Contribution And Exchange Agreement

EXHIBIT 10.5


CONTRIBUTION AND EXCHANGE AGREEMENT


March 19, 1999


TABLE OF CONTENTS


Page RECITALS.................................................................. 1 AGREEMENT................................................................. 2 ARTICLE I REORGANIZATION................................................. 2
1.1 Closing Date and Location......................................... 2
1.2 Transactions...................................................... 3
1.2.1 Special Cash Distribution............................... 3
1.2.2 Conversion of Class B Units............................. 4
1.2.3 Exercise of Repurchase Option........................... 4
1.2.4 Contribution and Exchange............................... 5
1.3 Compliance With Agreements........................................ 6
1.4 Compliance With LLC Act........................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE CORPORATION............. 6
2.1 Organization, Qualifications and Corporate Power.................. 6
2.2 Validity.......................................................... 7
2.3 Noncontravention; Consents........................................ 7
2.4 Authorized Capital Stock.......................................... 8
2.5 Validly Issued, Fully Paid and Nonassessable Common Stock......... 9
2.6 Securities Registration Requirements.............................. 9
2.7 No Prior Activities............................................... 9
2.8 Disclosure........................................................ 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 9
3.1 Organization, Qualifications and Power............................ 9
3.2 Validity.......................................................... 10
3.3 Noncontravention; Consents........................................ 10
3.4 Ownership of Capital Stock........................................ 10
3.5 No Default or Event of Default.................................... 11
3.6 Securities Registration Requirements.............................. 11
3.7 Disclosure........................................................ 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
AND CLASS B BENEFICIAL OWNERS.......................................... 11
4.1 Validity.......................................................... 11
4.2 Noncontravention; Consents........................................ 12
4.3 Title to Membership Interests..................................... 12
4.4 Investment Representations........................................ 12
ARTICLE V REORGANIZATION CLOSING......................................... 13
5.1 Conditions to the Obligations of the Parties...................... 13
5.2 Documents Delivered at Reorganization Closing..................... 14
5.2.1 Documents Delivered by the Corporation.................. 14


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5.2.2 Documents Delivered by the Company....................... 15
5.2.3 Documents Delivered by the Institutional Members......... 16
5.2.4 Documents Delivered by the Management Members............ 17
ARTICLE VI COVENANTS...................................................... 18
6.1 Restated Certificate of Incorporation.............................. 18
6.2 Consents and Waivers............................................... 18
6.3 Further Assurances................................................. 18
ARTICLE VII NOTE PAYMENTS AND RELATED MATTERS............................. 18
7.1 Note Payments...................................................... 18
7.2 Consent and Waiver................................................. 19
7.3 Amendment of Securities Purchase Agreement and Notes............... 19
7.4 Termination of Securities Purchase Agreement....................... 19
ARTICLE VIII MISCELLANEOUS PROVISIONS..................................... 20
8.1 No Third Party Beneficiaries....................................... 20
8.2 Entire Agreement................................................... 20
8.3 Succession and Assignment.......................................... 20
8.4 Facsimile Execution; Counterparts.................................. 20
8.5 Notices............................................................ 20
8.6 Governing Law...................................................... 22
8.7 Amendments and Waivers............................................. 22
8.8 Severability....................................................... 22
8.9 Interpretation..................................................... 23
8.10 Specific Performance.............................................. 23
8.11 Obligations Several and Not Joint................................. 23
8.12 Termination of Agreement.......................................... 23


SCHEDULE I Ownership of Junior Membership Interests Before Reorganization SCHEDULE II LLC Distribution Amount Constituting Return of Members' Capital SCHEDULE III Class A Units to be Sold Pursuant to Repurchase Option at Minimum
IPO Price SCHEDULE IV Calculation of Minimum IPO Price SCHEDULE V Shares of Reorganization Common Stock Issued to Members


EXHIBIT A Form of Note EXHIBIT B Form of Registration Rights Agreement EXHIBIT C Form of Legal Opinion


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THIS CONTRIBUTION AND EXCHANGE AGREEMENT (this "Agreement") is made as
--------- of this 19th day of March 1999 among Trex Company, Inc., a Delaware corporation (the "Corporation"), TREX Company, LLC, a Delaware limited liability company
----------- (the "Company"), the members of the Company identified on the signature pages of
------- this Agreement (individually, a "Member" and collectively, the "Members") and
------ ------- those persons identified on the signature pages of this Agreement as beneficial owners (hereinafter referred to individually as a "Class B Beneficial Owner" and
------------------------ collectively as the "Class B Beneficial Owners").
-------------------------


