Exhibit 10.3


 


QUANEX
CORPORATION


 


LONG-TERM
INCENTIVE PLAN


 


 


Amended December 2,
2004


 





















 


QUANEX
CORPORATION


LONG-TERM
INCENTIVE PLAN


 


WHEREAS, Quanex
Corporation, A Delaware corporation (“Quanex”), desires to establish the Quanex
Corporation Long-Term Incentive Plan (the “Plan”) to advance the best interests
of Quanex by providing key executives of Quanex who have substantial
responsibility for the management and growth of Quanex an additional incentive
to remain in the employ of Quanex and to contribute materially to the continued
growth, development and financial success of Quanex; and


 


WHEREAS, it is
intended that the Plan shall constitute a bonus program within the meaning of
Department of Labor Regulation section 2510.3-2(c) that is exempt from
coverage under the Employee Retirement Income Security Act of 1974, as amended;
and


 


WHEREAS, the
Board of Directors of Quanex desires to amend the Plan;


 


NOW, THEREFORE,
the Plan is amended with respect to Performance Awards granted under the Plan
on and after December 2, 2004 as follows:


 





















 


TABLE
OF CONTENTS


 


	
   

  	
  Section

  	
   

  
	
  ARTICLE I - PLAN
  PURPOSE AND TERM

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Purpose

  	
  1.1

  	
   

  
	
   

  	
  Term
  of Plan

  	
  1.2

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II –
  DEFINITIONS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Affiliate

  	
  2.1

  	
   

  
	
   

  	
  Award
  Agreement

  	
  2.2

  	
   

  
	
   

  	
  Board

  	
  2.3

  	
   

  
	
   

  	
  Cause

  	
  2.4

  	
   

  
	
   

  	
  Change of Control

  	
  2.5

  	
   

  
	
   

  	
  Code

  	
  2.6

  	
   

  
	
   

  	
  Committee

  	
  2.7

  	
   

  
	
   

  	
  Common
  Stock

  	
  2.8

  	
   

  
	
   

  	
  Disability

  	
  2.9

  	
   

  
	
   

  	
  Fiscal
  Year

  	
  2.10

  	
   

  
	
   

  	
  Grantee

  	
  2.11

  	
   

  
	
   

  	
  Maximum Performance
  Level

  	
  2.12

  	
   

  
	
   

  	
  Performance Award

  	
  2.13

  	
   

  
	
   

  	
  Performance Objectives

  	
  2.14

  	
   

  
	
   

  	
  Performance
  Objective Percentage

  	
  2.15

  	
   

  
	
   

  	
  Performance Period

  	
  2.16

  	
   

  
	
   

  	
  Performance Standard

  	
  2.17

  	
   

  
	
   

  	
  Performance Unit

  	
  2.18

  	
   

  
	
   

  	
  Performance
  Unit Value

  	
  2.19

  	
   

  
	
   

  	
  Plan

  	
  2.20

  	
   

  
	
   

  	
  Quanex

  	
  2.21

  	
   

  
	
   

  	
  Retirement

  	
  2.22

  	
   

  
	
   

  	
  Separation From Service

  	
  2.23

  	
   

  
	
   

  	
  Spouse

  	
  2.24

  	
   

  
	
   

  	
  Target Performance Level

  	
  2.25

  	
   

  
	
   

  	
  Threshold
  Performance Level

  	
  2.26

  	
   

  
	
   

  	
  Vested
  Interest

  	
  2.27

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III —
  ELIGIBILITY

  	
   

  	
   

  



 


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  ARTICLE IV –
  PERFORMANCE AWARDS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Grants of Performance
  Awards

  	
  4.1

  	
   

  
	
   

  	
  Establishment of
  Performance Objectives and Performance Standards

  	
  4.2

  	
   

  
	
   

  	
  Special
  Ledger

  	
  4.3

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V –
  CALCULATION AND PAYMENT OF BENEFITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Determination
  of Amounts Payable Under Performance Awards

  	
  5.1

  	
   

  
	
   

  	
  Amounts
  Payable Upon the Death, Disability or Retirement of the Grantee

  	
  5.2

  	
   

