Document:

Filed by Bowne Pure Compliance

 

Exhibit 10.3

TRANSITION SERVICES AGREEMENT

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

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

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

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

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

SECTION 1. 
SERVICES

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

  

  

 

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

SECTION 2. 
PERFORMANCE OF SERVICES

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

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

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

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

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

  

	 	 	 	 	 
	  	 	

	 	

	 	 	- 2 - 	 	

 

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

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

SECTION 3.  CHARGES
FOR SERVICES

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

SECTION 4.  PAYMENT
OF CHARGES AND REIMBURSEMENTS

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

SECTION 5.  RECORDS
AND AUDITS

 

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

  

	 	 	 	 	 
	  	 	

	 	

	 	 	- 3 - 	 	

 

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

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

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

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

SECTION 6. 
CONFIDENTIALITY

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

  

	 	 	 	 	 
	  	 	

	 	

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

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

SECTION 7.  TERM
OF AGREEMENT

 

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

SECTION 8. 
TERMINATION

 

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

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

  

	 	 	 	 	 
	  	 	

	 	

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SECTION 9. 
MISCELLANEOUS

 

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

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

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

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

  

	 	 	 	 	 
	  	 	

	 	

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

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

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

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

Quanex Corporation

1900 West Loop South, Suite 1500

Houston, Texas 77027

Attention: General Counsel

Facsimile: (713) 626-7549

and

Gerdau S.A.

Avenida Farrapos, 1811

Porto Alegre, RS 90220-005

Brazil

Attention: Expedito Luz

Fax: 55-51-3323-2288

with a copy to:

Fulbright & Jaworski L.L.P.

1301 McKinney, Suite 5100

Houston, Texas 77010

Attention: Michael W. Conlon

Facsimile: (713) 651-5246

  

	 	 	 	 	 
	  	 	

	 	

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and

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Alan Klein

Facsimile: (212) 455-2502

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

Gerdau S.A.

Avenida Farrapos, 1811

Porto Alegre, RS 90220-005

Brazil

Attention: Expedito Luz

Fax: 55-51-3323-2288

with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Alan Klein

Facsimile: (212) 455-2502

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

Quanex Building Products LLC

1900 West Loop South, Suite 1500

Houston, Texas 77027

Attention: President

Facsimile: (713) 626-7549

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

Fulbright & Jaworski L.L.P.

1301 McKinney, Suite 5100

Houston, Texas 77010

Attention: Michael W. Conlon

Facsimile: (713) 651-5246

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

  

	 	 	 	 	 
	  	 	

	 	

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

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

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

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

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

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

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

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

  

	 	 	 	 	 
	  	 	

	 	

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

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

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

  

	 	 	 	 	 
	  	 	

	 	

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

	 	 	 	 	 
	 	

Quanex Corporation 

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

Chief Financial Officer 	 
	 
	 	Quanex Building Products LLC 

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

General Counsel and Secretary 	 
	 

  

- 11 -Filed by Bowne Pure Compliance

 

Exhibit 10.4

EMPLOYEE MATTERS AGREEMENT

DATED AS OF DECEMBER 19, 2007

BY AND AMONG

QUANEX CORPORATION,

QUANEX BUILDING PRODUCTS LLC

AND

QUANEX BUILDING PRODUCTS CORPORATION

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE I	 	DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE II	 	COLLECTIVE BARGAINING AGREEMENTS	 	 	6	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE III	 	EMPLOYEES; ASSUMPTION OF LIABILITIES	 	 	7	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 3.1
	 	 
	 	Employees
	 	 	7	 
	 

	 	Section 3.2
	 	 	 	Assumption of Liabilities
	 	 	7	 
	 

	 	Section 3.3
	 	 	 	Transfer of Assets
	 	 	8	 
	 

	 	Section 3.4
	 	 	 	Non-Solicitation of Employees
	 	 	8	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE IV	 	CHANGE IN CONTROL ARRANGEMENTS	 	 	9	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 4.1
	 	 	 	Waiver and Release Agreements
	 	 	9	 
	 

	 	Section 4.2
	 	 	 	Change in Control Agreements
	 	 	9	 
	 

	 	Section 4.3
	 	 	 	Spinco Severance Agreements
	 	 	9	 
	 

	 	Section 4.4
	 	 	 	True-Up of Certain Change in Control Payments
	 	 	9	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE V	 	SPINCO PLANS GENERALLY	 	 	11	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 5.1
	 	 	 	Establishment of Spinco Plans
	 	 	11	 
	 

	 	Section 5.2
	 	 	 	Terms of Participation by Spinco Employees
	 	 	11	 
	 

	 	Section 5.3
	 	 	 	Service Recognition
	 	 	11	 
	 

	 	Section 5.4
	 	 	 	Transition Services
	 	 	12	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE VI	 	QUALIFIED DEFINED BENEFIT PLANS	 	 	13	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 6.1
	 	 
	 	Establishment of Spinco Pension Plan
	 	 	13	 
	 

	 	Section 6.2
	 	 
	 	Spinco Pension Plan Participants
	 	 	13	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE VII	 	QUALIFIED DEFINED CONTRIBUTION PLANS	 	 	16	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 7.1
	 	 
	 	Quanex Savings Plan and Quanex Bargaining Unit Employee Savings Plan
	 	 	16	 
	 

	 	Section 7.2
	 	 
	 	Quanex Hourly Savings Plan
	 	 	16	 
	 

	 	Section 7.3
	 	 
	 	Spinco Savings Plan
	 	 	16	 
	 

	 	Section 7.4
	 	 
	 	Employer Securities
	 	 	17	 
	 

	 	Section 7.5
	 	 
	 	Contributions as of the Distribution Time
	 	 	17	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE VIII	 	HEALTH AND WELFARE PLANS	 	 	18	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 8.1
	 	 
	 	Health And Welfare Plans Maintained By Quanex Prior To The Distribution Date
	 	 	18	 
	 

	 	Section 8.2
	 	 
	 	Leave of Absence Programs
	 	 	20	 
	 

	 	Section 8.3
	 	 
	 	Time-Off Benefits
	 	 	20	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE IX	 	NONQUALIFIED PENSION PLANS	 	 	21	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 9.1
	 	 
	 	Generally
	 	 	21	 
	 

	 	Section 9.2
	 	 
	 	Quanex Corporation Deferred Compensation Plan
	 	 	21	 

 

 -i-

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 9.3
	 	 
	 	Quanex Corporation Supplemental Salaried Employees’ Pension Plan
	 	 	22	 
	 

	 	Section 9.4
	 	 
	 	Quanex Corporation Supplemental Benefit Plan
	 	 	23	 
	 

	 	Section 9.5
	 	 
	 	Quanex Director Plan
	 	 	23	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE X	 	LONG-TERM INCENTIVE AWARDS	 	 	24	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 10.1
	 	 
	 	Quanex Options
	 	 	24	 
	 

	 	Section 10.2
	 	 
	 	Quanex Restricted Stock
	 	 	24	 
	 

	 	Section 10.3
	 	 
	 	Quanex Restricted Stock Units
	 	 	25	 
	 

	 	Section 10.4
	 	 
	 	Amendments
	 	 	25	 
	 

	 	Section 10.5
	 	 
	 	SEC Registration
	 	 	25	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE XI	 	ADDITIONAL COMPENSATION MATTERS	 	 	26	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 11.1
	 	 
	 	Quanex Stock Purchase Plan
	 	 	26	 
	 

	 	Section 11.2
	 	 
	 	Incentive Awards
	 	 	26	 
	 

	 	Section 11.3
	 	 
	 	Severance Plans
	 	 	27	 
	 

	 	Section 11.4
	 	 
	 	Director, Officer and Key Man Life Insurance
	 	 	28	 
	 

	 	Section 11.5
	 	 
	 	Quanex Vacation Policy
	 	 	28	 
	 

	 	Section 11.6
	 	 
	 	Sections 162(m)/409A
	 	 	28	 
	 

	 	Section 11.7
	 	 
	 	Payroll Taxes and Forms W-2
	 	 	28	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE XII	 	GENERAL	 	 	29	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 12.1
	 	 
	 	Approval by Quanex As Sole Stockholder
	 	 	29	 
	 

	 	Section 12.2
	 	 
	 	Sharing of Employee Information
	 	 	29	 
	 

	 	Section 12.3
	 	 
	 	Reasonable Efforts/Cooperation
	 	 	29	 
	 

	 	Section 12.4
	 	 
	 	Employer Rights
	 	 	29	 
	 

	 	Section 12.5
	 	 
	 	Effect on Employment
	 	 	29	 
	 

	 	Section 12.6
	 	 
	 	Consent Of Third Parties
	 	 	30	 
	 

	 	Section 12.7
	 	 
	 	Access To Employees
	 	 	30	 
	 

	 	Section 12.8
	 	 
	 	Beneficiary Designation/Release Of Information/Right To Reimbursement
	 	 	30	 
	 

	 	Section 12.9
	 	 
	 	Effect if Distribution Does Not Occur
	 	 	30	 
	 

	 	Section 12.10
	 	 
	 	Relationship of Parties
	 	 	30	 
	 

	 	Section 12.11
	 	 
	 	Affiliates
	 	 	31	 
	 

	 	Section 12.12
	 	 
	 	Survival
	 	 	31	 
	 

	 	Section 12.13
	 	 
	 	Notices
	 	 	31	 
	 

	 	Section 12.14
	 	 
	 	Interpretation
	 	 	31	 
	 

	 	Section 12.15
	 	 
	 	Governing Law
	 	 	31	 
	 

	 	Section 12.16
	 	 
	 	Fiduciary Matters
	 	 	31	 
	 

	 	Section 12.17
	 	 
	 	Consent to Jurisdiction and Service of Process
	 	 	31	 
	 

	 	Section 12.18
	 	 
	 	Waiver of Jury Trial
	 	 	32	 
	 

	 	Section 12.19
	 	 
	 	Force Majeure
	 	 	32	 
	 

	 	Section 12.20
	 	 
	 	Authorization
	 	 	32	 

 

 -ii-

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Section 12.21
	 	 
	 	Specific Performance
	 	 	34	 
	 

	 	Section 12.22
	 	 
	 	Assignment
	 	 	34	 
	 

	 	Section 12.23
	 	 
	 	Successors and Assigns/No Third Party Beneficiary
	 	 	35	 
	 

	 	Section 12.24
	 	 
	 	No Amendment of Plans
	 	 	35	 
	 

	 	Section 12.25
	 	 
	 	Amendment
	 	 	35	 
	 

	 	Section 12.26
	 	 
	 	Entire Agreement
	 	 	35	 
	 

	 	Section 12.27
	 	 
	 	Severability
	 	 	35	 
	 

	 	Section 12.28
	 	 
	 	Exhibits and Schedules
	 	 	36	 
	 

	 	Section 12.29
	 	 
	 	Waivers
	 	 	36	 
	 

	 	Section 12.30
	 	 
	 	Termination
	 	 	36	 
	 

	 	Section 12.31
	 	 
	 	Counterparts
	 	 	36	 
	 

	 	Section 12.32
	 	 
	 	Construction
	 	 	36	 

 

 -iii-

 

EMPLOYEE MATTERS AGREEMENT

THIS EMPLOYEE MATTERS AGREEMENT (this “Agreement”) is entered into as of December 19,
2007 by and among Quanex Corporation, a Delaware corporation (“Quanex”), Quanex Building
Products LLC, a Delaware limited liability company and a wholly owned subsidiary of Quanex
(“Spinco LLC”), and Quanex Building Products Corporation, a Delaware corporation and a
wholly-owned subsidiary of Spinco (“Spinco Sub”).

