Filed by Bowne Pure Compliance



 




Exhibit 10.1




DISTRIBUTION AGREEMENT




DATED AS OF DECEMBER 19, 2007




AMONG




QUANEX CORPORATION,




QUANEX BUILDING PRODUCTS LLC,




AND




QUANEX BUILDING PRODUCTS CORPORATION



 


 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	ARTICLE I      DEFINITIONS
	 	 	2	 
	ARTICLE II      PRELIMINARY TRANSACTIONS
	 	 	9	 
	Section 2.1      Business Separation
	 	 	9	 
	Section 2.2      Conveyancing and Assumption Agreements
	 	 	10	 
	Section 2.3      Governing Documents
	 	 	10	 
	Section 2.4      Issuance of Spinco Equity
	 	 	10	 
	Section 2.5      Other Agreements
	 	 	10	 
	Section 2.6      Transfers Not Effected Prior to the Distribution; Transfers Deemed
Effective as of the Distribution Date
	 	 	10	 
	Section 2.7      Allocation of Corporate Overhead
	 	 	11	 
	Section 2.8      Responsibility for Costs Associated with Conversion of Quanex
Convertible Debentures
	 	 	11	 
	ARTICLE III      THE DISTRIBUTION
	 	 	12	 
	Section 3.1      Record Date and Distribution Date
	 	 	12	 
	Section 3.2      The Agent
	 	 	12	 
	Section 3.3      The Distribution
	 	 	12	 
	Section 3.4      Actions in Connection with the Distribution
	 	 	12	 
	Section 3.5      Fractional Shares
	 	 	13	 
	Section 3.6      The Spinco Merger
	 	 	13	 
	ARTICLE IV      SURVIVAL AND INDEMNIFICATION
	 	 	14	 
	Section 4.1      Survival of Agreements
	 	 	14	 
	Section 4.2      Indemnification
	 	 	14	 
	Section 4.3      Procedures for Indemnification
	 	 	14	 
	Section 4.4      Reductions for Insurance Proceeds and Other Recoveries
	 	 	16	 
	Section 4.5      Specific Performance
	 	 	16	 
	Section 4.6      Remedies Exclusive
	 	 	17	 
	Section 4.7      Tax Treatment of Indemnity and Other Payments
	 	 	17	 
	Section 4.8      Survival of Indemnities
	 	 	17	 
	ARTICLE V      CERTAIN ADDITIONAL COVENANTS
	 	 	17	 
	Section 5.1      Notices to Third Parties
	 	 	17	 
	Section 5.2      Licenses and Permits
	 	 	17	 






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TABLE OF CONTENTS




(continued)




	 	 	 	 	 
	 	 	Page
	Section 5.3      Intercompany Agreements
	 	 	17	 
	Section 5.4      Further Assurances
	 	 	18	 
	Section 5.5      Guarantee Obligations, Liens and Other Obligations
	 	 	18	 
	Section 5.6      Insurance
	 	 	19	 
	Section 5.7      Cash Separation.
	 	 	21	 
	Section 5.8      The Merger
	 	 	22	 
	ARTICLE VI      ACCESS TO INFORMATION
	 	 	22	 
	Section 6.1      Provision of Corporate Records
	 	 	22	 
	Section 6.2      Access to Information
	 	 	22	 
	Section 6.3      Production of Witnesses
	 	 	23	 
	Section 6.4      Retention of Records
	 	 	24	 
	Section 6.5      Confidentiality
	 	 	24	 
	Section 6.6      Cooperation with Respect to Government Reports and Filings
	 	 	24	 
	Section 6.7      Tax Matters Agreement
	 	 	25	 
	ARTICLE VII      REPRESENTATIONS AND WARRANTIES
	 	 	25	 
	Section 7.1      No Representations or Warranties
	 	 	25	 
	Section 7.2      Operations, No Liabilities
	 	 	25	 
	Section 7.3      Solvency
	 	 	25	 
	Section 7.4      Organization, Good Standing, Authorization
	 	 	25	 
	Section 7.5      Financial Statements
	 	 	26	 
	ARTICLE VIII      MISCELLANEOUS
	 	 	26	 
	Section 8.1      Conditions to the Distribution
	 	 	26	 
	Section 8.2      Complete Agreement
	 	 	27	 
	Section 8.3      Expenses
	 	 	27	 
	Section 8.4      Governing Law
	 	 	27	 
	Section 8.5      Notices
	 	 	27	 
	Section 8.6      Amendment and Modification
	 	 	29	 
	Section 8.7      Successors and Assigns; No Third-Party Beneficiaries
	 	 	29	 
	Section 8.8      Counterparts
	 	 	30	 






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(continued)




	 	 	 	 	 
	 	 	Page
	 
	 	 	 	 
	Section 8.9      Interpretation
	 	 	30	 
	Section 8.10      Severability
	 	 	30	 
	Section 8.11      References; Construction
	 	 	30	 
	Section 8.12      Termination
	 	 	30	 
	Section 8.13      Consent to Jurisdiction and Service of Process
	 	 	30	 
	Section 8.14      Waivers
	 	 	30	 
	Section 8.15      Specific Performance
	 	 	30	 
	Section 8.16      Waiver of Jury Trial
	 	 	31	 
	Section 8.17      Use of Name
	 	 	31	 






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DISTRIBUTION AGREEMENT




THIS DISTRIBUTION AGREEMENT, dated as of December 19, 2007, is among Quanex Corporation, a
Delaware corporation (“Quanex”), Quanex Building Products LLC, a Delaware limited liability
company and a wholly-owned subsidiary of Quanex (“Spinco”), and Quanex Building Products
Corporation, a Delaware corporation and a wholly-owned subsidiary of Spinco (“Spinco Sub”).



WHEREAS, the board of directors of Quanex has determined that it is appropriate and desirable
for Quanex to separate its building products divisions from Quanex;



WHEREAS, prior to the Distribution Date, Quanex will, pursuant to this Agreement, transfer or
cause to be transferred to Spinco all of the Spinco Assets, which represent substantially all of
the assets comprising Quanex’s building products divisions, and will assume all of the Spinco
Liabilities, as contemplated by this Agreement (the “Contribution”);



WHEREAS, after the Contribution and prior to the Distribution Date, Quanex may cause one or
more of members of the Spinco Group that are corporations to convert into, merge with and into or
otherwise transfer all of their assets, subject to all of their liabilities, to limited liability
companies, of which Quanex or another member of the Spinco Group will be the sole member;



WHEREAS, either before or after the Distribution, Spinco will merge with and into Spinco Sub
(the “Spinco Merger”) pursuant to the Spinco Merger Agreement;



WHEREAS, on the Distribution Date and pursuant to the terms and conditions of this Agreement,
Quanex will distribute (the “Distribution”) to the holders as of the Record Date of the
outstanding common stock of Quanex, par value $0.50 per share (“Quanex Common Stock”), for
each share of Quanex Common Stock outstanding, either (a) one unit of limited liability company
interest (the “Spinco Interest”) of Spinco (if the Spinco Merger occurs after the
Distribution) or (b) one share of Spinco Sub common stock (the “Spinco Sub Common Stock”)
(if the Spinco Merger occurs prior to the Distribution);



WHEREAS, following the Distribution and pursuant to the Merger Agreement, Gerdau Delaware,
Inc., a Delaware corporation and wholly-owned subsidiary of Gerdau S.A., a corporation organized
under the laws of the Federative Republic of Brazil, will merge with and into Quanex (the
“Merger”);



WHEREAS, for U.S. federal income Tax purposes, it is intended that the Distribution and the
Merger be treated as an integrated transaction in redemption and disposition of the shares of
Quanex Common Stock; and



WHEREAS, Quanex has filed with the SEC a Form 10 Registration Statement pursuant to the
Exchange Act in connection with the Distribution;



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:


 


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ARTICLE I




DEFINITIONS




As used in this Agreement, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the terms defined):



“Affiliate” shall mean, with respect to any specified Person, any other Person that
directly or indirectly controls, is controlled by or is under common control with, such specified
Person. For purposes of this definition, “control” (including, with correlative meanings, the
terms “controlled by” and “under common control with”), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that for purposes of this Agreement, from and after the
Distribution Date, no member of the Quanex Group shall be deemed an Affiliate of any member of the
Spinco Group and no member of the Spinco Group shall be deemed an Affiliate of any member of the
Quanex Group.



“Agent” shall mean the distribution agent to be agreed to by Quanex and Spinco to
distribute the Spinco Interests or the shares of Spinco Sub Common Stock, as the case may be,
pursuant to the Distribution.




“Agreement” shall mean this Distribution Agreement.




“Assets” shall mean the Spinco Assets or the Quanex Assets, as the case may be.




“Business” shall mean the Spinco Business or the Quanex Business, as the case may be.



“Business Day” shall mean any day other than a Saturday, Sunday or a day on which
banking institutions in the City of New York are authorized or obligated by law or executive order
to close.



“Cash Inflows” shall mean the daily amount of all and any cash amounts (including any
cash received in respect of sales taxes) received by the Quanex Group or received or passed to any
member of the Quanex Group, during the Separation Period.



“Cash Outflows” shall mean the daily amount of cash payments (including any cash paid
in respect of sales taxes) made by the Quanex Group, during the Separation Period in discharging
Qualifying Liabilities.



“Claims Administration” shall mean the processing of claims made under the Policies,
including the reporting of claims to the insurance carrier, management and defense of claims, and
providing for appropriate releases upon settlement of claims.



“Claims Made Policies” shall have the meaning specified in Section 5.6(a).


 


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“Contribution” shall have the meaning specified in the Recitals hereof.




“Distribution” shall have the meaning specified in the Recitals hereof.



“Distribution Date” shall mean the date and time that the Distribution shall become
effective.



“Employee Matters Agreement” shall mean the Employee Matters Agreement of even date
herewith between Quanex and Spinco.



