SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
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:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] 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:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
- --------------------------------------------------------------------------------
Quanex Corporation [QUANEX LOGO]
1900 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-4600
- --------------------------------------------------------------------------------
January 22, 1999
Dear Fellow Shareholder:
You are cordially invited to attend the
Company's Annual Meeting of Shareholders to be
held at 5:00 p.m., C.S.T., on Wednesday, February
24, 1999, at the offices of Fulbright & Jaworski
L.L.P., 1301 McKinney, 51st Floor, Houston, Texas.
This year you will be asked to vote in favor
of two proposals. The proposals concern the
election of three directors and the appointment of
independent auditors for fiscal 1999. 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>
[QUANEX LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Quanex
Corporation, a Delaware corporation (the "Company"), will be held at the
offices of Fulbright & Jaworski L.L.P., 1301 McKinney, 51st Floor, Houston,
Texas, on February 24, 1999, at 5:00 p.m., C.S.T., for the following purposes:
(1) To elect three directors to serve until the Annual Meeting of
Shareholders in 2002;
(2) 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, 1999; and
(3) 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 14, 1999,
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,
1998, accompanies this Notice.
By order of the Board of Directors,
/s/ MICHAEL W. CONLON
MICHAEL W. CONLON, Secretary
Houston, Texas
January 22, 1999
<PAGE>
[QUANEX LOGO]
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
This Proxy Statement and the accompanying form of proxy are to be first
mailed on or about January 22, 1999, to all holders of record on January 14,
1999, (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 5:00 p.m., C.S.T., on Wednesday, February 24, 1999, 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 proposal 2. 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 14,248,847 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.
1
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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, Gerald B. Haeckel, Michael J. Sebastian and Russell
M. Flaum, expire at the 1999 Annual Meeting. Mr. Haeckel will not stand for
re-election. The proposed nominees for director for a term expiring at the 2002
Annual Meeting are Messrs. Sebastian and Flaum and Ms. Davis. The respective
terms of directors expire on the dates set forth below.
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS DIRECTOR
EXPIRE AT THE 2002 ANNUAL MEETING PRINCIPAL OCCUPATION AGE SINCE
- ------------------------------------ ----------------------------------------------------- --- --------
<S> <C> <C> <C>
Michael J. Sebastian................ Retired since 1995 from Cooper Industries, Inc., 68 1991
manufacturer of electrical, automotive and industrial
equipment (Houston, Texas)
Russell M. Flaum.................... Executive Vice President of Illinois Tool Works, an 48 1997
international manufacturer of engineered metal and
plastic components (Glenview, Illinois)
Susan F. Davis...................... Vice President of Human Resources of Johnson 45 1998
Controls, Inc., a global market Leader in automotive
systems and building controls (Milwaukee, Wisconsin)
<CAPTION>
NOMINEES FOR ELECTION FOR TERMS
EXPIRING AT THE 2001 ANNUAL MEETING
- ------------------------------------
Carl E. Pfeiffer.................... Chairman Emeritus, 68 1966
Quanex Corporation
Vincent R. Scorsone................. Retired since 1994 from Aluminum Company of America, 63 1995
a manufacturer of aluminum products (Pittsburgh,
Pennsylvania)
Donald G. Barger, Jr................ Vice President and Chief Financial Officer of 55 1995
Hillenbrand Industries, a manufacturer and provider
of products and services for the healthcare, funeral
services, and high security markets (Batesville,
Indiana)
<CAPTION>
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, 64 1986
Quanex Corporation
Vernon E. Oechsle................... President and Chief Executive Officer, Quanex 56 1995
Corporation
</TABLE>
Messrs. Sebastian and Flaum and Ms. Davis 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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<PAGE>
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 Hillenbrand Industries on March 16, 1998.
Prior to that time, Mr. Barger was Vice President of Finance and Chief Financial
Officer of Worthington Industries, Inc. since 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 and Ms. Davis, has been previously elected a
director by the shareholders of the Company. Mr. Flaum and Ms. Davis were
elected directors during 1998 by the Board of Directors.
