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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) December 9, 2004

QUANEX CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		   1-5725
(Commission
file number)		   38-1872178
(I.R.S. Employer Identification No.)

1900 West Loop South, Suite 1500, Houston, Texas 77027
(Address of principal executive offices)

Registrant's telephone number, including area code: 713-961-4600

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry Into a Material Definitive Agreement

        See Item 2.01 below.

Item 2.01. Completion of Acquisition or Disposition of Assets

        On December 9, 2004, Quanex Corporation (the "Company") completed the acquisition of all of the outstanding stock, through a subsidiary merger, of Mikron Industries, Inc. ("Mikron"), a privately-held Washington corporation. Mikron, an industry-leading manufacturer of engineered vinyl and thermoplastic alloy composite (MikronWood™) window components, window coverings and door components, serves the residential building and remodeling markets. Headquartered in the Seattle suburb of Kent, WA, Mikron operates modern and highly automated extrusion facilities located in the Kent area; Winnebago, IL; and Richmond, KY.

        Pursuant to the terms of the Merger Agreement dated effective as of December 9, 2004 (the "Merger Agreement"); the Company paid total cash consideration of approximately $205 million, which is subject to certain post-closing adjustments. The Merger Agreement is by and among the Company, QUANEX FOUR, INC., a Delaware corporation and wholly owned subsidiary of the Company, MIKRON INDUSTRIES, INC., a Washington corporation, and Jeffrey S. Sandwith, Susan Sandwith Crader, David A. Sandwith, Mark A. Sandwith, The W. Ronald Sandwith Special Purpose Revocable Trust pursuant to Indenture of Trust dated February 21, 2003, Jeffrey Sandwith, trustee, The Perpetual Asset Shield Trust FBO Jeffrey S. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Jeffrey S. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO Mark A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Mark A. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO David A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, David A. Sandwith, family trustee, and The Perpetual Asset Shield Trust FBO Susan Sandwith Crader pursuant to Indenture of Trust dated August 31, 2004, Susan Sandwith Crader, family trustee. The Merger Agreement is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.

        The Company financed the acquisition through cash on hand and borrowings from its $310 million revolving credit facility with Comerica Bank and a syndicate of other banks. Prior to the execution of the Merger Agreement, there was no material relationship between Mikron and the Company, any affiliate of the Company, or any director or officer of the Company, and to the knowledge of the Company, there was no material relationship between Mikron and any associate of any director or officer of the Company. A press release, dated December 9, 2004, announcing the acquisition is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

        Pursuant to the terms of the Merger Agreement, the Company issued Promissory Notes on December 9, 2004, of $139.9 million in aggregate. The Promissory Notes were due one day following their issuance. As of December 12, 2004, the entire amount of the Promissory Notes had been paid and as such there is no longer an obligation outstanding related to the Promissory Notes. The Promissory Notes are included as Exhibit C to the Merger Agreement filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits

        The Company will file financial statements of the business acquired for the periods specified in Rule 3-05(b) of Regulation S-X in an amendment to this report to be filed no later than February 24, 2005.

        The Company will furnish the pro forma financial information required pursuant to Article 11 of Regulation S-X in an amendment to this report to be filed no later than February 24, 2005.


    Exhibit 2.1   Merger Agreement dated effective as of December 9, 2004. Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments to this Merger Agreement have not been filed with this exhibit. The schedules contain various items relating to the representations and warranties made by the parties to the Merger Agreement. The Company agrees to furnish supplementally any omitted schedule or similar attachment to the SEC upon request.

 
 
Exhibit 99.1
 
Press release dated December 9, 2004.


SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

    Quanex Corporation

Date: December 13, 2004
 
By:
/s/  TERRY M. MURPHY      
Terry M. Murphy
Vice President—Finance and Chief Financial Officer
(Principal Financial Officer)


INDEX TO EXHIBITS

Exhibit
Number
   Description of Exhibits
2.1   Merger Agreement dated effective as of December 9, 2004. Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments to this Merger Agreement have not been filed with this exhibit. The schedules contain various items relating to the representations and warranties made by the parties to the Merger Agreement. The Company agrees to furnish supplementally any omitted schedule or similar attachment to the SEC upon request.

99.1
 
Press release dated December 9, 2004.



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SIGNATURES
INDEX TO EXHIBITS

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EXHIBIT 2.1

QUANEX CORPORATION

QUANEX FOUR, INC.

MIKRON INDUSTRIES, INC.

THE SHAREHOLDERS OF MIKRON INDUSTRIES, INC.

MERGER AGREEMENT

Dated as of December 9, 2004


TABLE OF CONTENTS

 
    
   Page
ARTICLE I THE MERGER   1
  1.1   The Merger   1
  1.2   Effects of the Merger   1
  1.3   Merger Consideration and Purchase Price   2
  1.4   Closing; Payment of Shareholder Notes; Distribution of Cash; Escrow Amount; Payment of Purchase Price Amount   2
  1.5   Execution and Filing of Merger Documents   4
  1.6   Working Capital Adjustment and Final Determination of Purchase Price.   4
  1.7   Section 338(h)(10) Election   7
  1.8   Termination of Shareholders Agreement   9
  1.9   Resignations   9
  1.10   Employee Payments   9
ARTICLE II REPRESENTATIONS AND WARRANTIES   10
  2.1   Representations and Warranties of the Company and the Shareholders   10
  2.2   Representations and Warranties of Buyer and Sub   37
ARTICLE III AGREEMENTS   39
  3.1   Transaction Expenses   39
  3.2   Additional Agreements   39
  3.3   Officers and Directors; Insurance   39
  3.4   Public Announcements   39
  3.5   Distribution of Transaction Related Attorney-Client Privileged Materials   40
  3.6   Access to Records   40
  3.7   Certain Taxes   40
  3.8   Post-Closing Benefits   40
  3.9   Tax Returns   40
  3.10   Accounts Receivable   41
  3.11   Noncompetition Agreements   41
  3.12   Lease Extensions   41
ARTICLE IV INDEMNIFICATION   41
  4.1   Indemnification Obligations of the Shareholders   41
  4.2   Indemnification Obligations of the Buyer   42
  4.3   Notice of Claims   42
  4.4   Defense of Third Party Claims   43
  4.5   Survival and Time Limitations   43
  4.6   Other Limitations   44
  4.7   Exclusive Remedy   46
  4.8   Shareholders Representative   46
  4.9   Tax Indemnification   47
ARTICLE V GENERAL PROVISIONS   47
  5.1   Entire Agreement   47
  5.2   Governing Law   47
  5.3   Mediation; Consent to Jurisdiction   48
  5.4   Notices   49
  5.5   Severability   49
  5.6   Assignment   50
  5.7   Counterparts   50
  5.8   Amendment   50
  5.9   Interpretation   50
  5.10   Confidentiality   50
  5.11   Beneficiaries   51
  5.12   Accounting Terms   51

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Schedule 1.3(b)   Employee Payments
Schedule 1.4(b)   Designated Note
Schedule 1.4(d)   Shareholder Notes
Schedule 1.6(a)   Estimated Working Capital
Schedule 2.1   Company Disclosure Schedule
Schedule 2.1.1(b)           Company Subsidiaries
Schedule 2.1.2           Company Shares
Schedule 2.1.4(a)           Licenses
Schedule 2.1.5           Company Financial Statements
Schedule 2.1.6           Material Adverse Change
Schedule 2.1.7(i)           Contracts
Schedule 2.1.8           Proceedings
Schedule 2.1.9           Employee Benefit Plans
Schedule 2.1.10           Certain Agreements
Schedule 2.1.11           Proceedings
Schedule 2.1.12           Permitted Liens
Schedule 2.1.13(a)           Owned Properties
Schedule 2.1.13(b)           Leased Properties
Schedule 2.1.15(a)           Registered Intellectual Property
Schedule 2.1.15(a)(i)           Licenses and Agreements
Schedule 2.1.15(b)           Deviating Company IP Contracts
Schedule 2.1.15(c)           Exceptions to IP Title
Schedule 2.1.15(d)(vii)           Maintenance of Company Intellectual Property
Schedule 2.1.15(f)           Intellectual Property Infringement
Schedule 2.1.15(g)           Intellectual Property Rights
Schedule 2.1.15(g)(iv)           Standard Form of Infringement Indemnity
Schedule 2.1.16           Insurance and Banking Facilities
Schedule 2.1.17           Major Contracts
Schedule 2.1.17(o)           IP Development Contracts
Schedule 2.1.19           Customers and Vendors
Schedule 2.1.21           Inventory
Schedule 2.1.33           Certain Information Provided by the Company
Schedule 3.9   Certain Distributed Items

Exhibits
Exhibit A   Merger Documents
Exhibit B   Escrow Agreement
Exhibit C   One-Day Notes
Exhibit D   Pledge Agreement
Exhibit E   Further Working Capital, Inventory, Counting and Valuation Procedures
Exhibit F   Noncompetition Agreements
Exhibit G   Lease Extensions

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INDEX OF DEFINED TERMS

 
   Page
338(h)(10) Agreement   7
Aboveground Storage Tank   25
Accounting Arbitrator   5
Aggregate Excess Allocation   8
Agreed Rate   6
Agreement   1
Applicable Laws   12
Assets   22
Audited Financial Statements   13
Business Employee   18
Buyer   1
Buyer Indemnified Parties   41
Buyer's Purchase Price Calculation   5
Cash   2
CERCLA   25
Charter Documents   11
Claim Notice   42
Close of Business   2
Closing   2
Closing Balance Sheet   4
Closing Date   2
Closing Schedule   4
Code   14
Common Stock   11
Company   1
Company Common Stock   17
Company ERISA Affiliate   20
Company Financial Statements   13
Company Intellectual Property   30
Company IP Contract   30
Company Required Statutory Approvals   13
Company Shares   11
Company Subsidiaries   10
Confidentiality Agreement   50
Consent   13
Contract   30
Control   35
Current Balance Sheet   13
Current Financial Statements   13
Date of Agreement   1
Debt   3
Designated Claim   41
Designated Holder   40
Designated Note   3
Designated Officer   47
Designated Subsidiary   10
Determination Materials   5
Effective Time   1
Employee Payments   2
     

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Enterprise Value   2
Environmental Laws   25
Environmental Licenses   25
ERISA   19
Escrow Agent   3
Escrow Agreement   3
Escrow Amount   3
Exchange Act   14
Final Purchase Price Calculation   5
Fixed Assets   22
GAAP   5
General Threshold Amount   44
Governmental Entity   13
Hazardous Substances   25
Income Taxes   16
Incremental Tax Cost   8
Intellectual Property   31
Intellectual Property Rights   31
IRS   19
Knowledge of the Company   10
Leased Properties   23
Liabilities   37
Licenses   13
Liens   21
Losses   41
Major Contracts   32
Material Adverse Effect on the Business Condition   11
Merger   1
Merger Documents   1
MikronWood   3
Noncompetition Agreements   41
Objection   5
One-Day Notes   3
Orders   13
Owned Properties   22
Parties   1
Payment Certificate   42
Per Share Conversion Payment   2
Permitted Liens   21
Person   15
Plan   19
Pre-Closing Tax Period   47
Proceeding   21
Pro Rata Share   4
Prudential Debt   3
Purchase Price   2
Purchase Price Allocation   8
Reconciliation Deadline   5
Registered IP   31
Related Party   35
Reserved Common Stock   11
     

iv

Return Periods   15
Section 338(h)(10) Agreement   7
Section 338(h)(10) Election   7
Series A Common Stock   11
Series B Common Stock   11
Series C Common Stock   11
Shareholder Notes   3
Shareholders   1
Shareholders Representative   46
Shareholders Representative's Purchase Price Calculation   4
Straddle Period   47
Special Indemnity Claim   42
Special Threshold Amount   44
Sub   1
Surviving Corporation   1
Target Working Capital   2
Tax   16
Tax Returns   16
Tax Sharing Agreements   8
Taxes   16
Transactional Expenses   3
WBCA   1
Working Capital   4
Written Demand   47

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MERGER AGREEMENT

        THIS MERGER AGREEMENT (this "Agreement") is made effective as of December 9, 2004 ("Date of Agreement"), by and among QUANEX CORPORATION, a Delaware corporation ("Buyer"), QUANEX FOUR, INC., a Delaware corporation and wholly owned subsidiary of Buyer ("Sub"), MIKRON INDUSTRIES, INC., a Washington corporation (the "Company"), and Jeffrey S. Sandwith, Susan Sandwith Crader, David A. Sandwith, Mark A. Sandwith, The W. Ronald Sandwith Special Purpose Revocable Trust pursuant to Indenture of Trust dated February 21, 2003, Jeffrey Sandwith, trustee, The Perpetual Asset Shield Trust FBO Jeffrey S. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Jeffrey S. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO Mark A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Mark A. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO David A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, David A. Sandwith, family trustee, and The Perpetual Asset Shield Trust FBO Susan Sandwith Crader pursuant to Indenture of Trust dated August 31, 2004, Susan Sandwith Crader, family trustee (collectively, the "Shareholders"). Buyer, Sub, and Shareholders are sometimes referred to collectively herein as the "Parties."

        INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, Buyer, Sub, the Company and the Shareholders hereby agree as follows:


ARTICLE I

THE MERGER

        1.1    The Merger.    Concurrently with the execution and delivery of this Agreement, Sub is being merged with and into the Company. Articles of Merger, the related Plan of Merger, and any other required documents (collectively, the "Merger Documents"), substantially in the form attached as Exhibit A, have been duly prepared, executed, and acknowledged by the Company and Sub, and delivered to the Secretary of State of Washington and the Secretary of State of the State of Delaware, as applicable, for filing, as provided in the Washington Business Corporation Act (the "WBCA") and the Delaware General Corporation Law. The merger effected by the Merger Documents ("the "Merger") shall become effective at such time as the Merger Documents have been filed with the Secretary of State of Washington and the Secretary of State of the State of Delaware or at such time thereafter as is provided in the Merger Documents (the "Effective Time").

        1.2    Effects of the Merger.    At the Effective Time: (i) Sub shall be merged with and into the Company (the Company as survivor after the Merger is sometimes referred to herein as the "Surviving Corporation"), (ii) the Articles of Incorporation of the Company, with such changes as provided for in the Merger Documents, shall be the Articles of Incorporation of the Surviving Corporation until duly amended, (iii) the Bylaws of Sub shall be the Bylaws of the Company until duly amended, (iv) the directors of Sub shall be the directors of the Surviving Corporation, (v) the officers of Sub shall be the officers of the Surviving Corporation, (vi) each issued Company Share (as defined at Section 2.1.2) outstanding immediately prior to the Effective Time shall be converted into the right to receive the consideration provided for at Section 1.3, shall cease to represent capital stock of the Company, and shall be cancelled, extinguished and retired, (vii) each issued share of common stock of Sub outstanding immediately prior to the Effective Time shall be converted into a share of Common Stock (as defined at Section 2.1.2) of the Company and all of the issued and outstanding capital stock of Sub shall become all of the issued and outstanding capital stock of the Surviving Corporation, and (viii) the Merger shall, from and after the Effective Time, have all the effects provided by applicable law.

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        1.3    Merger Consideration and Purchase Price.    

        1.4    Closing; Payment of Shareholder Notes; Distribution of Cash; Escrow Amount; Payment of Purchase Price Amount.    

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        1.5    Execution and Filing of Merger Documents.    The Company and Sub have executed and delivered original signatures to the Merger Documents for filing with the Washington Secretary of State and the Delaware Secretary of State, as applicable. The Buyer, Sub and the Company acknowledge and agree, notwithstanding anything to the contrary contained in this Agreement or the Merger Documents, that: (i) the Merger Documents are ancillary documents filed solely to effect this merger transaction pursuant to the requirements of the Washington Business Corporation Act and the Delaware General Corporation Law; (ii) as to any inconsistency or disagreement between the Merger Documents, on the one hand, and this Agreement, on the other hand, this Agreement shall govern; and (iii) the representations, covenants, obligations, indemnities and other agreements of the parties contained in this Agreement, including the agreements contained herein relating to adjustments to the Purchase Price and the payments and obligations undertaken by the Buyer pursuant to this Article I, are (subject to the limitations contained in this Agreement, including without limitation Sections 4.5 and 4.6) in addition to, cumulative with, and survive the execution, delivery and filing with the Washington Secretary of State and the Delaware Secretary of State, as applicable, of the Merger Documents.

        1.6    Working Capital Adjustment and Final Determination of Purchase Price.    

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        1.7    Section 338(h)(10) Election.    

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        1.8    Termination of Shareholders Agreement.    The Shareholders Agreement dated December 22, 1994, as amended, is terminated effective as of the Effective Time.

        1.9    Resignations.    Concurrently with the execution and delivery of this Agreement, each officer and director (or manager, in the case of limited liability companies) of the Company and each Company Subsidiary is tendering her or his written resignation in such capacity, and the Company is delivering those resignations to the Buyer, which such resignations shall be effective as of the Effective Time.

        1.10    Employee Payments.    All Employee Payments, other than those to be made more than three (3) months after Closing, shall be deemed to have been paid immediately prior to Closing for all relevant Tax purposes. The full aggregate amount of Employee Payments, including all amounts to be withheld for Taxes but excluding the employer's portion of the Medicare tax payment (1.45%), shall be deducted in determining the Purchase Price; provided, however, that if any Employee Payments are paid on or prior to the Closing Date, resulting in either the reduction of Cash or an increase of Debt as of the Close of Business, then such amounts of Employee Payments shall not be deducted in determining the Purchase Price. In the event any of the Employee Payments are ultimately not made or are returned to the Company (which, for these purposes, shall include payments returned by Paul Warner in respect of the buy-out of his post-termination medical benefits), then within thirty (30) days of a determination that such payment is not to be made or of the return of payment, the Buyer shall pay to each Shareholder, as an additional installment of the Purchase Price, such Shareholder's Pro Rata Share of the amount in question. If the Company is entitled to a return of such a payment, it shall use commercially reasonable efforts to obtain a repayment of such amount.

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ARTICLE II

REPRESENTATIONS AND WARRANTIES

        2.1    Representations and Warranties of the Company and the Shareholders.    Except as disclosed in the Company Disclosure Schedule attached hereto as Schedule 2.1, the Company and each of the Shareholders represents and warrants to Buyer and Sub as follows to this Section 2.1. For purposes of this Agreement, the "Knowledge of the Company" and terminology to similar effect shall mean the actual knowledge, after reasonable inquiry and investigation, of the following individuals: Jeff Sandwith, Paul Warner, David Sandwith, Mark Sandwith, Gary Crane, Chuck Cannon, and Richard Morgan.

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        For purposes of this Agreement:

        Company Intellectual Property. "Company Intellectual Property" shall mean all Intellectual Property Rights and Intellectual Property in which Company or any Company Subsidiary has (or purports to have) an ownership interest or an exclusive license or similar exclusive rights.

        Company IP Contract. "Company IP Contract" shall mean any Contract to which the Company or any Company Subsidiary is or was a party or by which the Company or any Company Subsidiary is or was bound, that contains any assignment or license of, or any covenant not to assert or enforce, any Intellectual Property Right or that otherwise relates to any Company Intellectual Property or any Intellectual Property Rights.

        Contract. "Contract" shall mean any written, oral or other agreement, contract, subcontract or lease, understanding, instrument, note, warranty, insurance policy, or legally binding commitment or undertaking if any nature.

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        Intellectual Property. "Intellectual Property" shall mean algorithms, apparatus, designs and assemblies, databases, data collections, diagrams, formulae, inventions (whether or not patentable), know-how, logos, marks (including brand names, product names, logos, and slogans), methods, network configurations and architectures, processes, proprietary information, protocols, schematics, specifications, software, software code (in any form, including source code and executable or object code), subroutines, techniques, user interfaces, URLs, web sites, works of authorship and other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing, such as instruction manuals, laboratory notebooks, prototypes, samples, studies and summaries).

        Intellectual Property Rights. "Intellectual Property Rights" shall mean all past, present, and future rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights and mask works; (b) trademark and trade name rights and similar rights; (c) trade secret rights; (d) patent and industrial property rights; (e) other proprietary rights in Intellectual Property; and (f) rights in or relating to registrations, renewals, extensions, combinations, divisions, and reissues of, and applications for, any of the rights referred to in clauses "(a)" through "(e)" above.

        Registered IP. "Registered IP" shall mean all Intellectual Property Rights that are registered, filed, or issued under the authority of, with or by any governmental body, including all patents, registered copyrights, registered mask works and registered trademarks and all applications for any of the foregoing.

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All contracts, plans, agreements, leases, and other commitments listed on Schedule 2.1.17 of the Company Disclosure Schedule are valid and in full force and effect and is enforceable in accordance with its terms and neither the Company nor any Company Subsidiary nor, to the Knowledge of the Company, has any other party thereto, breached any material provisions of, or is in default in any material respect under the terms thereof. To the Knowledge of the Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, (i) result in a material violation or material breach of any of the provisions of any Major Contract, or (ii) other than for ordinary course volume discounts or resales, give any Person the right to receive or require a rebate, chargeback or penalty under any Major Contract. To the Knowledge of the Company, no event has occurred and no circumstance or condition exists, that (with or without notice or lapse of time) could be reasonably expected to result in (i) any Person declaring a default or exercising any remedy under any Major Contract, (ii) any Person accelerating the maturity or performance of any Major Contract, or (iii) any Person cancelling, terminating prior to expiration, or modifying (other than ordinary price adjustments) in any material respect any Major Contract. Since January 1, 2002, neither the Company nor any Company Subsidiary has received any notice or other communication regarding any actual or alleged violation or breach of, or default under, any Major Contract. No Person is renegotiating, or has a right pursuant to the terms of any Major Contract to renegotiate, any amount paid or payable to the Company or any Company Subsidiary under any Major Contract or any other material term or provision of any Major Contract. The Company has delivered or made available to Buyer an accurate and complete copy of each Major Contract.

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        2.2    Representations and Warranties of Buyer and Sub.    Buyer and Sub represent and warrant to the Company and the Shareholders as follows:

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ARTICLE III

AGREEMENTS

        Each of Buyer, Sub, the Company and the Shareholders each agree to take the following actions after the execution of this Agreement.

        3.1    Transaction Expenses.    Except as otherwise contemplated by or expressly provided for in this Agreement, all costs and expenses incurred in connection with this Agreement and the consummation of the Merger shall be paid by the party incurring such costs and expenses. In accordance with the provisions of Article I, the parties acknowledge that Transaction Expenses have been taken into account in determining the Purchase Price.

        3.2    Additional Agreements.    In case at any time after the Effective Time any further action is reasonably necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of the Company, the Shareholders and the proper officers and directors of Buyer, Sub and the Company shall take all such necessary action.

        3.3    Officers and Directors; Insurance.    Buyer agrees that all rights to indemnification (including advancement of expenses) existing on the date hereof in favor of the present or former officers and directors of the Company with respect to actions taken in their capacities as directors or officers of the Company prior to the Closing Date as provided in the Company's Articles of Incorporation or Bylaws shall survive the consummation of the Merger and continue in full force and effect for a period of six (6) years following the Closing Date notwithstanding any amendment thereto after the Effective Time. Each of the Company, the Buyer and each Shareholder agrees not to terminate any of the Specified Insurance Policies. Buyer acknowledges that the Shareholders may seek representation and warranty insurance for their own protection and at their own cost. Buyer and the Company shall provide reasonable cooperation to the Shareholders in their efforts to procure such insurance; the Shareholders acknowledge that the existence or failure to obtain such insurance shall have no effect on their obligations under this Agreement.

        3.4    Public Announcements.    None of the Buyer, the Sub, the Company or the Shareholders shall disseminate any press release or other announcement, or make other public disclosure, concerning this Agreement or the transactions described herein to any third party (except to the directors, officers and employees of the parties to this Agreement whose direct involvement is necessary for the consummation of the transactions contemplated under this Agreement, and to the attorneys, accountants, financial advisors and other consultants of the parties hereto), without the prior written consent of each of the other parties hereto. The Buyer and Surviving Corporation agree that they shall not issue such a press release or other announcement or make such public disclosure without the prior written consent of the Shareholders Representative. The foregoing shall not prohibit a party from issuing a press release or other announcement, or making public disclosure if required by statute, laws or regulations, or by the rules of a stock exchange, provided that (i) the party issuing or making such release, announcement or public disclosure has been advised by legal counsel that such disclosure is in fact required, (ii) the Shareholders Representative is advised as soon as possible of such required press release, announcement or public disclosure, and (iii) the party making the required press release, announcement, or public disclosure provides to the Shareholders Representative a pre-release copy of the proposed release, announcement, or public disclosure, provides him a reasonable period of time to comment on the same, and makes any changes reasonably requested by the Shareholders Representative.

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        3.5    Distribution of Transaction Related Attorney-Client Privileged Materials.    Buyer acknowledges that the Company has, prior to Closing, distributed out to the Shareholders all memoranda, letters, documents, and other materials pursuant to which the Company was provided legal, tax, or accounting advice with respect to (i) the transactions contemplated by this Agreement, and (ii) the restructuring of the Company in connection with the services provided by the initial holder of the Designated Note, as identified on Schedule 1.4(b) (the "Designated Holder"), and planning for the foregoing, and all rights the Company may have to assert the attorney-client or tax adviser-client privilege in respect thereof or treatment of the same as attorney-client work product. Each Shareholder agrees that he, she or it will provide Buyer with copies of any such memoranda, letters, documents and other materials if Buyer reasonably requests any such materials to defend the Surviving Corporation or any Company Subsidiary in any Proceeding. Buyer and Company agree not to knowingly assert, in any manner or venue, a position contrary to the position that such memoranda, letters, documents, and other materials are covered by the attorney-client or tax-adviser privilege afforded to the Shareholders, that they constitute attorney-client work product or a position that the Shareholders are not entitled to claim attorney-client or tax-adviser privilege with respect thereto.

