Exhibit 10.50

 

QUANEX CORPORATION

 

DEFERRED COMPENSATION PLAN

 

(As Amended and Restated
Effective July 1, 2004)

 

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QUANEX CORPORATION

DEFERRED COMPENSATION PLAN

 

TABLE OF CONTENTS

 

 

Section

 

 

ARTICLE I — DEFINITIONS

 

 

 

Account

1.1

Beneficiary

1.2

Board

1.3

Cash Fund

1.4

Change of Control

1.5

Change of Control Value

1.6

Code

1.7

Committee

1.8

Common Stock

1.9

Company

1.10

Company Match

1.11

Deferred Compensation Ledger

1.12

Director

1.13

Director Fees

1.14

Disability

1.15

Incentive Bonus

1.16

Investment Fund

1.17

LTIP Compensation

1.18

Normal Retirement Date

1.19

NYSE

1.20

Participant

1.21

Plan

1.22

Plan Year

1.23

Quanex

1.24

Rabbi Trust

1.25

Retirement

1.26

Retirement Plan

1.27

Securities Act

1.28

Subsidiary

1.29

Term of Deferral

1.30

Valuation Date

1.31

Voting Securities

1.32

 

 

ARTICLE II - ELIGIBILITY

 

 

i

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ARTICLE III - DEFERRALS AND COMPANY CONTRIBUTIONS

 

 

 

Deferral Election

3.1

Company Match

3.2

Mandatory Deferral

3.3

 

 

ARTICLE IV - ACCOUNT

 

 

 

Establishing a Participant’s Account

4.1

Credit of the Participant’s Deferral and the Company’s Match

4.2

Crediting of Dividends and Distributions on Common Stock

4.3

Crediting of Earnings and Losses

4.4

Common Stock Conversion Election

4.5

Conversion and Cash-Out Upon a Change of Control
[a04-15061_1ex10d50.htm#ConversionAndCashoutUponAChangeOf]

4.6 [a04-15061_1ex10d50.htm#ConversionAndCashoutUponAChangeOf]

 

 

ARTICLE V - VESTING [a04-15061_1ex10d50.htm#ArticleV]

 

 

 

Vesting [a04-15061_1ex10d50.htm#Vesting]

5.1 [a04-15061_1ex10d50.htm#Vesting]

Forfeiture of Company Match Because of Early Distribution
[a04-15061_1ex10d50.htm#ForfeitureOfCompanyMatchBecauseOfE]

5.2 [a04-15061_1ex10d50.htm#ForfeitureOfCompanyMatchBecauseOfE]

Forfeiture for Cause [a04-15061_1ex10d50.htm#ForfeitureForCause]

5.3 [a04-15061_1ex10d50.htm#ForfeitureForCause]

Forfeiture for Competition [a04-15061_1ex10d50.htm#ForfeitureForCompetition]

5.4 [a04-15061_1ex10d50.htm#ForfeitureForCompetition]

Full Vesting in the Event of a Change of Control
[a04-15061_1ex10d50.htm#FullVestingInTheEventOfAChangeOf]

5.5 [a04-15061_1ex10d50.htm#FullVestingInTheEventOfAChangeOf]

 

 

ARTICLE VI - DISTRIBUTIONS [a04-15061_1ex10d50.htm#ArticleVi]

 

 

 

Form of Distributions or Withdrawals
[a04-15061_1ex10d50.htm#FormOfDistributionsOrWithdrawals]

6.1 [a04-15061_1ex10d50.htm#FormOfDistributionsOrWithdrawals]

Death. [a04-15061_1ex10d50.htm#Death]

6.2 [a04-15061_1ex10d50.htm#Death]

Disability [a04-15061_1ex10d50.htm#Disability1]

6.3 [a04-15061_1ex10d50.htm#Disability1]

Expiration of Term of Deferral
[a04-15061_1ex10d50.htm#ExpirationOfTermOfDeferral]

6.4 [a04-15061_1ex10d50.htm#ExpirationOfTermOfDeferral]

Hardship Withdrawals [a04-15061_1ex10d50.htm#HardshipWithdrawals]

6.5 [a04-15061_1ex10d50.htm#HardshipWithdrawals]

Payment Restrictions on Any Portion of a Benefit Determined Not to Be Deductible
[a04-15061_1ex10d50.htm#PaymentRestrictionsOnAnyPortionOfA]

6.6 [a04-15061_1ex10d50.htm#PaymentRestrictionsOnAnyPortionOfA]

Responsibility for Distributions and Withholding of Taxes
[a04-15061_1ex10d50.htm#ResponsibilityForDistributionsAndWit]

6.7 [a04-15061_1ex10d50.htm#ResponsibilityForDistributionsAndWit]

 

 

ARTICLE VII - ADMINISTRATION [a04-15061_1ex10d50.htm#ArticleVii]

 

 

 

Committee Appointment [a04-15061_1ex10d50.htm#CommitteeAppointment]

7.1 [a04-15061_1ex10d50.htm#CommitteeAppointment]

Committee Organization and Voting
[a04-15061_1ex10d50.htm#CommitteeOrganizationAndVoting]

7.2 [a04-15061_1ex10d50.htm#CommitteeOrganizationAndVoting]

Powers of the Committee [a04-15061_1ex10d50.htm#PowersOfTheCommittee]

7.3 [a04-15061_1ex10d50.htm#PowersOfTheCommittee]

Committee Discretion [a04-15061_1ex10d50.htm#CommitteeDiscretion]

7.4 [a04-15061_1ex10d50.htm#CommitteeDiscretion]

Annual Statements [a04-15061_1ex10d50.htm#AnnualStatements]

7.5 [a04-15061_1ex10d50.htm#AnnualStatements]

Reimbursement of Expenses [a04-15061_1ex10d50.htm#ReimbursementOfExpenses]

7.6 [a04-15061_1ex10d50.htm#ReimbursementOfExpenses]

Limitation on Liability [a04-15061_1ex10d50.htm#LimitationOnLiability]

7.7 [a04-15061_1ex10d50.htm#LimitationOnLiability]

 

ii

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ARTICLE VIII - ADOPTION BY SUBSIDIARIES [a04-15061_1ex10d50.htm#ArticleViii]

 

 

 

Procedure for and Status After Adoption
[a04-15061_1ex10d50.htm#ProcedureForAndStatusAfterAdoption]

8.1 [a04-15061_1ex10d50.htm#ProcedureForAndStatusAfterAdoption]

Termination of Participation by Adopting Subsidiary
[a04-15061_1ex10d50.htm#TerminationOfParticipationByAdopting]

8.2 [a04-15061_1ex10d50.htm#TerminationOfParticipationByAdopting]

 

 

ARTICLE IX - AMENDMENT AND/OR TERMINATION [a04-15061_1ex10d50.htm#ArticleIx]

 

 

 

Amendment or Termination of the Plan
[a04-15061_1ex10d50.htm#AmendmentOrTerminationOfThePlan]

9.1 [a04-15061_1ex10d50.htm#AmendmentOrTerminationOfThePlan]

No Retroactive Effect on Awarded Benefits
[a04-15061_1ex10d50.htm#NoRetroactiveEffectOnAwardedBenefit]