“Environmental Law” shall mean any Law or authorization concerning: (A) the protection
of the environment or natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, indoor air, employee or public
exposure, wetlands, pollution, contamination or any injury or threat of injury to persons or
property relating to any Hazardous Substance.




“Exchange” shall mean the New York Stock Exchange.



“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, together
with the rules and regulations of the SEC promulgated thereunder.



“Form 10 Registration Statement” shall mean the Registration Statement on Form 10 (or,
if such form is not appropriate, the appropriate form pursuant to the Exchange Act) to be filed by
Spinco Sub with the SEC to effect the registration of the Spinco Sub Common Stock pursuant to the
Exchange Act in connection with the Distribution or the Spinco Merger, as the case may be.



“Governmental Entity” shall mean any governmental or regulatory authority, agency,
commission, body or other governmental entity.




“Group” shall mean the Quanex Group or the Spinco Group, as the case may be.



“Hazardous Substance” shall mean any waste, pollutant, contaminant or hazardous, toxic
or deleterious substance or any substance that is listed, classified or regulated pursuant to any
Environmental Law or that could result in the imposition of liability pursuant to any Environmental
Law, including petroleum, petroleum products, asbestos, asbestos-containing materials and
polychlorinated biphenyls.



“Indemnifiable Losses” shall mean all losses, Liabilities, damages, claims, demands,
judgments or settlements of any nature or kind, including all reasonable costs and expenses (legal,
accounting or otherwise as such costs are incurred) relating thereto, suffered by an Indemnitee,
including any reasonable costs or expenses of enforcing any indemnity hereunder.



“Indemnifying Party” shall mean a Person that is obligated under this Agreement to
provide indemnification.




“Indemnitee” shall mean a Person that may seek indemnification under this Agreement.



“Information” shall mean all records, books, contracts, instruments, computer data and
other data and information.


 


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“Law” or “Laws” shall mean any federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency
requirement, license or permit of any Governmental Entity.



“Liability” or “Liabilities” shall mean any and all losses, claims, debts,
demands, actions, causes of action, suits, damages, liabilities and obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialities, indemnities and similar
obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings,
guarantees, make whole agreements and similar obligations, whether absolute or contingent, matured
or unmatured, liquidated or unliquidated, accrued or unaccrued, direct or indirect, known or
unknown, whenever arising, and whether or not the same would properly be reflected in books and
records or financial statements prepared in accordance with United States generally accepted
accounting principles and including those arising under any Law (including the costs and expenses
of demands, assessments, judgments, settlements and compromises relating thereto and attorney’s
fees and any and all costs and expenses, whatsoever reasonably incurred).



“Litigation Matters” shall mean actual, threatened or future litigation,
investigations, claims or other legal matters that have been or may be asserted against, or
otherwise adversely affect, Quanex and/or Spinco (or members of either Group).




“Merger” shall have the meaning specified in the Recitals hereof.



“Merger Agreement” shall mean that certain Agreement and Plan of Merger dated November
18, 2007, as amended from time to time, among Quanex, Gerdau S.A. and Gerdau Delaware, Inc.




“Merger Consideration” shall have the meaning set forth in the Merger Agreement.



“Occurrence Basis Policies” shall have the meaning specified in Section
5.6(a).



“Person” shall mean a natural person, corporation, company, partnership, limited
partnership, limited liability company or any other entity, including a Governmental Entity.



“Policies” shall mean all insurance policies, insurance contracts and claim
administration contracts of any kind of Quanex and its Subsidiaries (including members of the
Spinco Group) and their predecessors which were or are in effect at any time at or prior to the
Distribution Date, including primary, excess and umbrella, commercial general liability, fiduciary
liability, product liability, automobile, aircraft, property and casualty, business interruption,
directors and officers liability, employment practices liability, workers’ compensation, and crime,
errors and omissions policies, together with all rights, benefits and privileges thereunder.



“Privileged Information” shall mean, with respect to either Group, Information
regarding a member of such Group, or any of its operations, Assets or Liabilities (whether in
documents or stored in any other form or known to its employees or agents) that is or may be
protected from disclosure pursuant to the attorney-client privilege, the work product doctrine or
another applicable privilege, that a member of the other Group may come into possession of or
obtain access to pursuant to this Agreement or otherwise.


 


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“Qualifying Liabilities” shall mean all liabilities incurred by the Quanex Business in
the ordinary course, whether prior to or on the Distribution Date and whether by the Quanex Group
directly or though their agents.




“Quanex” shall have the meaning specified in the preamble hereof.



“Quanex Assets” shall mean, collectively, all of the right, title and interest of
Quanex and the Quanex Subsidiaries in all their respective assets and properties, tangible or
intangible, other than the Spinco Assets.



“Quanex Business” shall mean all of the businesses and operations conducted by Quanex
and the Quanex Subsidiaries (other than the Spinco Business) at any time, whether prior to, on or
after the Distribution.




“Quanex Common Stock” shall have the meaning specified in the Recitals hereof.




“Quanex Group” shall mean Quanex and the Quanex Subsidiaries.



“Quanex Indemnitees” shall mean Quanex, each person who is or becomes an Affiliate of
Quanex after the Distribution Date and each of their respective present and former Representatives
and each of the heirs, executors, successors and assigns of any of the foregoing.



“Quanex Liabilities” shall mean, collectively, all Liabilities of Quanex and all
Liabilities of the Quanex Subsidiaries, including (i) the Liabilities of Quanex under the
Transaction Agreements and; provided that Quanex Liabilities shall not include (x) the Spinco
Liabilities and (y) Liabilities dealt with separately in the other Transaction Agreements.




“Quanex Subsidiaries” shall mean the following entities:




	 	(a)	 	MacSteel Atmosphere Annealing, Inc.;

	 
	 	(b)	 	MacSteel Monroe, Inc.;

	 
	 	(c)	 	Quanex Bar, Inc.;

	 
	 	(d)	 	Quanex Steel Inc.;

	 
	 	(e)	 	Quanex Solutions, Inc.;

	 
	 	(f)	 	Quanex Health Management Company, Inc.;

	 
	 	(g)	 	Quanex Nine, Inc.;

	 
	 	(h)	 	Quanex Ten, Inc.;

	 
	 	(i)	 	Quanex Eleven, Inc.; and

	 
	 	(j)	 	Quanex Twelve, Inc.





 


5









 





“Record Date” shall mean the close of business on the date to be determined by the
Board of Directors of Quanex as the record date for determining stockholders of Quanex entitled to
receive the Distribution, which shall be the Effective Date of the Merger (as defined in the Merger
Agreement).



“Representative” shall mean, with respect to any Person, any of such Person’s
directors, officers, employees, agents, consultants, advisors, accountants, attorneys and
representatives.




“SEC” shall mean the United States Securities and Exchange Commission.



“Securities Act” shall mean the Securities Act of 1933, as amended, together with the
rules and regulations of the SEC promulgated thereunder.



“Separation Period” means the period from November 1, 2007 to (and including) the
Distribution Date.



“Shares” means, in the case where the Spinco Interest is distributed to the holders of
shares of Quanex Common Stock in the Distribution, a fractional part of the Spinco Interest, and in
the case where shares of Spinco Sub Common Stock is distributed in the Distributions, the shares of
Spinco Sub Common Stock.



“Solvent” shall mean that, as of any date of determination, (i) the amount of the
“fair saleable value” of the assets of such Person will, as of such date, exceed (A) the value of
all “liabilities of such Person, including contingent and other liabilities,” as of such date, as
such quoted terms are generally determined in accordance with applicable Laws governing
determinations of the insolvency of debtors, and (B) the amount that will be required to pay the
probable liabilities of such Person on its existing debts (including contingent and other
liabilities) as such debts become absolute and mature; (ii) such Person will not have, as of such
date, an unreasonably small amount of capital for the operation of the businesses in which it is
engaged or proposed to be engaged following such date; and (iii) such Person will be able to pay
its liabilities, including contingent and other liabilities, as they mature. For purposes of this
definition, “not have an unreasonably small amount of capital for the operation of the businesses
in which it is engaged or proposed to be engaged” and “able to pay its liabilities, including
contingent and other liabilities, as they mature” means that such Person will be able to generate
enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet
its obligations as they become due.




“Spinco” shall have the meaning specified in the Preamble hereof.



“Spinco Assets” shall mean, collectively, the right, title and interest of Quanex and
the Quanex Subsidiaries immediately prior to the Contribution in and to:



(a) all real property and leasehold estate interests of Quanex used in the Spinco Business,
including the real property and leasehold estates described on Schedule 1(a);



(b) all tangible property used primarily in conjunction with the Spinco Business, including
all surplus, materials, stock and inventory listed on Schedule 1(b);


 


6









 





(c) all contracts and instruments including those listed on Schedule 1(c), and all
rights thereunder, to the extent the same relate primarily to the Spinco Business (collectively,
the “Contracts”);



(d) all books and records (including those referred to in Section 6.1), files,
reports, intellectual property (including patents, trade secrets and copyrights, but excluding
those items of intellectual property set forth on Schedule 1(d)), whether or not of a
proprietary nature to the extent primarily related to the Spinco Business;



(e) the rights of Spinco and its Subsidiaries under this Agreement and the other Transaction
Agreements;



(f) all accounts receivable, inventories, goodwill and other current assets (other than cash
and cash equivalents) attributable to the assets described in paragraphs (a) through (e) above from
and after the Distribution Date;



(g) cash and cash equivalents in the amount of (i) $20.9 million as at November 1, 2007 plus
or minus the amount of any net cash flow (if any) generated by the Spinco Business during the
Separation Period in accordance with Section 5.7;



(h) the capital stock of the Spinco Subsidiaries; and



(i) the name and trademark “Quanex” and any similar names, service marks, trademarks, trade
names, identifying symbols, trade dress, logos, emblems, signs or insignia related thereto or
containing or comprising the foregoing, including any name or mark confusingly similar thereto.



