carrier Transferred Employees, none of the Company, any Division Entity or Seller contributes to or has an obligation to contribute to, and none of the Company, any Division Entity or Seller has at any time contributed to or had an obligation to contribute to, and none of the Company, any Division Entity or Seller has any actual or contingent liability under a multiemployer plan within the meaning of Section 3(37) of ERISA (“Multiemployer Plan”) or a multiple employer plan within the meaning of Section 413(b) and (c) of the Code;

(ii) Each of the Company, the Division Entities and Seller has substantially performed all obligations, whether arising by operation of law or by contract, required to be performed by it in connection with the Seller Plans;

(iii) All material reports and disclosures relating to the Seller Plans required to be filed with or furnished to governmental agencies, Seller Plan participants or Seller Plan beneficiaries have been filed or furnished in accordance with applicable law in a timely manner, and each Seller Plan has been administered in substantial compliance with its governing documents;

(iv) Each of the Seller Plans intended to be qualified under Section 401(a) of the Code satisfies the requirements of such Section and has received a favorable determination letter from the Internal Revenue Service regarding such qualified status, which has not been revoked and each such Seller Plan has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would reasonably be expected to adversely affect such qualified status;

(v) With respect to Carrier Transferred Employees, there are no actions, suits or claims pending (other than routine claims for benefits) or, to the Knowledge of Seller threatened against, or with respect to, any of the Seller Plans or their assets;

(vi) All contributions required to be made to the Seller Plans pursuant to their terms and provisions and applicable law have been timely made;

(vii) None of the Seller Plans are subject to Title IV of ERISA;

(viii) Neither the Company nor any Division Entity has any material obligation to provide health benefits or life insurance benefits to former employees, except as specifically required by law;

(ix) Neither the execution and delivery of this Agreement or any of the Ancillary Agreements nor the consummation of any or all of the transactions contemplated hereby or thereby will: (A) entitle any Carrier Transferred

 

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Employee to severance pay, unemployment compensation or any similar payment, (B) accelerate the time of payment or vesting or increase the amount of any compensation due to any Carrier Transferred Employee, or (C) result in any payment made to or on behalf of any Carrier Transferred Employee to constitute a “parachute payment” within the meaning of Section 280G of the Code;

(x) Other than Pension Benefit Guaranty Corporation premium payments in the ordinary course, neither Company nor any Division Entity has incurred any material liability or taken any action, and no action or event has occurred that would reasonably be expected to cause the Company or the Division Entities to incur any material liability (A) under Section 412 of the Code or Title IV of ERISA with respect to any “single-employer plan” within the meaning of Section 4001(a)(15) of ERISA that is not a Seller Plan, or (B) to any Multiemployer Plan, including an account of a partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA; and

(xi) With respect to the Carrier Transferred Employees, since January 1, 2008, there have not been any material (i) work stoppages, labor disputes or other significant controversies between the Company, the Division Entities or Seller and the Carrier Transferred Employees, (ii) labor union grievances or, to the Knowledge of Seller, organizational efforts, or (iii) unfair labor practice or labor arbitration proceedings pending or, to the Knowledge of Seller, threatened.

(d) Seller has provided Buyer, by number and employment classification (either hourly or salaried), the approximate numbers of employees employed by the Company and the Division Entities as of the date of this Agreement, and, except as set forth therein, none of said employees are subject to union or collective bargaining agreements with the Company, any of the Division Entities or Seller.

(e) If so required by applicable Legal Requirements, the Company and the Division Entities have complied with (i) the notice and continuation of coverage requirements of Section 4980B of the Code, and the regulations thereunder; (ii) Part 6 of Title I of ERISA; (iii) the Health Insurance Portability and Accountability Act of 1996 with respect to any group health plan within the meaning of Code Section 5000(b)(1); and (iv) any applicable state statutes mandating health insurance continuation coverage for small employers.

3.08 Financial Statements; Liabilities; Accounts Receivable; Inventories .

(a) Set forth in Section 3.08(a) of the Seller Disclosure Schedule are the unaudited consolidated financial statements with respect to the Company, giving effect to the transfer of the Division Entities to the Company and the removal of the California Business and the Northeast Business (the “Partial Restructuring”), as of and for the years ended December 31, 2007 and 2008, and the unaudited consolidated financial statements with respect to the Company, giving effect to the Partial Restructuring, as of and for the three months ended March 31, 2009 (the unaudited consolidated balance sheet of the Company, giving effect to the Partial Restructuring, as of March 31, 2009 (including the explanatory statements thereto) is referred to herein as the “Acquisition Balance Sheet”) (in each case including the explanatory statements thereto, collectively, the “Financial Statements”). The Financial

 

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Statements: (i) have been prepared from the books and records of the Company and the Division Entities (except (A) as otherwise disclosed therein and (B) for failures to be so prepared that would not result in an unfair presentation of the financial position and the results of operations of the Company and the Division Entities, in the aggregate, on the basis of presentation outlined in Section 3.08(a) of the Seller Disclosure Schedule); (ii) have been prepared in the manner set forth in Section 3.08(a) of the Seller Disclosure Schedule; and (iii) fairly present in all material respects the financial position of the Company and the Division Entities, in the aggregate, on the basis of presentation outlined in Section 3.08(a) of the Seller Disclosure Schedule.

(b) Except for (i) the liabilities reflected on the Acquisition Balance Sheet, (ii) liabilities and obligations incurred since the Balance Sheet Date in the ordinary course of business, (iii) executory contract obligations under any Contract of the Company or any of the Division Entities either listed on Section 3.13(a) of the Seller Disclosure Schedule or entered into in the ordinary course of business, and (iv) liabilities that are not and are not reasonably expected to be material to the Company and the Division Entities, taken as a whole, the Company and the Division Entities do not have any undisclosed liabilities or obligations of any nature (whether accrued, absolute, contingent, known, unknown or otherwise, and whether or not of a nature required to be reflected or reserved against in a balance sheet in accordance with GAAP).

(c) The accounts receivable reflected on the Acquisition Balance Sheet arose from bona fide transactions or events. No such account receivable has been assigned or pledged to any other Person.

(d) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the inventory of the Company and the Division Entities consists of items that are of a quality, condition and quantity (when added to inventory subject to the Consignment Agreement) consistent with normal seasonally-adjusted inventory levels of the Company and the Division Entities and are usable and saleable for the purposes for which intended in the ordinary and usual course of business, except to the extent written down or reserved against on the Acquisition Balance Sheet.

(e) Except as has not been and is not reasonably expected to be material to the Company and the Division Entities, taken as a whole, the Company or the Company’s Subsidiaries have, or (taking into account the Ancillary Agreements) as of the Closing will have, good and valid title to, or a valid leasehold interest in or other valid legal right to use, all of the properties and assets used by the Company and the Division Entities to carry on their respective businesses as currently conducted, free and clear of any and all liens, mortgages, deeds of trust, pledges, adverse claims, encumbrances or other restrictions or limitations whatsoever (“Liens”), except Permitted Liens and Liens set forth in Section 3.08(e) of the Seller Disclosure Schedule.

(f) No personal loans have been made by the Company, the Division Entities or Seller to or for the Company’s or any Division Entity’s officers and/or directors.

 

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(g) Each of the Company and its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Since the end of the Company’s most recent fiscal year, there has been (i) to the Knowledge of Seller, no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (ii) no change in the Company’s internal control over financial reporting that has materially affected the Company’s internal control over financial reporting.