  
	
   

  	
  Amount
  Payable Upon a Change of Control

  	
  5.3

  	
   

  
	
   

  	
  No Interest on
  Performance Awards

  	
  5.4

  	
   

  
	
   

  	
  Time
  of Payment

  	
  5.5

  	
   

  
	
   

  	
  Form
  of Payment

  	
  5.6

  	
   

  
	
   

  	
  Payment
  on Death of Grantee

  	
  5.7

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI –
  VESTING AND FORFEITURES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Determination of
  Vested Interest

  	
  6.1

  	
   

  
	
   

  	
  Forfeiture Upon
  Separation From Service

  	
  6.2

  	
   

  
	
   

  	
  Complete Forfeiture
  for Cause

  	
  6.3

  	
   

  
	
   

  	
  Accelerated Vesting
  Upon Change of Control

  	
  6.4

  	
   

  
	
   

  	
  Treatment of Forfeited
  Interest in Performance Award

  	
  6.5

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII
  - ADMINISTRATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  General

  	
  7.1

  	
   

  
	
   

  	
  Powers of
  Committee

  	
  7.2

  	
   

  
	
   

  	
  Committee
  Discretion

  	
  7.3

  	
   

  
	
   

  	
  Disqualification
  of Committee Member

  	
  7.4

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  - AMENDMENT OR TERMINATION OF PLAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX -
  FUNDING

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Payments Under the
  Plan Are the Obligation of Quanex

  	
  9.1

  	
   

  
	
   

  	
  Grantees Must Rely
  Solely on the General Credit of Quanex

  	
  9.2

  	
   

  
	
   

  	
  Unfunded Arrangement

  	
  9.3

  	
   

  



 


ii





















 


	
  ARTICLE X -
  MISCELLANEOUS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  No Employment Obligation

  	
  10.1

  	
   

  
	
   

  	
  Tax
  Withholding

  	
  10.2

  	
   

  
	
   

  	
  Indemnification of the Committee

  	
  10.3

  	
   

  
	
   

  	
  Indemnification
  of the Board

  	
  10.4

  	
   

  
	
   

  	
  Gender
  and Number

  	
  10.5

  	
   

  
	
   

  	
  Headings

  	
  10.6

  	
   

  
	
   

  	
  Other
  Compensation Plans

  	
  10.7

  	
   

  
	
   

  	
  Rights of
  Quanex and Affiliates

  	
  10.8

  	
   

  
	
   

  	
  Nonalienation
  of Benefits

  	
  10.9

  	
   

  
	
   

  	
  Plan and
  Performance Award Agreements Binding on Quanex’s Successor

  	
  10.10

  	
   

  
	
   

  	
  Governing Law

  	
  10.11

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A - EXAMPLE

  	
   

  	
   

  



 


iii





















 


ARTICLE I


 


PLAN
PURPOSE AND TERM


 


1.1                                 Purpose.  The Plan is intended to provide those
executives who have substantial responsibility for the management and growth of
Quanex with additional incentives to remain in the employ of Quanex and to
contribute materially to the continued growth, development and financial
success of Quanex.


 


1.2                                 Term
of Plan.  The Plan is
effective November 1, 2001.  The
Plan shall remain in effect until all amounts due under the terms of the Plan
have been paid.


 


ARTICLE II


 


DEFINITIONS


 


The words and
phrases defined in this Article shall have the meaning set out in these
definitions throughout the Plan, unless the context in which any such word or
phrase appears reasonably requires a broader, narrower, or different meaning.


 


2.1                                 “Affiliate”
means an entity that is treated as a single employer together with Quanex for
certain employee benefit purposes under section 414 of the Code.


 


2.2                                 “Award Agreement” means the written agreement between
Quanex and a Grantee that sets forth the terms of a Performance Award.


 


2.3                                 “Board”
means the board of directors of Quanex.