9.2 [a04-15061_1ex10d50.htm#NoRetroactiveEffectOnAwardedBenefit]

Effect of Termination [a04-15061_1ex10d50.htm#EffectOfTermination]

9.3 [a04-15061_1ex10d50.htm#EffectOfTermination]

 

 

ARTICLE X - FUNDING [a04-15061_1ex10d50.htm#ArticleX]

 

 

 

Payments Under This Agreement are the Obligation of the Company
[a04-15061_1ex10d50.htm#PaymentsUnderThisAgreementAreTheOb]

10.1 [a04-15061_1ex10d50.htm#PaymentsUnderThisAgreementAreTheOb]

Agreement May Be Funded Through Rabbi Trust
[a04-15061_1ex10d50.htm#AgreementMayBeFundedThroughRabbiTr]

10.2 [a04-15061_1ex10d50.htm#AgreementMayBeFundedThroughRabbiTr]

Reversion of Excess Assets [a04-15061_1ex10d50.htm#ReversionOfExcessAssets]

10.3 [a04-15061_1ex10d50.htm#ReversionOfExcessAssets]

Participants Must Reply Only on General Credit of the Company
[a04-15061_1ex10d50.htm#ParticipantsMustRelyOnlyOnGeneralC]

10.4 [a04-15061_1ex10d50.htm#ParticipantsMustRelyOnlyOnGeneralC]

 

 

ARTICLE XI - MISCELLANEOUS [a04-15061_1ex10d50.htm#ArticleXi]

 

 

 

Limitation of Rights [a04-15061_1ex10d50.htm#LimitationOfRights]

11.1 [a04-15061_1ex10d50.htm#LimitationOfRights]

Distributions to Incompetents of Minors
[a04-15061_1ex10d50.htm#DistributionsToIncompetentsOrMinors]

11.2 [a04-15061_1ex10d50.htm#DistributionsToIncompetentsOrMinors]

Nonalienation of Benefits [a04-15061_1ex10d50.htm#NonalienationOfBenefits]

11.3 [a04-15061_1ex10d50.htm#NonalienationOfBenefits]

Expenses Incurred in Enforcing the Plan
[a04-15061_1ex10d50.htm#ExpensesIncurredInEnforcingThePlan]

11.4 [a04-15061_1ex10d50.htm#ExpensesIncurredInEnforcingThePlan]

Reliance Upon Information [a04-15061_1ex10d50.htm#RelianceUponInformation]

11.5 [a04-15061_1ex10d50.htm#RelianceUponInformation]

Severability [a04-15061_1ex10d50.htm#Severability]

11.6 [a04-15061_1ex10d50.htm#Severability]

Notice [a04-15061_1ex10d50.htm#Notice]

11.7 [a04-15061_1ex10d50.htm#Notice]

Gender and Number [a04-15061_1ex10d50.htm#GenderAndNumber]

11.8 [a04-15061_1ex10d50.htm#GenderAndNumber]

Governing Law [a04-15061_1ex10d50.htm#GoverningLaw]

11.9 [a04-15061_1ex10d50.htm#GoverningLaw]

 

iii

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QUANEX CORPORATION

DEFERRED COMPENSATION PLAN

WHEREAS, Quanex Corporation originally established the Quanex Deferred
Compensation Plan (the “Plan”) effective October 1, 1981, which provides a
mechanism by which certain highly compensated management personnel may defer
their compensation under the Quanex Corporation Executive Incentive Compensation
Plan and the Quanex Corporation Management Incentive Program prior to such
compensation being earned and directors may defer their director’s fees prior to
their being earned;

 

WHEREAS, Quanex Corporation amended and restated the Plan effective October 12,
1995, June 1, 1999 and November 1, 2001;

 

WHEREAS, Quanex Corporation desires to amend and restate the Plan effective July
1, 2004.

 

NOW, THEREFORE, Quanex Corporation amends and restates the Plan as follows:

 

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ARTICLE I

 

DEFINITIONS

 

1.1                                 “Account” means a Participant’s account in
the Deferred Compensation Ledger maintained by the Committee which reflects the
benefits a Participant is entitled to under the Plan.

 

1.2                                 “Beneficiary” means a person or entity
designated by the Participant under the terms of the Plan to receive any amounts
distributed under the Plan upon the death of the Participant.

 

1.3                                 “Board” means the Board of Directors of
Quanex Corporation.

 

1.4                                 “Cash Fund” means the Plan balances deemed
invested in cash.

 

1.5                                 “Change of Control” means the occurrence of
one or more of the following events after June 1, 1999:

 

(a)                                  the acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a “Covered Person”) of beneficial ownership (within the meaning of rule
13d-3 promulgated under the Exchange Act) of 20 percent or more of either (i)
the then outstanding shares of the common stock of Quanex (the “Outstanding
Quanex Common Stock”), or (ii) the combined voting power of the then outstanding
voting securities of Quanex entitled to vote generally in the election of
directors (the “Outstanding Quanex Voting Securities”); provided, however, that
for purposes of this subsection (a) of this Section, the following acquisitions
shall not constitute a Change of Control of Quanex: (i) any acquisition directly
from Quanex, (ii) any acquisition by Quanex, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by Quanex or
any entity controlled by Quanex, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section; or

 

(b)                                 individuals who, as of June 1, 1999,
constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to June 1, 1999, whose election, or nomination
for election by Quanex’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election

 

I-1

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contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Covered
Person other than the Board; or

 

(c)                                  the consummation of (xx) a reorganization,
merger or consolidation or sale of Quanex or (yy) a disposition of all or
substantially all of the assets of the Company (a “Business Combination”), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Quanex Common Stock and Outstanding Quanex
Voting Securities immediately prior to such Business Combination beneficially
own, direct or indirectly, more than 80 percent of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Quanex or all or substantially all of Quanex’s assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership immediately prior to such Business Combination of
the Outstanding Quanex Common Stock and Outstanding Quanex Voting Securities, as
the case may be, (ii) no Covered Person (excluding any employee benefit plan (or
related trust) of Quanex or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20 percent or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination, were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board of Directors, providing for such Business Combination; or

 

(d)                                 the approval by the stockholders of Quanex
of a complete liquidation or dissolution of Quanex.

 

1.6                                 “Change of Control Value” means the amount
determined in clause (i), (ii) or (iii), whichever is applicable, as follows: 
(i) the per share price offered to stockholders of Quanex in the merger,
consolidation, reorganization, sale of assets or dissolution transaction that
constitutes a Change of Control, (ii) the price per share offered to
stockholders of Quanex in any tender offer or exchange offer that constitutes a
Change of Control, or (iii) if a Change of Control occurs other than a Change of
Control specified in clause (i) or (ii), the fair market value per share of the
Common Stock on the date of the Change of Control, based on the closing
quotation as described in Section 4.2, on that day.  If the consideration
offered to stockholders of the Company in any transaction described above
consists of anything other than cash, the Committee

 

I-2

--------------------------------------------------------------------------------

 

shall determine the cash equivalent of the fair market value of the portion of
the consideration offered that is other than cash.

