SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
QUANEX CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies: N/A
2. Aggregate number of securities to which transaction applies: N/A
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
4. Proposed maximum aggregate value of transaction: N/A
5. Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
<PAGE>
Quanex Corporation
1900 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-4600
January 23, 1998
Dear Fellow Shareholder:
You are cordially invited to attend the
Company's Annual Meeting of Shareholders to be
held at 8:30 a.m., C.S.T., on Thursday, February
26, 1998, at the Doubletree Hotel, 2001 Post Oak
Blvd., Houston, Texas.
This year you will be asked to vote in favor
of three proposals. The proposals concern the
election of three directors, the approval of the
Company's 1997 Non-Employee Director Stock Option
Plan, and the appointment of independent auditors
for fiscal 1998. These matters are more fully
explained in the attached proxy statement, which
you are encouraged to read.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
APPROVE THESE PROPOSALS AND URGES THAT YOU RETURN
YOUR SIGNED PROXY CARD AT YOUR EARLIEST
CONVENIENCE, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING.
Thank you for your cooperation.
Sincerely,
/s/ ROBERT C. SNYDER
Robert C. Snyder
Chairman of the Board
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Quanex
Corporation, a Delaware corporation (the "Company"), will be held at the
Doubletree Hotel, 2001 Post Oak Blvd., Houston, Texas, on February 26, 1998, at
8:30 a.m., C.S.T., for the following purposes:
(1) To elect three directors to serve until the Annual Meeting of
Shareholders in 2001;
(2) To consider and act upon a proposal to adopt the Company's 1997
Non-Employee Director Stock Option Plan;
(3) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors for the fiscal year
ending October 31, 1998; and
(4) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Information with respect to the above matters is set forth in the Proxy
Statement that accompanies this Notice.
The Board of Directors has fixed the close of business on January 16, 1998,
as the record date for determining shareholders entitled to notice of and to
vote at the meeting. A complete list of the shareholders entitled to vote at the
meeting will be maintained at the Company's principal executive offices, will be
open to the examination of any shareholder for any purpose germane to the
meeting during ordinary business hours for a period of ten days prior to the
meeting, and will be produced at the time and place of the meeting during the
whole time thereof.
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOUR
DESIGNATION OF A PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU FIND IT CONVENIENT TO ATTEND THE MEETING.
The Company's Annual Report to Shareholders for the year ended October 31,
1997, accompanies this Notice.
By order of the Board of Directors,
/s/ MICHAEL W. CONLON
MICHAEL W. CONLON, Secretary
Houston, Texas
January 23, 1998
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1998
This Proxy Statement and the accompanying form of proxy are to be first
mailed on or about January 23, 1998, to all holders of record on January 16,
1998, (the "Record Date"), of the Common Stock, $.50 par value ("Common
Stock"), of Quanex Corporation, a Delaware corporation (the "Company"), and
are furnished in connection with the solicitation of proxies by the Board of
Directors of the Company to be used at the Annual Meeting of Shareholders to be
held at 8:30 a.m., C.S.T., on Thursday, February 26, 1998, and at any
adjournment or adjournments thereof. Shares of Common Stock represented by any
unrevoked proxy in the enclosed form, if such proxy is properly executed and is
received prior to the meeting, will be voted in accordance with the
specifications made on such proxy. Proxies on which no specifications have been
made will be voted for the election as directors of the nominees listed herein
and in favor of proposals 2 and 3. Proxies are revocable by written notice to
the Secretary of the Company at the address of the Company set forth below, or
by delivery of a later dated proxy, at any time prior to their exercise. Proxies
may also be revoked by a shareholder attending and voting in person at the
meeting.
The Common Stock is the only class of securities of the Company that is
entitled to vote at the meeting. As of the close of business on the Record Date,
the date for determining shareholders who are entitled to receive notice of and
to vote at the meeting, there were 14,111,836 shares of Common Stock issued and
outstanding. Each share is entitled to one vote. The presence at the meeting, in
person or by proxy, of the holders of a majority of shares of Common Stock is
necessary to constitute a quorum.
The cost of soliciting proxies will be borne by the Company. Solicitation
may be made personally or by mail, telephone or electronic data transfer by
officers, directors and regular employees of the Company (who will not receive
any additional compensation for any solicitation of proxies), as well as by the
firm of Beacon Hill Partners, Inc., which has been retained by the Company to
assist in the solicitation for a fee of approximately $4,000. The Company will
also reimburse brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses for sending proxy materials to the beneficial
owners of Common Stock. The mailing address of the Company's principal executive
office is 1900 West Loop South, Suite 1500, Houston, Texas 77027.
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MATTERS TO COME BEFORE THE MEETING
(1) ELECTION OF THREE DIRECTORS
Three directors are to be elected at the meeting. The Company's Restated
Certificate of Incorporation and Bylaws both provide that the Board of Directors
shall be divided into three classes as nearly equal in number as possible, with
the terms of office of the classes expiring at different times. The terms of
office of three directors, Carl E. Pfeiffer, Vincent R. Scorsone and Donald G.
Barger, Jr., expire at the 1998 Annual Meeting. The proposed nominees for
director for a term expiring at the 2001 Annual Meeting are Messrs. Pfeiffer,
Scorsone and Barger. The respective terms of directors expire on the dates set
forth below.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION FOR TERMS DIRECTOR
EXPIRING AT THE 2001 ANNUAL MEETING PRINCIPAL OCCUPATION AGE SINCE
- ------------------------------------ ----------------------------------------------------- --- --------
<S> <C> <C>
Carl E. Pfeiffer.................... Chairman Emeritus, 67 1966
Quanex Corporation
Vincent R. Scorsone................. Retired since 1994 from Aluminum Company of America, 62 1995
a manufacturer of aluminum products (Pittsburgh,
Pennsylvania)
Donald G. Barger, Jr................ Vice President of Finance and Chief Financial Officer 54 1995
of Worthington Industries, Inc., a manufacturer of
steel products (Columbus, Ohio)
DIRECTORS WHOSE TERMS
EXPIRE AT THE 2000 ANNUAL MEETING
- ------------------------------------
John D. O'Connell................... Chairman, Executive Advisory Board of GES Exposition 67 1981
Services, a Viad Corp company, serving the
convention/exposition industry (Houston, Texas)
Robert C. Snyder.................... Chairman of the Board, Quanex Corporation 64 1986
Vernon E. Oechsle................... President and Chief Executive Officer, Quanex 55 1995
Corporation
DIRECTORS WHOSE TERMS
EXPIRE AT THE 1999 ANNUAL MEETING
- ------------------------------------
Gerald B. Haeckel................... Financial consultant (Scottsville, Virginia) 68 1978
Michael J. Sebastian................ Retired since 1995 from Cooper Industries, Inc., 67 1991
manufacturer of electrical, automotive and industrial
equipment (Houston, Texas)
Russell M. Flaum.................... Executive Vice President of Illinois Tool Works, an 47 1997*
international manufacturer of engineered metal and
plastic components (Glenview, Illinois)
- ------------
</TABLE>
* Mr. Flaum was elected as a director of the Company by the Company's Board of
Directors on December 1, 1997, to fill a vacancy resulting from an increase in
the size of the Board. The size of the Board was increased by one to equalize
the number of directors in each of the three classes of the Board.
Messrs. Pfeiffer, Scorsone and Barger have indicated a willingness to serve
if elected. If a nominee should be unable to serve or for good cause will not
serve, and if any other person is nominated, the persons designated on the
accompanying form of proxy will have discretionary authority to vote or refrain
from voting in accordance with their judgement on such other nominee unless
authority to vote on such matter is withheld. The nominees receiving a plurality
of votes cast at
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the meeting will be elected directors. Abstentions and broker nonvotes will not
be treated as a vote for or against any particular director and will not affect
the outcome of the election of directors.
Each of the above persons, except for Messrs. Snyder, O'Connell, Scorsone,
Barger, Sebastian, Oechsle and Pfeiffer, has been employed in the principal
occupation shown above or in a similar one with the same employer for more than
five years. Mr. Snyder retired from the Company in December 1995. His position
at that time was Chairman of the Board and Chief Executive Officer. Mr. Snyder
remains Chairman of the Board, having served as Chairman of the Board since
1995, Chief Executive Officer from 1992 to 1995, and President from 1989 to
1995. For more than five years prior to its acquisition by GES Exposition
Services in 1993, Mr. O'Connell was President and Chief Executive Officer of
United Exposition Service Co., Inc. Mr. Scorsone was employed by Aluminum
Company of America from 1960 until his retirement in 1994. His position prior to
retirement was Executive Vice President -- Chairman's Counsel. Mr. Scorsone
currently serves on the board of the Indspec Chemical Company. Mr. Barger was
appointed to his present position with Worthington Industries, Inc. in September
1993 and was employed by B. F. Goodrich Company, manufacturer of automobile
tires and related products, from 1973 to 1993. Mr. Barger currently serves on
the board of Gardner Denver Machinery Inc. Mr. Sebastian retired from Cooper
Industries, Inc. in 1995, and for more than five years prior to his retirement,
he served as Executive Vice President. Mr. Sebastian currently serves on the
boards of Cooper Cameron Corporation and Gardner Denver Machinery Inc. Mr.
