Document:

Exhibit 10.6

 

FIRST AMENDMENT TO

THE PIPER IMPACT 401(K) PLAN

 

THIS AGREEMENT by
Quanex Corporation, a Delaware corporation, (the “Sponsor”),

 

WITNESSETH:

 

WHEREAS, on December
30, 2002, the Sponsor executed the amendment and restatement of the plan agreement
known as the “Piper Impact 401(k) Plan” (the “Plan”); and

 

WHEREAS, the Sponsor
retained the right in Section 10.31 of the Plan to amend the Plan from time to
time; and

 

WHEREAS, the Sponsor
desires to amend the Plan;

 

NOW, THEREFORE, the
Sponsor agrees that effective as of the date hereof Section 3.04 is amended and
restated in its entitety to provide as follows:

 

3.04         Matching
Contributions.  Each Employer
will make a Matching Contribution on behalf of each of its Employees who is a
Participant in an amount equal to 25 percent of the first six percent of
such Participant’s Considered Compensation for the Plan Year contributed to the
Plan pursuant to such Participant’s Salary Deferral Contributions and/or After-Tax
Contributions.

 

 

IN WITNESS WHEREOF,
the Sponsor has caused this Agreement to be executed this
                    
day of September, 2003.

 

	
   

  	
  QUANEX CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Title:Exhibit
10.7

 

 

QUANEX
CORPORATION

 

LONG-TERM
INCENTIVE PLAN

 

 

Amended and
Restated

Effective
December 1, 2003

 

 

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, Quanex
Corporation desires to amend and restate the Plan effective December 1,
2003;

 

NOW, THEREFORE,
Quanex adopts the Plan 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, 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.

 

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

 

6.5                                 Treatment of Forfeited Interest in Performance Award.  If a Grantee’s interest in a Performance
Award is fully or partially forfeited for any reason, his forfeited interest in
the Performance Award shall not be applied to increase the Long Term
Incentive Percentages of, or to otherwise increase the amounts payable under
the Plan for any remaining Grantee who has not incurred a Separation From
Service on or prior to the date of the forfeiture.

 

7

 

ARTICLE VII

 

ADMINISTRATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

IN WITNESS WHEREOF,
Quanex has caused this Amended and Restated Agreement to be executed by its
authorized officer on this
               
day of December, 2003, effective as of December 1, 2003.

 

 

	
   

  	
  QUANEX
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

 

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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