        3.6    Access to Records.    For a period of six (6) years from and after Closing, Buyer and the Company agree to provide to the Shareholders reasonable access, during normal business hours, to records of the Company, and to allow the Shareholders to make (at the expense of the Shareholders) copies of such records, in each case, to the extent reasonably necessary for tax reporting, the preparation of Tax Returns, and the defense of claims of any type made against any of the Shareholders. The Company shall retain all Company records within the scope of the foregoing access rights in accordance with the Company's record retention privileges applicable generally to all of its records.

        3.7    Certain Taxes.    Any applicable transfer, documentary, sales, use, value added, stamp, registration and other similar Taxes and fees (including any penalties and interest) which may be levied in connection with the transactions covered hereby, regardless of whether the same are separately stated by the Company, and regardless of whether assessed against the Company, the Shareholders, Buyer or Sub, shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by the Shareholders. For the avoidance of doubt, this Section 3.7 is not intended to cover Taxes based on income or gross receipts, such as a Tax on net income taxes incurred by the Shareholders as a result of the transactions contemplated by this Agreement, which shall remain the responsibility of the Shareholders.

        3.8    Post-Closing Benefits.    The Company and the Buyer shall provide to the relevant Shareholders the benefits contemplated by Schedule 3.8.

        3.9    Tax Returns.    Buyer, the Shareholders, the Company and the Company Subsidiaries shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Shareholders agree (i) to retain all books and records with respect to Tax matters pertinent to the Company or any Company Subsidiary relating to any Pre-Closing Tax Period that are in their possession, and to abide by all record retention agreements entered into with any taxing authority; and (ii) to give Buyer reasonable written notice prior to destroying or discarding of any such books and records. Buyer and the Shareholders agree, upon request, to use all reasonable efforts to obtain any certificate or other document from any taxing authority or customer of the Company or any Company Subsidiary, or any other person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). The Shareholders Representative shall prepare and file all income Tax Returns of the Company relating to the Pre-Closing Tax Period and Buyer shall prepare and file all such income Tax

40


Returns relating to periods ending after the Closing Date. For purposes of the preparation of Tax Returns by the Shareholders Representative pursuant to the prior sentence, the Company shall provide to the Shareholders Representative reasonable access to relevant Company personnel. The Company and the Shareholders shall prepare all Company Tax Returns filed by them after the Closing Date in a manner consistent with the Company Tax Returns filed prior to such date, and the Shareholders shall provide any such Company Tax Returns to Buyer no later than five (5) days prior to the due date for such Company Tax Return, shall permit Buyer to review and comment on each such Company Tax Return prior to filing and shall make such revisions to such Company Tax Return as are reasonably requested by Buyer to the extent necessary to make such Company Tax Return consistent with the Company Tax Returns filed in Pre-Closing Tax Periods.

        3.10    Accounts Receivable.    In the event that, within one hundred eighty (180) days following the Closing Date, the Company makes collection on the accounts receivable set forth on the Closing Balance Sheet in excess of the amount reserved therefor, the General Threshold Amount shall be increased in an amount equal to such excess.

        3.11    Noncompetition Agreements.    In connection with the transactions contemplated by this Agreement, each of Jeffrey S. Sandwith, Mark Sandwith, David Sandwith and Susan Sandwith Crader are concurrently entering a noncompetition agreement with the Company to be binding for a period of three (3) years following the Closing Date. The noncompetition covenants contemplated by this Section 3.11 are in the form of Exhibit F attached hereto (the "Noncompetition Agreements").

        3.12    Lease Extensions.    The Shareholders shall cause the landlords owning the Leased Properties described in Schedules 2.1.13(b)(i) through (iii) to enter into, simultaneously with execution of this Agreement, lease extensions with the Company in the form of Exhibit G attached hereto.


ARTICLE IV

INDEMNIFICATION

        4.1    Indemnification Obligations of the Shareholders.    Subject to the other provisions of this Article IV, from and after Closing, the Shareholders shall defend, indemnify, and hold the Buyer, the Surviving Corporation and their directors, officers, employees and agents harmless from and against, and shall reimburse the Buyer, the Surviving Corporation, and their directors, officers, employees and agents as applicable (collectively, the "Buyer Indemnified Parties"), with respect to any and all of any and all liabilities, obligations, losses (for avoidance of doubt, including Tax losses), damages (other than consequential or punitive damages), claims, costs and expenses (including reasonable attorneys fees and expenses), awards and judgments ("Losses") incurred by any of them by reason of or arising out of or in connection with any of the following:

41

provided, however, that any Losses incurred in connection with the matters described in Section 4.1(c), 4.1(e) and 4.1(f) shall include consequential and punitive damages.

        4.2    Indemnification Obligations of the Buyer.    Subject to the other provisions of this Article IV, from and after Closing, the Buyer agrees to defend, indemnify, and hold the Shareholders and their trustees and agents harmless from and against, and to reimburse the Shareholders and their trustees and agents with respect to, any and all Losses incurred by any of them by reason of or arising out of or in connection with:

        4.3    Notice of Claims.    All claims for indemnification under this Agreement shall be the subject of the following claim and notice procedures:

42

        4.4    Defense of Third Party Claims.    

        4.5    Survival and Time Limitations.    The representations and warranties made by the Parties shall survive Closing for a period of three (3) years, provided that the representations and warranties made by the Shareholders in the first sentence of Section 2.1.1 ("Organization and Standing"), Section 2.1.2 ("Capital Structure"), Section 2.1.3 ("Authority"), Section 2.1.26 ("Authority, Validity and Effect"), and Section 2.1.27 ("Title to Shares") shall survive Closing until the expiration of the applicable statute of limitations, including extensions. Any and all claims or demands made under Sections 4.1 or 4.2, regarding breaches of representations and warranties, must be asserted in a Claim Notice delivered to the indemnifying party during the foregoing relevant survival period and may not be made or asserted after such time; provided, however, that the obligation of a party for indemnification claims for which a Claim Notice is given within the time period set forth above shall continue until the final resolution of each such claim.

43

        4.6    Other Limitations.    

44

45

        4.7    Exclusive Remedy.    The sole remedy of the Buyer Indemnified Parties, and each of them, and the Shareholders, and each of them, for monetary damages arising from breaches of this Agreement shall be claims made in accordance with and subject to the limitations and procedures of this Article IV and Section 5.3. Pursuant to the foregoing, but without limitation of the foregoing, all claims, whether stated in contract, tort or otherwise, with respect to matters the subject of potential indemnification pursuant to this Article IV shall be subject to the thresholds, limitations on recourse and remedies, procedures and other provisions of this Article IV, provided that nothing in the foregoing is intended to limit Buyer's recourse or remedies for actual fraud or the Shareholders' enforcement of the One-Day Notes.

        4.8    Shareholders Representative.    As used herein, the term "Shareholders Representative" shall mean Jeffrey S. Sandwith, or, if Jeffrey S. Sandwith dies, resigns, or for any reason refuses or is unable to act, the substitute (which shall be a natural person) specified in a written notice of substitution signed by at least two of the three following persons: Susan Sandwith Crader, David A. Sandwith and Mark A. Sandwith. By signing this Agreement and approving the Merger, the Shareholders have irrevocably made, constituted and appointed the Shareholders Representative as their true and lawful attorney-in-fact with full power of substitution (a) to do any and all things and execute any and all documents which may be necessary, convenient or appropriate to facilitate the consummation of the transactions contemplated by this Agreement, (b) to undertake the duties ascribed to the Shareholders Representative under this Agreement and (c) to execute any amendments to this Agreement for any reason deemed appropriate by the Shareholders Representative, in his sole discretion. The Surviving Company and the Buyer shall be entitled to rely conclusively upon action or inaction by the Shareholders Representative as being fully authorized and approved by and binding upon all of the Shareholders notwithstanding any assertion by any Shareholder to the contrary, it being the purpose and intent of this Section 4.8 that Buyer and the Company shall be entitled to treat the Shareholders Representative as if such person were the sole selling Shareholder of all Company Shares. By approving of this Agreement and the Merger, the Shareholders have acknowledged and agreed that the Shareholders Representative shall have no liability to any Shareholder with respect to actions or omissions in his capacity as Shareholders Representative, except to the extent that such actions or omissions are in bad faith or constitute gross negligence.

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        4.9    Tax Indemnification.    


ARTICLE V

GENERAL PROVISIONS

        5.1    Entire Agreement.    This Agreement, including the exhibits and schedules delivered pursuant to this Agreement, and the Confidentiality Agreement contain all of the terms and conditions agreed upon by the parties relating to the subject matter of this Agreement and the Confidentiality Agreement and supersede all prior agreements, negotiations, correspondence, undertakings, and communications of the parties, whether oral or written, respecting the subject matter hereof and thereof.

        5.2    Governing Law.    All aspects of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware as applied to agreements entered into and entirely to be performed within that state.

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        5.3    Mediation; Consent to Jurisdiction.    

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        5.4    Notices.    All notices, requests, demands or other communications which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date of delivery if personally delivered by hand, (ii) upon the third day after such notice is (a) deposited in the United States mail, if mailed by registered or certified mail, postage prepaid, return receipt requested, or (b) sent by a nationally recognized overnight express courier, or (iii) by facsimile upon written confirmation (other than the automatic confirmation that is received from the recipient's facsimile machine) of receipt by the recipient of such notice:


(a)
 
if to Buyer or the Surviving Corporation to:
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027-3267
Attention: Mr. Terry Murphy
Phone: 713-877-5307
Fax: 713-877-5333

                    with a copy to:
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027-3267
Attention: Mr. Kevin Delaney
Phone: 713-877-5349
Fax: 713-626-7549

                    with a copy to:
 
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Attention: Harva R. Dockery
Phone: 713-651-5196
Fax: 713-651-5246

(b)
 
if to any Shareholder or to the Shareholders Representative, to:
 
Jeffrey S. Sandwith
205 Betsy Lane
Richmond, KY 40475
Phone: (859) 625-1847
Fax: (859) 626-8843

                    with a copy to:
 
Preston—Gates—Ellis LLP
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-1158
Attention: Stephan H. Coonrod and Kevin Gruben
Phone: (206) 623-7580
Fax: (206) 623-7022

        Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section 5.4.

        5.5    Severability.    If any provision of this Agreement is held to be unenforceable for any reason, it shall be modified rather than voided, if possible, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent.

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        5.6    Assignment.    No party to this Agreement may assign, by operation of law or otherwise, all or any portion of its rights, obligations, or liabilities under this Agreement without the prior written consent of the other party to this Agreement, which consent may be withheld in the absolute discretion of the party asked to grant such consent, provided that nothing herein is intended to prevent the Shareholders from assigning any rights they have in respect of the Escrow Amount, the Escrow Agreement, the One-Day Note, or other payments to be made in respect of the Purchase Price after the Closing. Any attempted assignment in violation of this Section 5.5 shall be voidable and shall entitle the other party to this Agreement to terminate this Agreement at its option.

        5.7    Counterparts.    This Agreement may be executed in two or more partially or fully executed counterparts each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute but one and the same instrument. The execution and delivery of a "Signature Page—Merger Agreement" in the form annexed to this Agreement by any party hereto who shall have been furnished the final form of this Agreement shall constitute the execution and delivery of this Agreement by such party.

        5.8    Amendment.    This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Buyer and the Shareholders Representative. No signature of any Shareholder (other than the Shareholders Representative) shall be required to effect any amendment to this Agreement.

        5.9    Interpretation.    Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, to the singular include the plural and to the part include the whole. The words "hereof," "herein," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole, including exhibits and schedules hereto, and not to any particular provision of this Agreement. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit or Schedule to this Agreement unless otherwise indicated. The words "include," "includes," and "including" when used herein shall be deemed in each case to be followed by the words "without limitation," and the term "or" has the inclusive meaning represented by the term "and/or." The table of contents, index to defined terms, and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

        5.10    Confidentiality.    The Confidentiality and Non-Solicitation Agreement of June 22, 2004 (the "Confidentiality Agreement") between the Company and Buyer shall be terminated effective as of the Effective Time. From and after the Effective Time, each party agrees to keep confidential and not to disclose any of the terms and conditions of this Agreement; provided that (i) this obligation shall not apply to information in the public domain through no fault of the disclosing party, and (ii) a party shall be entitled to disclose this Agreement and its terms and conditions, to its accountants, attorneys, investment bankers and other appropriate advisors, and prospective transferees of rights hereunder, so long as such persons are directed to comply with the requirements of this Section 5.10. Notwithstanding the preceding sentence, nothing herein shall prohibit a party from (i) issuing a press release or other announcement, or making public disclosure if required by statute, laws or regulations, or by the rules of a stock exchange, provided that (x) the party issuing or making such release, announcement or public disclosure has been advised by legal counsel that such disclosure is in fact required or advisable, (y) the Shareholders Representative is advised as soon as possible of such required press release, announcement or public disclosure, and (z) the party making the required or advised press release, announcement, or public disclosure provides to the Shareholders Representative a pre-release copy of

50


the proposed release, announcement, or public disclosure, provides him a reasonable period of time to comment on the same, and makes any changes reasonably requested by the Shareholders Representative or (ii) divulging such information in connection with any legal proceeding initiated by a third party or Governmental Entity against such party or in compliance with applicable requirements of law, provided that such party shall provide the non-disclosing party with prompt written notice prior to such disclosure so that the non-disclosing party may seek a protective order or other appropriate remedy or waive compliance with the terms of this Section 5.10. If such a protective order or other remedy is not obtained, or if the non-disclosing party waives compliance with the provisions hereof, the disclosing party agrees to disclose only that portion of the confidential information which the disclosing party is advised by the written opinion of outside counsel that is legally required to be disclosed.

