Exhibit 2.1
REDEMPTION AGREEMENT
This Redemption Agreement ("AGREEMENT"), dated as of July 3, 2001, is by
and among Xxxxx Brothers, Inc ("KB"), an Arizona corporation, BMC Framing, Inc.
("BMC"), a Delaware corporation, and Xxxxx Brothers Industries, LLC ("KBI"), a
Delaware limited liability company.
INTRODUCTION
A. In a Securities Purchase Agreement dated as of March 23,1999 among KB,
Xxxxxxxx X. Xxxxx, Building Materials Holding Corporation and BMC ("SECURITIES
PURCHASE AGREEMENT"), BMC purchased a 49% membership interest in KBI. Under
Section 8.1 of the Amended and Restated Limited Liability Company Agreement of
Xxxxx Brothers Industries, LLC, as amended ("OPERATING AGREEMENT"), BMC reserved
the right, by written notice, to cause KBI to redeem KB's membership interest
(the "INTEREST") in KBI (the "REDEMPTION") for an amount equal to the Redemption
Price (as defined below). As of May 1, 2001 BMC furnished a written notice of
its request for the Redemption (the "NOTICE"), in which BMC specified, as
required by the Operating Agreement, that the Redemption Price be paid entirely
in cash. The Notice also provided that the Redemption would close, and that KB
would cease to be a member of KBI at 12:01 AM on July 3, 2001.
B. In connection with the Redemption, KB, KBI and BMC desire to set forth the
terms and the mechanism for determining the Redemption Price and to make certain
other agreements related to the Redemption as provided in this Agreement.
AGREEMENT
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, KB, KBI and BMC agree as follows:
1. THE REDEMPTION. In accordance with the Notice and Section 8.1 of the
Operating Agreement, KBI shall redeem KB's Interest as provided herein.
2. REDEMPTION PRICE AND PAYMENT TERMS. The Redemption Price for KB's
Interest is the sum of: (i) KB's Unrecovered Contribution Account (as that term
is defined in the Operating Agreement) as of June 30, 2001 and (ii) 51% of the
Undistributed Net Profits (as that term is defined in the Operating Agreement)
of KBI, determined as of June 30, 2001 ("REDEMPTION PRICE"). KB's Unrecovered
Contribution Account as of June 30, 2001 will be $30,946,736 and the estimate of
51% of the Undistributed Net Profits of KBI at June 30, 2001 is $4,778,946. The
sum of the two amounts referred to in the immediately preceding sentence,
$35,725,682, is referred to herein as the "PRELIMINARY REDEMPTION PRICE." KBI
shall pay $17,173,245 of the Preliminary Redemption Price to KB in immediately
available funds on or before July 2, 2001, and shall pay the balance of the
Preliminary Redemption Price, $18,552,437, to KB on July 3, 2001. On or before
October 31, 2001, the accountants for KBI shall determine
the Redemption Price. Thereafter, but no later than November 5, 2001, KBI shall
pay to KB an amount equal to the Redemption Price less the Preliminary
Redemption Price ("REDEMPTION PRICE BALANCE"), in immediately available funds.
If, for any reason, any portion of the balance of the Redemption Price remains
unpaid after November 5, 2001, including, but not limited to, the inability of
the accountants for KBI to finally determine the Redemption Price, the unpaid
balance of the Redemption Price shall accrue interest at the rate of 10% per
annum, compounded annually, until paid. To the extent KBI does not have
sufficient funds to pay the Preliminary Redemption Price or the Redemption Price
Balance, BMC shall contribute to the capital of KBI sufficient funds to make the
payment(s). If the Redemption Price is less than the Preliminary Redemption
Price paid to KB, KB shall pay to BMC, in immediately available funds, the
amount by which the Preliminary Redemption Price paid to KB is greater than the
Redemption Price; such payment to be made within ten days of the determination
of the Redemption Price. If such amount remains unpaid after such ten-day
period, the unpaid amount shall accrue interest at the rate of 10% per annum,
compounded annually, until paid.
3. CAPITAL CONTRIBUTION BY KB AND PAYMENT OF BONUSES. After KB has
received the $17,173,245 portion of the Preliminary Redemption Price, and on or
before July 2, 2001, KB shall contribute $17,173,245, in immediately available
funds, to the capital of KBI ("KB'S ADDITIONAL CAPITAL CONTRIBUTION"). On July
2, 2001, after KB has made KB's Additional Capital Contribution, KBI shall pay
out to the participants in the Second Amended and Restated Xxxxx Brothers
Industries, LLC Change in Control Bonus Plan ("BONUS PLAN"), the full amount of
the bonuses due under the Bonus Plan ($16,900,000) on account of the Redemption
upon receipt of acknowledgements from the participants indicating the amount
paid to them is the total amount owing to them under the Bonus Plan. The parties
acknowledge that under the Operating Agreement, KBI's income tax deduction for
such bonuses ($16,900,000) and a portion of the employment taxes on such bonuses
($273,245) ("Bonus Amounts") shall be specially allocated to KB. For any period
after June 30, 2001, KB shall not be allocated any Net Profits or Net Losses (as
those terms are defined in the Operating Agreement) or any items of income or
expense other than the allocation of the Bonus Amounts.
