8-K

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): January 28, 2005

ROANOKE ELECTRIC STEEL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	0-2389	54-0585263
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

102 Westside Boulevard, NW Roanoke, Virginia	24017
(Address of principal executive offices)	(Zip Code)

(540) 342-1831

(Registrant’s telephone number, including area code)

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 (see General Instruction A.2. below):

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

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

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

¨ 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.

Introduction

On January 28, 2005, the shareholders of Roanoke Electric Steel Corporation (the “Company”), upon the recommendation of the Company’s Board of Directors, approved the “Roanoke Electric Steel Corporation 2005 Stock Incentive Plan” (the “2005 Stock Plan”) and the “Roanoke Electric Steel Corporation Annual Management Incentive Plan” (the “Management Incentive Plan”). Also on January 28, 2005, the Board of Directors approved an Amended and Restated Retirement Plan (the “Directors Retirement Plan”) for the Company’s directors.

Description of the 2005 Stock Plan

The 2005 Stock Plan is integral to the Company’s compensation strategy and programs and is intended to help the Company recruit, motivate and retain the caliber of employees and outside directors essential to the Company’s success, and will further align the interests of those employees and outside directors with the interests of the Company’s shareholders.

A maximum of 1,750,000 shares of the Company’s common stock is available for issuance under the 2005 Stock Plan, subject to adjustment upon the occurrence of any stock dividend or other distribution, stock split, merger, consolidation, combination, share repurchase or exchange or other similar transaction or event. No more than 1,500,000 shares of the Company’s common stock may be issued under incentive awards to employees of the Company or its subsidiaries, and no more than 250,000 shares of the Company’s common stock may be issued to outside directors.

The 2005 Stock Plan provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance grants, and deferred shares. The 2005 Stock Plan is administered by the Compensation Committee of the Company’s Board of Directors.

The Company currently has two other equity incentive plans, with only 1,000 shares available for future awards under one of these plans. The first plan is the Company’s Employee’s Stock Option Plan which was approved by shareholders in January 1989. The final awards under this plan were made in February 2004. The second plan is the Company’s Non-Employee Director Stock Option Plan that was adopted in February 1997, and under which 1,000 shares remain available for issuance.

A more detailed summary of the material features of the 2005 Stock Plan is set forth in the Company’s proxy statement for the 2005 Annual Meeting of Shareholders filed with the Securities and Exchange Commission on December 21, 2004. The summary in the proxy statement and the description of the 2005 Stock Plan contained herein are qualified in their entirety by reference to the full text of the 2005 Stock Plan, which is included as part of the proxy statement and filed as Exhibit 10.1 to this Form 8-K.

Description of the Management Incentive Plan

The Management Incentive Plan is also integral to the Company’s compensation strategy and programs and replaces the incentive compensation program which the Company has had in place since 1958. Under the Management Incentive Plan, the Company’s executive officers and other employees of the Company and its subsidiaries are eligible to receive annual cash bonuses based on the level of attainment of corporate and/or individual performance goals over a one-year performance period.

The Management Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The Compensation Committee has the authority to select the employees to participate in the Management Incentive Plan; to establish the amount of each award and the specific performance objectives that must be met for the award to be payable; to determine if the performance objectives and other payment criteria have been satisfied; and to determine when an award should be paid.

A more detailed summary of the material features of the Management Incentive Plan is set forth in the Company’s proxy statement for the 2005 Annual Meeting of Shareholders filed with the Securities and Exchange Commission on December 21, 2004. The summary in the proxy statement and the description of the Management Incentive Plan contained herein are qualified in their entirety by reference to the full text of the Management Incentive Plan, which is included as part of the proxy statement and filed as Exhibit 10.2 to this Form 8-K.

Description of the Directors Retirement Plan

The Company has had in effect since January 1989, an unfunded directors’ retirement plan, whereby eligible directors receive a monthly benefit following retirement from the Board of Directors. A director is eligible after five years of service. Upon retirement, a director is paid an amount equal to the retainer being paid to the then current members of the Board of Directors for a period corresponding in duration to his service on the Board of Directors. All payments cease on the death of a retired director. This plan is described in the minutes of the Board of Directors for the January 1989 meeting and no other formal documentation has been prepared previously for this plan.

With the changes in director compensation approved on January 28, 2005, and described in other sections of this Form 8-K, the Board of Directors approved the freezing of participation in, and service credit under, the plan, and approved the Directors Retirement Plan to document the plan formally. Under the Directors Retirement Plan, a director is eligible to receive payments if the director retires at the mandatory retirement age, at an age or under circumstance expressly approved by the Board of Directors, or because of sickness or disability that ends his active business career. The Directors Retirement Plan is filed as Exhibit 10.3 to this Form 8-K.

Actions by the Compensation Committee

The Compensation Committee approved, and the Board of Directors ratified on January 28, 2005, awards under the 2005 Stock Plan and the Management Incentive Plan, for the Company’s executive officers and other employees of the Company and its subsidiaries. The Compensation Committee also approved changes in compensation payable to the Company’s directors. These actions are described in greater detail in the other sections of this Form 8-K.

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Awards under the 2005 Stock Plan

The Compensation Committee approved, and the Board of Directors ratified on January 28, 2005, performance grants under the 2005 Stock Plan to the Company’s executive officers and 9 other employees of the Company or its subsidiaries. A performance grant is an award of a base number of performance shares. A total of 192,080 performance shares were covered by the awards. Of these awards, 34,570 performance shares have a one-year performance period from November 1, 2004 through October 31, 2005; 69,140 performance shares have a two-year performance period from November 1, 2004 through October 31, 2006; and 88,370 performance shares have a three-year performance period from November 1, 2004 through October 31, 2007. The performance grants to the Company’s executive officers are as follows:

Executive Officer	One-Year Performance Period	Two-Year Performance Period	Three-Year Performance Period
Donald G. Smith	11,485	22,970	15,545
T. Joe Crawford	6,070	12,140	18,210
Timothy R. Duke	4,150	8,300	12,450
Donald R. Higgins	2,050	4,100	6,150
Mark G. Meikle	3,000	6,000	9,000
William M. Watson, Jr.	2,295	4,590	6,885

An employee is entitled to receive one share of Company common stock for each performance share that vests at the end of a specified performance period. For any performance shares to vest, the employee must remain in continuous employment until the end of the performance period (subject to certain exceptions, as described below). The number of performance shares that vest will be determined based on the Company’s average return on invested capital relative to the average return on invested capital of peer companies for the performance period. The percentage of performance shares that vest for a performance period will be determined according to the following table:

Company’s relative average return on invested capital (expressed as a percentile of that of the peer group)	Percentage of base number of performance shares that become vested
95th	200	%
90th	175	%
85th	150	%
80th	125	%
75th	100	%
70th	90	%
65th	80	%
60th	70	%
55th	60	%
50th	50	%
45th	25	%
Below 45th	0	%

Notwithstanding this schedule, if the Company’s average return on invested capital is negative for a performance period, no more than 25% of the base number of performance shares for that period may vest. The peer group of companies consists primarily of US publicly traded companies with a Standard & Poors Global Industry Classification System code of 15104050 (which code applies to companies in the steel industry).

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If an employee dies or becomes disabled prior to the end of a performance period, the employee will be deemed to have continued in employment through the end of the relevant performance period and will vest in the same number of performance shares in which the employee would have vested had the employee actually remained in continuous employment until the end of the performance period. Employees who retire prior to the end of a performance period will vest in a prorated portion of the total performance shares in which they would have vested had they remained in continuous employment until the end of the performance period. The proration will be based on the number of days during the performance period which elapsed prior to the employee’s retirement. An employee is eligible to retire after having attained age 62, or, if earlier, after having attained age 55 and completed 10 years of service.

In the event of a change of control, 100% of an employee’s base number of performance shares will vest. The Company will settle such vested performance shares in cash, instead of in shares of Company common stock, in an amount equal to the aggregate fair market value of shares of the Company’s common stock in equal in number to the employee’s vested performance shares.

Awards under the Management Incentive Plan

The Compensation Committee approved, and the Board of Directors ratified on January 28, 2005, awards under the Management Incentive Plan to the Company’s executive officers and 9 other employees of the Company or its subsidiaries. The annual incentive awards for the Company’s executive officers are as follows:

Executive Officer	Target Bonus (as a percentage of base salary)
Donald G. Smith	60	%
T. Joe Crawford	50	%
Timothy R. Duke	40	%
Donald R. Higgins	40	%
Mark G. Meikle	40	%
William M. Watson, Jr.	40	%

The awards for the other employees of the Company or its subsidiaries are equal to either 40% or 30% of base salary.

The awards permit each employee to earn a cash bonus equal to a percentage of base salary noted above if the prescribed performance measure is achieved for the period from November 1, 2004 through October 31, 2005. Subject to the dollar limit contained in the Management Incentive Plan to comply with the requirements of the Internal Revenue Code, the maximum bonus is equal to 200% of the target percentage and the threshold bonus is equal to 25% of the target percentage.

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The performance measure that will be used for determining whether any bonus is earned by an employee is “earnings before interest, taxes, depreciation, and amortization” (“EBITDA”). For employees who are employed by a subsidiary of the Company, the subsidiary’s EBITDA will be used as the applicable performance measure, and for those employees who are employed by the Company, the Company’s consolidated EBITDA will be used as the applicable performance measure.