“Spinco Business” shall mean the building products business conducted by Quanex
through the Spinco Subsidiaries on the Distribution Date.



“Spinco Equity” means, with respect to Spinco, the Spinco Interest, and with respect
to Spinco Sub, the Spinco Sub Common Stock.




“Spinco Group” shall mean Spinco, Spinco Sub and the Spinco Subsidiaries.



“Spinco Indemnitees” shall mean Spinco and each person who is or becomes an Affiliate
of Spinco after the Distribution Date and each of their respective present and former
Representatives and each of the heirs, executors, successors and assigns of any of the foregoing.




“Spinco Interests” shall have the meaning specified in the Recitals hereof.



“Spinco Liabilities” shall mean all Liabilities, whenever incurred or arising,
including, but not limited to Liabilities under or relating to any Environmental Laws or any
consultant, former employee or employee, that relate to the Spinco Assets (including any contracts
relating to the Spinco Business and any real property and leasehold interests), or resulting from
the operation of the Spinco Business (and to the business currently or formerly conducted by Quanex
or any of the Spinco Group or any of the Affiliates of the foregoing relating to Quanex’ building
products division), as conducted at any time before, on or after the Distribution Date but
excluding (i) Liabilities dealt with separately in the other Transaction Agreements and (ii)
the corporate overhead expenses referred to in Section 2.7.

 


7









 








“Spinco Merger” shall have the meaning specified in the Recitals hereof.



“Spinco Merger Agreement” shall mean the Agreement and Plan of Merger to be entered
into by and between Spinco and Spinco Sub prior to the Distribution Date.




“Spinco Sub” shall have the meaning specified in the Recitals hereof.




“Spinco Sub Common Stock” shall have the meaning specified in the Recitals hereof.




“Spinco Subsidiaries” shall mean the following entities:



(a) Besten Equipment, Inc.;



(b) Mikron Industries, Inc. (including (A) Mikron Washington, LLC and VL Investors I, LLC, the
wholly-owned Subsidiaries of Mikron Industries, Inc., and (B) Vinyl Link, LLC, the 49% subsidiary
of VL Investors I, LLC);



(c) Nichols Aluminum, Inc. (including Nichols Aluminum-Alabama, Inc., the wholly-owned
Subsidiary of Nichols Aluminum, Inc.);



(d) Quanex Foundation;



(e) Quanex Homeshield, Inc. (including Colonial Craft, Inc. and Imperial Products, Inc., the
wholly-owned Subsidiaries of Quanex Homeshield, Inc.); and



(f) TruSeal Technologies, Inc. (including TruSeal Technologies, Ltd., the wholly-owned
Subsidiary of TruSeal Technologies, Inc.).



“Subsidiary” shall mean any entity, whether incorporated or unincorporated, of which
at least a majority of the securities or ownership interests having by their terms voting power to
elect a majority of the board of directors or other persons performing similar functions is
directly or indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries.



“Surviving Entity” means Spinco prior to the Spinco Merger and Spinco Sub following
the Spinco Merger.



“Tax Matters Agreement” shall mean the Tax Matters Agreement of even date herewith by
and among Quanex, Spinco and Spinco Sub.



“Tax” or “Taxes” shall have the meaning set forth in the Tax Matters
Agreement.



“Third-Party Claim” shall mean any claim, suit, derivative suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal asserted by a Person who or which
is neither a party hereto nor an Affiliate of a party hereto.


 


8









 





“Transaction Agreements” shall mean this Agreement, the Employee Matters Agreement,
the Tax Matters Agreement and the Transition Services Agreement.



“Transition Services Agreement” shall mean the Transition Services Agreement of even
date herewith between Quanex and Spinco.



ARTICLE II




PRELIMINARY TRANSACTIONS





Section 2.1 Business Separation.



(a) On or prior to the Distribution Date, Quanex shall take or cause to be taken all actions
necessary to cause the transfer, assignment, delivery and conveyance to the Surviving Entity all of
the Spinco Assets, and the Surviving Entity shall, and shall cause its applicable Subsidiaries to
accept, assume and agree to pay, perform and discharge all of the Spinco Liabilities, in accordance
with their respective terms. The Surviving Entity shall be responsible for all Spinco Liabilities
assumed by the Spinco Group, regardless of when or where such Spinco Liabilities arose or arise, or
whether the facts on which they are based occurred prior to or subsequent to the Distribution Date,
regardless of where or against whom such Spinco Liabilities are asserted or determined or whether
asserted or determined prior to the date hereof and regardless of whether arising from or alleged
to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by either the
Quanex Group or the Spinco Group.



(b) The separation of the Quanex Assets and the Spinco Assets, as contemplated by this
Agreement, shall be effected in a manner that does not unreasonably disrupt either the Quanex
Business or the Spinco Business. Subject to Section 2.6, to the extent the separation of
any of the Assets cannot be achieved in a reasonably practicable manner, the Surviving Entity and
Quanex will enter into appropriate arrangements regarding the shared Asset. Any costs related to
the use of a shared Asset that is not separated as of the Distribution Date shall be allocated in a
reasonable manner as agreed by Spinco and Quanex.



(c) Subject to the provisions of this Agreement, on or prior to the Distribution Date, Quanex
and the Surviving Entity will use their commercially reasonable efforts to amend all contractual
arrangements between or among Quanex, the Surviving Entity, their respective Affiliates and any
other Person (other than the Transaction Agreements and contractual arrangements relating to the
Distribution and the intercompany agreements discussed in Section 5.3) that either (i)
relate to the Quanex Business but relate predominantly to the Spinco Business or (ii) relate solely
to the Spinco Business, but, by their terms, contain provisions relating to a member of the Quanex
Group, so that, after the Distribution Date, such contractual arrangements (x) will relate solely
to the Spinco Business and (y) will eliminate any provisions relating to a member of the Quanex
Group and, in either event, will inure to the benefit of the Spinco Group on substantially the same
economic terms as such arrangements exist as of the date hereof. On or prior to the Distribution
Date, Quanex and the Surviving Entity will use their commercially reasonable efforts to amend all
contractual arrangements between or among Quanex, the Surviving Entity, their respective Affiliates
and any other Person (other than the contractual arrangements relating to the Distribution) that
either (i) relate to the Spinco Business but relate predominantly to the Quanex Business or (ii)
relate solely to the Quanex Business, but, by their
terms, contain provisions relating to a member of the Spinco Group, so that, after the
Distribution Date, such contractual arrangements (x) will relate solely to the Quanex Business and
(y) will eliminate any provisions relating to a member of the Spinco Group and, in either event,
will inure to the benefit of the Quanex Group on substantially the same economic terms as such
arrangements exist as of the date hereof. If, in any case, such amendment cannot be obtained, or
if an attempted amendment thereof would be ineffective or would adversely affect the rights of
Quanex or the Surviving Entity thereunder, Quanex and the Surviving Entity will, subject to
Section 2.6, cooperate in negotiating a mutually agreeable arrangement under which Quanex
or the Surviving Entity, as applicable, will obtain the benefits and assume the obligations
thereunder intended by this Agreement.

 


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Section 2.2 Conveyancing and Assumption Agreements. In connection with the transfer of the
Spinco Assets and the assumption of the Spinco Liabilities contemplated by Section 2.1,
Quanex and the Surviving Entity shall execute, or cause to be executed by the appropriate entities,
conveyancing and assumption instruments in such forms as shall be reasonably acceptable to Quanex
and the Surviving Entity.



Section 2.3 Governing Documents. The governing documents of the Surviving Entity immediately
prior to the Distribution Date will be in the forms attached as Exhibits A and B, respectively,
which forms will be agreed to within twenty days following the date of this Agreement.



Section 2.4 Issuance of Spinco Equity. Prior to the Distribution Date, the parties hereto
shall take all steps necessary so that the number of Shares of Spinco Equity outstanding and held
by Quanex shall equal 37,189,587, as adjusted to reflect changes in the number of issued and
outstanding shares of Quanex immediately prior to the Distribution Date.



Section 2.5 Other Agreements. Each of Quanex and the Surviving Entity shall, on or prior to
the Distribution Date, enter into, and cause the appropriate members of the Group of which it is a
member to enter into, the other Transaction Agreements.



Section 2.6 Transfers Not Effected Prior to the Distribution; Transfers Deemed Effective as of
the Distribution Date. To the extent that any transfers contemplated by this Article II
shall not have been consummated on or prior to the Distribution Date, the parties hereto shall use
their commercially reasonable efforts to effect such transfers as promptly following the
Distribution Date as shall be practicable. Nothing herein shall be deemed to require the transfer
of any Assets or the assumption of any Liabilities which by their terms or operation of law cannot
be transferred or assumed; provided, however, that Quanex and the Surviving Entity shall and shall
cause their respective Subsidiaries to use commercially reasonable efforts to obtain any necessary
consents or approvals for the transfer of all Assets and the assumption of all Liabilities
contemplated to be transferred or assumed pursuant to this Article II. In the event that
any such transfer of Assets or assumption of Liabilities has not been consummated, effective on or
before the Distribution Date, the party retaining such Asset or Liability shall thereafter hold
such Asset in trust for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto) and retain such Liability for the account of the party by whom such
Liability is to be assumed pursuant hereto, and take such other action as may be reasonably
requested by the party to which such Asset is to be transferred, or by whom such Liability is to be
assumed, as the case may be, in order to place such party, to the extent
reasonably possible, in the same position as would have existed had such Asset or Liability
been transferred or assumed as contemplated hereby. As and when any such Asset becomes
transferable or such Liability can be assumed, such transfer or assumption shall be effected
forthwith. Notwithstanding the date on which any such Asset or Liability has been actually
transferred or actually assumed, each of Quanex and the Surviving Entity shall cooperate and use
commercially reasonable efforts to provide the economic and operational equivalent of an
assignment, transfer or assumption of such Asset or Liability as of the Distribution Date. The
Surviving Entity shall, or shall cause the applicable Subsidiary to pay or reimburse the relevant
member of the Quanex Group retaining any such Liability for all amounts payable, paid, or incurred
in connection with such Liability and Quanex shall, or shall cause the applicable Subsidiary to pay
or reimburse the relevant member of the Spinco Group retaining any such Liability for all amounts
payable, paid or incurred in connection with such Liability.

