Document:

Exhibit
10.6

Exhibit
E

SHAREHOLDERS
AGREEMENT

 

OF

APOLO MECÂNICA E ESTRUTURAS S.A.

A BRAZILIAN S.A.

 

Dated
as of                   ,
2006

 

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
   

  	
  DEFINITIONS

  	
   

  	
  2

  
	
  1.1

  	
   

  	
  Defined Terms

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  FORMATION AND
  OFFICES

  	
   

  	
  10

  
	
  2.1

  	
   

  	
  Formation

  	
   

  	
  10

  
	
  2.2

  	
   

  	
  Principal Office

  	
   

  	
  10

  
	
  2.3

  	
   

  	
  Purpose of Company

  	
   

  	
  10

  
	
  2.4

  	
   

  	
  Term

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  LSB 2 INVESTMENT

  	
   

  	
  11

  
	
  3.1

  	
   

  	
  LSB 2 Investment

  	
   

  	
  11

  
	
  3.2

  	
   

  	
  No Liability

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  CASH
  DISTRIBUTIONS

  	
   

  	
  11

  
	
  4.1

  	
   

  	
  Cash Distributions Prior to Dissolution

  	
   

  	
  11

  
	
  4.2

  	
   

  	
  Persons Entitled to Distributions

  	
   

  	
  12

  
	
  4.3

  	
   

  	
  Non Cash Distributions

  	
   

  	
  12

  
	
  4.4

  	
   

  	
  Payment of Interest on Capital

  	
   

  	
  12

  
	
  4.5

  	
   

  	
  Redemption of Shares

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  SHAREHOLDERS

  	
   

  	
  12

  
	
  5.1

  	
   

  	
  Meetings of Shareholders; Place of Meetings

  	
   

  	
  12

  
	
  5.2

  	
   

  	
  Quorum; Voting Requirement

  	
   

  	
  13

  
	
  5.3

  	
   

  	
  Proxies

  	
   

  	
  14

  
	
  5.4

  	
   

  	
  Notice

  	
   

  	
  14

  
	
  5.5

  	
   

  	
  Deadlock

  	
   

  	
  14

  
	
  5.6

  	
   

  	
  Powers of the Shareholders

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  BOARD OF
  DIRECTORS; OFFICERS

  	
   

  	
  15

  
	
  6.1

  	
   

  	
  Establishment; Power and Authority

  	
   

  	
  15

  
	
  6.2

  	
   

  	
  Number, Appointment and Tenure of Directors

  	
   

  	
  15

  
	
  6.3

  	
   

  	
  Notice

  	
   

  	
  16

  
	
  6.4

  	
   

  	
  Removal, Resignation, Death, Disability and
  Appointment of Directors

  	
   

  	
  16

  
	
  6.5

  	
   

  	
  Salary and Expenses

  	
   

  	
  17

  
	
  6.6

  	
   

  	
  Resolutions

  	
   

  	
  17

  
	
  6.7

  	
   

  	
  Super-Majority Approval

  	
   

  	
  17

  
	
  6.8

  	
   

  	
  Place of Meetings

  	
   

  	
  19

  

 

 i
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.9

  	
   

  	
  Regular Meetings

  	
   

  	
  19

  
	
  6.10

  	
   

  	
  Special Meetings

  	
   

  	
  20

  
	
  6.11

  	
   

  	
  Records of Action

  	
   

  	
  20

  
	
  6.12

  	
   

  	
  Officers

  	
   

  	
  20

  
	
  6.13

  	
   

  	
  Fiduciary Duties

  	
   

  	
  22

  
	
  6.14

  	
   

  	
  Board of Officers

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  LIABILITY AND
  INDEMNIFICATION

  	
   

  	
  23

  
	
  7.1

  	
   

  	
  Liability of Shareholders and Directors

  	
   

  	
  23

  
	
  7.2

  	
   

  	
  Indemnification

  	
   

  	
  23

  
	
  7.3

  	
   

  	
  Indemnification Procedures and Restrictions

  	
   

  	
  24

  
	
  7.4

  	
   

  	
  Expenses

  	
   

  	
  25

  
	
  7.5

  	
   

  	
  Non-Exclusivity

  	
   

  	
  25

  
	
  7.6

  	
   

  	
  Insurance

  	
   

  	
  26

  
	
  7.7

  	
   

  	
  Duties

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  TRANSFERS OF
  INTERESTS

  	
   

  	
  26

  
	
  8.1

  	
   

  	
  General Restrictions

  	
   

  	
  26

  
	
  8.2

  	
   

  	
  Permitted Transfers

  	
   

  	
  27

  
	
  8.3

  	
   

  	
  Substitute Shareholders

  	
   

  	
  27

  
	
  8.4

  	
   

  	
  Effect of Admission as a Substitute Shareholder

  	
   

  	
  28

  
	
  8.5

  	
   

  	
  Buy/Sell

  	
   

  	
  28

  
	
  8.6

  	
   

  	
  Right of First Refusal

  	
   

  	
  30

  
	
  8.7

  	
   

  	
  Tag-Along Rights

  	
   

  	
  31

  
	
  8.8

  	
   

  	
  Future Merger

  	
   

  	
  31

  
	
  8.9

  	
   

  	
  Sale Event

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  DISSOLUTION AND
  TERMINATION OF THE COMPANY

  	
   

  	
  34

  
	
  9.1

  	
   

  	
  Events Causing Dissolution

  	
   

  	
  34

  
	
  9.2

  	
   

  	
  Notices to the Board of Trade

  	
   

  	
  35

  
	
  9.3

  	
   

  	
  Cash Distributions upon Dissolution

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  ACCOUNTING AND
  BANK ACCOUNTS

  	
   

  	
  36

  
	
  10.1

  	
   

  	
  Fiscal Year and Accounting Method

  	
   

  	
  36

  
	
  10.2

  	
   

  	
  Books and Records

  	
   

  	
  36

  

 

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  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
   

  	
  Books, Financial Reports and Compliance

  	
   

  	
  37

  
	
  10.4

  	
   

  	
  Taxation

  	
   

  	
  38

  
	
  10.5

  	
   

  	
  Bank Accounts

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  CERTAIN
  COVENANTS

  	
   

  	
  38

  
	
  11.1

  	
   

  	
  Non-Solicitation

  	
   

  	
  38

  
	
  11.2

  	
   

  	
  Non-Competition

  	
   

  	
  39

  
	
  11.3

  	
   

  	
  Production and Sale of Tubular Products

  	
   

  	
  40

  
	
  11.4

  	
   

  	
  Other Agreements

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  41

  
	
  12.1

  	
   

  	
  Registration and Filing

  	
   

  	
  41

  
	
  12.2

  	
   

  	
  Specific Performance

  	
   

  	
  41

  
	
  12.3

  	
   

  	
  Title to Property

  	
   

  	
  41

  
	
  12.4

  	
   

  	
  Waiver of Default

  	
   

  	
  41

  
	
  12.5

  	
   

  	
  Amendment

  	
   

  	
  41

  
	
  12.6

  	
   

  	
  No Third Party Rights

  	
   

  	
  41

  
	
  12.7

  	
   

  	
  Termination

  	
   

  	
  42

  
	
  12.8

  	
   

  	
  Severability

  	
   

  	
  42

  
	
  12.9

  	
   

  	
  Binding Agreement

  	
   

  	
  42

  
	
  12.10

  	
   

  	
  Headings

  	
   

  	
  42

  
	
  12.11

  	
   

  	
  Word Meanings

  	
   

  	
  42

  
	
  12.12

  	
   

  	
  Counterparts

  	
   

  	
  42

  
	
  12.13

  	
   

  	
  Entire Agreement

  	
   

  	
  43

  
	
  12.14

  	
   

  	
  Arbitration

  	
   

  	
  43

  
	
  12.15

  	
   

  	
  Confidentiality

  	
   

  	
  44

  
	
  12.16

  	
   

  	
  Governing Law

  	
   

  	
  44

  
	
  12.17

  	
   

  	
  Notices

  	
   

  	
  44

  
	
  12.18

  	
   

  	
  Guarantee of the Obligations of Tubos

  	
   

  	
  47

  
	
  12.19

  	
   

  	
  Guarantee of the Obligations of LSB 2

  	
   

  	
  47

  
	
  12.20

  	
   

  	
  GPC Group Representative

  	
   

  	
  47

  
	
  12.21

  	
   

  	
  Lone Star Group Representative

  	
   

  	
  48

  
	
  12.22

  	
   

  	
  Waiver of Notice

  	
   

  	
  49

  

 

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  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.23

  	
   

  	
  Expenses

  	
   

  	
  49

  
	
  12.24

  	
   

  	
  Conflict or Inconsistency

  	
   

  	
  50

  
	
  12.25

  	
   

  	
  Language

  	
   

  	
  50

  

 

EXHIBIT A – AMENDED AND RESTATED BY-LAWS OF
THE COMPANY

EXHIBIT B – INITIAL AUTHORIZED SENIOR
EXECUTIVE OFFICERS

EXHIBIT C – ANTI-CORRUPTION POLICY

 

 iv

 

THIS SHAREHOLDERS AGREEMENT
(this “Agreement”) is made and entered into as of the [      ]
day of             ,
2006 by and among

Apolo Tubos e
Equipamentos S.A., a corporation (sociedade anônima/stock
corporation), organized under the laws of the Federative Republic of Brazil,
with head offices in
the city of Rio de Janeiro, State of Rio de Janeiro, at Av. Chrisótomo Pimentel
de Oliveira, No. 2651, Pavuna, CEP 21650-000, duly enrolled with the
CNPJ under No. 33.017.088/0001-03,
herein represented by its undersigned legal representatives, duly authorized as
they solely declare (“Tubos”), Cirrus Participações Ltda., a limited
liability company (sociedade empresária
limitada) organized under the laws of
the Federative Republic of Brazil, with head offices in the city of of Rio de Janeiro, State of Rio de Janeiro, at Rua do
Passeio, No. 70, 10th  floor - part, CEP 20021-290, herein
represented by its undersigned legal representatives, duly authorized as they
solely declare (“Cirrus”), GPC Participações S.A., a corporation (sociedade anônima/stock corporation),
organized under the laws of the Federative Republic of Brazil, with head
offices in the city of Rio de Janeiro,
State of Rio de Janeiro, at Rua do Passeio, No. 70, 13rd floor -
part, CEP 20021-290, herein represented by its undersigned legal
representatives, duly authorized as they solely declare (“GPC”) (Tubos,
Cirrus and GPC hereinafter sometimes referred to collectively as the “GPC
Group”);

Lone
Star Brazil Holdings 2 Ltda., a limited liability company (sociedade
empresária  limitada)
organized under the laws of the Federative Republic of Brazil, with head
offices at City of São Paulo, State of São Paulo, at Rua Funchal, 263, 10o andar, sala
17-I, CEP 04551-060, duly enrolled with the CNPJ under No. 08.278.633/0001-78, an indirect wholly-owned subsidiary
of Lone Star (as defined below), herein represented by its undersigned legal
representatives, duly authorized as they solely declare (“LSB 2”) and
Lone Star Technologies, Inc., a Delaware corporation, herein represented by its
undersigned legal representatives, duly authorized as they solely declare (“Lone
Star”) (LSB 2 and Lone Star hereinafter sometimes referred to collectively
as the “Lone Star Group”); and

Apolo Mecânica
e Estruturas S.A., as an intervening party, a corporation (sociedade
anônima/stock corporation), organized under the laws of the
Federative Republic of Brazil, with head offices in the city of Lorena, State of São Paulo, at
Av. Dr. Léo de Affonseca Netto, 750, CEP 12600-000, duly enrolled with
the CNPJ under No. 42.419.150/0001-84,
herein represented by its undersigned legal representatives, duly authorized as
they solely declare (the “Company”).

WHEREAS, Tubos
and LSB 2, as the owners of all of the outstanding shares of the Company (disregarding
any shares assigned by the Shareholders in accordance with Section 6.4(e)
of this Agreement; Tubos and LSB 2 hereinafter sometimes referred to
individually as a “Shareholder” or collectively as the “Shareholders”),
do hereby adopt this Agreement as the shareholders agreement of the Company;

WHEREAS, at a
future date, LSB 2 will merge with and into the Company and LSB 1 (as defined
below) will succeed to all the rights and obligations of LSB 2 under this
Agreement; and

WHEREAS, such
merger will not result in the dilution of the Common Shares held by the
Shareholders.

 

NOW,
THEREFORE, in consideration of the premises and the mutual agreements contained
herein, the parties hereto agree as follows:

 

ARTICLE 1 

DEFINITIONS

1.1           Defined Terms.

As used herein,
the following terms shall have the following meanings, unless the context
otherwise requires:

“AA
Purchase Agreement” means the Stock Purchase Agreement by and among the
Company, Tubos, GPC, Cirrus, Antônio Joaquim Peixoto de Castro Palhares and
Paulo Cesar Peixoto de Castro Palhares.

“Advisor”
has the meaning set forth in Section 8.9(e) hereof.

“Affiliate”
of a specified person (the “Specified Person”) means any Person (i) who,
directly or indirectly, controls, is controlled by, or is under common control
with the Specified Person, (ii) who, directly or indirectly, owns or controls
fifty percent (50%) or more of the Specified Person’s outstanding voting
securities or equity interests, (iii) of whom the Specified Person, directly or
indirectly, owns or controls fifty percent (50%) or more of the outstanding
voting securities or equity interests or (iv) who has the right, directly or
indirectly, to appoint or elect fifty percent (50%) or more of the Specified
Person’s board of directors or equivalent managing body.

“Agreement”
means this Shareholders Agreement, as amended from time to time.

“Amended
and Restated By-Laws” means the Amended and Restated By-Laws of the
Company, in substantially the form attached hereto as Exhibit A.

“Annual
Business Plan” means a business plan for the Company for a Fiscal Year,
which includes detailed financial projections, a Marketing Plan for the Company’s
products, a Capital Budget and an Operating Budget.

“Auditors”
means the independent public accountants selected by the Board of Directors to
audit the Company’s annual consolidated financial statements and review the
Company’s quarterly financial statements, and which shall be one of the Big
Four Accounting Firms.

“Authorized
Senior Executive Officer” means the respective Persons designated in
writing from time to time by each of Tubos and LSB 2 as the Authorized Senior
Executive Officers to resolve disputes arising from a Deadlock between the
Shareholders as set forth in Section 5.5 hereof, and as otherwise contemplated
by this Agreement.  The initial
Authorized Senior Executive Officers for each of the Shareholders are set forth
on Exhibit B attached hereto.

“Big Four
Accounting Firm” means PriceWaterhouseCoopers, Deloitte & Touche, Ernst
& Young and KPMG.

 2
 

 

“Board of
Directors” means the Board of Directors of the Company as designated or
elected from time to time by the Shareholders in accordance with the provisions
of this Agreement.

“Brazilian
GAAP” means generally accepted accounting principles as used in Brazil,
from time to time, applied on a consistent basis from period to period.

“Business”
means the business of manufacturing, processing and finishing Tubular Products.

“Business
Day” means a day on which banks are open for general banking business in
both São Paulo, São Paulo State, Brazil and Dallas, Texas, the United States of
America (excluding Saturdays, Sundays and public holidays).

“Buy-Sell
Notice” has the meaning set forth in Section 8.5(b) hereof.

“Buy-Sell
Procedures” has the meaning set forth in Section 8.5(a) hereof.

“Capital
Budget” means a detailed budget for capital expenditures projected to be
made by the Company during a Fiscal Year, if any.

“CEO”
has the meaning set forth in Section 6.12(a) hereof.

“CFO”
has the meaning set forth in Section 6.12(a) hereof.

“Change of
Control” means a transaction pursuant to which ownership of more than fifty
percent (50%) of the voting securities of such Person is acquired by a Person
or Persons not already an Affiliate of such Person as of the date hereof
through (i) a tender or exchange offer, merger, consolidation, share exchange
or other business combination or (ii) a sale of securities, recapitalization,
liquidation or dissolution.

“Cirrus”
has the meaning set forth in the introductory paragraph hereof.

“Claim”
has the meaning set forth in Section 7.3(a) hereof.

“Closing
Date” has the meaning set forth in Section 8.5(f) hereof.

“Common
Shares” means the common shares of the Company.

“Company”
has the meaning set forth in the introductory paragraph hereof.

“Competing
Business” shall mean any business engaged in the manufacturing, processing,
and/or finishing of Tubular Products.

“Competitor”
means a Person that, immediately prior to a Lone Star Change of Control,
manufactures Tubular Products in Brazil.

“Contract”
means any contract, agreement, instrument, commitment or other binding
arrangement, whether written or oral.

 3
 

 

“Contribution
Agreement” means the Contribution Agreement by and among Tubos, LSB 2, the
Company, GPC, Cirrus, and Lone Star.

“Corporation
Law” means the Brazilian corporation law, law n. 6.404/76, as amended from
time to time.

“Coupling”
means a tubular section used for the exclusive purpose of joining two threaded
pin ends of pipe or equipment having the same external and internal diameters
and same thread.

“Coupling
Materials” means seamless pipes from which tubular sections are prepared
for the manufacture of Couplings or Cross-Overs.

“Cross-Over”
means a tubular section used for the exclusive purpose of joining two threaded
pin ends of pipe having different dimensions or threads.

“Deadlock”
has the meaning set forth in Section 5.5(a) hereof.

“Dedication Period” has the meaning set forth in Section 8.1(a)
hereof.

“Directors” has the meaning set forth in Section 6.1
hereof.

“Disability” has the meaning set forth in Section 6.4(c)
hereof.

“Dispute” has the meaning set forth in Section 12.14
hereof.

“Effective Date” has the meaning set forth in Section 2.1
hereof.

“Event of
Withdrawal” means an event that causes a Person to cease to be a
Shareholder, which events shall be limited to (i) the voluntary withdrawal of a
Shareholder consented to in writing by the other Shareholders, (ii) assignment
(in accordance with the provisions of this Agreement) of all of a Shareholder’s
Common Shares, (iii) the making of an assignment for the benefit of creditors,
(iv) being subject to bankruptcy (“falência”) or
judicial recovery (“recuperação judicial”)
(as defined in Brazilian Law n. 11.101/05), (v) appointment of a trustee or
receiver for a Shareholder or for all or any substantial part of its property,
(vi) in the case of a Shareholder that is a general or limited partnership (a)
the dissolution and commencement of winding up of the Shareholder or (b) a
distribution of all of a Shareholder’s Common Shares, (vii) in the case of a
Shareholder that is a corporation (a) the filing of a certificate of
dissolution or the equivalent for the corporation or (b) a revocation of its
charter.

“Facility”
means the real property, improvements, equipment and other assets located at
Lorena, SP, Brazil.

“Fiscal
Year” means the fiscal year of the Company which shall begin on January 1
and end on December 31 of each calendar year.

“Free Cash
Flow” for a quarterly, semesterly or annual period means (i) the net
profits of the Company after tax, plus (ii) depreciation and other non-cash
charges deducted in computing

 4
 

 

net profits,
less (iii) capital expenditures, debt repayments, reserves for maintenance,
capital expenditures and other ordinary course expenditures and expenditures
contemplated by the Annual Business Plan in effect at the time of
determination; plus (iv) decreases in Working Capital or less (iv) increases of Working Capital, in each case as
determined in accordance with Brazilian GAAP.

“GAAP”
means generally accepted accounting principles as used in the United States of
America or Brazil, as the case may be, from time to time, applied on a
consistent basis from period to period.

“Governmental
Authority” means any authority, regulatory or administrative agency,
commission, department, board, bureau, agency, instrumentality or court of
Brazil, the United States of America, or any other nation or sovereign state,
any federal, bilateral, or multilateral governmental authority, any state,
possession, territory, county, district, city, or other governmental unit or
subdivision, and any branch, agency, or judicial body of any of the foregoing.

“GPC” has the meaning set forth in the
introductory paragraph hereof.

“GPC Change
of Control” means a Change of Control of any of Tubos, GPC or Cirrus.

“GPC Group” has the meaning set forth in the
introductory paragraph hereof.

“ICC Rules” has the meaning set forth in Section 12.14
hereof.

“Indebtedness”
of any Person means, without duplication, (i) the principal, accreted
value, accrued and unpaid interest, prepayment and redemption premiums or
penalties (if any), unpaid fees or expenses and other monetary obligations in
respect of (a) indebtedness of such Person for money borrowed and
(b) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable,
(ii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current Liabilities arising
in the ordinary course of business, other than the current liability portion of
any indebtedness for borrowed money), (iii) all obligations of such Person
under leases required to be capitalized in accordance with GAAP, (iv) all
obligations of such Person for the reimbursement of any obligor on any letter
of credit, banker’s acceptance or similar credit transaction, (v) all
obligations of such Person under interest rate or currency swap transactions
(valued at the termination value thereof), (vi) the liquidation value, accrued
and unpaid  dividends and prepayment or
redemption premiums and penalties (if any), unpaid fees or expense and other
monetary obligations in respect of any and all redeemable preferred stock or
other preferred equity interest of such Person, (vii) all obligations of
the type referred to in clauses (i) through (vi) of any Persons for the
payment of which such Person is responsible or liable, directly or indirectly,
as obligor, guarantor, surety or otherwise, including guarantees of such
obligations, and (viii) all obligations of the type referred to in clauses
(i) through (vii) of other Persons secured by (or for which the holder of such
obligations has an existing right,

 5
 

 

contingent or
otherwise, to be secured by) any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person).

“Indemnitee”
means the Company, a Shareholder or other Person that an Indemnitor is
obligated to indemnify, defend and hold harmless pursuant to Article 7.

“Indemnitor”
means either the Company, or a Shareholder that is obligated to indemnify,
defend and hold harmless an Indemnitee pursuant to Article 7.

“Initiating
Shareholder” has the meaning set forth in Section 8.5(b)
hereof.

“Investment
Notice” has the meaning set forth in Section 11.2(b) hereof.

“Law”
means any statute, law, treaty, ordinance, rule, regulation, instrument,
directive, decree, permit, agreement, Order or injunction of or with any
Governmental Authority, and includes, without limitation, rules or regulations
of any regulatory or self-regulatory authority compliance with which is
required by Law.

“Liability”
means any debt, loss, damage, adverse claim, fine, penalty, liability or
obligation (whether direct or indirect, known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured,
determined or determinable, disputed or undisputed, liquidated or unliquidated,
or due or to become due, and whether in Contract, tort, strict liability or
otherwise), and including all costs and expenses relating thereto (including
all fees, disbursements and expenses of legal counsel, experts, engineers and
consultants and costs of investigation).

“Lien”
means any lien, encumbrance, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under any
shareholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever.

“Line Pipe” means finished or unfinished line pipe.

“Liquidation
Proceeds” means all Property at the time of liquidation of the Company and
all proceeds thereof.

“Lone Star”
has the meaning set forth in the introductory paragraph hereof.

“Lone Star
Change of Control” means a Change of Control of Lone Star consummated by a
Competitor.

“Lone Star
Group” has the meaning set forth in the introductory paragraph hereof.

“Lone Star
Policies” has the meaning set forth in Section 10.3(c) hereof.

“Lone Star
Steel” means Lone Star Steel Company, L.P., a Delaware limited partnership.

“Losses”
has the meaning set forth in Section 7.2(a) hereof.

