Maxco Inactive DEF 14A Definitive proxy

Proxy solicited on behalf of the Board of Directors

for Annual Meeting of Shareholders to be held January 30, 2007.

The undersigned hereby constitutes and appoints Max A. Coon and Eric L. Cross, and each or any of them, attorney and proxy for and in the names and stead of the undersigned, to vote all stock of Maxco, Inc. (Maxco) on all matters, unless the contrary is indicated herein, at the Annual Meeting of Shareholders to be held at the corporate office, 1005 Charlevoix Dr. Suite 100, Grand Ledge, Michigan, on January 30, 2007 at 10:30 a.m. local time or at any adjournments thereof, according to the number of votes that the undersigned could vote if personally present at said meeting. The undersigned directs that this proxy be voted as follows:

1. To approve and adopt the sale of substantially all of the assets of our wholly owned subsidiary, Atmosphere Annealing, Inc. (“AAI”), and AAI’s wholly owned subsidiary, BCGW, Inc. (“BCGW”) to Quanex Technologies, Inc., the wholly owned subsidiary of Quanex Corporation, pursuant to the terms of the Asset Purchase Agreement, dated as of December 13, 2006, by and among Maxco, Inc., AAI, BCGW, Quanex Technologies, Inc. and Quanex Corporation.

FOR __________

AGAINST __________

ABSTAIN __________

2. Election of five (5) members to the board of directors of Maxco, Inc.

FOR all nominees listed below (except as marked to the contrary below).

WITHHOLD AUTHORITY to vote for all nominees listed below __________

INSTRUCTION: To WITHHOLD AUTHORITY to vote for any individual nominee write

that nominee's name in the space provided below:

______________________________________________________________________

3. In their discretion, the Proxies are authorized to vote upon such other business as may come before the annual meeting, or any adjournments or postponements of the annual meeting.

FOR __________

AGAINST __________

ABSTAIN __________

This proxy, when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted FOR Proposals 1, 2, and 3.

SIGNED:________________________

DATED:________________________

NOTE: When shares are held by joint tenants, both should sign. When signing as attorney, as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.

PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.

ATMOSPHERE ANNEALING, INC.

SELECTED FINANCIAL DATA

The following tables set forth selected historical financial data for Atmosphere Annealing, Inc. as of the dates and for the periods indicated. The operations and balance sheet data of Atmosphere Annealing, Inc. for fiscal years 2002 through 2006 are included in the audited consolidated financial statements of Maxco, Inc. included in Maxco, Inc.’s filings on Form 10-K for each of the respective periods. The operations data for the six months ended September 30, 2006 and the balance sheet data as of September 30, 2006 of Atmosphere Annealing, Inc. are included in the unaudited consolidated financial statements of Maxco, Inc. included in Maxco, Inc.’s filings on Form 10-Q for the quarter ended September 30, 2006. Such financial statements are attached as Annexes D and E.

											Six Months
											Ended
	Year Ended March 31,										September 30,
	2006		2005		2004		2003		2002		2006
											(unaudited)
	(in thousands, except per share data)
Net sales	$	46,564	$	45,364	$	40,754	$	36,749	$	34,491	$	23,580
Gross margin		17,454		16,325		13,980		13,444		13,977		9,653
Operating income		5,515		4,202		2,137		2,146		2,482		3,398
Net income (loss)		3,200		2,247		789		775		797		1,904

	At March 31,														At September 30,
	2006		2005			2004			2003			2002			2006
															(unaudited)
	*(in thousands)*
Total assets	$	29,125	$	28,985		$	29,149		$	29,589		$	31,444		$	26,949
Working capital (deficit)		2,582		(671	)		(4,120	)		(4,583	)		(4,467	)		(2,654	)
Long-term obligations (net of current obligations)		6,015		6,297			7,110			9,106			12,375			5,487

ANNEX A

ASSET PURCHASE AND SALE AGREEMENT

among

Maxco, Inc.,

Atmosphere Annealing, Inc.

and

BCGW, Inc.

(as “Selling Parties”)

and

Quanex Corporation

and

Quanex Technologies, Inc.

(as “Purchasing Parties”)

Dated December 13, 2006

A-1

TABLE OF CONTENTS

		Page
ARTICLE I PURCHASED ASSETS AND ASSUMED OBLIGATIONS		1

1.1	Purchased Assets	1
1.2	Procedures for Assets Not Transferable	3
1.3	Excluded Assets	4
1.4	Assumed Obligations	4
1.5	Excluded Obligations	5

ARTICLE II PURCHASE PRICE AND PAYMENT		6

2.1	Pre-Closing Deliveries	6
2.2	Determination of Purchase Price Payable at the Closing	7
2.3	Payment of Purchase Price	7
2.4	Purchase Price Adjustment	7
2.5	Allocation of Purchase Price	9

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES		9

3.1	Existence and Good Standing	10
3.2	Due Authorization	10
3.3	Corporate Organization	10
3.4	Consents	10
3.5	Absence of Conflicts	11
3.6	Financial Statements	11
3.7	Title to Assets	11
3.8	Compliance with Laws; Permits	12
3.9	Taxes	13
3.10	Litigation	14
3.11	Brokers	14
3.12	Contracts	15
3.13	Employment Matters	15
3.14	Employee Benefit Matters	17
3.15	Intellectual Property	19
3.16	Environmental	19
3.17	Tangible Assets	21
3.18	Sufficiency of Assets	22
3.19	No Adverse Change	22
3.20	Insurance	22
3.21	Inventory	22
3.22	Accounts Receivable	23
3.23	Books and Records	23
3.24	No Material Adverse Effect	23
3.25	Customers and Suppliers	23
3.26	Affiliate Transactions	24
3.27	Backlog	24
3.28	Derivative Contracts	24
3.29	Other Information	24
3.30	No Undisclosed Liability	25

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASING PARTIES		25

4.1	Existence and Good Standing	25
4.2	Due Authorization	25

TABLE OF CONTENTS

(CONTINUED)

		Page
4.3	Consents	25
4.4	Absence of Conflicts	26
4.5	Litigation	26
4.6	Brokers	26

ARTICLE V COVENANTS OF THE SELLING PARTIES		26

5.1	Conduct of Business	26
5.2	Negative Covenants Relating to Conduct of the Businesses of the Sellers	27

ARTICLE VI COVENANTS OF THE PURCHASING PARTIES AND THE SELLING PARTIES		28

6.1	HSR Act Notification and Other Consents	28
6.2	Access to Information and Inspections	28
6.3	Title Commitment and Survey	29
6.4	Motor Vehicles	30
6.5	Tax Matters	30
6.6	Bulk Sales Compliance	32
6.7	Confidentiality and Publicity	32
6.8	Payments Received	33
6.9	Satisfaction of Conditions and Further Assurances	33
6.10	Exclusivity Agreement	33
6.11	Limitation on Purchasing Parties’ Obligation With Respect to Returned Products	33
6.12	Expenses	34
6.13	Maxco’s Proxy Materials and Stockholders’ Meeting	34
6.14	Environmental Matters	34
6.15	Non-Competition	34

ARTICLE VII EMPLOYEES AND BENEFIT PLANS		35

7.1	Offer of Employment	35
7.2	Vacation	35
7.3	Salaries and Benefits	35
7.4	No Transfer of Assets	36
7.5	Employee Records	36
7.6	General Employment Provisions	36

ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASING PARTIES		37

8.1	Accuracy of Representations and Warranties	37
8.2	Compliance with Agreements and Covenants	37
8.3	Hart-Scott-Rodino	37
8.4	No Injunctions	37
8.5	Title Insurance	37
8.6	Deliveries	38
8.7	List of New Contracts	38
8.8	Consents	38
8.9	Environmental Assessment	38
8.10	No Material Adverse Effect	38
8.11	Termination of Confidentiality Agreement	38
8.12	Employment Agreement	38
8.13	Amendment to Employee Handbook	38
8.14	Insurance	38

TABLE OF CONTENTS

(CONTINUED)

		Page
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING PARTIES		39

9.1	Accuracy of Representations and Warranties	39
9.2	Compliance with Agreements and Covenants	39
9.3	Hart-Scott-Rodino	39
9.4	No Injunctions	39
9.5	Deliveries	39
9.6	Stockholder Approval	39

ARTICLE X CLOSING		39

10.1	Closing	39
10.2	Deliveries by the Selling Parties	40
10.3	Deliveries by the Purchasing Parties	41
10.4	Passage of Title and Risk of Loss	41

ARTICLE XI TERMINATION		42

11.1	Termination	42
11.2	Effect of Termination	42

ARTICLE XII INDEMNIFICATION		42

12.1	Survival; Remedy for Breach	42
12.2	Indemnification by the Selling Parties	42
12.3	Indemnification by the Purchasing Parties	45
12.4	Claims	46
12.5	Assumption of Defense	46
12.6	Settlement or Compromise	46
12.7	Failure of Indemnifying Person to Act	46
12.8	Direct Claims	47
ARTICLE XIII POST-CLOSING DISPUTE RESOLUTION AND PRE-CLOSING REMEDIES		47

13.1	Initial Mutual Dispute Resolution	47
13.2	Arbitration	48
13.3	Jurisdiction and Jury Trial Waiver with Respect to Pre-Closing Disputes	48
13.4	Specific Performance	49

ARTICLE XIV MISCELLANEOUS		49

14.1	Amendment	49
14.2	Interpretation	49
14.3	Notices	49
14.4	Waivers	50
14.5	Successors and Assigns	51
14.6	No Third Party Beneficiaries	51
14.7	Severability and Reform	51
14.8	Entire Understanding	51
14.9	Applicable Law	51
14.10	Counterparts	51

iii

EXHIBITS

Exhibit	Description

Exhibit A	Escrow Agreement
Exhibit B	Assignment and Assumption Agreement
Exhibit C	General Warranty Deeds
Exhibit D	Bill of Sale
Exhibit E	Selling Parties’ Legal Opinion
Exhibit F	Purchasing Parties’ Legal Opinion

INDEX TO DEFINITIONS

Defined Terms		Section Where Defined
AAA		13.2
AAI Banked Vacation Time Cash-Out		7.2
AAI Benefit Plan		3.14(a)
AAI Financial Statements		3.6
AAI Intellectual Property		3.15(a)
AAI		Introduction
Accounts Payable		1.4(b)
Accounts Receivable		1.1(h)
Acquisition Proposals		6.10
Adjusted Purchase Price		2.4(c)
Affiliate		3.11
Agreement		Introduction
Ancillary Agreements		3.2
Assigned Contracts		1.1(j)
Assigned Purchase Orders		1.1(j)
Assignment and Assumption Agreement		10.2(a)
Assumed Obligations		1.4
Banked Vacation Time		7.2
Baseline Working Capital Amount		2.1
BCGW		Introduction
Bill of Sale		10.2(a)
Books and Records		1.1(i)
Business Day		2.1
Business Employee		1.5(d)
CERCLA		3.16(a)
Closing		1.1
Closing Date		1.1
Closing Date Financial Statements		2.4(a)
Closing Purchase Price		2.2

COBRA		3.14(f)
Code		2.5
Commitment		6.3(a)
Competitive Business		6.15
Competitive Products		6.15
Consent		3.4
Contract		1.1(j)
Direct Claim		12.8
Disclosure Document		1.1(a)
EBITDA Statement		2.4(a)
EBITDA		2.4(a)
Effective Time		1.1
Encumbrance		3.7(a)
Environmental Laws		3.16(a)
Environmental Liabilities		3.16(i)
ERISA Affiliate		3.14(d)
ERISA		3.14(a)
Escrow Agreement		2.3
Excluded Assets		1.3
Excluded Obligations		1.5
Extended Coverage Endorsement		6.3(a)
Facilities		1.1(d)
Final Statement		2.4(b)
GAAP		2.4(a)
General Warranty Deeds		10.2(a)
Governmental Authority		3.5
Group Health Plan		3.14(f)
Hazardous Substances		3.16(d)
HSR Act		6.1(a)
Including		14.2
Indemnified Person		12.4
Indemnifying Person		12.4
Independent Accounting Firm		2.4(b)
Intellectual Property		3.15(a)
Inventory		1.1(c)
Knowledge		3 and 4
Law		3.5
Litigation		3.10
Loss		12.2(a)
Material Adverse Effect		3.10
Material Contract		3.12(a)
Maxco		Introduction
New Contracts		1.1(j)
Owned Real Property		1.1(d)
Owner’s Policy		6.3(a)
Parties		1.1(a)

Paying Party		6.5(a)
Permit		3.5
Permitted Encumbrances		3.7(a)
Person		1.2
Post-Closing Remediation		6.14
Preliminary Statement of Working Capital		2.1
Property Tax		6.5(a)
Purchased Assets		1.1
Purchaser		Introduction
Purchasing Parties		Preamble
Purchasing Parties’ Basket		12.3(b)
Purchasing Parties’ Group		12.2(a)
Purchasing Parties’ Maximum Indemnity Amount		12.3(b)
Quanex		Introduction
Registered Intellectual Property		3.15(a)
Reimbursing Party		6.5(a)
SEC		3.6
Seller		Preamble
Seller Group Health Plan		7.3(c)
Selling Parties		Preamble
Selling Parties’ Basket		12.2(b)
Selling Parties’ Group		12.3(a)
Selling Parties’ Maximum Indemnity Amount		12.2(b)
Statement of Working Capital		2.4(a)
Stockholder Approval		3.2
Straddle Period		6.5(a)
Survey		6.3(b)
Tangible Assets		1.1(a)
Tax Return		3.9(a)
Tax		3.9(a)
Third Party		1.2
Third Party Claim		12.4
Title Cure Period		6.3(c)
Title Objection Letter		6.3(c)
Title Objections		6.3(c)
Title Response Letter		6.3(c)
Title Review Period		6.3(c)
Transfer Tax		6.5(c)
Transferred Employee		7.1
Treasury Regulations		2.5
Working Capital		2.1

ASSET PURCHASE AND SALE AGREEMENT

This ASSET PURCHASE AND SALE AGREEMENT (this “Agreement”) is made on December 13, 2006, by and among Maxco, Inc., a Michigan corporation (“Maxco”), Atmosphere Annealing, Inc., a Michigan corporation (“AAI”), BCGW, Inc., a Michigan corporation (“BCGW”), Quanex Corporation, a Delaware corporation (“Quanex”), and Quanex Technologies, Inc., a Delaware corporation (the “Purchaser”).

WITNESSETH:

WHEREAS, the Purchaser wishes to purchase from each of AAI and BCGW (individually, a “Seller” and collectively, the “Sellers”) and each of the Sellers wishes to sell to the Purchaser, substantially all of its assets on the terms and conditions set forth in this Agreement;

WHEREAS, the Purchaser is a wholly owned subsidiary of Quanex, AAI is a wholly owned subsidiary of Maxco, and BCGW is a wholly owned subsidiary of AAI;

NOW, THEREFORE, in consideration of the foregoing and the mutual warranties, representations, covenants and agreements contained in this Agreement, the Sellers and Maxco (together, the “Selling Parties”) and the Purchaser and Quanex (together, the “Purchasing Parties”) agree as follows:

ARTICLE I

PURCHASED ASSETS AND ASSUMED OBLIGATIONS

1.1 Purchased Assets. In reliance on the representations and warranties contained in this Agreement, and subject to the conditions and on the terms set forth in this Agreement, on the date (the “Closing Date”) of the consummation of the transactions described in this Agreement in accordance with Article X (the “Closing”), but effective as of 12:01 a.m. Eastern Time on the Closing Date (the “Effective Time”), each of the Sellers shall sell, assign, convey, transfer and deliver to the Purchaser, and the Purchaser shall purchase, acquire and take assignment and delivery of, all of the right, title and interest of the Sellers in and to the assets, properties and rights described in Sections 1.1(a) through 1.1(n) below (but specifically excluding the Excluded Assets, as defined in Section 1.3), free and clear of Encumbrances (other than Permitted Encumbrances):

(a) Tangible Assets. The tangible personal property set forth in Section 1.1(a) of the disclosure schedule document (the “Disclosure Document”) that is being executed and delivered by the Selling Parties and the Purchasing Parties (the “Parties”) concurrently with the execution and delivery of this Agreement, any replacements of that property acquired before the Effective Time and all other tangible personal property of every kind and description that is used in or useful to the operation of the businesses of the Sellers, including all machinery, equipment, fixed assets, furniture, tools, dies, automobiles, trucks, loaders, vehicles and other rolling stock, maintenance equipment and materials, (collectively, the “Tangible Assets”);

(b) Data Processing Hardware and Software. Those items listed in Section 1.1(b) of the Disclosure Document and all other data processing hardware and software that is used in the operation of the businesses of the Sellers;

(c) Inventory. All supplies, materials (including raw materials), work-in-progress, semi-finished goods, finished goods, components, stores, goods in transit, spare parts, packaging materials, other consumables, and other inventories, including warehoused and consigned inventories (if any), inventories covered by purchase orders or held by distributors, used in the operation of the businesses of the Sellers (collectively, the “Inventory”) as of the Effective Time;

(d) Owned Real Property. The real property owned by either of the Sellers in Lansing, Michigan, Canton, Ohio and North Vernon, Indiana, as described in Section 1.1(d) of the Disclosure Document (the “Owned Real Property”), including all appurtenant easements related to the Owned Real Property and all buildings, structures, improvements, plants, offices, facilities, and fixtures located on the Owned Real Property (the “Facilities”);

(e) Intangibles. All Intellectual Property of the Sellers described in Section 1.1(e) of the Disclosure Document, all other Intellectual Property used in the businesses of the Sellers and all goodwill and going concern value relating to the businesses of the Sellers;

(f) Other Current Assets. All prepaid expenses, credits, deposits, customer deposits, employee receivables, letters of credit supporting or in lieu of deposits, claims, prepayments, refunds, rebates, warranties, choses-in-action, accounts, rights to payment, existing and future instruments, chattel paper, documents of title, commodity contracts, rights under derivative, hedging and similar Contracts, and other similar items relating to or associated with the operation of the businesses of the Sellers;

(g) Permits. All Permits and permit applications that are legally capable of being transferred;

(h) Accounts Receivable. All trade and non-trade receivables of a Seller that are payable as a result of goods sold or services provided by a Seller, excluding any Tax refunds or credits and excluding any offset amounts under the Honda of America contra account for sleeves purchased by AAI (“Accounts Receivable”) as of the Effective Time;

(i) Books and Records. Copies or originals of all records related to the operation of the businesses of the Sellers, including specifications, service records, plans and designs of fixtures and equipment, monitoring and test records, customer lists and files, customer and supplier records, production records, quality control analyses, sales and warranty records, operating guides and manuals, financial and accounting records, studies, reports, correspondence and other similar documents and records (“Books and Records”);

(j) Assigned Contracts. The contracts, leases, easements, licenses, sales orders, purchase orders, supply agreements, plans and any other agreements, commitments or understandings, whether oral or written (the “Contracts”) described in Section 1.1(j) of the Disclosure Document, which describes all Contracts (other than Permits and purchase orders entered into or accepted by a Seller in the ordinary course of business) to which a Seller is a party that relate to the businesses of the Sellers and that exist as of the date of this Agreement (the “Assigned Contracts”); all purchase orders entered into or accepted by a Seller in the ordinary course of business and that are in effect as of the Effective Time (the “Assigned Purchase Orders”); and all Contracts (other than purchase orders entered into or accepted by a Seller in the ordinary course of business) entered into by a Seller between the date of this Agreement and the Effective Time, which additional Contracts will be described on a document to be delivered by the Selling Parties to the Purchaser at the Closing (the “New Contracts”);

(k) Certain Insurance Claims. All of the Sellers’ insurance claims and rights to the extent that they pertain to the Assumed Obligations;

(l) Certain Warranty and Indemnification Rights. Express or implied warranties from the Sellers’ suppliers related to their businesses and all rights of the Sellers to indemnification under any Contracts related to their businesses;

(m) Name. The trade name “Atmosphere Annealing” and any and all variations thereof and any related goodwill, trademark applications and registrations, and internet domain names that consist of or incorporate the name “Atmosphere Annealing” and any and all variations thereof; and

(n) Other Assets. Subject to the provisions of Section 1.3 of this Agreement, all other assets owned by either Seller as of the Effective Time, wherever located, even if not named or described in this Agreement, the AAI Financial Statements or the Disclosure Document, including tangible and intangible assets owned by either Seller.

All of the foregoing assets described in this Section 1.1 (excluding the Excluded Assets) are referred to collectively as the “Purchased Assets”.

1.2 Procedures for Assets Not Transferable. The Purchasing Parties acknowledge the Sellers’ ability to assign their rights under the Permits and under the Contracts included within the Purchased Assets may be subject to receipt of Consent from individuals, corporations, business trusts, proprietorships, firms, partnerships, limited partnerships, limited liability partnerships, limited liability companies, trusts, associations, joint ventures, Governmental Authorities or other entities (“Persons”). The Selling Parties shall use all commercially reasonable efforts to obtain those Consents as soon as possible after the date of this Agreement. To the extent that any Consent is required, this Agreement and the Assignment and Assumption Agreement shall not constitute an agreement to assign a Permit or a Contract if an assignment or attempted assignment would constitute a breach of the Permit or Contract. If any Permit or Contract cannot, in the reasonable opinion of the Purchasing Parties’ counsel, be transferred effectively without the Consent of a Person other than a Selling Party, a Purchasing Party or any Affiliate of a Selling Party or a Purchasing Party (a “Third Party”), and the Selling Parties are unable to obtain that Consent even after using all of their commercially reasonable efforts to do so, the Selling Parties shall use its best efforts to provide the Purchaser the benefits of the Permit or Contract at their cost and expense. At the Closing, the Selling Parties shall execute and deliver to the Purchaser such documentation that assures the Purchaser of those benefits and under which the Selling Parties shall agree to enforce, at the request of the Purchaser and for the account of the Purchaser, any rights of the Selling Parties arising from any such Permit or Contract, including the right to elect to terminate in accordance with its terms on the advice of the Purchaser (to the extent legally permissible) and to cooperate in any commercially reasonable and lawful arrangement designed to provide the benefits of the Permit or Contract to the Purchaser.

1.3 Excluded Assets. The following assets (the “Excluded Assets”) shall be retained by the Sellers or the other Persons owning them, and are not being sold, assigned, transferred or conveyed to the Purchaser under this Agreement:

(a) Employee Benefits and Records. The assets described in Sections 7.4 and 7.5 of this Agreement;

(b) Cash. Cash, investments and other cash equivalents of the Sellers;

(c) Certain Corporate Records. The Sellers’ minute books and other corporate organizational documents, Tax Returns and financial and employment records;

(d) BCGW Stock. All equity interests in BCGW;

(e) Foreign Qualifications and Identification Numbers. All qualifications of the Sellers to transact business as a foreign corporation, arrangements with registered agents with respect to foreign qualifications of the Sellers, the Sellers’ taxpayer and other identification numbers;

(f) Tax Benefits. Any of the Sellers’ Tax benefits and rights to refunds, including rights to any net operating losses;

(g) Rights Under Debt Agreements. Any Contracts or rights of the Sellers relating to borrowed money, as to which either Seller is the debtor;

(h) Related Party Receivables. Amounts reflected on the Sellers’ financial statements as of the Closing Date as receivables by a Seller from any stockholder, officer, director or Affiliate of a Seller;

(i) Insurance. All of the Sellers’ insurance contracts and policies, insurance refunds from prepaid insurance, and insurance deposits, recoveries and rights under any current or prior insurance contracts or policies;

(j) Benefit Plan Rights. Any assets, Contracts or rights relating to the AAI Benefit Plans; and

(k) Loan Costs. The Sellers’ prepaid loan closing costs and related accumulated amortization.

1.4 Assumed Obligations. In reliance on the representations and warranties of the Selling Parties contained in this Agreement, and subject to the conditions and on the terms set forth in this Agreement, on the Closing Date, but effective as of the Effective Time, the Purchaser shall assume and agree to discharge, the following specified obligations of the Sellers, excluding the Excluded Obligations (the “Assumed Obligations”):

(a) Contract Obligations. The obligations of each Seller to be performed after the Effective Time under the Assigned Contracts, the Assigned Purchase Orders and the New Contracts, excluding any obligation arising from or relating to a breach of, or default under, an Assigned Contract, Assigned Purchase Order or New Contract by either Seller;

(b) Accounts Payable. All trade payables and accrued expenses of the Sellers that are payable as a result of goods sold to, or services provided for or to, a Seller, excluding any Taxes payable and excluding any accrued expenses for which a Seller retains the corresponding asset or liability pursuant to the terms of this Agreement (“Accounts Payable”) as of the Effective Time;

(c) Product Replacement. Subject to the provisions of Section 6.11, all warranty obligations to repurchase or replace products produced by a Seller in the ordinary course of business that are either in process at the Effective Time or that are produced by a Seller before the Effective Time and returned by the purchasers thereof after the Effective Time; and

(d) Employee Accruals. All accruals shown on the Closing Date Financial Statements for the payment of compensation to the Transferred Employees, including vacation (after giving effect to Section 7.2), holiday pay, and bonuses, with respect to any Transferred Employee.

Notwithstanding the foregoing, nothing contained in this Section 1.4 shall affect the Selling Parties’ obligations under Section 12.2.

1.5 Excluded Obligations. The Purchaser shall not assume, and shall have no obligation with respect to, the following obligations (the “Excluded Obligations”), which shall be retained by the Selling Parties or the other Persons responsible for those obligations:

(a) Excluded Assets. Any liabilities or obligations relating to the Excluded Assets;

(b) Debt. Any debt or other obligations of any Selling Party related to borrowed money, including interest payable and prepayment or other penalties.

(c) Taxes. Any liability or obligation for any Tax of any Selling Party, including any Tax liability or obligation (i) with respect to a Selling Party’s business operations on, before or after the Closing Date, (ii) with respect to the ownership, possession, purchase, lease, sale, disposition, use or operation of any of the Purchased Assets at any time on or before the Closing Date, (iii) that results from the sale of the Purchased Assets under this Agreement or otherwise results from the consummation of the transactions described in this Agreement or (iv) with respect to Taxes of any Person for which any Selling Party is or may be liable under applicable law as a transferee or successor, by contract or otherwise;

(d) Employees and Seller Benefit Plans. Except as provided in Sections 1.4(d) and 7.2, all obligations with respect to the employment of the Persons employed by either Seller or by any Affiliate of a Seller with respect to a Seller’s business (“Business Employees”) or the cessation of such employment (including unfair labor practice charges, employment discrimination charges, wrongful termination claims, workers’ compensation claims, and any employment-related tort claims); and any AAI Benefit Plan or other benefit liabilities of either Seller;

(e) Fees and Expenses. Fees and expenses incurred in connection with the negotiation, execution, performance and delivery of this Agreement and the transactions described in this Agreement, including the fees and expenses of counsel, investment bankers, and brokers or finders fees, of any Person other than the Purchasing Parties;

(f) Environmental Liabilities. Any Environmental Liabilities or other obligation or responsibility of a Seller or any Affiliate of a Seller relating to environmental matters or arising out of or relating to the operation of the businesses of the Sellers or the ownership or operation of the Purchased Assets before the Effective Time;

(g) Certain Payables. Amounts reflected on AAI’s books and records as of the Effective Time as payables by a Seller to any stockholder, officer, director or Affiliate of a Seller;

(h) Product Liability. Any liability relating to products produced or in-process by a Seller before the Effective Time (other than obligations to repurchase or replace products under Section 1.4(c));

(i) Litigation. The Litigation described in Schedule 3.10;

(j) General Obligations. Except to the extent specifically assumed under Section 1.4, obligations and liabilities relating to events occurring before the Effective Time or arising from ownership or use of the Purchased Assets before the Effective Time or the conduct of the business of the Sellers before the Effective Time; and

(k) Other Liabilities. Any obligation or liability that is not specifically assumed by the Purchaser under Section 1.4.

ARTICLE II

PURCHASE PRICE AND PAYMENT

2.1 Pre-Closing Deliveries. At least two Business Days before the Closing Date, the Selling Parties shall deliver to the Purchasing Parties (a) an estimated statement of consolidated Working Capital of AAI as of the Closing Date (the "Preliminary Statement of Working Capital"), setting forth the Selling Parties' good faith estimate of each of the components making up, or expected to make up, the Working Capital as of the Closing Date and setting forth in reasonable detail the calculation of the Working Capital and (b) all necessary wire transfer account information necessary for the Purchasing Parties to pay the Closing Purchase Price pursuant to Section 2.2. For purposes of this Agreement, "Business Day" means any day of the year other than (y) any Saturday or Sunday; or (z) any other day on which banks located in Houston, Texas, are generally closed for business; and "Working Capital" means (i) Accounts Receivable, plus (ii) Inventory, minus (iii) Accounts Payable, minus (iv) accrued employee compensation payables, as such terms are used in the Closing Date Financial Statements. The consolidated Working Capital of AAI as of June 30, 2006, less $446,453.00, was $4,123,376.07 (the "Baseline Working Capital Amount"), and its calculation is set forth in Section 2.1 of the Disclosure Document. The Preliminary Statement of Working Capital shall be prepared using the same methodology as was used to prepare the calculation of the Baseline Working Capital Amount, except that the $446,453.00 will not be subtracted in determining Working Capital for purposes of the Preliminary Statement of Working Capital.

2.2 Determination of Purchase Price Payable at the Closing. If the Working Capital set forth in the Preliminary Statement of Working Capital exceeds the Baseline Working Capital Amount, then the Purchase Price payable at the Closing (the "Closing Purchase Price") shall be the sum of $58,000,000 and the amount of that excess. If the Working Capital set forth in the Preliminary Statement of Working Capital is less than the Baseline Working Capital Amount, then the Closing Purchase Price shall be $58,000,000 less the amount of that excess.

2.3 Payment of Purchase Price. On the Closing Date, in consideration for the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to the Purchaser pursuant to the terms of this Agreement, the Purchaser shall assume the Assumed Obligations and shall pay the Sellers the Closing Purchase Price, subject to the post-Closing adjustments described in Section 2.4. The Closing Purchase Price shall be paid as follows: The Purchaser shall pay $5,000,000.00 of the Closing Purchase Price by wire transfer of immediately available funds to the escrow account under the terms of the escrow agreement to be executed by the Parties and U.S. Bank, National Association, on the Closing Date, substantially in the form of Exhibit A (the "Escrow Agreement"); and the Purchaser shall pay BCGW $3,025,000.00 and AAI the remaining amount of the Closing Purchase Price, in each case by wire transfer of immediately available funds to the accounts specified by the Selling Parties pursuant to Section 2.1.

2.4 Purchase Price Adjustment.

(a) As soon as practicable, but not later than 30 days after the Closing Date, the Selling Parties shall provide the Purchasing Parties with (i) unaudited consolidated financial statements of AAI as of the Closing Date (the “Closing Date Financial Statements”), (ii) a statement of consolidated Working Capital of AAI as of the Closing Date (the “Statement of Working Capital”), setting forth a true, correct and complete description of each of the components making up the Working Capital as of the Closing Date and setting forth in reasonable detail the calculation of the Working Capital and (iii) a statement of earnings before income taxes, depreciation and amortization (“EBITDA”) of AAI, on a consolidated basis, for the 12-month period ending December 31, 2006 (the “EBITDA Statement”), setting forth a true, correct and complete description of each of the components making up EBITDA as of December 31, 2006 and setting forth in reasonable detail the calculation of EBITDA as of December 31, 2006. The Statement of Working Capital and the EBITDA Statement shall be based on a consolidated balance sheet of AAI prepared in accordance with generally accepted accounting principles applied in a consistent manner throughout the period specified (“GAAP”) using the same methodology as was used to prepare the AAI Financial Statements, subject to the provisions of Section 7.2, and the Preliminary Statement of Working Capital (including with respect to the $446,453.00) without regard to any effects of the transactions related to the Closing. The Purchasing Parties and their independent auditors and other representatives shall have the right to review and to verify the Statement of Working Capital and the EBITDA Statement when received, and the Selling Parties shall provide the Purchasing Parties with access to all related working papers.

(b) The Purchasing Parties shall have 30 days following receipt by them of the Statement of Working Capital and the EBITDA Statement during which to dispute the Statement of Working Capital and the EBITDA Statement. The Purchasing Parties shall notify the Selling Parties of any dispute regarding those statements by delivering written notice to the Selling Parties, which shall specifically describe each line item of the Statement of Working Capital and the EBITDA Statement in dispute and the reasons for the dispute. If the Purchasing Parties fail to notify the Selling Parties in writing of any such dispute within that 30-day period, the Statement of Working Capital and the EBITDA Statement shall be final and binding on both the Purchasing Parties and the Selling Parties and shall be the “Final Statement”. If the Purchasing Parties timely notify the Selling Parties of a dispute, and the Selling Parties and the Purchasing Parties cannot resolve the dispute within 20 days after receipt by the Selling Parties of the notice, the dispute shall be resolved by an independent accounting firm mutually agreed to by Maxco and Quanex (the “Independent Accounting Firm”). Maxco and Quanex shall cause the Independent Accounting Firm to make its determination as promptly as practicable and in any event within 45 days after the submission of the dispute to the Independent Accounting Firm. The determination of the Independent Accounting Firm shall be limited only to the matters in dispute and shall be final and binding on all Parties. The fees and expenses of the Independent Accounting Firm shall be shared equally by the Purchasing Parties, on the one hand, and the Selling Parties, on the other hand. In the event of a dispute, the Statement of Working Capital and the EBITDA Statement, as modified in writing by the Purchasing Parties and the Selling Parties, or by the Independent Accounting Firm, shall be the “Final Statement”.

(c) If the Working Capital as of the Closing Date, as set forth in the Final Statement, exceeds the Working Capital set forth in the Preliminary Statement of Working Capital, then the Closing Purchase Price, as adjusted pursuant to this Section 2.4(b) (the “Adjusted Purchase Price”) shall be increased by that excess. If the Working Capital, as set forth in the Final Statement, is less than the Working Capital set forth in the Preliminary Statement of Working Capital, then the Adjusted Purchase Price shall be decreased by that deficit. Furthermore, if the EBITDA as of December 31, 2006, as set forth in the EBITDA Statement, is less than $9,600,000 (after adding back any adjustment included in the Final Statement related to the vacation policy amendment by AAI described in Section 7.2), then the Purchase Price shall be decreased by that deficit, but there shall be no further adjustment to the Adjusted Purchase Price if the EBITDA exceeds $9,600,000. After the adjustments described in this Section 2.4(c), if the Adjusted Purchase Price exceeds the Closing Purchase Price, then the Purchasing Parties shall pay the Sellers an amount equal to that excess, and if the Adjusted Purchase Price is less than the Closing Purchase Price, then the Selling Parties shall pay the Purchaser an amount equal to that deficit.

