Exhibit
10.2


 


QUANEX CORPORATION


 


EXECUTIVE INCENTIVE COMPENSATION PLAN


 


Amended and Restated


Effective December 2, 2004


 


ARTICLE
I

ESTABLISHMENT AND PURPOSE


 


1.1           Establishment
of the Plan.  Quanex Corporation previously
established an incentive compensation plan for executives as herein set forth,
which shall be known as the Quanex Corporation Executive Incentive Compensation
Plan (the “Plan”) effective as of November 1, 1981. The Board of Directors
of Quanex Corporation amended the Plan effective for Awards granted under the
Plan on and after December 2, 2004.


 


1.2           Purpose.  The purpose of the Plan is to provide
executives of the Company with competitive levels of total compensation and
incentive earning opportunities commensurate with results achieved and
individual performance.


 


ARTICLE
II

DEFINITIONS


 


2.1           Company.  “Company” means Quanex Corporation and any
successor.  In addition, the term “Company”
shall include any other corporation in which Quanex Corporation owns more than
50% of the outstanding voting stock and adopts this Plan.


 


2.2           Committee.  “Committee” means those directors appointed
by the Board of Directors to administer this Plan.


 


2.3           Consolidated
Financial Statements.  “Consolidated
Financial Statements” means for each year, the consolidated balance sheet,
statement of earnings, and shareholders’ equity prepared by the independent
certified public accountants engaged by the Company’s Board of Directors to
audit the financial statements of the Company, as set forth and certified in
the annual report to stockholders of the Company.


 


2.4           Corporate
Performance Goal.  “Corporate
Performance Goal” means the level of EBITDA/Sales, Group EBITDA/Sales, Group
Return on Controllable Investment, Return on Equity and Return on Investment
for the Plan Year, approved annually by the Committee.  The Committee, in its discretion, may select
other Corporate Performance Goals provided such goals are set forth in writing
and approved no later than 60 days after the beginning of the Plan Year for
which such goals are to apply.


 


2.5           EBITDA/Sales.  “EBITDA/Sales” for any Plan Year means the
Company’s annual operating income plus depreciation and amortization divided by
net sales for such year.


 





















 


2.6           Group
EBITDA/Sales.  “Group EBITDA/Sales”
for any Plan Year for a business group of the Company selected by the Committee
means the annual operating income of such business group plus depreciation and
amortization for such group divided by net sales for such group for such year.


 


2.7           Group
Return on Controllable Investment.  “Group
Return on Controllable Investment” for a business group of the Company selected
by the Committee for any Plan Year means Group annual operating income plus
depreciation and amortization less the capital use charge on working capital
imposed by the Company on the group, less taxes thereon at the effective tax
rate for such Group for such Plan Year, divided by equity and non-current
liabilities attributable to such group.


 


2.8           Incentive
Award.  “Incentive Award” means the
amount due a Participant in accordance with Article IV of this Plan.


 


2.9           Individual
Incentive Target.  “Individual
Incentive Target” means the anticipated Incentive Award to be paid to a
Participant in the event the Corporate Performance Goals assigned to such
Participant are met and the individual performance of the Participant is fully
proficient and satisfactory.  Individual
Incentive Targets shall be a percentage of Salary as determined by the
Committee and the Committee may assign such weight to each of a Participant’s
Corporate Performance Goals for purposes of determining whether an Individual
Incentive Target is met as the Committee, in its sole discretion, shall
determine.


 


2.10         Participant.  “Participant” means an employee of the
Company selected by the Committee to be considered for an Incentive Award under
this Plan.  The mere selection as a
Participant shall not convey any rights as to the eventual receipt of an award.


 


2.11         Plan.  “Plan” means the Quanex Corporation Executive
Incentive Compensation Plan.


 


2.12         Plan
Year.  “Plan Year” means the period
from November 1 to October 31 each year.


 


2.13         Return
on Equity.  “Return on Equity” for
any Plan Year means the annual net income of the Company less preferred
dividends divided by average common shareholders’ equity.  For purposes hereof average common
shareholders’ equity shall be the sum of common equity as of the beginning of
each fiscal quarter of the Plan Year and as of the end of the Plan Year divided
by five.