Oechsle joined the Company in 1993 as Executive Vice President and Chief
Operating Officer and has served as President and Chief Executive Officer since
January 1, 1996. Mr. Oechsle was appointed to the Board of Directors of the
Company in May 1995. Prior to joining the Company, Mr. Oechsle was Executive
Vice President of the Automotive Sector of AlliedSignal Inc. since December
1990. Mr. Oechsle currently serves on the boards of Walbro Corporation and
Precision Castparts Corporation. Mr. Pfeiffer served as the Company's Chairman
of the Board of Directors from 1989 to 1995. Each person, except for Mr. Flaum,
has been previously elected a director by the shareholders of the Company.
Pursuant to the Company's Bylaws, the Board of Directors has established
several committees, including an Executive Committee, an Audit and Environmental
Compliance Committee, a Compensation and Management Development Committee, a
Nominating and Corporate Governance Committee and a Finance and Investment
Committee. During fiscal 1997, the Board of Directors met five times, the Audit
and Environmental Compliance Committee and the Nominating and Corporate
Governance Committee met two times. The Compensation and Management Development
Committee met three times. The Finance and Investment Committee met once and the
Executive Committee did not meet. All directors attended more than 75% of the
combined number of Board meetings and meetings of committees of which they are
members.
The current members of the Audit and Environmental Compliance Committee are
Messrs. Barger, Pfeiffer, Scorsone and Haeckel, who is Chairman. The Audit and
Environmental Compliance Committee's responsibilities to the Board include the
following:
a) Review the accounting and financial policies and procedures of the
Company, including the internal accounting control system and
financial reporting processes and procedures and review any issues
identified by the independent auditors and/or the internal auditing
department regarding accounting and financial policies and procedures,
together with their recommendations.
b) Recommend the annual nomination of independent auditors of the Company
for appointment by the Board of Directors.
c) Review the scope and results of the Company's internal audit activity,
together with the specifics of the annual audit plan. Review any
accounting changes having a major impact on
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the obligations or financial statements of the Company, review filings
made with the Securities and Exchange Commission as required, and hold
such other conferences and conduct such other reviews with the
independent auditors or with management as may be desired either by
the Audit Committee or the independent auditors.
d) Review annually the Company's risk management program.
e) Review annually the Company's program relating to monitoring
compliance with the Company's Statement of Business Policies.
f) Review the Company's compliance with applicable laws and regulations
relating to the health, safety, and the environment which may
represent material financial exposure to the Company.
The current members of the Compensation and Management Development
Committee are Messrs. Barger, Haeckel, O'Connell and Sebastian, who is Chairman.
This Committee's responsibilities to the Board include the following:
a) Review, approve and report to the Board of Directors regarding the
Company's overall compensation policy, including compensation
philosophy and strategy, short and long-term incentive plans and
programs, stock ownership plans, and employee benefit plans.
b) Review and report to the Board of Directors annually on the
performance of the Chief Executive Officer and review with the Chief
Executive Officer the performance of each of the senior executives of
the Company. Senior executives include all officers of the Company and
the president or senior manager of each business group.
c) Review and approve the compensation to be paid to officers and key
employees of the Company.
d) Review and approve the establishment and administration of stock bonus
plans and stock option plans for employees and non-employee directors.
e) Serve as the appropriate committee to administer the Company's
Executive Incentive Compensation Plan (EICP) and to approve the
establishment of targets for such Plan and to approve all awards under
such Plan.
f) Review the structural organization of the Company and assist the Chief
Executive Officer in developing recommendations for the selection of
senior management personnel and their replacements and successors.
g) Review the adequacy of the management development program/process to
assure a capable cadre of personnel to support the senior managerial
needs of the Company.
The current members of the Executive Committee are Messrs. Pfeiffer,
Sebastian, Oechsle, O'Connell and Snyder, who is Chairman. This committee acts
on behalf of the Board between regularly scheduled meetings of the Board of
Directors.
The current members of the Nominating and Corporate Governance Committee
are Messrs. Sebastian, Snyder and O'Connell, who is Chairman. This Committee's
responsibilities to the Board include the following:
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a) Study and review with management the overall effectiveness of the
organization of the Board and the conduct of its business, and make
recommendations to the Board of Directors, as appropriate.
b) Develop and maintain criteria and procedures for the identification
and recruitment of candidates for election to serve as directors of
the Company.
c) Review the appropriateness and adequacy of information supplied to
directors prior to and during Board of Directors meetings.
d) Review director class each year and recommend directors for election
or re-election.
e) Review and make recommendations to the Board of Directors with respect
to compensation to be paid or provided to members of the Board of
Directors.
f) Evaluate annually the performance of the Board of Directors.
g) Consider nominees for director recommended by shareholders of the
Company, provided such recommendations are addressed to the chairman
of the Committee at the Company's principal executive office and
received by the chairman before November 1 of each year with respect
to the annual shareholders' meeting that is held thereafter.
The current members of the Finance and Investment Committee are Messrs.
Barger, Pfeiffer, Haeckel and Scorsone, who is Chairman. This committee's
responsibilities to the Board include the following:
a) Review, as appropriate, advise and consult with senior management
concerning the general financial affairs of the Company including the
capital structure of the Company, financing plans, cash flow
projections, dividend policy, stock re-purchase programs, currency
exchange agreement procedure, loan agreements, capital investment
policy, and appropriate target rates of return.
b) Monitor and review the establishment of investment objectives,
policies, and performance criteria for the management of the Company's
retirement and benefit plan assets.
The Company's Bylaws provide that, subject to certain limitations discussed
below, any shareholder entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at the meeting. The
Company's Bylaws also provide that a shareholder must give written notice of
such shareholder's intent to make such nomination or nominations, either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
the Company not later than (i) with respect to an election to be held at an
Annual Meeting of Shareholders, 90 days prior to the anniversary date of the
date of the immediately preceding Annual Meeting, and (ii) with respect to an
election to be held at a Special Meeting of Shareholders for the election of
directors, or otherwise, the close of business on the tenth day following the
date on which a written statement setting forth the date of such meeting is
first mailed to shareholders provided that such statement is mailed no earlier
than 120 days prior to the date of such meeting. Notwithstanding the foregoing,
if an existing director is not standing for re-election to a directorship which
is the subject of an election at such meeting or if a vacancy exists as to a
directorship which is the subject of an election, whether as a result of
resignation, death, an increase in the number of directors, or otherwise, then a
shareholder may make a nomination with respect to such directorship at any time
not later than the close of business on the tenth day following the date on
which a written statement setting forth the fact that such directorship is to be
elected and the name of the nominee proposed by the Board of Directors is first
mailed to
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shareholders. Each notice of a nomination from a shareholder shall set forth:
(a) the name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholders as would be
required to be included in a proxy statement filed pursuant to the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations); and (e) the consent of
each nominee to serve as a director of the Company if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure. Subject to the exceptions
discussed above, written notice of a shareholder's intent to nominate a person
for director at the 1999 Annual Meeting must be given on or before November 28,
1998.
Directors (other than Mr. Oechsle, who is an officer of the Company) are
currently paid an annual fee of $21,000 and a fee of $900 for attendance at each
meeting of the Board and any committee on which they serve. Directors who serve
as the Chairman of the Audit and Environmental Compliance Committee, the
Compensation and Management Development Committee, the Nominating and Corporate
Governance Committee and the Finance and Investment Committee receive an
additional $2,000 annually for services. Effective in February 1998, directors
will receive a fee of $1,250 for attendance at each meeting of the Board and a
fee of $1,000 for attendance at each meeting of each committee of the Board on
which they serve. Additionally, directors serving as chairman of the committees
of the Board will receive an additional annual fee of $2,500 effective as of
February 1998. Travel and lodging expenses incurred by directors to attend such
meetings are also paid by the Company. Non-employee directors who first became
directors prior to July 1, 1997, are the beneficiaries of life insurance
policies provided by the Company at a cost ranging from approximately $2,000 to
$5,000 per director for fiscal 1997.
At the Annual Meeting of Shareholders held on February 23, 1988, the
shareholders approved the Quanex Corporation 1987 Non-Employee Director Plan,
which provides for the granting of options to non-employee directors to purchase
up to an aggregate amount of 100,000 shares of Common Stock. The Non-Employee
Director Plan initially provided that each non-employee director of the Company
as of the 1987 Annual Meeting and each future non-employee director as of his
election as a director of the Company would be granted an option to purchase
10,000 shares of Common Stock at a price per share of Common Stock equal to the
fair market value of the Common Stock as of the date of the grant. During 1988,
the 1987 Non-Employee Director Plan was amended to provide that the grant of
options thereunder to future non-employee directors would occur on the date of
the first anniversary of their election rather than upon their election. Options
granted under the Non-Employee Director Plan become exercisable in one-third
increments maturing cumulatively on each of the first through third
anniversaries of the date of the grant and must be exercised no later than ten
years from the date of grant. Pursuant to the terms of this plan, options may no
longer be granted under this plan.
At the Annual Meeting of Shareholders held on February 22, 1990, the
shareholders of the Company approved the Quanex Corporation 1989 Non-Employee
Director Stock Option Plan (the "1989 Plan"), which provides for the granting
to non-employee directors of options to purchase an aggregate of 210,000 shares
of Common Stock. The 1989 Plan currently provides for grants of options with
respect to 3,000 shares of Common Stock to all non-employee directors on each
October 31 on which the director serves as a director of the Company. Effective
in February 1998, the number of shares of Common Stock covered by options to be
granted under the 1989 Plan will be reduced from 3,000 shares to 2,000 shares
per option granted. Options granted under the 1989 Plan may be exercised
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by the holder thereof in whole or in part at any time or from time to time
commencing six months after the date of grant and must be exercised no later
than ten years from the date of grant. On October 31, 1997, each of Messrs.