 6
 

 

“LSB
1” means Lone Star Brazil Holdings 1 Ltda., a limited liability company (sociedade empresária  limitada) organized
under the laws of the
Federative Republic of Brazil, with head offices at City of São Paulo,
State of São Paulo, at Rua Funchal, 263, 10o andar, sala 16-I, CEP 04551-060, duly enrolled with the CNPJ under No. 08.278.615/0001-96.

“LSB 2”
has the meaning set forth in the introductory paragraph hereof.

“LSB 2
Change of Control” means a Change of Control of LSB 1 or LSB 2.

“LSB 2
Directors” has the meaning set forth in Section 6.2(a) hereof.

“LSB 2
Investment” has the meaning set forth in the Contribution Agreement.

“LSB 2
Obligations” has the meaning set forth in Section 12.19 hereof.

“LSS
Trademark Cross License Agreement” means the Trademark Cross License
Agreement between Lone Star Steel and the Company pursuant to which the Company
shall license certain trademarks to Lone Star Steel and Lone Star Steel shall
license certain trademarks to the Company.

“LSS Transition Services Agreement” means the Transition
Services Agreement between LSS and the Company pursuant to which LSS shall
provide certain transition services to the Company.

“Marketing
Plan” means a detailed plan for marketing the products produced by the
Company during the following Fiscal Year.

“Mediation”
has the meaning set forth in Section 5.5(a) hereof.

“Non-Competition
Period” has the meaning set forth in Section 11.2(a) hereof.

“Non-Transferring
Shareholder” has the meaning set forth in Section 8.6(a)
hereof.

“Non-Triggering
Shareholder” has the meaning set forth in Section 8.9(a) hereof.

“Notice”
means a writing, containing the information required by this Agreement to be
communicated to a party, delivered or sent in the manner set forth in Section 12.17
hereof.

“Offer”
has the meaning set forth in Section 8.6(a) hereof.

“Offer
Price” has the meaning set forth in Section 8.5(b) hereof.

“Officers”
has the meaning set forth in Section 6.12(a) hereof.

“Oil Country Tubular Goods or OCTG” means casing,
tubing, drill pipe, semi-finished and unfinished green tubes, integral
connections, Coupling Materials and finished Couplings.

“Operating
Budget” means a detailed budget for Operating Expenses projected to be made
by the Company during a Fiscal Year, if any.

 7
 

 

“Operating
Expenses” means, with respect to any fiscal period, the amount of cash
expended by the Company in the ordinary course of business during the period in
connection with its operations.

“Order”
means any writ, judgment, decree, injunction or similar order of any
Governmental Authority.

“Outside
Response Date” has the meaning set forth in Section 8.5(c)
hereof.

“Person”
means any individual, partnership, limited liability company, corporation,
cooperative, joint venture, trust, estate or other entity.

“Property”
means all properties and assets that the Company may own or otherwise have an
interest in from time to time.

“Range of
Fair Market Values” has the meaning set forth in Section 8.9(e)
hereof.

“Related
Agreements” has the meaning set forth in Section 12.20 hereof.

“Remaining
Common Shares” has the meaning set forth in Section 8.7 hereof.

“Response
Notice” has the meaning set forth in Section 8.5(c) hereof.

“R$”, “Reais”,
“Real” or “Centavos” means the lawful currency of the Federative
Republic of Brazil.

“Sale Event”
has the meaning set forth in Section 8.9(a) hereof.

“Sale,
Marketing and Supply Agreement” means the Sale, Marketing and Supply
Agreement between the Company and Lone Star Steel.

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

“Settlement
Notice” has the meaning set forth in Section 7.3(b) hereof.

“Shareholder”
or “Shareholders” has the meaning set forth in the introductory
paragraph hereof, and shall include each such Shareholder’s successors in
interest who have become Shareholders pursuant to the terms of this Agreement.

“South
America Competing Business” has the meaning set forth in Section 11.2(b)
hereof.

“Specialty Tubing” means mechanical and pressure tubes, cold
drawn and hot finished tubes, shells for redraw and other boiler tubes.

“Specified
Person” has the meaning set forth in the definition of Affiliate.

“Tax”
or “Taxes” means (i) any and all federal, state, local or foreign
taxes, charges, fees, imposts, levies or other assessments, including all net
income, gross receipts, capital, sales, use,

 8
 

 

ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, (ii) all interest,
penalties, fines, additions to tax or additional amounts imposed by any
Governmental Authority in connection with any item described in clause (i),
and (iii) any Liability in respect of any items described in clauses (i)
and/or (ii) payable by reason of Contract, assumption, transferee Liability,
operation of law, or otherwise.

“Third
Party” means any Person who is not a Shareholder and not an Affiliate of a
Shareholder.

“Transfer”
means (i) when used as a verb, to give, sell, exchange, assign, transfer,
pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, or
to succeed by operation of law and (ii) when used as a noun, the nouns corresponding
to such verbs, in either case voluntarily or involuntarily, by operation of law
or otherwise.

“Transferring
Shareholder” has the meaning set forth in Section 8.6(a)
hereof.

“Triggering
Notice” has the meaning set forth in Section 8.9(a) hereof.

“Triggering
Shareholder” has the meaning set forth in Section 8.9(a) hereof.

“Tubos”
has the meaning set forth in the introductory paragraph hereof.

“Tubos
Directors” has the meaning set forth in Section 6.2(a)
hereof.

“Tubos
Guarantors” has the meaning set forth in Section 12.18 hereof.

“Tubos
Obligations” has the meaning set forth in Section 12.18 hereof.

“Tubos
Trademark License Agreement” means the Trademark License Agreement between
Tubos and the Company pursuant to which Tubos shall license certain trademarks
to the Company.

“Tubos Transition Services Agreement” means the Transition
Services Agreement between Tubos and the Company pursuant to which Tubos shall
provide certain transition services to the Company.

“Tubular Products” means Oil Country Tubular Goods, Specialty
Tubing, and/or Line Pipe; for greater clarity, such term shall not include
galvanized unfinished line or other pipe.

“US Dollars”
or “US$” means legal currency in the United States of America.

“US GAAP”
means generally accepted accounting principles as used in the United States of
America, from time to time, applied on a consistent basis from period to
period.

“Working
Capital” means, at the time of determination, the current assets of the
Company reduced by the current liabilities of the Company (which shall include
all

 9
 

 

Indebtedness,
whether current or long-term, other than Indebtedness owed to Affiliates of the
Company), in each case as determined in accordance with Brazilian GAAP.

ARTICLE 2 

FORMATION AND OFFICES

2.1           Formation.

Pursuant to the Corporation Law, the Company was converted into a “sociedade anônima” (Brazilian stock corporation) on [            ], 2006, upon the filing of the Meeting for Transformation
of the Company into a Corporation, and its respective By-Laws with the Board of
Trade of the State of São Paulo.  On the
date hereof (the “Effective Date”), the Company shall file the Amended
and Restated By-Laws with the Board of Trade of the State of São Paulo.  In the event any discrepancy is found between
this Agreement and the Amended and Restated By-Laws, the provisions of this
Agreement shall prevail and the Parties shall cause the Amended and Restated
By-Laws to be amended from time to time as may be required to ensure that the
Amended and Rested By-Laws, at all times, shall conform with the terms and
conditions of this Agreement and any amendments to this Agreement.

2.2           Principal Office.

The principal
office of the Company shall be located in the city of Lorena, State of São Paulo, at
Av. Dr. Léo de Affonseca Netto, 750, CEP 12600-000 or at such other
place or places as the Board of Directors may determine from time to time.

2.3           Purpose of Company.

The purpose of
the Company shall be (a) to manufacture, process and finish Tubular Products,
(b) to export, sell and distribute Tubular Products and accessories and
components thereof (c) to participate in or make investments in other
corporations and joint ventures in order to expand its Tubular Products
business and (d) to import and purchase Tubular Products from outside of Brazil
so that the Company may sell such Tubular Products in the Brazilian
market.  In order to pursue its purpose,
the Company shall build additional infrastructure and modify the Facility so
that the Facility is capable of manufacturing, processing, and/or finishing
Tubular Products and conduct such other activities as may be necessary or
desirable to further the Business.  The
Company shall not engage in any other business or activity, except as
determined by the unanimous consent of the Shareholders.

2.4           Term.

The term of this Agreement shall commence on
the date hereof and shall continue in existence until the later of (a) fifteen
(15) years from the date hereof, which may be extended for an additional
fifteen (15) year period if a Shareholder notifies the other Shareholder of
such an extension within six (6) months prior to the original termination date
and the Shareholder receiving such notification does not oppose such an
extension by giving a non-extension notice within one (1) month of receiving the
extension notice, or (b) the date in which either of the Shareholders or a
successor thereof which adheres to this Agreement, ceases to own at least
thirty percent (30%) of the shares representing the voting capital of the
Company.

 

 10

 

 

ARTICLE 3 

LSB 2 INVESTMENT

3.1           LSB 2 Investment.

Subject to the terms and
conditions contained in the Contribution Agreement, simultaneously with the
Closing (as such term is defined in the Contribution Agreement), LSB 2 shall
make the LSB 2 Investment as of the date hereof.

3.2           No
Liability.

The
Shareholders shall not be bound by, nor be personally liable for, any of the
expenses, Liabilities, Indebtedness or obligations of the Company or of any
other Shareholder (unless the assumption of any such expense, Liability,
Indebtedness or obligation is otherwise expressly agreed to by such Shareholder
in writing or arises by Law).

ARTICLE 4 

CASH DISTRIBUTIONS

4.1           Cash Distributions Prior to
Dissolution.

(a)           Subject
to Article 6, the Board of Directors shall determine the amount and
frequency of dividends, if any, of the Company that shall be distributed among
the Shareholders each year in accordance with the Shareholders pro-rata
ownership of the Common Shares.  Although
not required to approve the distribution of dividends in accordance with Sections
4.1(a)(i) and (ii) below, the Board of Directors shall use Sections
4.1(a)(i) and (ii) below as a guideline for the determination of the
amount and frequency of dividends, if any, of the Company that shall be distributed:

(i)            For
each of the first three (3) quarters of each Fiscal Year, the Company shall pay
dividends in an amount equal to ninety percent (90%) of the lesser of (x) the
net income for such quarterly period as determined from the Company’s financial
statements for such quarter, prepared in accordance with Brazilian GAAP, and
(y) the Free Cash Flow for such quarterly period.

(ii)           For
the fourth (4th)
quarter of each Fiscal Year, the Company shall pay dividends in an amount equal
to (x) the lesser of (i) the net income for such fourth (4th) quarter as determined from the Company’s
financial statements for such fourth (4th) quarter, prepared in accordance with Brazilian GAAP,
and (ii) the Free Cash Flow for such fourth (4th) quarter, plus (y) ten percent (10%) of
the lesser of (i) the net income for the first three (3) quarters of such
Fiscal Year as determined from the Company’s financial statements for such
Fiscal Year, prepared in accordance with Brazilian GAAP, and (ii) the Free Cash
Flow for the first three (3) quarters of such Fiscal Year.

(b)           Notwithstanding
anything to the contrary herein provided, no distribution hereunder shall be
permitted to the extent prohibited by the Corporation Law, the By-Laws of the
Company, as amended from time to time, or that would result in a default under
any agreement to which the Company is a party or a breach of any applicable
Law.

 11
 

 

 

4.2           Persons Entitled to Distributions.

Any distributions of dividends to the Shareholders under Section 4.1 hereof shall be
made to the Persons shown on the records of the Company to be the holders of
record of the Common Shares as of the date the dividends are declared by the
Company, unless the transferor and transferee of any Common Shares otherwise
agree in writing to a different distribution.

4.3           Non Cash Distributions.

Except as
provided in Article 9, the Company shall not make distributions of
non-cash assets to the Shareholders unless such distribution is approved by the
Shareholders.

4.4           Payment of Interest on Capital.

The Company shall
make distributions of interest on capital in lieu of cash dividends if the
result of such distributions would be in the best interests of the Company
considering the Company’s existing Tax position at the time such distributions are
made.  For clarification, to the extent
that a distribution of interest on capital is projected to result in a
reduction in the Company’s
Tax liability for the Tax period in which a cash distribution will be made, a
distribution of interest on capital will be considered to be in the best
interests of the Company.

4.5           Redemption of Shares.

The
Shareholders agree that the Company may redeem its Common Shares on a pro rata
basis, and use the existing capital reserves to pay for the redeemed Common
Shares.  The Shareholders further agree
that any redemption of Common Shares shall be previously approved by the
Shareholders in a Shareholders’ Meeting, to be held specifically for that
purpose, in accordance with Section 5.2 below.  The Shareholders further agree that this
provision shall not be considered to be an obligation of any of the
Shareholders to approve such redemption of Common Shares, and any such
redemption shall only be proposed and considered by the Shareholders to the
extent the Company has positive Free Cash Flow.

ARTICLE 5 

SHAREHOLDERS

5.1           Meetings of Shareholders; Place of
Meetings.

Meetings of
the Shareholders may be held for any purpose or purposes, unless otherwise
prohibited by law, and may be called by the Board of Directors or by any
Shareholder which owns at least twenty-five percent (25%) of the outstanding
Common Shares.  All meetings of the
Shareholders shall be held at the principal office of the Company as set forth
in Section 2.2
hereof, or at such other place in the municipality where the headquarters of
the Company are located, as shall be designated from time to time by the Board
of Directors and stated in the Notice of the meeting or in a duly executed
waiver of the Notice thereof.

 12
 

 

 

5.2           Quorum;
Voting Requirement.

(a)           The
presence, in person or by an attorney in fact, of all of the Shareholders shall
constitute a quorum for the transaction of business by the Shareholders.

(b)           The
resolutions taken by the General Shareholders Meetings, except in the special
events provided for in the Brazilian Corporation Law, shall be taken by the
majority of votes of those in attendance or represented by proxy, without
computing blank votes. However, the following decisions shall require
Shareholders’ approval representing, at least, ninety-five percent (95%) of the
total number of outstanding Common Shares:

(i)            any amendments to
the By-Laws;

(ii)           any capital
increase (except for (x) those required for making investments in projects that
are necessary to achieve the corporate purposes of the Company; and (y) the
incorporation of reserves or by legal imposition);

(iii)          split or reverse
split of stocks; redemption or purchase of Shares for cancellation or keeping
at treasury; issuance by the Company of any securities of the Company, either
convertible or not into stocks, including, without limitation, debentures,
subscription bonds, beneficiary parts or call options or stock subscription;
issuance or allotment of Shares or the granting of any right, option or
privilege to acquire any Shares, other than as contemplated in this Agreement;

(iv)          any corporate
conversion, merger, consolidation, split or corporate reorganization;

(v)           the authorization to
the Officers to admit bankruptcy or judicial recovery (“recuperação judicial”) (as defined in Brazilian Law n.
11.101/05) or to enter into extraordinary
agreements with creditors;

(vi)          the repayment or
retirement of any Indebtedness of the Company to any Shareholder or an
Affiliate thereof, or any other payment or distribution of assets of the
Company to any Shareholder or an Affiliate thereof, except for obligations to
Lone Star Steel under the Sale, Marketing and Supply Agreement and the LSS
Trademark License Agreement and to Tubos under the Tubos Trademark License
Agreement;

(vii)         other than as
provided herein, the establishment of fees paid to members of the Board of
Directors and of the Board of Officers;

(viii)        any material change
in the Company’s business or the taking of any action which may lead to or
result in such material change; and

(x)            any
decision provided for in Article 136 of the Corporation Law, other than as
expressly provided in this Agreement.

(c)           Notwithstanding
the foregoing in this Section 5.2, if a Shareholder reasonably believes
that the Company has a material claim against the other Shareholder or any

 13
 

 

of such other Shareholder’s Affiliates for a breach of this Agreement
or any other Contract or otherwise, such Shareholder, after having attempted to
resolve the matter through consultations between the Authorized Senior
Executive Officers of each Shareholder, may, in its discretion (and without the
necessity of the other Shareholder agreeing with such course of action), cause
the Company to pursue such claim against the other Shareholder or such other
Shareholder’s Affiliates, as the case may be, in accordance with Section 12.14
hereof (to the extent such claim relates to a matter governed by the terms
hereof), in accordance with the terms of any other Contract (to the extent such
claim relates to a matter governed by the terms thereof) or, if such claim does
not relate to this Agreement or any other Contract, by causing the Company to
bring any action at law or in equity in any court of competent jurisdiction.

5.3           Proxies.

At any meeting
of the Shareholders, each Shareholder having the right to vote thereat shall be
entitled to vote in person or by an attorney in fact appointed by an instrument
in writing  signed by such Shareholder
and bearing a date not more than one (1) year prior to such meeting as provided
for in the Corporation Law.

5.4           Notice.

Notice stating
the place, date and time of a meeting and the purpose or purposes for which the
meeting is called shall be delivered not less than eight (8) days nor more than
sixty (60) days before the date of the meeting, by or at the direction of the
Board of Directors or either Shareholder, to each Shareholder entitled to vote
at such meeting.  When any Notice is
required to be given to any Shareholder hereunder, a waiver thereof in writing
signed by a Shareholder, whether before, at, or after the time stated in such
Notice, shall be equivalent to the giving of such Notice.  A Shareholder may also waive Notice by
attending a meeting without objection to a lack of Notice.  The Shareholders agree that this Notice will
be in lieu of the notice provided in Article 124 of the Corporation Law, which
shall only be made if necessary to validly hold a meeting.

5.5           Deadlock.

(a)           Except
as set forth in Section 5.2(c)
hereof, in the event that
the Shareholders are deadlocked (a “Deadlock”) on any issue set forth in
this Agreement or otherwise related to the Company or its Business and
operations, such issue shall be referred for consultation with the Shareholders’
respective Authorized Senior Executive Officers, who shall attempt to cause the
resolution of such issue within thirty (30) Business Days after such Deadlock
occurs (or, if mutually agreed by such Authorized Senior Executive Officers, a
longer period of time).  If the
Authorized Senior Executive Officers are unable to cause the resolution of such
issue within such time period, the Deadlock shall be mediated (the “Mediation”)
within fifteen (15) Business Days from the date a written request for mediation
is made by either Shareholder.  The
Mediation shall take place in Sao Paulo, Brazil and shall be in English and
Portuguese.  The administration fees and
expenses of the Mediation shall be borne equally by the Shareholders.  The Mediation shall be conducted before a
single mediator to be agreed upon by the Shareholders.  If the Shareholders are unable to resolve the
Deadlock at the Mediation or, within ten (10) Business Days from the request
for Mediation, come to an agreement on the

 14
 

 

mediator and start the Mediation, either Shareholder shall have the
right to invoke the provisions of Section 8.5.

(b)           Any
resolution of a Deadlock pursuant to this Section 5.5 shall be in
writing and, when signed by the representatives of the Shareholders, shall be
deemed to constitute the approval of the Shareholders.

5.6           Powers of the Shareholders.

Except as
specifically set forth in Section 5.2(c) hereof, no Shareholder, acting solely in
its capacity as a Shareholder, shall act as an agent of the Company or have any
authority to act for or to bind the Company, and the Shareholders hereby
consent to the exercise by the Board of Directors and by the Officers of the
powers and rights conferred on them by Law and by this Agreement.

ARTICLE 6 

BOARD OF DIRECTORS; OFFICERS

6.1           Establishment; Power and Authority.

The business
and affairs of the Company shall be managed by, or under the direction of, the
Board of Directors, which shall oversee and control the business and affairs of
the Company.  Initially, the Board of
Directors shall consist of six (6) individuals (the “Directors”)
who shall be appointed as set forth in Sections 6.2 and
6.4 hereof. 
Except as otherwise provided under this Agreement or the Corporation
Law, the Board of Directors shall have power to direct the management and
control the property and affairs of the Company, and to do all such lawful acts
and things that, in their judgment and discretion, they may deem necessary and
appropriate for the expedient conduct and furtherance of the Company’s
Business.  Any decision or act of the
Board of Directors within the scope of the power and authority granted
hereunder to the Board of Directors shall control and shall bind the Company.

6.2           Number, Appointment and Tenure of
Directors.

(a)           Tubos
shall appoint three (3) directors, (the “Tubos Directors”) and LSB 2
shall appoint three (3) directors (the “LSB 2 Directors”).  Tubos and LSB 2 shall vote their shares in
order to elect the members appointed by Tubos and LSB 2, as described
hereinabove, in any shareholders meeting called for this purpose. The Chairman
of the Board of Directors shall be appointed jointly by Tubos and LSB 2, and
shall for one term be one of the Tubos Directors and for the subsequent term,
one of the LSB 2 Directors.  No
additional members to the Board of Directors may be appointed unless the
Shareholders unanimously agree to the appointment of such additional members to
the Board of Directors.  Each member of the
Board of Directors shall serve for a term of three (3) years, provided that any
Director may be removed by the Shareholder who appointed him/her in accordance
with the terms of this Agreement.

(b)           The
presence of at least five (5) members of the Board of Directors shall be
required to constitute a quorum at any meeting of the Board of Directors.  A quorum must exist at all times during any
meeting of the Board of Directors, including the reconvening of a meeting adjourned,
in order for any action taken at such meeting to be valid.

 15
 

 

 

6.3           Notice.

(a)           Unless all of the members of the
Board of Directors are present or those not present waive notice, no meeting of
the Board of Directors shall be validly convened unless eight (8) days written
notice thereof, specifying the business to be transacted at the meeting, is
given to all members of the Board of Directors.

(b)           No resolution with respect to any
matter may be put forth to any meeting of the Board of Directors unless the
notice of the meeting contains reasonable detail of the matter, including any
supporting documentation, or unless all of the members of the Board of
Directors are present and do not object to the matter being put to the meeting
or otherwise waive the provisions of this Section 6.3.

6.4           Removal, Resignation, Death,
Disability and Appointment of Directors.

(a)           Any
member of the Board of Directors who is a Tubos Director may be removed from
such position at any time, with or without cause, by Tubos and replaced by
Tubos with a new individual to be deemed a Tubos Director, and LSB 2 agrees to
vote its shares in order to implement any such dismissal and further
appointment.  Any member of the Board of
Directors who is an LSB 2 Director may be removed from such position at any
time, with or without cause, by LSB 2 and replaced by LSB 2 with a new
individual to be deemed an LSB 2 Director, and Tubos agrees to vote its shares
in order to implement any such dismissal and further appointment.

(b)           A
member of the Board of Directors may resign from such position at any time by
tendering a written resignation.  Upon
the resignation of a member of the Board of Directors who was a Tubos Director,
Tubos shall be entitled to appoint a new individual to serve on the Board of
Directors as a Tubos Director for the remainder of the term of the resigning
member, and LSB 2 agrees to vote its shares in order to implement any such
dismissal and further appointment.  Upon
the resignation of a member of the Board of Directors who was an LSB 2
Director, LSB 2 shall be entitled to appoint a new individual to serve on the
Board of Directors as an LSB 2 Director for the remainder of the term of the
resigning member, and Tubos agrees to vote its shares in order to implement any
such dismissal and further appointment.