The level of EBITDA necessary to earn the threshold, target and maximum bonus amounts is based on the Company’s and each subsidiary’s historical annual EBITDA for each of the years in the ten-year period from 1995 to 2004. The level of EBITDA necessary to earn 25%, 100% and 200% of the target percentage was set at levels with a probability of achievement of 90%, 50% and 20%, respectively. Bonus amounts between the threshold and the target and between the target and the maximum will be based on interpolated performance levels between the specified levels.

An employee will forfeit his award under the Management Incentive Plan if he terminates employment during the performance period other than because of death, disability, retirement or termination without cause. Upon the occurrence of any of these events, the Compensation Committee will determine what portion of the award, if any, that the employee will receive and when the award will be paid. In the event of a change of control, an employee will be paid as though the Company had achieved performance necessary to earn the target bonus.

The Company has, or will pay, for the months of November and December, 2004, and January 2005, bonuses pursuant to the terms of the incentive compensation arrangements that the Company had in place prior to the approval of the Management Incentive Plan by shareholders on January 28, 2005. To ensure that employees participating in the Management Incentive Plan do not receive bonuses under both plans for the period from November 1, 2004 through October 31, 2005, the Compensation Committee will pro-rate the bonuses payable under the Management Incentive Plan and pay to employees 75% of the amount earned for such period.

Directors Compensation

The Compensation Committee approved, and the Board of Directors ratified, the following changes in the compensation payable to the Company’s directors, effective as of February 1, 2005:

Category	Change
Participants:	Outside directors only
Annual Board Retainer:	Increased from $12,000 to $15,000
Annual Committee Chair Retainer:	$3,000

No changes were made in the fees payable for meetings of the Board of Directors or Board committees, which fees remain at $1,000 for each meeting of the Board of Directors, $1,000 for each meeting of the Audit Committee, and $750 for all other committees.

Based on the recommendation of the Compensation Committee, the Board of Directors also approved, on January 28, 2005, the freezing of participation in, and the service credit under, the Company’s retirement plan for directors. With these changes, the accumulated service under the plan with respect to the Company’s current directors is as follows: 169 months for Mr. Cartledge; 7 months for Mr. Crawford; 73 months for Mr. Duke; 94 months for Mr. Logan; 323 months for Mr. Lunsford; 157 months for Mr. Robertson; 250 months for Mr. Smith; 36 months for Dr. Steger; and 12 months for Mr. Vipperman. Although Messrs Crawford, Steger, and Vipperman have credited service under the Directors Retirement Plan, they will not receive payments until they have the requisite service on the Board of Directors.

5

Pursuant to the terms of the 2005 Stock Incentive Plan, each of the Company’s outside directors received an automatic award of 1,500 shares of restricted stock on January 28, 2005. The shares of restricted stock will become fully vested and transferable if the outside director remains in continuous service on the Board of Directors until January 28, 2006. The shares of restricted stock will become fully vested and transferable prior to that date if the outside director dies or becomes disabled or if the Company experiences a change of control, while serving as an outside director.

With the adoption of the 2005 Stock Incentive Plan, and pursuant to the terms of the 2005 Stock Incentive Plan, each of the Company’s outside directors has the ability to elect to defer, in 25% increments, the retainer and meeting fees they are entitled to receive. The elections for the period from March 2005 through December 2005 must be received by the Company no later than February 28, 2005.

Item 9.01. Financial Statements and Exhibits

(c) Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the signature page are filed as part of, and incorporated into, this report.

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SIGNATURES

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

ROANOKE ELECTRIC STEEL CORPORATION
By:	/s/ Donald G. Smith
	Donald G. Smith
	Chairman and Chief Executive Officer

Dated: February 3, 2005

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
10.1	Roanoke Electric Steel Corporation 2005 Stock Incentive Plan (FILED HEREWITH)
10.2	Roanoke Electric Steel Corporation Annual Management Incentive Plan (FILED HEREWITH)
10.3	Roanoke Electric Steel Corporation Amended and Restated Retirement Plan for Directors (FILED HEREWITH)

EX-10.1

Exhibit 10.1

EXHIBIT A

ROANOKE ELECTRIC STEEL CORPORATION

2005 STOCK INCENTIVE PLAN

1. Purpose. The purposes of this Roanoke Electric Steel Corporation 2005 Stock Incentive Plan (the “Plan”) are (i) to encourage outstanding individuals to accept or continue employment with Roanoke Electric Steel Corporation (the “Company”) and its subsidiaries or to serve as outside directors of the Company, and (ii) to furnish maximum incentive to those persons to improve operations and increase profits and to strengthen the mutuality of interest between those persons and the Company’s shareholders by providing them with stock options and other stock and cash incentives. The Plan is intended to operate in compliance with the provisions of Securities and Exchange Commission Rule 16b-3.

2. Definitions. As used in the Plan, the following terms have the meanings indicated:

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Applicable Withholding Taxes” means the aggregate amount of federal, state and local income and payroll taxes that an Company is required to withhold in connection with any Performance Grant, any lapse of restrictions on or payment with respect to Restricted Stock or Restricted Stock Units, or any exercise of a Nonstatutory Stock Option or Stock Appreciation Right.

(c) “Board” means the board of directors of the Company.

(d) “Change in Control” means the occurrence of any of the following events:

(i) any Person becomes the “beneficial owner” (as defined in Rule 13d-3 or Rule 13d-5 under the Act), directly or indirectly, of 20% or more of the combined voting power of the Company’s then outstanding voting securities;

(ii) the Incumbent Board ceases for any reason to constitute at least the majority of the Board; provided, however, that any person becoming a director subsequent to the effective date of the Plan (as set forth in Section 15) whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board;

(iii) all or substantially all of the assets of the Company are sold, transferred or conveyed and the transferee of such assets is not controlled by the Company (control meaning the ownership of more than 51% of the combined voting power of such entity’s then outstanding voting securities); or

(iv) the Company is reorganized, merged or consolidated, and the shareholders of the Company immediately prior to such reorganization, merger or consolidation own in the aggregate 51% or less of the outstanding voting securities of the surviving or resulting corporation or entity from such reorganization, merger or consolidation.

Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred with respect to a Participant by virtue of any transaction (i) which results in the Participant or a group of Persons which includes the Participant, acquiring, directly or indirectly, 20% or

more of the combined voting power of the Company’s then outstanding voting securities; or (ii) which results in the Company, any subsidiary or any profit-sharing plan, employee stock ownership plan or employee benefit plan of the Company or any subsidiary (or any trustee of or fiduciary with respect to any such plan acting in such capacity) acquiring, directly or indirectly, 20% or more of the combined voting power of the Company’s then outstanding voting securities. For purposes of this section, the term “Incumbent Board” means the individuals who constitute the Board as of the effective date of the Plan (as described in Section 15), and the term “Person” has the meaning assigned to that term in Sections 3(a)(9) and 13(d)(3) of the Act.

(e) “Code” means the Internal Revenue Code of 1986, as amended, and as may be amended from time to time. Any reference in the Plan to a specific section of the Code shall include any successor provision of the Code.

(f) “Committee” means, the Compensation Committee of the Board. Each member of the Committee shall satisfy such requirements as may be established by the NASDAQ Stock Market. In addition, if any member of the Compensation Committee does not qualify as an outside director for purposes of Code section 162(m) or as a non-employee director for purposes of Rule 16b-3, the remaining members of that committee (but not less than two members) shall be constituted as a subcommittee of the Compensation Committee to act as the Committee for purposes of the Plan.

(g) “Company Stock” means common stock of the Company. In the event of a change in the capital structure of the Company (as provided in Section 17), the shares resulting from such a change shall be deemed to be Company Stock within the meaning of the Plan.

(h) “Date of Grant” means the date on which the Committee grants an Incentive Award.

(i) “Deferred Shares” means shares of Company Stock awarded in connection with an Outside Director’s deferral of retainer and meeting fees upon the terms and subject to the restrictions of Section 14.

(j) “Disability” or “Disabled” means, as to an Incentive Stock Option, a Disability within the meaning of Code section 22(e)(3). As to all other Incentive Awards, the Committee shall determine whether a Disability exists and such determination shall be conclusive.

(k) “Fair Market Value” means the average of the high and low sales prices of a share of Company Stock, as reported by Bloomberg or other financial reporting service selected by the Company, as of the last day on which Company Stock is traded preceding the Date of Grant or preceding any other date for which the value of Company Stock must be determined under the Plan.

(l) “Incentive Award” means, collectively, an award of an Option, Restricted Stock, a Restricted Stock Unit, a Stock Appreciation Right, a Performance Grant or a Deferred Share under the Plan.

(m) “Incentive Stock Option” means an Option intended to meet the requirements of, and qualify for favorable federal income tax treatment under, Code section 422.

(n) “Mature Shares” means previously acquired shares of Company Stock for which the holder thereof has good title, free and clear of all liens and encumbrances, and which such holder has held for at least six months if the Company is accounting for Incentive Awards using APB Opinion 25, or has purchased on the open market.

(o) “Nonstatutory Stock Option” means an Option that does not meet the requirements of Code section 422, or, even if meeting the requirements of Code section 422, is not intended to be an Incentive Stock Option and is so designated.

(p) “Option” means a right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan.

(q) “Outside Director” means any member of the Board who is not otherwise an employee of the Company or any of its subsidiaries.

(r) “Participant” means any employee or Outside Director of the Company who receives an Incentive Award under the Plan.

