Exhibit 10.9

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”), made effective as of the      day of
                , 2007 (the “Effective Date”), by and between CHAPARRAL STEEL
COMPANY, a Delaware corporation (hereinafter referred to as the “Company”), and
TOMMY A. VALENTA (hereinafter referred to as the “Executive”).

WITNESSETH:

WHEREAS, Executive has been elected to the position of President and Chief
Executive Officer of the Company and as a member of its Board of Directors;

WHEREAS, the Company and Executive previously entered into an Employment
Agreement effective January 13, 2006;

WHEREAS, such Employment Agreement was amended on two separate occasions,
effective, respectively, April 11, 2006 and July 12, 2006; and

WHEREAS, the Company desires to modify certain of the terms and conditions of
Executive’s employment as set forth herein in order to insure the retention of
Executive’s services and Executive is willing to render such services on the
terms and conditions set forth herein:

NOW, THEREFORE, the Company and the Executive, in consideration of the premises
and promises each to the other herein contained, have agreed and do hereby agree
and covenant as follows:

 

1.

Employment and Term.

(a) Position and Term. The Company agrees to employ the Executive as the
President and Chief Executive Officer of the Company, during the three (3) year
period commencing on January 13, 2006 and ending January 13, 2009 (the “Term”),
and the Executive agrees to serve the Company in such capacity during such Term
unless terminated earlier pursuant to Section 3 (the “Employment Period”). Such
Term will automatically be extended each day so that the unexpired term of the
Agreement will always be three (3) years, unless either party gives written
notice (the “Notice of Non-Renewal”) to the other that the Term will not so
automatically renew, and such written notice will be effective on the date of
receipt by the recipient of the notice. The election by either party not to
renew this Agreement pursuant to this Section 1(a), in and of itself, will not
be deemed to be a termination of Executive’s employment under Section 3 that
triggers payment of the Non-Compete Payment under Section 4(f). Rather, under
such circumstances, Executive will only be entitled to payment of the
Compensation set forth in Section 2 for the remainder of the Employment Period,
unless during such Employment Period, the provisions of Section 3, regarding
early termination of this Agreement, become applicable.

(b) Duties. Executive will report to the Board of Directors of the Company and
will have general management over the business, affairs and property of the
Company in the ordinary course of its business with all such powers with respect
to such general management as may be reasonably incident to such
responsibilities. The Board of Directors may assign Executive additional duties
during the Term; provided, that such duties are not inconsistent with those set
forth in the preceding sentence. Executive agrees to devote all of his time and
attention during normal business hours during such term to the business and
affairs of the Company, its subsidiaries and affiliates, subject to Section 1(d)
hereof.

(c) Additional Duties for Company. Executive will serve as a Director of the
Company and/or one or more of its subsidiaries or affiliates if elected as such
and will hold the offices with the Company and/or its subsidiaries or affiliates
to which, from time to time, he may be elected or appointed during the
Employment Period. Executive agrees that he will not be entitled to receive any
compensation for serving as a Director of the Company or, with respect to the
subsidiaries or affiliates of the Company, in any capacity other than the
compensation to be paid to Executive pursuant to this Agreement or any other
written agreement between the Company or any of its subsidiaries or affiliates
and Executive.

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(d) Additional Activities. During the Employment Period, Executive may serve on
charitable boards and other nonprofit organizations and attend to personal
investments, provided, that such efforts involve a reasonable amount of time and
do not detract from his duties with the Company and its subsidiaries and
affiliates. Further, with the approval of the Board of Directors, Executive may
serve on the board of directors of unaffiliated “for profit” entities.

(e) Place of Performance. In connection with his employment under this
Agreement, Executive will be based at 300 Ward Road, Midlothian, Texas
76065-9661. The Company will not, without the written consent of Executive,
relocate or transfer Executive’s place of performance to a location that
increases Executive’s daily commute distance based on the location of
Executive’s principal residence as of the Effective Date to more than fifty
(50) miles (one-way), except for reasonably required travel on Company business
which is not materially greater than such travel requirements prior thereto.

 

2.

Compensation.

(a) Base Annual Compensation. Executive will receive a base salary at the rate
of Six Hundred Thousand Dollars ($600,000.00) per annum payable in periodic
installments in accordance with the Company’s payment practices and procedures
or such greater amount as may be approved by the Company’s Board of Directors or
the Compensation Committee of the Board of Directors.

(b) Incentive Compensation. Executive will receive incentive compensation in a
manner (i) consistent with the compensation philosophy and structure adopted by
the Board of Directors on July 12, 2006 or (ii) consistent with such other
philosophy and structure as may hereafter be approved by both the Board of
Directors and the Executive.

In the event that payment of any incentive compensation payable to Executive
pursuant to this Section 2(b) would not be deductible by the Company pursuant to
section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”),
then payment of the amount of such award which is not deductible will
automatically be deferred, with interest equivalent to U.S. Treasury Bills, up
to the earliest of (i) April 30th of the first year in which the Company
reasonably anticipates that the deduction of the payment of the amount will not
be limited or eliminated by application of section 162(m) of the Code or
(ii) the date which is six (6) months and one (1) day following the Executive’s
termination of employment.