 

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

 

1.8                                 “Committee” means the persons who are from
time to time serving as members of the committee administering the Plan.

 

1.9                                 “Common Stock” means Quanex’s common stock,
$.50 par value (or such other par value as may be designated by the vote of
Quanex stockholders or such other equity securities of Quanex into which such
common stock may be converted, reclassified or exchanged).

 

1.10                           “Company” means Quanex and any Subsidiary
adopting the Plan.

 

1.11                           “Company Match” means the 20 percent match which
the Company makes to the amount deferred and deemed credited in the form of
Common Stock during a Plan Year by a Participant under the Plan for three or
more Plan Years.

 

1.12                           “Deferred Compensation Ledger” means the ledger
maintained by the Committee for each Participant which reflects the amount of
compensation deferred for the Participant under the Plan, the Company match, and
the amount of income or losses credited on each of these amounts.

 

1.13                           “Director” means any person serving as a member
of the Board of Directors.

 

1.14                           “Director Fees” means any amount paid to a
Director for services in such capacity.

 

I-3

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1.15                           “Disability” means a mental or physical
disability that in the opinion of a physician selected by the Committee, shall
prevent the Participant from engaging in any substantial gainful activity, can
be expected to result in death or has lasted or can be expected to last for a
continuous period of not less than twelve months, and which:  (a) was not
contracted, suffered or incurred while the Participant was engaged in or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Participant received a military pension.

 

1.16                           “Incentive Bonus” means a bonus awarded or to be
awarded to the Participant under the Quanex Corporation Executive Incentive
Compensation Plan or the Quanex Corporation Management Incentive Program.

 

1.17                           “Investment Fund” means a mutual fund or other
investment option that is designated by the Committee for purposes of
determining the amount of the Company’s deferred compensation obligation to a
Participant under the Plan.

 

1.18                           “LTIP Compensation” means compensation earned
under the Quanex Corporation Long-Term Incentive Plan.

 

1.19                           “Normal Retirement Date” means the first day of
the month that coincides with or next follows the date on which the Participant
or former Participant attains age 65.

 

1.20                           “NYSE” means the New York Stock Exchange.

 

1.21                           “Participant” means an employee or director of a
Company who is participating in the Plan.

 

I-4

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1.22                           “Plan” means the Quanex Corporation Deferred
Compensation Plan set forth in this document, as amended from time to time.

 

1.23                           “Plan Year” means a one-year period that
coincides with the fiscal year of Quanex, which begins on the first day of
November of each calendar year and ends on October 31 of the next ensuing
calendar year.

 

1.24                           “Quanex” means the Quanex Corporation, a Delaware
corporation, the sponsor of the Plan.

 

1.25                           “Rabbi Trust” means the Quanex Corporation
Deferred Compensation Trust, which agreement was entered into between NBD Bank
and Quanex.

 

1.26                           “Retirement” means the retirement of a
Participant from any Company covered by the Plan under the terms of the
Retirement Plan.

 

1.27                           “Retirement Plan” means the Quanex Corporation
Employees’ Pension Plan, or if the Participant does not participate in that
plan, the defined contribution plan maintained by the Company that is intended
to satisfy the requirements of section 401(a) of the Code in which the
Participant participates.

 

1.28                           “Securities Act” means the Securities Exchange
Act of 1934, as amended from time to time.

 

1.29                           “Subsidiary” means any wholly-owned subsidiary of
Quanex.

 

1.30                           “Term of Deferral” means the period of deferral
chosen by the Participant under the election procedure established in
Section 3.1 or by the Committee which pertains to that portion of the Incentive
Bonus, LTIP Compensation or Director Fees for each given Plan Year and its
accumulated income accrued that has been deferred under an election made prior
to the commencement of the period during which it is earned.

 

I-5

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1.31                           “Valuation Date” means the date as of which an
Investment Fund is valued for purposes of the Plan.  Until the Committee
determines otherwise, the Valuation Dates shall be each business day.

 

1.32                           “Voting Securities” means any security which
ordinarily possesses the power to vote in the election of the Board without the
happening of any precondition or contingency.

 

I-6

--------------------------------------------------------------------------------

 

ARTICLE II

 

ELIGIBILITY

 

Except as specified below, all participants in the Quanex Corporation Executive
Incentive Compensation Plan, the Quanex Corporation Management Incentive Program
or the Quanex Corporation Long-Term Incentive Plan, all Directors, and,
effective November 1, 2004, all members of the Quanex Corporation Business
Leader’s Council will be eligible to participate in the Plan.  The Committee
retains the right to establish such additional eligibility requirements for
participation in the Plan as it may determine are appropriate or necessary from
time to time and has the right to determine, in its sole discretion, that any
one or more persons who meet the eligibility requirements will not be eligible
to participate for one or more Plan Years beginning after the date they are
notified of this decision by the Committee.

 

II-1

--------------------------------------------------------------------------------

 

ARTICLE III

 

DEFERRALS AND COMPANY CONTRIBUTIONS

 

3.1                                 Deferral Election.  A Participant may elect
during the election period established by the Committee prior to the beginning
of any Plan Year:

 

(1)                                  the percentage of his Incentive Bonus
earned during the ensuing Plan Year which is to be deferred under the Plan;

 

(2)                                  the percentage of his LTIP Compensation
earned during the performance period that begins during the ensuing Plan Year
which is to be deferred under the Plan;

 

(3)                                  the percentage of his Director Fees earned
during the ensuing Plan Year which is to be deferred under the Plan;

 

(4)                                  the percentage of the amount deferred, if
any, to be deferred and deemed credited in the form of Common Stock and the
percentages, if any, to be deferred in the form of cash and deemed credited to
the Cash Fund and Investment Funds;

 

(5)                                  the length of the period of deferral, if
any amount has been elected to be deferred, which deferral shall be for a period
of years, to a date certain, to termination of employment with the Company, to
his Retirement (in the case of a Participant who is an employee of a Company) or
to his termination of serving as a director of a Company; and

 

(6)                                  the form of payment of the amount that has
been elected to be deferred — a lump sum, or quarterly or annual installment
payments of the principal amount adjusted for earnings and losses accrued after
the distribution date, or last installment paid, if later, over no less than
three nor more than 20 years.

 

If a Participant who is an employee of a Company elects a deferral period to
Retirement, he shall also specify whether the deferral period shall end at the
date of his termination of employment with the Company or at his Normal
Retirement Date, in the event of termination other than as a result of death,
Disability or Retirement.  If a Participant who is an

 

III-1

--------------------------------------------------------------------------------

 

employee of a Company elects a deferral period of a number of years or to a date
certain, the deferral period shall end upon the Participant’s Retirement, if
earlier.

 

The deferrals in the form of Common Stock elected by Participants to be
allocated to their Accounts in any Plan Year must not exceed one percent of the
shares of Common Stock outstanding on the first day of the Plan Year.  In the
event this maximum would be exceeded, each Participant who is an employee of a
Company and elected to defer in the form of Common Stock shall have his election
reduced on a pro rata basis as compared to all Participants who elected to defer
in the form of Common Stock until those deferrals in the aggregate for that Plan
Year equal the maximum and the portion of his Incentive Bonus and LTIP
Compensation which would have been deferred in the form of Common Stock shall
instead be distributed to the Participant as provided in the Quanex Corporation
Executive Incentive Compensation Plan, the Quanex Corporation Management
Incentive Program and the Quanex Corporation Long-Term Incentive Plan, as
applicable.

