SEPARATION AND DISTRIBUTION AGREEMENT

Exhibit 10.4

 

[EXECUTION]

 

SEPARATION AND DISTRIBUTION AGREEMENT

 

Dated as of July 6, 2005

 

Between

 

TEXAS INDUSTRIES, INC.

 

and

 

CHAPARRAL STEEL COMPANY

TABLE OF CONTENTS

 

 

ii

 

iii

 

Schedule

 

 

iv

SEPARATION AND DISTRIBUTION AGREEMENT

 

THIS AGREEMENT is made as of July 6, 2005 by and between Texas Industries, Inc. (“ TXI ”), a Delaware corporation, and Chaparral Steel Company (“ Chaparral ”), a Delaware corporation, and, as of the date hereof, a wholly-owned subsidiary of TXI.

 

WHEREAS, TXI, through certain subsidiaries, is engaged in the business of manufacturing and selling steel products (the “ Chaparral Business ”).

 

WHEREAS, the Board of Directors of TXI has determined that it would be advisable and in the best interests of TXI and its stockholders for TXI to transfer and assign, or cause to be transferred and assigned, to Chaparral the business, operations, assets and liabilities related to the Chaparral Business;

 

WHEREAS, TXI has agreed to transfer, assign or lease, or cause to be transferred, assigned or leased, to the Chaparral Parties (as hereinafter defined) substantially all of the assets and properties of the Chaparral Business, and Chaparral has agreed to the transfer, assignment or lease of such assets and to assume, or cause to be assumed, substantially all of the liabilities and obligations arising out of or relating to the Chaparral Business (the “ Contribution ”);

 

WHEREAS, the Board of Directors of TXI has determined that it would be advisable and in the best interests of TXI and its stockholders for TXI to distribute on a pro rata basis to the holders of TXI’s common stock, par value $1.00 per share (“ TXI Common Stock ”), without any consideration being paid by the holders of such TXI Common Stock, all of the outstanding shares of Chaparral common stock, par value $0.01 per share (together with the preferred share purchase rights associated therewith, the “ Chaparral Common Stock ”), then owned by TXI (the “ Distribution ”);

 

WHEREAS, for federal income tax purposes, the Contribution and Distribution are intended to qualify for tax-free treatment under Sections 355, 361 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “ Code ”); and

 

WHEREAS, it is appropriate and desirable to set forth the principal transactions required to effect the Contribution and Distribution and certain other agreements that will govern the relationship of TXI and Chaparral following the Distribution.

 

NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.1 Definitions . As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.1.

 

“Actions” means any action, claim, demand, suit, arbitration, inquiry, subpoena, discovery request, proceeding or investigation by or before any court or grand jury, any governmental or other regulatory or administrative entity, agency or commission or any arbitration tribunal, domestic or foreign.

 

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person. For the purpose of this definition, the term “control” means the power to direct the management of an entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the term “controlled” has the meaning correlative to the foregoing. After the Distribution, Chaparral and TXI shall not be deemed to be under common control for purposes hereof due solely to the fact that Chaparral and TXI have stockholders in common.

“Agent” means Mellon Investor Services, LLC, the distribution agent appointed by TXI to distribute shares of Chaparral Common Stock pursuant to the Distribution.

 

“Ancillary Agreements” means the Tax Sharing Agreement, the TXI Real Estate Leases, the Chaparral Real Estate Leases, an Environmental Monitoring and Management Agreement, a Preliminary Single Property Designation Agreement, a Software License and any other agreement regarding the ongoing business and service relationships between the TXI Parties and Chaparral Parties.

 

“Assumed Actions” has the meaning set forth in Section 6.10(a).

 

“Assumed Liabilities” has the meaning set forth in Section 2.3.

 

“Cessation Time” has the meaning set forth in Section 5.5.

 

“Chaparral” has the meaning set forth in the first paragraph of this Agreement.

 

“Chaparral 401(k) Plan” has the meaning set forth in Section 5.18(a)(i).

 

“Chaparral Business” has the meaning set forth in the recitals.

 

“Chaparral Business Employee” means (i) any individual employed at any time on or prior to the Distribution Date by TXI or any of its Subsidiaries who has, as of the Distribution Date, or who, immediately prior to his or her termination of employment by TXI or any of its Subsidiaries had, employment duties primarily related to the Chaparral Business, and (ii) any other individual employed prior to the Distribution Date by TXI or any of its Subsidiaries who accepts an offer to become an employee of Chaparral on the Distribution Date.

 

“Chaparral Common Stock” has the meaning set forth in the recitals.

 

“Chaparral Distributable Share” means for each holder of record of TXI Common Stock as of the close of business on the Record Date one share of Chaparral Common Stock for every share of TXI Common Stock outstanding and held of record by such holder at such time.

 

“Chaparral FSP” has the meaning set forth in Section 5.18(b)(i).

 

“Chaparral Indemnified Parties” has the meaning set forth in Section 10.3.

 

“Chaparral Parties” means Chaparral, the direct or indirect Subsidiaries acquired by Chaparral as part of the Transferred Assets and any Subsidiaries formed or acquired after the date hereof.

 

“Chaparral Real Estate Leases” has the meaning set forth in Section 2.1(b)(i).

 

“Chaparral Share(s)” mean(s) each share of Chaparral Common Stock.

 

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Part 6 of Subtitle B of Title I of ERISA and at section 4980B of the Code.

 

“Code” has the meaning set forth in the Recitals.

 

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“Contracts” has the meaning set forth in Section 2.1(a)(vi).

 

“Contribution” has the meaning set forth in the Recitals.

 

“Conveyancing Instruments” has the meaning set forth in Section 4.1.