WHEREAS, Quanex intends to transfer or cause to be transferred to Spinco LLC certain assets,
which represent its businesses involving the manufacture and sale of aluminum sheet and engineered
materials and components primarily used in the United States building products market, and Spinco
LLC intends to assume certain liabilities, as contemplated by the Distribution Agreement as defined
below (the “Contribution”);

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

WHEREAS, Quanex and Spinco have entered into a Distribution Agreement dated as of the date
hereof (the “Distribution Agreement”) pursuant to which and subject to conditions set forth
therein, Quanex will distribute (the “Distribution”) on a pro rata basis to the holders as
of the Record Date of the outstanding Quanex Common Stock (the “Quanex Stockholders”)
either (a) all of the limited liability company interest (the “Membership Interest”) of
Spinco LLC (if the Spinco Merger occurs after the Distribution) or (b) the shares of Spinco Sub
stock (if the Spinco Merger occurs prior to the Distribution); and

WHEREAS, Quanex, Spinco LLC and Spinco Sub have entered into certain other agreements dated as
of the date hereof that will govern matters relating to the Distribution and the relationship of
Quanex, Spinco LLC and Spinco Sub following the Distribution;

WHEREAS, pursuant to the Distribution Agreement, Quanex, Spinco LLC and Spinco Sub have agreed
to enter into this Agreement for purposes of allocating employees, assets, liabilities, and
responsibilities with respect to employee compensation, benefits and other matters between Quanex,
Spinco LLC and Spinco Sub; and

WHEREAS, Quanex, Spinco LLC and Spinco Sub have determined to “spinoff” certain assets and
liabilities of Quanex employee benefit plans to Spinco employee benefit plans.

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

 

 

 

ARTICLE I

DEFINITIONS

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

“Affiliate” has the meaning given in the Distribution Agreement.

“Agreement” means this Employee Matters Agreement, and all exhibits and schedules hereto.

“Change in Control Agreements” means the agreements listed on Schedule 1.

“Change in Control Payments” means payments under (i) the Change in Control Agreements, (ii)
the Waiver and Release Agreements, (iii) payments due upon the termination of the Quanex Director
Plan as provided in Section 9.5, (iv) payments due upon termination of Quanex restricted stock
units as provided in Section 10.3, (v) payments of the bonuses as required under Section 11.2(b)(i)
and Section 11.2(b)(iii), and (vi) any Section 280G gross-up payments made with respect to any such
payment, each as in addition to, and in excess of, the amounts indicated for such payments, if any,
on the unaudited balance sheet of Quanex dated October 31, 2007 (attached as Schedule 1 to the
Distribution Agreement).

“Closing” has the meaning given in the Merger Agreement.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Distribution” has the meaning given in the Recitals of this Agreement.

“Distribution Agreement” has the meaning given in the Recitals of this Agreement.

“Distribution Date” has the meaning given in the Distribution Agreement.

“Distribution Time” means the time at which the Distribution shall be effective under the
terms of the Distribution Agreement.

“DOL” means the U.S. Department of Labor.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to
time.

“Estimated Pension Plan Transfer Amount” has the meaning given in Section 6.2(b)(i).

“Final Offering Period Ending Date” has the meaning give in Section 11.1.

“Final Pension Plan Transfer Amount” has the meaning given in Section 6.2(b)(iii).

“Former Quanex Employee” means any individual who, as of the Distribution Time, (a) was
formerly employed by Quanex and (b) is not a Spinco Employee.

 

1

 

“Initial Transfer Amount” has the meaning given in Section 6.2(b)(ii).

“IRS” means the U.S. Internal Revenue Service.

“Liability” and “Liabilities” have the meanings given in the Distribution Agreement.

“Merger Agreement” has the meaning given in Section 7.4(b).

“Merger Consideration” has the meaning given in the Merger Agreement.

“Minimum Statutory Tax Withholding Amount” means, with respect to a relevant option or share
of restricted stock, the amount the employer is required to withhold for federal, state and local
taxes based upon the applicable minimum statutory withholding rates required by the relevant tax
authorities.

“Option Payments” has the meaning given in Section 10.1(b).

“Parent” has the meaning given in Section 7.4(b).

“Quanex” has the meaning given in the preamble of this Agreement.

“Quanex Bargaining Unit Employee Savings Plan” means the Quanex Corporation Bargaining Unit
Employee Savings Plan.

“Quanex Common Stock” has the meaning given in the Distribution Agreement.

“Quanex Deferred Compensation Plan” means the Quanex Corporation Deferred Compensation Plan.

“Quanex Director” means any individual who was a member or former member of the board of
directors of Quanex at or before the Distribution Time and who is not a Spinco Director.

“Quanex Director Plan” means the frozen Quanex Corporation Non-Employee Director Retirement
Plan.

“Quanex Employee” means collectively, the Retained Quanex Employees and Former Quanex
Employees.

“Quanex Employee Liabilities” has the meaning given in Section 3.2(b).

“Quanex Employees Pension Plan” means the Quanex Corporation Employees’ Pension Plan.

“Quanex Group” has the meaning given in the Distribution Agreement.

“Quanex Hourly Savings Plan” means the Quanex Corporation Savings Plan for Hourly Employees.

 

2

 

“Quanex Participant” means any individual who is a Quanex Director, Quanex Employee or former
Quanex Employee or a beneficiary, dependent or alternate payee of any of the foregoing.

“Quanex Plans” means the Quanex Employees Pension Plan, Quanex Savings Plan, Quanex Hourly
Savings Plan, Quanex Bargaining Unit Employee Savings Plan, Quanex Deferred Compensation Plan,
Quanex Supplemental Benefit Plan, Quanex Supplemental Salaried Employees’ Pension Plan, Quanex
Severance Plan, Quanex Corporation Employee Stock Purchase Plan, Quanex Corporation Executive
Incentive Compensation Plan, Quanex Corporation Long-Term Incentive Plan, Quanex Corporation
Management Incentive Plan, Quanex Stock Plans, Quanex Corporation Non-Employee Director Pension
Plan, Quanex Corporation Group Health Plan and Quanex Welfare Plans and all other employee benefit
plans, policies, agreements and arrangements of Quanex.

“Quanex Rabbi Trust” has the meaning given in Section 9.2(d).

“Quanex Reimbursement Account Plan” has the meaning given in Section 8.1(c).

“Quanex Restricted Stock” means a share of Quanex Common Stock granted pursuant to a Quanex
Incentive Plan that is subject to forfeiture restrictions and provided under the applicable plan.

“Quanex Restricted Stock Unit” means a notional restricted stock unit, the value of which is
based on a share of Quanex Common Stock and which is granted pursuant to a Quanex Incentive Plan.

“Quanex Savings Plan” means the Quanex Corporation Employees’ 401(k) Savings Plan.

“Quanex SERP Rabbi Trust” has the meaning given in Section 9.4(d).

“Quanex Service Plans” shall mean, collectively, the Quanex Employees Pension Plan, Quanex
Hourly Savings Plan, Quanex Bargaining Unit Employee Savings Plan, Quanex Savings Plan, Quanex
Severance Plans, the Quanex Corporation Group Health Plan and Quanex Welfare Plans to the extent
eligibility for or level of benefits thereunder is dependent upon length of service.

“Quanex Severance Plans” means the Quanex Corporation Severance Allowance Program and the
Quanex Corporation Corporate Office-Houston Supplemental Severance Policy.

“Quanex Stock Option” means an option to purchase Quanex Common Stock granted pursuant to a
Quanex Stock Plan.

“Quanex Stock Plans” means (a) the Quanex Corporation 2006 Omnibus Incentive Plan; (b) Quanex
Corporation 1989 Non-Employee Director Stock Option Plan, (c) Quanex Corporation 1997 Non-Employee
Director Stock Option Plan, (d) Quanex Corporation 1987 Non-Employee Director Stock Option Plan,
(e) Quanex Corporation 1988 Stock Option Plan, (f) Quanex Corporation 1996 Employee Stock Option
and Restricted Stock Plan, (g) Quanex Corporation 1997 Key Employee Stock Plan and (h) Quanex
Corporation Employee Stock Option and Restricted Stock Plan.

 

3

 

“Quanex Stock Purchase Plan” means the Quanex Corporation Employee Stock Purchase Plan.

“Quanex Supplemental Benefit Plan” means the Quanex Corporation Supplemental Benefit Plan.

“Quanex Supplemental Pension Plan” means the Quanex Corporation Supplemental Salaried
Employees’ Pension Plan.

“Quanex Welfare Plans” has the meaning given in Section 8.1(a).

“Quanex Vacation Policy” means the Quanex vacation policy.

“Record Date” has the meaning given in the Distribution Agreement.

“Retained Quanex Employee” means any individual who, as of the Distribution Time, (a) is
actively employed by, or on an approved leave of absence or layoff with right of recall from,
Quanex and (b) is not a Spinco Employee.

“Revised Pension Plan Transfer Amount” has the meaning given in Section 6.2(b)(iii).

“Service Crediting Date” has the meaning given in Section 5.3(b)(i).

“Spinco” means (a) Spinco LLC prior to the effective time of the Spinco Merger and (b) Spinco
Sub at and after the effective time of the Spinco Merger.

“Spinco Assets” has the meaning given in the Distribution Agreement.

“Spinco Business” has the meaning given in the Distribution Agreement.

“Spinco CBAs” has the meaning given in Article II.

“Spinco Common Stock” has the meaning given in the Distribution Agreement.

“Spinco Director” means any individual who is a member of the board of directors of Spinco
after the Distribution Time.

“Spinco Employee” means (a) any individual employed at the former corporate office of Quanex
in Houston at or following the Distribution Time, (b) any individual who is employed by Spinco or
its Subsidiaries at or following the Distribution Time and (c) any individual who was (i) a former
employee of Quanex or any direct or indirect Subsidiary of Quanex in existence prior to the
Distribution Time and (ii) whose employment was primarily associated with the Spinco Business.

“Spinco Employee Liabilities” has the meaning given in Section 3.2(a).

“Spinco Group” has the meaning given in the Distribution Agreement.

“Spinco Hourly Savings Plan” has the meaning given in Section 7.2.

 

4

 

“Spinco LLC” has the meaning given in the preamble of this Agreement.

“Spinco Mirror Plans” has the meaning given in Section 5.1.

“Spinco Participant” shall mean any individual who is a Spinco Employee, a former Spinco
Employee, or a beneficiary, dependent or alternate payee of any of the foregoing.

“Spinco Pension Plan” has the meaning given in Section 6.1.

“Spinco Pension Plan Participants” has the meaning given in Section 6.1.

“Spinco Plans” means the Spinco Pension Plan, Spinco Hourly Savings Plan, Spinco Savings Plan,
Spinco Severance Plans, SPINCO* Group Health Plan, Spinco Supplemental Benefit Plan, Spinco
Supplemental Pension Plan, the Spinco Welfare Plans and all other employee benefit plans, policies,
agreements and arrangements of Spinco.

“Spinco Reimbursement Account Plan” has the meaning given in Section 8.1(c).

“Spinco Savings Plan” has the meaning given in Section 7.3(a).

“Spinco Service Plans” shall mean, collectively, the Spinco Pension Plan, Spinco Hourly
Savings Plan, Spinco Savings Plan, Spinco Severance Plans, SPINCO* Group Health Plan and the Spinco
Welfare Plans to the extent eligibility for or level of benefits thereunder is dependent upon
length of service, including the Spinco vacation, sick and retiree medical, dental and life
programs.

“Spinco Sub” has the meaning given in the preamble of this Agreement.

“Spinco Supplemental Benefit Plan” has the meaning given in Section 9.4(a).

“Spinco Supplemental Pension Plan” has the meaning given in Section 9.3(a).

“Spinco Severance Plans” has the meaning give in Section 11.3(a).

“Spinco Welfare Plans” has the meaning given in Section 8.1(a).

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

“Third-Party Claim” has the meaning given in the Distribution Agreement.

