Document:

Exhibit 10.53

 

March 7, 2005

 

 

Mr. Dennis
C. Simonis, President

Members
of the Board of Directors

ML
Resources, Inc.

26-238
Hawaii Belt Road

	
  Hilo, HI 96720

  	
  OUR REFERENCE

  NO.:

  056812-1

  

 

Re:                               Audit Committee

 

Gentlemen:

 

The New York Stock Exchange
has advised the Company that:

 

(1)     I cannot serve
on the Audit Committee because our firm performs legal services for the
Company.  Nevertheless, I can attend all
meetings of the Audit Committee in my capacity as an attorney as long as I am
not a voting member of the Committee.

 

(2)     Furthermore, I
am independent as far as serving as a director and member of the Governance and
Nominating Committees.

 

(3)     Therefore:

 

(1)     I  resign my position as a member of
the Audit Committee effective immediately.

 

(2)     I will continue
to serve as an attorney for the Company, director, and member of the
Governance, Nominating, and Compensation Committees at the pleasure of the
Board of Directors.

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James H. Case

  	
   

  
	
   

  	
   

  
	
   

  	
  James H. Case

  

 

1Exhibit 10.1

 

QUANEX
CORPORATION

 

LONG-TERM
INCENTIVE PLAN

 

 

Amended and Restated

Effective December 2, 2004

 

Amended December 2,
2004

 

 

QUANEX
CORPORATION

LONG-TERM
INCENTIVE PLAN

 

WHEREAS, Quanex
Corporation, A Delaware corporation (“Quanex”), originally established the
Quanex Corporation Long-Term Incentive Plan (the “Plan”) effective November 1,
2001 to advance the best interests of Quanex by providing key executives of
Quanex who have substantial responsibility for the management and growth of
Quanex an additional incentive to remain in the employ of Quanex and to
contribute materially to the continued growth, development and financial
success of Quanex; and

 

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

 

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

 

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

 

 

QUANEX
CORPORATION

LONG-TERM
INCENTIVE PLAN

 

TABLE
OF CONTENTS

 

	
  ARTICLE I -
  PLAN PURPOSE AND TERM

  	
   

  
	
   

  	
   

  
	
  Purpose

  	
   

  
	
  Term of Plan

  	
   

  
	
   

  	
   

  
	
  ARTICLE II
  – DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Affiliate

  	
   

  
	
  Award Agreement

  	
   

  
	
  Board

  	
   

  
	
  Cause

  	
   

  
	
  Change of Control

  	
   

  
	
  Code

  	
   

  
	
  Committee

  	
   

  
	
  Common Stock

  	
   

  
	
  Disability

  	
   

  
	
  Fiscal Year

  	
   

  
	
  Grantee

  	
   

  
	
  Maximum Performance
  Level

  	
   

  
	
  Performance Award

  	
   

  
	
  Performance Objectives

  	
   

  
	
  Performance
  Objective Percentage

  	
   

  
	
  Performance Period

  	
   

  
	
  Performance Standard

  	
   

  
	
  Performance Unit

  	
   

  
	
  Performance Unit Value

  	
   

  
	
  Plan

  	
   

  
	
  Quanex

  	
   

  
	
  Retirement

  	
   

  
	
  Separation From Service

  	
   

  
	
  Spouse

  	
   

  
	
  Target
  Performance Level

  	
   

  
	
  Threshold
  Performance Level

  	
   

  
	
  Vested
  Interest

  	
   

  
	
   

  	
   

  
	
  ARTICLE III
  – ELIGIBILITY

  	
   

  

 

i

 

	
  ARTICLE IV
  – PERFORMANCE AWARDS

  	
   

  
	
   

  	
   

  
	
  Grants of Performance Awards

  	
   

  
	
  Establishment of Performance
  Objectives and Performance Standards

  	
   

  
	
  Special Ledger

  	
   

  
	
   

  	
   

  
	
  ARTICLE V –
  CALCULATION AND PAYMENT OF BENEFITS

  	
   

  
	
   

  	
   

  
	
  Determination of Amounts
  Payable Under Performance Awards

  	
   

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

  	
   

  
	
  Amount Payable Upon a Change
  of Control

  	
   

  
	
  No Interest on Performance Awards

  	
   

  
	
  Time of Payment

  	
   

  
	
  Form of Payment

  	
   

  
	
  Payment on Death of Grantee

  	
   

  
	
   

  	
   

  
	
  ARTICLE VI
  – VESTING AND FORFEITURES

  	
   

  
	
   

  	
   

  
	
  Determination of Vested Interest

  	
   

  
	
  Forfeiture Upon
  Separation From Service

  	
   

  
	
  Complete Forfeiture
  for Cause

  	
   

  
	
  Accelerated
  Vesting Upon Change of Control

  	
   