3.09 Absence of Certain Changes .

(a) Since the Balance Sheet Date, there has not been any change or event which has had, or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(b) Except as otherwise set forth in Section 3.09(b) of the Seller Disclosure Schedule, or as contemplated by this Agreement or any Ancillary Agreement, since the Balance Sheet Date, neither the Company nor any of the Division Entities has done any of the following, other than in the ordinary course of business or as required by applicable Legal Requirements:

(i) (A) issued, granted, delivered, sold or pledged any of its equity securities, or securities convertible into or exchangeable for any of its equity securities, (B) made, declared, paid, or set aside any dividend or other distribution in respect of its equity securities (other than cash dividends or distributions), (C) adjusted, split, combined, reclassified, redeemed, purchased or otherwise acquired or transferred, or amended the terms of, any of its equity securities, or securities convertible into or exchangeable for any of its equity securities, or (D) granted any person or entity any right to acquire, or otherwise encumbered, any of its equity interests;

(ii) merged into or with or consolidated with, any other entity or acquired the business or a substantial portion of the assets or capital stock of any Person;

(iii) created, incurred, assumed, guaranteed or otherwise became liable or obligated with respect to any indebtedness for borrowed money, other than amounts not in excess of $1 million in the aggregate outstanding at any given time;

(iv) entered into, amended or terminated any Contract of the type required to be listed in Section 3.13(a) of the Seller Disclosure Schedule;

(v) sold, transferred, leased, mortgaged, encumbered or otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise dispose of, any material properties or assets of the Company or any of the Division Entities except pursuant to any agreement specified in Section 3.13(a) of the Seller Disclosure Schedule;

 

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(vi) settled any claim or litigation in any proceeding before any Governmental Authority or any arbitrator, other than settlements not in excess of $1 million;

(vii) incurred or approved, or entered into any agreement or commitment to make, any expenditures in excess of $1 million (other than those required pursuant to any agreement specified in Section 3.13(a) of the Seller Disclosure Schedule);

(viii) made any material change in any of its financial accounting methods or practices, except as required by GAAP;

(ix) granted any increase in the compensation payable or to become payable to Carrier Transferred Employees;

(x) amended any of its organizational documents; or

(xi) committed to do any of the foregoing.

3.10 Compliance with Laws; Permits .

(a) Except as otherwise set forth in Section 3.10(a) of the Seller Disclosure Schedule, the Company and each of the Division Entities are in compliance in all respects with any and all Legal Requirements applicable to the Company or such Division Entity, respectively, except for failures to comply that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect; provided , however, that the provisions of this Section 3.10(a) shall not apply to (i) ERISA and other Legal Requirements applicable to the Seller Plans, such matters being addressed in Section 3.07 hereof; (ii) Legal Requirements in respect of Taxes, such matters being addressed in Section 8.01 hereof; and (iii) Environmental Laws, such matters being addressed in Section 3.17 hereof. Without limiting the generality of the foregoing, none of the Company, any Division Entity or Seller has received notice of and, to the Knowledge of Seller, there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that the Company or any Division Entity is not in compliance with any Legal Requirement relating to (i) the development, testing, manufacture, packaging, distribution, pricing, marketing, sale and delivery of products, (ii) building, zoning and land use and/or (iii) the Foreign Corrupt Practices Act and the rules and regulations promulgated thereunder or any other government rule, regulation or law, in each case except for failures to comply that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(b) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (i) the Company and the Division Entities possess all material Permits required to be obtained for the businesses and operations of the Company and the Division Entities and for the ownership and use of their respective properties

 

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and assets, (ii) all such Permits are valid and in full force and effect, (iii) the Company and the Division Entities are in compliance with the requirements thereof, and (iv) no proceeding is pending or, to the Knowledge of Seller, threatened to revoke or amend any of them.

3.11 Litigation . Except as otherwise set forth in Section 3.11 of the Seller Disclosure Schedule, there are no claims, actions, suits, investigations or proceedings (regardless of whether formal or informal) against the Company or any Division Entity pending or, to the Knowledge of Seller, threatened in any court or before or by any Governmental Authority, or before any arbitrator, which have had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

3.12 Real Property .

(a) The Company and the Division Entities, as applicable, own the real property specified in Section 3.12(a) of the Seller Disclosure Schedule (the “Company Owned Real Property”). Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company or the identified Division Entity has good and clear record and marketable title to such property, subject only to Permitted Liens.

(b) The Company and the Division Entities, as applicable, have valid leasehold interests in the real property specified in Section 3.12(b) of the Seller Disclosure Schedule (the “Company Leased Real Property” and, together with the Company Owned Real Property, the “Company Real Property”), subject only to Permitted Liens. Section 3.12(b) of the Seller Disclosure Schedule sets forth a list of all material leases, licenses or similar agreements relating to the Company’s or any Division Entity’s use or occupancy of real estate owned by Seller and/or a third party (“Company Leases”), in each case setting forth the street address of each property covered thereby. None of the Company Leases include any leases, licenses or similar agreements relating to the California Business’s and/or the Northeast Business’s use or occupancy of real estate owned by Seller and/or a third party. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company Leases and all guaranties, if any, with respect thereto, are in full force and effect (except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally) and have not been amended in writing or otherwise (except as shown on Section 3.12(b) of the Seller Disclosure Schedule), and, to the Knowledge of Seller, no other party thereto is in default or breach under any such Company Lease. To the Knowledge of Seller, no event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Company Leases. None of the Company, any Division Entity or Seller or its agents or employees have received written notice from any third party of any claimed abatements, offsets, defenses or other bases for relief or adjustment relating to the Company Leases, except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

 

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(c) With respect to the Company Real Property: (i) there are no pending or, to the Knowledge of Seller, threatened condemnation proceedings, suits or administrative actions relating to the Company Real Property or other matters affecting adversely the current use or occupancy thereof and (ii) all improvements, buildings, fixtures, equipment and systems on the Company Real Property are in good operating condition, normal wear and tear excepted, except, in the case of both clauses (i) and (ii), as has not had and would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.

3.13 Commitments .

(a) Except as otherwise set forth in Section 3.13(a) of the Seller Disclosure Schedule and except for the obligations and commitments set forth in this Agreement, neither the Company nor any Division Entity is a party to or bound by any of the following, whether written or oral:

(i) Contract or commitment for capital expenditures in excess of $1 million per calendar quarter in the aggregate;

(ii) agreement, Contract, indenture or other instrument relating to the borrowing of money or the guarantee of any obligation in excess of $1 million;

(iii) agreement for the sale of any assets that in the aggregate have a net book value on the Company’s or any Division Entity’s books of greater than $1 million other than inventory sales in the ordinary course of business;

(iv) agreement that purports to limit the Company’s or any Division Entity’s freedom to compete freely in any line of business or in any geographic area relating to the Company’s or such Division Entity’s business (other than this Agreement and/or the Ancillary Agreements); or

(v) material preferential purchase right, right of first refusal, or similar agreement or right in favor of a third party.

(b) All of the Contracts listed in Section 3.13(a) of the Seller Disclosure Schedule are valid, binding and in full force and effect (except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally), except where the failure to be so valid, binding and enforceable, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. None of the Company, any Division Entity or Seller has been notified or advised in writing by any party thereto of such party’s intention or desire to terminate or modify any such Contract in any respect, which termination or modification, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect. None of the Company, any Division Entity or, to the Knowledge of Seller, any other party is in breach of any of the terms or covenants of any Contract listed in Section 3.13(a) of the Seller Disclosure Schedule, which breach, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.

 

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3.14 Insurance . Except as had not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, as of the date hereof, none of the insurance carriers (to the extent applicable) with respect to insurance policies covering the Company, the Division Entities and their respective properties, assets, and businesses has indicated in writing to the Company, any Division Entity or Seller (i) an intention to cancel any such policy, or (ii) that any such insurance will not be available in the future on substantially the same terms as currently in effect. There is no claim in respect of the Company, any of the Division Entities or their respective properties or assets by the Company, any Division Entity or Seller pending under any such policies that (i) has been denied or disputed by the insurer other than denials and disputes in the ordinary course of business consistent with past practice or (ii) if not paid would reasonably be expected to have a Company Material Adverse Effect. During the prior three years, all notices of claims required to have been given by the Company, any Division Entity or Seller to any insurance company in respect of the Company, any of the Division Entities or their respective properties or assets have been timely and duly given, and no insurance company has asserted in writing that any such claim is not covered by the applicable policy relating to such claim, in each case except as has not had and would not reasonably be expected to have. individually or in the aggregate, a Company Material Adverse Effect.