Barger, Haeckel, O'Connell, Pfeiffer, Scorsone, Sebastian and Snyder was granted
a option under the 1989 Plan to purchase 3,000 shares of Common Stock with an
exercise price per share of $27.625. There are currently 30,000 shares of Common
Stock remaining available for option grants under this plan. No options may be
granted under the 1989 Plan after December 5, 1999.
At the Annual Meeting of Shareholders held on February 22, 1996, the
shareholders of the Company approved an amendment to the Quanex Corporation
Deferred Compensation Plan (the "DC Plan") that provided for (i) the addition
of a Common Stock election as an option for participants and (ii) a 20% Company
matching award for certain participants electing to make their deferrals in the
form of Common Stock. Under the terms of the DC Plan, officers and directors may
elect to defer a portion of their incentive bonuses and director fees,
respectively, awarded or earned during the ensuing plan year to a Common Stock
account. If a participant elects to make a deferral to a Common Stock account
for a period of three full years or more, a matching award equal to 20% of the
amount deferred is made by the Company to such participant's account. The number
of shares of Common Stock credited to a participant's deferral and matching
account is the number of full shares of Common Stock that could have been
purchased with the dollar amount deferred or matched based on the closing price
of the Common Stock on the New York Stock Exchange (the "NYSE") on the day
that the amount deferred would have been paid had it not been deferred.
Dividends and other distributions declared and paid on the Common Stock will be
accrued in the participant's account based upon the number of shares of Common
Stock credited to such account. No shares of Common Stock or payments in respect
thereof, however, are issued or made to any participant until distribution in
accordance with the DC Plan. All participant deferrals and Company matching
awards are 100% vested; provided, however, that if a participant receives a
benefit from the DC Plan for any reason, other that death, disability or
retirement, within three years after a deferral was credited to a Common Stock
account, any matching awards made by the Company with respect to the deferral
that is held less than three years will be forfeited. During 1997, Messrs.
Barger and Scorsone elected to defer director fees of $9,487 and $18,425,
respectively, under the DC Plan in the form of Common Stock and their accounts
were credited with 335 and 645 shares of Common Stock, respectively. In
addition, pursuant to the terms of the DC Plan, the Company made matching awards
to their respective accounts of 71 and 134 shares of Common Stock.
The Company also has in effect a Non-Employee Director Retirement Plan,
which provides non-employee directors who have served on the Board of Directors
of the Company for at least ten full years an annual payment after retirement
from the Board equal to the base annual director retainer fee received by the
director at the time such director ceases to serve on the Board. Under the Non-
Employee Director Retirement Plan, the Company will continue to make an annual
payment for a period equal to the aggregate length of time the director served
on the Board of Directors as a Non-Employee Director, unless earlier terminated
due to (i) the death of the director, (ii) the expiration of two years following
the termination of the Non-Employee Director Retirement Plan or (iii) the
director serving as a director, officer or employee of a competitor of the
Company.
(2) APPROVAL OF THE 1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On October 22, 1997, the Board of Directors of the Company approved,
subject to approval of the shareholders, the Quanex Corporation 1997
Non-Employee Director Stock Option Plan (the "1997 Plan"). The 1997 Plan is
intended to advance the interest of the Company by providing directors who, at
the time of their service, are not employees of the Company or any of its
subsidiaries ("Non-Employee Directors"), with an additional incentive to serve
the Company by increasing their proprietary interest in the success of the
Company. Additionally, the 1997 Plan is intended to
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supplement the Company's existing 1987 Non-Employee Director Stock Option Plan
(the "1987 Plan") and 1989 Plan. No additional options may be granted under
the 1987 Plan and only 30,000 shares of Common Stock remain available for option
grants under the 1989 Plan.
The following is a summary of the 1997 Plan. Such summary does not purport
to be a complete statement of the 1997 Plan and is qualified in its entirety by
reference to the full text of the 1997 Plan, a copy of which is attached as
ANNEX A to this Proxy Statement and is hereby incorporated herein by reference.
ADMINISTRATION OF THE 1997 PLAN
The terms of the 1997 Plan are intended to satisfy the formula provisions
for plans under Rule 16b-3 promulgated under the Securities Exchange Act of
1934. The 1997 Plan will be administered by the Board of Directors of the
Company.
SHARES SUBJECT TO THE 1997 PLAN
The 1997 Plan provides for the granting of options with respect to an
aggregate of 400,000 shares of Common Stock, subject to adjustment for changes
in capitalization. Such shares may be treasury shares or authorized but unissued
shares. If any outstanding option expires, terminates or is surrendered, the
shares of Common Stock allocable to the unexercised portion of such option may
again be available for purposes of options under the 1997 Plan. In addition, for
purposes of the 1997 Plan and the options thereunder, the term "Common Stock"
also will be deemed to include any rights to purchase ("Rights") the Series A
Junior Participating Preferred Stock of the Company that may then be trading
together with the Common Stock as provided in the Rights Agreement between the
Company and Chemical Bank relating to the Rights.
GRANT AND EXERCISE OF OPTIONS
Each option granted under the 1997 Plan is to be embodied in a written
option agreement, which is subject to the terms and conditions of the 1997 Plan.
The exercise price at which shares may be purchased pursuant to an option shall
be equal to the fair market value of the shares of Common Stock on the date the
option is granted. For purposes of the 1997 Plan, "fair market value" of a
share of Common Stock as of any date means the closing sale price of a share of
Common 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 New York Stock Exchange.
On January 16, 1998, the fair market value of a share of Common Stock was
$29.1875. No options have been granted under the 1997 Plan.
The 1997 Plan provides that each Non-Employee Director who is a director of
the Company on October 31 of each year shall be granted on such date an option
("Annual Option") to purchase such number of shares of Common Stock as is
determined by the Board of Directors, provided that (i) such Non-Employee
Director does not receive an option under the 1989 Plan, (ii) the 1997 Plan is
in effect and (iii) there are available under the Plan a sufficient number of
shares of Common Stock that may be issued upon the exercise of outstanding
options. Each Annual Option granted is immediately vested and exercisable in
full upon the date of grant.
The 1997 Plan also provides that each Non-Employee Director who has not
received an option grant under the 1987 Plan and each future Non-Employee
Director shall be granted an option as of the date of the first anniversary of
such Non-Employee Director's election to the Board of Directors ("Initial
Option"). The number of shares of Common Stock subject to each Initial Option
shall be determined by the Board of Directors. Each Initial Option vests over a
three-year period, with one-third
8
<PAGE>
of the shares of Common Stock subject to the option exercisable on each of the
first, second and third anniversaries of the date of the grant of the option.
TRANSFERABILITY OF OPTIONS
Unless otherwise expressly provided for in an optionee's option agreement,
options will not be transferable by an optionee other than by will or under the
laws of descent and distribution, and will be exercisable, during his lifetime,
only by the optionee.
TERM OF OPTIONS
All options will terminate on the earlier of the tenth anniversary of the
date on which the option is granted or on the last day within the three month
period commencing on the date on which the optionee ceases to be a director of
the Company for any reason other than death, retirement or disability, as
defined in the 1997 Plan. If the optionee ceases to be a director of the Company
for any reason other than his death, disability or retirement, his options shall
not continue to vest after such cessation of service as a director. If an
optionee ceases to be a director of the Company due to his death, disability or
retirement in accordance with the provisions of the 1997 Plan, his options shall
continue to vest after such cessation of service as a director until the options
expire ten years after the grant of the options. Following the death of an
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 with respect to the number of shares that the optionee would
have been entitled to exercise if he were still alive.
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
As more fully set forth in the 1997 Plan, the number, class and per share
exercise price of shares of stock subject to outstanding options are subject to
adjustment under the 1997 Plan if the Company effects certain changes in its
capital structure, including recapitalizations, reorganizations, mergers and the
payment of dividends.
RIGHTS OF OPTIONEES
No optionee will have rights as a shareholder with respect to the shares
covered by his option until the date of issuance of a stock certificate for the
shares. The granting of any option under the 1997 Plan will not impose any
obligation on the Company to retain any optionee's services as a director of the
Company.
AMENDMENT OF THE 1997 PLAN
The Board of Directors may amend or terminate the 1997 Plan at any time,
subject to certain limitations.
DURATION OF THE 1997 PLAN; REGISTRATION OF SHARES
Under the terms of the 1997 Plan, options may be granted as long as shares
of Common Stock are available for issuance under the 1997 Plan, subject to any
amendment or termination of the 1997 Plan by the Board of Directors. It is the
Company's intention to register the shares of Common Stock covered by the 1997
Plan with the Securities and Exchange Commission as soon as practicable after
approval by the shareholders.
9
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Under current interpretations of the Internal Revenue Code of 1986, as
amended, the grant of an option to an optionee under the 1997 Plan will not
result in the recognition of any taxable income by the optionee. An optionee
will generally recognize income at the date of exercise of an option on the
difference between (a) the fair market value of the shares acquired pursuant to
the exercise of the option and (b) the exercise price of the option. The Company
will be entitled to a deduction in the same amount as the income recognized by
an optionee due to the exercise of an option.