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 1998, the Board of Directors met five times, and the
Audit and Environmental Compliance Committee and the Compensation and Management
Development Committee met three times. The Nominating and Corporate Governance
Committee met two 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, Flaum, Scorsone and Haeckel, who is Chairman. The
Audit and Environmental Compliance Committee's responsibilities to the Board
include the following:
1) 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.
2) Recommend the annual nomination of independent auditors of the Company
for appointment by the Board of Directors.
3
<PAGE>
3) 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 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 and
Environmental Compliance Committee or the independent auditors.
4) Review annually the Company's risk management program.
5) Review annually the Company's program relating to monitoring compliance
with the Company's Statement of Business Policies.
6) 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, Flaum, Haeckel, O'Connell and Sebastian, who is
Chairman. This Committee's responsibilities to the Board include the following:
1) 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.
2) 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.
3) Review and approve the compensation to be paid to officers and key
employees of the Company.
4) Review and approve the establishment and administration of stock bonus
plans and stock option plans for employees and non-employee directors.
5) 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.
6) 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.
7) 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.
4
<PAGE>
The current members of the Nominating and Corporate Governance Committee
are Messrs. Scorsone, Sebastian, Snyder and O'Connell, who is Chairman. This
Committee's responsibilities to the Board include the following:
1) 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.
2) Develop and maintain criteria and procedures for the identification and
recruitment of candidates for election to serve as directors of the
Company.
3) Review the appropriateness and adequacy of information supplied to
directors prior to and during Board of Directors meetings.
4) Review director class each year and recommend directors for election or
re-election.
5) 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.
6) Evaluate annually the performance of the Board of Directors.
7) 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, Flaum, Haeckel, Pfeiffer and Scorsone, who is Chairman. This committee's
responsibilities to the Board include the following:
1) 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.
2) 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
5
<PAGE>
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 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 2000 Annual Meeting must be given on or before November 28,
1999.
Directors (other than Mr. Oechsle, who is an officer of the Company) are
currently paid a fee of $5,250, four times a year at regular quarterly meetings
and $1,250 for attendance at each meeting of the Board. Committee Chairs receive
a fee of $625 four times a year at regular quarterly meetings of committees of
the Board 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. 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 1998.
At the Annual Meeting of Shareholders held on February 23, 1988, the
shareholders approved the Quanex Corporation 1987 Non-Employee Director Stock
Option 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 Stock Option 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 Stock
Option 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 Stock Option 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 2,000 shares of Common Stock to all non-employee directors on each
October 31 on which the director serves as a director of the Company. Options
granted under the 1989 Plan may be
6
<PAGE>
exercised 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 30, 1998, each of
Messrs. Davis, Barger, Flaum, Haeckel, O'Connell, Pfeiffer, Scorsone, Sebastian
and Snyder was granted an option under the 1989 Plan to purchase 2,000 shares of
Common Stock with an exercise price per share of $16.876. There are currently
12,000 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 certain participants and (ii) a 20%
Company matching award for 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 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. During 1998, Messrs.
Barger and Scorsone elected to defer director fees of $7,862 and $17,537,
respectively, under the DC Plan in the form of Common Stock and their accounts
were credited with 282 and 616 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 58 and 128 shares of Common Stock.
At the Annual Meeting of Shareholders held on February 26, 1998, the
shareholders of the Company approved the 1997 Non-Employee Director Stock Option
Plan (the "1997 Plan"), which provides for the granting to non-employee
directors of options to purchase an aggregate of 400,000 shares of Common Stock.
The 1997 Plan currently provides for grants of options, to be determined by the
Board of Directors, to all non-employee directors on each October 31 on which
the director serves as a director of the Company. During 1998, Mr. Flaum was
granted an option under the 1997 Plan to purchase 10,000 shares of common stock
with an exercise price per share of $18.25. There are currently 390,000 shares
of common stock remaining available for option grants under this plan.
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.
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<PAGE>
(2) 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, 1999, subject to ratification of the shareholders at the 1999
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.
FURTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table sets forth as of November 30, 1998, 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 PERCENT
NAME AND ADDRESS OWNERSHIP (%)
- ------------------------------------- ----------- -------
Barrow, Hanley, MeWhinney & Strauss,
Inc., 3232 McKinney Avenue, 15th
Floor, Dallas, TX, 75204........... 996,200(1) 7.0
Neumeier Investment Counsel LLC,
26435 Carmel Rancho Boulevard,
Carmel, CA 93923................... 750,900(1) 5.3
- ------------
(1) Has sole investment power and shared voting power with respect to all shares
owned.
