Document:

<PAGE>

                               QUANEX CORPORATION
                            LONG-TERM INCENTIVE PLAN

         WHEREAS, Quanex Corporation, A Delaware corporation ("Quanex"), desires
to establish the Quanex Corporation Long-Term Incentive Plan (the "Plan") to
advance the best interests of Quanex by providing key executives of Quanex who
have substantial responsibility for the management and growth of Quanex an
additional incentive to remain in the employ of Quanex and to contribute
materially to the continued growth, development and financial success of Quanex;
and

         WHEREAS, it is intended that the Plan shall constitute a bonus program
within the meaning of Department of Labor Regulation section 2510.3-2(c) that is
exempt from coverage under the Employee Retirement Income Security Act of 1974,
as amended;

         NOW, THEREFORE, Quanex adopts the Plan as follows:

<PAGE>

                               QUANEX CORPORATION
                            LONG-TERM INCENTIVE PLAN

                                TABLE OF CONTENTS
<Table>
<Caption>

                                                                Section
                                                                -------
<S>                                                             <C>
ARTICLE I - PLAN PURPOSE AND TERM

         Purpose.....................................................1.1
         Term of Plan................................................1.2

ARTICLE II - DEFINITIONS

         Affiliate...................................................2.1
         Award Agreement.............................................2.2
         Board.......................................................2.3
         Cause.......................................................2.4
         Change of Control...........................................2.5
         Code........................................................2.6
         Committee...................................................2.7
         Common Stock................................................2.8
         Disability..................................................2.9
         Fiscal Year................................................2.10
         Grantee....................................................2.11
         Maximum Performance Level..................................2.12
         Performance Award..........................................2.13
         Performance Objectives.....................................2.14
         Performance Objective Percentage...........................2.15
         Performance Period.........................................2.16
         Performance Standard.......................................2.17
         Performance Unit...........................................2.18
         Performance Unit Value.....................................2.19
         Plan.......................................................2.20
         Quanex.....................................................2.21
         Retirement.................................................2.22
         Separation From Service....................................2.23
         Spouse.....................................................2.24
         Target Performance Level...................................2.25
         Threshold Performance Level................................2.26
         Vested Interest............................................2.27

ARTICLE III - ELIGIBILITY
</Table>

                                       i

<PAGE>

<Table>

ARTICLE IV - PERFORMANCE AWARDS
<S>                                                                                     <C>
         Grants of Performance Awards....................................................4.1
         Establishment of Performance Objectives and Performance Standards...............4.2
         Special Ledger..................................................................4.3

ARTICLE V - CALCULATION AND PAYMENT OF BENEFITS

         Determination of Amounts Payable Under Performance Awards.......................5.1
         Amounts Payable Upon the Death, Disability or Retirement of the Grantee.........5.2
         Amount Payable Upon a Change of Control.........................................5.3
         No Interest on Performance Awards...............................................5.4
         Time of Payment.................................................................5.5
         Form of Payment.................................................................5.6
         Payment on Death of Grantee.....................................................5.7

ARTICLE VI - VESTING AND FORFEITURES

         Determination of Vested Interest................................................6.1
         Forfeiture Upon Separation From Service.........................................6.2
         Complete Forfeiture for Cause...................................................6.3
         Accelerated Vesting Upon Change of Control......................................6.4
         Treatment of Forfeited Interest in Performance Award............................6.5

ARTICLE VII - ADMINISTRATION

         General.........................................................................7.1
         Powers of Committee.............................................................7.2
         Committee Discretion............................................................7.3
         Disqualification of Committee Member............................................7.4

ARTICLE VIII - AMENDMENT OR TERMINATION OF PLAN

ARTICLE IX - FUNDING

         Payments Under the Plan Are the Obligation of Quanex............................9.1
         Grantees Must Rely Solely on the General Credit of Quanex.......................9.2
         Unfunded Arrangement............................................................9.3
</Table>

                                       ii

<PAGE>

<Table>

ARTICLE X - MISCELLANEOUS
<S>                                                                                 <C>
         No Employment Obligation....................................................10.1
         Tax Withholding.............................................................10.2
         Indemnification of the Committee............................................10.3
         Indemnification of the Board................................................10.4
         Gender and Number...........................................................10.5
         Headings....................................................................10.6
         Other Compensation Plans....................................................10.7
         Rights of Quanex and Affiliates.............................................10.8
         Nonalienation of Benefits...................................................10.9
         Plan and Performance Award Agreements Binding on Quanex's Successor........10.10
         Governing Law..............................................................10.11
</Table>

EXHIBIT A - EXAMPLE

                                      iii
<PAGE>

                                    ARTICLE I

                              PLAN PURPOSE AND TERM

         1.1. PURPOSE. The Plan is intended to provide those executives who have
substantial responsibility for the management and growth of Quanex with
additional incentives to remain in the employ of Quanex and to contribute
materially to the continued growth, development and financial success of Quanex.