(d) Any payment to be made pursuant to Section 2.4(c) shall be made by wire transfer of immediately available funds within five Business Days after the date on which the Statement of Working Capital and the EBITDA Statement become the Final Statement (either upon expiration of the 30-day period referred to in Section 2.4(b) or resolution of any dispute with respect to the Statement of Working Capital or the EBITDA Statement), in an amount determined pursuant to Section 2.4(c), together with interest on that amount from the Closing Date through the date the payment is made, at the average prime lending rate for the 30-day period before the date of the payment as announced by Citibank, N.A.

(e) From and after the Closing Date, the Purchaser will cooperate with the Selling Parties in the preparation of the Closing Date Financial Statements and the Statement of Working Capital and will permit Transferred Employees having primary responsibility for the preparation of financial statements to assist the Selling Parties in the preparation of the Closing Date Financial Statements and the Statement of Working Capital. The Selling Parties shall be responsible for the costs and expenses of the preparation of the Closing Date Financial Statements and Statement of Working Capital and shall reimburse the Purchasers for any costs or expenses incurred by the Purchasing Parties in connection with their obligations under this Section 2.4(e), including reimbursement for overhead expenses allocable to those obligations. For purposes of the foregoing sentence, overhead expenses shall include compensation paid or payable to a Purchasing Party’s employees (including employee benefits).

2.5 Allocation of Purchase Price. The Adjusted Purchase Price and the Assumed Obligations shall be allocated among the Purchased Assets as set forth in Section 2.5 of the Disclosure Document for all Tax purposes. This allocation shall be appropriately adjusted to reflect any increase or decrease in the Purchase Price under Section 2.5. The Parties shall use this allocation for all Tax purposes. Each of the Parties shall file Internal Revenue Service Form 8594 with its applicable federal income Tax Return (or the federal income Tax Return of the consolidated group) as required by Law. Each of the Selling Parties, on the one hand, and the Purchasing Parties, on the other hand, shall provide the other with such assistance as is reasonably necessary to satisfy its reporting obligations under Section 1060 of the Internal Revenue Code of 1986, as amended through the date of this Agreement, and the related Treasury Regulations (the “Code”), including as a result of adjustments to the Closing Purchase Price under Section 2.4. For purposes of this Agreement, “Treasury Regulations” means the income tax regulations, including temporary regulations, promulgated under the Code. If any Party receives a notice from a Governmental Authority disputing its allocation of the Adjusted Purchase Price and the Assumed Obligations, the Party receiving the notice shall promptly notify the other Parties and forward to the other Parties copies of all correspondence with the Governmental Authority in respect of the disputed allocation.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES

Each of the Selling Parties represents and warrants to the Purchasing Parties as set forth below in this Article III, as of the date of this Agreement and as of the Closing Date. For purposes of this Section III, “Knowledge” of the Selling Parties means the actual knowledge of each Person listed in Section 3 of the Disclosure Document and such facts and other matters as any of those Persons should reasonably be aware of in light of that Person’s position with a Selling Party and upon reasonable inquiry of the personnel of the Selling Parties.

3.1 Existence and Good Standing. Each of the Selling Parties is a corporation duly organized, validly existing and in good standing under the laws of Michigan. Each of the Sellers has all requisite corporate power and authority to own, lease and operate its assets and to conduct its business as it is currently conducted, and is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which its assets are owned, leased or operated by it or the nature of the operation of its business requires it to qualify to transact business as a foreign corporation. The jurisdictions in which each Seller is so qualified are set forth in Section 3.1 of the Disclosure Document.

3.2 Due Authorization. Each of the Selling Parties has all requisite corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions described in this Agreement and the Ancillary Agreements. For purposes of this Agreement, “Ancillary Agreements” shall mean the Assignment and Assumption Agreement, the Bill of Sale, the General Warranty Deeds, the Escrow Agreement and all other documents to be delivered pursuant to the terms of this Agreement or the terms of any of the aforementioned agreements. Except for approval by the stockholders of Maxco (the “Stockholder Approval”), the execution, delivery and performance by each of the Selling Parties of this Agreement and the Ancillary Agreements to which it is a party and the consummation by each of the Selling Parties of the transactions described in this Agreement and the Ancillary Agreements have been duly and validly authorized by all necessary corporate action on the part of the Selling Parties and no other corporate actions or proceedings on the part of any Selling Party are necessary to authorize the execution, delivery and performance by each of the Selling Parties of this Agreement and the Ancillary Agreements to which it is a party or the transactions described in this Agreement and the Ancillary Agreements. Each of the Selling Parties has duly and validly executed and delivered this Agreement and has duly and validly executed and delivered (or before or at the Closing shall duly and validly execute and deliver) the Ancillary Agreements to which it is a party. This Agreement constitutes, and upon execution and delivery (assuming due execution and delivery by all other applicable Parties), the Ancillary Agreements to which each Selling Party is a party shall constitute, legal, valid and binding obligations of that Selling Party, enforceable against it in accordance with their terms, except as may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws in effect that affect creditors’ rights generally; or (b) principles of equity, including legal or equitable limitations on the availability of specific remedies.

3.3 Corporate Organization. Maxco owns all of the outstanding capital stock of AAI. AAI owns all of the outstanding capital stock of BCGW. AAI’s only subsidiary is BCGW, and AAI is not a partner, member or holder of any equity interest of any other Person. BCGW has no subsidiaries and is not a partner, member or holder of any equity interest of any other Person.

3.4 Consents. Except for the Stockholder Approval, the Consents described in Section 3.4 of the Disclosure Document or as set forth in Section 4.3 of the Disclosure Document, no consent, authorization, order or approval of, or filing or registration with, or notification to any Person (“Consent”) is required in connection with the execution, delivery and performance of this Agreement and the Ancillary Agreements by the Selling Parties, the consummation of the transactions described in this Agreement or the Ancillary Agreements or the conduct of the businesses of the Sellers after the Closing in substantially the same manner presently conducted.

3.5 Absence of Conflicts. Neither the execution and delivery of this Agreement or any of the Ancillary Agreements to which a Selling Party is a party, nor the consummation of the transactions (subject to obtaining Consents described in Section 3.4) described in this Agreement or the Ancillary Agreements, will result in the creation of, or adverse change in, any Encumbrance on any of the Purchased Assets or violate, conflict with or result in the breach of (a) the charter, bylaws or other organizational documents of a Selling Party; or (b) any judgment, decree or order of any Governmental Authority to which a Selling Party is subject or by which a Selling Party or the business or assets of a Selling Party are bound; (c) any requirements of Laws applicable to a Selling Party or to the business or the assets of a Selling Party; (d) any Contracts to which a Selling Party is a party or by which the business or assets of a Selling Party are bound or (e) any Permit or AAI Benefit Plan. For purposes of this Agreement, “Governmental Authority” means the government of the United States or any other country, or any state, provincial, county, city, township or other political subdivision of the United States or any other country, and any entity, body, court or other authority exercising executive, legislative, judicial, regulatory, taxing or administrative functions of, or pertaining to, government; “Law” means any law, statute, code (including the Code), regulation, ordinance, or rule enacted or promulgated by any Governmental Authority and shall include the prevailing judicial or administrative interpretation of any of the foregoing; and “Permits” means permits, tariffs, authorizations, licenses, certificates, variances, consents, interim permits, approvals, franchises and rights under any Law or otherwise issued or required by any Governmental Authority and any applications for any of the foregoing that are required by Law for the Sellers to engage in their businesses.

3.6 Financial Statements. Section 3.6 of the Disclosure Document sets forth true, complete and correct copies of (a) the audited consolidated balance sheet of AAI as of March 31, 2006, and the related statements of income and cash flow for the year ended March 31, 2006, and (b) the unaudited consolidated balance sheet of AAI as of October 31, 2006, and the related statements of income and cash flow for the seven months ended October 31, 2006 (the “AAI Financial Statements”). The Baseline Working Capital Amount and the AAI Financial Statements have been prepared in accordance with GAAP and fairly present the financial position of the Sellers as of their dates and the results of operations for the periods covered by them. The unaudited financial statements referred to in the first sentence of this Section 3.6 and the Baseline Working Capital Amount have been prepared on a basis consistent with the audited financial statements referred to in that sentence and the audited financial statements of Maxco contained in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on July 14, 2006. Since March 31, 2006, there has been no material adverse change to the financial condition, results of operations, business, properties, assets or liabilities of either Seller or the business of either Seller.

3.7 Title to Assets.

(a) Except as set forth in Section 3.7(a) of the Disclosure Document and other than the Owned Real Property, which is addressed in Section 3.7(b), AAI or BCGW (as applicable) has, and as of the Effective Time the Purchaser shall have, good, valid and marketable title to all of the Purchased Assets free and clear of all Encumbrances, other than Permitted Encumbrances. For purposes of this Agreement, "Encumbrance" means any charge, claim, condition, equitable interest, lien, option, pledge, security interest, mortgage, judgment, attachment, restriction on transfer, right of way, easement, encroachment, servitude, right of first option, right of first refusal, or similar restriction or encumbrance, and "Permitted Encumbrance" means (i) liens of mechanics, carriers, workmen or repairmen or other like liens arising or incurred in the ordinary course of business that have not yet become due and payable; (ii) liens for Taxes, assessments and other governmental charges that are not due and payable or that may be paid without penalty; (iii) other ordinary imperfections of title that do not have a material adverse effect on the assets as to which the imperfection of title applies; and (iv) those Encumbrances specifically identified in Section 3.7(a) of the Disclosure Document as permitted encumbrances.

(b) Except as set forth in Section 3.7(b) of the Disclosure Document, the only real property now or in the past owned or leased (as lessor or as lessee) by AAI, or now or within the last nine years owned or leased (as lessor or lessee) by BCGW, is the Owned Real Property. Either AAI or BCGW (as applicable) has good, valid and marketable fee title to the Owned Real Property, free and clear of all Encumbrances, other than Permitted Encumbrances. Except for AAI or BCGW, as applicable, there are no persons in possession or occupancy of any part of the Owned Real Property or the Facilities, or who have possessory rights with respect to any part of the Owned Real Property or the Facilities. None of the Selling Parties has received any notice of any alleged violations of or liability under any applicable Law within the last nine years with respect to any part of the Owned Real Property or the Facilities or the operation of any part of the Owned Real Property or the Facilities, except as described in Section 3.16 of the Disclosure Document. There is no existing, pending or, to the Knowledge of the Selling Parties, threatened or anticipated, condemnation or other taking of all or any part of the Owned Real Property or the Facilities. Except for the lease agreements between AAI and BCGW as to the Owned Real Property, true and correct copies of which have been provided to the Purchasing Parties, neither Seller is a party to any lease or rental agreement with respect to any real property (whether as lessee or lessor) or any buildings, structures, improvements, plants, offices, facilities, or fixtures located on any real property.

(c) There is no existing Contract with, option or right of, or commitment to any Person to acquire any of the Purchased Assets or any interest in any of the Purchased Assets other than Contracts entered into in the ordinary course of business consistent with past practices for the sale of Inventory.

3.8 Compliance with Laws; Permits. Section 3.8 of the Disclosure Document sets forth a list entitled Permits which contains a list of all Permits currently held by (a) a Seller or (b) any other Person with respect to the business of either Seller. Each Permit described in Section 3.8 of the Disclosure Document is valid and current. There has been no violation of any of the requirements pertaining to those Permits. Neither the execution and delivery of this Agreement nor, subject to either obtaining the Consents described in Section 3.4 for the transfer or reissuance of the Permits, the consummation of the transactions described in this Agreement will cause any of the Permits described in Section 3.8 of the Disclosure Document to terminate, to become null or void, or to be otherwise adversely affected. All Permits necessary to conduct the businesses of the Sellers have been acquired and are in full force and effect. Except as set forth in Section 3.8 of the Disclosure Document, to the Selling Parties’ Knowledge, the businesses of the Sellers are, and for the last nine years have been conducted in compliance with all applicable Laws. Except as set forth in Section 3.8 of the Disclosure Document, to the Selling Parties’ Knowledge, all required action to be in compliance with all applicable Laws has been completed to the extent that at any time in the past the businesses of the Seller have not been in compliance with all applicable Laws. No currently existing condition, circumstance or event reasonably could be expected to result in any future expenditure to maintain those businesses in compliance with requirements of Law.

3.9 Taxes.

(a) All Taxes (whether or not shown on any Tax Return) relating to the Purchased Assets that are due and payable have been or will be paid in full on or before the Closing Date. Except for Permitted Encumbrances, (i) there are no Encumbrances for Taxes on any of the Purchased Assets and (ii) no claim for unpaid Taxes has been made by any Governmental Authority that could give rise to any such Encumbrance. For purposes of this Agreement, “Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means (a) all federal, state, provincial, county, local or foreign taxes, charges, fees, duties (including customs duties), levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, gains, use, franchise, excise, value added, alternative, add-on minimum, stamp, leasing, lease, user, transfer, fuel, excess profits, occupational, interest equalization, windfall profits, license, payroll, environmental, capital stock, disability, severance, employee’s income withholding, other withholding, unemployment and Social Security taxes, which are imposed by any Governmental Authority, including any interest, penalties, fines or additions to tax attributable to or associated with any of the foregoing (whether or not disputed); (b) any liability for the payment of any item described in clause (a) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, including pursuant to Treasury Regulations Section 1.1502-6 or any other analogous or similar law; (c) any liability for the payment of an item described in clause (a) or (b) of this definition as a result of any express or implied obligation to indemnify any Person as a result of any obligation under any agreements or arrangements with any Person with respect to such item; and (d) any successor liability for the payment of any item described in clause (a), (b) or (c) of this definition, including by reason of being a party to any merger, consolidation, conversion or otherwise; and “Tax Return” means any report, return (including any information return), statement, form, declaration, election certificate or other document or information filed with, submitted to, or required to be filed with or submitted to any Governmental Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law relating to any Tax.

(b) The Selling Parties have withheld or collected and paid over to the appropriate Governmental Authority all Taxes required by applicable Law to be withheld or collected by them and have properly received and maintained any and all certificates, forms and other documents required by applicable Law for any exemption from withholding and remitting any Taxes.

(c) Except as disclosed in Section 3.9 of the Disclosure Document, no Selling Party is under audit or examination by any Governmental Authority with respect to any Tax relating to the Purchased Assets, and no notice of such an audit or examination has been received, and the Selling Parties have no Knowledge of any threatened audits, investigations or claims for or relating to such Taxes.

(d) None of the Assumed Obligations includes: (i) an obligation to make a payment to any Person under any Tax allocation or Tax-sharing agreement; (ii) an obligation to pay the Taxes of any Person as a transferee or successor, by Contract or otherwise, including an obligation under Treasury regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law); (iii) an obligation under any record retention, transfer pricing, closing or other agreement or arrangement with any Governmental Authority that will survive the Closing or impose any liability on any Purchasing Party after the Closing; or (iv) an obligation under any Contract to indemnify, gross up or otherwise compensate any Person, in whole or in part, for any excise Tax under Section 4999 of the Code that is imposed on such Person or any other Person.

(e) None of the Purchased Assets is property that is treated or will be required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Code (as in effect before amendment by the Tax Reform Act of 1986) or is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

(f) None of the Purchased Assets includes any stock, partnership interests, limited liability company interests, legal or beneficial interests or any other equity interests in or of any Person, and none of the Purchased Assets is subject to any Tax partnership Contract or other Contract requiring a partnership income Tax Return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code.

(g) No Selling Party is a “foreign person” within the meaning of Section 1445 of the Code.

3.10 Litigation. Except for those matters described in Section 3.10 of the Disclosure Document, there is no legal, administrative or arbitration proceeding, suit, action, claim, order, investigation, inquiry, judgment, writ, injunction, award, judgment or decree in, by or before any Governmental Authority (“Litigation”) pending or, to the Knowledge of the Selling Parties, threatened or contemplated against a Selling Party with respect to the businesses of the Sellers. None of the Litigation described in Section 3.10 of the Disclosure Document could reasonably be expected to have an effect on the businesses of the Sellers or any of the Purchased Assets that could (a) enjoin, restrict or prohibit the transfer of any of the Purchased Assets, (b) prevent a Selling Party from fulfilling all of its obligations set out in this Agreement or arising under this Agreement or any Ancillary Agreement, or (c) reasonably be expected to result in a Material Adverse Effect. For purposes of this Agreement, “Material Adverse Effect” means any event, circumstance, change or effect that has a material and adverse effect on the business, operations or financial condition of the Sellers, taken as a whole.

3.11 Brokers. None of the Selling Parties nor any Affiliate of a Selling Party has used any broker or finder other than GBQ Consulting LLC, in connection with the transactions described in this Agreement. Neither of the Purchasing Parties nor any Affiliate of a Purchasing Party shall have any liability or otherwise suffer or incur any Loss as a result of or in connection with any brokerage or finder’s fee or other commission of any Person retained by any of the Selling Parties or any Affiliate of a Selling Party in connection with any of the transactions described in this Agreement or any of the Ancillary Agreements. For purposes of this Agreement, “Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, owns or controls, is under common ownership or control with, or is owned or controlled by, the specified Person. Without limiting the generality of the foregoing, a Person shall be deemed to “own” another Person if it owns, directly or indirectly, more than 50% of the capital stock or other equity interest of the other Person generally entitled to vote, without regard to specified contingencies, for the election of directors or equivalent governing body of the other Person.

3.12 Contracts.

(a) All Material Contracts relating to the businesses conducted by the Sellers to which a Seller is a party are listed in Section 3.12 of the Disclosure Document. To the Knowledge of the Selling Parties, there are no Material Contracts to which neither Seller is a party but as to which either Seller is a third-party beneficiary. A “Material Contract” means a Contract (i) the term of which extends beyond the one-year anniversary date of this Agreement; (ii) that obligates either Seller to future expenditures of $50,000 or more (or assets having that value); (iii) that entitles either Seller to future receipts of $50,000 or more (or assets having that value); or (iv) the lack of which would have a Material Adverse Effect.

(b) Each Material Contract is in full force and effect and is the valid and binding obligation of either Seller, as applicable, and, to the Knowledge of the Selling Parties, the other parties to it. Neither Seller, and, to the Knowledge of the Selling Parties, no other party to any Material Contract is in breach of any Material Contract and no default exists under any Material Contract. The Selling Parties have provided the Purchasing Parties with true, complete and correct copies of or access to all written Material Contracts and all extensions, amendments and schedules to them and a written description of all Material Contracts that are not in writing. Except for the AAI Benefit Plans, neither Seller has any Contract with any director, officer, employee or Affiliate of either Seller or of any Affiliate of either Seller. Neither Seller has affirmatively waived any right under any Material Contract. Each Seller is in substantial compliance with all purchase orders and sales orders to the extent it is obligated to perform under those orders. Neither Seller has, expressly or by operation of law, assumed or undertaken any liability of any other Person.

3.13 Employment Matters.

(a) Section 3.13(a) of the Disclosure Document sets forth a true and correct list of each Business Employee, together with each Business Employee’s title or job description, work location and annual salary or hourly wage rate as of the date of this Agreement.

(b) Except as set forth in Section 3.13(b) of the Disclosure Document:

(i) Neither Seller is a party to any collective bargaining or similar agreement with respect to Business Employees.

(ii) Each Seller and each Affiliate of a Seller is in substantial compliance with all Laws applicable to the businesses of the Sellers or the Business Employees with respect to employment and employment practices, terms and conditions of employment, wages and hours, and occupational safety and health, and is not engaged in any unfair labor or unfair employment practices.

(iii) There is no unfair labor practice charge or complaint against either Seller or any Affiliate of either Seller involving or related to Business Employees pending (with service of process having been made, or written notice of investigation or inquiry having been served, on a Selling Party or any Affiliate of a Selling Party), or to the Knowledge of the Selling Parties threatened (or pending without service of process having been made, or written notice of investigation or inquiry having been served, on a Selling Party or any Affiliate of a Selling Party), before the National Labor Relations Board or any court.

(iv) There is no labor strike, or other material dispute, slowdown or stoppage pending against either Seller or an Affiliate of a Seller involving or related to any Business Employee.

(v) No union certification or decertification petition has been filed (with service of process having been made on either Seller or any Affiliate of a Seller), or to the Knowledge of the Selling Parties threatened (or pending without service of process having been made on either Seller or any Affiliate of a Seller), that relates to Business Employees, and no union authorization campaign has been conducted, in each case, within the past 24 months.

(vi) No grievance proceeding or arbitration proceeding arising out of or under any collective bargaining agreement is pending (with service of process having been made on either Seller or any Affiliate of either Seller), or to the Knowledge of the Selling Parties threatened (or pending without service of process having been made on a Seller or any Affiliate of a Seller), against either Seller or any Affiliate of a Seller involving or related to any Business Employee.

(vii) There are no charges, investigations, administrative proceedings or formal complaints of discrimination (including discrimination based on sex, sexual harassment, age, marital status, race, national origin, sexual preference, handicap, disability or veteran status) pending (with service of process having been made, or written notice of investigation or inquiry having been served, on either Seller or any Affiliate of a Seller), or to the Knowledge of the Selling Parties threatened (or pending without service of process having been made, or written notice of investigation or inquiry having been served, on a Seller or any Affiliate of a Seller), before the Equal Employment Opportunity Commission or any federal, state or local agency or court against a Seller or any Affiliate of a Seller involving or related to any Business Employee.

(viii) There are no charges, investigations, administrative proceedings or formal complaints of overtime or minimum wage violations involving the business of either Seller pending (with service of process having been made, or written notice of investigation or inquiry having been served on either Seller or any Affiliate of a Seller), or to the Knowledge of the Selling Parties threatened (or pending without service of process having been made, or written notice of investigation or inquiry having been served, on either Seller or any Affiliate of a Seller), before the Department of Labor or any other Governmental Authority.

(ix) There are no citations, investigations, administrative proceedings or formal complaints of violations of local, state or federal occupational safety and health laws pending (with service of process having been made, or written notice of investigation or inquiry having been served, on either Seller or any Affiliate of a Seller), or to the Knowledge of the Selling Parties pending without service of process having been made, or written notice of investigation or inquiry having been served, on either Seller or any Affiliate of a Seller before the Occupational Safety and Health Administration or any Governmental Authority against either Seller or any Affiliate of either Seller involving or related to the businesses of the Sellers.

(c) The businesses of the Sellers have employees sufficient to operate those businesses in the ordinary course consistent with past practices. During the last year, other than changes in the ordinary course of operation of the business of each of the Sellers, consistent with past practices, no material changes have occurred in the work force of those businesses, including material employee terminations, employee transfers in or out, employee leasing arrangements, secondments, reallocations of duties and outsourcing of duties or functions.

3.14 Employee Benefit Matters.

(a) Section 3.14 of the Disclosure Document sets forth a true, complete and accurate list of all AAI Benefit Plans. The Selling Parties have delivered to or made available for review by the Purchasing Parties, a complete and accurate copy of (i) each AAI Benefit Plan, (ii) the trust, group annuity Contract or other document that provides the funding for each AAI Benefit Plan, (iii) the three most recent annual Form 5500 reports for each AAI Benefit Plan, (iv) the most current summary plan description, booklet, or other descriptive written materials, and each summary of material modifications prepared after the last summary plan description for each AAI Benefit Plan, (v) the most recent IRS determination letter and all rulings or determinations requested from the IRS after the date of that determination letter with respect to each AAI Benefit Plan, (vi) the most recent statement filed with the Department of Labor pursuant to 29 U.S.C. § 2520.104-23 with respect to each AAI Benefit Plan, (vii) if applicable, a written summary of the legal basis for an exemption from the obligation to file annual Form 5500 reports with respect to each AAI Benefit Plan and (viii) all other correspondence from the Internal Revenue Service or the Department of Labor received by a Selling Party that relates to any AAI Benefit Plan with respect to any matter, audit or inquiry that is pending. For purposes of this Agreement, “AAI Benefit Plan” shall mean (a) any employee welfare benefit plan or employee pension benefit plan as defined in sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including a plan that provides retirement income or results in deferrals of income by employees for periods extending to their terminations of employment or beyond, and a plan that provides medical, surgical or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment and (b) any other employee benefit agreement or arrangement that is not an ERISA plan, including any deferred compensation plan, incentive plan, bonus plan or arrangement, stock option plan, stock purchase plan, stock award plan, golden parachute agreement, severance pay plan, dependent care plan, cafeteria plan, employee assistance program, scholarship program, employment contract, retention incentive agreement, noncompetition agreement, consulting agreement, confidentiality agreement, vacation policy, or other similar plan, agreement or arrangement that is maintained by a Seller, was maintained by a Seller within three years of the date of this Agreement or has been approved by a Seller but is not yet effective, for the benefit of one or more Business Employees or their beneficiaries. No Selling Party is required to file any 990 or 1041 reports with respect to any AAI Benefit Plan.

(b) No Seller has any liability for any failure to operate and administer any AAI Benefit Plan in compliance with its provisions and applicable Law. There is no litigation, action, legal proceeding, investigation or claim asserted or, to the Knowledge of the Selling Parties, threatened or contemplated, with respect to any AAI Benefit Plan (other than the payment of benefits in the normal course).

(c) All AAI Benefit Plans that are intended and required to qualify under Section 401(a) of the Code, as identified in Section 3.14 of the Disclosure Document, either (i) have been determined by the IRS to be qualified under Section 401(a) of the Code or (ii) have applicable remedial amendment periods that will not have ended before the Closing. No facts have occurred that if known by the Internal Revenue Service could reasonably be expected to result in the disqualification of any of those plans.

(d) No pension benefit plan (as defined in Section 3(2) of ERISA) that is maintained or contributed to by a Seller or any ERISA Affiliate of a Seller or with respect to which a Seller or an ERISA Affiliate of a Seller may have any liability had an accumulated funding deficiency as defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, as of the last day of the most recent fiscal year of the plan ending on or before the Closing Date. For purposes of this Agreement, “ERISA Affiliate” means the Sellers and all other trades or businesses, whether or not incorporated, which together with the Sellers would be deemed a “single employer” within the meaning of Section 414(b), (c) or (m) of the Code.

(e) Neither Seller nor any entity that was at any time during the last six years an ERISA Affiliate of a Seller has ever maintained, contributed to, had an obligation to contribute to, or incurred any liability with respect to a plan that is or was either (i) a pension benefit plan (as defined in Section 3(2) of ERISA) that is or was subject to Title IV of ERISA, or (ii) a multiemployer plan (as defined in Section 3(37) of ERISA).

(f) No employee welfare benefit plan (as defined in Section 3(1) of ERISA) maintained by any of the Selling Parties provides medical, surgical, hospitalization or life insurance benefits (whether or not insured by a third party) for employees or former employees of either Seller for periods extending beyond their retirements or other terminations of service, other than coverage mandated by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”); and neither Seller has made any commitment to provide retiree medical, surgical, hospitalization or life insurance coverage for any current or former employee or directors of either Seller (except as required by COBRA). To the extent applicable, all AAI Benefit Plans have been operated in compliance with COBRA, and the Selling Parties (or one of their ERISA Affiliates) intends to continue to maintain a group health plan as defined in Section 5000(b) of the Code other than a flexible spending account arrangement described in Section 125 of the Code and the Treasury Regulations (“Group Health Plan”) after the Closing.

3.15 Intellectual Property.

(a) Except as set forth in Section 3.15 of the Disclosure Document, each Seller owns, or possesses legally enforceable rights to use, free and clear of all Encumbrances, all Intellectual Property used in connection with its business (“AAI Intellectual Property”). For purposes of this Agreement, “Intellectual Property” shall mean intellectual property of every kind and nature, including all inventions, information, data, samples, formulae, specifications, plans, drawings, blueprints, compositions, processes, designs, technology, know-how, confidential information and trade secrets (whether or not patentable or reduced to practice), confidential or proprietary technical and business information, computer software, domain names, United States and foreign patents and petty patents (including continuations, continuations-in-part, divisions, reissues, re-examinations, extensions and renewals), patent applications, registered and unregistered trade names, brand names, trademarks, service names, service marks, logos and designs (and applications for registration of the same), all goodwill symbolized by or associated with any of them, copyrights and copyright registrations (and applications for the same), extensions, renewals of United States and foreign registrations and applications to register copyrights, technical manuals and documentation made or used in connection with any of the foregoing, and any and all rights associated therewith. Section 1.1(e) of the Disclosure Document sets forth an accurate and complete list of (i) all patents and patent applications and all registered and unregistered trademarks, trade names and service marks, registered copyrights and domain names owned by either Seller and used in the operation of its business (“Registered Intellectual Property”), (ii) all licenses, sublicenses and other agreements pursuant to which any Person is authorized to use any of the AAI Intellectual Property and (iii) all licenses, sublicenses and other agreements pursuant to which either Seller is authorized to use any Person’s Intellectual Property in its business (other than commercial software).

(b) To the Knowledge of the Selling Parties, the operation of the businesses of the Sellers, including the design, development, use, import, manufacture and sale of the products, technology and services of the Sellers in their businesses, does not infringe on or misappropriate the Intellectual Property of any other Person, and there is no claim, notice, suit, demand or action of any nature currently pending or, to the Knowledge of the Selling Parties, threatened, alleging unauthorized use, disclosure, infringement, misappropriation or other violation by either Seller of any Intellectual Property of any other Person.

(c) Neither Seller has entered into any arrangements granting rights in the AAI Intellectual Property to any Person. To the Knowledge of the Selling Parties, there is no unauthorized use, disclosure, infringement or misappropriation of any of the AAI Intellectual Property or breach of any Contract involving the AAI Intellectual Property, and there are no pending, or to the Knowledge of the Selling Parties, threatened claims, suits, demands or actions of any nature affecting the AAI Intellectual Property. Neither Seller has brought any action, suit or proceeding or asserted any claim against any Person for interfering with, infringing on, misappropriating or otherwise coming into conflict with any Intellectual Property or breach of any license or agreement involving any Intellectual Property.

3.16 Environmental. Except as set forth in Section 3.16 of the Disclosure Document:

(a) Each of the Sellers is operating, and in the past has operated, its business in material compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements and obligations established under all Laws relating to (a) pollution, (b) protection of the environment (including air, water or land) or human health, (c) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation, and (d) the regulation of or liability for omissions into the environment, or the cleanup of contamination or exposure to any toxic agent. Including the following statutes and related regulations: the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 11011 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., and any Law similar to those statutes and related regulations (“Environmental Laws”).

(b) Each of the Sellers has obtained all Permits required by Environmental Laws to operate its business in the manner it is currently being operated. All of those Permits are validly issued and in good standing. To the Knowledge of the Selling Parties, each of the Sellers is in compliance with those Permits, and all of those Permits can be transferred or reissued to the Purchaser in a manner that allows the Purchaser to continue to operate the businesses of the Sellers after the Closing in compliance with Environmental Laws.

(c) To the Knowledge of the Selling Parties, there are no requirements under Environmental Laws that will obligate the Purchaser, or conditions that will cause the Purchaser to be obligated, to make capital improvements to any of the Purchased Assets or incur other significant expenses with respect to the Purchased Assets or the businesses of the Sellers in order to remain, or to operate the businesses of the Sellers (as they are currently being operated), in compliance with Environmental Laws.

(d) To the Knowledge of the Selling Parties, and except as in compliance with Environmental Laws, there are no Hazardous Substances at, in, under or migrating from any of the Purchased Assets that, because of their nature or quantity, (i) create a risk of exposure to Hazardous Substances that is or reasonably could be expected to be deleterious to human health, (ii) create a risk of damage to natural resources or the environment, or (iii) are required to be removed, abated or remediated under Environmental Laws or could reasonably be expected to result in any cleanup required under Environmental Laws. For purposes of this Agreement, “Hazardous Substances” shall mean (a) any substance, material, form of energy or pathogen that (i) is listed, defined or otherwise designated as a “hazardous substance” under Section 101(14) of CERCLA, (ii) constitutes a “hazardous substance” as defined by 1994 PA 451, MCL 324.20101, as amended, “hazardous waste” as defined by the Resource Conservation and Recovery Act, as amended, or “pollutant”, “contaminant”, “hazardous material”, “hazardous chemical”, “toxic air contaminant”, or “regulated substance” within the meaning of any applicable Environmental Law, or (iii) is otherwise regulated or controlled by, or that otherwise gives rise to liability under, any applicable Environmental Law; (b) any substance that contains petroleum or any petroleum product; (c) any radioactive material or substance that contains urea formaldehyde, asbestos or polychlorinated biphenyls; and (d) any substance that is flammable, explosive or corrosive.

(e) There are no pending or, to the Knowledge of the Selling Parties, threatened actions, suits, claims, investigations, inquiries or proceedings by any Person or before any court or other Governmental Authority directed against a Seller, the business of a Seller or any of the Purchased Assets that pertain or relate to (i) any obligations or liabilities, contingent or otherwise, under any Environmental Law, (ii) violations or alleged violations of Environmental Laws, or (iii) personal injury or property damage claims relating to Hazardous Substances.

(f) Neither of the Sellers is operating or required to be operating its business or any of the Purchased Assets under any compliance or consent order, decree or agreement issued or entered into under Environmental Laws.

(g) To the Knowledge of the Selling Parties, no asbestos, asbestos containing materials or polychlorinated biphenyls are present at or in any of the Purchased Assets.

(h) There are no underground storage tanks located at or on any of the Purchased Assets.