        5.11    Beneficiaries.    Except as provided in Article IV, this Agreement is not intended to benefit any person who is not a party to this Agreement.

        5.12    Accounting Terms.    For purposes of this Agreement, all accounting terms not otherwise defined herein have the meanings assigned to them in conformity with GAAP.

(the remainder of this page has been intentionally left blank)

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SIGNATURE PAGE—
MERGER AGREEMENT

        IN WITNESS WHEREOF, Buyer, Sub, the Company and the Shareholders have executed this Agreement as of the date first written above.


QUANEX CORPORATION
 
SHAREHOLDERS

By
 

 
 

Its
 

 
 


 

 

Susan R. Sandwith Crader


 

 

David A. Sandwith


 

 

Jeffrey S. Sandwith


 

 

Mark S. Sandwith


 

 

THE W. RONALD SANDWITH SPECIAL PURPOSE REVOCABLE TRUST PURSUANT TO THE INDENTURE OF TRUST DATED FEBRUARY 21, 2003


 

 

Jeffrey S. Sandwith, Trustee


 

 

THE PERPETUAL ASSET SHIELD TRUST FBO JEFFREY S. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004


 

 

Jeffrey S. Sandwith, Family Trustee
     

52



 QUANEX FOUR

 

THE PERPETUAL ASSET SHIELD TRUST FBO MARK A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004

By
 

 
 

Its
 

 
 


 

 

Mark A. Sandwith, Family Trustee


 

 

THE PERPETUAL ASSET SHIELD TRUST FBO DAVID A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004


 

 

David A. Sandwith, Family Trustee


 

 

THE PERPETUAL ASSET SHIELD TRUST FBO SUSAN SANDWITH CRADER PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004


 

 

Susan Sandwith Crader, Family Trustee


 

 

For the sole purpose of acknowledging status as Shareholders Representative under this Agreement:


 

 

SHAREHOLDERS REPRESENTATIVE


 

 

JEFF SANDWITH


 

 

MIKRON INDUSTRIES, INC.

 
 
By
 

 
 

 
 
Its
 

 
 

53


Exhibit A1


ARTICLES OF MERGER OF

MIKRON INDUSTRIES, INC.
a Washington corporation,


AND


QUANEX FOUR, INC.
a Delaware corporation

        Pursuant to RCW 23B.11.070 and 23B.11.050, the following Articles of Merger are executed for the purpose of merging Quanex Four, Inc., a Delaware corporation (the "Merging Corporation"), with and into Mikron Industries, Inc., a Washington corporation (the "Surviving Corporation").

        1.     The Agreement and Plan of Merger adopted by the Board of Directors of each of the Surviving Corporation and the Merging Corporation is as set forth on the attached Exhibit A.

        2.     The names of the corporations planning to merge are Quanex Four, Inc., a Delaware corporation, and Mikron Industries, Inc., a Washington corporation. The name of the Surviving Corporation is Mikron Industries, Inc.

        3.     Pursuant to RCW 23B.11.010(1), the merger was duly approved by the board of directors and the shareholder of Merging Corporation as required by RCW 23B.11.030 and the requirements of the Delaware General Corporation Law.

        4.     Pursuant to RCW 23B.11.010(1), the merger was duly approved by the board of directors and the shareholders of the Surviving Corporation as required by RCW 23B.11.030.

    MIKRON INDUSTRIES, INC.,
a Washington corporation

 
 
By: Jeffrey S. Sandwith
Its: Chairman
December    , 2004    


EXHIBIT A
AGREEMENT AND PLAN OF MERGER

        THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into as of the 9th day of December, 2004, in accordance with Section 252 of the General Corporation Law of the State of Delaware, as amended, and RCW 23B.11.070, by and between Mikron Industries, Inc., a Washington corporation ("Surviving Corporation"), and Quanex Four, Inc., a Delaware corporation ("Merging Corporation"). Surviving Corporation and Merging Corporation are sometimes collectively referred to hereinafter as the "Constituent Corporations."


RECITALS

        A. The respective boards of directors and shareholders of Merging Corporation and Surviving Corporation have determined it in the best interest of each respective Constituent Corporation to merge (the "Merger") Merging Corporation with and into Surviving Corporation.

        B. The Constituent Corporations desire the Merger to be effected pursuant to the terms and conditions of this Merger Agreement.


AGREEMENT

        NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows:

        1.    General.    

        2.    Conversion of Securities on Merger.    

        3.    Service of Process.    

        4.    Miscellaneous.    

(the remainder of this page intentionally left blank)

        IN WITNESS WHEREOF, the Constituent Corporations have executed this Merger Agreement as of the date and year first above written.

    MERGING CORPORATION:

 
 
QUANEX FOUR, INC.,
a Delaware corporation

 
 
By
 
    

 
 
 
 
Its
 
    

 
 
SURVIVING CORPORATION:

 
 
MIKRON INDUSTRIES, INC.,
a Washington corporation

 
 
By
 
    

 
 
 
 
Its
 
    


Exhibit A

AMENDMENTS
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
MIKRON INDUSTRIES, INC.

        The Amended and Restated Articles of Incorporation (the "Articles of Incorporation") of Mikron Industries, Inc. (the "Corporation"), are amended as follows:

        Articles I through X of the Articles of Incorporation are hereby deleted in their entirety, and replaced with the following:


ARTICLE I
NAME

        The name of this corporation is Mikron Industries, Inc.


ARTICLE II
DURATION

        This corporation has perpetual existence.


ARTICLE III
PURPOSE

        This corporation is organized for the purpose of transacting any and all lawful business for which a corporation may be incorporated under Title 23B of the Revised Code of Washington, as amended (the "Washington Business Corporation Act").


ARTICLE IV
REGISTERED OFFICE AND AGENT

        The address of the registered office of the corporation is 925 Fourth Avenue, Suite 2900, Seattle, Washington 98104-1158, and the name of the registered agent at such address is PTSGE Corp.


ARTICLE V
CAPITAL STOCK

        The authorized capital stock of this corporation shall consist of 10,000 shares of common stock, par value $.01 per share.


ARTICLE VI
PREEMPTIVE RIGHTS

        Shareholders of this corporation shall not have preemptive rights to acquire additional shares of stock or securities convertible into shares of stock issued by the corporation.


ARTICLE VII
DIRECTORS

        The number of directors of this corporation shall be fixed by the Bylaws and may be increased or decreased from time to time in the manner specified there.


ARTICLE VIII
CUMULATIVE VOTING

        Shareholders of this corporation shall not have the right to cumulate votes in the election of directors.



ARTICLE IX
LIMITATION OF DIRECTOR LIABILITY

        A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for conduct as a director, except for:

        If the Washington Business Corporation Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Washington Business Corporation Act, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification.


ARTICLE X
INDEMNIFICATION OF DIRECTORS

        10.1 The corporation shall indemnify its directors to the full extent permitted by the Washington Business Corporation Act now or hereafter in force. However, such indemnity shall not apply on account of:

The corporation shall advance expenses for such persons pursuant to the terms set forth in the Bylaws, or in a separate directors' resolution or contract.

        10.2 The Board of Directors may take such action as is necessary to carry out these indemnification and expense advancement provisions. It is expressly empowered to adopt, approve, and amend from time to time such Bylaws, resolutions, contracts, or further indemnification and expense advancement arrangements as may be permitted by law, implementing these provisions. Such Bylaws, resolutions, contracts or further arrangements shall include but not be limited to implementing the manner in which determinations as to any indemnity or advancement of expenses shall be made.

        10.3 No amendment or repeal of this Article shall apply to or have any effect on any right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.


Exhibit A2


CERTIFICATE OF MERGER
OF
QUANEX FOUR, INC.
INTO
MIKRON INDUSTRIES, INC.

        Pursuant to Section 252(c) of the Delaware General Corporation Law, the undersigned, Jeffrey S. Sandwith, Chairman of Mikron Industries, Inc., a Washington corporation, hereby certifies that:

Dated: December    , 2004

    MIKRON INDUSTRIES, INC.

 
 
Jeffrey S. Sandwith
Chairman


Exhibit B


ESCROW AGREEMENT

        THIS ESCROW AGREEMENT (this "Escrow Agreement") is made and entered into as of December 9, 2004 (such date, the "Closing Date"), by and among Quanex Corporation, a Delaware corporation ("Buyer"), Quanex Four, Inc., a Delaware corporation and wholly-owned subsidiary of Buyer ("Sub"), the undersigned shareholders (the "Shareholders") of Mikron Industries, Inc., a Washington corporation ("Company"), Jeff Sandwith, as representative of the Shareholders (the "Shareholders Representative"), and Bank of America, N.A., as escrow agent (the "Escrow Agent").


Recitals

        A. Concurrently with the execution of this Agreement, Buyer, Sub, Company and the Shareholders have entered into a Merger Agreement dated the date hereof (the "Merger Agreement"), setting forth certain terms and conditions pursuant to which Sub is being merged with and into Company (the "Merger") on the date hereof and, following the Merger, Buyer will be the sole shareholder of Company. Escrow Agent, by execution hereof, acknowledges receipt of a copy of the Merger Agreement.

        B. Pursuant to Section 1.4 of the Merger Agreement, a total of Twenty-six Million Six Hundred Three Thousand Two Hundred Twenty Three and 53/100 Dollars ($26,603,223.53) (the "Escrow Funds") is being deposited by Buyer into escrow under this Escrow Agreement to satisfy any claims by Buyer for (i) any adjustments in respect of final determinations in favor of Buyer of Debt, Transactional Expenses, Cash and Working Capital of the Company as of Closing pursuant to Section 1.6 of the Merger Agreement and any fees and expenses related to Accounting Arbitrator proceedings that Shareholders are responsible for pursuant to Section 1.6 of the Merger Agreement, (ii) indemnification pursuant to Sections 4.1(a), (b), (d) and (e) of the Merger Agreement (all claims and adjustments made pursuant to subsections (i) and (ii), "General Claims"), and (iii) for indemnification against the Designated Claim pursuant to Sections 4.1(c) and 4.4(b) of the Merger Agreement (the General Claims and the Designated Claim, collectively referred to herein as "Claims," as further defined in Section 2.2 below), on the terms and conditions set forth therein and herein.

        C. Unless otherwise indicated herein, all terms beginning with an initial capital letter shall have the same meaning as set forth in the Merger Agreement.

        NOW THEREFORE, for and in consideration of the premises and mutual covenants and agreements contained in the Merger Agreement and in this Escrow Agreement, the parties agree as follows:

        1.    ESTABLISHMENT OF ESCROW    

        1.1    Deposit of Escrow Funds; Establishment of Accounts.    

        1.2    No Encumbrance.    None of the Escrow Funds or any beneficial interest therein may be pledged, sold, assigned or transferred, including by operation of law, by Buyer, Sub, the Company, the Shareholders or the Shareholders Representative or may be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of Buyer, Sub, the Company, the Shareholders or the Shareholders Representative, prior to the release of the Escrow Funds pursuant to the terms of this Escrow Agreement.

        1.3    Power to Transfer Escrow Funds.    The Escrow Agent is hereby granted the power to effect any transfer of the Escrow Funds provided for in this Escrow Agreement.

        1.4.    Investment of Escrow Funds.    The Escrow Agent shall invest the Escrow Funds in: (a) interest bearing bank account(s) of federally-insured banks, (b) investments of the type set forth on Exhibit A, or (c) such other investments as Buyer and the Shareholders Representative may jointly authorize the Escrow Agent to make from time to time. All interest or other earnings derived from the Escrow Funds shall become part of the Escrow Funds, shall be treated as Escrow Funds, shall be subject to release only as Escrow Funds, and shall otherwise be subject to the terms hereof. Interest and other earnings in respect of the General Claim Fund and the Designated Claim Fund, respectively, shall become part of such fund, shall be treated as such fund, and shall be subject to release only as part of such fund.