(c) Participation in Equity and Non-Equity Plans. Executive will participate in
all equity and non-equity plans made available to executive officers of the
Company to enable them to participate in the appreciation in value of the common
stock of the Company.

(d) Other Benefits and Perquisites. During the Employment Period, Executive will
receive the following perquisites and other benefits:

(i) standard perquisites (e.g., company car or car allowance, club dues,
professional association membership);

(ii) the reimbursement of or payment for business travel;

(iii) the reimbursement for out of pocket expenses incurred by Executive in
performing his duties under this Agreement;

(iv) vacation time and holidays in accordance with Company policy;

(v) the reimbursement of legal fees incurred by Executive in connection with the
review and negotiation of this Agreement up to a maximum of Ten Thousand Dollars
($10,000);

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(vi) the reimbursement of legal fees incurred by Executive in seeking to enforce
this Agreement, provided that any enforcement actions taken by Executive are not
frivolous or taken in bad faith and that such legal fees are incurred by
Executive and submitted to the Company for reimbursement no later than
December 31 of the second calendar year following the year in which Executive’s
termination of employment occurs (i.e., pursuant to section 409A of the Code the
reimbursement of such legal fees must occur by December 31 of the second
calendar year following Executive’s termination of employment);

(vii) the provision of a ten (10) year level term life insurance policy of five
(5) times Executive’s base salary. Executive will have the right to designate
the beneficiary and the policy will be assigned to Executive on his termination
of employment;

(viii) participation in the Financial Security Plan of Chaparral Steel Company
(the “FSP”) pursuant to the terms of the Executive’s “Election to Participate,”
“Election Form” and “Plan Agreement,” as such documents are defined and
described in the FSP;

(ix) participation in any other group life, health or similar insurance program
made available to senior executives of the Company; and

(x) participation in any retirement, pension plan or other benefit programs made
available to senior executives of the Company.

(e) Annual Review. Subject to the requirements of Section 2(a) and 2(b), and
provided further that Executive’s base salary may not be reduced, Executive’s
total compensation (i.e., base salary and incentive plan payment opportunities)
will be reviewed annually by the Board of Directors of the Company.

 

3.

Early Termination.

(a) Death. Upon the death of Executive during the Term of this Agreement, the
Agreement will terminate and Executive will be entitled to payment of his base
salary accrued up to the date of his death plus any benefits payable pursuant to
the terms of the benefit plans specified in Section 2 in which Executive is a
participant (i.e., FSP benefits, transfer of the life insurance policy, group
life insurance benefits, 401(k) etc.).

(b) Disability. In the event of Executive’s “Disability” during the Term of the
Agreement, the Company may terminate Executive’s employment in which case this
Agreement will terminate and Executive will be entitled to payment of the
following benefits, the payment of which will be delayed for six (6) months and
one (1) day to the extent required by section 409A of the Code: (i) his base
salary for the remainder of the Term of the Agreement (as if such termination
had not occurred) at the rate in effect for the fiscal year of the Company in
which such Disability occurs, (ii) long-term disability benefits pursuant to the
terms of any long-term disability policy provided to senior executives of the
Company in which Executive has elected to participate, (iii) payment of any
benefits payable pursuant to the terms of the benefit plans in which Executive
is a participant (e.g., FSP benefits, transfer of the life insurance policy,
401(k) etc), and (iv) payment (in a lump sum) (with respect to each fiscal year
of the Company that ends during the remaining Term of this Agreement) (as if
such termination had not occurred) of incentive compensation in an amount, for
each such fiscal year that ends during the remaining Term of this Agreement,
equal to the highest amount of incentive compensation paid or payable to the
Executive (regardless of the form in which paid or payable) during any one of
the three fiscal years of the Company immediately preceding such termination.

For purposes of this Agreement, “Disability” means Executive’s inability to
perform with or without reasonable accommodation the essential functions of his
position for an aggregate of one hundred twenty (120) days during any period of
one hundred eighty (180) consecutive days due to a mental or physical incapacity
as determined by the mutual agreement of a physician selected by the Company or
its insurers

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(the “Company Physician”) and a physician selected by Executive (“Executive’s
Physician”). In the event that the Company Physician and the Executive’s
Physician cannot agree on whether Executive is Disabled, such determination will
be made by a third physician who is jointly selected by the Company Physician
and the Executive’s Physician.

(c) Breach of Agreement. If (i) the Company terminates Executive’s employment
without Cause (as defined below) or (ii) the Company otherwise materially
breaches this Agreement during the Term and fails to cure such breach within
thirty (30) days after written notice thereof by Executive and Executive
terminates his employment, Executive will be entitled to the payment of his base
salary accrued up to the date of his termination plus any benefits payable
pursuant to the terms of the benefit plans specified in Section 2 in which
Executive is a participant (i.e., FSP, transfer of the life insurance policy,
401(k) etc.). In addition, provided that Executive complies with the
restrictions in Sections 4(a) and (c), Executive will be entitled to the
Non-Compete Payment described in Section 4(f) as liquidated damages with respect
to such breach. The Non-Compete Payment described in Section 4(f) will be the
only payment due Executive with respect to such breach and is conditioned upon
Executive’s compliance, in all material respects, with the restrictions in
Sections 4(a) and (c).