3.15 Intellectual Property . For purposes of this Agreement, the term “Intellectual Property” means any and all foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration), know-how, Trade Secrets, computer software and licenses, quality control data, methods, processes (whether secret or not), rights or intangible properties; “Company Owned Intellectual Property” means all Intellectual Property which is owned by the Company and/or any of the Division Entities that is material to the operation of the Company and the Division Entities; “Company Licensed Intellectual Property” means all Intellectual Property which the Company and/or any of the Division Entities is licensed, or otherwise has the right, to use that is material to the operation of the Company and the Division Entities; and “Company Intellectual Property” means the Company Owned Intellectual Property and the Company Licensed Intellectual Property. Section 3.15 of the Seller Disclosure Schedule sets forth in all material respects a list of all Company Intellectual Property that is issued by, registered with, or the subject of a pending application before any Governmental Authority (the “Company Registered Owned Intellectual Property”). Except as would not, individually or in the aggregate, have a Company Material Adverse Effect:

(a) to the Knowledge of Seller, the Company and the Division Entities own the Company Owned Intellectual Property, free and clear of all Liens, except for Permitted Liens;

(b) the Company Owned Intellectual Property has not been, and to the Knowledge of the Company, the Company Licensed Intellectual Property has not been, adjudged invalid or unenforceable;

 

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(c) to the Knowledge of Seller, the Company and the Division Entities own and have the right to exercise or have a valid license to use all the Company Intellectual Property in connection with the operation of their respective businesses as currently conducted;

(d) the transactions contemplated hereunder will not alter or impair such ownership of and exclusive right to exercise or license to use the Company Intellectual Property;

(e) the Company Intellectual Property includes all of the material Intellectual Property used in the ordinary operation of the businesses of the Company and the Division Entities as currently conducted, except for generally commercially available, off-the-shelf software programs or for which a license to use such Intellectual Property is not required under applicable Legal Requirements;

(f) there have been no claims made, nor, to the Knowledge of Seller, threatened against the Company, any Division Entity or Seller asserting any grounds for asserting the invalidity, abuse, misuse or unenforceability of any of the Company Intellectual Property;

(g) none of the Company, any Division Entity or Seller has made any claim of any violation or infringement by others of any of the Company Intellectual Property, and to the Knowledge of Seller, no grounds for any such claims exist;

(h) none of the Company, any Division Entity or Seller has received any written notice that the Company or any Division Entity is in conflict with or infringing upon the asserted intellectual property rights of others in connection with the Company Intellectual Property, and, to the Knowledge of Seller, the use of the Company Intellectual Property nor the operation of the businesses of the Company and the Division Entities is infringing or has infringed upon any intellectual property rights of others;

(i) to the Knowledge of Seller, there are no royalties, honorariums or fees payable by the Company or any Division Entity to any Person in respect of the Company Intellectual Property;

(j) to extent any of the Company Intellectual Property constitutes proprietary or confidential information, the Company and the Division Entities have exercised commercially reasonable care to prevent such information from being disclosed;

(k) no interest in any of the Company Intellectual Property has been assigned, transferred, licensed or sublicensed by the Company, any Division Entity or Seller to any Person other than the Company, a Division Entity or Buyer pursuant to this Agreement or as set forth on Section 3.15 of the Seller Disclosure Schedule.

3.16 Equipment and Other Tangible Property . Except as otherwise set forth on Section 3.16 of the Seller Disclosure Schedule, the Company’s and each of the Division Entities’ equipment, furniture, machinery, vehicles, structures, fixtures and other tangible property (excluding inventory, the “Tangible Company Properties”), are suitable in all material respects for the purposes for

 

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which intended and in are in all material respects in good operating condition and repair consistent with normal industry standards, except for ordinary wear and tear, and except for such Tangible Company Properties as shall have been taken out of service on a temporary basis for repairs or replacement consistent with the Company’s, the Division Entities’ or Seller’s prior practices and normal industry standards. To the Knowledge of Seller, the Tangible Company Properties are free of any structural or engineering defects, which defects, individually and in the aggregate, have had or would reasonably be expected to have a Company Material Adverse Effect. During the past three years there has not been any significant interruption of the businesses of the Company and the Division Entities, taken as a whole, due to inadequate maintenance or obsolescence of the Tangible Company Properties, which interruption has had or would reasonably be expected to have a Company Material Adverse Effect.

3.17 Environmental Matters .

(a) Except as set forth in Section 3.17(a) of the Seller Disclosure Schedule, the Company and the Division Entities are and have since January 1, 2006 been, in full compliance with all Environmental Laws governing the businesses and operations of the Company and the Division Entities conducted at the Company Real Property, including: (i) all requirements relating to the Discharge and Handling of Hazardous Substances; (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Permits for the use by the Company and the Division Entities of the Company Real Property; and (iv) all applicable writs, orders, judgments, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws, except, in each case, where such non-compliance has not been and would not reasonably be expected to be material to the Company and the Division Entities, taken as a whole.

(b) There are no (and, to the Knowledge of Seller, there is no basis for any) non-compliance orders, warning letters or notices of violation or other communications (collectively “Notices”), claims, suits, actions, judgments, penalties, fines, or administrative or judicial investigations of any nature or proceedings (collectively, “Proceedings”) pending or, to the Knowledge of Seller, threatened against or relating to the Company or any of the Division Entities or their respective businesses and operations conducted at the Company Real Property, issued by any Governmental Authority or third party with respect to any Environmental Laws or Permits issued to the Company or any Division Entity thereunder in connection with, related to or arising out of the use by the Company or the Division Entities of the Company Real Property, except where such Notices and Proceedings have not been and would not reasonably be expected to be material to the Company and the Division Entities, taken as a whole.

(c) For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

“Discharge” means any manner of spilling, pumping, pouring, emptying, injecting, escaping, leaching, disposing, leaking, dumping, discharging, releasing, migrating or emitting, as any of such terms may further be defined in any Environmental Law, into or through any medium including ground water, surface water, land, soil or air.

 

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“Environmental Laws” means all federal, state, regional or local statutes, laws, rules, regulations, codes, ordinances, orders or licenses currently in existence, any of which govern or relate to pollution, protection of the environment, public health and safety, air emissions, water discharges, waste disposal, hazardous or toxic substances, solid or hazardous waste or occupational health and safety.

“Handle” means any manner of generating, accumulating, storing, treating, disposing of, transporting, transferring, labeling, handling, manufacturing or using, as any of such terms may further be defined in any Environmental Law.

“Hazardous Substances” means (i) any substance that is regulated or which falls within the definition of a “hazardous substance,” “hazardous waste” or “hazardous material” pursuant to any Environmental Law, (ii) any noxious, toxic or hazardous substance, material or waste, and (iii) any other contaminant, chemical, pollutant or constituent thereof, including petroleum or petroleum products, asbestos or any asbestos-containing material, lead containing paint or coating material, polychlorinated byphenyls, and radioactive material.

(d) Except as has not been and would not reasonably be expected to be material to the Company and the Division Entities, taken as a whole, to the Knowledge of Seller, there are no Hazardous Substances present on or in the environment at the Company Real Property that would give rise to an obligation to act or disclose that condition under any Environmental Law, including any Hazardous Substances contained in barrels, storage tanks, landfills, land deposits, dumps, equipment (whether movable or fixed) or other containers, either temporary or permanent, whether deposited or located in land, water, sumps, or any other part of the Company Real Property, or incorporated into any structure therein or thereon.