(c)           Upon
the death or Disability of a member of the Board of Directors who was a Tubos
Director, Tubos shall be entitled to appoint a new individual to serve on the
Board of Directors as a Tubos Director for the remainder of the term of such
member, and LSB 2 agrees to vote its shares in order to implement any such
dismissal and further appointment.  Upon
the death or Disability of a member of the Board of Directors who was an LSB 2
Director, LSB 2 shall be entitled to appoint a new individual to serve on the
Board of Directors as an LSB 2 Director for the remainder of the term of such
member, and Tubos agrees to vote its shares in order to implement any such
dismissal and further appointment.  For
these purposes, a member of the Board of Directors shall be deemed to be under
a disability if such member becomes physically or mentally incapacitated or
disabled or otherwise unable to fully discharge his or her duties hereunder for
a period of ninety (90) consecutive calendar days or for one-hundred and twenty
(120) calendar days in any one-hundred and eighty (180) calendar-day period (“Disability”).

 16
 

 

 

(d)           Each
Shareholder agrees to provide the other Shareholder with Notice of any change
in the identities of its respective members of the Board of Directors and to
vote its Common Shares in favor of the appointment of any Director nominated by
the other Shareholder in accordance with this Section 6.4.

(e)           The
Shareholders shall assign one (1) Common Share that they hold to each Director
designated and elected by them under this Article 6, provided that LSB 2
shall assign one (1) Common Share to each LSB 2 Director, and Tubos shall
assign one (1) Common Share to each Tubos Director, if so required in
accordance with the Corporation Law.  The
Common Shares assigned to the Directors shall be deemed, for all purposes and
effects of this Agreement, as owned by the Shareholder assigning such Common
Shares.  Each Shareholder agrees to
obtain from each Director designated by such Shareholder sufficient powers to
exercise the voting rights attached to the assigned Common Shares in the
Company’s shareholders’ meetings, as well as to transfer back such Common
Shares in the event that the Director ceases, for any reason whatsoever, to be
a member of the Board of Directors.

6.5           Salary and Expenses.

Members of the
Board of Directors, as such, shall not receive any stated salary or fee from
the Company for their services and each Shareholder shall bear the costs of the
members of the Board of Directors appointed by it with respect to their
attendance to the meetings of the Board of Directors, except that members of
the Board of Directors may be reimbursed
by the Company for their reasonable expenses incurred in connection with
attendance at a special meeting of the Board of Directors upon a resolution of
the Board of Directors, on an exceptional basis.

6.6           Resolutions.

The Board of
Directors shall act by resolution, adopted in the manner hereafter set
forth.  Such action may be general and
continuing in nature, or may be confined to specific instances.  Except as otherwise required in Section
6.7, resolutions of the Board of Directors must be adopted by a majority of
the members of the Board of Directors present at any meeting at which a quorum
exists and must be adopted by at least one (1) Tubos Director and by at least
one (1) LSB 2 Director.  If a quorum does
not exist solely due to the refusal or unwillingness of a Shareholder’s
designees to the Board of Directors to be present, the other Shareholder’s designees
may adjourn until a later date and, failing the other Shareholder’s designees’
appearance at such adjourned meeting such Shareholder may conclude that a
Deadlock has occurred and thereafter initiate the Mediation procedures set
forth in Section 5.5.

6.7           Super-Majority Approval.

The following
matters shall be adopted only upon the affirmative vote of at least five (5) of
the Directors:

(a)           any
sale of all or substantially all of the assets of the Company or any of its
subsidiaries, in each case whether or not resulting in any distribution or
payment of any cash or property to the debt holders and shareholders of the
Company in their capacity as such;

 17
 

 

 

(b)           any
authorization, declaration or payment of any dividends or any other
distribution with respect to Common Shares in accordance with Section 4.1.

(c)           any
authorization, issuance or creation (by recapitalization or otherwise) of any
debt securities of the Company or any of its subsidiaries;

(d)           formation
of, acquisitions of, or investments in, businesses (or part thereof) or direct
or indirect subsidiaries, by the Company or any of its subsidiaries (whether
through assets, shares or other securities);

(e)           dispositions
of any business or investment (or part thereof) by the Company or any of its
subsidiaries (whether through assets, shares or other securities, other than
the disposal of assets constituting inventory in the ordinary course of
business consistent with past practices);

(f)            the
removal of the CEO or the CFO as Officers of the Company;

(g)           approval
of the Annual Business Plan; provided, that if the Annual Business Plan
is not approved, then the prior year’s Annual Business Plan will remain in
effect until such time as a new Annual Business Plan is approved;

(h)           interim
changes to the Company’s budget contained in the Annual Business Plan greater
than two percent (2%) for any line item individually or four percent (4%) in
the aggregate;

(i)            to
the extent not contained in the Annual Business Plan:

(i)            any
Contracts, or series of related Contracts, written or oral, of the Company or
any of its subsidiaries with a value over the life of such Contract, or
Contracts, in excess of US$1,000,000, except for (x)
the renewal of any Contract made on market terms and (y) purchase and sale
agreements for Tubular Products entered into in the ordinary course of
business;

(ii)           any
incurrence of Indebtedness, other than (a) Third Party accounts payable
incurred in the ordinary course of business consistent with past practices and
not in excess of US$1,000,000 in any one instance or US$2,000,000 in the
aggregate annually;

(iii)          any
satisfaction or discharge of any Indebtedness or any payment of any obligation
of the Company or any of its subsidiaries in excess of US$1,000,000, other than
in the ordinary course of business consistent with past practice or in
accordance with the payment scheme contained in any documentation previously
approved by the Board of Directors;

(iv)          any
waiver of a right or Indebtedness owed to the Company or its subsidiaries
exceeding US$1,000,000 individually or US$2,000,000 in the aggregate annually;

(v)           material
changes to the compensation of, or the creation of any new compensation plans
for, any Officer of the Company or any of its subsidiaries, or the hiring,
firing or changes to the compensation or material duties of any Officer;

 18
 

 

(vi)          adoption,
amendment, modification or termination of any individual or group employee
retirement plan or any other welfare benefit plan or policy if the annual costs
of adopting, approving, modifying, amending or terminating such plan would
exceed US$1,000,000;

(vii)         any
commitment relating to a loan to or guarantee of any obligation of any person
in excess of US$1,000,000, provided that no loan or guarantee which is not
related to the business of the Company shall be authorized;

(viii)        the
instigation or settlement of any claim, suit, action, case or proceeding
involving (a) an amount in dispute in excess of US$1,000,000 or
(b) threats to the reputation of the Company, any of its subsidiaries, or
any of its Directors or Shareholders;

(ix)           removal
or changes in the Company’s, or any subsidiary’s, Auditors;

(x)            any
entry into any consulting agreement or like arrangement in excess of US$250,000
annually;

(xi)           annual
capital expenditures by the Company and its subsidiaries in excess of
US$1,000,000 individually or US$2,000,000 in the aggregate annually;

(xii)          any
material change to the accounting policies of the Company and/or any of its
subsidiaries; and

(xiii)         any
transactions between the Company and Tubos or LSB 2, or any Affiliate of Tubos
or LSB 2.

6.8           Place of Meetings.

The Board of
Directors may hold its meetings at the principal office of the Company as set
forth in Section 2.2
hereof, or at such other place as may from time to time be determined by a
majority of the Directors.  The Board of
Directors shall use its best efforts to hold, in each fiscal year, one-half of
its meetings in Brazil and one-half of its meetings in the United States of
America.  Notwithstanding the foregoing,
the members of the Board Directors may participate in a meeting of the Board of
Directors by means of video or telephone conference, provided that all persons
participating in the meeting can be clearly identified.  Video or telephone participation in a meeting
will constitute presence at such meeting. 
In such event, the meeting shall be considered as held where the
Chairman is located.  In the event of a
meeting held by video or telephone conference, any resolutions taken during
such meeting shall be put in writing and the respective minutes of such meeting
shall be circulated amongst the Directors who attended the meeting and signed
by all of them.

6.9           Regular
Meetings.

Regular meetings of the Board of Directors
shall be held at least quarterly on such dates as established in advance by
resolution of the Board of Directors.

 19
 

 

 

6.10         Special Meetings.

Special
meetings of the Board of Directors may be called by any member of the Board of
Directors or the CEO by Notice sent to each member of the Board of Directors in
accordance with Section 12.17 and Section 6.3 hereof.

6.11         Records of Action.

Written
records of all action taken by the Board of Directors, whether at a regular or
special meeting, shall be kept at the principal office of the Company, in the
proper corporate books.  The Board of
Directors shall appoint a secretary at each such meeting for purposes of
preparing minutes or other appropriate records reflecting the actions taken or
matters discussed and/or agreed upon at such meeting.

6.12         Officers.

(a)           The
Company shall have such individuals as officers (“Officers”) as may be
elected by the Board of Directors subject to the terms and conditions of this
Agreement.  The Officers of the Company
shall consist of a Chief Executive Officer (the “CEO”), a Chief
Financial Officer (the “CFO”) and of other Officers as may be nominated
from time to time up to the number of Officers allowed in the Amended and
Restated By-laws.  One person may hold,
and perform the duties of, any two or more of such offices provided that the
Company must have at least two Officers at any given time.  Each Officer shall serve for a term of the
earlier of (i) three (3) years or (ii) such Officer’s death, Disability,
resignation or removal in accordance with this Agreement.  Compensation of Officers shall be fixed by
the Board of Directors within the compensation limits defined by the annual
shareholders’ meeting for each fiscal year. 
Any Officer may be removed, with or without cause, at any time by the
Board of Directors (subject to this Agreement, including but not limited to Sections
6.6 and 6.7).  In its
discretion, the Board of Directors may choose not to fill any office for any
period as they may deem advisable, provided that the Company must have at least
two Officers at any given time.  No
Officer need be a Shareholder or a member of the Board of Directors.  Officers shall have such powers and duties as
may be specified by, or in accordance with, the Corporation Law and the
By-Laws, as such may be amended from time to time.

(b)           Each
of the CEO and CFO shall be appointed by the Board of Directors from a list of
two (2) or three (3) candidates selected by an executive search committee to be
composed of one (1) representative of Tubos and one (1) representative of LSB 2
who will hire a reputable recruiting company to select the candidates for these
positions.  The executive search
committee may consider candidates, selected by the recruiting company, that are
currently employed by any of the Shareholders or their Affiliates.  The other Officers, if any, shall be
appointed by the Board of Directors from a list of two (2) or three (3)
candidates for each position selected by the CEO, who shall employ the services
of a reputable recruiting firm, if necessary.

(c)           The
management of the Company shall be composed of professionals, whose purpose
shall be to generate profits and achieve excellence in the performance of their
activities.  The Officers of the Company,
and of its subsidiaries, shall be professionals of

 20
 

 

recognized standing, have experience and educational background
suitable for their offices and, wherever applicable, proven technical and
administrative qualifications.

(d)           The
Board of Directors shall substitute any Officer as may be requested, from time
to time, by any two (2) of its members, each representing one (1) of the
Shareholders, or by both Shareholders.

(e)           The
Company shall have a Board of Officers, which shall be comprised of two (2) to
six (6) Officers, and shall include the CEO and the CFO, and the remaining
Officers, if elected, shall be Officers without special designation.

(f)            The
CEO and the CFO shall each be considered key personnel of the Company and shall
enter into a services agreement with the Company upon the unanimous approval of
such services agreement by the Board of Directors.

(g)           As
described below, the Officers shall have the following duties and
responsibilities:

(i)            The
Officers shall have the power to decide on any investment and/or expenditure up
to US$1,000,000, provided that such investment and/or expenditure (A) is in
accordance with the purpose of the Company as stated in Section 2.3, (B)
is not subject to the prior approval of the Board of Directors, as provided for
in Sections 6.6 and 6.7, and (C) is in accordance with the Annual
Business Plan.

(ii)           The
CEO shall be the senior Officer of the Company and shall have the powers and
perform the duties incident to that position. 
Subject to the power of the Board of Directors, the CEO shall (A) have
the general and active charge of the entire business and affairs of the Company
and shall see that all orders and resolutions of the Board of Directors are
carried into effect and (B) execute bonds, mortgages and other Contracts except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other Officer or agent of the Company.  The CEO shall report to the Board of
Directors and shall have such other powers and perform such other duties as may
be specifically assigned to him or her from time to time by the Board of
Directors.  All the other Officers,
including the CFO, shall report to the CEO or as directed by the CEO.

(iii)          The
CFO shall have charge and custody of, and be responsible for, all funds and
securities of the Company.  The CFO shall
make available at all reasonable times the Company’s books of account and
records to any member of the Board of Directors upon application during
business hours at the office of the Company where such books and records shall
be kept.  Upon request by the Board of
Directors, the CFO shall render a statement of the condition of the finances of
the Company at any meeting of the Board of Directors or of the
Shareholders.  The CFO shall be
responsible for establishing and maintaining an adequate internal control structure
and procedures for financial reporting as though the Company is required to
comply with the Sarbanes-Oxley Act of 2002, and regulations promulgated
thereunder, as such act may be amended or superseded.  Each Shareholder acknowledges that LSB 2 is required
to prepare financial statements in the manner required by the SEC and that the
CFO shall be required to prepare financial statements at the times and in the
manner as required

 21
 

 

so that LSB 2 can meet its obligations in preparing its own financial
statements for SEC reporting purposes at the cost and expense of the
Company.  The CFO shall receive, and give
receipt for, moneys due and payable to the Company from any source whatsoever,
and, in general, the CFO shall perform all the duties incident to the office of
CFO and such other duties as from time to time may be assigned to him or her by
the CEO or the Board of Directors.  The
CEO shall not, nor shall any other Officer, be required to give a bond for the
faithful discharge of the CFO’s duties.

(iv)          The
specific duties and authority of the remaining Officers shall be as described
in the Amended and Restated By-Laws or determined by the Board of Directors
from time to time.

(v)           Subject
to limitations set forth in this Agreement, in the Company’s Amended and
Restated By-Laws and the Corporation Law, any two (2) Officers, upon prior
resolution of the Board of Officers, may, from time to time, delegate to any
Person (including any Shareholder or Officer of the Company or any member of
the Board of Directors) such authority and powers to act on behalf of the
Company as it shall deem advisable in its sole discretion.  Any delegation pursuant to this Section 6.12(g)(v)
may be revoked at any time and for any reason or no reason by the Board of
Officers or the Board of Directors in their sole discretion.

6.13         Fiduciary Duties.

(a)           Subject
to, and as limited by, the provisions of this Agreement, the members of the
Board of Directors and the Officers, in the performance of their duties as
such, shall owe to the Company such fiduciary duties as are owed under the Laws
of Brazil by directors and officers to a corporation incorporated under the
Laws of Brazil.

(b)           No
individual who is a member of the Board of Directors or an Officer shall be
personally liable under any judgment of a court, or in any other manner, for
any debt, obligation, or Liability of the Company, whether that Liability or
obligation arises in Contract, Law, or otherwise, solely by reason of being a
member of the Board of Directors or an Officer.

6.14         Board of Officers.

(a)           Unless
all of the members of the Board of Officers are present or those not present
waive notice, no meeting of the Board of Officers shall be validly convened
unless five (5) days written notice thereof, specifying the business to be
transacted at the meeting is given to all members of the Board of
Officers.  In the event that such notice
is given, the presence of at least a majority of the members of the Board of
Officers shall be required to constitute a quorum at any meeting of the Board
of Officers.

(b)           No
resolution with respect to any matter may be put forth to any meeting of the
Board of Officers unless the notice of the meeting contains reasonable detail
of the matter, including any supporting documentation, or unless all of the
members of the Board of Officers are present and do not object to the matter
being put to the meeting or otherwise waive the provisions of this Section
6.14(b).

 22
 

 

(c)           The Board of Officers shall act by
resolution, which must be adopted by a majority of the members of the Board of
Officers present at any meeting.

ARTICLE 7 

LIABILITY AND INDEMNIFICATION

7.1           Liability of Shareholders and
Directors.

No
Shareholder, member of the Board of Directors or Officer shall be liable for
any debt, obligations or Liabilities of the Company or any other Shareholder,
member of the Board of Directors or Officer, unless personally guaranteed by
the Shareholder, member of the Board of Directors or Officer pursuant to a
separate document.

7.2           Indemnification.

(a)           The
Shareholders, the members of the Board of Directors, Officers, all of the
respective Affiliates of each of them, and the respective shareholders,
members, managers, directors, officers, partners and employees of each of them,
individually and collectively an Indemnitee, shall be indemnified and held harmless
by the Company, as Indemnitor, to the fullest extent permitted by applicable
Law, subject to the limitations set forth herein, from and against any and all
losses, claims, damages, Liabilities, expenses (including legal fees and
expenses), judgments, fines, settlements and other amounts (“Losses”)
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise by reason of
such Indemnitee’s status, which relates to or arises out of the Company, its
assets, business or affairs, if in each of the foregoing cases (i) the
Indemnitee acted in accordance with the Law, in good faith and in a manner such
Indemnitee believed to be in, or not opposed to, the best interests of the
Company, and, with respect to any criminal proceeding, had no reasonable cause
to believe such Indemnitee’s conduct was unlawful and (ii) the Indemnitee’s
conduct did not constitute gross negligence or willful or wanton misconduct or
a breach of this Agreement.  The
termination of any action, suit or proceeding by judgment, Order, settlement,
conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that the Indemnitee acted in a manner contrary to
that specified in (i) or (ii) above.  Any
indemnification required by the Company pursuant to this Article 7
shall be made only out of the assets of the Company and no member of the Board
of Directors, Officer or Shareholder shall have any personal Liability on
account thereof.

(b)           Each
Shareholder agrees to indemnify, defend, and hold the other Shareholder and its
Affiliates harmless against all Losses suffered or incurred by, or asserted against,
any of them relating to or arising from the Losses identified in clauses (i)
and (ii) of Section 7.2(c).  In
the event that there is such a Loss as identified in clauses (i) or (ii) of Section
7.2(c), the non-breaching Shareholder may, in addition to any other
remedies available, following thirty (30) days written Notice and opportunity
to cure to the breaching Shareholder, elect to charge the amount of Losses
suffered by the non-breaching Shareholder against any distribution of any kind
otherwise payable to the breaching Shareholder.

 23
 

 

(c)           Except
as set forth herein, each Shareholder shall indemnify, defend and hold harmless
the Company and the other Shareholder and its Affiliates as Indemnitees to the
fullest extent permitted by applicable Law against all Losses of those
Indemnitees caused by, resulting from or arising out of (i) Losses
(including attorneys’ fees and expenses) incurred as a result of the violation,
default or breach by the Indemnitor or its Affiliates of this Agreement or
(ii) the fraud, intentional violation of Law, willful misconduct or gross
negligence of the Indemnitor or any of its Affiliates.

(d)           No
Indemnitor shall be obligated to indemnify an Indemnitee pursuant to this Article 7
to the extent that (i) the Indemnitee or its Affiliates have committed by
way of action or omission any fraud, intentional violation of Law, gross
negligence or willful misconduct that led to the Loss or (ii) the Loss to
the Indemnitee was caused by, resulted from or arose out of a breach, default
or violation by the Indemnitee or its Affiliates of this Agreement.

7.3           Indemnification Procedures and
Restrictions.

(a)           If
a claim, action, suit or proceeding or assertion of Liability is made by a
Third Party against a possible Indemnitee that, if prevailed upon by any such
Third Party, would result in such Indemnitee being entitled to indemnification
as an Indemnitee pursuant to this Article 7 (“Claim”), the
Indemnitee will upon learning of the Claim give to each possible Indemnitor
immediate written Notice of the Claim and request the Indemnitors to defend the
Claim at the Indemnitors’ sole cost and expense with counsel reasonably
acceptable to the Indemnitee.  Failure to
so notify the Indemnitors will not relieve the Indemnitors of any Liability
that the Indemnitors may have to such Indemnitee except to the extent that such
failure actually and materially prejudices the Indemnitors’ legal
position.  The Indemnitors shall have the
obligation to defend the Indemnitee against the Claim if such Indemnitee is
entitled to indemnification pursuant to this Article 7.  The Indemnitors shall give written Notice
within ten (10) Business Days to the Indemnitee of acceptance or rejection of
the defense of the Claim and the name of the counsel selected by the
Indemnitors to defend the Claim.  Failure
to give such Notice timely shall be deemed a rejection of the indemnification
request.  If an Indemnitor refuses or
fails (or is deemed to refuse) for any reason to defend an Indemnitee in
violation of this Section 7.3, or places qualifications or
conditions on the acceptance of the obligation to defend such Claim, the
Indemnitee (i) shall have the right to defend the Claim with legal counsel
it selects and (ii) after any final non-appealable judgment or binding
settlement or dismissal, if the Indemnitor is the Company or another
Shareholder, shall be paid or reimbursed the full amount of all costs and
expenses (including, without limitation, the costs of investigation and
experts, consultants and reasonable attorneys’ fees, costs, expenses and
disbursals) that the Indemnitee incurred in defending itself and any Losses
(which shall include, without limitation, the amount of any such judgment or
settlement, including any interest or penalties associated therewith) to which
it is determined to be entitled before any distributions are made pursuant to Article 4
hereof, subject to the provisions of this Agreement.  Even if the defense of the Claim is
unconditionally accepted, the Indemnitee shall be entitled to participate with
the Indemnitors in the defense and also will be entitled at its option (and
expense) to employ separate counsel for the defense.  Each Indemnitor and Indemnitee shall
cooperate with each other in the defense of a Claim and shall make its relevant
records and personnel available to the other with respect to the defense except
to the extent that any such Person shall reasonably determine (based upon
advice of counsel) that making all or any portion of its relevant records
available to another

 24
 

 

Person would constitute a waiver and result in the loss of the
attorney-client privilege or the attorney work-product privilege between such
Person and its legal counsel; provided, however, that each Shareholder
recognizes and agrees that legal work and legal services performed in
connection with the Business, the Facility and the operation and management of
the Company is performed on behalf of the Company, so that neither any
Shareholder nor the Company shall be entitled to withhold from any Shareholder
records or personnel relating to work or services that is performed on behalf
of the Company or in connection with the Business or the Facility.

(b)           No
Indemnitee shall be entitled to indemnification under this Article 7
if it has entered into any written settlement or compromise of any Claim
without the prior written consent of the Indemnitors.  If a bona fide settlement offer is made with
respect to a Claim and the Indemnitors desire to accept and agree to the offer,
the Indemnitors will give written Notice to the Indemnitee to that effect (“Settlement
Notice”).  If the Settlement Notice
(i) includes a full, unconditional release of the Indemnitee, which
release is enforceable in the reasonable opinion of the Indemnitee’s counsel,
(ii) does not have any material adverse effect on the Indemnitee and
(iii) the Indemnitee fails to consent to the settlement offer within ten
(10) Business Days after receipt of the Settlement Notice or rejects the
settlement offer, then the Indemnitee shall thereafter be solely responsible
for continuing the defense of such Claim. 
In that event, the maximum Liability of the Indemnitors as to such claim
will not exceed the amount of such settlement offer.

(c)           Funds
of the Company shall not be used for indemnification except to the extent that
the Company is an Indemnitor.

7.4           Expenses.

Expenses
(including, without limitation, any costs of investigation and experts,
consultants and reasonable legal fees, costs, expenses and disbursements)
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding described in this Article 7
may, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding, in the
discretion of all of the Shareholders, upon receipt by the Company of an
undertaking by or on behalf of the Indemnitee to repay such amount if it shall
be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Article 7.