 

“Copyrights” means United States and foreign copyrights, both registered and unregistered, along with the registrations and applications to register any such copyrights.

 

“Credit Facility” means a $ 150 million senior secured revolving credit facility to be entered into by Chaparral.

 

“Debt Issuance Costs” means the underwriting commitment and syndication fees and any other fees and expenses under the Credit Facility and the Note Offering, plus all rating agency fees, plus all counsel and accounting fees (including the fees of lenders’ counsel relating to the Credit Facility) and other costs relating to the Credit Facility and Note Offering.

 

“Distribution” has the meaning set forth in the Recitals.

 

“Distribution Date” means the date determined by the Board of Directors of TXI as the date on which the Distribution is payable to holders of TXI Common Stock on the Record Date.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §1001, et. seq.

 

“Escalation Notice” has the meaning set forth in Section 11.1(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Expenses” means any and all expenses incurred in connection with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including court filing fees, court costs, arbitration fees or costs, witness fees, and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants and other professionals).

 

“Governmental Authority” means any foreign, federal, state, local or other government, governmental, statutory or administrative authority, regulatory body or commission or any court, tribunal or judicial or arbitral body.

 

“Indemnified Party” has the meaning set forth in Section 10.5(a).

 

“Indemnifying Party” has the meaning set forth in Section 10.5(a).

 

“Indemnity Payment” has the meaning set forth in Section 10.5(a).

 

“Information” has the meaning set forth in Section 12.1(a).

 

“Information Statement” has the meaning set forth in Section 6.8(a).

 

“Insurance Charges” has the meaning set forth in Section 8.6.

 

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“Intellectual Property License Agreements” means licenses relating to the Patents and patent disclosures set forth on Schedule 2.1(a)(v).

 

“Intercompany Agreements” means any contract, agreement or lease between a TXI Party and a Chaparral Party entered into prior to the Distribution excluding this Agreement and the Ancillary Agreements.

 

“IRS” means the U.S. Internal Revenue Service.

 

“Liability” means any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement), including all costs and Expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any Governmental Authority or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking.

 

“Losses” means any and all losses, costs, obligations, Liabilities, settlement payments, awards, judgments, fines, penalties, damages, fees, expenses, deficiencies, claims or other charges, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown (including, without limitation, the costs and Expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys’ fees and any and all Expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions).

 

“Material Governmental Approvals and Consents” means any material notices, reports or other filings to be made with or to, or any material consents, registrations, approvals, permits, clearances or authorizations to be obtained from, any Governmental Authority.

 

“Non-ERISA Benefit Arrangement” means each contract, agreement, policy, practice, program, plan, trust or arrangement, other than a Pension Plan or Welfare Plan, providing for benefits, perquisites or compensation of any nature to any Chaparral Business Employee, or to any family member, dependent or beneficiary of any such Chaparral Business Employee, including, without limitation, disability, severance, health, dental, life, accidental death and dismemberment, travel and accident, tuition reimbursement, supplemental unemployment, vacation, sick, personal or bereavement days, holidays, retirement, deferred compensation, profit sharing, bonus, stock-based compensation or other forms of incentive compensation.

 

“Non-Permitted Names” has the meaning set forth in Section 6.11.

 

“Note Offering” means the offering by Chaparral pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, of senior unsecured notes of Chaparral in the aggregate principal amount of up to $300 million.

 

“Offering Memorandum” means Chaparral’s offering memorandum relating to the Note Offering.

 

“Owned Real Property” has the meaning set forth in Section 2.1(a)(ii).

 

“Party” means the TXI Parties or the Chaparral Parties.

 

“Patents” means United States and foreign patents and applications for patents, including any continuations, continuations-in-part, divisions, renewals, reissues and extensions thereof.

 

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“Pension Plan” means any pension plan as defined in section 3(2) of ERISA, without regard to sections 4(b)(4) or 4(b)(5) of ERISA.

 

“Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or Governmental Authority.

 

“Personal Property Leases” has the meaning set forth in Section 2.1(a)(iii).

 

“Prime Rate” means the rate that Bank of America (or any successor thereto or other major money center commercial bank agreed to by the Parties) announces from time to time as its prime lending rate, as in effect from time to time.

 

“Privilege” has the meaning set forth in Section 12.8(a).

 

“Privileged Information” has the meaning set forth in Section 12.8(a).

 

“Record Date” means the date determined by the Board of Directors of TXI as the record date for the Distribution.

 

“Registration Statement” has the meaning set forth in Section 6.8(a).

 

“Retained Assets” means all of the TXI Parties’ assets other than the Transferred Assets.

 

“Retained Business” means the business of the TXI Parties other than the Chaparral Business.

 

“Retained Liabilities” means all of the TXI Parties’ Liabilities other than the Assumed Liabilities.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Shared Contract” means a contract, agreement or lease with a third Person that directly benefits both a TXI Party and a Chaparral Party.

 

“Software” means computer software programs, in source code and object code form, including, without limitation, all related source diagrams, flow charts, specifications, documentation and all other materials and documentation necessary to allow a reasonably skilled third party programmer or technician to maintain, support or enhance the Software.

 

“Subsidiary” means, when used with reference to any Person, any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. After the Distribution, Chaparral and TXI shall not be deemed to be under common control for purposes hereof due solely to the fact that Chaparral and TXI have stockholders in common.

 

“Tax Benefit” means a reduction in the tax liability of a taxpayer for any taxable period. A Tax Benefit shall be deemed to have been realized or received in a taxable period only if and to the extent that the tax liability of the taxpayer for such period, after taking into account the effect of the relevant item on the tax liability of such taxpayer in all prior periods, is less than it would have been if such liability were determined without regard to such item.

