Document:

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                                                                    EXHIBIT 10.1

                               QUANEX CORPORATION

                          1997 KEY EMPLOYEE STOCK PLAN

                              Amended and Restated
                           Effective October 20, 1999

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                               QUANEX CORPORATION
                          1997 KEY EMPLOYEE STOCK PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                              Section
                                                                                              -------
<S>                                                                                           <C>
ARTICLE I - PURPOSE OF PLAN

ARTICLE II - DEFINITIONS

         Affiliate...............................................................................2.1
         Agreement...............................................................................2.2
         Award...................................................................................2.3
         Board...................................................................................2.4
         Code....................................................................................2.5
         Committee...............................................................................2.6
         Company.................................................................................2.7
         Disability..............................................................................2.8
         Employee................................................................................2.9
         Fair Market Value......................................................................2.10
         Option.................................................................................2.11
         Optionee...............................................................................2.12
         Plan...................................................................................2.13
         Restricted Period......................................................................2.14
         Restricted Stock.......................................................................2.15
         Restricted Stock Award.................................................................2.16
         Retained Distributions.................................................................2.17
         Retire or Retirement...................................................................2.18
         Stock..................................................................................2.19

ARTICLE III - ELIGIBILITY

ARTICLE IV - STOCK SUBJECT TO PLAN

ARTICLE V - GENERAL PROVISIONS RELATING TO ALL OPTIONS

         Authority to Grant Options .............................................................5.1
         Non-Transferability.....................................................................5.2
         No Rights as a Stockholder..............................................................5.3
         Tax Withholding.........................................................................5.4
         Changes in the Company's Capital Structure..............................................5.5
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<TABLE>
<S>                                                                                             <C>
ARTICLE VI - VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS

         Option Price............................................................................6.1
         Duration of Options.....................................................................6.2
         Amount Exercisable......................................................................6.3
         Exercise of Options.....................................................................6.4
         Substitution Options....................................................................6.5

ARTICLE VII - GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS

         Authority to Grant Awards...............................................................7.1
         Transferability and Rights with Respect to Restricted Stock.............................7.2
         Withholding Tax.........................................................................7.3
         Changes in Capital Structure............................................................7.4

ARTICLE VIII - VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS

         Vesting of Restricted Stock.............................................................8.1
         Consequence of Vesting..................................................................8.2

ARTICLE IX - REQUIREMENTS OF LAW

ARTICLE X - ADMINISTRATION

ARTICLE XI - AMENDMENT OR TERMINATION OF PLAN

ARTICLE XII - MISCELLANEOUS

         No Employment Obligation...............................................................12.1
         Forfeiture for Cause...................................................................12.2
         Written Agreement......................................................................12.3
         Indemnification of the Committee and the Board.........................................12.4
         Other Compensation Plans...............................................................12.5
         Other Awards...........................................................................12.6
         Section 83(b) Elections................................................................12.7
         Arbitration of Disputes................................................................12.8
         Gender.................................................................................12.9
         Headings..............................................................................12.10
         Governing Law.........................................................................12.11
</TABLE>

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                                    ARTICLE I

                                 PURPOSE OF PLAN

                  The Plan is for key employees of the Company and its
Affiliates and is intended to advance the best interests of the Company, its
Affiliates, and its stockholders by providing those persons who are not officers
but have substantial responsibility for the management and growth of the Company
and its Affiliates with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, thereby encouraging them to
continue in the employ of the Company or any of its Affiliates.

                                      I-1

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                                   ARTICLE II

                                   DEFINITIONS

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

         II.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.

         II.2     "AGREEMENT" means a written agreement setting forth the terms
of an Award.

         II.3     "AWARD" means an Option or a Restricted Stock Award granted
under this Plan.

         II.4     "BOARD" means the board of directors of the Company.

         II.5     "CODE" means the Internal Revenue Code of 1986, as amended.

         II.6     "COMMITTEE" means the committee designated by the Board.

         II.7     "COMPANY" means Quanex Corporation, a Delaware corporation.

         II.8     "DISABILITY" means a mental or physical disability which, in
the opinion of a physician selected by the Committee, shall prevent the Employee
from earning a reasonable livelihood with the Company or any Affiliate and which
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months and which: (a) was not
contracted, suffered or incurred while the Employee was engaged in, or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Employee receives a military pension.

         II.9     "EMPLOYEE" means a person employed by the Company or any
Affiliate.