ADDITIONAL INFORMATION
No options will be awarded under the 1997 Plan unless the 1997 Plan is
approved by the shareholders of the Company. If the 1997 Plan is approved, the
number of shares of Common Stock subject to future options granted under the
1997 Plan are subject to the discretion of the Board of Directors. The Board of
Directors have currently determined that each Annual Option shall consist of an
option to purchase 2,000 shares of Common Stock and each Initial Option shall
consist of an option to purchase 6,000 shares of Common Stock. However, such
determination is subject to further change at the discretion of the Board and
any future benefits or amounts to be received by or allocated to the current
Non-Employee Directors are not currently determinable. If the 1997 Plan had been
in place during fiscal year 1997, no Annual Options would have been granted
because options were granted to each of the Non-Employee Directors under the
1989 Plan.
VOTE REQUIRED AND RECOMMENDATION FOR APPROVAL
The Board of Directors of the Company has adopted the 1997 Plan. However,
the 1997 Plan will not be effective unless the holders of at least a majority of
the shares of Common Stock present in person or by proxy at the meeting and
entitled to vote thereon vote "FOR" the approval of the 1997 Plan. The
enclosed form of proxy provides a means for shareholders to vote for the
approval of the 1997 Plan, to vote against the approval of the 1997 Plan or to
abstain from voting with regard to approval of the 1997 Plan. Each properly
executed proxy received in time for the meeting will be voted as specified
therein. If a shareholder executes and returns a proxy but does not specify
otherwise, the shares represented by such shareholder's proxy will be counted
for approval of the 1997 Plan. Abstentions will not be treated as either a vote
for or against the proposal, but will have the same effect as a vote against the
proposal. Under Delaware law, any unvoted positions in brokerage accounts are
not entitled to vote. Therefore, such broker nonvotes will have no effect on the
outcome of the vote on the 1997 Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE 1997 PLAN.
(3) RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of Deloitte & Touche LLP as independent auditors for the year
ending October 31, 1998, subject to ratification of the shareholders at the 1998
Annual Meeting. Representatives of Deloitte & Touche are expected to attend the
meeting, will be afforded an opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions by
shareholders.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the meeting and entitled to vote thereon
is necessary for ratification of the selection of Deloitte & Touche. Abstentions
will not be treated as either a vote for or against ratification, but will have
the same effect as a vote against ratification. Broker nonvotes are not entitled
to vote and will not be counted as a vote for or against ratification.
10
<PAGE>
FURTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table sets forth as of November 30, 1997, the beneficial
ownership of each person who is known by the Company to be the beneficial owner
of more than five percent of the Company's Common Stock. Such information is
based upon information provided to the Company by such persons.
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP PERCENT(%)
- ------------------------------------- ----------- ----------
Becker Capital Management, 1211 SW
5th Avenue, Suite 2185
Portland, OR 97204................. 882,700(1) 6.3
FMR Corp, 82 Devonshire St., Boston,
MA 02109........................... 744,000(2) 5.3
- ------------
(1) Has sole investment power and shared voting power with respect to all shares
owned.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. ("FMR") and a registered investment adviser, is
the beneficial owner of 607,500 shares as a result of acting as investment
adviser to various registered investment companies (the "Funds"). Edward
C. Johnson 3d, the Chairman and principal stockholder of FMR, FMR, through
its control of Fidelity, and the Funds each has sole power to dispose of the
607,500 shares owned by the Funds, however, sole power to vote the shares
owned by the Funds resides with the Funds' Boards of Trustees. Fidelity
Management Trust Company ("FMTC"), a wholly owned subsidiary of FMR, is
the beneficial owner of 136,500 shares as a result of its serving as
investment manager of the institutional accounts. Mr. Johnson and FMR,
through its control of FMTC, each has sole dispositive power over 136,500
shares and sole power to vote 132,000 shares. Members of the Mr. Johnson's
family and trusts for their benefit are the predominant owners of Class B
shares of common stock of FMR. Mr. Johnson owns 12.0% and Abigail Johnson,
Mr. Johnson's wife and a Director of FMR, owns 24.5% of the voting stock of
FMR. The Johnson family and all other Class B shareholders have entered into
a shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares.
11
<PAGE>
The following table sets forth as of December 31, 1997, the number and
percentage of beneficial ownership of shares of Common Stock and the principal
amount of the Company's 6.88% Convertible Subordinated Debentures (the
"Debentures") for each current director and nominee for director of the
Company, the executive officers named in the compensation table below, and all
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
SHARES OF BENEFICIALLY OWNED(1)
DEBENTURES COMMON STOCK --------------------------
BENEFICIALLY OWNED OF NUMBER PERCENTAGE
NAME OWNED RECORD OF SHARES OF SHARES
- ------------------------------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Donald G. Barger, Jr. ............... 0 1,000 10,333 *
James H. Davis....................... 0 2,000 29,666 *
Russell M. Flaum..................... 0 0 0 *
Gerald B. Haeckel.................... 0 10,000 28,000 *
Robert V. Kelly, Jr. ................ 0 34,154 109,887 *
John D. O'Connell.................... 12,500 10,336 22,336 *
Vernon E. Oechsle.................... 0 28,712 124,578 *
Joseph K. Peery...................... 0 18,783 72,082 *
Carl E. Pfeiffer..................... 0 17,865 23,865 *
Wayne M. Rose........................ 0 11,475 87,208 *
Vincent R. Scorsone.................. 0 1,000 10,333 *
Michael J. Sebastian................. 75,000 19,000 25,000 *
Robert C. Snyder..................... 0 13,729 86,812 *
All officers and directors as a group
(17 persons)....................... 137,500 174,279 663,123 4.7
- ------------
</TABLE>
* Less than 1.0%
(1) Unless otherwise indicated, directors and officers have sole voting and
investment power with respect to the securities they own. The beneficial
ownership of shares of Messrs. Barger, Haeckel, O'Connell, Oechsle,
Pfeiffer, Scorsone, Sebastian, Snyder, Davis, Rose, Kelly, Jr., Peery, and
all officers and directors as a group includes 9,333, 18,000, 12,000,
95,866, 6,000, 9,333, 6,000, 73,083, 27,666, 75,733, 75,733, 53,299 and
488,844 shares, respectively, that may be acquired through exercise of stock
options. The beneficial ownership of shares of Messrs. O'Connell, Sebastian,
and all officers and directors as a group includes 396, 2,380 and 4,363
shares, respectively, that may be acquired through conversion of the
Debentures held by them. The beneficial ownership of shares does not include
24,142, 2,332, 831, 21,801, 7,494 and 4,790 shares of Common Stock that have
been credited under the DC Plan to the accounts of Messrs. Oechsle,
Scorsone, Barger, Davis, Rose and Peery, respectively, in connection with
deferral of director fees and bonuses and related Company matching
contributions under the DC Plan. See "Election of Three Directors" and
footnotes 1 and 3 to the Summary Compensation Table.
12
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company, each of whom serves at the pleasure of the Board of Directors.
There is no family relationship between any of these individuals or any of the
Company's directors.
<TABLE>
<CAPTION>
NAME AND AGE OFFICE AND LENGTH OF SERVICE
- ------------------------------------- ---------------------------------------------------------
<S> <C>
Vernon E. Oechsle; 55................ Chief Executive Officer since January 1996 and President
since 1995 and Chief Operating Officer from 1993 to
1995
James H. Davis; 62................... Executive Vice President and Chief Operating Officer
since 1995
Wayne M. Rose; 51.................... Vice President of Finance and Corporate Development and
Chief Financial Officer since February 1997 and Vice
President and Chief Financial Officer since 1987
Robert V. Kelly, Jr.; 59............. Vice President since 1979 (also Group President since
1982)
Joseph K. Peery; 58.................. Vice President -- Human Resources since 1984
Viren M. Parikh; 55.................. Controller since 1993
*Terry A. Schroeder; 49.............. President of Nichols Aluminum since August 1996
*Larry A. Offenbacher; 48............ President of Engineered Products Group since April 1997
- ------------
</TABLE>
* Although Messrs. Schroeder and Offenbacher are not executive officers of the
Company, each performs a policymaking function for the Company, Mr. Schroeder
in his capacity as the President of the Company's Nichols Aluminum Division
and Mr. Offenbacher in his capacity as President of the Company's Engineered
Products Group. Accordingly, for purposes of this Proxy Statement, each is
considered to be an executive officer of the Company.
Messrs. Peery and Kelly have been principally employed in the positions
shown above for more than five years. Mr. Oechsle was named President and Chief
Executive Officer on January 1, 1996 and prior to that time, was President since
1995 and Chief Operating Officer of the Company since 1993. Prior to that time,
Mr. Oechsle was Executive Vice President of the Automotive Sector of Allied
Signal since December 1990 and Group Vice President of Dana Corporation since
January 1985. Mr. Davis was named Executive Vice President and Chief Operating
Officer on January 1, 1996 and prior to that time, was Executive Vice President,
Manufacturing Operations of the Company since September 16, 1995. Prior to that
time, Mr. Davis was President and Chief Executive Officer of Horsehead Resources
Development Company, Inc. since 1990 and Senior Vice President of Horsehead
Industries since 1984. Mr. Rose was named Vice President of Finance and
Corporate Development and Chief Financial Officer in February 1997 and prior to
that was Vice President and Chief Financial Officer since 1987. Mr. Parikh has
been with the Company for more than five years and from November 1, 1983, served
as Tube Group Controller until April 1, 1993 when he was named Controller. Mr.