3.18 Suppliers and Customers . Since the Balance Sheet Date, no customer or supplier of the Company or the Division Entities has canceled, terminated or given formal written notice to the Company, any Division Entity or Seller of its intention to cancel or otherwise terminate its relationship with the Company or any Division Entity or to materially decrease its services or supplies to the Company or any Division Entity or its direct or indirect purchase or usage of the products or services of the Company or any Division Entity, except as has not been and would not reasonably be expected to be material to the Company and the Division Entities, taken as a whole.

3.19 Transactions With Affiliates . Except as set forth on Section 3.19 of the Seller Disclosure Schedule and except for business dealings or transactions conducted in the ordinary course of business consistent with past practice, the provision of goods and services pursuant to distribution agreements, normal advances to employees consistent with past practices, payment of compensation for employment to employees consistent with past practices, transactions contemplated by this Agreement and participation in scheduled Seller Plans by employees, the Company and the Division Entities have not since the Balance Sheet Date purchased, acquired or leased any property or services from, or sold, transferred or leased any property or services to, or loaned or advanced any money to, or borrowed any money from, or entered into or been subject to any management, consulting or similar

 

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agreement with, or engaged in any other significant transaction with Seller or any of its Affiliates or any officer, director, manager or member of the Company, any of the Division Entities, Seller or any of their Affiliates. Except as set forth on Section 3.19 of the Seller Disclosure Schedule, and other than as contemplated by this Agreement, no Affiliate of the Company or any Division Entity is indebted to the Company or such Division Entity for money borrowed or other loans or advances, and neither the Company nor any such Division Entity is indebted to any such Affiliate and/or Seller.

3.20 Brokers . Neither Seller nor any of its Affiliates has engaged any broker, finder or investment banker in connection with the investment in the Company contemplated hereby or any other transactions contemplated by this Agreement or any of the Ancillary Agreements and no commission, finder’s fee or other similar payment is due to any party in connection herewith or therewith.

3.21 No Additional Representations .

(a) Seller acknowledges that neither Buyer nor any Person has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding Buyer and its Subsidiaries furnished or made available to Seller and its representatives except as expressly set forth in this Agreement (which includes the Buyer Disclosure Schedule), and neither Buyer nor any other Person shall be subject to any liability or indemnification obligation to Seller or any other Person resulting from the making available or failure to make available to Seller or Seller’s use of such information, or any information, documents or material made available to Seller in the due diligence materials provided to Seller, including management presentations (formal or informal) or in any other form in connection with the transactions contemplated by this Agreement, the Ancillary Agreements and/or the Confidentiality Agreement. Without limiting the foregoing, Buyer makes no representation or warranty to Seller with respect to any financial projection or forecast relating to Buyer and its Subsidiaries.

(b) Seller acknowledges that, to the extent it had any Knowledge that any representation and warranty made herein by Buyer is or might be inaccurate or untrue, this constitutes a release and waiver of any and all actions, claims, suits, damages or rights to indemnity, at law or in equity, against Buyer arising out of breach of that representation and warranty. Nothing herein shall be deemed to limit or waive Seller’s rights against Buyer arising out of any other representation and warranty made herein by Buyer.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Except as set forth herein and in the corresponding sections of the disclosure schedule delivered by Buyer to Seller and dated as of the date of this Agreement (the “Buyer Disclosure Schedule”), Buyer hereby represents and warrants to Seller as of the date hereof, that:

4.01 Existence and Qualification . Buyer is a Florida corporation, WHI is a Delaware corporation, and Comfort Products is a Delaware limited liability company, and each of Buyer and its Subsidiaries is duly organized or formed, validly existing and in good

 

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standing under the laws of the jurisdiction of its incorporation or formation, and has the power to own, manage, lease and hold its properties and assets and to carry on its business as and where such properties and assets are presently located and such business is presently conducted. Each of Buyer and its Subsidiaries is duly qualified or licensed to do business and is in good standing as a foreign entity in each of the jurisdictions where the character of its properties owned, managed, leased or held or the nature of its business makes such qualification or licensing necessary, except for any such failures to be so qualified or licensed and in good standing that, individually or in the aggregate, have not had and would not reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable.

4.02 Articles of Incorporation and By-Laws . Buyer has made available to Seller true, accurate and complete copies of the Amended and Restated Articles of Incorporation and By-Laws of Buyer, each as amended to date (the “Buyer Governing Documents”), and the organizational documents, each as amended to date, of Comfort Products. The Buyer Governing Documents and the organizational documents of Comfort Products are in full force and effect. Buyer is not in violation of any of the provisions of the Buyer Governing Documents or the Original Revolving Credit Agreement, and (assuming for purposes of this Section 4.02 the effectiveness of the Amendment and the Revolving Credit Agreement) is not in violation of any of the provisions of the Amendment and the Revolving Credit Agreement, and Comfort Products is not in violation of its organizational documents.

4.03 Authority, Approval and Enforceability . This Agreement has been duly executed and delivered by Buyer, and Buyer has, and each of its Subsidiaries to become a party to an Ancillary Agreement will have at the Closing, all requisite corporate or comparable power and legal capacity to execute and deliver this Agreement and/or each Ancillary Agreement to be executed and delivered by it, to consummate the transactions contemplated hereby and by the Ancillary Agreements, and perform its obligations hereunder and under the Ancillary Agreements. The execution and delivery of this Agreement and the Ancillary Agreements to be executed and delivered by Buyer or any of its Subsidiaries in connection with the transactions provided for hereby and thereby, the consummation of the transactions contemplated hereby and by the Ancillary Agreements, and the performance of their respective obligations hereunder and under the Ancillary Agreements have been, or in the case of the Ancillary Agreements, will be by the Closing, duly and validly authorized by all necessary corporate or comparable action on the part of Buyer or such Subsidiary, as applicable. This Agreement and each Ancillary Agreement to which Buyer or any of its Subsidiaries is (or will become) a party constitutes, or in the case of the Ancillary Agreements, will constitute at the Closing, the legal, valid and binding obligation of Buyer or such Subsidiary, as applicable, enforceable against it in accordance with its terms, except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally. Each Subsidiary of Buyer has all requisite corporate or comparable power and authority to perform the obligations applicable to such Subsidiary hereunder and under the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby.

 

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4.04 Capitalization .

(a) The authorized capital stock of Buyer consists of sixty million (60,000,000) shares of Common Stock and ten million (10,000,000) shares of Class B Common Stock. As of March 31, 2009, (i) 30,941,982 shares of Common Stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 3,965,774 shares of Class B Common Stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable, and (iii) 6,322,650 shares of Common Stock and 48,263 shares of Class B Common Stock were held in the treasury of Buyer or by Subsidiaries of Buyer. As of March 31, 2009, 481,787 shares of Capital Stock were reserved for future issuance pursuant to warrants, stock options and other stock awards, and restricted stock awards granted and outstanding as of March 31, 2009 under the Buyer Plans, and such shares of Capital Stock are sufficient in number for such future issuance. Except for the issuance of shares of Capital Stock in connection with the Buyer Plans (including the exercise of warrants, stock options or other stock awards thereunder), no change in any number of shares set forth in this Section 4.04(a) has occurred between March 31, 2009 and the date of this Agreement. All shares of Capital Stock subject to issuance as specified above are duly authorized and, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be validly issued, fully paid and nonassessable. There are no obligations, contingent or otherwise, of Buyer or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Capital Stock or the equity interests of any Subsidiary of Buyer. Buyer has not repurchased any outstanding shares of Capital Stock since December 31, 2008, other than pursuant to ordinary course commitments in effect as of the date of this Agreement. All of the outstanding equity interests of each of Buyer’s Subsidiaries are duly authorized, validly issued, fully paid and nonassessable and all such equity interests are owned by Buyer or another Subsidiary of Buyer free and clear of any preemptive rights or Liens with respect thereto. All issued and outstanding shares of capital stock of WHI are owned beneficially and of record by Buyer, all issued and outstanding equity interests in Comfort Products are owned beneficially and of record by WHI, and, in each case, such ownership is free and clear of any preemptive rights or Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements. Comfort Products has no Subsidiaries. As of the Closing, the Company will own of record and have valid title to the Comfort Products Contributed Assets and such ownership as of the Closing will be free and clear of any preemptive rights or Liens, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements. All Stock Consideration to be issued at the Closing shall be, when issued, duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights or Liens with respect thereto, except for Liens created pursuant to this Agreement or any of the Ancillary Agreements.