7.5           Non-Exclusivity.

The indemnification and advancement of
expenses set forth in this Article 7 shall not be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any statute, the Corporation Law, the Amended and
Restated By-Laws, this Agreement, any other agreement, a vote of Shareholders,
a policy of insurance, or otherwise, and shall not limit in any way any right which the Company may have to make additional
indemnifications with respect to the same or different persons or classes of
persons, as determined by the Shareholders. The indemnification and advancement
of expenses set forth in this Article 7 shall continue as to an
Indemnitee who has ceased to be a named Indemnitee and shall inure to the
benefit of the heirs, executors, administrators, successors and assigns of such
a Person.

 

 25

 

 

7.6           Insurance.

The Company
may purchase and maintain insurance on behalf of the Indemnitees against any
Liability asserted against them and incurred by them in such capacity, or
arising out of their status as Indemnitees, whether or not the Company would have
the power to indemnify them against such Liability under this Article 7.

7.7           Duties.

Each of the
Shareholders hereby acknowledges and agrees that each Shareholder shall be
entitled to perform its duties and obligations hereunder and to otherwise act in
relation to the Company in the manner that such Shareholder believes to be in
the best interests of such Shareholder, all to the fullest extent permitted by
applicable Law without violating the express provisions of this Agreement.

ARTICLE 8 

TRANSFERS OF INTERESTS

8.1           General Restrictions.

(a)           Except
as set forth in Sections 8.5, 8.6, 8.7, and 8.9,
no Shareholder may Transfer all or any part of such Shareholder’s Common Shares
for a period of three (3) years from the date of the completion and start-up of
the heat-treatment and finishing facilities at the Facility (the “Dedication
Period”).  Following the Dedication
Period, no Shareholder may Transfer all or any part of such Shareholder’s
Common Shares, except as provided in this Agreement.  A permitted Transfer shall be effective as of
the date specified in the instruments relating thereto.  Any transferee desiring to make a further
Transfer shall become subject to all the provisions of this Article 8
to the same extent and in the same manner as any Shareholder desiring to make
any Transfer.

(b)           Notwithstanding
anything to the contrary in this Article 8, the Shareholders may
not, at any time, Transfer directly or indirectly all or any part of their
Common Shares to any Person, if, after such transfer, the Company would not be
in compliance with all applicable Law, as determined by the Company based on
the advice of outside counsel, (ii) Tubos would not be in compliance with all
applicable Law, as determined by Tubos based on the advice of outside counsel,
or (iii) LSB 2 would not be in compliance with all applicable Law, as
determined by LSB 2 based on the advice of outside counsel.

(c)           Notwithstanding
anything to the contrary in this Article 8, except in connection
with a Sale Event pursuant to Section 8.9, the Shareholders may not, at
any time, Transfer directly or indirectly all or any part of their Common
Shares to any Person engaged in the Business.

(d)           Any
purported Transfer of Common Shares that is not authorized pursuant to this
Agreement shall be null and void ab initio and of no effect whatsoever and
shall not relieve the purported transferor of any of its rights or obligations
under this Agreement and the Shareholder making such purported Transfer shall
indemnify and hold the Company and the other Shareholder harmless from and
against any federal, state or local income taxes, or transfer

 26
 

 

taxes, including without limitation, transfer gains taxes, arising as a
result of, or caused directly or indirectly by, such purported Transfer;
provided, however, that if the Company is required by Law to recognize a
Transfer that is not so authorized, the rights transferred shall be strictly
limited to the transferor’s rights to allocations and distributions as provided
by this Agreement with respect to the Common Shares purported to have been
Transferred, which allocations and distributions may be applied (without
limiting any other legal or equitable rights of the Company or the other
Shareholder) to satisfy any debts, obligations or Liabilities for damages that
the transferor or transferee of such rights may have to the Company and the
other Shareholder.

8.2           Permitted Transfers.

(a)           The
restrictions set forth in this Article 8 shall not apply with
respect to any Transfer of Common Shares (i) by either Shareholder to any
of its controlled Affiliates, including the transfer of Common Shares from LSB
2 to LSB 1 in connection with the anticipated merger of LSB 2 with and into the
Company in accordance with Section 8.8, (ii) by either Shareholder as
compelled by Law or regulation, or (iii) pursuant to Sections 8.5, 8.6,
8.7, 8.8 and 8.9; provided that, in the case of a Transfer
to any Person pursuant to clauses (i), (ii), and (iii) above, the restrictions
contained in this Article 8 shall continue to be applicable to the
Common Shares after such Transfer and such Person shall have complied with the
provisions of Section 8.3. 
Notwithstanding the foregoing, no Shareholder shall avoid the provisions
of this Agreement by making one or more Transfers pursuant to (i) above and
then disposing of all or any portion of its interest in such Affiliate
transferee.  If such Affiliate transferee
no longer qualifies as an Affiliate of the transferring Shareholder, such
Shareholder shall cause such Affiliate transferee to promptly Transfer the
Common Shares such Person holds in the Company to another Person who is an
Affiliate of such transferring Shareholder. 
In the case of a transfer pursuant to clause (i) above, the transferee
Affiliate shall become part of the GPC Group or the Lone Star Group, as the
case may be.  The exceptions set forth in
this Section 8.2(a) are not intended to apply to transfers by
operation of law, to which the prohibitions and restrictions under this Article 8
shall continue to apply.

(b)           Notwithstanding
anything to the contrary in this Agreement, each Shareholder shall have the
right to Transfer by a written instrument, all or any portion of such
Shareholder’s Common Shares, if, and only if, the Shareholders have unanimously
consented in writing to such Transfer.

8.3           Substitute Shareholders.

No transferee
of a Shareholder’s Common Shares shall become a substitute Shareholder in place
of the transferor unless and until:

(a)           the
Transfer has been made in compliance with the terms of this Agreement,
including, without limitation, the terms of this Article 8;

(b)           the
transferee has executed an instrument accepting and adopting the terms and
provisions of this Agreement, which shall provide that such transferee shall
have all the rights and obligations of the transferring Shareholder hereunder;

 27
 

 

(c)           the
transferee has caused to be paid all reasonable expenses of the Company in
connection with the admission of the transferee as a substitute Shareholder;
and

(d)           except
in the case of a Transfer effected pursuant to Section 8.2(a)
hereof, the non-transferring Shareholder shall have consented (which consent
may be unreasonably or arbitrarily withheld) in writing to such transferee
becoming a substitute Shareholder; it being understood and agreed that the
consent of the non-transferring Shareholder shall not be required in connection
with a Transfer effected pursuant to Section 8.2(a) hereof in order
for such a transferee to become a substitute Shareholder.

Upon
satisfaction of all the foregoing conditions with respect to a particular
transferee, the Board of Officers shall cause the books and records of the
Company to reflect the admission of the transferee as a substitute Shareholder
to the extent of the transferred Common Shares held by the transferee.

8.4           Effect of Admission as a
Substitute Shareholder.

(a)           A
transferee who has become a substitute Shareholder has, to the extent of the
transferred Common Shares, all the rights, powers and benefits of and is
subject to the restrictions and Liabilities of a Shareholder under the Amended
and Restated By-Laws, this Agreement and the Corporation Law.  Upon admission of a transferee as a
substitute Shareholder, the transferor of the Common Shares so held by the
substitute Shareholder shall cease to be a Shareholder of the Company to the
extent of such transferred Common Shares.

(b)           Notwithstanding
anything to the contrary in this Agreement, so long as either Tubos or LSB 2
continues to own, directly or indirectly, any Common Shares in the Company,
such Shareholder shall continue to have the right to designate the number of
directors on the Board of Directors as set forth in this Agreement.

8.5           Buy/Sell.

(a)           Notwithstanding
anything to the contrary contained herein, unless either Shareholder has
previously initiated a Sale Event pursuant to Section 8.9 and such Sale
Event has not been terminated pursuant to Section 8.9, each Shareholder
shall have the right, in its sole and absolute discretion, to initiate and
complete the buy-sell procedures described in this Section 8.5 (the
“Buy-Sell Procedures”) at any time upon the occurrence of any of the
following circumstances:

(i)            following the inability to resolve a
Deadlock as set forth in Section 5.5,

(ii)           upon the other Shareholder’s failure
to cure a material violation, default or breach of this Agreement within thirty
(30) days of receipt of written Notice of such material violation, default, or
breach of this Agreement, or

(iii)          upon a reduction of its interest in
the Common Shares of the Company to 20% or less of the issued and outstanding
Common Shares.

 28
 

 

(b)           The
Shareholder that elects to initiate the Buy-Sell Procedures (the “Initiating
Shareholder”) shall give written Notice (the “Buy-Sell Notice”) to
the other Shareholder of its intention to sell all of its Common Shares in the
Company.  The Buy-Sell Notice shall
include the intended date of sale and the proposed purchase price in U.S.
dollars (the “Offer Price”) for all, but not less than all, of the
Initiating Shareholder’s Common Shares, the terms of payment of such purchase
price and all other matters relating to such sale.  The Buy-Sell Notice shall constitute a
binding offer by the Initiating Shareholder to sell to the non-Initiating
Shareholder all of such Initiating Shareholder’s Common Shares upon the terms
set forth in such Buy-Sell Notice.  The
Buy-Sell Notice must be delivered in accordance with Section 12.17
hereof.

(c)           The
non-Initiating Shareholder shall have forty-five (45) calendar days from the
date of the Buy-Sell Notice (“Outside Response Date”) to send a written
response (“Response Notice”) to the Initiating Shareholder, which
Response Notice sets forth the non-Initiating Shareholder’s election
(i) to be the “seller” under the Buy-Sell Procedures and to sell all of
its Common Shares to the Initiating Shareholder or (ii) to be the “purchaser”
under the Buy-Sell Procedures and to purchase all of the Common Shares owned by
the Initiating Shareholder.  The Response
Notice may not contain any conditions or qualifications to such election and
must contain one of the following statements:

(i)            In
response to the Buy-Sell Notice, [Insert name of non-Initiating Shareholder]
hereby irrevocably elects to sell its Common Shares to [Insert name of
Initiating Shareholder]; or

(ii)           In
response to the Buy-Sell Notice, [Insert name of non-Initiating Shareholder]
hereby irrevocably elects to purchase the Common Shares of [Insert name of
Initiating Shareholder].

(d)           If
the non-Initiating Shareholder elects to be purchaser, its Response Notice
shall constitute its legally binding obligation to complete the purchase
described in this Section 8.5.

(e)           If
the non-Initiating Shareholder elects in its Response Notice to be the seller
or if the non-Initiating Shareholder does not comply with any applicable
requirement of subsection (c) or (d) above in a timely manner, then the
non-Initiating Shareholder shall be deemed to have elected to be the seller and
the Initiating Shareholder shall be deemed to have elected to be the purchaser.

(f)            The
purchaser (as determined pursuant to the preceding provisions) shall fix a
closing date (“Closing Date”), which must be a Business Day not later
than sixty (60) days following the Outside Response Date.  The purchaser shall notify the seller in
writing of the Closing Date not less than fifteen (15) calendar days prior
thereto.  If the purchaser does not fix
the Closing Date within fifty (50) calendar days following the Outside Response
Date, then the Closing Date shall automatically be the sixtieth (60th) calendar day following the
Outside Response Date; provided, however, that if that date is not a Business
Day, then the Closing Date shall be the next Business Day.

 29
 

 

(g)           If
the purchaser defaults in its obligation to complete the transaction by the
later to occur of the Closing Date and the receipt of any required regulatory
approvals to such transaction, the seller shall (i) have the right, to be
exercised by Notice to the purchaser and completed within thirty (30) calendar
days of the original Closing Date determined under Section 8.5(f),
to become the purchaser but based on a price equal to ninety percent (90%) of
the original Offer Price or (ii) be entitled to pursue any and all other
remedies, including, without limitation, specific performance, available under
this Agreement or through court or other appropriate legal proceedings, whether
at law or in equity, other than the right to seek monetary damages.  The Shareholders hereby agree that antitrust
approvals in Brazil, to the extent permitted by law, shall not be required to
be obtained before the completion of the transactions contemplated by this Section
8.5.

(h)           If
the seller defaults in its obligation to complete the transaction by the
Closing Date, then the purchaser shall be entitled to all available legal and
equitable remedies against the seller, including specific performance of the
seller’s obligation to complete the transaction and recovery of all Losses of
purchaser caused by seller’s default (including attorney’s fees, costs,
expenses and disbursements paid or incurred in any legal or equitable action).

(i)            A
Shareholder who as purchaser defaults in its obligation to complete the
transaction by the Closing Date shall lose its rights to give a Buy-Sell Notice
for a period of twenty-four (24) months after its failure to perform its
obligations under this Article 8, except upon the other Shareholder’s
material violation, default or breach of this Agreement.

8.6           Right of First Refusal.

(a)           Should
any Shareholder (a “Transferring Shareholder”) propose or receive an
offer to Transfer any of its Common Shares (other than a permitted Transfer) or
its preemptive right to purchase Common Shares in the event of the issuance of
Common Shares by the Company from a Third Party, the Transferring Shareholder
shall obtain from such Third Party a bona fide offer in writing, which offer
shall be irrevocable for a period of sixty (60) Business Days (the “Offer”)
and which it is ready and willing to accept to transfer the Common Shares for
cash or certified check and shall deliver to the Company and the other
Shareholder (the “Non-Transferring Shareholder”) written notice of such
proposed Transfer together with a copy of the Offer within ten (10) Business
Days of receipt thereof.  The
Non-Transferring Shareholder shall have the irrevocable right, but not the
obligation, to request that the Transferring Shareholder offer, and in the
event such request is made, the Transferring Shareholder shall offer, to the
Non-Transferring Shareholder and/or its designee the opportunity to acquire
all, but not less than all, of such Common Shares proposed to be
Transferred.  Any such offer and sale to
the Non-Transferring Shareholder shall be at the same price and on terms and
conditions no less favorable to the Non-Transferring Shareholder than those set
forth in the Offer.  The Non-Transferring
Shareholder shall have thirty (30) Business Days from the date it has received
the Offer to accept by written instrument such Offer from the Transferring
Shareholder.

(b)           If
the Non-Transferring Shareholder declines to purchase the offered Common Shares,
or does not accept the offer to purchase the Common Shares within the thirty (30)

 30
 

 

Business Days, the Transferring Shareholder shall, subject to the
rights set forth in Section 8.7, Transfer such Common Shares pursuant to
the terms and conditions set forth in the Offer; provided, that any
transferee must agree to be bound by the terms and conditions set forth in this
Agreement.  If such Transfer is not
completed within sixty (60) Business days counted from the date the notice
provided in Section 8.6(a) is given to the Non-Transferring Shareholder,
the Offer has to be renewed.

8.7           Tag-Along Rights.

If any Common Shares to which the Transferring Shareholder has received
an Offer are not Transferred to the Non-Transferring Shareholder pursuant to Section
8.6 (the “Remaining Common Shares”), the Transferring Shareholder
shall provide the Non-Transferring Shareholder the right to participate in any
Transfer of the Remaining Common Shares pursuant to the Offer, and the
Non-Transferring Shareholder may elect, at its option, to participate in such
Transfer within thirty (30) Business days from the receipt of the Offer by
giving notice thereof to the Transferring Shareholder; provided, that if
the aggregate amount of any Common Shares proposed to be sold by the Transferring
Shareholder and the Non-Transferring Shareholder in such transaction exceeds
the Common Shares that can be sold on the terms and conditions of the proposed
Transfer, then the Non-Transferring Shareholder shall be entitled to include in
the Transfer only its pro-rata portion of Common Shares and the Transferring
Shareholder shall be entitled to include that amount of Common Shares proposed
to be Transferred by the Transferring Shareholder as set forth in the Offer
(reduced, to the extent necessary, so that the Non-Transferring Shareholder
shall be able to include its pro-rata portion). 
This option shall be at the same price and on terms no less favorable
than those obtained by the Transferring Shareholder.

8.8           Future Merger.

Each Shareholder hereby
acknowledges that LSB 2 shall merge with and into the Company at a future date
determined by Lone Star.  Upon the
request of LSB 2, Tubos hereby agrees that it, as a Shareholder, shall cause
the members of the Board of Directors appointed by it to call a Shareholders’
Meeting of the Company for the purposes of discussing the merger, shall attend
any Shareholders’ Meeting held for such purposes and shall exercise the voting
rights attached to the shares held by it in a way to cause the approval of such
merger, and that it shall cause the Tubos Directors to vote in favor of such
merger, provided, that such merger (a) does not result in dilution of Tubos’
equity participation in the Company and (b) Lone Star agrees to indemnify and
hold harmless the Company and each Shareholder from any Losses arising from
Liabilities of LSB 2 that are succeeded to by the Company.  Any successor in interest to Tubos hereunder
shall also be bound by this Section 8.8.

 31
 

 

 

8.9           Sale Event.

(a)           The Shareholders agree that, unless
either Shareholder has previously initiated the Buy-Sell Procedures pursuant to
Section 8.5 and such transaction has not been terminated pursuant to Section
8.5, (i) either Shareholder, at any time following eight (8) years from the
date hereof, (ii) Tubos, within 90 days following an LSB 2 Change of Control,
(iii) LSB 2, within 90 days following a GPC Change of Control or (iv) Tubos,
within 90 days following a Lone Star Change of Control (as applicable, the “Triggering
Shareholder”), may propose pursuant to a notice in writing (the “Triggering
Notice”) to the other Shareholder (the “Non-Triggering Shareholder”),
a transaction or a series of related transactions in which the Company would be
sold or would sell all or substantially all of its direct or beneficial
interest in its assets to a Third Party (a “Sale Event”).  The right of a Triggering Shareholder to
cause a Sale Event is not subject to the right of first refusal set forth in Section
8.6 or to the tag-along rights set forth in Section 8.7.  The transfer of Common Shares pursuant to a
Sale Event shall not be subject to the restriction set forth in Section
8.1(c).

(b)           In
the event of a Triggering Notice, the Non-Triggering Shareholder shall have the
right to give the Triggering Shareholder written Notice (the “Offer Notice”)
of its intention to purchase all of the Common Shares of the Company not
already owned by the Non-Triggering Shareholder.  If the Non-Triggering Shareholder does not
give the Triggering Shareholder such Offer Notice within fifteen (15) Business
Days after the Non-Triggering Shareholder’s receipt of the Triggering Notice,
the Triggering Shareholder shall have the right to proceed with a Sale Event
pursuant to Sections 8.9(c)-(f). 
The Offer Notice shall include the intended date of the transaction and
the proposed purchase price in U.S. dollars for all, but not less than all, of
the Common Shares of the Company not already owned by the Non-Triggering
Shareholder.  Upon the Triggering
Shareholder’s receipt of the Offer Notice, the Shareholders shall negotiate in
good faith the terms contained in the Offer Notice and all other matters
relating to such transaction.  If,
fifteen (15) Business Days after the Triggering Shareholder’s receipt of the
Offer Notice (the “Negotiation Period”), the Shareholders have not come
to an agreement on the material terms of such transaction, the Triggering
Shareholder shall have the right to proceed with a Sale Event pursuant to Sections
8.9(c)-(f).

(c)           Subject
to Section 8.9(d) below, in connection with such Sale Event, the
Triggering Shareholder (with the cooperation of the Company) shall take all
necessary action (including, if desirable, the hiring of legal and other
advisors on behalf and at the expense of the Company) to identify and contact
eligible buyers for such Sale Event and otherwise conduct a customary sale
process.  Taking into account all
relevant factors (including, without limitation, price, terms and conditions
and likelihood of a successful transaction), the Triggering Shareholder shall
select the most suitable buyer for such Sale Event, and the other Shareholders
shall cooperate in all activities related to such sale.

(d)           The
transactions contemplated by such Sale Event (and all corresponding
documentation) shall be negotiated by LSB 2 and Tubos on behalf of the
Shareholders; provided, however, that (i) the consideration to be received in
any Sale Event shall consist solely of cash and/or marketable securities, (ii)
the Liability for any representations and warranties shall be pro rata and shall be capped at an agreed upon escrowed
amount and (iii) no Shareholder shall be subject, without its consent, to any
non-competition agreement.  The
Shareholders hereby agree

 32
 

 

to vote their Common Shares at a meeting of shareholders, and take all
other necessary action (including causing the Company to call a special meeting
of shareholders) to consummate the Sale Event.

(e)           The
Shareholders hereby agree that any sales price in connection with a Sale Event
shall be determined as follows.  If an
Offer Notice has been delivered pursuant to Section 8.9(b), Tubos and
LSB 2 shall negotiate as required pursuant to such section until the expiration
of the Negotiation Period.  Within ten
(10) Business Days following the delivery of the Triggering Notice (or, in the
case of the Offer Notice having been delivered, the expiration of the
Negotiation Period), the Authorized Senior Executive Officers shall gather such
information as they find necessary to determine the reasonable fair value of
the Company, taking into account all relevant factors, which may include but
shall not be limited to (i) the volatility of the industry in which the Company
is engaged; (ii) its location; (iii) lack of liquidity afforded by public
markets; (iv) its revenue, earnings and cash flow performance over the prior
twelve (12) quarters; (v) the impact of extraordinary earnings or losses; (vi)
existing or prospective changes in applicable tax, environmental and other
Laws; (vii) the impact of the termination of any material contracts or agreements
that would be caused by the consummation of a sale of the Company or its
assets; (viii) future prospects for the Company and the industry, and (ix) any
other factors that the Authorized Senior Executive Officers believe to be
relevant.  The Company shall cause its
officers and employees and outside advisors (such as its counsel and auditors)
to cooperate with each of the Authorized Senior Executive Officers in gathering
such information.  The Authorized Senior
Executive Officers shall meet as soon as practicable after completion of the
gathering of such information (but in no less than fifteen (15) Business Days
after delivery of the Triggering Notice) with the objective of acting in good
faith to determine a median fair market value for the Company, and a range of
fair market values which shall not exceed or be less than the median fair
market value by more than 7.5% in each instance (the “Range of Fair Market
Values”).  If the Authorized Senior
Executive Officers determine such a Range of Fair Market Values within thirty
(30) Business Days following the delivery of the Triggering Notice, that range
shall be applicable for all negotiations for the sale of the Company, unless
both LSB 2 and Tubos agree in writing to another Range of Fair Market Values.  If the Authorized Senior Executive Officers
cannot determine a Range of Fair Market Values within thirty (30) Business Days
following delivery of the Triggering Notice, the Board of Directors shall
select an internationally recognized investment bank or financial advisor with
expertise in the sale of companies in the OCTG business (the “Advisor”),
and such Advisor shall, within thirty (30) Business Days following the date of
its engagement, determine the Range of Fair Market Values based on the factors
set forth above and any other factors it deems relevant.  The Advisor shall deliver to the Board of
Directors its written report, which shall be limited to the Range of Fair
Market Values, although the Advisor may be required to meet with
representatives of both LSB 2 and Tubos, as well as the Board of Directors, to
explain the reasons for its determination of the Range of Fair Market
Values.  In any event, the determination
of the Range of Fair Market Values shall be final and binding on all
Shareholders.  The Company shall cause
its officers and employees and outside advisors to cooperate with the Advisor
fully and promptly, and shall permit access to the Company, its books, records
and personnel in order for the Advisor to accomplish its assignment efficiently
and promptly.  LSB 2 and Tubos shall
negotiate to sell the Company at a price that is not less than the lowest price
in the range nor more than the highest price in the range of the Range of Fair
Market Values.