“Transaction Agreements” has the meaning given in the Distribution Agreement.

“Transition Services Agreement” has the meaning given in the Distribution Agreement.

“True-Up Amount” has the meaning given in Section 6.2(b)(iv).

“Unrestricted Quanex Common Stock” has the meaning given in Section 10.2.

“Waiver and Release Agreements” has the meaning given in Section 4.1.

 

5

 

ARTICLE II

COLLECTIVE BARGAINING AGREEMENTS

As of the Distribution Time, the unions representing the employees of any member of the Spinco
Group will continue to represent those employees for purposes of collective bargaining with their
respective employers, and the collective bargaining agreements between those Spinco Group members
and the unions representing their employees, which are listed on Schedule 2 (the
“Spinco CBAs”), shall remain in effect. All and any obligations and Liabilities of any
member of the Quanex Group under the Spinco CBAs shall be assumed by, and become the obligations
and Liabilities of, and shall be performed by Spinco or one of the members of the Spinco Group,
regardless of when or where such obligations and Liabilities arose or arise or were or are
incurred, and each member of the Spinco Group agrees to take any and all steps necessary to assume
such obligations and Liabilities under the Spinco CBAs.

 

6

 

ARTICLE III

EMPLOYEES; ASSUMPTION OF LIABILITIES

Section 3.1 Employees.

(a) General. Effective as of the Distribution Time, (i) each Spinco Employee who was actively
employed by, or on short- or long-term disability, approved leave of absence or layoff with right
of recall from, Quanex or any of its Affiliates immediately prior to the Distribution Time, shall
become an employee of Spinco and (ii) each Retained Quanex Employee shall continue to be an
employee of Quanex or its Affiliate. Except as otherwise expressly provided herein or as required
by applicable law, effective as of the Distribution Time each Spinco Employee shall cease to
participate in all Quanex Plans. Except as otherwise expressly provided herein, no provision of
this Agreement or the other Transaction Agreements shall be construed to create any right, or
accelerate entitlement, to any compensation or benefit whatsoever on the part of any Spinco
Employee or other future, present, or former employee of Quanex or Spinco under any Quanex Plan or
otherwise.

(b) No Quanex Severance Payment. Except as otherwise specified in this Agreement, no Spinco
Employee will be entitled to receive termination pay, separation pay, salary continuation,
severance payments or similar benefits from Quanex or any other entity which, immediately following
the Distribution Time, is a member of the Quanex Group.

(c) Termination of Participation in Quanex Plans. Except as otherwise specified in the
Agreement, each member of the Spinco Group shall terminate its participation in any and all Quanex
Plans and each Spinco Employee shall cease to be a participant in any and all Quanex Plans as of
the Distribution Time or at such earlier time as Quanex, in its discretion, may direct.

Section 3.2 Assumption of Liabilities.

(a) Assumption by Spinco. Effective as of the Distribution Time, Spinco and its Affiliates
hereby assume and agree to pay, perform, fulfill and discharge, in accordance with their respective
terms, as such relate to the Spinco Employees and Spinco Directors, (i) all of the Liabilities
relating to, arising out of, or resulting from obligations, Liabilities, and responsibilities
expressly assumed or retained by Spinco pursuant to this Agreement, regardless of when or where
such Liabilities arose or arise or were or are incurred and (ii) all of the Liabilities relating to
or arising from the Spinco Employees and Spinco Directors but excluding any and all of the
Liabilities for Spinco Directors and Spinco Employees who were employed at the corporate office in
Houston of Quanex to the extent accrued on the unaudited balance sheet as of the Distribution Date
(other than any such Liabilities relating to benefits under the Quanex Plans that are assumed by
Spinco pursuant to the express terms of the Transaction Agreements) (collectively, the “Spinco
Employee Liabilities”).

 

7

 

(b) Liabilities Retained and Assumed by Quanex. All Liabilities relating to or arising from
(i) the Quanex Directors, (ii) the Quanex Employees and (iii) Spinco Employees who were employed at
the corporate office in Houston of Quanex to the extent accrued on the unaudited balance sheet of
Quanex dated as of the Distribution Date (other than any such
Liabilities relating to benefits under the Quanex Plans that are assumed by Spinco pursuant to
the express terms of the Transaction Agreements), shall be retained by Quanex, and Quanex agrees to
pay, perform, fulfill, and discharge in accordance with their respective terms all of such
Liabilities, regardless of when or where such Liabilities arose or arise or were or are incurred
(“Quanex Employee Liabilities”).

Section 3.3 Transfer of Assets.

Assets, if any, attributable to the Liabilities referenced in the preceding provisions of this
Article III shall be allocated (if applicable) as provided in the remaining provisions of this
Agreement.

Section 3.4 Non-Solicitation of Employees.

For a period of two years after the Distribution Date, (a) Spinco shall not, and shall cause
its Subsidiaries to not, directly or indirectly solicit, hire or assist in soliciting or hiring any
Retained Quanex Employee and (b) Quanex shall not, and shall cause its Subsidiaries to not,
directly or indirectly, solicit, hire or assist in soliciting or hiring any Spinco Employee
(regardless of whether such employee is actively employed at such time); provided that any
solicitation or hiring of a Spinco Employee by Quanex or a Quanex Employee by Spinco through
general advertising or public solicitations shall not constitute a breach of this Section 3.4.

 

8

 

ARTICLE IV

CHANGE IN CONTROL ARRANGEMENTS

Section 4.1 Waiver and Release Agreements.

Effective as of the Distribution Time, Spinco shall assume the waiver and release agreements
by and between Quanex and each of Raymond A. Jean, Kevin P. Delaney, Thomas M. Walker, Paul A.
Hammonds, John J. Mannion and Brent A. Korb (collectively, the “Waiver and Release
Agreements”) and offer employment to each of the foregoing with (i) the same title, (ii)
substantially the same duties and responsibilities, and (iii) a level of base pay and cash
incentive bonus opportunities at or higher than each such individual had with Quanex immediately
prior to the Distribution Time. Following the Closing, Quanex shall continue to fulfill any
remaining obligations it may have under the Waiver and Release Agreements.

Section 4.2 Change in Control Agreements.

Effective as of the Distribution Time, Spinco shall enter into change in control agreements
with Raymond A. Jean, Kevin P. Delaney, Thomas M. Walker, Paul A. Hammonds, John J. Mannion and
Brent A. Korb substantially identical to the change in control agreements attached as Exhibit
A to the Waiver and Release Agreements by and between Quanex and Raymond A. Jean, Kevin P.
Delaney, Thomas M. Walker, Paul A. Hammonds, John J. Mannion and Brent A. Korb, respectively.
Effective as of the Closing, Quanex shall have no further obligations under the Change in Control
Agreements by and between Quanex and Raymond A. Jean, Kevin P. Delaney, Thomas M. Walker, Paul A.
Hammonds, John J. Mannion and Brent A. Korb, respectively.

Section 4.3 Spinco Severance Agreements.

Effective as of the Distribution Time, Spinco shall enter into severance agreements with
Raymond A. Jean, Kevin P. Delaney, Thomas M. Walker, Paul A. Hammonds, John J. Mannion and Brent A.
Korb substantially identical to the severance agreements attached as Exhibit B to the
Waiver and Release Agreements by and between Quanex and Raymond A. Jean, Kevin P. Delaney, Thomas
M. Walker, Paul A. Hammonds, John J. Mannion and Brent A. Korb, respectively.

Section 4.4 True-Up of Certain Change in Control Payments.

Notwithstanding any other provision of this Agreement to the contrary, the responsibility for
the Change in Control Payment shall be allocated between Quanex and Spinco as follows:

(a) Quanex’ Responsibility for Change in Control Payments. Quanex shall be
responsible for any and all Change in Control Payments to the extent the amount of the Change in
Control Payments does not exceed $2.8 million. If the amount of the Change in Control Payments
does not exceed $2.8 million, not later than three (3) business days following the Distribution
Time (or such later time as mutually agreed by the parties) Quanex shall pay to Spinco an amount
equal to the amount by which $2.8 million exceeds the amount of the Change in Control Payments.

 

9

 

(b) Spinco’s Responsibility for Change in Control Payments. Spinco shall be
responsible for any and all Change in Control Payments to the extent the amount of the Change in
Control Payments exceeds $2.8 million. If the amount of the Change in Control Payments exceeds
$2.8 million, not later than three (3) business days following the Distribution Time (or such later
time as mutually agreed by the parties) Spinco shall pay to Quanex an amount equal to the amount by
which the amount of the Change in Control Payments exceeds $2.8 million.

 

10

 

ARTICLE V

SPINCO PLANS GENERALLY

Section 5.1 Establishment of Spinco Plans.

Spinco shall have adopted, or shall have caused to be adopted, effective as of the
Distribution Time, the SPINCO* Group Health Plan, the Spinco Welfare Plans, Spinco Deferred
Compensation Plan, Spinco Supplemental Benefit Plan, Spinco Supplemental Pension Plan, Spinco
Savings Plan and Spinco Pension Plan (the “Spinco Mirror Plans”). Spinco or one of its
Affiliates shall become the plan sponsor of, and from and after the date of adoption of each Spinco
Mirror Plan, shall have sole responsibility for each Spinco Mirror Plan. Each Spinco Mirror Plan
shall be substantially identical in all material respects to the corresponding Quanex Plan as in
effect immediately prior to the adoption of such Spinco Mirror Plan.

Section 5.2 Terms of Participation by Spinco Employees.

Each of the Spinco Mirror Plans shall be, with respect to Spinco Employees who are
participants in such plan, in all respects the successors in interest to and shall recognize all
rights and entitlements as of the Distribution Time, under the corresponding Quanex Plan in which
such Spinco Employee participated prior to the Distribution Time. Quanex and Spinco agree that
Spinco Employees are not entitled to receive duplicative benefits from the Quanex Plans and the
Spinco Plans. Spinco and Quanex shall agree on methods and procedures, including amending the
respective plan documents, to prevent Quanex Employees and Spinco Employees from receiving
duplicative benefits from the Spinco Plans and the Quanex Plans; provided, however, that nothing
shall prevent Quanex or Spinco from unilaterally amending the Quanex Plans or the Spinco Plans, as
applicable, to avoid any such duplication.

Nothing in this Agreement, other than those provisions specifically set forth herein and the
other Transaction Agreements to the contrary, shall preclude Spinco (or, as applicable, any member
of the Spinco Group) from amending, merging, modifying, terminating, eliminating, reducing, or
otherwise altering in any respect any Spinco Plan, any benefit under any Spinco Plan or any trust,
insurance policy or funding vehicle related to any Spinco Plan.

Section 5.3 Service Recognition.

(a) Pre-Distribution Service Credit. Spinco shall give each Spinco Participant full credit for
purposes of eligibility, vesting, determination of level of benefits, and, to the extent
applicable, benefit accruals under any Spinco Plan for such Spinco Participant’s service with any
member of the Quanex Group prior to the Distribution Date to the same extent such service was
recognized by the applicable Quanex Plans immediately prior to the Distribution Date; provided,
that, such service shall not be recognized to the extent that such recognition would result in the
duplication of benefits.

(b) Post-Distribution Reciprocal Service Crediting. Each of Quanex and Spinco (acting directly
or through their respective Affiliates) shall cause each of the Quanex Service Plans and the Spinco
Service Plans, respectively, to provide the following service crediting rules effective as of the
Distribution Date:

 

11

 

(i) If a Quanex Employee who participates in any of the Quanex Service Plans becomes employed
by a member of the Spinco Group prior to the first anniversary of the Distribution Date (or such
later date as mutually agreed to by the parties) (the “Service Crediting Date”) and such
Quanex Employee is continuously employed by the Quanex Group from the Distribution Date through the
date such Quanex Employee commences active employment with a member of the Spinco Group, then such
Quanex Employee’s service with the Quanex Group following the Distribution Date shall be recognized
for purposes of eligibility, vesting and level of benefits under the appropriate Spinco Service
Plans, in each case to the same extent as such Quanex Employee’s service with the Quanex Group was
recognized under the corresponding Quanex Service Plans.

