OPERATING AGREEMENT OF CARRIER ENTERPRISE, LLC

Exhibit 10.2

OPERATING AGREEMENT

OF

CARRIER ENTERPRISE, LLC

(AMENDED AND RESTATED)

Dated as of July 1, 2009

TABLE OF CONTENTS

 

 

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OPERATING AGREEMENT

OF

CARRIER ENTERPRISE, LLC

(AMENDED AND RESTATED AS OF JULY 1, 2009)

THIS AMENDED AND RESTATED OPERATING AGREEMENT of CARRIER ENTERPRISE, LLC (formerly known as “Carrier Sales and Distribution, LLC,” and, for purposes of this Agreement, the “ Company ”) is made as of July 1, 2009 by and among the Persons who become Members of the Company in accordance with the terms and provisions of this Agreement and whose names and signatures appear on counterpart signature pages to this Agreement or other equivalent instrument indicating such Member’s agreement to be bound by the terms and provisions hereof.

R E C I T A L S

A. On June 18, 1998, the Company was formed as a limited liability company under the laws of the State of Delaware by filing a Certificate of Formation for the Company with the Secretary of State of Delaware, and Carrier, as the initial member, entered into a Limited Liability Company Agreement on June 18, 1998 (as amended and restated on November 27, 2000, and further amended on October 17, 2001 and June 29, 2009, the “ Initial Agreement ”) pursuant to the provisions of the Delaware Limited Liability Company Act for the purposes and on the terms and conditions set forth in the Initial Agreement.

B. On October 17, 2001, the Company changed its name from Carrier Enterprises, LLC to Carrier Sales and Distribution, LLC, effective as of January 1, 2002. On May 29, 2009, the Company changed its name to Carrier Enterprise, LLC.

C. Pursuant to that certain Purchase and Contribution Agreement dated as of May 3, 2009 (as amended, the “ Purchase and Contribution Agreement ”), Watsco, Inc., a Florida corporation (“ Watsco ”), acquired Membership Interests in the Company (“ Interest Purchase ”), following which Watsco owns an approximately 42.1% Membership Interest in the Company, Comfort Products Distributing LLC, a Delaware limited liability company (“ Comfort Products ”), owns an approximately 17.9% Membership Interest in the Company, Carrier Corporation, a Delaware corporation (“ Carrier ”), owns a thirty nine percent (39%) Membership Interest in the Company and Carlyle Scroll Holdings Inc., a Delaware corporation (the “ 1% Holder ”), owns a one percent (1%) Membership Interest in the Company, and Watsco caused the Comfort Products Contributed Assets (as defined in the Purchase and Contribution Agreement) to be contributed to the Company, and the Company assumed the Comfort Products Liabilities (as defined in the Purchase and Contribution Agreement).

 

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D. The parties acknowledge that, for United States federal income tax purposes, the transaction contemplated in the Purchase and Contribution Agreement is intended to be treated as a sale by Carrier of a membership interest in the Company to Watsco and a contribution of property by a Subsidiary of Watsco to the Company in exchange for a membership interest.

E. As a result of the Interest Purchase and Contribution, the Members desire to enter into this Amended and Restated Operating Agreement in order to, among other things, amend and restate the Initial Agreement in its entirety, formally establish the manner in which the business and affairs of the Company shall be managed and to determine their respective rights, duties and obligations with respect to the Company.

NOW, THEREFORE, in consideration of the premises and agreements of the parties set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 Certain Definitions .

As used herein, the following terms have the following meanings:

(a) “ 1% Holder ” shall have the meaning set forth in Recital C .

(b) “ Act ” means the Delaware Limited Liability Company Act, Delaware Code, Title 6, §§ 18-101, et seq., as the same may be amended from time to time.

(c) “ Additional Capital Contribution ” means any Capital Contribution made by a Member in addition to such Member’s Initial Capital Contribution.

(d) “ Additional Distribution ” has the meaning set forth in Section 9.3 .

(e) “ Affiliate ” means, with respect to a specified Person, any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. As used in this definition, and elsewhere herein in relation to control of Affiliates, the term “ control ” means the possession, directly or indirectly, of the power to substantially direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, as director or manager, as trustee or executor, by contract or credit arrangement or otherwise. For the avoidance of doubt, neither Watsco (or its ultimate parent entity) nor any of its (or its ultimate parent entity’s) Subsidiaries (other than, if applicable, the

 

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Company and the Company’s Subsidiaries) shall be deemed an Affiliate of a Carrier Holder for any purpose hereunder, and neither Carrier (or its ultimate parent entity) nor any of its (or its ultimate parent entity’s) Subsidiaries (other than, if applicable, the Company and the Company’s Subsidiaries) shall be deemed an Affiliate of a Watsco Holder for any purpose hereunder.