 


2.14         Return
on Investment.  “Return on Investment”
for any Plan Year means the annual net income of the Company plus interest
expense (net of the income tax benefit thereof at the effective tax rate of the
Company for such Plan Year) divided by total investment.  For purposes hereof total investment shall be
the sum of shareholders’ equity plus long term debt as of the beginning of each
fiscal quarter of the Plan Year and as of the end of the Plan Year divided by
five.


 


2.15         Salary.  “Salary” means the amounts paid by the
Company to a Participant during the Plan Year as regular compensation for
services, exclusive of bonuses, awards, reimbursement


 


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of expenses and all indirect payments or other additional amounts paid
or credited to or on behalf of the Participant by the Company.


 


In determining any Corporate Performance Goal, the
Committee, in its sole discretion, may exclude from long-term debt that part of
the debt which the Committee considers not available for production of earnings
and may adjust annual operating income and expenses for those items the
Committee deems extraordinary, unusual or infrequent and for changes in
accounting standards.  In addition, the
Committee, in its discretion, may determine that portions of long-term debt and
additional equity arising from a public offering of the capital stock of the
Company are to be phased into the debt and equity accounts over a period of
time, not exceeding 36 months, as the Committee shall determine appropriate,
giving consideration to the fact that the debt and equity may not be available,
or may be only partially available for production of earnings.


 


ARTICLE
III

ELIGIBILITY AND PARTICIPATION


 


3.1           Eligibility
and Participation.  Eligibility for
participation in the Plan will be limited to those key executive personnel who,
by the nature and scope of their position, regularly and directly make or
influence policy decisions which significantly impact the overall results or
success of the Company.


 


3.2           Participation.  Participants will be selected by the Committee
not later than the beginning of each Plan Year. 
Each person selected to be a Participant will be notified in
writing.  The notice shall inform the
Participant of his selection and of the Corporate Performance Goals established
for the Plan Year and the Individual Incentive Targets for the Participant.


 


3.3           Cessation
of Participants.  The Committee may
withdraw its approval of an executive’s participation at any time during the
Plan Year.


 


ARTICLE
IV

AWARD DETERMINATION


 


4.1           Assignment
of Individual Incentive Targets. 
Each year the Committee will assign an Individual Incentive Target for
each Participant.  This Individual
Incentive Target will be expressed as a percentage of the Participant’s
Salary.  The Committee shall have the
power to adjust Individual Incentive Targets at any time during the Plan Year.


 


4.2           Corporate
Performance Goals.  Prior to the
beginning of each Plan Year the Committee will establish Corporate Performance
Goals for each Participant that, if no adjustment were made for individual
Participant’s performance, would result in 100% of the Individual Incentive
Target being earned.  In addition, the
Committee will establish for each Plan Year levels of Corporate Performance
Goals for each Participant that, if no adjustment were made for individual
Participant’s performance, would result in amounts greater or lesser than the
Individual Incentive Target being earned.


 


To establish the Corporate Performance Goals for each
Participant for each Plan Year, the Committee will use any information it
considers relevant regarding the likely


 


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performance of the Company.  The Corporate Performance Goals, together
with related schedules, will be communicated to Participants as soon as
practicable following its determination by the Committee.


 


4.3           Award
Determination.  As soon as possible
after the end of the Plan Year, the Committee shall determine the Incentive
Award payable to each Participant on the basis of the Corporate Performance
Goals achieved based on the Consolidated Financial Statements for the Plan
Year.  The Incentive Award so determined
shall be subject to adjustment to reflect individual performance in accordance
with Section 4.4.


 


4.4           Individual
Performance Adjustments.  The Committee
shall have the power to adjust awards as determined under Section 4.3, to
reflect the individual performance of the Participant or to better relate the
Incentive Award to the performance of the Company or to one of the business
groups.  In making adjustments to reflect
excellent or superior individual performance the Committee is only limited by
the maximum Incentive Award that can be earned by the Participant.


 


4.5           Participation
in Other Incentive Plans. 
Notwithstanding the preceding, for each Participant who is also a
Participant under another incentive compensation plan of the Company, the
Committee may specify that incentive compensation shall be based on the
compensation payable under the other plan to the maximum amount payable under
that plan and additional incentive compensation shall be payable to the
Participant under the provisions of this Plan only to the extent that
compensation under this Plan would exceed compensation under the other plan.