         II.10 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
closing sale price of the Stock on that date (or, if there was no sale on such
date, the next preceding date on which there was such a sale) on the principal
securities exchange on which the Stock is listed; or (b) if the Stock

                                      II-1
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is not listed on a securities exchange, an amount as determined by the Committee
in its sole discretion.

         II.11 "OPTION" means a nonqualified option granted under this Plan to
purchase shares of Stock.

         II.12 "OPTIONEE" means a person who is granted an Option under this
Plan.

         II.13 "PLAN" means the Quanex Corporation 1997 Key Employee Stock Plan,
as set out in this document and as it may be amended from time to time.

         II.14 "RESTRICTED PERIOD" means the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,
or otherwise encumbered.

         II.15 "RESTRICTED STOCK" means those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions,
terms, and conditions set forth in the related Agreement.

         II.16 "RESTRICTED STOCK AWARD" means an award of Restricted Stock
pursuant to Section 7.1.

         II.17 "RETAINED DISTRIBUTIONS" MEANS ANY SECURITIES OR OTHER PROPERTY
(OTHER THAN REGULAR CASH DIVIDENDS) DISTRIBUTED BY THE COMPANY IN RESPECT OF
RESTRICTED STOCK DURING ANY RESTRICTED PERIOD.

         II.18 "RETIRE" or "RETIREMENT" means retirement in accordance with the
terms of a retirement plan that is qualified under section 401(a) of the Code
and maintained by the Company or an Affiliate in which the employee is a
participant.

         II.19 "STOCK" means the common stock of the Company, $.50 par value. In
addition, for purposes of the Plan and the Awards, the term Stock shall be
deemed to include any rights to purchase ("Rights") the Series A Junior
Participating Preferred Stock of the Company that may then be trading with the
Stock as provided in the Rights Agreement between the Company and Chemical Bank
relating to the Rights.

                                      II-2

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                                   ARTICLE III

                                   ELIGIBILITY

         The individuals who shall be eligible to receive Awards shall be those
key Employees, who are not officers of the Company or an Affiliate, as the
Committee shall determine from time to time.

                                      III-1
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                                     ARTICLE

                            STOCK SUBJECT TO THE PLAN

         The total amount of the Common Stock with respect to which Awards may
be granted shall not exceed in the aggregate 250,000 shares. The class and
aggregate number of shares which may be subject to the Options granted under
this Plan shall be subject to adjustment under Section 5.5. The class and
aggregate number of shares which may be subject to the Restricted Stock Awards
granted under the Plan shall also be subject to adjustment under Section 7.4.
Shares may be treasury shares or authorized but unissued shares. If any Award
under the Plan shall expire or terminate for any reason without having been
exercised in full, or if any Award shall be forfeited, the shares subject to the
unexercised or forfeited portion of such Award shall again be available for the
purposes of the Plan.

                                      IV-1
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                                    ARTICLE V

                     GENERAL PROVISIONS RELATING TO OPTIONS

         V.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant Options to
those individuals as it shall from time to time determine under the terms and
conditions of this Plan. Subject only to any applicable limitations set out in
this Plan, the number of shares of Stock to be covered by any Option shall be as
determined by the Committee.

         V.2 NON-TRANSFERABILITY. Except as expressly provided otherwise in an
Optionee's Option Agreement, Options shall not be transferable by the Optionee
otherwise than by will or under the laws of descent and distribution, and shall
be exercisable, during the Optionee's lifetime, only by him.

         V.3 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.

         V.4 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Optionee
(or other person exercising the Option) to pay the sum directly to the Company
or an Affiliate. If the Optionee (or other person exercising the Option) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be made on the date of exercise. The Company shall have no
obligation upon exercise of any Option until payment has been received, unless
withholding (or offset against a cash payment) as of or prior to the date of
exercise is sufficient to cover all sums due with respect to that exercise. The
Company and its Affiliates shall not be obligated to advise an Optionee of the
existence of the tax or the amount which the employer corporation will be
required to withhold.

