Document:

Exhibit
4.11

 

EXECUTION
COPY

 

November
18, 2004

 

QUANEX
CORPORATION

Suite
1500

1900
West Loop South

Houston,
Texas  77027

 

Re:                               Consent and
Fourth Amendment (“Consent and Amendment”) under the Quanex Corporation
Revolving Credit Agreement dated as of November 26, 2002 (as amended, the “Credit
Agreement”) by and among Quanex Corporation (“Company”), Comerica Bank and such
other financial institutions which are or may from time to time become parties
to the Credit Agreement (the “Banks”), and Comerica Bank in its capacity as
Agent for the Banks (“Agent”)

 

Ladies
and Gentlemen:

 

                Reference is made to the Credit
Agreement.  Except as specifically
defined to the contrary herein, capitalized terms used in this Consent and
Amendment shall have the meanings given them in the Credit Agreement.  This Consent and Amendment shall not become
effective unless and until countersigned by the Company and returned to the
Agent.

                The Company has requested that
the Banks consent to the acquisition of all of the stock of Mikron Industries,
Inc. (“Mikron”) by Company, either directly or through a Domestic Subsidiary
(such Domestic Subsidiary to be deemed after the Mikron Acquisition a
Significant Domestic Subsidiary) through the merger of a Domestic Subsidiary
with and into Mikron, which shall be the survivor of such merger (such
acquisition and merger, the “Mikron Acquisition” and the survivor of the merger
being the “Surviving Subsidiary”).  The
Company previously communicated this request for consent to the Banks in its
letter dated October 29, 2004, together with the related attachments.  In connection with the request, by signing
below, the Company represents and warrants that there has been no material
change to the Pro Forma Projected Financial Information previously provided to
the Agent and the Banks with respect to the Mikron Acquisition.  The Company has further requested that the
Consolidated Tangible Net Worth covenant set forth in Section 6.10 of the
Credit Agreement be adjusted and that Sections 6.16(b) and 11.11 of the Credit
Agreement be amended.

                Based on the Agent’s receipt of
the approval of the requisite Banks and subject to the terms and conditions of
this letter, this letter will confirm that the Banks hereby consent (a) to the
Mikron Acquisition; provided however that (i) the Company consummate the Mikron
Acquisition on or before March 31, 2005, (ii) the Mikron Acquisition complies
with the requirements set forth in clauses (a), (b), (e) and (f) of the
definition of “Permitted Acquisitions”, and (iii) the Company delivers to Banks
copies of the documents, instruments and agreements relating to the Mikron
Acquisition (the “Acquisition Documents”), including a certificate of
representations and warranties regarding the Mikron Acquisition and the
Acquisition Documents, and such other documents as Banks may reasonably
request, all in form and substance acceptable to Banks, (b) in connection with
the Mikron Acquisition, to the Surviving 

 

 

 

Company
having certain secured and/or unsecured Funded Debt, in addition to any other
Funded Debt permitted under Section 7.1 of the Credit Agreement, totaling, in
the aggregate amount, not more than $30,000,000, provided such Funded Debt
(excluding the Funded Debt incurred in connection with any assumed Industrial
Revenue Bonds if the Funded Debt incurred in connection with such Industrial
Revenue Bonds is otherwise permitted under Section 7.1(i) of the Credit
Agreement) is repaid, any liens securing such repaid Funded Debt are released,
and written evidence of the repayment of the applicable indebtedness and
release of the liens is delivered to Agent, in form and substance satisfactory
to Agent, such written evidence to be delivered to Agent within sixty days of
the closing of the Mikron Acquisition (failure to provide such written evidence
within the time period specified to be deemed an immediate Event of Default
under the Credit Agreement), (c) in connection with the Mikron acquisition, to
the Surviving being obligated under that certain Promissory Note executed by
William Ronald Sandwith and Mikron dated January 1, 2003 in the original
principal amount $5,786,919 payable to The Heritage Organization, LLC in
addition to any other Funded Debt permitted under Section 7.1 of the Credit
Agreement, so long as the Surviving Company is fully indemnified by the sellers
of Mikron (the “Sellers”) against its obligations under such note and the note
is unsecured, (d) to the issuance by the Company of certain promissory notes to
the Sellers in an aggregate principal amount not in excess of $185,000,000 (the
“Seller Notes”) which Seller Notes shall be a portion of the purchase price for
the Mikron Acquisition, and to the execution and delivery by the Company of
certain pledges of the stock of the Surviving Subsidiary for the benefit of the
applicable noteholders (the “Pledges”) securing the Company’s obligations under
the Seller Notes, provided that written evidence, in form and substance
acceptable to Agent, of the repayment of the Seller Notes in full and the
release of the Pledges is delivered within one day of the issuance of the
Seller Notes by the Company (failure to provide such written evidence within
the time period specified to be deemed an immediate Event of Default under the
Credit Agreement)  and (e) to the
modifications to the Credit Agreement as set forth below: 