 

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“Tax Cost” means an increase in the tax liability of a taxpayer for any taxable period. A Tax Cost shall be deemed to arise in a taxable period only if and to the extent that the tax liability of the taxpayer for such period, after taking into account the effect of the relevant item on the tax liability of such taxpayer in all prior periods, is greater than it would have been if such tax liability were determined without regard to such item.

 

“Substitute Option” has the meaning set forth in Section 5.14(a).

 

“Tax Sharing Agreement” means the Tax Sharing and Indemnification Agreement, dated the date hereof, between TXI and Chaparral.

 

“Third Party Claim” has the meaning set forth in Section 10.6(a).

 

“Third Party Consents” has the meaning set forth in Section 6.1.

 

“Trademarks” means all United States, state and foreign trademarks, service marks, logos, trade dress and trade names, whether registered or unregistered, including all goodwill associated with the foregoing, and all registrations and pending applications to register the foregoing.

 

“Transferred Actions” has the meaning set forth in Section 6.10(b).

 

“Transferred Assets” has the meaning set forth in Section 2.1.

 

“Transferred Intellectual Property” has the meaning set forth in Section 2.1(a)(v).

 

“TXI” has the meaning set forth in the first paragraph of this Agreement.

 

“TXI 401(k) Plan” has the meaning set forth in Section 5.18(a)(i).

 

“TXI Business Employee” means any individual employed at any time on or prior to the Distribution Date by TXI or any of its Subsidiaries who has, as of the Distribution Date, or who, immediately prior to his or her termination of employment by TXI or any of its Subsidiaries had, employment duties primarily related to the Retained Business

 

“TXI Common Stock” has the meaning set forth in the Recitals.

 

“TXI FSP” has the meaning set forth in Section 5.18(b)(i).

 

“TXI Indemnified Parties” has the meaning set forth in Section 10.2.

 

“TXI Option” has the meaning set forth in Section 5.14(a).

 

“TXI Parties” means TXI and its direct and indirect Subsidiaries (including those formed or acquired after the date hereof), other than the Chaparral Parties.

 

“TXI Policies” has the meaning set forth in Section 8.2.

 

“TXI Real Estate Leases” has the meaning set forth in Section 2.1(b)(ii).

 

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“Welfare Plan” means any employee welfare plan as defined in section 3(1) of ERISA, without regard to sections 4(b)(4) or 4(b)(5) of ERISA.

 

SECTION 1.2 Interpretation.

 

(a)

In this Agreement, unless the context clearly indicates otherwise:

 

(i)

words used in the singular include the plural and words used in the plural include the singular;

 

(ii)

reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement;

 

(iii)

reference to any gender includes the other gender;

 

(iv)

the word “including” means “including but not limited to”;

 

(v)

reference to any Article, Section, Exhibit or Schedule means such Article or Section of, or such Exhibit or Schedule to, this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition;

 

(vi)

the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof;

 

(vii)

reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

 

(viii)

reference to any law (including statutes and ordinances) means such law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

 

(ix)

relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

 

(x)

accounting terms used herein shall have the meanings historically ascribed to them by TXI based upon TXI’s internal financial policies and procedures in effect prior to the date of this Agreement;

 

(xi)

if there is any conflict between the provisions of the body of this Agreement and the Exhibits or Schedules hereto, the provisions of the body of this Agreement shall control unless explicitly stated otherwise in such Exhibit or Schedule;

 

(xii)

the titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement;

 

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(xiii)

any portion of this Agreement obligating a Party to take any action or refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Subsidiaries to take such action or refrain from taking such action, as the case may be; and

 

(xiv)

unless otherwise specified in this Agreement, all references to dollar amounts herein shall be in respect of lawful currency of the United States.

 

(b) Any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against either Party shall not apply to any construction or interpretation hereof.

 

ARTICLE II

BUSINESS SEPARATION

 

SECTION 2.1 Separation of Chaparral Business .

 

(a) Transfer of Assets . Subject to the terms and conditions of this Agreement and the Ancillary Agreements, prior to the Distribution, TXI has caused or, prior to the Distribution, shall cause the TXI Parties to convey, assign, transfer, contribute and set over to the Chaparral Parties, and Chaparral has caused or shall cause the Chaparral Parties to accept and receive, all right, title and interest of the TXI Parties in and to the following assets (all of such assets being hereinafter referred to as the “Transferred Assets”), including the following:

 

(i)

Capital Stock . All of the capital stock of Chaparral Steel Investments, Inc. and Chaparral Steel (Virginia) Inc.;

 

(ii)

Owned Real Property . Those certain parcels of land described on Schedule 2.1(a)(ii) (the “Owned Real Property”) and any and all improvements, fixtures, machinery, equipment and other property described in such Schedule and located on such Owned Real Property;

 

(iii)

Personal Property Leases . Those certain machinery, equipment or other tangible personal property leases (the “Personal Property Leases”) set forth on Schedule 2.1(a)(iii);

 

(iv)

Transportation Assets . The assets of TXI Transportation Company set forth on Schedule 2.1(a)(iv);

 

(v)

Intellectual Property . (i) All Trademarks, Copyrights, Patents and Software that are used solely in the Chaparral Business, including those set forth on Schedule 2.1(a)(v); (ii) all business and technical information, nonpatented inventions, including the patent disclosures set forth on Schedule 2.1(a)(v), discoveries, processes, formulations, trade secrets, know-how and technical data used solely in the Chaparral Business made or conceived by employees, consultants or contractors of TXI or its Subsidiaries as to which the TXI Parties have rights under any agreement or otherwise relating to the foregoing; (iii) all business and technical information, nonpatented inventions, discoveries, processes, formulations, trade secrets, know-how and technical data used solely in the Chaparral Business made or conceived by third parties as to which the TXI Parties have rights pursuant to executory agreements with said third parties relating to the foregoing; and (iv) all permits, grants, contracts, agreements and licenses running to or from a TXI Party relating to the foregoing; and all rights that are associated with the foregoing (collectively, the “Transferred Intellectual Property”);