         V.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. If the Company shall
effect a subdivision or consolidation of shares or other capital adjustment of,
or the payment of a dividend in capital stock or other equity securities of the
Company on, its Common Stock, or other increase or reduction of the number of
shares of the Common Stock outstanding without receiving consideration therefor
in money, services, or property, or the reclassification of its Stock, in whole
or in part, into other equity securities of the Company, then (a) the number,
class and per share price of shares of Stock subject to outstanding Options
hereunder shall be appropriately adjusted (or in the case of the issuance of
other equity securities as a dividend on, or in a reclassification of, the
Stock, the Options shall extend to such other securities) in such a manner as to
entitle an Optionee to receive, upon exercise of an Option, for the same
aggregate cash compensation, the same total number and class or classes of
shares (or in the case of a dividend of, or reclassification into, other equity
securities, such other securities) he would have held after such adjustment if
he had exercised his Option in full immediately prior to the event requiring the
adjustment, or, if applicable, the record date for determining stockholders to
be affected by such adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan (or in the case of a dividend of, or
reclassification into, other equity securities, such other securities) shall be
adjusted by substituting for the total

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number and class of shares of Stock then received, the number and class or
classes of shares of Stock (or in the case of a dividend on, or reclassification
into, other equity securities, such other securities) that would have been
received by the owner of an equal number of outstanding shares of Stock as the
result of the event requiring the adjustment. Comparable rights shall accrue to
each Optionee in the event of successive subdivisions, consolidations, capital
adjustment, dividends or reclassifications of the character described above.

         If the Company shall distribute to all holders of its shares of Stock
(including any such distribution made to non-dissenting stockholders in
connection with a consolidation or merger in which the Company is the surviving
corporation and in which holders of shares of Stock continue to hold shares of
Stock after such merger or consolidation) evidences of indebtedness or cash or
other assets (other than cash dividends payable out of consolidated retained
earnings not in excess of, in any one year period, the greater of (a) $1.00 per
share of Stock or (b) two times the aggregate amount of dividends per share paid
during the preceding calendar year and dividends or distributions payable in
shares of Stock or other equity securities of the Company described in the
immediately preceding paragraph), then in each case the Optionee's exercise
price specified in his Option Agreement ("Exercise Price") shall be adjusted by
reducing the Option Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such distribution by an amount
equal to the Fair Market Value, as determined in good faith by the Board (whose
determination shall be described in a statement filed in the Company's corporate
records and be available for inspection by any holder of an Option) of the
portion of the evidence of indebtedness or cash or other assets so to be
distributed applicable to one share of Stock; provided that in no event shall
the Option Price be less than the par value of a share of Stock. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of the distribution retroactive to the record date for the
determination of the stockholders entitled to receive such distribution.
Comparable adjustments shall be made in the event of successive transactions of
the character described above.

         If the Company shall make a tender offer for, or grant to all of its
holders of its shares of Stock the right to require the Company or any
subsidiary of the Company to acquire from such stockholders shares of Stock, at
a price in excess of the Current Market Price (a "Put Right") or the Company
shall grant to all of its holders for its shares of Stock the right to acquire
shares of Stock for less than the Current Market Price (a "Purchase Right"),
then, in the case of a Put Right, the Option Price shall be adjusted by
multiplying the Option Price in effect immediately prior to the record date for
the determination of stockholders entitled to receive such Put Right by a
fraction, the numerator of which shall be the number of shares of Stock then
outstanding minus the number of shares of Stock which could be purchased at the
Current Market Price for the aggregate amount which would be paid if all Put
Rights are exercised and the denominator of which is the number of shares of
Stock which would be outstanding if all Put Rights are exercised; and, in the
case of a Purchase Right, the Option Price shall be adjusted by multiplying the
Option Price in effect immediately prior to the record date for the
determination of the stockholders entitled to receive such Purchase Right by a
fraction, the numerator of which shall be the number of shares of Stock then
outstanding plus the number of shares of Stock which could be purchased at the
Current Market Price for the aggregate amount which would be paid if all
Purchase Rights are exercised and the denominator of which is the number of
shares of Stock which would be outstanding if all Purchase Rights are exercised.
In addition, the number of shares subject to the Option shall be increased by

                                      V-2

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multiplying the number of shares then subject to the Option by a fraction which
is the inverse of the fraction used to adjust the Option Price. Notwithstanding
the foregoing, if any such Put Rights or Purchase Rights shall terminate without
being exercised, the Option Price and number of shares subject to the Option
shall be appropriately readjusted to reflect the Option Price and number of
shares subject to the Option which would have been in effect if such unexercised
Rights had never existed. Comparable adjustments shall be made in the event of
successive transactions of the character described above.

