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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5725
QUANEX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 38-1872178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST LOOP SOUTH, SUITE 1500 77027
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (713) 961-4600
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.50 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Junior
Participating Preferred Stock New York Stock Exchange, Inc.
6.88% Convertible Subordinated Debentures New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates as of December 31, 1999, computed by reference to the closing
price for the Common Stock on the New York Stock Exchange, Inc. on that date,
was $358,765,289. Such calculation assumes only the registrant's officers and
directors were affiliates of the registrant.
At December 31, 1999, there were outstanding 14,351,225 shares of the
registrant's Common Stock, $.50 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement, to be filed with
the Commission within 120 days of October 31, 1999, for its Annual Meeting of
Stockholders to be held on February 23, 2000, are incorporated herein by
reference in Items 10, 11, 12, and 13 of Part III of this Annual Report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
General..................................................... 1
Manufacturing Processes, Markets and Product Sales by
Business Segment............................................ 2
Raw Materials and Supplies.................................. 6
Backlog..................................................... 6
Competition................................................. 6
Sales and Distribution...................................... 6
Seasonal Nature of Business................................. 6
Service Marks, Trademarks, Trade Names and Patents.......... 7
Research and Development.................................... 7
Environmental Matters....................................... 7
Employees................................................... 8
Financial Information About Foreign and Domestic
Operations.................................................. 8
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters.............................................. 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A. Quantitative/Qualitative Disclosure......................... 21
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Disagreements on Accounting and Financial Disclosure........ 58
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 58
Item 11. Executive Compensation...................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 58
Item 13. Certain Relationships and Related Transactions.............. 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 59
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PART I
ITEM 1. BUSINESS
GENERAL
Quanex was organized in 1927 as a Michigan corporation under the name
Michigan Seamless Tube Company. The Company reincorporated in Delaware in 1968
under the same name and then changed its name to Quanex Corporation in 1977. The
Company's executive offices are located at 1900 West Loop South, Suite 1500,
Houston, Texas 77027. References made to the "Company" or "Quanex" include
Quanex Corporation and its subsidiaries unless the context indicates otherwise.
Quanex is a technological leader in the production of value-added
engineered carbon and alloy steel bars, aluminum flat-rolled products, and
precision-formed metal products. The Company uses state-of-the-art manufacturing
technologies, low-cost production processes, and engineering and metallurgical
expertise to provide customers with specialized products for specific
applications. These capabilities also provide Quanex with unique competitive
advantages.
The Company seeks to reduce the impact of cyclical economic downturns on
its operations by serving diverse markets. These markets include the
transportation industry, the industrial machinery and capital equipment
industries, the homebuilding and remodeling industries, defense industries, and
other commercial markets.
The Company's future growth strategy is focused on the continued
penetration of higher margin markets, continued expansion of its aluminum and
steel manufacturing operations, expansion of precision-formed, value-added metal
products, and niche acquisitions.
In October 1998, Quanex completed the purchase of Decatur Aluminum
Corporation, an aluminum sheet manufacturer in Decatur, Alabama, for
approximately $19 million. The newly acquired company, renamed Nichols
Aluminum-Alabama, Inc. (Nichols Aluminum Alabama), includes cold rolling and
finishing operations and a wide-width paint line that allows it to produce
painted or coated aluminum sheet, a premium value-added product. This
acquisition significantly expanded the aluminum mill sheet products segment's
overall cold-rolling capacity, effectively utilizing most of the 400-million
pounds of current casting capacity.
On December 15, 1999, the Company announced that it had signed a contract
to acquire the assets of Alcoa's Fort Lupton, Colorado-based aluminum sheet
production facility for $8 million plus working capital value which is estimated
at $17 million. Consummation of the sale is subject to government approval.
The acquisition of the Fort Lupton mill will increase the casting,
cold-finishing and value-added painting capacities of Nichols Aluminum, Quanex's
aluminum sheet business. The Fort Lupton mill can produce more than 40-million
pounds annually of high-grade aluminum sheet for a variety of applications,
including beverage cans and other food packaging, home furnishing, and other
consumer durable products.
The Company also has invested significantly in technologically advanced
continuous manufacturing processes to meet demanding quality specifications and
to achieve additional cost efficiencies. In its MACSTEEL operations, rotary
centrifugal continuous casters are used with an in-line manufacturing process to
produce bearing grade and aircraft quality, seam-free, engineered carbon and
alloy steel bars that enable Quanex to participate in higher margin markets.
Since 1992, the Company has invested more than $169 million to enhance its steel
manufacturing and refining processes, to improve rolling and finishing
capability, and to expand manufacturing capacity at its MACSTEEL operations to
approximately 620,000 tons per year. Phases I through IV of the MACSTEEL
expansions have been completed. In Phase IV of these expansions, finished during
1999, the Company installed an additional cold finishing line at each of the
MACSTEEL plants in Jackson, Michigan, and at Ft. Smith, Arkansas. This project
doubled the shipping capacity of MACPLUS cold finished bars, a premium
value-added product, to more than 180,000 tons annually. In October 1998, the
Company announced its Phase V program, which will increase engineered steel bar
shipping capacity by approximately 13% to 700,000 tons annually. Phase V also
includes smaller projects at MACSTEEL Heat Treating, based in Huntington,
Indiana, where a third processing line is being built, and at Kenosha,
Wisconsin-based MACSTEEL NitroSteel, where efficiency enhancing equipment has
been installed. Phase V is expected to be complete by year-end 2000.
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In November 1998 the Aluminum Mill Sheet Products segment completed
construction of two rotary furnaces and upgraded the dross processing equipment
at its casting plant. The $12 million expansion now allows the Company's Nichols
Aluminum Division to use less costly scrap, resulting in lower raw material
costs, improved yields of scrap to molten metal, and improved efficiency through
more flexible operations.
The Company's businesses are managed on a decentralized basis. Each
operating group has administrative, operating and marketing functions. Financial
reporting systems measure each group's return on investment, and the Company
seeks to reward superior performance with incentive compensation, which is a
significant portion of total employee compensation. Intercompany sales are
conducted on an arms-length basis. Operational activities and policies are
managed by both corporate officers and key division executives. Also, a small
corporate staff provides corporate accounting, financial and treasury
management, tax, and human resource services to the operating divisions.
MANUFACTURING PROCESSES, MARKETS, AND PRODUCT SALES BY BUSINESS SEGMENT
The Company's operations are grouped into three business segments: (i)
engineered steel bars, (ii) aluminum mill sheet products, and (iii) engineered
products. General corporate expenses are classified as other operations.
Information with respect to major markets for the Company's products,
expressed as a percentage of consolidated net sales, is shown under the heading
"Sales by Major Markets" as set forth below. For financial information regarding
each of Quanex's business segments, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein and Note 13 to the
Consolidated Financial Statements. Although Quanex has attempted to estimate its
sales by product and market categories, many products have multiple end uses for
several industries and sales are not recorded on the basis of product or market
categories. A portion of sales is made to distributors who sell to different
industries. Net sales by principal market are based upon the total dollar volume
of customer invoices. For the year ended October 31, 1999, one customer, Autoliv
Inc., accounted for 12% of Company sales.
Quanex operates 13 manufacturing facilities in eight states in the United
States and one plant in Zwolle, The Netherlands. These facilities feature
efficient plant design and flexible manufacturing processes, enabling the
Company to produce a wide variety of products for various industries and
applications. The Company is generally able to maintain minimal levels of
finished goods inventories at most locations because it typically manufactures
products to customer specifications upon order.
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SALES BY MAJOR MARKETS
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SALES ($ MILLIONS)
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FISCAL YEAR ENDED OCTOBER 31,
MARKET ------------------------------------------
MARKETS DESCRIPTION QUANEX PRODUCTS 1999 1998 1997 1996 1995
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TRANSPORTATION Auto/Truck Steel bars, $384.1 $352.9 $322.3 $207.2 $170.9
impact-extruded 47.4% 44.2% 43.2% 33.4% 28.3%
components, aluminum
sheet
Other Transportation Steel bars, treated $ 30.1 $ 31.8 $ 32.8 $ 22.0 $ 23.1
tubes
(including and bars, aluminum 3.7% 4.0% 4.4% 3.6% 3.8%
ship/railroad, sheet
recreational vehicles
and military
transportation)
TOTAL $414.2 $384.7 $355.1 $229.2 $194.0
TRANSPORTATION 51.1% 48.2% 47.6% 37.0% 32.1%
ALUMINUM Residential and Aluminum sheet, $293.9 $334.8 $327.5 $313.1 $331.6
BUILDING Commercial Building fabricated aluminum 36.3% 42.0% 43.9% 50.5% 54.9%
PRODUCTS Materials, Other products, aluminum
coil, coated aluminum
coil
INDUSTRIAL General Industrial Specialized forgings, $ 37.8 $ 29.9 $ 24.9 $ 47.4 $ 59.9
MACHINERY AND Machinery (including impact-extruded 4.7% 3.8% 3.3% 7.6% 9.9%
products,
CAPITAL EQUIPMENT mining, agriculture and steel bars
construction)
Capital Equipment Steel bars, treated $ 12.3 $ 10.4 $ 17.5 $ 22.0 $ 13.1
bars
(including material and tubes, partition 1.5% 1.3% 2.4% 3.6% 2.2%
handling, machine products,
tools, and impact-extruded
office/household) products
TOTAL INDUSTRIAL $ 50.1 $ 40.3 $ 42.4 $ 69.4 $ 73.0
MACHINERY AND 6.2% 5.1% 5.7% 11.2% 12.1%
CAPITAL EQUIPMENT
OTHER $ 51.9 $ 37.7 $ 21.1 $ 8.4 $ 5.4
6.4% 4.7% 2.8% 1.3% .9%
TOTAL SALES $810.1 $797.5 $746.1 $620.1 $604.0
100.0% 100.0% 100.0% 100.0% 100.0%
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Engineered Steel Bars
The Company's Engineered Steel Bars segment comprises engineered steel bar
operations, steel bar and tube heat treating services, and steel bar and tube
corrosion and wear resistant finishing services.
The Company's engineered steel bar operations are conducted through its
MACSTEEL division, consisting of two plants located in Ft. Smith, Arkansas, and
Jackson, Michigan. These plants manufacture hot finished, precision engineered,
carbon and alloy steel bars. The Company believes that MACSTEEL has the only two
plants in North America using continuous rotary centrifugal casting technology.
This casting process produces seam-free bars, without surface defects or
inclusions, thereby reducing the need for subsequent surface conditioning. The
continuous casting and automated in-line manufacturing operations at the
MACSTEEL plants substantially reduce labor and energy costs by eliminating the
intermittent steps that characterize manufacturing operations at most larger,
and particularly integrated steel mills. The Company typically sells only
complete heat lots, or batches, which are made to specific customer
requirements. Heat lots average 45 tons at the Jackson plant and 50 tons at the
Ft. Smith plant.
MACSTEEL produces various grades of customized engineered steel bars by
melting steel scrap and casting it in a rotary centrifugal continuous caster.
MACSTEEL's molten steel is further processed through secondary refining
processes that includes argon stirring, ladle injection, and vacuum arc
degassing prior to casting. These processes enable MACSTEEL to produce higher
quality, "cleaner" steels.
As a result of its state-of-the-art continuous manufacturing technology,
which reduces labor, energy and process yield loss, the Company believes that
MACSTEEL is one of the lowest cost producers of precision engineered carbon and
alloy steel bars. The Company believes that energy costs at MACSTEEL are
significantly lower than those of its competitors because its bars are moved
directly from the caster to the rolling mill before cooling, eliminating the
need for costly reheating. MACSTEEL's low unit labor costs are achieved with its
highly automated manufacturing process, enabling it to produce finished steel
bars using less than two man-hours of labor per ton compared with an estimated
average of four to five man-hours per ton for U.S. integrated steel producers.
MACSTEEL products are custom manufactured for customers in the passenger
car, light truck, sport utility vehicle (SUVs), heavy truck, anti-friction
bearing, off-road and farm equipment, defense, capital equipment, and seamless
tubular industries. These industries use engineered steel bars in critical
applications such as camshafts, crankshafts, transmission gears, wheel spindles
and hubs, bearing cages and rollers, steering components, hydraulic mechanisms
and seamless tube production. Also, MACSTEEL engineered steel bars are used for
the manufacture of components for safety critical steel air bag inflators at the
Company's plant in New Albany, Mississippi.
Also included in the Engineered Steel Bars segment is a heat treating plant
in Huntington, Indiana ("Heat Treat"), and a plant in Kenosha, Wisconsin, that
improves the wear and corrosion resistance properties of steel bars and tubes
("NitroSteel").
The Heat Treat facility uses custom designed, in-line equipment to provide
tube and bar heat treating and related services, such as quench and temper,
stress relieving, normalizing, "cut-to-length", and metallurgical testing. This
plant serves customers in the energy, automotive, ordnance and mining markets.
The NitroSteel plant processes steel bars and tubes using the patented
Nitrotec treatment to improve corrosion and wear resistance while providing an
environmentally friendly, non-toxic alternative to chrome plating. NitroSteel's
products are made for specific customer applications and sold into fluid power
markets.
Aluminum Mill Sheet Products
The Company's Aluminum Mill Sheet Products segment comprises aluminum sheet
continuous casting operations and cold rolling, annealing, painting, and other
finishing operations through its Nichols Aluminum Division (Nichols).
Nichols manufactures mill finished and coated aluminum sheet for the home
improvement, residential and light commercial construction, transportation,
appliance, and service center markets. The division comprises four plants: a
thin-slab casting and hot rolling mill (NAC) located in Davenport, Iowa, and
three cold rolling and finishing plants located in Davenport, Iowa (NAD),
Lincolnshire, Illinois (NAL), and Decatur, Alabama (NAA).
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NAC's mini-mill uses a single, in-line casting process that can produce 400
million pounds of reroll (hot-rolled aluminum sheet) annually. The mini-mill
converts aluminum scrap to sheet through melting, continuous casting, and
in-line hot rolling processes. NAC has shredding and blending capabilities,
including two rotary barrel furnaces, that broaden its sources of raw material
and allow it to melt lower grades of scrap. Delacquering equipment improves the
quality of the raw material before it reaches the melting furnaces by burning
off combustibles in the scrap. Scrap is blended using computerized processes to
most economically achieve the desired molten aluminum alloy composition. The
molten metal flows into a Hazelett thin-slab caster, which casts an aluminum
slab up to 52 inches wide and .75 inches thick. The slab is fed directly to a
hot mill where three in-line rolling stands reduce the slab to gauges as thin as
.045 inches. This hot rolling process substantially reduces subsequent cold
rolling requirements. NAC also has an efficient, in-house dross recovery system
to improve raw material yields.
The Company believes the combination of capacity increases and
technological enhancements directed at producing higher quality reroll results
in a significant manufacturing advantage with savings derived from reduced raw
material costs, optimized scrap utilization, reduced unit energy cost, reduced
cold rolling requirements and lower labor costs.
Further processing of the reroll occurs at the NAD, NAL or NAA plants,
where customers' specific product requirements can be met through cold rolling
to various gauges, annealing for additional mechanical and formability
properties, tension leveling to improve the flatness of the sheet, and slitting
to specific widths. Products at the NAD and NAA plants can also be custom
painted, an important value-added feature for the applications of certain
customers in building products, transportation, and appliance markets.
Engineered Products
The Company's Engineered Products segment consists of impact extrusion
operations for primarily aluminum and steel products, which are produced at
Piper Impact facilities, and aluminum and steel fabrication operations conducted
at the Fabricated Products Division.
The Piper Impact division comprises Piper Impact, which includes two
impact-extrusion facilities in New Albany, Mississippi, dedicated to steel and
aluminum products, and Piper Impact Europe, with an aluminum impact-extrusion
facility in Zwolle, The Netherlands. Fabricated Products comprises the AMSCO
plant in Rice Lake, Wisconsin, and two Homeshield Fabricated Products ("HFP")
plants in Chatsworth, Illinois, that manufacture precision-formed metal
products.
Piper Impact and Piper Impact Europe are technological leaders in the
manufacture of custom designed, impact extruded aluminum and steel parts for
transportation, electronics, defense, and other commercial applications. Piper
Impact's operations use impact extrusion technology to produce highly
engineered, near-net shaped components from aluminum and steel bar slugs. The
pressure resulting from the impact of the extrusion presses causes metal to flow
into the desired shape. This cost efficient, cold-forming of the metal results
in a high quality, work hardened product with a superior finish. Products may be
further processed with heat treating and precision machining. The parts are then
delivered to customers' assembly lines, requiring little or no additional
processing. The majority of Piper Impact's sales are to one customer, Autoliv
Inc., for use in automotive air bag systems.
During 1997 the Company completed the construction of a greenfield
manufacturing facility in New Albany, Mississippi, for the production of highly
engineered, impact-extruded steel parts. Piper Impact's steel products plant was
part of a two-year, $42 million capital project to provide capacity for new
customer programs primarily for the automotive air bag systems market. This
includes passenger and side-impact air bags, "smart" bags with adjustable
inflation force, and those with alternative inflation technologies. The Company
believes that this project will provide Piper Impact with the technology and
additional capacity for advanced applications, improved customer service, and
cost effective manufacturing processes, thereby improving competitiveness and
long-term growth opportunities.
The Fabricated Products Division manufactures aluminum window and patio
door screens, window frames, and a broad line of custom designed, roll formed
products and stamped shapes for manufacturers of premium wood windows and vinyl
windows for the home improvement, residential, and commercial construction
markets. AMSCO combines strong product design and development expertise with
reliable,
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just-in-time delivery. HFP also coats and/or paints aluminum sheet in many
colors, sizes, and finishes, and it fabricates aluminum coil into rain carrying
systems, soffit, exterior housing trim and roofing products.
RAW MATERIALS AND SUPPLIES
The Company's MACSTEEL plants purchase on the open market their principal
raw material, steel scrap or substitutes such as pig iron, beach iron and hot
briquetted iron. Collection and transportation of these raw materials to Company
plants can be adversely affected by extreme weather conditions. Prices for scrap
also vary in relation to the general business cycle, typically declining in
periods of slow economic activity.
Nichols' principal raw material is aluminum scrap purchased on the open
market, which can also be adversely affected by weather. Nichols purchases and
sells in limited quantities aluminum ingot futures contracts on the London Metal
Exchange to hedge against fluctuations in the price of aluminum scrap required
to manufacture products for fixed-price sales contracts.
In the Engineered Products Group, Piper Impact's raw material consists of
aluminum bars and slugs that it purchases on the open market and steel bars that
it purchases from MACSTEEL. Piper Impact Europe purchases its raw material,
aluminum slugs and steel sheet, on the open market in Europe and in the United
States. Fabricated Products' primary raw material is coated and uncoated
aluminum sheet purchased primarily from Nichols Aluminum.
BACKLOG
At October 31, 1999, Quanex's backlog of orders to be shipped in the next
twelve months was $164.1 million. This compares to $183.8 million at October 31,
1998. Because many of the markets in which Quanex operates have short lead
times, the Company does not believe that backlog figures are reliable indicators
of annual sales volume or operating results.
COMPETITION
The Company's products are sold under highly competitive conditions. Quanex
competes with a number of companies, some of which have greater financial and
other resources. Competitive factors include product quality, price, delivery,
and ability to manufacture to customer specifications. The amounts of engineered
steel bars, aluminum mill sheet products, and engineered products made by the
Company represent a small percentage of annual domestic production.
The Company's engineered bar plants compete primarily with two large
integrated steel producers, two large non-integrated steel producers, and two
smaller companies. Although these producers may be larger and have greater
resources than the Company, Quanex believes that the technology used at MACSTEEL
facilities permits it to compete effectively in the markets it serves.
The Company's aluminum mill sheet businesses compete with many small and
large aluminum sheet manufacturers. Some of these competitors are divisions or
subsidiaries of major corporations with substantially greater resources than the
Company. The Company also competes with major aluminum producers in coil-coated
and mill finished products, primarily on the basis of the breadth of product
lines, the quality and responsiveness of its services, and price.
The Company's Engineered Products Group competes with many small metal
fabricators and impact extruders, primarily on the basis of custom engineering,
quality, service, and price.
SALES AND DISTRIBUTION
The Company's three businesses have sales organizations with sales
representatives in many parts of the U. S. MACSTEEL sells hot rolled and cold
finished engineered steel bars primarily to original equipment manufacturers
(OEMs) through its sales organization and manufacturers' representatives.
Nichols' products are sold directly to OEMs and through metal service centers.
The Company's engineered products are sold primarily to OEMs, except for some
residential building products, which are also sold through distributors.
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SEASONAL NATURE OF BUSINESS
With the exception of impact extrusions, which are not a seasonal business,
the Company's aluminum mill sheet and Fabricated Products businesses are
seasonal. The primary markets of these businesses are in the Northeast and
Midwest regions of the United States, where winter weather reduces homebuilding
and home improvement activity. Historically in these businesses, lowest sales
have occurred during the Company's first fiscal quarter. Profits for the
operations in these businesses tend to be lower in quarters with lower sales
because a high percentage of their manufacturing overhead and operating expense
is due to labor and other costs that are generally fixed throughout the year.
The other businesses in which the Company competes are generally not seasonal.
However, due to the holidays in the Company's first fiscal quarter and steel
plant shutdowns for vacations and maintenance in the Company's third fiscal
quarter, sales have historically been lower in those periods. As a result of
these trends, combined with the effects of seasonality, the Company generally
expects that, absent unusual activity or changes in economic conditions, its
lowest sales will occur in the first fiscal quarter.
SERVICE MARKS, TRADEMARKS, TRADE NAMES, AND PATENTS
The Company's Quanex, Quanex design, Seam-Free design, NitroSteel, MACGOLD,
MACSTEEL, MACSTEEL design, MAC+, Ultra-Bar, Homeshield, Homeshield design, and
"The Best Alloy & Specialty Bars" marks are registered trademarks or service
marks. The Company's Piper Impact name is used as a service mark, but is not yet
registered in the United States. The trade name Nichols-Homeshield and the
Homeshield and the Homeshield design trademarks are used in connection with the
sale of the Company's aluminum mill sheet products and residential building
products. The Homeshield, Piper Impact, MACSTEEL and Quanex word and design
marks and associated trade names are considered valuable in the conduct of the
Company's business. The businesses conducted by the Company generally do not
depend upon patent protection. Although the Company holds numerous patents, in
many cases the proprietary technology that the Company has developed for using
the patents is more important than the patents themselves.
RESEARCH AND DEVELOPMENT
Expenditures for research and development of new products or services
during the last three years were not significant. Although not technically
defined as research and development, a significant amount of time, effort and
expense is devoted to custom engineering and qualifying the Company's products
for specific customer applications.
ENVIRONMENTAL MATTERS
As a manufacturer of specialized metal products, Quanex is subject to
extensive laws and regulations concerning the discharge of materials into the
environment and the remediation of chemical contamination. Quanex is required to
make capital and other expenditures on an ongoing basis in order to satisfy such
requirements. The cost of environmental matters has not had a material adverse
effect on Quanex's operations or financial condition in the past, and management
is not aware of any existing conditions that it currently believes are likely to
have a material adverse effect on Quanex's operations or financial condition.
Under applicable state and federal laws, the Company may be responsible
for, among other things, all or part of the costs required to remove or
remediate wastes or hazardous substances at locations Quanex has owned or
operated at any time. The Company is currently participating in environmental
assessments and remediation at a number of those locations.
From time to time, Quanex also has been alleged to be liable for all or
part of the costs incurred to clean up third-party sites where it is alleged to
have arranged for disposal of hazardous substances. The Company's allocable
share of liability at those sites, taking into account the likelihood that other
parties will pay their shares, has not been material to its operations or
financial condition.
Total remediation reserves, at October 31, 1999, for Quanex's current
plants, former operating locations, and disposal facilities were approximately
$20 million. Of that, approximately 80% is allocated to cleanup of historical
soil and groundwater contamination and other corrective measures at a plant
operated by the Company's Piper Impact subsidiary in New Albany, Mississippi.
Depending upon such factors as
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the nature and extent of contamination, the cleanup technologies employed, and
regulatory concurrences, final remediation costs may be more or less than
amounts accrued; however, management believes it has established adequate
reserves for all probable and reasonably estimable remediation liabilities.
Environmental agencies continue to develop regulations implementing the
Federal Clean Air Act. Depending on the nature of the regulations adopted,
Quanex may be required to incur additional capital and other expenditures
sometime in the next several years for air pollution control equipment, to
maintain or obtain operating permits and approvals, and to address other air
emission-related issues. The Company incurred capital expenditures totaling
approximately $20 million between 1996 and 1998 to meet those requirements. That
amount included spending toward a significant upgrade to pollution control
systems at MACSTEEL to ensure compliance with the air standards. Based upon its
analysis and experience to date, Quanex does not believe that its compliance
with Clean Air Act requirements will have a material effect on its operations or
financial condition.
Quanex incurred approximately $7 million and $23 million during fiscal 1999
and 1998, respectively, in expenses and capital expenditures in order to comply
with existing or proposed environmental regulations. The 1998 amount includes
funds spent in connection with a significant upgrade to pollution control
systems at MACSTEEL. The Company estimates spending of approximately $7 million
at various of its facilities during fiscal 2000 for continuing compliance with
environmental regulations. Future expenditures relating to environmental matters
will necessarily depend upon the application to Quanex and its facilities of
future regulations and government decisions. Quanex will continue to have
expenditures in connection with environmental matters beyond 2000, but it is not
possible at this time to reasonably estimate the amount of these expenditures.
EMPLOYEES
At October 31, 1999, the Company employed 3,345 persons. Of the total
employed, 37% were covered by collective bargaining agreements. A five-year
contract was ratified by the United Steel Workers representing 190 employees at
MACSTEEL's Michigan plant as of February 28, 1999. In January 1999, the
production and maintenance employees at the MACSTEEL Arkansas plant voted to
have the United Steel Workers as their bargaining representative. Negotiations
of the first contract are ongoing. On June 30, 2000, the CAO Groot Metaal
collective labor agreement representing 334 employees at Piper Europe will
expire. Negotiations will begin in early calendar year 2000. No other collective
bargaining agreements will expire during the fiscal year ending October 31,
2000.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information on the Company's foreign and domestic operations,
see Note 13 of the Financial Statements contained in this Annual Report on Form
10-K.
8
<PAGE> 11
ITEM 2. PROPERTIES
The following table lists Quanex's principal plants together with their
locations, general character and the industry segment which uses the facility.
Each of the facilities identified as being owned by the Company is free of any
material encumbrance.
<TABLE>
<CAPTION>
SQUARE
LOCATION PLANT FOOTAGE
- -------- ----- -------
<S> <C> <C>
Owned: ENGINEERED STEEL BARS
Fort Smith, Arkansas................................ MACSTEEL 464,000
Jackson, Michigan................................... MACSTEEL 281,000
Huntington, Indiana................................. Heat Treating 96,000
Leased (expires 2009):
Kenosha, Wisconsin.................................. NitroSteel 35,000
Owned: ALUMINUM MILL SHEET PRODUCTS
Lincolnshire, Illinois.............................. Nichols Aluminum 142,000
Davenport, Iowa..................................... Nichols Aluminum 236,000
Davenport, Iowa..................................... Nichols Aluminum Casting 245,000
Leased (4 leases expiring 2003, 2004, 2005 and 2018):
Decatur, Alabama.................................... Nichols Aluminum Alabama 410,000
Owned: ENGINEERED PRODUCTS
Rice Lake, Wisconsin................................ AMSCO 290,800
Chatsworth, Illinois................................ Homeshield Fabricated
Products (two plants) 212,000
New Albany, Mississippi............................. Piper Impact (two plants) 683,000
Zwolle, The Netherlands............................. Piper Impact Europe 110,000
Leased (expires 2010): EXECUTIVE OFFICES
Houston, Texas...................................... Quanex Corporation 21,000
</TABLE>
9
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
On or about May 26, 1999, the federal government filed in the United States
District Court for the Southern District of Texas a complaint and proposed
consent decree with respect to alleged violations of the Clean Water Act by the
Company and Vision Metals, Inc. at the Company's former facility in Rosenberg,
Texas. Among other things, the complaint alleged that during the Company's
ownership the plant had discharged water which contained pollutants at levels
greater than applicable effluent limits, had not appropriately monitored its
discharges, and had not adequately notified the federal Environmental Protection
Agency of exceedances. The Company tendered this matter to Vision Metals for
defense and indemnification pursuant to the purchase agreement by which Vision
Metals acquired the Rosenberg facility and assumed certain environmental
liabilities. Vision Metals accepted the Company's tender without reservation.
Under the consent decree, all of the complaint's allegations against the Company
are to be settled by payment of a civil penalty by Vision Metals in the amount
of $466,421 plus interest payable in three installments. The court approved and
entered the consent decree on or about August 2, 1999. Pursuant to the consent
decree, the first installment of $155,474 plus interest, was paid by Vision
Metals as of December 30, 1999.
On or about September 27, 1999, USEPA Region V sent to the Company's
MACSTEEL Michigan division findings of violation, an administrative order for
compliance, and a request for information pursuant to the Clean Water Act. The
Agency alleged that the plant had violated the terms of its water discharge
permit 236 times since March 1994 and directed the plant to comply with that
permit. To date the Agency has not assessed any penalties for the alleged
violations, but is reserving its rights to do so.
Other than the above matters and proceedings described under Item 1,
"Environmental Matters", there are no material legal proceedings to which
Quanex, its subsidiaries, or their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Quanex's common stock, $.50 par value, is traded on the New York Stock
Exchange, under the ticker symbol: NX. Quarterly stock price information and
annual dividend information for the common stock is as follows:
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK DIVIDENDS 1999 1998 1997 1996 1995
- -------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Quarter Ended:
January............................................... .16 .16 .15 .15 .14
April................................................. .16 .16 .15 .15 .15
July.................................................. .16 .16 .15 .15 .15
October............................................... .16 .16 .16 .15 .15
Total....................................... .64 .64 .61 .60 .59
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY COMMON STOCK SALES PRICE 1999 1998 1997 1996 1995
- ---------------------------------- ----- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
(High & Low) Quarter Ended:
January......................................... 23 7/8 30 7/16 29 1/8 21 1/8 24 5/8
16 13/16 27 1/16 24 1/4 18 20
April........................................... 26 1/4 33 13/16 27 7/8 22 3/8 23 7/8
15 3/8 28 1/2 23 3/8 19 5/8 21
July............................................ 29 32 3/16 34 1/8 23 7/8 26 5/8
25 1/8 27 1/4 25 1/8 19 3/8 22 1/8
October......................................... 27 3/8 27 7/8 36 1/2 28 3/4 26
20 1/8 15 5/8 26 1/4 19 5/8 18 5/8
</TABLE>
The terms of Quanex's revolving credit arrangements with certain banks
limit the total amount of common and preferred stock dividends and other
distributions on such stock. Under the most
10
<PAGE> 13
restrictive test under such credit facilities, the total common stock dividends
the Company may declare and pay is limited to $21 million, plus 50% of
consolidated net income earned after October 31, 1989, adjusted for other
factors as set forth in the credit agreement. As of October 31, 1999, the
aggregate amount available for dividends and other restricted payments under its
credit facilities was approximately $48 million.
There were 5,362 holders of Quanex common stock on record as of December
31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
GLOSSARY OF TERMS
The exact definitions of commonly used financial terms and ratios vary
somewhat among different companies and investment analysts. The following list
gives the definition of certain financial terms that are used in this report:
Capital expenditures: Additions to property, plant and equipment.
Book value per common
share: Stockholders' equity less the stated value of
preferred stock divided by the number of common
shares outstanding.
Asset turnover: Net sales divided by average total assets.
Current ratio: Current assets divided by current liabilities.
Return on investment: The sum of net income and the after-tax effect of
interest expense less capitalized interest divided
by the sum of the averages for long-term debt and
stockholders' equity.
Return on common
stockholders' equity: Net income attributable to common stockholders
divided by average common stockholders' equity.
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL SUMMARY 1994 -- 1999
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
($ THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND EARNINGS
Net sales(1)................................................ 810,094 797,490 746,093 620,069 603,985 435,983
Cost of sales including depreciation........................ 681,799 683,954 644,041 526,886 521,521 376,077
-------- -------- -------- -------- -------- --------
Gross profit................................................ 128,295 113,536 102,052 93,183 82,464 59,906
Piper Impact Restructuring Charge........................... 58,500(2)
Other depreciation and amortization......................... 3,434 5,059 3,669 1,791 1,258 1,266
Selling, general and administrative expenses................ 53,104 47,713 43,375 44,959 33,746 31,893
-------- -------- -------- -------- -------- --------
Operating income............................................ 71,757 2,264 55,008 46,433 47,460 26,747
Percent of net sales........................................ 8.9 0.3 7.4 7.5 7.9 6.1
Other income (expense) -- net............................... 1,383 2,278 1,637 4,544 1,721 2,765
Interest expense -- net..................................... 12,791 10,506 14,002 11,360 8,870 10,178
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary items,
cumulative effect of accounting change, and income from
discontinued
operations................................................ 60,349 (5,964) 42,643 39,617 40,311 19,334
Income taxes (credit)....................................... 21,048 (2,087) 14,925 16,639 16,931 8,120
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations.................... 39,301 (3,877) 27,718 22,978 23,380 11,214
Income from discontinued operations......................... 0 0 5,176 9,912 10,480 7,638
Gain on sale of discontinued operations..................... 0 13,046 36,290
Extraordinary items -- early extinguishment of debt, net of
taxes..................................................... 415 -- -- (2,522) (2,021) --
-------- -------- -------- -------- -------- --------
Net income.................................................. 39,716 9,169 69,184 30,368 31,839 18,852
Percent of net sales........................................ 4.9 1.1(5) 9.3(4) 4.9 5.3 4.3
-------- -------- -------- -------- -------- --------
PER SHARE DATA
Basic Earnings per share:
Income (loss) from continuing operations.................. 2.76 (0.27) 2.01 1.70 1.44 0.40
Income from discontinued operations....................... -- -- 0.37 0.73 0.78 0.57
Gain on sale of discontinued operations................... -- 0.92 2.63 -- -- --
Extraordinary items and cumulative effect of accounting
change.................................................. 0.03 -- -- (0.19) (0.15) --
Net earnings (loss)....................................... 2.79 0.65(5) 5.01 2.24 2.07 0.97
Cash dividends declared..................................... 0.64 0.64 0.61 0.60 0.59 0.56
Book value.................................................. 21.24 19.19 19.13 14.50 12.81 11.04
Average shares outstanding (000)............................ 14,234 14,149 13,807 13,524 13,443 13,342
Market closing price range
High...................................................... 28 15/16 33 1/2 36 1/2 28 5/8 26 27
Low....................................................... 15 1/2 16 23 3/8 18 3/8 18 3/8 16 1/4
-------- -------- -------- -------- -------- --------
FINANCIAL POSITION -- YEAR END
Working capital............................................. 76,247 62,979 52,818 88,238 53,629 100,007
Property, plant and equipment -- net........................ 406,841 395,054 379,071 319,165 233,982 239,642
Other assets................................................ 71,218 69,422 119,738 117,142 55,989 54,736
Total assets................................................ 690,446 674,288 685,705 638,948 466,458 491,329
Noncurrent deferred income taxes............................ 43,910 33,412 48,111 40,454 45,740 39,298
-------- -------- -------- -------- -------- --------
Long-term debt.............................................. 179,121 188,302 201,858 253,513 111,894 107,442
Stockholders' equity........................................ 301,061 272,044 268,823 197,009 172,814 233,883
Total capitalization........................................ 480,182 460,346 470,681 450,522 284,708 341,325
Long-term debt percent of capitalization.................... 37.3 40.9 42.9 56.3 39.3 31.5
-------- -------- -------- -------- -------- --------
OTHER DATA
Asset turnover.............................................. 1.2 1.2 1.1 1.0 1.3 0.9
Current ratio............................................... 1.6 to 1 1.4 to 1 1.4 to 1 1.8 to 1 1.4 to 1 2.0 to 1
Return on average investment -- percent..................... 10.0 3.4(5) 16.7(4) 9.8 11.1 6.9
Return on average common equity -- percent.................. 13.9 3.4(5) 29.7(4) 16.4 17.4 9.0
-------- -------- -------- -------- -------- --------
Working capital provided by operations(3)................... 94,682 82,830 73,321 60,378 57,767 39,326
Depreciation and amortization............................... 45,883 42,400 37,865 36,499 29,062 25,520
Capital expenditures........................................ 60,934 60,936 69,146 34,737 21,629 42,297
Backlog for shipment in next 12 months...................... 164,128 183,847 225,498 123,382 94,464 109,626
-------- -------- -------- -------- -------- --------
Number of stockholders...................................... 5,113 5,720 5,488 3,425 3,659 3,454
Average number of employees................................. 3,393 3,261 2,994 1,950 1,653 1,530
Sales per employee.......................................... 239 245 249 318 365 285
-------- -------- -------- -------- -------- --------
</TABLE>
- ---------------
Note: Several acquisitions and divestitures have been made in the past three
years. See Notes 2 and 3 to the financial statements for a description of these
transactions.
