DISTRIBUTION AGREEMENT

Exhibit 10.1

DISTRIBUTION AGREEMENT

DATED AS OF DECEMBER 19, 2007

AMONG

QUANEX CORPORATION,

QUANEX BUILDING PRODUCTS LLC,

AND

QUANEX BUILDING PRODUCTS CORPORATION

TABLE OF CONTENTS

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

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TABLE OF CONTENTS

(continued)

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

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TABLE OF CONTENTS

(continued)

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

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DISTRIBUTION AGREEMENT

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

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

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

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

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

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

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

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

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

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

ARTICLE I

DEFINITIONS

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

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

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

“ Agreement ” shall mean this Distribution Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

“ Exchange ” shall mean the New York Stock Exchange.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ Quanex Subsidiaries ” shall mean the following entities:

	(a)		MacSteel Atmosphere Annealing, Inc.;
	(b)		MacSteel Monroe, Inc.;
	(c)		Quanex Bar, Inc.;
	(d)		Quanex Steel Inc.;
	(e)		Quanex Solutions, Inc.;
	(f)		Quanex Health Management Company, Inc.;
	(g)		Quanex Nine, Inc.;
	(h)		Quanex Ten, Inc.;
	(i)		Quanex Eleven, Inc.; and
	(j)		Quanex Twelve, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

“ Spinco Subsidiaries ” shall mean the following entities:

(a) Besten Equipment, Inc.;

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

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

(d) Quanex Foundation;

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

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

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

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

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

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

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

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

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

ARTICLE II

PRELIMINARY TRANSACTIONS

Section 2.1 Business Separation .

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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ARTICLE III

THE DISTRIBUTION

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

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

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

Section 3.4 Actions in Connection with the Distribution.

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

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

 

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Section 3.5 Fractional Shares. Fractional Shares of Spinco Sub Common Stock will not be distributed in the Distribution or the Spinco Merger, as applicable, nor credited to book-entry accou