(b) Except as set forth in this Section 4.04 or Section 4.04(b) of the Buyer Disclosure Schedule or as reserved for future grants of securities under the Buyer Plans, there are no equity securities of any class or any equity interests of Buyer or any securities or interests exchangeable into or exercisable for such equity securities or equity interests, issued, reserved for issuance or outstanding. Except as set forth in this Section 4.04 or Section 4.04(b) of the Buyer Disclosure Schedule or created pursuant to this Agreement or any of the Ancillary Agreements, there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character to which Buyer or any of its Subsidiaries is a party or by which it is bound obligating Buyer or any of its

 

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Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of equity securities of any class or any equity interests of Buyer or any of its Subsidiaries, or any securities or interests exchangeable into or exercisable for such equity securities or equity interests, or obligating Buyer or any of its Subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement. To the Knowledge of Buyer, there are no voting trusts, proxies or other voting agreements or understandings with respect to the shares of Capital Stock.

4.05 No Buyer Defaults or Consents; Noncontravention .

(a) Neither the execution and delivery of this Agreement and the Ancillary Agreements nor the carrying out of any of the transactions contemplated hereby or thereby will:

(i) violate or conflict with any of the terms, conditions or provisions of any organizational document of Buyer or any of its Subsidiaries or the Original Revolving Credit Agreement, or (assuming for purposes of this Section 4.05 the effectiveness of the Amendment and the Revolving Credit Agreement) the Amendment or the Revolving Credit Agreement;

(ii) violate any Legal Requirements or Permits applicable to Buyer or any of its Subsidiaries; or

(iii) violate, conflict with, result in a breach of, constitute a material default under (whether with or without notice or the lapse of time or both), result in the creation of any Lien on any properties or assets of Buyer or any of its Subsidiaries under, or accelerate or permit the acceleration of the performance required by, or give any other party the right to terminate, any Contract to which Buyer or any of its Subsidiaries is a party or by which Buyer or any of its Subsidiaries is bound;

except, in the cases of clauses (ii) and (iii), for such violations, conflicts, breaches, defaults, Liens, accelerations or rights that, individually or in the aggregate, have not had and would not reasonably be expected to have a Buyer Material Adverse Effect or Comfort Products Material Adverse Effect, as applicable.

(b) No vote of the holders of any class or series of Capital Stock or other securities is necessary for the consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements.

4.06 Government Approval . The execution, delivery, and performance of this Agreement or any of the Ancillary Agreements by Buyer and its Subsidiaries and the consummation of the transactions by Buyer and its Subsidiaries as contemplated by this Agreement or any of the Ancillary Agreements do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any Governmental Authority, except for (a)(i) those required under or in relation to the Exchange Act or the Securities Act, (ii) compliance with the applicable requirements of the HSR Act, and (iii) as may be required under any applicable state securities or blue sky laws and (b) any such consent, approval, authorization, permit, action, filing or

 

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notification, the failure of which to be obtained, performed or made would not (i) individually or in the aggregate, be reasonably expected to result in a Buyer Material Adverse Effect or Comfort Products Material Adverse Effect, as applicable, or (ii) materially impair or delay the ability of Buyer and its Subsidiaries to consummate the transactions contemplated by, or perform their obligations under, this Agreement or any of the Ancillary Agreements.

4.07 Employee Benefits Matters .

(a) For purposes of this Agreement, “Buyer Plans” shall mean each of the following, if any, which is sponsored, maintained or contributed to by the Buyer for the benefit of its current and former employees and the current and former employees of any of its Subsidiaries: each material (i) “employee benefit plan,” as such term is defined in Section 3(3) of ERISA (including, but not limited to, employee benefit plans, such as foreign plans, which are not subject to the provisions of ERISA), (ii) personnel policy, employee manual or other written statement of rules or policies concerning employment, (iii) option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation and sick leave policy, medical, dental, disability or life insurance, severance pay policy or agreement, deferred compensation agreement or arrangement, consulting agreement, employment contract and (iv) other employee benefit plan, agreement, arrangement, program, practice or understanding; and

(b) True, and accurate copies of each Buyer Plan have been made available to Seller.

(c) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect:

(i) There does not now exist, nor do any circumstances exist that could reasonably be expected to result in, any liabilities in respect of Buyer Plans under Title IV of ERISA, Section 302 of ERISA, or Sections 412 and 4971 of the Code, or with respect to any Multiemployer Plans. Buyer and its Subsidiaries have no material obligation to provide health benefits or life insurance benefits to former employees, except as specifically required by law;

(ii) Each of the Buyer Plans intended to be qualified under Section 401(a) of the Code satisfies the requirements of such Section and has received a favorable determination letter from the Internal Revenue Service regarding such qualified status, which has not been revoked and each such Buyer Plan has not, since receipt of the most recent favorable determination letter, been amended or operated in a way which would reasonably be expected to adversely affect such qualified status;

(iii) There are no actions, suits or claims pending (other than routine claims for benefits) or, to the Knowledge of Buyer threatened against, or with respect to, any of the Buyer Plans or their assets; and

(iv) Neither the execution and delivery of this Agreement or any of the Ancillary Agreements nor the consummation of any or all of the transactions contemplated hereby or thereby will: (A) entitle any Comfort Employee to

 

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severance pay, unemployment compensation or any similar payment, (B) accelerate the time of payment or vesting or increase the amount of any compensation due to any Comfort Employee, or (C) result in any payment made to or on behalf of any Comfort Employee to constitute a “parachute payment” within the meaning of Section 280G of the Code.

(d) With respect to the Comfort Employees, since January 1, 2008, there have not been any material (i) work stoppages, labor disputes or other significant controversies between the Buyer and the Comfort Employees, (ii) labor union grievances or, to the Knowledge of Buyer, organizational efforts, or (iii) unfair labor practice or labor arbitration proceedings pending or, to the Knowledge of Buyer, threatened.

(e) No Buyer Plan is sponsored by, contributed to, or maintained by Comfort Products, nor is any Buyer Plan maintained exclusively for the benefit of employees of the Comfort Products business.

4.08 Buyer SEC Filings; Financial Statements; Liabilities .

(a) Buyer has filed all registration statements, forms, reports, definitive proxy statements and other documents required to be filed by Buyer or its Subsidiaries with the SEC since January 1, 2006. All such registration statements, forms, reports and other documents (including those that the Company may file after the date hereof until the Closing) are referred to herein as the “Buyer SEC Reports.” The Buyer SEC Reports (i) were or will be filed on a timely basis and (ii) at the time filed, complied, or will comply when filed, in all material respects with the applicable requirements of the Securities Act and the Exchange Act applicable to such Buyer SEC Reports.

(b) Each of the consolidated financial statements (including, in each case, any related notes and schedules) contained or to be contained in the Buyer SEC Reports at the time filed (i) complied or will comply in all material respects with applicable generally accepted accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) were or will be prepared in accordance with applicable generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as permitted by the SEC under the Exchange Act), and (iii) fairly presented or will fairly present in all material respects the consolidated financial position of Buyer and its Subsidiaries as of the dates indicated and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. The consolidated audited balance sheet of Buyer as of December 31, 2008 is referred to herein as the “Buyer Balance Sheet.”