 

Once an election has been made it becomes irrevocable for that Plan Year, except
that the Participant may change his election of the form of payment he
previously elected under Section 3.1(6) during a 30-day period ending one year
prior to the end of the deferral period and a Participant may change his deemed
investment selections in accordance with Section 4.5 and procedures established
by the Committee.  In the event a Participant originally elected a deferral
period of a number of years or until a date certain and, as a result of the
Participant’s election to take Retirement, the Participant will retire before
the end of the elected deferral period, the Participant may elect to change the
form of payment during a 30-day period ending one year prior to the Retirement
date chosen by the Participant by written notice to the Company.  In the event a
Participant changes his election, if the deferral period terminates early for
any reason,

 

III-2

--------------------------------------------------------------------------------

 

which is beyond the control of the Participant, such as involuntary termination
of employment, death or Disability, then the distribution or the first
installment, whichever is applicable, shall not be made until one year after the
election was changed; however, if the deferral period terminates early for any
reason which is within the control of the Participant, such as Retirement or
voluntary termination of employment, then the change of election will be
ineffective.   If for any reason the deferral period does not end one year after
the end of such 30-day period because of a postponement of Retirement or
otherwise, the change of election shall remain in effect and no further changes
of election shall be permitted.

 

The election to participate in the Plan for a given Plan Year will be effective
only upon receipt by the Committee of the Participant’s properly executed
election on such form as will be determined by the Committee from time to time. 
If the Participant does not exercise his right to defer, subject to Section 3.3
below, the Participant will be deemed to have elected not to defer any part of
his Incentive Bonus, LTIP Compensation or Director Fees for that Plan Year and
all of his Incentive Bonus, LTIP Compensation and Director Fees will be paid in
cash.

 

3.2                                 Company Match.  The Company will credit to
the Account of each Participant who makes an election under the Plan to defer a
portion of his Incentive Bonus or Director Fees in the form of Common Stock for
a period of three full years or more from the effective date of the deferral
election (normally, November 1 of a Plan Year) additional shares of Common Stock
equal to 20 percent of the amount which is deferred in the form of Common
Stock.  There shall be no such credit with respect to LTIP Compensation that is
deferred under the Plan.

 

3.3                                 Mandatory Deferral.  If a Participant
becomes entitled to a cash payment of part or all of an Incentive Bonus or his
LTIP Compensation because the Participant did not

 

III-3

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elect to defer all of the Incentive Bonus or LTIP Compensation but the Company
determines that section 162(m) of the Code may not allow the Company to take a
deduction for part or all of the Incentive Bonus or LTIP Compensation, then,
unless a Change of Control has occurred after June 1, 1999, the payment of the
Incentive Bonus or LTIP Compensation will be delayed until December 1st
following the end of the Plan Year in which it occurred.  Then on December 1st,
if the Company’s deduction is determined by the Company not to be affected, the
Incentive Bonus or LTIP Compensation in total will be paid immediately. 
However, if the Company determines that some portion of the Incentive Bonus or
LTIP Compensation is affected, then only that portion of the Incentive Bonus or
LTIP Compensation which is deductible by the Company shall be paid on
December 1st and the remaining portion of the Incentive Bonus or LTIP
Compensation will be delayed to the first day of the first complete month of the
second Plan Year, at which time it will be paid.  The Committee may waive the
mandatory deferral required by this Section 3.3 with respect to a Participant
who is not a member of the Committee but such waiver shall only be made on an
individual basis and at the time the Incentive Bonus or LTIP Compensation is
determined and awarded.  In accordance with procedures established by the
Committee, a Participant whose Incentive Bonus or LTIP Compensation is in whole
or in part mandatorily deferred pursuant to this Section 3.3 shall be permitted
to have the amount of such mandatory deferral deemed invested in Common Stock,
the Cash Fund or the Investment Funds in such proportions as he shall designate.

 

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ARTICLE IV

 

ACCOUNT

 

4.1                                 Establishing a Participant’s Account.  The
Committee will establish an Account for each Participant in a special Deferred
Compensation Ledger which will be maintained by the Company.  The Account will
reflect the amount of the Company’s obligation to the Participant at any given
time.

 

4.2                                 Credit of the Participant’s Deferral and the
Company’s Match.  Upon completion of the Plan Year or quarter, as applicable,
the Committee will determine, as soon as administratively practicable, the
amount of a Participant’s Incentive Bonus, LTIP Compensation or Director Fees
that has been deferred for that Plan Year or quarter, as applicable, and the
amount of the Company Match, if any, and will credit that or those amounts to
the Participant’s Account as of the end of the Plan Year or quarter, as
applicable, during which the Incentive Bonus, LTIP Compensation or Director Fees
were earned.  If the Participant elected his deferral to be in the form of
Common Stock, the number of full and fractional shares credited to his Account
as Common Stock shall be the number of full and fractional shares of Common
Stock that could have been purchased with the dollar amount deferred and the
related Company Match, if any, without taking into account any brokerage fees,
taxes or other expenses which might be incurred in such a transaction, based
upon the closing quotation on the NYSE, or if not traded on the NYSE, the
principal market in which the Common Stock is traded on the date the amount
would have been paid had it not been deferred pursuant to Article III.

 

4.3                                 Crediting of Dividends and Distributions on
Common Stock.  When dividends are declared and paid, or other distributions,
whether stock, property, cash or other rights, are made with respect to the
Common Stock, those dividends and other distributions shall

 

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be accrued in a Participant’s Account based upon the shares of Common Stock
credited to his Account.  The dividends or other distributions on shares of
Common Stock shall be credited to the Participant’s Account as additional shares
of Common Stock.  The number of additional shares of Common Stock credited to
the Participant’s Account shall be the number of full and fractional shares of
Common Stock that could have been purchased with the dollar amount of the
dividend or other distribution, without taking into account any brokerage fees,
taxes or other expenses which might be incurred in such a transaction, based
upon the closing quotation at the NYSE or if not traded on the NYSE, the
principal market in which the Common Stock is traded, on the date of the
dividend or other distribution.

 

4.4                                 Crediting of Earnings and Losses.  Each
Participant shall be awarded by the Committee earnings and losses on his
deferred compensation as part of his total deferred compensation under the Plan
equal to the amount which is deemed to be earned and lost on his bookkeeping
Account established to enable the Company to determine its obligations under the
Plan.  For the purpose of determining the earnings and losses to be credited to
the Participant’s Account under the Plan, the Committee shall assume that the
Participant’s Account is invested in units or shares of the Investment Funds and
the Cash Fund in the proportions selected by the Participant in accordance with
procedures established by the Committee.  This amount accrued by the Committee
as deferred compensation shall be a part of the Company’s obligation to the
Participant and payment of it shall be a general obligation of the Company.  The
determination of earnings and losses based on the income and appreciation of the
Participant’s Account shall in no way affect the ability of the general
creditors of the Company to reach the assets of the Company or the Rabbi Trust
in the event of the insolvency or bankruptcy of the Company or place the
Participants in a secured position ahead of the general creditors of the
Company.