(s) “Performance Criteria” means any of the following areas of performance of the Company: total shareholder return, revenue, gross profit, EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes), operating income, pre-tax earnings, net operating profit after taxes, net income, earnings per share, gross margin, operating margin, net margin, operating cash flow, free cash flow, return on assets, return on invested capital, and return on equity. Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company, and may be measured relative to a peer group or index.

(t) “Performance Goal” means an objectively determinable performance goal established by the Committee with respect to a given Performance Grant or a grant of Restricted Stock or Restricted Stock Units that relates to one or more Performance Criteria.

(u) “Performance Grant” means an Incentive Award made pursuant to Section 10.

(v) “Plan Year” means January 1 to December 31.

(w) “Restricted Stock” means Company Stock awarded upon the terms and subject to the restrictions set forth in Section 7 and Section 13.

(x) “Restricted Stock Unit” means a right to receive Company Stock, cash or a combination of Company Stock or cash upon the terms and subject to the conditions of Section 8.

(y) “Rule 16b-3” means Rule 16b-3 of the Securities and Exchange Commission promulgated under the Act. A reference in the Plan to Rule 16b-3 shall include a reference to any corresponding rule (or number redesignation) of any amendments to Rule 16b-3 enacted after the effective date of the Plan’s adoption.

(z) “Stock Appreciation Right” means a right to receive Company Stock or cash from the Company granted under Section 9.

(aa) “Taxable Year” means the fiscal period used by the Company for reporting taxes on income under the Code.

3. General. The following types of Incentive Awards may be granted under the Plan: Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Grants and Deferred Shares. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options.

4. Stock.

(a) Subject to Section 17 of the Plan, there shall be reserved for issuance under the Plan an aggregate of one million seven hundred and fifty thousand (1,750,000) shares of Company Stock, which shall be authorized but unissued shares. No more than one million five hundred thousand (1,500,000) shares of the total shares may be issued to Participants who are employees of the Company or its subsidiaries, and no more than two hundred fifty thousand (250,000) shares of the total shares may be issued to Outside Directors. In addition, no more than one hundred thousand (100,000) shares may be allocated to the Incentive Awards, including the maximum shares payable under a Performance Grant, that are granted during any single Taxable Year to any individual Participant who is an employee of the Company or any subsidiary of the Company. All of the shares available for issuance to Participants who are employees of the Company or its subsidiaries may, but need not, be issued pursuant to the exercise of Incentive Stock Options. Shares covered by an Incentive Award granted under the Plan shall not be counted as used unless and until they are actually issued and delivered to a Participant.

(b) Shares allocable to Incentive Awards or portions thereof granted under the Plan that expire, are forfeited, lapse or otherwise terminate or are cancelled shall be added to the shares available for Incentive Awards under the Plan. Any shares covered by a Stock Appreciation Right shall be counted as used only to the extent shares are actually issued to the Participant when the Stock Appreciation Right is exercised. In addition, any shares of Company Stock exchanged by a Participant as full or partial payment to the Company of the exercise price under an Option, any shares retained by the Company in satisfaction of a Participant’s obligations to pay Applicable Withholding Taxes with respect to any Incentive Award and any shares of Company stock covered by an Incentive Award that is settled in cash shall be added to the shares available for Incentive Awards under the Plan.

(c) The Committee is expressly authorized to make an Incentive Award to a Participant conditioned upon the surrender for cancellation of an option granted under an existing Incentive Award. However, without prior shareholder approval, the Committee is expressly prohibited from making a new Incentive Award in the form of an Option if the exercise price of the new Option is less than the exercise price of the Option under the existing Incentive Award surrendered for cancellation. In addition, the Committee is expressly prohibited from making a new Incentive Award of Restricted Stock or Restricted Stock Units if the exercise price of the outstanding Option exceeds the Fair Market Value of the shares of Company Stock allocated to the Option on the date of the surrender or cancellation of the Option, unless otherwise approved by the Company’s shareholders.

5. Eligibility.

(a) All present and future employees of the Company or any subsidiary of the Company (whether now existing or hereafter created or acquired) whom the Committee determines to have contributed or who can be expected to contribute significantly to the Company or any subsidiary of the Company shall be eligible to receive Incentive Awards under the Plan. The Committee shall have the power and complete discretion, as provided in Section 18, to select eligible employees to receive Incentive Awards and to determine for each employee the nature of the award and the terms and conditions of each Incentive Award.

(b) The grant of an Incentive Award shall not obligate the Company or any subsidiary of the Company to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter.

(c) Present and future Outside Directors shall be eligible to receive Restricted Stock and Deferred Shares pursuant to the terms of Sections 13 and 14 of the Plan. Outside Directors shall not be entitled to receive any of the other types of Incentive Awards under the Plan.

6. Stock Options.

(a) The Committee may make grants of Options to Participants. Whenever the Committee deems it appropriate to grant Options, notice shall be given to the Participant stating the number of shares for which Options are granted, the Option price per share, whether the Options are Incentive Stock Options or Nonstatutory Stock Options, the extent to which Stock Appreciation Rights are granted (as provided in Section 10), and the conditions to which the grant and exercise of the Options are subject. This notice, when duly accepted in writing by the Participant, shall become a stock option agreement between the Company and the Participant. Only employees described in Section 5(a) shall be eligible to receive awards of Incentive Stock Options.

(b) The exercise price of shares of Company Stock covered by an Option shall be not less than 100% of the Fair Market Value of such shares on the Date of Grant.

(c) Options may be exercised in whole or in part at such times as may be specified by the Committee in the Participant’s stock option agreement; provided that no Option may be exercised after the expiration of ten (10) years from the Date of Grant and provided that the exercise provisions for Incentive Stock Options shall in all events not be more liberal than the following provisions:

(i) No Incentive Stock Option may be exercised after the first to occur of (x) ten years from the Date of Grant, (y) three months following the date of the Participant’s retirement or termination of employment with the Company and all subsidiaries of the Company for reasons other than Disability or death, or (z) one year following the date of the Participant’s termination of employment on account of Disability or death.

(ii) An Incentive Stock Option by its terms, shall be exercisable in any calendar year only to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the Company Stock with respect to which Incentive Stock Options are exercisable for the first time during the calendar year does not exceed $100,000 (the “Limitation Amount”). Incentive Stock Options granted under the Plan and all other plans of any Company shall be aggregated for purposes of determining whether the Limitation Amount has been exceeded. The Committee granting the Option may impose such conditions as it deems appropriate on an Incentive Stock Option to ensure that the foregoing requirement is met. If Incentive Stock Options that first become exercisable in a calendar year exceed the Limitation Amount, the excess Options will be treated as Nonstatutory Stock Options to the extent permitted by law.

7. Restricted Stock Awards.

(a) The Committee may make grants of Restricted Stock to Participants. Whenever the Committee deems it appropriate to grant Restricted Stock, notice shall be given to the Participant stating the number of shares of Restricted Stock granted and the terms and conditions to which the Restricted Stock is subject. This notice, when accepted in writing by the Participant, shall become the award agreement between the Company and the Participant. Restricted Stock may be awarded by the Committee in its discretion without cash consideration.

(b) No shares of Restricted Stock may be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of until the restrictions on such shares as set forth in the Participant’s Grant Agreement have expired or been removed pursuant to paragraph (d) or (e) below.

(c) Upon the acceptance by a Participant of an award of Restricted Stock, such Participant shall, subject to the restrictions set forth in paragraph (b) above, have all the rights of a shareholder with respect to such shares of Restricted Stock, including, but not limited to, the right to vote such shares of Restricted Stock and the right to receive all dividends and other distributions paid thereon. Certificates representing Restricted Stock shall be held by the Company until the restrictions expire and the Participant shall provide the Company with appropriate stock powers endorsed in blank.

(d) The Committee shall establish as to each award of Restricted Stock the terms and conditions upon which the restrictions set forth in paragraph (b) above shall expire. The terms and conditions may include the achievement of a Performance Goal. Restrictions conditioned on the passage of time shall not expire less than three years from the Date of Grant of the Restricted Stock, and restrictions conditioned on the achievement of Performance Goals shall not expire less than one year from the Date of Grant. Notwithstanding the foregoing, the Committee may in its discretion, and without limitation, provide that restrictions will expire as a result of the Disability, death or retirement of the Participant or the occurrence of a Change in Control. The terms and conditions of a Restricted Stock award shall be governed by the provisions of Section 10 to the extent that the award is intended to comply with the requirements of Code section 162(m).

(e) Notwithstanding the provisions of paragraph (b) above, the Committee may at any time, in its sole discretion, modify the terms and conditions of a Restricted Stock Award (including any or all of the restrictions applicable thereto), subject to the restrictions of Section 10 as to any Performance Goal if the award is intended to comply with the requirements of Code section 162(m).

(f) Each Participant shall agree at the time his or her Restricted Stock is granted, and as a condition thereof, to pay to the Company, or make arrangements satisfactory to the Company regarding the payment to the Company of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Company have been made, no stock certificate free of a legend reflecting the restrictions set forth in paragraph (b) above shall be issued to such Participant. As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Taxes, if the terms of the grant so permit, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Company retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes.

8. Restricted Stock Unit Awards.

(a) The Committee may make grants of Restricted Stock Units to Participants. Whenever the Committee deems it appropriate to grant Restricted Stock Units, notice shall be given to the Participant stating the number of Restricted Stock Units granted and the terms and conditions to which the Restricted Stock Units are subject. This notice, when duly accepted in writing by the Participant, shall become the award agreement between the Company and the Participant. Restricted Stock Units may be awarded by the Committee in its discretion without cash consideration.