 33
 

 

(f)            In
the event that the Company or the Shareholders do not receive a bona-fide offer
in writing agreeing to a purchase price within the Range of Fair Market Values
from a Third Party within one hundred and eighty (180) Business Days after the
date on which the Range of Fair Market Values is determined in connection with
a Sale Event, the Triggering Shareholder shall not have the right to cause such
Sale Event or to cause a future Sale Event for one (1) year following the date
on which the Range of Fair Market Values is determined and a new Range of Fair
Market Values shall be determined in accordance with this Section 8.9 in
connection with any future Sale Event.

ARTICLE 9 

DISSOLUTION AND TERMINATION OF THE COMPANY

9.1           Events Causing Dissolution.

Except as
otherwise expressly provided herein, the Company shall be dissolved upon the
first to occur of the following events:

(a)           the
unanimous agreement in writing by the Shareholders to dissolve the Company;

(b)           the
sale or other disposition of substantially all of the assets of the Company and
the receipt and distribution of all the proceeds therefrom;

(c)           upon
the occurrence of an event that terminates the continued ownership of the last
remaining Shareholder of the Company;

(d)           upon
the occurrence of an event whereby the Business is rendered inoperable for a
period of twelve (12) consecutive months by reason of acts of God, strikes,
lockouts, unavailability of materials, failure of power, prohibitive
governmental laws or regulations, riots, insurrections, war or other reason
beyond the Company’s reasonable control; provided, however, that the Company
shall not be dissolved pursuant to this Section 9.1(d) until, in
each of the aforesaid circumstances, the Shareholders have diligently and in
good faith sought to abate and remove the circumstances causing such
inoperability; or

(e)           the
entry of a decree of judicial dissolution of the Company under Brazilian Federal Law No. 11.101, of February
9, 2005, as amended from time to time, or any other Law that replaces it in the
future.

Notwithstanding
the foregoing, upon an Event of Withdrawal of a Shareholder or upon the
occurrence of any other event which terminates the continued ownership of a
Shareholder in the Company (other than the last remaining Shareholder of the
Company), the Company shall not be dissolved and the Business of the Company
shall continue subject to the terms and conditions of this Agreement.  Each Shareholder hereby specifically consents
to such continuation of the Business of the Company upon the Event of
Withdrawal of any Shareholder (other than the last
remaining Shareholder).  Immediately upon
an Event of Withdrawal of a Shareholder caused by (i) the making of an
assignment for the benefit of creditors, (ii) being subject to bankruptcy (“falência”) or judicial recovery (“recuperação
judicial”) (as defined in Brazilian Law n. 11.101/05), or (iii)
appointment of a trustee or receiver for the Shareholder or

 34
 

 

for all or any
substantial part of its property, such Shareholder shall not be entitled to
participate in the management of the business and affairs of the Company or to
exercise the rights of a Shareholder, including the right to vote, the right to
require any information or accounting of the Company’s business or the right to
inspect the Company’s books and records. 
Voting rights attached to such Shareholder’s Common Shares shall be
deemed vested by proxy in the hands of the other Shareholder until such time as
such Shareholder ceases to be under the effects of the Event of Withdrawal of such Shareholder.  Such Shareholder shall only be entitled to
receive the share of distributions and profits to which such Shareholder would
otherwise be entitled with respect to its Common Shares.

9.2           Notices to the Board of Trade.

Filing with
the Board of Trade of the dissolution or liquidation status, as the case may
be, shall be made as soon as such action is approved by the Shareholders.  Once the dissolution or liquidation is
completed and registered by the Board of Trade, notices to all applicable
governmental authorities shall be made. 
The liquidator of the Company shall be jointly appointed by the
Shareholders.

9.3           Cash Distributions upon
Dissolution.

Upon the
dissolution of the Company as a result of the occurrence of any of the events set forth in Section 9.1 hereof, the Board
of Directors shall proceed to wind up the affairs of and liquidate the
Company.  The costs of liquidation shall
be borne as a Company expense.  If the
Board of Directors determines that it would be in the best interest of the
Shareholders to distribute any Property to the Shareholders in-kind (which
distributions do not, as to the in-kind portions, have to be in the same
proportions as they would be if cash were distributed, but all such in-kind
distributions shall be taken into account at fair market value as determined by
the Board of Directors), then the Board of Directors may either defer
liquidation of, and withhold from distribution for a reasonable time, any
Property except that which is necessary to satisfy the Company’s debts,
Liabilities and obligations, or distribute the Property to the Shareholders
in-kind.  The Liquidation Proceeds shall
be applied and distributed in the following order of priority:

(a)           First,
to the payment of debts, Liabilities and obligations of the Company in the
order of priority as provided by Law (including loans or advances that may have
been made by any of the Shareholders to the Company) and the expenses of
liquidation.

(b)           Second,
to the establishment of any reserve that the Board of Directors may deem
reasonably necessary for any contingent, conditional or unasserted claims or
obligations of the Company.  Such reserve
may be paid over by the Board of Directors to an escrow agent to be held for
disbursement in payment of any of the aforementioned Liabilities and, at the
expiration of such period as shall be deemed advisable by the Board of
Directors, for distribution of the balance in the manner provided in this Article 9.

(c)           Third,
to the extent not previously paid under Sections 9.3(a) or 9.3(b),
to the Shareholders according to their Common Shares.

 35
 

 

 

ARTICLE 10 

ACCOUNTING AND BANK ACCOUNTS

10.1         Fiscal Year and Accounting Method.

The Fiscal
Year and taxable year of the Company shall be as set forth in the definition of
Fiscal Year.  The Board of Directors
shall also determine the accounting method to be used by the Company, within
Brazilian GAAP.  The Company may maintain
ancillary controls in order to be able to reconcile and present to its
Shareholders it accounting also in accordance with US GAAP.

10.2         Books and Records.

(a)           The
books and records of the Company shall be maintained at its principal place of
business and shall be maintained in Portuguese. 
The Company shall also maintain an ancillary set of records in English.

(b)           In
addition to any books and records required by applicable law, the Company shall
keep the following books and records:

(i)            true
and full information regarding the status of the business and financial
condition of the Company;

(ii)           copies
of the Company’s tax returns for each taxable year or other taxable period;

(iii)          a
current list of the name and last known business, residence or mailing address
of each Shareholder, each member of the Board of Directors and of each Officer;

(iv)          copies
of this Agreement, the Amended and Restated By-Laws and all amendments thereto,
together with executed copies of any written powers of attorney
pursuant to which this Agreement, the Amended and Restated By-Laws and all
amendments thereto, have been executed;

(v)           true
and full information regarding the amount of cash and a description and
statement of the agreed value of any property or services contributed by each
Shareholder and that each Shareholder has agreed to contribute in the future,
and the date on which each became a Shareholder; and

(vi)          other
information regarding the affairs of the Company as is just and reasonable.

(c)           Each
Shareholder (or such Shareholder’s designated representative(s) or agents)
shall have the right, during ordinary business hours and upon reasonable
Notice, to inspect and copy, and/or otherwise conduct an independent audit or
investigation of (in each case at such Shareholder’s own expense) the books and
records of the Company, including, without limitation, those required to be
kept by Section 10.2(b) hereof or those described in Section 10.3
hereof.

 36
 

 

 

10.3         Books, Financial Reports and
Compliance.

(a)           The
Board of Directors shall keep or shall cause the Company to keep proper and
complete records and books of account in which shall be entered all
transactions and other matters relative to the Company’s Business.  The Company’s books and records shall be
prepared in accordance with (i) Brazilian GAAP and (ii) US GAAP consistent with
the standards and policies required by the accounting staff of the SEC for a
public company that is required to comply with the Sarbanes-Oxley Act of 2002
as an “accelerated filer” or a “large accelerated filer” as such terms are
defined in the regulations of the SEC (as amended, including any successor
statute), and regulations promulgated thereunder.  In any case in which Brazilian GAAP and US
GAAP are not compatible Brazilian GAAP shall prevail; provided, however, that
the company shall maintain the necessary records in order to allow full
reconciliation to US GAAP.

(b)           The
Company shall provide the Shareholders with the following reports and
information:

(i)            no
later than twenty (20) Business Days after the end of each Fiscal Year, the
balance sheet of the Company as of the end of such Fiscal Year and the related
profit and loss statement and statement of cash flows for the Fiscal Year then
ended, in each case audited by the Auditors;

(ii)           no
later than ten (10) Business Days after the end of each Fiscal Year, the
unaudited balance sheet of the Company as of the end of such Fiscal Year and
the related unaudited profit and loss statement and statement of cash flows for
the Fiscal Year then ended;

(iii)          no
later than ten (10) Business Days after the end of each of the first (1st), second (2nd) and third (3rd) quarter of each Fiscal Year, unaudited
balance sheet of the Company as of the end of such quarter and the related
unaudited profit and loss statement and statement of cash flows (for such
quarter and for the year-to-date), together with an analysis of the operating
results of the Company as compared to the Annual Business Plan and as compared
to prior comparable periods and a summary description of Company operations,
marketing and sales during such quarter and projected operations during the
balance of the Fiscal Year;

(iv)          no
later than five (5) Business Days after each month-end, unaudited profit and
loss statements, together with an analysis of the operating results of the
Company as compared to the Annual Business Plan and a summary description of
Company operations, marketing and sales during such month;

(v)           promptly
after receipt thereof, all other reports or statements prepared by the
Auditors; and

(vi)          as
promptly as practicable but no later than thirty (30) Business Days prior to
the end of each Fiscal Year, a copy of the Annual Business Plan for the next
Fiscal Year.

 37
 

 

(c)           Tubos
acknowledges that Lone Star, the indirect parent corporation of LSB 2, may be
required to consolidate the financial results of the Company and its
subsidiaries with Lone Star’s own financial results and Tubos and LSB 2 shall
ensure that the Company and each of its subsidiaries is operated in accordance
with the laws and regulations that are applicable to companies that are
publicly traded in the United States.  As
such, from and after the Effective Date, Tubos will fully cooperate with LSB 2
and Lone Star in implementing, monitoring and maintaining compliance at the
Company and each of its subsidiaries with all policies, procedures and controls
that Lone Star requires of its other subsidiaries (the “Lone Star Policies”).  Such Lone Star Policies will include, but may
not be limited to, internal and financial controls for compliance with the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated
thereunder, policies for compliance with the Foreign Corrupt Practices Act and
the rules and regulations promulgated thereunder, all of the rules and
regulations promulgated by the SEC, as well as Lone Star’s code of conduct and
other financial, treasury, legal, compliance and accounting policies (including
US GAAP).

(d)           Tubos
will fully cooperate with LSB 2 in implementing, monitoring and maintaining
compliance at the Company and each of its subsidiaries with the anti-corruption
policy attached hereto as Exhibit C.

(e)           Neither
the Company nor Tubos (nor any Affiliate of Tubos) shall issue a press release
related to the Company without the prior mutual written consent of LSB 2 and
Tubos.

10.4         Taxation.

The Company shall cooperate with LSB 2 in connection with all Tax
planning and Tax return preparation of the Company.

10.5         Bank Accounts.

All funds of
the Company shall be deposited in a separate bank, money market or similar
accounts approved by the Board of Directors and in the Company’s name.  Withdrawals therefrom shall be made only by
persons authorized to do so by the Board of Directors.

ARTICLE 11 

CERTAIN COVENANTS

11.1         Non-Solicitation.

Except as set
forth herein, each Shareholder, by and on behalf of itself and its respective
Affiliates, covenants that it shall not, and its Affiliates shall not, directly
or indirectly for so long as such Shareholder
remains a Shareholder and for a period of two (2) years thereafter, without the
written consent of the other Shareholder, solicit, encourage to leave
employment, or hire any officer or employee of the Company or any employee of
the other Shareholder and such other
Shareholder’s Affiliates, except that the foregoing shall not prohibit (i) any
Shareholder or its Affiliates from soliciting or employing any individual who
has received notice of termination from, or has ceased to be employed by, the
Company, the other Shareholder or any Affiliates of the other Shareholder prior
to the first time such individual discussed with any representative of

 38
 

 

such Shareholder or its Affiliates employment by such
party and (ii) any Shareholder or its Affiliates from employing an individual
who responds to a general solicitation of employment by such party.

11.2         Non-Competition.

(a)           From
the date hereof through a period of five (5) years from the date of the
expiration or termination of this Agreement, or a period of five (5) years
following the date of termination or dissolution of the Company, whichever is
longer (the “Non-Competition Period”), Tubos shall not, and shall cause
its Affiliates not to, directly or indirectly, own, manage, engage in, operate,
control, work for, consult with, render services for, maintain any interest in
(proprietary, financial or otherwise) or participate in the ownership,
management, operation or control of, any business, whether in corporate,
proprietorship or partnership form or otherwise, engaged in a Competing
Business, without the prior written consent of LSB 2, which may be withheld by
LSB 2 in its sole discretion; provided, however, that the
restrictions contained in this Section 11.2(a) shall not restrict the
acquisition by Tubos, directly or indirectly, of less than five percent (5%) of
the outstanding capital stock of any publicly traded company engaged in a
Competing Business.

(b)           During
the term of this Agreement, the Lone Star Group and the GPC Group shall provide
the Company with an opportunity to co-invest in any investments made by the
Lone Star Group or the GPC Group (in the event that LSB 2 has consented to such
investment by Tubos pursuant to Section 11.2(a)) in entities engaged in a Competing Business and
located in South America (a “South
America Competing Business”).  Prior
to initiating, soliciting or taking any action to facilitate inquiries with
respect to any potential investment in a South America Competing Business, the
Lone Star Group or the GPC Group, as applicable, shall notify the Company of
its intention to take such action and to involve the Company in the due
diligence process.  In the event that the
Lone Star Group or the GPC Group, as applicable, decides to proceed with such
equity investment in a South America Competing Business, LSB 2 or Tubos, as
applicable, shall notify the Board of Directors of such decision as soon as
reasonably practicable (the “Investment Notice”).  Following receipt of the Investment Notice
described in this Section 11.2, the Company shall have twenty (20)
Business Days to agree to co-invest with the Lone Star Group or the GPC Group,
as applicable, in such South America Competing Business.  If the Company does not agree to co-invest
within such time period, it shall be deemed to have waived its right to
co-invest in such South America Competing Business.   LSB 2 shall cause the LSB 2 Directors to
vote in favor of any co-investment in a South America Competing Business by the
Company for which LSB 2 provided the Company with the Investment Notice.  Tubos shall cause the Tubos Directors to vote
in favor of any co-investment in a South America Competing Business by the
Company for which Tubos provided the Company the Investment Notice.  The co-investment rights of the Company
contained in this Section 11.2(b) shall not apply to the acquisition by
LSB 2 or Tubos, as applicable, directly or indirectly, of less than five
percent (5%) of the outstanding capital stock of any publicly traded company
engaged in a South America Competing Business so long as LSB 2 or Tubos does
not increase its shareholding or acquire the right to name officers to the
management of such publicly traded company.

 39
 

 

 

11.3         Production and Sale of Tubular
Products.

The Company shall exclusively control all
aspects of its business and any issues related to its business will be
discussed at a meeting of its Board of Officers, Board of Directors, at a
Shareholders’ Meeting or as otherwise provided for in this Agreement and/or in
the Corporation Law.  The Company’s
decisions regarding the production and sale of Tubular Products, including, but
not limited to, the purchase of raw material, sales and marketing policies and
export procedures, shall prevail over any agreement that the Company has or may
enter into with any Shareholder or Affiliate thereof in order to facilitate the
sale or the export of Tubular Products. 
In connection with the foregoing, Tubos shall provide to the
Company raw material procurement and invoicing services in a commercially
reasonable manner and level of service according the instructions issued by the
Company to Tubos in a manner that is consistent with past practices from time
to time and Tubos shall purchase such raw materials from such suppliers as
instructed by the Company to Tubos in a manner that is consistent with past
practices from time to time.  The Company
shall reimburse reasonable actual out-of-pocket costs incurred by Tubos in
connection with the provision of such services.

11.4         Other Agreements.

Each
Shareholder hereby agrees that simultaneously with the execution of this
Agreement, each Shareholder shall, and/or shall cause those of its Affiliates
which are parties thereto (including, in the case of Tubos, the Company),
execute and deliver each of the following documents, which the Shareholders
hereby agree are in the best interest of the Company:

(a)           the
Amended and Restated By-Laws;

(b)           the
Sale, Marketing and Supply Agreement;

(c)           the
Contribution Agreement;

(d)           the
Tubos Transition Services Agreement;

(e)           the
LSS Transition Services Agreement;

(f)            the
LSS Trademark Cross License Agreement;

(g)           the
Tubos Trademark License Agreement; and

(h)           the AA Purchase Agreement.

 40

 

 

ARTICLE 12 

MISCELLANEOUS

12.1         Registration
and Filing.

This
Agreement shall be filed at the Company’s headquarters pursuant to and for the
purposes of Section 118 of the Corporation Law. 
The following legend shall be entered in the Company’s Registry of
Registered Shares, beside the records of the shares, and on the certificates
representing the shares, if issued: “The voting rights attached
to the Shares represented by this Certificate (or record), as well as the
transfer or encumbrance thereof for any reason whatsoever, are bound by and are
subject to the Shareholders’ Agreement executed on [·], 2006”.

12.2         Specific Performance.

This Agreement
and all of its provisions are subject to specific performance (“execução específica”) pursuant to Section 118 of the
Corporation Law and Sections 461, 639 et seq. of the Brazilian Code of Civil
Procedure.

12.3         Title to Property.

Title to the
Property shall be held in the name of the Company.  No Shareholder shall individually have any
ownership interest or rights in the Property except indirectly by virtue of
such Shareholder’s ownership of Common Shares. 
No Shareholder shall have any right to ask for or obtain a partition of
any of the assets of the Company nor shall any Shareholder have the right to
any specific assets of the Company upon the liquidation of, or any distribution
from, the Company.

12.4         Waiver of Default.

No consent or
waiver, express or implied, by the Company or a Shareholder with respect to any
breach or default by the Company or a Shareholder hereunder shall be deemed or
construed to be a consent or waiver with respect to any other breach or default
by any party of the same provision or any other provision of this
Agreement.  Failure on the part of the
Company or a Shareholder to complain of any act or failure to act of the
Company or a Shareholder or to declare such party in default shall not be
deemed or constitute a waiver by the Company or the Shareholder of any rights
hereunder.

12.5         Amendment.

This Agreement
shall not be altered, modified or changed except by an amendment approved in
writing by the Shareholders.

12.6         No Third Party Rights.

None of the
provisions contained in this Agreement shall be for the benefit of or
enforceable by any Third Parties, including creditors of the Company.  The Shareholders

 41
 

 

expressly
retain any and all rights to amend this Agreement as herein provided,
notwithstanding any interest in this Agreement or in any party to this
Agreement held by any other Person.

12.7         Termination.

Subject to the foregoing, this Agreement shall terminate with respect
to each Shareholder, in its capacity as a Shareholder, at the time at which
such Shareholder ceases to own at least thirty-percent (30%) of the shares
representing the voting capital of the Company, except that such termination
shall not affect (a) the rights perfected or the obligations incurred by such
Shareholder under this Agreement prior to such termination (including any
liability for breach of this Agreement) and (b) the obligations expressly
stated to survive the termination of this Agreement.

12.8         Severability.

In the event
any provision of this Agreement is held to be illegal, invalid or unenforceable
to any extent, the legality, validity and enforceability of the remainder of
this Agreement shall not be affected thereby and shall remain in full force and
effect and shall be enforced to the greatest extent permitted by law.

12.9         Binding Agreement.

Subject to the
restrictions on the disposition or Transfer of Common Shares herein contained,
the provisions of this Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.  The Shareholders hereby agree that upon the
merger of LSB 2 with and into the Company in accordance with Section 8.8,
LSB 1 shall succeed to all of the rights and obligations of LSB 2 under this
Agreement.

12.10       Headings.

The headings
of the articles and sections of this Agreement are for convenience only and
shall not be considered in construing or interpreting any of the terms or
provisions hereof.

12.11       Word Meanings.

The words such
as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement
as a whole and not merely to a subdivision in which such words appear unless
the context otherwise requires.  The
singular shall include the plural, and vice versa, unless the context otherwise
requires.

12.12       Counterparts.

This Agreement
may be executed in several counterparts, all of which together shall constitute
one agreement binding on all parties hereto, notwithstanding that all the
parties have not signed the same counterpart.

 42
 

 

 

12.13       Entire
Agreement.

This
Agreement, together with all schedules and exhibits hereto, contains the entire
agreement between the parties and supersedes all prior writings or agreements
with respect to the subject matter hereof.

12.14       Arbitration.

The parties
shall make every effort to settle amicably any and all disputes, controversies
and conflicts arising out of or relating to or in connection with this
Agreement, the performance or non-performance of the obligations set forth
herein (including any questions regarding its existence, validity or
termination) (a “Dispute”). 
Except as provided in this Section 12.14, Disputes or claims, if any, which
cannot be settled amicably between the parties, within thirty (30) days after
written Notice of such Dispute has been given by one or more party(ies) to the
other party(ies), shall be referred to and finally resolved by arbitration in
Sao Paulo, Brazil under the Rules of Arbitration of the International Chamber
of Commerce (“ICC Rules”) for the time being in force.  The ICC Rules shall be deemed to be
incorporated by reference into this Section 12.14.  Each of Tubos and LSB 2 shall appoint one (1)
arbitrator and the arbitrators appointed by Tubos and LSB 2 shall appoint the
third (3rd)
arbitrator.  The costs of the
arbitration, including administrative and arbitrator’s fees, shall be shared
equally by the parties.  Each party shall
bear the costs of its own attorney’s fees and expert witness fees.  The arbitration proceedings shall be in
English and Portuguese and all pleadings and written evidence shall be in
English and Portuguese.  The parties
agree that the arbitration shall be kept confidential and that the existence of
the proceeding and any element of it (including but not limited to any
pleadings, briefs or other documents submitted or exchanged, any testimony or
other oral submissions, and any awards) shall not be disclosed beyond the
tribunal, the ICC, the parties, their counsel and any person necessary to the
conduct of the proceeding, except as may be lawfully required in judicial
proceedings relating to the arbitration or otherwise, or as required by
applicable Law.  The decision of the
tribunal shall be final, binding and enforceable upon the parties and judgment
upon any award rendered by the tribunal may be entered in any court having
jurisdiction thereof.  In the event that
the failure of a party or parties to this Agreement to comply with the decision
of the tribunal requires the other party or parties to apply to any court for
enforcement of such award, the non-complying party or parties shall be liable
to the other for all cost of such litigation including attorneys’ fees.  The parties may apply to any court of
competent jurisdiction in accordance with this Section 12.14 for
temporary or permanent injunctive or preliminary relief, without breach of this
Section 12.14 or abridgement of the powers of the tribunal.  For the purposes of obtaining temporary or
permanent injunctive or preliminary relief and without abridgement of the
powers of the tribunal, the parties elect the courts of the City of Sao Paulo,
State of Sao Paulo, with the express waiver of any other courts, no matter how
privileged they may be.  Except for
applications regarding preliminary or injunctive relief, no party shall be
entitled to commence or maintain any action in any court of law upon any matter
in dispute until such matter shall have been submitted to, and finally
determined under, the dispute resolution and arbitration procedures in this Section
12.14.  Process may be served on any
party in the manner set forth in this Agreement or by such other method
authorized by applicable Law or court rule.