(f) “ Agreement ” means this Amended and Restated Operating Agreement of Carrier Enterprise, LLC, as amended, modified, supplemented or restated from time to time.

(g) “ Ancillary Agreements ” has the meaning set forth in Section 13.01 of the Purchase and Contribution Agreement.

(h) The phrases “ Approved by ,” “ Approval of ,” “ Consent of ,” “ Determined by ,” or any equivalent, each mean, with respect to the Board, approval or consent as set forth in Section 4.5(f) , and, with respect to the Members, approval or consent of or by the Members as set forth in Section 6.4(f) .

(i) “ Board ” means the Board of Directors of the Company.

(j) “ Book Value ” of an asset means its adjusted basis for federal income tax purposes, subject to the following provisions. The initial Book Value of an asset contributed by a Member is its gross fair market value as initially recorded on the Company’s books. Company Assets shall be revalued (i) when and as contemplated by Treasury Regulation Section 1.704-1(b)(2)(iv)(e), and, (ii) if the Board determines in its discretion that a revaluation is necessary to reflect economic arrangements among Members, when and as contemplated by Treasury Regulation Section 1.704-1(b)(2)(iv)(f). Upon any such revaluation, Book Values shall be adjusted to equal the revalued amounts. Book Values shall be reduced for cost recovery deductions, determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(g)(3).

(k) “ Business Day ” means any day, except a Saturday, Sunday or other day on which commercial banking institutions in New York City are authorized or directed by law or executive order to close.

(l) “ Business Plan ” means an annual business plan mutually acceptable to the parties that shall include a Company budget for the Fiscal Year covered by the Business Plan setting forth projected revenues and all projected costs and expenses for such Fiscal Year.

(m) “ Capital Account ” means the account maintained for a Member in accordance with the provisions of Section 3.2 .

(n) “ Capital Contribution ” means the total cash and Book Value of other property contributed to the Company by a Member. The transfer of liabilities to the Company within the meaning of Code § 752 in connection with a transfer of money or

 

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property to the Company, including, without limitation, liabilities that are secured by such other property that the Company is considered to assume or take subject to, shall reduce the net amount of the Capital Contribution by the amount of said liabilities.

(o) “ Carrier ” has the meaning set forth in Recital C .

(p) “ Carrier Deciding Member ” means Carrier, until such time as one or more Carrier Holders (other than Carrier) hold(s) a Percentage Interest which is greater than the Percentage Interest then held by Carrier; thereafter, “Carrier Deciding Member” shall mean, at any time, the Carrier Holder holding the greatest Percentage Interest at such time (or as may be otherwise agreed by the Carrier Holders). Notwithstanding anything to the contrary herein, the Carrier Deciding Member may, without limitation, assign all or any portion of its rights granted under this Agreement (including, without limitation, with respect to the purchase and/or Transfer of Membership Interests) to one or more Carrier Holders.

(q) “ Carrier Holders ” means Carrier, the 1% Holder, any direct or indirect wholly-owned Subsidiary of Carrier’s ultimate parent entity that is a Transferee of Membership Interests pursuant to Section 12.1(b) .

(r) “ Carrier Offeror ” has the meaning set forth in Section 12.2(a) .

(s) “ Carrier Scale-Down Percentage Interest ” has the meaning set forth in Section 4.2(a) .

(t) “ Certificate ” means a certificate evidencing Membership Interests thereon held by a Member stamped or imprinted with legends as set forth in Section 7.3 and otherwise in a form approved by the Board from time to time.

(u) “ Certificate of Formation ” means the Certificate of Formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Delaware Secretary of State pursuant to the Act.

(v) “ Code ” means the Internal Revenue Code of 1986, and any successor statute, each as amended from time to time.

(w) “ Comfort Products ” has the meaning set forth in Recital C .

(x) “ Company ” shall have the meaning set forth in preamble.

(y) “ Company Assets ” means all of the assets of the Company and any property (real or personal) acquired in exchange therefor or in connection therewith.

 

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(z) “ Company Minimum Gain ” has the same meaning as “partnership minimum gain” in Treasury Regulations Section 1.704-2(b)(2) and 1.704-2(d). A Member’s share of Company Minimum Gain shall be computed in accordance with the provisions of Treasury Regulations Section 1.704-2(g).

(aa) “ Company Subsidiary ” means a Subsidiary of the Company.

(bb) “ Consignment Agreement ” shall have the meaning set forth in Section 13.01 of the Purchase and Contribution Agreement.

(cc) “ Covered Person ” shall have the meaning set forth in Section 14.2(a) .

(dd) “ Deciding Member ” means the Carrier Deciding Member and the Watsco Deciding Member.

(ee) “ Default Rule ” has the meaning set forth in Section 15.15 .