 

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(vi)

Contracts . All of the contracts set forth on Schedule 2.1(a)(vi) (the “Contracts”);

 

(vii)

Permits and Licenses . All permits, approvals, licenses, franchises, authorizations or other rights granted by any Governmental Authority held or applied for by a TXI Party and that are used solely in the Chaparral Business or that relate solely to the Transferred Assets, to the extent they are legally assignable to Chaparral;

 

(viii)

Claims and Indemnities . All rights, claims, demands, causes of action, judgments, decrees and rights to indemnity or contribution, whether absolute or contingent, contractual or otherwise, in favor of a TXI Party to the extent it relates to the Chaparral Business, including the right to sue, recover and retain such recoveries and the right to continue in the name of a TXI Party any pending actions relating to the foregoing, and to recover and retain any damages therefrom, but only to the extent relating to the Chaparral Business;

 

(ix)

Books and Records . All books and records (including all records pertaining to customers, suppliers and personnel), wherever located, that are related principally to the Chaparral Business;

 

(x)

Tax Credits . Any right, title or interest in any tax refund, credit or benefit to which any of the Chaparral Parties is entitled in accordance with the terms of the Tax Sharing Agreement; and

 

(xi)

Other Assets . All other assets, tangible or intangible, including all goodwill, that are used principally in the Chaparral Business, including, without limitation, domain names and websites, or which TXI has agreed to transfer pursuant to the terms of this Agreement or any Ancillary Agreement or Conveyancing Instrument.

 

(b) Leases of Real Property . Subject to the terms and conditions of this Agreement and the Ancillary Agreements, prior to the Distribution the Parties shall enter into the following leases of real property:

 

(i)

Those certain real estate leases from Chaparral, as lessor, to TXI, as lessee, set forth on Schedule 2.1(b)(i) (the “Chaparral Real Estate Leases”) and any and all improvements, fixtures, machinery, equipment and other property located on the premises demised under the Chaparral Real Estate Leases; and

 

(ii)

Those certain real estate leases from TXI, as lessor, to Chaparral, as lessee, set forth on Schedule 2.1(b)(ii) (the “TXI Real Estate Leases”) and any and all improvements, fixtures, machinery, equipment and other property located on the premises demised under the TXI Real Estate Leases.

 

SECTION 2.2 Retained Assets . Notwithstanding anything to the contrary herein, the following shall be transferred to TXI or the appropriate TXI Party, if owned or held by a Chaparral Party, and included in the Retained Assets:

 

(a) Cash . Cash and cash equivalents, any cash on hand or in bank accounts, certificates of deposit, commercial paper and similar securities owned or held by any TXI Party or Chaparral Party as of the close of business on the Distribution Date, except for deposits securing leases and other obligations related solely to the Chaparral Business;

 

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(b) Tax Refunds . Any right, title or interest in and to any tax refund, credit or benefit to which any of the TXI Parties is entitled in accordance with the terms of the Tax Sharing Agreement;

 

(c) Accruals . Any amounts accrued on the books and records of TXI or a TXI Party with respect to any Retained Liabilities;

 

(d) Employee Benefits . Except as provided in Article V, assets relating primarily to the provision of benefits to present or former employees of the Chaparral Business;

 

(e) Insurance Premiums and Refunds . Any right, title or interest in and to any prepaid insurance premiums or premium refunds for the TXI Policies;

 

(f) Intellectual Property Rights . All email addresses and all Trademarks, Copyrights, Patents, Software and other intellectual property rights that are not used solely in the Chaparral Business; and

 

(g) Other Assets . All assets which TXI has agreed to retain pursuant to the terms of this Agreement or any Ancillary Agreement or Conveyancing Instrument.

 

SECTION 2.3 Assumption of Liabilities . In connection with the transactions contemplated by Section 2.1, and except as set forth in Section 2.4, Chaparral shall and hereby does, and shall cause the Chaparral Parties to, assume on a joint and several basis, and pay, comply with and discharge in accordance with their terms all Liabilities of the TXI Parties arising out of the ownership or use of the Transferred Assets or the operation of the Chaparral Business, whether existing on the date hereof or arising at any time after the date hereof, whether based on circumstances, events or actions arising heretofore or hereafter, whether or not such Liabilities shall have been disclosed herein, and whether or not reflected on the books and records of the TXI Parties or the Chaparral Parties (all of such Liabilities being hereinafter referred to as the “Assumed Liabilities”), including:

 

(a) Environmental . All Liabilities of the TXI Parties involving the health or safety of persons or the protection of the environment or natural resources to the extent arising out of the Chaparral Business or the Transferred Assets;

 

(b) Leases and Contracts . All Liabilities of the TXI Parties under or related to the Personal Property Leases and the Contracts, such assumption to occur as (i) assignee if such Personal Property Leases and Contracts are assignable and are assigned or otherwise transferred to the Chaparral Parties, or (ii) subcontractor, sublessee or sublicensee as provided in Section 6.2 if such assignment of such Personal Property Leases and Contracts and/or proceeds thereof is prohibited by law, by the terms thereof or not permitted by the other contracting party;

 

(c) Employees . All Liabilities of the TXI Parties in connection with claims of past or current employees of the Chaparral Business, except as otherwise expressly provided in this Agreement;

 

(d) Actions . All Liabilities of the TXI Parties related to (i) any Actions to the extent that they assert a claim arising out of the operation of the Chaparral Business or the ownership or use of the Transferred Assets, whether before or after the Distribution Date, and (ii) Assumed Actions;

 

(e) Tax Liabilities . All Liabilities for which any Chaparral Party is liable in accordance with the terms of the Tax Sharing Agreement;

 

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(f) Letters of Credit . Any Liabilities incurred by TXI relating to any letter of credit posted by TXI for the benefit of a Chaparral Party, including letter of credit fees paid by TXI to the issuer of the letters of credit;

 

(g) Other Liabilities . All other Liabilities of the TXI Parties which Chaparral has agreed to assume pursuant to the terms of this Agreement or any Ancillary Agreement or Conveyancing Instrument.