         After the merger of one or more corporations into the Company, after
any consolidation of the Company and one or more corporations, or after any
other corporate transaction described in section 424(a) of the Code in which the
Company shall be the surviving corporation, each Optionee, at no additional
cost, shall be entitled to receive, upon any exercise of his Option, in lieu of
the number of shares as to which the Option shall then be so exercised, the
number and class of shares of stock or other equity securities to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation if at the time of such merger or consolidation such
Optionee had been a holder of a number of shares of Stock equal to the number of
shares as to which the Option shall then be so exercised and, if as a result of
such merger, consolidation or other transaction, the holders of Stock are not
entitled to receive any shares of Stock pursuant to the terms thereof, each
Optionee, at no additional cost shall be entitled to receive, upon exercise of
his Option, such other assets and property, including cash to which he would
have been entitled if at the time of such merger, consolidation or other
transaction he had been the holder of the number of shares of Stock equal to the
number of shares as to which the Option shall then be so exercised. Comparable
rights shall accrue to each Optionee in the event of successive mergers or
consolidations of the character described above.

         After a merger of the Company into one or more corporations, after a
consolidation of the Company and one or more corporations, or after any other
corporate transaction described in section 424(a) of the Code in which the
Company is not the surviving corporation, each Optionee shall, at no additional
cost, be entitled at the option of the surviving corporation (i) to have his
then existing Option assumed or have a new option substituted for the existing
Option by the surviving corporation to the transaction which is then employing
him, or a parent or subsidiary of such corporation, on a basis where the excess
of the aggregate fair market value of the shares subject to the Option
immediately after the substitution or assumption over the aggregate Option Price
of such option is equal to the excess of the aggregate fair market value of all
shares subject to the option immediately before such substitution or assumption
over the aggregate Option Price of such shares, provided that the shares subject
to the new option must be traded on the New York or American Stock Exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System, or (ii) to receive, upon any exercise of his Option, in lieu of the
number of shares as to which the Option shall then be so exercised, the
securities, property and other assets, including cash, to which the Optionee
would have been entitled pursuant to the terms of the agreement of merger or
consolidation or the agreement giving rise to the other corporate transaction if
at the time of such merger, consolidation or other transaction such Optionee had
been the holder of the number of shares of Stock equal to the number of shares
as to which the Option shall then be so exercised.

         If a corporate transaction described in section 424(a) of the Code
which involves the Company is to take place and there is to be no surviving
corporation while an Option remains in

                                      V-3

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whole or in part unexercised, it shall be canceled by the Board as of the
effective date of any such corporate transaction but before that date each
Optionee shall be provided with a notice of such cancellation and shall have the
right to exercise such Option in full (without regard to any vesting limitations
set forth in, or imposed pursuant to, preceding provisions of this Plan or the
Option Agreement) to the extent it is then still unexercised during a 30-day
period preceding the effective date of such corporate transaction.

         For purposes of this Section, Current Market Price per share of Stock
shall mean the last reported price for the Stock in the New York Stock Exchange
-- Composite Transaction listing on the trading day immediately preceding the
first trading day on which, as a result of the establishment of a record date or
otherwise, the trading price reflects that an acquirer of Stock in the public
market will not participate in or receive the payment of any applicable dividend
or distribution; provided, however, that if there is no closing price for the
stock as so reported on that date or if, in the discretion of the Committee,
another means of determining the fair value of the shares of stock at such date
shall be necessary or advisable, the Committee may provide for another means for
determining the Current Market Price of the Stock.

         Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock then subject to
outstanding Options.

                                      V-4

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                                   ARTICLE VI

                VARIABLE PROVISIONS RELATING TO SPECIFIC OPTIONS

         VI.1 OPTION PRICE. The price at which Stock may be purchased under an
Option shall not be less than the greater of: (a) 100 percent of the Fair Market
Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.

         VI.2 DURATION OF OPTIONS. No Option shall be exercisable after ten
years from the date the Option is granted. An Option may terminate prior to the
normal expiration date as specified below.

              (a) General Rule for Severance of Employment. Except as may be
              otherwise expressly provided herein, all Options shall terminate
              on the earlier of the date of the expiration of the Option or one
              day less than three months after the date of the severance of the
              employment relationship between the Company and all Affiliates and
              the Optionee, whether with or without cause, for any reason other
              than the death, Disability or, Retirement of the Optionee, during
              which period the Optionee shall be entitled to exercise the Option
              in respect of the number of shares that the Optionee would have
              been entitled to purchase had the Optionee exercised the Option on
              the date of such severance of employment. Whether authorized leave
              of absence, or absence on military or government service shall
              constitute severance of the employment relationship between the
              Company and all Affiliates and the Optionee, shall be determined
              by the Committee at the time thereof.

