Filed by Bowne Pure Compliance



 




Exhibit 10.3


TRANSITION SERVICES AGREEMENT


THIS TRANSITION
SERVICES AGREEMENT, dated as of December 19, 2007 but effective pursuant
to Section 7 (this “Agreement”), is between Quanex
Corporation, a Delaware corporation (“Quanex”), and Quanex
Building Products LLC, a Delaware limited liability company
(“Spinco”).


WHEREAS, Quanex and
Spinco have entered into a Distribution Agreement, dated as of
December 19, 2007 (the “Distribution Agreement”),
pursuant to which (i) Quanex will transfer or cause to be transferred to
Spinco all of the Spinco Assets (as such term and other capitalized terms not
defined herein are defined in the Distribution Agreement), which represent
substantially all of the assets comprising Quanex’s building products
divisions, and Spinco intends to assume all of the Spinco Liabilities and
(ii) all of the issued and outstanding Spinco Common Stock will be
distributed on a pro rata basis to the holders as of the Record Date of the
outstanding Quanex Common Stock;


WHEREAS, this
Agreement, the Distribution Agreement, the Tax Sharing Agreement between Quanex
and Spinco dated as of December 19, 2007, and the Employee Matters
Agreement between Quanex and Spinco dated as of December 19, 2007
(collectively, the “Transaction Agreements”) set forth
certain transactions that are conditions to consummation of the transactions
contemplated by the Distribution Agreement;


WHEREAS, Quanex and
one or more of the Quanex Subsidiaries (collectively, the “Quanex
Group”), on the one hand, and Spinco and one or more of the Spinco
Subsidiaries (collectively, the “Spinco Group”), on the
other hand, will provide certain services (the “Services”)
to each other in accordance with the terms and subject to the conditions set
forth herein for a period described herein on and after the Distribution Date
in order to assist in the transition of the Spinco Business;


NOW, THEREFORE, in
consideration of the representations, warranties, covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:


SECTION 1. 
SERVICES


1.1 Services
Provided by Quanex Group to Spinco Group. In order to continue the
operation of the Spinco Business and to facilitate the orderly and effective
transition of the Spinco Business from Quanex to Spinco, the Quanex Group shall
use commercially reasonable efforts to provide the Spinco Group the Services
set forth in Exhibit A, a copy of which is attached to and made a
part of this Agreement, to the extent such Services may be requested by Spinco
from time to time for the term of this Agreement. The applicable rates, fees
and charges associated with each Service are also set forth in
Exhibit A.  Any additional services to be provided by the
Quanex Group but not specifically detailed in Exhibit A or any
change in the fees to be charged from that set forth on Exhibit A
shall be mutually agreed upon by the parties as an amendment to
Exhibit A.


  


  










 





1.2 Services
Provided by Spinco Group to Quanex Group. In order to continue the
operation of the Quanex business and to facilitate the orderly and effective
transition of the Spinco Business from Quanex to Spinco, the Spinco Group shall
use commercially reasonable efforts to provide the Quanex Group the Services
set forth in Exhibit B, a copy of which is attached to and made a
part of this Agreement, to the extent such Services may be requested by Quanex
from time to time for the term of this Agreement. The applicable rates, fees
and charges associated with each Service are also set forth in
Exhibit B.  Any additional services to be provided by the
Spinco Group but not specifically detailed in Exhibit B or any
change in the fees to be charged from that set forth on Exhibit B
shall be mutually agreed upon by the parties as an amendment to
Exhibit B.


SECTION 2. 
PERFORMANCE OF SERVICES


2.1 Manner
of Performance.  Each of the Quanex Group and the Spinco Group
agrees that it shall use commercially reasonable efforts to cause each of its
respective personnel who previously provided the Services being requested
herein prior to the Distribution Date to perform the Services with the same
degree of care, skill, confidentiality and diligence with which such personnel
perform similar services for such party, but in no event less than in
conformance with industry standards.  Each of Quanex and Spinco shall
ensure that its personnel occupying positions related to the support of the
Spinco Business and the Quanex business, respectively, shall devote sufficient
time and effort as reasonably required to perform the Services.  If a
dispute arises over the nature or quality of the Services, the prior practice
of Quanex with respect to the Services, as determined from the books and
records of Quanex relating to its business or the Spinco Business, shall be
conclusive as to the nature and quality of the Services.


2.2
Provision of Information.  Any data, information,
equipment or general directions necessary for the Quanex Group or the Spinco
Group to perform the Services shall be submitted to the party performing the
Services in a timely manner.