 43
 

 

 

12.15       Confidentiality.

(a)           The
provisions of this Agreement and all proprietary information pertaining to the
Business, financial condition, strategies, plans, policies, inventions, trade
secrets, intellectual property, computer programs, projections, pricing, or
processes of the Company or provided or disclosed by the Company to a
Shareholder, or by one Shareholder to another Shareholder or by the Company or
a Shareholder to such Shareholder’s or the other Shareholder’s directors,
officers, partners, employees, advisors or agents, shall be confidential, and
shall not be disclosed or otherwise released to any other Person without the
unanimous written consent of the Shareholders; provided, however, that
any Shareholder may disclose any such information, on a “need to know” basis,
to the directors, officers, partners, employees, counsel, auditors,
consultants, lenders, insurance providers and brokers of such Shareholder and
its Affiliates.

(b)           The
obligations of a Shareholder under Section 12.15(a) hereof shall
not apply to confidential information (i) that is received by such Shareholder
from a Person who is not a Shareholder or related to a Shareholder and who has
the right to give the information to such Shareholder and who does not require
that such Shareholder keep such information confidential, (ii) that is or
becomes public knowledge through no fault of such Shareholder, (iii) the
disclosure of which is required by applicable Law or (iv) that a Shareholder is
required to disclose pursuant to the rules and regulations of the SEC; provided,
that prior to disclosing confidential information pursuant to
clause (iii) of this Section 12.15(b), such
Shareholder shall give notice to the Company and the other Shareholder, which
shall describe the information proposed to be disclosed and state the basis
upon which such disclosing Shareholder believes the information is required to
be disclosed, all so that the Company may seek an appropriate protective order
or other remedy and/or waive compliance with the provisions of this Agreement,
and the Shareholder will cooperate with the Company (at the Shareholder’s sole
cost and expense) to obtain such protective order or other appropriate
remedy.  In the event that such
protective order or other remedy is not obtained or the Company waives
compliance with the relevant provisions of this Agreement, the Shareholder will
disclose only that portion of the above referenced information which, in the
reasonable opinion of its legal counsel, is legally required to be disclosed
and the Shareholder will use its reasonable efforts to obtain assurances that
confidential treatment will be accorded to such information.

(c)           The
obligations of the Shareholders under this Section 12.15 shall
terminate upon the fifth (5th) anniversary of the termination or expiration of this
Agreement for any reason.

12.16       Governing Law.

This Agreement
shall be construed according to and governed by the laws of Brazil.

12.17       Notices.

Any notice or
other communication provided for in this Agreement shall be in writing in the
Portuguese and English languages and shall be deemed to have been duly given if

 44
 

 

(a) delivered
personally, (b) sent by commercial courier services or overnight mail or
delivery or (c) sent by facsimile with confirmation by personal delivery or
overnight mail, as follows:

If to Tubos, to:

Apolo Tubos e Equipamentos S.A.

Av. Chrisóstomo Pimentel de Oliveira, no
2.651, Pavuna

CEP 21650-000 Rio de Janeiro, RJ

Brasil

Telefax:  21 – 3452 9139

with a copy
to:

Luciano de Souza Leão Jr.

Bulhões Pedreira, Bulhões Carvalho, Piva, Rosman
e Souza Leão Advogados

Rua da Assembléia 10, 38o andar

CEP 20011-901 Rio de Janeiro, RJ

Brasil

telefax: 21 –
2531 2665

If to LSB 2,
to:

Lone Star Technologies, Inc.

15660 N. Dallas Pkwy., Suite 500

Dallas, TX 75248

United States of America

Telefax: 
972-770-6474

Attn:  General Counsel

with a copy
to:

Mary R. Korby

Weil, Gotshal &
Manges LLP

200 Crescent Court,
Suite 300

Dallas, Texas  75201

Telefax:  214-746-7777

 45
 

 

 

with a copy
to:

Marcos Flesch/Fabíola C.L. Cammarota de Abreu

Souza, Cescon Avedissian, Barrieu e Flesch – Advogados

Rua Funchal,
263 11o andar

04551-060 São
Paulo, SP

Telefax: (55 11) 3089-6565

If to the
Company, to:

Apolo Mecânica e Estruturas S.A.

Av. Dr. Leo de Affonseca Neto, 750 Mondesire –

12600-970 — Lorena/SP

Telefax: (55
12) 3153-2290

with a copy
to:

Lone Star Technologies, Inc.

15660 N. Dallas Pkwy., Suite 500

Dallas, TX 75248

United States of America

Telefax: 
972-770-6474

Attn:  General Counsel

with a copy
to:

Apolo Tubos e Equipamentos S.A.

Av. Chrisóstomo Pimentel de Oliveira, no
2.651, Pavuna

CEP 21650-000 Rio de Janeiro, RJ

Brasil

Telefax:  21 – 3452 9139

with a copy
to:

Luciano de Souza Leão Jr.

Bulhões Pedreira, Bulhões Carvalho, Piva,
Rosman e Souza Leão Advogados

Rua da Assembléia 10, 38o andar

CEP 20011-901 Rio de Janeiro, RJ

Brasil

telefax: 21 –
2531 2665

 46
 

 

or to such other person, address or telefax number as
any party may specify by notice in writing to the other.  All such notices, shall be deemed to have
been received (i) if by personal delivery on the day after such delivery,
(ii)  if by courier services or overnight mail or delivery, on the day
delivered, and (iii) if by facsimile, on the next day following the day on
which such facsimile was sent, provided that it is followed immediately by
confirmation by personal delivery or overnight mail that is received pursuant
to subclause (i) or (ii), provided that if the date of receipt is not a
Business Day at the place of the principal office of the Shareholder receiving
the notice, or if the receipt is after 5:00 p.m. on a Business Day, the notice
or other communication shall be deemed given, received, and effective on the
next Business Day at the place of the principal office of the addressee.

12.18       Guarantee of the Obligations of Tubos.

Subject to the terms, limitations and conditions set forth herein, GPC
and Cirrus (the “Tubos Guarantors”), jointly and severally, hereby
unconditionally, irrevocably and absolutely guarantee to LSB 2 (and its
successors and assigns) the due and punctual performance and discharge of all
of Tubos’ obligations under this Agreement and the transactions contemplated
hereby, existing on the date hereof or hereafter of any kind or nature
whatsoever, including, without limitation, any amount that Tubos or any of its
Affiliates is or may become obligated to pay pursuant to this Agreement and the
transactions contemplated hereby (collectively, the “Tubos Obligations”).

12.19       Guarantee of the Obligations of LSB 2.

Subject to the
terms, limitations and conditions set forth herein, Lone Star hereby unconditionally,
irrevocably and absolutely guarantees to Tubos (and its successors and assigns)
the due and punctual performance and discharge of all of LSB 2’s obligations
under this Agreement and the transactions contemplated hereby, existing on the
date hereof or hereafter of any kind or nature whatsoever, including, without
limitation, any amount that LSB 2 or any of its Affiliates is or may become
obligated to pay pursuant to this Agreement and the transactions contemplated
hereby (collectively, the “LSB 2 Obligations”).  The guarantee under this Section 12.19
is a guarantee of timely payment and performance of the LSB 2 Obligations by
Lone Star as primary obligor and not merely of collection.  Lone Star unconditionally waives: (a) any
right to receive demands, protests, or other notices of any kind or character
whatsoever, as the same may pertain to LSB 2, including the “benefício de ordem”, in
accordance with Art. 828 of the Brazilian Civil Code, (b) any right to
require Tubos to proceed first against LSB 2 or to pursue any other remedy and
(c) all suretyship and other defenses of every kind and nature.

12.20       GPC Group Representative.

(a)           Tubos
is hereby appointed by the GPC Group, as agent and attorney-in-fact for each
member of the GPC Group, for and on behalf of the GPC Group, to take such
actions and exercise such discretion as is required of the GPC Group pursuant
to the terms of this Agreement and the Agreements listed in Section 11.4
(the “Related Agreements”), or deemed necessary or advisable by Tubos in
connection herewith or therewith, and any related document or instrument (and
any such actions shall be binding on each member of the GPC Group) including
without limitation the following:

 47
 

 

(i)            to
give and receive communications and notices, to execute, acknowledge, deliver,
record and file all ancillary agreements, certificates and documents that Tubos
deems necessary or appropriate in connection with the consummation of the
transactions contemplated by this Agreement, any of the Related Agreements, or
related thereto;

(ii)           to
negotiate, agree to, and enter into settlements and compromises with respect to
all matters herein or related hereto;

(iii)          to
waive any breach, right, failure, default or condition precedent under this
Agreement or any of the Related Agreements;

(iv)          to
receive service of process in connection with any claims under this Agreement
or any Related Agreement or instrument;

(v)           to
accept service of process on behalf of the members of the GPC Group;

(vi)          to
act on behalf of the Shareholders with respect to any matter arising under or
in connection with Article 7 and to attend any Shareholders’ Meeting and
exercise the voting rights attached to the shares held by the respective
Shareholder; and

(vii)         to
take all actions necessary or appropriate in the judgment of the Tubos to
accomplish the foregoing.

(b)           A
decision, act, consent or instruction of Tubos shall constitute a decision for
all of the members of the GPC Group and shall be final, binding and conclusive
upon each member of the GPC Group, and the members of the Lone Star Group may
rely upon any such decision, act, consent or instruction of Tubos as being the
decision, act, consent or instruction of all of the members of the GPC
Group.  Notice to Tubos shall be deemed
notice to all of the members of the GPC Group. 
The power and authority of Tubos, as described in this Section 12.20,
is coupled with an interest, irrevocable, granted in accordance with the
provisions and for the purposes of the sole paragraph of Art. 686 of Law No. 10.406,
of January 10, 2002, and shall continue in force and effect until all rights
and obligations of the parties have terminated, expired or been fully
performed.

12.21       Lone Star Group Representative.

(a)           LSB
2 is hereby appointed by the Lone Star Group, as agent and attorney-in-fact for
each member of the Lone Star Group, for and on behalf of the Lone Star Group,
to take such actions and exercise such discretion as is required of the Lone
Star Group pursuant to the terms of this Agreement and the Related Agreements,
or deemed necessary or advisable by LSB 2 in connection herewith, and any
related document or instrument (and any such actions shall be binding on each
member of the Lone Star Group) including without limitation the following:

(i)            to
give and receive communications and notices, to execute, acknowledge, deliver,
record and file all ancillary agreements, certificates and documents that

 48
 

 

LSB 2 deems necessary or appropriate in connection with the
consummation of the transactions contemplated by this Agreement, any of the
Related Agreements, or related thereto;

(ii)           to
negotiate, agree to, and enter into settlements and compromises with respect to
all matters herein or related hereto;

(iii)          to
waive any breach, right, failure, default or condition precedent under this
Agreement or any of the Related Agreements;

(iv)          to
receive service of process in connection with any claims under this Agreement
or any Related Agreement or instrument;

(v)           to
accept service of process on behalf of the members of the Lone Star Group;

(vi)          to
act on behalf of the Shareholders with respect to any matter arising under or
in connection with Article 7 and to attend any Shareholders’ Meeting and
exercise the voting rights attached to the shares held by the respective
Shareholder; and

(vii)         to
take all actions necessary or appropriate in the judgment of the LSB 2 to
accomplish the foregoing.

A decision,
act, consent or instruction of LSB 2 shall constitute a decision for all of the
members of the Lone Star Group and shall be final, binding and conclusive upon
each member of the Lone Star Group, and the members of the Lone Star Group may
rely upon any such decision, act, consent or instruction of LSB 2 as being the
decision, act, consent or instruction of all of the members of the Lone Star
Group.  Notice to LSB 2 shall be deemed
notice to all of the members of the Lone Star Group.  The power and authority of LSB 2, as
described in this Section 12.21, is coupled with an interest,
irrevocable, granted in accordance with the provisions and for the purposes of
the sole paragraph of Art. 686 of Law No. 10.406, of January 10, 2002, and
shall continue in force and effect until all rights and obligations of the
parties have terminated, expired or been fully performed.

12.22       Waiver of Notice.

Whenever any
notice is required by the Corporation Law, the Amended and Restated By-Laws or
this Agreement, to be given to any member of the Board of Directors or to any
Shareholder, a waiver thereof in writing, signed by the Person or Persons
entitled to such notice, whether before or after the time stated therein, and
delivered to the Company for inclusion in the minutes or filing with the
Company’s records, shall be deemed equivalent thereto.

12.23       Expenses.

Except as
otherwise expressly provided in this Agreement, each Shareholder will bear and
be responsible for costs and expenses incurred by it in connection with the
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby.

 49
 

 

 

12.24       Conflict
or Inconsistency.

If there is any conflict or inconsistency between the
provisions of this Agreement and the Amended and Restated By-Laws, this
Agreement, to the extent permitted by applicable law, shall prevail to the
extent of the inconsistency as between the Shareholders, in which case the
Shareholders shall amend the Amended and Restated By-Laws to comply with the
terms of this Agreement.

12.25       Language.

This Agreement is
written and executed in Portuguese and English and the two versions shall have
equal validity. In the event of any inconsistency between both versions, the
English version should prevail.  The
parties acknowledge and agree that certain Schedules and Exhibits to this
Agreement are being executed exclusively in the English Language. Therefore,
the parties agree that a complete version of this Agreement and all the
Exhibits hereto will be executed in Portuguese on the Closing Date.

[Signature page follows]

 50

 

 

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

 

	
  

  	
  APOLO TUBOS E EQUIPAMENTOS S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  LONE STAR BRAZIL HOLDINGS 2 LTDA.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title

  

 

SIGNATURE PAGE TO

SHAREHOLDERS AGREEMENT

 

 

 

	
  

  	
  GPC PARTICIPACOES S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title

  

 

 

	
  

  	
  CIRRUS PARTICIPACOES LTDA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title

  

 

 

	
  

  	
  LONE STAR TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title

  

 

 

	
  Witnesses:

  
	
   

  
	
   

  
	
  1.

  	
   

  	
   

  
	
  Name:

  
	
  ID #:

  
	
   

  
	
  2.

  	
   

  	
   

  
	
  Name:

  
	
  ID #:

  

 

 

SIGNATURE PAGE TO

SHAREHOLDERS AGREEMENT

 

 

 

 EXHIBIT A

Amended
and Restated By-Laws of the Company

 

 

By
Laws of

Apolo
Tubulars S.A.

(in process of
transformation)

Chapter I

Name, Head Office, Legal Jurisdiction, Corporate Purpose and Term

Article 1.                  The Company is designated
Apolo Tubulars S.A.

Article 2.                  The Company shall have its
head office and legal jurisdiction in the City of Lorena, State of São Paulo,
and may upon decision of the Board of Directors, open, keep or close, branches,
main branches, agencies, offices and warehouses in any part of Brazil or
abroad.

Article 3.                  The Company’s corporate
purpose is (a) to manufacture, process and finish steel pipes for the
conduction of gas and liquid substances, to the production and exploitation of
oil and gas, (b) to export, sell and distribute steel pipes and accessories and
components thereof (c) to participate in or make investments in other companies
in order to expand its steel pipes business and (d) to import and purchase
steel pipes from outside of Brazil to sell in Brazil.

Article 4.                  The Company has an indefinite
term of duration.

Chapter II

Capital Stock and Shares

Article 5.                  The Company’s stock capital is
of R$[·], ([·] Reais), divided into [·]
([·])
common shares, nominative, with no par value.

Sole Paragraph:      The Company may issue preferred shares,
with or without voting rights, in one or more classes of shares, even granting 

 

more rights than the ones
granted to the existing shares, with redemption rights or not, up to fifty
percent of the number of shares in which the stock capital is divided, being
established the respective preferences and rights.

Article 6.                  Each common share entitles its
holder to one (1) vote at the Company’s Shareholders’ Meetings.

Article 7.                  The Company may issue stock
certificates or documents (cautelas) that represent the shares. The Company may
also issue multiple certificates of stock.

Sole Paragraph:      The certificates representing the Company’s
shares shall be signed by two (2) Officers or, in case of absence or
impossibility, by two (2) attorneys-in-fact with specific powers to practice
such action.

Article 8.                  The Company may keep all its
shares in deposit, in the name of its owners, in the institution designated by
it, without the issuance of certificates. 

Article 9.                  The Company may issue
debentures, convertible in shares, which shall give their holders a credit
right against it, in the terms approved by the Board of Directors, pursuant to
Article [·] of these Bylaws. 

Chapter III

Shareholders’ Meetings

Article 10.                The conditions to hold a General
Shareholders’ Meeting, including the manner of the call and holding of the
meeting, the necessary number of shareholders in attendance, and the
resolutions and preliminary acts, shall be as provided for in the Law and in
these Bylaws.

Sole Paragraph:      All documents analyzed or discussed at the
General Shareholders’ Meetings must be available to the shareholders 

 2
 

 

at the Company’s head
offices, on the date of publication of the first call notice for the
shareholders’ meeting. In case of absence of the publication of the call
notice, the shareholders shall be notified by registered letter regarding the
availability of the documents to be reviewed and/or copied.

Article 11.                The resolutions at the
Shareholders’ Meetings shall be approved by a majority vote of those
shareholders attending the meeting, provided that the following matters shall
require the supermajority vote of Shareholders representing ninety-five percent
(95%) of the Company’s voting capital:

I – any amendments to the
Company’s Bylaws;

II – any capital increase,
except for (a) those required to effect the investments that are necessary to
achieve the corporate purposes of the Company; and (b) the incorporation of
reserves or provided by law;

III – stock split or reverse
split of stocks, redemption or purchase of shares for cancellation or to be
kept at treasury, issuance or transfer by the Company of any securities of the
Company, either convertible or not into stocks, such as debentures,
subscription bonds, beneficiary parts or call options or stock subscription, or
the granting of any rights or privileges for the acquisition of stocks;

IV – merger, spin off,
corporation conversion, consolidation, or the liquidation of the Company;

V – the authorization to the
Officers to file for bankruptcy, judicial restructuring or to enter into
extraordinary agreements with creditors;

VI – the amortization of any
Company’s debit with any Shareholder, or any affiliate of a Shareholder, or any
payment or distribution of Company’s assets to any Shareholder, or any
affiliate of a Shareholder;

VII – the establishment of the
global compensation of the members of the Board of Directors and of the Board
of Officers, and their participation in the Company’s profits, being observed
the global limits;

 3
 

 

VIII – any material change in
the Company’s business or the adoption of any action which may lead to or
result in such material change; and

IX – any other matters provided
for in Section 136 of Law Nr. 6.404/76 (“Corporation Law”).

Article 12.                The Company’s Shareholders’
Meetings shall be ordinarily held within the first four (4) months following
the end of each fiscal year and, special meetings, whenever necessary.

Sole Paragraph:      The Special Shareholders’ Meetings may
be called (i) by the Board of Directors, (ii) at the request of any Shareholder
which owns at least twenty-five per cent (25%) of the voting shares, or (iii)
in order to comply with any legal requirement.

Article 13.                The Company’s Ordinary and
Special Shareholders’ Meetings shall be installed and presided by the Chairman
of the Board of Directors, and in case of his absence, by any individual
attending the Shareholders’ Meeting and appointed by the Shareholders, and the
secretary shall be an attendant, Shareholder or not, appointed by the chairman
of the Meeting.

Article 14.                At the Company’s Shareholder’s
Meetings, only the owners of shares whose name is registered in the book of
registration of nominative shares, at least 48 hours prior to the meeting, will
be admitted.

Sole Paragraph:      Any shareholder can be represented in the
Shareholder’s Meetings by an attorney in fact with powers granted for no longer
than one year, who is a shareholder, a Company’s manager, or a lawyer, and this
document must be deposited in the Company’s head office no later than 24 hours
before the hour scheduled for the meeting. 

 4
 

 

Chapter IV

Management

Article 15.                The Company shall be managed by
a Board of Directors and a Board of Officers, according to the law and these
Bylaws.

Paragraph 1:           The members of the Board of Directors
shall be appointed for a term of office of three (3) years, re-election being
permitted.

Paragraph 2:            The members of the Board of Officers
shall be appointed for a term of office of three (3) years, re-election being
permitted.

Paragraph 3:           The managers shall be elected to
their positions by means of signature of the investiture statement at the Book
of Minutes of Meetings of the Board of Directors or Board of Officers, as the
case may be, and shall remain in their respective offices until their
successors are elected to their positions, except as otherwise provided for in
the respective instrument of removal from office.

Article 16.                The General Shareholders’
Meetings shall establish global compensation of the Board of Directors and the
Board of Officers, and their participation in the Company’s profits, provided,
in this case, the global limits. The Board of Directors shall distribute the
compensation established among its members and the members of the Board of
Officers.

Section IV. A

Board of Directors

Article 17.                The Board of Directors,
collectively, shall be elected at the Shareholders’ Meeting, and shall be
comprised of six (6) members, all shareholders of the Company. The Chairman and
the Vice-Chairman shall be appointed amongst the Directors elected at the
General Shareholders’ Meeting.

Sole Paragraph:      The Chairman of the Board of Directors,
when absent or unable to perform his/her duties, such duties shall be performed
by the Vice-Chairman.

Article 18.                The Board of Directors shall
hold regular meetings quarterly, on such dates previously established at the
meetings of the Board of Directors, and special meetings whenever it is called
by the Chief Executive Officer or by any Director.

 5
 

 

Paragraph 1:           The meetings shall be called by
means of  written notice sent to each
member of the Board of Directors, at least eight (8) days in advance.  The written notice shall describe the
subjects of the agenda and shall not be required if the Directors attending the
meeting at the beginning of such meeting do not object to the transaction of
any business because the meeting is not lawfully called or convened. 

Paragraph 2:           Notwithstanding the formalities
provided for in paragraph before, the Board of Directors’ Meetings shall be
deemed duly called when all Directors, are in attendance.

Paragraph 3:           At all meetings of the Board of
Directors, the presence of at least five (5) Directors shall constitute a
quorum. The resolutions shall be approved by the majority vote of the Directors
attending the meeting, except for the provisions of Paragraph 4 below.