(ff) “ Director ” means a Person who is listed as a director of the Company in this Agreement, or who becomes a substituted or additional director of the Company as herein provided and who is listed as a director in the books and records of the Company. For purposes of this Agreement and the management of Company affairs, the term “ Director ” shall have the same meaning ascribed to the term “manager” under the Act.

(gg) “ Dispute ” has the meaning set forth in Section 15.3(a) .

(hh) “ Distributable Cash ” means, for any Fiscal Year, the cash proceeds from Company operations and from sales and dispositions of Company Assets (plus any reductions in amounts previously set aside as reserves to the extent previously reducing Distributable Cash) net of all Company expenses for such period and less any amounts reasonably set aside as and/or added to reserves for anticipated Company expenses, debt payments, capital improvements, replacements and contingencies, plus any reserves in respect of prior periods, all as Determined by the Board in accordance with the terms of this Agreement.

(ii) “ Distributor Agreements” has the meaning set forth in Section 13.01 of the Purchase and Contribution Agreement.

(jj) “ Election Notice ” has the meaning set forth in Section 12.3(a) .

(kk) “ Entity ” means any corporation, partnership, limited liability company, unincorporated association, joint venture, firm and any other organization, association or other entity, and any trust or estate.

 

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(ll) “ Exculpated Person ” shall have the meaning set forth in Section 14.1 .

(mm) “ Final 1065 ” shall have the meaning set forth in Section 11.3 .

(nn) “ First Refusal Notice ” has the meaning set forth in Section 12.2(a) .

(oo) “ Fiscal Quarter ” means any fiscal quarter of any Fiscal Year.

(pp) “ Fiscal Year ” means (i) the period commencing on the date of this Agreement and ending on December 31, 2009, (ii) any subsequent 12-month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clause (ii) of this sentence for which the Company is required to allocate Profits, Losses and other items of Company income, gain, loss or deduction pursuant to Article 8 hereof.

(qq) “ Form 1065 ” has the meaning set forth in Section 11.3 .

(rr) “ Formation Date ” means June 18, 1998, the date on which the Certificate of Formation was filed with the Delaware Secretary of State.

(ss) “ GAAP ” has the meaning set forth in Section 11.1 .

(tt) “ HVAC/R Products ” means heating and cooling products, systems, equipment, components, accessories and parts, and brands thereof, in each case to the extent identified as “Products” (i) in any of the Distributor Agreements or (ii) in the Distributor Agreement, dated the date hereof, by and among Carrier, the Company and Watsco, in substantially the form attached hereto as Exhibit A .

(uu) “ Indebtedness ” means, with respect to any Person, (i) indebtedness of such Person for borrowed money, (ii) other indebtedness of such Person evidenced by notes, bonds or debentures, (iii) capitalized leases classified as indebtedness of such Person under GAAP, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) any obligation of such Person for the deferred purchase price of property or services (other than trade payables and other current liabilities), (vi) any Indebtedness of another Person referred to in clauses (i) through (v) above guaranteed directly or indirectly, jointly or severally, in any manner by such Person, (vii) any Indebtedness referred to in clauses (i) through (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or encumbrance on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (viii) the maximum amount of all direct or contingent obligations of such Person with respect to letters of credit, bankers’ acceptances, bank guaranties, surety bonds or similar facilities or instruments.

 

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(vv) “ Initial Agreement ” has the meaning set forth in Recital A .

(ww) “ Initial Capital Contribution ” has the meaning set forth in Section 3.1(a) .

(xx) “ Initial Distribution ” shall have the meaning set forth in Section 9.3 .

(yy) “ Interest Purchase ” has the meaning set forth in Recital C .

(zz) “ Interested Transaction ” means, with respect to a Person, any transaction or agreement (including, but not limited to, the purchase, sale, lease, or exchange of any property or the rendering of any service, or the establishment of any salary, other compensation, or other terms of employment) with any Affiliate of such Person.

(aaa) “ Liquidating Trustee ” has the meaning set forth in Section 10.3 .

(bbb) “ Major Decision ” has the meaning set forth in Section 6.3(a) .

(ccc) “ Mediation Termination ” has the meaning set forth in Section 15.3(b)

(ddd) “ Member ” means each Person who is admitted as a Member of the Company and listed on Schedule A and each additional Person who shall hereafter be admitted as a Member hereof in accordance with the provisions of this Agreement.

(eee) “ Membership Interest ” and “ Membership Interests ” shall mean the limited liability company interest(s) of a Member in the Company, as set forth opposite such Member’s name on Schedule A hereto from time to time, including such Member’s share of the Profits and Losses of the Company, and also the right of such Member to any and all of the benefits to which such Member may be entitled as provided in this Agreement and in the Act, together with the obligations of such Member to comply with all the provisions of this Agreement and of the Act. The Company shall maintain records indicating the owners of record of the Membership Interests. Membership Interests shall be certificated and evidenced by Certificates as set forth in Section 7.3 . The Company may issue whole or fractional Membership Interests.