(1) Excludes sales from discontinued operations for the years 1997-1994,
respectively of $187,123, $275,641, $287,210 and $263,331.
(2) During the fourth quarter of 1998, Piper Impact recorded a $58.5 million
non-recurring restructuring charge as the result of impairment as described
by Statement of Financial Accounting Standards No. 121. See Footnote 4 to
the financial statements for further information.
(3) Working capital provided by operations is a supplemental financial
measurement used in the company's business and should not be construed as an
alternative to operating income or cash provided by operating activities
since it excludes the effects of changes in working capital. Working capital
from operations is calculated as income from continuing operations, net of
taxes, adjusted for non-cash and nonrecurring items.
(4) Includes gain on sale of discontinued operations.
(5) Includes effect of Piper Impact's restructuring charge ($58.5 million) and
gain on sale of discontinued operations ($13 million).
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Selected Financial
Data and the Consolidated Financial Statements of the Company and the
accompanying notes.
PRIVATE SECURITIES LITIGATION REFORM ACT
Certain forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could produce
actual results materially different from those anticipated in the
forward-looking statements contained in this report. Such factors include
domestic and international economic activity, prevailing prices of steel and
aluminum scrap and other raw material costs, interest rates, construction
delays, market conditions for the Company's customers, any material changes in
purchases by the Company's principal customers, environmental regulations and
changes in estimates of costs for known environmental remediation projects and
situations, world-wide political stability and economic growth, the Company's
successful implementation of its internal operating plans, performance issues
with key customers, suppliers and subcontractors, and regulatory changes and
legal proceedings. Accordingly, there can be no assurance that the
forward-looking statements contained herein will occur or that objectives will
be achieved.
RESULTS OF OPERATIONS
Overview
Summary Information as % of Sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
DOLLAR % OF DOLLAR % OF DOLLAR % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales....................... $810.1 100% $797.5 100% $746.1 100%
Cost of Sales................. 639.9 79 647.2 81 610.4 82
Selling, general and admin.... 53.1 6 47.7 6 43.4 6
Depreciation and
amortization............... 45.3 6 41.8 5 37.3 5
Restructuring Charge.......... -- -- 58.5 7 -- --
------ ---- ------ ---- ------ ----
Operating Income................ 71.8 9% 2.3 1% 55.0 7%
Interest Expense................ (14.4) (2) (14.9) (2) (17.5) (2)
Capitalized Interest............ 1.6 0 4.4 1 3.5 0
Other, net...................... 1.4 0 2.2 0 1.6 0
Income tax benefit (expense).... (21.1) (2) 2.1 0 (14.9) (1)
------ ---- ------ ---- ------ ----
Income (loss) from continuing
operations.................... $ 39.3 5% $ (3.9) 0% $ 27.7 4%
====== ====== ======
</TABLE>
For the seventh consecutive year, the Company's continuing operations
achieved higher sales from the previous fiscal year. These continued increases
are a result of the Company's growth strategies through internal investments as
well as acquisitions. The Company's internal growth investments, principally at
the MACSTEEL Division and at Piper Impact, Inc. ("Piper Impact") were focused
toward capacity expansions, new product offerings, quality improvements, and
enhanced customer service capabilities.
13
<PAGE> 16
Acquisitions/Divestitures Since October 31, 1996
In April 1997, the Company completed the sale of its LaSalle Steel Company
("LaSalle") subsidiary. LaSalle's results of operations have been classified as
discontinued operations and prior periods have been restated. For business
segment reporting purposes, LaSalle's data was previously classified as "Cold
Finished Steel Bars".
In October 1997, the Company, through its Dutch subsidiary, Piper Impact
Europe B.V. ("Piper Impact Europe"), purchased the net assets of Advanced Metal
Forming C.V., a Dutch limited partnership, for approximately $30 million. The
Company's income statement for the twelve months ended October 31, 1997 does not
include results for Piper Impact Europe.
In December 1997, the Company completed the sale of its tubing operations
("Tubing Operations"), comprised of Michigan Seamless Tube, Gulf States Tube,
and the Tube Group Administrative Office. The results of the Tubing Operations
have been classified as discontinued operations and prior periods have been
restated. For business segment reporting purposes, these businesses were
previously classified as "Steel Tubes". Two small divisions, Heat Treat Division
and NitroSteel Division, which were previously included with this segment, were
retained by the Company and are now included in the Engineered Steel Bars
segment.
In October 1998, the Company acquired the stock of Decatur Aluminum Corp.,
a Decatur, Alabama based aluminum sheet manufacturer for approximately $19
million. The newly acquired company has been renamed Nichols Aluminum-Alabama,
Inc. ("Nichols Aluminum Alabama") in alignment with Quanex's other aluminum mill
sheet businesses in its Nichols Aluminum division. Nichols Aluminum Alabama's
operations include cold rolling aluminum sheet to specific gauge, annealing,
leveling, custom painting and slitting to width.
On December 15, 1999, the Company announced that it had signed a contract
to acquire the assets of Alcoa's Fort Lupton, Colorado-based aluminum sheet
production facility for $8 million plus working capital value which is estimated
at $17 million. Consummation of the sale is subject to government approval.
The acquisition of the Fort Lupton mill will increase the casting,
cold-finishing and value-added painting capacities of Nichols Aluminum, Quanex's
aluminum sheet business. The Fort Lupton mill can produce more than 40-million
pounds annually of high-grade aluminum sheet for a variety of applications,
including beverage cans and other food packaging, home furnishing, and other
consumer durable products.
Business Segments
The Company adopted Statement of Financial Accounting Standards No. 131,
"SFAS 131" for the fiscal year ended 1998. SFAS 131 requires that the Company
disclose certain information about its operating segments where operating
segments are defined as "components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance". Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
Pursuant to SFAS 131, the Company has three reportable segments: engineered
steel bars, aluminum mill sheet products, and engineered products. The
engineered steel bar segment consists of engineered steel bars manufacturing,
steel bar and tube heat treating services and steel bar and tube wear and
corrosion resistant finishing services. The aluminum mill sheet segment
manufactures mill finished and coated aluminum sheet. The engineered products
segment manufactures impact-extruded aluminum and steel parts, aluminum window
and patio door screens, window frames and other roll formed products and stamped
shapes.
14
<PAGE> 17
The following table sets forth selected operating data for the Company's
three business segments:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
1999 1998(4) 1997(4)
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Engineered Steel Bars:
Net sales.......................................... $297,369 $327,296 $319,468
Operating income................................... 60,446 58,908 50,762
Depreciation and amortization...................... 16,293 13,097 13,940
Identifiable assets................................ $241,783 $219,727 $192,937
Aluminum Mill Sheet Products:(1)
Net sales.......................................... $311,763 $266,355 $261,041
Operating income................................... 15,306 7,788 1,753
Depreciation and amortization...................... 12,334 10,670 10,154
Identifiable assets................................ $200,733 $198,596 $163,637
Engineered Products:(2)(3)
Net sales.......................................... $227,362 $230,012 $206,831
Operating income (loss)............................ 12,153 (52,606) 15,444
Depreciation and amortization...................... 16,185 17,928 13,055
Identifiable assets................................ $209,153 $220,161 $281,943
</TABLE>
- ---------------
(1) 1998 results include three weeks of Nichols Aluminum Alabama's operations
acquired October 9, 1998. (See Note 2 to financial statements)
(2) 1997 data does not include the results of Piper Impact Europe. However,
identifiable assets as of October 31, 1997 include Piper Impact Europe,
acquired October 29, 1997. (See Note 2 to financial statements)
(3) During 1998, Piper Impact recorded a $58.5 million non-recurring
restructuring charge as the result of impairment as described by Statement
of Financial Accounting No. 121. This restructuring charge is included in
operating income. (See Note 4 to financial statements)
(4) At the start of fiscal 1999, Quanex changed its inventory valuation method
for measuring segment results from LIFO to FIFO. This change has no impact
on consolidated results, which remain LIFO based. Prior data have not been
restated above. (See footnote 13 to the consolidated financial statements
for further information.)
The engineered steel bar business posted record annual operating income,
benefiting from strong demand in the transportation markets and favorable raw
material costs, which helped to offset softness in other markets. Pricing has
been under intense pressure, and it is expected to continue in the year ahead.
In fiscal 1999, MACSTEEL finished its Phase IV expansion project, doubling
production capacity for MACPLUS cold-finished steel bars, its most premium
value-added product. Work continues on Phase V, which will increase capacity at
MACSTEEL's engineered bar mills and the MACSTEEL Heat Treating Division and will
improve operational efficiency at MACSTEEL NitroSteel.
The aluminum mill sheet business achieved a breakthrough year, consistently
improving its quarterly performance during fiscal 1999. Operating income, which
increased 97% on 17% higher sales was helped by the acquisition of Nichols
Aluminum Alabama and improved spreads from lower aluminum scrap prices as well
as benefits resulting from the Rotary Furnace project at its mini-mill in
Davenport, Iowa. The backlog for the first quarter is seasonally normal with
some pricing pressures and short lead times.
The engineered products business also had significantly improved earnings
on slightly lower sales. Adjusting for the one-time restructuring charge of
$58.5 million recorded at Piper Impact in fiscal 1998 and the resulting lower
amortization, the operating income from the engineered products business
improved by 47% in fiscal 1999. Lower raw material costs, stringent cost
controls and implementation of lean manufacturing techniques contributed to the
success. However, fierce competition in the air bag market will continue to pose
significant challenges for Piper Impact until it can diversify its business in
new markets with new products. The fabricated products businesses, AMSCO and
Homeshield Fabricated
15
<PAGE> 18
Products, continue to expand their markets by leveraging their product design
and engineering expertise to develop applications for new customers.
Outlook
The Company currently expects that the overall business levels for fiscal
2000 should be similar to those experienced during 1999, except for its
engineered products business which is experiencing product mix change resulting
in lower sales. Domestic and global market factors will also impact the Company
and any slowdown in the U.S. economy could affect demand and pricing for many of
the Company's products. Improved financial results will be dependent upon, among
other things, whether the continued strength of the economy can be sustained,
improvements in the markets which the Company serves, successful new product
development efforts at engineered products business and whether the improvements
in the price spreads of aluminum mill sheet products can be sustained.
1999 Compared to 1998
Net Sales -- Consolidated net sales for fiscal 1999 were $810.1 million,
representing an increase of $12.6 million, or 2%, when compared to fiscal 1998.
This increase reflects higher net sales at the aluminum mill sheet business
partially offset by lower net sales at the Company's engineered steel bar and
engineered products businesses. Nichols Aluminum Alabama, which was acquired in
October 1998, contributed a full year of sales in fiscal 1999.
Net sales from the Company's engineered steel bar business for fiscal 1999,
were $297.4 million, representing a decrease of $29.9 million, or 9%, when
compared to fiscal 1998. This decline was principally due to the reduced demand
in some of the durable goods market, inventory adjustments by some customers and
pricing pressures resulting from global sourcing of engineered bars and forged
components.
Net sales for fiscal 1999 from the Company's aluminum mill sheet products
business increased by $45.4 million or 17% to $311.8 million when compared to
fiscal 1998. This increase was largely due to the acquisition of Nichols
Aluminum Alabama in October of 1998.
Net sales from the Company's engineered products business for fiscal 1999
were $227.4 million, representing a decrease of $2.7 million, or 1% from last
year. The decrease was largely due to reduced demand for older generation
aluminum airbag components at the Piper facilities, partially offset by sales of
new non-airbag products as well as increased demand for traditional window and
door products in the Fabricated Products division.
Operating income -- Consolidated operating income for fiscal 1999 was $71.8
million. This represents an increase of $11.0 million, or 18%, when compared to
the operating income in fiscal 1998 of $60.8 million, excluding the one-time
$58.5 million restructuring charge. During fiscal 1999 all business segments had
increased operating income, partially offset by increased expenses at the
corporate office for Year 2000 readiness efforts, relocation expenses and
consulting expenses for systems implementation.
At the start of fiscal year 1999, Quanex changed its inventory valuation
method for measuring segment results from LIFO to FIFO. See Note 13 to the
financial statements for further discussion. This change has no impact on
consolidated results, which remain LIFO based.
Operating income from the Company's engineered steel bar business was $60.4
million for fiscal 1999, representing an increase of $1.5 million, or 3%, when
compared to fiscal 1998. The increase achieved, despite the lower net sales, was
largely due to the higher spreads resulting from lower material prices,
increased sales of value-added products and productivity improvements realized
from the Phase III project completed in 1998. Additionally, approximately $2
million of benefits were realized as a result of an insurance recovery and a
litigation settlement received in fiscal 1999.
Operating income for fiscal 1999 from the Company's aluminum mill sheet
products business was $15.3 million, representing an increase of $7.5 million or
97% from last year. This increase was largely due to higher sales and operating
efficiencies realized from the acquisition of Nichols Aluminum Alabama and
improved spreads resulting from lower aluminum scrap prices as well as benefits
from the new rotary furnaces and the dross recovery system. Also, the operating
income in fiscal 1998 was based on inventory valuation using LIFO method (see
Note 13 to the financial statements).
16
<PAGE> 19
Operating income from the Company's engineered products business was $12.2
million for fiscal 1999. For comparison purposes, fiscal 1998 operating loss of
$52.6 million should be adjusted for the one-time restructuring charge of $58.5
million and the decreased amortization expense of $2.4 million, both recorded at
Piper Impact. When compared to the adjusted operating income of $8.3 million,
fiscal 1999 operating income from the engineered products business represents an
increase of $3.9 million or 47%. The improvement was largely due to lower
material costs and some success at cost management measures.
In addition to the three operating segments mentioned above, operating
expenses for corporate and other for fiscal 1999 were $16.1 million,
representing an increase of $4.3 million over the $11.8 million recorded in
fiscal 1998. Included in corporate and other are the corporate office expenses,
impact of inventory accounting using LIFO method and inter-segment eliminations.
(See notes 8 and 13 to the financial statements regarding LIFO valuation method
of inventory accounting.)
Selling, general and administrative expenses -- Selling, general and
administrative expenses increased by $5.4 million, or 11% in fiscal 1999 as
compared to last year. This increase is largely a result of the acquisition of
Nichols Aluminum Alabama, Year 2000 readiness efforts, relocation expenses and
consulting expenses for system implementations.
Depreciation and amortization -- Depreciation and amortization increased by
$3.5 million, or 8% in fiscal 1999 as compared to last year. The increase is
principally due to increased depreciation at the engineered steel bar and
aluminum mill sheet products businesses for recently completed projects as well
as the inclusion of Nichols Aluminum Alabama, which was acquired in October
1998, partially offset by lower amortization at the engineered products
business.
Interest expense -- Interest expense decreased by $500 thousand in fiscal
1999 primarily resulting from the purchase of $9.7 million face value
subordinated debentures.
Capitalized interest -- Capitalized interest decreased by $2.8 million in
fiscal 1999 as compared to fiscal 1998 primarily due to the completion of
significant capital projects at MACSTEEL during 1998.
Other, net -- "Other, net" decreased by $900 thousand in fiscal 1999 as
compared to last year primarily as a result of reduced investment income on
lower cash balances.
Income from continuing operations -- The Company earned income from
continuing operations of $39.3 million in fiscal 1999. This represents an
increase of $5.2 million or 15% when compared to fiscal 1998 income from
continuing operations of $34.1 million, excluding the restructuring charge. The
increase in fiscal 1999 was principally due to increased operating earnings from
all three business segments of the Company and inclusion of a full year's
earnings from Nichols Aluminum Alabama, which was acquired in October 1998.
Net income -- Fiscal 1999 net income was $39.7 million, compared to $9.2
million for fiscal 1998. Included in net income for fiscal 1999 were $415
thousand of extraordinary items representing net gain on early extinguishment of
debt. Fiscal 1998 net income included an after-tax non-recurring restructuring
charge of $38.0 million at Piper Impact and an after-tax gain of $13.0 million
on the sale of discontinued operations.
1998 Compared to 1997
Net Sales -- Net sales for fiscal 1998 were $797.5 million, representing an
increase of $51.4 million when compared to fiscal 1997. This increase reflects
higher net sales in all three business segments as well as an increase of $14.4
million resulting from sales to discontinued operations which were previously
reflected as intersegment sales and eliminated in 1997. These sales are now
third-party sales and are not eliminated in 1998. Piper Impact Europe, which was
acquired in October 1997, contributed a full year of sales in fiscal 1998.
Net sales for fiscal 1998 from the Company's engineered steel bar business
were $327.3 million, representing an increase of $7.8 million, or 2%, when
compared to fiscal 1997. This increase was primarily attributable to a better
mix of product sales with a higher percentage of MACPLUS and bearing steels.
17
<PAGE> 20
Net sales from the Company's aluminum mill sheets products business for
fiscal 1998 were $266.4 million, representing an increase of $5.3 million, or
2%, when compared to fiscal 1997. This increase was primarily attributable to
strong demand, which yielded a 5% increase in volume.
Net sales from the engineered products group increased $23.2 million to
$230.0 million. The majority of the increase resulted from the addition of Piper
Impact Europe offset by a decrease in net sales at Piper Impact.
Restructuring Charge -- During the year ended October 31, 1998, the Company
recorded a restructuring charge of $58.5 million related to its subsidiary,
Piper Impact.
Components of this special charge include $51.2 million for goodwill
impairment; $6.7 million for impairment of property, plant and equipment; and
$600 thousand for severance benefits to be paid to employees of the Park City,
Utah plant. Piper Impact experienced significant changes in market conditions
and the relationship with its major customer in fiscal 1998, which led to
substantial declines in sales and operating cash flow. Management began an
evaluation of the operations of Piper Impact in August 1998. As a result of this
evaluation, in September 1998, management approved a plan to close the Park
City, Utah facility and move its production to the New Albany, Mississippi
facility.
Due to the significance of the changes discussed above and the decision to
close one of the acquired production facilities, management performed an
evaluation of the recoverability of all of the assets of Piper Impact, excluding
the new steel plant, as described in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management concluded from the results of this
evaluation that a significant impairment of intangible as well as long-lived
assets had occurred. An impairment charge was required because estimated fair
value was less than the carrying value of the assets. Considerable management
judgment is necessary to estimate fair value. Accordingly, actual results could
vary significantly from management's estimates.
The one-time restructuring charge resulted in an after-tax impact on net
income of $38 million or $2.68 per share.
Operating Income -- Consolidated operating income for fiscal 1998 was $2.3
million. Included in operating income was the one-time $58.5 million
restructuring charge discussed above. Operating income excluding this
restructuring charge was $60.8 million, representing an increase of $5.8
million, or 10%, when compared to fiscal 1997. Primary contributing factors to
this increase were: 1) Increased sales and operating income from the engineered
steel bar and aluminum mill sheet business and 2) the inclusion of a full year
of Piper Impact Europe in the engineered products business. These improvements
were partly offset by lower operating income from Piper Impact of the engineered
products business.
Operating income from the Company's engineered steel bar business for
fiscal 1998 was $58.9 million, representing an increase of $8.1 million, or 16%,
when compared to fiscal 1997. This increase was principally due to increased
sales from strong demand in the transportation markets as well as lower material
prices. These results represented a record year for this business.
Operating income from the Company's aluminum mill sheet products business
for fiscal 1998 was $7.8 million, representing an increase of $6.0 million, or
344%, when compared to fiscal 1997. This increase was principally due to
increased volume and net sales accompanied by lower scrap prices. During the
fourth quarter of 1998, this business experienced a turnaround with strong
demand and favorable material costs.
The Company's engineered products business experienced an operating loss of
$52.6 million for fiscal 1998. Included in this loss was the non-recurring
restructuring charge of $58.5 million described above. Operating income for 1998
excluding this restructuring charge was $5.9 million, a decrease of $9.6 million
or 62% from 1997. This decline is largely a result of operating losses
experienced at Piper Impact. While Piper Impact Europe made a solid contribution
in its first full year with the Company, slack demand in Asia and the General
Motors strike adversely affected sales for Piper Impact products in North
American markets. The fabricated products lines within this business showed
modest improvement over fiscal 1997.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses increased in fiscal 1998 by $4.3 million, or 10%,
compared to fiscal 1997. This increase is largely a result of the inclusion of a
full year of Piper Impact Europe, which was not included in 1997.
Depreciation and Amortization -- Depreciation and amortization increased by
$4.5 million in fiscal 1998 compared to fiscal 1997. This increased depreciation
resulted from the inclusion of Piper Impact
18
<PAGE> 21
Europe in 1998 and the increased depreciation at Piper Impact for the steel
products plant partially offset by lower depreciation at the engineered steel
bar business.
Interest Expense and Capitalized Interest -- Interest expense decreased by
$2.6 million compared to fiscal 1997 as a result of reducing bank borrowings
with proceeds received from the sale of LaSalle and the Tubing operations.
Capitalized interest increased by $859 thousand in 1998 compared to 1997
primarily due to Phase III and IV of the MACSTEEL expansion projects.
Other -- "Other, net" consists largely of investment income and remained
relatively constant.
Income From Continuing Operations -- The Company had a loss from continuing
operations of $3.9 million in 1998. Included in this loss was the after-tax
non-recurring restructuring charge of $38.0 million. Income from continuing
operations excluding the restructuring charge was $34.1 million, an improvement
of $6.4 million, or 23%, compared to fiscal 1997. The improvement was
attributable to improved results in the Company's engineered steel bars and
aluminum mill sheet businesses, and the inclusion of a full year of Piper Impact
Europe and lower interest expense. These improvements were partially offset by
lower operating results at Piper Impact. The Company's effective income tax rate
was 35% for fiscal 1998 and 1997.
Income from Discontinued Operations -- Income from discontinued operations,
net of income taxes, for fiscal 1997, was $5.2 million, which consisted of the
Tubing Operations and LaSalle Steel. There was no income from discontinued
operations in fiscal 1998. (See Note 3 to the financial statements)
Net Income -- Fiscal 1998 net income was $9.2 million, compared to $69.2
million for fiscal 1997. Included in net income for fiscal 1998 is an after-tax
non-recurring restructuring charge of $38.0 million and an after-tax gain of
$13.0 million on the sale of discontinued operations. Included in net income for
1997 was an after-tax gain of $36.3 million on the sale of discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
Total capitalization at October 31, 1999 was $490.7 million, consisting of
$189.7 million of debt and $301.0 million of equity. The debt-to-capitalization
ratio at the end of fiscal 1999 was 38.7% compared with 42.4% at the end of
fiscal 1998. The lower debt-to-capitalization ratio results primarily from the
purchase of subordinated debentures.
The Company's principal sources of funds are cash on hand, cash flow from
operations, and borrowings under an unsecured $250 million Revolving Credit and
Term Loan Agreement ("Bank Agreement"). The Bank Agreement currently consists of
a revolving line of credit ("Revolver"). In July 1997, the term loan provisions
of the Bank Agreement expired. The Bank Agreement expires July 23, 2003 and
provides for up to $25 million for standby letters of credit, limited to the
undrawn amount available under the Revolver. As of October 31, 1999, there was
$75 million outstanding under the Revolver. See footnote 11 to the financial
statements for a detailed description of all of the Company's debt instruments,
outstanding balances and aggregate maturities over each of the next five years
and beyond.
The Bank Agreement contains customary affirmative and negative covenants
and requirements to maintain a minimum consolidated tangible net worth, as
defined. The Bank Agreement limits the payment of dividends and certain
restricted investments. At October 31, 1999, retained earnings of approximately
$48 million were available for dividends and other restricted payments. As of
October 31, 1999, the Company was in compliance with all covenants under the
Bank Agreement.
During fiscal 1999, the Company accepted unsolicited block offers to buy
back $9.7 million principal amount of convertible subordinated debentures for
$8.8 million in cash. An after-tax extraordinary gain of $415 thousand was
recorded on these transactions. The outstanding balance of these debentures as
of October 31, 1999 was $73.7 million.
On June 1, 1999, the Company borrowed $3 million through unsecured Scott
County, Iowa Variable Rate Demand Industrial Waste Recycling Revenue Bonds
Series 1999.
At October 31, 1999, the Company had commitments of $15 million for the
purchase or construction of capital assets. The most significant project
included in this total relates to the Company's continued expansions at
MACSTEEL. The Company plans to fund these capital expenditures through cash flow
from operations and, if necessary, additional borrowings.
On December 9, 1999, the Company announced that its Board of Directors
approved a program to repurchase shares of the Company's common stock. Under
terms of the program, the Company may periodically purchase up to a total of 2
million shares of its common stock in the open market or in privately negotiated
transactions. The repurchase plan does not have a time limit, and funds for the
program will be provided from the Company's available working capital and bank
credit line.
19
<PAGE> 22
The Company believes that it has sufficient funds and adequate financial
sources available to meet its anticipated liquidity needs. The Company also
believes that cash flow from operations, cash balances and available borrowings
will be sufficient for the foreseeable future to finance anticipated working
capital requirements, capital expenditures, debt service requirements,
environmental expenditures and dividends.
Operating Activities
Cash provided by operating activities during fiscal 1999 was $77.7 million.
This represents an increase of $13.6 million, or 21%, compared to fiscal 1998.
This increase primarily resulted from 1) increased cash from improved operating
earnings in fiscal 1999 as compared to 1998 and 2) a decreased use of cash for
working capital.
Investment Activities
Net cash used by investment activities in fiscal 1999 was $62.7 million
compared to $39.8 million in fiscal 1998. Fiscal 1998 cash from investing
activities included the acquisition of Decatur Aluminum Corp. and proceeds from
the sale of the Tubing Operations. There were no acquisitions or divestitures in
fiscal 1999. Capital expenditures increased from $58.5 million in 1998 to $60.8
million in 1999. The Company estimates that fiscal 2000 capital expenditures
will approximate $50 million.
Financing Activities
Net cash used by financing activities for fiscal 1999 was $15.4 million,
compared to $24.9 million in the prior year. During fiscal 1999, the Company
used $8.8 million to purchase subordinated debentures, whereas it repaid
approximately $17 million of bank borrowings in fiscal 1998. Dividend payments
amounted to approximately $9 million in both fiscal 1999 and fiscal 1998.
Proceeds from the issuance of stock totaled $1.6 million in fiscal 1999 compared
to $3.2 million in fiscal 1998.
EFFECTS OF INFLATION
Inflation has not had a significant effect on earnings and other financial
statement items.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for the
Company's year ending October 31, 2000. This statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
which defers the effective date of SFAS No. 133 until the Company's year ending
October 31, 2001. The Company will be analyzing SFAS No. 133 to determine what,
if any, impact or additional disclosure requirements this pronouncement will
have.
YEAR 2000
The Company, like other businesses, faced the Year 2000 issue, (also known
as Y2K issue). Many computer systems and equipment with embedded chips or
processors use only two digits to represent the calendar year. This could result
in computational or operational errors as dates are compared across the century
boundary causing possible disruptions in business operations. The Y2K issue
could have occurred at any point in the Company's supply, manufacturing,
processing, distribution, and financial chains.
The Company began addressing the Y2K issue in 1997, with an initial
assessment of Y2K readiness efforts at each of its operating units. Based on
responses from the operating units, a standardized Year 2000 Plan format was
developed. By July 1998, each operating unit had developed a Year 2000 Plan that
included:
a) inventory,
b) assessment,
c) remediation and replacement,
d) testing, and
e) third party relationships.
20
<PAGE> 23
The Year 2000 issue was addressed within the Company by its individual
business units, and progress was reported periodically to management. The
Company committed necessary resources to conduct risk assessment and to take
corrective actions, where required.
By the end of November 1999, the Company had assessed, replaced or
remediated, and tested all the critical and non-critical business information
systems. Also, all of the non-information technology (Non-IT) systems were
assessed, tested or vendor certified, and replaced, where necessary. The
Company's business units surveyed approximately 700 major suppliers and 500
major customers for their Year 2000 readiness efforts. Monitoring risk in this
area continued through the fourth quarter of calendar 1999.
Contingency plans were developed to mitigate possible disruption in
business operations that may result from the Year 2000 issue. These plans
included carrying necessary materials and parts inventories, securing
alternative sources of supply, adjusting of facility shutdown and start-up
schedules, development of manual procedures to execute transactions and complete
processes. Once developed, these contingency plans were continually refined, as
additional information became available.
The Company commissioned third party reviews of its Y2K program, assessed
the progress and identified areas where additional resources were needed. As a
result of these reviews, the Company augmented the staff resources working on
the Y2K program to address the requirements that were identified. The Company
also retained a consultant to provide Y2K program coordination support for the
corporate office, and to assist in the audit of readiness efforts at the
business segments.
Year 2000 activities and associated costs were managed within each business
unit. The historical costs of remediation, replacement, testing and other
activities directly connected with Year 2000 issues incurred through the
successful completion of the project were less than $3.0 million. Although the
Company believes that it successfully avoided any significant disruption from
the Year 2000 issue relating to the century rollover, it will continue to
monitor all critical systems for the appearance of delayed complications or
disruptions, problems relating to the leap year and problems encountered through
suppliers, customers and other third parties with whom Quanex deals. Although
these and other unanticipated Year 2000 issues could have an adverse effect on
the results of operations or financial condition of the Company, it is not
possible to anticipate the extent of impact at this time..
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services among the participating countries.
On January 1, 1999, the participating countries adopted the Euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash (banking) transactions. The existing local currencies, or legacy
currencies, will remain legal tender through January 1, 2002. Beginning on
January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the Euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.
At the current time, the Company does not believe that the conversion to
the Euro will have a material impact on its business or its financial
statements.
ITEM 7A. QUANTITATIVE/QUALITATIVE DISCLOSURE
The following discussion of the Company and its subsidiaries' exposure to
various market risks contains "forward looking statements" that involve risks
and uncertainties. These projected results have been prepared utilizing certain
assumptions considered reasonable in light of information currently available to
the Company. Nevertheless, because of the inherent unpredictability of interest
rates, foreign currency rates and metal commodity prices as well as other
factors, actual results could differ materially from those projected in such
forward looking information. For a description of the Company's significant
accounting policies associated with these activities, see Notes 1 and 16 to the
Consolidated Financial Statements.
21
<PAGE> 24
Interest Rate Risk
The Company and its subsidiaries have a Revolving Credit Facility,
Convertible Subordinated Debentures, interest rate swap agreements and other
long-term debt which subject the Company to the risk of loss associated with
movements in market interest rates.
At October 31, 1999 and 1998, the Company had fixed-rate debt totaling $90
and $101 million respectively. This debt is fixed-rate and, therefore, does not
expose the Company to the risk of earnings loss due to changes in market
interest rates (see Notes 11 and 16 to the Company's Consolidated Financial
Statements). The conversion feature of the Company's Subordinated Debentures
makes it impractical to estimate the effect of a hypothetical 10% change in
interest rates. This is due to the high correlation between the market value of
these instruments and the market value of the Company's common stock. In
general, any changes in fair value would impact earnings and cash flows only if
the Company were to reacquire all or a portion of these instruments in the open
market prior to their maturity.
The Company and certain of its subsidiaries' floating-rate obligations
total $99 million at October 31, 1999 and 1998 (see Note 11 to the Company's
Consolidated Financial Statements). The exposure of these obligations to
increases in short-term interest rates is limited by interest rate swap
agreements entered into by the Company. These swap agreements effectively fix
the interest rate on all of the Company's variable rate debt, thus limiting the
potential impact that increasing interest rates would have on earnings. Under
these swap agreements, payments are made based on a fixed rate ($50 million at
7.025%, and $50 million at 6.755%) and received on a LIBOR based variable rate
(6.21% and 5.22% at October 31, 1999 and 1998, respectively). At October 31,
1999 and 1998, the unrealized losses related to the interest rate swap
agreements are $2.0 and $8.5 million. If the floating rates were to change by
10% from October 31 levels, the fair market value of these swaps would change by
approximately $1.9 and $1.7 million as of October 31, 1999 and 1998,
respectively. However, it should be noted that any change in value of these
contracts, real or hypothetical, would be significantly offset by an inverse
change in the value of the underlying hedged item.
Foreign Currency Exchange Rate Risk
The Company is subject to significant exposure from fluctuations in US
Dollar/Dutch Guilder exchange rates. As further described in Note 16 of the
Consolidated Financial Statements, the Company utilizes foreign currency forward
contracts to limit transactional exposure to changes in currency exchange rates.
At October 31, 1999 the Company had no such contracts open as the transactional
exposure was immaterial. As of October 31, 1998, the Company had 11 separate
contracts maturing in monthly increments to purchase an aggregate notional
amount of $4.675 million in foreign currency. These forward contracts did not
extend beyond September 30, 1999. Unrealized pretax gains on these forward
contracts totaled approximately $137 thousand at October 31, 1998. A
hypothetical 10% change in applicable October 31, 1998 forward rates would
increase or decrease the pretax gain by approximately $463 thousand related to
these positions. However, it should be noted that any change in value of these
contracts, real or hypothetical, would be significantly offset by an inverse
change in the value of the underlying hedged item.
In addition, the Company utilizes a range forward zero-cost agreement to
protect its initial equity investment in its Netherlands subsidiary, Piper
Impact Europe. This agreement, which was entered into with a major financial
institution, has a notional value of 30 million guilders. By establishing
minimum and maximum exchange rates, this agreement limits the potential
devaluation of the Company's initial investment in its subsidiary while also
limiting any potential appreciation. If, at the expiration date of the
agreement, the Dutch guilder/US dollar exchange rate is within the range of 1.80
to 2.05, this agreement will expire at no cost to either party. At October 31,
1998, there was no financial statement impact as the exchange rate fell within
the range. At October 31, 1999, the Company booked a gain to stockholder's
equity of $378 thousand. A hypothetical 10% increase in the October 31, 1999 and
1998 exchange rate would result in a positive adjustment to stockholders' equity
of approximately $1.3 million and $10 thousand, respectively. In contrast, a
hypothetical 10% decrease would result in a negative adjustment to stockholder's
equity of approximately $378 thousand and $1.2 million, respectively. However,
it should be noted that any change in the value of this agreement, real or
hypothetical, would be significantly offset by an inverse change in the value of
the underlying hedged position.