              (b) Death, Disability or Retirement of Optionee. In the event of
              the death, Disability or Retirement of an Optionee, before the
              date of expiration of such Option, such Option shall continue
              fully in effect, including provisions providing for subsequent
              vesting of such Option, for period of not more than three years
              commencing on the date of the Optionee's death, Disability or
              Retirement and shall terminate on the earlier of the date of the
              expiration of such-year period or the date of expiration of the
              Option. After the death of the Optionee, his executors,
              administrators or any person or persons to whom his Option may be
              transferred by will or by the laws of descent and distribution,
              shall have the right, at any time prior to the termination of the
              Option to exercise the Option, in respect to the number of shares
              that the Optionee would have been entitled to exercise if he were
              still alive.

                                      VI-1

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              Notwithstanding the foregoing provisions of this Section, the
         Committee may provide for a different option termination date in the
         Option Agreement with respect to any Option.

         VI.3 AMOUNT EXERCISABLE. Each Option may be exercised from time to
time, in whole or in part, in the manner and subject to the conditions the
Committee, in its sole discretion, may provide in the Option Agreement, as long
as the Option is valid and outstanding. The usual form of agreement granting an
Option shall, subject to any limitation on exercise contained in the Agreement
which is not inconsistent with this Plan, contain the following terms of
exercise:

              (a) No Option granted under this Plan may be exercised until an
         Optionee has completed one year of continuous employment with the
         Company or any Affiliate following the date of grant;

              (b) Beginning on the day after the first anniversary of the date
         of grant, an Option may be exercised up to 1/3 of the shares subject to
         the Option;

              (c) After the expiration of each succeeding anniversary date of
         the date of grant, the Option may be exercised up to an additional 1/3
         of the shares subject to the Option, so that after the expiration of
         the third anniversary of the date of grant, the Option shall be
         exercisable in full; and

              (d) To the extent not exercised, installments shall be cumulative
         and may be exercised in whole or in part until the Option expires on
         the tenth anniversary of the date of the grant.

The Committee, in its discretion, may accelerate the time in which any
outstanding Option may be exercised. However, in no event shall any Option be
exercisable after the tenth anniversary of the date of the grant.

         VI.4 EXERCISE OF OPTIONS. Each Option shall be exercised by the
delivery of written notice to the Committee setting forth the number of shares
of Stock with respect to which the Option is to be exercised, together with: (a)
cash, check, bank draft, or postal or express money order payable to the order
of the Company for an amount equal to the option price of the shares, or (b)
Stock at its Fair Market Value on the date of exercise, and/or any other form of
payment which is acceptable to the Committee, and specifying the address to
which the certificates for the shares are to be mailed. Subject to Article IX,
as promptly as practicable after receipt of written notification and payment,
the Company shall deliver to the Optionee certificates for the number of shares
with respect to which the Option has been exercised, issued in the Optionee's
name. If shares of Stock are used in payment of the exercise price, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, check, bank
draft, or postal or express money order payable to the Company. Delivery of the
shares shall be deemed effected for all purposes when a stock transfer agent of
the Company shall have deposited the certificates in the United States mail,
addressed to the Optionee, at the address specified by the Optionee.

                                      VI-2

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         Whenever an Option is exercised by exchanging shares of Stock owned by
the Optionee, the Optionee shall deliver to the Company certificates registered
in the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates, (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Option is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition of an Option.

         VI.5 SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.

                                      VI-3

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                                   ARTICLE VII

           GENERAL PROVISIONS RELATING TO ALL RESTRICTED STOCK AWARDS

         VII.1 AUTHORITY TO GRANT AWARDS. The Committee may make an Award of
Restricted Stock to selected eligible Employees. The amount of each Restricted
Stock Award and the respective terms and conditions of each Award (which terms
and conditions need not be the same in each case) shall be determined by the
Committee in its sole discretion. However, the terms and conditions of an Award
shall not be inconsistent with the terms of the Plan.

         VII.2 TRANSFERABILITY AND RIGHTS WITH RESPECT TO RESTRICTED STOCK.
Except as provided herein, Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered during a Restricted Period. Any
attempted sale, assignment, transfer, pledge or encumbrance of Restricted Stock
in violation of this Plan shall be void and the Company shall not be bound
thereby.

         During the Restricted Period, certificates representing the Restricted
Stock and any Retained Distributions shall be registered in the recipient's name
and bear a restrictive legend to the effect that ownership of such Restricted
Stock (and any such Retained Distributions), and the enjoyment of all rights
appurtenant thereto are subject to the restrictions, terms, and conditions
provided in this Plan and the applicable Agreement. Such certificates shall be
deposited by the recipient with the Company, together with stock powers or other
instruments of assignment, each endorsed in blank, which will permit transfer to
the Company of all or any portion of the Restricted Stock and any securities
constituting Retained Distributions which shall be forfeited in accordance with
this Plan and the applicable Agreement. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes.