         1.2. TERM OF PLAN. The Plan is effective November 1, 2001. The Plan
shall remain in effect until all amounts due under the terms of the Plan have
been paid.

                                   ARTICLE II

                                   DEFINITIONS

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

         2.1. "AFFILIATE" means an entity that is treated as a single employer
together with Quanex for certain employee benefit purposes under section 414 of
the Code.

         2.2. "AWARD AGREEMENT" means the written agreement between Quanex and a
Grantee that sets forth the terms of a Performance Award.

         2.3. "BOARD" means the board of directors of Quanex.

         2.4. "CAUSE" means (a) the willful and continued failure by the Grantee
to substantially perform his duties with Quanex or its Affiliates (other than
such failure resulting from his incapacity due to physical or mental illness)
after demand for substantial performance is delivered to him by Quanex which
specifically identifies the manner in which Quanex believes the Grantee has not
substantially performed his duties; (b) the willful engaging by the Grantee in
gross misconduct materially and demonstrably injurious to the property or
business of Quanex or any of its Affiliates; or (c) the willful material
violation of any Quanex policies regarding the protection of confidential and/or
proprietary information or the material violation of any non-compete agreement
between the Grantee and Quanex. For purposes of this definition, no act or
failure to act on the Grantee's part will be considered willful unless done or
omitted to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interests of Quanex or its Affiliates or
not opposed to the interests of Quanex or its Affiliates.

         2.5. "CHANGE OF CONTROL" means the occurrence of one or more of the
following events after November 1, 2001:

         (a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Covered
Person") of beneficial ownership (within the meaning of rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either

                                       1
<PAGE>

(i) the then outstanding shares of the common stock of Quanex (the "Outstanding
Quanex Common Stock"), or (ii) the combined voting power of the then outstanding
voting securities of Quanex entitled to vote generally in the election of
directors (the "Outstanding Quanex Voting Securities"); provided, however, that
for purposes of this subsection (a) of this Section, the following acquisitions
shall not constitute a Change of Control of Quanex: (i) any acquisition directly
from Quanex, (ii) any acquisition by Quanex, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by Quanex or
any entity controlled by Quanex, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section;

         (b) individuals who, as of November 1, 2001, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
June 1, 1999, whose election, or nomination for election by Quanex's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Covered Person other than the Board;

         (c) the consummation of (xx) a reorganization, merger or consolidation
or sale of Quanex or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Quanex Common Stock and Outstanding Quanex Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 80 percent of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
Quanex or all or substantially all of Quanex's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Quanex Common Stock and Outstanding Quanex Voting Securities, as the case may
be, (ii) no Covered Person (excluding any employee benefit plan (or related
trust) of Quanex or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20 percent or more of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination, were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors,
providing for such Business Combination; or

         (d) the approval of the stockholders of Quanex of a complete
liquidation or dissolution of Quanex.

                                       2
<PAGE>

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

         2.7 "COMMITTEE" means members of the Compensation Committee of the
Board.

         2.8 "COMMON STOCK" means Quanex's common stock, $.50 par value.

         2.9 "DISABILITY" means the Separation From Service of a Grantee due to
a medically determinable mental or physical impairment which, in the opinion of
a physician selected by the Committee, shall prevent the Grantee from engaging
in any substantial gainful activity and which can be expected to result in death
or which has lasted or can be expected to last for a continuous period of not
less than twelve months and which (a) was not contracted, suffered or incurred
while the Grantee was engaged in, or did not result from having engaged in, a
felonious criminal enterprise; (b) did not result from addiction to narcotics;
(c) did not result from an injury incurred while a member of the Armed Forces of
the United States for which the Grantee receives a military pension; and (d) did
not result from an intentionally self-inflicted injury.

         2.10 "FISCAL YEAR" means November 1 through October 31.

         2.11 "GRANTEE" means a person who has been granted a Performance Award
under the Plan.

         2.12 "MAXIMUM PERFORMANCE LEVEL" means the most stringent Performance
Standard established by the Committee with respect to a Performance Award.

         2.13 "PERFORMANCE AWARD" means an incentive compensation opportunity
granted under the Plan.

         2.14 "PERFORMANCE OBJECTIVES" means the criteria established by the
Committee for a Fiscal year as the basis for determining the amount payable to a
Grantee under a Performance Award.