(b) Restricted Stock Units shall be subject to such restrictions as the Committee determines, including, without limitation, any of the following:

(i) a prohibition against sale, assignment, transfer, pledge, hypothecation or other encumbrance for a specified period; or

(ii) a requirement that the holder forfeit such units in the event of termination of employment during the period of restriction.

All restrictions shall expire at such times as the Committee shall specify. Restrictions conditioned on the passage of time shall not expire less than three years from the Date of Grant of the Restricted Stock Units, and restrictions conditioned on the achievement of performance goals shall not expire less than one year from the Date of Grant. Notwithstanding the foregoing, the Committee may in its discretion, and without limitation, provide that restrictions will expire as a result of the Disability, death or retirement of the Participant or the occurrence of a Change in Control. In addition, the Committee may at any time, in its sole discretion, modify the terms and conditions of a Restricted Stock Unit Award (including any or all of the restrictions applicable thereto), subject to the restrictions of Section 10 as to any Performance Goal if the award is intended to comply with the requirements of Code section 162(m).

(c) The Committee may also establish such other terms and conditions as it deems appropriate for an award of Restricted Stock Units. The terms and conditions may include the achievement of a Performance Goal. The terms and conditions of a Restricted Stock Unit award shall be governed by the provisions of Section 10 to the extent that the award is intended to comply with the requirements of Code section 162(m).

(d) Each Participant shall agree at the time his or her Restricted Stock Units are granted, and as a condition thereof, to pay to the Company or make arrangements satisfactory to the Company regarding the payment to the Company of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Company have been made, no stock certificates shall be issued to such Participant. As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Taxes, if the terms of the grant so permit, the Participant may elect to (i) deliver Mature Shares or (ii) have the Company retain the number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes.

(e) Except to the extent this Plan or the Committee specifies otherwise, Restricted Stock Units represent an unfunded and unsecured obligation of the Company and do not confer any of the rights of a shareholder until shares of Company Stock are issued thereunder. Settlement of Restricted Stock Units upon expiration of the vesting period or any later period of deferral shall be made in shares of Company Stock or otherwise as determined by the Committee. The number of shares, or other settlement medium, to be so distributed may be increased by an interest factor or by dividend equivalents. Until a Restricted Stock Unit is so settled, the number of shares represented by a Restricted Stock Unit shall be subject to adjustment pursuant to Section 17. Any Restricted Stock Units that are settled after the Participant’s death shall be distributed to the Participant’s designated beneficiary(ies) or, if none was designated, the Participant’s estate.

9. Stock Appreciation Rights.

(a) Whenever the Committee deems it appropriate, Stock Appreciation Rights may be granted in connection with all or any part of an Option to a Participant or in a separate Incentive Award.

(b) The following provisions apply to all Stock Appreciation Rights that are granted in connection with Options:

(i) Stock Appreciation Rights shall entitle the Participant, upon exercise of all or any part of the Stock Appreciation Rights, to surrender to the Company unexercised that portion of the underlying

Option relating to the same number of shares of Company Stock as is covered by the Stock Appreciation Rights (or the portion of the Stock Appreciation Rights so exercised) and to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Company Stock covered by the surrendered portion of the underlying Option over (y) the exercise price of the Company Stock covered by the surrendered portion of the underlying Option. The Committee may limit the amount that the Participant will be entitled to receive upon exercise of Stock Appreciation Rights.

(ii) Upon the exercise of a Stock Appreciation Right and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, shall not thereafter be exercisable.

(iii) Subject to any further conditions upon exercise imposed by the Board, a Stock Appreciation Right shall be exercisable only to the extent that the related Option is exercisable and a Stock Appreciation Right shall expire no later than the date on which the related Option expires.

(iv) The Stock Appreciation Right is only transferable when the related Options are otherwise transferable.

(v) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Company Stock covered by the Stock Appreciation Right exceeds the exercise price of the Company Stock covered by the underlying Option.

(c) The following provisions apply to all Stock Appreciation Rights that are not granted in connection with Options:

(i) Stock Appreciation Rights shall entitle the Participant, upon exercise of all or any part of the Stock Appreciation Rights, to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Company Stock covered by the surrendered Stock Appreciation Right over (y) the Fair Market Value of the Company Stock on the Date of Grant of the Stock Appreciation Right. The Committee may limit the amount that the Participant will be entitled to receive upon exercise of Stock Appreciation Rights.

(ii) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Company Stock covered by the Stock Appreciation Right exceeds the Fair Market Value of the Company Stock on the Date of Grant of the Stock Appreciation Right.

(d) The manner in which the Company’s obligation arising upon the exercise of a Stock Appreciation Right shall be paid shall be determined by the Committee and shall be set forth in the Incentive Award. The Incentive Award may provide for payment in Company Stock or cash, or a fixed combination of Company Stock or cash, or the Committee may reserve the right to determine the manner of payment at the time the Stock Appreciation Right is exercised. Shares of Company Stock issued upon the exercise of a Stock Appreciation Right shall be valued at their Fair Market Value on the date of exercise.

10. Performance Grants.

(a) Each Performance Grant shall be evidenced by an agreement (a “Grant Agreement”) setting forth the Performance Goals for the award, including the Performance Criteria, the target and maximum amounts payable and such other terms and conditions as are applicable to the Performance Grant. Each Performance

Grant shall be granted and administered to comply with the requirements of Code section 162(m). The aggregate maximum cash amount payable under the Plan in any Taxable Year to any Participant (who is an employee of the Company or any subsidiary of the Company) shall not exceed $2,000,000. In the event of any conflict between a Grant Agreement and the Plan, the terms of the Plan shall govern.

(b) The Committee shall establish the Performance Goals for Performance Grants. The Committee shall determine the extent to which any Performance Criteria shall be used and weighted in determining Performance Grants. The Committee may vary the Performance Criteria, Performance Goals and weightings from Participant to Participant, Performance Grant to Performance Grant and Plan Year to Plan Year. The Committee may increase, but not decrease, any Performance Goal during a Plan Year.

(c) The Committee shall establish for each Performance Grant the amount of cash or Company Stock payable at specified levels of performance, based on the Performance Goal for each Performance Criteria. Any Performance Grant shall be made not later than 90 days after the start of the period for which the Performance Grant relates and shall be made prior to the completion of 25% of such period. All determinations regarding the achievement of any Performance Goals will be made by the Committee. The Committee may not increase during a Plan Year the amount of cash or Common Stock that would otherwise be payable upon achievement of the Performance Goal or Goals but may reduce or eliminate the payments as provided in a Performance Grant.

(d) The actual payments to a Participant under a Performance Grant will be calculated by applying the achievement of a Performance Criteria to the Performance Goal as established in the Grant Agreement. All calculations of actual payments shall be made by the Committee and the Committee shall certify in writing the extent, if any, to which the Performance Goals have been met.

(e) Performance Grants will be paid in cash, Company Stock or both, at such time or times as are provided in the Grant Agreement. The Committee may provide in the Grant Agreement that the Participant may make a prior election to defer the payment under a Performance Grant subject to such terms and conditions as the Committee may determine.

(f) Nothing contained in the Plan will be deemed in any way to limit or restrict any Company or the Committee from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

(g) A Participant who receives a Performance Grant payable in Company Stock shall have no rights as a shareholder until the Company Stock is issued pursuant to the terms of the Performance Grant. The Company Stock may be issued without cash consideration.

(h) A Participant’s interest in a Performance Grant may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered.

(i) Whenever payments under a Performance Grant are to be made in cash, the Company will withhold therefrom an amount sufficient to satisfy any Applicable Withholding Taxes. Each Participant shall agree as a condition of receiving a Performance Grant payable in the form of Company Stock, to pay to the Company, or make arrangements satisfactory to the Company regarding the payment to the Company of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Company have been made, no stock certificate shall be issued to such Participant. As an alternative to

making a cash payment to the Company to satisfy Applicable Withholding Taxes, if the grant so permits, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Company retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes.

11. Method of Exercise of Options and Stock Appreciation Rights.

(a) Options and Stock Appreciation Rights may be exercised by the Participant giving written notice of the exercise to the Company, stating the number of shares the Participant has elected to purchase under the Option or the number of Stock Appreciation Rights the Participant has elected to exercise. In the case of the purchase of shares under an Option, such notice shall be effective only if accompanied by the exercise price in full in cash; provided, however, that if the terms of an Option so permit, the Participant may (i) deliver Mature Shares (valued at their Fair Market Value) in satisfaction of all or any part of the exercise price or a certificate of ownership of such Mature Shares, (ii) cause to be withheld from the Option shares, shares of Company Stock (valued at their Fair Market Value) in satisfaction of all or any part of the exercise price, or (iii) deliver a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company, from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the amount necessary to pay the exercise price and, if required by the terms of the Option, Applicable Withholding Taxes, or (iv) such other methods of payment as the Committee, at its discretion, deems appropriate.

(b) The Company may place on any certificate representing Company Stock issued upon the exercise of an Option or a Stock Appreciation Right any legend deemed desirable by the Company’s counsel to comply with federal or state securities laws, and the Company may require a customary written indication of the Participant’s investment intent. Until the Participant has made any required payment, including any Applicable Withholding Taxes, and has had issued a certificate for the shares of Company Stock acquired, he or she shall possess no shareholder rights with respect to the shares.