8
<PAGE>
The following table sets forth as of December 31, 1998, 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 on page 14 of
this Proxy Statement, 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>
Donald G. Barger, Jr. ............... 0 1,000 16,666 *
James H. Davis....................... 0 2,000 56,333 *
Susan F. Davis....................... 0 0 0 *
Russell M. Flaum..................... 0 0 0 *
Gerald B. Haeckel.................... 0 10,263 28,263 *
Robert V. Kelley, Jr. ............... 0 38,958 112,057 *
John D. O'Connell.................... 12,500 10,485 25,881 *
Vernon E. Oechsle.................... 0 28,712 171,078 1.2
Carl E. Pfeiffer..................... 0 17,865 26,865 *
Wayne M. Rose........................ 0 11,475 104,741 *
Terry A. Schroeder................... 0 1,844 19,010 *
Vincent R. Scorsone.................. 100,000 3,000 21,840 *
Michael J. Sebastian................. 75,000 19,000 30,380 *
Robert C. Snyder..................... 0 13,729 111,896 *
All officers and directors as a group
(16 persons)....................... 237,500 162,667 758,498 5.3
</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, Davis, Haeckel, Kelly, O'Connell,
Oechsle, Pfeiffer, Rose, Schroeder, Scorsone, Sebastian, and Snyder, and all
officers and directors as a group includes 15,666, 54,333, 18,000, 73,099,
15,000, 142,366, 9,000, 93,266, 17,166, 15,666, 9,000, 98,167 and 588,294
shares, respectively, that may be acquired through exercise of stock
options. The beneficial ownership of shares of Messrs. O'Connell, Scorsone,
and Sebastian, and all officers and directors as a group includes 396,
3,174, 2,380 and 7,537 shares, respectively, that may be acquired through
conversion of the Debentures held by them. The beneficial ownership of
shares does not include 1,224, 38,888, 31,220, 13,401, 3,223 and 93,653
shares of Common Stock that have been credited under the DC Plan to the
accounts of Messrs. Barger, Davis, Oechsle, Rose, Scorsone and all officers
and directors as a group, 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.
9
<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> <C>
Vernon E. Oechsle; 56................ Chief Executive Officer since January 1996 and President
since 1995 and Chief Operating Officer from 1993 to
1995
James H. Davis; 63................... Executive Vice President and Chief Operating Officer
since 1995
Wayne M. Rose; 52.................... President of Engineered Products Group since December
1998, Vice President of Finance and Corporate
Development and Chief Financial Officer since February
1997 and Vice President and Chief Financial Officer
since 1987
Paul J. Giddens; 54.................. Vice President of Human Resources since 1998
Robert V. Kelly, Jr.; 60............. Vice President since 1979 (also Group President since
1982)
Viren M. Parikh; 56.................. Controller since 1993
*Terry A. Schroeder; 50.............. President of Nichols Aluminum since August 1996
</TABLE>
- ------------
* Although Mr. Schroeder is not an executive officer of the Company, he performs
a policymaking function for the Company in his capacity as the President of
the Company's Nichols Aluminum Division. Accordingly, for purposes of this
Proxy Statement, he is considered to be an executive officer of the Company.
Mr. Kelly has been principally employed in the position 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. Giddens was
named Vice President of Human Resources on September 1, 1998 and prior to that
time was Corporate Director of Human Resources for Barnes Group, Inc. since June
1997 and Vice President of Human Resources for York & Associates, Inc. since
October 1996. Prior to that time, Mr. Giddens was Corporate Director of Human
Resources for Georgia Pacific Corporation since July 1992 and Manager of Human
Resources & Organizational Development for General Electric Company since April
1985. 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.
10
<PAGE>
QUANEX CORPORATION
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
TO SHAREHOLDERS
ON EXECUTIVE COMPENSATION
FOR FISCAL YEAR ENDED OCTOBER 31, 1998
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, 1998.