Paragraph 4:           The following matters shall be
approved only upon the affirmative vote of at least five (5) members of the
Board of Directors:

(a)           the sale of all or substantially all
of the assets of the Company or of any of its subsidiaries, in each case
whether or not resulting in any distribution or payment of any cash or property
to the debt holders or Shareholders of the Company;

(b)           authorization, declaration or payment
of any dividends, including intermediary dividends, or any other distribution
with respect to Common Shares;

(c)           authorization, issuance or creation
of any debt or debt securities of the Company or of any of its subsidiaries;

 

 6

 

(d)           formation of, acquisitions of, or
investments in, businesses (or part thereof) or direct or indirect
subsidiaries, by the Company or any of its subsidiaries (whether through
assets, shares or other securities);

(e)           disposition of any business or investment
(or part thereof) by the Company or any of its subsidiaries (whether through
assets, shares or other securities, other than the disposal of assets
constituting inventory in the ordinary course of business);

(f)            removal of the CEO or the CFO;

(g)           approval of the Annual Business Plan;
provided, that if the Annual Business Plan is not approved, then the prior year’s
Annual Business Plan will remain in effect (increased by 3%) until such time
when a new Annual Business Plan is approved;

(h)           interim changes to the Company’s
budget contained in the Annual Business Plan greater than two percent (2%) for
any line item individually or four percent (4%) in the aggregate;

(i)            to the extent not contained in the
Annual Business Plan:

(i)            any Contracts, or series of related
contracts, written or oral, of the Company or any of its subsidiaries with a
value over the life of such contract, or contracts, in excess of R$[•], except for the renewal of any contract made on market terms
and contracts for the purchase and sale of Tubular Products in the ordinary
course of business;

(ii)           any incurrence of indebtedness, other
than third party accounts payable incurred in the ordinary course of business,
not in excess of R$[•] in any one instance or R$[•] in the
aggregate annually;

(iii)          any satisfaction or discharge of any
indebtedness or any payment of any obligation of the Company or any of its
subsidiaries in excess of R$[•], other than in the ordinary course of business or in 

 7
 

 

accordance
with the payment scheme contained in any documentation previously approved by
the Board of Directors;

(iv)         any waiver of a right or indebtedness
owed to the Company or its subsidiaries exceeding R$[•] individually or R$[•] in the aggregate annually;

(v)          changes to the compensation of, or the
creation of any new compensation plans for, any Officer of the Company or any
of its subsidiaries, or the hiring, firing or changes to the compensation or
material duties of any Officer;

(vi)         adoption, amendment, modification or
termination of any individual or group employee retirement plan or any other
welfare benefit plan or policy if the annual costs of adopting, approving,
modifying, amending or terminating such plan would exceed R$[•];

(vii)        any commitment relating to a loan to or
guarantee of any obligation of any person in excess of R$[•], provided that no loan or guarantee which is
not related to the business of the Company shall be authorized;

(viii)       the instigation or settlement of any
claim, suit, action, case or proceeding involving (x) an amount in dispute in
excess of R$[•] or (y) threats to the reputation of the Company, any of its
subsidiaries, or any of its Directors or Shareholders;

(ix)          removal or changes in the Company’s,
or any subsidiary’s Auditors;

(x)           any entry into any consulting agreement
or similar arrangement in excess of R$[•] annually;

 8
 

 

(xi)          annual capital expenditures in fixed
assets by the Company and its subsidiaries in excess of R$[•] individually or R$[•] in the aggregate annually;

(xii)         any material change to the accounting policies
of the Company and/or any of its subsidiaries; and

(xiii)        any transactions between the Company and
its Shareholders or any of its Shareholders’ associate, controlled or
controlling companies.

Paragraph
5:        The
minutes of the meetings of the Board of Directors shall be transcribed in the
proper book, signed by the attendants, and shall be registered in the book of
Minutes of Meetings of the Board of Directors and registered with the
Commercial Registry and published in case it contains resolutions which may
affect third parties.

Article
19.            Besides
the duties conferred to the Board of Directors by these Bylaws and the law, the
Board of Directors is competent to:

I – set forth
the general orientation of the Company’s business;

II – decide on opening or closing
of main branches, branches, agencies, representative offices or any other
similar establishment in Brazil and abroad;

III – elect and remove the Officers
of the Company and establish their duties;

IV – oversee the management of the
officers, and review, at any time, the books and documents of the Company,
request information regarding contracts entered or to be entered into by the
Company, and any other acts;

V – call Shareholders’ Meetings;

VI – discuss the management’s
report and govern and manage the Board of Officer’s accounts;

 9
 

 

VII – approve the disposal of
fixed assets (bens do ativo permanente), waiver
of the Company’s rights in the creation and perfection of security interest in
regards to the Company’s real state, as well as the grant of guarantees on
behalf of the Company

VIII – decide
on the payment of interim dividends and submit the allocation of net profits of
the fiscal year to approval at the Shareholders’ Meetings;

IX – discuss
and oversee any matter to be submitted to the Shareholders’ Meetings;

X – establish
the general employment guidelines of the Company and the criteria related to
compensation, rights and benefits of employees, and establishing the respective
expenses;

XI – authorize
the granting of guaranty in favor of companies in which the Company has,
directly or indirectly, any equity interest;

XII – submit
amendments of these Bylaws for approval at Shareholders’ Meetings;

XIII – approve
the acquisition of assets; and

XIV – decide
on matters omitted in these Bylaws.

Article 20.             The Chairman of the Board of
Directors, besides their duties as a Director, is competent to:

I – call
the General Shareholders’ Meetings, when the Board of Directors decides to hold
it;

II – call,
convene and preside over the meetings of the Board of Directors, pursuant to
the provisions of these Bylaws;

III – inform
to the Board of Officers and to the General Shareholders’ Meeting, when
applicable, the resolutions approved by the Board of Directors; and

 10
 

 

IV – receive
the notifications sent to the Board of Directors.

Article
21.            The Shareholder part of the shareholders’ agreement filed at the head offices
of the Company may oppose before the Commercial Registry the request or filing
of minutes of meetings of the Board of Directors that contain a resolution
contrary to the provisions of the shareholders’ agreement.

SECTION IV. B

BOARD OF OFFICERS

Article 22.           The Board of Officers is the
executive body and management of the Company. The Board of Officers is
comprised of two (2) to six (6) Officers, one designated as Chief Executive
Officer  (“CEO”) and an other as Chief
Financial Officer (“CFO”).  The
remaining officers without any specific designation, except as otherwise
provided for in their respective election. 
The officers shall have their duties established by the Board of
Directors, in accordance with the provisions of these Bylaws.

Paragraph 1:       In case the office of the CEO is vacant,
the Board of Directors shall be immediately called to elect a substitute. In
case the office of any other Officer is vacant, the body will keep working with
the other Officers, and the Board of Directors shall be immediately called to
elect the new Officer, provided that the Board of Directors may decide to leave
this office vacant, provided that the Company has, at least two Officers.

Paragraph 2:       The Officers, within their respective
duties, have the power to manage the corporate business and any affairs related
to the corporate purposes of the Company, subject to the restrictions provided
for in these Bylaws, and related to transactions: (1) that may only be effected
upon the prior resolution of the Board of Directors or the Board of Officers,
(2) complying with the provisions of Article 24 of these Bylaws, and (3) the
prohibition of granting of any guaranties by the Company’s Officers.

 

 11

 

Article
23.             The Board of
Officers shall meet whenever the corporate interests so require, if it is
called by any Officer, upon the prior notice of five (5) days, being regularly
convened, independent of such formality, the meeting attended by all the members
of the Board of Officers.

Sole
Paragraph:  The resolutions
shall be taken by the majority vote of the Officers attending the meeting and
the respective minutes shall be transcribed in the Book of Minutes of Meetings
of the Board of Officers.

Article
24.            The Company shall
be represented actively and passively by the Officers according to this
Article.

Paragraph
1:        The Company may
only undertake obligations by the joint signature of two Officers, acting
jointly; or one Officer acting jointly with one attorney-in-fact, with specific
powers to practice such acts; or two attorneys-in-fact with specific powers to
practice the act, jointly.

Paragraph
2:        In the following
cases, the Company may be represented by a sole Officer or a sole
attorney-in-fact:

I – endorsement of titles for
the purpose of collection or deposit, on behalf of the Company, before
financial institutions,

II – represent the Company before
the Court; and

III – ministerial acts before
governmental bodies in the federal, state and local levels, public agencies and
other governmental entities, including, but not limited to, the foreign trade
desk of Banco do Brasil, financial institutions authorized to act in the
currency exchange market, the first and fifth sections of the federal customs
in Rio de Janeiro, the other sections of the federal customs in Brazil, the
Central Bank of Brazil, Industrial Development Council (Conselho de
Desenvolvimento Industrial — CDI), Customs Policy Council (Conselho de Política Aduaneira — CPA), Rio de Janeiro Port
Operations Company (Companhia Docas do Rio de
Janeiro), airline companies, maritime companies and any ports and
airports in Brazil, the Non-Ferrous and Steelmaking Council (Conselho de Não-Ferrosos e 

 12
 

 

Siderurgia
— CONSIDER), as well as all activities related with customs
clearance regulated by Section 560 of Decree No. 91,030/85 (Customs
Regulation).

Paragraph 3:    The
powers-of-attorney shall expressly specify the powers granted and shall be
executed by two Officers, and, except for the powers of attorney granted with ad judicia powers or to defend the
Company’s interests in administrative procedures, they
must have an specified term of validity no longer than one year.

Paragraph 4:    The Officers and
attorneys-in-fact are prevented from practicing any acts not in accordance with
the corporate purposes, as well as, without the prior and express consent of
the Board of Directors, to give guarantees and incur in obligations in favor of
third parties, having no effect to the Company the acts practiced in violation of
this provision.

Article
25.         The Board of Officers, as
a collective body, is competent to:

I – propose the annual budget of
the Company;

II – propose the creation and
extinction of branches, main branches, agencies, representative offices or any
other similar establishment within Brazil or abroad;

III – comply with and enforce the
policy and general orientation of the business of the Company as set forth by
the Board of Directors;

IV – approve the employment
guidelines of the Company, according to the general policy approved by the
Board of Directors;

V – acquire, dispose and encumber
the fixed assets (bens do ativo permanente), after
the prior approval of the Board of Directors, establishing rules and delegating
powers, complying with the provisions of Article 24 of these Bylaws;

 13
 

 

VI – authorize the acquisition,
disposal and transaction with real estate, except for securities, establishing
and delegating powers, complying with the limitations provided hereof;

VII – authorize the execution of
agreements, contracts and conventions which create liens, obligations or
compromises for the Company, being allowed to establish rules and delegate
power, complying with the limitations provided hereof; and

VIII – prepare, in every fiscal year,
the Management Reports, the Financial Statements and the proposal regarding the
destination of Company’s profits to be submitted to the Board of Directors and
to the General Shareholders` Meeting.

Article
26.            Besides the
attributions conferred by these Bylaws, the CEO is competent to:

I – perform the executive
management of the Company, enforcing the resolutions and guidelines set forth
by the General Shareholders’ Meetings and the Board of Directors;

II – have the general and active
charge of the entire business and activities of the Company;

III – execute bonds, mortgages and
others contracts, except when the signing and execution thereof be expressly
delegated by the Board of Directors to some other Officer or agent of the
Company;

IV – call and preside the meeting
of the Board of Directors;

V – keep the Board of Directors
informed about the activities of the Company;

VI – represent the Company before
the courts, personally or by means of another Officer or attorney-in-fact
appointed;

 14
 

 

VII – represent the Company,
personally or by means of other Director or attorney-in-fact, at the General
Shareholder’s Meetings of any company in which the Company has an equity
interest;

VIII – award license to the members
of the Board of Officers and to appoint their substitutes;

IX – suggest, to the Board of
Directors, the areas of practice of each Officer;

X – decide, in case of urgency,
matters related to which the Board of Officers is competent to decide, “ad referendum” of the Board of Officers;

XI – supervise the preparation of
the annual budget of the Company and to present the respective proposal to the
Board of Directors;

XII – supervise the activities of
the areas which are directly subordinated to them;

XIII – publish the annual report of
the Company; and

XIV – exercise the powers and functions
which are specifically designated by the Board of Directors.

Article
27.            The CFO shall
have the following attributions:

I – to have charge and custody of,
and be responsible for, all funds and securities of the Company;

II – to make available at all reasonable
times the Company’s books of account and records to any member of the Board of
Directors upon application during business hours at the office of the Company
where such books and records shall be kept;

III – upon request by the Board of
Directors, render a statement of the condition of the finances of the Company
at any meeting of the Board of Directors or of the Shareholders;

 15
 

 

IV – to establish and maintain an
adequate internal control structure and procedures for financial reporting as
though the Company was required to comply with the Sarbanes-Oxley Act of 2002,
and regulations promulgated thereunder, as such act may be amended or
superseded;

V – to evaluate, upon request by
the Board of Directors, the efficiency of the 
internal control structure and procedures for financial reporting;

VI – to receive, and give receipt
for, moneys due and payable to the Company from any source whatsoever; and

VII – to perform all the duties
incident to the office of CFO and such other duties as from time to time may be
assigned to him or her by the CEO or the Board of Directors.

Article
28.             The Officers are
competent and upon compliance with the provisions of these Bylaws, shall decide
on any investment and/or expenses up to the amount of R$[•], if such
investment or expense, (a) is in accordance with the Company’s corporate
purposes, (b) is not subject to the prior approval by the Board of Directors or
the General Shareholders’ Meeting.

CHAPTER V

FISCAL COMMITTEE

Article
29.             The Fiscal Committee shall be installed by resolution of
the Shareholders, in accordance with the Corporation Law.

Paragraph
1:        The Fiscal Committee, when installed, shall be formed by
three (3) members and the same number of alternates, elected at the General
Shareholders’ Meeting.

 

 16

 

Paragraph 2:              The compensation of the members of
the Fiscal Committee shall be established at the General Shareholders’ Meeting
when elected; Compensation may
not be lowered to below the amount set forth in Paragraph 3, Section 162 of the
Corporation Law.

Article 30.                  The Fiscal Committee has the authority to take the actions, provided
for under the Law.

CHAPTER VI

FISCAL YEAR, FINANCIAL STATEMENT AND DISTRIBUTION OF PROFITS 

Article 31.                  The fiscal year ends on
December 31 of each year, and the financial statement will be prepared at
fiscal year end.  The balance sheet will
be prepared semi-annually on June 30 and December 31 of every year.

Article 32.                  Pursuant to the provisions
of Paragraph 2o of Section 152 of the Corporation Law, the Board of Directors
may propose profit sharing to the Officers and/or employees, which payment
shall be expressly stressed in the proposal for the destination of profits
pursuant to Section 192 of the Corporation Law.

Sole Paragraph:        If the shareholders approve the
profit sharing plan, they will establish the respective amount and manner of
distribution amongst the beneficiaries.

Article 33.                  Together with the
financial statement of the fiscal year, the Board of Directors shall present at
the Ordinary Shareholders’ Meeting the proposal regarding the destination of
the remaining net profits of the fiscal year, after the following deductions or
inclusions are considered in the following order:

I –
five percent (5%) to the legal reserve, which will not exceed twenty per cent
(20%) of the corporate capital;

 17
 

 

II –
amount destined to the formation of reserves for liability, and right off the
reserves formed in the prior fiscal years;

 

III –
twenty five percent (25%) for the payment of minimum mandatory dividend to the
Shareholders; and

 

IV –
the remaining, if it exists, will be destined to form the reserve to reinforce
the working capital, which shall not exceed eighty percent (80%) of the
corporate capital, except in case of contrary resolution by the shareholders.

 

Sole Paragraph:        Whenever the amount of the minimum
mandatory dividend exceeds an accrued part of the net profit of the fiscal
year, the Management may propose, and the shareholders may approve, and
designate the excess to the reserve of profits to be accrued.

Article 34.                  The Shareholders have the
right to receive the minimum mandatory dividend of twenty five percent (25%) of
the do net profit of the fiscal year, adjusted in accordance with Article (33),
pursuant to provisions of Section 202 of the Corporation Law.

Article 35.                  The amount paid or
credited, as interest on shareholders’ equity, pursuant to   provisions of Section 9, Paragraph 7o, of
Law nr 9.249, of December 26, 1995, and relevant statutes and regulations, may
be considered for purposes of the mandatory dividend, and such amount shall
compose the dividends to be distributed by the Company for any legal purposes.

Article 36.                  By resolution of the Board
of Directors, it may be declared interim dividends from the profits verified in
the semi-annual balance sheet or in balance sheets corresponding to shorter
periods, or profits cumulated or reserves of profits existing in accordance
with the last annual or semi-annual balance sheets, pursuant to the provisions
of Section 204 of the Corporation Law.

Article 37.                  Except for any contrary
resolution of the General Shareholders’ Meeting or the Board of Directors, the
dividends and interest on 

 18
 

 

shareholders’
equity so declared shall be paid within sixty (60) days after such declaration,
but always within the fiscal year.

Article 38.                  The dividend pursuant to
Article 37 will not be mandatory in the fiscal year in which the management
informs the Ordinary Shareholders’ Meeting that this payment is incompatible
with the financial status of the Company.

Sole Paragraph:        The profits that are not distributed
in accordance with the caput of this
Article shall be registered as special reserve and, if they are not absorbed by
losses in subsequent fiscal years, shall be paid as dividend as soon as the
financial status of the Company so allows.

CHAPTER VII

DISSOLUTION AND LIQUIDATION

Article 39.                  The
Company shall be dissolved and liquidated under the circumstances provided for
by law, and the shareholders shall determine the manner of the liquidation and
the Board of Directors shall appoint a liquidator and establish his
compensation.

Sole Paragraph:        During the liquidation, the Fiscal
Committee will not work permanently, but will only be installed by request of
the Shareholders, according to the law.

CHAPTER VIII

MISCELLANEOUS

Article 40.                  The
Company shall observe the shareholders’ agreements filed in its head offices,
considering that (i) they shall be referred to in the book 

 19
 

 

of
registration of nominative shares; and (ii) the chairman of the Meeting of the
Board of Directors or the cordinator of the Shareholders’ Meeting, as the case
may be, shall refuse to count a vote that is not in accordance with the
provisions of the shareholders` agreement.

Article 41.                  In case of recess, the value
of the reimbursement related to the shares
 of the dissenting Shareholders will be
determined according to the Company’s economic value, pursuant to Section 45 of
the Corporation Law.

Article 42.                  In case any disputes arise
between Shareholders and the Company, or between the controlling shareholders
and the minority shareholders, and they fail to reach a solution, the conflict
shall be solved by means of arbitration, in São Paulo, Brazil, pursuant to the
arbitration rules of the International Chamber of Commerce (“Câmara Internacional de Comérci — ICC”).

Sole Paragraph:        To enforce the arbitration award (laudo arbitral) and to solve the conflicts which were not
submitted to arbitration, the parties elect the courts of the City of São
Paulo, State of São Paulo, with the express waiver of any other courts, no
matter how privileged they may be.

Article 43.                  The amounts expressed in Reais (R$) in these Bylaws shall be djusted annually, every
[·],
according to the [·] variation.

 

 20

 

 

EXHIBIT B

Initial Authorized Senior
Executive Officers

	
  Tubos:

  	
   

  	
   

  

 

 

LSB 2:              Rhys Best

 

Joe Alvarado

 

Byron Dunn

 

Tomas Barrett

 

 

 

EXHIBIT C

Anti-Corruption Policy

 

EXHIBIT C to Shareholders Agreement

ANTI-CORRUPTION
POLICY

APOLO
MECANICA E ESTRUTURAS S.A.

[_], 2006

 

ANTI-CORRUPTION POLICY OF
APOLO MECANICA E
ESTRUTURAS S.A.

1.              Purpose
of Policy

It is the policy of Apolo
Mecanica e Estruturas S.A. (the “Company”) to conduct all of its
operations and activities in compliance with applicable anti-corruption laws
wherever it operates.

2.              Applicability
of Policy

This policy applies to
the Company and to all directors, officers, employees, agents, contractors,
consultants, joint venture partners, and other persons acting for or on behalf
of the Company.

3.              Definitions

As used in this policy,
the term “government official” means:

·                  any officer or
employee of any government, of any agency or instrumentality of any government,
or of any entity in which a government owns an interest;

·                  any person
acting for or on behalf of a government;

·                  any candidate
for political office;

·                  any political
party or official thereof;

·                  any official or
employee of a public international organization;

·                  any person who
holds a legislative, administrative or judicial position; and

·                  any person who performs public duties
or state functions, including a person employed by a board, commission,
corporation or other body or authority that is established to perform a duty or
function on behalf of the state, or is performing such duty or function and an
official or agent of a public international organization that is formed by two
or more states or governments, or by two or more such public international organizations.

4.              Accounting

The Company and its
personnel will maintain books and records that accurately reflect all
transactions.  No person working for or
on behalf of the Company may make any false entry in any of the Company’s books
and records, nor may any such person be a party to the creation of any false or
misleading document that supports the disbursement of the Company funds, and
the Company shall require accounting for transactions in sufficient detail so
that improper payments could not be hidden from review.

 2
 

 

5.              Payments
to Government Officials

No person working for or
on behalf of the Company, regardless of nationality, may offer, pay, give,
promise, or authorize the payment of any money or of anything of value to any
government official for the purpose of obtaining or retaining business or to
secure any improper advantage.

6.              Indirect
Payments to Government Officials

No person working for or
on behalf of the Company, regardless of nationality, may offer, pay, give,
promise, or authorize the payment of any money or of anything of value to any
person while having reason to know that such person has offered or given, or
will offer or give, money or anything of value to any government official for
the purpose of obtaining or retaining business (including the opportunity to
provide services or otherwise do business) or to secure any improper advantage.

Persons subject to this
policy may be considered to have “reason to know” where the circumstances raise
reasonable suspicion that illegal payments may have been offered or promised or
given, even if there is no actual knowledge.

7.              Gifts

No gifts may be given to
government officials unless specifically allowed by written local law and
approved by the designated compliance officer.

8.              Entertainment
of Government Officials

Entertainment of
government officials is not permitted unless specifically allowed by written
local law and approved by the designated compliance officer.

9.              Travel
by Government Officials

The Company may pay
reasonable and bona fide expenditures, such as travel and lodging expenses,
incurred by or on behalf of a government official where the expenditures are
directly related to the promotion, demonstration, or explanation of the Company’s
products or services or the Company’s execution or performance of a contract
with the government or agency of such government official.  The schedules of such trips must be tightly
controlled to reflect the business goals of the travel.  Payment of such travel and lodging
expenditures by the Company must be approved by the designated compliance
officer before the Company makes any commitment to pay the expenses associated
with such travel.

10.       Facilitating
Payments

Anti-bribery laws permit
payments to government officials in limited circumstances for the purpose of
facilitating or expediting the administrative

 3
 

 

performance of routine
governmental actions.  No such payments
may be made, however, without obtaining the prior approval of the designated
compliance officer of the Company.

11.       Use
of Agents, Consultants, and Other Third Parties

Every agreement with an
agent, consultant, joint venture partner, or other third party who can act on
behalf of the Company must contain a certification in which the agent,
consultant, joint venture partner, or other third party agrees to comply with
the Company’s Anti-corruption Policy. 
The agent, consultant, joint venture partner or other third party must
sign a certification in the form attached hereto as Appendix I.

12.       Questions

Any questions concerning
this policy or its application to any particular set of facts should be
referred to the designated compliance officer.

 4

 

Appendix I

APOLO
MECANICA E ESTRUTURAS S.A.

Anti-Corruption Policy Certification

I acknowledge that I have reviewed the following
Anti-Corruption Certification and understand that, as an [agent, consultant,
joint venture partner] to Apolo Mecanica e Estruturas S.A. (the “Company”),
I have an obligation to fully adhere to these policies and principles.  In particular, I acknowledge and affirm that:

In carrying out my
responsibilities as [an agent for][a consultant] to the Company, I agree that I
have not, and will not, offer, promise, pay, or authorize the payment of any
money or anything of value, or take any action in furtherance of such a
payment, whether by direct or indirect means, to any government official or
employee or any political party or official thereof or candidate for political
office for the purpose of securing an improper advantage with the government or
anyone else.

I understand that the
payment of a small facilitating payment to low-level government employees for
the purpose of securing routine administrative action is not considered a
prohibited payment, provided the recipient of such service or action is
entitled to receive such service or action and the payment is customary and
appropriate in the country where such payment is made.