(c) Each Participant shall agree as a condition of the exercise of an Option or a Stock Appreciation Right, to pay to the Company, or make arrangements satisfactory to the Company regarding the payment to the Company of, Applicable Withholding Taxes. Until such amount has been paid or arrangements satisfactory to the Company have been made, no stock certificate shall be issued upon the exercise of an Option or cash paid upon the exercise of a Stock Appreciation Right.

(d) As an alternative to making a cash payment to the Company to satisfy Applicable Withholding Taxes, if the Option or Stock Appreciation Rights agreement so provides, the Participant may elect to (i) to deliver Mature Shares (valued at their Fair Market Value) or (ii) to have the Company retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes.

12. Transferability of Options and Stock Appreciation Rights. Nonstatutory Stock Options and Stock Appreciation Rights may be transferable by a Participant and exercisable by a person other than the Participant, but only to the extent specifically provided in the Incentive Award. Incentive Stock Options, by their terms, shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable, during the Participant’s lifetime, only by the Participant.

13. Annual Restricted Stock Award for Outside Directors. Immediately following each annual meeting of the Company’s shareholders (the “Annual Grant Date”), each Outside Director shall be granted, without further action on the part of the Board or the Committee, one thousand five hundred (1,500) shares of Restricted Stock. The award agreement evidencing such grant of Restricted Stock shall provide that the Restricted Stock will become fully vested, and the restrictions (as determined in accordance with Section 7) applicable to the Restricted Stock Award shall lapse, on the first anniversary of the Annual Grant Date if the Outside Director continuously serves as an Outside Director from the Annual Grant Date to the first anniversary of the such date or, if earlier, the death of the Outside Director.

14. Deferral of Retainer and Meeting Fees by Outside Directors.

(a) Each Outside Director may elect in advance of the Plan Year to defer payment of twenty-five percent (25%), fifty percent (50%), seventy-five percent (75%) or one-hundred percent (100%) of the retainer and meeting fees that the Outside Director is entitled to receive during such Plan Year. A deferral election must be made before the first day of the Plan Year to which the deferral election relates, and shall be irrevocable for such Plan Year. If an Outside Director makes a deferral election, the Company shall credit each month to a book account (the “Deferred Fees Account”) an amount equal to the fees that the Outside Director has elected to defer for that month. As of the first business day of each calendar month, the total amount of deferred fees credited to each Outside Director’s Deferred Fees Account shall be converted to whole and fractional Deferred Shares. The number of whole and fractional Deferred Shares shall be determined by dividing the total amount of deferred fees credited to the Outside Director’s Deferred Fees Account as the last business day of the prior month, by the Fair Market Value of Company Stock on that date.

(b) An Outside Director’s whole and fractional Deferred Shares shall be held by the Company, or by the trustee of a grantor trust established by the Company to hold such Deferred Shares. Dividends and cash distributions with respect to the Deferred Shares held for an Outside Director shall be used to purchase additional Deferred Shares directly from the Company in accordance with the terms of the Company’s Dividend Reinvestment Plan. Deferred Shares shall remain subject to the claims of the Company’s creditors, and may not be sold, hypothecated or transferred (including, without limitation, transfer by gift), except that such restrictions on Deferred Shares shall lapse when such Deferred Shares are distributed to Outside Directors in accordance with the provisions of subsection (c) below.

(c) An Outside Director’s Deferred Shares shall be distributed after the earliest of:

(i) the Outside Director’s death,

(ii) the date the Outside Director becomes disabled, as defined for purposes of Code section 409A,

(iii) the Outside Director’s separation from service as an Outside Director, or

(iv) a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as defined for purposes of Code section 409A.

An Outside Director’s Deferred Shares shall be paid in the method elected by the Outside Director at the time he or she first elects to defer the payment of fees pursuant to this Section 14. The available methods of distribution shall be a single lump payment, substantially equal annual installment payments over a period of two years or substantially equal annual installment payments over a period of three years. A distribution

election shall be irrevocable once it is made. If an Outside Director has not designated the method in which his or her Deferred Shares are to be paid, the Deferred Shares shall be distributed to the Participant in a single lump sum payment. Payment shall be made or shall begin to be made (depending on the method of distribution) within 40 business days after the applicable distribution event.

(d) When Deferred Shares become distributable to an Outside Director, the Company shall not issue fractional Deferred Shares. Whenever a fractional Deferred Share would otherwise be required to be issued, the Outside Director shall be paid in cash for such fractional Deferred Share based upon the Fair Market Value on, or as of a recent date prior to, the date of distribution.

(e) Elections to defer retainer and meeting fees may first be made by Outside Directors during the thirty-day period immediately following January 28, 2005, and will be effective for retainer and meeting fees earned for services performed after March 1, 2005. Elections to defer retainer and meeting fees for subsequent Plan Years must be made before the close of the preceding Plan Year, or at such other time as may be permitted under applicable regulations issued under Code section 409A.

15. Effective Date of the Plan. This Plan was approved by the Board on December 21, 2004, and will become effective on January 28, 2005, subject to approval by the affirmative vote of the holders of a majority of the votes cast at the 2005 Annual Meeting of the Company’s shareholders.

16. Termination, Modification, Change. If not sooner terminated by the Company’s board of directors, this Plan shall terminate at the close of business on December 21, 2014. No Incentive Awards shall be made under the Plan after its termination. The Board may amend or terminate the Plan in such respects as it shall deem advisable; provided that, if and to the extent required by the Code or by requirements of the NASDAQ Stock Market, no change shall be made that increases the total number of shares of Company Stock reserved for issuance pursuant to Incentive Awards granted under the Plan (except pursuant to Section 17), materially modifies the requirements as to eligibility for participation in the Plan, materially increases the benefits accruing to Participants under the Plan, or expands the types of Incentive Awards provided under the Plan, unless such change is authorized by the shareholders of the Company. The Board may unilaterally amend Incentive Awards with respect to Participants, and the Plan subject to the limitations described in the preceding sentence, as it deems appropriate to ensure compliance with Rule 16b-3 and to cause the Plan and any Incentive Awards to meet the requirements of the Code and regulations and other interpretation and guidance issued thereunder, including but not limited to Code section 409A. Except as provided in the preceding sentence, a termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect a Participant’s rights under an Incentive Award previously granted to him or her.

17. Change in Capital Structure.

(a) In the event of a stock dividend, stock split or combination of shares, recapitalization or merger in which the Company is the surviving corporation or other change in the Company’s capital stock (including, but not limited to, the creation or issuance to shareholders generally of rights, options or warrants for the purchase of common stock or preferred stock of the Company), the number and kind of shares of stock or securities of the Company to be subject to the Plan and to Options then outstanding or to be granted thereunder, the maximum number of shares or securities which may be delivered under the Plan, the maximum number of shares or securities that can be granted to an individual Participant under Section 4, the exercise price, the terms of Incentive Awards and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any unexercised Option, the Committee may adjust appropriately the number of shares covered by the Option so as to eliminate the fractional shares.

(b) If the Company is a party to a consolidation or a merger in which the Company is not the surviving corporation, a transaction that results in the acquisition of substantially all of the Company’s outstanding stock by a single person or entity, or a sale or transfer of substantially all of the Company’s assets, the Committee may take such actions with respect to outstanding Incentive Awards as the Committee deems appropriate.

(c) Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee’s determination shall be conclusive and binding on all persons for all purposes.

18. Administration of the Plan.

(a) The Plan shall be administered by the Committee. Subject to the express provisions and limitations set forth in this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable, in its sole discretion, in connection with the administration of this Plan, including, without limitation, the following:

(i) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein;

(ii) to determine which persons are Participants, to which of such Participants, if any, Incentive Awards shall be granted hereunder and the timing of any such Incentive Awards, and to grant Incentive Awards;

(iii) to grant Incentive Awards to Participants and determine the terms and conditions thereof, including the number of shares of Company Stock subject to Incentive Awards and the exercise or purchase price of such shares of Company Stock and the circumstances under which Incentive Awards become exercisable or vested or are forfeited or expire, which terms may but need not be conditioned upon the passage of time, continued employment, the satisfaction of Performance Goals, the occurrence of certain events, or other factors;

(iv) to establish or verify the extent of satisfaction of any Performance Goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Incentive Award;

(v) to prescribe and amend the terms of the award agreements or other documents evidencing Incentive Awards made under this Plan (which need not be identical);

(vi) to determine whether, and the extent to which, adjustments are required pursuant to Section 17;

(vii) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Incentive Award granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and

(viii) to make all other determinations deemed necessary or advisable for the administration of this Plan.

Notwithstanding the foregoing, no “tandem stock options” (where two stock options are issued together and the exercise of one option affects the right to exercise the other option) may be issued in connection with Incentive Stock Options. The Committee shall have the power to amend the terms of previously granted Incentive Awards that were granted by that Committee so long as the terms as amended are consistent with the terms of the Plan and provided that the consent of the Participant is obtained with respect to any amendment that would be detrimental to him or her, except that such consent will not be required if such amendment is for the purpose of complying with Rule 16b-3, Code section 409A or any other section or requirement of the Code applicable to the Incentive Award.

(b) The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive as to any Participant. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel.

(c) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting.