(d) Termination for Cause or Voluntary Resignation by Executive. If Executive’s
employment is terminated during the Term of this Agreement for “Cause,” or
Executive voluntarily resigns from the employment of the Company (other than a
resignation as provided in Section 3(e) and 3(f) below), the Company will pay
Executive his base salary through the date of termination at the rate in effect
at the time notice of termination is given. Such payments will discharge the
Company’s obligations hereunder.

For purposes of this Agreement, “Cause” includes any of the following:

(i) a material breach by Executive of Section 4 of this Agreement (regarding the
noncompetition, confidentiality, nonsolicitation and nondisparagement
provisions) which is not remedied within thirty (30) days after receipt of
written notice to Executive from the Company;

(ii) the commission of a willful criminal act by Executive, such as fraud,
embezzlement or theft;

(iii) the conviction, plea of no contest or nolo contendere, deferred
adjudication or unadjudicated probation of Executive for any felony or any crime
involving moral turpitude; or

(iv) Executive’s failure or refusal to carry out, or comply with, in any
material respect, any lawful directive of the Board of Directors of the Company
consistent with the terms of the Agreement which is not remedied within thirty
(30) days after Executive’s receipt of written notice from the Company;

provided, however, that no termination of Executive’s employment will be for
Cause until (A) there will have been delivered to Executive a written notice
specifying in detail the particulars of Executive’s conduct which is described
in either (i) or (iv) above, (B) Executive has been provided an opportunity to
be heard by the Board of Directors of the Company (with the assistance of
Executive’s counsel if Executive so desires), and (C) a resolution is adopted in
good faith by two thirds (2/3) of the full Board of Directors of the Company
confirming Executive’s conduct is within the scope of the conduct described in
either (i) or (iv) above (excluding the vote of Executive). No act, nor failure
to act, on Executive’s part, will be considered “willful” unless he has acted or
failed to act with an absence of good faith and without a reasonable belief that
his action or failure to act was in the best interest of the Company.

(e) Early Termination of Agreement upon Notice of Non-Renewal. Executive may
resign his employment at any time during the remainder of the Term following his
receipt of Notice of Non-Renewal, and effective immediately upon written notice
of such resignation, or as may otherwise be agreed by Executive and the Company,
and provided that Executive complies, in all material respects, with the

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restrictions in Sections 4(a) and (c), Executive will be entitled to the
Non-Compete Payment described in Section 4(f). The Non-Compete Payment described
in Section 4(f) is conditioned upon Executive’s compliance, in all material
respects, with the restrictions in Sections 4(a) and (c).

(f) Early Termination of Agreement following Change of Control. Executive may
resign his employment at any time during the one year period following a “Change
of Control” (as defined in Section 3(g)) of the Company upon his written notice
to the Company for any of the reasons set forth as “Good Reason” (as defined in
Section 3(h)). Provided that Executive complies, in all material respects, with
the restrictions in Sections 4(a) and (c), Executive will be entitled to the
Non-Compete Payment described in Section 4(f). The Non-Compete Payment described
in Section 4(f) is conditioned upon Executive’s compliance, in all material
respects, with the restrictions in Sections 4(a) and (c).

(g) Change of Control. For purposes of this Agreement, a “Change of Control”
will be deemed to have occurred if at any time during the Term any of the
following events occur:

(i) The Company is merged, consolidated, converted or reorganized into or with
another corporation or other legal entity, and as a result of such merger,
consolidation, conversion or reorganization less than a majority of the combined
voting power of the then outstanding equity interests in the Company or such
corporation or other legal entity immediately after such transaction are held in
the aggregate by the holders of Voting Stock (as hereinafter defined) of the
Company immediately prior to such transaction;

(ii) The Company sells (directly or indirectly, whether in a single transaction
or series of related transactions) all or substantially all of its assets
(including, without limitation, by means of the sale of the assets of or equity
interests in one or more direct or indirect subsidiaries of the Company) to any
individual or to any corporation or other legal entity, of which less than a
majority of the combined voting power of the then outstanding voting interests
(entitled to vote generally in the election of directors or persons performing
similar functions on behalf of such other corporation or legal entity) of such
other corporation or legal entity is held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such sale;

(iii) Any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) (the “Exchange
Act”)) becomes (subsequent to the Effective Date) the beneficial owner (as the
term “beneficial owner” is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
fifteen percent (15%) or more of the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company (“Voting Stock”);

(iv) The Company files a report or proxy statement with the Securities and
Exchange Commission pursuant to the Exchange Act disclosing in response to Form
8-K, Schedule 14A or Schedule 14C (or any successor schedule, form or report or
item therein) that a change of control of the Company has occurred; or

(v) If during any one (1) year period, individuals who at the beginning of any
such period constitute the directors of the Company cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company’s stockholders, of each director of the Company
first elected during such period was approved by a vote of at least two-thirds
of (x) the directors of the Company then still in office who were directors of
the Company at the beginning of any such period or (y) directors of the Company
whose nomination and/or election was approved by the directors referenced in
clause (x) immediately preceding.

