<PAGE>
                                 EMPLOYMENT RETENTION
                                        POLICY


     In order to attract and retain officers and key employees for Lone Star
Technologies, Inc. (the "Corporation") and its subsidiaries, particularly in the
event of a threat or the occurrence of a Change in Control, the Board of
Directors of the Corporation (the "Board") has adopted the following Employment
Retention Policy:

     If the employment of any Officer or key employee designated by the Board or
its Compensation Committee (the "Committee") is involuntarily terminated without
Cause or is voluntarily terminated with Good Reason within two years after the
occurrence of a Change in Control of his Employer, his Employer shall pay a lump
sum, as determined by the Board or the Committee, to the Officer in an amount
that does not exceed twenty-four times his Monthly Compensation or to the key
employee in an amount that does not exceed twelve times his Monthly
Compensation. Each person designated by the Board or the Committee will be
covered by this Policy upon his entering into the letter agreement in the form
attached.

     The Board shall have the right to amend or terminate this Policy at any
time, but any such amendment or termination, whether adopted prior to or after a
Change in Control, shall not adversely affect any person covered by this Policy
prior to such amendment or termination.

     The Corporation will request that the other Employers adopt this Policy and
will make reasonable efforts to require any successor to the business or assets
of any Employer expressly to assume and to agree to be bound by this Policy.

DEFINITIONS:

     "Cause" for termination of a person's employment means his illegal conduct
or gross misconduct that in either case is willful and results in material
damage to his Employer's business or reputation or his willful failure or
refusal to perform his duties or obligations to his Employer or to comply in all
material respects with the lawful directives of the Employer's Chief Executive
Officer or Board of Directors, provided that he has received written notice from
his Employer stating the nature of such failure or refusal and has reasonable
opportunity to correct the stated deficiency.

     "Change in Control" means, with respect to an Employer that is a subsidiary
of the Corporation, (i) any event that results in the Corporation not
controlling the Employer or owning all or substantially all of the Employer's
assets or (ii) any Change in Control of the Corporation.

<PAGE>

     "Change in Control" means, with respect to the Corporation, any of the
following:

     (i)   any event affecting the Corporation that would be required to be
reported by a reporting company as a change in control pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act");

     (ii)  any "person" (as that term is used in Section 13(d) of the Exchange
Act) becomes the "beneficial owner" (as defined by Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing more
than 50% of either the then outstanding shares of the Corporation's Common Stock
or the combined voting power of the Corporation's then outstanding securities;

     (iii) at any time during any twenty-four month period, the individuals
who were serving on the Board at the beginning of that period or who were
nominated for election or were elected to the Board during that period by a vote
of at least two-thirds of such individuals still in office shall cease to
constitute a majority of the Board;

     (iv)  any merger or consolidation of the Corporation with any other
corporation or any sale of all or substantially all of the assets of the
Corporation, other than a merger, consolidation or sale that results in the
voting securities of the Corporation outstanding immediately prior thereto
continuing to represent more than 50% of the combined voting power of the voting
securities of the Corporation or the surviving entity or any parent thereof
outstanding immediately thereafter; or

     (v)   the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation.

     "Employer" is the Corporation or any corporation that is or becomes a
subsidiary of the Corporation and its respective successors and assigns.

     "Good Reason" with respect to the voluntary termination of a person's
employment means the occurrence, after a Change in Control, of (i) any adverse
change in his status, position, authority or responsibilities, (ii) a reduction
in his compensation, (iii) any material change in his employment location or
(iv) the failure or refusal of any successor to his Employer to expressly assume
his Employer's obligations under this Policy.

     "Monthly Compensation" is a person's salary and cash bonus paid during the
twelve months prior to the termination of his employment or, if higher, his
salary and cash bonus paid during the twelve months prior to the Change in
Control of his Employer, in each case computed as a monthly average.

     "Officer" is any person who is or becomes the President, Chief Executive
Officer, Treasurer, Controller, Secretary or any Vice President of an Employer.