         2.15 "PERFORMANCE OBJECTIVE PERCENTAGE" has the meaning specified in
Section 4.2.

         2.16 "PERFORMANCE PERIOD" means the period that commences on the first
day of a Fiscal Year and ends on the day before the third anniversary of such
first day of a Fiscal Year.

         2.17 "PERFORMANCE STANDARD" means a level of performance established by
the Committee with respect to a Performance Award.

         2.18 "PERFORMANCE UNIT" means a unit that is awarded under the Plan
pursuant to an Award Agreement for the purpose of determining the incentive
compensation payable under the Plan.

         2.19 "PERFORMANCE UNIT VALUE" means, with respect to any Performance
Objective, $0 if the Threshold Performance Level is not attained; $75.00 if the
Threshold Performance Level is attained but the Target Performance Level is not
attained; $100.00 if the Target

                                       3
<PAGE>

Performance Level is attained but the Maximum Performance Level is not attained;
and $200.00 if the Maximum Performance Level is attained.

         2.20 "PLAN" means the Quanex Corporation Long-Term Incentive Plan, as
set forth in this document and as it may be amended from time to time.

         2.21 "QUANEX" means Quanex Corporation, a Delaware Corporation.

         2.22 "RETIREMENT" means the Grantee's Separation From Service at a time
when he is eligible to commence receiving retirement benefits under either the
Quanex Corporation Salaried Employees' Pension Plan or the Quanex Corporation
Supplemental Benefit Plan.

         2.23 "SEPARATION FROM SERVICE" means the termination of the employment
relationship between the Grantee and Quanex and all Affiliates.

         2.24 "SPOUSE" means the person to whom the Grantee is married under
applicable local law.

         2.25 "TARGET PERFORMANCE LEVEL" means the normal Performance Standard
established by the Committee with respect to a Performance Award.

         2.26 "THRESHOLD PERFORMANCE LEVEL" means the least stringent
Performance Standard established by the Committee with respect to a Performance
Award.

         2.27 "VESTED INTEREST" means a Grantee's nonforfeitable interest in the
benefits payable under his Performance Award pursuant to Article IV determined
under the terms of Article VI.

                                   ARTICLE III

                                   ELIGIBILITY

         The individuals who shall be eligible to receive Performance Awards
under the Plan during a Fiscal Year shall be those Quanex executives as the
Committee shall determine.

                                   ARTICLE IV

                               PERFORMANCE AWARDS

         4.1 GRANTS OF PERFORMANCE AWARDS. Quanex may grant a Performance Award
to each Grantee selected by the Committee. The potential amount payable under a
Performance Award shall be based upon the attainment of Performance Objectives
established by the Committee. Performance Awards may vary among Grantees. The
terms of a Performance Award that are established by the Committee shall be
specified in an Award Agreement. The fact that a Grantee is granted a
Performance Award during a Fiscal Year shall not entitle him to have another
Performance Award granted to him during any other Fiscal Year. The Committee

                                       4
<PAGE>

shall retain documentation relating to all Performance Awards and the applicable
Performance Objectives.

         4.2 ESTABLISHMENT OF PERFORMANCE OBJECTIVES AND PERFORMANCE STANDARDS.
The Committee shall establish the Performance Objectives that apply to a
Performance Award. The Committee shall assign a percentage weight of importance
(a "Performance Objective Percentage") for each Performance Objective taken into
account under a Performance Award. The total of the Performance Objective
Percentages for all of the Performance Objectives applicable to a Performance
Award shall be 100 percent. For each Performance Objective that the Committee
establishes under a Performance Award, the Committee shall specify three
Performance Standards which shall be referred to as the Threshold Performance
Level, the Target Performance Level and the Maximum Performance Level.

         4.3 SPECIAL LEDGER. The Committee shall establish or cause to be
established an appropriate record that will reflect the name of each Grantee and
all other information necessary to properly reflect each Grantee's Performance
Awards made by the Committee.