(vi) Notwithstanding the foregoing provisions of Section 3(g)(iii) or 3(g)(iv)
hereof, a “Change of Control” will not be deemed to have occurred for purposes
of this Agreement solely because (x) the Company, (y) a corporation or other
legal entity in which the Company directly or

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indirectly beneficially owns 100% of the voting securities of such entity, or
(z) any employee stock ownership plan or any other employee benefit plan of the
Company or any wholly-owned subsidiary of the Company, either files or becomes
obligated to file a report or a proxy statement under or in response to Schedule
13D, Schedule 14D-1, Form 8-K, Schedule 14A or Schedule 14C (or any successor
schedule, form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares of Voting Stock, of fifteen percent
(15%) or more, or because the Company reports that a change of control of the
Company has occurred by reason of such beneficial ownership. As used in
connection with the definition of “Change of Control,” references to the Company
will be deemed to include any successor of the Company, references to directors
of the Company will be deemed to include any persons performing similar
functions on behalf of any successor of the Company, references to the
stockholders of the Company will be deemed to include holders of equity
interests in any successor of the Company and references to Voting Stock will be
deemed to include voting equity interests in any successor of the Company.

(h) Good Reason. As used herein, “Good Reason” means:

(i) A significant adverse change in the nature or scope of the authorities,
powers, functions, responsibilities or duties attached to the position(s) with
the Company which the Executive held immediately prior to the Change of Control,
breach by the Company of its obligations pursuant to Section 2, or the
termination of the Executive’s rights to any employee benefits to which the
Executive was entitled immediately prior to the Change of Control or a material
reduction in scope or value thereof without the prior written consent of the
Executive, any of which is not remedied within ten (10) calendar days after
receipt by the Company of written notice from the Executive of such change,
reduction or termination, as the case may be;

(ii) The liquidation, dissolution, merger, consolidation or reorganization of
the Company or transfer, directly or indirectly, of all or a significant portion
of its business and/or assets (including, without limitation, by means of the
sale of the capital stock or assets of one or more direct or indirect
subsidiaries of the Company), unless the successor (by liquidation, merger,
consolidation, reorganization or otherwise) to which all or a significant
portion of its business and/or assets have been transferred (directly or by
operation of law) will have irrevocably assumed and guaranteed all duties and
obligations of the Company under this Agreement;

(iii) The Company will require the Executive (without the consent of the
Executive) to be based at any place which would increase his daily commute
distance to more than fifty (50) miles (one-way) or to travel away from the
Executive’s office in the course of discharging the Executive’s responsibilities
or duties hereunder significantly more (in terms of either consecutive days or
aggregate days in any calendar year) than was required of the Executive prior to
the Change of Control without, in either case, the Executive’s prior consent; or

(iv) Any material breach of this Agreement by the Company or any successor
thereto which is not cured within thirty (30) days after written notice thereof
by Executive.

 

4.

Non-Competition, Confidentiality and Nondisparagement.

(a) Agreement not to Compete. In consideration of the Company’s promise to
provide Executive with Confidential Information defined in Section 4(b), the
Non-Compete Payment provided for in Section 4(f), the other mutual promises
contained herein, and Executive’s employment with the Company, and so as to
enforce Executive’s promises regarding Confidential Information contained in
Section 4(b) of this Agreement, Executive agrees that (i) during the Term of
this Agreement, Executive will not and (ii) in the event his employment with the
Company is terminated for any reason whatsoever other than Cause, Executive will
not, for a period of three (3) years after the date of such termination of
employment (the “Post Termination Non-Compete Period”), directly or indirectly,
carry on or conduct, in competition with the Company or its subsidiaries or
affiliates, any business of the nature in which the Company or its subsidiaries
or affiliates are then engaged in any geographical area in which the Company

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or its subsidiaries or affiliates engage in business at the time of such
termination or in which any of them, prior to termination of Executive’s
employment, evidenced in writing, at any time during the six (6) month period
prior to such termination, an intention to engage in such business. Executive
agrees that he will not so conduct or engage in any such business either as an
individual on his own account or as a partner or joint venturer or as an
executive, agent, consultant or salesman for any other person or entity, or as
an officer or director of a corporation or as a shareholder in a corporation of
which he will then own ten percent (10%) or more of any class of stock. The
provisions of this Section 4(a) will supersede any and all non-compete
provisions contained in any and all other agreements which have been entered
into between Executive and the Company and will survive the termination of this
Agreement.

(b) Confidential Information. The Company makes a binding promise not
conditioned upon continued employment to provide Executive with certain
Confidential Information above and beyond any Confidential Information Executive
may have previously received. Executive will not, directly or indirectly, at any
time following termination of his employment with the Company, reveal, divulge
or make known to any person or entity, or use for Executive’s personal benefit
(including without limitation for the purpose of soliciting business, whether or
not competitive with any business of the Company or any of its subsidiaries or
affiliates), any Confidential Information acquired during the Employment Period.
Executive will, at any time requested by the Company (either during his
employment with the Company or during the Post Termination Non-Compete Period),
promptly deliver to the Company all memoranda, notes, reports, lists and other
documents (and all copies thereof) relating to the business of the Company or
any of its subsidiaries and affiliates which he may then possess or have under
his control.