(ii) If a Quanex Employee who participates in any of the Quanex Service Plans becomes employed
by a member of the Spinco Group either (A) on or after the Service Crediting Date or (B) without
having been continuously employed by the Quanex Group from the Distribution Date through the date
such Quanex Employee commences active employment with a member of the Spinco Group, then, except to
the extent required by applicable law, such individual’s service with the Quanex Group following
the Distribution Date will not be recognized for any purpose under any Spinco Service Plan.

(iii) If a Spinco Employee who participates in any of the Spinco Service Plans becomes
employed by a member of the Quanex Group prior to the Service Crediting Date and such Spinco
Employee is continuously employed by the Spinco Group from the Distribution Date through the date
such Spinco Employee commences active employment with a member of the Quanex Group, then such
Spinco Employee’s service with the Spinco Group following the Distribution Date shall be recognized
for purposes of eligibility, vesting and level of benefits under the appropriate Quanex Service
Plans, in each case to the same extent as such Spinco Employee’s service with the Spinco Group was
recognized under the corresponding Spinco Service Plans.

(iv) If a Spinco Employee who participates in any of the Spinco Service Plans becomes employed
by a member of the Quanex Group either (A) on or after the Service Crediting Date or (B) without
having been continuously employed by the Spinco Group from the Distribution Date through the date
such Spinco Employee commences active employment with a member of the Quanex Group, then the
corresponding Quanex Service Plans will only take into consideration such individual’s service with
the Quanex Group and the Spinco Group, in each case, prior to the Distribution Date and, thus,
except to the extent required by applicable law, such Spinco Employee’s service with the Spinco
Group following the Distribution Date will not be recognized for any purpose under any Quanex
Service Plan.

(v) Nothing herein shall limit Quanex or Spinco or their respective Affiliates from
recognizing service in addition to the recognition of service required hereunder.

Section 5.4 Transition Services.

Quanex shall provide transition services to Spinco Group and Spinco shall provide transition
services to Quanex Group, each in accordance with the Transition Services Agreement.

 

12

 

ARTICLE VI

QUALIFIED DEFINED BENEFIT PLANS

Section 6.1 Establishment of Spinco Pension Plan. Effective as of the Distribution Time,
Spinco shall, or shall have caused one or more members of the Spinco Group to, establish a defined
benefit pension plan and related trust to provide retirement benefits to Spinco Participants who
immediately prior to the Distribution Time were participants in, or entitled to present or future
benefits (except as provided in Section 6.2(e) of this Agreement, whether or not vested) under, the
Quanex Employees Pension Plan (such Spinco Participants, the “Spinco Pension Plan
Participants”). Spinco shall be responsible for taking all necessary, reasonable, and
appropriate action to establish, maintain and administer the Spinco Pension Plan so that it is
qualified under section 401(a) of the Code and that the related trust thereunder is exempt under
section 501(a) of the Code. Spinco (acting directly or through its Affiliates) shall be
responsible for any and all Liabilities (including Liability for funding) and other obligations
with respect to the Spinco Pension Plan.

Section 6.2 Spinco Pension Plan Participants.

(a) Assumption of Quanex Employees Pension Plan Liabilities. Effective as of the Distribution
Time, Spinco (acting directly or through its Affiliates) hereby agrees to cause the Spinco Pension
Plan to assume, fully perform, pay and discharge, all Liabilities under the Quanex Employees
Pension Plan relating to all Spinco Pension Plan Participants as of the Distribution Time.

(b) Transfer of Quanex Employees Pension Plan Assets.

(i) The parties intend that the portion of the Quanex Employees Pension Plan covering Spinco
Pension Plan Participants shall be transferred to the Spinco Pension Plan in accordance with
section 414(l) of the Code, Treasury Regulation § 1.414(l)-1, and Section 208 of ERISA. Any
surplus assets under the Quanex Employees Pension Plan (i.e., any assets held under the Quanex
Employees Pension Plan that are in excess of the assets required to be allocated to the Quanex
Employees Pension Plan and the Spinco Pension Plan in accordance with the preceding sentence) shall
be transferred to the Spinco Pension Plan in the same proportion as the other assets of the Quanex
Employees Pension Plan are transferred to the Spinco Pension Plan in accordance with the succeeding
provisions of this subsection (b). Prior to the Distribution Date (or such later time as mutually
agreed by the parties), Quanex shall cause the actuary of the Quanex Employees Pension Plan to
determine the estimated value, as of the Distribution Date, of the assets to be transferred to the
Spinco Pension Plan in accordance with the assumptions and valuation methodology set forth on
Schedule 6.2(b) attached hereto (the “Estimated Pension Plan Transfer Amount”).

(ii) Not later than ten (10) business days following the Distribution Date (or such later time
as mutually agreed by the parties), Quanex and Spinco (each acting directly or through their
respective Affiliates) shall cooperate in good faith to cause an initial transfer of assets from
the Quanex Employees Pension Plan to the Spinco Pension Plan in an amount equal (as determined in
the discretion of Quanex) to ninety percent (90%) of the Estimated Pension Plan Transfer Amount
(such amount, the “Initial Transfer Amount”). Quanex shall satisfy its
obligation pursuant to this Section 6.2(b)(ii) by causing the Quanex Employees Pension Plan to
transfer assets, in kind, equal to the Initial Transfer Amount.

 

13

 

(iii) Within one hundred twenty (120) days (or such later time as mutually agreed by the
parties) following the Distribution Date, Quanex shall cause the actuary of the Quanex Employees
Pension Plan to provide Spinco with a revised calculation of the value, as of the Distribution
Date, of the assets to be transferred to the Spinco Pension Plan determined in accordance with the
assumptions and valuation methodology set forth on Schedule 6.2(b) attached hereto (the
“Revised Pension Plan Transfer Amount”). Spinco may submit, at its sole cost and expense,
the Revised Pension Plan Transfer Amount to the actuary for the Spinco Pension Plan (which actuary
may be the same actuary as retained by the Quanex Plan) for verification; provided, that, such
verification process and any calculation performed by the actuary of the Spinco Pension Plan in
connection therewith shall be performed solely on the basis of the assumptions and valuation
methodology set forth on Schedule 6.2(b) attached hereto. In order to perform such
verification, upon request from Spinco, the actuary of the Spinco Pension Plan will receive the
data and additional detailed methodology used to calculate the Initial Transfer Amount and the
Final Pension Plan Transfer Amount (if reasonably needed) from the actuary of the Quanex Employees
Pension Plan. Spinco will be responsible for the cost and expense of the actuary of the Spinco
Pension Plan and Quanex will be responsible for the cost and expense for the actuary of the Quanex
Employees Pension Plan for such data transfer. If the actuary of the Spinco Pension Plan so
determines that the value, as of the Distribution Date, of the assets to be transferred to the
Spinco Pension Plan differs from the Revised Pension Plan Transfer Amount, the actuary of the
Spinco Pension Plan shall identify in writing to the actuary of the Quanex Employees Pension Plan
all objections to the determination within sixty (60) days following provision of the revised value
calculation to Spinco pursuant to the first sentence of this paragraph (iii), and the actuaries
shall use good faith efforts to reconcile any such difference. If the actuaries fail to reconcile
such difference, the actuaries shall jointly designate a third, independent actuary whose
calculation of the value, as of the Distribution Date, of the assets to be transferred to the
Spinco Pension Plan shall be final and binding; provided, that, such calculation must be performed
within sixty (60) days following designation of such third actuary and in accordance with the
assumptions and valuation methodology set forth on Schedule 6.2(b) attached hereto; and
provided, further, that such value shall be between the value determined by the actuary of the
Spinco Pension Plan and the Revised Pension Plan Transfer Amount or equal to either such value.
Quanex and Spinco shall each pay one-half of the costs incurred in connection with the retention of
such independent actuary. The final, verified value, as of the Distribution Date, of the assets to
be transferred to the Spinco Pension Plan as determined in accordance with this Section 6.2(b)(iii)
shall be referred to herein as the “Final Pension Plan Transfer Amount.”

(iv) Within thirty (30) days (or such later time as mutually agreed by the parties) of the
determination of the Final Pension Plan Transfer Amount, Quanex shall cause the Quanex Employees
Pension Plan to transfer to the Spinco Pension Plan (the date of such transfer, the “Final
Transfer Date”) an amount (as determined by Quanex in its discretion, in kind, in cash,
cash-like securities or other cash equivalents), equal to (A) the Final Pension Plan Transfer
Amount minus (B) the Initial Transfer Amount (such difference, as adjusted to reflect earnings or
losses as described below, the “True-Up Amount”); provided, that, if the True-Up Amount is
negative, Quanex shall not be required to cause any such additional transfer and instead Spinco
shall be required to cause a transfer of cash, cash-like securities or other cash equivalents
(or, if determined by Quanex in its discretion, assets in kind) from the Spinco Pension Plan to the
Quanex Employees Pension Plan in amount equal to the True-Up Amount. The parties acknowledge that
the Quanex Employees Pension Plan’s transfer of the True-Up Amount to the Spinco Pension Plan shall
be in full settlement and satisfaction of the obligations of Quanex to cause the transfer of, and
the Quanex Employees Pension Plan to transfer, assets to the Spinco Pension Plan pursuant to this
Section 6.2(b)(iv).

 

14

 

The True-Up Amount shall be paid from the Quanex Employees Pension Plan to the Spinco Pension
Plan, as determined by Quanex in its discretion in kind, in cash, cash-like securities or other
cash equivalents, and shall be adjusted to reflect earnings or losses during the period from the
Distribution Date to the Final Transfer Date. Such earnings or losses shall be determined based on
the actual rate of return of the Quanex Employees Pension Plan for the period commencing on the
first day of the calendar month in which the Distribution Date occurs and ending on the last
calendar day of the month ending immediately prior to the Final Transfer Date. Earnings or losses
for the period from such last day of the month to the Final Transfer Date shall be based on the
actual rate of return of the Quanex Employees Pension Plan during the last calendar month ending
immediately prior to the Final Transfer Date determined as of the date that is as close as
administratively practicable to the Final Transfer Date. If Spinco is obligated to cause the Spinco
Pension Plan to reimburse the Quanex Employees Pension Plan pursuant to this Section 6.2(b)(iv),
such reimbursement shall be performed in accordance with the same principles set forth herein with
respect to the payment of the True-Up Amount. The parties acknowledge that the Spinco Pension
Plan’s transfer of such reimbursement amount to the Quanex Employees Pension Plan shall be in full
settlement and satisfaction of the obligations of Spinco to cause the transfer of, and the Spinco
Pension Plan to transfer, assets to the Quanex Employees Pension Plan pursuant to this Section
6.2(b)(iv).

(c) Form 5310-A. No later than thirty (30) days prior to the Distribution Date, Quanex and
Spinco (acting directly or through their respective Affiliates) shall, to the extent necessary,
file an IRS Form 5310-A regarding the transfer of assets and Liabilities from the Quanex Employees
Pension Plan to the Spinco Pension Plan.

(d) Continuation of Elections. As of the Distribution Date, Spinco (acting directly or through
its Affiliates) shall cause the Spinco Pension Plan to recognize and maintain all existing
elections, including, but not limited to, beneficiary designations, payment form elections and
rights of alternate payees under qualified domestic relations orders with respect to Spinco Pension
Plan Participants under the Quanex Employees Pension Plan.