(i) There are no Environmental Liabilities arising from or related to the Purchased Assets or the businesses of the Sellers that either of the Sellers has assumed, retained or otherwise agreed to, by Contract or otherwise. For purposes of this Agreement, “Environmental Liabilities” shall mean any and all Losses (including any remedial, removal, response, abatement, cleanup, investigation or monitoring costs and associated legal costs) incurred or imposed pursuant to (a) any agreement, order, notice of responsibility, directive (including directives embodied in Environmental Laws), injunction, judgment or similar document (including settlements) arising out of, in connection with, or under any Environmental Laws, or (b) any claim by a Governmental Authority or any other Person for personal injury, property damage, damage to natural resources, economic loss, remediation, or payment or reimbursement of response costs incurred or expended by the Governmental Authority or other Person, pursuant to common law or Law and related to the use or release of Hazardous Substances.

(j) The Selling Parties have provided the Purchasing Parties copies of all environmental audits, assessments, investigations or evaluations of the businesses of the Sellers or any of the Purchased Assets that are in the possession of or subject to the control of either of the Sellers or any Affiliate of a Seller.

3.17 Tangible Assets. The Tangible Assets listed in Section 1.1(a) of the Disclosure Document or subject to the equipment leases or other leases listed in Section 1.1(j) of the Disclosure Document constitute all of the Tangible Assets used in or considered part of the businesses of the Sellers. All Tangible Assets (except for uninstalled equipment identified as such in Section 1.1(a) of the Disclosure Document) that constitute part of the businesses of the Sellers (whether owned or leased by a Seller) are in normal operating condition and repair, subject to ordinary wear, tear and maintenance and to the Knowledge of the Selling Parties: (i) are operating and being used in compliance with the requirements of Law, and (ii) all required action to be in compliance with all requirements of Law has been completed to the extent that at any time in the past such Tangible Assets have not been operated or used in compliance with the requirements of Law.

3.18 Sufficiency of Assets. The Purchased Assets constitute all of the assets used in the businesses of the Sellers and are sufficient to operate the businesses of the Sellers as currently operated. No asset (whether tangible or intangible) used in the conduct of the businesses of the Sellers is owned by any other Person (other than a Seller or the lessor thereof with respect to any assets subject to equipment leases).

3.19 No Adverse Change. Except as set forth in Section 3.19 of the Disclosure Document, since March 31, 2006, no Seller has (a) except in the ordinary course of the businesses of the Sellers in connection with the sale of Inventory, sold, transferred, or otherwise disposed of, or agreed to sell, transfer, or otherwise dispose of, any of the assets of either Seller; (b) except in the ordinary course of the businesses of the Sellers in connection with the sale of Inventory, entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase any of the assets related to the businesses of the Sellers, or requiring the consent of any Person to the transfer or assignment of any assets relating to the businesses of the Sellers; (c) made or permitted any amendment or termination of any Contract or Permit relating to the businesses of the Sellers; (d) taken any action with respect to the payment of any dividends or other stockholder distributions by AAI to its stockholder or by BCGW to its stockholder in cash or property; (e) entered into any agreement or arrangement with any officers, directors, stockholders or Affiliates of any Selling Party; or (f) entered into any other transaction or taken any other action other than in the ordinary course of the business of the Sellers.

3.20 Insurance. Section 3.20 of the Disclosure Document sets forth a list of (a) all current insurance policies maintained by any Selling Party covering any employees or other agents of either Seller, the business of either Seller, or any of the Purchased Assets and (b) all unpaid or unsettled insurance claims made with respect to the businesses of the Sellers. Each of the Sellers has in place such insurance policies with respect to the Purchased Assets, the Sellers and the businesses of the Sellers as are normal and prudent in the industry, and all such policies are in full force and effect. All actual and estimated retroactive premium adjustments under any workers’ compensation policy of the Sellers have been recorded in the AAI Financial Statements.

3.21 Inventory. Section 3.21 of the Disclosure Document sets forth a list of all Inventory as of the date of this Agreement. All Inventory as of October 31, 2006 that is part of the AAI Financial Statements is reflected on the consolidated balance sheet of AAI as of October 31, 2006. All Inventory as of the Effective Time will, as of the Effective Time, be reflected on the books and records and in the Closing Date Financial Statements. All Inventory is valued at the lower of cost or market value. The Inventory as of the Effective Time will consist of items useable or saleable in the ordinary course of the businesses of the Sellers, except for customary amounts of raw materials that cannot be incorporated into finished products and items of obsolete materials and materials of below-standard quality that have been written off or written down to AAI’s best estimate of net realizable value. The Inventory does not include any materials held by either Seller on consignment from any Third Parties. All Inventory disposed of since October 31, 2006, has been disposed of only in the ordinary course of the businesses of the Sellers, consistent with the past practice of the Sellers. All Inventory as of the Effective Time will be free from any defect or other deficiency (based on industry standards for the grades and usage of raw materials) except for items of obsolete materials and materials of below-standard quality that have been written off or written down to AAI’s best estimate of net realizable value. The quantities of Inventory as of the Effective Time will be adequate to conduct the businesses of the Sellers under the current circumstances of the businesses of the Sellers. None of the Inventory is in the possession of others, except Inventory in transit to either Seller in the ordinary course of its business. The Inventory is not subject to any claim with respect to the use of materials held on consignment. All products manufactured (whether or not completed) or sold by a Seller before the Effective Time will be in compliance with all warranties with respect to that product.

3.22 Accounts Receivable. The Accounts Receivable reflected on the AAI Financial Statements are, and the Accounts Receivable that will be reflected on the Statement of Working Capital will be, valid and collectible using commercially reasonable collection practices, subject to normal market write-offs for bad debt consistent with past practices. Section 3.22 of the Disclosure Document sets forth a true and correct copy of the aging of the Accounts Receivable as of the date of this Agreement. All of those Accounts Receivable arose in the ordinary course of the businesses of the Sellers and none is subject to any Encumbrance (other than Permitted Encumbrances). Since March 31, 2006, there has not been any material adverse change in the collectibility of the Accounts Receivable, taken as a whole.

3.23 Books and Records. To the Knowledge of the Selling Parties, the Books and Records accurately and fairly reflect the transactions and the assets and liabilities of the Sellers.

3.24 No Material Adverse Effect. Except as set forth in Section 3.24 of the Disclosure Document, since March 31, 2006, there has not occurred (a) any Material Adverse Effect, (b) any material damage, destruction or loss with respect to the Purchased Assets or the businesses of the Sellers, (c) any material changes in terms of transactions between a Seller, on the one hand, and any Affiliate of a Seller, on the other hand, (d), any sale, assignment, transfer or acquisition (or Contract to do so) of any material operating asset of the business of either Seller or a cancellation of, or any agreement to cancel, any material debts or claims of the business of either Seller except, in each case, in the ordinary course of business, (e) any increase in the rate of compensation or benefits payable or to become payable by a Seller or any Affiliate of a Seller to any Business Employee over the rate being paid to the Business Employee at September 30, 2006 (other than increases in the ordinary course of business in accordance with past practices and other than bonus arrangements identified in Section 3.24 of the Disclosure Document as to which the Purchasing Parties will have no obligation), or any Contract to do so, or (f) any termination or material amendment of any Assigned Contract that has or is expected to result in a Material Adverse Effect.

3.25 Customers and Suppliers.

(a) Section 3.25(a) of the Disclosure Document sets forth (a) the names of all customers of each Seller that ordered goods or services from either Seller with an aggregate purchase price for each such customer of $200,000 or more during the 12-month period ended September 30, 2006, and (b) the amount for which each such customer was invoiced by a Selling Party during that period. As of the date of this Agreement and to the Knowledge of the Selling Parties, except as identified in Section 3.25(a) of the Disclosure Document, no such customer has notified a Selling Party or any Affiliate of a Selling Party that it (i) will materially reduce purchases of products from either Seller or (ii) has ceased, or will cease, to purchase products from either Seller.

(b) Section 3.25(b) of the Disclosure Document sets forth (a) the names of all suppliers from which each Seller ordered raw materials, supplies, merchandise, other goods or services with an aggregate purchase price for each such supplier of $50,000 or more during the 12-month period ended September 30, 2006, and (b) the amount for which each such supplier invoiced a Selling Party during that period. To the Knowledge of the Selling Parties, no such supplier has notified either Seller or any Affiliate of either Seller that it (i) will materially reduce the amount of raw materials or equipment available for purchase by either Seller, or (ii) has ceased, or will cease, to sell raw materials or equipment to either Seller.

3.26 Affiliate Transactions.

(a) Except as set forth in Section 3.26(a) of the Disclosure Document, no employee, officer or director of any of the Selling Parties or any Affiliate of a Selling Party (i) owns, directly or indirectly, in whole or in part, any Permits, real property, leasehold interests or other property, the use of which is necessary for the operation of the businesses of the Sellers, (ii) has any claim or cause of action or any other action, suit or proceeding against, or owes any amount to, either Seller, or (iii) is a party to any Contract pursuant to which either Seller provides to, or receives services from, any such Person, except as to any such individual in his or her capacity as a Business Employee.

(b) Except as set forth in Section 3.26(b) of the Disclosure Document, neither Seller is a party to any Contract that relates to the businesses of the Sellers (i) with Maxco or any Affiliate of Maxco or (ii) among a Selling Party, on the one hand, and a Third Party, on the other hand, in each case, in which the terms or conditions of the Contract or transaction are materially more favorable to a Selling Party or the Third Party than the terms and conditions that could be achieved in an arm’s length Contract or transaction with a Third Party.

3.27 Backlog. To the Knowledge of the Selling Parties, all outstanding customer or distributor purchase orders for products of the businesses of the Sellers have been entered at prices and on terms and conditions consistent with the normal practices of the businesses of the Sellers. To the Knowledge of the Selling Parties, neither Seller, nor any Affiliate of a Seller has been informed by any customer or distributor that any material order included in the backlog of the business of either Seller is likely to be canceled or terminated before its completion.

3.28 Derivative Contracts. Except as set forth in Section 3.28 of the Disclosure Document, neither Seller nor any Affiliate of a Seller is a party to any derivative or hedging Contracts relating to the businesses of the Sellers.

3.29 Other Information. The information provided by the Selling Parties in this Agreement and in the Disclosure Document does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements and facts contained in this Agreement and the Disclosure Document, in light of the circumstances under which they are made, not false or misleading. All documents that the Selling Parties have provided or made available to the Purchasing Parties pursuant to this Agreement were complete and accurate as of the time they were made available.

3.30 No Undisclosed Liability. Except to the extent specifically reflected in the AAI Financial Statements or described in the Disclosure Document and except as related to the vacation policy amendment by AAI described in Section 7.2, neither Seller has any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including any liability for Taxes and interest, penalties and other charges payable with respect to any liability or obligation) with respect to the ownership of the Purchased Assets or the conduct of the businesses of the Sellers.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASING PARTIES

Each of the Purchasing Parties represents and warrants to the Selling Parties as set forth below in this Article IV, as of the date of this Agreement and as of the Closing Date. For purposes of this Section IV, “Knowledge” of the Purchasing Parties means the actual knowledge of each Person listed in Section 4 of the Disclosure Document and such facts and other matters as any of those Persons should reasonably be aware of in light of that Person’s position with a Purchasing Party and upon reasonable inquiry of the personnel of the Purchasing Parties.

4.1 Existence and Good Standing. Each of the Purchasing Parties is a corporation duly organized, validly existing and in good standing under the laws of Delaware.

4.2 Due Authorization. Each of the Purchasing Parties has all requisite corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions described in this Agreement or the Ancillary Agreements. The execution, delivery and performance by each Purchasing Party of this Agreement and the Ancillary Agreements to which it is a party and the consummation by the each Purchasing Party of the transactions described in this Agreement and the Ancillary Agreements have been duly and validly authorized by all necessary corporate action on the part of each Purchasing Party, and no other corporate actions or proceedings on the part of each Purchasing Party are necessary to authorize the execution, delivery and performance by each Purchasing Party of this Agreement and of the Ancillary Agreements to which it is a party or the transactions described in this Agreement or the Ancillary Agreements. Each of the Purchasing Parties has duly and validly executed and delivered this Agreement and has duly and validly executed and delivered (or before or at the Closing shall duly and validly execute and deliver) the Ancillary Agreements to which it is a party. This Agreement constitutes, and upon execution and delivery of (assuming due execution and delivery by all other parties) the Ancillary Agreements to which a Purchasing Party is a party shall constitute, legal, valid and binding obligations of the Purchasing Party, enforceable against it in accordance with their terms, except as may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect creditors’ rights generally; or (b) principles of equity including legal or equitable limitations on the availability of specific remedies.

4.3 Consents. Except for the Consents required by the Selling Parties described in Section 3.4 of the Disclosure Document and Consents described in Section 4.3 of the Disclosure Document, no consent of any Person or any Governmental Authority (other than in connection with Permits) is required in connection with the execution, delivery and performance of this Agreement and the Ancillary Agreements by the Purchasing Parties, or the consummation by the Purchasing Parties of the transactions described in this Agreement or the Ancillary Agreements.

4.4 Absence of Conflicts. Neither the execution and delivery of this Agreement nor any of the Ancillary Agreements to which a Purchasing Party is a party nor the consummation of any of the transactions described in this Agreement or the Ancillary Agreements will violate, conflict with, or result in a breach of (a) the certificate of incorporation or bylaws of a Purchasing Party; (b) any judgment, decree or order of any Governmental Authority to which a Purchasing Party is subject or by which a Purchasing Party or the assets of a Purchasing Party are bound; or (c) any requirements of Laws applicable to a Purchasing Party.

4.5 Litigation. There is no Litigation of any nature pending, asserted, or to the Knowledge of the Purchasing Parties, threatened against a Purchasing Party by or before any Governmental Authority or by or on behalf of any Third Party which would (a) enjoin, restrict or prohibit the transfer of any of the Purchased Assets as described in this Agreement; (b) prevent a Purchasing Party from fulfilling all of its obligations set out in this Agreement or arising under this Agreement or any Ancillary Agreement; or (c) reasonably be expected to adversely affect the ability of a Purchasing Party to consummate the transactions described in this Agreement.

4.6 Brokers. Neither Purchasing Party has used any broker or finder in connection with the transactions described in this Agreement, and none of the Selling Parties nor any of their Affiliates has or shall have any liability or otherwise suffer or incur any Loss as a result of or in connection with any brokerage or finder’s fee or other commission of any Person retained by a Purchasing Party in connection with any of the transactions described by this Agreement or any of the Ancillary Agreements.

ARTICLE V

COVENANTS OF THE SELLING PARTIES

Each of the Selling Parties covenants with the Purchasing Parties as follows:

5.1 Conduct of Business. Except as otherwise described in this Agreement, and except as otherwise consented to by the Purchasing Parties, from the date of this Agreement until the Closing Date, the Selling Parties shall cause the Sellers to conduct their businesses in the usual and ordinary course in accordance with past practice, including the maintenance of Inventory levels, the payment of Accounts Payable and compliance with the warranty policies of the Sellers, and the Selling Parties shall cause the Sellers to use commercially reasonable efforts consistent with their current business practices, to preserve the goodwill of their businesses, including to preserve their current relationships with customers, suppliers, agents and employees of their businesses.

5.2 Negative Covenants Relating to Conduct of the Businesses of the Sellers. Except as otherwise described in this Agreement, and except as consented to by the Purchasing Parties in writing, neither Seller shall, and Maxco shall cause the Sellers not to, from the date of this Agreement until the Closing Date:

(a) Enter into, terminate or amend any Material Contract or, in any material respect, any Assigned Contract;

(b) Other than pursuant to this Agreement, sell, transfer, lease, encumber or dispose of any of the Purchased Assets except Inventory in the ordinary course of business;

(c) Increase the rate of compensation of, or pay or agree to pay any benefit to the Business Employees, except as may be required by the terms of any existing AAI Benefit Plan, agreement or arrangement that is disclosed in the Disclosure Document;

(d) Enter into, adopt or amend any AAI Benefit Plan, or employment or severance agreement affecting the businesses of the Sellers or the Business Employees, except as required by applicable Law or as provided by Section 7.2;

(e) Incur any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities for trade or business obligations incurred in connection with the purchase of goods or services in the ordinary course of business consistent with past practice, none of which liabilities, in any case or in the aggregate, could have a Material Adverse Effect;

(f) Forgive, cancel or compromise any material debt or material claim, or intentionally waive or release any material right of substantial value;

(g) Make any material changes in policies or practices relating to selling practices, product returns, discounts or other terms of sale or accounting;

(h) Make any prepayment of any Accounts Payable, delay payment of any trade payables or other obligations other than in the ordinary course of business consistent with past practice, or make any other cash payments other than in the ordinary course of business;

(i) Fail to maintain all of the Tangible Assets in normal operating repair, working order and operating condition, in accordance with the usual and customary maintenance schedule and practices, subject to ordinary wear and tear;

(j) Acquire any assets that would constitute Purchased Assets or assume any obligations or liabilities that would constitute Assumed Obligations, except, in each case, in the ordinary course of business;

(k) Change any accounting policies or principles of the Sellers or the methods of applying those policies or principles;

(l) Declare or pay any dividend or other distribution with respect to the capital stock of either Seller;

(m) Make any advances to Business Employees if the total amount of advances to Business Employees would exceed $10,000; or

(n) Agree, whether in writing or otherwise, to do any of the foregoing.

ARTICLE VI

COVENANTS OF THE PURCHASING PARTIES AND THE SELLING PARTIES

6.1 HSR Act Notification and Other Consents.

(a) Each of the Purchasing Party and the Selling Parties shall cause to be filed as promptly as practicable with the Federal Trade Commission and the Department of Justice the notification and report form required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), for the transactions described in this Agreement and the Ancillary Agreements and shall use commercially reasonable efforts to provide any supplemental information that may be reasonably requested in connection with those filings. The fees payable in connection with filings and notices made under the HSR Act shall be borne 50% by the Selling Parties and 50% by the Purchasing Parties.

(b) The Selling Parties shall, as promptly as practicable following the date of this Agreement, make all other filings and notifications required in connection with the consummation of the transactions described in this Agreement and use commercially reasonable efforts to obtain the Consents of all Third Parties described in Section 3.4 of the Disclosure Document and required in connection with the consummation of the transactions described in this Agreement. The Purchasing Parties shall, as promptly as practicable following the date of this Agreement, make all other filings and notifications required in connection with the consummation of the transactions described in this Agreement and use commercially reasonable efforts to obtain the Consents of all Third Parties described in Section 4.3 of the Disclosure Document. The Parties shall coordinate and cooperate with each other in exchanging information and assistance in connection with obtaining all Consents of Third Parties and making all filings or notifications necessary to transfer the Permits to the Purchaser, or in connection with any applications for new Permits relating to the businesses of the Sellers.

6.2 Access to Information and Inspections.

(a) During the period from the date of this Agreement through the Closing Date, the Selling Parties shall afford promptly to the Purchasing Parties and their authorized representatives, including environmental and real estate professionals, reasonable access during regular business hours and upon reasonable notice, to all of the Facilities, Business Employees and Books and Records as they may reasonably request. Notwithstanding and without limiting the foregoing, the Purchasing Parties shall not undertake any sampling or testing, including intrusive soil or groundwater testing, without AAI’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. A representative of AAI shall be present at all site visits and inspections and the representative of the Purchasing Parties shall, at all times while on the Sellers’ premises, comply with all directions and requests relating to safety, security and confidentiality.

(b) The Purchaser shall, on and for two years after the Closing Date, afford promptly to the Selling Parties and their agents reasonable access during normal business hours, upon reasonable notice, to the Facilities, Business Employees and Books and Records, to the extent reasonably necessary to permit the Selling Parties to determine any matter relating to or arising during any period ending on or before the Closing Date. If the Purchaser proposes to destroy or otherwise dispose of any Books and Records, on or before the fifth anniversary of the Closing Date, other than in the ordinary course of business consistent with its written document retention policy, the Purchaser shall first notify Maxco in writing, and afford it the opportunity, for a period of at least 90 days following the date of the notice, to take custody of those records or make extracts from them or copies of them.

(c) The Selling Parties shall, on and for two years after the Closing Date, afford promptly to the Purchasing Parties and their agents reasonable access during normal business hours, upon reasonable notice, to the properties, employees and books and records that are not part of the Purchased Assets of the Selling Parties, to the extent reasonably necessary to permit the Purchasing Parties to determine any matter relating to or arising during any period ending on or before the Closing Date. If a Selling Party proposes to destroy or otherwise dispose of any records relating to the businesses of the Sellers on or before the fifth anniversary of the Closing Date, other than in the ordinary course of business consistent with its written document retention policy, Maxco shall first notify Quanex in writing, and afford Quanex the opportunity, for a period of at least 90 days following the date of the notice, to take custody of those records or make extracts from them or copies of them.

6.3 Title Commitment and Survey.

(a) As evidence of title to the Owned Real Property, the Selling Parties shall cause to be prepared and delivered to the Purchasing Parties, as soon as practicable but not later than 20 Business Days after the date of this Agreement, a commitment for title insurance from Chicago Title Insurance Company covering the Owned Real Property (the “Commitment”), together with copies of all exception documents, referenced on either Schedule B or C thereto, binding said title company, to issue to the Purchaser at Closing, an ALTA Form B owner’s title insurance policy (the “Owner’s Policy”). The Owner’s Policy delivered pursuant to the Commitment described in this Section 6.3(a) shall (i) insure title to the Owned Real Property and all recorded easements benefiting the Owned Real Property; (ii) contain an “Extended Coverage Endorsement” insuring over the general exceptions contained customarily in such policies; (iii) contain an ALTA Zoning Endorsement 3.1 (or equivalent); (iv) contain an endorsement insuring that the Owned Real Property described in the Owner’s Policy is the same real estate as shown on the survey to be provided by the Selling Parties pursuant to this Section 6.3; (v) contain an endorsement insuring that each street adjacent to the Owned Real Property is a public street and that there is direct and unencumbered access to each street from the Owned Real Property; and (vi) contain such other endorsements as may be required by the lenders of the Purchasing Parties or otherwise reasonably required by the Purchasing Parties. The cost of the Owner’s Policy (including premiums) shall be borne by the Purchasing Parties.

(b) The Selling Parties shall deliver to the Purchaser, within five Business Days after the date of this Agreement, any survey with respect to the Owned Real Property currently in the possession of the Selling Parties or any Affiliate of a Selling Party and, as soon as practicable after the date of this Agreement, an updated survey of the Owned Real Property (the “Survey”). The cost of the surveys and updates shall be borne by the Selling Parties.

(c) The Purchaser shall have twenty (20) days (the “Title Review Period”) after receipt of the Commitment, all of the exception documents referenced in Schedule B and C to the Commitment, and the Survey to provide Maxco with written notice (the “Title Objection Letter”) of the Purchaser’s objections to anything contained in the Commitment or the Survey (the “Title Objections”); provided, however, that none of the items described in Section 3.7(a)(i) through (iii) may be a basis for a Title Objection. Except as expressly provided herein, any item contained in the Commitment or the Survey to which the Purchaser does not object pursuant to the Title Objection Letter shall be deemed a Permitted Encumbrance on and as of the date the Title Review Period expires. If the Purchaser delivers to Maxco the Title Objection Letter, the Selling Parties shall have 10 days, or such greater time period as may be agreed upon by the Purchaser and the Selling Parties (the “Title Cure Period”), during which the Selling Parties shall have the right, but not the obligation, to cure or remove the Title Objections and deliver to the Purchaser a revised Commitment evidencing such cure or removal. Promptly after the expiration of the Title Cure Period, the Selling Parties shall provide the Purchaser with written notice (the “Title Response Letter”) setting forth those Title Objections that the Selling Parties have cured or removed and those Title Objections that the Selling Parties are unable or unwilling to cure or remove. If the Selling Parties fail to cure or remove all of the Title Objections to the reasonable satisfaction of the Purchaser and Chicago Title Insurance Company, the Purchaser may, as its sole and exclusive remedy which may be exercised at any time within 5 Business Days after the Purchaser’s receipt of the Title Response Letter, either to terminate this Agreement by written notice to the Selling Parties or waive all uncured Title Objections and accept title as the Selling Parties are able to convey without any reduction in or effect on the Closing Purchase Price. The Purchaser’s failure to send written notice of the election available to it pursuant to the preceding sentence within 5 Business Days after receipt of the Title Response Letter shall be deemed an election by the Purchaser to waive all uncured Title Objections and accept title as the Selling Parties are able to convey without any reduction or effect on the Closing Purchase Price, in which case all uncured Title Objections shall automatically be deemed Permitted Encumbrances on and as of the date on which such 5 Business Days expire.

6.4 Motor Vehicles. The Selling Parties shall take all actions and prepare all documents necessary to effect the transfer to the Purchaser of all motor vehicle licenses and registrations pertaining to automobiles, trucks and other motor vehicles and rolling stock used in the businesses of the Sellers, in compliance with the motor vehicle registration, licensing and other applicable Laws of any jurisdictions where the motor vehicles are registered or licensed. All costs, including transfer and sales taxes, related to the sale of motor vehicles in connection with the consummation of the transactions described in this Agreement shall be borne 50% by the Purchasing Parties and 50% by the Selling Parties.

6.5 Tax Matters.

(a) The liability for any real property, personal property, ad valorem and other similar Tax, including payments in lieu of such Taxes (each, a “Property Tax”), assessed on any of the Purchased Assets for a taxable period or year commencing on or before and ending after the Closing Date (“Straddle Period”), Property Tax shall be prorated on a daily basis between the Selling Parties and the Purchaser as of the Closing Date, with the Selling Parties being liable for the portion of that Property Tax equal to the product of (i) the amount of the Property Tax for the entirety of the Straddle Period, multiplied by (ii) a fraction, the numerator of which is the number of days in the Straddle Period ending on and including the Closing Date and the denominator of which is the number of days in the Straddle Period, and with the Purchaser being liable for the remainder of that Property Tax. After the Closing, the Party (the “Paying Party”) receiving a Property Tax bill or notice applicable to the Purchased Assets shall promptly notify the other applicable Party (the “Reimbursing Party��) in writing and the Paying Party shall pay that Property Tax bill before the last day that the Property Tax may be paid without penalty or interest. Upon receipt of the written notice from the Paying Party, which shall include appropriate supporting documentation, the Reimbursing Party shall promptly pay the Paying Party an amount equal to the portion of the Property Tax for which the Reimbursing Party is liable under this Agreement. The Parties shall reasonably cooperate with each other after the Closing with respect to any Property Tax assessment or valuation (or protest in connection therewith) by any Governmental Authority with respect to a Straddle Period. The Party receiving any refund of any Property Taxes for a Straddle Period, whether received in cash or as a credit against another Property Tax, shall, within 30 days after the receipt of the refund, pay to the appropriate Party an amount equal to the product of (i) the amount of the refund, multiplied by (ii) a fraction, the numerator of which is the number of days in the Straddle Period that the other Party owned the Purchased Assets, and the denominator of which is the total number of days in the Straddle Period.

(b) The Selling Parties shall promptly deliver to the Purchasing Parties any and all notices, tax bills, tax statements, correspondence, applications, renditions, orders, or other similar documents or communications received by any of the Selling Parties and relating to Property Taxes affecting all or any portion of the Purchased Assets.

(c) The Parties acknowledge that the Purchase Price, as adjusted under Section 2.2, includes and is inclusive of all stock transfer, real estate transfer, sales, use, deed, documentary, stamp, conveyance, recording and other similar taxes (“Transfer Taxes”) that may be imposed as a result of the consummation of the transactions described in this Agreement. The Selling Parties shall be responsible for the filing of all Tax Returns that may be required in connection with these Transfer Taxes (including expenses incurred to prepare those Tax Returns). The Selling Parties shall promptly provide proof to the Purchasing Parties of the timely filing of those Tax Returns and the payment of those Transfer Taxes. At the Closing, each of the Parties shall provide the other Parties with appropriate exemption certificates to establish the right to any exemption from Transfer Taxes. After the Closing, each Party shall provide each other Party with any additional exemption certificates and other documentation as may be required by Governmental Authorities for such purpose. The Selling Parties shall reasonably cooperate with the Purchasing Parties, including providing the Purchasing Parties with reasonable access to the Selling Parties’ books and records and such other data as the Purchasing Parties may reasonably request in order to support all applicable Transfer Tax exemptions. If any exemption claimed by any of the Parties is subsequently denied by any Governmental Authority, and as a result any of the Parties is assessed additional Transfer Taxes, then the Selling Parties shall pay such Transfer Taxes, including interest and penalties, to the appropriate Governmental Authority.

6.6 Bulk Sales Compliance. The Parties waive compliance with the provisions of any applicable statutes relating to bulk transfers or bulk sales. The Parties mutually agree to cooperate in securing any available exemptions from any such provisions.

6.7 Confidentiality and Publicity.

(a) For a period of five years after the Closing Date and except as otherwise required by Law, each of the Selling Parties shall, and shall cause its respective officers, directors, Affiliates, employees, agents and representatives to, hold in confidence and not disclose or use (i) any proprietary or other confidential and non-public information regarding a Purchasing Party or any Affiliate of a Purchasing Party disclosed to any Selling Party in connection with the negotiation or preparation of this Agreement; (ii) the nature or resolution of any disputes arising under this Agreement after the Closing; and (iii) any proprietary or other confidential non-public information relating to the Purchased Assets or the businesses of Sellers, except for disclosures made pursuant to Section 6.7(c); provided, however, that the term “confidential and non-public information” shall not include any information publicly known through no fault of a Selling Party. The Purchasing Parties acknowledge that Maxco is a publicly held company and will be required to disclose information about the transactions described in this Agreement and the businesses of the Sellers by Law, by Nasdaq or in connection with securities Laws, and will be required by Law to file a copy of this Agreement with the SEC and Nasdaq and to include such filings as part of Maxco's website; all such filings and disclosures may be made by Maxco notwithstanding the provisions of this Section 6.7.

(b) For a period of five years after the Closing Date and except as otherwise required by Law, each Purchasing Party shall, and shall cause its officers, directors, Affiliates, employees, agents and representatives to, hold in confidence and not disclose or use (i) any proprietary or other confidential and non-public information (excluding information relating to the Purchased Assets regarding the Selling Parties disclosed to the Purchasing Party in connection with the negotiation or preparation of this Agreement or the consummation of the Transactions described in this Agreement; and (ii) the nature or resolution of any dispute arising under this Agreement after the Closing, except for disclosures made pursuant to Section 6.7(c); provided, however, that the term “confidential and non-public information” shall not include any information publicly known through no fault of a Purchasing Party. The Selling Parties acknowledge that Quanex is a publicly held company and will be required to disclose information about the transactions described in this Agreement, the Purchased Assets and the businesses of the Sellers by Law, by the New York Stock Exchange or in connection with securities Laws, and will be required by Law to file a copy of this Agreement with the SEC and the New York Stock Exchange and to include such filings as part of Quanex’s website; all such filings and disclosures may be made by Quanex notwithstanding the provisions of this Section 6.7.

(c) No public announcement or other publicity regarding the transactions described in this Agreement shall be made by any Party or any of its Affiliates, officers, directors, employees, representatives or agents, without the prior written agreement of Maxco and Quanex. The Parties shall prepare and release public announcements or press releases regarding the execution and delivery of this Agreement and the Closing. Any announcement shall be agreed to by Maxco and Quanex as to form, content, timing and manner of distribution or publication. Nothing in this Section 6.7 shall prevent the Parties from discussing the transactions described in this Agreement with those Persons whose Consent is required for consummation of those transactions. The Parties shall exercise all reasonable efforts to assure that those Persons keep confidential any information relating to this Agreement.

6.8 Payments Received. After the Closing, the Selling Parties and the Purchaser shall hold and promptly transfer and deliver to the other, from time to time as and when received by either of them, any cash, checks with appropriate endorsements (using commercially reasonable efforts not to convert checks into cash), or other property that either of them may receive on or after the Closing Date which properly belongs to the other Party, including any insurance proceeds, and shall account to the other Party for all such receipts.

6.9 Satisfaction of Conditions and Further Assurances. Without limiting the generality or effect of any provision of Articles VIII and IX, before the Closing, each of the Parties shall use its reasonable efforts in good faith to satisfy promptly all conditions required by this Agreement to be satisfied by it to expedite the consummation of the transactions described in this Agreement. After the Closing, the Selling Parties shall execute and deliver such other documents, certificates, agreements and other writings and take such other actions as may be reasonable, necessary or desirable to consummate or implement expeditiously the transactions described in this Agreement and any agreement, document or instrument described in this Agreement. If a Material Contract not otherwise described in Section 3.12 of the Disclosure Document and transferred to the Purchaser at Closing is identified by the Purchaser or a Selling Party after the Closing, that Material Contract shall be, at the request of the Purchaser, deemed a Purchased Asset and the Selling Parties agree to comply with Section 1.2 with respect to that Material Contract.

6.10 Exclusivity Agreement. Neither a Selling Party nor any Affiliate of a Selling Party, nor any of their directors, officers, employees, representatives or agents, nor anyone acting on their behalf shall, directly or indirectly solicit, encourage (including furnishing information to any Third Party), respond to negotiate or assist in any manner any offers, bids or proposals involving, directly or indirectly, (a) the sale or other disposition of the Purchased Assets (other than sales of Inventory in the ordinary course of business) or (b) the sale or exchange (whether through a merger or otherwise) of all or any portion of the capital stock of AAI or BCGW if such sale or exchange would result in the Purchased Assets being owned, directly or indirectly, by a Person other than a Selling Party (all such bids, offers and proposals being referred to as “Acquisition Proposals”). Neither of the Selling Parties shall enter into any letter of intent, agreement in principle or other agreement with respect to any matter involving an Acquisition Proposal. The Selling Parties shall immediately notify the Purchasing Parties in writing should either of them receive any Acquisition Proposal, including the terms thereof.

6.11 Limitation on Purchasing Parties’ Obligation With Respect to Returned Products. Any obligations assumed by the Purchaser for returned products pursuant to this Agreement shall be limited to the Purchaser’s replacement of or reimbursement for the cost of the product and all expenses incidental to that replacement or reimbursement, such as packing, handling and shipping costs. The Selling Parties shall, on the Purchaser’s request, reimburse the Purchaser for its out-of-pocket costs for the reimbursement or replacement of product produced or in process before the Effective Time to the extent that all of those costs exceed $75,000.

6.12 Expenses. Except as otherwise provided in this Agreement, each Party shall bear its own expenses with respect to the transactions described in this Agreement.