 

SECTION 2.4 Retained Liabilities . Notwithstanding anything to the contrary in this Agreement, neither Chaparral nor any of the other Chaparral Parties shall assume the Retained Liabilities, including the following:

 

(a) Benefit Plans . Except as provided in Article V, the Liabilities under the TXI employee benefit plans;

 

(b) Tax Liabilities . All Liabilities for which TXI is liable in accordance with the terms of the Tax Sharing Agreement;

 

(c) Retained Business . All Liabilities arising out of the ownership or use of the Retained Assets or the operation of the Retained Business; and

 

(d) Other Liabilities . The Liabilities set forth on Schedule 2.4(d) and all Liabilities which TXI has agreed to retain pursuant to the terms of this Agreement or any Ancillary Agreement or Conveyancing Instrument.

 

SECTION 2.5 Sequencing of Separation of Chaparral Business . The separation of the Chaparral Business shall be effected as follows:

 

(a) Corporate Restructuring . The Parties acknowledge that on or before the date hereof, the corporate restructuring transactions set forth on Schedule 2.5(a) have been completed by TXI and its appropriate Subsidiaries.

 

(b) Transfers . After the consummation of the transactions set forth in Section 2.5(a), TXI contributed to Chaparral as an additional contribution to capital the capital stock provided in Section 2.1(a)(i), and TXI shall, and shall cause the TXI parties to, transfer all of TXI’s right, title and interest in and to the other Transferred Assets to the appropriate Chaparral Parties.

 

(c) Assumption . In consideration for and simultaneous with the consummation of the transactions described in Section 2.5(b), the Chaparral Parties shall, and hereby do, assume on a joint and several basis, and discharge in accordance with their respective terms, all of the Assumed Liabilities.

 

(d) Financing Transactions . After the consummation of the transactions set forth in Sections 2.5(a) through (c), TXI shall contribute to the capital of Chaparral (Virginia) Inc. all but $25 million of its intercompany receivable from Chaparral (Virginia) Inc., and Chaparral shall and shall cause the other Chaparral Parties to (i) enter into the Credit Facility and related agreements, (ii) consummate the Note Offering, and (iii) and borrow sufficient funds under the Credit Facility to permit Chaparral to pay the dividend as provided in Section 2.5(e).

 

(e) Dividend. Immediately following the consummation of the transactions described in Section 2.5(a) through (d), Chaparral shall pay to TXI, as a dividend, approximately $341 million in cash, the exact amount thereof to be determined by subtracting the Debt Issuance Costs from $350 million. TXI shall use the entire amount of the dividend to pay creditors who are not Affiliates of TXI.

 

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(f) Releases. Upon consummation of the transactions described in Sections 2.5(a) through (e), TXI shall cause the Chaparral Parties to be released from their guarantees of TXI’s obligations under TXI’s 10  ¹ / 4 % Senior Notes due 2011.

 

(g) Contribution . Immediately before the Distribution, TXI will contribute to the capital of Chaparral (Virginia) Inc. any the remaining amount of its intercompany receivable from Chaparral (Virginia) Inc.

 

Notwithstanding the foregoing, TXI may elect in its sole discretion at any time prior to the Distribution to omit or modify any of the transactions set forth in Sections 2.1 through 2.5 or to include additional transactions.

 

SECTION 2.6 New Agreements. Immediately following the consummation of the transactions described in Section 2.5, the appropriate TXI Parties and Chaparral Parties shall execute and deliver the following agreements, which shall thereafter become binding agreements between the parties thereto in accordance with their terms:

 

(a)

The Tax Sharing Agreement;

 

(b)

The TXI Real Estate Leases;

 

(c)

The Chaparral Real Estate Leases;

 

(d)

The Environmental Monitoring and Management Agreement; and

 

(e)

All other Ancillary Agreements.

 

SECTION 2.7 Termination of Existing Intercompany Agreements . Except for this Agreement and the Ancillary Agreements and as otherwise expressly provided in this Agreement, the Ancillary Agreements or as set forth on Schedule 2.7, all Intercompany Agreements and all other intercompany arrangements and courses of dealings, whether or not in writing and whether or not binding, in effect immediately prior to the Distribution Date, shall be terminated and be of no further force and effect from and after the Distribution Date.

 

SECTION 2.8 Shared Contracts and Liabilities.