For purposes of this Agreement, “Confidential Information” includes the
following information with respect to the Company, and its subsidiaries and its
affiliates: sales materials, technical information, processes and compilations
of information, records, specifications and information concerning customers or
vendors, customer lists, and information regarding methods of doing business and
the terms of this Agreement. As defined herein, Confidential Information does
not include: (i) information already in the public domain, (ii) information of a
type not considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company or its subsidiaries and
affiliates, or (iii) information that Executive is required to disclose under
the following circumstances: (A) at the express direction of any authorized
governmental entity; (B) pursuant to a subpoena or other court process; (C) as
otherwise required by law or the rules, regulations, or orders of any applicable
regulatory body; or (D) as otherwise necessary, in the opinion of counsel for
Executive, to be disclosed by Executive in connection with any legal action or
proceeding involving Executive and the Company or any subsidiary or affiliate of
the Company in his capacity as an employee, officer, director, or stockholder of
the Company or any subsidiary or affiliate of the Company.

(c) Agreement not to Solicit Employees. Executive agrees that, during the Post
Termination Non-Compete Period, Executive will not solicit or induce, or in any
manner attempt to solicit or induce, any person employed by, or any agent of,
the Company or any of its subsidiaries or affiliates to terminate such
employee’s employment or agency, as the case may be, with the Company or any
subsidiary or affiliate.

(d) Nondisparagement. Executive agrees that he will not disparage the Company,
the Board of Directors of the Company, the Company’s executives, the Company’s
employees and the Company’s products or services during his Employment Period
and thereafter. The Company likewise agrees that it will not disparage Executive
during Executive’s Employment Period or thereafter. For purposes of this
Section 4(d), disparagement does not include (a) compliance with legal process
or subpoenas to the extent only truthful statements are rendered in such
compliance attempt, (b) statements in response to an inquiry from a court or
regulatory body, or (c) statements or comments in rebuttal of media stories or
alleged media stories.

(e) Reasonableness of Restrictions. Executive acknowledges that the geographic
boundaries, scope of prohibited activities, and time duration set forth in this
Section 4 are reasonable in nature and are no broader than are necessary to
maintain the confidentiality and the goodwill of the Company and the

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confidentiality of its Confidential Information and to protect the legitimate
business interests of the Company, and that the enforcement of such provisions
would not cause Executive any undue hardship nor unreasonably interfere with
Executive’s ability to earn a livelihood. If any court determines that any
portion of this Section 4 is invalid or unenforceable, the remainder of this
Section 4 will not thereby be affected and will be given full effect without
regard to the invalid provisions. If any court construes any of the provisions
of this Section 4, or any part thereof, to be unreasonable because of the
duration or scope of such provision, such court will have the power to reduce
the duration or scope of such provision and to enforce such provision as so
reduced but any such reduction will not affect the amount due under Section
4(f).

(f) Non-Compete Payment. If Executive’s employment is terminated under
circumstances described in Section 3(c), or if Executive resigns his employment
under the circumstances described in Section 3(e) or 3(f), the Company will pay,
in the manner set forth below, to Executive an aggregate amount (the
“Non-Compete Payment”) provided, that Executive complies, in all material
respects, with the restrictive Covenants set forth in Sections 4(a) and (c). The
Non-Compete Payment will be delayed for six (6) months and one (1) day following
Executive’s “separation from service” as such term is used in section 409A of
the Code and the guidance promulgated thereunder:

(i) The continued payment of Executive’s base salary (computed at the rate in
effect for the fiscal year of the Company in which such termination occurs)
through the remainder of the Term of this Agreement (as if such termination had
not occurred). Except as otherwise provided with respect to death or Substantial
Disability (as defined below), such base salary will be paid pursuant to the
Company’s normal payroll practices, except that if payment of such base salary
is delayed pursuant to section 409A of the Code, the first six months of such
base salary will be paid in a lump sum on the day that is six (6) months and one
(1) day following Executive’s date of termination;

(ii) The payment of incentive compensation (with respect to each fiscal year of
the Company that ends during the remainder of the Term of this Agreement (as if
such termination had not occurred)) in an amount, for each fiscal year that ends
during the remaining Term of this Agreement, equal to the highest amount of
incentive compensation paid or payable to the Executive (regardless of the form
in which paid or payable) during any one of the last three fiscal years
preceding the termination of Executive’s employment. Except as otherwise
provided with respect to death or Substantial Disability (as defined below),
such incentive compensation will be paid in equal installments payable on the
Company’s normal payroll payment dates through the remainder of the Term of this
Agreement (as if such termination had not occurred) except that if payment of
such incentive compensation is delayed pursuant to section 409A of the Code, the
first six (6) months of such incentive compensation will be paid in a lump sum
on the day that is six (6) months and one (1) day following Executive’s date of
termination;