4. TRANSFER OF KBI'S MEMBERSHIP INTEREST AND TAX MATTERS. On July 3, 2001
at 12:01 AM, KB's Interest shall be transferred by an instrument of transfer in
the form attached hereto as Exhibit A and KB shall have no further interest
whatsoever as a member of KBI upon the transfer, but until such date, KB shall
continue as a member of KBI with a 51% membership interest. KB shall have the
right to receive the Redemption Price Balance as set forth in this Agreement
notwithstanding the transfer of KB's 51% membership interest in KBI. For federal
and state income tax purposes, the Redemption shall be treated as a sale of KB's
Interest to BMC. The Redemption Price shall be allocated for income tax purposes
among the assets of KBI pursuant to Internal Revenue Code Sections 755 and 1060.
Such allocation shall be on a tax basis, except for real property which shall be
based on fair market value. Any excess above the tax basis and fair market value
of real property shall be allocated to goodwill. KB and BMC agree to file their
tax returns and KBI's tax returns on a basis consistent with such allocation.
Net Profits or Net Losses of KBI shall be allocated to KB and BMC as set forth
in the
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Operating Agreement based on an interim closing of KBI's books as of July 2,
2001; provided that, as specified in paragraph 3 above, the only item of Net
Profits or Net Losses that will be allocated to KB for the period after June 30,
2001 will be the Bonus Amounts.
5. TRANSFER OF ASSETS AND LIABILITIES/INDEMNIFICATION.
5.1 LIABILITY UNDER SECURITIES PURCHASE AGREEMENT. The parties
acknowledge that under the Securities Purchase Agreement and the Operating
Agreement, KB transferred to KBI all of its assets and liabilities, except
certain excluded assets listed on Schedule 1.15 to the Securities Purchase
Agreement. The liabilities transferred to KBI included all liabilities both
known and unknown. Under Section 13.2.2 of the Securities Purchase Agreement, KB
is responsible for and required to indemnify KBI for any liability "on account
of any product shipped or manufactured by, or any service provided by the
Business prior to the Closing Date." The term "BUSINESS" is defined in the
Securities Purchase Agreement as "the framing, roof truss and panel
manufacturing business conducted by . . . [KB] . . .and transferred to . .
.[KBI] . . . on the Closing Date." The Closing Date was May 3, 1999.
5.2 RELEASE FROM LIABILITY UNDER SECURITIES PURCHASE AGREEMENT.
Notwithstanding Section 13.2.2. of the Securities Purchase Agreement or
otherwise, upon the Redemption of KB's Interest, KB, its officers, directors,
employees, agents, shareholders, successors or assigns ("KB GROUP") shall have
no further responsibility for, or any obligation to indemnify KBI for, any
liability whatsoever in connection with any Pre-Closing Claim. The term
"PRE-CLOSING CLAIM" means any claim arising out of or in connection with a
product shipped or manufactured by, or any service provided by, the KB Group on
or prior to May 3, 1999, including, but not limited to, any claims of faulty
workmanship or claims of construction defects for work performed or products
sold on or prior to such date.
5.3 INDEMNIFICATION OF KB GROUP. Upon the Redemption of KB's
Interest, KBI releases the KB Group from, and shall indemnify, defend, and hold
harmless the KB Group from and against, any and all Losses from any Pre-Closing
Claims asserted, regardless of the theory of recovery, whether based on tort,
contract, statutory liability, a finding of some fault on the part of KB Group,
or any other theory of recovery, whether known or unknown, apparent or not
apparent, against, relating to, imposed upon, or incurred by any member or
members of the KB Group resulting from or arising out of any Pre-Closing Claim.
The terms "Loss" and "Losses" mean any and all penalties, additions to taxes,
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities (including punitive damages), costs, and expenses, including,
without limitation, interest, penalties, and reasonable attorneys' and other
professional fees and expenses.
5.4. PROCEDURES FOR INDEMNIFICATION. A claim for indemnification
("INDEMNIFICATION CLAIM") shall be made by KB by delivery of a written notice to
KBI requesting indemnification and specifying the basis on which indemnification
is sought
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and the amount of asserted Losses, if known, and, containing such other
information as KB shall have concerning such Indemnification Claim. Upon a final
determination of the amount of an Indemnification Claim, whether by agreement
between KBI and KB or by judgment, decree or final order, KBI shall pay the
amount of such Indemnification Claim within 30 days of the date such amount is
determined.
5.5 DEFENSE OF INDEMNIFICATION CLAIMS. Upon receipt of notice of the
Indemnification Claim, KBI shall undertake the defense thereof by
representatives of its own choosing reasonably acceptable to KB. If, however,
KBI fails or refuses to undertake the defense of such claim within ten days
after written notice of such claim has been provided to KBI by KB, KB shall have
the right to undertake the defense, compromise and, settle such claim with
counsel of its own choosing as part of its Indemnification Claim.