 

(a) Liabilities that relate to any Shared Contract set forth in Schedule 2.8 or that arose on or before the Distribution Date but do not relate primarily to the Chaparral Business or to any other business of TXI (“Shared Liabilities”) shall be allocated between the TXI Parties, on the one hand, and the Chaparral Parties on the other hand, as follows:

 

(i)

first, if the Shared Liability is incurred exclusively in respect of a benefit received by one Party, the Party receiving such benefit shall be responsible for such Shared Liability;

 

(ii)

second, if the Shared Liability relates to a Shared Contract but cannot be so allocated under clause (i), such Shared Liability shall be allocated between the Parties based on the relative proportions of total benefit received (over the term of the Shared Contract, measured as of the date of the allocation) under the relevant Shared Contract. Notwithstanding the foregoing, each Party shall be responsible for any and all Shared Liabilities arising out of or resulting from its breach of the relevant Shared Contract;

 

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(iii)

third, if the Shared Liability does not relate to a Shared Contract and cannot be so allocated under clause (i), such Shared Liability shall be allocated between the Parties based on the relative proportions of total benefit received in connection with the matter pursuant to which the Shared Liability arose; and

 

(iv)

fourth, if the Shared Liability cannot be so allocated under clauses (i) through (iii), such Shared Liability shall be allocated evenly between the Parties.

 

(b) If any of the TXI Parties, on the one hand, or any of the Chaparral Parties, on the other hand, receive any benefit or payment under any Shared Contract that was intended for the other Party, the Party receiving such benefit or payment will use commercially reasonable efforts to deliver, transfer or otherwise afford such benefit or payment to the other Party.

 

(c) The TXI Parties shall have the sole right, responsibility and authority for administration of pre-Distribution claims that relate to or affect any Shared Liability. The expenses of such administration shall be treated as Shared Liabilities.

 

SECTION 2.9 No TXI Representations or Warranties . Except as expressly set forth herein or in any Ancillary Agreement, TXI does not represent or warrant in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning, any of the Transferred Assets or Assumed Liabilities or (ii) as to the legal sufficiency to convey title to any of the Transferred Assets on the execution, delivery and filing of the Conveyancing Instruments. ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS, WHERE IS” BASIS (AND IN THE CASE OF THE OWNED REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM OF DEED OR CONVEYANCE) WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, MARKETABILITY, TITLE, VALUE, FREEDOM FROM ENCUMBRANCE OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, and the Chaparral Parties shall bear the economic and legal risks that any conveyances of such assets shall prove to be insufficient or that the Chaparral Parties’ title to any such assets shall be other than good and marketable and free of encumbrances. Except as expressly set forth in this Agreement or in any Ancillary Agreement, TXI does not represent or warrant that the obtaining of the consents or approvals, the execution and delivery of any amendatory agreements and the making of the filings and applications contemplated by this Agreement shall satisfy the provisions of all applicable agreements or the requirements of all applicable laws or judgments, and, subject to Section 6.3, the Chaparral Parties shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of law or judgments are not complied with. Notwithstanding the foregoing, the Parties shall fully cooperate and use commercially reasonable efforts to obtain all consents and approvals, to enter into all amendatory agreements and to make all filings and applications that may be required for the consummation of the transactions contemplated by this Agreement.

 

ARTICLE III

THE DISTRIBUTION

 

SECTION 3.1 Issuance and Delivery of Chaparral Shares . Chaparral shall issue to TXI the number of Chaparral Shares required so that the total number of Chaparral Shares held by TXI immediately prior to the Distribution is equal to the total number of Chaparral Shares distributable pursuant to Section 3.2. TXI shall deliver to the Agent one or more stock certificates representing all Chaparral Shares then issued and outstanding, together with one or more stock power(s) endorsed in blank and, with respect to any uncertificated shares to be distributed pursuant to Section 3.2, shall take such steps as are necessary to permit such shares to be distributed in the manner described in Section 3.2. In its capacity as Chaparral’s transfer agent, the Agent will distribute such shares in the manner described in Section 3.2.

 

SECTION 3.2 Distribution of Chaparral Shares . TXI shall instruct the Agent to (i) distribute the Chaparral Distributable Share to each holder of record of TXI Common Stock at the close of business

 

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on the Record Date, and (ii) after completing the transactions described in Section 3.3, deliver to Chaparral as a contribution to Chaparral, all remaining Chaparral Shares, if any, then held by the Agent. Any such returned Chaparral Shares shall be immediately cancelled by Chaparral and shall not constitute treasury shares. Each distributed Chaparral Share shall be validly issued, fully paid and nonassessable and free of preemptive rights. The shares of Chaparral Common Stock distributed shall be distributed as uncertificated shares registered in book-entry form through the direct registration system. Except as required by applicable law, no certificates therefor shall be distributed. The Agent shall deliver an account statement to each holder of Chaparral Common Stock reflecting such holder’s ownership interest in shares of Chaparral Common Stock.

 

SECTION 3.3 TXI Board Action . The TXI Board of Directors shall, in its discretion, establish the Record Date and the Distribution Date and all appropriate procedures in connection with the Distribution. The Board of Directors of TXI also shall have the right to adjust the Chaparral Distributable Share at any time prior to the Distribution. The consummation of the transactions provided for in this Article III shall only be effected after the Distribution has been declared by the TXI Board of Directors.

 

SECTION 3.4 Additional Approvals . TXI shall cooperate with Chaparral in effecting, and if so requested by Chaparral, TXI shall, as the sole stockholder of Chaparral prior to the Distribution, ratify any actions which are reasonably necessary or desirable to be taken by Chaparral to effectuate the transactions referenced in or contemplated by this Agreement in a manner consistent with the terms hereof, including the preparation and implementation of appropriate plans, agreements and arrangements for employees of the Chaparral Business and non-employee members of Chaparral’s board of directors.

 

ARTICLE IV

BUSINESS SEPARATION CLOSING MATTERS

 

SECTION 4.1 Delivery of Instruments of Conveyance . In order to effectuate the transactions contemplated by Article II, the Parties shall execute and deliver, or cause to be executed and delivered, prior to or as of the Distribution such deeds, easements, licenses, rights of first refusal, bills of sale, instruments of assumption, instruments of assignment, stock powers, certificates of title and other instruments of assignment, transfer, assumption and conveyance (collectively, the “Conveyancing Instruments”) as the Parties shall reasonably deem necessary or appropriate to effect such transactions.