(e) Terminated Non-Vested Employees. Notwithstanding anything herein to the contrary, the
Quanex Employees Pension Plan will retain all Liabilities (if any) under the Quanex Employees
Pension Plan in respect of any Quanex Employee whose employment with the Quanex Group terminated on
or before the Distribution Date with no vested benefit under the Quanex Employees Pension Plan, the
Spinco Pension Plan will assume all Liabilities (if any) from the Quanex Employees Pension Plan in
respect of any Spinco Employee whose employment with the Quanex Group terminated on or before the
Distribution Date with no vested benefit under the Quanex Employees Pension Plan.

 

15

 

ARTICLE VII

QUALIFIED DEFINED CONTRIBUTION PLANS

Section 7.1 Quanex Savings Plan and Quanex Bargaining Unit Employee Savings Plan.

At the Distribution Time, to the extent doing so will not adversely affect the tax-qualified
status of the Quanex Savings Plan and the Quanex Bargaining Unit Employee Savings Plan, Spinco
Employees who are not 100% vested in their benefits in the respective plans, if any, will be 100%
vested in their benefits accrued as of such date. Effective as of the Distribution Time, Spinco
Employees shall be considered to have incurred a termination of employment for purposes of the
Quanex Savings Plan and Quanex Bargaining Unit Employee Savings Plan; provided, however, that, due
to the pending transfer of assets and Liabilities with respect to the Spinco Employees from the
Quanex Savings Plan to the Spinco Savings Plan as contemplated in Section 7.3(b), a Spinco Employee
shall be deemed to have not incurred a termination of employment (unless such employee has also
terminated employment after the Distribution Time with Spinco and its Affiliates) for purposes of
(i) outstanding loans under the Quanex Savings Plan as of the Distribution Time, (ii) the right to
make in-service withdrawals under the Quanex Savings Plan and (iii) the entitlement to
distributions upon termination of employment under the Quanex Savings Plan.

Section 7.2 Quanex Hourly Savings Plan.

Effective immediately as of the Distribution Time, Spinco shall assume sponsorship of the
Quanex Hourly Savings Plan and its related trust and shall be bound by all of the terms,
provisions, limitations and conditions of the Quanex Hourly Savings Plan and its related trust to
the same extent as if it had been the original sponsor thereto, and Quanex shall terminate its
participation in the Quanex Hourly Savings Plan and transfer the sponsorship of the Quanex Hourly
Savings Plan and its related trust to Spinco. Following Spinco’s assumption of sponsorship of the
Quanex Hourly Savings Plan, such plan shall be renamed the “SPINCO* Savings Plan for Hourly
Employees” (the “Spinco Hourly Savings Plan”). Spinco or one of its Affiliates shall have
sole responsibility for the Spinco Hourly Savings Plan.

Section 7.3 Spinco Savings Plan.

(a) Establishment of Spinco Savings Plan. Effective as of the Distribution Time, Spinco
shall, or shall have caused one of its Affiliates to, establish a defined contribution plan and
trust for the benefit of Spinco Participants who have an account balance under the Quanex Savings
Plan immediately prior to the Distribution Time (the “Spinco Savings Plan”). Spinco shall
be responsible for taking all necessary, reasonable and appropriate action to establish, maintain
and administer the Spinco Savings Plan so that each is qualified under section 401(a) of the Code
and that their related trust(s) is exempt under section 501(a) of the Code. Spinco (acting directly
or through its Affiliates) shall be responsible for any and all Liabilities and other obligations
with respect to the Spinco Savings Plan.

 

16

 

(b) Transfer of Quanex Savings Plan Assets. Not later than sixty (60) days following the
Distribution Date (or such later time as mutually agreed by the parties), Quanex shall cause the
accounts (including any outstanding loan balances) in the Quanex Savings Plan
attributable to Spinco Participants and all of the assets in the Quanex Savings Plan related
thereto to be transferred in-kind to the Spinco Savings Plan, and Spinco shall cause the Spinco
Savings Plan to accept such transfer of accounts and underlying assets and, effective as of the
date of such transfer, to assume and to fully perform, pay and discharge, all obligations of the
Quanex Savings Plan relating to the accounts of Spinco Participants (to the extent the assets
related to those accounts are actually transferred from the Quanex Savings Plan to the Spinco
Savings Plan) as of the date of such transfer. The transfer of assets shall be conducted in
accordance with section 414(l) of the Code, Treasury Regulation § 1.414(l)-1, and Section 208 of
ERISA.

(c) Continuation of Elections. Subject to Section Section 7.4, as of the Distribution Time,
Spinco (acting directly or through its Affiliates) shall cause the Spinco Savings Plan to recognize
and maintain all Quanex Savings Plan elections including, but not limited to, deferral, investment,
and payment form elections, beneficiary designations, and the rights of alternate payees under
qualified domestic relations orders with respect to Spinco Participants, to the extent such
election or designation is available under the Spinco Savings Plan.

(d) Form 5310-A. No later than thirty (30) days prior to the Distribution Date, Quanex and
Spinco (each acting directly or through their respective Affiliates) shall, to the extent
necessary, file IRS Forms 5310-A regarding the transfer of assets and Liabilities from the Quanex
Savings Plan to the Spinco Savings Plan as discussed in this Section 7.3(d).

Section 7.4 Employer Securities.

(a) Spinco Common Stock. Investments in Spinco Common Stock under the Quanex Savings Plan,
Quanex Bargaining Unit Employee Savings Plan or Quanex Hourly Savings Plan, respectively, may be
maintained on a wasting basis for a period of up to 12 months following the Distribution Time at
the end of which time (or as soon as administratively practicable thereafter) such investments, if
any, must be liquidated and the proceeds of such liquidations reallocated as determined by the
respective administrative committees of such plans.

(b) Quanex Common Stock. Each share, if any, of Quanex Common Stock held under the Quanex
Savings Plan, Quanex Bargaining Unit Employee Savings Plan, Quanex Hourly Savings Plan, Spinco
Savings Plan and Spinco Hourly Savings Plan shall receive the same treatment as each other share of
Quanex Common Stock in accordance with the terms of the Agreement and Plan of Merger among Gerdau
S.A. (“Parent”), Gerdau Delaware, Inc. and Quanex Corporation dated November 18, 2007 (the
“Merger Agreement”).

Section 7.5 Contributions as of the Distribution Time. All contributions payable to the Quanex
Savings Plan and Quanex Hourly Savings Plan with respect to employee deferrals and contributions,
matching contributions and other contributions for Spinco Participants through the Distribution
Time, determined in accordance with the terms and provisions of the Quanex Savings Plan, the Quanex
Hourly Savings Plan, ERISA and the Code, shall be paid by Quanex to the Quanex Savings Plan and
Quanex Hourly Savings Plan, as applicable, prior to the date of the asset transfer described in
Section 7.3(b) of this Agreement.

 

17

 

ARTICLE VIII

HEALTH AND WELFARE PLANS

Section 8.1 Health And Welfare Plans Maintained By Quanex Prior To The Distribution Date.

(a) Establishment of the Spinco Welfare Plans. Quanex or one or more of its Affiliates
maintain the Quanex Corporation Group Health Plan and other health and welfare plans for the
benefit of eligible Quanex Participants and Spinco Participants (collectively, the “Quanex
Welfare Plans”). Effective as of the Distribution Time, Spinco shall, or shall cause a Spinco
Affiliate to, adopt, for the benefit of eligible Spinco Participants, health and welfare plans, the
terms of which are substantially identical to the applicable terms of the Quanex Welfare Plans as
in effect immediately prior to the Distribution Time (collectively, the “Spinco Welfare
Plans”).

(b) Terms of Participation in Spinco Welfare Plans. Spinco (acting directly or through its
Affiliates) shall cause all Spinco Welfare Plans to (i) waive all limitations as to preexisting
conditions, exclusions, and service conditions with respect to participation and coverage
requirements applicable to Spinco Participants, other than limitations that were in effect with
respect to Spinco Participants as of the Distribution Time under the Quanex Welfare Plans, (ii)
waive any waiting period limitation or evidence of insurability requirement that would otherwise be
applicable to a Spinco Participant following the Distribution Time to the extent such Spinco
Participant had satisfied any similar limitation under the analogous Quanex Welfare Plan and (iii)
credit towards the deductibles, copayments or other expenses for the year in which the Distribution
Time occurs any amounts paid by the Spinco Participants as deductibles, copayments and other
expenses under the corresponding Quanex Welfare Plans, respectively, during the year in which the
Distribution Time occurs. Spinco shall provide that Spinco Participants shall initially be
eligible for participation in and benefits under Spinco retiree welfare plans on the same basis
under which they were eligible for participation in and benefits under the Quanex retiree welfare
plans immediately before the Distribution.

(c) Reimbursement Account Plan. Effective as of the Distribution Time, Spinco (acting directly
or through its Affiliates) shall have established a health and dependent care reimbursement account
plan (the “Spinco Reimbursement Account Plan”) with features that are substantially
identical to those contained in the health and dependent care reimbursement account plan maintained
by Quanex for the benefit of Spinco Participants immediately prior to the Distribution Time (the
“Quanex Reimbursement Account Plan”).

(i) With respect to Spinco Participants, Spinco (acting directly or through its Affiliates)
shall assume responsibility for administering under the Spinco Reimbursement Account Plan all
reimbursement claims of Spinco Participants with respect to the plan year in which the Distribution
Date occurs, whether arising before, on, or after the Distribution Date. Spinco shall take all
actions necessary and legally permissible to ensure that the Spinco Reimbursement Account Plan
provides that as of the Distribution Time and for the plan year in which the Distribution Date
occurs, but not for any specific time thereafter, (A) the Spinco Participants shall become
participants in the Spinco Reimbursement Account Plan as of the beginning of the Quanex
Reimbursement Account Plan’s plan year and at the level of coverage
provided under the Quanex Reimbursement Account Plan; (B) the Spinco Participants’ salary
reduction elections under the Quanex Reimbursement Account Plan, if any, shall be taken into
account for the remainder of the Spinco Reimbursement Account Plan plan year as if made under the
Spinco Reimbursement Account Plan; and (C) the Spinco Reimbursement Account Plan shall reimburse
medical expenses incurred by the Spinco Participants at any time during the Quanex Reimbursement
Account Plan’s plan year (including claims incurred prior to the Distribution Time but unpaid prior
to the Distribution Time), up to the amount of the Quanex Reimbursement Account Plan Participants’
elections and reduced by amounts previously reimbursed by the Quanex Reimbursement Account Plan.

 

18

 

(ii) Quanex will make available to Spinco, no less than five calendar days prior to the
Distribution Date, a list of individuals who will become Spinco Employees as of the Distribution
Time and who are participants in the Quanex Reimbursement Account Plan, together with the elections
made prior to the Distribution Time with respect to such accounts through the Distribution Time.

(d) Continuation of Elections. As of the Distribution Time, Spinco (acting directly or through
its Affiliates) shall cause the Spinco Welfare Plans to recognize and maintain all elections and
designations (including all coverage and contribution elections and beneficiary designations) made
by Spinco Participants under, or with respect to, the Quanex Welfare Plans and apply such elections
and designations under the Spinco Welfare Plans for the remainder of the period or periods for
which such elections or designations are by their original terms applicable, to the extent such
election or designation is available under the corresponding Spinco Welfare Plan.

(e) COBRA and HIPAA. Effective as of the Distribution Time, Spinco (acting directly or through
its Affiliates) shall assume, or shall have caused the Spinco Welfare Plans to assume,
responsibility for compliance with the health care continuation coverage requirements of COBRA with
respect to eligible Spinco Participants. Quanex (acting directly or through its Affiliates) shall
be responsible for administering compliance with any certificate of creditable coverage
requirements of HIPAA or Medicare applicable to the Quanex Welfare Plans with respect to Spinco
Participants. The parties hereto agree that neither the Distribution nor any transfers of
employment that occur as of the Distribution Time shall constitute a COBRA qualifying event for
purposes of COBRA; provided, that, in all events, Spinco (acting directly or through its
Affiliates) shall assume, or shall have caused the Spinco Welfare Plans to assume, responsibility
for compliance with the health care continuation coverage requirements of COBRA with respect to
those Quanex Employees whose employment is transferred directly from the Quanex Group to the Spinco
Group as of the Distribution Time to the extent such individual was, as of the day prior to such
transfer of employment, covered under a Quanex Welfare Plan.