 


2.4                                 “Cause”
means (a) the willful and continued failure by the Grantee to substantially
perform his duties with Quanex or its Affiliates (other than such failure
resulting from his incapacity due to physical or mental illness) after demand
for substantial performance is delivered to him by Quanex which specifically
identifies the manner in which Quanex believes the Grantee has not
substantially performed his duties; (b) the willful engaging by the Grantee in
gross misconduct materially and demonstrably injurious to the property or
business of Quanex or any of its Affiliates; or (c) the willful material
violation of any Quanex policies regarding the protection of confidential
and/or proprietary information or the material violation of any non-compete
agreement between the Grantee and Quanex. 
For purposes of this definition, no act or failure to act on the Grantee’s
part will be considered willful unless done or omitted to be done, by him not
in good faith and without reasonable belief that his action or omission was in
the best interests of Quanex or its Affiliates or not opposed to the interests
of Quanex or its Affiliates.


 


2.5                                 “Change of Control” means the occurrence of one or
more of the following events after November 1, 2001:


 


(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;


 


(b)                                 individuals
who, as of November 1, 2001, 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 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;


 


(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, directly 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 of the stockholders of Quanex of a complete liquidation or dissolution
of Quanex.


 





















 


2.6                                 “Code” means the Internal
Revenue Code of 1986, as amended.


 


2.7                                 “Committee”
means members of the Compensation Committee of the Board.


 


2.8                                 “Common Stock” means Quanex’s
common stock, $.50 par value.


 


2.9                                 “Disability”
means the Separation From Service of a Grantee due to a medically determinable
mental or physical impairment which, in the opinion of a physician selected by
the Committee, shall prevent the Grantee from engaging in any substantial
gainful activity and which can be expected to result in death or which 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
Grantee was engaged in, or did not result from having engaged in, a felonious
criminal enterprise; (b) did not result from addiction to narcotics; (c) did
not result from an injury incurred while a member of the Armed Forces of the
United States for which the Grantee receives a military pension; and (d) did
not result from an intentionally self-inflicted injury.


 


2.10                           “Fiscal Year” means November 1
through October 31.


 


2.11                           “Grantee”
means a person who has been granted a Performance Award under the Plan.


 


2.12                           “Maximum Performance Level”
means the most stringent Performance Standard established by the Committee with
respect to a Performance Award.


 


2.13                           “Performance
Award” means an incentive compensation opportunity granted under
the Plan.


 


2.14                           “Performance Objectives”
means the criteria established by the Committee for a Fiscal year as the basis
for determining the amount payable to a Grantee under a Performance Award.


 


2.15                           “Performance
Objective Percentage” has the meaning specified in Section 4.2.


 


2.16                           “Performance
Period” means the period that commences on the first day of a
Fiscal Year and ends on the day before the third anniversary of such first day
of a Fiscal Year.


 


2.17                           “Performance Standard”
means a level of performance established by the Committee with respect to a
Performance Award.


 


2.18                           “Performance Unit” means a unit that is awarded under
the Plan pursuant to an Award Agreement for the purpose of determining the
incentive compensation payable under the Plan.


 


2.19                           “Performance Unit Value” means, with respect to any
Performance Objective, $0 if the Threshold Performance Level is not attained;
$75.00 if the Threshold Performance Level is attained but the Target
Performance Level is not attained; $100.00 if the Target 


 





















 


Performance Level
is attained but the Maximum Performance Level is not attained; and $200.00 if
the Maximum Performance Level is attained.


 


2.20                           “Plan” means the Quanex Corporation
Long-Term Incentive Plan, as set forth in this document and as it may be
amended from time to time.


 


2.21                           “Quanex”
means Quanex Corporation, a Delaware Corporation.


 


2.22                           “Retirement” means the
Grantee’s Separation From Service at a time when he is eligible to commence
receiving retirement benefits under either the Quanex Corporation Salaried
Employees’ Pension Plan or the Quanex Corporation Supplemental Benefit Plan.


 


2.23                           “Separation
From Service” means the termination of the employment
relationship between the Grantee and Quanex and all Affiliates.


 


2.24                           “Spouse” means the person to whom the
Grantee is married under applicable local law.


 


2.25                           “Target Performance Level” means the
normal Performance Standard established by the Committee with respect to a
Performance Award.