6.13 Maxco’s Proxy Materials and Stockholders’ Meeting. Maxco shall, as promptly as reasonably possible, prepare a preliminary proxy statement and related proxy materials with respect to the Stockholder Approval, as required by applicable securities Laws and by Nasdaq, and submit a draft thereof for the Purchasing Parties’ review and comment. The Purchasing Parties shall cooperate with Maxco to provide all information about the Purchasing Parties necessary to complete the preliminary proxy statement, shall promptly provide Maxco with comments on all drafts of the preliminary proxy statements provided to the Purchasing Parties and shall otherwise cooperate with Maxco to complete the preparation of the preliminary proxy statement and cause it to be filed with the SEC as soon as practicable after the execution and delivery of this Agreement. Each of the Parties shall cooperate with each other to respond to comments on the preliminary proxy statement provided by the SEC and to cause the definitive proxy statement to be filed with the SEC as soon as reasonably possible. Maxco shall take all actions necessary to call a meeting of its stockholders to approve the sale of the Purchased Assets pursuant to this Agreement in accordance with Michigan Law and to provide its stockholders with the definitive proxy statement and related materials. Maxco shall recommend to its stockholders the approval of the sale of Purchased Assets pursuant to this Agreement and shall take such actions as are commercially reasonable to encourage its stockholders to vote in favor of the sale of the Purchased Assets pursuant to this Agreement.

6.14 Environmental Matters. After the Closing, the Purchasing Parties may conduct or arrange to conduct any investigation, assessment, subsurface testing, removal, remediation, abatement, response, cleanup or groundwater monitoring of Hazardous Substances at, on or under the Owned Real Property as the Purchaser may reasonably believe to be required by any governing Environmental Law, existing as of the Closing Date, with respect to any environmental matters arising from or attributable to (a) any condition, event, circumstance, activity, practice, incident, action or omission existing or occurring before the Effective Time or (b) the use, storage, disposal, treatment, transportation or release of Hazardous Substances before the Effective Time (“Post-Closing Remediation”). The performance of any Post-Closing Remediation shall not void, alter or otherwise affect the indemnification of obligations of the Selling Parties set forth in Article XII.

6.15 Non-Competition. Each Selling Party covenants and agrees that it shall not, for the period ending five years after Closing, participate, directly or indirectly, in the ownership, management, financing or control of, or act as a consultant or agent to, or furnish services or advice to, any Person that develops, manufactures, sells or provides services with respect to Competitive Products (a “Competitive Business”). For purposes of this Agreement, “Competitive Products” means heat treated forged or cast ferrous components. The geographic scope of the foregoing covenants is North America. The covenants set forth in this Section 6.15 shall not prohibit any Selling Party or its Affiliates from, directly or indirectly, making any equity investment in any publicly owned company that conducts a Competitive Business, provided that the investment does not confer control of more than 5% of the outstanding voting securities of such company upon that Selling Party. The Parties agree and intend that the time period, geographic coverage and scope of the covenants set forth in this Section 6.15 are reasonable.

ARTICLE VII

EMPLOYEES AND BENEFIT PLANS

7.1 Offer of Employment. The Purchaser or an Affiliate of the Purchaser shall offer employment, effective as of the Effective Time, to such Business Employees as it determines in its sole discretion. Each employee who accepts any such offer of employment shall be referred to in this Agreement as a “Transferred Employee”.

7.2 Vacation. AAI shall, effective January 1, 2007, amend the vacation policy in its handbook to establish that: (i) January 1 is the date on which an employee is credited with the vacation he or she has earned during the prior calendar year (currently based on anniversary date), (ii) earned but not yet credited vacation is payable on an annualized pro-rata basis in the event of the termination of the employment of an employee, and (iii) AAI has the right to transfer vacation liability to a purchasing party in the event of the sale of substantially all of the operating assets of AAI. Further, effective January 1, 2007, AAI shall cause each employee of AAI to be credited the amount of vacation he or she has earned through December 31, 2006, and such credited vacation shall be added to the vacation amounts each such AAI employee already had banked. Thereafter, AAI’s accrued vacation liability shall reflect all vacation earned, whether or not credited and available for use.

Prior to the Closing Date, AAI shall provide a cash payment to each Transferred Employee in an amount equal to the cash equivalent of all vacation time available for use (“Banked Vacation Time”) based on the Transferred Employee’s wage or salary on the date of such payment, but only to the extent that the Banked Vacation Time for any individual Transferred Employee exceeds the amount that the Transferred Employee would earn in one year of service based on his or her tenure (“AAI Banked Vacation Time Cash-Out”). After effecting the AAI Banked Vacation Time Cash-Out, the remaining amount of Banked Vacation Time each Transferred Employee has available for use as of the Closing Date will become his or her starting amount of paid vacation with the Purchaser, or any Affiliate of the Purchaser, as the case may be, for the 2007 calendar year. The Purchaser shall be responsible for all accrued vacation liability reflected on the Closing Date Financial Statements and any vacation accruing after the Effective Time by any Transferred Employees.

7.3 Salaries and Benefits.

(a) The Selling Parties shall be responsible for the payment of all wages and other remuneration due to Business Employees up until the Effective Time.

(b) Except for the Purchaser’s obligations as to vacation liabilities for Transferred Employees described in the last sentence of Section 7.2, the Selling Parties shall be liable for any claims made by Business Employees and their beneficiaries under the AAI Benefit Plans, including any claims with respect to the proper crediting of earned vacation before the Closing or the AAI Banked Vacation Time Cash-Out.

(c) Welfare benefit plan coverage of the Sellers for Transferred Employees shall cease as of the Effective Time and the welfare benefit plan coverage under the Purchaser’s plans for Transferred Employees shall immediately commence. The Selling Parties shall be solely responsible for any continuation coverage required by COBRA for those Business Employees of the Seller who are not Transferred Employees. To the extent required by Law the Selling Parties shall cause a Group Health Plan maintained by one or more of them to provide COBRA continuation coverage to M&A qualified beneficiaries with respect to the sale of the Purchased Assets pursuant to this Agreement within the meaning of Treasury Regulation Section 54.4980B-9, Q-4(a). With respect to each Transferred Employee who is covered under a Group Health Plan maintained by a Selling Party or any Affiliate of a Selling Party (the “Seller Group Health Plan”), the Purchaser shall waive all pre-existing conditions, limitations or exclusions and waiting periods for those Transferred Employees under all employee welfare plans and fringe benefits programs of the Purchaser, including vacation, bonus and other incentive programs, to the extent that those pre-existing conditions, limitations or exclusions as of the Closing Date would be excluded from coverage under the Seller Group Health Plan.

(d) The Selling Parties shall retain all assets in the pension and retirement funds of the Sellers, and shall distribute pension and retirement benefits that the Transferred Employees shall become entitled to receive from either Seller in accordance with the applicable plan document and the Transferred Employees’ elections, as applicable.

(e) Effective as of the Closing Date, the Purchaser shall give past service credit to all the Transferred Employees for purposes of determining vesting, eligibility and benefit accruals under all employee benefit programs, including vacation, severance, bonus, incentive, compensation and employee welfare benefit plans of the Purchaser, with the exception of benefit accruals for pension and profit sharing plans and eligibility for post-retirement health benefits.

(f) The Selling Parties will retain all incentive savings plan (401(k) plan) benefits held in the name of the Transferred Employees, if any, unless otherwise directed by a Transferred Employee or unless distribution is otherwise allowed or mandated pursuant to the plan document. The Purchaser shall accept qualified direct and indirect rollovers from incentive savings plans of the Sellers, if the Purchaser obtains such information as is satisfactory to the Purchaser to assure itself that these incentive savings plans satisfy the qualification requirements of Section 401(a) of the Code.

7.4 No Transfer of Assets. No pension or other employee benefit plan assets held by either Seller shall be transferred to any Purchasing Party or any Affiliate of a Purchasing Party.

7.5 Employee Records. The Selling Parties shall make available to the Purchaser records that provide information regarding employees’ names, Social Security numbers, dates of hire by each Seller, date of birth, number of hours worked each calendar year and salary histories for all Transferred Employees. The Selling Parties shall not provide the Purchasing Parties with records pertaining to performance ratings and evaluations, disciplinary records and medical records of the Transferred Employees.

7.6 General Employment Provisions.

(a) The Selling Parties and the Purchaser shall give any notices required by Law and take whatever other actions with respect to the plans, programs and policies described in this Article VII as may be necessary to carry out the agreements described in this Agreement.

(b) The Selling Parties and the Purchaser shall each provide the other with such plan documents and summary plan descriptions, employee data or other information as may be reasonably required to carry out the agreements described in this Article VII.

If any of the agreements described in this Article VII are determined by any Governmental Authority to be prohibited by Law, the Selling Parties and the Purchaser shall modify those agreements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the Parties described in this Agreement in a manner not otherwise prohibited by Law.

ARTICLE VIII

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASING PARTIES

The obligations of the Purchasing Parties to consummate the transactions described in this Agreement are subject to the satisfaction or waiver (to the extent permitted by applicable Law) by the Purchasing Parties of the following conditions precedent on or before the Closing Date:

8.1 Accuracy of Representations and Warranties. The representations and warranties of the Selling Parties contained in this Agreement and in any certificate or other writing delivered by a Selling Party pursuant to this Agreement or the Ancillary Agreements shall be true, accurate and correct as of the date of this Agreement and on and as of the Closing Date, as if made at and as of the Closing Date (unless any representation or warranty refers specifically to a specified date, in which case the representation or warranty shall be true, accurate and correct on and as of the specified date).

8.2 Compliance with Agreements and Covenants. Each of the Selling Parties shall have performed and complied with all of its covenants, obligations and agreements contained in this Agreement to be performed and complied with by it on or before the Closing Date.

8.3 Hart-Scott-Rodino. All applicable waiting periods under the HSR Act shall have expired or been terminated without action by the Justice Department or the Federal Trade Commission to prevent the consummation of the transactions described in this Agreement and the Ancillary Agreements.

8.4 No Injunctions. There shall not be in effect any temporary restraining order, preliminary injunction, injunction or other pending or threatened action by any Third Party or any order of any court or Governmental Authority restraining or prohibiting the Closing of the transactions described in this Agreement and the Ancillary Agreements.

8.5 Title Insurance. The Purchasing Parties shall have received a binding commitment to issue a policy of title insurance consistent with Section 6.3, dated the Closing Date, in an aggregate amount equal to the portion of the Purchase Price allocated to the Owned Real Property.

8.6 Deliveries. The Purchaser shall have received the documents of transfer described in Article X; any documentation related to unassignable Permits or Contracts described in Section 1.2; the certificates and legal opinion described in Article X; the schedules and lists described in Article X; and all other documents described in Article X that are to be delivered to the Purchaser; and all such documents relating to the Owned Real Property that are required to be filed or recorded shall be in the proper filing and recordable form; and the content of the schedules and lists delivered pursuant to Article X shall be reasonably satisfactory to the Purchasing Parties.

8.7 List of New Contracts. The Purchasing Parties shall have received the list of New Contracts (described in Section 1.1(j)), and that list shall be in form and content reasonably acceptable to the Purchasing Parties.

8.8 Consents. The Selling Parties shall have received all Consents necessary to transfer the Assigned Contracts to the Purchaser, all Consents necessary to transfer the Permits to the Purchaser and all Consents necessary to transfer all Material Contracts to the Purchaser, in each case in form and substance satisfactory to the Purchaser, or shall have otherwise complied with the Selling Parties’ obligations under Section 1.2, in form and substance satisfactory to the Purchaser.

8.9 Environmental Assessment. The findings and conclusions of any environmental assessment conducted by or on behalf of the Purchasing Parties pursuant to Section 6.2 of this Agreement shall be satisfactory to the Purchasing Parties.

8.10 No Material Adverse Effect. No event, occurrence, fact, condition, change, development or effect shall have occurred, exist or come to exist since the date of this Agreement that, individually or in the aggregate, has constituted or resulted in a Material Adverse Effect.

8.11 Termination of Confidentiality Agreement. The Confidentiality Non-Disclosure Agreement dated June 30, 2006, between Quanex MACSTEEL and GBQ Consulting LLC shall have been terminated in writing.

8.12 Employment Agreement. Sanjeev Deshpande shall have executed and delivered to the Purchaser an employment agreement in form and content acceptable to the Purchaser.

8.13 Amendment to Employee Handbook. AAI shall have performed and complied with all of its obligations under Section 7.2.

8.14 Insurance. AAI shall have obtained successor liability and discontinued product liability insurance coverage for commercial general liabilities and aviation related product liabilities, including all liabilities relating to product produced or in process by a Seller before the Effective Time, with the Purchaser as a named insured. The policies shall provide limits of liability in the amount of $2.0 million each, shall have no deductible and shall be in force for three years beginning on the Closing Date. The Purchasing Parties shall be provided with a true and correct copy of the policy and a related certificate of liability insurance.

ARTICLE IX

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING PARTIES

The obligations of the Selling Parties to consummate the transactions contemplated hereby are subject to the satisfaction or waiver (to the extent permitted by applicable Law) by the Selling Parties of the following conditions precedent on or before the Closing Date:

9.1 Accuracy of Representations and Warranties. The representations and warranties of the Purchasing Parties contained in this Agreement and in any certificate or other writing delivered by the Purchasing Parties pursuant to this Agreement or the Ancillary Agreements shall be true, accurate and correct as of the date of this Agreement and on and as of the Closing Date, as if made on and as of the Closing Date (unless any representation or warranty refers specifically to a specified date, in which case the representation or warranty shall be true, accurate and correct on and as of the specified date).

9.2 Compliance with Agreements and Covenants. Each of the Purchasing Parties shall have performed and complied in all material respects with all of its covenants, obligations and agreements contained in this Agreement to be performed and complied with by it on or before the Closing Date.

9.3 Hart-Scott-Rodino. All applicable waiting periods under the HSR Act shall have expired or been terminated without action by the Justice Department or the Federal Trade Commission to prevent the consummation of the transactions described in this Agreement and the Ancillary Agreements.

9.4 No Injunctions. There shall not be in effect any temporary restraining order, preliminary injunction, injunction or other pending or threatened action by any Third Party or any order of any court or Governmental Authority restraining or prohibiting the Closing of the transactions contemplated by this Agreement and the Ancillary Agreements.

9.5 Deliveries. The Purchasing Parties shall have made all of the deliveries set forth in Section 10.3.

9.6 Stockholder Approval. The Stockholder Approval shall have been obtained.

ARTICLE X

CLOSING

10.1 Closing. The Closing shall take place at the offices of Warren Cameron Asciutto & Blackmer, P.C., at 2161 Commons Parkway, Okemos, Michigan, at 9:00 a.m. on February 1, 2007 or such other time and date that the Parties may agree to in writing. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date.” The Closing shall be effective as of the Effective Time.

10.2 Deliveries by the Selling Parties. At or before the Closing, the Selling Parties shall deliver to the Purchasing Parties the following, each dated the Closing Date and duly executed by the applicable Selling Parties:

(a) An assignment and assumption agreement substantially in the form of Exhibit B (the “Assignment and Assumption Agreement”), together with general warranty deeds for the Owned Real Property substantially in the form of Exhibit C (the “General Warranty Deeds”), and a bill of sale substantially in the form of Exhibit D (the “Bill of Sale”);

(b) Possession of the Purchased Assets;

(c) Certificates of title for all vehicles included in the Purchased Assets, duly endorsed for transfer to the Purchaser and any related documents necessary to effect the transfer of the vehicles;

(d) Other instruments of transfer reasonably requested by the Purchasing Parties to evidence the transfer of the Purchased Assets to the Purchaser and consummation of the transactions described in this Agreement, including assignments with respect to any Registered Intellectual Property to be registered, recorded or filed with any Governmental Authority, in a form suitable for registration, recordation or filing with the Governmental Authority, in each case duly executed by the appropriate Selling Party;

(e) A certificate, dated the Closing Date, of an appropriate officer of each of the Selling Parties certifying as to the compliance by it with Sections 8.1 and 8.2;

(f) A certificate of the Secretary of each of the Selling Parties certifying resolutions of its board of directors and its stockholders approving and authorizing the execution, delivery and performance by it of this Agreement and the Ancillary Agreements to which it is a party and the consummation by it of the transactions described in this Agreement and the Ancillary Agreements (together with an incumbency and signature certificate regarding the officers signing on behalf of each Selling Party);

(g) The Consents set forth on Section 3.4 of the Disclosure Document (or, if applicable, the documentation related to unassignable Permits and Contracts described in Section 1.2) and all consents and waivers of any Governmental Authority or other Third Party that are otherwise required in connection with the execution and delivery of this Agreement or any Ancillary Agreement, the performance by each Selling Party of its obligations under this Agreement or the Ancillary Agreements, and the consummation of the transactions described in this Agreement and the Ancillary Agreements, each of which shall be in form and substance reasonably satisfactory to the Purchasing Parties;

(h) A certificate, in the form prescribed by Treasury Regulations under Section 1445 of the Code, that the Selling Parties are not “foreign persons” within the meaning of Section 1445 of the Code;

(i) The surveys and title insurance policies described in Section 6.3 in an aggregate amount equal to the portion of the Purchase Price allocated to the Owned Real Property and containing no exceptions to title except Permitted Encumbrances and those to which the Purchasing Parties did not object in accordance with Section 6.3;

(j) An opinion of legal counsel for the Selling Parties including the matters set forth on Exhibit E;

(k) The Escrow Agreement; and

(l) Such other documents and instruments as may be reasonably required to consummate the transactions described in this Agreement and the Ancillary Agreements.

10.3 Deliveries by the Purchasing Parties. At the Closing the Purchaser shall make the payments described in Section 2.3 and shall deliver to the Selling Parties the following, each dated the Closing Date and duly executed by the Purchasing Parties, as applicable:

(a) The Assignment and Assumption Agreement;

(b) A certificate, dated the Closing Date, of an appropriate officer of each of the Purchasing Parties, certifying as to compliance by it with Sections 9.1 and 9.2;

(c) A certificate of the Secretary of each of the Purchasing Parties certifying resolutions of its board of directors approving and authorizing the execution, delivery and performance of this Agreement by it and the Ancillary Agreements to which it is a party and the consummation by it of the transactions described in this Agreement (together with an incumbency and signature certificate regarding the officers signing on behalf of the Purchasing Parties);

(d) All Consents described in Section 4.3 of the Disclosure Document and waivers of any Governmental Authority or other Third Party that are otherwise required in connection with the execution and delivery of this Agreement or any Ancillary Agreement, the performance by each of the Purchasing Parties of its obligations under this Agreement or any Ancillary Agreement, and the consummation of the transactions described in this Agreement and the Ancillary Agreements, each of which shall be in form and substance reasonably satisfactory to the Selling Parties;

(e) An opinion of legal counsel for the Purchasing Parties including the matters set forth on Exhibit F;

(f) The Escrow Agreement; and

(g) Such other documents and instruments as may be reasonably required to consummate the transactions described in this Agreement and the Ancillary Agreements.

10.4 Passage of Title and Risk of Loss. Legal title, equitable title, and risk of loss in respect of the Purchased Assets will pass to the Purchaser at the Closing, which transfer, once it has occurred, will be deemed effective for tax, accounting, and other computational purposes as of the Effective Time.

ARTICLE XI

TERMINATION

11.1 Termination. This Agreement may be terminated at any time on or before the Closing Date by any of the following:

(a) By the mutual written agreement of Maxco and Quanex;

(b) By Maxco or Quanex if the Closing shall not have taken place on or before March 1, 2007; provided, however, that no Selling Party, if Maxco is the terminating Person, or no Purchasing Party, if Quanex is the terminating Person, shall have failed to fulfill any obligation under this Agreement or be in breach of any representation, warranty or covenant under this Agreement, which failure or breach was the cause of or resulted in the failure of the Closing to occur on or before that date;

(c) By Maxco or Quanex, if any court of competent jurisdiction or other Governmental Authority shall have issued a final and non-appealable order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions described in this Agreement;

(d) By Maxco or Quanex, if before the Closing Date, a Selling Party, if Quanex is the terminating Party, or a Purchasing Party, if Maxco is the Terminating Party, is in default or breach in any material respect of any representation, warranty, covenant, or agreement contained in this Agreement, and the default or breach shall not be cured within five Business Days after the date notice of the breach is delivered by the Party claiming the default or breach to the Party in default or breach; and

(e) By Quanex pursuant to Section 6.3(c) above.

In the event of any termination pursuant to this Section 11.1 (other than pursuant to clause (a)), written notice setting forth the reasons for the termination shall promptly be given by the terminating Party to the other Parties.

11.2 Effect of Termination. If this Agreement is terminated pursuant to Section 11.1, all obligations of the Parties under this Agreement shall terminate, except for the obligations set forth in Articles XII, XIII and XIV and Section 6.7, which shall survive the termination of this Agreement, and except that no termination of this Agreement shall relieve any Party from liability for any breach of this Agreement before such termination of this Agreement.

ARTICLE XII

INDEMNIFICATION

12.1 Survival; Remedy for Breach. The representations and warranties contained in this Agreement shall survive until the third-year anniversary of the Closing Date, at which time they shall expire; provided, however, that the representations in Sections 3.3 and 4.2 shall survive indefinitely, the representations in Section 3.16 of this Agreement shall survive until the fourth-year anniversary of the Closing Date, and the representations in Sections 3.7, 3.9, 3.13 and 3.14 shall survive until 30 days after the expiration of the applicable statute of limitations. No claim regarding a breach of a representation or warranty contained in this Agreement shall be made after the expiration of the period of survival. Any claim asserted in writing within the period of survival shall be timely made for purposes of this Agreement. The foregoing shall not limit the rights of any Person with respect to covenants and agreements to be performed after the Closing Date (including the covenant and agreement to provide indemnification), which shall survive until the expiration of the applicable statute of limitations period or, as applicable, in accordance with their own terms. The indemnification obligations under Sections 12.2(a)(x) and 12.3(a)(iii) shall survive indefinitely.

12.2 Indemnification by the Selling Parties.

(a) Subject to Sections 12.1, 12.2(b), and 12.2(c), each of the Selling Parties shall indemnify, defend, hold harmless and pay each Purchasing Party, its Affiliates and their stockholders, officers, directors, employees, agents, representatives, successors and assigns (the “Purchasing Parties’ Group”) from and against any and all damages, losses, actions, proceedings, causes of action, liabilities, claims, encumbrances, penalties, assessments, judgments, Tax, costs and expenses, including removal, remediation or cleanup costs and costs of any Post-Closing Remediation, sales credits, court costs, responsible fees of attorneys and consultants and costs of litigation (“Losses”) incurred or suffered by any of them arising out of or relating to any of the following:

(i) any breach of any representation or warranty made by the Selling Parties in this Agreement or the Ancillary Agreements;

(ii) any breach of or failure by a Selling Party to perform any covenant or obligation set forth in this Agreement or the Ancillary Agreements:

(iii) the ownership or operation of the Excluded Assets;

(iv) the Sellers’ failure to comply with any applicable Law relating to bulk transfers or bulk sales;

(v) the employment of any Business Employee by a Seller or its Affiliates or the cessation of that employment (including unfair labor practice charges, employment discrimination charges, wrongful termination claims, workers’ compensation claims, and any employment-related tort claims);

(vi) any AAI Benefit Plan or other benefit liabilities of AAI or its Affiliates (other than Assumed Obligations);

(vii) any law or regulation requiring a Seller or its Affiliates to provide severance benefits or notices of termination of employment, including the Worker Adjustment and Retraining Notification Act or any legal requirement or obligation that may result from an “employment loss”, as that term is defined by 29 U.S.C. §2101(a)(6), caused by any action or inaction of any Selling Party before the Closing or by the decision of the Purchaser not to hire prior employees of the Selling Parties;

(viii) any COBRA claims pertaining to individuals (and their spouses and children) who are or were employed by a Seller or any Affiliate of a Seller other than Transferred Employees (and their spouses and children) who are hired by the Purchaser;

(ix) the ownership of the Purchased Assets or operation of the businesses of the Sellers before the Effective Time;

(x) the Excluded Obligations; and

(xi) any Environmental Liability or other Loss relating to environmental matters arising from or attributable to (1) any condition, event, circumstance, activity, practice, incident, action or omission existing or occurring before the Effective Time and related to the Purchased Assets, or the businesses of the Sellers, or (2) the use, storage, disposal, treatment, transportation or release of Hazardous Substances before the Effective Time and related to the Purchased Assets or the businesses of the Sellers.

(b) The Selling Parties shall not be liable with respect to any matter referred to in Section 12.2(a) unless the Losses thereunder exceed an aggregate deductible of $100,000 (the “Selling Parties’ Basket”), in which event the Selling Parties shall be liable for all claims under Sections 12.2(a) to the extent such Losses exceed the Selling Parties’ Basket; provided, however, that the Selling Parties’ combined aggregate liability for Losses with respect to any matter referred to in Sections 12.2(a) that exceed the Selling Parties’ Basket shall in no event exceed an amount equal to $5,800,000 (the “Selling Parties’ Maximum Indemnity Amount”). Notwithstanding the foregoing, the Selling Parties’ Basket and the Selling Parties’ Maximum Indemnity Amount shall not apply to any Losses relating to the Excluded Obligations or any breach of the Selling Parties’ representations, warranties or covenants relating to Taxes. For clarification, the Selling Parties’ Maximum Indemnity Amount includes, and is not in addition to, any amounts in the escrow fund established under the Escrow Agreement.

(c) The amount for which the Selling Parties shall be liable with respect to any Loss pursuant to Sections 12.2(a) and 12.2(b) shall be reduced to the extent that the Purchasing Parties or any other member of the Purchasing Parties’ Group shall have realized any net proceeds recovered from Third Parties with respect to the Loss. If a Purchasing Party or any other Person entitled to indemnity under Section 12.2(a) shall have received or shall have had paid on its behalf an indemnity payment with respect to a Loss and shall subsequently receive, directly or indirectly, any proceeds, then the Purchasing Party shall promptly pay to the Sellers the net amount of those proceeds or, if less, the amount of the indemnity payment. The Purchasing Parties shall take all commercially reasonable actions to file claims under applicable policies to recover insurance proceeds that may be due to the Purchasing Parties or any other Person in order to mitigate the Selling Parties’ obligations under this Agreement; provided, however, that the aforesaid obligation to mitigate shall not extend beyond six months from the date that the relevant claim becomes known to the Purchaser; provided further, however, that the Purchasing Parties shall not be required to first seek recovery under any applicable insurance policy before making any claim for indemnification pursuant to this Article XII. The Selling Parties shall cooperate with the Purchasing Parties to pursue any claims that the Purchasing Parties may have with respect to the matters described in this Agreement and reasonably believe are covered under any insurance policy under which a Selling Party is a named insured.

12.3 Indemnification by the Purchasing Parties.

(a) Subject to Sections 12.1, 12.3(b) and 12.3(c), the Purchasing Parties shall indemnify, defend and hold harmless and pay the Selling Parties, their Affiliates and their stockholders, officers, directors, employees, agents, representatives, successors and assigns (the “Selling Parties’ Group”), from and against any and all Losses incurred or suffered by them arising out of any of the following:

(i) any breach of any representation or warranty made by the Purchasing Parties in this Agreement or the Ancillary Agreements;

(ii) any breach of or failure by the Purchasing Parties to perform any covenant or obligation set forth in this Agreement or the Ancillary Agreements;

(iii) any of the Assumed Obligations; and

(iv) any Losses directly caused by the Purchasing Parties’ access and inspections pursuant to Section 6.2(a), other than Losses resulting from or related to the detection, discovery or evaluation of Hazardous Substances in the course of those inspections.

(b) The Purchasing Parties shall not be liable with respect to any matter referred to in Section 12.3(a) unless the Losses thereunder exceed an aggregate deductible of $100,000 (the “Purchasing Parties’ Basket”) in which event the Purchasing Parties shall be liable for all claims under Section 12.3(a) to the extent such Losses exceed the Purchasing Parties’ Basket; provided, however, that the Purchasing Parties’ combined aggregate liability for Losses that exceed the Purchasing Parties’ Basket shall in no event exceed an amount equal to $3,000,000 (the “Purchasing Parties’ Maximum Indemnity Amount”). Notwithstanding the foregoing, the Purchasing Parties' Basket and the Purchasing Parties' Maximum Indemnity Amount shall not apply to any Losses that constitute Assumed Obligations.

(c) The amount for which the Purchasing Parties shall be liable with respect to any Loss pursuant to Sections 12.3(a) and 12.3(b) shall be reduced to the extent that a Seller or any other member of the Selling Parties’ Group shall have realized any net proceeds recovered from Third Parties with respect to the Loss. If a Seller or any other Person entitled to indemnity under Section 12.3(a) shall have received or shall have had paid on its behalf an indemnity payment with respect to a Loss and shall subsequently receive, directly or indirectly, any proceeds, then AAI shall promptly pay to the Purchasing Parties the net amount of the proceeds or, if less, the amount of the indemnity payment. The Selling Parties shall take all commercially reasonable actions to file claims under applicable policies to recover insurance proceeds that may be due to any Selling Party or any other Person in order to mitigate the Purchasing Parties’ obligations under this Agreement; provided, however, that the aforesaid obligation to mitigate shall not extend beyond six months from the date that the relevant claim becomes known to the Selling Parties; provided further, however, that the Selling Parties shall not be required to first seek recovery under any applicable insurance policy before making any claim for indemnification pursuant to this Article XII. The Purchasing Parties shall cooperate with the Selling Parties to pursue any claims that the Selling Parties may have with respect to the matters described in this Agreement and reasonably believe are covered under any insurance policy under which a Purchasing Party is a named insured.

12.4 Claims. As soon as is reasonably practicable after becoming aware of a claim by a Third Party (“Third-Party Claim”) with respect to which indemnity may be claimed pursuant to the terms of this Agreement, the Person entitled to, or claiming a right to, indemnification (the “Indemnified Person”) shall promptly give notice to the Person claimed by the Indemnified Person to be obligated under this Article XII (the “Indemnifying Person”) of the claim or the commencement of the Third Party Claim and a good faith estimate of the amount the Indemnified Person will be entitled to receive under this Agreement from the Indemnifying Person; provided, however, that the failure of the Indemnified Person to give notice shall not relieve the Indemnifying Person of its obligations under this Article XII except to the extent (if any) that the Indemnifying Person shall have been actually prejudiced by that failure. A claim for indemnification for any matter not involving a Third Party Claim may be asserted by notice to the Indemnifying Person without the need to comply with Sections 12.5 through 12.7.

12.5 Assumption of Defense. The Indemnifying Person may, at its own expense, participate in the defense of any Third Party Claim and upon written acknowledgement to the Indemnified Person that the Indemnified Person is entitled to indemnification pursuant to Section 12.2 or 12.3, as applicable, for all Losses arising out of the Third Party Claim, at any time during the course of any Third Party Claim assume the defense of the Third Party Claim; provided, however, that (a) the Indemnifying Person’s counsel is reasonably satisfactory to the Indemnified Person, (b) after assuming the defense the Indemnifying Person shall consult with and update the Indemnified Person upon the Indemnified Person’s reasonable request for consultation or update from time to time with respect to the Third Party, and (c) the Third Party Claim involves only monetary damages and does not seek an injunction or other equitable relief or does not, in the good faith judgment of the Indemnified Person, involve a conflict of interest. If the Indemnifying Person assumes the defense, the Indemnified Person shall have the right (but not the obligation) to participate in the defense and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Person; provided, however, that if (i) the Indemnified Person determines that a conflict of interest exists or (ii) the Indemnifying Person fails to actively and diligently conduct the defense of a Third Party Claim, then in either event, the Indemnified Person may hire separate counsel, at the Indemnifying Person’s expense. Whether or not the Indemnifying Person chooses to defend or prosecute any Third Party Claim, all of the Parties shall reasonably cooperate in the defense or prosecution of the claim.

12.6 Settlement or Compromise. Any settlement or compromise made or caused to be made by the Indemnified Person or the Indemnifying Person, as the case may be, of a Third Party Claim shall also be binding on the Indemnifying Person or the Indemnified Person, as the case may be, in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of the settlement or compromise; provided, however, that (a) subject to Section 12.7, no obligation, restriction, course of conduct or Loss shall be imposed on the Indemnified Person as a result of the settlement or compromise without the prior written consent of such Indemnified Person; and (b) the Indemnifying Person shall not enter into any settlement or compromise without obtaining a duly executed unconditional release of the Indemnified Person from all liability in respect of the Third Party Claim. The Indemnified Person or the Indemnifying Person, as the case may be, shall give the other Person at least ten (10) days’ prior written notice of any proposed settlement or compromise of any Third Party Claim it is defending, during which time the other Person may reject the proposed settlement or compromise. If the Indemnified Person is the rejecting party, it shall be obligated to assume the defense of, and full and complete liability and responsibility for, the Third Party Claim and any and all Losses in connection with it in excess of the amount of Losses which the Indemnified Person would have incurred under the proposed settlement or compromise. If the Indemnifying Person is the rejecting party, the Indemnifying Person shall be obligated to assume the defense of, and full and complete liability and responsibility for, the Third Party Claim and any and all Losses in connection with it.

12.7 Failure of Indemnifying Person to Act. If the Indemnifying Person does not elect to assume the defense of any Third Party Claim, then (a) the Indemnified Person shall (upon further notice to the Indemnifying Person) have the right to undertake the defense, compromise or settlement of the Third Party Claim on behalf of and for the account and risk of the Indemnifying Person, subject to the Indemnifying Person’s election to assume the defense of the Third Party Claim at any time prior to settlement, compromise or final determination of the claim; and (b) any failure of the Indemnified Person to defend or to participate in the defense of a Third Party Claim or to cause the same to be done, shall not relieve the Indemnifying Person of its obligations under this Agreement.

12.8 Direct Claims. The Indemnifying Person will have a period of 30 calendar days within which to respond in writing to any claim made in writing by an Indemnified Person on account of any Loss that does not result from a Third Party Claim (a “Direct Claim”). If the Indemnifying Person does not so respond within that 30-day period, the Indemnifying Person will be deemed to have rejected the Direct Claim, in which event the Indemnified Person will be entitled to pursue such remedies as may be available to the Indemnified Person.