        1.5    Taxes.    

        2.    ESCROW CLAIMS    

        2.1    Obligations.    

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        2.2    Claim Notices.    Promptly after the receipt by Buyer of notice or discovery of any claim, damage, or legal action or proceeding giving rise to rights under Section 1.6 or Article IV of the Merger Agreement (a "Claim"), Buyer shall give the Shareholders Representative written notice of such Claim setting forth in reasonable detail the nature and, if specifiable, the dollar amount of such Claim and shall provide a copy of such notice to the Escrow Agent; provided, however, that the failure of Buyer to give such a notice shall not relieve the parties hereto from their obligations hereunder unless that failure materially prejudices the Shareholders in the defense of any such Claim by such party. Each notice of a Claim by Buyer (the "Claim Notice") shall be in writing and must be delivered on or before the General Escrow Release Date (in the case of General Claims) or the Designated Escrow Release Date (in the case of the Designated Claim) to be valid hereunder. When making a Claim, Buyer shall identify whether it is a General Claim or a Designated Claim and, if not so identified, it shall be presumed to be a General Claim. Upon receipt of a Claim Notice by Escrow Agent, Escrow Agent shall provide a copy of such notice to the Shareholders Representative.

        2.3    Resolution of Claims.    Any Claim Notice received by the Shareholders Representative and the Escrow Agent pursuant to Section 2.2 above shall be resolved as follows:

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        2.3.2    Contested Claims.    In the event that the Shareholders Representative gives written notice to Buyer and the Escrow Agent contesting all or a portion of a Claim Notice (a "Contested Claim") within the thirty (30) day period provided above, the matter shall be settled in accordance with this Section 2.3.2. Any portion of a Claim Notice that is not contested shall be resolved as set forth above in Section 2.3.1. If notice is received by the Escrow Agent that a Claim Notice is contested by the Shareholders Representative or if any dispute exists with respect to an amount to be distributed under Section 2.3.1, then the Escrow Agent shall hold in the General Claim Fund or Designated Claim Fund, as applicable, after what would otherwise be the applicable Partial Escrow Release Date or General Escrow Release Date (in the case of General Claims) or Designated Release Date (in the case of Designated Claims), the amount of Escrow Funds, as specified in the Claim Notice or as otherwise provided in Section 3.1, until the earlier of: (i) receipt of joint instructions executed by Buyer and the Shareholders Representative setting forth a resolution of the Claim Notice and the portion of Escrow Funds to be delivered to Buyer and, if a Partial Escrow Release Date or Escrow Release Date has occurred with respect to the applicable fund against which the Claim was made, the portion (if any) of the Escrow Funds to be delivered to the Shareholders (such joint instructions, "Joint Instructions"); (ii) receipt of a written notice from Buyer (a "Buyer Distribution Notice") attaching a copy of the final award or decision of the court or Accounting Arbitrator and setting forth the portion of Escrow Funds to be delivered to Buyer (Buyer shall at the same time provide a copy of the Buyer Distribution Notice to the Shareholders Representative); or (iii) receipt of a written notice from the Shareholders Representative (a "Representative Distribution Notice") attaching a copy of the final award or decision of the court or Accounting Arbitrator that no portion of Escrow Funds is to be delivered to Buyer as a result of such award (Shareholder Representatives shall at the same time provide a copy of the Representative Distribution Notice to Buyer). Promptly upon receipt of a Buyer Distribution Notice, Escrow Agent shall provide a copy of such notice to the Shareholders Representative. Promptly upon receipt of a Representative Distribution Notice, Escrow Agent shall provide a copy of such notice to Buyer. The following sets forth actions to be taken by the Escrow Agent in the following situations:

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        All releases in response to Joint Instructions, a Buyer Distribution Notice, or a Representative Distribution Notice shall be made only from the General Escrow Fund or Designated Fund, as applicable.

        3.    RELEASE FROM ESCROW    

        3.1    Release of Escrow Funds.    

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Partial Escrow
Release Date
   Applicable Balance
January 2, 2006   $ 13,333,332.00
January 2, 2007   $ 6,666,666.00

        On the third anniversary of the Closing Date, (the "General Escrow Release Date"), the Escrow Agent shall release to the Shareholders the amount then held in the General Claim Fund, less any amount to be retained for unresolved General Claims in the General Claim Fund in accordance with the provisions of Section 2.3.2 until the General Claim is resolved, which amount shall be treated as an amount in retained escrow ("Retained Escrow").

        3.2    Release of Retained Escrow.    Upon the latest of (a) resolution of any and all Contested Claims as provided for in Section 2.3.2, (b) the General Escrow Release Date, and (c) the Designated Escrow Release Date, the Retained Escrow shall be released by the Escrow Agent to Buyer and/or to the Shareholders in accordance with Section 2.3.2, this Section 3.2, and as otherwise provided for in this Escrow Agreement.

        4.    ESCROW AGENT    

        4.1    Duties.    The duties of the Escrow Agent hereunder shall be entirely administrative and not discretionary. The Escrow Agent shall be obligated to act only in accordance with written instructions received by it as provided in this Escrow Agreement and is authorized hereby to comply with any orders, judgments or decrees of any court with or without jurisdiction and shall not be liable as a result of its compliance with the same.

        4.2    Legal Opinions.    As to any legal questions arising in connection with the administration of this Escrow Agreement, the Escrow Agent may rely absolutely upon the joint instruction of Buyer and the Shareholders Representative or a reasonable opinion given to the Escrow Agent by its outside counsel and shall be free of liability for acting in good faith in reliance on such opinion.

        4.3    Signatures.    The Escrow Agent may rely on and will be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper person, and has no responsibility for determining the accuracy thereof.

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        4.4    Refrain from Action.    The Escrow Agent shall be entitled to refrain from taking any action contemplated by this Escrow Agreement in the event of any dispute between Shareholders Representative, Buyer and/or Sub in connection with the subject matter of this Escrow Agreement or the Merger Agreement.

        4.5    Interpleader.    If any controversy arises between the parties hereto or with any third person, the Escrow Agent shall not be required to determine the same or to take any action, but the Escrow Agent in its discretion may institute such interpleader or other proceedings in connection therewith as the Escrow Agent may deem proper, and in following either course, the Escrow Agent shall not be liable.

        4.6    Tax Forms.    All entities entitled to receive interest from the Escrow Account will provide Escrow Agent and Buyer with W-9 Internal Revenue Service tax forms prior to disbursement of interest.

        4.7    Brokerage Confirmations.    The parties acknowledge that to the extent regulations of the Comptroller of Currency or other applicable regulatory entity grant a right to receive brokerage confirmations of security transactions of the escrow, the parties waive receipt of such confirmations, to the extent permitted by law. The Escrow Agent shall furnish a statement of security transactions on its regular monthly reports.

        5.    INDEMNIFICATION    

        5.1    Waiver and Indemnification.    Buyer, Sub, the Shareholders and the Shareholders Representative, agree to and hereby do waive any suit, claim, demand or cause of action of any kind which they may have or may assert against the Escrow Agent arising out of or relating to the execution or performance by the Escrow Agent of this Escrow Agreement, unless such suit, claim, demand or cause of action is based upon the willful neglect, gross negligence, bad faith or fraud of the Escrow Agent. Buyer, the Shareholders and the Shareholders Representative agree to indemnify the Escrow Agent against and from any and all claims, demands, costs, liabilities and expenses, including reasonable attorneys' fees, which may be asserted against it or to which it may be exposed or which it may incur by reason of its execution or performance of this Escrow Agreement, except to the extent attributable to its willful neglect, gross negligence, bad faith or fraud; such indemnification obligation shall be borne (i) one-half by the Shareholders on a joint and several basis and (ii) one-half by Buyer. Such agreement to indemnify shall survive the termination of this Escrow Agreement until extinguished by any applicable statute of limitations.

        5.2    Conditions to Indemnification.    In case any litigation is brought against the Escrow Agent in respect of which indemnification may be sought hereunder, the Escrow Agent shall give prompt notice of that litigation to the parties hereto, and the parties upon receipt of that notice shall have the obligation and the right to assume the defense of such litigation, provided that failure of the Escrow Agent to give that notice shall not relieve the parties hereto from any of their obligations under this Section 5 unless that failure prejudices the defense of such litigation by said parties. At its own expense, the Escrow Agent may employ separate counsel and participate in the defense. The parties hereto shall not be liable for any settlement without their respective consents.

        6.    ACKNOWLEDGMENT BY THE ESCROW AGENT    By execution and delivery of this Escrow Agreement, the Escrow Agent acknowledges that the terms and provisions of this Escrow Agreement are acceptable and it agrees to carry out the provisions of this Escrow Agreement on its part.

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        7.    RESIGNATION OR REMOVAL OF ESCROW AGENT; SUCCESSOR    

        7.1    Resignation and Removal.    

        7.2    Successors.    Every successor Escrow Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor, and also to the Shareholders Representative, the Shareholders and Buyer, an instrument in writing accepting such appointment hereunder, and thereupon such successor, without any further act, shall become fully vested with all the duties, responsibilities and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of its successor or any of the parties hereto, execute and deliver an instrument or instruments transferring to such successor all the rights of such predecessor hereunder, and shall duly assign, transfer and deliver all property, securities and monies held by it pursuant to this Escrow Agreement to its successor. Should any instrument be required by any successor for more fully vesting in such successor the duties, responsibilities and obligations hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on the request of any of the other parties hereto, be executed, acknowledged and delivered by the predecessor.

        7.3    New Escrow Agent.    In the event of an appointment of a successor Escrow Agent, the predecessor shall cease to be Escrow Agent of any funds, securities or other assets and records it may hold pursuant to this Escrow Agreement, and the successor shall become such Escrow Agent.

        7.4    Release.    Upon written acknowledgment by any successor Escrow Agent of the receipt of the then remaining balance of the Escrow Funds, the then acting Escrow Agent shall be fully released and relieved of all duties, responsibilities and obligations under this Escrow Agreement that may arise and accrue thereafter.

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        8.    FEE    The Escrow Agent will be paid as billed monthly for services hereunder in accordance with the fee schedule attached hereto as Exhibit B. One-half of such fees and expenses shall be paid by the Shareholders on a joint and several basis and the other one-half of such fees and expenses shall be paid by the Buyer. To the extent Buyer fails to pay its one-half portion of the fees and expenses, Escrow Agent may deduct such portion of the fees and expenses from the funds held under this Agreement; provided, however, that the Shareholders Representative shall be entitled to reimbursement from Buyer for any such deduction, to the extent that any Escrow Funds are released to the Shareholders. To the extent the Shareholders fail to pay their one-half portion of the fees and expenses, Escrow Agent may deduct such portion of the fees and expenses from any Escrow Funds to be released to the Shareholders. In the event that the Escrow Agent is made a party to litigation with respect to the property held hereunder, or brings an action in interpleader, or in the event that the conditions to this Escrow Agreement are not promptly fulfilled, or the Escrow Agent is required to render any service not provided for in this Escrow Agreement and fee schedule, or there is any assignment of the interests of this Escrow Agreement or any modification hereof, the Escrow Agent shall be entitled to reasonable compensation, to be paid one-half by the Shareholders on a joint and several basis and one-half by the Buyer, for such extraordinary services and reimbursement for all fees, costs, liability, and expenses, including attorneys' fees. The Escrow Agent may amend its fee schedule from time to time on sixty (60) days' prior written notice to Buyer and Shareholders Representative.

        9.    SHAREHOLDERS REPRESENTATIVE    

        9.1    Status as Shareholders Representative.    For purposes of this Escrow Agreement, the Shareholders acknowledge as follows: The Shareholders have, pursuant to the Merger Agreement, consented to the appointment of the Shareholders Representative as representative of the Shareholders and as the attorney-in-fact for and on behalf of each Shareholders with respect to General Claims and the Designated Claim, and, subject to the express limitations set forth below, the taking by the Shareholders Representative of any and all actions and the making of any decisions required or permitted to be taken by them under this Escrow Agreement with respect to General Claims and the Designated Claim, including but not limited to, the exercise of the power to: (i) authorize delivery to or cancellation by Buyer of the Escrow Funds, or any portion thereof, in satisfaction of General Claims or the Designated Claim or otherwise in connection with a release of Escrow Funds to Buyer; (ii) agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts and awards of arbitrators, as applicable, with respect to such General Claims or the Designated Claim; (iii) resolve any General Claims or the Designated Claim; and (iv) take all actions necessary in the judgment of the Shareholders Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Escrow Agreement. The Shareholders Representative shall have unlimited authority and power to act on behalf of each Shareholder with respect to this Escrow Agreement, including without limitation amending this Escrow Agreement, and the disposition, settlement or other handling of all General Claims and the Designated Claim, rights or obligations arising under or otherwise relating to this Escrow Agreement. The Shareholders shall be bound by all actions taken by the Shareholders Representative in connection with this Escrow Agreement with respect to General Claims and the Designated Claim, and Buyer shall be entitled to rely on any such action or decision of the Shareholders Representative.