Schroeder was named President of Nichols Aluminum on August 19, 1996. Prior to
that time, Mr. Schroeder served as President and General Manager of Borg Warner
Automotive's Controls Group business since 1993 and as Vice President -- General
Manager for the Commercial Industrial Division of ITT Cannon since 1988. Mr.
Offenbacher joined Quanex as President of the Company's Engineered Products
Group on April 9, 1997. Prior to that time, Mr. Offenbacher served as Director
of Drilling Systems for Halliburton Energy Services from 1993 to 1996, Vice
President Engineering and Manufacturing for Halliburton Drilling Systems from
1993 to 1994, and Vice President Corporate Marketing and General Manager of
Directional Drilling Systems for Smith International from 1990 to 1993.
13
<PAGE>
QUANEX CORPORATION
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
The Compensation and Management Development Committee (the "Committee")
of your Board of Directors is pleased to present its annual report which is
intended to update shareholders on the results of the executive compensation
program. This report summarizes the responsibilities of the Committee, the
compensation policy and objectives that guide the development and administration
of the executive compensation program, each component of the program, and the
basis on which the compensation for the Chief Executive Officer, corporate
officers and other key executives was determined for the fiscal year ended
October 31, 1997.
During the fiscal year, the Committee was comprised of the following Board
members, all of whom were non-employee directors of the Company: Michael J.
Sebastian, Chair, John D. O'Connell, Gerald B. Haeckel and Donald G. Barger, Jr.
The Committee's responsibilities are to oversee the development and
administration of the total compensation and benefits program for corporate
officers and key executives, and administer the executive annual incentive and
stock incentive plans. In addition to these duties, the Committee also oversees
the senior management selection and development processes for the Company.
During the fiscal year, the Committee met three times.
EXECUTIVE COMPENSATION PHILOSOPHY
The objective of the executive compensation program is to create financial
incentive for corporate officers and key executives to achieve performance plans
by offering them the opportunity to earn above average compensation when the
Company achieves above average results. To achieve this objective, the Company
emphasizes variable incentive pay. The executive compensation program includes
base salary, annual cash incentive compensation, longer term stock based grants
and awards, and executive benefits.
On an annual basis the Committee, in conjunction with executive management,
assesses the effectiveness of the overall program and compares the compensation
levels of its executives and the performance of the Company to the compensation
received by executives and the performance of similar companies. The primary
market comparisons are made to a broad group of manufacturing companies,
adjusted for size and job responsibilities. This group is broader than the peer
companies included in the Relative Market Performance graph presented elsewhere
in this proxy and is used because it is more representative of the market in
which the Company competes for executive talent and provides a consistent and
stable market reference from year to year. As a secondary validation, however,
the pay levels of the peer companies are compared against the broad
manufacturing group and have been found to be comparable. Data sources include
national survey databases, proxy disclosures, and general trend data which are
updated annually.
Variable incentives, both annual and longer term, are important components
of the program and are used to link pay and performance results. Longer term
incentives are designed to create a heavy emphasis on the increase in
shareholder value as measured by share price appreciation and dividends. The
annual incentive plans measure a combination of corporate and division
profitability using return on equity, return on investment, and cash flow.
Executives with Company-wide responsibilities are measured on overall Company
results. Executives with specific business unit responsibilities are measured on
both Company-wide and their business unit results. Variable incentive awards and
performance standards are calibrated such that total compensation will generally
approximate the market 75th percentile when Company performance results are at
the 75th percentile.
Section 162(m) of the Internal Revenue Code of 1986, as amended, currently
imposes a $1 million limitation on the deductibility of certain compensation
paid to the Company's five highest paid executives. Excluded from the limitation
is compensation that is "performance based". For compensation to be
performance based, it must meet certain criteria, including being based on
predetermined objective standards approved by shareholders. In general, the
Company believes that
14
<PAGE>
compensation relating to options granted under its current employee stock option
plans should be excluded from the $1 million limitation. Compensation relating
to the Company's restricted stock and incentive compensation awards do not
currently qualify for exclusion from limitation, given the discretion that is
provided to the Committee under the Company's plans in establishing the
performance goals for such awards. The Committee believes that maintaining the
discretion to evaluate the performance of the Company's management is an
important part of its responsibilities and inures to the benefit of the
Company's shareholders. Incentive awards for fiscal 1997 were determined solely
on the predetermined quantitative performance standards. The Committee, however,
will continue to take into account the potential application of Section 162(m)
with respect to incentive compensation awards and other compensation decisions
made by it in the future.
Following is a discussion of each of the principal components of the
executive total compensation program. There have been no major changes to the
executive total compensation program during the 1997 fiscal year.
BASE SALARY
The base salary program targets the median of the primary comparison group.
Each executive is reviewed individually on an annual basis. Salary adjustments
are based on the individual's experience and background, performance during the
prior year, the general movement of salaries in the marketplace, and the
Company's financial position. Due to these factors, an executive's base salary
may be above or below the median at any point in time. Overall, the base
salaries of the corporate officers and key executives approximate the market
median.
ANNUAL INCENTIVE COMPENSATION
The Committee administers the Executive Incentive Compensation Plan
("EICP") for corporate officers and selected key executives. The goal of the
EICP is to reward participants in proportion to the performance of the Company
and/or the business unit for which they have direct responsibility.
The EICP relies on predetermined, objective performance measures. For
officers with corporate responsibilities, the performance measures include the
ratio of cash flow to revenues, return on common equity, and return on
investment. For group and subsidiary executives, the performance measures
include the business unit ratio of cash flows to revenues and business unit
return on controllable investment.
Performance standards are established at the beginning of the fiscal year
with awards calibrated at the 75th percentile if the Company achieves 75th
percentile performance results. For fiscal 1997, the performance results and
incentive awards were consistent with this strategy.
LONG TERM STOCK BASED COMPENSATION
The goal of the Company's long term stock based incentive programs is to
directly link a significant portion of the executive's compensation to the
enhancement of shareholder value. In addition, longer term incentives encourage
management to focus on the longer term development and prosperity of the
Company, in addition to annual operating profits. The Company encourages its top
management group to own and maintain significant stock holdings.
The Company annually grants stock options to its key executives based on
competitive multiples of base salary. Senior executives typically receive a
higher multiple and, as a result, have a greater portion of their total
compensation linked to increases in shareholder value. In determining the
appropriate grant multiples, the Company compares itself to publicly traded
companies of comparable size for whom stock is a significant part of total
compensation. The ultimate value of any stock option is based solely on the
increase in value of the shares over the grant price. Options have historically
been granted at fair market value on the date of grant, have a term of ten
years, and vest over a three year period. During fiscal 1997 the Committee
granted options to purchase shares of common stock to the executive officers of
the Company consistent with this policy.
15
<PAGE>
Beginning in fiscal 1996, officers may defer receipt of all or a portion of
their EICP bonus into a cash account or Company Common Stock account under the
DC Plan. To encourage stock ownership, if stock is elected, the participant
receives a 20% premium if the stock is held at least three years.
EXECUTIVE BENEFITS
The Company believes that it is critical in attracting and retaining top
caliber executives to provide comprehensive benefits that address the unique
circumstances of executives. In particular, limitations imposed on the benefits
payable from qualified welfare and retirement plans give rise to the need for
supplemental non-qualified plans to replace the benefits lost due to these
limitations and provide a mechanism for recruiting and retaining long service
executives. The Company provides corporate officers with supplemental retirement
and life insurance benefits.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer, Mr. Oechsle, participates in the executive
compensation program described in this report.
In May 1997, Mr. Oechsle's salary was increased from $450,000 to $475,000.
This increase was based on market comparisons to the primary comparison group
and an assessment of Mr. Oechsle's positive job performance in assuming
responsibility for guiding the operation and strategic direction for the
Company.
For fiscal 1997, Mr. Oechsle received an annual incentive award of $398,076
based on the objective performance measures set out in the EICP. Mr. Oechsle
elected to defer receipt of 40% of his incentive award into his Common Stock
account under the DC Plan. In accordance with the DC Plan, Mr. Oechsle received
a Company matching award equal to 20% of the shares credited, if they are held
for at least three years.
In fiscal 1997, Mr. Oechsle received 40,000 stock options with an option
price of $28.50 (fair market value on the date of grant).
Respectfully Submitted,
Compensation and Management Development
Committee
Michael J. Sebastian, Chair
Donald G. Barger, Jr.