RECITALS
--------


A. In connection with the capitalization of the Company on August 29, 1996, the Company, the Members and the Class B Beneficial Owners entered into certain agreements, including (i) the Limited Liability Company Agreement dated as of August 29, 1996, as amended as of the date hereof (the "LLC Agreement"),
------------- among the Members, the Class B Beneficial Owners and Mobil Oil Corporation (the "Preferred Member"); (ii) the Members' Agreement dated as of August 29, 1996, as ---------------- amended as of June 15, 1998 and as of the date hereof (the "Members'
-------- Agreement"), among the Company, the Members and the Class B Beneficial Owners; and (iii) the Securities Purchase Agreements dated as of August 29, 1996, as amended as of March 1, 1997 and as of December 15, 1997 (the "Securities
---------- Purchase Agreements"), between the Company and certain of the Members and Class - ------------------- B Beneficial Owners.


B. As of the date hereof, (i) the Company owns all of the issued and outstanding common stock, $.01 par value per share (the "Common Stock"), of the
------------ Corporation, (ii) each Member owns of record the class, number and percentage of the outstanding junior limited liability company interests in the Company (the "Membership Interests") set forth on Schedule I hereto and (iii) each Class B -------------------- ---------- Beneficial Owner owns beneficially the class, number and percentage of the outstanding junior limited liability company interests in the Company set forth on Schedule I hereto.
----------


C. The Corporation has filed a registration statement (file no. 333- 63287) (as amended from time to time, the "Registration Statement") with the
---------------------- Securities and Exchange Commission (the "SEC") covering the initial public
--- offering of the Common Stock by the Corporation and certain of its stockholders (the "IPO") under the Securities Act of 1933, as amended (the "Securities Act").
--- --------------


D. On the Reorganization Closing Date (as defined in Section 1.1), in accordance with the terms and conditions of the LLC Agreement and the Members' Agreement, the Company, the Corporation and the Members will complete the transactions described in Section 1.2 (collectively, the


"Reorganization") as a result of which, among other things, the Members will -------------- acquire all of the Common Stock issued and outstanding prior to the IPO and the Corporation will acquire all of the issued and outstanding Membership Interests.


E. Concurrently with the consummation of the Reorganization, the Preferred Member will exchange all of the outstanding preferred limited liability company interests in the Company for a promissory note of the Corporation in an original principal amount calculated in accordance with the LLC Agreement and payable in full on the IPO closing date (the "Preferred Units
--------------- Exchange"). - --------


F. Following the Reorganization and the Preferred Units Exchange, the Corporation will consummate the IPO.


G. The Company, the Corporation, the Members and the Class B Beneficial Owners wish to set forth herein their agreement concerning the Reorganization and related matters.


AGREEMENT
---------


ARTICLE I


REORGANIZATION
--------------


1.1 Closing Date and Location. The Reorganization shall be
------------------------- consummated on the date (the "Reorganization Closing Date") on which, and,
--------------------------- except as provided in the following sentence, immediately following the time at which, the Corporation, the stockholders offering Common Stock in the IPO (the "Selling Stockholders") and the managing underwriters of the IPO (the -------------------- "Underwriters") have determined the initial public offering price (the "IPO ------------ --- Price") of the Common Stock (such determination, the "IPO Pricing") and have - ----- ----------- executed an underwriting agreement providing for the purchase of the Common Stock by the Underwriters at the IPO Price (the "Underwriting Agreement"). By
---------------------- mutual agreement of the parties, the Company may make the LLC Distribution described in Section 1.2.1 before the IPO Pricing. The Reorganization Closing Date shall occur on the business day immediately preceding the business day on which the SEC issues an order of effectiveness under the Securities Act with respect to the Registration Statement. The closing of the Reorganization (the "Reorganization Closing") shall occur at the offices of Hogan & Hartson L.L.P. ---------------------- located at 555 Thirteenth Street, N.W., Washington, D.C. 20004-1190, or at such other location as the parties shall designate by mutual agreement.


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1.2 Transactions. The Reorganization shall consist of the
------------ transactions described in this Section 1.2, which the parties shall consummate in the order set forth in this Section 1.2.