        9.2    Substitute Shareholders Representative.    In the event a new or substitute Shareholders Representative is appointed in accordance with Section 4.8 of the Merger Agreement, the new or substitute Shareholders Representative shall be deemed Shareholders Representative under this Agreement, provided that such Shareholders Representative executes and provides to the parties hereto an undertaking to be bound by this Agreement and its obligations.

        9.3    Disbursements to Shareholders.    All disbursement to Shareholders shall be made to such locations or bank accounts as may be specified by the Shareholders Representative.

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        10.    TERMINATION    This Escrow Agreement and the escrow created hereby shall terminate following Escrow Agent's delivery of all of the Escrow Funds to the Shareholders, the Shareholders Representative and/or Buyer pursuant to Sections 2, 3 and/or 7 of this Escrow Agreement.

        11.    MISCELLANEOUS PROVISIONS    

        11.1    Parties in Interest.    This Escrow Agreement is not intended, nor shall it be construed, to confer any enforceable rights on any person not a party hereto. All of the terms and provisions of this Escrow Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto.

        11.2    Entire Agreement.    This Escrow Agreement constitutes the final and entire agreement among the parties with respect to the subject matter hereof and supersedes all prior arrangements or understandings.

        11.3    Notices.    All notices, requests, demands or other communications which are required or may be given pursuant to the terms of this Escrow Agreement will be in writing and will be deemed to have been duly given: (i) on the date of delivery if (a) personally delivered by hand, or (b) sent by a nationally recognized overnight express courier; or (ii) upon the third (3rd) day after such notice is deposited in the United States mail, if mailed by registered or certified mail, postage prepaid, return receipt requested to the address set forth below or to a different address, subject to notice delivered in accordance with this Section 11.3:

        If to Buyer or Sub, to:

 
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027-3267
Attention: Mr. Terry Murphy
Phone: 713-877-5307
Fax: 713-877-5333

        with a copy to:

 
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027-3278
Attention: Mr. Kevin Delaney
Phone: 713-877-5349
Fax: 713-626-7549

        If to the Shareholders or the Shareholders Representative:

 
 
Jeff Sandwith
205 Betsy Lane
Richmond, KY 40475
Phone: (859) 625-1847
Fax: (859) 626-8843

        with a copy to:

 
 
Preston Gates & Ellis LLP
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-1158
Attention: Stephan H. Coonrod and Kevin L. Gruben
Phone: (206) 623-7580
Fax: (206) 623-7022
     

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        If to Escrow Agent, to:

 
 
Bank of America, N.A.
Mail Code TX4-213-06-13
P. O. Box 2518
Houston, TX 77252-2518
Attention: Pamela J. Bradley, Vice President
Phone: 713-247-6773
Fax: 713-247-7878

Notice to Shareholders Representative or Shareholders shall not be effective unless notice is simultaneously provided to Preston Gates & Ellis LLP in the manner specified above.

        11.4    Changes.    The terms of this Escrow Agreement may not be modified or amended except pursuant to the written agreement of Buyer, the Shareholders Representative and the Escrow Agent. A modification or amendment to this Escrow Agreement will be effective with respect to the Shareholders if signed by the Shareholders Representative and it is hereby expressly acknowledged that it is not necessary for the Shareholders to sign any such modification or amendment.

        11.5    Severability.    If any term or provision of this Escrow Agreement or the application thereof as to any person or circumstance shall to any extent be invalid or unenforceable, the remaining terms and provisions of this Escrow Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term and provision of this Escrow Agreement shall be valid and enforceable to the fullest extent permitted by law.

        11.6    Counterparts.    This Escrow Agreement may be executed in two or more partially or fully executed counterparts each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute but one and the same instrument.

        11.7    Headings.    The headings of the various sections of this Escrow Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Escrow Agreement.

        11.8    Governing Law.    This Escrow Agreement shall be construed and controlled by the laws of the State of Delaware without regard to the principles of conflicts of laws. Buyer, Sub, Escrow Agent, the Shareholders and Shareholders Representative consent to jurisdiction and venue in the state and federal courts in Los Angeles, California for any matters arising out of or relating to this Escrow Agreement.

        11.9    Binding Effect.    This Escrow Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, affiliates, successors and assigns.

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SIGNATURE PAGE—ESCROW AGREEMENT

        IN WITNESS WHEREOF, the parties below have duly executed this Escrow Agreement as of the day and year first above written.


PURCHASER
 
SUB

QUANEX CORPORATION
 
QUANEX FOUR, INC.

By

 
By

Its

 
Its

SHAREHOLDERS REPRESENTATIVE
 
ESCROW AGENT

 
 
 
BANK OF AMERICA, N.A.

Jeff Sandwith
 
By

SHAREHOLDERS
 
 
 

Susan R. Sandwith Crader
 
 
 

David A. Sandwith
 
 
 

Jeffrey S. Sandwith
 
 
 

Mark S. Sandwith
 
 
 

THE W. RONALD SANDWITH SPECIAL PURPOSE REVOCABLE TRUST PURSUANT TO THE INDENTURE OF TRUST DATED FEBRUARY 21, 2003
 
 
 

Jeffrey S. Sandwith, Trustee
 
 
 

THE PERPETUAL ASSET SHIELD TRUST FBO JEFFREY S. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004
 
 
 

Jeffrey S. Sandwith, Family Trustee
 
 
 

THE PERPETUAL ASSET SHIELD TRUST FBO MARK A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004
 
 
 

Mark A. Sandwith, Family Trustee
 
 
 
         

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THE PERPETUAL ASSET SHIELD TRUST FBO DAVID A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004
 
 
 

David A. Sandwith, Family Trustee
 
 
 

THE PERPETUAL ASSET SHIELD TRUST FBO SUSAN SANDWITH CRADER PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004
 
 
 

Susan Sandwith Crader, Family Trustee
 
 
 

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EXHIBIT A

AUTHORIZED INVESTMENTS

        Certificates of deposit of federally insured financial institutions, treasury bills or other direct federally guaranteed investments or any of the following funds:

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EXHIBIT B

ESCROW FEES


The Private Bank
 
Bank of America

Custody Services
 
 

Schedule of Fees
 
 

As your custodian, The Private Bank at Bank of America will provide safekeeping of securities, collection of interest and dividends, securities notifications, settlement of securities transactions, daily cash investment, and periodic investment reports and transaction statements. If your account is invested in Nations Funds, see the prospectus for information on fund expenses.

Annual fees on market value of financial assets

Rate
 
Current Market Value
0.25% on the first   $1,000,000.00
0.20% on the next   $2,000,000.00
0.15% on the next   $2,000,000.00
0.10% on the balance over   $5,000,000.00

The minimum annual market value fee for all assets included in these custodial services is $3,000.00

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Exhibit C


PROMISSORY NOTE

$________________   Houston, Texas
December 9, 2004

        FOR VALUE RECEIVED, and intending to be legally bound, Quanex Corporation, a Delaware corporation ("Quanex"), and Mikron Industries, Inc., a Washington corporation ("Mikron"), as survivor to the merger of Quanex Four, Inc., a Delaware corporation, with and into Mikron pursuant to the Merger Agreement (as defined below) (the "Makers") jointly and severally promise to pay                        (the "Payee") the total principal sum of                        and    /100 Dollars ($                        ) (the "Principal Sum"), together with interest thereon from the date hereof payable at the times set forth below, via wire transfer to a bank account designated by Payee prior to the date hereof.

        The Principal Sum and all accrued interest thereon shall become due and payable in its entirety on December 10, 2004. No interest shall accrue on the outstanding balance hereunder. Principal shall be paid in immediately available funds in the lawful money of the United States of America.

        The Makers may withhold from any payment owing hereunder to the Payee an amount equal to the total amount of principal and any accrued interest outstanding under the promissory notes made by the Payee in favor of Mikron in the original principal amount of $                        and dated                        and in the original principal amount of $                        and dated                         (collectively, the "Shareholder Notes"). Such amounts so withheld shall be credited against the amounts owing by the Payee under the Shareholder Notes.

        In the event that the Makers fails to make payment to Payee of the Principal Sum when due under this Note, the occurrence of such event shall constitute a default under this Note (herein called the "Event of Default").

        If the Event of Default shall occur, the principal amount outstanding shall bear interest from the date it is due at a rate equal to the twelve percent (12%) per annum. The foregoing is in addition to all other remedies may have at law or equity.

        This Promissory Note (the "Note") is being delivered pursuant to the terms of that certain Merger Agreement, dated as of the date hereof, among Quanex, Quanex Four, Inc., Mikron Industries, Inc., Jeffrey S. Sandwith, Susan Sandwith Crader, David A. Sandwith, Mark A. Sandwith, The W. Ronald Sandwith Special Purpose Revocable Trust pursuant to Indenture of Trust dated February 21, 2003, Jeffrey Sandwith, trustee, The Perpetual Asset Shield Trust FBO Jeffrey S. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Jeffrey S. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO Mark A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Mark A. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO David A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, David A. Sandwith, family trustee, and The Perpetual Asset Shield Trust FBO Susan Sandwith Crader pursuant to Indenture of Trust dated August 31, 2004, Susan Sandwith Crader, family trustee (the "Merger Agreement"). This Note evidences Makers' obligations set forth in Section 1.4(f) of the Merger Agreement, and all of Makers' obligations hereunder are subject to the provisions of the Merger Agreement, which provisions are expressly incorporated herein by reference thereto. Unless otherwise defined herein, all capitalized terms shall have the respective meanings given to such terms in the Merger Agreement.

        Makers shall not have the right to prepay the principal amount under this Note.

        Makers agree that any delay on the part of the Payee in exercising any rights hereunder will not operate as a waiver of such rights. The Payee shall not by any act, delay, omission, or otherwise be deemed to waive any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by the Payee. The waiver by Payee of a breach or default of any provision of this Note shall not operate or be construed as a waiver of any subsequent breach or default thereof.


        Makers agree to reimburse the Payee for all costs and expenses associated with any collection efforts made by the Payee hereunder, whether or not a lawsuit shall be involved, including, without limitation, attorney's fees.

        Makers waive presentment, demand, protest and notice of demand, protest and nonpayment and consents to any and all renewals and extensions of the time of payment hereof. Makers particularly waive the right to demand any marshalling of assets as a condition to or in connection with the bringing of action hereon against Makers or any other party.

        This note is secured by a Stock Pledge Agreement (the "Pledge Agreement") dated as of December 9, 2004, by and among Quanex, as debtor, and Jeffrey S. Sandwith, Susan Sandwith Crader, David A. Sandwith, Mark A. Sandwith, The W. Ronald Sandwith Special Purpose Revocable Trust pursuant to Indenture of Trust dated February 21, 2003, Jeffrey Sandwith, trustee, The Perpetual Asset Shield Trust FBO Jeffrey S. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Jeffrey S. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO Mark A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Mark A. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO David A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, David A. Sandwith, family trustee, and The Perpetual Asset Shield Trust FBO Susan Sandwith Crader pursuant to Indenture of Trust dated August 31, 2004, Susan Sandwith Crader, family trustee (collectively, the "Pledgees"), as secured parties, under which Quanex has pledged, assigned, transferred, hypothecated and set over to Pledgees, and granted to Pledgees a security interest, all of Quanex's title, right and interest in, to and under the Collateral, as defined in the Pledge Agreement.

        This Note applies to, inures to the benefit of, and binds the successors and assigns of the parties hereto. No modification hereof shall be binding or enforceable unless approved in writing by the parties.

        This Note shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely in Delaware, without giving effect to the conflict of laws principles thereof. The provisions of this Note are severable and the invalidity or unenforceability of any provision shall not alter or impair the remaining provisions of this Note.

        Notices hereunder shall be given in the manner provided in Section 5.4 of the Merger Agreement. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof.

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2


SIGNATURE PAGE—
PROMISSORY NOTE

        IN WITNESS WHEREOF, Makers have caused this instrument to be executed on the first date set forth above.


MAKERS:
 
 
 

QUANEX CORPORATION
 
 
 

By:

 
 
 
Name:
Title:		      

MIKRON INDUSTRIES, INC.
 
 
 

By:

 
 
 
Name:
Title:		      

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Exhibit D


STOCK PLEDGE AGREEMENT

        STOCK PLEDGE AGREEMENT, dated as of December    , 2004, among Quanex Corporation, a Delaware corporation ("Pledgor"), and Jeffrey S. Sandwith, Susan Sandwith Crader, David A. Sandwith, Mark A. Sandwith, The W. Ronald Sandwith Special Purpose Revocable Trust pursuant to Indenture of Trust dated February 21, 2003, Jeffrey Sandwith, trustee, The Perpetual Asset Shield Trust FBO Jeffrey S. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Jeffrey S. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO Mark A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, Mark A. Sandwith, family trustee, The Perpetual Asset Shield Trust FBO David A. Sandwith pursuant to Indenture of Trust dated August 31, 2004, David A. Sandwith, family trustee, and The Perpetual Asset Shield Trust FBO Susan Sandwith Crader pursuant to Indenture of Trust dated August 31, 2004, Susan Sandwith Crader, family trustee (collectively, the "Pledgees").