                                    ARTICLE V

                       CALCULATION AND PAYMENT OF BENEFITS

         5.1 DETERMINATION OF AMOUNTS PAYABLE UNDER PERFORMANCE AWARDS. As soon
as administratively practicable after the end of a Fiscal Year, the Committee
shall ascertain the extent to which the Performance Objectives applicable to
Performance Awards made for that Fiscal Year have been achieved. The Committee
shall retain with the records of the Committee documentation of its conclusions,
and the basis for its conclusions, concerning the extent to which Performance
Objectives were achieved. Subject to Sections 5.2 and 5.3, if a Grantee achieves
a performance standard (Maximum Performance Level, Target Performance Level or
Threshold Performance Level) for a Performance Objective the Grantee shall be
entitled to receive, and Quanex shall pay the Grantee (or the Grantee's Spouse
or estate, if applicable), an incentive payment with respect to such Performance
Objective in an amount equal to the product of (1) the Grantee's Vested
Interest, (2) the number of Performance Units awarded to the Grantee under the
Performance Award, (3) the applicable Performance Objective Percentage for such
Performance Objective and (4) the applicable Performance Unit Value ($75.00 for
achieving the Threshold Performance Level; $100.00 for achieving the Target
Performance Level; and $200.00 for achieving the Maximum Performance Level). If
the performance standard achieved with respect to a particular Performance
Objective is between the Threshold Performance Level and the Target Performance
Level or between the Target Performance Level and the Maximum Performance Level,
the applicable Performance Unit Value for the Performance Objective shall be
determined by interpolation. If a Grantee fails to achieve at least the
Threshold Performance Level for a Performance Objective he shall not be entitled
to receive an incentive payment with respect to such Performance Objective.
Exhibit A attached hereto contains an example that illustrates the manner in
which the amount payable under a Performance Award is to be determined.

                                       5
<PAGE>

         5.2 AMOUNTS PAYABLE UPON THE DEATH, DISABILITY OR RETIREMENT OF THE
GRANTEE. If a Grantee incurs a Separation From Service due to his death,
Disability or Retirement during the Performance Period for which a Performance
Award was granted to him, he shall be entitled to receive, and Quanex shall pay
him (or his Spouse or estate, if applicable), with respect to each Performance
Objective, an amount equal to the amount determined under Section 5.1 above
multiplied by a fraction, the numerator of which is the number of days during
the Performance Period that have elapsed prior to his Separation From Service
and the denominator of which is 1095.

         5.3 AMOUNT PAYABLE UPON A CHANGE OF CONTROL. Notwithstanding any other
provisions of the Plan, if a Change of Control occurs (a) prior to the
expiration of the applicable Performance Period and (b) the Grantee incurs a
Separation From Service during such Performance Period and on or after the date
the Change of Control occurs, he shall be entitled to receive, and Quanex shall
pay him (or his Spouse or estate, if applicable), with respect to each
Performance Objective, an amount equal to the product of (1) the number of
Performance Units awarded to the Grantee under the Performance Award, (2)
$100.00, and (3) a fraction, the numerator of which is the number of days during
the Performance Period that will have elapsed prior to the first day of the
second Fiscal Year immediately following the Fiscal Year in which the Change of
Control occurs and the denominator of which is 1095.

         5.4 NO INTEREST ON PERFORMANCE AWARDS. No interest shall be credited
with respect to amounts payable under any Performance Awards.

         5.5 TIME OF PAYMENT. Unless a Change of Control occurs during the
Performance Period, Quanex shall pay a Grantee the aggregate amount due to the
Grantee under the Plan with respect to such Performance Period as soon as
administratively practicable after the end of the Performance Period and in any
event no later than 90 days after the end of the Performance Period.

         If during a Performance Period a Change of Control occurs and a Grantee
incurs a Separation From Service during such Performance Period and on or after
the date of the Change of Control, Quanex shall pay the Grantee the aggregate
amount due the Grantee under the Plan with respect to such Performance Period as
soon as administratively practicable after the date of the Change of Control and
in any event no later than 120 days after the date of the Change of Control.

         Notwithstanding any other provision of the Plan to the contrary, if the
Company determines that as a result of the application of section 162(m) of the
Code the Company would not be entitled to take a deduction for part or all of
the compensation payable to a Grantee under an Award, then, unless a Change of
Control has occurred, the payment of the compensation, to the extent not
currently deductible, will be delayed until December 1 of the second Fiscal Year
that commences after the expiration of the applicable Performance Period.

         5.6 FORM OF PAYMENT. The payment under a Performance Award shall be in
the form of cash, shares of Common Stock, or in a combination of cash and shares
of Common Stock, as determined by the Committee in its sole discretion.

                                       6
<PAGE>

         5.7 PAYMENT ON DEATH OF GRANTEE. Upon the death of a Grantee before he
has been paid his benefit under his Performance Award, his benefit under his
Performance Award shall be paid to the Grantee's Spouse if the Spouse survives
the Grantee, or to the Grantee's estate if the Grantee's Spouse does not survive
the Grantee. Any payment under this Section 5.7 shall be made at the same time
the payment would have been made to the Grantee.