Gerald B. Haeckel
John D. O'Connell
16
<PAGE>
The following table sets forth information concerning the cash compensation
and additional incentive compensation paid by the Company to the Chief Executive
Officer and to each of the Company's four most highly compensated executive
officers for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- -------
OTHER RESTRICTED
ANNUAL STOCK LTIP
NAME AND PRINCIPAL SALARY BONUS(1) COMPENSATION(2) AWARD(S) OPTIONS/ PAYOUTS
POSITION YEAR ($) ($) ($) ($) SARS(#) ($)
- ------------------------------------- ---- -------- -------- --------------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Vernon E. Oechsle, 1997 460,420 398,076 25,321 0 40,000 0
President and Chief Executive 1996 392,506 398,791 15,787 0 59,000 0
Officer 1995 316,672 296,651 12,062 0 40,500 0
James H. Davis,(4) 1997 305,000 244,854 16,893 0 22,000 0
Executive Vice President and Chief 1996 276,676 263,663 12,272 0 33,000 0
Operating Officer 1995 32,502 0 0 0 25,000 0
Wayne M. Rose, 1997 223,333 165,512 11,154 0 13,500 0
Vice President of Finance and 1996 209,167 184,004 9,993 0 19,000 0
Corporate Development and Chief 1995 200,333 173,234 3,278 0 20,100 0
Financial Officer
Robert V. Kelly, Jr., 1997 221,167 201,925 5,468 0 13,000 0
Vice President and MacSteel 1996 210,000 159,915 5,186 0 19,000 0
President 1995 199,167 185,427 4,904 0 20,100 0
Joseph K. Peery, 1997 154,500 114,500 7,981 0 9,000 0
Vice President--Human Resources 1996 147,917 130,122 8,695 0 13,000 0
1995 141,500 122,359 6,735 0 14,200 0
</TABLE>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION(3)
POSITION ($)
- ------------------------------------- ---------------
Vernon E. Oechsle, 35,846
President and Chief Executive 83,508
Officer 3,750
James H. Davis,(4) 52,971
Executive Vice President and Chief 56,483
Operating Officer 0
Wayne M. Rose, 20,510
Vice President of Finance and 22,150
Corporate Development and Chief 3,750
Financial Officer
Robert V. Kelly, Jr., 3,777
Vice President and MacSteel 3,750
President 3,750
Joseph K. Peery, 26,715
Vice President--Human Resources 29,909
3,870
- ------------
(1) Annual bonus compensation amounts are earned and accrued during the fiscal
years indicated and paid in the following year. The bonus amounts for fiscal
year 1997 also include the dollar value of the portion of the bonuses
deferred by each of Messrs. Oechsle, Davis, Rose and Peery, which have been
credited to a Common Stock account under the Company's DC Plan. Under the
terms of the DC Plan, which is more fully described under "Election of
Three Directors", participants may elect to defer a portion of their
incentive bonus to a Common Stock account. If a participant elects to defer
a portion of his bonus to a Common Stock account for a period of three full
years or more, a matching award equal to 20% of the amount deferred is made
by the Company to such participant's account. The number of shares of Common
Stock credited to each participant's deferral and matching account is the
number of full shares of Common Stock that could have been purchased with
the dollar amount deferred and matched based upon the closing price of the
Common Stock on the NYSE on the day that the bonus would have been paid had
it not been deferred. No shares of Common Stock or payments in respect
thereof, however, are issued or made to any participant until distribution
in accordance with the DC Plan. All participant deferrals and Company
matching awards are 100% vested; provided, however, that if a participant
receives a benefit from the DC Plan for any reason, other than death,
disability or retirement, within three years after a deferral was credited
to a Common Stock account, any matching awards made by the Company with
respect to the deferral that is held less than three years will be
forfeited. In fiscal year 1997, the dollar value of the bonuses deferred
under the DC Plan to a Common Stock account by Messrs. Oechsle, Davis, Rose
and Peery were $159,230, $244,854, $82,756, and $114,500, respectively. Such
amounts, if not deferred, would have been payable to each of such officers
on December 11, 1997. Based upon the closing price of the Common Stock on
the NYSE on such date, of $28.6875 per share, 5,550, 8,535, 2,884 and 3,991
shares of Common Stock were credited under the DC Plan to the accounts of
Messrs. Oechsle, Davis, Rose and Peery, respectively.
(2) Represents amounts reimbursed during the fiscal year for the payment of
taxes. The dollar value of perquisites and other personal benefits were less
than the lesser of either $50,000 or 10% of the total of annual salary and
bonus for each named officer and therefore has been excluded.
(3) Includes matching contributions made by the Company to defined contribution
plans for each of the fiscal years indicated. The amounts shown for fiscal
years 1997 and 1996 also include the dollar value of the number of shares of
Common Stock credited by the Company to the accounts of each participant in
the DC Plan who elected to defer a portion of their bonus in the form of
Common Stock. For fiscal year 1997, the
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
17
<PAGE>
number of shares of Common Stock credited by the Company as matching
contributions under the DC Plan to the accounts of Messrs. Oechsle, Davis,
Rose and Peery were 1,111, 1,708, 577 and 799 shares, respectively. Based on
the closing price of the Common Stock on the NYSE on December 11, 1997, of
$28.6875 per share, the dollar value of the number of shares of Common Stock
credited by the Company in fiscal year 1997 to the accounts of Messrs.
Oechsle, Davis, Rose and Peery were $31,846, $48,971, $16,551 and $22,900,
respectively. Based on the closing price of the Common Stock on the NYSE on
December 12, 1996, of $27.375 per share, the dollar value of the number of
shares of Common Stock credited by the Company in fiscal year 1996 to the
accounts of Messrs. Oechsle, Davis, Rose and Peery were $79,758, $52,733,
$18,400 and $26,024, respectively.
(4) Joined the Company in September 1995 as Executive Vice President,
Manufacturing Operations and was promoted to Executive Vice President and
Chief Operating Officer, effective January 1, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- --------------------------------------------------------------------------------------------- ------------
% OF TOTAL
OPTIONS/
SARS
OPTIONS/ GRANTED TO EXERCISE GRANT
SARS EMPLOYEES OR BASE DATE
GRANTED(1) IN FISCAL PRICE EXPIRATION PRESENT
NAME (#) YEAR(%) ($/SHARE) DATE VALUE ($)(2)
- ------------------------------------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vernon E. Oechsle.................... 40,000 24.1 28.50 10-21-07 424,400
James H. Davis....................... 22,000 13.3 28.50 10-21-07 233,420
Wayne M. Rose........................ 13,500 8.1 28.50 10-21-07 143,235
Robert V. Kelly, Jr.................. 13,000 7.8 28.50 10-21-07 137,930
Joseph K. Peery...................... 9,000 5.4 28.50 10-21-07 95,490
- ------------
</TABLE>
(1) All stock options granted in fiscal 1997 become exercisable in 33 1/3%
increments maturing cumulatively on each of the first through third
anniversaries of October 21, 1997, the date of grant.
(2) Calculated using the Black-Scholes option pricing model. The calculation
assumes volatility of 29.83%, a risk free interest rate of 5.39%, an annual
dividend yield of 2.23%, a 10-year option term, and option grants at $28.50
per share. The actual value, if any, an executive may realize will depend on
the excess of the stock price over the exercise price on the date the option
is exercised. There is no assurance the value realized by an executive will
be at or near the value estimated by the Black-Scholes model.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Vernon E. Oechsle.................... - 0 - - 0 - 95,866/92,834 445,708/102,792
James H. Davis....................... - 0 - - 0 - 27,666/52,334 122,204/63,172
Wayne M. Rose........................ 9,000 243,563 75,733/32,867 470,942/50,158
Robert V. Kelly, Jr.................. 8,000 103,000 75,733/32,367 470,942/50,158
Joseph K. Peery...................... 18,000 384,750 53,299/22,401 344,920/35,405
</TABLE>
18
<PAGE>
ANNUAL RETIREMENT BENEFIT EXAMPLES AT AGE 65
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 OR OVER
--------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
$125,000.............................................................. $ 51,563 $ 68,750 $ 85,938 $100,000
$150,000.............................................................. 61,875 82,500 103,125 120,000
$175,000.............................................................. 72,188 96,250 120,313 140,000
$200,000.............................................................. 82,500 110,000 137,500 160,000
$225,000.............................................................. 92,813 123,750 154,688 180,000
$250,000.............................................................. 103,125 137,500 171,875 200,000
$300,000.............................................................. 123,750 165,000 206,250 240,000
$350,000.............................................................. 144,375 192,500 240,625 280,000
$400,000.............................................................. 165,000 220,000 275,000 320,000
$450,000.............................................................. 185,625 247,500 309,375 360,000
$500,000.............................................................. 206,250 275,000 343,750 400,000
$550,000.............................................................. 226,875 302,500 378,125 440,000
$600,000.............................................................. 247,500 330,000 412,500 480,000
$650,000.............................................................. 268,125 357,500 446,875 520,000
$700,000.............................................................. 288,750 385,000 481,250 560,000
$750,000.............................................................. 309,375 412,500 515,625 600,000
$800,000.............................................................. 330,000 440,000 550,000 640,000
$850,000.............................................................. 350,625 467,500 584,375 680,000
$900,000.............................................................. 371,250 495,000 618,750 720,000
</TABLE>
The above retirement benefit examples are subject to deduction for benefits
under Social Security. Benefits provided under the Company's pension plans are
determined on a life annuity basis but optional forms of benefits are available.
Compensation used for the Company's pension plans is essentially the
individual's cash compensation plus deferrals under the 401(k) Savings Plan and
is that compensation shown as "Salary" and "Bonus" in the Summary
Compensation Table. The Company's Salaried Employees' Pension Plan uses an
average of the five highest consecutive calendar years compensation and the
Company's Supplemental Benefit Plan uses an average of the highest 36
consecutive months of compensation.
As of November 1, 1997, the individuals named in the Summary Compensation
Table had the following years of service under the Company's pension plans: Mr.
Oechsle -- 3; Mr. Davis -- 2, Mr. Rose -- 14; Mr. Kelly, Jr. -- 20; Mr.