1.2.1 Special Cash Distribution.
-------------------------


(a) The Company shall make a special cash distribution to each Member (the special cash distribution payable to the Members, the "LLC
--- Distribution"), which shall consist of (i) an amount representing a return of - ------------ such Member's capital, as set forth opposite such Member's name on Schedule II
----------- hereto, and (ii) an amount representing the amount of the previously recognized and undistributed taxable income of the Company through the Reorganization Closing Date on which such Member has paid income tax before the Reorganization Closing Date or will pay income tax from and after the Reorganization Closing Date (the "Taxable Income Amount"). The Company shall make the LLC Distribution,
--------------------- pro rata to the Members based on the amounts set forth on Schedule II hereto, by
----------- wire transfer of immediately available funds or other method of payment mutually acceptable to the parties to the extent of its cash available for such distribution on the Reorganization Closing Date. If the Company does not pay any Member in cash on the Reorganization Closing Date the entire amount of the LLC Distribution payable to such Member, the Company shall issue to such Member a promissory note or notes in the form of Exhibit A hereto in the original
--------- principal amount equal to the unpaid portion of such LLC Distribution (each such promissory note, an "LLC Distribution Note"). Each LLC Distribution Note issued
--------------------- to a Member shall be payable in full not later than the second business day after the closing date of the IPO (the "IPO Closing Date") or any later date
---------------- agreed to by the Company and such Member.


(b) Each Member acknowledges that the Taxable Income Amount paid to such Member as of the payment date specified in Section 1.2.1(a) will represent the Company's estimate of such Taxable Income Amount as of such payment date. Not later than the second business day prior to the Reorganization Closing Date, the Company shall furnish to each Member a notice setting forth the Company's calculation of such estimated Taxable Income Amount. Promptly after the Company calculates the actual Taxable Income Amount payable to each Member, which shall occur not later than 90 days after the Reorganization Closing Date, the Company shall furnish to such Member a written notice setting forth such calculation in reasonable detail. If the estimated Taxable Income Amount paid to a Member is less than the actual Taxable Income Amount, the Company shall pay the amount of such shortfall to such Member within 15 business days after the date on which the Company furnishes the foregoing notice to such member. If the estimated Taxable Income Amount paid to a Member exceeds the actual Taxable Income Amount, such Member shall pay the amount of such excess to the Company by wire transfer of immediately available funds within 15 business days after such


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Member receives the foregoing notice from the Company. Notwithstanding the foregoing provisions of this Section 1.2.1(b), any Member that disagrees with the Company's calculation of the actual Taxable Income Amount may deliver a notice to the Company objecting to such calculation within 15 days following such Member's receipt of the Company's notice and calculation. Such Member shall send a copy of its notice of objection to the other Members at the same time it delivers such notice to the Company. If the Company and such Member do not resolve their disagreement regarding the Company's calculation within ten days after such Member has sent its notice of objection to the Company, the calculation of the actual Taxable Income Amount shall be made by the independent public accountants of the Corporation, whose calculation shall be binding on the Company and all Members.


1.2.2 Conversion of Class B Units. Following the LLC
--------------------------- Distribution, the Members holding of record the Class B Units in the Company (the "Institutional Members") shall convert all 1,000 issued and outstanding
--------------------- Class B Units into 1,000 issued and outstanding Class A Units in the Company pursuant to Section 1.2(3) of the LLC Agreement (the "Conversion"). Following
---------- the Conversion, each Institutional Member shall hold of record a number of Class A Units which is equal to the number of Class B Units shown as held of record opposite such Institutional Member's name on Schedule I hereto.
----------


1.2.3 Exercise of Repurchase Option.
-----------------------------


(a) Immediately following the Conversion, the Company shall exercise its option to repurchase Class A Units from the Institutional Members granted to the Company in Section 8 of the Members' Agreement (the "Repurchase
---------- Option"). In accordance with Section 8 of the Members' Agreement, the Company - ------ shall repurchase ratably from the Institutional Members, and the Institutional Members shall sell ratably to the Company, at a purchase price of $.01 per Class A Unit, that number of Class A Units which shall result, after such repurchase, in the Institutional Members collectively retaining Class A Units representing at least 10% of the Class A Units of the Company on a fully diluted basis. Without limiting Section 8 of the Members' Agreement, the Company, the Members and the Class B Beneficial Owners agree that if the IPO Price for the sale of not fewer than 3,250,000 shares of Common Stock by the Corporation is a minimum of $9.41 per share (the "Minimum IPO Price"), the Company shall have the right
----------------- to repurchase from each Institutional Member, and each Institutional Member shall be obligated to sell to the Company, the number of Class A Units set forth opposite such Institutional Member's name on Schedule III hereto. The
------------ calculation of the Minimum IPO Price is set forth on Schedule IV hereto.
-----------


(b) By executing this Agreement, the Institutional Members and the Class B Beneficial Owners agree that (i) the Company has satisfied in full