ARTICLE XIII

POST-CLOSING DISPUTE RESOLUTION AND PRE-CLOSING REMEDIES

13.1 Initial Mutual Dispute Resolution. Except as provided in Section 2.4 (regarding adjustments to the Purchase Price), any dispute or difference arising out of or in connection with this Agreement (including any contested claim for indemnification pursuant to Article XII) after the Closing, shall be first submitted for resolution pursuant to the following procedure. First, a senior executive officer of each of Quanex and Maxco shall meet in person to resolve the dispute within five days after written notice of the dispute is provided by a Party to the other Parties. If those executive officers are unable to resolve the dispute within three days after their meeting, the chief executive officers of Quanex and Maxco shall promptly attempt to resolve the dispute. If the chief executive officers are unable to resolve the dispute within 15 days following the original notice of the claim or dispute, then the provisions of Section 13.2 shall apply.

13.2 Arbitration. Any dispute or difference arising after the Closing Date out of or in connection with this Agreement or the formation of this Agreement (including any contested claim for indemnification pursuant to Article XII), that is not addressed pursuant to Section 13.1 shall be first submitted for resolution pursuant to the following procedure. The Party seeking resolution shall give notice of the dispute to the other Parties and to the American Arbitration Association (“AAA”), at its office in Houston, Texas, and the dispute shall be submitted to a sole arbitrator who is independent and impartial, for binding arbitration in Houston, Texas, in accordance with AAA’s Commercial Arbitration Rules. The Parties shall faithfully abide by and perform any award rendered by the arbitrator. The award of the arbitrator shall be final and binding on all Parties, and judgment upon the award of the arbitrator may be entered and enforced by any court having jurisdiction. Any monetary award shall be denominated and payable in United States Dollars. With respect to disputes arising after the Closing Date, no litigation, administrative or other proceeding may ever be instituted at any time in any court or before any administrative agency or body for the purpose of adjudicating, interpreting or enforcing any of the rights, duties, liabilities or obligations of the Parties or any rights, duties, liabilities or obligations relating to any dispute under this Agreement or the Ancillary Agreements, whether or not covered by the express terms of this Agreement, or for the purpose of adjudicating a breach or determination of the validity of this Agreement, or for the purpose of appealing any decision of an arbitrator, except a proceeding instituted (a) for the purpose of having the award of an arbitrator entered and enforced, (b) to seek an injunction or restraining order (but not damages in connection therewith) in circumstances in which such relief is available or (c) to request a court to grant interim measures of protection: (i) to preserve the status quo pending resolution of the dispute; (ii) to prevent the destruction of documents and other information or things related to the dispute; (iii) to prevent the transfer, dissipation or hiding of assets; or (iv) to aid the arbitral proceedings and the award; any request for such measures to a judicial authority shall not be deemed incompatible with or a waiver of a Party’s right to arbitrate a dispute. The arbitrator shall have the right to grant the same relief as that provided in any applicable Law or court decisions.

13.3 Jurisdiction and Jury Trial Waiver with Respect to Pre-Closing Disputes.

(a) Each Party irrevocably agrees that the courts of the State of Texas or the United States of America for the Southern District of Texas are to have jurisdiction to settle any claims, differences or disputes which may arise out of or in connection with this Agreement before the Closing and with respect to proceedings described in Section 13.2(a) through (c).

(b) Each Party irrevocably waives any objection it may now or hereafter have to the laying of the venue of any proceedings in any court referred to in this Section 13.3 and any claim that any proceedings brought in any such court have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any proceedings brought in a court of the State of Texas or of the United States of America for the Southern District of Texas shall be conclusive and binding on the Parties and may be enforced in the courts of any other jurisdiction with respect to pre-Closing disputes and with respect to proceedings described in Section 13.2(a) through (c).

(c) The Parties waive any right to trial by jury in any proceeding arising out of or relating to pre-Closing disputes under this Agreement, whether grounded in contract, tort, strict liability or otherwise. The Parties agree that any of them may file a copy of this Section 13.3 with any court as written evidence of the knowing, voluntary and bargained for agreement among the Parties irrevocably to waive trial by jury and that any proceeding whatsoever between or among them relating to pre-Closing disputes under this Agreement shall instead be tried in a court of competent jurisdiction by a judge sitting without a jury.

13.4 Specific Performance. The Parties recognize that if the Selling Parties refuse to perform or do not perform under the provisions of this Agreement, monetary damages alone will not be adequate to compensate the Purchasing Parties for their Losses. The Purchasing Parties shall therefore be entitled, in addition to any other remedies that may be available, to obtain specific performance of the terms of this Agreement.

ARTICLE XIV

MISCELLANEOUS

14.1 Amendment. This Agreement and the Disclosure Document may be amended, modified or supplemented only by a writing signed by the Parties.

14.2 Interpretation. The headings preceding the text of articles and sections included in this Agreement and the headings contained in exhibits to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The terms set forth in this Agreement have been arrived at after mutual negotiation with the advice of counsel representing Selling Parties and counsel representing the Purchasing Parties and, therefore, it is the intention of the Parties that its terms may not be construed against any of the Parties by reason of the fact that it was prepared by one or more of the Parties. Unless the context otherwise requires, (a) the gender (or lack of gender) of all pronouns used in this Agreement includes the masculine, feminine and neuter; (b) references to articles, sections and exhibits refer to articles and sections of, or exhibits to this Agreement; and (c) “including” means “including without limitation”. References to this Agreement are intended to include this Agreement and all exhibits and amendments (if any) to this Agreement. Capitalized terms used in this Agreement that have been defined in this Agreement shall have the meanings defining them in the text of this Agreement.

14.3 Notices. Any notice, request, instruction or other document to be given under this Agreement by a Party shall be in writing and shall be deemed to have been given (a) when received if given in person or by courier or a courier service; (b) on the date of transmission if sent by telex, facsimile or other wire transmission (receipt confirmed); or (c) five Business Days after being deposited in the U.S. mail, certified or registered, postage prepaid:

If to a Selling Party, addressed as follows:

Maxco, Inc.

1005 Charlevoix Dr., Suite 100

Lansing, Michigan 48837

Attention: Max A. Coon

Telephone No.: 517-627-1734

Facsimile No.: 517-627-4951

With a copy to:

J. Michael Warren

Warren Cameron Asciutto & Blackmer, P.C.

P.O. Box 26067

Lansing, Michigan 48909

Telephone No.: 517-349-8600

Facsimile No.: 517-349-3311

If to a Purchasing Party, addressed as follows:

Quanex Corporation

1900 West Loop South

Suite 1500

Houston, Texas 77027

Attention: Senior Vice President and Chief Financial Officer

Telephone No.: (713) 961-4600

Facsimile No.: (713) 877-5333

With copies to:

Quanex Corporation

1900 West Loop South

Suite 1500

Houston, Texas 77027

Attention: Senior Vice President and General Counsel

Telephone No.: (713) 961-4600

Facsimile No.: (713) 877-5333

Ms. Harva R. Dockery

Fulbright & Jaworski, L.L.P.

1301 McKinney Street, Suite 1500

Houston, Texas 77010-3095

Telephone No.: (713) 651-5196

Facsimile No.: (713) 651-5246

or to such other individual or address or facsimile number as a Party may designate for itself by notice given as provided in this Section 14.3.

14.4 Waivers. The failure of a Party at any time or times to require performance of any provision of this Agreement shall in no manner affect its right at a later time to enforce the same provision. No waiver by a Party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any condition or breach of this Agreement in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty of this Agreement.

14.5 Successors and Assigns. This Agreement shall be binding on and shall inure to the benefit of each Party and its permitted successors and assigns; provided, however, that neither this Agreement, nor any Ancillary Agreements (except as may be expressly provided otherwise in any Ancillary Agreement) nor any right or obligation under this Agreement or any Ancillary Agreement may be assigned by any Party other than to an Affiliate of that Party without the prior written consent of the other Parties; provided further, that no such assignment shall relieve a Party from its obligations under this Agreement or any Ancillary Agreement.

14.6 No Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties and no provision of this Agreement shall be deemed to confer upon any other Person any remedy, claim, liability, reimbursement, cause of action or other right, including the rights of any Business Employees.

14.7 Severability and Reform. If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality or enforceability of the other provisions of this Agreement shall not be affected by that holding, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue.

14.8 Entire Understanding. This Agreement, the Disclosure Document, the Ancillary Agreements and the Confidentiality Agreement (as amended under Section 6.7), including schedules, exhibits and annexes to any of the foregoing, set forth the entire agreement and understanding of the Parties with respect to the transactions described in this Agreement and the Ancillary Agreements and supersede any and all prior agreements, arrangements and understandings among the Parties relating to the subject matter of this Agreement. The letter of intent dated October 3, 2006, executed by Maxco and Quanex is terminated, but this termination shall not relieve Maxco or Quanex of any liability under that letter of intent for any existing breach.

14.9 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without giving effect to the principles of conflicts of law.

14.10 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 original instrument.

IN WITNESS OF THE PROVISIONS OF THIS AGREEMENT, the Parties have executed and delivered this Agreement on the date set forth in the opening paragraph of this Agreement.


	SELLING PARTIES: MAXCO, INC.

	By:
		Name: Max. A. Coon Title: President


	ATMOSPHERE ANNEALING, INC.

	By:
		Name: _____________________________________ Title: ______________________________________


	BCGW, INC.

	By:
		Name: Max A. Coon Title: Vice President


	PURCHASING PARTIES: QUANEX CORPORATION

	By:
		Name: Paul A. Hammonds Title: Vice President - Corporate Development


	QUANEX TECHNOLOGIES, INC.

	By:
		Name: Kevin P. Delaney Title: Vice President - Secretary

Exhibit A

ESCROW AGREEMENT

This Escrow Agreement (the “Agreement”), dated as of _______, 2007, among Quanex Corporation, a Delaware corporation (“Quanex”), Quanex Technologies, Inc., a Delaware corporation (the “Purchaser”), Maxco, Inc., a Michigan corporation (“Maxco”), Atmosphere Annealing, Inc., a Michigan corporation (“AAI”), BCGW, Inc., a Michigan corporation (“BCGW”), and U.S. Bank National Association (the “Escrow Agent”);

WITNESSETH:

Whereas, Quanex and the Purchaser (the “Purchasing Parties”) and Maxco, AAI and BCGW (the “Selling Parties”) have entered into an asset purchase and sale agreement dated December 13, 2006 (the “Asset Purchase Agreement”), pursuant to which the Purchaser is purchasing certain assets of the Sellers;

Whereas, the Asset Purchase Agreement provides that the Purchaser will pay a total of $5,000,000 of the closing purchase price pursuant to the Asset Purchase Agreement into the escrow account established pursuant to the terms of this Agreement;

Whereas, the Purchasing Parties and the Selling Parties wish to enter into this Agreement pursuant to the Asset Purchase Agreement; and

Whereas, Purchasing Parties and the Selling Parties have requested the Escrow Agent to act as the escrow agent under this Agreement, and the Escrow Agent has agreed to do so.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, Purchasing Parties, the Selling Parties and the Escrow Agent agree as follows:

1. Appointment of Escrow Agent. The Purchasing Parties and the Selling Parties appoint U.S. Bank, National Association as the Escrow Agent for the purposes set forth in this Agreement, and the Escrow Agent accepts the appointment under the terms of this Agreement.

2. Deposit of Escrow Funds; Establishment of Accounts.

(a) For the purposes set forth in this Agreement, the Selling Parties are depositing or have deposited with the Escrow Agent $5,000,000 (the “Escrow Funds”). The Escrow Agent shall hold, invest, reinvest and disburse the Escrow Funds in and from a separate account (the “Escrow Account”). The Escrow Funds shall be under the sole and exclusive dominion and control of the Escrow Agent, and no Purchasing Party or Selling Party shall have any right with respect to the Escrow Funds except as set forth in this Agreement. The amounts held in the Escrow Account shall be held in two separate sub-accounts, as described in Section 2(b).

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(b) Two Million Dollars of the Escrow Funds shall be placed in a sub-account (the “Environmental Claim Fund”) and shall be available to indemnify members of the Purchasing Parties’ Group pursuant to Section 12.2(a)(xi) of the Asset Purchase Agreement, including without limitation Losses attributable Post-Closing Remediation (the “Environmental Claims”). Three Million Dollars of the Escrow Funds shall be placed in a sub-account (the “General Claim Fund”) and shall be available to indemnify members of the Purchasing Parties’ Group for Losses incurred by a member of the Purchasing Parties’ Group pursuant to Section 12.2(a)(i) through (xi) of the Asset Purchase Agreement, including Environmental Claims (“General Claims”); provided, however, that no distribution from the General Claim Fund may be made to a member of the Purchasing Parties’ Group for all or part of an Environmental Claim unless and until no funds remain in the Environmental Claim Fund.

3. Satisfaction of Claims with Escrow Funds.

(a) Basket. In accordance with Section 12.2(b) of the Asset Purchase Agreement, no amounts may be distributed to a member of the Purchasing Parties’ Group until the aggregate amount of all Environmental Claims and General Claims exceeds $100,000, in which event distributions may be made pursuant to the terms of this Agreement to the extent aggregate claims exceed $100,000.

(b) Distributions to Pay Environmental Claims. The Environmental Claim Fund will be retained by the Escrow Agent and shall be distributed at any time, or from time to time, for the purpose of paying any and all Environmental Claims on the terms and conditions set forth in the Asset Purchase Agreement and this Agreement.

(c) Distributions to Pay General Claims. The General Claim Fund will be retained by the Escrow Agent and shall be distributed at any time, or from time to time, for the purpose of paying any and all General Claims on the terms and conditions set forth in the Asset Purchase Agreement and this Agreement.

(d) Notice and Payment of Section 6.14 Claims. From time to time in accordance with the terms of this Escrow Agreement, the Purchaser may provide written notice (a “Notice”) to the Escrow Agent of any Environmental Claim that constitutes a cost for Post-Closing Remediation pursuant to Section 6.14 of the Asset Purchase Agreement (a “Section 6.14 Claim”), including a description of the nature and amount of the Section 6.14 Claim for which payment is requested, a statement of whether the Section 6.14 Claim should be paid from the General Claim Fund or the Environmental Claim Fund and a statement that the Section 6.14 Claim is payable pursuant to the terms of the Asset Purchase Agreement. A copy of the Notice shall be contemporaneously provided to Maxco, on behalf of the Selling Parties. The Purchasing Parties shall furnish such other information and documents in connection with any Section 6.14 Claims as the Escrow Agent may reasonably request. The Escrow Agent shall immediately disburse the amount of the Section 6.14 Claim to the Purchaser. The Escrow Agent’s duty to pay amounts pursuant to this Section 3(d) shall be unconditional and shall not require the Selling Parties’ consent.

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(e) Notice and Payment of All Other Claims. From time to time in accordance with the terms of this Escrow Agreement, the Purchaser may provide a Notice to the Escrow Agent of any General Claim that does not constitute a Section 6.14 Claim (an “Other Claim”), including a description of the nature and amount of the Other Claim for which payment is requested, a statement of whether the Other Claim should be paid from the General Claim Fund or the Environmental Claim Fund and a statement that the Other Claim is payable pursuant to the terms of the Asset Purchase Agreement. A copy of the Notice shall be contemporaneously provided to Maxco, on behalf of the Selling Parties. The Purchasing Parties shall furnish such other information and documents in connection with any Other Claim as the Escrow Agent or Maxco may reasonably request. The Selling Parties shall have a period of 10 days from the date of the Notice in which Maxco may make the Purchasing Parties aware of, and attempt to settle, any dispute the Sellers may have regarding the Other Claim. If Maxco does not provide written notice of a dispute regarding the applicable Other Claim to the Purchasing Parties within that 10-day period, then the Escrow Agent shall immediately disburse the amount of the Other Claim to the Purchaser. The Escrow Agent’s duty to pay amounts pursuant to this Section 3(e) shall be unconditional and shall not require the specific consent of any Selling Party.

(f) Disputed Other Claims. If an Other Claim is disputed pursuant to Section 3(e) above, the Escrow Agent shall not pay any amounts to the Purchaser with respect to such Other Claim until the matter in dispute is resolved pursuant to Article XIII of the Asset Purchase Agreement. Once a disputed Other Claim is resolved as described above, the Purchaser and Maxco shall jointly provide the Escrow Agent with a copy of written instructions or, if applicable, Maxco or the Purchaser may provide the Escrow Agent with a copy of any written order, judgment or similar documentation regarding the resolution of the dispute, in either case, as soon as practicable, and the Escrow Agent shall distribute (or retain in the Escrow Funds, as the case may be) all or any portion of the Escrow Funds as are provided for in such written joint instruction, order, judgment or other documentation.

4. Investment of Escrow Funds.

The Escrow Funds shall be invested by the Escrow Agent in such investments as Maxco shall direct from time to time in writing. The foregoing notwithstanding, such investments shall solely be in U.S. Bank National Association money market funds, savings deposits, certificates of deposit or government obligations. All income earned on the Escrow Funds (the “Escrow Income”) for any calendar quarter shall be paid by the Escrow Agent to Maxco as soon as practicable after the end of the quarter.

The Purchasing Parties and the Selling Parties acknowledge that regulations of the Comptroller of the Currency grant the Purchasing Parties and the Selling Parties the right to receive brokerage confirmations of the security transactions as they occur. The Purchasing Parties and the Selling Parties specifically waive such notification to the extent permitted by law and will receive periodic cash transaction statements which will detail all investment transactions.

The Escrow Agent may make investments through or from its own bond department or trust investments department, or its parent's or affiliate's bond department or trust investments department. Except as otherwise provided hereunder or agreed in writing among the parties hereto, the Selling Parties and the Purchasing Parties shall retain the authority to institute, participate and join in any plan of reorganization, readjustment, merger or consolidation with respect to the issuer of any securities held hereunder, and, in general, to exercise each and every other power or right with respect to each such asset or investment as individuals generally have and enjoy with respect to their own assets and investment, including power to vote upon any securities.

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5. Release of Escrow Funds; Taxation.

(a) Release of Funds in General Claim Fund. On the 546th day after the Closing Date, the Escrow Agent shall release to Maxco the amount then held in the General Claim Fund, unless any General Claims are then pending (including any General Claim as to which a Notice has been sent and which has not been paid), in which case an amount equal to the aggregate dollar amount of all such General Claims (as shown in the Notices of such General Claims) shall be retained in the General Claim Fund and treated as an amount in retained escrow (“Retained Escrow”) until paid in accordance with Section 3(d) (if the pending claim is a Section 6.14 Claim) or until paid in accordance with Section 3(e) or any disputes regarding pending General Claims have been resolved in accordance with Section 3(f) (if the pending claim is an Other Claim).

(b) Release of Funds in Environmental Claim Fund. If, by the third anniversary of the Closing Date, Maxco and the Purchaser notify the Escrow Agent that authoritative closure (“Closure”) has been achieved with respect to any formalized environmental remediation plan filed before the third anniversary of the Closing Date with respect to the property located at 1801 Bassett Street, Lansing, Michigan (the “Bassett Street Property”), the Escrow Agent shall, on the date of the third anniversary of the Closing Date, release to Maxco the amount then held in the Environmental Claim Fund, unless any Environmental Claims are then pending (including any Environmental Claim as to which a Notice has been sent and which has not been paid), in which case an amount equal to the aggregate dollar amount of all such Environmental Claims (as shown in the Notices of such Environmental Claims) shall be retained in the Environmental Claim Fund and treated as an amount in Retained Escrow until paid in accordance with Section 3(d) (if the pending claim is a Section 6.14 Claim) or until paid in accordance with Section 3(e) or any disputes regarding pending Environmental Claims have been resolved in accordance with Section 3(f) (if the Pending Claim is an Other Claim). If Maxco and the Purchaser do not notify the Escrow Agent that Closure has been achieved by the third anniversary of the Closing Date, the Escrow Agent shall, on the date of the fourth anniversary of the Closing Date, release to Maxco the amount then held in the Environmental Claim Fund, unless any Environmental Claims are then pending (including any Environmental Claim as to which a Notice has been sent and which has not been paid), in which case an amount equal to the aggregate dollar amount of all such Environmental Claims (as shown on the Notices of such Environmental Claims) shall be retained in the Environmental Claim Fund and treated as an amount in Retained Escrow until paid in accordance with Section 3(d) (if the pending claim is a Section 6.14 Claim) or until paid in accordance with Section 3(e) or any disputes regarding pending Environmental Claims have been resolved in accordance with Section 3(f) (if the Pending Claim is an Other Claim).

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(c) Release of Funds in Retained Escrow. Amounts in Retained Escrow under this Section 5 shall not be distributed until paid in accordance with Section 3 or written joint instructions, court order, judgment or other documentation has been provided in accordance with Section 3(f), and the Escrow Agent shall distribute such amounts accordingly.

(d) Taxation. All income earned on the Escrow Funds shall be reported annually as accrued by the Selling Parties for federal, state and local income tax purposes.

6. Rights and Duties of the Escrow Agent.

(a) General Scope and Limitations. The duties of the Escrow Agent under this Agreement shall be limited to the observance of the provisions of this Agreement. The Escrow Agent will not be subject to, or be obliged to recognize, any other agreement between the Purchasing Parties and the Selling Parties, unless such agreement is specifically addressed to the Escrow Agent and signed by Maxco and the Purchaser. The Escrow Agent shall not make any payment or disbursement from or out of the Escrow Funds that is not authorized pursuant to this Agreement. The Escrow Agent may rely on and act based on any instrument received by it pursuant to the provisions of this Agreement that it reasonably believes to be genuine and in conformity with the requirements of this Agreement. The Escrow Agent will not be liable for any error of judgment for any act done or any step taken by it in good faith in compliance with the provisions of this Agreement, for any mistake of fact or law or for anything that it might do or refrain from doing in complying with this Agreement, except to the extent those actions shall be proved to constitute gross negligence or willful misconduct on the part of the Escrow Agent.

(b) Indemnification of the Escrow Agent. The Purchasing Parties and the Selling Parties shall jointly and severally indemnify and hold harmless the Escrow Agent from and against any and all losses, costs, damages and expenses (including reasonable attorneys’ fees) it may sustain by reason of its services as Escrow Agent under this Agreement, except those losses, costs, damages and expenses (including reasonable attorneys’ fees) incurred by reason of those acts or omissions for which the Escrow Agent is liable or responsible under the last sentence of Section 6(a). Any costs of the Purchasing Parties and the Selling Parties associated with the indemnification of the Escrow Agent pursuant to this Section 6(b) shall be borne one-half by the Purchasing Parties and one-half by Selling Parties. No provision of this Agreement shall require the Escrow Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(c) Resignation of Escrow Agent. The Escrow Agent may resign from its duties under this Agreement by giving the Purchasing Parties and the Selling Parties not less than 30 days’ prior written notice of the effective date of its resignation (which effective date shall be at least 30 days after the date the notice is given). If on or before the effective date of the resignation, the Escrow Agent has not received written instructions from the Purchasing Parties and the Selling Parties regarding the transfer of the Escrow Funds to a substitute escrow agent, it may institute a bill of interpleader and deposit the Escrow Funds with the registry of a court of competent jurisdiction. The parties intend that a substitute escrow agent will be appointed to fulfill the duties of the Escrow Agent under this Agreement for the remaining term of this Agreement if the Escrow Agent resigns.

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(d) Consultation with Legal Counsel. The Escrow Agent may consult with its counsel or other counsel satisfactory to it in respect of any question relating to its duties or responsibilities under this Agreement and shall not be liable for any action taken, suffered or omitted by the Escrow Agent in good faith on the advice of that counsel, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent may act through its officers, employees, agents and attorneys.

7. Fees and Expenses of the Escrow Agent. The Selling Parties shall be responsible for one-half of all of the fees of the Escrow Agent for its services under this Agreement, and the Purchasing Parties shall be responsible for one-half of all of the fees of the Escrow Agent for its services under this Agreement, in each case, in accordance with the standard fee schedule of the Escrow Agent which is attached hereto, together with any expenses reasonably incurred by the Escrow Agent in connection with this Agreement.

8. Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given on the date delivered, if delivered personally or sent by facsimile to the persons identified below, or three days after mailing in the United States mail if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:

(a) if to the Purchasing Parties:

Quanex Corporation

1900 West Loop South, Suite 1500

Houston, Texas 77027

Attention: Mr. Terry M. Murphy

Fax No.: (713) 877-5333

with a copy to:

Fulbright & Jaworski L.L.P.

2200 Ross Avenue, Suite 2800

Dallas, Texas 75201

Attention: Ms. Harva R. Dockery

Fax No.: (214) 855-8200

(b) if to the Selling Parties:

Maxco, Inc.

1005 Charlevoix Dr., Suite 100

Lansing, Michigan 48837

Attention: Max A. Coon

Telephone No.: 517-627-1734

Facsimile No.: 517-627-4951

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with a copy to:

J. Michael Warren

Warren Cameron Asciutto & Blackmer, P.C.

P.O. Box 26067

Lansing, MI 48909

Telephone No.: 517-349-8600

Facsimile No. 517-349-3311

James Kowalski

Vice President

U.S. Bank National Association

535 Griswold Street, Suite 550

Detroit, MI 48226

Each party shall have the right to change its address for notice to any other location by giving written notice to the other parties in the manner set forth above.

9. Patriot Act. The Selling Parties and the Purchasing Parties acknowledge that to help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. The Selling Parties and the Purchasing Parties acknowledge that for a non-individual person such as a business entity, a charity, a trust or other legal entity, the Escrow Agent will ask for documentation to verify the formation and existence of each Selling Party and Purchasing Party as a legal entity. The Selling Parties and Purchasing Parties also acknowledge that the Escrow Agent may also ask to see financial statements, licenses, identification and authorization documents from individuals claiming authority to represent the Selling Parties and Purchasing Parties or other relevant documentation.

10. Automatic Succession. Any company into which the Escrow Agent may be merged or with which it may be consolidated, or any company to whom the Escrow Agent may transfer a substantial amount of its escrow business, shall be the successor to the Escrow Agent without the execution or filing of any paper or any further act on the part of any of the parties, anything herein to the contrary notwithstanding.

11. Binding Effect. This Agreement shall be binding on and shall inure to the benefit of each party to this Agreement and its successors and permitted assigns.

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12. Amendment and Termination. This Agreement contains the entire agreement among the parties relating to the subject matter of this Agreement. This Agreement may be amended only by a written instrument executed by the parties to this Agreement. This Agreement will terminate when all of the Escrow Funds and the Escrow Income have been disbursed in accordance with the terms of this Agreement.

13. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to conflicts of law principles.

14. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Copies (whether facsimile, photostatic or otherwise) of signatures to this Agreement shall be deemed to be originals and may be relied on to the same extent as the originals.

15. Captions and Paragraph Headings. Captions and paragraph headings used in this Agreement are for convenience only, are not part of this Agreement and shall not be used in construing it.

16. Defined Terms and Construction. Capitalized terms used in this Agreement shall have the meanings ascribed to them in the Asset Purchase Agreement unless the context requires otherwise. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does limit the preceding words or terms.

* * *

IN WITNESS WHEREOF, the Purchasing Parties, the Selling Parties and the Escrow Agent have caused this Agreement to be executed, effective as of the date first above written.


	Purchasing Parties: QUANEX CORPORATION

	By:
	Name:
	Title:

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	QUANEX TECHNOLOGIES, INC.

	By:
	Name:
	Title:


	Selling Parties: MAXCO, INC.

	By:
	Name:
	Title:


	ATMOSPHERE ANNEALING, INC.

	By:
	Name:
	Title:


	BCGW, INC.

	By:
	Name:
	Title:


	Escrow Agent: U.S. BANK NATIONAL ASSOCIATION

	By:
	Name:
	Title:

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Exhibit B

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (the “Agreement”) is entered into and made effective as of ____________, 2007 (the “Effective Date”) by and among Atmosphere Annealing, Inc., a Michigan corporation, BCGW, Inc., a Michigan corporation (“Assignors”), and Quanex Technologies, Inc., a Delaware corporation (“Assignee”).

WHEREAS, Assignors, Assignee, Maxco, Inc., a Michigan corporation, and Quanex Corporation, a Delaware corporation, are parties to that certain Asset Purchase and Sale Agreement dated December 13, 2006 (as it may be amended and restated, the “Purchase Agreement”), pursuant to which Assignors agreed to transfer to the Assignee and the Assignee agreed to assume all the Assumed Obligations (as defined in the Purchase Agreement);

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are acknowledged, the parties agree as follows:

1.	Capitalized Terms. Capitalized terms used but not defined shall have the meaning for such terms that are set forth in the Sale Agreement.

2.	Assignment and Assumption. Each of the Assignors sells, assigns, conveys, transfers and delivers to Assignee the Assumed Obligations, and Assignee assumes and agrees to discharge, pursuant to the terms of the Purchase Agreement, the Assumed Obligations.

Terms of the Purchase Agreement. This Agreement is entered into pursuant to the Purchase Agreement and is subject to the terms of the Purchase Agreement. In the event of any conflict or inconsistency between the terms of the Purchase Agreement and the terms of this Agreement, the terms of the Purchase Agreement shall govern.

[Remainder of page intentionally left blank.]

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IN WITNESS WHEREOF, Assignors and Assignee have executed this Agreement as of the Effective Date.


	Assignors: ATMOSPHERE ANNEALING, INC.

	By:
	Name:
	Title:


	BCGW, INC.

	By:
	Name:
	Title:


	Assignee: QUANEX TECHNOLOGIES, INC.

	By:
	Name:
	Title:

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Exhibit C

FORM OF GENERAL WARRANTY DEEDS

[to be tailored to particular

jurisdiction of subject property]

STATE OF _______________	§
	§
COUNTY OF _____________	§

[Name of Seller], a Michigan corporation (“Grantor”), for the sum of TEN DOLLARS and other good and valuable consideration, the receipt and sufficiency of which consideration are acknowledged and confessed by QUANEX TECHNOLOGIES, INC., a Delaware corporation (“Grantee”), has GRANTED, BARGAINED, SOLD, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, and CONVEY, unto Grantee, those certain tracts or parcels of land situated in ______ County, ________ and more fully described on Exhibit “A” attached to this General Warranty Deed and made a part hereof for all purposes, together with all improvements and fixtures affixed to and forming a part of such real property (the “Property”).

This General Warranty Deed is made subject to the matters set forth on Exhibit “B” attached to this General Warranty Deed and made a part hereof for all purposes, to the extent that such matters are valid and subsisting and affect all or any part of the Property; provided, however, that to the extent any such matter shall not be valid or subsisting or not affect all or any part of the Property, Grantee shall have no claim against Grantor with respect thereto.

TO HAVE AND TO HOLD the Property, together with all and singular the rights and appurtenances thereunto in anywise belonging, unto Grantee and Grantee’s successors and assigns, forever; and Grantor does hereby bind Grantor and Grantor’s successor and assigns, to WARRANT and FOREVER DEFEND all and singular the Property unto Grantee and Grantee’s successors and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof.

WITNESS this hand of Grantor this day of ______, 2007.

	________________, a Michigan corporation

	By:
	Name:
	Title:

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STATE OF _________	§
	§
COUNTY OF ____________	§

The foregoing instrument was acknowledged before me this _____ day of ___________, 2007 by ______________________ as ________________________ of __________, a Michigan corporation, on behalf of said corporation.

Print name:

Notary Public

My commission expires

(AFFIX NOTARY SEAL)

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Exhibit A

[to come]

Exhibit B

[to come]

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Exhibit D

BILL OF SALE

THIS BILL OF SALE is made as of _______________, 2007, by ATMOSPHERE ANNEALING, INC., a Michigan corporation, and BCGW, INC., a Michigan corporation (the "Sellers"). This Bill of Sale is made pursuant to and in accordance with the terms of the Asset Purchase and Sale Agreement among the Sellers, Maxco, Inc., a Michigan corporation, Quanex Technologies, Inc., a Delaware corporation (the “Purchaser”), and Quanex Corporation, a Delaware corporation, dated December 13, 2006 (as it may be amended and restated, the "Agreement"). Except as otherwise indicated in this Bill of Sale, all capitalized terms used in this Bill of Sale without definition have the meanings given to them in the Agreement.

FOR AND IN CONSIDERATION of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Sellers, each of the Sellers has granted, bargained, sold, transferred, assigned and delivered and by these presents does grant, bargain, sell, transfer, assign and deliver to the Purchaser and its successors and assigns all of its right, title and interest in and to the Purchased Assets, free and clear of all Encumbrances, other than Permitted Encumbrances, TO HAVE AND TO HOLD such Purchased Assets unto the Purchaser, its successors and assigns forever.

This Bill of Sale is entered into pursuant to the Agreement and is subject to the terms of the Agreement. In the event of any conflict between the provisions contained in this Bill of Sale and the provisions contained in the Agreement, the provisions in the Agreement shall govern and control.

[Remainder of page intentionally left blank.]

-1-

IN WITNESS WHEREOF, the Sellers have executed and delivered this Bill of Sale as of the date set forth in the first paragraph of this Bill of Sale.


	Sellers: ATMOSPHERE ANNEALING, INC.

	By:
	Name:
	Title:


	BCGW, INC.

	By:
	Name:
	Title:

-2-

Exhibit E

DESCRIPTION OF OPINION OF WARREN CAMERON ASCIUTTO & BLACKMER, P.C.

1. Each of the Selling Parties is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan. Each of the Sellers has the corporate power and authority to own, operate and lease its properties and conduct its business as now owned, operated, leased or conducted. Each of the Sellers is duly qualified to conduct its business and is in good standing in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on the business or assets of the Sellers.

2. Each of the Sellers has all requisite corporate power and authority to enter into, deliver and perform the Agreement, the Escrow Agreement, the General Warranty Deeds to which it is a party, the Assignment and Assumption Agreement and the Bill of Sale (collectively, the “Seller Agreements”) and to consummate the transactions described in the Seller Agreements. Each of the Seller Agreements has been duly executed and delivered by the Sellers pursuant to all necessary corporate action. Maxco has all requisite corporate power and authority to enter into, deliver and perform the Agreement and the Escrow Agreement (collectively, the “Maxco Agreements”) and to consummate the transactions described in the Maxco Agreements. Each of the Maxco Agreements has been duly executed and delivered by Maxco pursuant to all necessary corporate action.