(iii) Notwithstanding any provision to the contrary in any option agreement,
restricted stock agreement, or other agreement relating to equity-type
compensation that may be outstanding between Executive and the Company,
Executive will become one hundred percent (100%) vested in all units, stock
options, incentive stock options, performance shares, stock appreciation rights,
restricted stock and stock awards (collectively referred to as “Stock Rights”)
held by Executive immediately prior to the date of termination; and

(iv) Continued participation for the remainder of the Term of this Agreement (as
if such termination had not occurred) in any medical, dental, or vision benefit
plans in which Executive participated at the time of his termination of
employment (“Continued Medical”). Executive will be required to continue to pay
his portion of the cost of any insured Continued Medical coverage on a pre-tax
basis. However, to the extent that such Continued Medical is self-funded by the
Company, Executive will be required to pay the full cost of such coverages on an
after-tax basis in order to ensure that the benefits payable to Executive are
not includible in his gross income. Such Continued Medical is in addition to any
rights Executive may have to

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continue such coverages under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended (“COBRA”). The pre-tax deduction for the self-funded
Continued Medical coverages described above will be taken from the payment of
Executive’s base salary described in Section 4(f)(i); provided, however, that if
the commencement of the payment of such base salary is delayed for six
(6) months and one (1) day, Executive will not be required to pay the cost of
Continued Medical during such period and instead the Company will include the
cost of such coverage in Executive’s income and report it as wages on Form W-2.
This clause will not prohibit the Company from changing the terms of such
medical, dental or vision benefit plans provided that any such changes apply to
all senior executives of the Company (e.g., the Company may switch insurance
carriers or preferred provider organizations). The Company’s obligation under
this Agreement to provide Continued Medical will terminate if Executive obtains
comparable coverage under a subsequent employer’s medical, dental or vision
benefit plans. Executive must advise the Company of the attainment of any such
subsequent employer benefit coverages within thirty (30) days following such
attainment.

Notwithstanding the foregoing, if at any time during the Post Termination
Non-Compete Period Executive materially breaches the covenants set forth in
Sections 4(a) and (c), Executive will forfeit any remaining Non-Compete Payments
and no further Non-Compete Payments will be made pursuant to this Section 4(f),
provided that (x) Company will give Executive written notice stating in
reasonable detail the facts and circumstances of such alleged breach and, if
Executive reasonably cures any such breach within thirty (30) days of receipt of
such notice, the Non-Compete Payments will not be forfeited; and (y) if
Executive provides written notice that he disputes that he is not in breach of
the provisions of Sections 4(a) and (c), the Company will deposit the remaining
Non-Compete Payments in an interest bearing escrow account in a financial
institution mutually agreed by the parties or, in the absence of an agreement,
Wells Fargo Bank, N.A. or one of its affiliates, to be held until entitlement to
such Non-Compete Payment is finally determined.

Further, in the event of Executive’s death or Substantial Disability during the
Post Termination Non-Compete Period, any remaining Non-Compete Payments that
have not been paid as of the date of such death or Substantial Disability will
become immediately due and payable in a single lump sum and will be paid to
Executive (or his estate) within thirty (30) days of such event. “Substantial
Disability” will mean Executive’s inability to perform any material business
services of the type described in Section 4(a) for an aggregate of one hundred
twenty (120) days during any period of one hundred eighty (180) consecutive days
due to a mental or physical incapacity as determined by the Company Physician
and the Executive’s Physician. In the event that the Company Physician and the
Executive’s Physician cannot agree on whether Executive’s condition is such that
he has a Substantial Disability, such determination will be made by a third
physician who is jointly selected by the Company Physician and the Executive’s
Physician.

(g) Enforcement. Upon Executive’s employment with an entity that is not a
subsidiary or affiliate of the Company (a “Successor Employer”) during the
period that the provisions of this Section 4 remain in effect, Executive will
provide such Successor Employer with a copy of this Agreement and will notify
the Company of such employment within thirty (30) days thereof. Executive agrees
that in the event of a material breach of the terms and conditions of this
Section 4 by Executive, the Company will be entitled, if it so elects, to
institute and prosecute proceedings, either in law or in equity, against
Executive, to obtain damages for any such breach, or to enjoin Executive from
any conduct in violation of this Section 4. Company and Executive both agree
that in the event of a material breach of the nondisparagement provisions of
Section 4(d), the adversely affected party will be entitled, if it so elects, to
institute and prosecute proceedings, either in law or in equity, against the
other, to obtain damages for any such breach, or to enjoin the other from
engaging in such disparagement.

 

5.

Certain Further Payments due Executive.