(fff) “ Member Minimum Gain ” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Treasury Regulations Section 1.704-2(i)(3).

 

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(ggg) “ Member Nonrecourse Debt ” has the same meaning as the term “partner nonrecourse debt” in Treasury Regulations Section 1.704-2(b)(4).

(hhh) “ Nonrecourse Liability ” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).

(iii) “ Offer ” shall have the meaning set forth in Section 12.2(a) .

(jjj) “ Offeree Notice ” shall have the meaning set forth in Section 12.2(a) .

(kkk) “ Offerees ” shall have the meaning set forth in Section 12.2(a) .

(lll) “ Offeror ” shall have the meaning set forth in Section 12.2(a) .

(mmm) “ Percentage Interest ” means, with respect to any Member at any time, a fraction, expressed as a percentage, the numerator of which is the number of Membership Interests held by such Member at such time and the denominator of which is the total number of Membership Interests held by all Members at such time.

(nnn) “ Permitted Lien ” shall mean a lien, mortgage, pledge, security interest or similar encumbrance of a Member’s Membership Interests granted to a lender or lenders (or agent for a lender or lenders) to secure any obligations under any credit agreements and/or related documents in respect of any loan to the Member and/or any of such Member’s direct or indirect wholly-owned Subsidiaries (or, so long as such Member is, directly or indirectly, a wholly-owned Subsidiary of its ultimate parent entity, such ultimate parent entity’s direct or indirect wholly-owned Subsidiaries).

(ooo) “ Permitted Transferee ” shall have the meaning set forth in Section 12.1(b) .

(ppp) “ Person ” means any natural person or Entity.

(qqq) “ Profit ” or “ Loss ” means, for a period, an amount equal to the Company’s taxable income or loss for such period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profit or Loss shall be added to such taxable income or loss; (ii) any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv) shall be subtracted from such

 

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taxable income or loss; (iii) in lieu of the amounts of depreciation, amortization or other cost recovery deductions taken into account in computing such taxable income or loss, the amounts taken into account shall be the amounts determined in the manner provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3); (iv) In the event the Book Value of any asset is adjusted pursuant to the definition of Book Value, the amount of such adjustment shall be taken into account as gain (if the adjustment increases the Book Value of an asset) or loss (if the adjustment decreases the Book Value of an asset) from the disposition of such asset for purposes of computing Profit or Loss; (v) in lieu of any tax gain or tax loss recognized by the Company with respect to the disposition of an asset, there shall be taken into account gain or loss recognized by the Company for book purposes under the principles of Treasury Regulations Section 1.704-1(b)(2)(iv), computed by reference to the Book Value of the asset as of the date disposition rather than by reference to the tax basis of the asset; (vi) to the extent an adjustment to the adjusted tax basis of any asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Membership Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profit or Loss; and (vii) items of income, gain, loss, or deduction allocated separately pursuant to Section 8.4 hereof shall be excluded from the computation of Profit or Loss. If the Company’s taxable income or loss for such period, as adjusted in the manner provided above, is a positive amount, such amount shall be the Company’s Profit for such period, and if negative, such amount shall be the Company’s Loss for such period.

(rrr) “ Proposed 1065 ” shall have the meaning set forth in Section 11.3 .

(sss) “ Purchase and Contribution Agreement ” has the meaning set forth in Recital C .

(ttt) “ Regulatory Allocations ” shall have the meaning set forth in Section 8.4(b) .

(uuu) “ Requisite Members ” means, the Carrier Deciding Member and the Watsco Deciding Member; provided , that if (i) the Percentage Interest owned by the Carrier Holders, in the aggregate, ceases to be at least ten percent (10%), Requisite Members shall be deemed to be the Watsco Deciding Member, and (ii) the Percentage Interest owned by the Watsco Holders, in the aggregate, ceases to be at least ten percent (10%), Requisite Members shall be deemed to be the Carrier Deciding Member.

(vvv) The phrase “ Resolution of the Board ” means a resolution Approved by the Board.

 

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(www) “ Revolving Credit Agreement ” shall have the meaning set forth in Section 13.01 of the Purchase and Contribution Agreement.

(xxx) “ Subsidiary ” means, with respect to any Person, (i) any corporation fifty percent (50%) or more of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is at the time owned by such Person, directly or indirectly through one or more Subsidiaries, and (ii) any other Person, including but not limited to a joint venture, a general or limited partnership or a limited liability company, in which such Person, directly or indirectly through one or more Subsidiaries, at the time owns at least fifty percent (50%) or more of the ownership interests entitled to vote in the election of managing partners, managers or trustees thereof (or other Persons performing such functions) or acts as the general partner, managing member, trustee (or Persons performing similar functions) of such other Person.