(f) Liabilities.

(i) Insured Benefits. With respect to employee welfare and fringe benefits that are
provided through the purchase of insurance, Quanex shall cause the Quanex Welfare Plans to fully
perform, pay and discharge all claims of Spinco Participants that are incurred at or before the
Distribution Time and Spinco shall cause the Spinco Welfare Plans to fully perform, pay and
discharge all claims of Spinco Participants that are incurred after the Distribution Time.

 

19

 

(ii) Self-Insured Benefits. With respect to employee welfare and fringe benefits that
are provided on a self-insured basis, (A) Quanex (acting directly or through its Affiliates) shall
fully perform, pay and discharge, under the Quanex Welfare Plans, all claims of Spinco Participants
who are Spinco Employees that are incurred but not paid at or before the Distribution Time, and (B)
Spinco (acting directly or through its Affiliates) shall fully perform, pay and discharge, under
the Spinco Welfare Plans, after the Distribution Time, all claims of Spinco Participants who are
Spinco Employees that are incurred after the Distribution Time.

(iii) Incurred Claim Definition. For purposes of this Section 8.1(f), a claim or
Liability is deemed to be incurred (A) with respect to medical, dental, vision and/or prescription
drug benefits, upon the rendering of health services giving rise to such claim or Liability; (B)
with respect to life insurance, accidental death and dismemberment and business travel accident
insurance, upon the occurrence of the event giving rise to such claim or Liability; (C) with
respect to disability benefits, upon the date of an individual’s disability, as determined by the
disability benefit insurance carrier or claim administrator, giving rise to such claim or
Liability; and (D) with respect to a period of continuous hospitalization, upon the date of
admission to the hospital.

(iv) Treatment of Other Liabilities, Recoveries and Adjustments. For purposes of
applying the claim Liability provisions of clause (iii) above as it relates to retiree medical and
dental claims: (A) recoveries made by the Quanex Welfare Plans or Quanex with respect to claims
incurred at or before the Distribution Time, including subrogation/reimbursement recoveries, claim
adjustment recoveries and demutualization proceeds, shall be taken into account as positive claim
adjustments; and (B) other non-routine claim Liabilities paid by the Quanex Welfare Plans or Quanex
with respect to claims incurred prior to the Distribution Time, including Medicare Secondary Payer
Liability, shall be taken into account as claim Liabilities.

(v) Claim Experience. Notwithstanding the foregoing, the parties (acting directly or
through their Affiliates) shall take any action necessary to ensure that any claims experience
under the Quanex Welfare Plans attributable to Spinco Participants shall be allocated to the Spinco
Welfare Plans.

Section 8.2 Leave of Absence Programs.

Effective as of the Distribution Time, Spinco shall be responsible for the administration and
compliance of all leaves of absences and related programs (including compliance with the Family and
Medical Leave Act) affecting Spinco Employees following the Distribution Time.

Section 8.3 Time-Off Benefits.

Spinco shall credit each Spinco Participant with the amount of accrued but unused vacation
time, sick time and other time-off benefits as such Spinco Participant had with the Quanex Group as
of the Distribution Time. Notwithstanding the above, Spinco shall not be required to credit any
Spinco Participant with any accrual to the extent that a benefit attributable to such accrual is
provided by the Quanex Group.

 

20

 

ARTICLE IX

NONQUALIFIED PENSION PLANS

Section 9.1 Generally.

(a) Except as provided under this Article IX, Quanex shall retain all Liabilities for any
benefits accrued by Quanex Participants or Spinco Participants under the Quanex Deferred
Compensation Plan, the Quanex Supplemental Salaried Employee’s Pension Plan, the Quanex
Supplemental Benefit Plan, and the Quanex Director Plan.

Section 9.2 Quanex Corporation Deferred Compensation Plan.

(a) Establishment of Spinco Deferred Compensation Plan. Effective as of the Distribution Time,
Spinco shall, or shall cause one of its Affiliates to, establish a non-qualified deferred
compensation plan and rabbi trust to benefit Spinco Participants who have accrued, or were eligible
to accrue, benefits under the Quanex Deferred Compensation Plan immediately prior to the
Distribution Time, the terms of which are substantially identical to the terms of the Quanex
Deferred Compensation Plan and its related rabbi trust as in effect immediately prior to the
Distribution Time (the “Spinco Deferred Compensation Plan”). Effective as of the
Distribution Time, Spinco hereby agrees to cause the Spinco Deferred Compensation Plan to assume
responsibility for all Liabilities and fully perform, pay and discharge all obligations, when such
obligations become due, of the Quanex Deferred Compensation Plan with respect to all Spinco
Participants therein and Spinco Directors covered thereby. Spinco (acting directly or through its
Affiliates) shall be responsible for any and all Liabilities (including Liability for funding) and
other obligations with respect to the Spinco Deferred Compensation Plan.

(b) Deemed Investments in Quanex Common Stock. Each unit deemed invested in Quanex Common
Stock under the Quanex Deferred Compensation Plan or Spinco Deferred Compensation Plan, shall, as
of the Closing, be deemed liquidated and cancelled. The account of each Quanex Participant or
Spinco Participant in the Quanex Deferred Compensation Plan or Spinco Deferred Compensation Plan
who have amounts deemed invested in Quanex Common Stock shall, as of the Closing, be credited with
an amount equal to the product of (x) the total number of shares in such Participant’s account
deemed invested in Quanex Common Stock times the sum of (y) the Merger Consideration and (z) the
closing sales price of a share of Spinco Stock on the Distribution Date as reported on the Exchange
(as defined in the Distribution Agreement). The amounts credited to a Quanex Participant’s or
Spinco Participant’s accounts under this Section 9.2(b) shall be allocated proportionately among
the remaining deemed investments in such participants accounts and thereafter be subject to the
terms and conditions of the respective plans.

(c) Vesting. At the Distribution Time, Spinco Participants and Quanex Participants who are
not 100% vested in their benefits in the Quanex Deferred Compensation Plan will be 100% vested in
their benefits accrued as of such time.

 

21

 

(d) Transfer of Rabbi Trust Assets. Not later than ten (10) days following the Distribution
Date (or such later time as mutually agreed by the parties), Quanex shall cause the accounts in the
Quanex Deferred Compensation Plan attributable to Spinco Participants and a
certain portion (as determined below) of the assets in the rabbi trust that are used to fund
the accounts of Spinco Participants in the Quanex Deferred Compensation Plan (the “Quanex Rabbi
Trust”) to be transferred in-kind to the Spinco Deferred Compensation Plan, and Spinco shall
cause the Spinco Deferred Compensation Plan to accept such transfer of accounts and underlying
assets. Prior to the Distribution Date (or such later time as mutually agreed by the parties),
Quanex shall cause the record keeper of the Quanex Deferred Compensation Plan to determine the
estimated value, as of the Distribution Time, of the Liabilities under the Quanex Deferred
Compensation Plan and the Spinco Deferred Compensation Plan and the trustee of the Quanex Rabbi
Trust to determine the estimated value, as of the Distribution Time, of the assets maintained in
the Quanex Rabbi Trust. At or prior to the Distribution Date(or such later time as mutually agreed
by the parties), Quanex shall direct the trustee of the Quanex Rabbi Trust to transfer to the
Spinco Deferred Compensation Plan an amount equal to the assets in the Quanex Rabbi Trust as of the
Distribution Time multiplied by a fraction, the numerator of which is the amount of Liabilities
transferred to the Spinco Deferred Compensation Plan at the Distribution Time and the denominator
of which is the sum of the amount of Liabilities transferred to the Spinco Deferred Compensation
Plan at the Distribution Time and the amount of Liabilities retained under the Quanex Deferred
Compensation Plan at the Distribution Time. Each share, if any, of Quanex Common Stock held in the
Quanex Rabbi Trust or trust that is used to fund the Spinco Deferred Compensation Plan shall be
considered as held on behalf of third parties and shall receive the same treatment as each other
share of Quanex Common Stock in accordance with the terms of the Merger Agreement.

Section 9.3 Quanex Corporation Supplemental Salaried Employees’ Pension Plan

(a) Establishment of Spinco Supplemental Pension Plan. Effective as of the Distribution Time,
Spinco shall, or shall cause one of its Affiliates to, establish a non-qualified deferred
compensation plan to benefit Spinco Participants who have accrued, or were eligible to accrue,
benefits under the Quanex Supplemental Pension Plan immediately prior to the Distribution Date, the
terms of which are substantially identical to the terms of the Quanex Supplemental Pension Plan as
in effect immediately prior to the Distribution Time (the “Spinco Supplemental Pension
Plan”). Effective as of the Distribution Time, Spinco hereby agrees to cause the Spinco
Supplemental Pension Plan to assume responsibility for all Liabilities and fully perform, pay and
discharge all obligations, when such obligations become due, of the Quanex Supplemental Pension
Plan with respect to all Spinco Participants therein. Spinco (acting directly or through its
Affiliates) shall be responsible for any and all Liabilities (including Liability for funding) and
other obligations with respect to the Spinco Supplemental Pension Plan.

(b) Continuation of Elections. As of the Distribution Time, Spinco (acting directly or through
an Affiliate) shall cause the Spinco Supplemental Pension Plan to recognize and maintain all
elections (including deferral, distribution and investment elections) and beneficiary designations
with respect to Spinco Participants under the Quanex Supplemental Pension Plan to the extent such
elections or designations are available under the Spinco Supplemental Pension Plan until a new
election that by its terms supersedes such original election is made by the Spinco Participant in
accordance with applicable law and the terms and conditions of the Spinco Supplemental Pension
Plan.

(c) No Vesting. The establishment of the Spinco Supplemental Pension Plan shall not affect
the vesting, accrual or payment of any benefits to any Spinco Participants and
Quanex Participants under the Quanex Supplemental Salaried Employees’ Pension Plan or the
Spinco Supplemental Salaried Employees’ Pension Plan.

 

22

 

Section 9.4 Quanex Corporation Supplemental Benefit Plan

(a) Establishment of Spinco Supplemental Benefit Plan. Effective as of the Distribution Time,
Spinco shall, or shall cause one of its Affiliates to, establish a non-qualified deferred
compensation plan and rabbi trust to benefit Spinco Participants who have accrued, or were eligible
to accrue, benefits under the Quanex Supplemental Benefit Plan immediately prior to the
Distribution Time, the terms of which are substantially identical to the terms of the Quanex
Supplemental Benefit Plan and its related rabbi trust as in effect immediately prior to the
Distribution Time (the “Spinco Supplemental Benefit Plan”). Effective as of the
Distribution Time, Spinco hereby agrees to cause the Spinco Supplemental Benefit Plan to assume
responsibility for all Liabilities and fully perform, pay and discharge all obligations, when such
obligations become due, of the Quanex Supplemental Benefit Plan with respect to all Spinco
Participants therein. Spinco (acting directly or through its Affiliates) shall be responsible for
any and all Liabilities (including Liability for funding) and other obligations with respect to the
Spinco Supplemental Benefit Plan.