WITNESSETH:

        WHEREAS, Pledgor legally and beneficially owns all of all outstanding capital stock of Mikron Industries, Inc., a Washington corporation (the "Company");

        WHEREAS, pursuant to those certain Promissory Notes dated as of December 9, 2004 (the "Notes") from Pledgor in favor of each of the Pledgees, Pledgor is indebted to each of the Pledgees for the payment of such Pledgee's Pro Rata Share of the Purchase Price less the Escrow Amount (as each such term is defined in the Merger Agreement dated as of December 9, 2004, by and among the Pledgor, Quanex Four, Inc., the Company and each of the Pledgees). As security for the payment and performance of the Notes, Pledgor executes and delivered this Stock Pledge Agreement to and for the benefit of the Pledgees.

        NOW, THEREFORE, in consideration of the premises and the covenants set forth herein, and for other good and valuable consideration and reasonably equivalent value, the receipt and sufficiency of which are hereby acknowledged by all parties hereto, the parties hereto agree as follows.

        1.     Agreement; Certain Defined Terms. References to this "Agreement", "herein", "hereof" or words of similar import shall mean this Stock Pledge Agreement (taken as a whole), as the same may be in effect at the time such reference becomes operative, including all amendments, modifications and supplements hereto and any exhibits or schedules to any of the foregoing, in each case entered into and made a part hereof in accordance with the terms hereof. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code, as adopted and amended in the State of Delaware, or to the extent as adopted in the State of Delaware it shall not be applicable for any provision hereof, then with respect to such provision, as adopted and amended in such other relevant jurisdiction (the "UCC"), are used in this Agreement.

        2.     Pledge. As security for the payment, in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all indebtedness, obligations and liabilities of Pledgor under the Notes, as well as the expenses and other obligations of Pledgees as expressly provided in Section 11 and Section 13 hereof (collectively, the "Secured Obligations"), Pledgor hereby pledges, assigns, transfers, hypothecates and sets over to Pledgees, and grants to Pledgees a security interest to Pledgees in, all of Pledgor's title, right and interest in, to and under each of the following, whether now existing or owned or hereafter acquired or arising (collectively, the "Collateral"):

Certificate No. C-1 representing the Pledged Shares, accompanied by proper instruments of transfer duly executed in blank by Pledgor, are herewith delivered to Pledgees, pursuant and subject to the terms of this Agreement.

        3.     Representations and Warranties. Pledgor hereby represents and warrants to Pledgees that as of the date hereof:

        The representations and warranties set forth in this Section 3 shall survive the execution and delivery of this Agreement.

        4.     Certain Rights of Pledgor.

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        5.     Covenants. Pledgor covenants and agrees that until the Termination Date:

        6.     Remedies.

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        7.     Exoneration of Pledgees. Pledgees shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by Pledgees in good faith. Notwithstanding any provision contained in this Agreement or any agreement related hereto, Pledgees shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Pledgees has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve any rights against any parties with respect to any Collateral. Pledgees shall have no duty with respect to the custody, safekeeping and physical preservation of the Collateral in their possession other than as set forth in Section 9.207 of the UCC.

        8.     Waiver. No delay on Pledgees' part in exercising any power of sale or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Pledgees with respect to any power of sale or other right hereunder, shall constitute a waiver thereof, or limit or impair Pledgees' right to take any action or to exercise any power of sale or any other right hereunder, without notice or demand, or prejudice Pledgees' rights as against Pledgor in any respect.

        9.     Assignment. Neither Pledgor nor any of the Pledgees may assign their rights under this Agreement.

        10.   Termination. On the day (the "Termination Date") of payment, defeasance or other retirement of all amounts due under the Notes, the Lien hereof in the Collateral, all other rights, claims and interests of Pledgees in and to the Collateral and all obligations of Pledgor hereunder shall fully and finally terminate and be forever released, without further act or step by or on behalf of any Person. At any time or after the Termination Date, Pledgees shall, at Pledgor's request and expense, so deliver to Pledgor the Collateral at the time subject to this Agreement and all instruments of transfer executed in connection therewith, free and clear of the Lien hereof, all other rights, claims and interests of Pledgees hereunder and all of Pledgor's obligations hereunder.

        11.   Expenses. Pledgor will reimburse Pledgees for all reasonable expenses (including reasonable legal expenses) reasonably incurred by them for the enforcement against Pledgor for its failure to perform any of its covenants as expressly provided in Section 5 hereof, which amounts (until paid) shall be included in the Secured Obligations.

        12.   Miscellaneous.

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        13.   Further Assurances; Pledgees May Perform. Pledgor agrees that at any time and from time to time, at Pledgees' cost and expense, it will promptly procure, execute and deliver all further instruments, documents and agreements, and take all further action, that may be necessary or desirable, or that Pledgees may reasonably request, in order to establish, maintain, preserve, protect and perfect the Collateral, any security interest granted or purported to be granted hereby and the priority and perfection of such security interest, or to enable Pledgees to exercise and enforce their rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Pledgor further agrees that it shall, concurrently with the execution of this Agreement and at any time and from time to time thereafter (i) procure, execute and deliver to Pledgees all stock powers, endorsements, financing statements, assignments and other instruments of transfer requested by Pledgees and (ii) deliver to Pledgees immediately upon receipt the originals of all Pledged Securities.

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        14.   Mailing Address for Notices. Except as otherwise provided herein, any notice required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon receipt after transmittal by hand or by Federal Express or similar service, or five Business Days after deposit in the United States mails, registered first class mail, with proper postage prepaid, and addressed to the party to be notified at the following addresses (or such other address as such party shall designate in a notice delivered to the other party hereunder):

Failure to comply with the provisions set forth above with respect to the delivery of copies shall not impair the validity of any notice otherwise complying with the terms hereof.

        15.   Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered effective as of the date first above written.


 
QUANEX CORPORATION

 
By
 
    
  Name:
Title:		    

 
Susan R. Sandwith Crader

 
David A. Sandwith

 
Jeffrey S. Sandwith

 
Mark S. Sandwith

 
THE W. RONALD SANDWITH SPECIAL PURPOSE REVOCABLE TRUST PURSUANT TO THE INDENTURE OF TRUST DATED FEBRUARY 21, 2003

 
Jeffrey S. Sandwith, Trustee

 
THE PERPETUAL ASSET SHIELD TRUST FBO JEFFREY S. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004

 
Jeffrey S. Sandwith, Family Trustee

 
THE PERPETUAL ASSET SHIELD TRUST FBO MARK A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004

 
Mark A. Sandwith, Family Trustee

 
THE PERPETUAL ASSET SHIELD TRUST FBO DAVID A. SANDWITH PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004

 
David A. Sandwith, Family Trustee

 
THE PERPETUAL ASSET SHIELD TRUST FBO SUSAN SANDWITH CRADER PURSUANT TO INDENTURE OF TRUST DATED AUGUST 31, 2004

 
Susan Sandwith Crader, Family Trustee

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EXHIBIT E

FURTHER WORKING CAPITAL, INVENTORY, COUNTING AND
VALUATION PROCEDURES

        1.     On December 10, 2004, Company will at its cost conduct a physical partial count of inventory targeted at approximately 85% of inventory value and compare it to the Company's perpetual inventory system in accordance with procedures used by the Company in its regularly scheduled cycle count procedure.

        2.     At the option of Buyer, on December 28 and 29, 2004 (when all plants are shutdown), a physical count of all inventories at all three plants will be conducted at the cost of the Company using annual inventory procedures. The value arrived at, as a result of the physical inventory observation, shall be "rolled back" to the Closing Date by a.)deducting purchases and additions since that date and b.)adding consumption/shipments since that date. This adjusted or "rolled back" inventory balance shall be compared to the inventory value on the balance sheet as of the Closing Date and any differences (positive or negative) shall become an adjustment to the final Working Capital assessment.

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Exhibit F


NONCOMPETITION AGREEMENT

        This Noncompetition Agreement (this "Agreement") dated as of December    , 2004, is by and between                        ("Stockholder"), Mikron Industries, Inc., a Washington corporation ("Mikron"), and Quanex Corporation, a Delaware corporation ("Purchaser");

        WHEREAS, Purchaser, Quanex Four, Inc., a Delaware corporation, and a wholly owned subsidiary of Purchaser ("Sub"), and Mikron have entered into that certain Merger Agreement dated as of the date hereof (the "Merger Agreement"), pursuant to which Sub will merge with and into Mikron, with Mikron surviving as a wholly owned subsidiary of Purchaser;

        WHEREAS, Stockholder is and has been employed by Mikron and owns directly and as the beneficiary of trusts, on a combined basis, approximately 25% of the outstanding capital stock of Mikron;

        WHEREAS, the Merger Agreement contemplates the execution of this Agreement; and

        WHEREAS, Purchaser and Sub would not consummate the merger contemplated by the Merger Agreement if Stockholder did not enter into this Agreement.

        NOW, therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, Stockholder, Mikron and Purchaser agree as follows:

1.
DEFINITIONS

        Capitalized terms not expressly defined in this Agreement shall have the meanings ascribed to them in the Merger Agreement.

2.
ACKNOWLEDGEMENTS

        Stockholder acknowledges that (a) Stockholder has occupied a position of trust and confidence with Mikron before the date of this Agreement and has become familiar with the business of Mikron, including, but not limited to, the following: (i) any and all trade secrets concerning the business and affairs of Mikron, product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current and planned research and development, current and planned manufacturing and distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, structures and architectures (and related processes, formulae, compositions, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information of Mikron); (ii) any and all information concerning the business and affairs of Mikron (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and (iii) any and all notes,

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analyses, compilations, studies, summaries, and other material prepared by or for Mikron containing or based, in whole or in part, on any information included in the foregoing, (b) the business of Mikron is national in scope, (c) Mikron's products and services are marketed throughout the United States; (d) Mikron competes with other businesses that are or could be located in any part of the United States; (e) Purchaser and Sub have required that Stockholder make the covenants set forth in Section 3 and Section 4 of this Agreement as a condition to their obligation to consummate the transactions described in the Merger Agreement; (f) the provisions of Section 3 and Section 4 of this Agreement are reasonable and necessary to protect and preserve the business of Mikron; and (g) Mikron and Purchaser would be irreparably damaged if Stockholder were to breach the covenants set forth in Section 3 or Section 4 of this Agreement.

3.
NONCOMPETITION

        As an inducement for Purchaser and Sub to enter into the Merger Agreement and to consummate the transactions described in the Merger Agreement, Stockholder agrees that:

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4.
DISCLOSURE OF CONFIDENTIAL INFORMATION

        As an inducement for Purchaser and Sub to enter into the Merger Agreement and to consummate the transactions described in the Merger Agreement, Stockholder agrees that:

        (a)   Stockholder recognizes and acknowledges that Stockholder has had access to confidential information of Mikron or of certain corporations or other entities affiliated with Mikron, and that all such information constitutes valuable, special and unique property of Mikron and its affiliates. Stockholder agrees that Stockholder will not, without the prior written consent of Mikron, use or disclose or authorize or permit anyone under Stockholder's direction to use or disclose to anyone not properly entitled thereto any of such confidential information. For purposes of the immediately preceding sentence, persons properly entitled to such information shall be the respective Boards of Directors of Mikron and Purchaser and such officers, employees and agents of Mikron or any affiliate thereof, including Purchaser, to whom such information is furnished in the normal course of business under established policies approved by Mikron. The foregoing restrictions shall not apply to information that is in the public domain through no fault of the Stockholder or to information the undersigned obtains from a third party with no restriction on use. The foregoing restrictions are also not intended to prevent appropriate use or disclosure of such information in defending the Stockholder (or his or her related trust) in any claim that may be made by Quanex or its affiliates against the Stockholder under the Merger Agreement or in defending the Stockholder in any tax or other claim, controversy, or matter arising out of Stockholder's status as former stockholder of Mikron, so long as in connection with such defense, the disclosure of the information is limited to litigation professionals hired by the Stockholder who are under an obligation of confidentiality or to disclosure to other parties to the proceeding under an appropriate protective order or similar arrangement. Mikron and Quanex acknowledge that the transactional related attorney client privileged materials referred to at Section 3.5 of the Merger Agreement are not confidential information of Mikron.

        (b)   In the event that Stockholder: (i) is requested or required (by oral question or request for information or documents and legal proceedings, interrogatories, subpoena, civil investigative demand or similar process) to disclose such information of Mikron or (ii) if Stockholder is advised by its legal counsel in connection with any transaction involving it that it is legally required to disclose any of such information; it is agreed that Stockholder: (A) will provide Mikron and Quanex prompt notice of any request or requirement; (B) will provide Mikron and Quanex full and complete cooperation to seek an appropriate order or remedy; (C) will cooperate with Mikron and Quanex in obtaining reliable assurances that confidential treatment will be accorded to the disclosure of such information and (D) will, if disclosure of such information is required, disclose only that portion of such information which is legally required to be disclosed. Stockholder shall not be liable for disclosure of such information hereunder under a regulation or to a tribunal compelling such disclosure, if Stockholder has complied with the notice and cooperation provisions of this paragraph, unless such disclosure to such tribunal is caused by or resulted from a previous disclosure by Stockholder not permitted by this Agreement.