         Subject to the terms of this Plan and the Agreement with respect to the
Award, the recipient shall have the right to vote the Restricted Stock awarded
to such recipient and to receive and retain all regular cash dividends, and to
exercise all other rights, powers and privileges of a holder of Common Stock,
with respect to such Restricted Stock, with the exception that (i) the recipient
shall not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the restrictions applicable thereto
shall have expired, (ii) the Company shall retain custody of all Retained
Distributions made or declared with respect to the Restricted Stock (and such
Retained Distributions shall be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid, or declared shall have become vested, and such Retained
Distributions shall not bear interest or be segregated in separate accounts and
(iii) the recipient may not sell, assign, transfer, pledge, exchange, encumber,
or dispose of the Restricted Stock or any Retained Distributions during the
Restricted Period. Nothing in this Section shall prevent transfers by will or by
the applicable laws of descent and distribution.

         VII.3 WITHHOLDING TAX. The Company shall meet its tax withholding
obligations under the Code and applicable state or local law arising upon the
vesting of Restricted Stock by delivering to the Restricted Stock recipient (or
his estate, if applicable) a reduced number of shares of Common Stock in the
manner specified herein. At the time of vesting of shares of Restricted Stock,
the

                                      VII-1

<PAGE>   17

Company shall (i) calculate the amount of withholding tax due on the assumption
that all such vested shares of Restricted Stock are made available for delivery,
(ii) reduce the number of such shares made available for delivery so that the
Fair Market Value of the shares withheld on the vesting date approximates the
amount of tax the Company is obliged to withhold and (iii) in lieu of the
withheld shares, remit cash to the United States Treasury and other applicable
governmental authorities, on behalf of the participant, in the amount of the
withholding tax due.

         The Company shall withhold only whole shares of Common Stock to satisfy
its withholding obligation. Where the Fair Market Value of the withheld shares
does not equal Company's withholding tax obligation, the Company shall withhold
shares with a Fair Market Value slightly in excess of the amount of its
withholding obligation and shall remit the excess cash to the Restricted Stock
Award recipient (or his estate, if applicable) with the shares of Common Stock
made available for delivery.

         The withheld shares of Restricted Stock not made available for delivery
by the Company shall be retained as treasury stock or will be cancelled and, in
either case, the recipient's right, title and interest in such Restricted Stock
shall terminate.

         VII.4 CHANGES IN COMPANY'S CAPITAL STRUCTURE. In the event that the
outstanding shares of Common Stock of the Company are changed into or exchanged
for a different number or kind of shares or other securities of the Company, or
of another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, or combination
of shares, appropriate adjustments shall be made by the Committee in the
aggregate number and kind of shares which may be issued or granted as Awards. If
any adjustment shall result in a fractional share, the fraction shall be
disregarded.

                                     VII-2

<PAGE>   18

                                  ARTICLE VIII

        VARIABLE PROVISIONS RELATING TO SPECIFIC RESTRICTED STOCK AWARDS

         VIII.1 VESTING OF RESTRICTED STOCK. Restricted Stock Awards shall be
subject to such vesting restrictions, if any, as the Committee shall determine
in its sole discretion.

         VIII.2 CONSEQUENCE OF VESTING. Subject to Article IX, when shares of
Restricted Stock become vested, the Restricted Period shall be terminated as to
those shares, and the Company shall deliver to the Restricted Stock Award
recipient (or his estate, if applicable) a Common Stock certificate representing
those shares and all Retained Distributions made or declared with respect to
those shares, reduced as necessary to satisfy the Company's tax withholding
obligation.