 


4.6           Maximum
Individual Awards.  The Committee shall
determine for each Participant a maximum Incentive Award that can be earned for
each Plan Year, expressed as a percentage of the Participant’s Salary.  The maximum Incentive Award cannot be
exceeded regardless of the level of corporate and individual performance
achieved.


 


ARTICLE
V

FORM AND TIMING OF AWARDS


 


5.1           Payment
of Individual Awards.  Except as
provided in Section 5.2, Incentive Awards to be paid to Participants in
accordance with the provisions of Article IV shall be paid in cash as soon
as practicable following the release of the Company’s Consolidated Financial
Statements for the Plan Year.


 


5.2           Participant
Election to Defer Payments.  For each
Plan Year, a Participant may elect to defer all or any part of the Incentive
Award which may be earned under this Plan, and otherwise become payable to the
Participant.  That election to defer
shall be made in accordance with the Quanex Corporation Deferred Compensation
Plan.  If the Participant fails to make
an election to defer a part or all of his Incentive Award and the payment of a
part or all of the Incentive Award would cause the Company to loose a part or
all of its deduction because of Section 162(m) of the Code, the payment of
the Incentive Award will be delayed under the Quanex Corporation Deferred
Compensation Plan.  Under this
circumstance, the provisions of the Quanex Corporation Deferred Compensation
Plan shall then become controlling as to the terms of payment of the Incentive
Award.


 


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ARTICLE
VI

TERMINATION OF EMPLOYMENT


 


In the event that the Company finds, after full
consideration of the facts presented on behalf of both the Company and a
Participant, that the Participant was discharged by the Company for a material
violation of the Company’s Code of Business Conduct & Ethics, fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his/her employment by the Company, for any other reason for cause, or for
disclosing trade secrets of the Company, the right of the Participant to
receive an Incentive Award under the Plan with respect to the Plan Year during
which the termination occurred shall be forfeited.  Further, if the
Company finds, after full consideration of the facts presented on behalf of
both the Company and a Participant, that a Participant had actual and direct
knowledge of a material violation of the Company’s Code of Business Conduct
& Ethics and failed to report it, a portion or the entire amount of his/her
Incentive Award may be forfeited.  The decision of the Company as to the
cause of a Participant’s discharge and/or forfeiture for cause of any award may
be appealed to the Nominating and Governance Committee of the Board for
consideration and final determination.  In the event the employment of a Participant
is terminated for any reason other than for cause, the Participant or his or
her other beneficiaries shall be entitled to receive a prorated Incentive Award
for the portion of the Plan Year prior to his or her termination of employment


 


ARTICLE
VII

DESIGNATION OF BENEFICIARIES


 


A Participant shall designate a Beneficiary or
Beneficiaries who are to receive upon his death the distributions that
otherwise would have been paid to the Participant.  All designations shall be in writing and
shall be effective only if and when delivered to the Committee during the
lifetime of the Participant.  If a
Participant designates a Beneficiary without providing in the designation that
the Beneficiary must be living at the time of each distribution, the designation
shall vest in the Beneficiary all of the distributions whether payable before
or after the Beneficiary’s death, and any distributions remaining upon the
Beneficiary’s death shall be made to the Beneficiary’s estate.  A Participant may, from time to time, during
his lifetime, change his Beneficiary or Beneficiaries by a written instrument
delivered to the Committee.  In the event
a Participant does not designate a Beneficiary or Beneficiaries, or if for any
reason the designation is ineffective, in whole or in part, the distribution
that otherwise would have been paid to the Participant shall be paid to his
estate and in that event the term “Beneficiary” shall include his estate.


 


Once an Incentive Award is held under the terms of the
Quanex Corporation Deferred Compensation, the designation of Beneficiaries
shall become controlled by its terms and any designation of a Beneficiary under
this Plan will become ineffective.


 


ARTICLE
VIII

ADMINISTRATION


 


8.1           Committee
Appointment.  The Committee will be
appointed by the Board of Directors from their members who are not salaried
officers of the Company and are not eligible


 


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to participate in the Plan.  Each
Committee member will serve until his or her resignation or removal.  The Board of Directors will have the sole
discretion to remove any one or more Committee members and appoint one or more
replacement or additional Committee members from time to time.