22
<PAGE> 25
Commodity Price Risk
In the normal course of business, the Company enters into long-term firm
price aluminum sheet sales contracts. In order to hedge the risk of higher
prices for the anticipated aluminum purchases required to fulfill these
long-term contracts, the Company enters into long futures positions. At October
31, 1999 and 1998, the Company had open futures contracts at fair values of $5.3
and $3.3 million, respectively, and an unrealized gain of $117 thousand and an
unrealized loss of $369 thousand, respectively, on such contracts. These
contracts covered a notional volume of 7,716,170 and 5,511,557 pounds of
aluminum. A hypothetical 10% change from the October 31, 1999 and 1998 average
London Metal Exchange ("LME") ingot price of $.688 and $.60, respectively, per
pound would increase or decrease the unrealized pretax losses related to these
contracts by approximately $530 and $330 thousand, respectively. However, it
should be noted that any change in the value of these contracts, real or
hypothetical, would be significantly offset by an inverse change in the cost of
purchased aluminum scrap.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Quanex Corporation
Houston, Texas
We have audited the accompanying consolidated balance sheets of Quanex
Corporation and subsidiaries as of October 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended October 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Quanex Corporation and
subsidiaries as of October 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Houston, Texas
Date: November 19, 1999
24
<PAGE> 27
RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Quanex Corporation
and subsidiaries were prepared by management, which is responsible for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles and include amounts that are based on
management's best judgments and estimates.
Quanex's system of internal controls is designed to provide reasonable
assurance, at justifiable cost, as to the reliability of financial records and
reporting and the protection of assets. The system of controls provides for
appropriate division of responsibility and the application of policies and
procedures that are consistent with high standards of accounting and
administration. Internal controls are monitored through recurring internal audit
programs and are updated as our businesses and business conditions change.
The Audit Committee, composed solely of outside directors, determines that
management is fulfilling its financial responsibilities by meeting periodically
with management, Deloitte & Touche LLP, and Quanex's internal auditors, to
review internal accounting control and financial reporting matters. The internal
and independent auditors have free and complete access to the Audit Committee.
We believe that Quanex's system of internal controls, combined with the
activities of the internal and independent auditors and the Audit Committee,
provides reasonable assurance of the integrity of our financial reporting.
<TABLE>
<S> <C>
/s/ VERNON E. OECHSLE /s/ TERRY M. MURPHY
Vernon E. Oechsle Terry M. Murphy
Chairman and Chief Executive Officer Vice President -- Finance and
Chief Financial Officer
</TABLE>
25
<PAGE> 28
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and equivalents...................................... $ 25,874 $ 26,279
Accounts and notes receivable, less allowance for doubtful
accounts of $12,154,000 in 1999 and $11,752,000 in
1998................................................... 87,204 85,166
Inventories............................................... 78,463 85,397
Deferred income taxes..................................... 19,146 11,560
Prepaid expenses.......................................... 1,700 1,410
-------- --------
Total current assets.............................. 212,387 209,812
Property, plant and equipment, net.......................... 406,841 395,054
Goodwill, net............................................... 48,990 52,281
Other assets................................................ 22,228 17,141
-------- --------
$690,446 $674,288
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 70,187 $ 75,160
Accrued expense........................................... 54,305 56,125
Current maturities of long-term debt...................... 10,545 12,248
Income taxes payable...................................... 1,103 3,300
-------- --------
Total current liabilities......................... 136,140 146,833
Long-term debt.............................................. 179,121 188,302
Deferred pension credits.................................... 6,691 7,832
Deferred postretirement welfare benefits.................... 7,490 7,092
Deferred income taxes....................................... 43,910 33,412
Other liabilities........................................... 16,033 18,773
-------- --------
Total liabilities................................. 389,385 402,244
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized; issued & outstanding -- none in 1999 and
1998................................................... -- --
Common stock, $.50 par value, 50,000,000 shares
authorized; 14,269,800 shares in 1999 and 14,179,834
shares in 1998 issued.................................. 7,135 7,090
Common stock held by rabbi trust -- 94,606 shares in 1999
and no shares in 1998.................................. (2,322) --
Additional paid-in capital.................................. 110,317 108,624
Retained earnings........................................... 186,867 156,278
Unearned compensation....................................... (171) --
Accumulated other comprehensive income...................... (765) 52
-------- --------
Total stockholders' equity........................ 301,061 272,044
-------- --------
$690,446 $674,288
======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.................................................. $810,094 $797,490 $746,093
Costs and expenses:
Cost of sales............................................ 639,911 647,179 610,412
Selling, general and administrative...................... 53,104 47,713 43,375
Depreciation and amortization............................ 45,322 41,834 37,298
Restructuring charge..................................... -- 58,500 --
-------- -------- --------
Operating income........................................... 71,757 2,264 55,008
Other income (expense):
Interest expense......................................... (14,402) (14,904) (17,541)
Capitalized interest..................................... 1,611 4,398 3,539
Other, net............................................... 1,383 2,278 1,637
-------- -------- --------
Income (loss) from continuing operations before income
taxes and extraordinary gain............................. 60,349 (5,964) 42,643
Income tax benefit (expense)............................... (21,048) 2,087 (14,925)
-------- -------- --------
Income (loss) from continuing operations and before
extraordinary gain....................................... 39,301 (3,877) 27,718
Income from discontinued operations, net of income taxes... -- -- 5,176
Gain on sale of discontinued operations, net of income
taxes.................................................... -- 13,046 36,290
-------- -------- --------
Income before extraordinary gain........................... 39,301 9,169 69,184
Extraordinary gain on early extinguishment of debt, net of
income taxes............................................. 415 -- --
-------- -------- --------
Net income attributable to common stockholders............. $ 39,716 $ 9,169 $ 69,184
======== ======== ========
Earnings per common share:
Basic:
Continuing operations................................. $ 2.76 $ (0.27) $ 2.01
Discontinued operations............................... -- -- 0.37
Gain on sale of discontinued operations............... -- 0.92 2.63
Extraordinary gain.................................... 0.03 -- --
-------- -------- --------
Total basic net earnings......................... $ 2.79 $ 0.65 $ 5.01
======== ======== ========
Diluted:
Continuing operations................................. $ 2.56 $ (0.27) $ 1.90
Discontinued operations............................... -- -- 0.31
Gain on sale of discontinued operations............... -- .92 2.17
Extraordinary gain.................................... 0.03 -- --
-------- -------- --------
Total diluted net earnings....................... $ 2.59 $ 0.65 $ 4.38
======== ======== ========
Weighted average number of shares outstanding
Basic.................................................... 14,234 14,149 13,807
Diluted.................................................. 16,776 14,149 16,725
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK
COMMON STOCK HELD BY ADDITIONAL
YEARS ENDED OCTOBER 31, 1999, ------------------- RABBI PAID-IN RETAINED
1998, AND 1997 SHARES AMOUNT TRUST CAPITAL EARNINGS
- ----------------------------- ---------- ------ ------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1996.... 13,590,400 $6,795 $ 94,251 $ 96,623
Comprehensive income:
Net income................... -- -- -- 69,184
Adjustment for minimum
pension liability (net of
tax expense of $112).......
Foreign currency translation
adjustment.................
Total Comprehensive
income...............
Common dividends ($.61 per
share)..................... -- -- -- (8,422)
Unearned compensation........ -- -- -- --
Other........................ 460,011 230 10,895 (857)
---------- ------ -------- --------
BALANCE AT OCTOBER 31, 1997.... 14,050,411 $7,025 $105,146 $156,528
Comprehensive income:
Net income................... 9,169
Adjustment for minimum
pension liability (net of
tax benefit of $500).......
Foreign currency translation
adjustment.................
Total Comprehensive
income...............
Common dividends ($.64 per
share)..................... (9,059)
Other........................ 129,423 65 3,478 (360)
---------- ------ -------- --------
BALANCE AT OCTOBER 31, 1998.... 14,179,834 $7,090 $108,624 $156,278
Comprehensive income:
Net income................... 39,716
Adjustment for minimum
pension liability (net of
tax expense of $395).......
Foreign currency translation
adjustment.................
Total Comprehensive
income...............
Common dividends ($.64 per
share)..................... (9,124)
Common stock held by Rabbi
Trust...................... (2,322)
Other........................ 89,966 45 1,693 (3)
---------- ------ ------- -------- --------
BALANCE AT OCTOBER 31, 1999.... 14,269,800 $7,135 $(2,322) $110,317 $186,867
<CAPTION>
OTHER COMPREHENSIVE
INCOME
-----------------------
MINIMUM FOREIGN TOTAL
YEARS ENDED OCTOBER 31, 1999, PENSION CURRENCY STOCKHOLDERS'
1998, AND 1997 LIABILITY TRANSLATION OTHER EQUITY
- ----------------------------- --------- ----------- ----- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1996.... $ (475) -- $(185) $197,009
Comprehensive income:
Net income................... 69,184
Adjustment for minimum
pension liability (net of
tax expense of $112)....... 177 177
Foreign currency translation
adjustment................. 422 422
--------
Total Comprehensive
income............... 69,783
Common dividends ($.61 per
share)..................... -- (8,422)
Unearned compensation........ 185 185
Other........................ -- -- -- 10,268
------- ------ ----- --------
BALANCE AT OCTOBER 31, 1997.... $ (298) $ 422 $ 0 $268,823
Comprehensive income:
Net income................... 9,169
Adjustment for minimum
pension liability (net of
tax benefit of $500)....... (782) (782)
Foreign currency translation
adjustment................. 710 710
--------
Total Comprehensive
income............... 9,097
Common dividends ($.64 per
share)..................... (9,059)
Other........................ -- -- -- 3,183
------- ------ ----- --------
BALANCE AT OCTOBER 31, 1998.... $(1,080) $1,132 $ 0 $272,044
Comprehensive income:
Net income................... 39,716
Adjustment for minimum
pension liability (net of
tax expense of $395)....... 618 618
Foreign currency translation
adjustment................. (1,435) (1,435)
--------
Total Comprehensive
income............... 38,899
Common dividends ($.64 per
share)..................... (9,124)
Common stock held by Rabbi
Trust...................... (2,322)
Other........................ (171) 1,564
------- ------ ----- --------
BALANCE AT OCTOBER 31, 1999.... $ (462) $ (303) $(171) $301,061
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income................................................ $ 39,716 $ 9,169 $ 69,184
Adjustments to reconcile net income to cash provided by
operating activities:
Income from discontinued operations (net of taxes)..... -- -- (5,176)
Gain on sale of discontinued operations(net of
taxes)............................................... -- (13,046) (36,290)
Restructuring charge (net of deferred taxes of
$20,475)............................................. -- 38,025 --
Extraordinary gain on early extinguishment of debt..... (638) -- --
Depreciation and amortization.......................... 45,883 42,400 37,865
Deferred income taxes.................................. 10,150 6,059 7,545
Deferred pension and postretirement benefits........... (429) 223 193
Changes in assets and liabilities net of effects from
acquisitions and dispositions:
Decrease (increase) in accounts and notes receivable... (2,665) 3,664 2,957
Decrease (increase) in inventory....................... 6,485 (10,994) 8,898
Increase (decrease) in accounts payable................ (4,648) (2,262) 112
Increase (decrease) in accrued expenses................ (1,510) (346) 2,919
Other, net............................................. (14,656) (8,822) (8,868)
-------- -------- --------
Cash provided by continuing operations............... 77,688 64,070 79,339
Cash provided by discontinued operations............. -- -- 89
-------- -------- --------
Cash provided by operating activities................ 77,688 64,070 79,428
INVESTMENT ACTIVITIES:
Acquisition of Decatur Aluminum Corp., net of cash and
equivalents acquired................................... -- (9,573) --
Acquisition of Advanced Metal Forming, C.V., net of cash
and equivalents acquired............................... -- -- (33,584)
Acquisition of Piper Impact, Inc., net of cash and
equivalents acquired................................... -- -- (5,575)
Net proceeds from sale of LaSalle Steel Company........... -- 1,366 63,900
Net proceeds from sale of the Tubing Operations........... -- 30,068 --
Capital expenditures, net of retirements.................. (60,848) (58,513) (68,916)
Capital expenditures of discontinued operations........... -- -- (3,868)
Other, net................................................ (1,832) (3,168) (1,550)
-------- -------- --------
Cash (used) by investment activities................... (62,680) (39,820) (49,593)
-------- -------- --------
Cash provided by operating and investment activities... 15,008 24,250 29,835
FINANCING ACTIVITIES:
Bank borrowings (repayments), net......................... 1,035 (17,124) (41,828)
Purchase of subordinated debentures....................... (8,799) (1,500) --
Common dividends paid..................................... (9,124) (9,059) (8,422)
Issuance of common stock, net............................. 1,567 3,183 10,453
Other, net................................................ (60) (429) 429
-------- -------- --------
Cash (used) by financing activities.................... (15,381) (24,929) (39,368)
-------- -------- --------
Effect of exchange rate changes on cash and equivalents..... (32) 107 422
-------- -------- --------
Decrease in cash and equivalents............................ (405) (572) (9,111)
Cash and equivalents at beginning of period................. 26,279 26,851 35,962
-------- -------- --------
Cash and equivalents at end of period....................... $ 25,874 $ 26,279 $ 26,851
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Quanex
Corporation and its subsidiaries (the "Company"), all of which are wholly owned.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Scope of Operations
The Company operates primarily in three industry segments: manufacturing of
engineered steel bars, aluminum mill sheet products and engineered products. The
Company's products include engineered steel bars, coiled aluminum sheet (mill
finish and coated), aluminum and steel fabricated products and impact
extrusions. The Company's manufacturing operations are conducted primarily in
the United States.
Revenues
The Company recognizes revenues when products are shipped and the title and
risk of ownership pass to the customer.
Statements of Cash Flows
The Company generally considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Similar investments with original maturities beyond three months are considered
short-term investments. For fiscal years 1999, 1998 and 1997 cash paid for
income taxes was $22,005,000, $20,860,000, and $13,906,000, respectively. These
amounts are before refunds of $1,181,000, $172,000, and $471,000, respectively.
Cash paid for interest for fiscal 1999, 1998 and 1997 was $13,931,000,
$14,404,000, and $17,964,000, respectively.
Inventories
Inventories are valued at the lower of cost or market. The accounting
methods used in valuing the Company's inventories are described in Note 8.
Long-Lived Assets
Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets. The
estimated useful lives of certain categories are as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Land improvements........................................... 10 to 25
Buildings................................................... 10 to 40
Machinery and equipment..................................... 3 to 20
</TABLE>
30
<PAGE> 33
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill represents the excess of the purchase price over the fair value of
acquired companies and is being amortized on a straight line basis over forty
years for the goodwill resulting from the acquisition of Nichols Homeshield in
1989, and over twenty-five years for the goodwill resulting from the
acquisitions of Piper Impact Europe B.V. ("Piper Impact Europe") in 1997 and
Nichols Aluminum Alabama, Inc. in 1998 (See Note 2). Goodwill from the
acquisition of Piper Impact, Inc. ("Piper Impact") in 1996 was being amortized
over 25 years, however, during the fourth quarter of 1998, the balance of
goodwill associated with Piper Impact was written off in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 121. (See Note 4) At
October 31, 1999 and 1998, accumulated amortization was $11,035,000, and
$9,255,000, respectively.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. (See Note 4 -- regarding the impact of this statement.)
Hedging
The Company enters into various derivative instruments to protect itself
from fluctuating prices and rates. The Company uses futures contracts to hedge a
portion of its exposure to price fluctuations of aluminum. Hedging gains and
losses are recognized concurrently with related sales transactions. The Company
enters into interest rate swap agreements, which effectively exchange variable
interest rate debt for fixed interest rate debt. The agreements are used to
reduce the exposure to possible increases in interest rates. The Company enters
into these swap agreements with major financial institutions. The Company uses
foreign currency swap agreements to protect the value of its investment in Piper
Impact Europe as well as to protect itself from currency fluctuations on certain
sales and purchases. The impact of the foreign currency instruments which
protect the investment in Piper Impact Europe are recorded as a foreign currency
translation adjustment in the equity section of the financial statements when
exchange rates go outside of the limits. The gains and losses on the forward
contracts related to the sales and purchases are deferred off-balance sheet and
included as a component of the related transaction when recorded. (See Note 16)
Earnings Per Share Data
Basic earnings per share excludes dilution and is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at year-end exchange rates, and income and expense items are translated
at the average exchange rates for the year. Resulting translation adjustments
are reported as a separate component of stockholders' equity.
31
<PAGE> 34
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts for prior periods have been reclassified in the
accompanying consolidated financial statements to conform to fiscal 1999
presentations.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and displaying of comprehensive income and its components. The Company
has adopted this pronouncement as of October 31, 1999 and the accompanying
consolidated financial statements are presented in accordance with this
statement.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits", which defines new disclosure
requirements for pension and other postretirement benefits in an effort to
facilitate financial analysis by adding useful information and deleting
disclosures that the FASB considers no longer useful. The Company has adopted
this pronouncement as of October 31, 1999 and disclosures required by this
statement have been made in Note 13 for all periods presented.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the Company's year
ending October 31, 2000. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
defers the effective date of SFAS No. 133 until the Company's year ending
October 31, 2001. The Company will be analyzing SFAS No. 133 to determine what,
if any, impact or additional disclosure requirements this pronouncement will
have.
32
<PAGE> 35
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
On October 29, 1997, the Company, through its Dutch subsidiary, Piper
Impact Europe, acquired the net assets of Advanced Metal Forming C.V., a Dutch
limited partnership, for approximately $30 million. Goodwill associated with
Piper Impact Europe is approximately NLG 26 million or $12 million. The income
statement for the year ended October 31, 1997 does not include the operations of
Piper Impact Europe.
Piper Impact Europe produces aluminum impact extrusions and precision steel
stampings for the automotive and electronics industries in Europe and North
America. Piper Impact Europe employs approximately 300 people, and its
manufacturing facilities are located near Zwolle in The Netherlands.
On October 9, 1998, the Company acquired the stock of Decatur Aluminum
Corp., a Decatur, Alabama based coiled aluminum sheet manufacturer for
approximately $19 million. Included in the purchase price was debt totaling $5
million and other specified liabilities for $5 million assumed by the Company.
The newly acquired company has been renamed Nichols Aluminum-Alabama, Inc.
("Nichols Aluminum Alabama"), in alignment with Quanex's other aluminum mill
sheet businesses in its Nichols Aluminum division. Goodwill associated with
Nichols Aluminum Alabama is approximately $10 million. Nichols Aluminum
Alabama's operations include cold rolling aluminum sheet to specific gauge,
annealing, leveling, custom painting and slitting to width.
3. DISCONTINUED OPERATIONS
In April 1997, the Company completed the sale of its LaSalle Steel Company
("LaSalle") subsidiary. The Company recorded an after tax gain on the sale of
$36,290,000 in the second quarter of fiscal 1997. During 1998, an additional
after tax gain of $668,000 was recorded as a result of post-closing adjustments.
LaSalle's results of operations have been classified as discontinued operations
and prior periods have been restated. For business segment reporting purposes,
LaSalle's data was previously reported as the segment "Cold Finished Steel
Bars".
In December 1997, the Company completed the sale of its tubing operations,
comprised of Michigan Seamless Tube, Gulf States Tube, and the Tube Group
Administrative Office ("Tubing Operations"). The sale was effective November 1,
1997. The Company recorded an after tax gain on the sale of $12,378,000 during
fiscal 1998. Included in the gain is an accrual for the Company's best estimate
of potential environmental clean-up costs at one of the discontinued operating
facilities. Results of these operations have been classified as discontinued and
prior periods have been restated. For business segment reporting purposes,
Tubing Operations were previously classified as "Steel Tubes".
Net sales and income from discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
----------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $187,123
Operating income............................................ 7,962
Income tax expense.......................................... (2,786)
Income from discontinued operations......................... $ 5,176
</TABLE>
33
<PAGE> 36
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PIPER IMPACT IMPAIRMENT DISCLOSURE
During the year ended October 31, 1998, the Company recorded a
restructuring charge of $58.5 million related to its subsidiary, Piper Impact.
Components of this special charge include $51.2 million for goodwill
impairment; $6.7 million for impairment of property, plant and equipment; and
$600 thousand for severance benefits to be paid to employees of the Park City,
Utah plant. Piper Impact experienced significant changes in market conditions
and the relationship with its major customer in fiscal 1998, which led to
substantial declines in sales and operating cash flow. Management began an
evaluation of the operations of Piper Impact in August 1998. As a result of this
evaluation, in September 1998, management approved a plan to close the Park
City, Utah facility and move its production to the New Albany, Mississippi
facility. Production ceased at the Utah facility and its operations were
consolidated in Mississippi by May 1999.
Due to the significance of the changes discussed above and the decision to
close one of the acquired production facilities, management performed an
evaluation of the recoverability of all of the assets of Piper Impact, excluding
the new steel plant, as described in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management concluded from the results of this
evaluation that a significant impairment of intangible as well as long-lived
assets had occurred. An impairment charge was required because estimated fair
value was less than the carrying value of the assets. Considerable management
judgment is necessary to estimate fair value. Accordingly, actual results could
vary significantly from management's estimates.
The one-time restructuring charge resulted in an after-tax impact on net
income of $38 million or $2.68 per share.
5. EXTRAORDINARY ITEM
During fiscal 1999, the Company accepted unsolicited block offers to buy
back $9.7 million principal amount of the 6.88% Convertible Subordinated
Debentures for $8.8 million in cash. An after tax extraordinary gain of $415
thousand was recorded on these transactions in the second fiscal quarter of
1999.
34
<PAGE> 37
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EARNINGS PER SHARE
The computational components of basic and diluted earnings per share are as
follows (Shares and dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1999
-----------------------------------
NUMERATOR DENOMINATOR PER SHARE
(INCOME) (SHARES) AMOUNT
--------- ----------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations................. $39,301 14,234 $2.76
Extraordinary gain on early extinguishment of
debt........................................... 415 0.03
------- -----
Total basic net income.................... $39,716 $2.79
======= =====
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from
stock options.................................. -- 56
Effect of common stock held by rabbi trust........ -- 16
Effect of conversion of subordinated debentures... 3,663 2,470
------- ------
DILUTED EPS
Income from continuing operations................. 42,964 16,776 $2.56
======
Extraordinary gain on early extinguishment of
debt........................................... 415 0.03
------- -----
Total diluted net income.................. $43,379 $2.59
======= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
NUMERATOR DENOMINATOR PER SHARE
(INCOME) (SHARES) AMOUNT
--------- ----------- ---------
<S> <C> <C> <C>
BASIC EPS
Loss from continuing operations................... $(3,877) 14,149 $(0.27)
Gain on sale of discontinued operations........... 13,046 $ 0.92
------- ------
Total basic net income.................... $ 9,169 $ 0.65
======= ======
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from
stock options(1)............................... -- --
Effect of conversion of subordinated
debentures(1).................................. -- --
------- ------
DILUTED EPS
Loss from continuing operations................... $(3,877) 14,149 $(0.27)
======
Gain on sale of discontinued operations........... 13,046 $ 0.92
------- ------
Total diluted net income.................. $ 9,169 $ 0.65
======= ======
</TABLE>
- ---------------
(1) The effect of both common stock equivalents arising from stock options and
the conversion of subordinated debentures was anti-dilutive.
35
<PAGE> 38
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
-----------------------------------
NUMERATOR DENOMINATOR PER SHARE
(INCOME) (SHARES) AMOUNT
--------- ----------- ---------
<S> <C> <C> <C>
BASIC EPS
Income from continuing operations................. $27,718 13,807 $2.01
Income from discontinued operations............... 5,176 0.37
Gain on sale of discontinued operations........... 36,290 2.63
------- -----
Total basic net income.................... $69,184 $5.01
======= =====
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equivalents arising from
stock options.................................. 222
Effect of conversion of subordinated debentures... $ 3,997 2,696
------- ------
DILUTED EPS
Income from continuing operations................. $31,715 16,725 $1.90
======
Income from discontinued operations............... 5,176 0.31
Gain on sale of discontinued operations........... 36,290 2.17
------- -----
Total diluted net income.................. $73,181 $4.38
======= =====
</TABLE>
36
<PAGE> 39
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Income taxes are provided on taxable income at the statutory rates
applicable to such income.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------
1999 1998 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $17,819 $ 9,312 $ 846
State................................................ 1,066 4,190 2,829
Foreign.............................................. (372) 507 --
------- -------- -------
18,513 14,009 3,675
Deferred............................................... 2,535 (16,096) 11,250
------- -------- -------
Income taxes from continuing operations................ 21,048 (2,087) 14,925
Income taxes from discontinued operations.............. -- -- 2,786
Income taxes from sale of discontinued operations...... -- 3,441 13,178
Income taxes from extinguishment of debt............... 223 -- --
------- -------- -------
Total........................................ $21,271 $ 1,354 $30,889
======= ======== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability:
Property, plant and equipment............................. $ 51,477 $ 44,723
Inventory................................................. (573) (1,161)
Other..................................................... 16,085 16,926
-------- --------
66,989 60,488
-------- --------
Deferred tax assets:
Intangibles............................................... 14,411 19,678
Postretirement benefit obligation......................... 3,345 3,149
Other employee benefit obligations........................ 9,448 9,314
Other..................................................... 15,021 6,495
-------- --------
42,225 38,636
-------- --------
Net deferred tax liability.................................. $ 24,764 $ 21,852
======== ========
Deferred income tax non-current liability................... $ 43,910 $ 33,412
Deferred tax current assets................................. (19,146) (11,560)
-------- --------
Net deferred tax liability................................ $ 24,764 $ 21,852
======== ========
</TABLE>
Deferred taxes have not been provided on the Company's foreign subsidiary's
cumulative undistributed earnings of $241,000, since such amounts are expected
to be reinvested indefinitely. If these earnings were remitted to the Company,
there would be little or no additional federal income tax because of the
availability of foreign tax credits.
37
<PAGE> 40
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) differs from the amount computed by applying
the statutory federal income tax rate to income from continuing operations
before income taxes for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory tax rate...... $21,123 $(2,087) $14,925
Increase (decrease) in taxes resulting from:
State income taxes, net of federal effect............. 1,118 (250) 1,655
Goodwill.............................................. 334 345 334
Other items, net...................................... (1,527) (95) (1,989)
------- ------- -------
$21,048 $(2,087) $14,925
======= ======= =======
</TABLE>
The Company reached a settlement with the Internal Revenue Service with
respect to its tax audit of fiscal years 1992 through 1994. During 1997, the
Company made a payment of $2,016,000 of tax and related interest. Adequate
provisions had been made in prior years and the settlement did not have a
material effect on earnings for fiscal 1997. The Company's 1996 tax year is
currently under audit.
8. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $24,617 $25,167
Finished goods and work in process.......................... 46,958 52,485
------- -------
71,575 77,652
Other....................................................... 6,888 7,745
------- -------
Total............................................. $78,463 $85,397
======= =======
</TABLE>
The values of inventories in the consolidated balance sheets are based on
the following accounting methods:
<TABLE>
<S> <C> <C>
LIFO........................................................ $58,968 $57,594
FIFO........................................................ 19,495 27,803
------- -------
Total............................................. $78,463 $85,397
======= =======
</TABLE>
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $11,300,000 and $12,300,000 at October
31, 1999 and 1998, respectively.
At the beginning of fiscal 1999, Quanex changed its inventory valuation
method for measuring segment results from LIFO to FIFO. The change has no impact
on consolidated results, which remain LIFO based. See Note 13 regarding industry
segment information.
38
<PAGE> 41
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements.................................. $ 18,502 $ 18,376
Buildings................................................... 101,166 100,009
Machinery and equipment..................................... 591,942 545,677
Construction in progress.................................... 42,201 38,893
--------- ---------
753,811 702,955
Less accumulated depreciation and amortization.............. (346,970) (307,901)
--------- ---------
$ 406,841 $ 395,054
========= =========
</TABLE>
The Company had commitments for the purchase or construction of capital
assets amounting to approximately $15 million at October 31, 1999.
10. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued contribution to pension funds....................... $ 1,783 $ 1,125
Interest.................................................... 2,364 2,544
Payroll, payroll taxes and employee benefits................ 28,745 24,497
State and local taxes....................................... 2,288 1,942
Other....................................................... 19,125 26,017
------- -------
$54,305 $56,125
======= =======
</TABLE>
39
<PAGE> 42
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
"Bank Agreement" Revolver................................... $ 75,000 $ 80,000
Convertible subordinated debentures......................... 73,720 83,420
Piper Impact Europe "Credit Facility"....................... 22,703 22,363
Industrial Revenue and Economic Development Bonds,
unsecured, payable in annual installments through the year
2005, bearing interest ranging from 6.50% to 8.375%....... 3,275 3,275
State of Alabama Industrial Development Bonds............... 4,755 4,755
Scott County, Iowa Industrial Waste Recycling Revenue
Bonds..................................................... 3,000 --
Other....................................................... 7,213 6,737
-------- --------
$189,666 $200,550
Less maturities due within one year included in current
liabilities............................................... 10,545 12,248
-------- --------
$179,121 $188,302
======== ========
</TABLE>
In July 1996, the Company entered into an unsecured $250 million Revolving
Credit and Term Loan Agreement ("Bank Agreement"). The Bank Agreement consists
of a revolving line of credit ("Revolver"). In July 1997, the term loan
provisions of the Bank Agreement expired. The Bank Agreement expires July 23,
2003, and provides for up to $25 million for standby letters of credit, limited
to the undrawn amount available under the Revolver. All borrowings under the
Revolver bear interest, at the option of the Company, at either (a) the prime
rate or the federal funds rate plus one percent, whichever is higher, or (b) a
Eurodollar based rate. At October 31, 1999 and 1998, the Company had $75 and $80
million, respectively, outstanding under the Revolver. The weighted average
interest rates on borrowings under the Revolver were 5.7%, 6.2%, and 6.6% in
1999, 1998 and 1997, respectively. As of October 31, 1999, the Company was in
compliance with all Bank Agreement covenants. Under the Company's most
restrictive loan covenants, retained earnings of approximately $48 million at
October 31, 1999 were available for dividends and other restricted payments.
On June 30, 1995, the Company exercised its right under the terms of its
Cumulative Convertible Exchangeable Preferred Stock to exchange such stock for
an aggregate of $84,920,000 of its 6.88% Convertible Subordinated Debentures due
June 30, 2007 ("Debentures"). Interest is payable semi-annually on June 30 and
December 31 of each year. The Debentures are subject to mandatory annual sinking
fund payments sufficient to redeem 25% of the Debentures issued on each of June
30, 2005 and June 30, 2006, to retire a total of 50% of the Debentures before
maturity. The Debentures are subordinate to all senior indebtedness of the
Company and are convertible, at the option of the holder, into shares of the
Company's common stock at a conversion price of $31.50 per share.
During fiscal 1999 and 1998, respectively, the Company accepted unsolicited
block offers to buy back $9.7 and $1.5 million, respectively, principal amount
of its Convertible Subordinated Debentures. The outstanding balance as of
October 31, 1999 is $73,720,000.
40
<PAGE> 43
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 28, 1997, Piper Impact Europe executed a stand-alone secured
credit facility ("Credit Facility") providing an initial available credit line
of 50 million Dutch Guilders ("NLG"). The available credit line is reduced each
quarter by the principal payments on the Medium Term Loan described below. At
October 31, 1999, the available credit line was 48 million NLG. At October 31,
1999 and 1998, 1 NLG was equal to .477 and .535 U.S. dollars, respectively. The
Credit Facility consists of a Roll-Over Term Loan, a Medium Term Loan and an
Overdraft Facility. The Roll-Over Term Loan provides NLG 15 million for loan
periods of 1, 2, 3, 6, or 12 months with repayment of outstanding borrowings on
October 27, 2002. Interest is payable on the repayment date at the Amsterdam
Interbank Offering Rate (AIBOR) plus 90 basis points. In the case of a loan
period of twelve months, interest is payable six months after the beginning of
the loan period and on the repayment date. The Medium Term Loan provides NLG 15
million at 6.375% payable quarterly in arrears from March 1, 1998, with
quarterly repayments of principal in equal amounts of NLG 500 thousand
commencing January 1, 1999 through April 1, 2006. The Overdraft Facility
provides an aggregate amount of NLG 20 million to cover overdrafts or up to NLG
15 million of loans for a period of one year, subject to annual renewal.
Overdrafts bear interest at the Bank's published rate for overdraft facilities
plus 1% per annum. Loans under the Overdraft Facility bear interest at AIBOR
plus 45 to 55 basis points. The terms of Overdraft Facility loans are selected
by Piper Impact Europe to be a period of 1, 2, 3, 6, or 12 months. Interest on
overdrafts is paid quarterly in arrears.
Interest on loans under the Overdraft Facility is payable on the repayment
date, however, in the case of a loan period of twelve months, interest is
payable six months after the beginning of the loan period and on the repayment
date. At October 31, 1999, and 1998, Piper Impact Europe had NLG 47.6 and 41.8
million, respectively, outstanding under the Credit Facility. As of October 31,
1999, Piper Impact Europe was in compliance with all Credit Facility covenants.
The State of Alabama Industrial Development bonds were assumed as part of
the Nichols Aluminum Alabama acquisition (See Note 2). These bonds mature August
1, 2004 with interest payable monthly. The bonds bear interest at the weekly
interest rate as determined by the remarketing agent under then prevailing
market conditions to be the minimum interest rate, which, if borne by the Bonds
on the effective date of such rate, would enable the remarketing agent to sell
the Bonds on such business day at a price (without regard to accrued interest)
equal to the principal amount of the bonds. The interest rate, however, may not
exceed 13% per annum. The weekly interest rate during the year ended October 31,
1999 ranged from 2.45% to 4.25%. These bonds are secured by a Letter of Credit.
On June 1, 1999, the Company borrowed $3 million through unsecured Scott
County, Iowa Variable Rate Demand Industrial Waste Recycling Revenue Bonds
Series 1999. The bonds require 15 annual principal payments of $200 thousand
beginning on July 1, 2000. The variable interest rate is established by the
remarketing agent based on the lowest weekly rate of interest that would permit
the sale of the bonds at par, on the basis of prevailing financial market
conditions. Interest is payable on the first business day of each calendar
month. Interest rates on these bonds during the five months that they have been
outstanding in fiscal 1999 have ranged from 3.0% to 4.0%.
Aggregate maturities of long-term debt at October 31, 1999, are as follows
(in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 10,545
2001........................................................ 1,202
2002........................................................ 8,359
2003........................................................ 76,203
2004........................................................ 12,727
Thereafter.................................................. 80,630
--------
$189,666
========
</TABLE>
41
<PAGE> 44
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company has a number of retirement plans covering substantially all
employees. The Company provides both defined benefit and defined contribution
plans. In general, the plant or location of his/her employment determines an
employee's coverage for retirement benefits. The single employer defined benefit
pension plans pay benefits to employees at retirement using formulas based upon
years of service and compensation rates near retirement. The Company's funding
policy is generally to make the minimum annual contributions required by
applicable regulations. The plans invest primarily in marketable equity and debt
securities.
The Company also provides certain healthcare and life insurance benefits
for certain eligible retired employees employed prior to January 1, 1993.
Certain employees may become eligible for those benefits if they reach normal
retirement age while working for the Company. The Company continues to fund
benefit costs on a pay-as-you-go basis; and, for fiscal year 1999, the Company
made benefit payments totaling $348,000, compared to $410,000 and $247,000 in
fiscal 1998 and 1997, respectively.
In fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which revises disclosures
about pension and other postretirement benefits. The following information is
provided in accordance with the requirements of this Statement.
A reconciliation of the beginning benefit obligation to the ending benefit
obligation follows:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------------- ---------------
OCTOBER 31,
-----------------------------------
1999 1998 1999 1998
------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year.......... $27,665 $21,960 $7,984 $6,611
Service cost................................... 2,092 1,832 187 163
Interest cost.................................. 1,978 1,685 541 523
Amendments..................................... 818 38 -- --
Actuarial loss (gain).......................... (2,111) 2,854 (633) 1,103
Benefits paid from plan assets................. (556) (385) (348) (410)
Administrative expenses........................ (298) (321) -- --
Foreign currency translation effect............ (122) -- -- --
Piper Impact Europe benefit obligation......... 1,098 -- -- --
Other.......................................... -- 2 -- (6)
------- ------- ------ ------
Benefit obligation at end of year................ $30,564 $27,665 $7,731 $7,984
======= ======= ====== ======
</TABLE>
A reconciliation of the beginning fair value of plan assets to the ending
fair value of plan assets follows:
<TABLE>
<CAPTION>
PENSION BENEFITS
OCTOBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets at beginning of year.............. $17,692 $16,253
Actual return on plan assets.............................. 2,491 433
Employer contributions.................................... 2,240 1,712
Employee contributions.................................... 47 --
Ins. premiums paid for surviving spouse coverage.......... (15) --
Benefits paid............................................. (556) (385)
Administrative expenses................................... (298) (321)
Foreign currency translation effect....................... (77) --
Piper Impact Europe fair value of plan assets............. 681 --
------- -------
Fair value of plan assets at end of year.................... $22,205 $17,692
======= =======
</TABLE>
42
<PAGE> 45
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the funded status of the plans with the amounts
recognized in the accompanying balance sheets is set forth below:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------------- -----------------
OCTOBER 31,
-------------------------------------
1999 1998 1999 1998
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Funded status.................................. $(8,359) $(9,973) $(7,731) $(7,984)
Unrecognized transition asset.................. (602) (713) -- --
Unrecognized prior service cost................ 1,344 591 -- --
Unrecognized net loss.......................... 1,363 3,683 238 888
Foreign currency translation effect............ (12) -- -- --
Other.......................................... 22 -- 3 4
------- ------- ------- -------
Accrued benefit cost................. (6,244) (6,412) (7,490) (7,092)
Amounts recognized in the Balance Sheet:
Deferred benefit credit........................ (6,691) (7,832) (7,490) (7,092)
Accrued contribution to pension................ (1,783) (1,125) -- --
Intangible asset............................... 1,473 774 -- --
Accumulated other comprehensive income......... 757 1,771 -- --
------- ------- ------- -------
Accrued benefit cost................. $(6,244) $(6,412) $(7,490) $(7,092)
</TABLE>
Below is data related to pension plans in which accumulated benefit
obligation exceeds plan assets.
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
---------------- -----------------
OCTOBER 31,
------------------------------------
1999 1998 1999 1998
------ ------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation.................... $7,319 $21,405 $7,731 $7,984
Fair value of plan assets......................... 5,576 17,692 -- --
</TABLE>
Below are the assumptions used.
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------------ ---------------------
OCTOBER 31,
------------------------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Discount rate..................... 7.50% 6.75% 7.50% 7.50% 6.75% 7.50%
Expected return on plan assets.... 10.00% 10.00% 10.00% -- -- --
Rate of compensation increase..... 4.50% 4.00% 4.50% -- -- --
</TABLE>
The assumed health care cost trend rate was 7.5% in 1999, decreasing
uniformly to 5.50% in the year 2003 and remaining level thereafter. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of October 31, 1999 would be increased by
1.85%. The effect of this change on the sum of the service cost and interest
cost would be an increase of 1.44%. If the health care cost trend rate
assumptions were decreased by 1%, the accumulated postretirement benefit
obligation as of October 31, 1999 would be decreased by 1.65%. The effect of
this change on the sum of the service cost and interest cost would be a decrease
of 1.27%.
43
<PAGE> 46
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension costs for the single employer defined benefit pension plans
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost............................................ $ 2,092 $ 1,832 $ 1,371
Interest cost........................................... 1,978 1,685 1,511
Expected return on plan assets.......................... (1,978) (1,670) (1,354)
Amortization of unrecognized transition asset........... (111) (111) (47)
Amortization of unrecognized prior service cost......... 63 25 57
Amortization of unrecognized net loss................... 119 7 33
Other................................................... (63) -- --
------- ------- -------
Net periodic pension cost..................... $ 2,100 $ 1,768 $ 1,571
======= ======= =======
</TABLE>
Net periodic costs for the postretirement benefit plans other than pensions
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost.............................................. $187 $163 $148
Interest cost............................................. 541 523 472
Net amortization and deferral............................. 17 (10) 3
Other..................................................... 2 -- --
---- ---- ----
Net periodic postretirement benefit cost.......... $747 $676 $623
==== ==== ====
</TABLE>
One of the Company's subsidiaries, Piper Impact Europe, participates in two
multi-employer plans. The plans provide defined benefits to substantially all of
Piper Impact Europe's employees. Amounts charged to pension cost and contributed
to the plans as of October 31, 1999 and 1998 totaled approximately NLG 2,021,000
and NLG 1,551,000 or approximately $1,000,000 and $800,000, respectively. There
was no pension cost in 1997 for these plans as Piper Impact Europe was acquired
on October 29, 1997. (See Note 2)
The Company has various defined contribution plans in effect for certain
eligible employees. The Company makes contributions to the plans subject to
certain limitations outlined in the plans. Contributions to these plans were
approximately $3,366,000, $2,978,000, and $2,919,000, during fiscal 1999, 1998,
and 1997, respectively.
The Company has a Supplemental Benefit Plan covering certain key officers
of the Company. Earned vested benefits under the Supplemental Benefit Plan were
approximately $4,829,000, $4,147,000, and $3,724,000 at October 31, 1999, 1998
and 1997, respectively. These benefits are funded with life insurance policies
purchased by the Company.
44
<PAGE> 47
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INDUSTRY SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", for fiscal year ended 1998. SFAS No. 131
requires that the Company disclose certain information about its operating
segments where operating segments are defined as "components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance". Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
Pursuant to SFAS No. 131, the Company has three reportable segments:
engineered steel bars, aluminum mill sheet products, and engineered products.
The Company's previously reported "Aluminum Products Group" has been split into
two segments: "Aluminum Mill Sheet Products" and "Engineered Products". Prior
years' presentation has been restated to conform to the new segment reporting.
The engineered steel bar segment consists of engineered steel bars
manufacturing, steel bar and tube heat treating services and steel bar and tube
wear and corrosion resistant finishing services. The aluminum mill sheet segment
manufactures mill finished and coated aluminum sheet. The engineered products
segment manufactures impact-extruded aluminum and steel parts, aluminum window
and patio door screens, window frames and other roll formed products and stamped
shapes.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies, with the exception of the
inventory valuation method. At the beginning of fiscal year 1999, Quanex changed
its inventory valuation method for measuring segment results from LIFO to FIFO.
This change has no impact on consolidated results, which remain LIFO based.
Prior years' data have not been restated, however, information is provided below
to allow comparability.
The Company accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, that is, at current market prices.
The Company's reportable segments are strategic business divisions that
offer different products and services. These groups are managed separately
because each business requires different expertise and marketing strategies. The
Company evaluates performance based on operating income.
45
<PAGE> 48
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the year-ended October 31, 1999, 12% of the Company's consolidated net
sales were made to one customer. These sales are included in the engineered
products segment.
<TABLE>
<CAPTION>
ALUMINUM
YEAR ENDED ENGINEERED MILL ENGINEERED CORPORATE
OCTOBER 31, 1999 STEEL BARS SHEET PRODUCTS PRODUCTS & OTHER(1) CONSOLIDATED
- ---------------- ---------- -------------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated companies........ $292,085 $290,648 $227,361 -- $810,094
Intersegment(2).................. 5,284 21,115 1 (26,400) --
-------- -------- -------- -------- --------
Total.................... $297,369 $311,763 $227,362 $(26,400) $810,094
======== ======== ======== ======== ========
Operating Income (loss)............ $ 60,446 $ 15,306 $ 12,153 $(16,148) $ 71,757
Depreciation and amortization:
Operating........................ $ 16,293 $ 12,313 $ 16,185 $ 531 $ 45,322
Other............................ -- 21 -- 540 561
-------- -------- -------- -------- --------
Total.................... $ 16,293 $ 12,334 $ 16,185 $ 1,071 $ 45,883
======== ======== ======== ======== ========
Capital expenditures(3)............ $ 37,750 $ 9,873 $ 12,628 $ 683 $ 60,934
Identifiable assets................ $241,783 $200,733 $209,153 $ 38,777 $690,446
</TABLE>
- ---------------
(1) Included in "Corporate and Other" are intersegment eliminations, and
corporate expenses.
(2) Intersegment sales are conducted on an arm's-length basis.
(3) Includes capitalized interest.
For the year-ended October 31, 1998, 13% of the Company's consolidated net
sales were made to one customer. These sales are included in the engineered
products segment.
<TABLE>
<CAPTION>
YEAR ENDED ENGINEERED ALUMINUM MILL ENGINEERED CORPORATE
OCTOBER 31, 1998 STEEL BARS SHEET PRODUCTS(1) PRODUCTS(4) & OTHER(2) CONSOLIDATED(4)
- ---------------- ---------- ----------------- ----------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated
companies............... $324,312 $243,168 $230,010 -- $797,490
Intersegment(3)............ 2,984 23,187 2 (26,173) --
-------- -------- -------- -------- --------
Total.............. $327,296 $266,355 $230,012 (26,173) $797,490
======== ======== ======== ======== ========
Operating Income (loss)(6)... $ 58,908 $ 7,788 $(52,606) $(11,826) $ 2,264
Depreciation and
amortization:
Operating.................. $ 13,097 $ 10,670 $ 17,928 $ 139 $ 41,834
Other...................... -- -- -- 566 566
-------- -------- -------- -------- --------
Total.............. $ 13,097 $ 10,670 $ 17,928 $ 705 $ 42,400
======== ======== ======== ======== ========
Capital expenditures(5)...... $ 31,116 $ 13,109 $ 16,442 $ 269 $ 60,936
Identifiable assets(6)....... $219,727 $198,596 $220,161 $ 35,804 $674,288
</TABLE>
- ---------------
46
<PAGE> 49
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) Identifiable assets include Nichols Aluminum Alabama, acquired on October 9,
1998.
(2) Included in "Corporate and Other" are intersegment eliminations, and
corporate expenses.
(3) Intersegment sales are conducted on an arm's-length basis.
(4) Operating income includes mostly non-cash non-recurring restructuring charge
of $58,500. See Note 4.
(5) Includes capitalized interest.
(6) As noted above, at the start of fiscal year 1999, Quanex changed its
inventory valuation method for measuring segment results from LIFO to FIFO.
This change has no impact on consolidated results, which remain LIFO based.
Prior year's data have not been restated above, however, the following
information is provided to allow comparability. The effect of switching to
FIFO method of inventory valuation for segment reporting during 1998 would
have been as follows:
<TABLE>
<CAPTION>
ENGINEERED ALUMINUM MILL ENGINEERED CORPORATE
STEEL BARS SHEET PRODUCTS PRODUCTS AND OTHER CONSOLIDATED
---------- -------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Income --
increase/(decrease).............. (1,100) (5,011) (165) 6,276 0
Identifiable Assets --
increase/(decrease).............. 3,492 0 308 (3,800) 0
</TABLE>
For the year ended October 31, 1997, 13% of the Company's consolidated net
sales were made to one customer. These sales are included in the engineered
products segment.
<TABLE>
<CAPTION>
YEAR ENDED ENGINEERED ALUMINUM MILL ENGINEERED CORPORATE
OCTOBER 31, 1997 STEEL BARS SHEET PRODUCTS PRODUCTS(1) AND OTHER(2) CONSOLIDATED
- ---------------- ---------- -------------- ----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales:
To unaffiliated companies...... $301,436 $237,836 $206,821 -- $746,093
Intersegment(3)................ 18,032 23,205 10 $(41,247) --
-------- -------- -------- -------- --------
Total.................. $319,468 $261,041 $206,831 $(41,247) $746,093
======== ======== ======== ======== ========
Operating Income (loss)(5)....... $ 50,762 $ 1,753 $ 15,444 $(12,951) $ 55,008
Depreciation and amortization:
Operating...................... $ 13,940 $ 10,154 $ 13,055 $ 149 $ 37,298
Other.......................... -- -- -- 567 567
-------- -------- -------- -------- --------
Total.................. $ 13,940 $ 10,154 $ 13,055 $ 716 $ 37,865
======== ======== ======== ======== ========
Capital expenditures(4).......... $ 35,220 $ 5,751 $ 27,830 $ 345 $ 69,146
Identifiable assets(5)........... $192,937 $163,637 $281,943 $ 47,188 $685,705
</TABLE>
- ---------------
(1) Identifiable assets include Advanced Metal Forming C.V., acquired on October
29, 1997.
(2) Included in "Corporate and Other" are intersegment eliminations, corporate
expenses and net assets of discontinued operations.
(3) Intersegment sales are conducted on an arm's-length basis.
(4) Includes capitalized interest.
(5) As noted above, at the start of fiscal year 1999, Quanex changed its
inventory valuation method for measuring segment results from LIFO to FIFO.
This change has no impact on consolidated results, which remain LIFO based.
Prior year's data have not been restated above, however, the following
information is provided to allow comparability. The effect of switching to
FIFO method of inventory valuation for segment reporting during 1997 would
have been as follows:
<TABLE>
<CAPTION>
ENGINEERED ALUMINUM MILL ENGINEERED CORPORATE
STEEL BARS SHEET PRODUCTS PRODUCTS AND OTHER CONSOLIDATED
---------- -------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Income --
increase/(decrease).............. 225 4,171 (71) (4,325) 0
Identifiable Assets --
increase/(decrease).............. 4,592 5,011 473 (10,076) 0
</TABLE>
47
<PAGE> 50
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales(1)
United States............................................. $745,265 $741,067 713,596
Mexico.................................................... 17,183 15,680 17,396
Canada.................................................... 17,825 10,374 11,146
European countries........................................ 24,481 28,501 2,625
Other foreign countries................................... 5,340 1,868 1,330
-------- -------- --------
Total............................................. $810,094 $797,490 $746,093
======== ======== ========
</TABLE>
- ---------------
(1) Net Sales are attributed to countries based on location of customer.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales(2)
United States............................................. $777,441 $763,775 $746,093
The Netherlands........................................... 32,653 33,715 --
-------- -------- --------
$810,094 $797,490 $746,093
======== ======== ========
</TABLE>
- ---------------
(2) Net sales are attributed to countries based on location of operations.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Operating Income (Loss)(4)
United States............................................. $71,774 $ (144)(3) $55,008
The Netherlands........................................... (17) 2,408 --
------- ------ -------
$71,757 $2,264 $55,008
======= ====== =======
</TABLE>
- ---------------
(3) Including the restructuring charge of $58.5 million. (See Note 4)
(4) Operating income (loss) is attributed to countries based on location of
operations.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Identifiable Assets(5)
United States............................................. $648,145 $627,969
The Netherlands........................................... 42,301 46,319
-------- --------
Total............................................. $690,446 $674,288
======== ========
</TABLE>
- ---------------
(5) Identifiable assets are attributed to countries based on location of
operations.
48
<PAGE> 51
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. PREFERRED STOCK PURCHASE RIGHTS
The Company declared a dividend in 1986 of one Preferred Stock Purchase
Right (a "Right") on each outstanding share of its common stock. This action was
intended to assure that all shareholders would receive fair treatment in the
event of a proposed takeover of the Company. On April 26, 1989, the Company
amended the Rights to provide for additional protection to shareholders and to
provide the Board of Directors of the Company with needed flexibility in
responding to abusive takeover tactics. On April 15, 1999, the Second Amended
and Restated Rights Agreement went into effect. Each Right, when exercisable,
entitles the holder to purchase 1/100th of a share of the Company's Series A
Junior Participating Preferred Stock at an exercise price of $90. Each 1/100th
of a share of Series A Junior Participating Preferred Stock will be entitled to
a dividend equal to the greater of $.01 or the dividend declared on each share
of common stock, and will be entitled to 1/100th of a vote, voting together with
the shares of common stock. The Rights will be exercisable only if, without the
Company's prior consent, a person or group of persons acquires or announces the
intention to acquire 20% or more of the Company's common stock. If the Company
is acquired through a merger or other business combination transaction, each
Right will entitle the holder to purchase $120 worth of the surviving company's
common stock for $90. Additionally, if someone acquires 20% or more of the
Company's common stock, each Right not owned by the 20% or greater shareholder
would permit the holder to purchase $120 worth of the Company's common stock for
$90. The Rights are redeemable, at the option of the Company, at $.02 per Right
at any time until ten days after someone acquires 20% or more of the common
stock. The Rights expire April 15, 2009.
As a result of the Rights distribution, 150,000 of the 1,000,000 shares of
authorized Preferred Stock were reserved for issuance as Series A Junior
Participating Preferred Stock.
49
<PAGE> 52
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RESTRICTED STOCK AND STOCK OPTION PLANS
Key Employee Plans:
The Company has restricted stock and stock option plans which provide for
the granting of common shares or stock options to key employees. Under the
Company's restricted stock plan, common stock may be awarded to key employees.
The recipient is entitled to all of the rights of a shareholder, except that
during the forfeiture period the shares are nontransferable. The award vests
during the vesting period based on the price of the Company's stock. Upon
issuance of stock under the plan, unearned compensation equal to the market
value at the date of grant is charged to stockholders' equity and subsequently
amortized to expense over the restricted period. There were 6,000 restricted
shares granted in 1999. There were no restricted shares granted in 1998 or 1997.
No compensation expense was charged in 1999 or 1998 related to the restricted
stock. The amount charged to compensation expense in 1997 was $185,000, relating
to restricted stocks granted in 1994.
Under the Company's option plans, options are granted at prices determined
by the Board of Directors which may not be less than the fair market value of
the shares at the time the options are granted. Unless otherwise provided by the
Board at the time of grant, options 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. There were 276,776, 493,176, and 722,322 shares available for granting of
options at October 31, 1999, 1998, and 1997, respectively. Stock option
transactions for the three years ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
SHARES AVERAGE
SHARES UNDER PRICE
EXERCISABLE OPTION PER SHARE
----------- --------- ---------
<S> <C> <C> <C>
Balance at October 31, 1996.......................... 726,609 1,257,646 $22
-------
Granted............................................ 165,700 29
Exercised.......................................... (323,218) 18
Cancelled.......................................... (13,987) 25
---------
Balance at October 31, 1997.......................... 650,053 1,086,141 24
-------
Granted............................................ 264,550 21
Exercised.......................................... (95,416) 21
Cancelled.......................................... (35,404) 26
---------
Balance at October 31, 1998.......................... 770,075 1,219,871 23
-------
Granted............................................ 240,700 21
Exercised.......................................... (9,000) 15
Cancelled.......................................... (30,300) 24
---------
Balance at October 31, 1999.......................... 966,391 1,421,271 $23
======= =========
</TABLE>
50
<PAGE> 53
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 1, 1992, Carl E. Pfeiffer retired as the Chief Executive Officer
of the Company. In connection with such retirement, the Company replaced options
to purchase 60,000 shares of Common Stock at a weighted average exercise price
of $15.85 held by Mr. Pfeiffer, under the Company's employee stock option plans
with new options having the same exercise prices and expiration dates. Such
options were substantially similar to the options previously held by him with
the exception that vesting was not contingent upon his continued employment with
the Company and the options expired on various dates between October 25, 1999
and October 13, 2001, instead of one year after retirement. During the year
ended October 31, 1997, options for the entire 60,000 shares were exercised at
an average price of $15.85 per share.
Non-Employee Director Plans:
The Company has various non-employee Director plans, which are described
below:
1987 NON-EMPLOYEE DIRECTORS PLAN:
The Company's 1987 Non-employee Directors stock option plan provides for
the granting of stock options to non-employee Directors to purchase up to an
aggregate amount of 100,000 shares of common stock. The plan provides that each
non-employee Director and each future non-employee Director, as of the first
anniversary of the date of his/her election as a Director of the Company, will
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 1998, the Board of Directors passed a resolution,
which reduced the number of options to be granted from 10,000 to 6,000.
Options become exercisable in 33 1/3% increments maturing cumulatively on
each of the first through third anniversaries of the date of the grant and must
be exercised no later than 10 years from the date of grant. No options may be
granted under the plan after June 22, 1997. There were no shares available for
granting of options at October 31, 1999, 1998 or 1997. Stock option transactions
for the three years ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
SHARES AVERAGE
SHARES UNDER PRICE
EXERCISABLE OPTION PER SHARE
----------- ------- ---------
<S> <C> <C> <C>
Balance at October 31, 1996........................... 20,000 40,000 $18
------
Granted............................................. -- --
Exercised........................................... (15,000) 18
Cancelled........................................... -- --
-------
Balance at October 31, 1997........................... 11,666 25,000 18
------
Granted............................................. -- --
Exercised........................................... (5,000) 14
Cancelled........................................... -- --
-------
Balance at October 31, 1998........................... 13,332 20,000 20
------
Granted............................................. -- --
Exercised........................................... -- --
Cancelled........................................... -- --
-------
Balance at October 31, 1999........................... 20,000 20,000 $20
------ -------
</TABLE>
51
<PAGE> 54
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1989 NON-EMPLOYEE DIRECTORS PLAN:
The Company's 1989 Non-employee Directors stock option plan provides for
the granting of stock options to non-employee Directors to purchase up to an
aggregate of 210,000 shares of common stock. Each non-employee Director as of
December 6, 1989 was granted an option to purchase 3,000 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 grant. Also, each non-employee Director who is a
director of the Company on any subsequent October 31, while the plan is in
effect and shares are available for the granting of options hereunder, shall be
granted on such October 31, an option to purchase 3,000 shares of common stock
at a price equal to the fair market value of the common stock as of such October
31. During 1998, the Board of Directors passed a resolution, which decreased the
number of options to be granted annually as prescribed above from 3,000 to
2,000. Options become exercisable at any time commencing six months after the
grant and must be exercised no later than 10 years from the date of grant. No
option may be granted under the plan after December 5, 1999. There were no
shares available for granting of options at October 31, 1999 and 12,000, and
30,000 shares available for granting of options at October 31, 1998 and 1997,
respectively. Stock option transactions for the three years ended October 31,
1999, were as follows:
<TABLE>
<CAPTION>
SHARES AVERAGE
SHARES UNDER PRICE
EXERCISABLE OPTION PER SHARE
----------- ------- ---------
<S> <C> <C> <C>
Balance at October 31, 1996........................... 102,000 123,000 $22
-------
Granted............................................. 21,000 28
Exercised........................................... (30,000) 18
Cancelled........................................... -- --
-------
Balance at October 31, 1997........................... 93,000 114,000 24
-------
Granted............................................. 18,000 17
Exercised........................................... (3,000) 19
Cancelled........................................... -- --
-------
Balance at October 31, 1998........................... 111,000 129,000 23
-------
Granted............................................. 12,000 22
Exercised........................................... (5,000) 16
Cancelled........................................... -- --
-------
Balance at October 31, 1999........................... 124,000 136,000 $23
======= =======
</TABLE>
1997 NON-EMPLOYEE DIRECTORS PLAN:
The Company's 1997 Non-Employee Directors stock option plan provides for
the granting of stock options to non-employee Directors to purchase up to an
aggregate of 400,000 shares of common stock. There are two types of grants under
this plan which are described below:
AUTOMATIC ANNUAL GRANTS
While this plan is in effect and shares are available for the granting of
options hereunder, each non-employee Director who is a director of the Company
on October 31 and who has not received options under the 1989 Non-Employee
Director plan shall be granted on such October 31, an option to purchase such
number of shares of common stock as is determined by the Board of Directors at a
price equal to the fair market value of the common stock as of such October 31.
These options are exercisable in full immediately upon the date of grant.
NEW DIRECTOR GRANTS
While this plan is in effect and shares are available for the granting of
options hereunder, there shall be granted to each non-employee Director who was
not granted an option under the 1987 Non-Employee Director Stock Option Plan as
of the date upon which such director shall have continuously served as a
director of the Company for a period of one year an option to purchase such
number of Quanex Corporation shares of stock as is determined by the Board of
Directors. These Plan options
52
<PAGE> 55
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
become exercisable in 33 1/3% increments maturing cumulatively on each of the
first through third anniversaries of the date of the grant and must be exercised
no later than 10 years from the date of grant.
There were 382,000 shares available for granting of options at October 31,
1999. There were no transactions under this plan through October 31, 1998,
however below is the activity through October 31, 1999:
<TABLE>
<CAPTION>
SHARES AVERAGE
SHARES UNDER PRICE
EXERCISABLE OPTION PER SHARE
----------- ------ ---------
<S> <C> <C> <C>
Balance at October 31, 1998............................ -- -- --
Granted.............................................. 18,000 $21
Exercised............................................ -- --
Cancelled............................................ -- --
------
Balance at October 31, 1999............................ 2,000 18,000 $21
===== ======
</TABLE>
STOCK BASED COMPENSATION
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company continues to apply the rules for stock based compensation contained
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and discloses the required pro forma effect on net income and
earnings per share of the fair value based method of accounting for stock based
compensation as required by SFAS No. 123.
The following pro forma summary of the Company's consolidated results of
operations have been prepared as if the fair value based method of accounting
for stock based compensation as required by SFAS No. 123 had been applied:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income attributable to common stockholders.......... $39,716 $ 9,169 $69,184
SFAS No. 123 adjustment................................. (1,764) (1,495) (995)
------- ------- -------
Pro forma net attributable to common stockholders....... $37,952 $ 7,674 $68,189
======= ======= =======
Earnings per Common share:
Basic as reported..................................... $ 2.79 $ 0.65 $ 5.01
Basic pro forma....................................... $ 2.67 $ 0.54 $ 4.94
Diluted as reported................................... $ 2.59 $ 0.65 $ 4.38
Diluted pro forma..................................... $ 2.48 $ 0.54 $ 4.32
</TABLE>
Fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................... 5.93% 4.49% 5.39%
Dividend yield............................................ 2.80% 3.00% 2.23%
Volatility factor......................................... 40.21% 31.57% 29.83%
Weighted average expected life............................ 5 years 5 years 5 years
</TABLE>
53
<PAGE> 56
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FINANCIAL INSTRUMENTS
The Company uses futures contracts to hedge a portion of its exposure to
price fluctuations of aluminum. The exposure is related to the Company's backlog
of aluminum sales orders with committed prices as well as future aluminum sales
for which a sales price increase would lag a raw material cost increase. Firm
price commitments associated with these futures contracts do not extend beyond
December 2000. Hedging gains and losses are included in "Cost of sales" in the
income statement concurrently with the hedged sales. Unrealized gains and losses
related to open contracts are not reflected in the consolidated statements of
income. At October 31, 1999 and 1998, the Company had open futures contracts at
fair values of $5.3 and $3.3 million, respectively, and an unrealized gain of
$117 thousand and an unrealized loss of $369 thousand, respectively, on such
contracts. At October 31, 1999 and 1998, these contracts covered a notional
volume of 7,716,170 and 5,511,557 pounds of aluminum.
In the fourth quarter of fiscal 1996, the Company entered into interest
rate swap agreements, which effectively converted $100 million of its variable
rate debt under the Bank Agreement, to fixed rate. Under these agreements,
payments are made based on a fixed rate ($50 million at 7.025%, and $50 million
at 6.755%) and received on a LIBOR based variable rate (6.21% at October 31,
1999). Differentials to be paid or received under the agreements are recognized
as interest expense. The agreements mature in 2003. The unrealized losses
related to the interest rate swaps are $2.0 million on October 31, 1999 and $8.5
million on October 31, 1998 on the total notional amount of $100 million for
fiscal 1999 and fiscal 1998.
The Company utilizes foreign currency forward contracts to hedge
identifiable foreign currency commitments associated with transactions in the
regular course of the Company's foreign operations. These forward contracts
establish the exchange rates at which the Company will purchase a contracted
amount of foreign currency for a specified amount of US dollars. At October 31,
1999, there were no open contracts. At October 31, 1998, the Company had 11
separate contracts maturing in monthly increments to purchase an aggregate
notional amount of $4.675 million in foreign currency. Unrealized pretax gains
on these forward contracts totaled approximately $137 thousand at October 31,
1998.
In December 1997, the Company entered into a zero-cost range forward
(foreign currency swap) agreement on a notional value of 30 million Guilders
with a major financial institution to hedge its initial equity investment in its
Netherlands subsidiary, Piper Impact Europe. This agreement limits the Company's
exposure to large fluctuations in the US Dollar/Dutch Guilder exchange rate.
Under the terms of the agreement, Quanex has the option to let the agreement
expire at no cost if the exchange rate remains within an established range on
the expiration date of October 25, 2000. At October 31, 1998, there was no
effect on the financial statements from this agreement as the exchange rate
remained within this range. At October 31, 1999, the Company booked a $378
thousand gain to stockholders' equity's cumulative foreign currency translation
adjustment.
The fair values of the Company's financial assets approximate the carrying
values reported on the consolidated balance sheet. The fair value of long-term
debt was $186.0 million and $190.6 million, as of October 31, 1999 and 1998,
respectively, as compared to carrying values at October 31, 1999 and 1998 of
$189.7 million and $200.6 million, respectively.
The fair value of long-term debt was based on the quoted market price,
recent transactions, or based on rates available to the Company for instruments
with similar terms and maturities. The fair value of interest rate swaps was
estimated by discounting expected cash flows using quoted market interest rates.
The fair value of the aluminum and foreign currency instruments was determined
by obtaining the LME price per pound and the foreign currency translation rates
as of October 31, 1999 and valuing the outstanding notional volumes under the
agreements.
54
<PAGE> 57
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. CONTINGENCIES
Quanex is subject to loss contingencies arising from federal, state, and
local environmental laws. Environmental expenditures are expensed or capitalized
depending on their future economic benefit. The Company accrues its best
estimates of its remediation obligations and adjusts such accruals as further
information and circumstances develop. Those estimates may change substantially
depending on information about the nature and extent of contamination,
appropriate remediation technologies, and regulatory approvals. Costs of future
expenditures for environmental remediation are not discounted to their present
value. When environmental laws might be deemed to impose joint and several
liability for the costs of responding to contamination, the Company accrues its
allocable share of liability taking into account the number of companies
participating, their ability to pay their shares, the volumes and nature of the
wastes involved, the nature of anticipated response actions, and the nature of
the Company's alleged connections. It is management's opinion that the Company
has established appropriate reserves for environmental remediation obligations
at various of its plant sites and disposal facilities. Those amounts are not
expected to have a material adverse effect on the Company's financial condition.
Total remediation reserves, at October 31, 1999, were approximately $20 million.
These reserves include, without limitation, the Company's best estimate of
liabilities related to costs for further investigations, environmental
remediation, and corrective actions related to the acquisition of Piper Impact,
the acquisition of Nichols Aluminum Alabama and a facility previously part of
the former Tubing Operations. Actual cleanup costs at the Company's current
plant sites, former plants, and disposal facilities could be more or less than
the amounts accrued for remediation obligations. It is not possible at this
point to reasonably estimate the amount of any obligation for remediation in
excess of current accruals that would be material to Quanex's financial
statements because of uncertainties as to the extent of environmental impact and
concurrence of governmental authorities.
18. SUBSEQUENT EVENTS
On December 9, 1999, the Company announced that its Board of Directors
approved a program to repurchase shares of the Company's common stock. Under
terms of the program, the Company may periodically purchase up to a total of 2
million shares of its common stock in the open market or in privately negotiated
transactions. The repurchase plan does not have a time limit, and funds for the
program will be provided from the Company's available working capital and bank
credit line.
On December 15, 1999, the Company announced that it had signed a contract
to acquire the assets of Alcoa's Fort Lupton, Colorado-based aluminum sheet
production facility for $8 million plus working capital value which is estimated
at $17 million. Consummation of the sale is subject to government approval.
The acquisition of the Fort Lupton mill will increase the casting,
cold-finishing and value-added painting capacities of Nichols Aluminum, Quanex's
aluminum sheet business. The Fort Lupton mill can produce more than 40-million
pounds annually of high-grade aluminum sheet for a variety of applications,
including beverage cans and other food packaging, home furnishing, and other
consumer durable products.
55
<PAGE> 58
QUANEX CORPORATION
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following sets forth the selected quarterly information for the years
ended October 31, 1999 and 1998.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999:
Net sales.......................................... $183,103 $202,879 $206,619 $217,493
Gross profit....................................... 23,536 32,046 35,048 37,665
Income from continuing operations.................. 3,869 9,777 12,331 13,324
Extraordinary gain................................. -- 415 -- --
Net income......................................... 3,869 10,192 12,331 13,324
Earnings per share:
Basic:
Income from continuing operations............. 0.27 0.69 0.86 0.94
Extraordinary gain............................ -- 0.03 -- --
-------- -------- -------- --------
Net earnings (loss)........................... 0.27 0.72 0.86 0.94
Diluted............................................ $ 0.27 $ 0.66 $ 0.79 $ 0.85
1998:
Net sales.......................................... $180,982 $203,428 $204,854 $208,226
Gross profit....................................... 17,219 27,395 30,876 38,046
Income from continuing operations(1)............... 2,293 7,756 10,285 (24,211)
Gain on sale of discontinued operations............ 13,606 -- -- (560)
Net income(1)...................................... 15,899 7,756 10,285 (24,771)
Earnings per share:
Basic:
Income from continuing operations(1).......... 0.16 0.55 0.73 (1.71)
Gain on sale of discontinued operations....... 0.97 -- -- (0.04)
-------- -------- -------- --------
Net earnings (loss)(1)........................ 1.13 0.55 0.73 (1.75)
Diluted............................................ $ 1.11 $ 0.51 $ 0.66 $ (1.75)
</TABLE>
- ---------------
(1) Includes an after-tax non-recurring restructuring charge of $38,025 or $2.68
per share.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS & END
DESCRIPTION OF YEAR EXPENSES WRITE-OFFS OTHER OF YEAR
- ----------- ---------- ----------- ---------- ----- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended October 31, 1999.............. $11,752 $ 921 $(188) $(331) $12,154
Year ended October 31, 1998.............. $10,338 $1,088 $(202) $ 528 $11,752
Year ended October 31, 1997.............. $ 7,703 $2,674 $( 39) $ -- $10,338
</TABLE>
56
<PAGE> 59
QUANEX CORPORATION
QUARTERLY FINANCIAL RESULTS
(FROM CONTINUING OPERATIONS)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
NET SALES (millions)
January..................................................... 183.10 180.98 167.96
April....................................................... 202.87 203.43 186.00
July........................................................ 206.62 204.85 196.58
October..................................................... 217.50 208.23 195.55
------ ------ ------
Total............................................. 810.09 797.49 746.09
GROSS PROFIT (millions)
January..................................................... 23.54 17.22 20.61
April....................................................... 32.05 27.39 26.14
July........................................................ 35.05 30.88 28.68
October..................................................... 37.66 38.05 26.62
------ ------ ------
Total............................................. 128.30 113.54 102.05
INCOME (LOSS) FROM CONTINUING OPERATIONS (millions)
January..................................................... 3.87 2.29 3.37
April....................................................... 9.78 7.76 7.34
July........................................................ 12.33 10.28 8.61
October(1).................................................. 13.32 (24.21) 8.40
------ ------ ------
Total............................................. 39.30 (3.88) 27.72
INCOME (LOSS) FROM CONTINUING OPERATIONS PER BASIC COMMON
SHARE
January..................................................... .27 .16 .25
April....................................................... .69 .55 .53
July........................................................ .86 .73 .62
October(1).................................................. .94 (1.71) .60
------ ------ ------
Year.............................................. 2.76 (.27) 2.01
QUARTERLY COMMON STOCK DIVIDENDS
January..................................................... .16 .16 .15
April....................................................... .16 .16 .15
July........................................................ .16 .16 .15
October..................................................... .16 .16 .16
------ ------ ------
Total............................................. .64 .64 .61
</TABLE>
<TABLE>
<S> <C> <C> <C>
COMMON STOCK SALES PRICE (High & Low)
January..................................................... 23 7/8 30 7/1 29 1/8
16 13/16 27 1/1 24 1/4
April....................................................... 26 1/4 33 3/1 27 7/8
15 3/8 28 1/2 23 3/8
July........................................................ 29 32 3/1 34 1/8
25 1/8 27 1/4 25 1/8
October..................................................... 27 3/8 27 7/8 36 1/2
20 1/8 15 5/8 26 1/4
</TABLE>
- ---------------
(1) Fiscal 1998 fourth quarter income (loss) from continuing operations includes
an after-tax non-recurring restructuring charge of $38 million or $2.68 per
share.