(c) Except as disclosed in Buyer’s annual report on Form 10-K filed on February 27, 2009 and any subsequent quarterly reports on Form 10-Q or current reports on Form 8-K (excluding any risk factor disclosure contained in such documents under the heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” disclaimer or other statements that are similarly non-specific and are predictive or forward-looking in nature) filed and publicly available prior to the

 

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date of this Agreement (the “Public Filings”), (i) Buyer and its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles, (ii) each of Buyer and its Subsidiaries maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act and such disclosure controls and procedures are effective to ensure that all material information concerning Buyer is made known on a timely basis to the individuals responsible for the preparation of Buyer’s filings with the SEC and other public disclosure documents as appropriate to allow timely decisions regarding required disclosure and to make the certifications required by the Exchange Act with respect to Buyer SEC Reports, (iii) there are no significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Buyer’s ability to record, process, summarize and report financial information, Buyer has disclosed to its outside auditors any significant deficiencies or material weaknesses in internal controls, and, to the Knowledge of Buyer, there is no reason to believe that Buyer’s outside auditors and Chief Executive Officer and Chief Financial Officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due, (iv) to the Knowledge of Buyer, there is no fraud, whether or not material, that involves management or other employees who have a significant role in Buyer’s internal controls, and (v) Buyer is in compliance in all material respects with the applicable listing and other rules and regulations of the NYSE and AMEX.

(d) Other than (i) the liabilities reflected on the Buyer Balance Sheet, (ii) liabilities and obligations incurred since the date of the Buyer Balance Sheet in the ordinary course of business, (iii) executory contract obligations under any Contract of Buyer or any of its Subsidiaries either listed on Section 4.14(a) of the Buyer Disclosure Schedule or entered into in the ordinary course of business, and (iv) liabilities that are not and are not reasonably expected to be material to Buyer and its Subsidiaries, taken as a whole, Buyer and its Subsidiaries do not have any undisclosed liabilities or obligations of any nature (whether accrued, absolute, contingent, known, unknown or otherwise, and whether or not of a nature required to be reflected or reserved against in a balance sheet in accordance with GAAP).

4.09 Comfort Products Financial Statements; Liabilities; Accounts Receivable; Inventories .

(a) Set forth in Section 4.09(a) of the Buyer Disclosure Schedule are the unaudited financial statements with respect to Comfort Products as of and for the years ended December 31, 2007 and 2008 and the unaudited financial statements with respect to Comfort Products as of and for the three months ended March 31, 2009, including an unaudited consolidated balance sheet of Comfort Products as of March 31, 2009 (the “Comfort Products Balance Sheet”) (collectively, the “Comfort Products Financial Statements”). The Comfort Products Financial Statements: (i) have been prepared from the books and records of Comfort Products in accordance with GAAP consistently applied during the periods covered thereby (except (A) as otherwise disclosed therein and (B) for failures to be so prepared that would not result in an unfair presentation of the financial position and the results of operations of Comfort Products); and (ii) fairly present in all material respects the financial position and the results of operations of Comfort Products as of the dates and during the periods therein.

 

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(b) Except for (i) the liabilities reflected on the Comfort Products Balance Sheet, (ii) liabilities and obligations incurred since the Comfort Products Balance Sheet Date in the ordinary course of business, (iii) executory contract obligations under any Contract of Comfort Products either listed on Section 4.14(a) of the Buyer Disclosure Schedule or entered into in the ordinary course of business, and (iv) liabilities that are not and are not reasonably expected to be material to Comfort Products, Comfort Products does not have any undisclosed liabilities or obligations of any nature (whether accrued, absolute, contingent, known, unknown or otherwise, and whether or not of a nature required to be reflected or reserved against in a balance sheet in accordance with GAAP).

(c) The accounts receivable reflected on the Comfort Products Balance Sheet arose from bona fide transactions or events. No such accounts receivable have been assigned or pledged to any other Person.

(d) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect, the inventory of Comfort Products consists of items of a quality, condition and quantity consistent with normal seasonally-adjusted inventory levels of Comfort Products and are usable and saleable for the purposes for which intended in the ordinary and usual course of business, except to the extent written down or reserved against on the Comfort Products Balance Sheet.

(e) Except as has not been and is not reasonably expected to be material to Comfort Products, Comfort Products has good and valid title to, or a valid leasehold interest in or other valid legal right to use, all of the properties and assets used by Comfort Products to carry on its business as currently conducted, free and clear of any and all Liens. Comfort Products has good, valid and transferable title to the Comfort Products Contributed Assets, free and clear of any and all Liens, and the Comfort Products Contributed Assets constitute (taking into account the Ancillary Agreements) all of the properties and assets necessary to operate Comfort Products’ business as currently conducted and include all of the operating assets of Comfort Products.

(f) No personal loans have been made by Comfort Products or Buyer or any of its Subsidiaries to or for Comfort Products’ officers and/or directors.

4.10 Absence of Certain Changes .

(a) Since the Buyer Balance Sheet Date or the Comfort Products Balance Sheet Date, there has not been any change or event which has had, or would reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, respectively.

(b) Except as contemplated by this Agreement or any Ancillary Agreement, since the Buyer Balance Sheet Date, (i) the businesses of Buyer and its Subsidiaries have been conducted, and neither Buyer nor any of its Subsidiaries has entered into, or agreed to enter into, any material transaction other than, in the ordinary course of business consistent with past practice and (ii) none

 

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of Buyer or any of its Subsidiaries has taken any action that would have required the consent of Seller under Section 6.01(b) had such action or event occurred after the date of this Agreement. Except as contemplated by this Agreement or any Ancillary Agreement, since the Comfort Products Balance Sheet Date, Comfort Products has not done any of the following, other than in the ordinary course of business or as required by applicable Legal Requirements:

(i) made, declared, paid or set aside any dividend or other distribution in respect of its equity securities (other than cash dividends or distributions);

(ii) merged into or with or consolidated with, any other entity or acquired the business or a substantial portion of the assets or capital stock of any Person;

(iii) created, incurred, assumed, guaranteed or otherwise became liable or obligated with respect to any indebtedness for borrowed money, other than amounts not in excess of $1 million in the aggregate outstanding at any given time;

(iv) entered into, amended or terminated any Contract of the type required to be listed in Section 4.14(a) of the Buyer Disclosure Schedule;

(v) sold, transferred, leased, mortgaged, encumbered or otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise dispose of, any material properties or assets of Comfort Products except pursuant to any agreement specified in Section 4.14(a) of the Buyer Disclosure Schedule;

(vi) settled any claim or litigation in any proceeding before any Governmental Authority or any arbitrator, other than settlements not in excess of $1 million;

(vii) incurred or approved, or entered into any agreement or commitment to make, any expenditures in excess of $1 million (other than those required pursuant to any agreement specified in Section 4.14(a) of the Buyer Disclosure Schedule);

(viii) made any material change in any of its financial accounting methods or practices, except as required by GAAP;

(ix) granted any increase in the compensation payable or to become payable to Comfort Employees;

(x) amended any of its organizational documents; or

(xi) committed to do any of the foregoing.

 

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4.11 Compliance with Laws; Permits .

(a) Buyer and each of its Subsidiaries is in compliance in all respects with any and all Legal Requirements applicable to Buyer or such Subsidiary, except for failures to comply that, individually or in the aggregate, have not had and would not reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable; provided , however, that the provisions of this Section 4.11(a) shall not apply to (i) ERISA and other Legal Requirements applicable to the Buyer Plans, such matters being addressed in Section 4.07 hereof (ii) Legal Requirements regarding the payment of Taxes, such matters being addressed in Sections 4.22 and 4.24 hereof; and (iii) Environmental Laws, such matters being addressed in Section 4.18 hereof. Without limiting the generality of the foregoing, none of Comfort Products or Buyer or any of its Subsidiaries has received notice of and, to the Knowledge of Buyer, there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that Comfort Products is not in compliance with any Legal Requirement relating to (i) the development, testing, manufacture, packaging, distribution, pricing, marketing, sale and delivery of products, (ii) building, zoning and land use and/or (iii) the Foreign Corrupt Practices Act and the rules and regulations promulgated thereunder or any other government rule, regulation or law, in each case except for failures to comply that, individually or in the aggregate, have not had and would not reasonably be expected to have a Comfort Products Material Adverse Effect.