(a) Tax Reimbursement Payment. In the event that any amount or benefit paid or
distributed to Executive pursuant to this Agreement and/or any amounts or
benefits otherwise paid or distributed to Executive by the Company that are
treated as parachute payments under section 280G of the

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Code (such payments, collectively, the “Covered Payments”), are or become
subject to the tax imposed under section 4999 of the Code or any similar tax
that may hereafter be imposed (the “Excise Tax”), the Company will pay to
Executive an additional amount (the “Tax Reimbursement Payment”), such that the
net amount retained by Executive with respect to such Covered Payments, after
deduction of any Excise Tax (including any penalties and interest thereon) on
the Covered Payments and any Federal, state and local income tax, payroll tax,
and Excise Tax on the Tax Reimbursement Payment provided for by this Section 5,
but before deduction for any Federal, state or local income or employment tax
withholding on such Covered Payments, will be equal to the amount of the Covered
Payments, together with an amount equal to the product of any deductions
disallowed to Executive for federal, state, or local income tax purposes because
of the inclusion of the Tax Reimbursement Payment in Executive’s adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Tax
Reimbursement Payment is to be made. The time for payment of the Tax
Reimbursement Payment is set forth in Section 5(e). The Tax Reimbursement
Payment is intended to place the Executive in the same position he would have
been in if the Excise Tax did not apply.

(b) Assumptions for Calculation. For purposes of determining whether any of the
Covered Payments will be subject to the Excise Tax and the amount of such Excise
Tax,

(i) such Covered Payments will be treated as “parachute payments” within the
meaning of section 280G of the Code, and all “parachute payments” in excess of
the “base amount” (as defined under section 280G(b)(3) of the Code) will be
treated as subject to the Excise Tax, unless, and except to the extent that, in
the good faith judgment of a public accounting firm appointed by the Company or
tax counsel selected by such accounting firm (the “Accountants”), the Company
has a reasonable basis to conclude that such Covered Payments (in whole or in
part) either do not constitute “parachute payments” or represent reasonable
compensation for personal services actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of the “base amount,” or such
“parachute payments” are otherwise not subject to such Excise Tax; and

(ii) the value of any non-cash benefits or any deferred payment or benefit will
be determined by the Accountants in accordance with the principles of section
280G of the Code.

(c) Assumed Tax Rates. For purposes of determining the amount of the Tax
Reimbursement Payment, Executive will be deemed to pay:

(i) Federal income taxes at the highest applicable marginal rate of Federal
income taxation for the calendar year in which the Tax Reimbursement Payment is
to be made; and

(ii) any applicable state and local income taxes at the highest applicable
marginal rate of taxation for the calendar year in which the Tax Reimbursement
Payment is to be made, net of the maximum reduction in Federal Income taxes
which could be obtained from the deduction of such state or local taxes if paid
in such year.

(d) Subsequent Adjustment. In the event that the Excise Tax is subsequently
determined by the Accountants or pursuant to any proceeding or negotiations with
the Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, Executive will
repay to the Company, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax Reimbursement
Payment that would not have been paid if such Excise Tax had been applied
initially calculating such Tax Reimbursement Payment, plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. Notwithstanding the foregoing, in the event any portion of the Tax
Reimbursement Payment to be refunded to the Company has been paid to any
Federal, state or local tax authority, repayment thereof will not be required
until actual refund or credit of such portion has been made to Executive, and
interest payable to the Company will not exceed interest received or credited to
Executive by such tax authority for the period it held such portion. Executive
and Company will mutually agree upon the course of action to be pursued

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(and the method of allocating the expenses thereof) if Executive’s good faith
claim for refund or credit is denied (in whole or in part); provided that
Executive will remain responsible to repay the Company for any such unrefunded
Tax Reimbursement Payments to the extent Executive ultimately prevails in such
claim.

In the event that the Excise Tax is later determined by the Accountants or
pursuant to any proceeding or negotiations with the Internal Revenue Service to
exceed the amount taken into account hereunder at the time the Tax Reimbursement
Payment is made (including, but not limited to, by reason of any payment the
existence or amount of which cannot be determined at the time of the Tax
Reimbursement Payment), the Company will make an additional Tax Reimbursement
Payment in respect of such excess (plus any interest or penalty payable with
respect to such excess) at the time that the amount of such excess is finally
determined.

(e) Timing of Payments. The Tax Reimbursement Payment (or portion thereof)
provided for in Section 5(a) above will be paid to Executive on the day of the
payment of the Covered Payments; provided, however, that if the amount of such
Tax Reimbursement Payment (or portion thereof) cannot be finally determined on
or before the date on which payment is due, the Company will pay to Executive by
such date an amount estimated in good faith by the Accountants to be the minimum
amount of such Tax Reimbursement Payment and will pay the remainder of such Tax
Reimbursement Payment (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but
in no event later than forty-five (45) days after payment of the related Covered
Payment. In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, subject to the
provisions of Section 5(d), such excess will be payable by Executive to the
Company on the fifth business day after written demand by the Company for
payment (together with interest at the rate provided in section 1274(b)(2)(B) of
the Code).

 

6.

Indemnification.

As required by the Company’s Bylaws, the Company will indemnify Executive for
any liability, legal fees, and other expenses he incurs in the event that he is
made a party to any legal proceeding by reason of his employment as President
and Chief Executive Officer of the Company or as a member of the Company’s Board
of Directors.

 

7.

Executive Acknowledgement.