Peery -- 13.
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into severance compensation agreements with all of
its executive officers. The form of agreement provides that in the event of a
"change in control" of the Company, the executive agrees to remain in the
employ of the Company for a period of at least three years. A "change in
control" is defined as (i) a change in control which is required to be reported
pursuant to the rules and regulations under the Securities Exchange Act of 1934,
(ii) an acquisition of securities resulting in an individual or entity or group
thereof becoming, directly or indirectly, the beneficial owner of 20% or more of
the Company's outstanding voting stock or (iii) a change in a majority for the
members of the Board of Directors within three years after any tender offer for
the voting securities of the Company, a contested election for the directors of
the Company or a merger or sale of substantially all the assets of the Company.
The agreement contemplates that upon a change in control, the executive will
continue to receive substantially the same compensation and benefits from the
Company (or its successor) that he received before the change. If during the
three year period following a change in control the executive's employment is
terminated by the Company (or its successor) other than for "cause" or
"disability" (as defined in the agreement) or with the consent of the Board of
Directors, the executive will be entitled to a payment equal to 2.99 times the
executive's average annual taxable compensation from the Company during the last
five taxable years. Such payment is to be payable in cash or a combination of
cash, health insurance, life insurance and pension benefits, as elected by the
executive.
19
<PAGE>
RELATIVE MARKET PERFORMANCE PRESENTATION
The following graph compares the Company's cumulative total stockholder
return for the last five years with the cumulative total return of the Standard
& Poor's 500 Composite Stock Index (the "S & P 500") and the Company's
industry peer group. The peer group is comprised of: ACX Technologies Inc.,
Alumax Inc., Birmingham Steel Corp., Carpenter Technology, CasTech Aluminum
Group Inc. (acquired by Commonwealth Aluminum Corp. in September 1996),
Chaparral Steel Company, Commonwealth Aluminum Corp., Inland Steel Industries
Inc., Keystone Consolidated Industries Inc., Laclede Steel Co., N S Group Inc.,
Republic Engineered Steels Inc., Roanoke Electric Steel Corp., Timken Co., Webco
Industries Inc., and Worthington Industries.
QUANEX CORPORATION
RELATIVE MARKET PERFORMANCE
FIVE YEAR CUMULATIVE TOTAL RETURN THROUGH 10/31/97
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Quanex .......... 100 110 141 115 170 168
S&P 500 ......... 100 115 119 151 187 247
Peer Group ...... 100 133 146 129 135 170
The above table assumes $100 invested at the close of trading on October 31,
1992 in Quanex stock, the S&P 500 index and the industry peer group (dividends
reinvested).
20
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
To the Company's knowledge and except as set forth below, based solely on
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during fiscal year 1997 all
Section 16(a) filing requirements were complied with. The shares of Common Stock
credited during fiscal 1997 under the Company's DC Plan for each of Messrs.
Oechsle, Scorsone, Barger, Davis, Rose, Peery and Parikh were inadvertently
omitted from the Form 5 filed on December 11, 1997, for each of such persons. An
amended Form 5 for each of such persons was filed on January 14, 1998.
OTHER MATTERS AND SHAREHOLDER PROPOSALS
At the date of this proxy statement, management is not aware of any matters
to be presented for action at the meeting other than those described above.
However, if any other matters should come before the meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to vote
in accordance with their judgement on such matters. Any proposals of
shareholders to be presented at the Annual Meeting to be held in 1999 that are
eligible for inclusion in the Company's proxy statement for the meeting under
applicable rules of the Securities and Exchange Commission must be received by
the Company no later than September 25, 1998.
The Company's Bylaws provide that, for business to be properly brought
before an Annual Meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Company. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company, not less than 60 days nor more than
180 days prior to the anniversary date of the immediately preceding Annual
Meeting; provided, however, that in the event that the date of the Annual
Meeting is more than 45 days later than the anniversary date of the immediately
preceding Annual Meeting, notice by the shareholder to be timely must be
received not later than the close of business on the tenth day following the
earlier of the date on which a written statement setting forth the date of the
Annual Meeting was mailed to shareholders or the date on which it is first
disclosed to the public. A shareholder's notice to the Secretary must set forth
with respect to each matter the shareholder proposes to bring before the Annual
Meeting (a) a brief description of the business desired to be brought before the
Annual meeting, (b) the name and address, as they appear on the Company's books,
of the shareholder making such proposal, (c) the class and number of shares of
the Company which are beneficially owned by the shareholder and (d) any material
interest of the shareholder in such business. In addition, if the shareholder's
ownership of shares of the Company, as set forth in the notice is solely
beneficial, documentary evidence of such ownership must accompany the notice.
Houston, Texas
January 23, 1998
21
<PAGE>
ANNEX A
QUANEX CORPORATION
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
This Quanex Corporation 1997 Non-Employee Director Stock Option Plan (the
"Plan") is adopted, subject to stockholder approval, for the benefit of the
directors of Quanex Corporation, a Delaware corporation (the "Company") who,
at the time of their service, are not employees of the Company or any of its
subsidiaries. The Plan is intended to advance the interest of the Company by
providing such directors with an additional incentive to serve the Company by
increasing their proprietary interest in the success of the Company.
ARTICLE I
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.
1.1 "BOARD OF DIRECTORS" means the board of directors of the Company.
1.2 "COMPANY" means Quanex Corporation, a Delaware corporation.
1.3 "DISABILITY" means a mental or physical disability of the Optionee
which, in the opinion of a physician selected by the President of the Company,
(i) shall prevent the Optionee from adequately performing his services as a
director of the Company and (ii) can be expected to result in death or has
lasted or can be expected to last for a continuous period of not less than 12
months.
1.4 "FAIR MARKET VALUE" of the Stock as of any date means 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.
1.5 "NON-EMPLOYEE DIRECTOR" means a director of the Company who, while a
director, is not an employee of the Company, or a corporation, of which a
majority of voting securities is owned, directly or indirectly, by the Company.
1.6 "OPTION" means an option granted under this Plan to purchase shares
of Stock.
1.7 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.
1.8 "OPTIONEE" means a person who is granted an Option under this Plan.
1.9 "PLAN" means the Quanex Corporation 1997 Non-Employee Director Stock
Option Plan, as set out in this document and as it may be amended from time to
time.
1.10 "RETIRE" or "RETIREMENT" means the cessation of an Optionee's
services as a director on the Board of Directors after completing either two
full terms or six years of service as a director on the Board of Directors.
1.11 "STOCK" means the common stock of the Company, $.50 par value. In
addition, for purposes of the Plan and the Options, the term Stock shall be
deemed to include any rights to purchase 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.
ARTICLE II
GENERAL PROVISIONS RELATING TO OPTIONS
2.1 DEDICATED SHARES. The total number of shares of Stock with respect to
which Options may be granted under the Plan shall be 400,000 shares. The shares
may be treasury shares or authorized but unissued shares. The number of shares
stated in this Section 2.1 shall be subject to adjustment in accordance with the
provisions of Section 2.4.
A-1
<PAGE>
If any outstanding Option expires or terminates for any reason or any
Option is surrendered, the shares of Stock allocable to the unexercised portion
of that Option may again be subject to an Option under the Plan.
2.2 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.
2.3 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option, the Company shall not
be required to issue any Stock unless the Board of Directors has received
evidence satisfactory to it to the effect that the holder of that Option will
not transfer the Stock except in accordance with applicable law, including
receipt of an opinion of counsel satisfactory to the Company to the effect that
any proposed transfer complies with applicable law. The determination by the
Board of Directors on this matter shall be final, binding and conclusive. The
Company may, but shall in no event be obligated to, register any Stock covered
by this Plan pursuant to applicable securities laws of any country or any
political subdivision. In the event the Stock issuable on exercise of an Option
is not registered, the Company may imprint on the certificate evidencing the
Stock any legend that counsel for the Company considers necessary or advisable
to comply with applicable law. The Company shall not be obligated to take any
other affirmative action in order to cause the exercise of an Option and the
issuance of shares thereunder, to comply with any law or regulation of any
governmental authority.
2.4 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 by the Board of Directors (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 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
A-2
<PAGE>
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 of Directors (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
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
A-3
<PAGE>
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 whole or in part unexercised, it shall be
canceled by the Board of Directors 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.
2.5 OPTIONS CONDITIONED UPON STOCKHOLDER APPROVAL OF THE PLAN. No Option
granted under the Plan will be exercisable before the stockholders of the
Company approve the Plan.
A-4
<PAGE>
ARTICLE III
OPTIONS
3.1 AUTOMATIC ANNUAL GRANTS. Except for any October 31 on which he
receives an Option under the Quanex Corporation 1989 Non-Employee Director Stock
Option Plan, subject to the approval of the Plan by the stockholders of the
Company and the availability under the Plan of a sufficient number of shares of
Stock that may be issued upon the exercise of outstanding Options, each
Non-Employee Director who is a director of the Company on any October 31 while
this Plan is in effect shall be granted on each such October 31 an Option to
purchase such number of shares of Stock as is determined by the Board of
Directors.
3.2 AMOUNT EXERCISABLE -- AUTOMATIC ANNUAL GRANTS. Subject to Section
2.5, each Option granted pursuant to Section 3.1 is exercisable in full
immediately upon the date of grant.