(b) Continuation of Elections. As of the Distribution Time, Spinco (acting directly or through
an Affiliate) shall cause the Spinco Supplemental Benefit Plan to recognize and maintain all
elections (including deferral, distribution and investment elections) and beneficiary designations
with respect to Spinco Participants under the Quanex Supplemental Benefit Plan to the extent such
elections or designations are available under the Spinco Supplemental Benefit Plan until a new
election that by its terms supersedes such original election is made by the Spinco Participant in
accordance with applicable law and the terms and conditions of the Spinco Supplemental Benefit
Plan.

(c) No Vesting. The establishment of the Spinco Supplemental Benefit Plan shall not affect
the vesting, accrual or payment of any benefits to any Spinco Participants and Quanex Participants
under the Quanex Supplemental Benefit Plan or the Spinco Supplemental Benefit Plan, respectively.

(d) Transfer of Quanex SERP Rabbi Trust Assets. On or prior to the Distribution Time (or
such later time as mutually agreed by the parties), Quanex shall cause the company-owned life
insurance policies that cover any Spinco Participant that are held in the rabbi trust that is used
to fund the Quanex Supplemental Benefit Plan (the “Quanex SERP Rabbi Trust”) to be assigned
to the Spinco Supplemental Benefit Plan and its related trust, and shall direct the trustee of the
Quanex SERP Rabbi Trust to transfer in-kind such policies to the Spinco Supplemental Benefit Plan.
On or prior to the Distribution Time (or such later time as mutually agreed by the parties), Spinco
shall cause the Spinco Supplemental Benefit Plan and its related trust to accept such assignment
and transfer.

Section 9.5 Quanex Director Plan.

The Quanex Director Plan shall be terminated effective as of the Closing. Quanex shall retain
all Liabilities for any benefits accrued by Quanex Directors under the Quanex Director Plan. Each
participant under the Quanex Director Plan shall be entitled to a lump sum
distribution of his or her accrued benefits, (discounted using the annual interest rate on
30-year Treasury securities as specified by the Secretary of Treasury for the month of August 2007
or the month immediately preceding the month in which the Closing occurs if that would result in a
larger distribution), as soon as practicable following the Closing (but in no event later than ten
business days after the Closing).

 

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ARTICLE X

LONG-TERM INCENTIVE AWARDS

Section 10.1 Quanex Options

(a) Cancellation and Payment. Effective as of the Distribution Time, each Quanex Stock Option
shall become 100% vested. Each Quanex Stock Option that is outstanding immediately prior to the
Distribution Time shall be cashed out and then cancelled as provided for in the Merger Agreement.

(b) Stock Option True-Up of Payments. Notwithstanding any other provision of this Agreement
to the contrary, the responsibility for payments under Section 10.1(a) (“Option Payments”)
shall be allocated between Quanex and Spinco as follows:

(i) Quanex’ Responsibility for Option Payments. Quanex shall be responsible for any
and all Option Payments to the extent the amount of the Option Payments does not exceed $40.6
million. If the amount of the Option Payments does not exceed $40.6 million, not later than three
(3) business days following the Distribution Time (or such later time as mutually agreed by the
parties), Quanex shall pay to Spinco an amount equal to the amount by which $40.6 million exceeds
the Option Payments.

(ii) Spinco’s Responsibility for Option Payments. Spinco shall be responsible for any
and all Option Payments to the extent the amount of the Option Payments exceeds $40.6 million. If
the amount of the Option Payments exceeds $40.6 million, not later than three (3) business days
following the Distribution Time (or such later time as mutually agreed by the parties), Spinco
shall pay to Quanex an amount equal to the amount by which the amount of the Option Payments
exceeds $40.6 million.

Section 10.2 Quanex Restricted Stock.

Effective immediately prior to the Record Date, each outstanding share of Quanex Restricted
Stock shall be 100% vested and all restrictions thereon shall lapse immediately prior to the Record
Date (“Unrestricted Quanex Common Stock”). For the avoidance of doubt, the parties
acknowledge that Unrestricted Quanex Common Stock shall be Quanex Common Stock for purposes hereof
and the holder of such stock shall be a holder of Quanex Common Stock on the Record Date.
Accordingly, the holders of each share of Unrestricted Quanex Common Stock shall receive the
consideration provided under the Distribution Agreement to all other shareholders of Quanex Common
Stock as determined on the Record Date and thereafter receive the same treatment as each other
share of Quanex Common Stock in accordance with the terms of the Merger Agreement.

Quanex shall satisfy any Minimum Statutory Tax Withholding Obligation arising upon the vesting
of any shares of Unrestricted Quanex Common Stock by delivering to the holder a reduced number of
shares of Quanex Common Stock in the manner specified herein. At the time of vesting of such
shares, Quanex shall (a) calculate the amount of the Minimum Statutory Tax Withholding Amount on
the assumption that all such shares of Quanex Common Stock vested under the award are made
available for delivery, (b) reduce the number of such shares of Quanex
Common Stock made available for delivery so that the fair market value of the shares of Quanex
Common Stock withheld on the vesting date approximates the Minimum Statutory Tax Withholding Amount
and (c) in lieu of the withheld shares of Quanex Common Stock, remit cash to the United States
Treasury and/or other applicable governmental authorities, on behalf of the holder, in the amount
of the Minimum Statutory Tax Withholding Amount.

 

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Section 10.3 Quanex Restricted Stock Units.

Each Quanex Restricted Stock Unit held by a Quanex Director that is outstanding immediately
prior to the Closing shall be cashed out and then cancelled as provided for in the Merger
Agreement.

Section 10.4 Amendments.

Prior to the Distribution Date, Quanex shall take such actions as may be required to effect
this Article, including amending the applicable Quanex Stock Plans and award agreements as
necessary.

Section 10.5 SEC Registration.

The parties mutually agree to use commercially reasonable efforts to maintain effective
registration statements with the SEC with respect to the long-term incentive awards described in
this Article X, to the extent any such registration statement is required by applicable law.

 

25

 

ARTICLE XI

ADDITIONAL COMPENSATION MATTERS

Section 11.1 Quanex Stock Purchase Plan.

Quanex and Spinco Employees will continue to participate in the Quanex Stock Purchase Plan
through the last payroll date immediately preceding the Distribution Time, or such earlier time as
determined by Quanex (the “Final Offering Period Ending Date”). Spinco shall pay to
Quanex, within five days following the close of such offering period, the fair market value of the
shares of Quanex Common Stock purchased under the Quanex Stock Purchase Plan during the offering
period on behalf of Spinco Employees, less any amounts contributed under the Quanex Stock Purchase
Plan through salary reductions by the Spinco Employees for such offering period. For this purpose,
the fair market value of a share of Quanex Common Stock shall be the closing price of Quanex Common
Stock on the New York Stock Exchange on the last trading day prior to the last payroll date
preceding the Final Offering Period Ending Date.

Section 11.2 Incentive Awards.

(a) Quanex Assumption or Retention of Incentive Liability. Except as otherwise provided herein
and as provided in the attached Schedule 11.2, effective as of the Distribution Time,
Quanex shall assume or retain, as applicable, responsibility for all Liabilities and fully perform,
pay and discharge all obligations relating to any incentive awards that any Spinco Participant is
eligible to receive under the Quanex Corporation Long Term Incentive Plan, Quanex Corporation
Management Incentive Plan or Quanex Corporation 2006 Omnibus Incentive Plan. These amounts shall
be paid to such Spinco Participants no later than 30 days following the Distribution Time.

(b) Special Bonus Provisions.

(i) Quanex Corporation Long Term Incentive Plan Bonuses. Effective as of the
Distribution Time, all incentive awards granted to Quanex Participants and Spinco Participants
under the Quanex Corporation Long Term Incentive Plan shall fully vest and be distributable;
provided, however, that with respect to awards granted under such plan in December 2005, such
awards shall be payable based on the target amounts provided in the award and pro-rated by rounding
up to the next full year in accordance with the terms of the Plan.

(ii) Quanex Corporation Management Incentive Plan. Effective as of the Distribution
Time, all incentive awards granted to Quanex or Spinco Participants who are or were employed in the
corporate office of Quanex under the Quanex Corporation Management Incentive Plan shall fully vest
and be distributable; provided, however, that the following rules shall apply:

(1) RONA Awards. With respect to RONA awards granted under such plan to Quanex or Spinco
Participants who are or were employed in the corporate office of Quanex, such Participants shall be
paid an amount under the award, if any, for the portion of the plan year prior to the Distribution
Date based on year-to-date results and forecast for the remainder of the year, to be based on
year-to-date eligible wages.

 

26

 

(2) Non-RONA Awards. With respect to non-RONA awards granted under such plan to Quanex or
Spinco Participants who are or were employed in the corporate office of Quanex, such Spinco
Participant shall be paid an amount under the award, if any, for the portion of the plan year prior
to the Distribution Date based on year-to-date results and year-to-date eligible wages; provided,
however, that in those instances where a formula requires a full year, the calculation shall be
conducted using year-to-date results and forecast for the remainder of the year.

(iii) Quanex Corporation 2006 Omnibus Incentive Plan. Effective as of the Distribution
Time, all annual incentive awards or performance unit awards granted to Quanex and Spinco
Participants under the Quanex Corporation 2006 Omnibus Incentive Plan shall fully vest and be
distributable; provided, however, that the following rules shall apply:

(1) Annual Incentive Awards. With respect to annual incentive awards granted under the Quanex
Corporation 2006 Omnibus Incentive Plan to Quanex Participants or Spinco Participants who are
officers or division presidents, such Participant shall be paid an amount under the award, if any,
for the portion of the plan year prior to the Distribution Date based on year-to-date results and
forecast for the remainder of the year, to be paid based on year-to-date eligible wages.

(2) Performance Unit Awards. With respect to performance unit awards granted under the Quanex
Corporation 2006 Omnibus Incentive Plan to Spinco Participants and Quanex Participants, such
Participant shall be paid an amount under the award, if any, based on the target value of the
performance unit and pro-rated by rounding up to the next full year in accordance with the terms of
the Plan.

(c) Time of Payment. Any payments distributable under this Section 11.2 shall be paid no
later than thirty days after the Closing.

Section 11.3 Severance Plans.

(a) Establishment of Spinco Severance Plans. Effective as of the Distribution Time, Spinco
shall take all steps necessary to establish a severance plan(s), which shall provide severance
benefits in such amounts and to such employees as set forth in the Quanex Severance Plan (such
Spinco severance plan(s) referred to herein as the “Spinco Severance Plans”).

(b) Assumption of Severance and Retention Liabilities. Effective as of the Distribution Time,
Spinco shall assume or retain, as applicable, responsibility for all Liabilities and fully perform,
pay and discharge all obligations, when such obligations become due, relating to any severance or
retention benefit to which a Spinco Employee is entitled under a Quanex Severance Plan or retention
or severance agreement as of the Distribution Time. Likewise, Quanex shall assume or retain, as
applicable, responsibility for all Liabilities and fully perform, pay and discharge all
obligations, when such obligations become due, relating to any severance or retention benefit to
which a Quanex Employee is entitled under a Quanex Severance Plan or severance or retention
agreement.

 

27

 

Section 11.4 Director, Officer and Key Man Life Insurance.

Effective as of the Distribution Time, to the extent permitted under the policies, Spinco
shall assume and maintain the life insurance policies applicable to Spinco Employees and Spinco
Directors listed on Schedule 11.4, and Quanex shall have no further obligations under such
policies. Except as provided in the first sentence of this Section, Quanex shall retain all
director-owned and company-paid life insurance and current and former executive officer life
insurance policies as listed on Schedule 11.4.

Section 11.5 Quanex Vacation Policy.

Effective as of the Distribution Time, Spinco shall assume all Liability with respect to any
vacation which has accrued, in respect of the calendar year in which the Distribution Time occurs
and the calendar year following the calendar year in which the Distribution Time occurs for those
locations where vacation is accrued a year in advance, for the benefit of any Spinco Employee as of
the Distribution Time under the Quanex Vacation Policy.