 


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Section 2.7 Allocation of Corporate Overhead. Quanex shall allocate to the Surviving Entity,
and shall cause the Surviving Entity to pay, an amount calculated by Quanex to be the Surviving
Entity’s corporate overhead expenses incurred by Quanex for the Separation Period. The amount of
such corporate overhead expenses shall be $640,000 per month. Quanex shall be responsible for
paying such corporate overhead expenses as they become due regardless of whether the asset
associated with such expense is a Spinco Asset that is transferred to Spinco in the Contribution.



Section 2.8 Responsibility for Costs Associated with Conversion of Quanex Convertible
Debentures. In conjunction with the anticipated conversion of Quanex’ 2.5% Convertible Senior
Debentures due 2034 (the “Debentures”) by the holders thereof and any costs associated with
the full satisfaction by Quanex of the principal and premium of such Debentures following such
conversion in cash assuming, solely for purposes of calculating such costs, for those holders of
Debentures that have not converted their Debentures on or prior to the Distribution Date, that (x)
such Debentures convert into shares of Quanex Common Stock as of the Distribution Date and (y)
Quanex elects to satisfy the principal and premium of such Debentures in cash), (the
“Conversion Costs”), notwithstanding anything herein to the contrary, the responsibility
for Conversion Costs shall be allocated between Quanex and the Surviving Entity as follows:



(i) Quanex’ Responsibility for Conversion Costs. Quanex shall be responsible for any
and all Conversion Costs to the extent the amount of the Conversion Costs do not exceed $275
million. If the Conversion Costs do not exceed $275 million, Quanex shall pay to the Surviving
Entity an amount equal to the amount by which $275 million exceeds the amount of the Conversion
Costs.



(ii) The Surviving Entity’s Responsibility for Conversion Costs. The Surviving Entity
shall be responsible for any and all Conversion Costs to the extent the amount of the Conversion
Costs exceeds $275 million. If the amount of the Conversion Costs exceeds $275 million, the
Surviving Entity shall pay to Quanex an amount equal to the amount by which the amount of the
Conversion Costs exceeds $275 million.



Within 45 days after the Distribution Date, Quanex shall confirm to Spinco in writing the
actual amount of the Conversion Costs, providing reasonable documentation to Spinco to support such
amount. Spinco shall have 10 days following receipt of such amount to review such
amount and the supporting documentation and raise any objections with Quanex regarding such
amount. Within 5 Business Days following such 10-day period, either (a) Quanex shall pay to Spinco
the amount by which $275 million exceeds the amount of the Conversion Costs or (b) Spinco shall pay
to Quanex the amount by which the Conversion Costs exceed $275 million, in each case in immediately
available funds to an account designated by the party to receive funds.

 


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ARTICLE III




THE DISTRIBUTION




Section 3.1 Record Date and Distribution Date. Subject to the satisfaction of the conditions
set forth in Section 8.1, the Board of Directors of Quanex, consistent with Delaware law,
shall establish the Record Date and the Distribution Date and any appropriate procedures in
connection with the Distribution.



Section 3.2 The Agent. Prior to the Distribution Date, Quanex and the Surviving Entity shall
enter into an agreement with the Agent providing for, among other things, the Distribution to the
holders of Quanex Common Stock in accordance with this Article III.



Section 3.3 The Distribution. Each holder of Quanex Common Stock on the Record Date (or such
holder’s designated transferee) will be allocated in the Distribution one Share of Spinco Equity
for each share of Quanex Common Stock held by such stockholder. No action will be necessary for
any stockholder of Quanex to receive such Shares in the Distribution. The Surviving Entity will
issue to Quanex the number of Shares of Spinco Equity required so that the total number of Shares
of Spinco Equity held by Quanex immediately prior to the Distribution is equal to the total number
of Shares of Spinco Equity distributable in the Distribution. The Agent shall hold a certificate
representing all of the Shares of Spinco Equity allocated to holders of Quanex Common Stock in the
Distribution. The Distribution shall be effective at 10:00 a.m. Central Time on the Distribution
Date. The Distribution and the Merger shall be effected such that the Merger Consideration and the
Spinco Equity to be distributed in the Distribution are distributed or paid, as the case may be, to
the same Quanex stockholder.



Section 3.4 Actions in Connection with the Distribution.



(a) Spinco shall file such amendments and supplements to the Form 10 Registration Statement as
Quanex may reasonably request, and such amendments as may be necessary in order to cause the same
to become and remain effective as required by Law, including filing such amendments and supplements
to the Form 10 Registration Statement as may be required by the SEC or federal or state securities
laws. Spinco shall mail to the holders of Quanex Common Stock, at such time on or prior to the
Distribution Date as Quanex shall reasonably determine, the information statement included in the
Form 10 Registration Statement, as well as any other information concerning Spinco, its business,
operations and management, the Contribution, the Distribution and such other matters as Quanex
shall reasonably determine are necessary and as may be required by applicable Law.



(b) The Surviving Entity shall prepare and file, and shall use commercially reasonable efforts
to have approved and made effective, an application for the original listing of
the shares of Spinco Sub Common Stock to be distributed in the Distribution or received in the
Spinco Merger, as the case may be, on the Exchange, subject to official notice of distribution.

 


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Section 3.5 Fractional Shares. Fractional Shares of Spinco Sub Common Stock will not be
distributed in the Distribution or the Spinco Merger, as applicable, nor credited to book-entry
accounts. The Agent shall (a) determine the number of whole Shares and fractional Shares of Spinco
Sub Common Stock allocable to each holder of record or beneficial owner of Quanex Common Stock as
of the close of business on the Record Date, (b) aggregate all such fractional Shares into whole
Shares and sell the whole Shares of Spinco Sub Common Stock obtained thereby in open market
transactions at then prevailing prices on behalf of holders who would otherwise be entitled to
fractional Shares of Spinco Sub Common Stock, and (c) distribute to each such holder, or for the
benefit of each such beneficial owner, such holder or owner’s ratable share of the net proceeds of
such sale, based upon the average gross selling price per Share of Spinco Sub Common Stock, after
making appropriate deductions for any amount required to be withheld for Tax purposes. The
Surviving Entity shall bear the cost of brokerage fees incurred in connection with these sales of
fractional Shares, which such sales shall occur as soon after the Distribution Date as practicable
and as determined by the Agent. None of Quanex, the Surviving Entity or the Agent will guarantee
any minimum sale price for the fractional Shares of Spinco Sub Common Stock. Neither the Surviving
Entity nor Quanex will pay any interest on the proceeds from the sale of fractional Shares. The
Agent will have the sole discretion to select the broker-dealers through which to sell the
aggregated fractional Shares and to determine when, how and at what price to sell such Shares.




Section 3.6 The Spinco Merger.



(a) The Spinco Merger may occur either before or after the Distribution, at the election of
Spinco and Spinco Sub. If the Spinco Merger occurs after the Distribution, as a result of the
Spinco Merger, the holders of Shares of Spinco Interest will receive one share of Spinco Sub Common
Stock for each Share of Spinco Interests allocated to them in the Distribution. The Spinco Merger
shall be effective at as set forth in the certificate of merger filed with the Delaware Secretary
of State to effect the Spinco Merger.



(b) Prior to the Distribution Date, Spinco will deliver to the Agent for the benefit of the
holders of Quanex Common Stock on the Record Date (if the Spinco Merger is effected prior to the
Distribution) or the holders of the Shares of the Spinco Interest (if the Spinco Merger is effected
after the Distribution), stock certificates, endorsed by Spinco in blank, representing all of the
outstanding Shares of Spinco Sub Common Stock then owned by Spinco. Spinco will cause the transfer
agent for the Spinco Sub Common Stock to credit the appropriate class and number of such Shares of
Spinco Sub Common Stock to book entry accounts for each such holder or designated transferee of
such holder. For stockholders of Quanex who own Quanex Common Stock through a broker or other
nominee, their shares of Spinco Sub Common Stock will be credited to their respective accounts by
such broker or nominee.


 


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ARTICLE IV




SURVIVAL AND INDEMNIFICATION




Section 4.1 Survival of Agreements. All representations, warranties, covenants and agreements
of the parties hereto contained in this Agreement shall survive the Distribution Date and remain in
full force and effect in accordance with their applicable terms.



Section 4.2 Indemnification.



(a) Except as specifically otherwise provided in the other Transaction Agreements, the
Surviving Entity shall indemnify, defend and hold harmless the Quanex Indemnitees from and against
all Indemnifiable Losses arising out of or due to the failure of any member of the Spinco Group (i)
to pay or satisfy any Spinco Liabilities, whether such Indemnifiable Losses relate to events,
occurrences or circumstances occurring or existing, or whether such Indemnifiable Losses are
asserted, before, on or after the Distribution Date, (ii) to cause the termination or substitution
required by Section 5.5(a) to occur by the Distribution Date or (iii) to perform any of its
obligations under this Agreement including any breach by the Surviving Entity of any
representation, warranty, covenant or other provision in this Agreement.



(b) Except as specifically otherwise provided in the other Transaction Agreements, Quanex
shall indemnify, defend and hold harmless the Spinco Indemnitees from and against all Indemnifiable
Losses arising out of or due to the failure of any member of the Quanex Group (i) to pay or satisfy
any Quanex Liabilities, whether such Indemnifiable Losses relate to events, occurrences or
circumstances occurring or existing, or whether such Indemnifiable Losses are asserted, before, on
or after the Distribution Date, (ii) to transfer to the Surviving Entity or any member of the
Spinco Group all of the Spinco Assets, (iii) to cause the termination or substitution required by
Section 5.5(b) to occur by the Distribution Date or (iv) to perform any of its obligations
under this Agreement including any breach by Quanex of any representation, warranty, covenant or
other provision in this Agreement.