57
<PAGE> 60
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, information on directors
and executive officers of the Registrant is incorporated herein by reference
from the Registrant's Definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year ended October
31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, information on executive
compensation is incorporated herein by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the close of the fiscal year ended October 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, information on security
ownership of certain beneficial owners and management is incorporated herein by
reference from the Registrant's Definitive Proxy Statement to be filed pursuant
to Regulation 14A within 120 days after the close of the fiscal year ended
October 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, information on certain
relationships and related transactions is incorporated herein by reference from
the Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year ended October 31, 1999.
58
<PAGE> 61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 24
Consolidated Balance Sheets............................... 26
Consolidated Statements of Income......................... 27
Consolidated Statements of Stockholders' Equity........... 28
Consolidated Statements of Cash Flow...................... 29
Notes to Consolidated Financial Statements................ 30
2. Financial Statement Schedule
Schedule II -- Valuation and qualifying accounts.......... 56
Schedules not listed or discussed above have been omitted as
they are either inapplicable or the required information has
been given in the consolidated financial statements or the
notes thereto.
3. Exhibits................................................. 60
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant
dated as of November 10, 1995 filed as Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1995 and incorporated herein by
reference.
*3.2 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant dated as of February 27,
1997.
*3.3 -- Amendment to Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
of the Registrant dated as of April 15, 1999.
*3.4 -- Certificate of Correction of Amendment to Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock dated as of April 16, 1999.
3.5 -- Amended and Restated Bylaws of the Registrant, as amended
through August 26, 1999 filed as Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1999, and incorporated herein by
reference.
4.1 -- Form of Registrant's Common Stock certificate, filed as
Exhibit 4.1 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1987, and
incorporated herein by reference.
4.2 -- Second Amended and Restated Rights agreement dated as of
April 15, 1999, between The Registrant and American Stock
Transfer & Trust Co. as Rights Agent, filed as Exhibit
4.1 to the Registrant's Form 8-K dated April 15, 1999,
and incorporated herein by reference.
4.3 -- Amended and Restated Certificate of Designation,
Preferences and Rights of the Registrant's Series A
Junior Participating Preferred Stock, filed as Exhibit 1
to Amendment No. 1 to the Registrant's Form 8-A dated
April 28, 1989, and incorporated herein by reference.
4.4 -- Form of Indenture relating to the Registrant's 6.88%
Convertible Subordinated Exhibit Debentures due 2007
between the Registrant and Chemical Bank, as Trustee,
filed as 19.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1992, and
incorporated herein by reference.
4.5 -- $250,000,000 Revolving Credit and Term Loan Agreement
dated as of July 23, 1996, among the Company, Comerica
Bank, as Agent, and Harris Trust and Savings Bank and
Wells Fargo Bank (Texas), NA as Co-Agents, filed as
Exhibit 4.1 of the Company's Report on Form 8-K, dated
August 9, 1996, and incorporated herein by reference.
+10.1 -- Quanex Corporation 1988 Stock Option Plan, as amended,
and form of Stock Option year Agreement filed as Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for
the ended October 31, 1988, together with the amendment
filed as Exhibit 10.17 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
*+10.2 -- Amendment to the Quanex Corporation 1988 Stock Option
Plan, dated of December 1997.
*+10.3 -- Amendment to the Quanex Corporation 1988 Stock Option
Plan, dated of December 9, 1999.
*+10.4 -- Quanex Corporation Deferred Compensation Plan, as amended
and restated, dated September 29, 1999.
*+10.5 -- First Amendment to Quanex Corporation Deferred
Compensation Plan, dated December 7, 1999.
</TABLE>
60
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.6 -- Quanex Corporation 1978 Stock Option Plan, as amended,
filed as Exhibit 10.6 to the Annual Report on Form 10-K
for the year ended October 31, 1988, together with the
amendment filed as Exhibit 10.16 of the Registrant's
Quarterly Report Form 10-Q for the quarter ended January
31, 1995, and incorporated herein by reference.
*+10.7 -- Amendment to Quanex Corporation 1978 Stock Option Plan,
dated December 1997.
*+10.8 -- Quanex Corporation Executive Incentive Compensation Plan,
as amended and restated, dated October 12, 1995.
*+10.9 -- Quanex Corporation Supplemental Benefit Plan, as amended
and restated effective June 1, 1999.
*+10.10 -- Form of Change in Control Agreement, between the
Registrant and each executive officer of the Registrant.
+10.11 -- Quanex Corporation Stock Option Loan Plan for Key
Officers, filed as Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1988, and incorporated herein by reference.
+10.12 -- Quanex Corporation 1987 Non-Employee Director Stock
Option Plan, as amended, and the related form of Stock
Option Agreement, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1988, together with the amendment filed
as Exhibit 10.14 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995, and
incorporated herein by reference.
*+10.13 -- Amendment to the Quanex Corporation 1987 Non-Employee
Director Stock Option Plan, dated December 1997.
*+10.14 -- Amendment to the Quanex Corporation 1987 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
+10.15 -- Quanex Corporation 1989 Non-Employee Director Stock
Option Plan, as amended, filed as Exhibit 4.4 of the
Registrant's Form S-8, Registration No. 33-35128,
together with the amendment filed as Exhibit 10.15 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
*+10.16 -- Amendment to the Quanex Corporation 1989 Non-Employee
Director Stock Option Plan, dated December 1997.
*+10.17 -- Amendment to the Quanex Corporation 1989 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
+10.18 -- Quanex Corporation Employee Stock Option and Restricted
Stock Plan, as amended, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1994, and incorporated herein by
reference.
*+10.19 -- Amendment to the Quanex Corporation Employee Stock Option
and Restricted Stock Plan, dated December 1997.
*+10.20 -- Amendment to the Quanex Corporation Employee Stock Option
and Restricted Stock Plan, dated December 9, 1999.
+10.21 -- Retirement Agreement dated as of September 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.22 -- Stock Option Agreement dated as of October 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.23 -- Deferred Compensation Agreement dated as of July 31,
1992, between the Registrant and Carl E. Pfeiffer, filed
as Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.24 -- Quanex Corporation Non-Employee Director Retirement Plan,
filed as Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1994, and
incorporated herein by reference.
+10.25 -- Quanex Corporation 1996 Employee Stock Option and
Restricted Stock Plan, filed as Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1996, and incorporated herein by
reference.
*+10.26 -- Amendment to Quanex Corporation 1996 Employee Stock
Option and Restricted Stock Plan, dated December 1997.
*+10.27 -- Amendment to Quanex Corporation 1996 Employee Stock
Option and Restricted Stock Plan, dated December 9, 1999.
+10.28 -- Quanex Corporation Deferred Compensation Trust filed as
Exhibit 4.8 of the Registrant's Registration Statement on
Form S-3, Registration No. 333-36635, and incorporated
herein by reference.
*+10.29 -- Amendment to Quanex Corporation Deferred Compensation
Trust, dated December 9, 1999.
10.30 -- Quanex Corporation 1997 Non-Employee Director Stock
Option Plan filed as Exhibit 10.21 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1997 and incorporated herein by reference.
*+10.31 -- Amendment to Quanex Corporation 1997 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
10.32 -- Asset Purchase Agreement dated July 31, 1996, among the
Company, Piper Impact, Inc., a Delaware corporation,
Piper Impact, Inc., a Tennessee corporation, B. F.
Sammons And M. W. Robbins, filed as Exhibit 2.1 of the
Company's Report on Form 8-K, dated August 9, 1996, and
incorporated herein by reference.
10.33 -- Stock Purchase Agreement dated April 18, 1997, by and
among Niagara Corporation, Niagara Cold Drawn Corp., and
Quanex Corporation filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated May 5, 1997, and
incorporated herein by reference.
10.34 -- Purchase Agreement dated December 3, 1997, among Quanex
Corporation, Vision Metals Holdings, Inc., and Vision
Metals, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated December 3, 1997, and
incorporated herein by reference.
10.35 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Trailer Company dated
May 1, 1963, filed as Exhibit 10.22 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
10.36 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated May
1, 1964, filed as Exhibit 10.23 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
10.37 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated
October 1, 1965, filed as Exhibit 10.24 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.38 -- Lease Agreement between The Industrial Development Board
of the City of Decatur (Alabama) and Fruehauf Corporation
dated December 1, 1978, filed as Exhibit 10.25 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
10.39 -- Assignment and Assumption Agreement between Fruehauf
Trailer Corporation and Decatur Aluminum Corp.
(subsequently renamed Nichols Aluminum-Alabama, Inc.)
dated October 9, 1998, filed as Exhibit 10.26 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
10.40 -- Agreement between The Industrial Development Board of the
City of Decatur and Decatur Aluminum Corp. (subsequently
renamed Nichols Aluminum-Alabama, Inc.) dated September
23, 1998, filed as Exhibit 10.27 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Deloitte & Touche LLP.
*27 -- Financial Data Schedule
</TABLE>
- ---------------
+ Management Compensation or Incentive Plan
* Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Annual Report on Form 10-K certain instruments defining
the rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the quarter ended
October 31, 1999.
63
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
QUANEX CORPORATION
By: /s/ VERNON E. OECHSLE January 7, 2000
-------------------------------------------------
Vernon E. Oechsle
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ VERNON E. OECHSLE January 7, 2000
-------------------------------------------------
Vernon E. Oechsle
Chairman of the Board and
Chief Executive Officer
By: /s/ JAMES H. DAVIS January 7, 2000
-------------------------------------------------
James H. Davis
President and
Chief Operating Officer
(Principal Operating Officer)
By: /s/ CARL E. PFEIFFER January 7, 2000
-------------------------------------------------
Carl E. Pfeiffer
Director
By: /s/ JOHN D. O'CONNELL January 7, 2000
-------------------------------------------------
John D. O'Connell
Director
By: /s/ DONALD G. BARGER, JR. January 7, 2000
-------------------------------------------------
Donald G. Barger, Jr.
Director
</TABLE>
64
<PAGE> 67
<TABLE>
<S> <C>
By: /s/ VINCENT R. SCORSONE January 7, 2000
-------------------------------------------------
Vincent R. Scorsone
Director
By: /s/ MICHAEL J. SEBASTIAN January 7, 2000
-------------------------------------------------
Michael J. Sebastian
Director
By: /s/ RUSSELL M. FLAUM January 7, 2000
-------------------------------------------------
Russell M. Flaum
Director
By: /s/ SUSAN F. DAVIS January 7, 2000
-------------------------------------------------
Susan F. Davis
Director
By: /s/ TERRY M. MURPHY January 7, 2000
-------------------------------------------------
Terry M. Murphy
Vice President -- Finance and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ VIREN M. PARIKH January 7, 2000
-------------------------------------------------
Viren M. Parikh
Controller
(Principal Accounting Officer)
</TABLE>
65
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant
dated as of November 10, 1995 filed as Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1995 and incorporated herein by
reference.
*3.2 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant dated as of February 27,
1997.
*3.3 -- Amendment to Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
of the Registrant dated as of April 15, 1999.
*3.4 -- Certificate of Correction of Amendment to Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock dated as of April 16, 1999.
3.5 -- Amended and Restated Bylaws of the Registrant, as amended
through August 26, 1999 filed as Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1999, and incorporated herein by
reference.
4.1 -- Form of Registrant's Common Stock certificate, filed as
Exhibit 4.1 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1987, and
incorporated herein by reference.
4.2 -- Second Amended and Restated Rights agreement dated as of
April 15, 1999, between The Registrant and American Stock
Transfer & Trust Co. as Rights Agent, filed as Exhibit
4.1 to the Registrant's Form 8-K dated April 15, 1999,
and incorporated herein by reference.
4.3 -- Amended and Restated Certificate of Designation,
Preferences and Rights of the Registrant's Series A
Junior Participating Preferred Stock, filed as Exhibit 1
to Amendment No. 1 to the Registrant's Form 8-A dated
April 28, 1989, and incorporated herein by reference.
4.4 -- Form of Indenture relating to the Registrant's 6.88%
Convertible Subordinated Exhibit Debentures due 2007
between the Registrant and Chemical Bank, as Trustee,
filed as 19.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1992, and
incorporated herein by reference.
4.5 -- $250,000,000 Revolving Credit and Term Loan Agreement
dated as of July 23, 1996, among the Company, Comerica
Bank, as Agent, and Harris Trust and Savings Bank and
Wells Fargo Bank (Texas), NA as Co-Agents, filed as
Exhibit 4.1 of the Company's Report on Form 8-K, dated
August 9, 1996, and incorporated herein by reference.
+10.1 -- Quanex Corporation 1988 Stock Option Plan, as amended,
and form of Stock Option year Agreement filed as Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for
the ended October 31, 1988, together with the amendment
filed as Exhibit 10.17 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31,
1995, and incorporated herein by reference.
*+10.2 -- Amendment to the Quanex Corporation 1988 Stock Option
Plan, dated of December 1997.
*+10.3 -- Amendment to the Quanex Corporation 1988 Stock Option
Plan, dated of December 9, 1999.
*+10.4 -- Quanex Corporation Deferred Compensation Plan, as amended
and restated, dated September 29, 1999.
*+10.5 -- First Amendment to Quanex Corporation Deferred
Compensation Plan, dated December 7, 1999.
</TABLE>
66
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.6 -- Quanex Corporation 1978 Stock Option Plan, as amended,
filed as Exhibit 10.6 to the Annual Report on Form 10-K
for the year ended October 31, 1988, together with the
amendment filed as Exhibit 10.16 of the Registrant's
Quarterly Report Form 10-Q for the quarter ended January
31, 1995, and incorporated herein by reference.
*+10.7 -- Amendment to Quanex Corporation 1978 Stock Option Plan,
dated December 1997.
*+10.8 -- Quanex Corporation Executive Incentive Compensation Plan,
as amended and restated, dated October 12, 1995.
*+10.9 -- Quanex Corporation Supplemental Benefit Plan, as amended
and restated effective June 1, 1999.
*+10.10 -- Form of Change in Control Agreement, between the
Registrant and each executive officer of the Registrant.
+10.11 -- Quanex Corporation Stock Option Loan Plan for Key
Officers, filed as Exhibit 10.13 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1988, and incorporated herein by reference.
+10.12 -- Quanex Corporation 1987 Non-Employee Director Stock
Option Plan, as amended, and the related form of Stock
Option Agreement, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1988, together with the amendment filed
as Exhibit 10.14 of the Registrant's Quarterly Report on
Form 10-Q For the quarter ended January 31, 1995, and
incorporated herein by reference.
*+10.13 -- Amendment to the Quanex Corporation 1987 Non-Employee
Director Stock Option Plan, dated December 1997.
*+10.14 -- Amendment to the Quanex Corporation 1987 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
+10.15 -- Quanex Corporation 1989 Non-Employee Director Stock
Option Plan, as amended, filed as Exhibit 4.4 of the
Registrant's Form S-8, Registration No. 33-35128,
together with the amendment filed as Exhibit 10.15 of the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1995, and incorporated herein
by reference.
*+10.16 -- Amendment to the Quanex Corporation 1989 Non-Employee
Director Stock Option Plan, dated December 1997.
*+10.17 -- Amendment to the Quanex Corporation 1989 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
+10.18 -- Quanex Corporation Employee Stock Option and Restricted
Stock Plan, as amended, filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1994, and incorporated herein by
reference.
*+10.19 -- Amendment to the Quanex Corporation Employee Stock Option
and Restricted Stock Plan, dated December 1997.
*+10.20 -- Amendment to the Quanex Corporation Employee Stock Option
and Restricted Stock Plan, dated December 9, 1999.
+10.21 -- Retirement Agreement dated as of September 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.22 -- Stock Option Agreement dated as of October 1, 1992,
between the Registrant and Carl E. Pfeiffer, filed as
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the year ended October 31, 1992, and
incorporated herein by reference.
</TABLE>
67
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
+10.23 -- Deferred Compensation Agreement dated as of July 31,
1992, between the Registrant and Carl E. Pfeiffer, filed
as Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1992, and
incorporated herein by reference.
+10.24 -- Quanex Corporation Non-Employee Director Retirement Plan,
filed as Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1994, and
incorporated herein by reference.
+10.25 -- Quanex Corporation 1996 Employee Stock Option and
Restricted Stock Plan, filed as Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1996, and incorporated herein by
reference.
*+10.26 -- Amendment to Quanex Corporation 1996 Employee Stock
Option and Restricted Stock Plan, dated December 1997.
*+10.27 -- Amendment to Quanex Corporation 1996 Employee Stock
Option and Restricted Stock Plan, dated December 9, 1999.
+10.28 -- Quanex Corporation Deferred Compensation Trust filed as
Exhibit 4.8 of the Registrant's Registration Statement on
Form S-3, Registration No. 333-36635, and incorporated
herein by reference.
*+10.29 -- Amendment to Quanex Corporation Deferred Compensation
Trust, dated December 9, 1999.
10.30 -- Quanex Corporation 1997 Non-Employee Director Stock
Option Plan filed as Exhibit 10.21 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1997 and incorporated herein by reference.
*+10.31 -- Amendment to Quanex Corporation 1997 Non-Employee
Director Stock Option Plan, dated December 9, 1999.
10.32 -- Asset Purchase Agreement dated July 31, 1996, among the
Company, Piper Impact, Inc., a Delaware corporation,
Piper Impact, Inc., a Tennessee corporation, B. F.
Sammons And M. W. Robbins, filed as Exhibit 2.1 of the
Company's Report on Form 8-K, dated August 9, 1996, and
incorporated herein by reference.
10.33 -- Stock Purchase Agreement dated April 18, 1997, by and
among Niagara Corporation, Niagara Cold Drawn Corp., and
Quanex Corporation filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated May 5, 1997, and
incorporated herein by reference.
10.34 -- Purchase Agreement dated December 3, 1997, among Quanex
Corporation, Vision Metals Holdings, Inc., and Vision
Metals, Inc., filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated December 3, 1997, and
incorporated herein by reference.
10.35 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Trailer Company dated
May 1, 1963, filed as Exhibit 10.22 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
10.36 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated May
1, 1964, filed as Exhibit 10.23 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
10.37 -- Lease Agreement between The Industrial Development Board
of the City of Decatur and Fruehauf Corporation dated
October 1, 1965, filed as Exhibit 10.24 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
</TABLE>
68
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.38 -- Lease Agreement between The Industrial Development Board
of the City of Decatur (Alabama) and Fruehauf Corporation
dated December 1, 1978, filed as Exhibit 10.25 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
10.39 -- Assignment and Assumption Agreement between Fruehauf
Trailer Corporation and Decatur Aluminum Corp.
(subsequently renamed Nichols Aluminum-Alabama, Inc.)
dated October 9, 1998, filed as Exhibit 10.26 of the
Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998 and incorporated herein by
reference.
10.40 -- Agreement between The Industrial Development Board of the
City of Decatur and Decatur Aluminum Corp. (subsequently
renamed Nichols Aluminum-Alabama, Inc.) dated September
23, 1998, filed as Exhibit 10.27 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1998 and incorporated herein by reference.
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of Deloitte & Touche LLP.
*27 -- Financial Data Schedule
</TABLE>
- ---------------
+ Management Compensation or Incentive Plan
* Filed herewith
69
<PAGE> 1
EXHIBIT 3.2
QUANEX CORPORATION
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
Quanex Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
does hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting duly
called and held on December 12, 1996, adopted resolutions proposing and
declaring advisable the following amendment to the Restated Certificate of
Incorporation of the Company and directed that such amendment be considered at
the next annual meeting of stockholders of the Company:
To amend the first paragraph of Article Fourth of the Restated
Certificate of Incorporation in its entirety to read as follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is Fifty-One
Million (51,000,000), of which Fifty Million (50,000,000) shall be
shares of Common Stock, par value Fifty Cents ($.50) per share, and of
which One Million (1,000,000) shares shall be Preferred Stock, no par
value."
SECOND: That at the annual meeting of stockholders of the Company duly
called and held on February 27, 1997, in accordance with Section 222 of the
General Corporation Law of the State of Delaware, the holders of a majority of
the shares of Common Stock of the Company entitled to vote on such amendment
voted in favor of such amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Amendment to be signed by Wayne M. Rose, its Vice President-Finance and Chief
Financial Officer, this 27th day of February, 1997.
QUANEX CORPORATION
By: /s/ WAYNE M. ROSE
------------------------------------
Wayne M. Rose
Vice President-Finance and
Chief Financial Officer
<PAGE> 1
EXHIBIT 3.3
AMENDMENT TO CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A
JUNIOR PARTICIPATING PREFERRED STOCK OF
QUANEX CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Quanex Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, HEREBY CERTIFIES THAT:
1. By the Certificate of Designation of Series A Participating
Preferred Stock filed as an exhibit to the Restated Certificate of
Incorporation of Quanex Corporation on November 17, 1995 (the "Original
Certificate"), the Corporation created a series of 150,000 shares of
Preferred Stock without par value classified as Series A Junior
Participating Preferred Stock (the "Junior Preferred").
2. No shares of Junior Preferred have been issued.
3. Pursuant to the authority conferred upon the Board of Directors of
this Corporation by the Restated Certificate of Incorporation of the
Corporation and by Section 151 of the General Corporation Law of the
State of Delaware, the Board has authorized certain amendments to the
Original Certificate as set forth in the following duly adopted
resolutions of the Board:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its Restated
Certificate of Incorporation and Section 151 of the General Corporation Law of
the State of Delaware, this Board approves and adopts the following amendments
to the voting power, preferences and relative, participating, optional and other
special rights of the Junior Preferred as set forth in the Certificate of
Designation, Preferences and Rights filed as an exhibit to the Restated
Certificate of Incorporation of Quanex Corporation on November 17, 1995 (the
"Original Certificate") creating the Junior Preferred:
I. Section 2 of the Original Certificate is amended to read as follows:
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred
<PAGE> 2
Stock with respect to dividends, the holders of shares of Series A Junior
Participating Preferred Stock, in preference to the holders of shares of Common
Stock, par value $0.50 per share (the "Common Stock"), of the Corporation and
any other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $1.00, or (b) subject to the
provision for adjustment hereinafter set forth, 1000 times the aggregate per
share amount of all cash dividends, and 1000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any time
after February 28, 1999 (the "Rights Declaration Date") (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
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<PAGE> 3
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
II. Section 6 of the Original Certificate is amended to read as
follows:
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received per share, the greater of 1000 times the
exercise price per Right (as such term is defined in the Second Amended and
Restated Rights Agreement dated as of February , 1999) or 1000 times the
payment made per share of Common Stock, plus an amount equal to accrued
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<PAGE> 4
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 1000 (as appropriately adjusted as set forth in subparagraph
C below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a par
share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Junior Participating Preferred Stock then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event
there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the
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<PAGE> 5
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
III. Section 7 of the Original Certificate is amended to read as
follows:
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
IV. Section 12 of the Original Certificate is hereby added to read as
follows:
Section 12. Conversion. If the Corporation issues shares of Series A
Junior Participating Preferred Stock, or fractions thereof pursuant to Section
11(a)(iii) of the Second Amended and Restated Rights Agreement dated April 15,
1999, between the Company and American Stock Transfer & Trust Co. as Rights
Agent, and thereafter validly authorizes additional shares of Common Stock, the
Corporation shall send written notice to each holder of one one-thousandth of a
share of Series A Junior Participating Preferred Stock stating that the
Corporation has authorized additional
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<PAGE> 6
shares of Common Stock. Any holder of Series A Junior Participating Preferred
Stock may, for a period of sixty days after receipt by the holder of such
notice, require the Corporation to convert each one one-thousandth of a share of
Series A Junior Participating Preferred Stock held by such holder into one share
of Common Stock. To convert shares of Series A Junior Participating Preferred
Stock to shares of Common Stock, the holder must send written notice of the
holder's intent to convert such shares within sixty days after receipt of the
written notice from the Corporation stating that the Corporation has increased
the authorized number of shares of Common Stock, together with the stock
certificates or certificates duly endorsed evidencing such Series A Junior
Participating Preferred Stock. Upon receipt by the Corporation of timely notice
from a holder of Series A Junior Participating Preferred Stock of his intent to
convert his shares of Series A Junior Participating Preferred Stock into shares
of Common Stock, together with the stock certificates or certificates duly
endorsed evidencing such Series A Junior Participating Preferred Stock, the
Corporation must issue one share of Common Stock for every one one-thousandth of
a share of Series A Junior Participating Preferred Stock so converted. If the
Corporation has not authorized a sufficient number of shares of Common Stock to
allow the conversion of every one one-thousandth of a share of Series A Junior
Participating Preferred Stock into one share of Common Stock with respect to
which the Company receives valid requests for conversion, then each holder shall
be entitled to the number of shares of Common Stock equal to the product of
multiplying (i) the number of one one-thousandths of a share of Series A Junior
Participating Preferred Stock with respect to which the holder has validly
requested conversion by (ii) a fraction, the denominator of which is the number
of outstanding one one-thousandths of a share of Series A Junior Participating
Preferred Stock of the Company with respect to which the Company receives valid
requests for conversion, and the numerator of which is the number of unissued,
authorized shares of Common Stock of the Company.
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<PAGE> 7
IN WITNESS HEREOF, Quanex Corporation has caused this Certificate to be
signed by its duly authorized officer as of April 15, 1999..
QUANEX CORPORATION
By: /s/ VIREN M. PARIKH
------------------------------------
Name: Viren M. Parikh
-----------------------------------
Title: Corporate Controller
----------------------------------
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<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF CORRECTION
OF
AMENDMENT TO CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
Pursuant to the provisions of Section 103(f) of the Delaware General
Corporation Law, Quanex Corporation (the "Company") adopts the following
Certificate of Correction:
FIRST: On April 15, 1999, the Company filed with the Secretary of State
of the State of Delaware an Amendment to Certificate of Designation, Preferences
and Rights of Series A Junior Participating Preferred Stock of Quanex
Corporation dated April 15, 1999 (the "Amendment"). The Amendment contained an
error in Section II(A) in that it failed to set forth correctly the date of the
Second Amended and Restated Rights Agreement referred to in Section II(A).
SECOND: Paragraph (A) of Section II of the Amendment is corrected to
read as follows:
"(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received per share, the greater of 1000 times the
exercise price per Right (as such term is defined in the Second Amended and
Restated Rights Agreement dated as of April 15, 1999) or 1000 times the payment
made per share of Common Stock, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 1000 (as appropriately adjusted as set forth in subparagraph
C below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
A Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a par
share basis, respectively."
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<PAGE> 2
IN WITNESS WHEREOF, Quanex Corporation, has caused this Certificate of
Correction to be signed by its duly authorized officer on this 16 day of April,
1999.
QUANEX CORPORATION
By: /s/ MICHAEL W. CONLON
-------------------------------------
Michael W. Conlon
Secretary
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<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO THE
QUANEX CORPORATION 1988 STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1988 Stock Option Plan" (the
"Plan"); and
WHEREAS, the Board of Directors of the Company retained the right to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees that
Section 11 of the Plan is completely amended to provide as follows:
11. TRANSFERABILITY OF OPTIONS. Except as expressly provided
otherwise in an Optionee's Agreement with respect to a Nonstatutory
Stock Option, an Option 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.
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO
THE QUANEX CORPORATION
1988 STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1988 Stock Option Plan" (the
"Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Paragraph 18 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Paragraph 12 of the Plan is hereby amended, effective
with respect to all Options issued in the future under this Plan, as follows:
12. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except as
may be otherwise expressly provided herein with respect to an Option
that is a Non-statutory Stock Option, all Options shall terminate on
the earlier of the date of the expiration of the Option or one day less
than three months after the date of severance, upon severance of the
employment relationship between the Company and the optionee, whether
with or without cause, for any reason other than the death, disability
or, in the case of Non-statutory Stock Options only, Retirement of the
optionee, during which period the optionee shall be entitled to
exercise the Option in respect of the number of shares that the
optionee would have been entitled to purchase had the optionee
exercised the Option on the date of such severance of employment.
Whether authorized leave of absence, or absence on military or
government service, shall constitute severance of the employment
relationship between the Company and the optionee shall be determined
by the Committee at the time thereof. In the event of severance because
of the disability of the holder of any Incentive Stock Option while in
the employ of the Company and before the date of expiration of such
Incentive Stock Option, such Incentive Stock Option shall terminate on
the earlier of such date of expiration or one year following the date
of such severance because of disability, during which period the
optionee shall be
<PAGE> 2
entitled to exercise the Incentive Stock Option in respect to the
number of shares that the optionee would have been entitled to purchase
had the optionee exercised the Incentive Stock Option on the date of
such severance because of disability. In the event of the death of the
holder of any Incentive Stock Option while in the employ of the Company
and before the date of expiration of such Incentive Stock Option, such
Incentive Stock Option shall terminate on the earlier of such date of
expiration or one year following the date of death. After the death of
the optionee, his executors, administrators or any person or person to
whom his Incentive Stock 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 an Incentive Stock Option to exercise the
Incentive Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he had exercised the
Incentive Stock Option on the date of his death while in employment.
For purposes of Incentive Stock Options issued under this Plan, an
employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by
the Company, a corporation issuing or assuming an option in a
transaction to which Section 424(a) of the Code applies, or a parent or
subsidiary corporation of such corporation issuing or assuming an
option. For this purpose, the phrase "corporation issuing or assuming
an option" shall be substituted for the word "Company" in the
definitions of parent and subsidiary corporations in Section 4 and the
parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code.
In the event of the death, disability, or Retirement of a
holder of a Non-statutory Stock Option, before the date of expiration
of such Non-statutory Stock Option, such Non-statutory Stock Option
shall continue fully in effect, including provisions providing for
subsequent vesting of such Option, for a period of not less than three
years commencing on the date of his death, disability or Retirement,
and shall terminate on the earlier of the date of the expiration of
such three-year period or the date of expiration of the Non-statutory
Stock Option notwithstanding any provision to the contrary in the
optionee's Option Agreement. After the death of the optionee, his
executors, administrators or any person or person to whom his
Non-statutory Stock 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 Non-statutory Stock Option to exercise the
Non-statutory Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he were still alive.
Notwithstanding the foregoing provisions of this Section, in the case
of a Non-statutory Stock Option granted on or after December 8, 1994,
the Committee may provide for a different option termination date in
the Option Agreement with respect to such Option.
Dated: December 9, 1999
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<PAGE> 1
EXHIBIT 10.4
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED
JUNE 1, 1999
<PAGE> 2
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
<S> <C>
ARTICLE I - DEFINITIONS
Account................................................................................................1.1
Beneficiary............................................................................................1.2
Board ..............................................................................................1.3
Change of Control......................................................................................1.4
Change of Control Value................................................................................1.5
Code...................................................................................................1.6
Committee..............................................................................................1.7
Common Stock...........................................................................................1.8
Company................................................................................................1.9
Company Match.........................................................................................1.10
Deferred Compensation Ledger..........................................................................1.11
Director..............................................................................................1.12
Director Fees.........................................................................................1.13
Disability............................................................................................1.14
Incentive Bonus.......................................................................................1.15
Normal Retirement Date................................................................................1.16
NYSE .............................................................................................1.17
Participant...........................................................................................1.18
Plan .............................................................................................1.19
Plan Year.............................................................................................1.20
Quanex................................................................................................1.21
Rabbi Trust...........................................................................................1.22
Retirement............................................................................................1.23
Retirement Plan.......................................................................................1.24
Securities Act........................................................................................1.25
Subsidiary............................................................................................1.26
Term of Deferral......................................................................................1.27
Voting Securities.....................................................................................1.28
ARTICLE II - ELIGIBILITY
ARTICLE III - DEFERRALS AND COMPANY CONTRIBUTIONS
Deferral Election......................................................................................3.1
Company Match..........................................................................................3.2
Mandatory Deferral.....................................................................................3.3
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - ACCOUNT
Establishing a Participant's Account...................................................................4.1
Credit of the Participant's Deferral and
the Company's Match.................................................................................4.2
Crediting of Dividends, Distributions and Interest.....................................................4.3
Interest Rate..........................................................................................4.4
Common Stock Conversion Election.......................................................................4.5
Conversion and Cash-Out Upon a Change of Control.......................................................4.6
ARTICLE V - VESTING
Vesting.............................................................................................. 5.1
Forfeiture of Company Match Because
of Early Distribution...............................................................................5.2
Forfeiture For Cause...................................................................................5.3
Forfeiture For Competition.............................................................................5.4
Full Vesting in the Event of a Change of Control.......................................................5.5
ARTICLE VI - DISTRIBUTIONS
Form of Distributions or Withdrawals...................................................................6.1
Death..................................................................................................6.2
Disability.............................................................................................6.3
Expiration of Term of Deferral.........................................................................6.4
Hardship Withdrawals...................................................................................6.5
Payment Restrictions on any Portion of a Benefit
Determined Not to be Deductible.....................................................................6.6
Responsibility for Distributions and
Withholding of Taxes................................................................................6.7
ARTICLE VII - ADMINISTRATION
Committee Appointment..................................................................................7.1
Committee Organization and Voting......................................................................7.2
Powers of the Committee................................................................................7.3
Committee Discretion...................................................................................7.4
Annual Statements......................................................................................7.5
Reimbursement of Expenses..............................................................................7.6
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption................................................................8.1
Termination of Participation By Adopting Subsidiary....................................................8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan...................................................................9.1
No Retroactive Effect on Awarded Benefits..............................................................9.2
Effect of Termination..................................................................................9.3
ARTICLE X - FUNDING
Payments Under This Agreement are the Obligation
of the Company.....................................................................................10.1
Agreement May Be Funded Through Rabbi Trust...........................................................10.2
Reversion of Excess Assets............................................................................10.3
Participants Must Reply Only on General
Credit of the Company..............................................................................10.4
ARTICLE XI - MISCELLANEOUS
Limitation of Rights..................................................................................11.1
Distributions to Incompetents of Minors...............................................................11.2
Nonalienation of Benefits.............................................................................11.3
Expenses Incurred in Enforcing the Plan...............................................................11.4
Reliance Upon Information ............................................................................11.5
Severability..........................................................................................11.6
Notice .............................................................................................11.7
Gender and Number.....................................................................................11.8
Governing Law.........................................................................................11.9
</TABLE>
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<PAGE> 5
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, Quanex Corporation originally established the Quanex Deferred
Compensation Plan (the "Plan") effective October 1, 1981, which provides a
mechanism by which certain highly compensated management personnel may defer
their compensation under the Quanex Corporation Executive Incentive Compensation
Plan prior to such compensation being earned and directors may defer their
director's fees prior to their being earned;
WHEREAS, Quanex Corporation amended and restated the Plan effective October
12, 1995;
WHEREAS, Quanex Corporation desires to amend and restate the Plan effective
June 1, 1999;
NOW, THEREFORE, Quanex Corporation amends and restates the Plan as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means a Participant's account in the Deferred
Compensation Ledger maintained by the Committee which reflects the benefits a
Participant is entitled to under the Plan.