 


2.26                           “Threshold Performance Level” means the least
stringent Performance Standard established by the Committee with respect to a
Performance Award.


 


2.27                           “Vested
Interest” means a Grantee’s
nonforfeitable interest in the benefits payable under his Performance Award
pursuant to Article IV determined under the terms of Article VI.


 


ARTICLE III


 


ELIGIBILITY


 


The individuals who shall
be eligible to receive Performance Awards under the Plan during a Fiscal Year
shall be those Quanex executives as the Committee shall determine.


 


ARTICLE IV


 


PERFORMANCE
AWARDS


 


4.1                                 Grants of Performance Awards.  Quanex may grant a Performance Award to each
Grantee selected by the Committee.  The
potential amount payable under a Performance Award shall be based upon the
attainment of Performance Objectives established by the Committee.  Performance Awards may vary among
Grantees.  The terms of a Performance
Award that are established by the Committee shall be specified in an Award
Agreement.  The fact that a Grantee is
granted a Performance Award during a Fiscal Year shall not entitle him to have
another Performance Award granted to him during any other Fiscal Year.  The Committee 


 





















 


shall retain
documentation relating to all Performance Awards and the applicable Performance
Objectives.


 


4.2                                 Establishment of Performance Objectives and Performance Standards.
The Committee shall establish the Performance Objectives that apply to a
Performance Award.  The Committee shall
assign a percentage weight of importance (a “Performance Objective Percentage”)
for each Performance Objective taken into account under a Performance Award.
The total of the Performance Objective Percentages for all of the Performance
Objectives applicable to a Performance Award shall be 100 percent.  For each Performance Objective that the
Committee establishes under a Performance Award, the Committee shall specify
three Performance Standards which shall be referred to as the Threshold
Performance Level, the Target Performance Level and the Maximum Performance
Level.


 


4.3                                 Special
Ledger.  The Committee
shall establish or cause to be established an appropriate record that will
reflect the name of each Grantee and all other information necessary to
properly reflect each Grantee’s Performance Awards made by the Committee.


 


ARTICLE V


 


CALCULATION
AND PAYMENT OF BENEFITS


 


5.1                                 Determination
of Amounts Payable Under Performance
Awards.  As soon as
administratively practicable after the end of a Fiscal Year, the Committee
shall ascertain the extent to which the Performance Objectives applicable to
Performance Awards made for that Fiscal Year have been achieved.  The Committee shall retain with the records of
the Committee documentation of its conclusions, and the basis for its
conclusions, concerning the extent to which Performance Objectives were
achieved.  Subject to Sections 5.2
and 5.3, if a Grantee achieves a performance standard (Maximum Performance
Level, Target Performance Level or Threshold Performance Level) for a
Performance Objective the Grantee shall be entitled to receive, and Quanex
shall pay the Grantee (or the Grantee’s Spouse or estate, if applicable), an
incentive payment with respect to such Performance Objective in an amount equal
to the product of (1) the Grantee’s Vested Interest, (2) the number of
Performance Units awarded to the Grantee under the Performance Award, (3) the
applicable Performance Objective Percentage for such Performance Objective and
(4) the applicable Performance Unit Value ($75.00 for achieving the Threshold
Performance Level; $100.00 for achieving the Target Performance Level; and
$200.00 for achieving the Maximum Performance Level).  If the performance standard achieved with
respect to a particular Performance Objective is between the Threshold
Performance Level and the Target Performance Level or between the Target
Performance Level and the Maximum Performance Level, the applicable Performance
Unit Value for the Performance Objective shall be determined by
interpolation.  If a Grantee fails to
achieve at least the Threshold Performance Level for a Performance Objective he
shall not be entitled to receive an incentive payment with respect to such
Performance Objective.  Exhibit A
attached hereto contains an example that illustrates the manner in which the
amount payable under a Performance Award is to be determined.