(c) Notwithstanding anything to the contrary set forth herein, indemnification relating to any
arrangements between any member of the Quanex Group and any member of the Spinco Group for the
provision after the Distribution Date of goods and services in the ordinary course shall be
governed by the terms of such arrangements and not by this Section or as otherwise set forth in
this Agreement and the other Transaction Agreements.



(d) Indemnification for matters subject to the Tax Matters Agreement is governed by the terms,
provisions and procedures of the Tax Matters Agreement and not by this Article IV.




Section 4.3 Procedures for Indemnification.



(a) Quanex shall, and shall cause the other Quanex Indemnitees to, notify the Surviving Entity
in writing promptly (i) of any claim for indemnification for which any Quanex Indemnitee intends to
seek indemnification from the Surviving Entity under this Agreement or (ii) after learning of any
Third-Party Claim for which any Quanex Indemnitee intends to seek indemnification from the
Surviving Entity under this Agreement. the Surviving Entity shall, and
shall cause the other Spinco Indemnitees to, notify Quanex in writing promptly (i) of any
claim for indemnification for which any Spinco Indemnitee intends to seek indemnification from
Quanex under this Agreement or (ii) after learning of any Third-Party Claim for which any Spinco
Indemnitee intends to seek indemnification from Quanex under this Agreement. The failure of any
Indemnitee to give such notice shall not relieve any Indemnifying Party of its obligations under
this Article IV except to the extent that such Indemnifying Party is actually prejudiced by
such failure to give notice. Such notice shall describe such indemnification claim or Third-Party
Claim in reasonable detail considering the Information provided to the Indemnitee and shall
indicate the amount (estimated if necessary) of the Indemnifiable Loss that has been claimed
against or may be sustained by such Indemnitee.

 


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(b) Except as otherwise provided in paragraph (c) of this Section 4.3, an Indemnifying
Party may, by notice to the Indemnitee and to Quanex, if the Surviving Entity is the Indemnifying
Party, or to the Indemnitee and the Surviving Entity, if Quanex is the Indemnifying Party, at any
time after receipt by such Indemnifying Party of such Indemnitee’s notice of a Third-Party Claim,
undertake (itself or through another member of the Group of which the Indemnifying Party is a
member) the defense or settlement of such Third-Party Claim, at such Indemnifying Party’s own
expense and by counsel reasonably satisfactory to the Indemnitee. If an Indemnifying Party
undertakes the defense of any Third-Party Claim, such Indemnifying Party shall control the
investigation and defense or settlement thereof, and the Indemnitee may not settle or compromise
such Third-Party Claim, except that such Indemnifying Party shall not (i) require any Indemnitee,
without its prior written consent, to take or refrain from taking any action in connection with
such Third-Party Claim, or make any public statement, which such Indemnitee reasonably considers to
be against its interests, or (ii) without the prior written consent of the Indemnitee and of
Quanex, if the Indemnitee is a Quanex Indemnitee, or the Indemnitee and of the Surviving Entity, if
the Indemnitee is a Spinco Indemnitee, consent to any settlement that does not include as a part
thereof an unconditional release of the relevant Indemnitees from Liability with respect to such
Third-Party Claim or that requires the Indemnitee or any of its Representatives or Affiliates to
make any payment that is not fully indemnified under this Agreement or to be subject to any
non-monetary remedy. Subject to the Indemnifying Party’s control rights, as specified herein, the
Indemnitees may participate in such investigation and defense, at their own expense. Following the
provision of notices to the Indemnifying Party, until such time as an Indemnifying Party has
undertaken the defense of any Third-Party Claim as provided herein, such Indemnitee shall control
the investigation and defense or settlement thereof, without prejudice to its right to seek
indemnification hereunder.



(c) If an Indemnitee reasonably determines that there may be legal defenses available to it
that are different from or in addition to those available to its Indemnifying Party which make it
inappropriate for the Indemnifying Party to undertake the defense or settlement thereof, then such
Indemnifying Party shall not be entitled to undertake the defense or settlement of such Third-Party
Claim; and counsel for the Indemnifying Party shall be entitled to conduct the defense of such
Indemnifying Party and counsel for the Indemnitee (selected by the Indemnitee) shall be entitled to
conduct the defense of such Indemnitee, in which case the reasonable fees, costs and expenses of
such counsel for the Indemnitee (but not more than one counsel reasonably satisfactory to the
Indemnifying Party) shall be paid by such Indemnifying Party, it being understood that both such
counsel shall cooperate with each other to conduct the defense or settlement of such action as
efficiently as possible.


 


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(d) In no event shall an Indemnifying Party be liable for the fees and expenses of more than
one counsel for all Indemnitees (in addition to local counsel and its own counsel, if any) in
connection with any one action, or separate but similar or related actions, in the same
jurisdiction arising out of the same general allegations or circumstances of a Third-Party Claim.



(e) If the Indemnifying Party undertakes the defense or settlement of a Third-Party Claim, the
Indemnitee shall make available to the Indemnifying Party and its counsel all information and
documents reasonably available to it which relate to any Third-Party Claim, and otherwise cooperate
as may reasonably be required in connection with the investigation, defense and settlement thereof,
subject to the terms and conditions of a mutually acceptable joint defense agreement.



Section 4.4 Reductions for Insurance Proceeds and Other Recoveries. The amount that any
Indemnifying Party is or may be required to pay to any Indemnitee pursuant to this Article
IV shall be reduced (retroactively or prospectively) by any insurance proceeds or other amounts
actually recovered from third parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses (net of retrospective premium adjustments, experience-based premium
adjustments or other costs to the Indemnifying Party). Notwithstanding the foregoing, it is
understood and agreed that the possibility that insurance proceeds may be realized by the
Indemnifying Party shall not delay payment or indemnification of such Indemnifiable Losses by
Indemnifying Party. All Indemnifiable Losses shall be paid or reimbursed promptly upon
determination; the Indemnifying Party shall reimburse the other party in the amount of any
insurance proceeds received on account of the facts and circumstances resulting in such
Indemnifiable Losses. The Indemnifying Party shall act in good faith to pursue insurance proceeds
relating to the Indemnifiable Losses. The existence of a claim by an Indemnitee for insurance or
against a third party in respect of any Indemnifiable Loss shall not, however, delay or reduce any
payment pursuant to the indemnification provisions contained herein and otherwise determined to be
due and owing by an Indemnifying Party. Rather the Indemnifying Party shall make payment in full
of such amount so determined to be due and owing by it and, if, and to the extent that, there
exists a claim against any third party (other than an insurer) in respect of such Indemnifiable
Loss, the Indemnitee shall assign such claim against such third party to the Indemnifying Party or
shall otherwise diligently pursue such claim against its insurer. Notwithstanding any other
provisions of this Agreement, it is the intention of the parties hereto that no insurer or any
other third party shall be (i) entitled to a benefit it would not be entitled to receive in the
absence of the foregoing indemnification provisions or (ii) relieved of the responsibility to pay
any claims for which it is obligated. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of any Indemnifiable Losses and shall
subsequently actually receive insurance proceeds or other amounts in respect of such Indemnifiable
Losses, then such Indemnitee shall hold such insurance proceeds in trust for the benefit of such
Indemnifying Party and shall pay to such Indemnifying Party a sum equal to the amount of such
insurance proceeds or other amounts actually received, up to the aggregate amount of any payments
received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable
Losses.



Section 4.5 Specific Performance. The parties hereby acknowledge and agree that the failure
of any party to perform its agreements and covenants hereunder, including its failure to take all
actions as are necessary on its part to the consummation of the Contribution and the Distribution,
will cause irreparable injury to the other party for which damages, even if available,
will not be an adequate remedy. Accordingly, each party hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance of such party’s
obligations and to the granting by any court of the remedy of specific performance of its
obligations hereunder.

 


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Section 4.6 Remedies Exclusive. The remedies provided in this Article IV shall be the
exclusive remedies of the parties with respect to a claim for Indemnifiable Losses hereunder or any
other claim with respect to this Agreement.



Section 4.7 Tax Treatment of Indemnity and Other Payments. For all Tax purposes, the parties
agree to treat any payment to the other party required by this Agreement as either a contribution
by Quanex to Spinco or a distribution by Spinco to Quanex, as the case may be, occurring
immediately prior to the Distribution, except as otherwise mandated by applicable Law.



Section 4.8 Survival of Indemnities. The obligations of each of Quanex and the Surviving
Entity under this Article IV shall survive the sale or other transfer by it of any of its
assets or business or the assignment by it of any of its Liabilities, with respect to any
Indemnifiable Loss of the other related to such assets, business or Liabilities.



ARTICLE V




CERTAIN ADDITIONAL COVENANTS




Section 5.1 Notices to Third Parties. In addition to the actions described in Section
5.2, the members of the Quanex Group and the members of the Spinco Group shall cooperate to
make all other filings and give notice to and obtain consents from all third parties that may
reasonably be required to consummate the transactions contemplated by this Agreement and the other
Transaction Agreements, including to cause a member of the Spinco Group to succeed Quanex as
operator of any of the Spinco Assets (both of record and under contractual arrangements).



Section 5.2 Licenses and Permits. Each party hereto shall cause the appropriate members of
its Group to prepare and file with the appropriate licensing and permitting authorities
applications for the transfer or issuance, as may be necessary or advisable in connection with the
transactions contemplated by this Agreement and the other Transaction Agreements, to its Group of
all material governmental licenses and permits required for the members of its Group to operate its
Business after the Distribution Date. The members of the Spinco Group and the members of the
Quanex Group shall cooperate and use commercially reasonable efforts to secure the transfer or
issuance of the licenses and permits.