 

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Although a Participant’s investment selections made in accordance with the terms
of the Plan and such procedures as may be established by the Committee shall be
relevant for purposes of determining the Company’s obligation to the Participant
under the Plan, there is no requirement that any assets of the Company
(including those held in the Rabbi Trust) shall be invested in accordance with
the Participant’s investment selections.

 

Earnings and losses will be accrued on each Valuation Date on each portion of a
Participant’s Account deemed invested in an Investment Fund from the later of
(a) the time the amount is deemed credited to the Investment Fund or (b) the
last previous Valuation Date.

 

Interest will be accrued on the last day of each calendar month on each portion
of a Participant’s Account deemed invested in the Cash Fund from the later of
(a) the time it is deemed credited to the Cash Fund or (b) the last previous
calendar month end at a rate equal to (x) the rate of interest announced by
Chase Manhattan Bank, N.A., or its successor, if applicable as its prime rate of
interest on the last business day of the calendar quarter preceding the calendar
quarter in which the month falls divided by (y) four.  Interest so accrued on
the last day of each calendar month shall be deemed credited to the
Participant’s Account and shall thereafter accrue interest.  Interest will
continue to be credited to the Participant’s Account deemed invested in the Cash
Fund until the entire balance in the Participant’s Account deemed credited to
the Cash Fund has been distributed.

 

4.5                                 Common Stock Conversion Election.  At any
time during a period of three years prior to the earliest time a Participant who
is an employee of a Company could retire under the Retirement Plan and ending on
that Participant’s Normal Retirement Date, a Participant who is an employee of a
Company may elect a Retirement date under the Retirement Plan and may elect to
have all or a portion of his shares of Common Stock in his Account

 

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converted to cash and deemed to be invested in the Cash Fund and/or any
Investment Fund(s) selected by him.  In that event, all such shares of Common
Stock shall be converted on the date notice is received by the Company based
upon the closing quotation as described in Section 4.2, on that day, unless the
Participant has specified no more than five different dates after the date of
the notice on which the Participant desires all or a portion of the shares of
Common Stock to be converted and the percentage of shares to be converted on
each date.  If the Participant has specified dates for and the percentage of
shares to be converted, then the designated percentage of shares of Common Stock
to be converted on each date shall be converted on the specified date based on
the closing quotation as described in Section 4.2 on such specified dates.

 

At any time that is at least five years after Common Stock is credited to his
Account pursuant to Section 4.2, a Participant may elect to have such Common
Stock converted to cash and deemed to be invested in the Cash Fund and/or any
Investment Fund(s) selected by him.  In that event, all such shares of Common
Stock specified by the Participant in a written notice to the Company which have
been credited to the Participant’s Account for at least five years prior to the
giving of such notice shall be converted on the date notice is received by the
Company based upon the closing quotation as described in Section 4.2, on that
day.

 

A Participant may elect at any time to have Common Stock that is credited to his
Account pursuant to Section 4.3 converted to cash and deemed to be invested in
the Cash Fund and/or any Investment Fund(s) selected by him.  In that event, all
such shares of Common Stock specified by the Participant in a written notice to
the Company which were credited to the Participant’s Account pursuant to
Section 4.3 shall be converted on the date notice is received by the Company
based upon the closing quotation as described in Section 4.2, on that day.

 

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4.6                                 Conversion and Cash-Out Upon a Change of
Control.  Notwithstanding any other provision of the Plan, immediately upon the
occurrence of a Change of Control, all shares of Common Stock credited to a
current or former Participant’s Account shall be converted to cash based on the
Change of Control Value of such shares of Common Stock.  Within five days after
the date on which the Change of Control occurs, all current and former
Participants shall be paid in cash lump sum payments the balances credited to
their Accounts.

 

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ARTICLE V

 

VESTING AND EVENTS CAUSING FORFEITURE

 

5.1                                 Vesting.  All deferrals of the Incentive
Bonus, LTIP Compensation and Director Fees and all income accrued on the
deferrals will be 100 percent vested except for the events of forfeiture
described in Sections 5.3 and 5.4.  All Company matching accruals and all income
accrued on those matching accruals will be 100 percent vested except for the
events of forfeiture described in Section 5.2, 5.3 and 5.4.

 

5.2                                 Forfeiture of Company Match Because of Early
Distribution.  If, but for the provisions of this Section 5.2, a Participant
would receive a benefit from the Plan for any reason, other than death,
disability or Retirement, in respect of shares of Common Stock credited to the
Participant’s account pursuant to Section 4.2 as a result of the Company
matching accrual of 20 percent provided for in Section 3.2 within three years
after such shares were so credited, or if the Participant ceases to be an
employee with respect to a matching accrual resulting from deferral of an
Incentive Bonus, or a director with respect to a matching accrual resulting from
deferral of Director Fees within three years after such shares are so credited,
such matching accruals of shares of Common Stock (but not any dividends or other
property or rights accumulated because of those shares of Common Stock) shall be
immediately forfeited.

 

5.3                                 Forfeiture for Cause.  If the Committee
finds, after full consideration of the facts presented on behalf of both the
Company and a former Participant, that the Participant was discharged by the
Company for fraud, embezzlement, theft, commission of a felony, proven
dishonesty in the course of his employment by the Company which damaged the
Company, or for disclosing trade secrets of the Company, the entire amount
credited to his Account, exclusive of an amount equal to the sum of the total
deferrals of the Participant, will be forfeited.  The

 

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decision of the Committee as to the cause of a former Participant’s discharge
and the damage done to the Company will be final.  No decision of the Committee
will affect the finality of the discharge of the Participant by the Company in
any manner.

 

5.4                                 Forfeiture for Competition.  If at the time
a distribution is being made or is to be made to a Participant or former
Participant, the Committee finds after full consideration of the facts presented
on behalf of the Company and the Participant or former Participant, that the
Participant or former Participant at any time within two years from his
termination of employment from the Company, and without written consent of the
Company, directly or indirectly owns, operates, manages, controls or
participates in the ownership, management, operation or control of or is
employed by, or is paid as a consultant or other independent contractor by a
business which competes or at any time did compete with the Company by which he
was formerly employed in a trade area served by the Company at the time
distributions are being made or to be made and in which the Participant or
former Participant had represented the Company while employed by it; and, if the
Participant or former Participant continues to be so engaged 60 days after
written notice has been given to him, the Committee will forfeit all amounts
otherwise due the Participant or former Participant, exclusive of an amount
equal to the sum of the total deferrals of the Participant or former
Participant.

 

5.5                                 Full Vesting in the Event of a Change of
Control.  The forfeitures created by sections 5.2, 5.3 or 5.4 shall not apply
with respect to any amounts credited to the Accounts of current or former
Participants after the occurrence of a Change of Control.