                                       2

Adopted by LST Board on May 8, 1997

<PAGE>

                              [Form of Letter Agreement]


                                        [Date]



[Name and address of
Officer or key employee]

Dear ______________________:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be ____
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       [Name of Employer]


                                       By:
                                          ----------------------------------
                                          Chief Executive Officer

Accepted and Agreed:


---------------------------
[Name of Officer or
key employee]

<PAGE>

                                      LONE STAR
                                  TECHNOLOGIES, INC.


                                    May 22, 1997



Mr. John P. Harbin
Chairman and Chief Executive Officer
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240

Dear Jack:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       LONE STAR TECHNOLOGIES, INC.


                                       By: /s/ Robert F. Spears
                                          ----------------------------------
                                          Robert F. Spears, Vice President,
                                          General Counsel and Secretary
Accepted and Agreed:

/s/ John P. Harbin
---------------------------
John P. Harbin



Attachment

<PAGE>

                                      LONE STAR
                                  TECHNOLOGIES, INC.


                                    May 22, 1997


Mr. Charles J. Keszler
Vice President-Finance
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240

Dear Chuck:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       LONE STAR TECHNOLOGIES, NC.

                                       By: /s/ John P. Harbin
                                          ------------------------------------
                                          John P. Harbin
                                          Chairman and Chief Executive Officer
Accepted and Agreed:


/s/ Charles J. Keszler
----------------------------
Charles J. Keszler


Attachment

<PAGE>

                                      LONE STAR
                                  TECHNOLOGIES, INC.

                                     May 22, 1997



Mr. Robert F. Spears
Vice President, General Counsel
and Secretary
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240

Dear Bob:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       LONE STAR TECHNOLOGIES, INC.

                                       By: /s/ John P. Harbin
                                          ----------------------------------
                                          John P. Harbin
                                          Chairman and Chief Executive Officer

Accepted and Agreed


/s/ Robert F. Spears
---------------------------
Robert F. Spears



Attachment

<PAGE>

LONE STAR STEEL COMPANY



                                     May 22, 1997



Mr. W. Byron Dunn
Executive Vice President
Lone Star Steel Company
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240

Dear Byron:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       LONE STAR STEEL COMPANY

                                       By: /s/ Rhys J. Best
                                          ----------------------------------
                                          Rhys J. Best
                                          Chief Executive Officer

Accepted and Agreed


/s/ W. Byron Dunn
--------------------------
W. Byron Dunn


Attachment

<PAGE>

                                      LONE STAR
                                  TECHNOLOGIES, INC.

                                 September 25, 1997


Mr. Rhys J. Best
President
Lone Star Technologies, Inc.
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75240

Dear Rhys:

     In recognition of the valuable service rendered to your employer and in
consideration of your continued employment, your employer is pleased to inform
you that you are eligible to be covered by the Employment Retention Policy, a
copy of which is attached. Your lump sum payment under the Policy would be 24
times your Monthly Compensation as defined in the Policy.

     If you wish to be covered by this Policy, please sign and return a copy of
this letter to me. By electing to be covered you are agreeing with your employer
that any prior "contingent severance pay agreement" between you and your
employer is hereby terminated. "Contingent severance pay agreement" is any
agreement in which your employer agrees to pay you cash compensation if your
employment is terminated following a sale, liquidation, transfer of assets or
other change in control of your employer.

     Upon your signing and returning a copy of this letter agreement to me, the
Employment Retention Policy will constitute a legally binding obligation of your
employer to you in accordance with its terms.

                                       Sincerely,

                                       LONE STAR TECHNOLOGIES, INC.

                                       By: /s/ John P. Harbin
                                          ------------------------------------
                                          John P. Harbin
                                          Chairman and Chief Executive Officer

Accepted and Agreed


/s/ Rhys J. Best
-------------------------
Rhys J. Best


Attachment