(d) The Committee may delegate the administration of the Plan to an officer or officers of the Company, and such administrator(s) may have the authority to execute and distribute agreements or other documents evidencing or relating to Incentive Awards granted by the Committee under this Plan, to maintain records relating to the grant, vesting, exercise, forfeiture or expiration of Incentive Awards, to process or oversee the issuance of shares of Company Stock upon the exercise, vesting and/or settlement of an Incentive Award, to interpret the terms of Incentive Awards and to take such other actions as the Committee may specify, provided that in no case shall any such administrator be authorized to grant Incentive Awards under the Plan. Any action by any such administrator within the scope of its delegation shall be deemed for all purposes to have been taken by the Committee and references in this Plan to the Committee shall include any such administrator, provided that the actions and interpretations of any such administrator shall be subject to review and approval, disapproval or modification by the Committee.

19. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (a) if to the Company—at the principal business address of the Company to the attention of the Corporate Secretary of the Company; and (b) if to any Participant—at the last address of the Participant known to the sender at the time the notice or other communication is sent.

20. Compliance with the Code. The terms of this Plan are subject to the provisions of the Code and all present and future regulations and rulings of the Secretary of the Treasury of the United States or his or her delegate with respect to provisions of the Code, including but not limited to Code section 409A. The Committee shall interpret the Plan in a manner that will cause the Plan and any Incentive Award to comply with all applicable provisions of the Code.

21. General Provisions.

(a) The adoption of this Plan and any setting aside of cash amounts or shares of Company Stock by the Company with which to discharge its obligations hereunder shall not be deemed to create a trust or other funded arrangement. The benefits provided under this Plan shall be a general, unsecured obligation of the

Company payable solely from the general assets of the Company, and neither a Participant nor a Participant’s permitted transferees or estate shall have any interest in any assets of the Company by virtue of this Plan, except as a general unsecured creditor of the Company. Notwithstanding the foregoing, the Company shall have the right to implement or set aside funds in a grantor trust subject to the claims of the Company’s creditors to discharge its obligations under the Plan.

(b) The adoption of the Plan shall not affect any other stock incentive or other compensation plans in effect for the Company or any subsidiary of the Company, nor shall the Plan preclude the Company from establishing any other forms of stock incentive or other compensation for employees or Outside Directors of the Company or any subsidiary of the Company.

(c) The Plan shall be binding upon the Corporation, its successors and assigns, and the Participant, his executor, administrator and permitted transferees and beneficiaries.

(d) This Plan and any award agreements or other documents entered into in connection with the Plan shall be interpreted and construed in accordance with the laws of the Commonwealth of Virginia and applicable federal law.

EX-10.2

Exhibit 10.2

EXHIBIT B

ROANOKE ELECTRIC STEEL CORPORATION

ANNUAL MANAGEMENT INCENTIVE PLAN

1. Purpose. The Roanoke Electric Steel Corporation Annual Management Incentive Plan (the “Plan”) is intended to advance the interests of Roanoke Electric Steel Corporation, a Virginia corporation (hereinafter the “Company”), and increase shareholder value providing annual incentive awards in order to motivate executive officers and key employees of the Company and its Subsidiaries to perform to the best of their abilities, to attain performance goals relating to the performance, growth, profitability and success of the Company and its Subsidiaries and to encourage such individuals to remain in the employ of the Company or a Subsidiary, as applicable. The Plan is intended to permit the grant of Awards that qualify as performance-based compensation under Section 162(m) of the Code.

2. Definitions. In this Plan document, unless the context clearly indicates otherwise, words in the masculine gender shall be deemed to include a reference to the female gender, any term used in the singular also shall refer to the plural, and the following terms, when capitalized, shall have the meaning set forth in this Section 2 unless a different meaning is plainly required by the context:

(a) “Award” means, as to any Performance Year, a potential cash benefit payable or cash benefit paid to a person in accordance with the terms and conditions of the Plan

(b) “Beneficiary” means the person or persons designated in writing by the Grantee as his beneficiary in respect of an Award; or, in the absence of an effective designation or if the designated person or persons predecease the Grantee, the Grantee’s Beneficiary shall be the person or persons who acquire by bequest or inheritance the Grantee’s rights in respect of an Award. In order to be effective, a Grantee’s designation of a Beneficiary must be on file with the Company before the Grantee’s death. Any such designation may be revoked and a new designation substituted therefor at any time before the Grantee’s death.

(c) “Board of Directors” or “Board” means the Board of Directors of the Company.

(d) “Change in Control” means the occurrence of any of the following events:

(i) any Person becomes the “beneficial owner” (as defined in Rule 13d-3 or Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the “Act”)), directly or indirectly, of 20% or more of the combined voting power of the Company’s then outstanding voting securities;

(ii) the Incumbent Board ceases for any reason to constitute at least the majority of the Board; provided, however, that any person becoming a director subsequent to the effective date of the Plan (as set forth in Section 19) whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least 75% of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board;

(iii) all or substantially all of the assets of the Company are sold, transferred or conveyed and the transferee of such assets is not controlled by the Company (control meaning the ownership of more than 51% of the combined voting power of such entity’s then outstanding voting securities); or

(iv) the Company is reorganized, merged or consolidated, and the shareholders of the Company immediately prior to such reorganization, merger or consolidation own in the aggregate 51% or less of the outstanding voting securities of the surviving or resulting corporation or entity from such reorganization, merger or consolidation.

Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred with respect to a Participant by virtue of any transaction (i) which results in the Participant or a group of Persons which includes the Participant, acquiring, directly or indirectly, 20% or more of the combined voting power of the Company’s then outstanding voting securities; or (ii) which results in the Company, any subsidiary or any profit-sharing plan, employee stock ownership plan or employee benefit plan of the Company or any subsidiary (or any trustee of or fiduciary with respect to any such plan acting in such capacity) acquiring, directly or indirectly, 20% or more of the combined voting power of the Company’s then outstanding voting securities. For purposes of this section, the term “Incumbent Board” means the individuals who constitute the Board as of the effective date of the Plan (as described in Section 19), and the term “Person” has the meaning assigned to that term in Sections 3(a)(9) and 13(d)(3) of the Act.

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

(f) “Committee” means the Compensation Committee of the Board. Each member of the Committee shall satisfy such applicable requirements as may be established by the NASDAQ Stock Market. In addition, if any member of the Compensation Committee does not qualify as an outside director for purposes of Section 162(m) of the Code or as an independent director for purposes of the requirements established by the NASDAQ Stock Market, if applicable, the other members (if at least two) shall be deemed the Compensation Committee for purposes of the Plan.

(g) “Company” means Roanoke Electric Steel Corporation.

(h) “Covered Executive” means an individual who is determined by the Committee to be reasonably likely to be a “covered employee” under Section 162(m) of the Code as of the end of the Company’s taxable year for which an Award to the individual will be deductible and whose Award would exceed the deductibility limits under Section 162(m) if such Award is not Performance-Based Compensation.

(i) “Disability” or “Disabled” means having a total and permanent disability as defined in Section 22(e) (3) of the Code.

(j) “Grantee” means an executive officer or key employee of the Company or a Subsidiary to whom an Award has been granted under the Plan.

(k) “Performance Objective” means the goal or goals identified by the Committee that will result in an Award if the target for the Performance Year is satisfied.

(l) “Performance Year” means the fiscal year beginning November 1 and ending October 31.

(m) “Performance-Based Compensation” means compensation that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code and the regulations thereunder.

(n) “Plan” means this Roanoke Electric Steel Corporation Annual Management Incentive Plan, as set forth herein and as amended from time to time.

(o) “Retirement” means retirement as defined under the Roanoke Electric Steel Corporation Employees’ Profit Sharing Plan, as amended from time to time.

(p) “Shares” means shares of Common Stock of the Company.

(q) “Subsidiary” means a corporation, association, partnership, limited liability company, joint venture, business trust, organization, or business of which the Company directly or indirectly through one or more intermediaries owns at least 50% of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally in the election of directors or other managers of the entity.

3. Administration.

(a) The Plan shall be administered by the Committee. The Committee shall have all the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to select the persons to be granted Awards under the Plan, to determine the time when Awards will be granted, to determine whether performance objectives and other conditions for earning Awards have been met, to determine whether Awards will be paid at the end of the Performance Year or deferred to a later date, and to determine whether an Award or payment of an Award should be reduced or eliminated; provided, however, that the Committee does not have the power to increase the amount otherwise payable under an Award to a Covered Executive The Committee shall have the authority to construe and interpret the Plan (except as otherwise provided herein) and any agreement or other document relating to any Award under the Plan, and shall exercise all other duties and powers conferred on it by the Plan, or which are incidental or ancillary thereto. The Committee is authorized, subject to the remaining provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Awards granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be binding and conclusive on all persons participating in the Plan and their legal representatives.

(b) The Committee may not delegate to any individual the authority to make determinations concerning that individual’s own Awards, or the Awards of any Covered Executive. Except as provided in the preceding sentence, the Committee may delegate to one or more of its members authority (i) to select key employees to receive Awards under the Plan, and (ii) to make all other determinations in respect of such Awards. In addition, the Committee may delegate to an officer or officers of the Company such administrative duties as it deems advisable and such officer(s) may have the authority to execute and distribute agreements or other documents evidencing Awards granted by the Committee under the Plan, to maintain records relating to Awards and to take such other actions as the Committee may specify, provided that in no case shall any such officer or officer(s) be authorized to grant Awards under the Plan. References herein to the Committee shall include any delegate described under this paragraph and any action taken by such delegate within the scope of his delegation shall be deemed for all purposes to have been taken by the Committee, except where the context or the regulations under Code Section 162(m) otherwise require.