(yyy) “ Tag Notice ” shall have the meaning set forth in Section 12.3 .

(zzz) “ Tag Sale ” shall have the meaning set forth in Section 12.3 .

(aaaa) “ Tag Seller ” shall have the meaning set forth in Section 12.3 .

(bbbb) “ Tax Distributions ” shall have the meaning set forth in Section 9.3 .

(cccc) “ Tax Matters Member ” shall have the meaning set forth in Section 11.4(a) .

(dddd) “ Tax Rate ” means, in respect of any item of taxable income for any period, the highest marginal blended rate of federal, state and local income, franchise and other similar Taxes applicable to any Member in respect of such item for such period, taking into account the character of such item of income.

(eeee) “ Term ” shall have the meaning set forth in Section 2.3 .

(ffff) “ Transfer ” means the voluntary or involuntary sale, assignment, transfer (by gift or otherwise), lien, mortgage, pledge, grant of a security interest, encumbrance, hypothecation, grant of a participation interest or other disposition or conveyance of legal or beneficial interest, directly or indirectly, whether in one transaction or in a series of related transactions. Nothing herein shall be deemed to prevent a change of control of, or any other transfer of capital stock or other equity interests in, a Watsco Holder or a Carrier Holder, provided , that any such transaction does not primarily involve a change of control of, or any other transfer of capital stock or other equity interests in, a Watsco Holder or a Carrier Holder, when such Watsco Holder’s or Carrier Holder’s assets are primarily composed of Membership Interests.

 

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(gggg) “ Transferee ” means any Person that is a transferee of Membership Interests in the Company.

(hhhh) “ Transferor ” means any Member that proposes to Transfer or does Transfer Membership Interests in the Company.

(iiii) “ Treasury Regulations ” means the income tax regulations, including temporary regulations and corresponding provisions of succeeding regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

(jjjj) “ Watsco ” has the meaning set forth in Recital C .

(kkkk) “ Watsco Deciding Member ” means Watsco, until such time as one or more Watsco Holders (other than Watsco) hold(s) a Percentage Interest which is greater than the Percentage Interest then held by Watsco; thereafter, “Watsco Deciding Member” shall mean, at any time, the Watsco Holder holding the greatest Percentage Interest at such time (or as may be otherwise agreed by the Watsco Holders). Notwithstanding anything to the contrary herein, the Watsco Deciding Member may, without limitation, assign all or any portion of its rights granted under this Agreement (including, without limitation, with respect to the purchase and/or Transfer of Membership Interests) to one or more Watsco Holders

(llll) “ Watsco Holders ” means Watsco, Comfort Products, a direct or indirect wholly-owned Subsidiary of Watsco that is a Transferee of Membership Interests pursuant to Section 12.1(b) .

(mmmm) “ Watsco Offeror ” has the meaning set forth in Section 12.2(a) .

(nnnn) “ Watsco Scale-Down Percentage Interest ” has the meaning set forth in Section 4.2(a) .

Section 1.2 Construction .

The headings and subheadings in this Agreement are included for convenience and identification and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine and neutral forms and the singular form of words shall include the plural and vice versa. All references to Articles and Sections refer to articles and sections of this Agreement, and all references to Schedules and Exhibits are to Schedules and Exhibits attached hereto, each of which is made a part hereof for all purposes.

 

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ARTICLE 2

ORGANIZATIONAL MATTERS

Section 2.1 Formation .

The Members hereby confirm the formation of the Company as of the Formation Date as a limited liability company under and pursuant to the provisions of the Act and all other pertinent laws of the State of Delaware for the purposes and upon the terms and conditions hereinafter set forth. The parties hereto agree that the rights, duties, and liabilities of the Members, and any additional Members admitted to the Company in accordance with the terms hereof, shall be as provided in the Act, except as otherwise provided herein. Each of Watsco, Comfort Products, Carrier and the 1% Holder hereby acknowledges the receipt on or prior to the date hereof of the number of Membership Interests indicated in Schedule A , respectively.

Section 2.2 Name .

The name of the Company is Carrier Enterprise, LLC, or such other name as the Board may designate from time to time in compliance with the Act and subject to Section 6.3(a) . The business of the Company shall be conducted in that name or in such other names as the Board may designate from time to time in compliance with applicable law.

Section 2.3 Term .

The Term of the Company commenced on the Formation Date and shall continue in existence until wound up and liquidated as set forth in Article 10 or as otherwise provided by law (the “ Term ”).

Section 2.4 Purposes .

The purposes of the Company shall be: (a) to engage in the sale of HVAC/R Products; (b) to engage in, operate and manage such business activities and to take any and all such action as the Board determines to be necessary and appropriate in connection therewith; and (c) to enter into any lawful transaction and contracts and engage in any lawful activities consistent with and in furtherance of the foregoing purposes, in each case subject to Section 6.3 .