Section 5.3 Intercompany Agreements. All contracts, licenses, agreements, commitments and
other arrangements, formal and informal, between any member of the Quanex Group, on the one hand,
and any member of the Spinco Group, on the other hand, in existence as of the Distribution Date,
pursuant to which any member of either Group makes payments in respect of Taxes to any member of
the other Group or provides to any member of the other Group goods or services (including
management, administrative, legal, financial, accounting, data processing, insurance and technical
support), or the use of any Assets of any member of the
other Group, or the secondment of any employee, or pursuant to which rights, privileges or
benefits are afforded to members of either Group as Affiliates of the other Group, shall terminate
as of the close of business on the day prior to the Distribution Date, except as specifically
provided in this Agreement or the other Transaction Agreements. From and after the Distribution
Date, no member of either Group shall have any rights under any such contract, license, agreement,
commitment or arrangement with any member of the other Group, except as specifically provided in
this Agreement or the other Transaction Agreements. Each intercompany account between any member
of the Quanex Group, on the one hand, and any member of the Spinco Group, on the other hand, as of
October 31, 2007 shall be satisfied or settled in the equity accounts of the relevant members of
the Spinco Group and the Quanex Group no later than the Distribution Date (unless previously
satisfied in accordance with its terms). All intercompany balances created in the ordinary course
of business in the Separation Period shall be settled in accordance with Section 5.7 below.

 


17









 







Section 5.4 Further Assurances. In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated by this Agreement and the other Transaction
Agreements. Without limiting the foregoing, each party hereto shall cooperate with the other
party, and execute and deliver, or use commercially reasonable efforts to cause to be executed and
delivered, all instruments, and to make all filings with, and to obtain all consents, approvals or
authorizations of, any governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other actions as such party
may reasonably be requested to take by any other party hereto from time to time, consistent with
the terms of this Agreement and the other Transaction Agreements, in order to effectuate the
provisions and purposes of this Agreement.



Section 5.5 Guarantee Obligations, Liens and Other Obligations.



(a) Quanex and the Surviving Entity shall use their commercially reasonable efforts, and shall
cause their respective Groups to use their commercially reasonable efforts: (x) to terminate, or
to cause a member of the Spinco Group to be substituted in all respects for any member of the
Quanex Group in respect of, all obligations of any member of the Quanex Group under any Spinco
Liabilities for which such member of the Quanex Group may be liable, as guarantor, original tenant,
primary obligor or otherwise, and (y) to terminate, or to cause Spinco Assets to be substituted in
all respects for any Quanex Assets in respect of, any liens or encumbrances on Quanex Assets which
are securing any Spinco Liabilities. If such a termination or substitution is not effected by the
Distribution Date, without the prior written consent of Quanex, from and after the Distribution
Date, the Surviving Entity shall not, and shall not permit any member of the Spinco Group to, renew
or extend the term of, increase its obligations under, or transfer to a third party, any loan,
lease, contract or other obligation for which a member of the Quanex Group is or may be liable or
for which any Quanex Asset is or may be encumbered unless all obligations of the Quanex Group and
all liens and encumbrances on any Quanex Asset with respect thereto are thereupon terminated by
documentation reasonably satisfactory in form and substance to Quanex.


 


18









 





(b) Quanex and the Surviving Entity shall use their commercially reasonable efforts, and shall
cause their respective Groups to use their commercially reasonable efforts: (x) to terminate, or
to cause a member of the Quanex Group to be substituted in all respects for any member of Spinco
Group in respect of, all obligations of any member of the Spinco Group under any Quanex Liabilities
for which such member of the Spinco Group may be liable, as guarantor, original tenant, primary
obligor or otherwise, and (y) to terminate, or to cause Quanex Assets to be substituted in all
respects for any Spinco Assets in respect of, any liens or encumbrances on Spinco Assets which are
securing any Quanex Liabilities. If such a termination or substitution is not effected by the
Distribution Date, without the prior written consent of the Surviving Entity, from and after the
Distribution Date, Quanex shall not, and shall not permit any member of the Quanex Group to, renew
or extend the term of, increase its obligations under, or transfer to a third party, any loan,
lease, contract or other obligation for which a member of the Spinco Group is or may be liable or
for which any Spinco Asset is or may be encumbered unless all obligations of the Spinco Group and
all liens and encumbrances on any Spinco Asset with respect thereto are thereupon terminated by
documentation reasonably satisfactory in form and substance to Spinco.



Section 5.6 Insurance.



(a) Rights Under Policies. Notwithstanding any other provision of this Agreement, from and
after the Distribution Date, the Surviving Entity and the Spinco Subsidiaries will have no rights
with respect to any Policies, except that (i) Quanex will use commercially reasonable efforts to
assist the Surviving Entity in asserting claims for any loss, liability or damage with respect
solely to the Spinco Assets or Spinco Liabilities under Policies with third-party insurers which
are “occurrence basis” insurance policies (“Occurrence Basis Policies”) arising out of
insured incidents occurring from the date coverage thereunder first commenced until the
Distribution Date to the extent that the terms and conditions of any such Occurrence Basis Policies
and agreements relating thereto so allow and (ii) Quanex will use commercially reasonable efforts
to assist the Surviving Entity to continue to prosecute claims with respect solely to Spinco Assets
or Spinco Liabilities properly asserted with an insurer prior to the Distribution Date under
Policies with third-party insurers which are insurance policies written on a “claims made” basis
(“Claims Made Policies”) arising out of insured incidents occurring from the date coverage
thereunder first commenced until the Distribution Date to the extent that the terms and conditions
of any such Claims Made Policies and agreements relating thereto so allow; provided, that in the
case of both clauses (i) and (ii) above, (A) all of Quanex’s and each Quanex Subsidiary’s
reasonable costs and expenses incurred in connection with the foregoing are promptly paid by the
Surviving Entity, (B) Quanex and the Quanex Subsidiaries may, at any time, without Liability or
obligation to the Surviving Entity or any Spinco Subsidiary (other than as set forth in Section
5.6(c)), amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any
Occurrence Basis Policies or Claims Made Policies (and such claims shall be subject to any such
amendments, commutations, terminations, buy-outs, extinguishments and modifications), and (C) any
such claim will be subject to all of the terms and conditions of the applicable Policy. Quanex’s
obligation to use commercially reasonable efforts to assist the Surviving Entity in asserting
claims under applicable Policies will include using commercially reasonable efforts in assisting
the Surviving Entity to establish its right to coverage under such Policies (so long as all of
Quanex’s reasonable costs and expenses in connection therewith are promptly paid by Spinco). In
the event that the terms and conditions of any Policy do not allow the Surviving Entity the right
to assert or prosecute a claim as set
forth in clause (i) or (ii) above, then in such case, Quanex shall use commercially reasonable
efforts to pursue such claim under such Policy and the Surviving Entity shall promptly pay all of
Quanex’s and each Quanex Subsidiary’s reasonable costs and expenses incurred in connection
therewith.

 


19









 







(b) Assistance by Quanex. Until the first anniversary of the Distribution Date, Quanex will
use commercially reasonable efforts to assist the Surviving Entity in connection with any efforts
by the Surviving Entity to acquire insurance coverage with respect to the Spinco Business for
incidents occurring prior to the Distribution Date; as described in Section 5.6(a) hereof,
provided, that all of Quanex’s reasonable costs and expenses incurred in connection with the
foregoing are promptly paid by the Surviving Entity.



(c) Quanex Actions. In the event that after the Distribution Date, Quanex or any Quanex
Subsidiary proposes to amend, commute, terminate, buy-out, extinguish liability under or otherwise
modify any Policies under which the Surviving Entity has rights to assert claims pursuant to
Section 5.6(a) in a manner that would adversely affect any such rights of the Surviving
Entity (i) Quanex will give the Surviving Entity prior written notice thereof (it being understood
that the decision to take any such action will be in the sole discretion of Quanex) and (ii) Quanex
will pay to the Surviving Entity its equitable share (which shall be determined by Quanex in good
faith based on the amount of premiums paid or allocated to the Spinco Business in respect of the
applicable Policy) of any net proceeds actually received by Quanex from the insurer under the
applicable Policy as a result of such action by Quanex (after deducting Quanex’s reasonable costs
and expenses incurred in connection with such action). The Tax treatment of any such payments to
Spinco by Quanex shall be handled in accordance with Section 4.7.




(d) Administration. From and after the Distribution Date:



(i) Quanex or a Quanex Subsidiary, as appropriate, will be responsible for the Claims
Administration with respect to claims of Quanex and the Quanex Subsidiaries under the Policies; and



(ii) the Surviving Entity or a Spinco Subsidiary, as appropriate, will be responsible for the
Claims Administration with respect to claims of the Surviving Entity and the Spinco Subsidiaries
under the Policies.



(e) Insurance Premiums. Subject to clause (B) of the proviso to Section 5.6(a), from
and after the Distribution Date, Quanex will pay, if so directed by the Surviving Entity, all
premiums (retrospectively-rated or otherwise) as required under the terms and conditions of the
respective Policies in respect of periods prior to the Distribution Date, whereupon the Surviving
Entity will upon the request of Quanex, promptly reimburse Quanex for that portion of such premiums
paid by Quanex as are reasonably determined by Quanex (and reasonably approved by Spinco) to be
attributable to the Spinco Business.



(f) Agreement for Waiver of Conflict and Shared Defense. In the event that a Policy provides
coverage for both Quanex and/or a Quanex Subsidiary, on the one hand, and the Surviving Entity
and/or a Spinco Subsidiary, on the other hand, relating to the same occurrence
or claim, Quanex and the Surviving Entity agree to defend jointly and to waive any conflict of
interest necessary to the conduct of that joint defense.