 

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ARTICLE VI

 

DISTRIBUTIONS

 

6.1                                 Form of Distributions or Withdrawals.  Upon
a distribution or withdrawal, the number of shares of Common Stock credited to
the Participant’s Account, if any, and the amounts credited to the Participant’s
Account and deemed invested in the Cash Fund and/or Investment Funds, if any,
required to be distributed shall be distributed in cash, whether the
distribution or withdrawal is in a lump sum or in installments.  For this
purpose, the amount per share of Common Stock deemed credited to Participant’s
Account shall equal the closing quotation for the Common Stock on the NYSE (or
if not traded on the NYSE, the principal market in which the Common Stock is
traded) on the third business day prior to the date of distribution.  If the
distribution is in installments, all dividends and other property or rights
accumulating on the shares still undistributed will be credited as provided in
Section 4.3 and distributed with the next installment.  If there are periodic
installments to be made of the portion, if any, deferred as cash and deemed
credited to the Cash Fund, income shall accumulate on that portion of the
Account as described in Section 4.6 until the balance credited to the cash
portion of the Participant’s Account has been distributed.  In that event,
income accumulating on the cash portion of the Account shall be distributed with
the next installment to be distributed.  A lump sum or installment distribution
of amounts deemed invested in an Investment Fund shall be based upon the value
of the Investment Fund as of the close of the Valuation Date immediately
preceding such distribution.

 

6.2                                 Death.  Upon the death of a Participant
prior to the expiration of the Term of Deferral, the Participant’s Beneficiary
or Beneficiaries will receive in cash as required by Section 6.1 the balance
then credited to the Participant’s Account in the Deferred Compensation

 

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Ledger.  The lump sum distribution or the first installment of the periodic
distribution will be made 90 days after the Participant’s death.

 

Each Participant, upon making his initial deferral election, will file with the
Committee a designation of one or more Beneficiaries to whom distributions
otherwise due the Participant will be made in the event of his death prior to
the complete distribution of the amount credited to his Account in the Deferred
Compensation Ledger.  The designation will be effective upon receipt by the
Committee of a properly executed form which the Committee has approved for that
purpose.  The Participant may from time to time revoke or change any designation
of Beneficiary by filing another approved Beneficiary designation form with the
Committee.  If there is no valid designation of Beneficiary on file with the
Committee at the time of the Participant’s death, or if all of the Beneficiaries
designated in the last Beneficiary designation have predeceased the Participant
or otherwise ceased to exist, the Beneficiary will be the Participant’s spouse,
if the spouse survives the Participant, or otherwise the Participant’s estate. 
A Beneficiary must survive the Participant by 60 days in order to be considered
to be living on the date of the Participant’s death.  If any Beneficiary
survives the Participant but dies or otherwise ceases to exist before receiving
all amounts due the Beneficiary from the Participant’s Account, the balance of
the amount which would have been paid to that Beneficiary will, unless the
Participant’s designation provides otherwise, be distributed to the individual
deceased Beneficiary’s estate or to the Participant’s estate in the case of a
Beneficiary which is not an individual.  Any Beneficiary designation which
designates any person or entity other than the Participant’s spouse must be
consented to in writing in a form acceptable to the Committee in order to be
effective.

 

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6.3                                 Disability.  Upon the Disability of a
Participant prior to the expiration of the Term of Deferral, the Participant
will receive in cash as required by Section 6.1 the balance then credited to the
Participant’s Account.  The lump sum distribution or the first installment of
the periodic distribution will be made 90 days after the Participant becomes
disabled.

 

6.4                                 Expiration of Term of Deferral.  Upon the
expiration of the Term of Deferral, the Participant shall receive in cash as
required by Section 6.1 the balance credited to the Participant’s Account.  The
lump sum distribution or the first installment of the periodic distribution will
be made 90 days after the expiration of the Term of Deferral without regard to
whether the Participant is still employed by the Company or not.

 

6.5                                 Hardship Withdrawals.  Any Participant who
is in the employ of a Company and is not entitled to a distribution from the
Plan may request a hardship withdrawal.  No hardship withdrawal can exceed the
lesser of the amount credited to the Participant’s Account or the amount
reasonably needed to satisfy the emergency need.  Whether a hardship exists and
the amount reasonably needed to satisfy the emergency need will be determined by
the Committee based upon the evidence presented by the Participant and the rules
established in this Section.  If a hardship withdrawal is approved by the
Committee it will be made in cash as required in Section 6.1 within ten days of
the Committee’s determination.  A hardship for this purpose is a severe
financial hardship to the Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as defined in
section 152(a) of the Code) of the Participant, loss of the Participant’s
property due to casualty, or any similar extraordinary and unforeseeable
circumstance arising as a result of events beyond the control of the
Participant.  The circumstances that will constitute a hardship will depend upon
the facts of each case, but, in any case, payment may not be made to the extent
that the hardship is or may be

 

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relieved:  (a) through reimbursement or compensation by insurance or otherwise,
(b) by liquidation of the Participant’s assets, to the extent the liquidation of
such assets will not itself cause severe financial hardship, or (c) by cessation
of deferrals under the Plan.  Such foreseeable needs for funds as the need to
send a Participant’s child to college or the desire to purchase a home will not
be considered to be a hardship.

 

6.6                                 Payment Restrictions on Any Portion of a
Benefit Determined Not to Be Deductible.  Except for hardship withdrawals under
Section 6.5, if a Participant has a benefit that is due during a Plan Year and
the Committee determines that section 162(m) of the Code could affect the
Company’s deduction on the amount paid, the distribution of his benefit will be
delayed until December 1 following the end of the Plan Year.  Then on December 1
if the Company’s deduction is determined by the Committee not to be affected,
the benefit in total will be distributed immediately; however, if the Committee
determines that some portion of the benefit is affected, then only that portion
of the benefit which is deductible by the Company shall be distributed on
December 1st and the distribution of the remaining portion of the benefit will
be delayed to the first day of the first complete month of the Plan Year or
Years on which a portion or all of the remaining distribution can be made and
deducted by the Company on its federal income tax return.  The Committee may
waive the mandatory deferral required by this Section 6.6 with respect to a
Participant who is not a member of the Committee, but such waiver shall only be
made on an individual basis and at the time the distribution is to be made.

 

6.7                                 Responsibility for Distributions and
Withholding of Taxes.  The Committee will furnish information to the Company
last employing the Participant, concerning the amount and form of distribution
to any Participant entitled to a distribution so that the Company may make or
cause the Rabbi Trust to make the distribution required.  It will also

 

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calculate the deductions from the amount of the benefit paid under the Plan for
any taxes required to be withheld by federal, state or local government and will
cause them to be withheld.  If a Participant has deferred compensation under the
Plan while in the service of more than one Company, each Company for which the
Participant was working will reimburse the disbursing agent for the amount
attributable to compensation deferred while the Participant was in the service
of that Company if it has not already provided that funding to the disbursing
agent.

 

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ARTICLE VII

 

ADMINISTRATION

 

7.1                                 Committee Appointment.  The Committee will
be appointed by the Board.  The initial Committee members will be Compensation
Committee of the Board.  Each Committee member will serve until his or her
resignation or removal.  The Board will have the sole discretion to remove any
one or more Committee members and appoint one or more replacement or additional
Committee members from time to time.