 

SECTION 4.2 Delivery of Other Agreements . Prior to or as of the Distribution, the Parties shall execute and deliver, or shall cause to be executed and delivered, each of the Ancillary Agreements.

 

SECTION 4.3 Provision of Corporate Records . Prior to or as promptly as practicable after the Distribution, TXI shall deliver to Chaparral all corporate books and records of Chaparral Parties and copies of all corporate books and records of the TXI Parties relating to the Chaparral Business, including in each case all active agreements, litigation files and government filings.

 

ARTICLE V

EMPLOYEE MATTERS

 

SECTION 5.1 Employment. On or before the Distribution Date, one of the Chaparral Parties shall employ or continue to employ each Chaparral Business Employee who, as of the day immediately prior thereto is employed by TXI or any of its Affiliates or Subsidiaries, including any such employee who is then an inactive employee on approved medical, non-medical or short-term disability, long-term disability or weekly indemnity leave of absence or absent from active employment due to occupational illness or injury covered by workers’ compensation. The terms and conditions of employment with Chaparral (x) shall be communicated to each such Chaparral Business Employee prior to the Distribution Date in a form mutually satisfactory to Chaparral and TXI, (y) shall include credit, for all purposes, for all years of service credited by TXI and its Subsidiaries and Affiliates, and (z) may include a requirement to execute a confidentiality and non-compete agreement between such Chaparral Business Employee and Chaparral.

 

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SECTION 5.2 Severance. It is not intended that any Chaparral Business Employee will be eligible for termination or severance payments or benefits from TXI or its Subsidiaries or Affiliates as a result of the transfer or change of employment from TXI to Chaparral or their respective Subsidiaries or Affiliates. Notwithstanding the preceding sentence, in the event that any such termination or severance payments or benefits become payable on account of such transfer, change or the refusal of a Chaparral Business Employee to accept employment with Chaparral, Chaparral shall indemnify the TXI Parties and their Affiliates, for the amount of such termination or severance payments or benefits. Chaparral shall be liable, and indemnify the TXI Parties and their Affiliates, for any termination or severance obligations owed to Chaparral Business Employees on or after the Distribution Date, including obligations to Chaparral Business Employees whose employment ceased prior to the Distribution Date.

 

SECTION 5.3 Employment Solicitation. For a period of three (3) years following the Distribution Date, neither the TXI Parties nor the Chaparral Parties may, and will not permit any of their respective Affiliates or agents to, solicit or recruit for employment any then current exempt salaried, managerial or supervisory employees of the other, without the prior written consent of the other. Nothing in this Section 5.3 shall be construed so as to (i) prohibit the hiring by either the TXI Parties or the Chaparral Parties of any exempt salaried, managerial or supervisory employee of the other who in good faith is believed to be actively seeking employment on his/her own initiative without prior contact initiated by any employee or agent of the company where employment is sought, or (ii) prohibit the hiring of any person who applied for employment with either company in response to any public advertising medium.

 

SECTION 5.4 Personnel Records. Subject to applicable law, all information and records regarding employment and personnel matters of Chaparral Business Employees will be Transferred Assets and shall be retained after the Distribution Date by Chaparral in accordance with all laws relating to the collection, storage, retention and disclosure of such records. Access to such records after the Distribution Date will be provided to TXI in accordance with Section 12.1. Notwithstanding the foregoing, TXI shall retain reasonable access to those records necessary to TXI’s continued administration of any plans or programs on behalf of Chaparral Business Employees after the Distribution Date for so long as said administration continues pursuant to this Agreement. TXI shall also retain copies of all confidentiality and non-compete agreements with any Chaparral Business Employee in which TXI has an interest.

 

SECTION 5.5 Cessation of Participation in TXI Welfare Plans. Except as otherwise provided in this Agreement or as required by the terms of any TXI Welfare Plan or by COBRA or any comparable state law, participation in the TXI Welfare Plans by all Chaparral Business Employees will cease as of 11:59 p.m. on the Distribution Date (the “Cessation Time”).

 

SECTION 5.6 Chaparral’s Welfare Plans. Effective as of the Cessation Time, Chaparral shall have in place for the benefit of Chaparral Business Employees and their respective eligible dependents, health (including medical, vision and dental), life, accidental death and dismemberment, disability and other Welfare Plans substantially similar to the Welfare Plans maintained by TXI or any of its Subsidiaries or Affiliates in which such individuals participated immediately prior to the Cessation Time. Chaparral Business Employees shall be eligible to participate in the Chaparral Welfare Plans immediately following the Cessation Time on the same basis on which they were eligible to participate in the TXI Welfare Plans immediately prior to the Cessation Time.

 

SECTION 5.7 Welfare Plan Liabilities.

 

(a) Chaparral Liabilities. Except as provided in this Agreement, as of the Cessation Time, Chaparral shall assume, and be solely responsible for all Welfare Plan Liabilities incurred by any Chaparral Business Employee or his or her dependents after the Cessation Time.

 

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(b) TXI Liabilities. TXI shall continue to be responsible after the Cessation Time for employer Liabilities under its Welfare Plans with respect to the following:

 

(i)

Terminated Employees. Any Chaparral Business Employee whose employment terminated prior to the Cessation Time for any reason and who elected or is eligible to elect, pursuant to a TXI-sponsored continuation plan or rights under COBRA or any comparable state law, to continue participation in any Welfare Plan in which he/she was enrolled on the applicable date of termination.