 


20









 







(g) Nothing in this Section 5.6 will be construed to limit or otherwise alter in any
way the indemnity obligations of the parties to this Agreement, including those created by this
Agreement.



Section 5.7 Cash Separation.



(a) During the Separation Period, Quanex covenants, represents and warrants with the Surviving
Entity that separate and independent bank accounts (the “Quanex Accounts”) or ledgers for
the Quanex Business have and will be operated by, or, as applicable, on behalf of, Quanex and
maintained in accordance with Quanex’ normal practice and such records and bank accounts shall be
capable of evidencing, on a daily basis, all Cash Inflows and Cash Outflows of the Quanex Business
during the Separation Period.



(b) During the Separation Period, the Surviving Entity covenants, represents and warrants with
Quanex that separate and independent bank accounts (the “Spinco Accounts”) or ledgers for
the Spinco Business have and will be operated by, or, as applicable, on behalf of, the Surviving
Entity and maintained in accordance with normal practice.



(c) During the Separation Period, to the extent practicable, Quanex shall discharge
Liabilities incurred by the Quanex Business with cash amounts held in the Quanex Accounts, and the
Surviving Entity shall discharge Liabilities incurred by the Spinco Business with cash amounts held
in the Spinco Accounts. Within ten days following the end of each calendar month during the
Separation Period, Quanex and the Surviving Entity shall settle the net amount of any Liabilities
paid for by the other during the previous calendar month. A final settlement between Quanex and
the Surviving Entity of the net amount of any Liabilities paid for by the other in the calendar
month including the Distribution Date shall be made prior to the Distribution.



(d) During the Separation Period, Quanex covenants, represents and warrants with the Surviving
Entity and the Surviving Entity covenants, represents and warrants with Quanex that no intercompany
receivable or payable has or shall be created other than in the ordinary course of business at the
then applicable current market prices and on terms no less favorable than could be obtained from a
third-party in the ordinary course of business.




(e) From and after the Distribution Date, no employee of the:



(i) Spinco Group shall have any authority to access or control any ledgers or bank accounts of
the Quanex Group; and



(ii) Quanex Group shall have any authority to access or control any ledgers or bank accounts
of the Spinco Group.



(f) Within ten Business Days from the Distribution Date, Quanex and Spinco shall prepare and
send to the other statements showing ledgers, records and bank accounts which clearly evidence, on
a daily basis and during the Separation Period:


 


21









 





(i) in respect of the Quanex Group all Cash Inflows and Cash Outflows of the Quanex Business;
and




(ii) in respect of the Spinco Group all cash inflows and cash outflows of the Spinco Business.



Section 5.8 The Merger. Quanex agrees that it will complete the Merger promptly following the
Distribution and in no case later than the date that the Distribution takes place. For U.S.
federal income tax purposes, the parties will treat the Distribution and the Merger as a part of a
single integrated transaction in redemption and disposition of the shares of Quanex Common Stock.



ARTICLE VI




ACCESS TO INFORMATION




Section 6.1 Provision of Corporate Records. Prior to or as promptly as practicable after the
Distribution Date, Quanex shall deliver or make available to the Surviving Entity all corporate
books and records of the Spinco Group in its possession and complete and accurate copies of all
relevant portions of all corporate books and records of the Quanex Group relating directly and
predominantly to the Spinco Assets, the Spinco Business, or the Spinco Liabilities. Quanex may
retain complete and accurate copies of such books and records. From and after the Distribution
Date, all such books, records and copies shall be the property of the Surviving Entity. Prior to
or as promptly as practicable after the Distribution Date, the Surviving Entity shall deliver or
make available to Quanex all corporate books and records of the Quanex Group in its possession and
complete and accurate copies of all relevant portions of all corporate books and records of the
Spinco Group relating directly and predominantly to the Quanex Assets, the Quanex Business, or the
Quanex Liabilities. The Surviving Entity may retain complete and accurate copies of such books and
records. From and after the Distribution Date, all such books, records and copies shall be the
property of Quanex. The costs and expenses incurred in the provision of records or other
information to a party shall be paid for (including reimbursement of costs incurred by the
receiving party) by the delivering party.



Section 6.2 Access to Information. From and after the Distribution Date, each of Quanex and
the Surviving Entity shall afford to the other and to the other’s Representatives reasonable access
and duplicating rights during normal business hours to all Information within the possession or
control of such party’s Group relating to the other party’s Group’s pre-Distribution business,
Assets or Liabilities or relating to or arising in connection with the relationship between the
Groups on or prior to the Distribution Date, to the extent such access is reasonably required for a
reasonable purpose, subject to the provisions below regarding Privileged Information. Without
limiting the foregoing, Information may be requested under this Section 6.2 for audit,
accounting, regulatory, claims and litigation purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.




In furtherance of the foregoing:



(a) Each party hereto acknowledges that: (i) each of Quanex and the Surviving Entity (and the
members of the Quanex Group and the Spinco Group, respectively)
has or may obtain Privileged Information; (ii) there are and/or may be a number of Litigation
Matters affecting each or both of Quanex and the Surviving Entity; (iii) both Quanex and the
Surviving Entity have a common legal interest in Litigation Matters, in the Privileged Information
and in the preservation of the confidential status of the Privileged Information, in each case
relating to the pre-Distribution business of the Quanex Group or the Spinco Group or relating to or
arising in connection with the relationship between the Groups on or prior to the Distribution
Date; and (iv) both Quanex and the Surviving Entity intend that the transactions contemplated
hereby and by the other Transaction Agreements and any transfer of Privileged Information in
connection therewith shall not operate as a waiver of any potentially applicable privilege.


 


22









 





(b) Each of Quanex and the Surviving Entity agrees, on behalf of itself and each member of the
Group of which it is a member, not to disclose or otherwise waive any privilege attaching to any
Privileged Information relating to the pre-Distribution business of the other Group or relating to
or arising in connection with the relationship between the Groups on or prior to the Distribution
Date, without providing prompt written notice to and obtaining the prior written consent of the
other, which consent shall not be unreasonably withheld; provided, however, that Quanex and the
Surviving Entity shall not be required to give any such notice or obtain any such consent and may
make such disclosure or waiver with respect to Privileged Information if such Privileged
Information relates solely to the pre-Distribution business of the Quanex Group in the case of
Quanex or the Spinco Group in the case of the Surviving Entity. In the event of a disagreement
between any member of the Quanex Group and any member of the Spinco Group concerning the
reasonableness of withholding such consent, no disclosure shall be made prior to a resolution of
such disagreement by a court of competent jurisdiction, provided that the limitations in this
sentence shall not apply in the case of disclosure required by Law.



(c) Upon any member of the Quanex Group or any member of the Spinco Group receiving any
subpoena or other compulsory disclosure notice from a court, other governmental agency or otherwise
which requests disclosure of Privileged Information, in each case relating to pre-Distribution
business of the Spinco Group or the Quanex Group, respectively, or relating to or arising in
connection with the relationship between the Groups on or prior to the Distribution Date, the
recipient of the notice shall promptly provide to the other Group (following the notice provisions
set forth herein) a copy of such notice, the intended response, and all materials or information
relating to the other Group that might be disclosed. In the event of a disagreement as to the
intended response or disclosure, unless and until the disagreement is resolved by a court of
competent jurisdiction as provided in paragraph (b) of this Section, each of Quanex and the
Surviving Entity shall cooperate to assert all defenses to disclosure claimed by either party’s
Group, and shall not disclose any disputed documents or information until all legal defenses and
claims of privilege have been finally determined, except as otherwise required by a court order
requiring such disclosure.



Section 6.3 Production of Witnesses. Subject to Section 6.2, after the Distribution
Date, each of Quanex and the Surviving Entity shall, and shall cause each member of its respective
Group to make available to the Surviving Entity or Quanex or any member of the Spinco Group or of
the Quanex Group, as the case may be, upon written request, such Group’s directors, officers,
employees and agents as witnesses to the extent that any such Person may reasonably be required in
connection with any Litigation Matters, administrative or other proceedings in which the requesting
party may from time to time be involved and relating to the
pre-Distribution business of the Quanex Group or the Spinco Group or relating to or in
connection with the relationship between the Groups on or prior to the Distribution Date. The
costs and expenses incurred in the provision of such witnesses shall be paid by the party
requesting the availability of such persons.

 


23









 







Section 6.4 Retention of Records. Except as otherwise agreed in writing, or as otherwise
provided in the other Transaction Agreements, each of Quanex and the Surviving Entity shall, and
shall cause the members of the Group of which it is a member to, retain all Information in such
party’s Group’s possession or under its control, relating directly and predominantly to the
pre-Distribution business, Assets or Liabilities of the other party’s Group until such Information
is at least ten years old or until such later date as may be required by Law, except that if, prior
to the expiration of such period, any member of either party’s Group wishes to destroy or dispose
of any such Information that is at least three years old, prior to destroying or disposing of any
of such Information, (a) the party whose Group is proposing to dispose of or destroy any such
Information shall provide no less than 30 days’ prior written notice to the other party, specifying
the Information proposed to be destroyed or disposed of, and (b) if, prior to the scheduled date
for such destruction or disposal, the other party requests in writing that any of the Information
proposed to be destroyed or disposed of be delivered to such other party, the party whose Group is
proposing to dispose of or destroy such Information promptly shall arrange for the delivery of the
requested Information to a location specified by, and at the expense of, the requesting party.