During the fiscal year ended October 31, 1998, 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,
Russell M. Flaum, and Donald G. Barger, Jr. The Committee's responsibilities are
to oversee the development and administration of the total compensation and
benefits programs 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, development
and succession 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 group
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.
11
<PAGE>
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 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 results in increased
benefit to the Company's shareholders. Incentive awards for fiscal 1998 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.
The following is a discussion of each of the principal components of the
total executive compensation program. There have been no major changes in the
executive compensation program during the 1998 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 primarily on predetermined, objective performance measures.
For officers with corporate responsibilities, the performance measure includes
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.
Based primarily on objective standards established at the beginning of the
fiscal year, awards are calibrated at the 75th percentile if the Company
achieves 75th percentile performance results. For fiscal 1998, 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
12
<PAGE>
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 1998 the Committee granted options to purchase shares of
common stock to executive officers of the Company consistent with this policy.
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 June 1998, Mr. Oechsle's salary was increased from $475,000 to $500,000.
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 1998, Mr. Oechsle received an annual incentive award of $440,883
based primarily on the objective performance measures set out in the EICP. Mr.
Oechsle elected to defer receipt of 25% 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 1998, Mr. Oechsle received 70,000 stock options with an option
price of $20.75 (fair market value on the date of grant).
Respectfully Submitted,
Compensation and Management Development
Committee
Michael J. Sebastian, Chair
Donald G. Barger, Jr.
Gerald B. Haeckel
John D. O'Connell
Russell M. Flaum
13
<PAGE>
The following table sets forth information concerning the cash compensation
and additional incentive compensation paid by the Company to the Chief Executive
Officer and to each of the Company's four most highly compensated executive
officers for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- -------
(E) (F)
OTHER RESTRICTED (H)
(A) (C) (D) ANNUAL STOCK (G) LTIP
NAME AND PRINCIPAL (B) SALARY BONUS(1) COMPENSATION(2) AWARD(S) OPTIONS/ PAYOUTS
POSITION YEAR ($) ($) ($) ($) SARS(#) ($)
- ------------------------------------- ---- -------- -------- --------------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Vernon E. Oechsle, 1998 485,428 440,883 92,238 0 70,000 0
President and Chief Executive 1997 460,420 398,076 69,272 0 40,000 0
Officer 1996 392,506 398,791 27,640 0 59,000 0
James H. Davis,(4) 1998 317,840 266,095 14,405 0 37,000 0
Executive Vice President and Chief 1997 305,000 244,854 16,893 0 22,000 0
Operating Officer 1996 276,676 263,663 12,272 0 33,000 0
Wayne M. Rose, 1998 240,003 183,960 8,595 0 22,000 0
Vice President and Chief 1997 223,333 165,512 11,154 0 13,500 0
Financial Officer and 1996 209,167 184,004 9,993 0 19,000 0
Engineered Products Group President
Robert V. Kelly, Jr., 1998 235,333 240,385 5,807 0 22,000 0
Vice President and MacSteel 1997 221,167 201,925 5,468 0 13,000 0
President 1996 210,000 159,915 5,186 0 19,000 0
Terry A. Schroeder(5) 1998 214,036 61,032 0 0 20,000 0
Nichols Aluminum President 1997 205,962 60,000 0 0 11,500 0
1996 39,423 0 0 0 20,000 0
</TABLE>
(I)
(A) ALL OTHER
NAME AND PRINCIPAL COMPENSATION(3)
POSITION ($)
- ------------------------------------- ---------------
Vernon E. Oechsle, 26,003
President and Chief Executive 35,846
Officer 83,508
James H. Davis,(4) 57,019
Executive Vice President and Chief 52,971
Operating Officer 56,483
Wayne M. Rose, 22,396
Vice President and Chief 20,510
Financial Officer and 22,150
Engineered Products Group President
Robert V. Kelly, Jr., 3,116
Vice President and MacSteel 3,777
President 3,750
Terry A. Schroeder(5) 12,500
Nichols Aluminum President 26,050
0
- ------------
(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 1998 also include the dollar value of the portion of the bonuses
deferred by each of Messrs. Oechsle, Davis and Rose, which have been
credited to a Common Stock account under the Company's DC Plan. Under the
terms of the DC Plan, 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 1998, the dollar value of the bonuses deferred
under the DC Plan to a Common Stock account by Messrs. Oechsle, Davis and
Rose were $110,221, $266,095 and $91,980, respectively. Such amounts, if not
deferred, would have been payable to each of such officers on December 9,
1998. Based upon the closing price of the Common Stock on the NYSE on such
date, of $18.6875 per share, 5,898, 14,239 and 4,922 shares of Common Stock
were credited under the DC Plan to the accounts of Messrs. Oechsle, Davis
and Rose, respectively.