                                   ARTICLE VI

                             VESTING AND FORFEITURES

         6.1 DETERMINATION OF VESTED INTEREST. Subject to Section 6.3, if the
Grantee does not incur a Separation From Service prior to the expiration of the
Performance Period applicable to his Performance Award, his Vested Interest
shall be 100 percent. Further, if the Grantee dies, Retires or becomes Disabled
before he has been paid his benefit under his Performance Award, his Vested
Interest shall be 100 percent.

         6.2 FORFEITURE UPON SEPARATION FROM SERVICE. Subject to Section 6.4, if
a Grantee incurs a Separation From Service prior to the expiration of the
applicable Performance Period for any reason other than death, Retirement or
Disability, his Vested Interest shall be zero and his Performance Award shall be
immediately forfeited.

         6.3 COMPLETE FORFEITURE FOR CAUSE. Notwithstanding Section 6.1 of the
Plan, if prior to the date that is 120 days prior to the occurrence of a Change
of Control the Committee finds by a majority vote after full consideration of
the facts that a Grantee was discharged from the employ of Quanex or an
Affiliate for Cause, the Grantee shall immediately forfeit his Performance Award
to the extent he has not yet been paid benefits pursuant to the Performance
Award. The decision of the Committee as to the cause of the Grantee's discharge
shall be final. No decision of the Committee shall affect the finality of the
discharge of the Grantee. No Plan benefits shall be forfeited pursuant to this
Section 6.3 after the date that is 120 days prior to the occurrence of a Change
of Control.

         6.4 ACCELERATED VESTING UPON CHANGE OF CONTROL. Notwithstanding any
other provisions of the Plan, if a Change of Control occurs prior to the
expiration of the Performance Period applicable to a Grantee's Performance Award
and the Grantee incurs a Separation From Service during such Performance Period
and on or after the date of the Change of Control, such Grantee's Vested
Interest shall be 100 percent. Further, notwithstanding any other provisions of
the Plan, if a Change of Control occurs prior to the expiration of the
Performance Period applicable to a Grantee's Performance Award and no later than
the date that is 120 days after a Grantee's Separation From Service, such
Grantee's Vested Interest shall be 100 percent.

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

                                       7
<PAGE>

                                   ARTICLE VII

                                 ADMINISTRATION

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

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

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

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

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

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

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

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

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

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

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

                                       8
<PAGE>

but instead shall only be overturned if found to be arbitrary or capricious by
an arbitrator or a court of law.

         7.4 DISQUALIFICATION OF COMMITTEE MEMBER. A member of the Committee
shall not vote or act on any Plan matter relating solely to himself.

                                  ARTICLE VIII

                        AMENDMENT OR TERMINATION OF PLAN

         The Board may terminate the Plan at any time, in its sole and absolute
discretion, provided that any termination of the Plan prior to the expiration of
the Performance Period shall be deemed to be a Change of Control for all
purposes under the Plan. The Board may amend the Plan only with the written
consent of each Grantee who has not either been paid the entire amount due him
under his Performance Award or forfeited his entire interest in his Performance
Award pursuant to the terms of the Plan.

                                   ARTICLE IX

                                     FUNDING

         9.1 PAYMENTS UNDER THE PLAN ARE THE OBLIGATION OF QUANEX. Benefits due
under the Plan will be paid by Quanex.

         9.2 GRANTEES MUST RELY SOLELY ON THE GENERAL CREDIT OF QUANEX. The Plan
is only a general corporate commitment of Quanex and each Grantee must rely
solely upon the general credit of Quanex for the fulfillment of its obligations
hereunder. Under all circumstances the rights of the Grantee to any asset held
by Quanex will be no greater than the rights expressed in the Plan. Nothing
contained in the Plan or a Performance Award will constitute a guarantee by
Quanex that the assets of Quanex will be sufficient to pay any benefits under
the Plan or would place the Grantee in a secured position ahead of general
creditors of Quanex; the Grantees are only unsecured creditors of Quanex with
respect to their Plan benefits and the Plan constitutes a mere promise by Quanex
to make benefit payments in the future. No specific assets of Quanex have been
or will be set aside, or will be pledged in any way for the performance of
Quanex's obligations under the Plan which would remove such assets from being
subject to the general creditors of Quanex.

         9.3 UNFUNDED ARRANGEMENT. It is intended that the Plan shall be
unfunded for tax purposes and for purposes of Title of the Employee Retirement
Income Security Act of 1974, as amended.

                                    ARTICLE X

                                  MISCELLANEOUS

         10.1 NO EMPLOYMENT OBLIGATION. The granting of any Performance Award
shall not constitute an employment contract, express or implied, nor impose upon
Quanex or any Affiliate

                                       9
<PAGE>

any obligation to employ or continue to employ the Grantee. The right of Quanex
or any Affiliate to terminate the employment of any person shall not be
diminished or affected by reason of the fact that a Performance Award has been
granted to him.