1.2 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive any amounts distributed under
the Plan upon the death of the Participant.
1.3 "BOARD" means the Board of Directors of Quanex
Corporation.
1.4 "CHANGE OF CONTROL" means the occurrence of one or more of
the following events after June 1, 1999:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Covered
Person") of beneficial ownership (within the meaning of rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either (i) the then outstanding
shares of the common stock of Quanex (the "Outstanding Quanex Common Stock"), or
(ii) the combined voting power of the then outstanding voting securities of
Quanex entitled to vote generally in the election of directors (the "Outstanding
Quanex Voting Securities"); provided, however, that for purposes of this
subsection (a) of this Section, the following acquisitions shall not constitute
a Change of Control of Quanex: (i) any acquisition directly from Quanex, (ii)
any acquisition by Quanex, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by Quanex or any entity controlled by
Quanex, or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section; or
(b) individuals who, as of June 1, 1999, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
June 1, 1999 whose election, or nomination for election by Quanex's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Covered Person other than the Board; or
I-1
<PAGE> 7
(c) the consummation of (xx) a reorganization, merger or consolidation
or sale of Quanex or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Quanex Common Stock and Outstanding Quanex Voting Securities
immediately prior to such Business Combination beneficially own, direct or
indirectly, more than 80 percent of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
Quanex or all or substantially all of Quanex's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Quanex Common Stock and Outstanding Quanex Voting Securities, as the case may
be, (ii) no Covered Person (excluding any employee benefit plan (or related
trust) of Quanex or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20 percent or more of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination, were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors,
providing for such Business Combination; or
(d) the approval by the stockholders of Quanex of a complete
liquidation or dissolution of Quanex.
1.5 "CHANGE OF CONTROL VALUE" means the amount determined in
clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of Quanex in the merger, consolidation,
reorganization, sale of assets or dissolution transaction that constitutes a
Change of Control, (ii) the price per share offered to stockholders of Quanex in
any tender offer or exchange offer that constitutes a Change of Control, or
(iii) if a Change of Control occurs other than a Change of Control specified in
clause (i) or (ii), the fair market value per share of the Common Stock on the
date of the Change of Control, based on the closing quotation as described in
Section 4.2, on that day. If the consideration offered to stockholders of the
Company in any transaction described above consists of anything other than cash,
the Committee shall determine the cash equivalent of the fair market value of
the portion of the consideration offered that is other than cash.
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1.6 "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
1.7 "COMMITTEE" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.8 "COMMON STOCK" means Quanex's common stock, $.50 par value
(or such other par value as may be designated by the vote of Quanex stockholders
or such other equity securities of Quanex into which such common stock may be
converted, reclassified or exchanged).
1.9 "COMPANY" means Quanex and any Subsidiary adopting the
Plan.
1.10 "COMPANY MATCH" means the 20 percent match which the
Company makes to the amount deferred in Common Stock during a Plan Year by a
Participant under the Plan for three or more Plan Years.
1.11 "DEFERRED COMPENSATION LEDGER" means the ledger
maintained by the Committee for each Participant which reflects the amount of
compensation deferred for the Participant under the Plan, the Company match, and
the amount of income credited on each of these amounts.
1.12 "DIRECTOR" means any person serving as a member of the
Board of Directors.
1.13 "DIRECTOR FEES" means any amount paid to a Director for
services in such capacity.
1.14 "DISABILITY" means a mental or physical disability that
in the opinion of a physician selected by the Committee, shall prevent the
Participant from engaging in any substantial gainful activity, can be expected
to result in death or has lasted or can be expected to last for a
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continuous period of not less than twelve months, and which: (a) was not
contracted, suffered or incurred while the Participant was engaged in or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Participant received a military pension.
1.15 "INCENTIVE BONUS" means a bonus awarded or to be awarded
to the Participant under the Quanex Corporation Executive Incentive Compensation
Plan.
1.16 "NORMAL RETIREMENT DATE" means the first day of the month
that coincides with or next follows the date on which the Participant or former
Participant attains age 65.
1.17 "NYSE" means the New York Stock Exchange.
1.18 "PARTICIPANT" means an employee or director of a Company
who is participating in the Plan.
1.19 "PLAN" means the Quanex Corporation Deferred Compensation
Plan set forth in this document, as amended from time to time.
1.20 "PLAN YEAR" means a one-year period that coincides with
the fiscal year of Quanex, which begins on the first day of November of each
calendar year and ends on October 31 of the next ensuing calendar year.
1.21 "QUANEX" means the Quanex Corporation, a Delaware
corporation, the sponsor of the Plan.
1.22 "RABBI TRUST" means the Quanex Corporation Deferred
Compensation Trust, which agreement was entered into between NBD Bank and
Quanex.
1.23 "RETIREMENT" means the retirement of a Participant from
any Company covered by the Plan under the terms of the Retirement Plan.
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1.24 "RETIREMENT PLAN" means the Quanex Corporation Salaried
Employees' Pension Plan, or if the Company does not maintain that plan, the
defined contribution plan maintained by the Company that is intended to satisfy
the requirements of section 401(a) of the Code.
1.25 "SECURITIES ACT" means the Securities Exchange Act of
1934, as amended from time to time.
1.26 "SUBSIDIARY" means any wholly owned subsidiary of Quanex.
1.27 "TERM OF DEFERRAL" means the period of deferral chosen by
the Participant under the election procedure established in Section 3.1 or by
the Committee which pertains to that portion of the Incentive Bonus or Director
Fees for each given Plan Year and its accumulated income accrued that has been
deferred under an election made prior to the commencement of the period during
which it is earned.
1.28 "VOTING SECURITIES" means any security which ordinarily
possesses the power to vote in the election of the Board without the happening
of any precondition or contingency.
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ARTICLE II
ELIGIBILITY
Initially, all participants in the Quanex Corporation
Executive Incentive Compensation Plan and all Directors will be eligible to
participate in the Plan. However, the Committee retains the right to establish
such additional eligibility requirements for participation in the Plan as it may
determine are appropriate or necessary from time to time and has the right to
determine, in its sole discretion, that any one or more persons who meet the
eligibility requirements will not be eligible to participate for one or more
Plan Years beginning after the date they are notified of this decision by the
Committee.
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ARTICLE III
DEFERRALS AND COMPANY CONTRIBUTIONS
3.1 DEFERRAL ELECTION. A Participant may elect during the
election period established by the Committee prior to the beginning of any Plan
Year:
(1) the percentage of his Incentive Bonus earned during
the ensuing Plan Year which is to be paid as soon as
conveniently possible after the Plan Year and the percentage
which is to be deferred under the Plan;
(2) the percentage of his Director Fees earned during the
ensuing Plan Year which is to be paid during such year and the
percentage which is to be deferred under the Plan;
(3) the percentage of the amount deferred, if any, to be
deferred in the form of Common Stock and the percentage, if
any, to be deferred in the form of cash;
(4) the length of the period of deferral, if any amount
has been elected to be deferred, whether in cash or in Common
Stock, which deferral shall be for a period of years, to a
date certain, to termination of employment with the Company or
to his Retirement; and
(5) the form of payment of the amount that has been
elected to be deferred -- a lump sum, or quarterly or annual
installment payments of the principal amount plus the interest
accrued after the distribution date, or last installment paid,
if later, in the case of a deferral in the form of cash or of
the total shares of Common Stock credited to him as of the
date of distribution plus any other shares, cash or other
property credited as dividends or other rights on those shares
after the distribution date or last installment distributed,
if later, in the case of a deferral in the form of Common
Stock, over no less than three nor more than 20 years.
If a Participant elects a deferral period to Retirement, he
shall also specify whether the deferral period shall end at the date of his
termination of employment with the Company or at his Normal Retirement Date, in
the event of termination other than as a result of death, Disability
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or Retirement. If a Participant elects a deferral period of a number of years or
to a date certain, the deferral period shall end upon the Participant's
Retirement, if earlier.
The deferrals in the form of Common Stock elected by
Participants to be allocated to their Accounts in any Plan Year must not exceed
one percent of the shares of Common Stock outstanding on the first day of the
Plan Year. In the event this maximum would be exceeded, each Participant who
elected to defer in the form of Common Stock shall have his election reduced on
a pro rata basis as compared to all Participants who elected to defer in the
form of Common Stock until those deferrals in the aggregate for that Plan Year
equal the maximum and the portion of his Incentive Bonus which would have been
deferred in the form of Common Stock shall instead be distributed to the
Participant as provided in the Quanex Corporation Executive Incentive
Compensation Plan.
Once an election has been made it becomes irrevocable for that
Plan Year, except that the Participant may change his election of the form of
payment he previously elected under Section 3.1(5) during a 30-day period ending
one year prior to the end of the deferral period. In the event a Participant
originally elected a deferral period of a number of years or until a date
certain and, as a result of the Participant's election to take Retirement, the
Participant will retire before the end of the elected deferral period, the
Participant may elect to change the form of payment during a 30- day period
ending one year prior to the Retirement date chosen by the Participant by
written notice to the Company. In the event a Participant changes his election,
if the deferral period terminates early for any reason, which is beyond the
control of the Participant, such as involuntary termination of employment, death
or Disability, then the distribution or the first installment, whichever is
applicable, shall not be made until one year after the election was changed;
however, if the deferral period terminates early for any reason which is within
the control of the Participant,
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such as Retirement or voluntary termination of employment, then the
change of election will be ineffective. If for any reason the deferral period
does not end one year after the end of such 30-day period because of a
postponement of Retirement or otherwise, the change of election shall remain in
effect and no further changes of election shall be permitted.
The election to participate in the Plan for a given Plan Year
will be effective only upon receipt by the Committee of the Participant's
election on such form as will be determined by the Committee from time to time.
If the Participant does not exercise his right to defer, subject to Section 3.3
below, the Participant will be deemed to have elected not to defer any part of
his Incentive Bonus or Director Fees for that Plan Year and all of his Incentive
Bonuses and Director Fees will be paid in cash. If the percentage of the
Incentive Bonus and Director Fees elected to be deferred in Common Stock results
in a fractional share, it shall be reduced to the next lowest full share and the
fractional share shall be paid or deferred, as the case may be, in cash.
3.2 COMPANY MATCH. The Company will credit to the Account of
each Participant who has a portion of his Incentive Bonus or Director Fees
deferred under the Plan in the form of Common Stock for a period of three full
years or more additional shares of Common Stock equal to 20 percent of the
amount which is deferred in the form of Common Stock, rounded to the next
highest number of full shares.
3.3 MANDATORY DEFERRAL. If a Participant becomes entitled to a
cash payment of part or all of an Incentive Bonus because the Participant did
not elect to defer all of the Incentive Bonus but the Company determines that
section 162(m) of the Code may not allow the Company to take a deduction for
part or all of the Incentive Bonus, then, unless a Change of Control has
occurred after June 1, 1999, the payment of the Incentive Bonus will be delayed
until December 1st following the end of the Plan Year in which it occurred. Then
on December 1st, if the Company's
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deduction is determined by the Company not to be affected, the Incentive Bonus
in total will be paid immediately. However, if the Company determines that some
portion of the Incentive Bonus is affected, then only that portion of the
Incentive Bonus which is deductible by the Company shall be paid on December 1st
and the remaining portion of the Incentive Bonus will be delayed to the first
day of the first complete month of the second Plan Year, at which time it will
be paid. The Committee may waive the mandatory deferral required by this Section
3.3 with respect to a Participant who is not a member of the Committee but such
waiver shall only be made on an individual basis and at the time the Incentive
Bonus is determined and awarded.
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ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee will
establish an Account for each Participant in a special Deferred Compensation
Ledger which will be maintained by the Company. The Account will reflect the
amount of the Company's obligation to the Participant at any given time.
4.2 CREDIT OF THE PARTICIPANT'S DEFERRAL AND THE COMPANY'S
MATCH. Upon completion of the Plan Year or quarter, as applicable, the Committee
will determine, as soon as administratively practicable, the amount of a
Participant's Incentive Bonus or Director Fees that has been deferred for that
Plan Year or quarter, as applicable, and the amount of the Company Match, if
any, and will credit that or those amounts to the Participant's Account as of
the end of the Plan Year or quarter, as applicable, during which the Incentive
Bonus or Director Fees were earned. If the Participant elected his deferral to
be in the form of Common Stock, the number of shares credited to his Account as
Common Stock shall be the number of full shares of Common Stock that could have
been purchased with the dollar amount deferred, without taking into account any
brokerage fees, taxes or other expenses which might be incurred in such a
transaction, based upon the closing quotation on the NYSE, or if not traded on
the NYSE, the principal market in which the Common Stock is traded on the date
the amount would have been paid had it not been deferred pursuant to Article
III, and any additional fractional amount shall be credited to the Participant's
Account in the form of cash.
4.3 CREDITING OF DIVIDENDS, DISTRIBUTIONS AND INTEREST. When
dividends are declared and paid, or other distributions, whether stock,
property, cash, rights or other, are made with
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respect to the Common Stock, those dividends and other distributions shall be
accrued in a Participant's Account based upon the shares of Common Stock
credited to his Account. The dividends or other distributions in the form of
shares of Common Stock shall be credited to the Account as additional shares of
Common Stock. The dividends or other distributions or rights in any other form
shall be credited to the Participant's Account in the form of cash. For this
purpose, all dividends and distributions not in the form of shares of Common
Stock or cash shall be valued at the fair market value as determined by a
resolution duly adopted by the Committee. Interest will be accrued on that
portion of a Participant's Account held in the form of cash at the rate
established by Section 4.4.
4.4 INTEREST RATE. Interest will be accrued on the last day of
each calendar month on each portion of a Participant's Account held in the form
of cash (whether resulting from a cash deferral, cash dividends or other cash
distributions on Common Stock or the conversion of a Common Stock credit in his
Account to cash) from the later of (a) the time it is credited to his Account or
(b) the last previous calendar month end at a rate equal to (x) the rate of
interest announced by Chase Manhattan Bank, N.A., or its successor, if
applicable as its prime rate of interest on the last business day of the
calendar quarter preceding the calendar quarter in which the month falls divided
by (y) four. Interest so accrued on the last day of each calendar month shall be
credited as cash to the Participant's Account and shall thereafter accrue
interest. Interest will continue to be credited on the cash balance in the
Participant's Account until the entire cash balance has been distributed.
4.5 COMMON STOCK CONVERSION ELECTION. At any time during a
period of three years prior to the earliest time a Participant could retire
under the Retirement Plan and ending on the Participant's Normal Retirement
Date, the Participant may elect a Retirement date under the
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Retirement Plan and may elect to have all or a portion of his shares of Common
Stock in his Account converted to cash. In that event, all such shares of Common
Stock shall be converted on the date notice is received by the Company based
upon the closing quotation as described in Section 4.2, on that day, unless the
Participant has specified no more than five different dates after the date of
the notice on which the Participant desires all or a portion of the shares of
Common Stock to be converted and the percentage of shares to be converted on
each date. If the Participant has specified dates for and the percentage of
shares to be converted, then the designated percentage of shares of Common Stock
to be converted on each date shall be converted on the specified date based on
the closing quotation as described in Section 4.2 on such specified dates.
At any time that is at least five years after Common Stock is
credited to his Account pursuant to Section 4.2, a Participant may elect to have
such Common Stock converted to cash and credited to his Account. In that event,
all such shares of Common Stock specified by the Participant in a written notice
to the Company which have been credited to the Participant's Account for at
least five years prior to the giving of such notice shall be converted on the
date notice is received by the Company based upon the closing quotation as
described in Section 4.2, on that day.
4.6 CONVERSION AND CASH-OUT UPON A CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan, immediately upon the occurrence
of a Change of Control, all shares of Common Stock credited to a current or
former Participant's Account shall be converted to cash based on the Change of
Control Value of such shares of Common Stock. Within five days after the date on
which the Change of Control occurs, all current and former Participants shall be
paid in cash lump sum payments the balances credited to their Accounts.
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ARTICLE V
VESTING AND EVENTS CAUSING FORFEITURE
5.1 VESTING. All deferrals of the Incentive Bonus and Director
Fees and all income accrued on the deferrals will be 100 percent vested except
for the events of forfeiture described in Sections 5.3 and 5.4. All Company
matching accruals and all income accrued on those matching accruals will be 100
percent vested except for the events of forfeiture described in Section 5.2, 5.3
and 5.4.
5.2 FORFEITURE OF COMPANY MATCH BECAUSE OF EARLY DISTRIBUTION.
If, but for the provisions of this Section 5.2, a Participant would receive a
benefit from the Plan for any reason, other than death, disability or
Retirement, in respect of shares of Common Stock credited to the Participant's
account pursuant to Section 4.2 as a result of the Company matching accrual of
20 percent provided for in Section 3.2 within three years after such shares were
so credited, or if the Participant ceases to be an employee with respect to a
matching accrual resulting from deferral of an Incentive Bonus, or a director
with respect to a matching accrual resulting from deferral of Director Fees
within three years after such shares are so credited, such matching accruals of
shares of Common Stock and any dividends or other property or rights accumulated
because of those shares of Common Stock shall be immediately forfeited.
5.3 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Account, exclusive of
an
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amount equal to the sum of the total deferrals of the Participant, will be
forfeited. The decision of the Committee as to the cause of a former
Participant's discharge and the damage done to the Company will be final. No
decision of the Committee will affect the finality of the discharge of the
Participant by the Company in any manner.
5.4 FORFEITURE FOR COMPETITION. If at the time a distribution
is being made or is to be made to a Participant or former Participant, the
Committee finds after full consideration of the facts presented on behalf of the
Company and the Participant or former Participant, that the Participant or
former Participant at any time within two years from his termination of
employment from the Company, and without written consent of the Company,
directly or indirectly owns, operates, manages, controls or participates in the
ownership, management, operation or control of or is employed by, or is paid as
a consultant or other independent contractor by a business which competes or at
any time did compete with the Company by which he was formerly employed in a
trade area served by the Company at the time distributions are being made or to
be made and in which the Participant or former Participant had represented the
Company while employed by it; and, if the Participant or former Participant
continues to be so engaged 60 days after written notice has been given to him,
the Committee will forfeit all amounts otherwise due the Participant or former
Participant, exclusive of an amount equal to the sum of the total deferrals of
the Participant or former Participant.
5.5 FULL VESTING IN THE EVENT OF A CHANGE OF CONTROL. The
forfeitures created by sections 5.2, 5.3 or 5.4 shall not apply with respect to
any amounts credited to the Accounts of current or former Participants after the
occurrence of a Change of Control.
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ARTICLE VI
DISTRIBUTIONS
6.1 FORM OF DISTRIBUTIONS OR WITHDRAWALS. Upon a distribution
or withdrawal, at the option of Quanex, the number of shares of Common Stock
credited to the Participant in the Deferred Compensation Ledger, if any,
required to be distributed shall be distributed in kind or in cash, whether the
distribution or withdrawal is in a lump sum or in installments. If distributed
in cash, the amount per share of Common Stock which would otherwise be
distributed in kind shall equal the closing quotation for the Common Stock on
the NYSE (or if not traded on the NYSE, the principal market in which the Common
Stock is traded) on the third business day prior to the date of distribution. If
the distribution is in installments, all dividends and other property or rights
accumulating on the shares still undistributed will be credited as provided in
Section 4.3 and distributed with the next installment. If there are periodic
installments to be made of the portion, if any, deferred as cash, income shall
accumulate on that portion of the Account as described in Section 4.6 until the
balance credited to the cash portion of the Participant's Account has been
distributed. In that event, income accumulating on the cash portion of the
Account shall be distributed with the next installment to be distributed.
6.2 DEATH. Upon the death of a Participant prior to the
expiration of the Term of Deferral, the Participant's Beneficiary or
Beneficiaries will receive in Common Stock or cash as required by Section 6.1,
the balance then credited to the Participant's Account in the Deferred
Compensation Ledger. The lump sum distribution or the first installment of the
periodic distribution will be made 90 days after the Participant's death.
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Each Participant, upon making his initial deferral election,
will file with the Committee a designation of one or more Beneficiaries to whom
distributions otherwise due the Participant will be made in the event of his
death prior to the complete distribution of the amount credited to his Account
in the Deferred Compensation Ledger. The designation will be effective upon
receipt by the Committee of a properly executed form which the Committee has
approved for that purpose. The Participant may from time to time revoke or
change any designation of Beneficiary by filing another approved Beneficiary
designation form with the Committee. If there is no valid designation of
Beneficiary on file with the Committee at the time of the Participant's death,
or if all of the Beneficiaries designated in the last Beneficiary designation
have predeceased the Participant or otherwise ceased to exist, the Beneficiary
will be the Participant's spouse, if the spouse survives the Participant, or
otherwise the Participant's estate. A Beneficiary must survive the Participant
by 60 days in order to be considered to be living on the date of the
Participant's death. If any Beneficiary survives the Participant but dies or
otherwise ceases to exist before receiving all amounts due the Beneficiary from
the Participant's Account, the balance of the amount which would have been paid
to that Beneficiary will, unless the Participant's designation provides
otherwise, be distributed to the individual deceased Beneficiary's estate or to
the Participant's estate in the case of a Beneficiary which is not an
individual. Any Beneficiary designation which designates any person or entity
other than the Participant's spouse must be consented to in writing in a form
acceptable to the Committee in order to be effective.
6.3 DISABILITY. Upon the Disability of a Participant prior to
the expiration of the Term of Deferral, the Participant will receive in Common
Stock or cash as required by Section 6.1, the balance then credited to the
Participant's Account. The lump sum distribution or the first installment of the
periodic distribution will be made 90 days after the Participant becomes
disabled.
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6.4 EXPIRATION OF TERM OF DEFERRAL. Upon the expiration of the
Term of Deferral, the Participant shall receive in Common Stock or cash as
required by Section 6.1, the balance credited to the Participant's Account. The
lump sum distribution or the first installment of the periodic distribution will
be made 90 days after the expiration of the Term of Deferral without regard to
whether the Participant is still employed by the Company or not.
6.5 HARDSHIP WITHDRAWALS. Any Participant who is in the employ
of a Company and is not entitled to a distribution from the Plan may request a
hardship withdrawal. No hardship withdrawal can exceed the lesser of the amount
credited to the Participant's Account or the amount reasonably needed to satisfy
the emergency need. Whether a hardship exists and the amount reasonably needed
to satisfy the emergency need will be determined by the Committee based upon the
evidence presented by the Participant and the rules established in this Section.
If a hardship withdrawal is approved by the Committee it will be made in Common
Stock or cash as required in Section 6.1 within ten days of the Committee's
determination. A hardship for this purpose is a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in section 152(a) of the Code) of the
Participant, loss of the Participant's property due to casualty, or any similar
extraordinary and unforeseeable circumstance arising as a result of events
beyond the control of the Participant. The circumstances that will constitute a
hardship will depend upon the facts of each case, but, in any case, payment may
not be made to the extent that the hardship is or may be relieved: (a) through
reimbursement or compensation by insurance or otherwise, (b) by liquidation of
the Participant's assets, to the extent the liquidation of such assets will not
itself cause severe financial hardship, or (c) by cessation of deferrals under
the Plan. Such foreseeable needs for funds as the need to send a Participant's
child to college or the desire to purchase a home will not be considered to be a
hardship.
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6.6 PAYMENT RESTRICTIONS ON ANY PORTION OF A BENEFIT
DETERMINED NOT TO BE DEDUCTIBLE. Except for hardship withdrawals under Section
6.5, if a Participant has a benefit that is due during a Plan Year and the
Committee determines that section 162(m) of the Code could affect the Company's
deduction on the amount paid, the distribution of his benefit will be delayed
until December 1 following the end of the Plan Year. Then on December 1 if the
Company's deduction is determined by the Committee not to be affected, the
benefit in total will be distributed immediately; however, if the Committee
determines that some portion of the benefit is affected, then only that portion
of the benefit which is deductible by the Company shall be distributed on
December 1st and the distribution of the remaining portion of the benefit will
be delayed to the first day of the first complete month of the Plan Year or
Years on which a portion or all of the remaining distribution can be made and
deducted by the Company on its federal income tax return. The Committee may
waive the mandatory deferral required by this Section 6.6 with respect to a
Participant who is not a member of the Committee, but such waiver shall only be
made on an individual basis and at the time the distribution is to be made.
6.7 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES.
The Committee will furnish information to the Company last employing the
Participant, concerning the amount and form of distribution to any Participant
entitled to a distribution so that the Company may make or cause the Rabbi Trust
to make the distribution required. It will also calculate the deductions from
the amount of the benefit paid under the Plan for any taxes required to be
withheld by federal, state or local government and will cause them to be
withheld. If a Participant has deferred compensation under the Plan while in the
service of more than one Company, each Company for which the Participant was
working will reimburse the disbursing agent for the amount attributable to
compensation deferred while the Participant was in the service of that Company
if it has not already provided that funding to the disbursing agent.
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ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee will be appointed by
the Board. The initial Committee members will be Compensation Committee of the
Board. Each Committee member will serve until his or her resignation or removal.
The Board will have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee will
select from among its members a chairman who will preside at all of its meetings
and will elect a secretary without regard to whether that person is a member of
the Committee. The secretary will keep all records, documents and data
pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee will constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting will decide any question brought before the meeting. In addition, the
Committee may decide any question by vote, taken without a meeting, of a
majority of its members. If a member of the Committee is ever appointed who is
or becomes a Participant, that Committee member will not vote or act on any
matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee will have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and will have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
(a) to make rules and regulations for the administration of the
Plan;
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(b) to construe all terms, provisions, conditions and
limitations of the Plan;
(c) to correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect for the
greatest benefit of all parties at interest;
(d) to designate the persons eligible to become Participants
and to establish the maximum and minimum amounts that may be elected
to be deferred;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
(1) differences of opinion arising between the Company
and a Participant except when the difference of opinion relates
to the entitlement to, the amount of or the method or timing of
a distribution of a benefit affected by a Change of Control, in
which event it shall be decided by judicial action; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of the Plan for the
benefit of all parties at interest; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or
advisable for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any
power or authority granted under the Plan or in making any determination under
the Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties. The Committee's decision shall never be subject to de novo
review. Notwithstanding the foregoing, the Committee's decision, refraining to
act or acting is to be subject to judicial review for those incidents occurring
during the Plan Year in which a Change of Control occurs and during the next
three succeeding Plan Years.
VII-2
<PAGE> 27
7.5 ANNUAL STATEMENTS. The Committee will cause each
Participant to receive an annual statement as soon as administratively possible
after the conclusion of each Plan Year containing the amounts deferred, the
Company match, if any, and the income accrued on the deferred and matched
amounts.
7.6 REIMBURSEMENT OF EXPENSES. The Committee will serve
without compensation for their services but will be reimbursed by Quanex for all
expenses properly and actually incurred in the performance of their duties under
the Plan.
VII-3
<PAGE> 28
ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary
may, with the approval of the Committee, adopt the Plan by appropriate action of
its board. The terms of the Plan will apply separately to each Subsidiary
adopting the Plan and its Participants in the same manner as is expressly
provided for Quanex and its Participants except that the powers of the Board and
the Committee under the Plan will be exercised by the Board alone. Quanex and
each Subsidiary adopting the Plan will bear the cost of providing plan benefits
for its own Participants. It is intended that the obligation of Quanex and each
Subsidiary with respect to its Participants will be the sole obligation of the
Company that is employing the Participant and will not bind any other Company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any
Subsidiary adopting the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the Plan at any time.
The termination of the participation in the Plan by a Subsidiary will not,
however, affect the rights of any Participant who is working or has worked for
the Subsidiary as to amounts or shares of Common Stock previously standing to
his credit in his Account or reduce the income accrued on amounts deferred by
him or matched by the Company and credited to his Account whether in cash or in
shares of Common Stock, prior to the distribution of the benefit to the
Participant without his consent.
VIII-1
<PAGE> 29
ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend
or terminate the Plan at any time by an instrument in writing without the
consent of any adopting Company.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment
will affect the rights of any Participant to the amounts, whether in cash or
shares of Common Stock, then standing to his credit in his Account, to change
the method of calculating the income already accrued or to accrue in the future
on amounts already deferred by him or matched by the Company prior to the date
of the amendment or to change a Participant's right under any provision relating
to a Change of Control after a Change of Control has occurred, without the
Participant's consent. However, the Board shall retain the right at any time to
change in any manner the method of calculating the match by the Company and the
income to accrue on all amounts to be deferred in the future by a Participant
and/or to be matched in the future by the Company after the date of the
amendment if it has been announced to the Participants.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all
amounts, whether in cash or in shares of Common Stock, deferred by Participants
and matched by the Company will continue to be held under the terms of the Plan
until all amounts have been distributed according to the elections made by the
Participants or the directives made by the Committee prior to the deferrals. The
forfeiture provisions of Sections 5.2, 5.3 and 5.4 and the restriction set out
in Section 6.6 would continue to apply throughout the period after the
termination of the Plan but prior to the completed distribution of all benefits.
IX-1
<PAGE> 30
ARTICLE X
FUNDING
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE
COMPANY. The Company will distribute the benefits due the Participants under the
Plan; however, should it fail to do so when a benefit is due and the funding
trust contemplated by Section 10.2 exists, the benefit will be distributed by
the trustee of that funding trust. In any event, if the trust fails to
distribute a benefit for any reason, the Company still remains liable for all
benefits provided by the Plan.
10.2 AGREEMENT MAY BE FUNDED THROUGH RABBI TRUST. It is
specifically recognized by both the Company and the Participants that the
Company may, but is not required to transfer any funds, shares or Common Stock
or other assets that it finds desirable to a trust established to accumulate
assets sufficient to fund the obligations of all of the Companies signatory to
the Plan. However, under all circumstances, the Participants will have no rights
to any of those assets; and likewise, under all circumstances, the rights of the
Participants to the assets held in the trust will be no greater than the rights
expressed in this agreement. Nothing contained in the trust agreement which
creates the funding trust will constitute a guarantee by any Company that assets
of the Company transferred to the trust will be sufficient to fund all benefits
under the Plan or would place the Participant in a secured position ahead of
general creditors should the Company become insolvent or bankrupt. Any trust
agreement prepared to fund the Company's obligations under this agreement must
specifically set out these principles so it is clear in that trust agreement
that the Participants in the Plan are only unsecured general creditors of the
Company in relation to their benefits under the Plan.
X-1
<PAGE> 31
10.3 REVERSION OF EXCESS ASSETS. Any adopting Company may, at
any time, request the actuary, who last performed the annual actuarial valuation
of the Quanex defined benefit Retirement plan, to determine the present Account
balance, assuming the accrual rate for income not to be reduced (whether it
actually is or not), as of the month end coincident with or next preceding the
request, of all Participants and Beneficiaries of deceased Participants for
which all Companies are or will be obligated to make benefit distributions under
the Plan. If the fair market value of the assets held in the trust, as
determined by the Trustee as of that same date, exceeds the total of the Account
balances of all Participants and Beneficiaries by 25 percent, any Company may
direct the trustee to return to each Company its proportionate part of the
assets which are in excess of 125 percent of the Account balances. Each
Company's share of the excess assets will be the Participants' Accounts accrued
while in the employ of that Company as compared to the total of the Account
balances accrued by all Participants under the Plan times the excess assets. If
there has been a Change of Control, for the purpose of determining if there are
excess funds, all contributions made prior to the Change of Control will be
subtracted from the fair market value of the assets held in the trust as of the
determination date but before the determination is made.
10.4 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE
COMPANY. It is also specifically recognized by both the Company and the
Participants that the Plan is only a general corporate commitment and that each
Participant must rely upon the general credit of the Company for the fulfillment
of its obligations under the Plan. Under all circumstances the rights of
Participants to any asset held by the Company will be no greater than the rights
expressed in this agreement. Nothing contained in this agreement will constitute
a guarantee by the Company that the assets of the Company will be sufficient to
distribute any benefits under the Plan or would place the Participant in a
secured position ahead of general creditors of the Company. Though the
X-2
<PAGE> 32
Company may establish or become a signatory to a Rabbi Trust, as indicated in
Section 10.1, to accumulate assets to fulfill its obligations, the Plan and any
such trust will not create any lien, claim, encumbrance, right, title or other
interest of any kind in any Participant in any asset held by the Company,
contributed to any such trust or otherwise designated to be used in fulfillment
of any of its obligations created in this agreement. No specific assets of the
Company have been or will be set aside, or will in any way be transferred to the
trust or will be pledged in any way for the performance of the Company's
obligations under the Plan which would remove such assets from being subject to
the general creditors of the Company.
X-3
<PAGE> 33
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be construed:
(a) to give any employee of any Company any right to be
designated a Participant in the Plan;
(b) to give a Participant any right with respect to the
compensation deferred, the Company match or the income accrued and
credited in the Deferred Compensation Ledger except in accordance with
the terms of the Plan;
(c) to limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(e) to give a Participant or any other person claiming through
him any interest or right under the Plan other than that of any
unsecured general creditor of the Company.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a
Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to distribute the
benefit due to the parent of the minor or to the guardian of the minor or
incompetent or directly to the minor or to apply those assets for the benefit of
the minor or incompetent in any manner the Committee determines in its sole
discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in
the Plan will be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in the Plan. No right or benefit under the Plan
will be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void. No right or benefit under the
Plan will in any manner
XI-1
<PAGE> 34
be liable for or subject to any debts, contracts, liabilities or torts of the
person entitled to such benefits. If any Participant or any Beneficiary becomes
bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit under the Plan, that right or benefit will, in the
discretion of the Committee, cease. In that event, the Committee may have the
Company hold or apply the right or benefit or any part of it to the benefit of
the Participant or Beneficiary, his or her spouse, children or other dependents
or any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.
11.4 EXPENSES INCURRED IN ENFORCING THE PLAN. The Company
will, in addition, pay a Participant for all legal fees and expenses incurred by
him in contesting or disputing his termination or in seeking to obtain or
enforce any benefit provided by the Plan if the termination occurs in the Plan
Year in which a Change of Control occurs or during the next three succeeding
Plan Years following the Plan Year in which a Change of Control occurs except to
the extent that the payment of those fees or expenses are restricted under
Section 6.6.
11.5 RELIANCE UPON INFORMATION. The Committee will not be
liable for any decision or action taken or not taken in good faith in connection
with the administration of the Plan. Without limiting the generality of the
foregoing, any decision or action taken or not taken by the Committee when it
relies upon information supplied it by any officer of the Company, the Company's
legal counsel, the Company's independent accountants or other advisors in
connection with the administration of the Plan will be deemed to have been taken
in good faith.