Section 6.5 Confidentiality. Subject to Section 6.2, which shall govern Privileged
Information, from and after the Distribution Date, each of Quanex and the Surviving Entity shall
hold, and shall use reasonable best efforts to cause its Affiliates and Representatives to hold, in
strict confidence all Information concerning the other party’s Group obtained by it prior to the
Distribution Date or furnished to it by such other party’s Group pursuant to this Agreement or the
other Transaction Agreements and shall not release or disclose such Information to any other
Person, except its Affiliates and Representatives, who shall be advised of the provisions of this
Section 6.5, and each party shall be responsible for a breach by any of its Affiliates or
Representatives; provided, however, that any member of the Quanex Group or the Spinco Group may
disclose such Information to the extent that (a) disclosure is compelled by judicial or
administrative process or, based on advice of such Person’s counsel, by other requirements of law,
so long as the other party is provided with reasonable prior notice of, and a reasonable
opportunity to challenge, any such disclosure, or (b) such party can show that such Information was
(i) in the public domain through no fault of such Person or (ii) lawfully acquired by such Person
from another source after the time that it was furnished to such Person by the other party’s Group,
and not acquired from such source subject to any confidentiality obligation on the part of such
source known to the acquiror. Notwithstanding the foregoing, each of Quanex and the Surviving
Entity shall be deemed to have satisfied its obligations under this Section 6.5 with
respect to any Information (other than Privileged Information) if it exercises the same care with
regard to such Information as it takes to preserve confidentiality for its own similar Information,
provided that such care is at least a reasonable degree of care.



Section 6.6 Cooperation with Respect to Government Reports and Filings. Quanex, on behalf of
itself and each member of the Quanex Group, agrees to provide any member of the Spinco Group, and
the Surviving Entity, on behalf of itself and each member of the Spinco Group, agrees to provide
any member of the Quanex Group, with such cooperation and
Information as may be reasonably requested by the other in connection with the preparation or
filing of any government report or other government filing contemplated by this Agreement or in
conducting any other government proceeding relating to the business of the Quanex Group or the
Spinco Group, Assets or Liabilities of either Group or relating to or in connection with the
relationship between the Groups prior to, on or after the Distribution Date. Each party shall
promptly forward copies of appropriate notices, forms and other communications received from or
sent to any government authority which relate to the Quanex Group, in the case of the Spinco Group,
or the Spinco Group, in the case of the Quanex Group. Each party shall make its employees and
facilities available during normal business hours and on reasonable prior notice to provide
explanation of any documents or Information provided hereunder.

 


24









 







Section 6.7 Tax Matters Agreement. None of the provisions of this Article VI are
intended to supersede any provision in the Tax Matters Agreement with respect to matters related to
Taxes.



ARTICLE VII




REPRESENTATIONS AND WARRANTIES




Section 7.1 No Representations or Warranties. Except as expressly set forth in this Agreement
or any other Transaction Agreement, the Surviving Entity and Quanex understand and agree that no
member of the Quanex Group is representing or warranting to the Surviving Entity or any member of
the Spinco Group in any way as to the Spinco Assets, the Spinco Business or the Spinco Liabilities.
Except as expressly set forth in this Agreement or any other Transaction Agreement, Quanex and the
Surviving Entity understand and agree that no member of the Spinco Group is representing or
warranting to Quanex or any member of the Quanex Group in any way as to the Quanex Assets, the
Quanex Business or the Quanex Liabilities.



Section 7.2 Operations, No Liabilities. The Surviving Entity hereby represents and warrants
to Quanex that, as of the Distribution Date, none of Quanex Bar, Inc., Quanex Steel Inc., Quanex
Solutions, Inc., Quanex Health Management Company, Inc., Quanex Nine, Inc., Quanex Ten, Inc.,
Quanex Eleven, Inc., and Quanex Twelve, Inc., has engaged in any business activities nor will have
any material Liabilities.



Section 7.3 Solvency. Spinco hereby represents and warrants to Quanex that each of Spinco and
the Spinco Subsidiaries will be Solvent as of the Distribution Date and immediately after the
consummation of the Merger Agreement.



Section 7.4 Organization, Good Standing, Authorization.




(a) Each of Spinco and Spinco Sub hereby represents and warrants to Quanex as follows:



(i) Spinco is a limited liability company duly formed, validly existing and in good standing
under the laws of the State of Delaware and has all limited liability company power required to
consummate the transactions contemplated hereby, and Spinco Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Delaware and has all corporate power required to consummate the transactions contemplated
hereby;

 


25









 







(ii) The execution, delivery and performance by Spinco and Spinco Sub of this Agreement and
the consummation by Spinco and Spinco Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Spinco and Spinco Sub. This Agreement
constitutes, and each other agreement or instrument executed and delivered or to be executed and
delivered by Spinco and Spinco Sub pursuant to this Agreement will, upon such execution and
delivery, constitute a legal, valid and binding obligation of Spinco and Spinco Sub, enforceable
against Spinco and Spinco Sub in accordance with its terms, subject to the effects of bankruptcy or
insolvency.




(b) Quanex hereby represents and warrants to Spinco and Spinco Sub as follows:



(i) Quanex is a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power required to consummate the transactions
contemplated hereby;



(ii) The execution, delivery and performance by Quanex of this Agreement and the consummation
by Quanex of the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Quanex. This Agreement constitutes, and each other agreement or
instrument executed and delivered or to be executed and delivered by Quanex pursuant to this
Agreement will, upon such execution and delivery, constitute a legal, valid and binding obligation
of Quanex, enforceable against Quanex in accordance with its terms, subject to the effects of
bankruptcy or insolvency.




Section 7.5 Financial Statements. Spinco hereby represents and warrants to Quanex as follows:



(a) The unaudited consolidating balance sheet and the unaudited corporate balance sheet
contained Schedule 7.5 (the “Supplemental Financial Statements”) is complete and
accurate and the Financial Statements were prepared in the ordinary course and on a basis and in a
manner consistent with past practice.



(b) As of October 31, 2007 the Supplemental Financial Statements fairly present the financial
position of the Quanex Business, the Spinco Business and the corporate level assets and liabilities
of the Quanex.



ARTICLE VIII




MISCELLANEOUS




Section 8.1 Conditions to the Distribution. The following are conditions to consummate any
part of the Distribution:



(a) All material consents, approvals and authorizations of any Governmental Entity legally
required for the making of the Distribution and the consummation of the other
transactions contemplated by this Agreement and the other Transaction Agreements shall have
been obtained and be in effect in all material respects at the Distribution Date;

 


26









 







(b) No court of competent jurisdiction or other Governmental Entity shall have issued any
decree, judgment, injunction, writ, rule or other order that is in effect restraining, enjoining,
prohibiting or otherwise imposing any material restrictions or limitations on the Distribution;



(c) The Form 10 Registration Statement shall have become declared effective in accordance with
the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop
order and all necessary permits and authorizations under state securities or “blue sky” laws, the
Securities Act and the Exchange Act relating to the issuance of units of Spinco Interests to be
issued in connection with the Distribution shall have been obtained and shall be in effect;



(d) The Spinco Sub Common Stock shall have been approved for listing on the Exchange, subject
to official notice of issuance;



(e) No action, proceeding or investigation by any Governmental Entity with respect to the
Distribution shall be pending that seeks to restrain, enjoin, prohibit or delay the making of the
Distribution or to impose any material restrictions or requirements thereon or on any of the
parties with respect thereto; and



(f) No action shall have been taken, and no statute, rule, regulation or executive order shall
have been enacted, entered, promulgated or enforced by any Governmental Entity with respect to the
Distribution that, individually or in the aggregate, would (i) restrain, prohibit or delay the
making of the Distribution or (ii) impose any material restrictions or requirements thereon or on
any of the parties with respect thereto.



Section 8.2 Complete Agreement. This Agreement (including the Schedules attached hereto), the
other Transaction Agreements and other documents referred to herein 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. In the
case of any conflict between the terms of this Agreement and the terms of any other Transaction
Agreement, the terms of such other Transaction Agreement shall be applicable.



Section 8.3 Expenses. Except as otherwise set forth herein, whether or not the Distribution
or the other transactions contemplated by this Agreement are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated hereby (including
costs and expenses attributable to the separation of the Assets as contemplated herein) shall be
divided evenly between Quanex and Spinco.



Section 8.4 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to its conflicts of laws principles.



Section 8.5 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):

 


27









 








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




and




Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017


Attention: Alan Klein

Facsimile: (212) 455-2502


 


28









 






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, Spinco Sub, 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.



Section 8.6 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by a written agreement signed by all of the parties hereto.



Section 8.7 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 Sections 4.2 and 4.3 relating to
indemnities, 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.

 


29









 







Section 8.8 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.



Section 8.9 Interpretation. The Article and 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. Whenever the words
“include”, “includes” or “including” are used in this Agreement, they shall be deemed to be
followed by the words “without limitation”.



Section 8.10 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.



Section 8.11 References; Construction. References to any “Article,” “Exhibit,” “Schedule” or
“Section,” without more, are to Articles, Exhibits, Schedules and Sections to or of this Agreement.



Section 8.12 Termination. Notwithstanding any provision hereof, this Agreement may be
terminated and the Distribution abandoned 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, neither
Quanex, Spinco nor Spinco Sub shall have any Liability by reason of this Agreement, except as
provided in any other Transaction Agreement.



Section 8.13 Consent to Jurisdiction and Service of Process. Each of the parties to this
Agreement hereby irrevocably and unconditionally agrees to be subject to, and hereby consents and
submits to, the jurisdiction of the courts of the State of Texas and of the federal courts sitting
in the Southern District of Texas.



Section 8.14 Waivers. Except as provided in this Agreement, no action taken pursuant to this
Agreement, including 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.



Section 8.15 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.


 


30









 





Section 8.16 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.



Section 8.17 Use of Name. Following the Distribution Date, certain of the Quanex Assets or
Quanex Business may bear, contain or use “Quanex” marks, including signage, yellow pages,
stationery and websites. Quanex will as soon as reasonably practicable, but in any event within 90
days following the Distribution Date, take such action to remove and/or replace such references and
such removal or replacement shall not denigrate the “Quanex” mark.


 


31









 





IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.



	 	 	 	 	 
	 	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 	 
	 
	 	Quanex Building Products Corporation

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

and Secretary 	 
	 




 


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