Section 11.6 Sections 162(m)/409A.

Notwithstanding anything in this Agreement to the contrary (including the treatment of
supplemental and deferred compensation plans, outstanding long-term incentive awards and annual
incentive awards as described herein), the parties agree to negotiate in good faith regarding the
need for any treatment different from that otherwise provided herein to ensure that (i) a federal
income Tax deduction for the payment of such supplemental or deferred compensation or long-term
incentive award, annual incentive award or other compensation is not limited by reason of section
162(m) of the Code, and (ii) the treatment of such supplemental or deferred compensation or
long-term incentive award, annual incentive award or other compensation does not cause the
imposition of a tax under section 409A of the Code.

Section 11.7 Payroll Taxes and Forms W-2

Pursuant to Section 5 of Revenue Procedure 2004-53, Spinco assumes Quanex’s or a member of the
Quanex’s Group’s respective obligations to furnish Forms W-2 to Spinco Employees for the calendar
year in which the Distribution Time occurs. Quanex shall provide Spinco with any information
relating to periods ending at the Distribution Time necessary for Spinco to prepare and distribute
Forms W-2 to Spinco Employees for the calendar year in which the Distribution Time occurs, which
Forms W-2 will include all remuneration earned by Spinco Employees from Quanex or a member of the
Quanex Group and Spinco during such year, and Spinco will prepare and distribute such forms.

 

28

 

ARTICLE XII

GENERAL

Section 12.1 Approval by Quanex As Sole Stockholder.

Effective as of the Distribution Time, Spinco shall have adopted the Spinco Plans in order to
provide the benefits contemplated herein. The Spinco Plans shall be approved prior to the
Distribution by Quanex as Spinco’s sole shareholder.

Section 12.2 Sharing of Employee Information.

Quanex and Spinco and their respective authorized agents shall, subject to and in compliance
with all applicable laws regarding confidentiality, including but not limited to HIPAA, be given
reasonable and timely access to, and may make copies of, all information relating to the subjects
of this Agreement in the custody of the other party, to the extent necessary for implementation of
this Agreement. Any information shared or exchanged pursuant to this Agreement shall be subject to
all applicable confidentiality laws as well as the confidentiality requirements set forth in the
Distribution Agreement. The parties also hereby agree to enter into any business associate
agreements that may be required for the sharing of any information pursuant to this Agreement to
comply with the requirements of HIPAA.

Section 12.3 Reasonable Efforts/Cooperation.

Each of the parties hereto will use its commercially reasonable efforts to promptly take, or
cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions contemplated by this
Agreement, including adopting plans or plan amendments. Each of the parties hereto shall cooperate
fully on any issue relating to the transactions contemplated by this Agreement for which the other
Party seeks a determination letter or private letter ruling from the IRS, an advisory opinion from
the DOL or any other filing, consent or approval with respect to or by a governmental entity

Section 12.4 Employer Rights.

Nothing in this Agreement shall prohibit Spinco or any Spinco Affiliate from amending,
modifying or terminating any Spinco Plan at any time within its sole discretion. In addition,
nothing in this Agreement shall prohibit Quanex or any Quanex Affiliate from amending, modifying or
terminating any Quanex Plan at any time within its sole discretion.

Section 12.5 Effect on Employment.

Except as expressly provided in this Agreement, the occurrence of the Distribution alone shall
not cause any employee to be deemed to have incurred a termination of employment which entitles
such individual to the commencement of benefits under any of the Quanex Plans. Furthermore, nothing
in this Agreement is intended to confer upon any employee or former employee of Quanex, Spinco or
any of their respective Affiliates any right to continued employment, or any recall or similar
rights to an individual on layoff or any type of approved leave, except as provided in any
applicable collective bargaining agreement.

 

29

 

Section 12.6 Consent Of Third Parties.

If any provision of this Agreement is dependent on the Consent of any third party and such
consent is withheld, the parties hereto shall use their reasonable best efforts to implement the
applicable provisions of this Agreement to the fullest extent practicable. If any provision of this
Agreement cannot be implemented due to the failure of such third party to consent, the parties
hereto shall negotiate in good faith to implement the provision in a mutually satisfactory manner.

Section 12.7 Access To Employees.

Following the Distribution Time, Quanex and Spinco shall, or shall cause each of their
respective Affiliates to, make available to each other those of their employees who may reasonably
be needed in order to defend or prosecute any legal or administrative action (other than a legal
action between Quanex and Spinco) to which any employee, director or Benefit Plan of the Quanex
Group or Spinco Group is a party and which relates to their respective Benefit Plans prior to the
Distribution Time. The Party to whom an employee is made available in accordance with this Section
12.7 shall pay or reimburse the other Party for all reasonable expenses which may be incurred by
such employee in connection therewith, including all reasonable travel, lodging, and meal expenses,
but excluding any amount for such employee’s time spent in connection therewith.

Section 12.8 Beneficiary Designation/Release Of Information/Right To Reimbursement.

To the extent permitted by applicable law and except as otherwise provided for in this
Agreement, all beneficiary designations, authorizations for the release of information and rights
to reimbursement made by or relating to Spinco Participants under Quanex Plans shall be transferred
to and be in full force and effect under the corresponding Spinco Plans until such beneficiary
designations, authorizations or rights are replaced or revoked by, or no longer apply, to the
relevant Spinco Participant.

Section 12.9 Effect if Distribution Does Not Occur.

Notwithstanding anything in this Agreement to the contrary, if the Distribution Agreement is
terminated prior to the Distribution Time, then all actions and events that are, under this
Agreement, to be taken or occur effective prior to, as of or following the Distribution Time, or
otherwise in connection with the Distribution, shall not be taken or occur except to the extent
specifically agreed to in writing by Quanex and Spinco and neither party shall have any Liability
or further obligation to the other party under this Agreement.

Section 12.10 Relationship of Parties.

Nothing in this Agreement shall be deemed or construed by the parties or any third party as
creating the relationship of principal and agent, partnership or joint venture between the parties,
it being understood and agreed that no provision contained herein, and no act of the parties, shall
be deemed to create any relationship between the parties other than the relationship set forth
herein.

 

30

 

Section 12.11 Affiliates.

Each of Quanex and Spinco shall cause to be performed, and hereby guarantees the performance
of, all actions, agreements and obligations set forth in this Agreement to be performed by each of
their Affiliates, respectively.

Section 12.12 Survival.

This Agreement shall survive the Distribution Time.

Section 12.13 Notices.

Any notice, demand, claim, or other communication under this Agreement shall be in writing and
shall be given in accordance with the provisions for giving notice under the Distribution
Agreement.

Section 12.14 Interpretation.

The Article and Section headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties hereto and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by the words “without
limitation.”

Section 12.15 Governing Law.

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

Section 12.16 Fiduciary Matters.

The parties acknowledge that actions required to be taken pursuant to the Agreement may be
subject to fiduciary duties or standards of conduct under ERISA or other applicable law. Neither
party shall be deemed to be in violation of the Agreement if it fails to comply with any provision
of the Agreement based upon its good faith determination that to do so would violate such a
fiduciary duty or standard. Each party shall be responsible for taking such actions as are deemed
necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release
and indemnify the other party for any Liabilities caused by the failure to satisfy any such
responsibility.

Section 12.17 Consent to Jurisdiction and Service of Process.

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

 

31

 

Section 12.18 Waiver of Jury Trial.

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

Section 12.19 Force Majeure.

No party (or any Person acting on its behalf) shall have any Liability or responsibility for
failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as
and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or
delayed as a consequence of circumstances of Force Majeure. A party claiming the benefit of this
provision shall, as soon as reasonably practicable after the occurrence of any such event: (a)
notify the other party of the nature and extent of any such Force Majeure condition and (b) use due
diligence to remove any such causes and resume performance under this Agreement as soon as
reasonably practicable.

Section 12.20 Authorization.

Each of the parties hereby represents and warrants that it has the power and authority to
execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement constitutes a legal,
valid and binding obligation of each such party and that the execution, delivery and performance of
this Agreement by such party does not contravene or conflict with any provision of law or of its
charter or bylaws or any material agreement, instrument or order binding on such party.

Section 12.21 Specific Performance.

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

Section 12.22 Assignment.

Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any party without the prior written consent of the
other party, and any attempt to assign any rights or obligations arising under this Agreement
without such consent shall be void; provided, that, a party may assign this Agreement in connection
with a merger transaction in which such party is not the surviving entity or the sale by such party
of all or substantially all of its assets; and provided, further, that the surviving entity of such
merger or the transferee of such assets shall agree in writing, reasonably satisfactory to the
other parties, to be bound by the terms of this Agreement as if named as a “Party” hereto.

 

32

 

Section 12.23 Successors and Assigns/No Third Party Beneficiary.

This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted assigns, but neither this Agreement nor
any of the rights, interests and obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party. This Agreement is solely for the benefit of
Quanex and Spinco and their respective subsidiaries, Affiliates, successors and assigns, and is not
intended to confer upon any other Persons any rights or remedies hereunder.

Section 12.24 No Amendment of Plans.

Unless explicitly designated otherwise, no provision of this Agreement is intended to be an
amendment of any Quanex Plan or Spinco Plan. If a person not entitled to enforce this Agreement
brings a lawsuit or other action to enforce any provision in this Agreement as an amendment to a
Plan or another agreement, plan, program or document, and that provision is construed to be such an
amendment despite not being explicitly designated as one in this Agreement, that provision shall
lapse retroactively, thereby precluding it from having any amendatory effect.

Section 12.25 Amendment.

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

Section 12.26 Entire Agreement.

This Agreement, the Distribution Agreement, and each other ancillary agreement, including any
annexes, schedules and exhibits hereto and thereto, as well as any other agreements and documents
referred to herein and therein, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. If there is any inconsistency between this Agreement
and any Schedule hereto, the Schedule shall prevail.

Section 12.27 Severability.

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

Section 12.28 Exhibits and Schedules.

The Exhibits and Schedules shall be construed with and as an integral part of this Agreement
to the same extent as if the same had been set forth verbatim herein.

 

33

 

Section 12.29 Waivers.

The failure of any party to require strict performance by any other party of any provision in
this Agreement will not waive or diminish that party’s right to demand strict performance
thereafter of that or any other provision hereof.

Section 12.30 Termination.

Notwithstanding any provision hereof, following termination of the Distribution Agreement,
this Agreement may be terminated and the Distribution abandoned at any time prior to the
Distribution Time by and in the sole discretion of the Board of Directors of Quanex. In the event
of such termination, no party hereto or to any other Transaction Agreement shall have any Liability
to any Person by reason of this Agreement or any other Transaction Agreement.

Section 12.31 Counterparts.

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

Section 12.32 Construction.

The parties have participated jointly in the negotiation and drafting of this Agreement. This
Agreement shall be construed without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be drafted.

 

34

 

IN WITNESS WHEREOF, the parties have caused this Employee Matters Agreement to be executed as
of the day and year first above written.

	 	 	 	 	 
	 	Quanex Corporation 

 	 
	 	By:  	/s/ Thomas M. Walker
 	 
	 	 	Name:  	Thomas M. Walker                                         	 
	 	 	Title:  	Senior Vice President-Finance and Chief Financial Officer 	 
	 
	 	Quanex Building Products LLC 

 	 
	 	By:  	/s/ Kevin P. Delaney
 	 
	 	 	Name:  	Kevin P. Delaney                                         	 
	 	 	Title:  	Senior Vice President-General Counsel and Secretary 	 
	 
	 	Quanex Building Products Corporation 

 	 
	 	By:  	/s/ Kevin P. Delaney
 	 
	 	 	Name:  	Kevin P. Delaney                                         	 
	 	 	Title:  	Senior Vice President-General Counsel and Secretary 	 
	 

 

 Signature Page—Employee Matters Agreement

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