 

7.2                                 Committee Organization and Voting.  The
Committee will select from among its members a chairman who will preside at all
of its meetings and will elect a secretary without regard to whether that person
is a member of the Committee.  The secretary will keep all records, documents
and data pertaining to the Committee’s supervision and administration of the
Plan.  A majority of the members of the Committee will constitute a quorum for
the transaction of business and the vote of a majority of the members present at
any meeting will decide any question brought before the meeting.  In addition,
the Committee may decide any question by vote, taken without a meeting, of a
majority of its members.  If a member of the Committee is ever appointed who is
or becomes a Participant, that Committee member will not vote or act on any
matter relating solely to himself.

 

7.3                                 Powers of the Committee.  The Committee will
have the exclusive responsibility for the general administration of the Plan
according to the terms and provisions of the Plan and will have all powers
necessary to accomplish those purposes, including but not by way of limitation
the right, power and authority:

 

(a)                                  to make rules and regulations for the
administration of the Plan;

 

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(b)                                 to construe all terms, provisions,
conditions and limitations of the Plan;

 

(c)                                  to correct any defect, supply any omission
or reconcile any inconsistency that may appear in the Plan in the manner and to
the extent it deems expedient to carry the Plan into effect for the greatest
benefit of all parties at interest;

 

(d)                                 to designate the persons eligible to become
Participants and to establish the maximum and minimum amounts that may be
elected to be deferred;

 

(e)                                  to determine all controversies relating to
the administration of the Plan, including but not limited to:

 

(1)                                  differences of opinion arising between the
Company and a Participant except when the difference of opinion relates to the
entitlement to, the amount of or the method or timing of a distribution of a
benefit affected by a Change of Control, in which event it shall be decided by
judicial action;

 

(2)                                  any question it deems advisable to
determine in order to promote the uniform administration of the Plan for the
benefit of all parties at interest;

 

(f)                                    to select the menu of Investment Funds
available for purposes of determining the amount of the Company’s obligation to
any Participant under the Plan; and

 

(g)                                 to delegate by written notice those duties
of the Committee, as it deems necessary or advisable for the proper and
efficient administration of the Plan.

 

7.4                                 Committee Discretion.  The Committee, in
exercising any power or authority granted under the Plan or in making any
determination under the Plan, shall perform or refrain from performing those
acts using its sole discretion and judgment.  Any decision made by the Committee
or any refraining to act or any act taken by the Committee in good faith shall
be final and binding on all parties.  The Committee’s decision shall never be
subject to de novo review.  Notwithstanding the foregoing, the Committee’s
decision, refraining to act or acting is

 

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to be subject to judicial review for those incidents occurring during the Plan
Year in which a Change of Control occurs and during the next three succeeding
Plan Years.

 

7.5                                 Annual Statements.  The Committee will cause
each Participant to receive an annual statement as soon as administratively
possible after the conclusion of each Plan Year containing the amounts deferred,
the Company match, if any, and the income accrued on the deferred and matched
amounts.

 

7.6                                 Reimbursement of Expenses.  The Committee
will serve without compensation for their services but will be reimbursed by
Quanex for all expenses properly and actually incurred in the performance of
their duties under the Plan.

 

7.7                                 Limitation on Liability.  Neither the
Committee nor its designees will be liable for any decision or action taken in
good faith in connection with the administration of the Plan.  Without limiting
the generality of the foregoing, any decision or action taken by the Committee
when it relies upon information supplied it by any officer of the Company, the
Company’s legal counsel, the Company’s independent accountants or other advisors
in connection with the administration of the Plan will be deemed to have been
taken in good faith.  None of the Company, the Committee or any designee of the
Committee shall bear any liability with respect to the investment performance of
any of the Investment Funds and none of them are under any obligation to furnish
the Participants any financial information concerning the Investment Funds. 
Each Participant is solely responsible for the results of any investment
selections and none of the Company, the Committee or any designee of the
Committee makes any representations concerning the advisability of investing or
refraining from investing in any particular Investment Fund.

 

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ARTICLE VIII

 

ADOPTION BY SUBSIDIARIES

 

8.1                                 Procedure for and Status After Adoption. 
Any Subsidiary may, with the approval of the Committee, adopt the Plan by
appropriate action of its board.  The terms of the Plan will apply separately to
each Subsidiary adopting the Plan and its Participants in the same manner as is
expressly provided for Quanex and its Participants except that the powers of the
Board and the Committee under the Plan will be exercised by the Board alone. 
Quanex and each Subsidiary adopting the Plan will bear the cost of providing
plan benefits for its own Participants.  It is intended that the obligation of
Quanex and each Subsidiary with respect to its Participants will be the sole
obligation of the Company that is employing the Participant and will not bind
any other Company.

 

8.2                                 Termination of Participation by Adopting
Subsidiary.  Any Subsidiary adopting the Plan may, by appropriate action of its
board of directors, terminate its participation in the Plan.  The Committee may,
in its discretion, also terminate a Subsidiary’s participation in the Plan at
any time.  The termination of the participation in the Plan by a Subsidiary will
not, however, affect the rights of any Participant who is working or has worked
for the Subsidiary as to amounts or shares of Common Stock previously standing
to his credit in his Account or reduce the income accrued on amounts deferred by
him or matched by the Company and credited to his Account whether in cash or in
shares of Common Stock, prior to the distribution of the benefit to the
Participant without his consent.

 

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ARTICLE IX

 

AMENDMENT AND/OR TERMINATION

 

9.1                                 Amendment or Termination of the Plan.  The
Board may amend or terminate the Plan at any time by an instrument in writing
without the consent of any adopting Company.

 

9.2                                 No Retroactive Effect on Awarded Benefits. 
No amendment will affect the rights of any Participant to the amounts, whether
deemed invested in Common Stock, the Cash Fund or the Investment Funds, then
standing to his credit in his Account, to change the method of calculating the
income already accrued or to accrue in the future on amounts already deferred by
him or matched by the Company prior to the date of the amendment or to change a
Participant’s right under any provision relating to a Change of Control after a
Change of Control has occurred, without the Participant’s consent.  However, the
Board shall retain the right at any time to change in any manner the method of
calculating the match by the Company and the income to accrue on all amounts to
be deferred in the future by a Participant and/or to be matched in the future by
the Company after the date of the amendment if it has been announced to the
Participants.

 

9.3                                 Effect of Termination.  If the Plan is
terminated, all amounts, whether deemed invested in Common Stock, the Cash Fund
or the Investment Funds, deferred by Participants and matched by the Company
will continue to be held under the terms of the Plan until all amounts have been
distributed according to the elections made by the Participants or the
directives made by the Committee prior to the deferrals.  The forfeiture
provisions of Sections 5.2, 5.3 and 5.4 and the restriction set out in
Section 6.6 would continue to apply throughout the period after the termination
of the Plan but prior to the completed distribution of all benefits.