(c) The Committee, or any person to whom it has delegated duties as described herein, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan (including such legal or other counsel, consultants, and agents as it may deem desirable for the administration of the Plan) and may rely upon any opinion or computation received from any such counsel, consultant, or agent. Expenses incurred in the engagement of such counsel, consultant, or agent shall be paid by the Company.

(d) A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members, and any action so taken shall be fully effective as if it had been taken at a meeting.

4. Eligibility. The Committee may grant Awards under the Plan to executive officers and other employees of the Company whom the Committee determines to have contributed or who can be expected to contribute significantly to the Company or any subsidiary of the Company shall be eligible to receive Awards under the Plan. The Committee shall have the power and complete discretion, as exercised pursuant to Section 3, to select eligible executive officers and employees to receive Awards and to determine for each recipient the amount of the Award and whether all or part of it may be granted all or in part as Shares.

5. Awards, Limitations on Awards.

(a) Each Award granted under the Plan shall represent an amount payable in cash by the Company to the Grantee upon achievement of one or more or a combination of Performance Objectives in a Performance Year, subject to all other terms and conditions of the Plan and to such other terms and conditions as may be specified by the Committee. The grant of Awards under the Plan to Covered Executives shall be evidenced by Award letters in a form approved by the Committee from time to time which shall contain the terms and conditions, as determined by the Committee, of a Grantee’s Award; provided, however, that in the event of any conflict between the provisions of the Plan and any Award letters, the provisions of the Plan shall prevail. An Award shall be determined by multiplying the Grantee’s target percentage of base salary with respect to a Performance Year by percentages based on applicable factors and the achievement of Performance Objectives, subject to the discretion of the Committee as provided in Section 6 hereof.

(b) Notwithstanding anything in the Plan to the contrary, the maximum amount of an Award granted to any one Grantee in respect of a Performance Year shall not exceed $2.0 million. This maximum amount limitation shall be measured at the time of settlement of an Award under Section 7.

(c) Annual Performance Objectives shall be based on the performance of the Company, one or more of its Subsidiaries or affiliates, one or more of its units or divisions and/or the individual for the Performance Year. The Committee shall use one or more of the following business criteria to establish Performance Objectives for Grantees who are Covered Executives: total shareholder return, revenue, gross profit, EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes), operating income, pre-tax earnings, net operating profit after taxes, net income, earnings per share, gross margin, operating margin, net margin, operating cash flow, free cash flow, return on assets, return on invested capital and return on equity. The Performance Objective for any Covered Executive shall be sufficiently specific that a third party having knowledge of the relevant facts could determine whether the objective is met; and the outcome under the Performance Objective shall be substantially uncertain when the Committee establishes the objective. In the case of a Grantee who is not a Covered Executive, the Committee may establish Performance Objectives using the criteria listed above in this Section 5(c), or the Committee may use any other measure of performance that it shall approve in its discretion.

6. Grant of Awards; Determination of Amounts Payable.

(a) The Committee shall grant Awards to any Grantees who are Covered Executives not later than 90 days after the commencement of the Performance Year. If a Covered Executive is initially employed by

the Company or a Subsidiary after the beginning of a Performance Year, the Committee may grant an Award to that Covered Executive with respect to a period of service following the Covered Executive’s date of hire, provided that no more than 25% of the relevant service period has elapsed when the Committee grants the Award and the Performance Objective otherwise satisfies the requirements applicable to Covered Executives. The Committee may select Grantees other than Covered Executives for participation in the Plan and may grant Awards to such Grantees at such times as the Committee may determine. In granting an Award, the Committee shall establish the terms of the Award, including the Performance Objective and the maximum amount that will be paid (subject to the limit in Section 5) if the Performance Objective is achieved. The Committee may establish different payment levels under an Award based on different levels of achievement under the Performance Objective.

(b) After the end of each Performance Year, the Committee shall determine the amount payable to each Grantee in settlement of the Grantee’s Award for the Performance Year. The Committee, in its discretion, may reduce the maximum payment established when the Award was granted, or may determine to make no payment under the Award. The Committee, in its discretion, may increase the amount payable under the Award (but not to an amount greater than the limit in Section 5) to a Grantee who is not a Covered Executive. The Committee shall not, however, have the power to increase the amount otherwise payable under any Award to a Covered Executive. The Committee shall certify in writing, in a manner conforming to applicable regulations under Section 162(m) of the Code, prior to the settlement of each Award granted to a Covered Executive, that the Performance Objectives and other material terms of the Award upon which settlement of the Award was conditioned have been satisfied.

(c) The Committee may adjust or modify Awards or terms of Awards (1) in recognition of unusual or nonrecurring events affecting the Company or any business unit, or the financial statements or results thereof, or in response to changes in applicable laws (including tax, disclosure, and other laws), regulations, accounting principles, or other circumstances deemed relevant by the Committee, (2) with respect to any Grantee whose position or duties with the Company change during a Performance Year, or (3) with respect to any person who first becomes a Grantee after the first day of the Performance Year; provided, however, that no adjustment to an Award granted to a Covered Executive shall be authorized or made if, and to the extent that, such authorization or the making of such adjustment would contravene the requirements applicable to Performance-Based Compensation. Without limiting the Committee’s authority under other provisions of the Plan, but subject to express limitations of the Plan including the one in Section 9, the Committee shall have the authority, in its discretion, to accelerate an Award (after the attainment of the applicable Performance Objectives, and to waive restrictive conditions for an Award (including any forfeiture conditions, but not Performance Objectives), in such circumstances the Committee deems appropriate, subject to the conditions of Section 9 as to any Award that is intended to comply with the requirements of Code Section 162(m). In the case of any acceleration of an Award after the attainment of the applicable Performance Objectives, the amount payable shall be discounted to its present value using an interest rate equal to Moody’s Average Corporate Bond Yield for the month preceding the month in which such acceleration occurs.

7. Settlement of Awards.

(a) Except as provided in this Section 7, each Grantee shall receive payment of a cash lump sum in settlement of his or her Award, in the amount determined in accordance with Section 6, as promptly as practicable following the time such determination in respect thereof has been reached by the Committee. No Award to a Covered Executive shall be settled until the shareholders of the Company have approved the Plan in a manner that satisfies the requirements of Section 162(m) of the Code.

(b) Each Grantee shall have the right to defer his or her receipt of part or all of any payment due in settlement of an Award under and in accordance with the terms and conditions of any deferred compensation plan or arrangement of the Company unless otherwise specified by the Committee.

8. Termination of Employment; Change in Control.

(a) Except as otherwise provided in any written agreement between the Company and a Grantee, upon a Grantee’s death, Disability, Retirement, or termination of employment without cause (as determined by the Committee in its sole discretion) prior to the end of a Performance Year (other than a Performance Year in which a Change of Control occurs), the Committee shall determine, in its sole discretion and in such manner as it may deem reasonable, subject to Section 9, the extent to which the Performance Objectives for the Performance Year or portion thereof completed at the date of cessation of employment have been achieved, and the amount payable in settlement of the Award based on such determinations. The Committee may base such determination on the performance achieved for the full year, in which case its determination may be deferred until following the Performance Year. Such determinations shall be set forth in a written certification, as specified in Section 6. Such Grantee or his or her Beneficiary shall be entitled to receive settlement of such Award at the earliest time such payment may be made without causing the payment to fail to be deductible by the Company under Section 162(m) of the Code.

(b) In the event of a Change in Control during a given Performance Year (the “Affected Performance Year”) then such Grantee shall receive, promptly after the date of such Change in Control, an award for the Affective Performance Year as if the Performance Objectives for such Performance Year had been achieved at 100%.

9. Status of Awards Under Section 162(m). It is the intent of the Company that Awards granted to Covered Executives shall constitute Performance-Based Compensation, if at the time of settlement the Grantee remains a Covered Executive. Accordingly, the Plan shall be interpreted in a manner consistent with Section 162(m) of the Code and the regulations thereunder. If any provision of the Plan relating to a Covered Executive or any Award letter evidencing an Award to a Covered Executive does not comply with, or is inconsistent with, the provisions of Section 162(m)(4)(C) of the Code or the regulations thereunder (including Treasury Regulation Section 1.162-27(e)) for Performance-Based Compensation, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

10. Transferability. Awards and any other benefit payable under, or interest in, this Plan are not transferable by a Grantee except upon a Grantee’s death by will or the laws of descent and distribution, and shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any such attempted action shall be void.

11. Withholding. All payments relating to an Award, whether at settlement or resulting from any further deferral or issuance of an Award under another plan of the Company in settlement of the Award, shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements.

12. Tenure. A Grantee’s right, if any, to continue to serve the Company as a Covered Executive, officer, employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as a Grantee or any other event under the Plan.

13. No Rights to Participate or Settlement. Nothing in the Plan shall be deemed to give any eligible employee any right to participate in the Plan except upon determination of the Committee. Until the Committee

has determined to settle an Award under Section 7, a Grantee’s selection to participate, the grant of an Award, and other events under the Plan shall not be construed as a commitment that any Award will be settled under the Plan. The foregoing notwithstanding, the Committee may authorize legal commitments with respect to Awards under the terms of an employment agreement or other agreement with a Grantee, to the extent of the Committee’s authority under the Plan, including commitments that limit the Committee’s future discretion under the Plan, but in all cases subject to Section 9.