3. All issued and outstanding shares of capital stock of AAI are owned of record and, to such counsel’s knowledge, after due inquiry, beneficially by Maxco. All issued and outstanding shares of capital stock of BCGW are owned of record and, to such counsel’s knowledge, after due inquiry, beneficially by AAI.

4. Neither the execution and delivery by the Sellers of the Seller Agreements, the consummation of the transactions described in the Seller Agreements by the Sellers nor compliance by the Sellers with any other provisions of the Seller Agreements will conflict with, result in a breach of or constitute a default under (a) either Seller’s articles of incorporation or bylaws, (b) any Material Contract or (c) any Law, or to such counsel’s knowledge, after due inquiry, any court or administrative order by which a Seller or the business or assets of a Seller is subject or bound. Neither the execution and delivery by Maxco of the Maxco Agreements, the consummation of the transactions described in the Maxco Agreements by Maxco nor compliance by Maxco with any other provisions of the Maxco Agreements will conflict with, result in a breach of or constitute a default under (a) Maxco’s articles of incorporation or bylaws or (b) any Law or, to such counsel’s knowledge, court or administrative order by which Maxco or its properties are subject or bound.

5. Except as specifically set forth in the Agreement, or in the Disclosure Document, to such counsel’s knowledge, after due inquiry, no Selling Party is required to submit any notice, report or other filing with any governmental or regulatory authority or instrumentality, or to obtain any license, consent or approval of any governmental or regulatory authority, in connection with the execution, delivery or performance of the Seller Agreements by the Sellers, and the Maxco Agreements by Maxco or the consummation of the transactions described in the Seller Agreements and the Maxco Agreements.

-1-

6. Each of the Seller Agreements is the legal, valid and binding obligation of the Sellers and is enforceable against each Seller in accordance with its terms, except as may be limited by principles of equity or bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions relating to or affecting the enforcement of creditors’ rights. Each of the Maxco Agreements is the legal, valid and binding obligation of Maxco, and is enforceable against Maxco in accordance with its terms, except as may be limited by principles of equity or bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions relating to or affecting the enforcement of creditors’ rights.

7. To such counsel’s knowledge, after due inquiry, except as set forth in the Agreement or the Disclosure Document, there is no pending or threatened Litigation against a Selling Party with respect to the businesses or assets of either Seller.

Such opinions shall be subject to such exceptions and assumptions as are standard in opinions in similar transactions, as are reasonable, and as are acceptable to the Purchasing Parties.

-2-

Exhibit F

DESCRIPTION OF OPINION OF FULBRIGHT & JAWORSKI L.L.P.

1. Each of Quanex and the Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own, operate and lease its properties and conduct its business as now owned, operated, leased or conducted.

2. Quanex has all requisite corporate power and authority to enter into, deliver and perform the Agreement and the Escrow Agreement (collectively, the “Quanex Agreements”) and to consummate the transactions described in the Quanex Agreements. Each of the Quanex Agreements has been duly executed and delivered by Quanex pursuant to all necessary corporate action. The Purchaser has all requisite corporate power and authority to enter into, deliver and perform the Agreement, the Escrow Agreement and the Assignment and Assumption Agreement the “Purchaser Agreements”) and to consummate the transactions described in the Purchaser Agreements. Each of the Purchaser Agreements has been duly executed and delivered by the Purchaser pursuant to all necessary corporate action.

3. Neither the execution and delivery by Quanex of the Quanex Agreements, the consummation of the transactions described in the Quanex Agreements by Quanex nor compliance by Quanex with any provisions of the Quanex Agreements will conflict with, result in a breach of or constitute a default under (a) Quanex’s certificate of incorporation or bylaws or (b) any Law or, to such counsel’s knowledge, after due inquiry, any court or administrative order by which Quanex or the assets of Quanex are subject or bound. Neither the execution and delivery by the Purchaser of the Purchaser Agreements, the consummation of the transactions described in the Purchaser Agreements by the Purchaser nor compliance by the Purchaser with any provisions of the Purchaser agreements will conflict with result in a breach of or constitute a default under (a) the Purchaser’s certificate of incorporation or bylaws or (b) any Law or, to such counsel’s knowledge, court or administrative order by which the Purchaser or the assets of the Purchaser are subject or bound.

4. Except as specifically set forth in the Agreement or the Disclosure Document, to such counsel’s knowledge, after due inquiry, neither Quanex nor the Purchaser is required to submit any notice, report or other filing with any governmental or regulatory authority or instrumentality, or obtain any license, consent or approval of any governmental or regulatory authority, in connection with the execution, delivery or performance of the Quanex Agreements by Quanex or the Purchaser Agreements by the Purchaser and the consummation of the transactions described in the those agreements.

5. Each of the Quanex Agreements is the legal, valid and binding obligation of Quanex and is enforceable against Quanex in accordance with its terms, except as may be limited by principles of equity or bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions relating to or affecting the enforcement of creditors’ rights. Each of the Purchaser Agreements is the legal, valid and binding obligation of the Purchaser and is enforceable against the Purchaser in accordance with its terms, except as may be limited by principles of equity or bankruptcy, insolvency, reorganization, moratorium or other similar laws or judicial decisions relating to or affecting the enforcement of creditors’ rights.

Such opinions shall be subject to such exceptions and assumptions as are standard in opinions in similar transactions, as are reasonable, and as are acceptable to the Selling Parties.

-1-

ANNEX B

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

On December 13, 2006, Maxco, Inc. (“Maxco”), its wholly owned subsidiary, Atmosphere Annealing, Inc. (“AAI”), and AAI’s wholly owned subsidiary, BCGW, Inc. (“BCGW”) entered into an Asset Purchase and Sale Agreement (the “Agreement”) to sell substantially all of the assets of AAI and BCGW (“AAI business”) to Quanex Technologies, Inc. (“Quanex”). The cash consideration to be paid by Quanex is approximately $58 million in cash, as adjusted pursuant to the Agreement. The Agreement is subject to Maxco stockholder approval and other customary closing conditions.

Pro Forma Financial Information.

The following unaudited pro forma condensed consolidated financial information has been prepared based on the historical financial statements of Maxco after giving effect of the sale to Quanex of the AAI business and the assumption by Quanex of certain liabilities related to AAI.

The unaudited pro forma condensed consolidated statements of operations give effect to the disposal of the AAI business by Maxco as if it occurred on March 31, 2003 and the unaudited pro forma condensed consolidated balance sheet gives effect to the disposal of the AAI business by Maxco as if it occurred on September 30, 2006. The unaudited pro forma condensed consolidated financial information was derived by adjusting the historical financial statements of Maxco for the removal of assets, liabilities, revenues and expenses associated with the AAI business. The sale of assets by Maxco pursuant to the Agreement will be a taxable transaction for United States federal income tax purposes. Accordingly, Maxco will recognize a gain or loss with respect to the sale of assets pursuant to the Agreement in an amount equal to the difference between the amount of the consideration received for each asset over the adjusted tax basis in the asset sold. Although the sale of the AAI business is expected to result in a taxable gain to Maxco, we believe that a portion of the taxable gain will be offset by available net operating loss carryforwards.

The unaudited pro forma condensed consolidated financial information, including the notes thereto, should be read in conjunction with the audited historical consolidated financial statements and notes thereto included in Annex D hereto and in Maxco's Annual Report on Form 10-K for the fiscal year ended March 31, 2006, as filed with the Securities and Exchange Commission (“SEC”) on July 14, 2006, the unaudited interim condensed consolidated financial statements and notes thereto included in Annex E hereto and in Maxco's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as filed with the SEC on November 20, 2006 and the Definitive Proxy Statement on Schedule 14A related to the sale of the AAI business filed herewith.

The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the disposition occurred March 31, 2003 for statements of operation purposes and as of September 30, 2006 for balance sheet purposes, nor is it necessarily indicative of the future financial position or results of operations. The pro forma adjustments are based upon information and assumptions available at the time of filing this statement.

The disposal of the AAI business will be reported in the Maxco financial statements in the period in which the transaction is consummated. AAI will be reflected as a discontinued operation at that time.

B-1

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 30, 2006

(in thousands)

											Pro Forma
	Historical										Continuing
	Maxco			AAI			Adjustments				Maxco
ASSETS
Current Assets
Cash and cash equivalents	$	538		$	(137	)	$	35,029		a	$	35,430
Accounts and notes receivable		6,074			(5,836	)		(72	)	b		166
Intercompany account		-			(6,700	)		6,700		b		-
Inventory		893			(893	)						-
Prepaid expenses and other		636			(629	)						7
Total Current Assets		8,141			(14,195	)		41,657				35,603

Property and Equipment
Land		389			(389	)						-
Buildings		7,522			(7,522	)						-
Machinery, equipment, and fixtures		33,306			(33,146	)						160
		41,217			(41,057	)		-				160
Allowances for depreciation		(23,240	)		23,090							(150	)
		17,977			(17,967	)		-				10

Other Assets
Investments		630			-							630
Notes and contracts receivable and other		644			(63	)						581
Real estate investments held for sale		1,427			-							1,427
Real estate held for sale		10,847			-							10,847
Intangibles		1,424			(1,424	)						-
		14,972			(1,487	)		-				13,485
	$	41,090		$	(33,649	)	$	41,657			$	49,098

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable	$	5,791		$	(4,565	)	$	-			$	1,226
Accounts payable		2,638			(2,410	)		-				228
Employee compensation		2,346			(1,528	)		-				818
Incentive compensation		2,026			-			(2,026	)	c		-
Taxes, interest, and other liabilities		5,094			(330	)		-				4,764
Current maturities of long-term obligations		2,011			(1,316	)		-				695
Total Current Liabilities		19,906			(10,149	)		(2,026	)			7,731

Long-Term Obligations, Less Current Maturities		10,392			(5,487	)		-				4,905
Total Liabilities		30,298			(15,636	)		(2,026	)			12,636

Stockholders' Equity
Preferred stock:
Series Three: 10% cumulative redeemable, $60 face
value; 14,784 shares issued		678			-			-				678
Series Four: 10% cumulative redeemable, $51.50 face
value; 46,414 shares issued		2,390			-			-				2,390
Series Five: 10% cumulative redeemable, $120 face
value; 6,648 shares issued		798			-			-				798
Series Six: 10% cumulative callable, $160 face
value; 7,812.5 shares issued		1,250			-			-				1,250
		5,116			-			-				5,116
Common stock, $1 par value; 10,000,000 shares
authorized, 3,454,039 shares issued and outstanding		3,454			(1	)		1				3,454
Retained earnings		2,222			(18,012	)		43,682				27,892
Total Stockholders' Equity		10,792			(18,013	)		43,683				36,462
	$	41,090		$	(33,649	)	$	41,657			$	49,098

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

B-2

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Six Months Ended September 30, 2006

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

									Pro Forma
	Historical								Continuing
	Maxco			AAI			Adjustments		Maxco
Net Sales	$	23,580		$	23,580		$	-	$	-
Costs and Expenses:
Cost of sales and operating expenses		13,928			13,928			-		-
Selling, general and administrative		5,906			4,680			-		1,226
Depreciation and amortization		1,578			1,575			-		3
		21,412			20,183			-		1,229
Operating Loss		2,168			3,397			-		(1,229	)
Other Income (Expense)
Interest expense		(873	)		(531	)		-		(342	)
Investment, interest, and other income, net		24			(2	)		-		26
Loss Before Equity in Net Loss of Affiliates		1,319			2,864			-		(1,545	)
Equity in net loss of affiliates		(58	)		-			-		(58	)
Net Loss		1,261			2,864			-		(1,603	)
Less preferred stock dividends		(266	)							(266	)
Net Income Applicable to Common Stock	$	995							$	(1,869	)

Net Loss Per Share—Basic and Diluted	$	0.29							$	(0.54	)

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Twelve Months Ended March 31, 2006

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

									Pro Forma
	Historical								Continuing
	Maxco			AAI			Adjustments		Maxco
Net Sales	$	46,564		$	46,564		$	-	$	-
Costs and Expenses:
Cost of sales and operating expenses		29,110			29,110			-		-
Selling, general and administrative		12,194			8,874			-		3,320
Depreciation and amortization		3,088			3,065			-		23
		44,392			41,049			-		3,343
Operating Loss		2,172			5,515			-		(3,343	)
Other Income (Expense)
Interest expense		(1,370	)		(667	)		-		(703	)
Loss on investments		(1,056	)		-			-		(1,056	)
Gain (loss) on sale of assets		348			-			-		348
Investment, interest, and other income, net		20			-			-		20
Loss Before Equity in Net Loss of Affiliates		114			4,848			-		(4,734	)
Equity in net loss of affiliates		(100	)		-			-		(100	)
Net Loss		14			4,848			-		(4,834	)
Less preferred stock dividends		(470	)							(470	)
Net Income Applicable to Common Stock	$	(456	)						$	(5,304	)

Net Loss Per Share—Basic and Diluted	$	(0.13	)						$	(1.54	)

B-3

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Twelve Months Ended March 31, 2005

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

									Pro Forma
	Historical								Continuing
	Maxco			AAI			Adjustments		Maxco
Net Sales	$	45,364		$	45,364		$	-	$	-
Costs and Expenses:
Cost of sales and operating expenses		29,039			29,039			-		-
Selling, general and administrative		11,396			9,222			-		2,174
Depreciation and amortization		2,926			2,900			-		26
		43,361			41,161			-		2,200
Operating Loss		2,003			4,203			-		(2,200	)
Other Income (Expense)
Interest expense		(1,517	)		(830	)		-		(687	)
Loss on investments		(610	)		-			-		(610	)
Gain (loss) on sale of assets		(8	)		(62	)		-		54
Investment, interest, and other income, net		266			94			-		172
Net Loss		134			3,405			-		(3,271	)
Less preferred stock dividends		(408	)							(408	)
Net Income Applicable to Common Stock	$	(274	)						$	(3,679	)

Net Loss Per Share—Basic and Diluted	$	(0.09	)						$	(1.17	)

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Twelve Months Ended March 31, 2004

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

									Pro Forma
	Historical								Continuing
	Maxco			AAI			Adjustments		Maxco
Net Sales	$	40,798		$	40,754		$	-	$	44
Costs and Expenses:
Cost of sales and operating expenses		26,774		$	26,774			-		-
Selling, general and administrative		10,956		$	8,977			-		1,979
Depreciation and amortization		2,899		$	2,866			-		33
		40,629			38,617			-		2,012
Operating Loss		169			2,137			-		(1,968	)
Other Income (Expense)
Interest expense		(1,682	)		(944	)		-		(738	)
Loss on investments		(1,115	)		-			-		(1,115	)
Gain (loss) on sale of assets		(72	)		2			-		(74	)
Investment, interest, and other income, net		150			-			-		150
Gain on sale of investments		1,340			-			-		1,340
Loss Before Equity in Net Loss of Affiliates		(1,210	)		1,195			-		(2,405	)
Equity in net loss of affiliates		(321	)		-			-		(321	)
Net Loss		(1,531	)		1,195			-		(2,726	)
Less preferred stock dividends		(408	)							(408	)
Net Income Applicable to Common Stock	$	(1,939	)						$	(3,134	)

Net Loss Per Share—Basic and Diluted	$	(0.63	)						$	(1.01	)

B-4

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Pro Forma Presentation

The unaudited pro forma condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

The unaudited pro forma condensed consolidated financial information of Maxco has been prepared based on the historical consolidated balance sheet of Maxco as of September 30, 2006 and the historical consolidated statements of operations for Maxco for the years ended March 31, 2006, 2005 and 2004, and the six months ended September 30, 2006, after giving effect to the sale of AAI and the retirement of certain liabilities related to AAI that were retained by Maxco.

Maxco employs accounting policies that are in accordance with generally accepted accounting principles in the United States. In management's opinion, all material adjustments necessary to reflect fairly the pro forma financial position and pro forma results of operations of Maxco have been made.

The ongoing activity presented in these unaudited pro forma condensed consolidated financial statements represents Maxco's ongoing business and corporate assets, liabilities, and expenses that will not be divested in the asset sale. The pro forma financial information is presented for illustrative purposes only, and is not necessarily indicative of the operating results and financial position that might have been achieved had the transaction described above occurred on the dates indicated, nor is it necessarily indicative of the operating results and financial position that may occur in the future.

Note 2. Pro Forma Assumptions

The unaudited condensed consolidated financial information of Maxco’s ongoing business has been prepared based on Maxco’s historical consolidated financial records as of September 30, 2006 and for the years ended March 31, 2006, 2005 and 2004, and the six months ended September 30, 2006, after giving effect to the following adjustments and assumptions (see references in balance sheet):

a) Certain prepaid expenses and accrued liabilities that were historically recorded as part of AAI and were not assumed by Quanex have been assumed to have been paid on the date of sale of AAI.

b) Eliminate Maxco/AAI intercompany.

c) Incentive compensation for AAI’s president is assumed to have been paid on the date of sale of AAI.

To reflect the net proceeds and resulting gain on the asset sale (in thousands):

	AAI
Total consideration		58,000
Transaction costs		(3,164	)
Total net proceeds		54,836
Write-off goodwill		(1,424	)
Write-off financing costs		(64	)
Assets acquired by buyer		(25,219	)
Liabilties assumed by buyer		8,540
Taxable Gain		36,669
Income Tax		(11,000	)
Net Gain		25,669

B-5

ANNEX C

SELECTED FINANCIAL DATA

The following summary historical financial data for the five fiscal years ended March 31, 2006, 2005, 2004, 2003, and 2002 have been derived from the audited consolidated financial statements of Maxco, Inc. All intercompany accounts and transactions have been eliminated in consolidation. These statements should be read in conjunction with the financial statements for the fiscal year ended March 31, 2006 attached as Annex D. The results of operations do not necessarily indicate the results expected for any future years.

C-1

SELECTED FINANCIAL DATA

	Year Ended March 31,
	2006			2005			2004			2003			2002
	*(in thousands, except per share data)*
Net sales ⁽³⁾	$	46,564		$	45,364		$	40,798		$	36,827		$	34,696
Loss on investments ⁽¹⁾		(1,056	)		(610	)		(1,115	)		(9,320	)		(3,103	)
Income (loss) before equity in net (loss) income of affiliates and discontinued operations ⁽³⁾		114			134			(1,210	)		(10,474	)		(1,299	)
Equity in net (loss) income of affiliates, net of tax		(100	)		-			(321	)		(614	)		(528	)
Loss from discontinued operations ⁽³⁾		-			-			-			(1,737	)		(2,674	)
Net income (loss)		14			134			(1,531	)		(12,825	)		(4,501	)
Net loss per share—diluted
Continuing operations		(0.13	)		(0.09	)		(0.63	)		(3.71	)		(0.72	)
Discontinued operations ⁽³⁾		-			-			-			(0.56	)		(0.86	)
Net loss per share ⁽²⁾	$	(0.13	)	$	(0.09	)	$	(0.63	)	$	(4.27	)	$	(1.58	)

	At March 31:
	2006			2005			2004			2003			2002
	*(in thousands)*
Total assets	$	34,125		$	32,871		$	35,481		$	38,375		$	87,038
Working capital (deficit)		(7,697	)		(7,988	)		(7,736	)		(19,698	)		(16,846	)
Long-term obligations (net of current obligations)		7,131			7,070			11,480			1,113			11,380
Assets of discontinued operations ⁽³⁾		-			-			-			474			29,252

NOTES

(1)	Includes the following charges for impairment of the Company’s investments:

	Year Ended March 31,
	2006		2005		2004		2003		2002
	*(in thousands)*
Robinson Oil	$	30	$	260	$	-	$	-	$	-
Phoenix Financial		226		-		-		-		-
Real estate		800		350		749		4,698		-
Provant		-		-		366		1,360		3,103
Foresight Solutions		-		-		-		2,790		-
Integral Vision		-		-		-		122		-
Vertical VC		-		-		-		250		-
MYOEM.COM		-		-		-		100		-
	$	1,056	$	610	$	1,115	$	9,320	$	3,103

(2)	Net loss per share amounts assume dilution for all years presented.

(3)	In accordance with FASB Statement No. 144, the Company in fiscal 2003 reclassified its results from operations for discontinued operations.

No cash dividends on common stock have been paid during any year.

The above selected financial data should be read in conjunction with the consolidated financial statements, which appear in Annex D, page D-4 of this report.

C-2

ANNEX D

SUMMARY HISTORICAL FINANCIAL DATA

The following summary historical financial data for the three fiscal years ended March 31, 2006, 2005, and 2004 have been derived from the audited consolidated financial statements of Maxco, Inc. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations do not necessarily indicate the results expected for any future years.

D-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Maxco, Inc.

Lansing, Michigan

We have audited the accompanying consolidated balance sheets of Maxco, Inc. and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxco, Inc. and subsidiaries as of March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2006 in conformity with accounting principles generally accepted in the United States of America.


Troy, Michigan July 13, 2006			/s/ Rehmann Robson

D-2

CONSOLIDATED BALANCE SHEETS

	March 31,
	2006			2005
	*(in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	817		$	1,781
Restricted cash		750			-
Accounts receivable, less allowance of $169,000 in 2006 and $128,000 in 2005		6,212			6,061
Inventories		1,048			783
Prepaid expenses and other		673			223
Total Current Assets		9,500			8,848

Marketable Securities		2			2
Property and Equipment
Land		389			437
Buildings		7,522			5,997
Machinery, equipment, and fixtures		31,550			30,052
		39,461			36,486
Allowances for depreciation		(21,675	)		(18,018	)
		17,786			18,468
Other Assets
Investments		688			878
Notes and contracts receivable and other		791			994
Real estate investments held for sale		627			1,850
Real estate held for sale		2,900			-
Accounts receivable, related parties		407			407
Intangibles		1,424			1,424
		6,837			5,553
	$	34,125		$	32,871

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable	$	1,414		$	2,091
Accounts payable		2,141			3,575
Employee compensation		2,258			1,711
Incentive compensation		2,026			650
Taxes, interest, and other liabilities		4,922			3,850
Current maturities of long-term obligations		4,436			4,959
Total Current Liabilities		17,197			16,836

Long-Term Obligations, Less Current Maturities		7,131			7,070

Total Liabilities		24,328			23,906

Contingencies and Commitments—Notes 4 and 10

Stockholders' Equity
Preferred stock:
Series Three: 10% cumulative callable, $60 face value; 14,784 shares issued and outstanding		678			678
Series Four: 10% cumulative callable, $51.50 face value; 46,414 shares issued and outstanding		2,390			2,390
Series Five: 10% cumulative callable, $120 face value; 6,648 shares issued and outstanding		798			798
Series Six: 10% cumulative callable, $160 face value; 20,000 shares authorized, 7,812.5 issued
and outstanding		1,250			-
		5,116			3,866
Common stock, $1 par value; 10,000,000 shares authorized, 3,454,039 shares issued and outstanding		3,454			3,454
Accumulated other comprehensive loss		-			(38	)
Retained earnings		1,227			1,683
Total Stockholders' Equity		9,797			8,965
	$	34,125		$	32,871

CONSOLIDATED STATEMENTS OF OPERATIONS

D-3

	Year Ended March 31,
	2006			2005			2004
	*(in thousands, except per share data)*
Net Sales	$	46,564		$	45,364		$	40,798
Costs and Expenses:
Cost of sales and operating expenses		29,110			29,039			26,774
Selling, general, and administrative		12,194			11,396			10,956
Depreciation and amortization		3,088			2,926			2,899
		44,392			43,361			40,629
Operating Earnings		2,172			2,003			169

Other Income (Expense):
Interest expense		(1,370	)		(1,517	)		(1,682	)
Loss on investments		(1,056	)		(610	)		(1,115	)
Gain (loss) on sale of property and equipment		348			(8	)		(72	)
Investment, interest, and other income		20			266			150
Gain on sale of investments		-			-			1,340
		(2,058	)		(1,869	)		(1,379	)
Income (Loss) Before Federal Income Taxes and Equity in Net Loss of Affiliates		114			134			(1,210	)
Federal income taxes		-			-			-
Income (Loss) Before Equity in Net Loss of Affiliates		114			134			(1,210	)
Equity in net loss of affiliates, net of tax		(100	)		-			(321	)
Net Income (Loss)		14			134			(1,531	)
Less preferred stock dividends		(470	)		(408	)		(408	)
Net Loss Applicable to Common Stock	$	(456	)	$	(274	)	$	(1,939	)

Net Loss Per Share—Basic and Diluted	$	(0.13	)	$	(0.09	)	$	(0.63	)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

D-4

	Number of Common Shares Outstanding		Preferred Stock		Common Stock		Accumulated Other Comprehensive Loss			Retained Earnings			Totals
	*(in thousands)*
Balances at April 1, 2003		3,108	$	3,866	$	3,108	$	(298	)	$	2,858		$	9,534
Net loss for the year											(1,531	)		(1,531	)
Net unrealized gain on marketable securities								56						56
Unrealized gain on swap agreement								70						70
Comprehensive Loss														(1,405	)
Preferred stock dividends											(408	)		(408	)
Balances at March 31, 2004		3,108		3,866		3,108		(172	)		919			7,721
Net income for the year											134			134
Unrealized gain on swap agreement								134						134
Comprehensive Loss														268
Conversion of debt to common stock		346				346					1,038			1,384
Preferred stock dividends											(408	)		(408	)
Balances at March 31, 2005		3,454		3,866		3,454		(38	)		1,683			8,965
Net income for the year											14			14
Unrealized gain on swap agreement								38						38
Comprehensive Income														52
Conversion of debt to preferred stock				1,250										1,250
Preferred stock dividends											(470	)		(470	)
Balances at March 31, 2006		3,454	$	5,116	$	3,454	$	-		$	1,227		$	9,797

CONSOLIDATED STATEMENTS OF CASH FLOWS

D-5

	Year Ended March 31,
	2006			2005			2004
	*(in thousands)*
Operating Activities
Net income (loss)	$	14		$	134		$	(1,531	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		3,088			2,926			2,879
(Gain) loss on sale of property and equipment		(348	)		8			72
Loss on investments		1,056			610			1,115
Amortization of deferred financing costs		-			-			20
Equity in net loss of affiliates		100			-			321
Gain on sale of investments		-			-			(1,340	)
Changes in operating assets and liabilities:
Accounts receivable		(221	)		315			(370	)
Inventories		(265	)		(126	)		(232	)
Prepaid expenses and other		(437	)		206			(202	)
Accounts payable and other current liabilities		508			725			1,576
Net Cash Provided by Operating Activities		3,495			4,798			2,308

Investing Activities
Sale of property and equipment		1,113			57			400
Purchases of property and equipment		(1,714	)		(1,042	)		(698	)
Purchases of subsidiaries		(342	)		-			-
Collections of notes receivable		192			1,013			99
Sale of investments		-			-			1,179
Other		97			51			119
Net Cash (Used in) Provided by Investing Activities		(654	)		79			1,099

Financing Activities
Net proceeds from (repayments on) lines of credit		985			(2,015	)		(1,419	)
Proceeds from other debt obligations		613			5,513			6,881
Repayments on other debt obligations		(4,653	)		(6,672	)		(9,182	)
Net Cash Used in Financing Activities		(3,055	)		(3,174	)		(3,720	)

(Decrease) Increase in Cash and Cash Equivalents		(214	)		1,703			(313	)
Cash and Cash Equivalents at Beginning of Year		1,781			78			391
Cash and Cash Equivalents at End of Year	$	1,567		$	1,781		$	78

Supplemental cash flows disclosure:
Interest paid	$	1,395		$	1,655		$	1,601

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

D-6

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Year Ended March 31, 2006

Nature of Business: Maxco, Inc. (Maxco) is a Michigan corporation incorporated in 1946. Maxco currently operates in the heat-treating business segment through Atmosphere Annealing Inc., a production metal heat-treating service company. Maxco also has investments in real estate and investments representing less than majority interests in the following businesses: a registered broker-dealer of securities that is primarily focused on the trading of fixed income investments; a developer, manufacturer and marketer of microprocessor-based process monitoring and inspection systems for use in industrial manufacturing environments; and an energy-related business.

Operating Matters: During the past two fiscal years, debt previously in default has been refinanced and management believes that the Company’s exposures relative to outstanding guarantees have been significantly reduced. The Company’s ability to meet its short term and long term debt service and other obligations (including compliance with financial covenants) will continue to be dependent upon its future operating performance. This dependency will be subject to financial, business and other factors, certain of which, such as prevailing economic conditions, are beyond the Company’s control. The Company believes that funds generated by its operations, funds available under its credit facilities, and funds that could be available under other credit facilities will be sufficient to finance near term capital needs, as well as to fund existing operations for the reasonably foreseeable future. Additionally the Company has long term equity investments that could be liquidated to meet its debt service requirements.

Principles of Consolidation: The consolidated financial statements include the accounts of Maxco, Inc. and its majority owned subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. All significant investments are accounted for under the equity method.

Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts receivable, the valuation of equity method investments, and the fair value less costs to sell of real estate investments held-for-sale.

Reclassifications: Certain items in the prior year consolidated financial statements have been reclassified to conform with the presentation used in 2006.

Cash and Cash Equivalents: The Company considers cash and other highly liquid investments, including investments in interest bearing repurchase agreements with less than 90-day maturities, as cash and cash equivalents. Approximately $1.0 million of the Company’s cash balance at March 31, 2006 exceeded insured FDIC limits.

Restricted Cash: At March 31, 2006 the Company had restricted cash of $750,000 held as collateral under its $2.0 million debt facility. As of June 30, 2006, the Company has renegotiated this debt facility to a $1.75 million line of credit with no restricted cash.

Allowance for Uncollectible Accounts Receivable: Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of the financial condition of the customer and historical experience. The following table summarizes changes in the allowance for uncollectible accounts receivable:

	Year Ended March 31,
	2006			2005			2004
	(in thousands)
Beginning balance	$	128		$	134		$	150
Charged to costs and expenses		112			186			12
Deductions ^(A)		(71	)		(192	)		(28	)
Ending balance	$	169		$	128		$	134

^(A) Represents uncollectible accounts written off, less recoveries

D-7

Inventories: Inventories are stated at the lower of first-in, first-out cost or market and at March 31 consisted of the following:

	2006		2005
	(in thousands)
Raw materials	$	314	$	329
Work in progress		700		406
Finished goods		34		48
	$	1,048	$	783

The Company ordinarily does not take title to the customer parts received for processing; accordingly, such parts are not included in these consolidated financial statements.

Marketable Securities: Marketable securities are classified in accordance with Statement of Financial Accounting Standards No. 115 (“SFAS 115’) as securities available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. The amortized cost of securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income or loss. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. The fair value of marketable securities is based on quoted market value.

Maxco accounts for its investment in Provant, Inc. common stock as securities available for sale as defined by SFAS 115. Consequently, the securities are carried at fair value with the unrealized gains and losses net of tax, reported as a separate component of stockholders’ equity. In 2004, the Company recognized a loss on its investment in Provant common stock as an other than temporary impairment in the statements of operations of $366,000.

Real Estate Investments Held For Sale: The Company has ownership interests in affiliated entities that hold commercial real estate. In addition, the Company has made cash advances, which are unsecured and bear interest, to these affiliates. The Company has implemented a plan to liquidate these investments and their underlying real estate holdings. The Company accounts for these real estate investments as held-for-sale in these consolidated financial statements. The carrying amount of $627,000 and $1.9 million at March 31, 2006 and 2005, respectively, represents the Company’s portion of the fair value, net of estimated costs to sell, of these real estate interests.

Real Estate Held for Sale: In May 2005, Maxco acquired the common stock of Ledges Commerce Park and as such, has recorded the assets acquired at their fair value and the liabilities assumed at the amount at which they are expected to be settled as of March 31, 2006.

Properties and Depreciation: Property and equipment are stated on the basis of cost and include expenditures for new facilities, equipment, and those, which materially extend the useful lives of existing facilities and equipment. Equipment capitalized under lease agreements is not significant.

Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation for financial reporting purposes, including amortization of capitalized leases, is computed by the straight-line method based on the useful lives or lease terms of the assets (10 to 40 years for buildings and 3 to 10 years for equipment).

Federal Income Taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”), which requires the use of the liability method in accounting for income taxes. Under SFAS 109, deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for net deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefit, or future deductibility is uncertain.

D-8

Allowance for Uncollectible Notes Receivable: Notes receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of the financial condition of the debtor and historical experience. The following table summarizes changes in the allowance for uncollectible notes receivable:

	Year Ended March 31,
	2006		2005			2004
	(in thousands)
Beginning balance	$	-	$	350		$	600
Charged to costs and expenses		-		-			-
Deductions ^(A)		-		(350	)		(250	)
Ending balance	$	-	$	-		$	350

^(A) Represents uncollectible accounts written off, less recoveries

Intangibles: Goodwill and other long-lived assets are reviewed by management for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. If management believes impairment may exist, an assessment is performed. This assessment consists of comparing the estimated undiscounted future cash flows with the carrying amount of the long-lived assets. If the undiscounted future cash flows are less than the carrying amounts of the long-lived assets, the Company adjusts the carrying amount of the long-lived assets to their estimated fair value. Fair value is determined by anticipated future cash flows discounted at a rate commensurate with the risk involved. All of the Company’s goodwill is related to the heat treating segment. Goodwill totaled approximately $1.4 million at March 31, 2006 and 2005.

During 2006, the Company performed impairment tests of its goodwill and indefinite-lived intangible assets. The Company's tests indicated that the fair value of its heat treating segment, which was determined by using discounted cash flows and market multiples, exceeded the carrying value. As a result, the Company did not record an impairment charge for this segment in the accompanying financial statements. The Company will continue to perform an impairment review on an annual basis (or more frequently if impairment indicators arise).

Revenue Recognition: The Company recognizes service revenue and revenue from product sales upon transfer of title, which is upon shipment. An estimate of reserves is recorded, if material, for anticipated reworks and credit memos which will be issued on sales recognized to date.

Advertising: Advertising costs are expensed as incurred. The amounts were not material for all years presented.

Shipping and Handling Costs: The Company recognizes shipping and handling costs as a component of cost of sales and operating expenses in the statement of operations.

Interest Rate Swap: The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Since the Company applies hedge accounting pursuant to SFAS 133, as amended, changes in the fair value of the swap are reported as a component of other comprehensive loss. There were no interest rate swap agreements open at March 31, 2006.