 

(ii)

Dependents. Any dependent of a Chaparral Business Employee whose employment terminated prior to the Cessation Time who elected, or is eligible to elect pursuant to rights under COBRA or any comparable state law continuation coverage under TXI’s Welfare Plans as of the Cessation Time.

 

(iii)

Retirees. Any Chaparral Business Employee whose employment terminated prior to the Cessation Time due to retirement and who elected or is eligible to elect, pursuant to a TXI-sponsored continuation plan or rights under COBRA, or any comparable state law, to continue participation in any Welfare Plan.

 

(iv)

Disabled Persons. Any Chaparral Business Employee who is not on TXI’s payroll and is receiving long-term disability benefits as of the Cessation Time who is eligible to elect, pursuant to a TXI-sponsored continuation plan or rights under COBRA, or any comparable state law, to continue participation in any Welfare Plan.

 

(v)

Pre-Distribution Claims. Except as provided in Sections 5.2, 5.8 and 5.11, all claims for self-insured welfare benefits incurred by Chaparral Business Employees prior to the Cessation Time, whether such claims have been paid or remain unpaid as of such date. Claims incurred by Chaparral Business Employees prior to the Cessation Time pursuant to the terms of a fully insured plan maintained by TXI or Chaparral shall be paid pursuant to such plan. Claims for health benefits shall be considered to be incurred prior to the Cessation Time if the services related to such claims were provided prior to the Cessation Time. Claims for all other welfare benefits shall be considered to be incurred prior to the Cessation Time if the date of loss occurred prior to the Cessation Time.

 

SECTION 5.8 Flexible Spending Accounts. Effective as of the Cessation Time, Chaparral shall have in place a flexible spending account plan in which Chaparral Business Employees shall maintain their existing eligibility and participation status under the flexible spending account plan maintained by TXI. Salary reduction elections made by Chaparral Business Employees under the TXI flexible spending account plan shall continue to apply with respect to the Chaparral flexible spending account plan at least through the end of the 2005 calendar year. As of the Cessation Time, Chaparral shall credit or debit (as applicable), or cause to be credited or debited, the account of each Chaparral Business Employee under the Chaparral flexible spending account plan with an amount equal to the positive or negative balance of such Chaparral Business Employee’s flexible spending accounts under the TXI flexible spending account plan immediately prior to the Cessation Time. For purposes of this Section, the balance of a Chaparral Business Employee’s flexible spending account shall be determined as the amount of the Chaparral Business Employee’s contributions for the 2005 calendar year to the account as of the Cessation Time minus the amount of his or her reimbursements for the 2005 calendar year from the account as of the Cessation Time. TXI shall pay, or cause to have paid, to Chaparral any net positive balance of the amounts credited to the flexible spending accounts of Chaparral Business Employees as of the Cessation Time, and Chaparral shall pay, or cause to have paid, to TXI any net negative balance of the amounts credited to such accounts. Any such payments shall be made as soon as administratively practicable after the Cessation Time. Chaparral shall assume and be solely responsible for (i) all claims which have been submitted by Chaparral Business Employees under

 

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the TXI flexible spending account plan but not yet paid as of the Cessation Time, and (ii) all claims submitted under the Chaparral flexible spending account plan after the Cessation Time. TXI shall provide Chaparral with copies of any records available to TXI to document the claims described in clause (i) above.

 

SECTION 5.9 TXI Assets. Except as provided in Section 5.8 above, TXI shall retain all claim reserves, bank accounts, trust funds or other balances maintained by or on behalf of TXI’s Welfare Plans.

 

SECTION 5.10 Past Credit for Amounts Paid. Chaparral shall credit Chaparral Business Employees with any amounts paid under the TXI Welfare Plans toward satisfaction of applicable deductible amounts and copayments, coinsurance and out-of-pocket maximums under the corresponding Welfare Plans maintained by Chaparral to the extent such payments would have been taken into account under the TXI Welfare Plans. TXI shall provide Chaparral with copies of any records available to TXI to document such payments.

 

SECTION 5.11. Disability.

 

(a) Short-Term Disability Benefits. Chaparral shall be responsible for all claims for short-term disability benefits payable to Chaparral Business Employees on or after the Distribution Date. TXI shall continue to be responsible after the Distribution Date to fund all claims for short-term disability benefits incurred by a Chaparral Business Employee prior to the Distribution Date.

 

(b) Long-Term Disability Benefits. Chaparral shall continue to be responsible after the Cessation Time for all claims for long-term disability incurred prior to the Cessation Time by any Chaparral Business Employee who is absent from active employment due to a total disability, as defined in the Chaparral disability plan, on or prior to the Cessation Time. Chaparral shall also assume and be responsible for long-term disability benefits for any Chaparral Business Employee who is receiving short-term disability benefits as of the Cessation Time and who becomes eligible for long-term disability benefits thereafter. Chaparral shall assume and be solely responsible for all other claims for long-term disability payable after the Cessation Time with respect to any Chaparral Business Employee.

 

SECTION 5.12 Cessation of Participation in TXI Non-ERISA Benefit Arrangements. Except as otherwise provided in this Agreement or as required by the terms of any TXI Non-ERISA Benefit Arrangement, participation in TXI Non-ERISA Benefit Arrangements will cease for all Chaparral Business Employees as of the Cessation Time.

 

SECTION 5.13 Assumption of Certain Employee Related Obligations. Effective as of the Cessation Time, the Chaparral Parties shall assume, and none of the TXI Parties or any of their Affiliates shall have any further Liability for, the following agreements, obligations and Liabilities; provided, however, that if any such agreement, obligation or Liability cannot be assumed by the Chaparral Parties for a rea