(i)            Upon the closing of
the Mikron Acquisition and delivery of written evidence to Agent thereof (such
evidence to be in form and substance satisfactory to Agent), Section 6.10 of
the Credit Agreement shall be amended by deleting the language set forth
therein and inserting the following in its place:

 

6.10        Maintain
Consolidated Tangible Net Worth. 
Maintain as of the end of each fiscal quarter of Company, Consolidated
Tangible Net Worth of $175,000,000, plus in each case, the Equity Offering
Adjustment, the Subordinated Debt Adjustment, the Asset Adjustment, if any, and
the Net Income Adjustment.

 

                (ii)           Section 6.16(b) of the Credit Agreement is amended by
deleting the language set forth therein and inserting the following in its
place:

 

(b)          With
respect to real property located in the United States that is subject to a
lease entered into by the Company or any Domestic Subsidiary after the
Effective Date, not later than sixty (60) days after the later of (i) the
execution of

 

 

 

the applicable lease for such property or (ii) the Company
or the applicable Domestic Subsidiary becoming the lessor (by assignment of the
lease, acquisition of the current lessor or its assets  or in any other manner whatsoever) under the
applicable lease for such property, the Company shall execute or cause to be
executed a lessor’s acknowledgement and consent in form and substance
reasonably acceptable to Agent and the Majority Banks (unless waived by Agent
and Majority Banks);

 

                (iii)          Section 11.11(b) of the Credit Agreement is amended by
deleting the language set forth therein and inserting the following in its
place:

 

(b)          The
Banks irrevocably authorize the Agent, at its option and in its discretion, to
(x) release any Lien or other interest granted to or held by the Agent upon any
Collateral (i) upon termination of the Revolving Credit Aggregate Commitment
and payment in full of all Indebtedness payable under this Agreement and under
any other Loan Document; (ii) constituting property sold or to be sold or
disposed of as part of or in connection with any disposition expressly
permitted hereunder; (iii) constituting property in which a Loan Party owned no
interest at the time the Lien was granted or at any time thereafter; or (iv) if
approved, authorized or ratified in writing by the Majority Banks, or all the
Banks, as the case may be, as provided in Section 12.10 and (y) release any
Guaranty granted to or held for the benefit of the Banks as the result of the
sale, transfer or other disposition of the Guarantor, to the extent such sale,
transfer or other disposition is permitted under the terms of this
Agreement.  Upon request by the Agent at
any time, the Banks will confirm in writing the Agent’s authority to release
particular types or items of Collateral or any Guaranty pursuant to this
Section 11.11(b).

                As a condition to the requisite
Banks’ consent to the Mikron Acquisition and the amendment of Sections 6.10,
6.16(b) and 11.11(b) of the Credit Agreement, the Company shall pay to each
consenting Bank, which delivers its signature page to Agent by or before noon
(eastern time) on November 18, 2004, a consent fee equal to four basis points
on such Bank’s existing commitment.

                Except as set forth in this
Consent and Amendment, this Consent and Amendment shall not be deemed to amend
or alter in any respect the terms and conditions of the Credit Agreement, any
of the Notes issued thereunder, or any of the other Loan Documents, or to
constitute a waiver by Agent or any Bank of any right or remedy under the
Credit Agreement, any of the Notes issued thereunder or any of the other Loan
Documents.  Nor shall this Consent and
Amendment constitute an undertaking or agreement by any Bank to increase the
stated dollar amount of its existing commitment under the Credit
Agreement.  By accepting and
acknowledging this Consent and Amendment, the Company shall be deemed to have
ratified and reaffirmed all the terms, conditions, covenants and agreement
contained in the Credit Agreement, as amended (including by this Consent and
Amendment) and each of the other Loan Documents.  Simultaneously with its execution and
delivery of this Consent and Amendment, 

 

 

 

the
Company agrees to provide the Banks with a closing certificate in form and
substance acceptable to Agent and an Acknowledgment of Guarantors in the form
attached hereto as Exhibit A.