(2) Represents amounts reimbursed during the fiscal year for the payment of
taxes as well as perquisites and other personal benefits which totaled or
exceeded the lesser of $50,000 or 10% of the total annual salary and bonus
for each named officer. For individuals above whose perquisites and other
personal benefits met this threshold for any one year, these amounts were
included in all years presented for comparability. Of the perquisites and
other personal benefits reported in "Other Annual Compensation" above, Mr.
Oechsle received financial planning services of $25,793, which exceeded 25%
of his total perquisites and other personal benefits in 1998.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
14
<PAGE>
(3) Includes matching contributions made by the Company to defined contribution
plans for each of the fiscal years indicated. The amounts shown 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
1998, the number of shares of Common Stock credited by the Company as
matching contributions under the DC Plan to the accounts of Messrs. Oechsle,
Davis and Rose were 1,180, 2,848 and 985 shares, respectively. Based on the
closing price of the Common Stock on the NYSE on December 9, 1998, of
$18.6875 per share, the dollar value of the number of shares of Common Stock
credited by the Company in fiscal year 1998 to the accounts of Messrs.
Oechsle, Davis and Rose were $22,044, $53,219 and $18,396, 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 and Rose were $31,846, $48,971 and $16,551,
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 Common Stock credited by the Company in fiscal year 1996 to the
accounts of Messrs. Oechsle, Davis and Rose were $79,758, $52,733 and
$18,400, respectively. Additionally, the amounts shown for Mr. Schroeder for
fiscal 1998 include moving expense reimbursements.
(4) Joined the Company in September 1995 as Executive Vice President,
Manufacturing Operations and was promoted to Executive Vice President and
Chief Operating Officer, effective January 1, 1996.
(5) Joined the Company in August 1996 as President of Nichols Aluminum. Although
Mr. Schroeder is not an executive officer of the company, he performs a
policy making function for the Company as the President of the Company's
Nichols Aluminum Division. Accordingly, for purposes of this Proxy
Statement, he is considered to be an executive officer of the Company.
15
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------- GRANT DATE
(C) VALUE
% OF TOTAL ------------
OPTIONS/
(B) SARS (D) (F)
OPTIONS/ GRANTED TO EXERCISE GRANT
SARS EMPLOYEES OR BASE (E) DATE
(A) GRANTED(1) IN FISCAL PRICE EXPIRATION PRESENT
NAME (#) YEAR(%) ($/SHARE) DATE VALUE ($)(2)
- ------------------------------------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vernon E. Oechsle.................... 70,000 26.5 $ 20.750 10-21-08 $375,200
James H. Davis....................... 37,000 14.0 20.750 10-21-08 198,320
Wayne M. Rose........................ 22,000 8.3 20.750 10-21-08 117,920
Robert V. Kelly, Jr.................. 22,000 8.3 20.750 10-21-08 117,920
Terry A. Schroeder................... 20,000 7.6 20.750 10-21-08 107,200
- ------------
</TABLE>
(1) All stock options granted in fiscal 1998 become exercisable in 33 1/3%
increments maturing cumulatively on each of the first through third
anniversaries of the date of grant and must be exercised no later than ten
years from the date of grant.
(2) Calculated using the Black-Scholes option pricing model. The calculation
assumes volatility of 31.57%, a risk free interest rate of 4.49%, an annual
dividend yield of 3.0%, a 5-year weighted average expected option life, and
option grants at $20.75 per share. The actual value, if any, an executive
may realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised. There is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(E)
(D) VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
(B) (C) AT FY-END (#) AT FY-END ($)
(A) SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Vernon E. Oechsle.................... - 0 - - 0 - 142,366/116,334 0/0
James H. Davis....................... - 0 - - 0 - 54,333/62,667 0/0
Wayne M. Rose........................ - 0 - - 0 - 93,266/37,334 0/0
Robert V. Kelly, Jr.................. 20,000 285,000 73,099/37,001 0/0
Terry A. Schroeder................... - 0 - - 0 - 17,166/34,334 0/0
</TABLE>
16
<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, 1998, the individuals named in the Summary Compensation
Table had the following years of service under the Company's pension plans: Mr.