         10.2 TAX WITHHOLDING. Quanex shall be entitled to deduct from the
Performance Award or other compensation payable to each Grantee any sums
required by federal, state, or local tax law to be withheld with respect to
payments under a Performance Award.

         10.3 INDEMNIFICATION OF THE COMMITTEE. Quanex shall indemnify each
present and future member of the Committee against, and each member of the
Committee shall be entitled without further act on his part to indemnity from
Quanex for, all expenses (including attorneys' fees, the amount of judgments and
the amount of approved settlements made with a view to the curtailment of costs
of litigation, other than amounts paid to Quanex itself) reasonably incurred by
him in connection with or arising out of any action, suit, or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee at the
time of incurring the expenses -- including, without limitation, matters as to
which he shall be finally adjudged in any action, suit or proceeding to have
been found to have been negligent in the performance of his duty as a member of
the Committee. However, this indemnity shall not include any expenses incurred
by any member of the Committee in respect of matters as to which he shall be
finally adjudged in any action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as a member of
the Committee. In addition, no right of indemnification under the Plan shall be
available to or enforceable by any member of the Committee unless, within 60
days after institution of any action, suit or proceeding, he shall have offered
Quanex, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and shall be in
addition to all other rights to which a member of the Committee may be entitled
as a matter of law, contract, or otherwise.

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

                                       10
<PAGE>

shall inure to the benefit of the heirs, executors or administrators of each
member of the Board and shall be in addition to all other rights to which a
member of the Board may be entitled as a matter of law, contract, or otherwise.

         10.5 GENDER AND NUMBER. If the context requires, words of one gender
when used in the Plan shall include the other and words used in the singular or
plural shall include the other.

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

         10.7 OTHER COMPENSATION PLANS. The adoption and maintenance of the Plan
shall not affect any other stock option, incentive or other compensation or
benefit plans in effect for Quanex or any Affiliate or preclude Quanex from
establishing any other forms of incentive or other compensation for employees of
Quanex or any Affiliate.

         10.8 RIGHTS OF QUANEX AND AFFILIATES. The existence of Performance
Awards shall not affect in any way the right or power of Quanex or an Affiliate
to (a) make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in Quanex's or an Affiliate's structure or
business, (b) approve and consummate any merger or consolidation of Quanex or an
Affiliate with or into any entity, (c) issue any bonds, debentures or interests
in Quanex or an Affiliate of any nature whatsoever to any person, (d) approve
and consummate the dissolution or liquidation of Quanex or an Affiliate or any
sale or transfer of all or any part of Quanex's or an Affiliate's assets or
business or (e) approve and consummate any other act or proceeding whether of a
similar character or otherwise.

         10.9 NONALIENATION OF BENEFITS. No benefit provided under the Plan
shall be transferable by the Grantee except pursuant to a state domestic
relations order. No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any
attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any
right or benefit under the Plan shall be void. No right or benefit under the
Plan shall, in any manner, be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to the right or benefit. If any
Grantee becomes bankrupt or attempts to anticipate, alienate, assign, pledge,
sell, encumber or charge any right or benefit under the Plan, then the right or
benefit shall, in the discretion of the Committee, cease. In that event, Quanex
and/or one or more Affiliates may hold or apply the right or benefit or any part
of the right or benefit for the benefit of the Grantee, the Grantee's Spouse,
children or other dependents or any of them in the manner and in the proportion
that the Committee shall deem proper, in its sole discretion, but is not
required to do so. The restrictions in this Section 10.9 shall not apply to
state domestic relations' orders.

         10.10 PLAN AND AWARD AGREEMENTS BINDING UPON QUANEX'S SUCCESSOR. The
Plan and all Award Agreements shall be binding upon Quanex's successor. Further,
the Board shall not authorize a Change of Control unless the purchaser agrees to
take such actions as are necessary to cause all Grantees to be paid amounts due
under the terms of the Plan as in effect prior to the Change of Control.

                                       11
<PAGE>

         10.11 GOVERNING LAW. Except to the extent such laws are preempted by
federal law, the validity, interpretation, construction and enforceability of
the Plan shall be governed by the laws of the State of Texas.

                                       12
<PAGE>

         IN WITNESS WHEREOF, Quanex has caused this Agreement to be executed by
its authorized officer on this 6th day of December, 2001, effective as of
November 1, 2001.