2.3
Termination of Any Service.  The termination of any
one or more of the specific Services shall have no impact on the Quanex
Group’s or the Spinco Group’s obligation to continue to provide any
other Services.


2.4 Laws
and Regulations.  Quanex represents and agrees that it and
each member of the Quanex Group, and Spinco represents and agrees that it and
each member of the Spinco Group, will use the Services provided hereunder only
in accordance with all applicable federal, state and local laws and
regulations, and in accordance with the conditions, rules, regulations and
specifications which may be set forth in any manuals, materials, documents or
instructions provided on or prior to the date of this Agreement.


2.5
Modification of Service Levels.  Prior to the end of
the first calendar month following the Distribution Date and prior to the end
of every calendar month thereafter, the parties will review the Services
provided to discuss whether the Services will remain at the same level or
decrease during the next immediately succeeding month.  Each party will
notify the other in writing of any Service reduction or termination of Services
pursuant to Section 8.


  



	 	 	 	 	 
	  	 	

	 	


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2.6 No
Warranty. THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY STATED
IN THIS AGREEMENT, THERE ARE NO EXPRESS WARRANTIES OR GUARANTIES, AND THERE ARE
NO IMPLIED WARRANTIES OR GUARANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS FOR A PARTICULAR PURPOSE.


2.7 Use of
Subcontractors. Each of Quanex and Spinco may hire or engage one or
more subcontractors to perform any or all of its Services; provided,
that, each of Quanex and Spinco will in all cases remain responsible for
all of their respective obligations under this Agreement, including, without
limitation, with respect to the scope of the Services, the standard for
Services and the content of the Services provided.  Under no circumstances
will Spinco be responsible for making any payments directly to any
subcontractor engaged by Quanex, nor will Quanex be responsible for making any
payments directly to any subcontractor engaged by Spinco.


SECTION 3.  CHARGES
FOR SERVICES


From and after the
date of this Agreement and throughout the term of this Agreement, Spinco agrees
to pay to Quanex on a monthly basis the service fees set forth on
Exhibit A, and Quanex agrees to pay Spinco on a monthly basis the
service fees set forth on Exhibit B.  The parties agree that
the amounts to be paid for Services rendered hereunder are intended to both
reasonably cover the Quanex Group’s and the Spinco Group’s costs in
providing the Services and be competitive with the amount charged by third
parties for similar services.


SECTION 4.  PAYMENT
OF CHARGES AND REIMBURSEMENTS


On or before the
15th day of each month during the term of this Agreement, each party (or its
designee) shall submit to the other party an invoice for the Services provided
hereunder during the immediately preceding calendar month representing amounts
determined in accordance with Section 3 above, if any.  Subject to
Section 5.2, each party shall remit payment to the other party within
fifteen days after its receipt of such invoice.  Unless otherwise agreed
to in writing, each party shall remit all funds due under this Agreement to the
other party (or its designee) by wire transfer in immediately available funds
based on the instructions set forth in Exhibit C, a copy of which
is attached to and made a part of this Agreement.  


SECTION 5.  RECORDS
AND AUDITS

 


5.1
Records Maintenance and Audits.  All records and
other information generated, gathered or maintained by each party in connection
with its provision of the Services pursuant to this Agreement shall be the
proprietary material of the party receiving the Services.  Each party
shall provide the party receiving the Services the originals of such records
and other information, and any copies kept by Quanex with Spinco’s
consent or by Spinco with Quanex’s consent shall remain subject to
Section 6 hereof.  Each of Quanex and Spinco shall, for two years
after the termination of this Agreement, maintain records and other evidence
sufficient to accurately and properly calculate the amounts due determined in
accordance with Section 3 hereof.  Each of



  

	 	 	 	 	 
	  	 	

	 	


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Quanex and Spinco or each of their
respective representatives shall have reasonable access, after requesting such
access in writing, during normal business hours to such records for the purpose
of auditing and verifying the accuracy of the invoices submitted regarding such
amounts due.  Any such audits performed by or on behalf of Quanex or
Spinco shall be at the requesting party’s sole cost and expense. 
The party being audited shall fully cooperate with the auditing party’s
representatives to accomplish the audit.  Each party shall have the right
to audit the other party’s books for a period of one year after the month
in which the Services were rendered.  