A.                               Penalties and Compliance
Under this Anti-Corruption Certification

I understand that I will
be subject to sanctions, including potential termination of [the
Agency/Consultancy Agreement][my employment with the Company] related to this
Anti-Corruption Certification, if I fail to follow the requirements listed in
this Anti-Corruption Certification [or in the Agency/Consultancy Agreement][or
in my employment agreement].  Examples of
actions or omissions that will subject me to discipline on this basis include,
but are not limited to, the following:

1.  a breach of the requirements contained in
this Anti-Corruption  Certification;

2.  failure to report a suspected or actual
violation of the requirements contained in this Anti-Corruption Certification;

3.  failure to make, or falsification of, this or
any future Anti-Corruption Certifications;

 

4.  lack of
attention or diligence concerning any employees or sub-agents for whom I am
responsible that directly or indirectly leads to a violation of the
requirements contained in this Anti-Corruption Certification [or the
Agency/Consultancy Agreement] [or in my employment agreement].

	
  

  	
  By:

  	
   

  
	
   

  	
   

  	
  [Name]

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:Exhibit
10.7

Exhibit F

TRANSITION SERVICES AGREEMENT

This Transition Services Agreement (this “Agreement”),
dated as of [                  ], 2006,
is by and between Apolo Mecanica e Estruturas S.A., a corporation (sociedade anônima/stock corporation), organized under the
laws of the Federative Republic of Brazil, with head offices in the city of Rio de Janeiro, State of Rio de
Janeiro, at Av. Chrisótomo Pimentel de Oliveira, No. 2651, Pavuna, CEP
21650-000, duly enrolled with the CNPJ under No. 33.017.088/0001-03, herein represented by its undersigned legal
representatives, duly authorized as they solely declare (the “Company”)
and Apolo Tubos e Equipamentos S.A., a corporation (sociedadeanônima/stock
corporation), organized under the laws of the Federative Republic of
Brazil, with head offices in the city of
Rio de Janeiro, State of Rio de Janeiro, at Av. Chrisótomo Pimentel de
Oliveira, No. 2651, Pavuna, CEP 21650-000, duly enrolled with the CNPJ
under No. 33.017.088/0001-03,
herein represented by its undersigned legal representatives, duly authorized as
they solely declare (“Tubos”).

RECITALS

WHEREAS, the Company, Tubos, Lone Star Brazil Holdings
2 Ltda. (“LSB 2”), Lone Star Technologies, Inc., GPC Participacoes S.A.,
and Cirrus Participacoes Ltda have entered into that certain Contribution
Agreement, dated as of [                  ],
2006 (with all addenda thereto, the “Contribution Agreement”), pursuant
to which LSB 2 has agreed to contribute the LSB 2 Investment to the Company in
exchange for 50% of the outstanding Common Shares of the Company;

WHEREAS, the Company desires to obtain from Tubos, on
the terms and conditions set forth herein, certain services in connection with
its operation of the business of the Company for the time periods set forth
herein, and Tubos is willing to provide to the Company, on the terms and
conditions set forth herein, such services; and

WHEREAS, capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Contribution
Agreement.

AGREEMENTS

NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements set forth herein, Tubos and the Company
hereby agree as follows:

ARTICLE
I.

DEFINITIONS

Section 1.1             Definitions.  As used in this Agreement and the Schedules
attached hereto the following terms will have the following meanings,
applicable both to the singular and the plural forms of the terms
described:

“Agreement” has the meaning ascribed thereto in
the preamble hereto, as such agreement may be amended and supplemented from
time to time in accordance with its terms.

 

“Company” has the meaning ascribed thereto in
the preamble hereto (and any reference to the “Company” in the Schedules
attached hereto shall include any subsidiaries of the Company).

“Company Indemnified Person” has the meaning
ascribed thereto in Section 3.2.

“Company Losses” has the meaning ascribed
thereto in Section 3.2.

“Confidential Information” shall mean
non-public information about the disclosing party’s or any of its Affiliates’
businesses or activities that is proprietary and confidential, which shall
include, without limitation, all business, financial, technical and other
information of the disclosing party or its Affiliates that is marked or
designated “confidential” or “proprietary” or that by its nature or the
circumstances surrounding its disclosure should reasonably be regarded as
confidential or proprietary. 
Confidential Information includes not only written or other tangible
information, but also information transferred orally, visually, electronically
or by any other means.  Confidential
Information shall not include information that (i) is in or enters the
public domain without breach of this Agreement, (ii) the receiving party
lawfully receives from a third party without restriction on disclosure and, to
the receiving party’s knowledge, without breach of a nondisclosure obligation,
or (iii) is independently developed by the receiving party.

“Contribution Agreement” has the meaning
ascribed thereto in the recitals to this Agreement.

“Dispute” has the meaning ascribed thereto in Section
5.7.

“Event of Force Majeure” has the meaning
ascribed thereto in Section 2.5.

“ICC Rules” has the meaning ascribed thereto in
Section 5.7.

“LSB 2” has the meaning ascribed thereto in the
preamble hereto.

“Services” has the meaning ascribed thereto in Section
2.1.

“Term” has the meaning ascribed thereto in Section
4.1.

“Tubos” has the meaning ascribed thereto in the
preamble hereto.

“Tubos Entities” means Tubos and its
subsidiaries and Affiliates providing Services hereunder and “Tubos Entity”
shall mean any of the Tubos Entities.

“Tubos Indemnified Person” has the meaning
ascribed thereto in Section 3.1.

“Tubos Losses” has the meaning ascribed thereto
in Section 3.1.

“Outsourced Service” has the meaning ascribed
thereto in Section 2.3.

“Vendor Contract” has the meaning ascribed
thereto in Section 3.1.

 2
 

 

“Vendor Services” shall mean any Services that
are third party, vendor/out-sourced services.

Section 1.2             Internal
References.  References to Articles,
Sections and paragraphs shall refer to the corresponding articles, sections and
paragraphs in this Agreement and references to the parties shall mean the
parties to this Agreement.

ARTICLE
II.

PURCHASE AND SALE OF SERVICES

Section 2.1             Provision of Services.

(a)           On the terms and subject to the conditions of
this Agreement and in consideration of the LSB 2 Investment, LSB 2’s entering
into of the Contribution Agreement and the service charge described in
Schedule I, Tubos agrees to provide or cause to be provided to the Company
and its subsidiaries, during the Term of this Agreement, the services necessary
for the continuity of the business of the Company, including but not limited to
the services described in Schedule I, in a commercially reasonable
manner and level of service and, where applicable, in a manner and relative
level of service consistent in all material respects with that provided by Tubos
or its subsidiaries to the Facility and the Company prior to the date of this
Agreement (the “Services”).  No other consideration will be due to Tubos other than the consideration
set forth hereinabove.

(b)           At its option, Tubos may cause any Service it
is required to provide hereunder to be provided by any other Tubos Entity.

Section 2.2             Additional
Services.  In addition to the
Services to be provided by Tubos pursuant to Section 2.1, if requested
by the Company, and to the extent that Tubos and the Company mutually agree in
writing, Tubos shall provide additional services to the Company.  The scope and term of any such services and
the other terms and conditions applicable to such services, shall be as
mutually agreed by Tubos and the Company.  Nothing herein shall create any obligation on
the part of Tubos to provide any additional services.

Section 2.3             Services Performed by Third Parties.  At its option, Tubos may cause any Service it
is required to provide hereunder to be provided by any third party that is
providing, or may from time to time provide, the same or similar services for Tubos
(an “Outsourced Service”).  Tubos
shall remain responsible, in accordance with the terms of this Agreement, for the
performance of any Service it causes to be provided pursuant to this Section
2.3.

Section 2.4             Vendor Services.  Tubos and the Company shall cooperate and use
their commercially reasonable efforts to seek the continuation of the provision
to the Company and its subsidiaries of the Vendor Services, including, but not
limited to, using commercially reasonable efforts to obtain all necessary
consents; provided, however, that
in no event shall Tubos or any of its subsidiaries or Affiliates (other than
the Company and its subsidiaries) be obligated to incur any cost or expenses,
pay any sums, waive any right or agree not to enforce any obligation owed to it
in order to continue such Vendor Services. 
Tubos shall promptly notify the Company if any Person that provides a
Vendor Service notifies Tubos that it intends to terminate or otherwise cease
to provide Vendor Services to, or for the benefit of, the Company or

 3
 

 

Tubos. 
Unless Tubos has contracted with a third party for the provision of
Vendor Services to the Company and/or its subsidiaries following the date of
this Agreement, nothing herein shall prevent the Company or its subsidiaries
from independently obtaining any services from third party vendor service
providers and, so long as such services are paid for and arranged independently
by the Company or its subsidiaries, such services will not constitute Services
hereunder.

Section 2.5             Force Majeure.  The Tubos Entities shall not be required to
provide any Service to the extent the performance of such Service becomes
impracticable as a result of a cause or causes outside the reasonable control
of the Tubos Entities or to the extent the provision of such Service would require the Tubos Entities to violate any
applicable Law.  The Tubos Entities shall
have no obligation to perform or cause the Services to be performed if its
failure to do so is caused by or results from any act of God, governmental
action, natural disaster, strike, failure of essential equipment or any other
cause or circumstance beyond the control of the Tubos Entities or, if
applicable, third-party providers of services to the Tubos Entities, and such
failure to perform continues for more than three (3) consecutive days (each, an
“Event of Force Majeure”).  Tubos
will notify the Company, promptly upon becoming aware thereof, of any Event of
Force Majeure affecting the provision of Services by the Tubos Entities to the
Company.  Tubos agrees that following any
Event of Force Majeure, Tubos will use its commercially reasonable efforts to
restore such Services as soon as reasonably practicable.

ARTICLE
III.

INDEMNIFICATION

Section 3.1             Indemnification by
the Company.  The Company shall indemnify
and hold harmless each Tubos Entity and their respective parent entities, directors,
officers, agents and employees (each, a “Tubos Indemnified Person”) from
and against any claims, damages, losses, obligations, liabilities, costs and
expenses (including, without limitation, reasonable attorneys’ fees), net of
any insurance coverage received by such Tubos Indemnified Person (collectively,
“Tubos Losses”), suffered by such Tubos Indemnified Person and arising
out of or in connection with (i) Services rendered or to be rendered by any
Tubos Indemnified Person pursuant to this Agreement or the transactions
contemplated hereby except to the extent that such Tubos Losses are the result
of the gross negligence or willful misconduct of any employee, officer or director
of any Tubos Entity and (ii) any contract or arrangement entered into or
continued in the name of the Company or its subsidiaries for a Vendor Service
(each, a “Vendor Contract”) to the extent such Vendor Contract relates
to a Vendor Service provided to the Company or its subsidiaries following the
date of this Agreement (except to the extent such Tubos Losses are the result
of the gross negligence or willful misconduct of any employee, officer or
director of any Tubos Entity in connection with the performance of its
obligations under Section 2.4 of this Agreement).

Section 3.2             Indemnification by
Tubos.  Tubos shall indemnify and
hold harmless the Company and its respective subsidiaries, directors, officers,
agents and employees (each, a “Company Indemnified Person”) from and
against any claims, damages, losses, obligations, liabilities, costs and
expenses (including, without limitation, reasonable attorneys’ fees), net of
any insurance coverage received by such Company Indemnified Person
(collectively, “Company Losses”), suffered by such Company Indemnified
Person and arising

 4
 

 

out of or in connection with Services rendered
or to be rendered by any Tubos Entity pursuant to this Agreement or the
transactions contemplated hereby to the extent that such Company Losses are the
result of the gross negligence or willful misconduct of any employee, officer
or director of any Tubos Entity.

ARTICLE
IV.

TERM AND TERMINATION

Section 4.1             Term.  Except as otherwise provided in this Article
IV or as otherwise agreed to by the parties in writing, this Agreement
shall have an initial term of six (6) months from the date hereof (the “Term”),
or such shorter or longer period as may be provided in Schedule I
attached hereto with respect to particular Services described therein.  The Company may extend the Term for up to two
successive three (3) month periods by providing written notice to Tubos thirty
(30) days prior to the expiration of the initial six (6) month period or the
first three (3) month extension of the Term, as applicable.

Section 4.2             Termination.  Notwithstanding the Term of this Agreement:

(a)           except where indicated to the contrary in Schedule
I, the Company may at any time terminate one or more of the Services, in
whole or in part, upon giving at least 30 days prior written notice to Tubos;
and

(b)           Tubos may terminate this Agreement with respect
to any one or more of the Services (x) by written notice to the Company in the
event that (i) the Company shall have failed to perform, in all material
respects, any of its material obligations under this Agreement relating to such
Service , (ii) Tubos has notified the Company in writing of such failure and
(iii) such failure shall have continued for a period of thirty (30) days after
receipt by the Company of notice of such failure or (y) in accordance with Section
5.2.

Section 4.3             Effect of
Termination.  Other than as required
by law, upon termination of any Service pursuant to Section 4.2, Tubos
will have no further obligation to provide the terminated Service (or any
Service, in the case of termination of this Agreement); provided that notwithstanding such
termination, the provisions of Articles III, IV and V shall
survive any such termination.

ARTICLE
V.

MISCELLANEOUS

Section 5.1             No Agency.  Nothing in this Agreement shall constitute or
be deemed to constitute a partnership or joint venture between the parties
hereto or constitute or be deemed to constitute any party the agent or employee
of the other party for any purpose whatsoever and neither party shall have authority
or power to bind the other or to contract in the name of, or create a liability
against, the other in any way or for any purpose.

Section 5.2             Company as Sole
Beneficiary.  The Company
acknowledges that the Services shall be provided only with respect to the
operation of the Company and its subsidiaries as currently operated or as
mutually agreed in writing by the parties hereto.  The Company shall not request performance of
any Service for the benefit of any entity other than the

 5
 

 

Company and its subsidiaries.  The Company represents and agrees that the
Company will use the Services only in accordance with applicable Law.  Tubos reserves the right to take all actions,
including termination of any particular Service, that Tubos reasonably believes
to be necessary to ensure compliance with applicable Law.  Tubos will notify the Company of the reasons
for any such termination of Services.

Section 5.3             Confidentiality.

(a)           Nondisclosure.  Each of Tubos and the
Company agrees that (i) it will not, and in the case of Tubos, will cause each
of the Tubos Entities, not to, disclose to any third party or use any
Confidential Information disclosed hereunder to such Person, except as
expressly permitted in this Agreement or in the exercise of its rights
hereunder, and (ii) it will take reasonable measures to maintain the
confidentiality of all Confidential Information of any other party in its or,
in the case of Tubos, the Tubos Entities’ possession or control, which will in
no event be less than the measures it uses to maintain the confidentiality of
its own information of similar type and importance.

(b)           Permitted
Disclosure.  Notwithstanding the
foregoing, each of Tubos and the Company may disclose Confidential Information
of any other party (i) to the extent required by a court of competent
jurisdiction or other Governmental Body or otherwise as required by law,
provided that such party has given such other party prior notice of such
requirement when legally permissible and to the extent reasonably possible to
permit such other party to take such legal action to prevent the disclosure as
it deems reasonable, appropriate or necessary, (ii) to employees, agents and
representatives of any provider of Outsourced Services on a “need-to-know”
basis under an obligation of confidentiality to the disclosing party to the
extent necessary to provide or access and use, as applicable, the Services, or
(iii) to its or any Tubos Entity’s employees, agents, representatives, legal
counsel, auditors, accountants and advisors; provided, however, that such
persons shall be specifically informed of the confidential character of such
Confidential Information and that by receiving such information they are
agreeing to be bound by the terms of this Agreement relating to the
confidential treatment of such Confidential Information.

(c)           Ownership
of Confidential Information.  All
Confidential Information disclosed hereunder shall be and shall remain the sole
and exclusive property of the disclosing party.

Section 5.4             Entire Agreement;
Conflicts.  This Agreement (including
Schedule I constituting a part of this Agreement) and any other writing
signed by the parties that specifically references this Agreement constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements, understandings and negotiations, both
written and oral, between the parties with respect to the subject matter
hereof.  This Agreement is not intended
to confer upon any Person other than the parties hereto and the Tubos
Indemnified Persons and the Company Indemnified Persons any rights or remedies
hereunder.  In the event any provision
contained in this Agreement conflicts with the provisions of the Contribution
Agreement or any other transaction document related thereto, the provisions of this
Agreement control.

 6
 

 

Section 5.5             Information.  Subject to applicable Law and privileges,
each party hereto covenants and agrees to provide the other party with all
information regarding itself and the transactions under this Agreement that the
other party reasonably believes is required to comply with all applicable Law.

Section 5.6             Notices.  Any notice or other communication provided
for in this Agreement shall be in writing in the Portuguese and English
languages and shall be deemed to have been duly given if (a) delivered
personally, (b) sent by commercial courier services or overnight mail or
delivery or (c) sent by facsimile with confirmation by personal delivery or
overnight mail, as follows:

(a)           If to the Company:

Apolo Mecânica e
Estruturas S.A.

Av. Dr. Leo de Affonseca
Neto, 750 Mondesire –

12600-970 – Lorena/SP

Telefax: (55 12)
3153-2290

with a copy to:

Lone Star Technologies,
Inc.

15660 N. Dallas Pkwy.,
Suite 500

Dallas, TX 75248

United States of America

Telefax:  972-770-6474

Attn:  General Counsel

with a copy to:

Apolo Tubos e
Equipamentos S.A.

Av. Chrisóstomo Pimentel
de Oliveira, no 2.651, Pavuna

CEP 21650-000 Rio de
Janeiro, RJ

Brasil

Telefax:  21 – 3452 9139

with a copy to:

Luciano de Souza Leão Jr.

Bulhões Pedreira, Bulhões
Carvalho, Piva, Rosman e Souza Leão 

Advogados

Rua da Assembléia 10, 38o
andar

CEP 20011-901 Rio de
Janeiro, RJ

Brasil

telefax: 21 – 2531 2665

 7
 

 

(b)           If to Tubos, to:

Apolo Tubos e
Equipamentos S.A.

Av. Chrisóstomo Pimentel
de Oliveira, no 2.651, Pavuna

CEP 21650-000 Rio de
Janeiro, RJ

Brasil

Telefax:  21 – 3452 9139

with a copy to:

Luciano de Souza Leão Jr.

Bulhões Pedreira, Bulhões
Carvalho, Piva, Rosman e Souza Leão

Advogados

Rua da Assembléia 10, 38o
andar

CEP 20011-901 Rio de
Janeiro, RJ

Brasil

telefax: 21 – 2531 2665

or to such other person, address or telefax number as
any party may specify by notice in writing to the other.  All such notices, shall be deemed to have
been received (i) if by personal delivery on the day after such delivery,
(ii)  if by courier services or overnight mail or delivery, on the day
delivered, and (iii) if by facsimile, on the next day following the day on
which such facsimile was sent, provided that it is followed immediately by
confirmation by personal delivery or overnight mail that is received pursuant
to subclause (i) or (ii), provided that if the date of receipt is not a
Business Day at the place of the principal office of the party receiving the
notice, or if the receipt is after 5:00 p.m. on a Business Day, the notice or
other communication shall be deemed given, received, and effective on the next
Business Day at the place of the principal office of the addressee.

Section 5.7             Arbitration.  The parties shall make every effort to settle
amicably any and all disputes, controversies and conflicts arising out of or
relating to or in connection with this Agreement, the performance or
non-performance of the obligations set forth herein (including any questions
regarding its existence, validity or termination) (a “Dispute”).  Except as provided in this Section 5.7, Disputes or claims, if any, which
cannot be settled amicably between the parties, within thirty (30) days after
written notice of such Dispute has been given by one party to the other party,
shall be referred to and finally resolved by arbitration in Sao Paulo, Brazil
under the Rules of Arbitration of the International Chamber of Commerce (the “ICC
Rules”) for the time being in force. 
The ICC Rules shall be deemed to be incorporated by reference into this Section 5.7.   Each of Tubos and the Company shall appoint
one (1) arbitrator and the arbitrators appointed by Tubos and the Company shall
appoint the third (3rd)
arbitrator.  The costs of the
arbitration, including administrative and arbitrator’s fees, shall be shared
equally by the parties.  Each party shall
bear the costs of its own attorney’s fees and expert witness fees.  The arbitration proceedings shall be in
English and Portuguese and all pleadings and written

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evidence shall be in English and Portuguese.  The parties agree that the arbitration shall
be kept confidential and that the existence of the proceeding and any element
of it (including but not limited to any pleadings, briefs or other documents
submitted or exchanged, any testimony or other oral submissions, and any
awards) shall not be disclosed beyond the tribunal, the ICC, the parties, their
counsel and any person necessary to the conduct of the proceeding, except as
may be lawfully required in judicial proceedings relating to the arbitration or
otherwise, or as required by applicable Law. 
The decision of the tribunal shall be final, binding and enforceable
upon the parties and judgment upon any award rendered by the tribunal may be
entered in any court having jurisdiction thereof.  In the event that the failure of a party to
this Agreement to comply with the decision of the tribunal requires the other
party to apply to any court for enforcement of such award, the non-complying
party shall be liable to the other for all costs of such litigation including
attorneys’ fees.  The parties may apply
to any court of competent jurisdiction in accordance with this Section 5.7 for temporary or permanent
injunctive or preliminary relief, without breach of this Section 5.7 or abridgement of the powers of the
tribunal.  For the purposes of obtaining
temporary or permanent injunctive or preliminary relief and without abridgement
of the powers of the tribunal, the parties elect the courts of the City of Sao
Paulo, State of Sao Paulo, with the express waiver of any other courts, no
matter how privileged they may be. 
Except for applications regarding preliminary or injunctive relief,
neither party shall be entitled to commence or maintain any action in any court
of law upon any matter in dispute until such matter shall have been submitted
to, and finally determined under, the dispute resolution and arbitration
procedures in this Section 5.7.  Process may be served on either party in the
manner set forth in this Agreement or by such other method authorized by
applicable Law or court rule.

Section 5.8             Assignment.  Subject to Section 2.3, this Agreement
may not be assigned by operation of law or otherwise without the express
written consent of Tubos and the Company, as the case may be (which consent may
be granted or withheld in the sole discretion of Tubos and the Company).

Section 5.9             Governing Law.  This Agreement and all other matters related
to or arising from this Agreement shall be governed by, and construed
exclusively in accordance with, the laws of Brazil.

Section 5.10           Severability.  If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced by any
law or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.  Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible.

Section 5.11           Headings.  The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

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Section 5.12           Amendment.  This Agreement may only be amended by a
written agreement executed by both parties hereto.

Section 5.13           Language.  This Agreement is written in English and
Portuguese and the two versions shall have equal validity.  In the event of any inconsistency between the
different language versions, the English language version shall prevail.

Section 5.14           Counterparts.  This Agreement may be executed in multiple counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

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IN WITNESS WHEREOF, the
parties have caused this Agreement to be signed by their duly authorized
representatives.

	
  

  	
  APOLO MECANICA E ESTRUTURAS
  S.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
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  APOLO
  TUBOS E EQUIPAMENTOS S.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
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 SIGNATURE PAGE TO
 TUBOS TRANSITION SERVICES AGREEMENT

 

SCHEDULE
I

Services

I.              Administrative

II.            Accounting

III.           Reporting

IV.           Information Technology

V.            Supply Chain (Procurement/Supply/Logistics)

Service
Charge

US$550,000 payable on the
date hereof.

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