                                     QUANEX CORPORATION

                                     By:     /s/ PAUL GIDDENS
                                        ----------------------------------
                                     Title:  Vice President HR & Administration

<PAGE>

                                                                       EXHIBIT A

                       EXAMPLE OF PERFORMANCE COMPENSATION
                              CALCULATION UNDER THE
                   QUANEX CORPORATION LONG-TERM INCENTIVE PLAN

         Assume that the Committee grants an executive a performance based
compensation award under the Plan that is contingent upon achieving two
performance goals, Performance Objective A and Performance Objective B. The
Committee assigns weights of importance Performance Objective Percentages in the
amounts of 40% and 60% for Performance Objective A and Performance Objective B,
respectively.

         Assume that for both of Performance Objectives A and B the Committee
establishes threshold, target and maximum performance standards. The per
performance unit dollar values ("Performance Unit Value") assigned for achieving
the threshold, target and maximum performance standards are $75, $100 and $200,
respectively.

         Assume that the performance based compensation award provides that the
executive is awarded 2000 units ("Performance Units") for purposes of
determining the amount payable under the award.

         Assume that the executive achieves the maximum performance standard for
Performance Objective A, and precisely halfway between the target and maximum
performance standards for Performance Objective B. Finally, assume that the
executive is continuously employed by Quanex throughout the performance period.

         The amount payable to the executive with respect to Performance
Objective A is $160,000, determined as follows:

         .40 (Performance Objective Percentage) X 2000 (Performance Units) X
$200 (Performance Unit Value) = $160,000.

         The amount payable to the executive with respect to Performance
Objective B is $180,000, determined as follows:

         .60 (Performance Objective Percentage) X 2000 (Performance Units) X
$150 (Performance Unit Value) = $180,000.

         The total amount payable to the executive under the award is $340,000.<PAGE>
                                                                   EXHIBIT 10.38

                NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES

                        AGREEMENT FOR ADOPTION AND MERGER
        OF THE TEMROC METALS, INC. BARGAINING UNIT EMPLOYEES 401(k) PLAN
            INTO THE NICHOLS 401(k) SAVINGS PLAN FOR HOURLY EMPLOYEES

         THIS AGREEMENT by and between Quanex Corporation, a corporation
("Quanex") and Temroc Metals, Inc., a corporation ("Temroc"),

                                   WITNESSETH:

         WHEREAS, Temroc maintains the Temroc Metals, Inc. Bargaining Unit
Employees 401(k) Plan (the "Prior Plan") and its related trust (the "Prior
Trust") for the benefit of its employees and their beneficiaries;

         WHEREAS, Quanex maintains the Nichols 401(k) Savings Plan for Hourly
Employees (the "Plan") and its related trust (the "Trust");

         WHEREAS, the Plan provides that any business organization may, with the
approval of Quanex, adopt the Plan and Trust for all or any classification of
its employees;

         WHEREAS, Temroc desires to merge the Prior Plan into the Plan, and to
merge the Prior Trust into the Trust, with Fidelity Management Trust Company, as
trustee of the Trust (the "Trustee"), all effective as of the close of business
on July 1, 2001;

         WHEREAS, Temroc, in connection with the mergers, desires to adopt the
Plan and Trust, and Quanex desires to consent to the adoptions; and

         WHEREAS, as a result of the mergers, Temroc shall become an adopting
employer of the Plan and Trust;

         NOW, THEREFORE, the parties hereto agree as follows:

<PAGE>

                      ADOPTION OF PLAN AND TRUST BY TEMROC

         (1) ADOPTION. Temroc hereby adopts the Plan and Trust, effective as of
July 1, 2001, for all of its employees who are included in a unit of employees
covered by a collective bargaining agreement and who otherwise qualify as
members therein under the terms and provisions of the Plan and Trust, and hereby
agrees to be bound by all the terms, provisions, limitations, and conditions of
the Plan and Trust with respect to the employees eligible for membership in the
Plan to the same extent as if it had executed identical plan and trust
documents, except that, effective July 1, 2001, the Plan shall be amended as
follows:

                  (a) RETIREMENT AGE. Section 1.35 shall be amended to add the
         following sentence immediately following the second sentence of such
         section: In the case of a Member or former Member who was a participant
         in the Temroc Metals, Inc. Bargaining Unit Employees 401(k) Plan (the
         "Temroc Plan"), "Retirement Age" means the time he attains age 65 if
         that definition is more favorable for him than the definition in the
         first sentence of this Section 1.35.