(b) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect, (i) Buyer and its Subsidiaries possess all material Permits required to be obtained for the businesses and operations of Buyer and its Subsidiaries and for the ownership and use of their respective properties and assets, (ii) all such Permits are valid and in full force and effect, (iii) Buyer and its Subsidiaries are in compliance with the requirements thereof, and (iv) no proceeding is pending or, to the Knowledge of Buyer, threatened to revoke or amend any of them.

(c) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect, (i) Comfort Products possesses all material Permits required to be obtained for the businesses and operations of Comfort Products and for the ownership and use of its properties and assets, (ii) all such Permits are valid and in full force and effect, (iii) Comfort Products is in compliance with the requirements thereof, and (iv) no proceeding is pending or, to the Knowledge of Buyer, threatened to revoke or amend any of them.

4.12 Litigation . Except as otherwise set forth in Section 4.12 of the Buyer Disclosure Schedule or disclosed in the Public Filings, there are no claims, actions, suits, investigations or proceedings (regardless of whether formal or informal) against Buyer or any of its Subsidiaries pending, or to the Knowledge of Buyer, threatened in any court or before or by any Governmental Authority, or before any arbitrator, which individually or in the aggregate, have had or would reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable.

4.13 Real Property .

(a) Comfort Products does not own fee title to any real property.

 

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(b) Comfort Products has, or will at Closing have, valid leasehold interests in the real property specified in Section 4.13(b) of the Buyer Disclosure Schedule (the “Comfort Products Leased Real Property”), subject only to Permitted Liens. Section 4.13(b) of the Buyer Disclosure Schedule sets forth a list of all material leases, licenses or similar agreements relating to Comfort Products’ use or occupancy of real estate owned by a third party (“Comfort Products Leases”), in each case setting forth the street address of each property covered thereby. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect, the Comfort Products Leases and all guaranties, if any, with respect thereto, are in full force and effect (except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally) and have not been amended in writing or otherwise, and, to the Knowledge of Buyer, no other party thereto is in default or breach under any such Comfort Products Lease. To the Knowledge of Buyer, no event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Comfort Products Leases. Except as otherwise set forth in Section 4.13(b) of the Buyer Disclosure Schedule, each Comfort Product Lease is assignable by Comfort Products to the Company without the consent of any other Person. None of Comfort Products or Buyer or its agents or employees have received written notice from any third party of any claimed abatements, offsets, defenses or other bases for relief or adjustment relating to the Comfort Products Leases, except as would not reasonably be expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect.

(c) With respect to the Comfort Products Leased Real Property: (i) there are no pending or, to the Knowledge of Buyer, threatened condemnation proceedings, suits or administrative actions relating to the Comfort Products Leased Real Property or other matters affecting adversely the current use or occupancy thereof and (ii) all improvements, buildings, fixtures, equipment and systems on the Comfort Products Leased Real Property are in good operating condition, normal wear and tear excepted, except, in the case of both clauses (i) and (ii), as has not had and would not be reasonably expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect.

4.14 Commitments .

(a) Except as otherwise set forth in Section 4.14(a) of the Buyer Disclosure Schedule and except for the obligations and commitments set forth in this Agreement, neither Buyer nor any of its Subsidiaries is a party to or bound by any of the following, whether written or oral:

(i) agreement, Contract, indenture or other instrument relating to the borrowing of money or the guarantee of any obligation in excess of $5 million;

(ii) agreement for the sale of any assets that in the aggregate have a net book value on Buyer’s or any of its Subsidiaries’ books of greater than $5 million other than inventory sales in the ordinary course of business;

 

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(iii) agreement that purports to limit the freedom of the Company, any of the Division Entities or Seller, or any of their respective Subsidiaries, to compete freely in any line of business or in any geographic area relating to their respective businesses (other than this Agreement and/or the Ancillary Agreements); or

(iv) material preferential purchase right, right of first refusal, or similar agreement or right in favor of a third party.

(b) Except for the obligations and commitments set forth in this Agreement, Comfort Products is not a party to or bound by any of the following, whether written or oral:

(i) Contract or commitment for capital expenditures in excess of $1 million per calendar quarter in the aggregate;

(ii) agreement, Contract, indenture or other instrument relating to the borrowing of money or the guarantee of any obligation in excess of $1 million; or

(iii) agreement for the sale of any assets that in the aggregate have a net book value on Comfort Products’ books of greater than $1 million other than inventory sales in the ordinary course of business.

(c) All of the Contracts listed in Section 4.14(a) of the Buyer Disclosure Schedule are valid, binding and in full force and effect (except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, or similar laws, Legal Requirements and judicial decisions from time to time in effect which affect creditors’ rights generally), except where the failure to be valid, binding and enforceable, individually or in the aggregate, has not had and would not reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable. Each Contract (i) identified in Section 4.14(a) of the Buyer Disclosure Schedule or that is or would reasonably be expected to be material to Comfort Products and (ii) that is being assigned to or assumed by the Company in accordance with the terms hereof, is assignable to the Company without the consent of any other Person. Neither Buyer nor any of its Subsidiaries has been notified or advised in writing by any party thereto of such party’s intention or desire to terminate or modify any such Contract in any respect, which termination or modification, individually or in the aggregate, would reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable. None of Buyer, any of its Subsidiaries or, to the Knowledge of Buyer, any other party is in breach of any of the terms or covenants of any Contract listed in Section 4.14(a) of the Buyer Disclosure Schedule, which breach, individually or in the aggregate, has had or would reasonably be expected to have a Buyer Material Adverse Effect or a Comfort Products Material Adverse Effect, as applicable.

4.15 Insurance . Except as had not had and would not reasonably be expected to have, individually or in the aggregate, a Comfort Products Material Adverse Effect, as of the date hereof, none of the insurance carriers (to the extent applicable) with respect to insurance policies covering Comfort Products and its properties, assets and business has indicated in writing to Comfort Products or Buyer (i) an intention to cancel any such policy, or (ii) that any such insurance will not be available in the future on substantially

 

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the same terms as currently in effect. There is no claim in respect of Comfort Products or its properties or assets by Comfort Products or Buyer pending under any such policies that (i) has been denied or disputed by the insurer other than denials and disputes in the ordinary course of business consistent with past practice or (ii) if not paid would reasonably be expected to have a Comfort Products Material Adverse Effect. During the prior three years, all notices of claims required to have been given by Comfort Products or Buyer to any insurance company in respect of Comfort Products or its properties or assets have been timely and duly given, and no insurance company has asserted in writing that any such claim is not covered by the applicable policy relating to such claim, in each case except as has not had and would not reasonably be expected to have. individually or in the aggregate, a Comfort Products Material Adverse Effect.