                By signing and returning a
counterpart of this letter to the Agent, the Company acknowledges its
acceptance of the terms of this letter.

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMERICA
  BANK, as Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
  Acknowledged
  and Accepted

  	
   

  	
   

  
	
  as
  of November 18, 2004

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  QUANEX CORPORATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:Exhibit
10.50

 

QUANEX CORPORATION

 

DEFERRED COMPENSATION PLAN

 

(As Amended and Restated

Effective July 1, 2004)

 

 

QUANEX CORPORATION

DEFERRED COMPENSATION PLAN

 

TABLE OF CONTENTS

 

	
   

  	
  Section

  
	
   

  	
   

  
	
  ARTICLE I — DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Account

  	
  1.1

  
	
  Beneficiary

  	
  1.2

  
	
  Board

  	
  1.3

  
	
  Cash Fund

  	
  1.4

  
	
  Change of
  Control

  	
  1.5

  
	
  Change
  of Control Value

  	
  1.6

  
	
  Code

  	
  1.7

  
	
  Committee

  	
  1.8

  
	
  Common Stock

  	
  1.9

  
	
  Company

  	
  1.10

  
	
  Company Match

  	
  1.11

  
	
  Deferred Compensation
  Ledger

  	
  1.12

  
	
  Director

  	
  1.13

  
	
  Director Fees

  	
  1.14

  
	
  Disability

  	
  1.15

  
	
  Incentive Bonus

  	
  1.16

  
	
  Investment Fund

  	
  1.17

  
	
  LTIP
  Compensation

  	
  1.18

  
	
  Normal
  Retirement Date

  	
  1.19

  
	
  NYSE

  	
  1.20

  
	
  Participant

  	
  1.21

  
	
  Plan

  	
  1.22

  
	
  Plan Year

  	
  1.23

  
	
  Quanex

  	
  1.24

  
	
  Rabbi Trust

  	
  1.25

  
	
  Retirement

  	
  1.26

  
	
  Retirement Plan

  	
  1.27

  
	
  Securities Act

  	
  1.28

  
	
  Subsidiary

  	
  1.29

  
	
  Term of
  Deferral

  	
  1.30

  
	
  Valuation Date

  	
  1.31

  
	
  Voting
  Securities

  	
  1.32

  
	
   

  	
   

  
	
  ARTICLE II - ELIGIBILITY

  	
   

  

 

i

 

	
  ARTICLE III - DEFERRALS
  AND COMPANY CONTRIBUTIONS

  	
   

  
	
   

  	
   

  
	
  Deferral
  Election

  	
  3.1

  
	
  Company Match

  	
  3.2

  
	
  Mandatory
  Deferral

  	
  3.3

  
	
   

  	
   

  
	
  ARTICLE IV - ACCOUNT

  	
   

  
	
   

  	
   

  
	
  Establishing a
  Participant’s Account

  	
  4.1

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

  	
  4.2

  
	
  Crediting
  of Dividends and Distributions on Common Stock

  	
  4.3

  
	
  Crediting of Earnings
  and Losses

  	
  4.4

  
	
  Common Stock
  Conversion Election

  	
  4.5

  
	
  Conversion
  and Cash-Out Upon a Change of Control

  	
  4.6

  
	
   

  	
   

  
	
  ARTICLE V -
  VESTING

  	
   

  
	
   

  	
   

  
	
  Vesting

  	
  5.1

  
	
  Forfeiture
  of Company Match Because of Early Distribution

  	
  5.2

  
	
  Forfeiture for Cause

  	
  5.3

  
	
  Forfeiture for Competition

  	
  5.4

  
	
  Full
  Vesting in the Event of a Change of Control

  	
  5.5

  
	
   

  	
   

  
	
  ARTICLE
  VI - DISTRIBUTIONS

  	
   

  
	
   

  	
   

  
	
  Form of
  Distributions or Withdrawals

  	
  6.1

  
	
  Death.