                  (b) ELIGIBILITY. Section 3.01 of the Plan shall be amended to
         add the following two sentences immediately following the last sentence
         of such section: Each Employee who is employed by Temroc Metals, Inc.
         ("Temroc") and was a participant in the Temroc Plan on June 30, 2001
         shall be eligible to participate in the Plan on July 1, 2001. Each
         other Employee who is employed by Temroc and included in a unit of
         employees covered by the collective bargaining agreement between Temroc
         and the United Automobile Workers (UAW), Local 125 (the "UAW Collective
         Bargaining Agreement") shall be eligible to participate in the Plan for
         all purposes beginning on the Entry Date that occurs

                                       2
<PAGE>

         with or next follows the date on which the Employee completes one
         quarter year of Active Service.

                  (c) GAINSHARING CONTRIBUTIONS. Section 4.02 of the Plan shall
         be amended to add the following two sentences immediately following the
         last sentence of such section: Temroc shall contribute to the Trust for
         each Plan Year a Supplemental Contribution for Members who are employed
         by Temroc in such amount as is required under the terms of the UAW
         Collective Bargaining Agreement. Each such Member's right to benefits
         derived from Supplemental Contributions made to the Plan on his behalf
         shall be nonforfeitable.

                  (d) IN-SERVICE AGE 59 1/2 WITHDRAWALS. Section 6.06 of the
         Plan shall be amended to add the following sentence immediately
         following the last sentence of such section: This Section 6.06 shall
         not apply to Members who are employed by Temroc.

                  (e) LOANS. Section 6.07 of the Plan shall be amended to add
         the following sentence immediately following the last sentence of such
         section: This Section 6.07 shall not apply to Members who are employed
         by Temroc.

         (2) CONSENT. Quanex hereby consents to and approves the adoption of the
Plan by Temroc, effective as of July 1, 2001.

         (3) COMMINGLING OF FUNDS. Temroc further agrees that the Committee, in
its sole discretion, may permit the funds contributed by it to be commingled for
purposes of investment with other funds in the Trust or to be maintained
separately.

         (4) AGREEMENT TO FURNISH INFORMATION. Temroc agrees to promptly furnish
all information required by the Committee and the Trustee with reference to its
employees who are eligible for the Plan, and to pay its contribution to the Plan
the first Plan Year and all subsequent

                                       3
<PAGE>

Plan Years in which it is an adopting employer of the Plan, in the amount and at
the time required by the terms of the Plan.

                     MERGER OF THE PRIOR PLAN INTO THE PLAN

         (1) MERGER OF PLAN. Effective July 1, 2001, the Prior Plan is merged
into the Plan.

         (2) ELIGIBILITY. No person who is not a participant in the Prior Plan
on June 30, 2001, shall be eligible to become a participant in the Prior Plan.

         (3) CONTRIBUTIONS. No contributions shall be made under the Prior Plan
with respect to any period after June 30, 2001.

         (4) QUALIFICATION A CONDITION PRECEDENT TO MERGER. The merger of the
Prior Plan into the Plan is contingent upon and subject to the express condition
precedent that the merger meets all statutory and regulatory requirements for
qualification of the Plan and the Prior Plan and their related trusts have at
all times in form and in operation maintained their qualified and exempt status.
In the event that this condition precedent is not satisfied the merger shall
fail retroactively for failure to meet the condition precedent and the portion
of the Plan trust fund attributable to the Prior Plan assets shall be
immediately returned to Temroc and the merger shall be void ab initio.

         (5) COMPLIANCE WITH SECTIONS 411(d)(6) AND 414(l) OF THE INTERNAL
REVENUE CODE OF 1986. The merger of the Prior Plan into the Plan will comply
with sections 411(d)(6) and 414(l) of the Internal Revenue Code of 1986, as
amended (the "Code"). The distribution options available under the Prior Plan
shall be preserved in the Plan in accordance with section 411(d)(6) of the Code.
Each participant in the Prior Plan would (if the Prior Plan then terminated)
receive

                                       4
<PAGE>

a benefit immediately after the merger equal to or greater than the benefit he
would have been entitled to receive immediately before the merger (if the Prior
Plan had then terminated).

         (6) SINGLE PLAN. Upon the merger of the Prior Plan into the Plan, the
Prior Plan and the Plan will be a single plan within the meaning of section
414(l) of the Code. All Prior Plan and Plan assets will be available to pay the
benefits of all participants in the Prior Plan and Plan.

                                       5
<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this 26th day of June, 2001.

                                            QUANEX CORPORATION

                                            By  /s/ Terry Murphy
                                              ---------------------------------
                                            Title: Vice President- Finance and
                                            Chief Financial Officer

                                            TEMROC METALS, INC.

                                            By  /s/ Terry Murphy
                                              ---------------------------------
                                            Title: Vice President Finance

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}]]