Fair Value Disclosure: The carrying amounts of certain financial instruments such as cash and cash equivalents, accounts receivable, marketable securities, and accounts payable approximate their fair values.

Comprehensive Loss: The Company displays comprehensive loss in the Consolidated Statements of Stockholders’ Equity.

Common Stock Options: The Company adopted SFAS No. 123 (Revised 2004), “Share Based Payment” (“SFAS No. 123R”), under the modified prospective transition method on January 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method proscribed by Accounting Principles Board (“APB) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

D-9

New Financial Accounting Pronouncements: In July 2005, the Financial Accounting Standards Board (“FASB”) published an Exposure Draft of a proposed Interpretation, “Accounting for Uncertain Tax Positions.” The Exposure Draft seeks to reduce the significant diversity in practice associated with recognition and measurement in the accounting for income taxes. It would apply to all tax positions accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) 109, “Accounting for Income Taxes.” The Exposure Draft requires that a tax position meet a “probable recognition threshold” for the benefit of the uncertain tax position to be recognized in the financial statements. This threshold is to be met assuming that the tax authorities will examine the uncertain tax position. The Exposure Draft contains guidance with respect to the measurement of the benefit that is recognized for an uncertain tax position, when that benefit should be derecognized, and other matters. This proposed Interpretation would clarify the accounting for uncertain tax positions in accordance with SFAS 109. This Interpretation, once approved, is expected to be effective as of the end of the fiscal year ending after December 15, 2005. The Company does not expect that the exposure draft will have a significant impact on its operating results.

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and supersedes FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements—an amendment of APB Opinion No. 28.” SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS 154 requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect that the provisions of the SFAS 154 will have a significant impact on its operating results.

The FASB has proposed amending SFAS 128, “Earnings per Share,” to make it consistent with International Accounting Standard 33, “Earnings per Share”, and make earning per share, or EPS, computations comparable on a global basis. Under the proposed amendment, the year-to-date EPS computation would be performed independently from the quarterly computations. Additionally, for all contracts that may be settled in either cash or shares of stock, companies must assume that settlement will occur by the issuance of shares for purposes of computing diluted EPS, even if they intend to settle by paying cash or have a history of cash-only settlements, regardless of who controls the means of settlement. Lastly, under the proposed amendment, shares that will be issued upon conversion of a mandatory convertible security must be included in the weighted-average number of shares outstanding used in computing basic EPS from the date that conversion becomes mandatory, using the if-converted method, regardless of whether the result is anti-dilutive. The proposed amended standard was expected to be issued during the first quarter of 2005. However, the FASB has not yet finalized the revised effective date of the proposed amendment or its transition provisions. Retrospective application in all periods presented would be required and could require the restatement of previously reported EPS. The Company does not expect that the provisions of the amended SFAS 128 will have a significant impact on its operating results.

NOTE 2 - ACCOUNTS RECEIVABLE AND PAYABLE—RELATED PARTIES

Accounts receivable, related parties consist primarily of unsecured cash advances to officers, stockholders, and affiliates. Certain of the amounts are non-interest bearing. The ultimate settlement of the balances is generally expected to be made in cash, although not necessarily within the next year.

Vincent Shunsky, former Vice President, Chief Financial Officer and Treasurer of the Company, is indebted to the Company in the amount of approximately $188,000, including accrued interest, as of March 31, 2006. The indebtedness was incurred at various times prior to April 2002 for the purchase of affiliate company stock and personal use. The Company has recently begun discussing a payment plan for the repayment of the indebtedness by Mr. Shunsky.

D-10

In October 2004, the Company entered into a Retention Agreement with Mr. Shunsky to provide him with a bonus of $200,000 to retain his services until at least March 31, 2006. The Retention Agreement provided that should he leave the employ of the Company prior to that date, the bonus must be repaid. Mr. Shunsky resigned from his positions as Vice-President, Chief Financial Officer and Treasurer, effective November 29, 2005, and is no longer employed by the Company. However, through March 31, 2006, Mr. Shunsky served as a consultant to the Company in exchange for retaining the bonus. The Company expensed the retention bonus ratably through March 31, 2006. The Company expensed $130,000 and $70,000 related to this bonus during the years ended March 31, 2006 and 2005, respectively. The Company paid this retention bonus.

In April 2004 the Company entered into an incentive agreement with the President of its wholly-owned subsidiary Atmosphere Annealing, Inc. The agreement provides for compensation to the officer based on the increased value, as defined, of the subsidiary by March 31, 2006. The incentive is equal to 1% of the first $25 million in value plus 10% above that base amount. At the option of Maxco the incentive is payable in cash or its equivalent in stock of Atmosphere Annealing, Inc. held by Maxco. As party to the agreement, Maxco, Inc. is recognizing incentive compensation expense on a pro-rata basis under the terms of the agreement. As of March 31, 2006, the amount accrued was $2.0 million, including $1.4 million charged to operations during the year then ended. The Company charged approximately $600,000 related to this compensation during the year ended March 31, 2005.

In February 2005, the Company issued 250,000 shares of restricted common stock of the Company to Contractor Supply Incorporated, and 95,800 shares of restricted common stock of the Company to Master Works Foundation, Inc. (a non-profit corporation in which the sole shareholder of Contractor Supply Incorporated is a one-third member) in exchange for further reduction of the amount owed by the Company to Contractor Supply Incorporated by $1.4 million. The remaining Company debt owed to Contractor Supply Incorporated was subsequently assigned by Contractor Supply Incorporated to Ambassador Steel Corporation, and then by Ambassador Steel Corporation to its President, Daryle E. Doden. On September 30, 2005, Mr. Doden assigned this Company debt, approximating $1.25 million, to EM Investors, LLC. EM Investors, LLC converted the Company payable, including all accrued interest, to 7,812.5 shares of the Company’s series six preferred stock. Messrs. Coon and Cross, are managers, and have indirect ownership interests, of 39.08% and 8.35%, respectively, of EM Investors, LLC.

Included in accrued wages is $517,000 and $567,000 at March 31, 2006 and 2005, respectively, that is due Mr. Coon. Included in accounts payable is $86,000 and $108,000 at March 31, 2006 and 2005, respectively, that is due to entities in which Mr. Coon has an interest.

NOTE 3 - INVESTMENT IN INTEGRAL VISION, INC.

At March 31, 2006, Maxco owned 2,410,183 shares of Integral Vision’s common stock (aggregate market value of $4.3 million as of March 31, 2006), representing approximately 8% of Integral Vision’s total common stock outstanding.

In 1997 Maxco received warrants to purchase 150,000 shares of Integral Vision stock with a then conversion price of $6.86. Pursuant to the 1997 Note and Warrant Purchase agreement, these warrants have been re-priced based on subsequent warrant issues. As a result, through June 30, 2005, Maxco had the right to purchase up to 551,133 shares of the Integral Vision’s common stock at $1.86 per share. Maxco did not exercise any of these warrants which then expired on that date. In April 2005, Maxco converted $95,684 of notes receivable from Integral Vision into 127,578 restricted shares of Integral Vision common stock. Maxco’s investment in Integral Vision is accounted for under the equity method for all years presented.

D-11

Maxco had advanced Integral Vision $138,855 in 2001 to permit Integral Vision to meet its obligations. This loan was evidenced by a written document and provided for interest at the rate of prime plus 0.5%. Integral Vision repaid this obligation to Maxco in April 2005.

Additionally, Maxco provides consulting services to Integral Vision. These services include assistance with financial statement preparation, compliance with governmental filing requirements, and assistance with certain financing arrangements. Integral Vision and Maxco have agreed on terms for payment to Maxco for these services. Prior to October 1, 2004, no charges were made by Maxco for the services to Integral Vision. The services for the six months ended March 31, 2005 were satisfied by the issuance of 42,000 shares of unregistered common stock in the Integral Vision which represented $70,000 of service income recorded in fiscal 2005 which is based on the average closing price of the Integral Vision’s common stock over that period. Effective April 1, 2005 and through November 30, 2005, the Integral Vision began paying Maxco $8,750 per month for each month such services were rendered. The amount received in fiscal 2006 for such administrative services amounted to $70,000. Integral Vision’s dependence on Maxco’s services has decreased and therefore on December 1, 2005, Integral Vision began compensating Maxco on an hourly basis.

Integral Vision had net losses of approximately $3.0 million, $2.3 million, and $2.2 million for the twelve months ended March 31, 2006, 2005, and 2004.

At September 30, 2003, the Company adjusted the carrying value of its investment in Integral Vision, Inc. to its estimated fair value as the Company determined that the investment was impaired. Since management’s estimate of the fair value of this investment at March 31, 2006 has not changed, the Company has not recognized any further gain or loss on the investment since September 30, 2003. For the twelve months ended March 31, 2006, 2005, and 2004, Integral Vision's sales were $232,000, $2.0 million and $322,000, respectively.

NOTE 4 - DEBT

At March 31, 2006 the Company’s heat treating segment, Atmosphere Annealing, Inc. (Atmosphere), had a $6 million line of credit facility. This facility is secured by Atmosphere’s assets. The amount that can be borrowed under this facility is dependent on certain accounts receivable levels at Atmosphere. At March 31, 2006, based on these specific collateral levels, Atmosphere could borrow up to $4.6 million under its line of credit, approximately $1.5 million of which was borrowed. The agreement, which was amended December 26, 2005, matures in August 2007 and as such outstanding borrowings are recorded as long term in the accompanying balance sheets.

In addition, the Company had a debt facility of $2.0 million that required interest only payments and matured in June 2006. The Company renegotiated this debt facility to a $1.75 million line of credit with no restricted cash. On January 31, 2006, the Company sold its corporate office building and certain of its office furniture to an outside party for cash and a $150,000 promissory note. Maxco entered into an agreement to lease its required office space from the purchaser for six months. The cash proceeds of $750,000 were used to pay down the related debt facility to its current balance, $2.0 million. The promissory note is secured by a life insurance contract of which the Company has been named as the beneficiary.

D-12

A summary of the Company’s debt obligations as of March 31 is as follows:

	2006		2005
	*(in thousands)*
Short term obligations:
Notes payable (various interest rates)	$	1,414	$	1,554
Revolving line of credit (LIBOR¹ + 2.0%)		-		537
		1,414		2,091

Long term obligations:
Term notes (various variable interest rates)	$	2,741	$	4,930
Revolving line of credit (LIBOR¹ + 1.25%)		1,523		-
Mortgage note payable (prime¹ plus 1.75%)		4,914		4,962
Equipment purchase contracts, capitalized lease obligations, and other (various interest rates)		2,043		1,791
Subordinated debt (fixed rate of 10.00%)		346		346
		11,567		12,029
Less current maturities		4,436		4,959
	$	7,131	$	7,070

¹ At March 31, 2006 the London Interbank Offered Rate (LIBOR) was 4.88% and the prime rate was 7.75%.

On November 14, 2002, Maxco completed an agreement to sell its wholly owned subsidiary, Ersco Corporation to Contractor Supply Incorporated for cash and retired certain other debt of Maxco in excess of the sale price resulting in a short term note payable to the purchaser of approximately $4.1 million. In June 2003 the Company agreed to assume a lease from Contractor Supply Incorporated and as a result, reduced the amount owed to Contractor Supply Incorporated by $2.3 million and the Company has recorded the $2.3 million obligation to the leasing company as a long term obligation in the accompanying financial statements. In June 2006, the Company paid off the obligation due CJC Leasing under this lease.

In February 2005, Maxco issued 250,000 shares of common stock valued at $4 per share to Contractor Supply Incorporated to further reduce the Company’s obligation to Contractor Supply Incorporated. The remaining Company debt owed to Contractor Supply Incorporated was subsequently assigned by Contractor Supply Incorporated to Ambassador Steel Corporation, and then by Ambassador Steel Corporation to its President, Daryle E. Doden. On September 30, 2005, Mr. Doden assigned this Company debt, approximating $1.25 million, to EM Investors, LLC. EM Investors, LLC converted the Company payable, including all accrued interest, to 7,812.5 shares of the Company’s series six preferred stock.

The Company’s weighted average short-term borrowing rate was 10.3% and 7.0% at March 31, 2006 and 2005, respectively.

The Company entered into a swap agreement with a notional amount of approximately $2.7 million. The swap agreement, which expired December 15, 2005, was in a loss position of $38,000 at March 31, 2005.

Notes and contracts payable are generally collateralized by assets purchased with proceeds of the borrowings. The aggregate principal maturities of long-term debt are approximately $4.4 million in 2007, $3.1 million in 2008, $2.8 million in 2009, $121,000 in 2010, $39,000 in 2011, and $1.0 million thereafter.

Maxco had provided the guarantee of certain debt obligations of certain real estate and other investments in an aggregate amount of approximately $2.0 million as of March 31, 2005. The Company’s real estate affiliates continue to operate under a forbearance agreement with a lender. In order to avoid foreclosure of the real estate assets that secure these loans, Maxco, as guarantor, in May 2005 agreed to purchase, through a subsidiary, the real estate secured by the Ledges land and buildings. As a result of this purchase a $1.8 million liability, which had been guaranteed by the Company, was assumed directly by the Company and is now included in short term debt in the accompanying March 31, 2006 balance sheet. At March 31, 2006, this debt balance approximated $1.2 million as proceeds from the sale of three condominium units were used to reduce the outstanding debt balance accordingly. In February 2006, the remaining guarantee of $125,000 was repaid as a result of the sale of the underlying asset. Consequently, no guarantees remain as of March 31, 2006. The Company is in the process of refinancing its Ledges land and building and has received a commitment from a lender. Upon closing, the Company’s real estate affiliate will no longer be operating under forbearance agreements.

D-13

The Company has recorded in the accompanying financial statements additional amounts that had been identified as guarantees prior to March 31, 2005. The amounts so recorded aggregated approximately $85,000 and $249,000 as of March 31, 2006 and March 31, 2005, respectively.

Settlement Agreement and Indemnification Matters

Effective October 27, 2005, the Company entered into a Settlement Agreement with American Realty Equities, Inc. (American), Capital Center Associates, LLC, (Capital Center), L/M Associates, LLC (L/M) and Max A. Coon relating to property and the related mortgage on such property owned by Capital Center. Capital Center is majority owned by L/M which is 50% owned by Maxco, Inc.

The Settlement Agreement relates to a promissory note dated February 21, 2001, which was in default and guaranteed by Max A. Coon, the Company’s President and Chief Executive Officer, and others. American purchased the interest of Charter One Bank as lender of the promissory note which was in the original principal amount of approximately $10 million. On August 11, 2005, the Company agreed to indemnify Max A. Coon for any amounts he would be required to pay as result of personal guarantees he had on the Company’s real estate entities that were made for the sole benefit of the Company. American commenced an action in March 2005 to foreclose the construction mortgage and an action to enforce the guarantee against Max Coon and the other guarantors.

Without admitting any liabilities or fault, and to avoid the expense and uncertainties of litigation, the parties settled the litigation as detailed in the Settlement Agreement.

In summary, the Settlement Agreement states that the total amount to be paid to American is $8.5 million if paid on or before September 1, 2006.

If not paid by September 1, 2006 the parties agreed that the amount to be paid to American is the sum of the real estate proceeds upon sale of the property net of certain costs detailed in the Settlement Agreement plus an amount equal to sixty percent of the amount obtained by subtracting the real property proceeds from the amount due under the loan documents. If an insolvency event by Capital Center is instituted before payment on or before September 1, 2006 the total amount to be paid to American is $5.0 million plus American shall receive the proceeds derived from the sale or disposition of the property in the insolvency proceeding.

The Company has committed to pay the $8.5 million due under the settlement agreement by the required September 1, 2006 date. The Company estimates that the fair value of the building is $7.7 million which is based on a master lease concept. The value of the building fully leased is approximately $11.0 million. Maxco, as part of the sales transaction, would be required to lease vacant space in the building for two years. The payments would be held in an escrow account, the balance of which would initially be approximately $2.5 million. The Company has recorded the $800,000 difference between the fair value and the amount due under the settlement agreement as an impairment charge in the fourth quarter of fiscal 2006.

On August 11, 2005 the Company agreed to indemnify Max A. Coon, chairman and president of the Company, for any amounts he would be required to pay as a result of personal guarantees he provided for the benefit of the Company’s real estate entities. Management estimates the amount of these guarantees to be up to $6.7 million.

Management estimates the maximum exposure under this guarantee to American is approximately $5.0 million if the Company does not pay the amount due under the settlement agreement by September 1, 2006.

In addition, the Company agreed to indemnify Max A. Coon for any amount he would be required to pay for a $1.7 million guarantee resulting from the sale of its major real estate portfolio.

The Company does not believe that there is any unusual degree of risk related to the indemnification of these guarantees made by Max Coon because of sufficient underlying asset values supporting the respective debt obligation and other conditions of such indemnification; as such, no amounts have been accrued for such guarantees as of March 31, 2006.

NOTE 5 - PREFERRED STOCK

Maxco may issue up to 100,000 shares of preferred stock with terms determined by Maxco’s Board of Directors.

Series Three Preferred Stock is voting stock on a par with the common stock, and has twenty votes per share. Quarterly cumulative dividends are provided at the annual rate of 10% of face value annually, subject to the restrictions of Michigan corporate law and the discretion of the Maxco Board of Directors. The stock is callable at the option of the Company, with the call price declining at the rate of one percent per year to a minimum price after February 1999, equal to face value ($60 per share).

D-14

Series Four Preferred Stock is cumulative, callable at the Company’s option, is non-voting, has no conversion rights, and pays an annual dividend at the rate of 10% of face value annually.

Series Five Preferred shares have a face value of $120, are callable at the Company’s option, are non-voting, have no conversion rights, and pay a quarterly cumulative dividend at the rate of 10% of face value annually.

Series Six Preferred Stock, established February 4, 1999, is voting stock on a par with the common stock, and has twenty votes per share. Quarterly cumulative dividends are provided at the annual rate of 10% of face value annually, subject to the restrictions of Michigan corporate law and the discretion of the Maxco Board of Directors. The stock is callable, at the option of the Company, at any time after the second anniversary of their issuance in whole or in part. The call price will be face value ($160 per share) plus a declining premium amount, which shall be equal to 5% until the third anniversary of issuance and shall decline 1% annually thereafter to zero following the seventh anniversary.

Effective January 1, 2002, the Maxco Board of Directors suspended the payment of dividends on all preferred stock. These dividend payments have been accrued in the accompanying financial statements and totaled approximately $1.9 million at March 31, 2006, or $0.55 per common share.

NOTE 6 - COMMON STOCK OPTIONS

Under the terms of Maxco’s incentive common stock option plan, options for the purchase of up to 500,000 shares of common stock may be granted. Any such options are immediately exercisable upon grant.

There were 40,000 stock options outstanding and exercisable at March 31, 2006 with a weighted average price of $7.13 per share and an exercise price ranging from $7.00 to $7.50. There were no options granted during the years ended March 31, 2006, 2005, or 2004. The weighted average remaining contractual life of the outstanding options is approximately three years.

The Company adopted SFAS No. 123 (Revised 2004), “Share Based Payment” (“SFAS No. 123R”), under the modified prospective transition method on January 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method proscribed by Accounting Principles Board (“APB) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

For periods presented prior to the adoption of SFAS No. 123R, pro forma information regarding net income and earnings per share as required by SFAS No. 123R has been determined as if the Company had accounted for its employee stock options under the original provisions of SFAS No. 123. The Company has determined that there is no difference between the reported net loss and loss per share and the pro forma net loss and net loss per share if the options were accounted for under SFAS 123R for all periods presented.

NOTE 7 - 401(K) EMPLOYEE SAVINGS PLANS

Company contributions charged to operations under the 401(K) employee savings plans were approximately $183,000, $178,000, and $145,000 for the years ended March 31, 2006, 2005, and 2004, respectively.

D-15

NOTE 8 - FEDERAL INCOME TAXES

Federal income taxes consist of the following components:

	Year Ended March 31,
	2006		2005		2004
	*(in thousands)*
Current	$	-	$	-	$	-
Deferred		-		-		-
		-		-		-
Deferred amount allocated to equity in income of affiliates		-		-		-
	$	-	$	-	$	-

The reconciliation of the income taxes computed at the United States federal statutory tax rate to income tax expense (benefit) reported in these financial statements is as follows:

	Year Ended March 31,
	2006			2005			2004
	*(in thousands)*
Income tax expense (benefit) computed at United States statutory rate (34%)	$	5		$	45		$	(521	)
Increase (reduction) in valuation allowance		(685	)		(169	)		517
Other		680			124			4
	$	-		$	-		$	-

During fiscal year 2006, the Company paid $12,000 in federal AMT for the year ended March 31, 2005. No federal income taxes were paid in fiscal years 2005 or 2004.

As of March 31, 2006, the Company has net operating loss (NOL) carryforwards of $5.9 million, $5.5 million of which expires in 2023 with the remaining $350,000 expiring in 2024.

The Company assumed the utilization of net operating loss carryforwards to offset taxable income in fiscal 2006. The Company amended its March 31, 2002 Federal income tax return to reflect the write offs of its investment in its discontinued affiliate, Foresight, Inc.’s stock, amounts the Company was required to pay as guarantor of Foresight’s banking agreement, and certain other advances to Foresight. As a result of this amendment, the Company received a federal income tax refund of approximately $790,000 which is recorded in accrued taxes payable at March 31, 2006. The Company is currently under audit by the Internal Revenue Service (IRS) and the factual discovery process by the IRS is still in process on this issue. While management believes that the facts and tax law support the claim, this matter is not yet settled. Accordingly, the Company has recorded the refund in accrued taxes payable.

During fiscal 2006, the Company utilized approximately $912,000 of NOL carryforwards which, along with other temporary differences led to a reduction of $685,000 of the deferred income tax valuation allowance. During fiscal 2005, the Company utilized approximately $1.5 million of NOL carryforwards, which, along with other temporary differences, led to a reduction of $169,000 of the deferred income tax valuation allowance. In 2004 the Company recorded a deferred tax asset valuation allowance of $517,000 due to the uncertainty in the ultimate realization of its deferred tax assets. The following table summarizes changes in the deferred tax valuation allowance:

	Year Ended March 31,
	2006			2005			2004
	*(in thousands)*
Beginning balance	$	3,354		$	3,523		$	3,006
Charged (credited) to costs and expenses		(685	)		(169	)		517
Ending balance	$	2,669		$	3,354		$	3,523

D-16

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets were as follows as of March 31:

	2006		2005
	*(in thousands)*
Deferred Tax Liabilities:
Depreciation	$	1,930	$	2,424
Other		-		200
Total Deferred Tax Liabilities		1,930		2,624

Deferred Tax Assets:
Net operating loss carryforwards		1,995		2,498
Net cumulative unrealized impairment losses		1,520		1,874
Wages/incentives not paid		1,003		454
Allowance for doubtful accounts		61		51
Marketable securities		-		1,101
Other		20		-
Total Deferred Tax Assets		4,599		5,978
Valuation Allowance for Deferred Tax Assets		2,669		3,354
Net Deferred Tax Assets		1,930		2,624
Net Deferred Tax Assets (Liabilities)	$	-	$	-

NOTE 9 - OTHER INVESTMENTS

Real Estate (Discontinued and Held For Sale):

Maxco has effective ownership interests ranging from 31-50% in primarily two LLC’s that have been involved in the development and ownership of real estate in central Michigan. In 2003, the Company’s affiliated entity, L/M Associates II, sold substantially all of the properties in its real estate portfolio. Pursuant to the terms of the sale agreement, in July 2004, L/M Associates (L/M) exercised its option to require the managing member of the acquiring entity to repurchase L/M’s 16% interest in the acquiring entity. To date this requirement has not been satisfied and L/M Associates intends to pursue other collection remedies against the managing member of the acquiring entity. In addition, the managing member of the acquiring entity, subsequent to December 31, 2005, has listed the applicable properties for sale with a major real estate firm.

Any risks on guarantees that Maxco has estimated would be required to be paid by Maxco have been recorded in the accompanying financial statements and Maxco’s investment has been adjusted to the net realizable value of the remaining assets. Impairment charges totaling $800,000 were recognized during the year ended March 31, 2006 to further reduce the carrying value of the Company’s investment in real estate to its estimated fair value less costs to sell.

In May 2005, Maxco purchased an entity which owns two buildings from L/M Associates. The debt associated with this transaction was approximately $1.8 million which was previously identified as guaranteed debt. In February 2006, the remaining guarantee of $125,000 was repaid as a result of the sale of the underlying asset. Consequently, no guarantees remain as of March 31, 2006.

Technology Related:

In addition to its investment in Integral Vision, Inc., the Company has an equity interest in Provant, Inc. Maxco recorded an impairment charge of approximately $366,000 in other income (expense) in 2004 to recognize a declines in the fair value of its investment that was deemed other than temporary. On March 11, 2004 Provant completed the sale of substantially all of its remaining assets and is in the process of final liquidation.

D-17

Other:

Maxco has a 36% equity interest in Phoenix Financial Group, LTD and its subsidiary Cambridge Group Investments, LTD, dba Bondpage.com (“Cambridge”), a registered broker-dealer of securities that is primarily focused on the trading of fixed income investments over the Internet. An impairment charge of $226,000 was recognized during the year ended March 31, 2006 to reduce the carrying value of the Company’s investment in Phoenix Financial Group to its estimated fair value.

In summary, the Company recorded the following charges to recognize declines in the value of its investments that were deemed other than temporary:

	Year Ended March 31,
	2006		2005		2004
	*(in thousands)*
Robinson Oil	$	30	$	260	$	-
Phoenix Financial		226		-		-
Real estate		800		350		749
Provant		-		-		366
	$	1,056	$	610	$	1,115

A significant portion of these adjustments were recorded during the fourth quarter of each of these fiscal years, and in total served to increase the net loss per share by $0.31, $0.19 and $0.36 in 2006, 2005 and 2004, respectively.

The components of the real estate investments held for sale is summarized as follows:

	March 31,
	2006			2005
	*(in thousands)*
Ledges Commerce Park, net¹	$	-		$	343
Capital Center Associates building		7,700			4,250
Capital Center Associates obligation		(8,500	)		(4,263	)
Michigan Equities Investment Properties, net		896			808
Other		531			712
	$	627		$	1,850

¹ In May 2005, Maxco acquired the common stock of Ledges Commerce Park and as such, has recorded the assets acquired at their fair value and the liabilities assumed at the amount at which they are expected to be settled as of March 31, 2006.

The composition of the net carrying value of non-real estate related investments is summarized as follows:

	March 31,
	2006		2005
	*(in thousands)*
Phoenix Financial	$	250	$	576
Integral Vision		377		211
Robinson		61		91
	$	688	$	878

D-18

The combined unaudited results of operations and financial position of the Company’s unconsolidated non-real estate affiliates are summarized below:

	Technology Related									Energy Related and Other
	March 31,									March 31,
	2006			2005			2004			2006			2005		2004
Condensed income statement information:
Net sales	$	232		$	1,972		$	322		$	3,185		$	4,426	$	3,866
Gross margin		(249	)		506			(123	)		3,185			4,426		3,778
Net income (loss)		(3,024	)		(2,284	)		(2,181	)		(343	)		50		294

Condensed balance sheet information:
Current assets	$	2,400		$	737		$	539		$	511		$	992	$	1,055
Non-current assets		189			160			337			573			558		682
	$	2,589		$	897		$	876		$	1,084		$	1,550	$	1,737

Current liabilities	$	575		$	2,949		$	2,970		$	238		$	243	$	366
Non-current liabilities		378			2,369			1,645			-			40		162
Stockholders' equity (deficit)		1,636			(4,421	)		(3,739	)		846			1,267		1,209
	$	2,589		$	897		$	876		$	1,084		$	1,550	$	1,737

NOTE 10 - CONTINGENCIES AND COMMITMENTS

Maxco and certain operating subsidiaries occupy facilities and use equipment under operating lease agreements requiring annual rental payments approximating $273,000 in 2007, $241,000 in 2008, $197,000 in 2009, and $139,000 in 2010 for a total commitment aggregating $850,000. Rent expense charged to operations, including short-term leases, aggregated $209,000 in 2006, $445,000 in 2005, and $422,000 in 2004.

In April 2004 the Company entered into an incentive agreement with the President of its wholly-owned subsidiary Atmosphere Annealing, Inc. The agreement provides for compensation to the officer based on the increased value, as defined, of the subsidiary by March 31, 2006. The incentive is equal to 1% of the first $25 million in value plus 10% above that base amount. Since no such sale occurred by March 31, 2006, at the option of Maxco the incentive is payable in cash or its equivalent in stock of Atmosphere Annealing, Inc. held by Maxco. As party to the agreement, Maxco, Inc. is recognizing incentive compensation expense on a pro-rata basis under the terms of the agreement. As of March 31, 2006, the amount accrued was $2.0 million, including $1.4 million charged to operations during the year then ended.

The Company is involved in various lawsuits and other claims arising in the ordinary course of business. While the results of these matters cannot be predicted with certainty, management, upon advice from counsel, believes that losses, if any, arising from these proceedings will not have a material adverse effect on its financial statements.

D-19

NOTE 11 - INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:

	2006			2005			2004
	*(in thousands)*
Net Sales:
Heat treating	$	46,564		$	45,364		$	40,754
Corporate and other		-			-			44
Total Net Sales	$	46,564		$	45,364		$	40,798

Operating Earnings (Loss)
Heat treating	$	5,515		$	4,202		$	2,137
Corporate and other		(3,343	)		(2,199	)		(1,968	)
Total Operating Earnings	$	2,172		$	2,003		$	169

Identifiable Assets:
Heat treating	$	27,292		$	27,081		$	29,472
Corporate and other		2,618			3,357			2,671
Investments and advances		4,215			2,728			3,338
Total Identifiable Assets	$	34,125		$	33,166		$	35,481

Depreciation and Amortization Expense:
Heat treating	$	3,065		$	2,900		$	2,865
Corporate and other		23			26			34
Total Depreciation and Amortization Expense	$	3,088		$	2,926		$	2,899

Capital Expenditures:
Heat treating	$	1,698		$	1,041		$	698
Corporate and other		16			1			-
Total Capital Expenditures	$	1,714		$	1,042		$	698

Accounting policies of the business segments are consistent with those described in the summary of significant accounting policies (see Note 1).

Identifiable assets are those assets that are used in Maxco’s operations in each industry segment. Corporate assets are principally cash, notes receivable, investments, and corporate office properties.

Maxco has no significant foreign operations, export sales, or inter-segment sales.

The nature of the Company’s heat treating services may produce sales to one or a small number of customers in excess of 10% of total sales in any one year. The Company’s base of customers is concentrated among original equipment manufacturers as well as Tier I and Tier II suppliers in North America. The loss of business from a major customer, the discontinuance of particular vehicle models or a change in regulations or auto consumer preferences could materially adversely affect the Company. In addition, certain of the Company’s customers have suffered financial distress, which may materially adversely impact the Company as well in terms of the potential for lost revenue and/or uncollectible accounts receivable. It is possible that the specific customers reaching this threshold may change from year to year. Loss of any one of these customers could have a material impact on the Company’s results of operations. For the year ended March 31, 2006 sales to Honda of America Manufacturing, Inc. and GM Powertrain represented 33.2% and 10.4% of consolidated sales, respectively. Amounts due from these customers represented 33% of the respective outstanding trade receivable balance at March 31, 2006. For the year ended March 31, 2005 sales to Honda of America Manufacturing, Inc. and GM Powertrain represented 33.3% and 10.7% of consolidated sales, respectively. Amounts due from these customers represented 31% of the respective outstanding trade receivable balance at March 31, 2005. For the year ended March 31, 2004 sales to Honda of America Manufacturing, Inc. and GM Powertrain represented 38.3% and 14.3% of consolidated sales, respectively.

D-20

NOTE 12 - INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted loss per share:

	Year Ended March 31,
	2006			2005			2004
	*(in thousands except per share data)*
Numerator:
Net income (loss)	$	14		$	134		$	(1,531	)
Preferred stock dividends		(470	)		(408	)		(408	)
Numerator for basic and diluted earnings per share—loss available to common stockholders	$	(456	)	$	(274	)	$	(1,939	)
Denominator:
Denominator for basic and diluted earnings per share—weighted average shares		3,454			3,139			3,108
Basic and Diluted Loss Per Share	$	(0.13	)	$	(0.09	)	$	(0.63	)

NOTE 13 - SUBSEQUENT EVENTS

On April 3, 2006 the Board of Directors abandoned its decision to propose to the Company’s common and voting preferred shareholders a transaction that would call for a 1-for-1,000 reverse stock split followed immediately by a 1,000-for-1 forward stock split of Maxco’s common stock. The previously proposed transaction, if implemented, was expected to enable the Company to terminate the registration of its common stock.

The Board of Directors also decided to engage GBQ Consulting, LLC to locate an investor or purchaser of the Company including its subsidiary Atmosphere Annealing, Inc. Such sale is not expected to occur by March 31, 2007.

D-21

ANNEX E

SUMMARY HISTORICAL FINANCIAL DATA

The summary historical financial data as of September 30, 2006 and for the three and six months ended September 30, 2006 and September 30, 2005 have been derived from the unaudited consolidated financial statements of Maxco, Inc., which have been prepared on a basis consistent with the audited consolidated financial statements as of and for the fiscal year ended March 31, 2006. In the opinion of management, such unaudited financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period. These statements should be read in conjunction with the audited condensed consolidated financial statements and notes for the fiscal year ended March 31, 2006 attached as Annex D.

E-1

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED

	September 30,			March 31,
	2006			2006
	(Unaudited)			(Restated)
	*(in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	400		$	738
Restricted cash		-			750
Accounts and notes receivable		166			132
Prepaid expenses and other		8			38
Assets of business held for sale		27,021			27,325
Total Current Assets		27,595			28,983

Property and Equipment
Office equipment and fixtures		160			160
Allowances for depreciation		(150	)		(147	)
		10			13

Other Assets
Building held for sale		7,947			-
Real estate held for sale		2,900			2,900
Real estate investments held for sale		1,427			627
Investments		630			688
Notes and contracts receivable, including related parties, and other (net of allowance)		581			915
		13,485			5,130
	$	41,090		$	34,126

E-2

See notes to condensed consolidated financial statements.