 


8.2           Committee
Organization and Voting.  The
Committee will select from among its members a chairman who will preside at all
of its meetings and will elect a secretary without regard to whether that
person is a member of the Committee.  The
secretary will keep all records, documents and data pertaining to the Committee’s
supervision and administration of the Plan. 
A majority of the members of the Committee will constitute a quorum for
the transaction of business and the vote of a majority of the members present
at any meeting will decide any question brought before the meeting.  In addition, the Committee may decide any
question by vote, taken without a meeting, of a majority of its members.


 


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


 


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


 


(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;


 


(d)           to
designate the persons eligible to become Participants and to establish the
Corporate Performance Goal, and the Individual Incentive Target for each
Participant, a maximum for each Incentive Award, and all other matters
necessary to make this Plan operative;


 


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


 


(i)            differences
of opinion arising between the Company and a Participant; and


 


(ii)           any
question it deems advisable to determine in order to administer the Plan; and


 


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


 


8.4           Committee
Discretion.  The Committee in
exercising any power or authority granted under this Plan or in making any
determination under this Plan shall perform or refrain from performing those
acts using its sole discretion and judgment. 
Any decision made by the


 


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Committee or any refraining to act or any act taken by the Committee in
good faith shall be final and binding on all parties.  The Committee’s decision shall never be
subject to de novo review.


 


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


 


ARTICLE
IX

ADOPTION BY SUBSIDIARIES


 


9.1           Procedure
for and Status After Adoption.  Any
subsidiary corporation in which Quanex Corporation owns more than 50% of the
outstanding voting stock may, with the approval of the Committee, adopt this
Plan by appropriate action of its board of directors.  The terms of the Plan will apply separately to
each Company adopting the Plan and its Participants in the same manner as is
expressly provided for Quanex Corporation and its Participants except that the
powers of the Board of Directors and the Committee under the Plan will be
exercised by the Board of Directors of Quanex Corporation alone.  Each Company will bear the cost of providing
Plan benefits for its own Participants. 
It is intended that the obligation of each Company with respect to its
Participants will be the sole obligation of the Company that is employing the
Participant and will not bind any other Company.


 


9.2           Termination
of Participation By Adopting Company. 
Any Company adopting the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan.  The Committee may, in its discretion, also terminate
a Company’s participation in the Plan at any time.


 


ARTICLE
X

AMENDMENT AND/OR TERMINATION


 


10.1         Amendment
and/or Termination.  The Committee,
in its sole discretion, without notice, at any time and from time to time, may
modify or amend, in whole or in part, any or all of the provisions of this
Plan, or suspend or terminate it entirely.


 


10.2         No
Retroactive Effect.  No modification,
amendment, suspension, or termination, may without the consent of a Participant
(or his Beneficiary in the case of the death of the Participant) reduce the
right of a Participant (or his Beneficiary as the case may be) to a payment or
distribution under this Plan to which he is entitled in accordance with the
provisions contained in Article IV of this Plan.


 


ARTICLE
XI

MERGER, CONSOLIDATION, AND SALE OF ASSETS


 


Notwithstanding anything in this Plan to the contrary,
in the event that the Company consolidates with, merges into, or transfers all
or substantially all of its assets to another corporation, the obligations of the
Company under this Plan shall be binding on that corporation or other entity.


 


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ARTICLE
XII

MISCELLANEOUS


 


12.1         Limitation
of Rights.  Nothing in this Plan will
be construed:


 


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


 


(b)           to
give a Participant any right with respect to the Incentive Award except in
accordance with the terms of this Plan;


 


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


 


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


 


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


 


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


 


12.3         Nonalienation
of Benefits.  No right or benefit
provided in this Plan will be transferable by the Participant except, upon his
death, to a named Beneficiary as provided in this Plan.  No right or benefit under this Plan will be
subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber,
or charge the same will be void.  No
right or benefit under this Plan will in any manner be liable for or subject to
any debts, contracts, liabilities or torts of the person entitled to such
benefits.  If any Participant or any
Beneficiary becomes bankrupt or attempts to anticipate, alienate, sell, assign,
pledge, encumber or charge any right or benefit under this Plan, that right or
benefit will, in the discretion of the Committee, cease.  In that event, the Committee may have the
Company hold or apply the right or benefit or any part of it to the benefit of
the Participant or Beneficiary, his or her spouse, children or other dependents
or any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.


 


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


 


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


 


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


 


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


 


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


 


12.9         Effective
Date.  This amendment and restatement
of the Plan will be operative and effective on December 2, 2004.


 


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