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its obligation to furnish the Institutional Members with notice of exercise of the Repurchase Option required by Section 8(b) of the Members' Agreement, including all calculations and any other information required to be specified therein, provided that the Underwriting Agreement obligates the parties thereto to consummate the IPO at the Minimum IPO Price or at any higher IPO Price, and (ii) the Institutional Members and the Class B Beneficial Owners agree with the Company's calculations forming part of such notice and waive any right they may have under Section 8(b) of the Members' Agreement to disagree with or object to such calculations, provided that the Underwriting Agreement obligates the parties thereto to consummate the IPO at the Minimum IPO Price or at any higher IPO Price. If the Corporation, the Selling Stockholders and the Underwriters determine to consummate the IPO at a price which is lower than the Minimum IPO Price, the Company shall have satisfied in full its obligation to furnish the Institutional Members with notice of exercise of the Repurchase Option required by Section 8(b) of the Members' Agreement, including all calculations and any other information required to be specified therein, if the Company furnishes to the Selling Stockholders its calculation of the number of Class A Units subject to the Repurchase Option not later than the business day immediately preceding the day on which the Underwriting Agreement is executed; provided, however, that the Institutional Members shall be entitled to exercise any right they may have under Section 8(b) of the Members' Agreement to disagree with or to object to such calculation.


(c) The Company shall have satisfied its obligation under Section 8(a) of the Members' Agreement to pay in full the Notes, together with all accrued interest and Prepayment Premium, if any, thereon in accordance with the terms of the Securities Purchase Agreements (as the terms "Notes" and
----- "Prepayment Premium" are defined in the Securities Purchase Agreements) when the ------------------ Company makes, or causes the Corporation on its behalf to make, the payments provided for in Section 7.1 (the "Note Payments").
-------------


1.2.4 Contribution and Exchange.
-------------------------


(a) Immediately following consummation of the Repurchase Option, each Member shall contribute to the Corporation all of the Membership Interests of such Member. In exchange for such contribution of Membership Interests by all Members (such contribution and exchange together, the "Exchange"), the
-------- Corporation shall issue to each Member the percentage of the shares of Common Stock issued to all Members pursuant to this Section 1.2.4 which is equal to such Member's percentage of the outstanding Membership Interests contributed by all Members to the Corporation pursuant to this Section 1.2.4 (the shares of Common Stock issued to the Members in the Exchange, the "Reorganization Common
--------------------- Stock"). If the Underwriting Agreement obligates the parties thereto to - ----- consummate the IPO at the Minimum IPO Price or at any higher IPO Price, the Corporation shall issue to each Member the number of shares of


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Reorganization Common Stock set forth opposite such Member's name on Schedule V
---------- hereto.

(b) The Corporation and the Members shall consummate the Exchange pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). No party hereto shall take or omit to take any action, or
---- permit any of its affiliates to take or omit to take any action, that would affect adversely or that would be reasonably likely to affect adversely the qualification of the Exchange as a tax-free transaction described in Code Section 351(a). Each party hereto shall treat the Exchange for all tax purposes as a tax-free transaction described in Code Section 351(a).


(c) Concurrently with consummation of the Exchange, the Corporation shall cancel the Common Stock owned by the Company prior to the Exchange and shall reflect such cancellation in its stock transfer records.


1.3 Compliance With Agreements. The Company, the Members and the
-------------------------- Class B Beneficial Owners agree that the Reorganization shall be consummated in accordance with the terms of this Agreement, including the terms of the LLC Agreement, the Members' Agreement and the Securities Purchase Agreements expressly incorporated by reference herein, and that compliance with this Agreement shall constitute compliance with the LLC Agreement, the Members' Agreement and the Securities Purchase Agreements in respect of the transactions constituting the Reorganization and the Note Payments.


1.4 Compliance With LLC Act. The Company shall consummate the
----------------------- Repurchase Option and the LLC Distribution in compliance with Section 18-607 of the Limited Liability Company Act of the State of Delaware.


ARTICLE II


REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
-------------------------------------------------


The Corporation hereby represents and warrants to each Member and each Class B Beneficial Owner as follows:


2.1 Organization, Qualifications and Corporate Power.
------------------------------------------------


(a) The Corporation is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or


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qualification, except where the failure to be so qualified or licensed would not have a material adverse effect on the operating results, financial condition or business of the Corporation and the Company considered as a single enterprise (a "Material Adverse Effect"). The Corporation has the corporate power and ----------------------- authority (i) to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted and (ii) to execute, deliver and perform this Agreement.


(b) The Corporation has delivered to each Member accurate and complete copies of the Corporation's certificate of incorporation and bylaws as in effect on the date hereof and the forms of the Corporation's restated certificate of incorporation (the "Restated Certificate of Incorporation") and
------------------------------------- amended and restated bylaws that shall be in effect immediately prior to the Reorganization.


2.2 Validity. The execution, delivery and performance by the
-------- Corporation of (i) this Agreement and (ii) the Purchase Agreement (as such term is defined in Section 5.1(e)) and the other agreements, documents and instruments required to be delivered by the Corporation pursuant to Section 5.2. ...