11.6 SEVERABILITY. If any term, provision, covenant or
condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
XI-2
<PAGE> 35
11.7 NOTICE. Any notice or filing required or permitted to be
given to the Committee or a Participant will be sufficient if in writing and
hand-delivered or sent by U.S. mail to the principal office of the Company or to
the residential mailing address of the Participant. Notice will be deemed to be
given as of the date of hand-delivery or if delivery is by mail, as of the date
shown on the postmark.
11.8 GENDER AND NUMBER. If the context requires it, words of
one gender when used in the Plan will include the other genders, and words used
in the singular or plural will include the other.
11.9 GOVERNING LAW. The Plan will be construed, administered
and governed in all respects by the laws of the State of Texas.
XI-3
<PAGE> 36
IN WITNESS WHEREOF, the Company has executed this document on
this 29th day of September, 1999.
QUANEX CORPORATION
By /s/ PAUL GIDDENS
--------------------------------------
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, on September 29, 1999, the Company executed the Plan known as
"Quanex Corporation Deferred Compensation Plan" (the "Plan"); and
WHEREAS, the Company retained the right in Section 9.1 of the Plan to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company approved resolutions on
the 7th day of December, 1999, to amend the Plan;
NOW, THEREFORE, the Company agrees that, effective as of December 7,
1999, Section 3.3 of the Plan is amended in its entirety to read as follows:
3.3 MANDATORY DEFERRAL. If (1) a Participant becomes entitled
to a cash payment of part or all of an Incentive Bonus because the
Participant did not elect to defer all of the Incentive Bonus, (2) the
Company determines that section 162(m) of the Code may not allow the
Company to take a deduction for part or all of the Incentive Bonus and,
(3) effective June 1, 1999, a Change of Control has not occurred, then,
the payment of the amount of the Incentive Bonus that is not deductible
by the Company will be delayed and deferred under the provisions of the
Plan until the 76th day following the end of the Plan Year in which the
Incentive Bonus was earned, on which date the total Incentive Bonus
will be paid immediately. The Committee may waive the mandatory
deferral required by this Section 3.3 with respect to a Participant who
is not a member of the Committee but such waiver shall only be made on
an individual basis and at the time the Incentive Bonus is determined
and awarded.
<PAGE> 2
IN WITNESS WHEREOF, the Company has executed this Agreement this 7th
day of December, 1999.
QUANEX CORPORATION
By /s/ PAUL GIDDENS
-------------------------
Title Vice President
Human Resources
----------------------
-2-
<PAGE> 1
EXHIBIT 10.4
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED
JUNE 1, 1999
<PAGE> 2
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
<S> <C>
ARTICLE I - DEFINITIONS
Account................................................................................................1.1
Beneficiary............................................................................................1.2
Board ..............................................................................................1.3
Change of Control......................................................................................1.4
Change of Control Value................................................................................1.5
Code...................................................................................................1.6
Committee..............................................................................................1.7
Common Stock...........................................................................................1.8
Company................................................................................................1.9
Company Match.........................................................................................1.10
Deferred Compensation Ledger..........................................................................1.11
Director..............................................................................................1.12
Director Fees.........................................................................................1.13
Disability............................................................................................1.14
Incentive Bonus.......................................................................................1.15
Normal Retirement Date................................................................................1.16
NYSE .............................................................................................1.17
Participant...........................................................................................1.18
Plan .............................................................................................1.19
Plan Year.............................................................................................1.20
Quanex................................................................................................1.21
Rabbi Trust...........................................................................................1.22
Retirement............................................................................................1.23
Retirement Plan.......................................................................................1.24
Securities Act........................................................................................1.25
Subsidiary............................................................................................1.26
Term of Deferral......................................................................................1.27
Voting Securities.....................................................................................1.28
ARTICLE II - ELIGIBILITY
ARTICLE III - DEFERRALS AND COMPANY CONTRIBUTIONS
Deferral Election......................................................................................3.1
Company Match..........................................................................................3.2
Mandatory Deferral.....................................................................................3.3
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - ACCOUNT
Establishing a Participant's Account...................................................................4.1
Credit of the Participant's Deferral and
the Company's Match.................................................................................4.2
Crediting of Dividends, Distributions and Interest.....................................................4.3
Interest Rate..........................................................................................4.4
Common Stock Conversion Election.......................................................................4.5
Conversion and Cash-Out Upon a Change of Control.......................................................4.6
ARTICLE V - VESTING
Vesting.............................................................................................. 5.1
Forfeiture of Company Match Because
of Early Distribution...............................................................................5.2
Forfeiture For Cause...................................................................................5.3
Forfeiture For Competition.............................................................................5.4
Full Vesting in the Event of a Change of Control.......................................................5.5
ARTICLE VI - DISTRIBUTIONS
Form of Distributions or Withdrawals...................................................................6.1
Death..................................................................................................6.2
Disability.............................................................................................6.3
Expiration of Term of Deferral.........................................................................6.4
Hardship Withdrawals...................................................................................6.5
Payment Restrictions on any Portion of a Benefit
Determined Not to be Deductible.....................................................................6.6
Responsibility for Distributions and
Withholding of Taxes................................................................................6.7
ARTICLE VII - ADMINISTRATION
Committee Appointment..................................................................................7.1
Committee Organization and Voting......................................................................7.2
Powers of the Committee................................................................................7.3
Committee Discretion...................................................................................7.4
Annual Statements......................................................................................7.5
Reimbursement of Expenses..............................................................................7.6
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII - ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption................................................................8.1
Termination of Participation By Adopting Subsidiary....................................................8.2
ARTICLE IX - AMENDMENT AND/OR TERMINATION
Amendment or Termination of the Plan...................................................................9.1
No Retroactive Effect on Awarded Benefits..............................................................9.2
Effect of Termination..................................................................................9.3
ARTICLE X - FUNDING
Payments Under This Agreement are the Obligation
of the Company.....................................................................................10.1
Agreement May Be Funded Through Rabbi Trust...........................................................10.2
Reversion of Excess Assets............................................................................10.3
Participants Must Reply Only on General
Credit of the Company..............................................................................10.4
ARTICLE XI - MISCELLANEOUS
Limitation of Rights..................................................................................11.1
Distributions to Incompetents of Minors...............................................................11.2
Nonalienation of Benefits.............................................................................11.3
Expenses Incurred in Enforcing the Plan...............................................................11.4
Reliance Upon Information ............................................................................11.5
Severability..........................................................................................11.6
Notice .............................................................................................11.7
Gender and Number.....................................................................................11.8
Governing Law.........................................................................................11.9
</TABLE>
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<PAGE> 5
QUANEX CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, Quanex Corporation originally established the Quanex Deferred
Compensation Plan (the "Plan") effective October 1, 1981, which provides a
mechanism by which certain highly compensated management personnel may defer
their compensation under the Quanex Corporation Executive Incentive Compensation
Plan prior to such compensation being earned and directors may defer their
director's fees prior to their being earned;
WHEREAS, Quanex Corporation amended and restated the Plan effective October
12, 1995;
WHEREAS, Quanex Corporation desires to amend and restate the Plan effective
June 1, 1999;
NOW, THEREFORE, Quanex Corporation amends and restates the Plan as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "ACCOUNT" means a Participant's account in the Deferred
Compensation Ledger maintained by the Committee which reflects the benefits a
Participant is entitled to under the Plan.
1.2 "BENEFICIARY" means a person or entity designated by the
Participant under the terms of the Plan to receive any amounts distributed under
the Plan upon the death of the Participant.
1.3 "BOARD" means the Board of Directors of Quanex
Corporation.
1.4 "CHANGE OF CONTROL" means the occurrence of one or more of
the following events after June 1, 1999:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Covered
Person") of beneficial ownership (within the meaning of rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either (i) the then outstanding
shares of the common stock of Quanex (the "Outstanding Quanex Common Stock"), or
(ii) the combined voting power of the then outstanding voting securities of
Quanex entitled to vote generally in the election of directors (the "Outstanding
Quanex Voting Securities"); provided, however, that for purposes of this
subsection (a) of this Section, the following acquisitions shall not constitute
a Change of Control of Quanex: (i) any acquisition directly from Quanex, (ii)
any acquisition by Quanex, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by Quanex or any entity controlled by
Quanex, or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section; or
(b) individuals who, as of June 1, 1999, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
June 1, 1999 whose election, or nomination for election by Quanex's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Covered Person other than the Board; or
I-1
<PAGE> 7
(c) the consummation of (xx) a reorganization, merger or consolidation
or sale of Quanex or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Quanex Common Stock and Outstanding Quanex Voting Securities
immediately prior to such Business Combination beneficially own, direct or
indirectly, more than 80 percent of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
Quanex or all or substantially all of Quanex's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Quanex Common Stock and Outstanding Quanex Voting Securities, as the case may
be, (ii) no Covered Person (excluding any employee benefit plan (or related
trust) of Quanex or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20 percent or more of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination, were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors,
providing for such Business Combination; or
(d) the approval by the stockholders of Quanex of a complete
liquidation or dissolution of Quanex.
1.5 "CHANGE OF CONTROL VALUE" means the amount determined in
clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of Quanex in the merger, consolidation,
reorganization, sale of assets or dissolution transaction that constitutes a
Change of Control, (ii) the price per share offered to stockholders of Quanex in
any tender offer or exchange offer that constitutes a Change of Control, or
(iii) if a Change of Control occurs other than a Change of Control specified in
clause (i) or (ii), the fair market value per share of the Common Stock on the
date of the Change of Control, based on the closing quotation as described in
Section 4.2, on that day. If the consideration offered to stockholders of the
Company in any transaction described above consists of anything other than cash,
the Committee shall determine the cash equivalent of the fair market value of
the portion of the consideration offered that is other than cash.
I-2
<PAGE> 8
1.6 "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
1.7 "COMMITTEE" means the persons who are from time to time
serving as members of the committee administering the Plan.
1.8 "COMMON STOCK" means Quanex's common stock, $.50 par value
(or such other par value as may be designated by the vote of Quanex stockholders
or such other equity securities of Quanex into which such common stock may be
converted, reclassified or exchanged).
1.9 "COMPANY" means Quanex and any Subsidiary adopting the
Plan.
1.10 "COMPANY MATCH" means the 20 percent match which the
Company makes to the amount deferred in Common Stock during a Plan Year by a
Participant under the Plan for three or more Plan Years.
1.11 "DEFERRED COMPENSATION LEDGER" means the ledger
maintained by the Committee for each Participant which reflects the amount of
compensation deferred for the Participant under the Plan, the Company match, and
the amount of income credited on each of these amounts.
1.12 "DIRECTOR" means any person serving as a member of the
Board of Directors.
1.13 "DIRECTOR FEES" means any amount paid to a Director for
services in such capacity.
1.14 "DISABILITY" means a mental or physical disability that
in the opinion of a physician selected by the Committee, shall prevent the
Participant from engaging in any substantial gainful activity, can be expected
to result in death or has lasted or can be expected to last for a
I-3
<PAGE> 9
continuous period of not less than twelve months, and which: (a) was not
contracted, suffered or incurred while the Participant was engaged in or did not
result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Participant received a military pension.
1.15 "INCENTIVE BONUS" means a bonus awarded or to be awarded
to the Participant under the Quanex Corporation Executive Incentive Compensation
Plan.
1.16 "NORMAL RETIREMENT DATE" means the first day of the month
that coincides with or next follows the date on which the Participant or former
Participant attains age 65.
1.17 "NYSE" means the New York Stock Exchange.
1.18 "PARTICIPANT" means an employee or director of a Company
who is participating in the Plan.
1.19 "PLAN" means the Quanex Corporation Deferred Compensation
Plan set forth in this document, as amended from time to time.
1.20 "PLAN YEAR" means a one-year period that coincides with
the fiscal year of Quanex, which begins on the first day of November of each
calendar year and ends on October 31 of the next ensuing calendar year.
1.21 "QUANEX" means the Quanex Corporation, a Delaware
corporation, the sponsor of the Plan.
1.22 "RABBI TRUST" means the Quanex Corporation Deferred
Compensation Trust, which agreement was entered into between NBD Bank and
Quanex.
1.23 "RETIREMENT" means the retirement of a Participant from
any Company covered by the Plan under the terms of the Retirement Plan.
I-4
<PAGE> 10
1.24 "RETIREMENT PLAN" means the Quanex Corporation Salaried
Employees' Pension Plan, or if the Company does not maintain that plan, the
defined contribution plan maintained by the Company that is intended to satisfy
the requirements of section 401(a) of the Code.
1.25 "SECURITIES ACT" means the Securities Exchange Act of
1934, as amended from time to time.
1.26 "SUBSIDIARY" means any wholly owned subsidiary of Quanex.
1.27 "TERM OF DEFERRAL" means the period of deferral chosen by
the Participant under the election procedure established in Section 3.1 or by
the Committee which pertains to that portion of the Incentive Bonus or Director
Fees for each given Plan Year and its accumulated income accrued that has been
deferred under an election made prior to the commencement of the period during
which it is earned.
1.28 "VOTING SECURITIES" means any security which ordinarily
possesses the power to vote in the election of the Board without the happening
of any precondition or contingency.
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ARTICLE II
ELIGIBILITY
Initially, all participants in the Quanex Corporation
Executive Incentive Compensation Plan and all Directors will be eligible to
participate in the Plan. However, the Committee retains the right to establish
such additional eligibility requirements for participation in the Plan as it may
determine are appropriate or necessary from time to time and has the right to
determine, in its sole discretion, that any one or more persons who meet the
eligibility requirements will not be eligible to participate for one or more
Plan Years beginning after the date they are notified of this decision by the
Committee.
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ARTICLE III
DEFERRALS AND COMPANY CONTRIBUTIONS
3.1 DEFERRAL ELECTION. A Participant may elect during the
election period established by the Committee prior to the beginning of any Plan
Year:
(1) the percentage of his Incentive Bonus earned during
the ensuing Plan Year which is to be paid as soon as
conveniently possible after the Plan Year and the percentage
which is to be deferred under the Plan;
(2) the percentage of his Director Fees earned during the
ensuing Plan Year which is to be paid during such year and the
percentage which is to be deferred under the Plan;
(3) the percentage of the amount deferred, if any, to be
deferred in the form of Common Stock and the percentage, if
any, to be deferred in the form of cash;
(4) the length of the period of deferral, if any amount
has been elected to be deferred, whether in cash or in Common
Stock, which deferral shall be for a period of years, to a
date certain, to termination of employment with the Company or
to his Retirement; and
(5) the form of payment of the amount that has been
elected to be deferred -- a lump sum, or quarterly or annual
installment payments of the principal amount plus the interest
accrued after the distribution date, or last installment paid,
if later, in the case of a deferral in the form of cash or of
the total shares of Common Stock credited to him as of the
date of distribution plus any other shares, cash or other
property credited as dividends or other rights on those shares
after the distribution date or last installment distributed,
if later, in the case of a deferral in the form of Common
Stock, over no less than three nor more than 20 years.
If a Participant elects a deferral period to Retirement, he
shall also specify whether the deferral period shall end at the date of his
termination of employment with the Company or at his Normal Retirement Date, in
the event of termination other than as a result of death, Disability
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or Retirement. If a Participant elects a deferral period of a number of years or
to a date certain, the deferral period shall end upon the Participant's
Retirement, if earlier.
The deferrals in the form of Common Stock elected by
Participants to be allocated to their Accounts in any Plan Year must not exceed
one percent of the shares of Common Stock outstanding on the first day of the
Plan Year. In the event this maximum would be exceeded, each Participant who
elected to defer in the form of Common Stock shall have his election reduced on
a pro rata basis as compared to all Participants who elected to defer in the
form of Common Stock until those deferrals in the aggregate for that Plan Year
equal the maximum and the portion of his Incentive Bonus which would have been
deferred in the form of Common Stock shall instead be distributed to the
Participant as provided in the Quanex Corporation Executive Incentive
Compensation Plan.
Once an election has been made it becomes irrevocable for that
Plan Year, except that the Participant may change his election of the form of
payment he previously elected under Section 3.1(5) during a 30-day period ending
one year prior to the end of the deferral period. In the event a Participant
originally elected a deferral period of a number of years or until a date
certain and, as a result of the Participant's election to take Retirement, the
Participant will retire before the end of the elected deferral period, the
Participant may elect to change the form of payment during a 30- day period
ending one year prior to the Retirement date chosen by the Participant by
written notice to the Company. In the event a Participant changes his election,
if the deferral period terminates early for any reason, which is beyond the
control of the Participant, such as involuntary termination of employment, death
or Disability, then the distribution or the first installment, whichever is
applicable, shall not be made until one year after the election was changed;
however, if the deferral period terminates early for any reason which is within
the control of the Participant,
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such as Retirement or voluntary termination of employment, then the
change of election will be ineffective. If for any reason the deferral period
does not end one year after the end of such 30-day period because of a
postponement of Retirement or otherwise, the change of election shall remain in
effect and no further changes of election shall be permitted.
The election to participate in the Plan for a given Plan Year
will be effective only upon receipt by the Committee of the Participant's
election on such form as will be determined by the Committee from time to time.
If the Participant does not exercise his right to defer, subject to Section 3.3
below, the Participant will be deemed to have elected not to defer any part of
his Incentive Bonus or Director Fees for that Plan Year and all of his Incentive
Bonuses and Director Fees will be paid in cash. If the percentage of the
Incentive Bonus and Director Fees elected to be deferred in Common Stock results
in a fractional share, it shall be reduced to the next lowest full share and the
fractional share shall be paid or deferred, as the case may be, in cash.
3.2 COMPANY MATCH. The Company will credit to the Account of
each Participant who has a portion of his Incentive Bonus or Director Fees
deferred under the Plan in the form of Common Stock for a period of three full
years or more additional shares of Common Stock equal to 20 percent of the
amount which is deferred in the form of Common Stock, rounded to the next
highest number of full shares.
3.3 MANDATORY DEFERRAL. If a Participant becomes entitled to a
cash payment of part or all of an Incentive Bonus because the Participant did
not elect to defer all of the Incentive Bonus but the Company determines that
section 162(m) of the Code may not allow the Company to take a deduction for
part or all of the Incentive Bonus, then, unless a Change of Control has
occurred after June 1, 1999, the payment of the Incentive Bonus will be delayed
until December 1st following the end of the Plan Year in which it occurred. Then
on December 1st, if the Company's
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deduction is determined by the Company not to be affected, the Incentive Bonus
in total will be paid immediately. However, if the Company determines that some
portion of the Incentive Bonus is affected, then only that portion of the
Incentive Bonus which is deductible by the Company shall be paid on December 1st
and the remaining portion of the Incentive Bonus will be delayed to the first
day of the first complete month of the second Plan Year, at which time it will
be paid. The Committee may waive the mandatory deferral required by this Section
3.3 with respect to a Participant who is not a member of the Committee but such
waiver shall only be made on an individual basis and at the time the Incentive
Bonus is determined and awarded.
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ARTICLE IV
ACCOUNT
4.1 ESTABLISHING A PARTICIPANT'S ACCOUNT. The Committee will
establish an Account for each Participant in a special Deferred Compensation
Ledger which will be maintained by the Company. The Account will reflect the
amount of the Company's obligation to the Participant at any given time.
4.2 CREDIT OF THE PARTICIPANT'S DEFERRAL AND THE COMPANY'S
MATCH. Upon completion of the Plan Year or quarter, as applicable, the Committee
will determine, as soon as administratively practicable, the amount of a
Participant's Incentive Bonus or Director Fees that has been deferred for that
Plan Year or quarter, as applicable, and the amount of the Company Match, if
any, and will credit that or those amounts to the Participant's Account as of
the end of the Plan Year or quarter, as applicable, during which the Incentive
Bonus or Director Fees were earned. If the Participant elected his deferral to
be in the form of Common Stock, the number of shares credited to his Account as
Common Stock shall be the number of full shares of Common Stock that could have
been purchased with the dollar amount deferred, without taking into account any
brokerage fees, taxes or other expenses which might be incurred in such a
transaction, based upon the closing quotation on the NYSE, or if not traded on
the NYSE, the principal market in which the Common Stock is traded on the date
the amount would have been paid had it not been deferred pursuant to Article
III, and any additional fractional amount shall be credited to the Participant's
Account in the form of cash.
4.3 CREDITING OF DIVIDENDS, DISTRIBUTIONS AND INTEREST. When
dividends are declared and paid, or other distributions, whether stock,
property, cash, rights or other, are made with
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respect to the Common Stock, those dividends and other distributions shall be
accrued in a Participant's Account based upon the shares of Common Stock
credited to his Account. The dividends or other distributions in the form of
shares of Common Stock shall be credited to the Account as additional shares of
Common Stock. The dividends or other distributions or rights in any other form
shall be credited to the Participant's Account in the form of cash. For this
purpose, all dividends and distributions not in the form of shares of Common
Stock or cash shall be valued at the fair market value as determined by a
resolution duly adopted by the Committee. Interest will be accrued on that
portion of a Participant's Account held in the form of cash at the rate
established by Section 4.4.
4.4 INTEREST RATE. Interest will be accrued on the last day of
each calendar month on each portion of a Participant's Account held in the form
of cash (whether resulting from a cash deferral, cash dividends or other cash
distributions on Common Stock or the conversion of a Common Stock credit in his
Account to cash) from the later of (a) the time it is credited to his Account or
(b) the last previous calendar month end at a rate equal to (x) the rate of
interest announced by Chase Manhattan Bank, N.A., or its successor, if
applicable as its prime rate of interest on the last business day of the
calendar quarter preceding the calendar quarter in which the month falls divided
by (y) four. Interest so accrued on the last day of each calendar month shall be
credited as cash to the Participant's Account and shall thereafter accrue
interest. Interest will continue to be credited on the cash balance in the
Participant's Account until the entire cash balance has been distributed.
4.5 COMMON STOCK CONVERSION ELECTION. At any time during a
period of three years prior to the earliest time a Participant could retire
under the Retirement Plan and ending on the Participant's Normal Retirement
Date, the Participant may elect a Retirement date under the
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Retirement Plan and may elect to have all or a portion of his shares of Common
Stock in his Account converted to cash. In that event, all such shares of Common
Stock shall be converted on the date notice is received by the Company based
upon the closing quotation as described in Section 4.2, on that day, unless the
Participant has specified no more than five different dates after the date of
the notice on which the Participant desires all or a portion of the shares of
Common Stock to be converted and the percentage of shares to be converted on
each date. If the Participant has specified dates for and the percentage of
shares to be converted, then the designated percentage of shares of Common Stock
to be converted on each date shall be converted on the specified date based on
the closing quotation as described in Section 4.2 on such specified dates.
At any time that is at least five years after Common Stock is
credited to his Account pursuant to Section 4.2, a Participant may elect to have
such Common Stock converted to cash and credited to his Account. In that event,
all such shares of Common Stock specified by the Participant in a written notice
to the Company which have been credited to the Participant's Account for at
least five years prior to the giving of such notice shall be converted on the
date notice is received by the Company based upon the closing quotation as
described in Section 4.2, on that day.
4.6 CONVERSION AND CASH-OUT UPON A CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan, immediately upon the occurrence
of a Change of Control, all shares of Common Stock credited to a current or
former Participant's Account shall be converted to cash based on the Change of
Control Value of such shares of Common Stock. Within five days after the date on
which the Change of Control occurs, all current and former Participants shall be
paid in cash lump sum payments the balances credited to their Accounts.
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ARTICLE V
VESTING AND EVENTS CAUSING FORFEITURE
5.1 VESTING. All deferrals of the Incentive Bonus and Director
Fees and all income accrued on the deferrals will be 100 percent vested except
for the events of forfeiture described in Sections 5.3 and 5.4. All Company
matching accruals and all income accrued on those matching accruals will be 100
percent vested except for the events of forfeiture described in Section 5.2, 5.3
and 5.4.
5.2 FORFEITURE OF COMPANY MATCH BECAUSE OF EARLY DISTRIBUTION.
If, but for the provisions of this Section 5.2, a Participant would receive a
benefit from the Plan for any reason, other than death, disability or
Retirement, in respect of shares of Common Stock credited to the Participant's
account pursuant to Section 4.2 as a result of the Company matching accrual of
20 percent provided for in Section 3.2 within three years after such shares were
so credited, or if the Participant ceases to be an employee with respect to a
matching accrual resulting from deferral of an Incentive Bonus, or a director
with respect to a matching accrual resulting from deferral of Director Fees
within three years after such shares are so credited, such matching accruals of
shares of Common Stock and any dividends or other property or rights accumulated
because of those shares of Common Stock shall be immediately forfeited.
5.3 FORFEITURE FOR CAUSE. If the Committee finds, after full
consideration of the facts presented on behalf of both the Company and a former
Participant, that the Participant was discharged by the Company for fraud,
embezzlement, theft, commission of a felony, proven dishonesty in the course of
his employment by the Company which damaged the Company, or for disclosing trade
secrets of the Company, the entire amount credited to his Account, exclusive of
an
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amount equal to the sum of the total deferrals of the Participant, will be
forfeited. The decision of the Committee as to the cause of a former
Participant's discharge and the damage done to the Company will be final. No
decision of the Committee will affect the finality of the discharge of the
Participant by the Company in any manner.
5.4 FORFEITURE FOR COMPETITION. If at the time a distribution
is being made or is to be made to a Participant or former Participant, the
Committee finds after full consideration of the facts presented on behalf of the
Company and the Participant or former Participant, that the Participant or
former Participant at any time within two years from his termination of
employment from the Company, and without written consent of the Company,
directly or indirectly owns, operates, manages, controls or participates in the
ownership, management, operation or control of or is employed by, or is paid as
a consultant or other independent contractor by a business which competes or at
any time did compete with the Company by which he was formerly employed in a
trade area served by the Company at the time distributions are being made or to
be made and in which the Participant or former Participant had represented the
Company while employed by it; and, if the Participant or former Participant
continues to be so engaged 60 days after written notice has been given to him,
the Committee will forfeit all amounts otherwise due the Participant or former
Participant, exclusive of an amount equal to the sum of the total deferrals of
the Participant or former Participant.
5.5 FULL VESTING IN THE EVENT OF A CHANGE OF CONTROL. The
forfeitures created by sections 5.2, 5.3 or 5.4 shall not apply with respect to
any amounts credited to the Accounts of current or former Participants after the
occurrence of a Change of Control.
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ARTICLE VI
DISTRIBUTIONS
6.1 FORM OF DISTRIBUTIONS OR WITHDRAWALS. Upon a distribution
or withdrawal, at the option of Quanex, the number of shares of Common Stock
credited to the Participant in the Deferred Compensation Ledger, if any,
required to be distributed shall be distributed in kind or in cash, whether the
distribution or withdrawal is in a lump sum or in installments. If distributed
in cash, the amount per share of Common Stock which would otherwise be
distributed in kind shall equal the closing quotation for the Common Stock on
the NYSE (or if not traded on the NYSE, the principal market in which the Common
Stock is traded) on the third business day prior to the date of distribution. If
the distribution is in installments, all dividends and other property or rights
accumulating on the shares still undistributed will be credited as provided in
Section 4.3 and distributed with the next installment. If there are periodic
installments to be made of the portion, if any, deferred as cash, income shall
accumulate on that portion of the Account as described in Section 4.6 until the
balance credited to the cash portion of the Participant's Account has been
distributed. In that event, income accumulating on the cash portion of the
Account shall be distributed with the next installment to be distributed.
6.2 DEATH. Upon the death of a Participant prior to the
expiration of the Term of Deferral, the Participant's Beneficiary or
Beneficiaries will receive in Common Stock or cash as required by Section 6.1,
the balance then credited to the Participant's Account in the Deferred
Compensation Ledger. The lump sum distribution or the first installment of the
periodic distribution will be made 90 days after the Participant's death.
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Each Participant, upon making his initial deferral election,
will file with the Committee a designation of one or more Beneficiaries to whom
distributions otherwise due the Participant will be made in the event of his
death prior to the complete distribution of the amount credited to his Account
in the Deferred Compensation Ledger. The designation will be effective upon
receipt by the Committee of a properly executed form which the Committee has
approved for that purpose. The Participant may from time to time revoke or
change any designation of Beneficiary by filing another approved Beneficiary
designation form with the Committee. If there is no valid designation of
Beneficiary on file with the Committee at the time of the Participant's death,
or if all of the Beneficiaries designated in the last Beneficiary designation
have predeceased the Participant or otherwise ceased to exist, the Beneficiary
will be the Participant's spouse, if the spouse survives the Participant, or
otherwise the Participant's estate. A Beneficiary must survive the Participant
by 60 days in order to be considered to be living on the date of the
Participant's death. If any Beneficiary survives the Participant but dies or
otherwise ceases to exist before receiving all amounts due the Beneficiary from
the Participant's Account, the balance of the amount which would have been paid
to that Beneficiary will, unless the Participant's designation provides
otherwise, be distributed to the individual deceased Beneficiary's estate or to
the Participant's estate in the case of a Beneficiary which is not an
individual. Any Beneficiary designation which designates any person or entity
other than the Participant's spouse must be consented to in writing in a form
acceptable to the Committee in order to be effective.
6.3 DISABILITY. Upon the Disability of a Participant prior to
the expiration of the Term of Deferral, the Participant will receive in Common
Stock or cash as required by Section 6.1, the balance then credited to the
Participant's Account. The lump sum distribution or the first installment of the
periodic distribution will be made 90 days after the Participant becomes
disabled.
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6.4 EXPIRATION OF TERM OF DEFERRAL. Upon the expiration of the
Term of Deferral, the Participant shall receive in Common Stock or cash as
required by Section 6.1, the balance credited to the Participant's Account. The
lump sum distribution or the first installment of the periodic distribution will
be made 90 days after the expiration of the Term of Deferral without regard to
whether the Participant is still employed by the Company or not.
6.5 HARDSHIP WITHDRAWALS. Any Participant who is in the employ
of a Company and is not entitled to a distribution from the Plan may request a
hardship withdrawal. No hardship withdrawal can exceed the lesser of the amount
credited to the Participant's Account or the amount reasonably needed to satisfy
the emergency need. Whether a hardship exists and the amount reasonably needed
to satisfy the emergency need will be determined by the Committee based upon the
evidence presented by the Participant and the rules established in this Section.
If a hardship withdrawal is approved by the Committee it will be made in Common
Stock or cash as required in Section 6.1 within ten days of the Committee's
determination. A hardship for this purpose is a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in section 152(a) of the Code) of the
Participant, loss of the Participant's property due to casualty, or any similar
extraordinary and unforeseeable circumstance arising as a result of events
beyond the control of the Participant. The circumstances that will constitute a
hardship will depend upon the facts of each case, but, in any case, payment may
not be made to the extent that the hardship is or may be relieved: (a) through
reimbursement or compensation by insurance or otherwise, (b) by liquidation of
the Participant's assets, to the extent the liquidation of such assets will not
itself cause severe financial hardship, or (c) by cessation of deferrals under
the Plan. Such foreseeable needs for funds as the need to send a Participant's
child to college or the desire to purchase a home will not be considered to be a
hardship.
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6.6 PAYMENT RESTRICTIONS ON ANY PORTION OF A BENEFIT
DETERMINED NOT TO BE DEDUCTIBLE. Except for hardship withdrawals under Section
6.5, if a Participant has a benefit that is due during a Plan Year and the
Committee determines that section 162(m) of the Code could affect the Company's
deduction on the amount paid, the distribution of his benefit will be delayed
until December 1 following the end of the Plan Year. Then on December 1 if the
Company's deduction is determined by the Committee not to be affected, the
benefit in total will be distributed immediately; however, if the Committee
determines that some portion of the benefit is affected, then only that portion
of the benefit which is deductible by the Company shall be distributed on
December 1st and the distribution of the remaining portion of the benefit will
be delayed to the first day of the first complete month of the Plan Year or
Years on which a portion or all of the remaining distribution can be made and
deducted by the Company on its federal income tax return. The Committee may
waive the mandatory deferral required by this Section 6.6 with respect to a
Participant who is not a member of the Committee, but such waiver shall only be
made on an individual basis and at the time the distribution is to be made.
6.7 RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES.
The Committee will furnish information to the Company last employing the
Participant, concerning the amount and form of distribution to any Participant
entitled to a distribution so that the Company may make or cause the Rabbi Trust
to make the distribution required. It will also calculate the deductions from
the amount of the benefit paid under the Plan for any taxes required to be
withheld by federal, state or local government and will cause them to be
withheld. If a Participant has deferred compensation under the Plan while in the
service of more than one Company, each Company for which the Participant was
working will reimburse the disbursing agent for the amount attributable to
compensation deferred while the Participant was in the service of that Company
if it has not already provided that funding to the disbursing agent.
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ARTICLE VII
ADMINISTRATION
7.1 COMMITTEE APPOINTMENT. The Committee will be appointed by
the Board. The initial Committee members will be Compensation Committee of the
Board. Each Committee member will serve until his or her resignation or removal.
The Board will have the sole discretion to remove any one or more Committee
members and appoint one or more replacement or additional Committee members from
time to time.
7.2 COMMITTEE ORGANIZATION AND VOTING. The Committee will
select from among its members a chairman who will preside at all of its meetings
and will elect a secretary without regard to whether that person is a member of
the Committee. The secretary will keep all records, documents and data
pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee will constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting will decide any question brought before the meeting. In addition, the
Committee may decide any question by vote, taken without a meeting, of a
majority of its members. If a member of the Committee is ever appointed who is
or becomes a Participant, that Committee member will not vote or act on any
matter relating solely to himself.
7.3 POWERS OF THE COMMITTEE. The Committee will have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and will have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
(a) to make rules and regulations for the administration of the
Plan;
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(b) to construe all terms, provisions, conditions and
limitations of the Plan;
(c) to correct any defect, supply any omission or reconcile any
inconsistency that may appear in the Plan in the manner and to the
extent it deems expedient to carry the Plan into effect for the
greatest benefit of all parties at interest;
(d) to designate the persons eligible to become Participants
and to establish the maximum and minimum amounts that may be elected
to be deferred;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
(1) differences of opinion arising between the Company
and a Participant except when the difference of opinion relates
to the entitlement to, the amount of or the method or timing of
a distribution of a benefit affected by a Change of Control, in
which event it shall be decided by judicial action; and
(2) any question it deems advisable to determine in
order to promote the uniform administration of the Plan for the
benefit of all parties at interest; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or
advisable for the proper and efficient administration of the Plan.
7.4 COMMITTEE DISCRETION. The Committee in exercising any
power or authority granted under the Plan or in making any determination under
the Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties. The Committee's decision shall never be subject to de novo
review. Notwithstanding the foregoing, the Committee's decision, refraining to
act or acting is to be subject to judicial review for those incidents occurring
during the Plan Year in which a Change of Control occurs and during the next
three succeeding Plan Years.
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7.5 ANNUAL STATEMENTS. The Committee will cause each
Participant to receive an annual statement as soon as administratively possible
after the conclusion of each Plan Year containing the amounts deferred, the
Company match, if any, and the income accrued on the deferred and matched
amounts.
7.6 REIMBURSEMENT OF EXPENSES. The Committee will serve
without compensation for their services but will be reimbursed by Quanex for all
expenses properly and actually incurred in the performance of their duties under
the Plan.
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ARTICLE VIII
ADOPTION BY SUBSIDIARIES
8.1 PROCEDURE FOR AND STATUS AFTER ADOPTION. Any Subsidiary
may, with the approval of the Committee, adopt the Plan by appropriate action of
its board. The terms of the Plan will apply separately to each Subsidiary
adopting the Plan and its Participants in the same manner as is expressly
provided for Quanex and its Participants except that the powers of the Board and
the Committee under the Plan will be exercised by the Board alone. Quanex and
each Subsidiary adopting the Plan will bear the cost of providing plan benefits
for its own Participants. It is intended that the obligation of Quanex and each
Subsidiary with respect to its Participants will be the sole obligation of the
Company that is employing the Participant and will not bind any other Company.