4.16 Intellectual Property . For purposes of this Agreement, the term “Comfort Products Owned Intellectual Property” means all Intellectual Property which is owned by Comfort Products that is material to the operation of Comfort Products; “Comfort Products Licensed Intellectual Property” means all Intellectual Property which Comfort Products is licensed, or otherwise has the right, to use; and “Comfort Products Intellectual Property” means the Comfort Products Owned Intellectual Property and the Comfort Products Licensed Intellectual Property. Section 4.16 of the Buyer Disclosure Schedule sets forth in all material respects a list of all Comfort Products Intellectual Property that is issued by, registered with, or the subject of a pending application before any Governmental Authority (the “Comfort Products Registered Owned Intellectual Property”). Except as would not, individually or in the aggregate, have a Comfort Products Material Adverse Effect,

(a) to the Knowledge of Buyer, Comfort Products owns the Comfort Products Owned Intellectual Property, free and clear of all Liens, except for Permitted Liens;

(b) the Comfort Products Owned Intellectual Property has not been, and to the Knowledge of the Company, the Company Licensed Intellectual Property has not been, adjudged invalid or unenforceable;

(c) to the Knowledge of Buyer, Comfort Products owns and has the right to exercise or has a valid license to use all the Comfort Products Intellectual Property in connection with the operation of its business as currently conducted;

(d) the transactions contemplated hereunder will not alter or impair such ownership of and right to exercise or license to use the Comfort Products Intellectual Property;

(e) the Comfort Products Intellectual Property includes all of the material Intellectual Property used in the ordinary operation of the businesses of Comfort Products as currently conducted, except for generally commercially available, off-the-shelf software programs or for which a license to use such Intellectual Property is not required under applicable Legal Requirements;

 

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(f) there have been no claims made, nor, to the Knowledge of Buyer, threatened against Comfort Products or Buyer or any of its Subsidiaries asserting any grounds for asserting the invalidity, abuse, misuse or unenforceability of any of the Comfort Products Intellectual Property;

(g) none of Comfort Products or Buyer or any of its Subsidiaries has made any claim of any violation or infringement by others of any of the Comfort Products Intellectual Property, and to the Knowledge of Buyer, no grounds for any such claims exist;

(h) none of Comfort Products or Buyer or any of its Subsidiaries has received any written notice that Comfort Products is in conflict with or infringing upon the asserted intellectual property rights of others in connection with the Comfort Products Intellectual Property, and, to the Knowledge of Buyer, neither the use of the Comfort Products Intellectual Property nor the operation of the business of Comfort Products is infringing or has infringed upon any intellectual property rights of others;

(i) to the Knowledge of Buyer, there are no royalties, honorariums or fees payable by Comfort Products to any Person in respect of the Comfort Products Intellectual Property;

(j) to extent any of the Comfort Products Intellectual Property constitutes proprietary or confidential information, Comfort Products has exercised commercially reasonable care to prevent such information from being disclosed;

(k) the registrations and filings associated with such Comfort Products Registered Owned Intellectual Property were duly made and remain in full force and effect; and

(l) no interest in any of the Comfort Products Intellectual Property has been assigned, transferred, licensed or sublicensed by Comfort Products or Buyer or any of its Subsidiaries to any Person other than the Company pursuant to this Agreement or as set forth on Section 4.16 of the Buyer Disclosure Schedule.

4.17 Equipment and Other Tangible Property . Comfort Products’ equipment, furniture, machinery, vehicles, structures, fixtures and other tangible property (excluding inventory, the “Tangible Comfort Products Properties”), are suitable in all material respects for the purposes for which intended and in are in all material respects in good operating condition and repair consistent with normal industry standards, except for ordinary wear and tear, and except for such Tangible Comfort Products Properties as shall have been taken out of service on a temporary basis for repairs or replacement consistent with Comfort Products’ or Buyer’s prior practices and normal industry standards. To the Knowledge of Buyer, the Tangible Comfort Products Properties are free of any structural or engineering defects, which defects, individually and in the aggregate, have had or would reasonably be expected to have a Comfort Products Material Adverse Effect. During the past three years there has not been any significant interruption of the business of Comfort Products, due to inadequate maintenance or obsolescence of the Tangible Comfort Products Properties, which interruption has had or would reasonably be expected to have a Comfort Products Material Adverse Effect.

 

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4.18 Environmental Matters .

(a) Comfort Products is and has since January 1, 2006 been, in full compliance with all Environmental Laws governing the businesses and operations of Comfort Products conducted at the Comfort Products Leased Real Property, including: (i) all requirements relating to the Discharge and Handling of Hazardous Substances; (ii) all requirements relating to notice, record keeping and reporting; (iii) all requirements relating to obtaining and maintaining Permits for the use by Comfort Products of the Comfort Products Leased Real Property; and (iv) all applicable writs, orders, judgments, injunctions, governmental communications, decrees, informational requests or demands issued pursuant to, or arising under, any Environmental Laws, except, in each case, where such non-compliance has not been and would not reasonably be expected to be material to Comfort Products.

(b) There are no (and, to the Knowledge of Buyer, there is no basis for any) Notices or Proceedings pending or, to the Knowledge of Buyer, threatened against or relating to Comfort Products or its business and operations conducted at the Comfort Products Leased Real Property, issued by any Governmental Authority or third party with respect to any Environmental Laws or Permits issued to Comfort Products thereunder in connection with, related to or arising out of the use by Comfort Products of the Comfort Products Leased Real Property, except where such Notices and Proceedings have not been and would not reasonably be expected to be material to Comfort Products.

(c) Except as has not been and would not reasonably be expected to be material to Comfort Products, to the Knowledge of Buyer, there are no Hazardous Substances present on or in the environment at the Comfort Products Leased Real Property that would give rise to an obligation to act or disclose that condition under any Environmental Law, including any Hazardous Substances contained in barrels, storage tanks, landfills, land deposits, dumps, equipment (whether movable or fixed) or other containers, either temporary or permanent, whether deposited or located in land, water, sumps, or any other part of the Comfort Products Leased Real Property, or incorporated into any structure therein or thereon.

4.19 Suppliers and Customers . Since the Comfort Products Balance Sheet Date, no customer or supplier of Comfort Products has canceled, terminated or given formal written notice to Comfort Products or Buyer or any of its Subsidiaries of its intention to cancel or otherwise terminate its relationship with Comfort Products or to materially decrease its services or supplies to Comfort Products or its direct or indirect purchase or usage of the products or services of Comfort Products, except as has been would not reasonably be expected to be material to Comfort Products.

4.20 Transactions With Affiliates . Except for business dealings or transactions conducted in the ordinary course of business consistent with past practice, normal advances to employees consistent with past practices, payment of compensation for employment to employees consistent with past practices, transactions contemplated by this Agreement and participation in scheduled Buyer Plans by employees, Buyer and its Subsidiaries have not since the Buyer Balance Sheet Date purchased, acquired or leased any property or services from, or sold, transferred or leased any property or services to, or loaned or advanced any money to, or borrowed

 

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any money from, or entered into or been subject to any management, consulting or similar agreement with, or engaged in any other significant transaction with Buyer, any of its Subsidiaries or any of their Affiliates or any officer, director, manager or member of Buyer, any of its Subsidiaries or any of their Affiliates. Except as contemplated by this Agreement, and other than intercompany transactions, loans or advances involving solely Buyer and/or its wholly-owned Subsidiaries, no Affiliate of Buyer or any of its Subsidiaries is indebted to Buyer or any of its Subsidiaries for money borrowed or other loans or advances, and neither Buyer nor any such Subsidiary is indebted to any such Affiliate.

4.21 Sections 607.0901 and 607.0902 of the Florida Business Corporation Act . Buyer has taken all actions necessary so that the restrictions contained in Sections 607.0901 and Section 607.0902 of the Florida Business Corporation Act or any “fair price,” “business combination,” “takeover” or “control share acquisition” statute or other similar statute or regulation of any jurisdiction shall not apply to the execution, delivery or performance of this Agreement or any of the Ancillary Agreements or the transactions contemplated by this Agreement or any of the Ancillary Agreements.

4.22 Buyer Taxes . Except as would not have been, or reasonably be expected to be, material to Buyer and its Subsidiaries, taken as a whole:

(a) Buyer and each of its Subsidiaries have prepared and timely filed all Tax Returns required to be filed by any of them and all such filed Tax Returns are complete and accurate in all respects; and

(b) Buyer and each of its Subsidiaries have paid all Taxes that are required to be paid by any of them, including any Taxes required to be withheld from amounts owing to any employee, partner, independent contractor, creditor, stockholder or with respect to any payments of