  
	
  Treatment
  of Forfeited Interest in Performance Award

  	
   

  
	
   

  	
   

  
	
  ARTICLE VII
  - ADMINISTRATION

  	
   

  
	
   

  	
   

  
	
  General

  	
   

  
	
  Powers of Committee

  	
   

  
	
  Committee Discretion

  	
   

  
	
  Disqualification of Committee
  Member

  	
   

  
	
   

  	
   

  
	
  ARTICLE VIII
  - AMENDMENT OR TERMINATION OF PLAN

  	
   

  
	
   

  	
   

  
	
  ARTICLE IX
  - FUNDING

  	
   

  
	
   

  	
   

  
	
  Payments Under the Plan
  Are the Obligation of Quanex

  	
   

  
	
  Grantees Must Rely Solely on the
  General Credit of Quanex

  	
   

  
	
  Unfunded Arrangement

  	
   

  

 

ii

 

	
  ARTICLE X -
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  No Employment Obligation

  	
   

  
	
  Tax Withholding

  	
   

  
	
  Indemnification of the
  Committee

  	
   

  
	
  Indemnification of the Board

  	
   

  
	
  Gender
  and Number

  	
   

  
	
  Headings

  	
   

  
	
  Other
  Compensation Plans

  	
   

  
	
  Rights
  of Quanex and Affiliates

  	
   

  
	
  Nonalienation
  of Benefits

  	
   

  
	
  Plan
  and Performance Award Agreements Binding on Quanex’s Successor

  	
   

  
	
  Governing
  Law

  	
   

  
	
   

  	
   

  
	
  EXHIBIT A - EXAMPLE

  	
   

  

 

iii

 

ARTICLE I

 

PLAN
PURPOSE AND TERM

 

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

 

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

 

ARTICLE II

 

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)                                  the
acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a “Covered Person”) of beneficial ownership
(within the meaning of rule 13d-3 promulgated under the Exchange Act) of
20 percent or more of either

 

1

 

(i) the then
outstanding shares of the common stock of Quanex (the “Outstanding Quanex
Common Stock”), or (ii) the combined voting power of the then outstanding
voting securities of Quanex entitled to vote generally in the election of
directors (the “Outstanding Quanex Voting Securities”); provided,
however, that for purposes of this subsection (a) of this
Section, the following acquisitions shall not constitute a Change of Control of
Quanex: (i) any acquisition directly from Quanex, (ii) any
acquisition by Quanex, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by Quanex or any entity controlled
by Quanex, or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section;

 

(b)                                 individuals
who, as of November 1, 2001, constitute the Board  (the “Incumbent Board”) cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to June 1,
1999, whose election, or nomination for election by Quanex=s stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Covered Person other than the Board;

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE III

 

ELIGIBILITY

 

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

 

ARTICLE IV

 

PERFORMANCE
AWARDS

 

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

 

4

 

absolute
discretion of the Committee.  The
Committee shall retain documentation relating to all Performance Awards and the
applicable Performance Objectives.

 

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

 

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

 

ARTICLE V

 

CALCULATION
AND PAYMENT OF BENEFITS

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

5.6                                 Form of Payment.  The payment under a Performance Award shall
be in the form of cash.

 

6

 

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

 

ARTICLE VI

 

VESTING
AND FORFEITURES

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

ARTICLE VII

 

ADMINISTRATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

7.3                                 Committee
Discretion.  The Committee in exercising any power or
authority granted under the Plan or in making any determination under the Plan
shall perform or refrain from performing those acts in its sole discretion and
judgment.  Any decision made by the
Committee or any refraining to act or any act taken by the Committee in good
faith shall be final and binding on all parties.  The Committee’s decisions shall never be
subject to de novo review, but instead shall only be overturned if found to be
arbitrary or capricious by an arbitrator or a court of law.

 

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

 

ARTICLE VIII

 

AMENDMENT
OR TERMINATION OF PLAN

 

The Board may terminate
the Plan at any time, in its sole and absolute discretion, provided that any
termination of the Plan prior to the expiration of the Performance Period shall
be deemed to be a Change of Control for all purposes under the Plan.  the Board or the Committee may amend the Plan
at any time and in any manner provided that no such amendment shall be
effective as to any Grantee who has not either been paid the entire amount due
him under his Performance Award or forfeited his entire interests in his
Performance Award pursuant to the terms of the Plan without the prior written
consent of such Grantee if such amendment materially and adversely affects the
rights of such Grantee.

 

ARTICLE IX

 

FUNDING

 

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

 

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

 

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

 

9

 

ARTICLE X

 

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

12

 

EXHIBIT A

 

Example
of Performance Compensation

Calculation Under the

Quanex Corporation Long-Term Incentive Plan

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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