        (c)   Stockholder further agrees that Stockholder will not take with Stockholder or retain, without the prior written authorization of Mikron, any papers, software, source codes, procedural or technical manuals, customer lists, customer account analyses (including, without limitation, accounts receivable agings, customer payment histories and customer account activity reports), price books, files or other documents or copies thereof belonging to Mikron or to any affiliate of Mikron, or any materials, supplies, equipment or furnishings belonging to Mikron or to any affiliate of Mikron, or any other confidential information of any kind belonging to Mikron or any affiliate of Mikron.

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5.
REMEDIES

        If Stockholder breaches the covenants set forth in Section 3 or Section 4, Purchaser and Mikron will be entitled to the following remedies:

        (a)   monetary damages; and

        (b)   in addition to its right to damages and any other rights it may have, injunctive or other equitable relief to restrain any breach or threatened breach or otherwise to specifically enforce the provisions of Section 3 and Section 4, it being agreed that money damages alone would be inadequate to compensate Purchaser and Mikron and would be an inadequate remedy for such breach.

        The rights and remedies of the parties under this Agreement shall be cumulative and not alternative.

6.
SUCCESSORS AND ASSIGNS

        This Agreement will be binding on Purchaser, Mikron and Stockholder and will inure to the benefit of Purchaser, Mikron and their respective affiliates, successors and assigns, and Stockholder and his assigns, heirs and legal representatives.

7.
WAIVER

        No failure or delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of any right, power or privilege, and no single or partial exercise of any right, power or privilege under this Agreement will preclude any other or further exercise of any right, power or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand by a party to this Agreement will be deemed to be a waiver of any obligation of that party to take further action without notice or demand.

8.
GOVERNING LAW

        This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles of any jurisdiction.

9.
SEVERABILITY

        Whenever possible each provision and term of this Agreement will be interpreted in a manner to be effective and valid but if any provision or term of this Agreement is held to be prohibited or invalid, then the provision or term will be ineffective only to the extent of the applicable prohibition or invalidity, without invalidating or affecting the remainder of the provision or term or the remaining provisions or terms of this Agreement. Upon a determination that any provision or term of this Agreement is prohibited or invalid, the parties to this Agreement shall negotiate in good faith to modify this Agreement to effect the original intent of the parties as closely as possible in an acceptable manner, to the end that the transactions contemplated by this Agreement are fulfilled to the extent possible. If any of the covenants set forth in Section 3 or Section 4 are held to be unreasonable, arbitrary or against public policy, it is the intention of the parties that the applicable covenants shall not be terminated but shall be deemed amended to the extent required to render them valid and enforceable.

10.
COUNTERPARTS

        This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement.

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11.
SECTION HEADINGS, CONSTRUCTION

        The headings of sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms.

12.
NOTICES

        All notices, consents, waivers, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):


Stockholder:
 
    

 
 
    

 
 
    

with a copy to:
 
Preston Gates & Ellis LLP
925 Fourth Avenue, Suite 2900
Seattle, WA 98104-1158
Attention: Stephan Coonrod and Kevin Gruben
Phone No.: (206) 623-7580
Facsimile No.: (206) 623-7022

Purchaser or Mikron:
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027
Attention: Terry M. Murphy
Facsimile No.: 713-877-5333
Phone No.: 713-877-5307

with a copy to:
 
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027
Attention: Kevin P. Delaney
Facsimile No.: 713-877-5349
Phone No.: 713-626-7549

with copy to:
 
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 75010-3095
Attention: Ms. Harva R. Dockery
Facsimile No.: 7136-651-5246
Phone: No. 713-651-5196

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13.
ENTIRE AGREEMENT

        This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement and supersedes all prior written and oral agreements and understandings between Stockholder, Mikron and Purchaser with respect to the subject matter of this Agreement. Notwithstanding the foregoing, this Agreement is not intended to supersede the existing employee confidentiality and non-compete agreement that Mikron has in place with the Stockholder, but rather is intended to provide a broader and longer set of non-compete, non-solicit and non-disclosure provisions applicable to the Stockholder. In the event of a conflict between such employee confidentiality and non-compete agreement and this Agreement, Mikron and Quanex shall be entitled to benefit from the provision that is most protective of Mikron. This Agreement may not be amended except by a written agreement executed by Stockholder, Mikron and Purchaser or except with respect to any deemed amendment pursuant to Section 9.

14.
EFFECTIVENESS

        This Agreement shall become effective at the Effective Time (as defined in the Merger Agreement).

        IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.


 
 
QUANEX CORPORATION

 
 
By:
    
    Name:     
    Title:     

 
 
MIKRON INDUSTRIES, INC.

 
 
By:
    
    Name:     
    Title:     
       
       
       
   
Stockholder

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Exhibit G


AMENDMENT TO LEASE

        THIS AMENDMENT TO LEASE ("Amendment") is made and entered into as of December    , 2004, by and between the                        , a Washington general partnership ("Landlord") and MIKRON INDUSTRIES, INC., a Washington corporation ("Tenant") with reference to the following facts:

        A. Pursuant to that certain lease between Tenant and                        (Landlord's predecessor in interest) dated                        , as amended (the "Lease"), Tenant leases from Landlord those certain premises consisting of                        (the "Existing Premises"), as more particularly described in Exhibit A, attached hereto and by this reference incorporated herein. All capitalized terms not otherwise defined in this Amendment shall have the same meanings set forth in the Lease.

        B. Landlord and Tenant desire to amend the Lease to provide Tenant with an option to extend the term of the Lease.

        NOW, THEREFORE, in consideration of the promises contained herein, Landlord and Tenant agree as follows:

        1.     EXTENSION OPTION. Tenant shall have the option to extend the term of this Lease for five (5) years ending on February 28, 2015 (the "Extension Term") upon the same terms and conditions (except that the Rental, as provided for in Section 3 of the Lease, shall be adjusted pursuant to Section 2 below) contained in the Lease ("Tenant's Option"). Tenant shall give Landlord written notice of its election to exercise Tenant's Option ("Tenant's Notice") no later than February 28, 2009. If Tenant fails to timely give Tenant's Notice, Tenant's Option shall be null and void and of no further force and effect.

        2.     EXTENSION TERM RENT. The giving of Tenant's Notice by Tenant pursuant to Section 1 above shall be sufficient to make this Lease binding for the Extension Term without further act of the parties, who shall then be bound to take the steps required in the determination of the Rental as specified herein. The Rental (as provided for in Section 3 of the Lease) for each Extension Term shall be the fair market rental value of the Premises upon commencement of the Extension Term. In determining the fair market rental value of the Premises, consideration shall be given to the then current market rate for similar properties in the general vicinity of the Premises with similar lease provisions. If the parties do not agree upon the Rental by October 31, 2009 (the "Trigger Date"), the Rental shall be determined by arbitration. The parties shall select a mutually agreeable arbitrator within ten (10) days after the Trigger Date. If the parties are unable to agree on an arbitrator within such 10-day period, then either party may seek appointment of an arbitrator by the Chief Judge of the Superior Court of King County, Washington. Within thirty (30) days after the arbitrator's appointment, each party shall submit its estimate of the fair market rental value of the Premises along with any documentary evidence that it may have supporting its estimate. Within fourteen (14) days after the arbitrator's receipt of each party's estimate and evidence, if any, the arbitrator shall select the estimate that he or she determines is closest to the actual fair market rental value of the Premises. The determination of the estimate that is closest to the actual fair market value of the Premises by the arbitrator shall be final and binding. The cost of the arbitrator shall be shared equally by Landlord and Tenant. In no event shall the fair market rental for the Premises be less than the Rental due under the Lease during the last month prior to the Extension Term.

        3.     RATIFICATION. Except as modified herein, the Lease shall remain in full force and effect.

        4.     MISCELLANEOUS. This Amendment shall be governed and construed in accordance with the laws of the State of Washington. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

        IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

[Signatures on following page]


LANDLORD:
 
TENANT:

____________ , a ____________
 
Mikron Industries, Inc., a Washington corporation

By:

 
By:

Name:

 
Name:

Title:

 
Title:

2

STATE OF
  )
      )ss.
COUNTY OF
  )

        I certify that I know or have satisfactory evidence that                        is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the                        of the                        to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

        Dated: ___________________________

   
Notary Public
    Print Name  
    My commission expires  

STATE OF

 
)
      )ss.
COUNTY OF
  )

        I certify that I know or have satisfactory evidence that                        is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the                        of Mikron Industries,  Inc. to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

        Dated: ___________________________

   
Notary Public
    Print Name  
    My commission expires  

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EXHIBIT A

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QuickLinks

TABLE OF CONTENTS
INDEX OF DEFINED TERMS
MERGER AGREEMENT
ARTICLE I THE MERGER
ARTICLE II REPRESENTATIONS AND WARRANTIES
ARTICLE III AGREEMENTS
ARTICLE IV INDEMNIFICATION
ARTICLE V GENERAL PROVISIONS
SIGNATURE PAGE— MERGER AGREEMENT
ARTICLES OF MERGER OF MIKRON INDUSTRIES, INC. a Washington corporation, AND QUANEX FOUR, INC. a Delaware corporation
EXHIBIT A AGREEMENT AND PLAN OF MERGER
RECITALS
AGREEMENT
Exhibit A AMENDMENTS TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MIKRON INDUSTRIES, INC.
ARTICLE I NAME
ARTICLE II DURATION
ARTICLE III PURPOSE
ARTICLE IV REGISTERED OFFICE AND AGENT
ARTICLE V CAPITAL STOCK
ARTICLE VI PREEMPTIVE RIGHTS
ARTICLE VII DIRECTORS
ARTICLE VIII CUMULATIVE VOTING
ARTICLE IX LIMITATION OF DIRECTOR LIABILITY
ARTICLE X INDEMNIFICATION OF DIRECTORS
CERTIFICATE OF MERGER OF QUANEX FOUR, INC. INTO MIKRON INDUSTRIES, INC.
ESCROW AGREEMENT
Recitals
SIGNATURE PAGE—ESCROW AGREEMENT
EXHIBIT A AUTHORIZED INVESTMENTS
EXHIBIT B ESCROW FEES
PROMISSORY NOTE
SIGNATURE PAGE— PROMISSORY NOTE
STOCK PLEDGE AGREEMENT
EXHIBIT E FURTHER WORKING CAPITAL, INVENTORY, COUNTING AND VALUATION PROCEDURES
NONCOMPETITION AGREEMENT
AMENDMENT TO LEASE
EXHIBIT A

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Exhibit 99.1

Quanex
    
NEWS RELEASE

Financial Contact: Jeff Galow, 713/877-5327
Media Contact: Valerie Calvert, 713/877-5305

Quanex Corporation Announces the Purchase of Mikron Industries
Acquisition Broadens Quanex's Window and Door Component Offerings

Houston, Texas, December 9, 2004—Quanex Corporation (NYSE:NX), an industry-leading manufacturer of value added engineered materials and components serving the vehicular products and building products markets, today announced the closing of the stock purchase of privately held Mikron Industries, for $205 million in cash. Quanex financed the acquisition by borrowing against its $310 million revolving credit facility.

Mikron, an industry-leading manufacturer of engineered vinyl and thermoplastic alloy composite (MikronWood™) window components, window coverings and door components, serves the residential building and remodeling markets. Headquartered in the Seattle suburb of Kent, WA, Mikron operates modern and highly automated extrusion facilities located in the Kent area; Winnebago, IL; and Richmond, KY. With 2004 revenues of approximately $215 million, the acquisition is expected to be accretive to earnings in year one.

"The addition of Mikron to our Building Products Group is consistent with our strategy of growing our core Engineered Products business, which manufactures window and door components for the building products markets," stated Raymond Jean, chairman and chief executive officer of Quanex. "Mikron's excellent management team, outstanding market reputation and leading industry position will help us continue building our presence in the window and door component business by giving us greater market participation in the fastest growing window segments—vinyl and composite windows. The acquisition will allow us to further accelerate cross selling opportunities that currently exist among our other vinyl and wood component businesses. Mikron represents our third acquisition in the fenestration market, and the growing scale of our Building Product businesses will allow us to invest in plant, equipment and development activities to further support our customers," Jean said.

Statements that use the words "expect," "should," "believe," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The statements found above are based on current expectations. Actual results or events may differ materially from this release. Factors that could impact future results may include, without limitation, the effect of both domestic and global economic conditions, the impact of competitive products and pricing, and the availability and cost of raw materials. For a more complete discussion of factors that may affect the Company's future performance, please refer to the Company's most recent 10-K filing (December 29, 2003) under the Securities Exchange Act of 1934, in particular the sections titled, "Private Securities Litigation Reform Act" contained therein.

For further information, visit the Company's website at www.quanex.com.



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