 





















 


5.2                                 Amounts
Payable Upon the Death, Disability or Retirement of the Grantee.  If a Grantee incurs a Separation From Service
due to his death, Disability or Retirement during the Performance Period for
which a Performance Award was granted to him, he shall be entitled to receive,
and Quanex shall pay him (or his Spouse or estate, if applicable), with respect
to each Performance Objective, an amount equal to the amount determined under Section 5.1
above multiplied by a fraction, the numerator of which is the number of days
during the Performance Period that have elapsed prior to his Separation From
Service and the denominator of which is 1095.


 


5.3                                 Amount
Payable Upon a Change of Control.  Notwithstanding any other provisions of the
Plan, if a Change of Control occurs (a) prior to the expiration of the
applicable Performance Period and (b) either prior to a Grantee’s
Separation From Service or within 120 days after a Grantee’s Separation From
Service, he shall be entitled to receive, and Quanex shall pay him (or his
Spouse or estate, if applicable), with respect to each Performance Objective,
an amount equal to the product of (1) the number of Performance Units awarded
to the Grantee under the Performance Award, (2) $100.00, and (3) a fraction,
the numerator of which is the number of days during the Performance Period that
will have elapsed prior to the first day of the second Fiscal Year immediately
following the Fiscal Year in which the Change of Control occurs and the
denominator of which is 1095.


 


5.4                                 No
Interest on Performance Awards.  No interest shall be credited with respect to
amounts payable under any Performance Awards.


 


5.5                                 Time
of Payment.  Unless a
Change of Control occurs during the Performance Period, Quanex shall pay a
Grantee the aggregate amount due to the Grantee under the Plan with respect to
such Performance Period as soon as administratively practicable after the end
of the Performance Period and in any event no later than 90 days after the end
of the Performance Period.


 


If during a Performance
Period a Change of Control occurs either prior to the date of a Grantee’s
Separation From Service or within 120 days after the Grantee’s Separation From
Service, Quanex shall pay the Grantee the aggregate amount due the Grantee
under the Plan with respect to such Performance Period as soon as administratively
practicable after the date of the Change of Control and in any event no later
than 120 days after the date of the Change of Control.


 


Notwithstanding any other
provision of the Plan to the contrary, if the Company determines that as a
result of the application of section 162(m) of the Code the Company would
not be entitled to take a deduction for part or all of the compensation payable
to a Grantee under an Award, then, unless a Change of Control has occurred, the
payment of the compensation, to the extent not currently deductible, will be
delayed until December 1 of the second Fiscal Year that commences after
the expiration of the applicable Performance Period.


 


5.6                                 Form of Payment. 
The payment under a Performance Award shall be in the form of cash, shares
of Common Stock, or in a combination of cash and shares of Common Stock, as
determined by the Committee in its sole discretion.


 





















 


5.7                                 Payment
on Death of Grantee.  Upon the death of a Grantee before he has
been paid his benefit under his Performance Award, his benefit under his
Performance Award shall be paid to the Grantee’s Spouse if the Spouse survives
the Grantee, or to the Grantee’s estate if the Grantee’s Spouse does not
survive the Grantee.  Any payment under
this Section 5.7 shall be made at the same time the payment would have
been made to the Grantee.


 


ARTICLE VI


 


VESTING
AND FORFEITURES


 


6.1                                 Determination
of Vested Interest. 
Subject to Section 6.3, if the Grantee does not incur a Separation
From Service prior to the expiration of the Performance Period applicable to
his Performance Award, his Vested Interest shall be 100 percent.  Further, if the Grantee dies, Retires or
becomes Disabled before he has been paid his benefit under his Performance
Award, his Vested Interest shall be 100 percent.


 


6.2                                 Forfeiture
Upon Separation From Service.  Subject to Section 6.4, if a Grantee
incurs a Separation From Service prior to the expiration of the applicable
Performance Period for any reason other than death, Retirement or Disability,
his Vested Interest shall be zero and his Performance Award shall be
immediately forfeited.