Oechsle -- 4; Mr. Davis -- 3, Mr. Rose -- 15; Mr. Kelly, Jr. -- 21.
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.
17
<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 for the Standard
& Poor's 500 composite Stock Index (the "S&P 500") and the Company's industry
peer group. The Company compiled a new peer group for fiscal 1998. This new peer
group was selected as a result of the changing business due to acquisitions and
divestitures that the Company operates in, as well as acquisitions within the
"Old Peer Group"which made information unobtainable or incomparable for some
of the previous participants. The "New Peer Group"is comprised of: Birmingham
Steel Corp., Carpenter Technology, Century Aluminum Co., Commonwealth Industries
Inc., Kaiser Aluminum Corp., Keystone Cons. Industries Inc., Laclede Steel Co.,
Mascotech Inc., NS Group Inc., Oregon Steel Mills Inc., Roanoke Electric Steel
Corp., Timken Co., and Worthington Industries. The "Old Peer Group"was
comprised of: ACX Technologies Inc., Alumax Inc. (acquired March 1998),
Birmingham Steel Corp, Carpenter Technology, CasTech Aluminum Group
Inc.(acquired by Commonwealth Aluminum Corp. in September 1996), Chaparral Steel
Company (acquired December 1997), Commonwealth Aluminum Corp, Inland Steel
Industries Inc., Keystone Consolidated Industries Inc., Laclede Steel Co., NS
Group Inc., Republic Engineered Steels Inc. (acquired July 1998), Roanoke
Electric Steel Corp., Timken Co., Webco Industries Inc., and Worthington
Industries. The graph below compares the Company to both the old and new peer
groups.
[INSERT PERFORMANCE GRAPH]
18
<PAGE>
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 2000 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 24, 1999.
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 (which for the
2000 meeting would be December 24, 1999) nor more than 180 days (which for the
2000 meeting would be August 24, 1999) 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 (which for the 2000 meeting
would be April 14, 2000) 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 22, 1999
19
<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 ITEM 2, AS
RECOMMENDED BY THE BOARD OF DIRECTORS.
The undersigned shareholder(s) of Quanex Corporation hereby appoints Carl
E. Pfeiffer and Vince R. Scorsone, 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 offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, 51st Floor, Houston, Texas, on February 24,
1999, at 5:00 pm., C.S.T., or at any adjournment or ajournments thereof, on the
matters described in the enclosed Proxy Statement dated January 22, 1999.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS OF
QUANEX CORPORATION
February 24, 1999
------------------------------
| PROXY VOTING INSTRUCTIONS |
------------------------------
TO VOTE BY MAIL
- ---------------
Please mark, date, sign and mail your proxy card in the envelope provided as
soon as possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
- --------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
------------------
YOUR CONTROL NUMBER IS -----------> | |
------------------
Please Detach and Mail in the Envelope Provided
A[X] Please mark your votes
as in this example
FOR ALL
NOMIMNEES WITHHOLD AUTHORITY
LISTED OR ANY TO VOTE FOR ALL
SUBSTITUTES NOMINEES LISTED
Item 1. To elect [ ] [ ] Nominees: Michael J. Sebastian
three Russell M. Flaum
directors Susan F. Davis
to serve until Annual Meeting of
Shareholders in 2002;
INSTRUCTIONS: To withhold authority to vote for
any nominee strike a line through
his/her name.
FOR AGAINST ABSTAIN
Item 2. 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 3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments therof.
The signer hereby revokes all proxies heretofore given by the signer to
vote on said meeting or any adjournment(s) thereof.
PLEASE VOTE PROMPTLY
--------------------
WILL ATTEND
Signature(s)____________________________ Dated:____________1999 MEETING [ ]
NOTE: Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title as it appears hereon. When signing as joint tenants, all parties in the
joint tenancy must sign.