14. Unfunded Plan. Grantees shall have no right, title, or interest whatsoever in or to any specific assets of the Company, or to any investments that the Company may make to aid in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Grantee, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company. The Company shall not be required to establish any special or separate fund, or to segregate any assets, to assure payment of such amounts. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.

15. Other Compensatory Plans and Arrangements. Nothing in the Plan shall preclude any Grantee from participation in any other compensation or benefit plan of the Company or its Subsidiaries. The adoption of the Plan and the grant of Awards hereunder shall not preclude the Company or any Subsidiary from paying any other compensation apart from the Plan, including compensation for services or in respect of performance in a Performance Year for which an Award has been made. If an Award to a Covered Executive may not be settled under the terms of the Plan, however (for example, because the Covered Executive has not achieved the Performance Objective or because shareholders have not approved the Plan), neither the Company nor a Subsidiary may pay any part of the Award to the Covered Executive outside the Plan.

16. Absence of Liability. A member of the Board of Directors or a member of the Committee or any officer of the Company shall not be liable for any act or inaction hereunder, whether of commission or omission.

17. Amendment and Termination of Plan. The Board may amend the Plan from time to time (either retroactively or prospectively), and may suspend or terminate the Plan at any time, provided that any such action shall be subject to shareholder approval if and to the extent required under the Code or by the NASDAQ Stock Market, shareholders must approve amendments that (i) would modify the requirements as to eligibility for participation in the Plan or (ii) materially increase the benefits accruing to eligible persons under the Plan, or expand the types of Awards provided under the Plan. Notwithstanding the foregoing, the Board may unilaterally amend the Plan and the types of Awards as it deems appropriate to ensure compliance with any requirements established by the NASDAQ Stock Market, if applicable, and to cause the Plan and any Awards to meet the requirements of the Code and regulations and other interpretation and guidance issued thereunder, including but not limited to Code section 409A.

18. Governing Law. The Plan, Awards granted hereunder, and actions taken in connection herewith shall be interpreted and construed in accordance with the laws of the Commonwealth of Virginia (regardless of the law that might otherwise govern under applicable Virginia principles of conflict of laws), and applicable federal law.

19. Effective Date. The Plan shall be effective as of November 1, 2004; provided, however, that the Plan shall be subject to approval of the shareholders of the Company at an annual meeting or any special meeting of stockholders of the Company before settlement of Awards for the 2005 Performance Year so that compensation will qualify as Performance-Based Compensation. In addition, the Board may determine to submit the Plan to shareholders for reapproval at such time, if any, required in order that compensation under the Plan shall qualify as Performance-Based Compensation.

20. General Provisions.

(a) All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows (i) if to the Company—at the principal business address of the Company to the attention of the Corporate Secretary of the company; and (ii) if to any Grantee—at the last address of the Grantee known to the sender at the time the notice or other communication is sent.

(b) The adoption of the Plan shall not affect any other compensation plans in effect for the company or any subsidiary of the Company, nor shall the Plan preclude the Company from establishing any other forms of compensation for employees of the Company or any subsidiary of the Company.

(c) The Plan shall be binding upon the Corporation, its successors and assigns, and the Grantee, his executor, administrator and permitted transferees and beneficiaries.

EX-10.3

Exhibit 10.3

ROANOKE ELECTRIC STEEL CORPORATION

AMENDED AND RESTATED

RETIREMENT PLAN FOR DIRECTORS

Effective January 24, 1989, Roanoke Electric Steel Corporation (the “Company”) established a retirement policy for directors of the Company (the “Plan”), to help attract and to retain highly qualified directors, and provide directors with retirement income in recognition of services performed for the Company at compensation levels below the level for peer companies. The Plan has been amended, and the Company desires to restate the Plan to include all prior amendments. Therefore, the Plan is hereby restated to read as follows, effective as of January 28, 2005:

1. Purpose. The purpose of the Retirement Plan for Directors (the “Plan”) is to assist the Company in attracting and retaining as directors individuals of superior talent, ability, and achievement.

2. Eligible Director. An “Eligible Director” shall be anyone (including a member of management of the Company or any subsidiary of the Company) who (i) was a member of the Board of Directors of the Company as of, or between, the dates of January 24, 1989 and January 28, 2005, and (ii) serves as a member of the Board of Directors of the Company for at least five years. Any past, present, or future member of the Company’s Board of Directors who does not satisfy each of these three criteria will not be “Eligible Director.”

3. Entitlement. An Eligible Director who retires from the Board of Directors of the Company

(a) at the age that is established by the Board of Directors as the mandatory retirement age for directors, or

(b) at an age or under circumstances expressly approved by the Board, or

(c) because of sickness or disability that ends his or her active business career,

(a “Qualified Retiring Director”) shall be entitled to receive a retirement benefit under this Plan.

4. Benefits; Payment Period. The Company will pay to each Qualified Retiring Director a monthly benefit equal to one twelfth (1/12^th) of the prevailing annual retainer (as such retainer may be adjusted from time to time) payable to members of the Company’s Board of Directors (the “Monthly Retirement Payment”). The Monthly Retirement Payment will be paid beginning the first month following the retirement of a Qualified Retiring Director from the Company’s Board of Directors and will continue until the earlier of the death of the Qualified Retiring Director or the expiration of a period of time equal to the number of months the Qualified Retiring Director served as a member of the Board of Directors of the Company from such director’s election to the Board of Directors through the earlier of (i) the date of his retirement from the Board of Directors for all directors who became Qualified Retiring Directors

prior to January 28, 2005, and (ii) January 28, 2005 for all directors who become Qualified Retiring Directors after January 28, 2005 (the “Benefit Payment Period”). Service on the Board of Directors of the Company by an Eligible Director for months beginning after January 2005 will not be included in the calculation of the Benefit Payment Period.

5. Retirement Benefit Forfeitures. Any portion of the Monthly Retirement Payment to a Qualified Retiring Director not previously paid will be forfeited upon a determination by the Board of Directors, in its sole discretion, that a Qualified Retiring Director has, after the date hereof and without the consent of the Board of Directors of the Company:

(a) joined the board of directors of, managed, operated, participated in a material way in, entered employment with, performed consulting (or any other) services for, or otherwise been connected in any material manner with a competitor;

(b) directly or indirectly acquired an equity interest of five percent or greater in a competitor; or

(c) disclosed any material trade secrets or other material confidential information, including customer lists, relating to the Company or to the business of the Company to others, including a competitor.

6. Administration of the Plan. The Board of Directors shall appoint an administrator (the “Administrator”) to administer the Plan. Such Administrator or such successor Administrator as may be duly appointed by the Board of Directors shall serve at the pleasure of the Board. The Administrator shall maintain complete and adequate records pertaining to the Plan, including but not limited to a list of Eligible Directors, a list of Qualified Retiring Directors, the Monthly Retirement Payments for each Qualified Retiring Director, and the Benefit Payment Period for each Qualified Retiring Director, and all other records which shall be necessary or desirable in the proper administration of the Plan.

The Company hereby agrees to indemnify and hold harmless the Administrator against any losses, claims, damages or liabilities to which the Administrator may become subject to the extent that such losses, claims, damages or liabilities or actions in respect thereof arise out of or are based upon any act or omission of the Administrator in connection with the administration of this Plan (other than any act or omission of such Administrator constituting gross negligence or willful misconduct), and will reimburse the Administrator for any legal or other expenses reasonably incurred in connection with investigating or defending against any such loss, claim, damage, liability or action.

7. Nature of the Plan. The adoption of this Plan and any setting aside of any amounts by the Company with which to discharge its obligations hereunder shall not be deemed to create a trust; legal and equitable title to any funds so set aside shall remain in the Company, and any recipient of benefits hereunder shall have no security or other interest in such funds. Any and all funds so set aside shall remain subject to the claims of the general creditors of the Company. This provision shall not require the Company to set aside any funds, but the Company may set aside such funds if it chooses to do so.

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8. Funding Obligation. Notwithstanding the provisions of Section 7 above to the contrary, the Company may fund all or part of its obligation hereunder by purchasing one or more insurance policies or other financial instruments or by transferring assets to a trust (the “Funding Source”), as long as the provisions of any agreement establishing the Funding Source provide that such assets are available to satisfy claims of the Company’s general creditors in the event of the Company’s insolvency and that no Eligible Director or Qualified Retiring Director shall at any time have a prior claim to such assets. If a Funding Source is established, the Administrator will determine whether any payment to be made to a Qualified Retiring Director is to be made directly by the Company, from the Funding Source, or by a combination of such sources.

9. Miscellaneous.

(a) The Plan may be amended or terminated by the Board of Directors at any time, provided that no amendment or termination shall adversely affect the right to benefits of any director who retired prior to the date of the amendment or termination.

(b) No Eligible Director or Qualified Retiring Director shall have any preference over the general creditors of the Company in the event of the Company’s insolvency.

(c) Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply.

(d) Benefits provided under the Plan may not be assigned or alienated, either voluntarily or involuntarily.

(e) The law of the Commonwealth of Virginia will control the interpretation and performance of the Plan. The Plan is not intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended, or to comply with the Employee Retirement Income Security Act of 1974, as amended.

10. Effective Date. The effective date of the Plan shall be January 24, 1989, as amended January 28, 2005.

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