 


6.3                                 Complete Forfeiture for Cause. Notwithstanding Section 6.1
of the Plan, if prior to the date that is 120 days prior to the occurrence of a
Change in Control, the Committee finds by a majority vote after full
consideration of the facts, that a Grantee was discharged from the employ of
Quanex, or an Affiliate, for Cause or for a material violation of the Company’s
Code of Business Conduct & Ethics, the Grantee shall immediately forfeit
his Performance Award to the extent he has not yet been paid benefits pursuant
to the Performance Award.  The decision
of the Committee as to cause of the Grantee’s discharge shall be final.  No decision of the Committee shall affect the
finality of the discharge of the Grantee. 
No Plan benefits shall be forfeited pursuant to this Section 6.3
after the date that is 120 days prior to the occurrence of a Change of
Control.  Further, if the Committee
finds, by a majority vote after full consideration of the facts, that a Grantee
possessed direct and actual knowledge of a material violation of the Company’s
Code of Business Conduct and Ethics and failed to report, a portion or the
entire amount of any benefits yet to be paid pursuant to the Performance Award
may be forfeited as is decided by the Committee.


 


6.4                                 Accelerated Vesting Upon Change of Control.  Notwithstanding any other provisions of the
Plan, if a Change of Control occurs prior to the expiration of the Performance
Period applicable to a Grantee’s Performance Award and prior to a Grantee’s
Separation From Service, such Grantee’s Vested Interest shall be 100
percent.  Further, notwithstanding any
other provisions of the Plan, if a Change of Control occurs prior to the
expiration of the Performance Period applicable to a Grantee’s Performance
Award and no later than the date that is 120 days after a Grantee’s Separation
From Service, such Grantee’s Vested Interest shall be 100 percent.


 


6.5                                 Treatment of Forfeited Interest in Performance Award.  If a Grantee’s interest in a Performance
Award is fully or partially forfeited for any reason, his forfeited interest in
the 


 





















 


Performance Award
shall not be applied to increase the Long Term
Incentive Percentages of, or to otherwise increase the amounts payable under
the Plan for any remaining Grantee who has not incurred a Separation From
Service on or prior to the date of the forfeiture.


 


ARTICLE VII


 


ADMINISTRATION


 


7.1                                 General.  The Plan shall be administered by the
Committee.  All questions of interpretation
and application of the Plan and Performance Awards shall be subject to the
determination of the Committee.  A
majority of the members of the Committee shall constitute a quorum.  All determinations of the Committee shall be
made by a majority of its members.  Any
decision or determination reduced to writing and signed by a majority of the
members shall be as effective as if it had been made by a majority vote at a
meeting properly called and held.


 


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


 


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


 


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


 


(1)                                  differences
of opinion arising between Quanex and a Grantee; and


 


(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;


 


(e)                                  to
determine the terms and conditions, if any, not inconsistent with the terms of
the Plan that are to be placed upon the Performance Award given to a particular
Grantee; and


 


(f)                                    to
determine the extent to which the applicable Performance Objectives have been
achieved.


 





















 


7.3                                 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 in 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 decisions shall never be
subject to de novo review, but instead shall only be overturned if found to be
arbitrary or capricious by an arbitrator or a court of law.


 


7.4                                 Disqualification of Committee Member.  A member of the Committee shall not vote or
act on any Plan matter relating solely to himself.


 


ARTICLE VIII


 


AMENDMENT
OR TERMINATION OF PLAN


 


The Board may terminate
the Plan at any time, in its sole and absolute discretion, provided that any
termination of the Plan prior to the expiration of the Performance Period shall
be deemed to be a Change of Control for all purposes under the Plan.  The Board may amend the Plan only with the
written consent of each Grantee who has not either been paid the entire amount
due him under his Performance Award or forfeited his entire interest in his
Performance Award pursuant to the terms of the Plan.


 


ARTICLE IX


 


FUNDING


 


9.1                                 Payments Under the Plan Are the Obligation of Quanex.  Benefits due under the Plan will be paid by
Quanex.