                                     VIII-1

<PAGE>   19

                                   ARTICLE IX

                               REQUIREMENTS OF LAW

         The Company shall not be required to sell, issue or deliver any shares
of Common Stock under any Award if such sale, issuance or delivery shall
constitute a violation by the Award recipient or the Company of any provisions
of any law or regulation of any governmental authority. Each Award granted under
this Plan shall be subject to the requirements that, if at any time the Board or
the Committee shall determine that the listing, registration or qualification of
the shares upon any securities exchange or under any state or federal law of the
United States or of any other country or governmental subdivision, or the
consent or approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue, or
purchase or delivery of shares subject to an Award, that Award shall not be
exercised in whole or in part and no shares shall be delivered pursuant to an
Award unless the listing, registration, qualification, consent, approval or
representations shall have been effected or obtained free of any conditions not
acceptable to the Committee. Any determination in this connection by the
Committee shall be final. In the event the shares issuable or deliverable on
exercise or vesting of an Award are not registered under the Securities Act of
1933, the Company may imprint on the certificate for those shares the following
legend or any other legend which counsel for the Company considers necessary or
advisable to comply with the Securities Act of 1933:

         "The shares of stock represented by this certificate have not been
         registered under the Securities Act of 1933 or under the securities
         laws of any state and may not be sold or transferred except upon
         registration or upon receipt by the Corporation of an opinion of
         counsel satisfactory to the Corporation, in form and substance
         satisfactory to the Corporation, that registration is not required for
         a sale or transfer."

The Company may, but shall in no event be obligated to, register any securities
covered by this Plan under the Securities Act of 1933 (as now in effect or as
later amended) and, in the event any shares are registered, the Company may
remove any legend on certificates representing those shares. The Company shall
not be obligated to take any other affirmative action in order to cause the
exercise of an Award or the issuance or delivery of shares under the Award to
comply with any law or regulation or any governmental authority.

                                      IX-1

<PAGE>   20

                                    ARTICLE X

                                 ADMINISTRATION

         This Plan shall be administered by the Committee. All questions of
interpretation and application of this Plan and Awards shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. In carrying out its
authority under this Plan, the Committee shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:

              (a) determine the persons to whom and the time or times at which
         Awards will be made,

              (b) determine the number of shares of Stock covered in each Award,
         subject to the terms of the Plan,

              (c) determine the purchase price of Stock covered in each Option,
         subject to the terms of the Plan,

              (d) determine the terms, provisions and conditions of each Award,
         which need not be identical,

              (e) accelerate the time at which any outstanding Option may be
         exercised,

              (f) accelerate the time at which any outstanding Restricted Stock
         Award may vest,

              (g) define the effect, if any, on an Award of the death,
         Disability, or Retirement of the Award recipient,

              (h) prescribe, amend and rescind rules and regulations relating to
         administration of this Plan, and

              (i) make all other determinations and take all other actions
         deemed necessary, appropriate, or advisable for the proper
         administration of this Plan.

The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of this Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties. The Committee's decision shall never be subject to de
novo review.

                                      X-1

<PAGE>   21

                                   ARTICLE XI

                        AMENDMENT OR TERMINATION OF PLAN

         The Board of the Company may amend, terminate or suspend this Plan at
any time, in its sole and absolute discretion.

                                      XI-1

<PAGE>   22

                                   ARTICLE XII

                                  MISCELLANEOUS

         XII.1 NO EMPLOYMENT OBLIGATION. The granting of any Award shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Award recipient. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Award has been granted to him.

         XII.2 FORFEITURE FOR CAUSE. Notwithstanding any other provision of this
Plan, if the Committee finds by a majority vote, that the Award recipient,
before or after termination of his employment with the Company or any Affiliate
(a) committed a fraud, embezzlement, theft, felony or an act of dishonesty in
the course of his employment by the Company which conduct damaged the Company or
(b) disclosed trade secrets of the Company, then any outstanding options which
have not been exercised by the individual and any Awards which have not yet
vested will be forfeited. The decision of the Committee as to the cause of an
Award recipient's discharge, the damage done to the Company and the extent of
the individual's competitive activity will be final. No decision of the
Committee, however, will affect the finality of the discharge of the individual
by the Company.

         XII.3 WRITTEN AGREEMENT. Each Award granted under the Plan shall be
embodied in a written Agreement which shall be subject to the terms and
conditions of the Plan and shall be signed by the Award recipient and by a
member of the Committee on behalf of the Committee and the Company. Each Option
Agreement shall state that the Option embodied therein is not intended to
satisfy the requirements of section 422 of the Code. The Agreement may contain
any other provisions that the Committee in its discretion shall deem advisable
which are not inconsistent with the terms of this Plan.