  	
  6.2

  
	
  Disability

  	
  6.3

  
	
  Expiration of Term of
  Deferral

  	
  6.4

  
	
  Hardship Withdrawals

  	
  6.5

  
	
  Payment
  Restrictions on Any Portion of a Benefit Determined Not to Be Deductible

  	
  6.6

  
	
  Responsibility
  for Distributions and Withholding of Taxes

  	
  6.7

  
	
   

  	
   

  
	
  ARTICLE
  VII - ADMINISTRATION

  	
   

  
	
   

  	
   

  
	
  Committee Appointment

  	
  7.1

  
	
  Committee
  Organization and Voting

  	
  7.2

  
	
  Powers of the Committee

  	
  7.3

  
	
  Committee Discretion

  	
  7.4

  
	
  Annual Statements

  	
  7.5

  
	
  Reimbursement of Expenses

  	
  7.6

  
	
  Limitation on Liability

  	
  7.7

  

 

ii

 

	
  ARTICLE
  VIII - ADOPTION BY SUBSIDIARIES

  	
   

  
	
   

  	
   

  
	
  Procedure for
  and Status After Adoption

  	
  8.1

  
	
  Termination
  of Participation by Adopting Subsidiary

  	
  8.2

  
	
   

  	
   

  
	
  ARTICLE
  IX - AMENDMENT AND/OR TERMINATION

  	
   

  
	
   

  	
   

  
	
  Amendment or
  Termination of the Plan

  	
  9.1

  
	
  No
  Retroactive Effect on Awarded Benefits

  	
  9.2

  
	
  Effect of Termination

  	
  9.3

  
	
   

  	
   

  
	
  ARTICLE X
  - FUNDING

  	
   

  
	
   

  	
   

  
	
  Payments
  Under This Agreement are the Obligation of the Company

  	
  10.1

  
	
  Agreement
  May Be Funded Through Rabbi Trust

  	
  10.2

  
	
  Reversion of Excess Assets

  	
  10.3

  
	
  Participants
  Must Reply Only on General Credit of the Company

  	
  10.4

  
	
   

  	
   

  
	
  ARTICLE
  XI - MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Limitation of Rights

  	
  11.1

  
	
  Distributions
  to Incompetents of Minors

  	
  11.2

  
	
  Nonalienation of Benefits

  	
  11.3

  
	
  Expenses
  Incurred in Enforcing the Plan

  	
  11.4

  
	
  Reliance Upon Information

  	
  11.5

  
	
  Severability

  	
  11.6

  
	
  Notice

  	
  11.7

  
	
  Gender and Number

  	
  11.8

  
	
  Governing
  Law

  	
  11.9

  

 

iii

 

QUANEX CORPORATION

DEFERRED COMPENSATION PLAN

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

 

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

 

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

 

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

 

 

ARTICLE I

 

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

I-1

 

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

 

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

 

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

 

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

 

I-2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

I-3

 

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

 

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

 

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

 

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

 

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

 

1.20                           “NYSE”
means the New York Stock Exchange.

 

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

 

I-4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

I-5

 

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

 

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

 

I-6

 

ARTICLE II

 

ELIGIBILITY

 

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

 

II-1

 

ARTICLE III

 

DEFERRALS AND COMPANY CONTRIBUTIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

III-1

 

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

 

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

 

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

 

III-2

 

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

 

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

 

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

 

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

 

III-3

 

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

 

III-4

 

ARTICLE IV

 

ACCOUNT

 

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

 

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

 

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

 

IV-1

 

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

 

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

 

IV-2

 

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

 

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

 

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

 

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

 

IV-3

 

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

 

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

 

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

 

IV-4

 

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

 

IV-5

 

ARTICLE V

 

VESTING AND EVENTS CAUSING FORFEITURE

 

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

 

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

 

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

 

V-1

 

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

 

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

 

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

 

V-2

 

ARTICLE VI

 

DISTRIBUTIONS

 

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

 

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

 

VI-1

 

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

 

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

 

VI-2

 

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

 

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

 

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

 

VI-3

 

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

 

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

 

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

 

VI-4

 

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

 

VI-5

 

ARTICLE VII

 

ADMINISTRATION

 

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

 

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

 

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

 

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

 

VII-1

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

VII-2

 

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

 

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

 

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

 

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

 

VII-3

 

ARTICLE VIII

 

ADOPTION BY SUBSIDIARIES

 

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

 

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

 

VIII-1

 

ARTICLE IX

 

AMENDMENT AND/OR TERMINATION

 

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

 

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

 

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

 

IX-1

 

ARTICLE X

 

FUNDING

 

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

 

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

 

X-1

 

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

 

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

 

X-2

 

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

 

X-3

 

ARTICLE XI

 

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

XI-1

 

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

 

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

 

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

 

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

 

XI-2

 

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

 

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

 

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

 

 

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

 

XI-3

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