 


9.2                                 Grantees
Must Rely Solely on the General Credit of
Quanex.  The Plan is only
a general corporate commitment of Quanex and each Grantee must rely solely upon
the general credit of Quanex for the fulfillment of its obligations hereunder.  Under all circumstances the rights of the
Grantee to any asset held by Quanex will be no greater than the rights
expressed in the Plan.  Nothing contained
in the Plan or a Performance Award will constitute a guarantee by Quanex that
the assets of Quanex will be sufficient to pay any benefits under the Plan or
would place the Grantee in a secured position ahead of general creditors of
Quanex; the Grantees are only unsecured creditors of Quanex with respect to
their Plan benefits and the Plan constitutes a mere promise by Quanex to make
benefit payments in the future.  No
specific assets of Quanex have been or will be set aside, or will be pledged in
any way for the performance of Quanex’s obligations under the Plan which would
remove such assets from being subject to the general creditors of Quanex.


 


9.3                                           Unfunded
Arrangement.  It is
intended that the Plan shall be unfunded for tax purposes and for purposes of
Title of the Employee Retirement Income Security Act of 1974, as amended.


 





















 


ARTICLE X


 


MISCELLANEOUS


 


10.1                           No
Employment Obligation.  The granting of any Performance Award shall
not constitute an employment contract, express or implied, nor impose upon
Quanex or any Affiliate any obligation to employ or continue to employ the
Grantee.  The right of Quanex or any
Affiliate to terminate the employment of any person shall not be diminished or
affected by reason of the fact that a Performance Award has been granted to
him.


 


10.2                           Tax
Withholding.  Quanex shall be entitled to deduct from the
Performance Award or other compensation payable to each Grantee any sums
required by federal, state, or local tax law to be withheld with respect to
payments under a Performance Award.


 


10.3                           Indemnification
of the Committee.  Quanex shall indemnify each present and
future member of the Committee against, and each member of the Committee shall
be entitled without further act on his part to indemnity from Quanex for, all
expenses (including attorneys’ fees, the amount of judgments and the amount of
approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to Quanex itself) reasonably incurred by
him in connection with or arising out of any action, suit, or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee at the
time of incurring the expenses — including, without limitation, matters as to
which he shall be finally adjudged in any action, suit or proceeding to have
been found to have been negligent in the performance of his duty as a member of
the Committee.  However, this indemnity
shall not include any expenses incurred by any member of the Committee in
respect of matters as to which he shall be finally adjudged in any action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duty as a member of the Committee.  In addition, no right of indemnification
under the Plan shall be available to or enforceable by any member of the
Committee unless, within 60 days after institution of any action, suit or
proceeding, he shall have offered Quanex, in writing, the opportunity to handle
and defend same at its own expense.  This
right of indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Committee and shall be in addition to all
other rights to which a member of the Committee may be entitled as a matter of
law, contract, or otherwise.


 


10.4                           Indemnification of the Board.  Quanex shall indemnify each present and
future member of the Board against, and each member of the Board shall be
entitled without further act on his part to indemnity from Quanex for, all
expenses (including attorneys’ fees, the amount of judgments and the amount of
approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to Quanex itself) reasonably incurred by
him in connection with or arising out of any action, suit, or proceeding
relating to the Plan in which he may be involved by reason of his being or
having been a member of the Board, whether or not he continues to be a member
of the Board at the time of incurring the expenses — including, without
limitation, matters as to which he shall be finally adjudged in any action,
suit or proceeding to have been found to have been negligent in the performance
of his duty as a member of the Board. 
However, this indemnity shall not include any expenses incurred by any 


 





















 


member of the
Board in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Board.  In addition, no right of indemnification
under the Plan shall be available to or enforceable by any member of the Board
unless, within 60 days after institution of any action, suit or proceeding, he
shall have offered Quanex, in writing, the opportunity to handle and defend
same at its own expense.  This right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Board and shall be in addition to all
other rights to which a member of the Board may be entitled as a matter of law,
contract, or otherwise.


 


10.5                           Gender
and Number.  If the context requires, words of one gender
when used in the Plan shall include the other and words used in the singular or
plural shall include the other.


 


10.6                           Headings.  Headings of Articles and Sections are
included for convenience of reference only and do not constitute part of the
Plan and shall not be used in construing the terms of the Plan.