Section 2.5 Powers of the Company .

Subject to the limitations set forth in this Agreement, the Company will possess and may exercise all of the powers and privileges granted to it by the Act, by any other applicable law or this Agreement, together with all powers incidental thereto, so far as such powers are necessary or convenient to the conduct, promotion, or attainment of the purposes of the Company set forth in Section 2.4 .

 

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Section 2.6 Maintenance of Separate Existence .

The Company shall do all things necessary to maintain its limited liability company existence separate and apart from the existence of each Member and any other Person, including, without limitation, maintaining the Company’s books and records on a current basis separate from that of any other Person.

Section 2.7 Members .

The name and mailing address of each Member shall be listed on Schedule A attached hereto. Additional Members shall be admitted as Members of the Company only in accordance with the provisions of this Agreement, including, without limitation, Articles 12 and 13 . The Board, or a designee of the Board, shall update Schedule A from time to time as necessary to accurately reflect any amendment thereto.

Section 2.8 Registered Agent and Office .

The Company’s registered office and the name and address of the registered agent of the Company for service of process on the Company in the State of Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19809. At any time, the Board may designate another registered agent and/or registered office.

Section 2.9 Principal Place of Business .

The principal place of business of the Company is in Syracuse, New York. The Board may change the location of the Company’s principal place of business, which may be either inside or outside of the State of Delaware.

Section 2.10 Title to Company Assets .

All Company Assets shall be deemed to be owned by the Company as an entity, and no Member, individually, shall have any direct ownership interest in the Company Assets. Each Member, to the extent permitted by applicable law, hereby waives its rights to a partition of the Company Assets and, to that end, agrees that it will not seek or be entitled to a partition of any assets, whether by way of physical partition, judicial sale or otherwise, except as otherwise expressly provided herein.

Section 2.11 Filings .

Each officer designated by the Board as an authorized person, within the meaning of the Act, shall execute, deliver and file, or cause the execution, delivery and filing of, any amendments or restatements of the Certificate of Formation and any other certificates, notices, statements or other instruments (and any amendments or statements thereof) necessary or, in the Board’s view, advisable for the formation of the Company or the operation of the Company in all jurisdictions where the Company may elect to do

 

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business, but no such amendment or restatement may be executed, delivered or filed unless adopted in a manner authorized by this Agreement. The Members promptly shall execute and deliver such documents and perform such acts consistent with the terms of this Agreement as may be reasonably necessary to comply with the requirements of law for the formation, qualification and continuation of existence of a limited liability company under the laws of each jurisdiction in which the Company shall conduct business.

Section 2.12 Interested Transactions .

The Company and/or any Company Subsidiary may engage in any Interested Transaction so long as the following conditions are satisfied: (a) the Interested Transaction is not expressly prohibited by this Agreement and, if Major Decisions then require the affirmative vote or consent of the Requisite Members pursuant to the terms of Section 6.3(a) , the Interested Transaction has been approved in accordance with Section 6.3 ; and (b) either (i) the Interested Transaction is in the ordinary course of business at prices and on terms and conditions not less favorable to the Company or such Company Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties or (ii) the Interested Transaction is with Carrier or any of its Affiliates. The parties acknowledge that the transactions contemplated in the Purchase and Contribution Agreement and the Ancillary Agreements in each case satisfy the conditions specified in this Section 2.12 .

ARTICLE 3

CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

Section 3.1 Capital Contributions .

(a) Upon the execution hereof, each Member will contribute or be deemed to contribute to the capital of the Company as such Member’s Initial Capital Contribution the amount set forth opposite his or her name on Schedule A attached hereto (as to each Member, the “ Initial Capital Contribution ”).

(b) Each Member shall make, or cause to be made, Additional Capital Contributions in the form and manner, and on the terms and conditions, specified for the relevant Member in the Consignment Agreement. No additional Membership Interests will be issued in respect of such Additional Capital Contributions.

(c) Except as specifically provided in this Agreement, no Member shall receive any interest, salary or drawing with respect to its Capital Contributions or its Capital Account or otherwise in his, her or its capacity as a Member. Except as otherwise expressly provided herein or with the prior Approval of the Board, no Member will be permitted to borrow, make an early withdrawal of or demand or receive a return of any Capital Contributions.

 

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(d) Except as otherwise expressly provided herein, no Member shall be required to make any Additional Capital Contributions to the capital of the Company, nor shall any Member be permitted to make any Additional Capital Contributions except pursuant to the issuance of additional Membership Interests by the Company in accordance with Article 13 .

Section 3.2 Capital Accounts .