5.6 COOPERATION. KB and KBI shall cooperate with each other in all
reasonable respects in connection with the defense of any Indemnification Claim,
including making available records relating to such claim as may be reasonably
necessary for the preparation of the defense of any such claim or for testimony
as a witness in any proceeding relating to such claim.
5.7 INDEMNIFICATION BY KB. KB agrees to indemnify and hold KBI and
BMC and each of their affiliates harmless from any Losses incurred as a result
of a breach of any representations and warranties of KB contained in Section 6
of this Agreement. The procedures for indemnification set forth in Sections 5.4
through 5.6 of this Agreement shall apply to any claims for indemnification from
KB in substantially the same manner as claims by KB.
6. REPRESENTATIONS AND WARRANTIES OF KB. KB represents and warrants that:
(a) other than the matters disclosed on Schedule 1 attached to this Agreement
and made a part hereof, KB has no knowledge of any potential Indemnification
Claims against KB Group; (b) KB owns the Interest being transferred of record
and beneficially, free and clear of all liens, encumbrances or other
restrictions, except for restrictions contained in the Operating Agreement; (c)
other than the membership interests in KBI owned by BMC and KB, to KB's
knowledge there are outstanding no other membership interests or rights to
acquire membership interests in KBI; and (d) to KB's actual knowledge KBI does
not have any material liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise), except as set forth or reflected on the
latest balance sheet of KBI delivered to BMC or listed on Schedule 1 attached
hereto. Notwithstanding the foregoing, no representation or warranty is made,
and no indemnification obligation shall arise, with respect to any Pre-Closing
Claim.
7. NOTICES. All notices, offers, demands or other communications
hereunder shall be in writing. Notices shall be deemed received on the date of
delivery or, if mailed, on the date appearing on the return receipt therefor.
Notices shall be deemed to have been duly given if delivered or if mailed,
postage prepaid and by registered or
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certified United States mail with return receipt requested and returned showing
the date of delivery, to the parties at the addresses set forth below.
If to BMC: BMC Framing, Inc.
Physical ATTN: Xxxx Street
Address: 000 Xxxx Xxxxxxxxx, Xxxxx 000
Xxxxx, Xxxxx 00000-0000
Mailing
Address: X.X. Xxx 00000
Xxxxx, Xxxxx 00000-0000
With a copy to: Building Materials Holding Corporation
Xxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxx 0000
Xxx Xxxxxxxxx, XX 00000-0000
ATTN: Xxxxx X. Xxxxxx
Senior Vice President, Finance and Treasurer
If to KB:
Xxxxx Brothers, Inc.
ATTN: Xxxxxxxx Xxxxx
00000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
With a copy to: Xxxxx and Xxxx LLP
Attn: Xxxxx X. Manch
00 X. Xxxxxxx Xxx.
Xxxxxxx, XX 00000-0000
If to KBI:
Xxxxx Brothers Industries, LLC
ATTN: Xxx Xx
0000 Xxxx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
With copy to:
BMC Framing, Inc.
Physical ATTN: Xxxx Street
Address: 000 Xxxx Xxxxxxxxx, Xxxxx 000
Xxxxx, Xxxxx 00000-0000
Mailing
Address: X.X. Xxx 00000
Xxxxx, Xxxxx 00000-0000
8. ENTIRE AGREEMENT, AMENDMENT AND SUCCESSORS. This Agreement constitutes
the entire agreement of the parties with respect to the matters covered by it.
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No alteration or modification of this Agreement shall be valid except as is in
writing and fully executed by the parties. If any term or provision hereof is
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the legality or validity of the remainder of the Agreement.
This Agreement shall be binding upon the parties hereto, their heirs, personal
representatives, successors and assigns.
9. WAIVER AND CONFLICT. In the event of any conflict between the terms
and provisions of this Agreement and the Operating Agreement or the Securities
Purchase Agreement, this Agreement shall control.
10. ARIZONA LAW. This Agreement shall be construed in accordance with the
laws of the state of Arizona.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
12. XXXX-XXXXX-XXXXXX ANTITRUST IMPROVEMENTS ACT OF 1976. Notwithstanding
any other provision of this Agreement, the transactions contemplated by this
Agreement shall not be consummated until the expiration of the required waiting
period under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 or the
early termination of such waiting period.
13. SATISFACTION. Upon payment of the Redemption Price hereunder, the
terms and conditions of Section 8.1 of the Operating Agreement and the terms and
conditions of Section 8.1 of the Limited Liability Company Agreement of KBI
Distribution, LLC shall be considered satisfied in full.
14. EXECUTION. The parties have executed this Agreement as of the first
date shown above.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officers.
BMC:
BMC FRAMING, INC.
By: /s/ XXXXXX X. XXXXXX
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Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
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KB:
XXXXX BROTHERS, INC.
By: /s/ Xxxxx Xxxxx
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Its: PRESIDENT
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KBI:
XXXXX BROTHERS INDUSTRIES, LLC
By: Xxxxx Brothers, Inc., a Member
By: /s/ Xxxxx Xxxxx
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Its: MANAGER
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By: BMC Framing, Inc., a Member
By: /s/ XXXXXX X. XXXXXX
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Its: Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
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