5.2
Disputed Amounts.  In the event of a good-faith
dispute as to the amount or propriety of any invoice or any portions thereof
submitted pursuant to Sections 3 and 4, the party receiving the Services
shall pay all charges on such invoice other than disputed amounts and shall
promptly notify the other party in writing of such disputed amounts.  So
long as the parties are attempting in good faith to resolve the dispute,
neither party shall be entitled to terminate the Services related to, or that
are the cause of, the disputed amounts. If it is determined that the party
receiving Services is required to pay all or a portion of the disputed amounts
to the party providing Services, the party receiving the Services shall pay
such amounts promptly and in no case more than five days after such
determination is made.  


5.3
Undisputed Amounts.  Any statement or payment not
disputed in writing by Spinco or Quanex within one year after the month in
which the Services were rendered shall be considered final and no longer
subject to adjustment.


5.4 Set
Off. Each party shall have the right to set off any amounts owed to
such party by the other party under this Agreement.  


SECTION 6. 
CONFIDENTIALITY


Each party
acknowledges that in connection with its performance under this Agreement, it
may gain access to confidential material and information that is of a
proprietary, technical or business nature to the other party with respect to
the Services being performed hereunder. Therefore, each party agrees that it
shall not, and shall cause each of its respective officers, directors,
employees, and other agents and representatives, including attorneys, agents,
customers, suppliers, contractors and consultants (collectively, such
party’s “Representatives”), not to, directly or indirectly,
disclose, reveal, divulge or communicate to any person (other than
Representatives of such party who reasonably need to know such information in
providing Services hereunder) or use or otherwise exploit for its own benefit
or for the benefit of any third party, any of the other party’s
Confidential Information (as defined below). If any disclosures are made by a
party to its Representatives in connection with such Representatives providing
Services hereunder, then the Confidential Information so disclosed shall be
used only as required to perform the Services. Such party shall use the same
degree of care to prevent and restrain the unauthorized use or disclosure of
the other party’s Confidential Information by any of its Representatives
as they currently use for their own confidential information of a like nature,
but in no event less than a reasonable standard of care. If a party is required
to disclose Confidential Information of the other party due to a provision of
law or a compulsory disclosure notice of a court or governmental agency, the
party needing to make such disclosure shall promptly notify the other party and
shall assist the other party in obtaining confidential treatment of such




  


	 	 	 	 	 
	  	 	

	 	


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Confidential Information.
“Confidential Information” of a party means any information,
material or documents relating to the business of such party currently or
formerly conducted, or proposed to be conducted, by such party furnished to or
in possession of the other party, irrespective of the form of communication,
and all notes, analyses, compilations, forecasts, data, translations, studies,
memoranda or other documents prepared by or on behalf of the other party that
contain or otherwise reflect such information, material or documents.
“Confidential Information” does not include, and there shall be no
obligation hereunder with respect to, information that (i) is or becomes
generally available to the public, other than as a result of a disclosure by
any member of the other party or any of its Representatives not otherwise
permissible hereunder, (ii) the other party can demonstrate was or became
available to such other party from a source other than the first party, or
(iii) is developed independently by the other party without reference to
the Confidential Information; provided, however, that, in the case of clause
(ii) above, the source of such information was not known by the other
party to be bound by a confidentiality agreement with, or other contractual,
legal or fiduciary obligation of confidentiality to, the first party with
respect to such information.


Following
termination of the Services hereunder, upon written request at any time by
either party, the parties shall account for and return or destroy all papers,
books, records and electronic records containing any Confidential Information.




SECTION 7.  TERM
OF AGREEMENT

 


Unless sooner
terminated pursuant to Section 8 hereof, this Agreement shall become
effective and shall be for a term commencing on the Distribution Date and
ending on the last day of the twelfth calendar month following the month in
which the Distribution Date occurs.  


SECTION 8. 
TERMINATION

 


8.1
Termination of Agreement.  At any time or from time
to time, either party may terminate this Agreement for any reason whatsoever by
giving the other party at least 45 days’ prior written notice to
that effect.  Each party shall pay the other party for all charges
determined pursuant to Section 3 and incurred up to the date of such
termination.  Subject to Section 5, either party may also immediately
terminate this Agreement if the other party does not tender payment for the
Services within fifteen days after such party is given written notice of a
failure to pay.  


8.2
Termination of Services.  At any time or from time to
time, either party may terminate any one or more of the specific Services
provided hereunder by giving the other party at least thirty days’ prior
written notice to that effect.  At any time or from time to time, either
party may immediately terminate any one or more of the specific Services if the
providing of such Service would violate any applicable regulation, statute,
ordinance or other law; provided, however, that a party shall
give the other party prompt written notice when it intends to terminate any
specific Services for this reason.  