 


10.7                           Other
Compensation Plans.  The adoption and maintenance of the Plan
shall not affect any other stock option, incentive or other compensation or
benefit plans in effect for Quanex or any Affiliate or preclude Quanex from
establishing any other forms of incentive or other compensation for employees
of Quanex or any Affiliate.


 


10.8                           Rights
of Quanex and Affiliates.  The existence of Performance Awards shall not
affect in any way the right or power of Quanex or an Affiliate to (a) make
or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in Quanex’s or an Affiliate’s structure or business,
(b) approve and consummate any merger or consolidation of Quanex or an
Affiliate with or into any entity, (c) issue any bonds, debentures or
interests in Quanex or an Affiliate of any nature whatsoever to any person,
(d) approve and consummate the dissolution or liquidation of Quanex or an
Affiliate or any sale or transfer of all or any part of Quanex’s or an
Affiliate’s assets or business or (e) approve and consummate any other act
or proceeding whether of a similar character or otherwise.


 


10.9                           Nonalienation of Benefits.  No benefit provided under the Plan shall be
transferable by the Grantee except pursuant to a state domestic relations
order.  No right or benefit under the
Plan shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge.  Any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge any right or
benefit under the Plan shall be void.  No
right or benefit under the Plan shall, in any manner, be liable for or subject
to any debts, contracts, liabilities or torts of the person entitled to the
right or benefit.  If any Grantee becomes
bankrupt or attempts to anticipate, alienate, assign, pledge, sell, encumber or
charge any right or benefit under the Plan, then the right or benefit shall, in
the discretion of the Committee, cease. 
In that event, Quanex and/or one or more Affiliates may hold or apply
the right or benefit or any part of the right or benefit for the benefit of the
Grantee, the Grantee’s Spouse, children or other dependents or any of them in
the manner and in the proportion that the Committee shall deem proper, in its
sole discretion, but is not required to do so. 
The restrictions in this Section 10.9 shall not apply to state
domestic relations’ orders.


 





















 


10.10                     Plan and
Award Agreements Binding Upon Quanex’s Successor.  The Plan and all Award Agreements shall be
binding upon Quanex’s successor. 
Further, the Board shall not authorize a Change of Control unless the
purchaser agrees to take such actions as are necessary to cause all Grantees to
be paid amounts due under the terms of the Plan as in effect prior to the
Change of Control.


 


10.11                     Governing Law.  Except to the extent such laws are preempted
by federal law, the validity, interpretation, construction and enforceability
of the Plan shall be governed by the laws of the State of Texas.


 





















 


EXHIBIT A


 


Example
of Performance Compensation

Calculation Under the

Quanex Corporation Long-Term Incentive Plan


 


Assume that the
Committee grants an executive a performance based compensation award under the
Plan that is contingent upon achieving two performance goals, Performance
Objective A and Performance Objective B. 
The Committee assigns weights of importance Performance Objective
Percentages in the amounts of 40% and 60% for Performance Objective A and
Performance Objective B, respectively.


 


Assume that for
both of Performance Objectives A and B the Committee establishes threshold,
target and maximum performance standards. 
The per performance unit dollar values (“Performance Unit Value”)
assigned for achieving the threshold, target and maximum performance standards
are $75, $100 and $200, respectively.


 


Assume that the
performance based compensation award provides that the executive is awarded
2000 units (“Performance Units”) for purposes of determining the amount payable
under the award.


 


Assume that the
executive achieves the maximum performance standard for Performance Objective
A, and precisely halfway between the target and maximum performance standards
for Performance Objective B.  Finally,
assume that the executive is continuously employed by Quanex throughout the
performance period.


 


The amount payable
to the executive with respect to Performance Objective A is $160,000,
determined as follows:


 


.40 (Performance
Objective Percentage) X 2000 (Performance Units) X $200 (Performance Unit
Value) = $160,000.


 


The amount payable
to the executive with respect to Performance Objective B is $180,000, determined
as follows:


 


.60 (Performance
Objective Percentage) X 2000 (Performance Units) X $150 (Performance Unit
Value) = $180,000.


 


The total amount
payable to the executive under the award is $340,000.