3.3 GRANTS FOR NEW DIRECTORS. Subject to the approval of the Plan by the
stockholders of the Company and the availability under the Plan of a sufficient
number of shares of Stock that may be issued upon the exercise of outstanding
options, there shall be granted under the Plan to each Non-Employee Director who
was not granted an Option under the Quanex Corporation 1987 Non-Employee
Director Stock Option Plan as of the date upon which such Non-Employee Director
shall have continuously served as a director of the Company for a period of one
year an Option to purchase such number of shares of Stock as is determined by
the Board of Directors. Upon the receipt of an Option under the Plan pursuant to
this Section 3.3, the Optionee shall not be eligible to receive another Option
for new Non-Employee Directors pursuant to this Section 3.3. Nothing in this
Section 3.3 shall affect the eligibility of an Optionee to receive an Option
pursuant to Section 3.1.
3.4 AMOUNT EXERCISABLE -- GRANTS FOR NEW DIRECTORS. Each Option Agreement
for an Option granted pursuant to Section 3.3 shall contain the following terms
of exercise:
(a) No Option granted under Section 3.3 of the Plan may be exercised
until the Optionee has served as a director of the Company for one year
following the date of grant;
(b) beginning on the day after the first anniversary of the date of
grant, the 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.
3.5 OPTION PRICE. The price at which Stock may be purchased under an
Option shall be equal to 100% of the Fair Market Value of the shares of Stock on
the date the Option is granted.
3.6 DURATION OF OPTIONS. Each Option awarded, to the extent it shall not
previously have been exercised, shall terminate on the earlier of the following
dates:
(i) on the last day within the three month period commencing on the
date on which the Optionee ceases to be a director of the Company, for any
reason other than death, Retirement or Disability; or
(ii) ten years after the date of grant of such Option.
If the Optionee ceases to be a director of the Company for any reason other
than his death, Disability or Retirement, his Option shall not continue to vest
after such cessation of service as a director. If the Optionee ceases to be a
director of the Company due to his death, Disability or Retirement, his Option
shall continue to vest after such cessation of service as a director until the
Option expires ten years after the grant of the Option.
3.7 DEATH OF AN OPTIONEE. Upon the death of an Optionee prior to the
expiration of his Option, his executors, administrators or any person or persons
to whom his Option may be transferred
A-5
<PAGE>
by will or by the laws of descent and distribution, shall have the right, at any
time prior to the expiration date of the Option to exercise the Option with
respect to the number of shares that the Optionee would have been entitled to
exercise if he were still alive.
3.8 EXERCISE OF OPTIONS. An Optionee may exercise his Option by
delivering to the Company a written notice stating (i) that he wishes to
exercise such Option on the date such notice is so delivered, (ii) the number of
shares of Stock with respect to which such Option is to be exercised and (iii)
the address to which the certificate representing such shares of Stock should be
mailed. In order to be effective, such written notice shall be accompanied by
payment of the option price of such shares of Stock. Each such payment shall be
made by cashier's check drawn on a national banking association and payable to
the order of the Company in United States dollars.
If, at the time of receipt by the Company of such written notice, (i) the
Company has unrestricted surplus in an amount not less than the option price of
such shares of Stock, (ii) all accrued cumulative preferential dividends and
other current preferential dividends on all outstanding shares of preferred
Stock of the Company have been fully paid, (iii) the acquisition by the Company
of its own shares of Stock for the purpose of enabling such Optionee to exercise
such Option is otherwise permitted by applicable law and without any vote or
consent of any stockholder of the Company, and (iv) there shall have been
adopted, and there shall be in full force and effect, a resolution of the Board
of Directors of the Company authorizing the acquisition by the Company of its
own shares of Stock for such purpose, then such Optionee may deliver to the
Company, in payment of the option price of the shares of Stock with respect to
which such Option is exercised, (x) certificates registered in the name of such
Optionee that represent a number of shares of Stock legally and beneficially
owned by such Optionee (free of all liens, claims and encumbrances of every
kind) and having a Fair Market Value on the date of receipt by the Company of
such written notice that is not greater than the option price of the shares of
Stock with respect to which such Option is to be exercised, such certificates to
be accompanied by Stock powers duly endorsed in blank by the record holder of
the shares of Stock represented by such certificates, with the signature of such
record holder guaranteed by a national banking association, and (y) if the
option price of the shares of Stock with respect to which such Option is to be
exercised exceeds such Fair Market Value, a cashier's check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the amount of such excess. Notwithstanding the
provisions of the immediately preceding sentence, the Treasurer of the Company,
in his sole discretion, may refuse to accept shares of Stock in payment of the
option price of the shares of Stock with respect to which such Option is to be
exercised and, in that event, any certificates representing shares of Stock that
were received by the Company with such written notice shall be returned to such
Optionee, together with notice by the Company to such Optionee of the refusal of
the Treasurer of the Company to accept such shares of Stock. If, at the
expiration of seven business days after the delivery to such Optionee of such
written notice from the Company, such Optionee shall not have delivered to the
Company a cashier's check drawn on a national banking association and payable to
the order of the Company in an amount, in United States dollars, equal to the
option price of the shares of Stock with respect to which such Option is to be
exercised, such written notice from the Optionee to the Company shall be
ineffective to exercise such Option.
As promptly as practicable after the receipt by the Company of (i) such
written notice from the Optionee and (ii) payment, in the form required by the
foregoing provisions of this Section 3.8, of the option price of the shares of
Stock with respect to which such Option is to be exercised, a certificate
representing the number of shares of Stock with respect to which such Option has
been so exercised, such certificate to be registered in the name of such
Optionee, provided that such delivery shall be considered to have been made when
such certificate shall have been mailed, postage prepaid, to such Optionee at
the address specified for such purpose in such written notice from the Optionee
to the Company.
A-6
<PAGE>
3.9 FORM OF OPTIONS. All Options granted under this Plan will be
nonqualified stock options that are not intended to qualify as incentive stock
options under section 422 of the Internal Revenue Code of 1986, as amended.
3.10 WRITTEN AGREEMENT. Each Option shall be embodied in a written Option
Agreement which shall be subject to the terms and conditions of this Plan and
shall be signed by the Optionee and by an officer of the Company.
3.11 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.
ARTICLE IV
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend or terminate this Plan at
any time, in its sole and absolute discretion; provided, however, that no
amendment shall decrease the exercise price for Options below the Fair Market
Value of the Stock at the time it is granted.
ARTICLE V
MISCELLANEOUS
5.1 NO RETENTION OBLIGATION. The granting of any Option shall not impose
upon the Company any obligation to continue to retain the Optionee's services as
a director of the Company.
5.2 TAXES. The Company shall not be obligated to advise an Optionee of
the existence of any tax that may apply with respect to the grant or exercise of
an Option.
5.3 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.
5.4 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.
5.5 OTHER COMPENSATION. The adoption of this Plan shall not affect any
other compensation in effect for the Non-Employee Directors, nor shall this Plan
preclude the Company from establishing any other forms of compensation for
Non-Employee Directors.
5.6 OTHER OPTIONS. The grant of an Option shall not confer upon an
Optionee the right to receive any future or other Options under this Plan.
5.7 ARBITRATION OF DISPUTES. Any controversy arising out of or relating
to the Plan or an Option 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.
5.8 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Texas.
A-7
<PAGE>
PROXY QUANEX CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
IF NO SPECIFICATION IS MADE, PROXIES WILL VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ON THE REVERSE SIDE OR ANY SUBSTITUTE FOR THEM AND FOR ITEMS 2
THROUGH 3, AS RECOMMENDED BY THE BOARD OF DIRECTORS.
The undersigned shareholder(s) of Quanex Corporation hereby appoints
Michael J. Sebastian and Gerald B. Haeckel, and either of them, proxies of the
undersigned with power of substitution to vote, as designated on the reverse
side of this card, all shares which the undersigned would be entitled to vote at
the Annual Meeting of Shareholders to be held at the Doubletree Hotel, 2001 Post
Oak Blvd., Houston, Texas on February 26, 1998, at 8:30 A.M., C.S.T., or at any
adjournment or adjournments thereof, on the matters described in the enclosed
Proxy Statement dated January 23, 1998.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
A [X] Please mark your
votes as in this
example.
FOR ALL
NOMINEES WITHHOLD AUTHORITY
LISTED OR ANY TO VOTE FOR ALL
SUBSTITUTES NOMINEES LISTED
Item 1. To elect
three [ ] [ ]
directors
to serve until the Annual Meeting of
Shareholders in 2001.
Nominees: Carl E. Pfeiffer
Vincent R. Scorsone
Donald G. Barger
Instructions: To withhold authority to vote for any
nominees strike a line through his name.
FOR AGAINST ABSTAIN
Item 2: To consider and act upon a proposal [ ] [ ] [ ]
to adopt the Company's 1997 Non-
Employee Director Stock Option Plan;
Item 3: To consider and act upon a proposal [ ] [ ] [ ]
to ratify the appointment of Deloitte
& Touche LLP as independent auditors
for the fiscal year ending
October 31, 1998; and
Item 4: To transact such other business as may properly come
before the meeting or any adjournment or adjournments thereof.
Signature(s):________________________________Dated:______________,1998
NOTE: Please sign your name exactly as it appears hereon. When
signing as attorney, executor, administrator, trustee or WILL [ ]
guardian, please give your full title as it appears hereon. ATTEND
When signing as joint tenants, all parties in the joint MEETING
tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer.