  




	 	 	 	 	 
	  	 	

	 	


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SECTION 9. 
MISCELLANEOUS

 


9.1 Force
Majeure.  Neither party shall have any obligation to perform
any specific Service hereunder if its failure to do so is caused by or results
from any act of God, governmental action, natural disaster, strike, terrorism,
war, insurrection or other cause or circumstances beyond its control, which
acts or occurrences make it impossible for such party to carry out its
obligations under this Agreement.  During the term of the force majeure,
the party receiving the Service shall have no obligation to pay for the
specific Service that the other party does not provide as a result of the force
majeure.  


9.2
Limitation of Liability.  EXCEPT FOR FAILURE TO
COMPLY WITH THE CONFIDENTIALITY PROVISIONS HEREIN AND FOR FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
LOSSES OR DAMAGES OF ANY KIND OR NATURE WHATSOEVER, INCLUDING LOST PROFITS AND
GOODWILL, WITH RESPECT TO THE SERVICES PROVIDED UNDER THIS AGREEMENT.  IN
NO EVENT SHALL EITHER PARTY’S LIABILITY HEREUNDER EXCEED THE TOTAL AMOUNT
OF CASH COMPENSATION THAT SUCH PARTY IS PAID UNDER THIS AGREEMENT.  


9.3
Indemnification.  Each party shall release, defend
(upon the other party’s request), protect, indemnify and save the other
party, its employees, contractors, subcontractors (of any tier) and agents
harmless from and against all liability, claims, costs, expenses, demands,
suits and causes of action of every kind and character arising in favor of or
against the first party, its employees, contractors, subcontractors (of any
tier) or agents, on account of personal injuries to or death of any person, or
damages to or the loss or destruction of property, incident to or in connection
with or arising out of:  (a) the presence of any of such
party’s employees, contractors, subcontractors (of any tier) or agents on
the other party’s premises, (b) the negligent act or omission of
such party or its employees, contractors, subcontractors (of any tier) or
agents or (c) the failure of such party to comply with the provisions of
this Agreement.  The foregoing shall not be interpreted to require either
party to indemnify the other party against the gross negligence or willful
misconduct of the other party, its employees, contractors or agents.  


9.4
Independent Contractor:  The parties hereto agree
that the Services rendered by the Quanex Group and the Spinco Group in the
fulfillment of the terms and obligations of this Agreement shall be as an
independent contractor and not as an employee, and with respect thereto, the
Quanex Group, the Spinco Group and their respective employees, contractors or
agents are not entitled to the benefits provided by the other party to its
employees including, but not limited to, group insurance and participation in
any employee benefit and pension plans. Further, nothing stated in this
Agreement shall be construed to make any member of the Quanex Group an agent,
partner or joint venturer of or with any member of the Spinco Group or to make
any member of the Spinco Group an agent, partner or joint venturer of or with
any member of the Quanex Group.  No employee, contractor or agent of
either the Quanex Group or the Spinco Group shall represent himself to third
persons to be other than an independent contractor of the other party, nor
shall he permit himself to offer or agree to incur or assume any obligations or
commitments in the name of such party or for such party without the prior
consent and authorization of such party.  



  





	 	 	 	 	 
	  	 	

	 	


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9.5
Complete Agreement.  This Agreement and the Exhibits
hereto, the other Transaction Agreements and other documents referred to herein
and therein shall constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
 


9.6
Governing Law.  This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to its conflicts of laws principles.  


9.7
Notices.  All notices and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed given upon (a) a transmitter’s confirmation of a receipt of a
facsimile transmission (but only if followed by confirmed delivery of a
standard overnight courier the following business day or if delivered by hand
the following business day), (b) confirmed delivery of a standard
overnight courier or when delivered by hand or (c) the expiration of five
business days after the date mailed by certified or registered mail
(return receipt requested), postage prepaid, to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice): 


If to Quanex or any
member of the Quanex Group prior to the Distribution Date, to:


Quanex Corporation

1900 West Loop South, Suite 1500


Houston, Texas 77027


Attention: General Counsel


Facsimile: (713) 626-7549


and


Gerdau S.A.

Avenida Farrapos, 1811


Porto Alegre, RS 90220-005


Brazil


Attention: Expedito Luz


Fax: 55-51-3323-2288


with a copy to:


Fulbright & Jaworski L.L.P.