	September 30,		March 31,
	2006		2006
	(Unaudited)		(Restated)
	*(in thousands)*
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable	$	1,226	$	1,414
Accounts payable		228		280
Employee compensation		818		835
Incentive compensation		2,026		2,026
Taxes, interest, and other liabilities		4,764		4,520
Current maturities of long-term obligations		443		3,120
Liabilities of business held for sale		15,636		11,018
Total Current Liabilities		25,141		23,213

Long-Term Obligations, Less Current Maturities		5,157		1,116
Total Liabilities		30,298		24,329

Stockholders' Equity
Preferred stock:
Series Three: 10% cumulative redeemable, $60 face
value; 14,784 shares issued		678		678
Series Four: 10% cumulative redeemable, $51.50 face
value; 46,414 shares issued		2,390		2,390
Series Five: 10% cumulative redeemable, $120 face
value; 6,648 shares issued		798		798
Series Six: 10% cumulative callable, $160 face
value; 7,812.5 shares issued		1,250		1,250
		5,116		5,116
Common stock, $1 par value; 10,000,000 shares
authorized, 3,454,039 shares issued and outstanding		3,454		3,454
Retained earnings		2,222		1,227
Total Stockholders' Equity		10,792		9,797
	$	41,090	$	34,126

E-3

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,
	2006			2005
	*(in thousands, except per share data)*
Net Sales	$	11,004		$	11,396
Costs and Expenses:
Cost of sales and operating expenses		6,640			7,312
Selling, general and administrative		3,200			2,893
Depreciation and amortization		801			780
		10,641			10,985
Operating Income		363			411
Other Income (Expense)
Investment, interest, and other income, net		3			37
Gain on sale of assets		(4	)		-
Interest expense		(563	)		(384	)
Income (Loss) Before Equity in Loss of Affiliates		(201	)		64
Equity in loss of affiliates		(58	)		-
Net Income (Loss)		(259	)		64
Less preferred stock dividends		(133	)		(102	)
Net Loss Applicable to Common Stock	$	(392	)	$	(38	)
Net Loss Per Common Share—Basic and Diluted	$	(0.11	)	$	(0.01	)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

E-4

(Unaudited)

	Six Months Ended September 30,
	2006			2005
	*(in thousands, except per share data)*
Net Sales	$	23,580		$	22,844
Costs and Expenses:
Cost of sales and operating expenses		13,928			14,426
Selling, general and administrative		5,906			5,793
Depreciation and amortization		1,578			1,532
		21,412			21,751
Operating Income		2,168			1,093
Other Income (Expense)
Investment, interest, and other income, net		28			35
Gain on sale of assets		(4	)		2
Interest expense		(873	)		(737	)
Income Before Equity in Loss of Affiliates		1,319			393
Equity in loss of affiliates		(58	)		-
Net Income		1,261			393
Less preferred stock dividends		(266	)		(204	)
Net Income Applicable to Common Stock	$	995		$	189
Net Income Per Common Share—Basic and Diluted	$	0.29		$	0.05

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

E-5

(Unaudited)

	Number of Common Shares Outstanding		Preferred Stock		Common Stock		Retained Earnings			Totals
	*(in thousands, except number of common shares outstanding)*
Balances at April 1, 2006		3,454,039	$	5,116	$	3,454	$	1,227		$	9,797
Net income and comprehensive income for the six month period								1,261			1,261
Preferred stock dividends								(266	)		(266	)
Balances at September 30, 2006		3,454,039	$	5,116	$	3,454	$	2,222		$	10,792

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

E-6

(Unaudited)

	Six Months Ended September 30,
	2006			2005
	(Restated)
	*(in thousands)*
Operating Activites
Net income	$	1,261		$	393
Adjustments to reconcile net income to net cash
provided by operating activites:
Change in net assets of business held for sale		4,922			(277	)
Equity in net loss of affiliate		58			-
Loss on investment		-			30
Gain on sale of assets		-			(2	)
Depreciation and other non-cash charges		3			14
(Increase) in accounts receivable		352			(14	)
(Increase) decrease in prepaid expenses and other		30			(58	)
Increase (decrease) in accounts payable and other current liabilities		(1,279	)		67
Net Cash Provided By Operating Activities		5,347			153

Investing Activities
Purchase of building		(8,500	)		-
Purchases of equipment and building improvements		(247	)		(13	)
Collections on notes receivable		-			125
Purchase of subsidiary		-			(142	)
Sale of buildings		-			278
Other		(53	)		(4	)
Net Cash (Used In) Provided By Investing Activities		(8,800	)		244

Financing Activities
Repayments on line of credit		(750	)		-
Proceeds from long term financing		4,375			-
Net repayments on other debt obligations		(1,260	)		(455	)
Net Cash Provided By (Used In) Financing Activities		2,365			(455	)

Decrease in Cash and Cash Equivalents		(1,088	)		(58	)
Cash and Cash Equivalents at Beginning of Period		1,488			1,638
Cash and Cash Equivalents at End of Period	$	400		$	1,580

Supplemental cash flows disclosure:
Interest paid	$	284		$	439

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

E-7

NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

September 30, 2006

(Unaudited)

The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the results of the interim periods covered have been included. For further information, refer to the consolidated financial statements and notes thereto included in Maxco's annual report on Form 10-K for the year ended March 31, 2006 filed July 14, 2006.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year. Maxco’s sales and operating results have varied substantially from quarter to quarter. Net heat treating sales are typically lower in the second and third quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s heat treating customers due to a customer changeover and the reduced number of business days during the holiday season. In addition, the timing of acquisitions or the occasional sale of corporate investments may cause substantial fluctuations of operating results from quarter to quarter. Maxco expects its net sales and operating results to continue to fluctuate from quarter to quarter.

During the prior two fiscal years, debt previously in default has been refinanced and management believes that the Company’s exposures relative to outstanding guarantees have been significantly reduced. The Company’s ability to meet its short term and long term debt service and other obligations (including compliance with financial covenants) will continue to be dependent upon its future operating performance. This dependency will be subject to financial, business and other factors, certain of which, such as prevailing economic conditions, are beyond the Company’s control. The Company believes that funds generated by its operations, funds available under existing credit facilities, and funds that could be available under other credit facilities will be sufficient to finance near term capital needs, as well as to fund existing operations for the reasonably foreseeable future. Additionally, the Company has long term equity investments and real estate held for sale that could be liquidated to meet its debt service requirements.

The Company has included the balance sheet of Capital Center Associates (“CCA”) in the accompanying financial statements as required by FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” due to Maxco’s guarantee of CCA’s debt, Maxco’s loan to CCA, and Maxco’s management control of CCA’s building (see Note 6).

The accompanying financial statements as of March 31, 2006 and for all corresponding periods of the previous fiscal year have been restated as required by Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to reflect Maxco’s wholly-owned subsidiary Atmosphere Annealing, Inc. (“AAI”) as an asset held for sale due to receiving a non-binding letter of interest from a bona-fide, third party purchaser to acquire substantially all the assets of AAI. The proposed transaction is subject to various conditions and may not occur or may not be completed in a timely manner. In the event either party to the agreement does not receive the necessary regulatory or shareholder approvals, or other conditions to the closing are not satisfied, the sale will not be completed.

Certain other amounts in the consolidated financial statements have been reclassified to conform to the current presentation.

E-8

NOTE 2 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
NUMERATOR:	*(in thousands, except per share data)*
Net income (loss)	$	(259	)	$	64		$	1,261		$	393
Preferred stock dividends		(133	)		(102	)		(266	)		(204	)
Numerator for basic and diluted earnings per share—
income (loss) available to common stockholders	$	(392	)	$	(38	)	$	995		$	189
DENOMINATOR:
Denominator for basic and diluted earnings per
share—weighted average shares		3,447			3,447			3,447			3,447
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE	$	(0.11	)	$	(0.01	)	$	0.29		$	0.05

NOTE 3 - RESTRICTED CASH

At March 31, 2006 the Company had restricted cash of $750,000 held as collateral under its $2.0 million debt facility. On August 11, 2006, the Company renegotiated this debt facility to a $1.75 million line of credit with no restricted cash.

NOTE 4 - COMPREHENSIVE INCOME

The components of comprehensive income for the three and six months ended September 30, 2006 and 2005 are as follows:

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2006			2005		2006		2005
	*(in thousands)*
Net income (loss)	$	(259	)	$	64	$	1,261	$	393
Unrealized gain on swap agreement		-			14		-		29
Comprehensive income (loss)	$	(259	)	$	78	$	1,261	$	422

NOTE 5 - INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:

	September 30,		March 31,
	2006		2006
	*(in thousands)*
Identifiable Assets:
Assets held for sale	$	39,295	$	30,852
Investments		630		688
Corporate and other		1,165		2,586
Total Identifiable Assets	$	41,090	$	34,126

E-9

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	*(in thousands)*
Net Sales:
Heat treating	$	11,004		$	11,396		$	23,580		$	22,844
Corporate and other		-			-			-			-
Total Net Sales	$	11,004		$	11,396		$	23,580		$	22,844

Operating Earnings (Loss):
Heat treating	$	1,191		$	1,061		$	3,398		$	2,367
Corporate and other		(828	)		(650	)		(1,230	)		(1,274	)
Total Operating Earnings	$	363		$	411		$	2,168		$	1,093

Depreciation and Amortization Expense:
Heat treating	$	799		$	773		$	1,575		$	1,518
Corporate and other		2			7			3			14
Total Depreciation and Amortization Expense	$	801		$	780		$	1,578		$	1,532

Capital Expenditures:
Heat treating	$	1,088		$	400		$	1,776		$	975
Corporate and other		247			6			247			13
Total Capital Expenditures	$	1,335		$	406		$	2,023		$	988

Accounting policies of the business segments are consistent with those described in the summary of significant accounting policies (see Note 1).

Identifiable assets are those assets that are used to carry out Maxco’s operations in its heat treating segment. Corporate assets are principally cash, notes receivable, and investments. Maxco has no significant foreign operations or export sales.

The nature of the Company’s heat treating services may produce sales to one or a small number of customers in excess of 10% of total sales in any one period. It is possible that the specific customers reaching this threshold may change from year to year. Loss of any one of these customers could have a material impact on the Company’s results of operations.

NOTE 6 - DEBT

On August 10, 2006, the Company refinanced its real estate held for sale. The $1.6 million of proceeds from the refinancing were used to retire other debt obligations. In addition, on August 11, 2006 the Company renegotiated its $2.0 million debt facility to a $1.75 million line of credit that requires interest only payments and matures in August 2007. At September 30, 2006, $1.0 million was borrowed under this line of credit.

E-10

A summary of the Company’s debt obligations as of September 30, 2006 and March 31, 2006 is as follows:

	September 30,		March 31, 2006
	2006		(Restated)
	*(in thousands)*
Short term obligations:
Notes payable (various interest rates)	$	226	$	1,414
Revolving line of credit (prime + 1.25%)		1,000		-
	$	1,226	$	1,414

Long term obligations:
Mortgage notes payable (various variable interest rates)	$	4,370	$	1,950
Equipment purchase contracts and capitalized lease obligations (various interest rates)		884		1,940
Subordinated debt (fixed rate of 10.00%)		346		346
		5,600		4,236
Less current maturities		443		3,120
	$	5,157	$	1,116

Liabilities of business held for sale

Included in liabilities of business held for sale were the following debt instruments:

At September 30, 2006 Atmosphere Annealing, Inc. (“AAI”), had a $6 million line of credit facility. This facility is secured by AAI’s assets. The amount that can be borrowed under this facility is dependent on certain accounts receivable levels at AAI. At September 30, 2006, based on these specific collateral levels, AAI could borrow up to $3.6 million under its line of credit, approximately $187,000 of which was borrowed. The facility matures in August 2008.

AAI had a separate $7.2 million line of credit facility secured by its equipment. At September 30, 2006 approximately $4.6 million was borrowed under this line of credit. The line of credit matures in March 2007.

Settlement Agreement Resolution

Effective October 27, 2005, the Company entered into a Settlement Agreement with American Realty Equities, Inc. (“ARE”), Capital Center Associates, LLC, (“CCA), L/M Associates, LLC (“L/M”) and Max A. Coon relating to property and the related mortgage on such property owned by CCA. CCA is majority owned by L/M which is 50% owned by Maxco, Inc.

The Settlement Agreement relates to a promissory note dated February 21, 2001, which was in default and guaranteed by Max A. Coon, the Company’s President and Chief Executive Officer, and others. ARE purchased the interest of Charter One Bank as lender of the promissory note which was in the original principal amount of approximately $10 million. On August 11, 2005, the Company agreed to indemnify Max A. Coon for any amounts he would be required to pay as result of personal guarantees he had on the Company’s real estate entities that were made for the sole benefit of the Company. ARE commenced an action in March 2005 to foreclose the construction mortgage and an action to enforce the guarantee against Max Coon and the other guarantors.

Without admitting any liabilities or fault, and to avoid the expense and uncertainties of litigation, the parties settled the litigation as detailed in the Settlement Agreement.

In summary, the Settlement Agreement stated that the total amount to be paid to ARE was $8.5 million if paid on or before September 1, 2006.

On August 30, 2006 payment was made to ARE as required under the Settlement Agreement. To pay this commitment to ARE, the Company was party to the following agreements:

On August 30, 2006, Maxco, Inc. guaranteed a Mortgage Loan Agreement (the “Agreement”) for $2,775,000 between The Huntington National Bank (“HNB”) and CCA. In addition to Maxco, Inc., other guarantors named are L/M and Max A. Coon. The Agreement, which is secured by a first mortgage on a commercial building in Lansing, Michigan (“CCA Building”), calls for CCA to make 60 monthly payments of principal and interest of $22,363.76 plus a final payment of the remaining principal and any accrued interest on September 15, 2011 to HNB. Maxco, Inc. and the other guarantors would be liable for payment to HNB should CCA default.

E-11

The Company’s wholly-owned subsidiary, Atmosphere Annealing, Inc. (“AAI”), as part of refinancing of its debt with its principal lender, provided the Company with $5,761,333.25 as part of an intercompany demand note toward fulfilling the commitment to ARE. The $5,761,333.25, which was advanced under loan agreements with AAI’s principal lender, is collateralized by certain assets of AAI including real estate and equipment.

3.	On August 30, 2006, CCA, L/M and the Company agreed that the Company loan the $5,761,333.25 to CCA to fulfill the commitment to ARE. The loan to CCA by the Company is evidenced by a demand note, secured by a second mortgage on the CCA Building in favor of the Company, and guaranteed by L/M.

As a result of the settlement, the Company has included the balance sheet of CCA in the accompanying financial statements since the date of acquisition effective August 30, 2006 (See Note 1). The operating results of CCA were immaterial for the one month ended September 30, 2006.

Indemnification Matters

The Company agreed to indemnify Max A. Coon, chairman and president of the Company, for any amount he would be required to pay for a $1.7 million guarantee resulting from the sale of its major real estate portfolio. The Company does not believe that there is any unusual degree of risk related to the indemnification of this guarantee made by Max Coon because of sufficient underlying asset values supporting the respective debt obligation and other conditions of such indemnification; as such, no amounts have been accrued for such guarantees as of September 30, 2006.

NOTE 7 - FEDERAL INCOME TAXES

The Company assumed the utilization of net operating loss carryforwards to offset taxable income in the first six months of fiscal 2007. The Company amended its March 31, 2002 Federal income tax return to reflect the write offs of its investment in its discontinued affiliate, Foresight, Inc.’s stock, amounts the Company was required to pay as guarantor of Foresight’s banking agreement, and certain other advances to Foresight. As a result of this amendment, the Company received a federal income tax refund of approximately $790,000 which is recorded in accrued taxes payable at September 30, 2006. The Company is currently under audit by the Internal Revenue Service (IRS) and while the auditing agent has initially denied the claim, the Company is appealing the agent’s position to the Appeals Office of the IRS. While management believes that the facts and tax law support the claim, this matter is not yet settled. Accordingly, the Company has recorded the refund in accrued taxes payable.

NOTE 8 - PREFERRED STOCK DIVIDENDS

NOTE 9 - INVENTORIES

Inventories, which are included in assets of business held for sale, are stated at the lower of first-in, first-out cost or market and consisted of the following:

	September 30,		March 31,
	2006		2006
	*(in thousands)*
Raw materials	$	197	$	314
Work in progress		664		700
Finished goods		32		34
	$	893	$	1,048

The Company ordinarily does not take title to the customer parts received for processing; accordingly, such parts are not included in these consolidated financial statements.

NOTE 10 - REAL ESTATE INVESTMENTS HELD FOR SALE

Maxco has effective ownership interests ranging from 31-50% in primarily two LLC’s that have been involved in the development and ownership of real estate in central Michigan. In 2003, the Company’s affiliated entity, L/M Associates II, sold substantially all of the properties in its real estate portfolio. Pursuant to the terms of the sale agreement, in July 2004, L/M Associates (L/M) exercised its option to require the managing member of the acquiring entity to repurchase L/M’s 16% interest in the acquiring entity. To date this requirement has not been satisfied and L/M Associates is working with the managing member of the acquiring entity to resolve this issue. In addition, the managing member of the acquiring entity, during the fourth quarter of fiscal 2006, listed the applicable properties for sale with a major real estate firm.

E-12

NOTE 11 - NOTES AND CONTRACTS RECEIVABLE, INCLUDING RELATED PARTIES, AND OTHER

The Company’s former Vice President, Chief Financial Officer and Treasurer is indebted to the Company in the amount of approximately $192,000, including accrued interest, as of September 30, 2006. The indebtedness was incurred at various times prior to April 2002 for the purchase of affiliate company stock and personal use.

In April 2004 the Company entered into an incentive agreement with the President of its wholly-owned subsidiary Atmosphere Annealing, Inc. The agreement provides for compensation to the officer based on the increased value, as defined, of the subsidiary by March 31, 2006. The incentive is equal to 1% of the first $25 million in value plus 10% above that base amount. At the option of Maxco the incentive is payable in cash or its equivalent in stock of Atmosphere Annealing, Inc. held by Maxco. As party to the agreement, Maxco, Inc. recognized incentive compensation expense on a pro-rata basis under the terms of the agreement. The Company charged approximately $600,000 related to this compensation during the year ended March 31, 2005. As of March 31, 2006, the amount accrued was $2.0 million, including $1.4 million charged to operations during the year then ended. No further compensation was charged to operations subsequent to March 31, 2006. However, the compensation committee is considering an additional discretionary amount based on the sale price of AAI if a transaction is consummated.

Included in accrued wages is $477,000 and $517,000 at September 30, 2006 and March 31, 2006, respectively, that is due Mr. Coon. Included in accounts payable is $49,000 and $86,000 at September 30, 2006 and March 31, 2006, respectively, that is due to entities in which Mr. Coon has an interest.

NOTE 12 - RECEIPT OF NON-BINDING LETTER OF INTEREST TO ACQUIRE SUBSTANTIALLY ALL THE ASSETS OF ATMOSPHERE ANNEALING, INC.

On August 16, 2006 Maxco received a preliminary, non-binding letter of interest from a bona-fide, third party purchaser to acquire substantially all the assets of Maxco’s wholly owned subsidiary, Atmosphere Annealing, Inc. (“AAI”) for cash. Under the preliminary proposal, the purchaser would agree to purchase substantially all of the operating assets of AAI other than cash and specifically agreed upon items. The transaction is subject to comprehensive due diligence. Other than normal operating liabilities, the purchaser would not assume any liabilities for borrowed money as well as certain other liabilities including product, tax, and environmental liabilities, if any. It is expected that upon the sale of AAI, all interest bearing liabilities of AAI would be paid out of the proceeds from the sale. The balance of such liabilities as of September 30, 2006 was $11.4 million.

Completion of the transaction is subject to various conditions, including completion of a full investigation of AAI’s business by the potential purchaser, negotiation and entry into a definitive purchase agreement, required approvals including Board and Shareholder approval by Maxco, Inc. (“Maxco”), and possibly obtaining consents from regulatory authorities. Accordingly, while management reasonably believes that the sale of AAI to this prospective purchaser will be consummated; there can be no assurance that the transaction will be consummated.

E-13

As part of the agreement, Maxco agreed to terminate discussions with all other third parties interested in the acquisition of AAI for a period of forty-five (45) days from the date of the agreement in order to afford the prospective purchaser an opportunity to conduct confirmatory due diligence throughout the exclusivity period. Maxco also agreed not to sell, transfer, or otherwise dispose of the assets to be purchased or to commence new discussions with other third parties.

On October 4, 2006 Maxco received a revised non-binding letter of interest extending the exclusivity period another thirty (30) days. On November 10, 2006 the parties agreed to extend the exclusivity period through November 30, 2006.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting method or its application is generally accepted, management selects the principle or method that is appropriate in the specific circumstances. Application of these accounting principles requires the Company’s management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the financial statements, giving due regard to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below.

Principles of Consolidation and Transactions with Affiliates

The consolidated financial statements include the accounts of Maxco, Inc. and its majority owned subsidiaries. Upon consolidation, all intercompany accounts and transactions are eliminated. Investments in greater than 20% owned unconsolidated investments are accounted for under the equity method. Investments in less than 20% owned affiliates are accounted for under the cost method, with the exception of Integral Vision, Inc., which continues to be accounted for under the equity method because of its representation on Integral Vision’s Board of Directors.

Revenue Recognition

The Company recognizes service revenue and revenue from product sales upon transfer of title, which is upon shipment. An estimate of reserves is recorded, if material, for anticipated reworks and credit memos that will be issued on sales recognized to date. SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition,” provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.

Goodwill, Intangible and Other Long-Lived Assets

Property, plant, and equipment, and certain other definite-lived assets are amortized over their useful lives. Useful lives are based on management's estimates of the period that the asset will be useful to the Company.

E-14

Goodwill, intangible, and other long-lived assets are reviewed by management for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. If management believes impairment may exist, an assessment is performed. This assessment consists of comparing the estimated undiscounted future cash flows with the carrying amount of the long-lived assets. If the undiscounted future cash flows are less than the carrying amounts of the long-lived assets, the Company adjusts the carrying amount of the long-lived assets to their estimated fair value. Fair value is determined by anticipated future cash flows discounted at a rate commensurate with the risk involved. All of the Company’s goodwill is related to the heat treating segment.

During fiscal 2006, the Company performed the impairment tests of its goodwill, indefinite-long-lived intangibles, and other long-lived assets required by relevant accounting standards. The Company's tests indicated that the fair value of its heat treating segment, which was determined by using discounted cash flows and market multiples, exceeded the carrying value. As a result, the Company did not record an impairment charge for this segment in the accompanying financial statements. The Company will continue to perform an impairment review on an annual basis (or more frequently if impairment indicators arise).

Derivative Financial Instruments

The Company applies hedge accounting pursuant to SFAS 133, as amended, with respect to interest rate swap agreements. Accordingly, changes in the fair value of the swap are reported as a component of other comprehensive income and are not included in operating results.

Material Trends and Uncertainties

There have been no changes to material trends and uncertainties since March 31, 2006. Refer to Maxco, Inc.’s Form 10-K filed on July 14, 2006.

Market Opportunities and Growth Strategies

We believe that the following favorable market factors will present opportunities for future growth:

·	Companies are focusing on core competencies and outsourcing non-core processes such as heat treating and coating.

·	In some cases, our customers are consolidating their supply base.

·	Foreign automakers are locating manufacturing facilities in the United States.

Our strategy is to leverage our technical capabilities along with our solid reputation in the industry to (i) expand our relationship with our current customers through superior quality and customer service, and (ii) become a preferred supplier to the foreign automakers locating in the United States. Key elements of our strategy include the following:

·	*Expand Capabilities*. By adding new capabilities in our existing plants we believe that we could secure new business from our existing customer base. By offering a “one-stop" shop we could significantly reduce logistical costs for our customers.

·	*Provide Technical Expertise To Support Our Customers*. We believe that our technical expertise is one of our competitive advantages. We partner with our customers to find ways to improve quality and reduce cost.

Cost Savings Opportunities and Efficiency Improvements. We have pursued, and will continue to pursue, cost savings that enhance our competitive position in serving our customers. We have made significant investments in material handling equipment in order to improve efficiency and to provide a safer environment for our employees.

·	*Pursue Strategic Acquisitions*. We plan to pursue acquisitions that strategically expand our process capabilities and contribute to our geographic diversity and market share. Our ability to execute this element of our strategy may be limited by our capital resources.

MATERIAL CHANGES IN FINANCIAL CONDITION

Cash provided by operating activities amounted to $5.3 million for the six months ended September 30, 2006. Net income after non-cash adjustments generated $1.3 million while net changes in accounts receivable, prepaid expenses, and accounts payable and other current liabilities used $897,000. The change in net assets of the Company’s business held for sale generated $4.9 million.

Investing activities during the period used cash of $8.8 million, primarily due to CCA’s $8.5 million purchase of a building. As a result of a settlement agreement the Company is including the operations of CCA in the accompanying financial statements (see Note 6—Debt—Settlement Agreement Resolution). CCA used cash of $247,000 for improvements to the building.

E-15

Cash provided by financing activities amounted to $2.4 million during the six months ended September 30, 2006. CCA borrowed $2.8 million for the purchase of a building. The Company’s discontinued operation, Atmosphere Annealing, Inc., provided $5.7 million to the Company to fund the remaining portion of the purchase of CCA’s building (see Note 6—Debt—Settlement Agreement Resolution). The Company refinanced its real estate held for sale and received $1.6 million. The proceeds from the refinancing were used to repay short term debt and other obligations. Maxco repaid $200,000 when it renegotiated a short term obligation to a line of credit. The Company paid down on its line of credit by $750,000. Maxco repaid its remaining obligation of approximately $900,000 to CJC leasing (See Note 11). Other repayments on long term obligations amounted to $160,000.

Overall, the Company’s working capital (defined as current assets less current liabilities) decreased from $5.8 million at March 31, 2006 to $2.5 million at September 30, 2006.

The Company’s ability to meet its short term and long term debt service and other obligations (including compliance with financial covenants) will continue to be dependent upon its future operating performance. This dependency will be subject to financial, business and other factors, certain of which, such as prevailing economic conditions, are beyond the Company’s control. The Company believes that funds generated by its operations, funds available under its credit facilities, and funds that could be available under other credit facilities will be sufficient to finance near term capital needs, as well as to fund existing operations for the reasonably foreseeable future. Additionally the Company has long term equity investments that could be liquidated to meet its debt service requirements.

At September 30, 2006, the 2,410,183 shares of Integral Vision common stock that Maxco owns had an aggregate fair value of approximately $1.4 million. Maxco’s investment in Integral Vision is reflected in Maxco’s financial statements under the equity method for all periods presented as the Company maintains representation on Integral Vision’s Board of Directors.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2006 Compared to 2005

Net sales decreased to $11.0 million compared to $11.4 million in last year’s second quarter. Second quarter results reflect operating income of $363,000 compared to $411,000 for the comparable period in 2005. Net loss was $259,000 or $0.11 per share after preferred dividends assuming dilution compared to last year’s income of $64,000 or a loss of $0.01 per share after preferred dividends assuming dilution.

Sales and operating earnings for the three months ending September 30, 2006 and 2005 by the Company’s heat treating and corporate and other segments were as follows:

	Three Months Ended					Three Months Ended
	September 30, 2006					September 30, 2005
			Operating					Operating
	Net Sales		Earnings (Loss)			Net Sales		Earnings (Loss)
	*(in thousands)*
Heat treating	$	11,004	$	1,191		$	11,396	$	1,061
Corporate and other		-		(828	)		-		(650	)
	$	11,004	$	363		$	11,396	$	411

AAI experienced a decrease in net sales of approximately $392,000. Net sales volume from existing customers decreased by $866,000, of which $453,000 was from a certain major customer. An expanded customer base generated an additional $474,000 of net sales in the current year.

Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $4.4 million from $4.1 million. Gross margin (gross profit as a percentage of sales) increased to 40% from 36%. The improvement in gross margin increased gross profit by $421,000 while the decrease in AAI’s net sales reduced gross profit by $140,000. AAI experienced decreases in employee related expenses of $220,000, natural gas of $142,000, maintenance of $135,000, and general factory supplies of $91,000.

Selling, general, and administrative increased to $3.2 million from $2.9 million in the prior year period. Maxco recorded a general reserve of $386,000 due to the uncertain collectibility of certain notes and contracts receivable. AAI experienced increases in employee related expenses of $162,000. Maxco’s employee salary and other employee related expenses decreased $76,000. In 2005, Maxco recognized $175,000 of compensation expense under the terms of an incentive agreement with the President of AAI.

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As a result of the above, operating earnings decreased to $363,000 from $411,000 in last year’s comparable period.

Investment, interest, and other income (loss), net decreased from $37,000 to $3,000. In 2005, the Company recorded income of $26,000 from consulting services that the Company provides to Integral Vision.

Interest expense increased from $384,000 to $563,000. In August 2006 AAI expensed approximately $330,000 of deferred financing costs as a result of debt refinancing.

Equity in net loss of affiliates consists of Maxco’s share of the operating results of 50% or less owned entities accounted for under the equity method. On a consolidated basis, equity in net loss of affiliates was $58,000, net of tax, in the quarter ended September 30, 2006.

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Six Months Ended September 30, 2006 Compared to 2005

Net sales increased to $23.6 million compared to $22.8 million in last year’s comparable period. Results from this period reflect operating earnings of $2.2 million compared to $1.1 million for the comparable period in 2005. Net income was $1.3 million or $0.29 per share after preferred dividends assuming dilution compared to last year’s $393,000 or $0.05 per share after preferred dividends assuming dilution.

Sales and operating earnings for the six months ended September 30, 2006 and 2005 by the Company’s heat treating and corporate and other segments were as follows:

	Six Months Ended					Six Months Ended
	September 30, 2006					September 30, 2005
			Operating					Operating
	Net Sales		Earnings (Loss)			Net Sales		Earnings (Loss)
	*(in thousands)*
Heat treating	$	23,580	$	3,398		$	22,844	$	2,367
Corporate and other		-		(1,230	)		-		(1,274	)
	$	23,580	$	2,168		$	22,844	$	1,093

AAI experienced an increase in net sales of approximately $736,000. A certain major customer generated an additional $679,000. Net sales volume from other existing customers decreased by $1.3 million. An expanded customer base generated an additional $1.3 million of net sales in the current year.

Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $9.7 million from $8.4 million. Gross margin (gross profit as a percentage of sales) increased to 41% from 37%. The increase in AAI’s net sales accounted for $271,000 of the increase in gross profit while the improvement in margin accounted for $964,000. AAI experienced decreases in employee related expenses of $333,000, natural gas of $592,000, maintenance of $288,000, and general factory supplies of $203,000. Per an agreement with a certain customer, AAI is required to purchase and bill the customer for the steel used in the heat treating process. The amount of steel purchased was $1.1 million higher than the prior year.

Selling, general, and administrative increased to $5.9 million from $5.8 million in the prior year period. Maxco recorded a general reserve of $386,000 due to the uncertain collectibilty of certain notes and contract receivable. In 2005, Maxco recognized $350,000 of compensation expense under the terms of an incentive agreement with the President of AAI. Maxco’s employee salary and other employee related expenses decreased $132,000. Maxco’s employee salary and other employee related expenses decreased $132,000. Maxco’s legal and other professional expenses increased approximately $45,000. AAI experienced increases in employee related expenses of $226,000. AAI’s legal and other professional expenses decreased approximately $52,000.

As a result of the above, operating earnings increased to $2.2 million from $1.1 million in last year’s comparable period.

Investment, interest, and other income (loss), net decreased from $35,000 to $28,000.

Interest expense increased from $737,000 to $873,000. In August 2006 AAI expensed approximately $330,000 of deferred financing costs as a result of debt refinancing.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s variable interest expense is sensitive to changes in the general level of United States interest rates. Approximately $5.4 million of Maxco’s debt carries a fixed rate of interest. The Company had total outstanding variable rate short and long term borrowings of $12.9 million at September 30, 2006. A 1% increase from the prevailing interest rates at September 30, 2006 on the unhedged variable rate portion of the Company’s short and long-term borrowings would increase interest expense on an annualized basis by approximately $129,000 based on principal balances at September 30, 2006.

The Company’s heat treating segment experiences fluctuations in the price of natural gas used in the heat treating process. To the extent feasible in light of competitive factors, the Company has offset these fluctuations through selective price adjustments.

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ITEM 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures

The Company’s chief executive officer and chief financial officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer have each concluded that the Company’s current disclosure controls and procedures are effective to ensure that information required to be disclosed in its periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported, in each case, within the time period specified by the SEC’s rules and regulations.

b) Changes in internal control over financial reporting

There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s second quarter of the fiscal year that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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ANNEX F

This charter governs the operations of the audit committee. The committee shall review and reassess the charter at least annually and obtain the approval of the Board of Directors. The committee shall be appointed by the Board of Directors and effective June 14, 2001, shall comprise at least three directors, each of whom are independent of management and the Company. Members of the committee shall be considered independent if they have no relationship that may interfere with the exercise of their independence from management and the Company. All committee members shall be financially literate, [or shall become financially literate within a reasonable period of time after appointment to the committee,] and at least one member shall have accounting or related financial management expertise.

AUDIT COMMITTEE CHARTER

Organization

Statement of Policy

The audit committee shall provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to the Company's financial statements and the financial reporting process, the systems of internal accounting and financial controls, the internal audit function, the annual independent audit of the Company's financial statements, and the legal compliance and ethics programs as established by management and the Board. In so doing, it is the responsibility of the committee to maintain free and open communication between the committee, independent auditors, the internal auditors, and management of the Company. In discharging its oversight role, the committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the power to retain outside counsel, or other experts for this purpose.

Responsibilities and Processes

The primary responsibility of the audit committee is to oversee the Company's financial reporting process on behalf of the Board and report the results of their activities to the Board. Management is responsible for preparing the Company's financial statements, and the independent auditors are responsible for auditing those financial statements. The committee in carrying out its responsibilities believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The committee should take the appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior.

The following shall be the principal recurring processes of the audit committee in carrying out its oversight responsibilities. The processes are set forth as a guide with the understanding that the committee may supplement them as appropriate.

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