A Capital Account shall be established and maintained for each Member in accordance with Code § 704(b) and the Treasury Regulations thereunder, including Treasury Regulation § 1.704-1(b)(2)(iv). Each Member’s Capital Account shall initially reflect such Member’s Initial Capital Contribution. Schedule A sets forth each Member’s Capital Account balance as of the date hereof.

(a) Without limiting the generality of the foregoing, Capital Accounts will be increased by:

(i) Any Additional Capital Contributions made by a Member;

(ii) Allocations to the Members of Profits and any items in the nature of income or gain that are allocated to such Members pursuant to Section 8.2 ; and

(iii) Company liabilities assumed by such Member as provided in Treasury Regulation § 1.704-1(b)(2)(iv)(c)(1).

(b) The Capital Account of the Members will be decreased by:

(i) The amount of distributions of Distributable Cash made to Members by the Company;

(ii) The Book Value of property distributed to the Members by the Company (net of liabilities that are secured by such property that such Member is considered to assume or take subject to, under Code § 752);

(iii) Allocations to the Members of Losses and any items in the nature of loss or deduction that are allocated to such Member pursuant to Section 8.2 ; and

(iv) Member liabilities assumed by the Company as provided in Treasury Regulation § 1.704-1(b)(2)(iv)(c)(2).

(c) In the event of a Transfer of all or a part of a Member’s Membership Interests in the Company, the Capital Account of the Transferor shall become the Capital Account of the Transferee to the extent it is attributable to the transferred Membership Interests in accordance with Treasury Regulation § l.704-l(b)(2)(iv)(l).

 

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(d) Except as otherwise required in the Act, no Member shall have any liability to restore all or any portion of a deficit balance in such Member’s Capital Account.

(e) A Member shall not receive out of Company Assets any part of such Member’s Capital Contributions or Capital Account balance to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Company, other than liabilities to Members on account of their Membership Interests and liabilities for which the recourse of creditors is limited to specified property of the Company, exceed the fair value of the assets of the Company, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the assets of the Company only to the extent that the fair value of that property exceeds that liability; and provided that purposes of this Section 3.2(e) , the term “distribution” shall not include amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of business pursuant to a bona fide retirement plan or other benefits program.

(f) The Board may cause Capital Accounts to be revalued in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) including, but not limited to, upon the admission of additional Members to the Company, if such a revaluation is necessary to reflect the economic arrangement of all Members.

ARTICLE 4

BOARD OF DIRECTORS

Section 4.1 Authority of the Board .

Except as otherwise provided in this Agreement, the business and affairs of the Company shall be controlled, directed and managed exclusively by the Board. Except when the Approval of the Members (or the Requisite Members) is expressly required by the Act, the Certificate of Formation or this Agreement, the Board shall have full, complete and exclusive authority, power, and discretion to manage and control the business, property and affairs of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s business, property and affairs. The Board shall be responsible, without limitation, at its meetings for (i) review of the performance by the Company’s management, (ii) review, approval and update of the Company’s annual operating plan and the Company’s needs and requirements for growth and development of market share, (iii) review of the Company’s financial performance, business issues and opportunities, (iv) distributions and (v) review of leadership and succession, in each case subject to Section 6.3 .

 

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Section 4.2 Composition of the Board .

(a) For so long as the Percentage Interest held by the Carrier Holders, in the aggregate, is at least twenty percent (20%) (the “ Carrier Scale-Down Percentage Interest ”) and the Percentage Interest held by the Watsco Holders, in the aggregate, is at least fifty percent (50%) (the “ Watsco Scale-Down Percentage Interest ”), the Board shall be composed of five (5) Directors, of whom two (2) Directors shall be designated by the Carrier Deciding Member and three (3) Directors shall be designated by the Watsco Deciding Member. Notwithstanding the forgoing, the number of Directors constituting the entire Board may be increased or decreased beyond the number set forth above from time to time by Approval of the Board, subject to Section 6.3 ; provided, that, so long as the Percentage Interest of the Carrier Holders is equal to or greater than the Carrier Scale-Down Percentage Interest, in the case of any increase or decrease in the number of Directors constituting the entire Board, the composition of the Board shall be adjusted to provide the Carrier Deciding Member with the right to designate the whole number (rounding up) of Directors that is closest to forty percent (40%) of the entire Board.

(b) Following such time as the Percentage Interest held by the Carrier Holders is less than the Carrier Scale-Down Percentage Interest, the number of Directors designated by the Carrier Deciding Member shall be reduced to the whole number (rounding up) of Directors that is closest to the product of (i) the Percentage Interest held by the Carrier Holders at such time and (ii) the number of Directors constituting the entire Board. Any Directors with respect to whom the Carrier Deciding Member’s designation rights are terminated pursuant to this Section 4.2(b) , shall be removed from the Board as of the date of such termination of such designation rights. In such event, the replacements of such removed Directors shall be determined by the Approval of the Members.