Executive is entering into this Agreement of his own free will. Executive
acknowledges that he has had adequate opportunity to review this Agreement and
consult with counsel of his own choosing. Executive represents that he has read
and understands this Agreement, he is fully aware of this Agreement’s legal
effect and has not acted in reliance upon any statements made by the Company
other than those set forth in writing in the Agreement.

 

8.

Miscellaneous Provisions.

(a) Successors and Assigns. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, sale of assets or
otherwise) to all or substantially all of the business and/or assets of the
Company, by a written agreement in form and substance reasonably satisfactory to
Executive, to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. This Agreement is personal to Executive
and without the prior written consent of the Company is not assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement will inure to the benefit of and be enforceable by Executive’s
personal and legal representatives, executors, administrators, heirs,
distributes, devisees and legatees.

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(b) Amendment. This Agreement will not be modified, changed or in any way
amended except by an instrument in writing approved by the Board of Directors of
the Company and signed by the Company and Executive.

(c) Severability. Except as otherwise provided in Section 4(e), if any provision
of this Agreement is held to be illegal, invalid or unenforceable under present
or future laws effective during the term of this Agreement, such provision will
be fully severable; this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a portion of
this Agreement; and the remaining provisions of this Agreement will remain in
full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore,
except as otherwise provided in Section 4(e), in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.

(d) Integration. The provisions of this Agreement constitute the entire and
complete understanding and agreement between the parties with respect to the
subject matter hereof, and supersede all prior and contemporaneous oral and
written agreements, representations and understandings of the parties, which are
hereby terminated.

(e) Choice of Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS OF TEXAS OR ANY OTHER JURISDICTION, AND, WHERE APPLICABLE,
THE LAWS OF THE UNITED STATES.

(f) Survival. The provisions of Section 4, Section 5, Section 6 and this
Section 8 will survive the termination of this Agreement

(g) No Waiver. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party will be deemed a waiver of similar or dissimilar
provisions or conditions at any time.

(h) Notice. All notices and other communications hereunder will be in writing
and will be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

 

If to Executive:

  

 

     

 

     

 

     

 

     

Telephone:                                                                      

     

Fax:                                         
                                         

  

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        If to the Company:

  

Chaparral Steel Company.

     

300 Ward Road

     

Midlothian, TX 76065-9661

     

Attention:                                                                      

     

Telephone:                                                                      

     

Fax:                                         
                                    

  

or to such other address as either party will have furnished to the other in
writing in accordance herewith. Notice and communications will be effective when
actually received by the addressee.

(i) Construction. This Agreement is deemed to be drafted equally by both
Executive and the Company and will be construed as a whole and according to its
fair meaning. Any presumption or principle that the language of this Agreement
is to be construed against any party will not apply. The headings in this
Agreement are only for convenience and are not intended to affect construction
or interpretation. Any references to paragraphs, subparagraphs, sections,
subsections or clauses are to those parts of this Agreement, unless the context
clearly indicates to the contrary. Also, unless the context clearly indicates to
the contrary, the plural includes the singular and the singular includes the
plural; “and” and “or” are each used both conjunctively and disjunctively;
“any,” “all,” “each,” or “every” means “any and all”, and “each and every”
“includes” and “including” are each used without limitation; “herein,” “hereof,”
“hereunder” and other similar compounds of the word “here” refer to the entire
Agreement and not to any particular paragraph, subparagraph, section or
subsection; and all pronouns and any variations thereof will be deemed to refer
to the masculine, feminine, neuter, singular or plural as the identity of the
entities or persons referred to may require.

(j) No Mitigation. In no event will Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement and except as
provided in Section 4(f)(iv) (regarding Continued Medical) such amounts will not
be reduced whether or not Executive obtains other employment. Neither Executive
nor the Company will be liable to the other party for any damages for breach of
this Agreement in addition to the amounts payable under Section 4(f) arising out
of the termination of Executive’s employment prior to the end of the Term;
provided, however, that the Company will be entitled to seek damages from
Executive for any breach of Section 4 by Executive or for Executive’s criminal
misconduct and Executive may seek to enforce the provisions of Section 4(d) in
the event of a breach of such provisions by the Company.

(k) Restatement of Prior Agreement. Upon the execution of this Agreement by
Executive and the Company, this Agreement will restate and supersede the
Employment Agreement dated as of January 13, 2006, by and between Executive and
the Company and the First and Second Amendments thereto (the “Prior Employment
Contract”), and upon such execution hereof the Prior Employment Contract will be
superseded in full hereby. Any provision contained in this Agreement that refers
to or is dependent upon the time period during which Executive has been employed
by the Company will take into account and include periods prior to the date
hereof during which Executive was employed by the Company, and the termination
of the Prior Employment Contract will not be deemed a termination or any
cessation of Executive’s employment by the Company.

 

CHAPARRAL STEEL COMPANY

By:

 

 

 

J. Celtyn Hughes, Vice President and Chief Financial Officer

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ATTEST:

 

 

Robert E. Crawford, Jr.

Secretary

EXECUTIVE

 

Tommy A. Valenta