 

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ARTICLE X

 

FUNDING

 

10.1                           Payments Under This Agreement Are the Obligation
of the Company.  The Company will distribute the benefits due the Participants
under the Plan; however, should it fail to do so when a benefit is due and the
funding trust contemplated by Section 10.2 exists, the benefit will be
distributed by the trustee of that funding trust.  In any event, if the trust
fails to distribute a benefit for any reason, the Company still remains liable
for all benefits provided by the Plan.

 

10.2                           Agreement May Be Funded Through Rabbi Trust.  It
is specifically recognized by both the Company and the Participants that the
Company may, but is not required to transfer any funds, shares or Common Stock
or other assets that it finds desirable to a trust established to accumulate
assets sufficient to fund the obligations of all of the Companies signatory to
the Plan.  However, under all circumstances, the Participants will have no
rights to any of those assets; and likewise, under all circumstances, the rights
of the Participants to the assets held in the trust will be no greater than the
rights expressed in this agreement.  Nothing contained in the trust agreement
which creates the funding trust will constitute a guarantee by any Company that
assets of the Company transferred to the trust will be sufficient to fund all
benefits under the Plan or would place the Participant in a secured position
ahead of general creditors should the Company become insolvent or bankrupt.  Any
trust agreement prepared to fund the Company’s obligations under this agreement
must specifically set out these principles so it is clear in that trust
agreement that the Participants in the Plan are only unsecured general creditors
of the Company in relation to their benefits under the Plan.

 

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10.3                           Reversion of Excess Assets.  Any adopting Company
may, at any time, request the actuary, who last performed the annual actuarial
valuation of the Quanex Corporation Employees’ Pension Plan, to determine the
present Account balance, assuming the accrual rate for income not to be reduced
(whether it actually is or not), as of the month end coincident with or next
preceding the request, of all Participants and Beneficiaries of deceased
Participants for which all Companies are or will be obligated to make benefit
distributions under the Plan.  If the fair market value of the assets held in
the trust, as determined by the Trustee as of that same date, exceeds the total
of the Account balances of all Participants and Beneficiaries by 25 percent, any
Company may direct the trustee to return to each Company its proportionate part
of the assets which are in excess of 125 percent of the Account balances.  Each
Company’s share of the excess assets will be the Participants’ Accounts accrued
while in the employ of that Company as compared to the total of the Account
balances accrued by all Participants under the Plan times the excess assets.  If
there has been a Change of Control, for the purpose of determining if there are
excess funds, all contributions made prior to the Change of Control will be
subtracted from the fair market value of the assets held in the trust as of the
determination date but before the determination is made.

 

10.4                           Participants Must Rely Only on General Credit of
the Company.  It is also specifically recognized by both the Company and the
Participants that the Plan is only a general corporate commitment and that each
Participant must rely upon the general credit of the Company for the fulfillment
of its obligations under the Plan.  Under all circumstances the rights of
Participants to any asset held by the Company will be no greater than the rights
expressed in this agreement.  Nothing contained in this agreement will
constitute a guarantee by the Company that the assets of the Company will be
sufficient to distribute any benefits under the Plan or

 

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would place the Participant in a secured position ahead of general creditors of
the Company.  Though the Company may establish or become a signatory to a Rabbi
Trust, as indicated in Section 10.1, to accumulate assets to fulfill its
obligations, the Plan and any such trust will not create any lien, claim,
encumbrance, right, title or other interest of any kind in any Participant in
any asset held by the Company, contributed to any such trust or otherwise
designated to be used in fulfillment of any of its obligations created in this
agreement.  No specific assets of the Company have been or will be set aside, or
will in any way be transferred to the trust or will be pledged in any way for
the performance of the Company’s obligations under the Plan which would remove
such assets from being subject to the general creditors of the Company.

 

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ARTICLE XI

 

MISCELLANEOUS

 

11.1                           Limitation of Rights.  Nothing in the Plan will
be construed:

 

(a)                                  to give any employee of any Company any
right to be designated a Participant in the Plan;

 

(b)                                 to give a Participant any right with respect
to the compensation deferred, the Company match or the income accrued and
credited in the Deferred Compensation Ledger except in accordance with the terms
of the Plan;

 

(c)                                  to limit in any way the right of the
Company to terminate a Participant’s employment with the Company at any time;

 

(d)                                 to evidence any agreement or understanding,
expressed or implied, that the Company will employ a Participant in any
particular position or for any particular remuneration; or

 

(e)                                  to give a Participant or any other person
claiming through him any interest or right under the Plan other than that of any
unsecured general creditor of the Company.

 

11.2                           Distributions to Incompetents or Minors.  Should
a Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to distribute the
benefit due to the parent of the minor or to the guardian of the minor or
incompetent or directly to the minor or to apply those assets for the benefit of
the minor or incompetent in any manner the Committee determines in its sole
discretion.

 

11.3                           Nonalienation of Benefits.  No right or benefit
provided in the Plan will be transferable by the Participant except, upon his
death, to a named Beneficiary as provided in the Plan.  No right or benefit
under the Plan will be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge the same will be void.  No right or benefit
under the Plan will in any manner be liable for or subject to any debts,
contracts, liabilities or torts of the person entitled to

 

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such benefits.  If any Participant or any Beneficiary becomes bankrupt or
attempts to anticipate, alienate, sell, assign, pledge, encumber or charge any
right or benefit under the Plan, that right or benefit will, in the discretion
of the Committee, cease.  In that event, the Committee may have the Company hold
or apply the right or benefit or any part of it to the benefit of the
Participant or Beneficiary, his or her spouse, children or other dependents or
any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.

 

11.4                           Expenses Incurred in Enforcing the Plan.  The
Company will, in addition, pay a Participant for all legal fees and expenses
incurred by him in contesting or disputing his termination or in seeking to
obtain or enforce any benefit provided by the Plan if the termination occurs in
the Plan Year in which a Change of Control occurs or during the next three
succeeding Plan Years following the Plan Year in which a Change of Control
occurs except to the extent that the payment of those fees or expenses are
restricted under Section 6.6.

 

11.5                           Reliance Upon Information.  The Committee will
not be liable for any decision or action taken or not taken in good faith in
connection with the administration of the Plan.  Without limiting the generality
of the foregoing, any decision or action taken or not taken by the Committee
when it relies upon information supplied it by any officer of the Company, the
Company’s legal counsel, the Company’s independent accountants or other advisors
in connection with the administration of the Plan will be deemed to have been
taken in good faith.

 

11.6                           Severability.  If any term, provision, covenant
or condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.

 

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11.7                           Notice.  Any notice or filing required or
permitted to be given to the Committee or a Participant will be sufficient if in
writing and hand-delivered or sent by U.S. mail to the principal office of the
Company or to the residential mailing address of the Participant.  Notice will
be deemed to be given as of the date of hand-delivery or if delivery is by mail,
as of the date shown on the postmark.

 

11.8                           Gender and Number.  If the context requires it,
words of one gender when used in the Plan will include the other genders, and
words used in the singular or plural will include the other.

 

11.9                           Governing Law.  The Plan will be construed,
administered and governed in all respects by the laws of the State of Texas.

 

 

Adopted by the Board of Directors on June 3, 2004.

 

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