(c) Following such time as the Percentage Interest held by the Watsco Holders is less than the Watsco Scale-Down Percentage Interest, the Watsco Deciding Member shall only be entitled to designate the whole number (rounding up) of Directors that is closest to the product of (i) the Percentage Interest held by the Watsco Holders at such time and (ii) the number of Directors constituting the entire Board. Any Directors with respect to whom the Watsco Deciding Member’s designation rights are terminated pursuant to this Section 4.2(c) , shall be removed from the Board as of the date of such termination of such designation rights. In such event, the replacements of such removed Directors shall be determined by the Approval of the Members.

Section 4.3 Resignation and Removal .

(a) Subject to Section 4.2 , any Director may resign at any time by giving written notice of his or her resignation to the Board. A resignation shall take effect at the time specified therein or if no time is specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective.

 

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(b) Each Member may remove any Director designated by it at any time, with or without cause, effective upon written notice to the other Members and the President of the Company.

(c) Any vacancy on the Board resulting from the removal or resignation, death, retirement or disability of any Director shall be filled by the Member that designated such Director, which designation shall become effective upon written notice to the other Members and the President of the Company. If such Member fails to fill the vacancy, the directorship will remain vacant until such time that such vacancy is filled by the Member who designated such Director.

Section 4.4 Compensation .

Subject to Section 6.3 , as Determined by the Board, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as Director. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 4.5 Meetings of the Board .

(a) Quarterly Meetings; Calling of Meetings; Notice . The Board shall hold regular meetings at such times as may be specified by it but no less often than quarterly. Special meetings of the Board may be called at any time and for any purpose or purposes by (i) the President or his designee or by Resolution of the Board in which at least a majority of all Directors call for such meeting, or (ii) by any Member. Subject to the notice provisions set forth in Section 15.2 , notice of the place, date and hour of each meeting of the Board will be given by registered or certified mail, by nationally recognized overnight delivery service, by telephone (which shall be deemed given upon oral acknowledgment by the Director receiving notice), by facsimile or by personal delivery, or by email, to each Director entitled to vote at the meeting, not fewer than three (3) Business Days prior to the meeting, and in any case not more than thirty (30) days prior to the meeting. A notice shall state, in general terms, the purpose or purposes for the calling of a meeting. If such notice is mailed, emailed or sent by overnight delivery service, it will be directed to each Director at such Director’s address as it appears on the record of Directors, or, if a Director had filed with the Company a written request that notices to such Director be sent to some other address, then directed to such Director at such other address. Notice of a meeting need not be given to any Director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes of such meeting, whether before or after the meeting, or who participates in the meeting without protesting, prior to the commencement of such Director’s participation in the meeting, the lack of notice to such Director. All such waivers, consents and approvals shall be filed with the Company records or made a part of the minutes of the meeting.

 

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(b) Time and Place of Meetings . Meetings of the Board may be held at any place within or without the State of Delaware which has been designated in the notice of the meeting or at such place as may be Approved by the Board.

(c) Quorum . A majority of Directors shall constitute a quorum of the Board for the transaction of business. The Directors present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the loss of a quorum.

(d) Adjourned Meetings . A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment shall be given prior to the time the adjourned meeting is to be resumed to all Directors who were not present at the time of the adjournment.

(e) Telephonic Participation by Directors at Meetings . Directors may participate in a meeting through the use of conference telephone or similar communications equipment, so long as all Directors participating in such meeting can hear one another. Participation in a meeting in such manner constitutes presence in person at such meeting.

(f) Approval of the Board .

(i) At a Meeting . Unless specifically provided otherwise by law or this Agreement, whenever the Board is entitled to vote on any matter or exercise any power under this Agreement, such matter shall be considered approved or consented to upon the receipt of the affirmative vote of at least a majority of all Directors entitled to vote thereon, with each Director having one (1) vote. Except in such person’s capacity as an officer of the Company, as provided in Section 2.11 , no Director acting individually shall have the authority or right to act on behalf of, or to take any action to bind, the Company in connection with any matter, except as provided in this Agreement.

(ii) Conduct of Disputes . Notwithstanding anything to the contrary in this Agreement, (A) only Directors designated by Watsco shall be entitled to vote on any matter relating to the conduct and settlement of any claim, action, suit, proceeding or dispute between the Company, and/or any of its Subsidiaries, on the one hand and Carrier, and/or any of its Affiliates, on the other hand, and (B) only Directors designated by Carrier shall be entitled to vote on any matter relating to the conduct and settlement of any claim, action, suit, proceeding or dispute between the Company, and/or any of its Subsidiaries, on the one hand and Watsco, and/or any of its Affiliates, on the other hand.

(iii) By Written Consent . Any action required or permitted to be taken by the Board may be taken by the Directors without a meeting, if a consent in writing, setting forth the action so taken,