1301 McKinney, Suite 5100


Houston, Texas 77010


Attention: Michael W. Conlon

Facsimile: (713) 651-5246



  




	 	 	 	 	 
	  	 	

	 	


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and


Simpson Thacher & Bartlett LLP


425 Lexington Avenue


New York, New York 10017


Attention: Alan Klein


Facsimile: (212) 455-2502


If to Quanex or any
member of the Quanex Group following the Distribution Date, to:


Gerdau S.A.


Avenida Farrapos, 1811


Porto Alegre, RS 90220-005


Brazil


Attention: Expedito Luz


Fax: 55-51-3323-2288


with a copy to:


Simpson Thacher & Bartlett LLP


425 Lexington Avenue


New York, New York 10017


Attention: Alan Klein


Facsimile: (212) 455-2502


If to Spinco or any
member of the Spinco Group, to:


Quanex Building Products LLC


1900 West Loop South, Suite 1500


Houston, Texas 77027


Attention: President


Facsimile: (713) 626-7549


with a copy (which
shall not constitute effective notice) to:


Fulbright & Jaworski L.L.P.

1301 McKinney, Suite 5100


Houston, Texas 77010


Attention: Michael W. Conlon


Facsimile: (713) 651-5246


or to such other address as any
party hereto may have furnished to the other parties by a notice in writing in
accordance with this Section.



  




	 	 	 	 	 
	  	 	

	 	


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9.8
Amendment and Modification.  This Agreement may be
amended, modified or supplemented only by a written agreement signed by all of
the parties hereto.  


9.9
Successors and Assigns; No Third-Party
Beneficiaries.  This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their successors and permitted assigns, but neither this Agreement nor any of
the rights, interests and obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party.  Except for
the provisions of Section 9.3, which are also for the benefit of the
indemnitees, this Agreement is solely for the benefit of Quanex and Spinco and
their respective subsidiaries, affiliates, successors and assigns, and is not
intended to confer upon any other persons any rights or remedies hereunder
 


9.10
Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  


9.11
Interpretation.  The Section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.  


9.12
Severability.  If any provision of this Agreement or
the application thereof to any person or circumstance is determined by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.  


9.13
References; Construction.  References to any
“Exhibit” or “Section,” without more, are to Exhibits
and Sections to or of this Agreement.  Unless otherwise expressly
stated, clauses beginning with the term “including” or similar
words set forth examples only and in no way limit the generality of the matters
thus exemplified.  


9.14
Termination.  Notwithstanding any provision hereof,
this Agreement may be terminated at any time prior to the Distribution Date by
and in the sole discretion of the Board of Directors of Quanex.  In the
event of such termination, no party hereto shall have any liability to the
other party hereto by reason of this Agreement.  


9.15
Consent to Jurisdiction and Service of Process.  Each
of the parties to this Agreement hereby irrevocably and unconditionally
(i) agrees to be subject to, and hereby consents and submits to, the
jurisdiction of the courts of the State of Delaware and of the federal courts
sitting in the State of Delaware, (ii) to the extent such party is not
otherwise subject to service of process in the State of Delaware, appoints the
Corporation Trust Company as such party’s agent in the State of Delaware
for acceptance of legal process and (iii) agrees that service made on any
such agent set forth in (ii) above shall have the same legal force and
effect as if served upon such party personally within the State of Delaware.



  





	 	 	 	 	 
	  	 	

	 	


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9.16
Waivers.  Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement.  The
waiver by any party hereto of a breach of any provision hereunder shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provision hereunder.


9.17
Specific Performance.  The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.


9.18
Waiver of Jury Trial.  Each of the parties hereto
irrevocably and unconditionally waives all right to trial by jury in any
litigation, claim, action, suit, arbitration, inquiry, proceeding,
investigation or counterclaim (whether based in contract, tort or otherwise)
arising out of or relating to this Agreement or the actions of the parties
hereto in the negotiation, administration, performance and enforcement thereof.



  




	 	 	 	 	 
	  	 	

	 	


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The parties hereto have executed this Agreement on the date first written above, to be effective on the Distribution Date.



	 	 	 	 	 
	 	

Quanex Corporation 

 	 
	 	By:  	/s/ Thomas M. Walker
 	 
	 	 	Thomas M. Walker  	 
	 	 	Senior Vice President — Finance and

Chief Financial Officer 	 
	 
	 	Quanex Building Products LLC 

 	 
	 	By:  	/s/ Kevin P. Delaney
 	 
	 	 	Kevin P. Delaney 	 
	 	 	Senior Vice President —

General Counsel and Secretary 	 
	 




  



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