         XII.4 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD. With respect to
administration of this Plan, the Company shall indemnify each present and future
member of the Committee and the Board against, and each member of the Committee
and the Board shall be entitled without further act on his part to indemnity
from the Company for, all expenses (including attorney's fees, the amount of
judgments and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit, or proceeding in which he may be involved by reason of his being
or having been a member of the Committee and/or the Board, whether or not he
continues to be a member of the Committee and/or the Board at the time of
incurring the expenses--including, without limitation, matters as to which he
shall be finally adjudged in any action, suit or proceeding to have been found
to have been negligent in the performance of his duty as a member of the
Committee or of the Board. However, this indemnity shall not include any
expenses incurred by any member of the Committee and/or the Board in respect of
matters as to which he shall be finally adjudged in any action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duty as a member of the Committee or the Board. In addition,
no right of indemnification under this Plan shall be available to or enforceable
by any member of the Committee or the Board unless, within 60 days after
institution

                                     XII-1

<PAGE>   23

of any action, suit or proceeding, he shall have offered the Company, in
writing, the opportunity to handle and defend same at its own expense. This
right of indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Committee and the Board and shall be in
addition to all other rights to which a member of the Committee and the Board
may be entitled as a matter of law, contract, or otherwise.

         XII.5 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall this Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.

         XII.6 OTHER AWARDS. The grant of an Award shall not confer upon an
Award recipient the right to receive any future or other Awards under this Plan,
whether or not Awards may be granted to similarly situated Award recipients, or
the right to receive future Awards upon the same terms or conditions as
previously granted.

         XII.7 SECTION 83(b) ELECTIONS. No Employee shall exercise the election
permitted under section 83(b) of the Code with respect to an Award without
written approval of the Committee. If the Committee permits such an election
with respect to any Award, the Company shall require the Award recipient to pay
the Company an amount necessary to satisfy the Company's tax withholding
obligation.

         XII.8 ARBITRATION OF DISPUTES. Any controversy arising out of or
relating to the Plan or an Agreement shall be resolved by arbitration conducted
pursuant to the arbitration rules of the American Arbitration Association. The
arbitration shall be final and binding on the parties.

         XII.9 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.

         XII.10 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of this Plan and shall
not be used in construing the terms of this Plan.

         XII.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.

                                     XII-2<PAGE>   1
                                                                    EXHIBIT 10.2

                                  AMENDMENT TO
                             THE QUANEX CORPORATION
                       1997 KEY EMPLOYEE STOCK OPTION PLAN

         THIS AGREEMENT by Quanex Corporation (the "Company"),

                                  WITNESSETH:

         WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1997 Key Employee Stock Option
Plan" (the "Plan"); and

         WHEREAS, the Board of Directors of the Company retained the right in
Article XI of the Plan to amend the Plan from time to time; and

         WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;

         NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Section 6.2 of the Plan is hereby amended, effective
with respect to all Options issued in the future under this Plan, as follows:

         6.2 DURATION OF OPTIONS. No Option shall be exercisable after ten years
         from the date the Option is granted. An Option may terminate prior to
         the normal expiration date as specified below.

                  (a) General Rule for Severance of Employment. Except as may be
                  otherwise expressly provided herein, all Options shall
                  terminate on the earlier of the date of the expiration of the
                  Option or one day less than three months after the date of the
                  severance of the employment relationship between the Company
                  and all Affiliates and the Optionee, whether with or without
                  cause, for any reason other than the death, Disability or,
                  Retirement of the Optionee, during which period the Optionee
                  shall be entitled to exercise the Option in respect of the
                  number of shares that the Optionee would have been entitled to
                  purchase had the Optionee exercised the Option on the date of
                  such severance of employment. Whether authorized leave of
                  absence, or absence on military or government service shall
                  constitute severance of the employment relationship between
                  the Company and all Affiliates and the Optionee, shall be
                  determined by the Committee at the time thereof.

<PAGE>   2

                  (b) Death, Disability or Retirement of Optionee. In the event
                  of the death, Disability or Retirement of an Optionee, before
                  the date of expiration of such Option, such Option shall
                  continue fully in effect, including provisions providing for
                  subsequent vesting of such Option, for period of not more than
                  three years commencing on the date of the Optionee's death,
                  Disability or Retirement and shall terminate on the earlier of
                  the date of the expiration of such-year period or the date of
                  expiration of the Option. After the death of the Optionee, his
                  executors, administrators or any person or persons to whom his
                  Option may be transferred by will or by the laws of descent
                  and distribution, shall have the right, at any time prior to
                  the termination of the Option to exercise the Option, in
                  respect to the number of shares that the Optionee would have
                  been entitled to exercise if he were still alive.

                  Notwithstanding the foregoing provisions of this Section, the
         Committee may provide for a different option termination date in the
         Option Agreement with respect to any Option.

Dated: December 9, 1999.

                                       -2-

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