8.2 TERMINATION OF PARTICIPATION BY ADOPTING SUBSIDIARY. Any
Subsidiary adopting the Plan may, by appropriate action of its board of
directors, terminate its participation in the Plan. The Committee may, in its
discretion, also terminate a Subsidiary's participation in the Plan at any time.
The termination of the participation in the Plan by a Subsidiary will not,
however, affect the rights of any Participant who is working or has worked for
the Subsidiary as to amounts or shares of Common Stock previously standing to
his credit in his Account or reduce the income accrued on amounts deferred by
him or matched by the Company and credited to his Account whether in cash or in
shares of Common Stock, prior to the distribution of the benefit to the
Participant without his consent.
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ARTICLE IX
AMENDMENT AND/OR TERMINATION
9.1 AMENDMENT OR TERMINATION OF THE PLAN. The Board may amend
or terminate the Plan at any time by an instrument in writing without the
consent of any adopting Company.
9.2 NO RETROACTIVE EFFECT ON AWARDED BENEFITS. No amendment
will affect the rights of any Participant to the amounts, whether in cash or
shares of Common Stock, then standing to his credit in his Account, to change
the method of calculating the income already accrued or to accrue in the future
on amounts already deferred by him or matched by the Company prior to the date
of the amendment or to change a Participant's right under any provision relating
to a Change of Control after a Change of Control has occurred, without the
Participant's consent. However, the Board shall retain the right at any time to
change in any manner the method of calculating the match by the Company and the
income to accrue on all amounts to be deferred in the future by a Participant
and/or to be matched in the future by the Company after the date of the
amendment if it has been announced to the Participants.
9.3 EFFECT OF TERMINATION. If the Plan is terminated, all
amounts, whether in cash or in shares of Common Stock, deferred by Participants
and matched by the Company will continue to be held under the terms of the Plan
until all amounts have been distributed according to the elections made by the
Participants or the directives made by the Committee prior to the deferrals. The
forfeiture provisions of Sections 5.2, 5.3 and 5.4 and the restriction set out
in Section 6.6 would continue to apply throughout the period after the
termination of the Plan but prior to the completed distribution of all benefits.
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ARTICLE X
FUNDING
10.1 PAYMENTS UNDER THIS AGREEMENT ARE THE OBLIGATION OF THE
COMPANY. The Company will distribute the benefits due the Participants under the
Plan; however, should it fail to do so when a benefit is due and the funding
trust contemplated by Section 10.2 exists, the benefit will be distributed by
the trustee of that funding trust. In any event, if the trust fails to
distribute a benefit for any reason, the Company still remains liable for all
benefits provided by the Plan.
10.2 AGREEMENT MAY BE FUNDED THROUGH RABBI TRUST. It is
specifically recognized by both the Company and the Participants that the
Company may, but is not required to transfer any funds, shares or Common Stock
or other assets that it finds desirable to a trust established to accumulate
assets sufficient to fund the obligations of all of the Companies signatory to
the Plan. However, under all circumstances, the Participants will have no rights
to any of those assets; and likewise, under all circumstances, the rights of the
Participants to the assets held in the trust will be no greater than the rights
expressed in this agreement. Nothing contained in the trust agreement which
creates the funding trust will constitute a guarantee by any Company that assets
of the Company transferred to the trust will be sufficient to fund all benefits
under the Plan or would place the Participant in a secured position ahead of
general creditors should the Company become insolvent or bankrupt. Any trust
agreement prepared to fund the Company's obligations under this agreement must
specifically set out these principles so it is clear in that trust agreement
that the Participants in the Plan are only unsecured general creditors of the
Company in relation to their benefits under the Plan.
X-1
<PAGE> 31
10.3 REVERSION OF EXCESS ASSETS. Any adopting Company may, at
any time, request the actuary, who last performed the annual actuarial valuation
of the Quanex defined benefit Retirement plan, to determine the present Account
balance, assuming the accrual rate for income not to be reduced (whether it
actually is or not), as of the month end coincident with or next preceding the
request, of all Participants and Beneficiaries of deceased Participants for
which all Companies are or will be obligated to make benefit distributions under
the Plan. If the fair market value of the assets held in the trust, as
determined by the Trustee as of that same date, exceeds the total of the Account
balances of all Participants and Beneficiaries by 25 percent, any Company may
direct the trustee to return to each Company its proportionate part of the
assets which are in excess of 125 percent of the Account balances. Each
Company's share of the excess assets will be the Participants' Accounts accrued
while in the employ of that Company as compared to the total of the Account
balances accrued by all Participants under the Plan times the excess assets. If
there has been a Change of Control, for the purpose of determining if there are
excess funds, all contributions made prior to the Change of Control will be
subtracted from the fair market value of the assets held in the trust as of the
determination date but before the determination is made.
10.4 PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE
COMPANY. It is also specifically recognized by both the Company and the
Participants that the Plan is only a general corporate commitment and that each
Participant must rely upon the general credit of the Company for the fulfillment
of its obligations under the Plan. Under all circumstances the rights of
Participants to any asset held by the Company will be no greater than the rights
expressed in this agreement. Nothing contained in this agreement will constitute
a guarantee by the Company that the assets of the Company will be sufficient to
distribute any benefits under the Plan or would place the Participant in a
secured position ahead of general creditors of the Company. Though the
X-2
<PAGE> 32
Company may establish or become a signatory to a Rabbi Trust, as indicated in
Section 10.1, to accumulate assets to fulfill its obligations, the Plan and any
such trust will not create any lien, claim, encumbrance, right, title or other
interest of any kind in any Participant in any asset held by the Company,
contributed to any such trust or otherwise designated to be used in fulfillment
of any of its obligations created in this agreement. No specific assets of the
Company have been or will be set aside, or will in any way be transferred to the
trust or will be pledged in any way for the performance of the Company's
obligations under the Plan which would remove such assets from being subject to
the general creditors of the Company.
X-3
<PAGE> 33
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS. Nothing in the Plan will be construed:
(a) to give any employee of any Company any right to be
designated a Participant in the Plan;
(b) to give a Participant any right with respect to the
compensation deferred, the Company match or the income accrued and
credited in the Deferred Compensation Ledger except in accordance with
the terms of the Plan;
(c) to limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time;
(d) to evidence any agreement or understanding, expressed or
implied, that the Company will employ a Participant in any particular
position or for any particular remuneration; or
(e) to give a Participant or any other person claiming through
him any interest or right under the Plan other than that of any
unsecured general creditor of the Company.
11.2 DISTRIBUTIONS TO INCOMPETENTS OR MINORS. Should a
Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to distribute the
benefit due to the parent of the minor or to the guardian of the minor or
incompetent or directly to the minor or to apply those assets for the benefit of
the minor or incompetent in any manner the Committee determines in its sole
discretion.
11.3 NONALIENATION OF BENEFITS. No right or benefit provided in
the Plan will be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in the Plan. No right or benefit under the Plan
will be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void. No right or benefit under the
Plan will in any manner
XI-1
<PAGE> 34
be liable for or subject to any debts, contracts, liabilities or torts of the
person entitled to such benefits. If any Participant or any Beneficiary becomes
bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or
charge any right or benefit under the Plan, that right or benefit will, in the
discretion of the Committee, cease. In that event, the Committee may have the
Company hold or apply the right or benefit or any part of it to the benefit of
the Participant or Beneficiary, his or her spouse, children or other dependents
or any of them in any manner and in any proportion the Committee believes to be
proper in its sole and absolute discretion, but is not required to do so.
11.4 EXPENSES INCURRED IN ENFORCING THE PLAN. The Company
will, in addition, pay a Participant for all legal fees and expenses incurred by
him in contesting or disputing his termination or in seeking to obtain or
enforce any benefit provided by the Plan if the termination occurs in the Plan
Year in which a Change of Control occurs or during the next three succeeding
Plan Years following the Plan Year in which a Change of Control occurs except to
the extent that the payment of those fees or expenses are restricted under
Section 6.6.
11.5 RELIANCE UPON INFORMATION. The Committee will not be
liable for any decision or action taken or not taken in good faith in connection
with the administration of the Plan. Without limiting the generality of the
foregoing, any decision or action taken or not taken by the Committee when it
relies upon information supplied it by any officer of the Company, the Company's
legal counsel, the Company's independent accountants or other advisors in
connection with the administration of the Plan will be deemed to have been taken
in good faith.
11.6 SEVERABILITY. If any term, provision, covenant or
condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
XI-2
<PAGE> 35
11.7 NOTICE. Any notice or filing required or permitted to be
given to the Committee or a Participant will be sufficient if in writing and
hand-delivered or sent by U.S. mail to the principal office of the Company or to
the residential mailing address of the Participant. Notice will be deemed to be
given as of the date of hand-delivery or if delivery is by mail, as of the date
shown on the postmark.
11.8 GENDER AND NUMBER. If the context requires it, words of
one gender when used in the Plan will include the other genders, and words used
in the singular or plural will include the other.
11.9 GOVERNING LAW. The Plan will be construed, administered
and governed in all respects by the laws of the State of Texas.
XI-3
<PAGE> 36
IN WITNESS WHEREOF, the Company has executed this document on
this 29th day of September, 1999.
QUANEX CORPORATION
By /s/ PAUL GIDDENS
--------------------------------------
<PAGE> 1
EXHIBIT 10.8
QUANEX CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED
EFFECTIVE OCTOBER 12, 1995
ARTICLE I
ESTABLISHMENT AND PURPOSE
Establishment of the Plan. Quanex Corporation herewith
establishes an incentive compensation plan for executives as herein set forth,
which shall be known as the Quanex Corporation Executive Incentive Compensation
Plan that shall become effective as of November 1, 1981.
1.1 Purpose. The purpose of the Plan is to provide executives
of the Company with competitive levels of total compensation and incentive
earning opportunities commensurate with results achieved and individual
performance.
ARTICLE II
DEFINITIONS
Company. "Company" means Quanex Corporation and any
successor. In addition, the term "Company" shall include any other corporation
in which Quanex Corporation owns more than 50% of the outstanding voting stock
and adopts this Plan.
2.1 Committee. "Committee" means those directors appointed by
the Board of Directors to administer this Plan.
2.2 Consolidated Financial Statements. "Consolidated Financial
Statements" means for each year, the consolidated balance sheet, statement of
earnings, and shareholders' equity prepared by the independent certified public
accountants engaged by the Company's Board of Directors to audit the financial
statements of the Company, as set forth and certified in the annual report to
stockholders of the Company.
2.3 Corporate Performance Goal. "Corporate Performance Goal"
means the level of EBITDA/Sales, Group EBITDA/Sales, Group Return on
Controllable Investment, Return on Equity and Return on Investment for the Plan
Year, approved annually by the Committee. The Committee, in its discretion, may
select other Corporate Performance Goals provided such goals are
<PAGE> 2
set forth in writing and approved no later than 60 days after the beginning of
the Plan Year for which such goals are to apply.
2.4 EBITDA/Sales. "EBITDA/Sales" for any Plan Year means the
Company's annual operating income plus depreciation and amortization divided by
net sales for such year.
2.5 Group EBITDA/Sales. "Group EBITDA/Sales" for any Plan Year
for a business group of the Company selected by the Committee means the annual
operating income of such business group plus depreciation and amortization for
such group divided by net sales for such group for such year.
2.6 Group Return on Controllable Investment. "Group Return on
Controllable Investment" for a business group of the Company selected by the
Committee for any Plan Year means Group annual operating income plus
depreciation and amortization less the capital use charge on working capital
imposed by the Company on the group, less taxes thereon at the effective tax
rate for such Group for such Plan Year, divided by equity and non-current
liabilities attributable to such group.
2.7 Incentive Award. "Incentive Award" means the amount due a
Participant in accordance with Article IV of this Plan.
2.8 Individual Incentive Target. "Individual Incentive Target"
means the anticipated Incentive Award to be paid to a Participant in the event
the Corporate Performance Goals assigned to such Participant are met and the
individual performance of the Participant is fully proficient and satisfactory.
Individual Incentive Targets shall be a percentage of Salary as determined by
the Committee and the Committee may assign such weight to each of a
Participant's Corporate Performance Goals for purposes of determining whether an
Individual Incentive Target is met as the Committee, in its sole discretion,
shall determine.
2.9 Participant. "Participant" means an employee of the
Company selected by the Committee to be considered for an Incentive Award under
this Plan. The mere selection as a Participant shall not convey any rights as to
the eventual receipt of an award.
2.10 Plan. "Plan" means the Quanex Corporation Executive
Incentive Compensation Plan.
2.11 Plan Year. "Plan Year" means the period from November 1
to October 31 each year.
2.12 Return on Equity. "Return on Equity" for any Plan Year
means the annual net income of the Company less preferred dividends divided by
average common shareholders' equity. For purposes hereof average common
shareholders' equity shall be the sum of common
2
<PAGE> 3
equity as of the beginning of each fiscal quarter of the Plan Year and as of the
end of the Plan Year divided by five.
2.13 Return on Investment. "Return on Investment" for any Plan
Year means the annual net income of the Company plus interest expense (net of
the income tax benefit thereof at the effective tax rate of the Company for such
Plan Year) divided by total investment. For purposes hereof total investment
shall be the sum of shareholders' equity plus long term debt as of the beginning
of each fiscal quarter of the Plan Year and as of the end of the Plan Year
divided by five.
2.14 Salary. "Salary" means the amounts paid by the Company to
a Participant during the Plan Year as regular compensation for services,
exclusive of bonuses, awards, reimbursement of expenses and all indirect
payments or other additional amounts paid or credited to or on behalf of the
Participant by the Company.
In determining any Corporate Performance Goal, the Committee,
in its sole discretion, may exclude from long-term debt that part of the debt
which the Committee considers not available for production of earnings and may
adjust annual operating income and expenses for those items the Committee deems
extraordinary, unusual or infrequent and for changes in accounting standards. In
addition, the Committee, in its discretion, may determine that portions of
long-term debt and additional equity arising from a public offering of the
capital stock of the Company are to be phased into the debt and equity accounts
over a period of time, not exceeding 36 months, as the Committee shall determine
appropriate, giving consideration to the fact that the debt and equity may not
be available, or may be only partially available for production of earnings.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Eligibility and Participation. Eligibility for participation
in the Plan will be limited to those key executive personnel who, by the nature
and scope of their position, regularly and directly make or influence policy
decisions which significantly impact the overall results or success of the
Company.
3.1 Participation. Participants will be selected by the
Committee not later than the beginning of each Plan Year. Each person selected
to be a Participant will be notified in writing. The notice shall inform the
Participant of his selection and of the Corporate Performance Goals established
for the Plan Year and the Individual Incentive Targets for the Participant.
3.2 Cessation of Participants. The Committee may withdraw its
approval of an executive's participation at any time during the Plan Year.
3
<PAGE> 4
ARTICLE IV
AWARD DETERMINATION
Assignment of Individual Incentive Targets. Each year the
Committee will assign an Individual Incentive Target for each Participant. This
Individual Incentive Target will be expressed as a percentage of the
Participant's Salary. The Committee shall have the power to adjust Individual
Incentive Targets at any time during the Plan Year.
4.1 Corporate Performance Goals. Prior to the beginning of
each Plan Year the Committee will establish Corporate Performance Goals for each
Participant that, if no adjustment were made for individual Participant's
performance, would result in 100% of the Individual Incentive Target being
earned. In addition, the Committee will establish for each Plan Year levels of
Corporate Performance Goals for each Participant that, if no adjustment were
made for individual Participant's performance, would result in amounts greater
or lesser than the Individual Incentive Target being earned.
To establish the Corporate Performance Goals for each
Participant for each Plan Year, the Committee will use any information it
considers relevant regarding the likely performance of the Company. The
Corporate Performance Goals, together with related schedules, will be
communicated to Participants as soon as practicable following its determination
by the Committee.
4.2 Award Determination. As soon as possible after the end of
the Plan Year, the Committee shall determine the Incentive Award payable to each
Participant on the basis of the Corporate Performance Goals achieved based on
the Consolidated Financial Statements for the Plan Year. The Incentive Award so
determined shall be subject to adjustment to reflect individual performance in
accordance with Section 4.4.
4.3 Individual Performance Adjustments. The Committee shall
have the power to adjust awards as determined under Section 4.3, to reflect the
individual performance of the Participant or to better relate the Incentive
Award to the performance of the Company or to one of the business groups. In
making adjustments to reflect excellent or superior individual performance the
Committee is only limited by the maximum Incentive Award that can be earned by
the Participant.
4.4 Participation in Other Incentive Plans. Notwithstanding
the preceding, for each Participant who is also a Participant under another
incentive compensation plan of the Company, the Committee may specify that
incentive compensation shall be based on the compensation payable under the
other plan to the maximum amount payable under that plan and additional
incentive compensation shall be payable to the Participant under the provisions
of this
4
<PAGE> 5
Plan only to the extent that compensation under this Plan would exceed
compensation under the other plan.
4.5 Maximum Individual Awards. The Committee shall determine
for each Participant a maximum Incentive Award that can be earned for each Plan
Year, expressed as a percentage of the Participant's Salary. The maximum
Incentive Award cannot be exceeded regardless of the level of corporate and
individual performance achieved.
ARTICLE V
FORM AND TIMING OF AWARDS
Payment of Individual Awards. Except as provided in Section
5.2, Incentive Awards to be paid to Participants in accordance with the
provisions of Article IV shall be paid in cash as soon as practicable following
the release of the Company's Consolidated Financial Statements for the Plan
Year.
5.1 Participant Election to Defer Payments. For each Plan
Year, a Participant may elect to defer all or any part of the Incentive Award
which may be earned under this Plan, and otherwise become payable to the
Participant. That election to defer shall be made in accordance with the Quanex
Corporation Deferred Compensation Plan. If the Participant fails to make an
election to defer a part or all of his Incentive Award and the payment of a part
or all of the Incentive Award would cause the Company to loose a part or all of
its deduction because of Section 162(m) of the Code, the payment of the
Incentive Award will be delayed under the Quanex Corporation Deferred
Compensation Plan. Under this circumstance, the provisions of the Quanex
Corporation Deferred Compensation Plan shall then become controlling as to the
terms of payment of the Incentive Award.
ARTICLE VI
TERMINATION OF EMPLOYMENT
In the event the employment of a Participant is terminated for
cause, the right of the Participant to receive any Incentive Award under the
Plan with respect to the Plan Year during which the termination occurred shall
be forfeited. In the event the employment of a Participant is terminated for any
reason other than for cause, the Participant or his or her other beneficiaries
shall be entitled to receive a prorated Incentive Award for the portion of the
Plan Year prior to his termination of employment.
ARTICLE VII
DESIGNATION OF BENEFICIARIES
A Participant shall designate a Beneficiary or Beneficiaries
who are to receive upon his death the distributions that otherwise would have
been paid to the Participant. All designations shall be in writing and shall be
effective only if and when delivered to the Committee during the
5
<PAGE> 6
lifetime of the Participant. If a Participant designates a Beneficiary without
providing in the designation that the Beneficiary must be living at the time of
each distribution, the designation shall vest in the Beneficiary all of the
distributions whether payable before or after the Beneficiary's death, and any
distributions remaining upon the Beneficiary's death shall be made to the
Beneficiary's estate. A Participant may, from time to time, during his lifetime,
change his Beneficiary or Beneficiaries by a written instrument delivered to the
Committee. In the event a Participant does not designate a Beneficiary or
Beneficiaries, or if for any reason the designation is ineffective, in whole or
in part, the distribution that otherwise would have been paid to the Participant
shall be paid to his estate and in that event the term "Beneficiary" shall
include his estate.
Once an Incentive Award is held under the terms of the Quanex
Corporation Deferred Compensation, the designation of Beneficiaries shall become
controlled by its terms and any designation of a Beneficiary under this Plan
will become ineffective.
ARTICLE VIII
ADMINISTRATION
Committee Appointment. The Committee will be appointed by the
Board of Directors from their members who are not salaried officers of the
Company and are not eligible to participate in the Plan. Each Committee member
will serve until his or her resignation or removal. The Board of Directors will
have the sole discretion to remove any one or more Committee members and appoint
one or more replacement or additional Committee members from time to time.
8.1 Committee Organization and Voting. The Committee will
select from among its members a chairman who will preside at all of its meetings
and will elect a secretary without regard to whether that person is a member of
the Committee. The secretary will keep all records, documents and data
pertaining to the Committee's supervision and administration of the Plan. A
majority of the members of the Committee will constitute a quorum for the
transaction of business and the vote of a majority of the members present at any
meeting will decide any question brought before the meeting. In addition, the
Committee may decide any question by vote, taken without a meeting, of a
majority of its members.
8.2 Powers of the Committee. The Committee will have the
exclusive responsibility for the general administration of the Plan according to
the terms and provisions of the Plan and will have all powers necessary to
accomplish those purposes, including but not by way of limitation the right,
power and authority:
(a) to make rules and regulations for the
administration of the Plan;
6
<PAGE> 7
(b) to construe all terms, provisions, conditions and
limitations of the Plan;
(c) to correct any defect, supply any omission or
reconcile any inconsistency that may appear in the Plan;
(d) to designate the persons eligible to become
Participants and to establish the Corporate Performance Goal,
and the Individual Incentive Target for each Participant, a
maximum for each Incentive Award, and all other matters
necessary to make this Plan operative;
(e) to determine all controversies relating to the
administration of the Plan, including but not limited to:
(1) differences of opinion arising
between the Company and a Participant; and
(2) any question it deems advisable to
determine in order to administer the Plan; and
(f) to delegate by written notice those clerical and
recordation duties of the Committee, as it deems necessary or
advisable for the proper and efficient administration of the
Plan.
8.3 Committee Discretion. The Committee in exercising any
power or authority granted under this Plan or in making any determination under
this Plan shall perform or refrain from performing those acts using its sole
discretion and judgment. Any decision made by the Committee or any refraining to
act or any act taken by the Committee in good faith shall be final and binding
on all parties. The Committee's decision shall never be subject to de novo
review.
8.4 Reimbursement of Expenses. The Committee will serve
without compensation for their services but will be reimbursed by the Company
for all expenses properly and actually incurred in the performance of their
duties under the Plan.
ARTICLE IX
ADOPTION BY SUBSIDIARIES
Procedure for and Status After Adoption. Any subsidiary
corporation in which Quanex Corporation owns more than 50% of the outstanding
voting stock may, with the approval of the Committee, adopt this Plan by
appropriate action of its board of directors. The terms of the
7
<PAGE> 8
Plan will apply separately to each Company adopting the Plan and its
Participants in the same manner as is expressly provided for Quanex Corporation
and its Participants except that the powers of the Board of Directors and the
Committee under the Plan will be exercised by the Board of Directors of Quanex
Corporation alone. Each Company will bear the cost of providing Plan benefits
for its own Participants. It is intended that the obligation of each Company
with respect to its Participants will be the sole obligation of the Company that
is employing the Participant and will not bind any other Company.
9.1 Termination of Participation By Adopting Company. Any
Company adopting the Plan may, by appropriate action of its board of directors,
terminate its participation in the Plan. The Committee may, in its discretion,
also terminate a Company's participation in the Plan at any time.
ARTICLE X
AMENDMENT AND/OR TERMINATION
Amendment and/or Termination. The Committee, in its sole
discretion, without notice, at any time and from time to time, may modify or
amend, in whole or in part, any or all of the provisions of this Plan, or
suspend or terminate it entirely.
10.1 No Retroactive Effect. No modification, amendment,
suspension, or termination, may without the consent of a Participant (or his
Beneficiary in the case of the death of the Participant) reduce the right of a
Participant (or his Beneficiary as the case may be) to a payment or distribution
under this Plan to which he is entitled in accordance with the provisions
contained in Article IV of this Plan.
ARTICLE XI
MERGER, CONSOLIDATION, AND SALE OF ASSETS
Notwithstanding anything in this Plan to the contrary, in the
event that the Company consolidates with, merges into, or transfers all or
substantially all of its assets to another corporation, the obligations of the
Company under this Plan shall be binding on that corporation or other entity.
ARTICLE XII
MISCELLANEOUS
Limitation of Rights. Nothing in this Plan will be construed:
(a) to give any employee of any Company any
right to be designated a Participant in the Plan;
8
<PAGE> 9
(b) to give a Participant any right with respect to
the Incentive Award except in accordance with the terms of
this Plan;
(c) to limit in any way the right of the Company to
terminate a Participant's employment with the Company at any
time;
(d) to evidence any agreement or understanding,
expressed or implied, that the Company will employ a
Participant in any particular position or for any particular
remuneration; or
(e) to give a Participant or any other person
claiming through him any interest or right under this Plan
other than that of any unsecured general creditor of the
Company.
12.1 Distributions to Incompetents or Minors. Should a
Participant become incompetent or should a Participant designate a Beneficiary
who is a minor or incompetent, the Committee is authorized to pay the funds
due to the parent of the minor or to the guardian of the minor or incompetent
or directly to the minor or to apply those funds for the benefit of the minor or
incompetent in any manner the Committee determines in its sole discretion.
Nonalienation of Benefits. No right or benefit provided in
this Plan will be transferable by the Participant except, upon his death, to a
named Beneficiary as provided in this Plan. No right or benefit under this Plan
will be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void. No right or benefit under
this Plan will in any manner be liable for or subject to any debts, contracts,
liabilities or torts of the person entitled to such benefits. If any Participant
or any Beneficiary becomes bankrupt or attempts to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit under this Plan, that
right or benefit will, in the discretion of the Committee, cease. In that event,
the Committee may have the Company hold or apply the right or benefit or any
part of it to the benefit of the Participant or Beneficiary, his or her spouse,
children or other dependents or any of them in any manner and in any proportion
the Committee believes to be proper in its sole and absolute discretion, but is
not required to do so.
12.3 Reliance Upon Information. The Committee will not be
liable for any decision or action taken or not taken in good faith in connection
with the administration of this Plan. Without limiting the generality of the
foregoing, any decision or action taken or not taken by the Committee when it
relies upon information supplied it by any officer of the Company, the Company's
legal counsel, the Company's independent accountants or other advisors in
connection with the administration of this Plan will be deemed to have been
taken in good faith.
9
<PAGE> 10
12.4 Severability. If any term, provision, covenant or
condition of the Plan is held to be invalid, void or otherwise unenforceable,
the rest of the Plan will remain in full force and effect and will in no way be
affected, impaired or invalidated.
12.5 Notice. Any notice or filing required or permitted to be
given to the Committee or a Participant will be sufficient if in writing and
hand delivered or sent by U.S. mail to the principal office of the Company or to
the residential mailing address of the Participant. Notice will be deemed to be
given as of the date of hand delivery or if delivery is by mail, as of the date
shown on the postmark.
12.6 Gender and Number. If the context requires it, words of
one gender when used in this Plan will include the other genders, and words used
in the singular or plural will include the other.
12.7 Governing Law. The Plan will be construed, administered
and governed in all respects by the laws of the State of Texas.
12.8 Effective Date. This amendment and restatement of the
Plan will be operative and effective on October 12, 1995.
IN WITNESS WHEREOF, the Committee has executed this document
on this 9th day of November, 1995, as authorized by Section 9.1 of the
Plan prior to this Amendment and Restatement.
THE COMMITTEE FOR THE
QUANEX CORPORATION INCENTIVE
COMPENSATION PLAN
By /s/ DONALD J. MORFEE
---------------------------------------------
Chairman
10
<PAGE> 1
EXHIBIT 10.9
QUANEX CORPORATION
SUPPLEMENTAL BENEFIT PLAN
AMENDED AND RESTATED
EFFECTIVE JUNE 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
<S> <C>
ARTICLE I - NAME AND PURPOSE
ARTICLE II - DEFINITIONS
Actuarial Equivalent.......................................2.01
Board......................................................2.02
Change of Control..........................................2.03
Code.......................................................2.04
Committee..................................................2.05
Company....................................................2.06
Disability.................................................2.08
Early Retirement Date......................................2.10
Earnings...................................................2.11
Employee...................................................2.12
Final Average Earnings.....................................2.13
Forfeiting Act.............................................2.14
Incentive Bonus or Incentive Bonuses.......................2.15
Normal Retirement Date.....................................2.16
Participant................................................2.17
Plan.......................................................2.18
Plan Year..................................................2.19
Qualified Plan.............................................2.20
Qualified Plan Benefit.....................................2.21
Service....................................................2.23
Social Security Benefit....................................2.24
ARTICLE III - PARTICIPATION
Eligibility................................................3.01
Reemployment...............................................3.02
ARTICLE IV - RETIREMENT BENEFITS
Normal Retirement..........................................4.01
Deferred Retirement........................................4.02
Early Retirement...........................................4.03
Disability Benefit.........................................4.04
Deferred Vested Benefit....................................4.05
Change of Control Benefit..................................4.06
Time of Payment of Benefit.................................4.07
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V - DEATH BENEFITS
In General.................................................5.01
Death During Employment....................................5.02
Death After Termination of Employment......................5.03
ARTICLE VI - BENEFICIARIES
Designation of Beneficiary.................................6.01
Payment of Benefits Upon Death.............................6.02
Minors and Persons Under Legal Disability..................6.03
ARTICLE VII - FORFEITURE FOR CAUSE
ARTICLE VIII - AGREEMENT FUNDED THROUGH RABBI TRUST
ARTICLE IX - PLAN COMMITTEE PROCEDURE
Committee..................................................9.01
General Rights, Powers and Duties of Plan Committee........9.02
Rules and Decisions........................................9.03
Committee Procedures.......................................9.04
Authorization of Benefit Payments..........................9.05
Application and Forms of Benefits..........................9.06
Facility of Payment........................................9.07
Claims Procedure...........................................9.08
Responsibility.............................................9.09
ARTICLE X - AMENDMENT AND TERMINATION
Amendment.................................................10.01
Right to Terminate Plan...................................10.02
ARTICLE XI - MISCELLANEOUS
Inalienability of Benefits................................11.01
No Implied Rights.........................................11.02
Actions by Company........................................11.03
Binding Effect............................................11.04
Number and Gender.........................................11.05
Governing Law.............................................11.06
</TABLE>
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ARTICLE I
NAME AND PURPOSE
This plan, as adopted effective February 28, 1980 and amended and restated
October 22, 1981, November 1, 1988 and June 1, 1999, shall be known as the
Quanex Corporation Supplemental Benefit Plan (the "Plan").
The Plan provides retirement benefits for certain designated management
employees in addition to those provided under the benefit plans for salaried
employees of Quanex Corporation, as in effect from time to time.
The purpose of the Plan is to supplement those benefits that a Participant
may be entitled to receive as a salaried employee of Quanex Corporation. Except
as may be otherwise provided herein, the terms used in the Plan shall have the
meanings specified in the Quanex Corporation Salaried Employees' Pension Plan.
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ARTICLE II
DEFINITIONS AND DESIGNATIONS
2.01 "ACTUARIAL EQUIVALENT" means a benefit of equivalent value computed on
the basis of the UP-84 mortality tables and an eight percent rate of interest
for purposes of determining lump sum benefits and the value of Trust assets.
2.02 "BOARD" means the Board of Directors of the Company.
2.03 "CHANGE OF CONTROL" means the occurrence of one or more of the
following events after June 1, 1999.
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Covered Person") of
beneficial ownership (within the meaning of rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either (i) the then outstanding shares of
the common stock of (the "Outstanding Company Common Stock"), or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a) of this Section, the following acquisitions shall not constitute
a Change of Control of the Company: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any entity controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section; or
(b) individuals who, as of June 1, 1999, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
June 1, 1999 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Covered Person other than the Company; or
(c) the consummation of (xx) a reorganization, merger or consolidation or
sale of the Company or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding
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Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, direct or indirectly, more than
80 percent of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Covered Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20 percent or more of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation, except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination, were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) the approval by the stockholders of Quanex of a complete liquidation or
dissolution of Quanex.
2.04 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.05 "COMMITTEE" means the Committee established under Article IX to
administer the Plan.
2.06 "COMPANY" means Quanex Corporation, a Delaware corporation.
2.07 "DISABILITY" means physical or mental condition which, during the
first 24 months of the existence of the condition totally prevents the
Participant from performing each and every duty of his own job. Subsequently,
the disabling physical or mental condition must totally and permanently prevent
the Participant from engaging for remuneration or profit in any equivalent
occupation for which he is reasonably qualified by education, training, or
experience. Proof of total and permanent disability must be based upon a medical
examination or other evidence submitted in a statement by a licensed physician
or clinic. Notwithstanding any other provision, the Participant will not qualify
for disability benefits as defined herein if the disability results from chronic
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alcoholism, self-addiction to narcotics or other drugs, a willfully
self-inflicted injury, an injury as the result of engaging in a felonious or
criminal act or enterprise; injury or disease sustained during and arising out
of employment by anyone other than the Company, or service in the Armed Forces
of the United States which entitles the Participant to a veteran's disability
pension.
2.08 "EARLY RETIREMENT DATE" means the first day of any month after a
Participant's attainment of age 55 and the completion of five years of Service.
2.09 "EARNINGS" means all wages as defined in section 3401 of the Code (for
purposes of income tax withholding) for services rendered in the course of
employment with the Company; modified by excluding reimbursements or other
expense allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation, welfare benefits, BeneFlex dollars under the Quanex
Corporation Medical Reimbursement Plan, Incentive Bonuses and restricted stock
awards and stock options; and modified further by including elective
contributions under a cafeteria plan maintained by the Company that is governed
by section 125 of the Code and elective contributions to any plan maintained by
the Company that contains a qualified cash or deferred arrangement under section
401(k) of the Code.
2.10 "EMPLOYEE" means any person hired by the Company who is receiving
remuneration in the form of a salary for personal services rendered to the
Company.
2.11 "FINAL AVERAGE EARNINGS" means the highest monthly average of a
Participant's Earnings which is produced by averaging his Earnings and Incentive
Bonuses over any 36 consecutive month period during the 60 consecutive month
period immediately preceding the date of the Participant's termination of
employment with the Company. However, for the purposes of this
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<PAGE> 8
definition, no than three Incentive Bonuses shall be taken into account in
calculating a Participant's earnings over any 36 consecutive month period.
2.12 "FORFEITING ACT" means the Participant's fraud, dishonesty, willful
destruction of Company property, committing of a felony, revealing Company trade
secrets, acts of competition against the Company or acts in aid of a competitor
of the Company.
2.13 "INCENTIVE BONUS" or "INCENTIVE BONUSES" means compensation earned
under the Quanex Corporation Executive Incentive Plan, whether or not deferred
under the Quanex Corporation Deferred Compensation Plan.
2.14 "NORMAL RETIREMENT DATE" means the first day of the month coincident
with or next following a Participant's 65th birthday.
2.15 "PARTICIPANT" means an Employee designated by the Board as eligible
for participation in the Plan, and who meets the requirements of Article III.
2.16 "PLAN" means the Quanex Corporation Supplemental Benefit Plan.
2.17 "PLAN YEAR" means the period commencing on November 1 and ending on
October 31.
2.18 "QUALIFIED PLAN" means the Quanex Corporation Salaried Employees'
Pension Plan maintained by the Company.
2.19 "QUALIFIED PLAN BENEFIT" means the aggregate of all benefits which
would be payable to the Participant from the Qualified Plan payable on or after
his Normal Retirement Date. In calculating the amount of the Qualified Plan
Benefit, for the purposes of the Plan the following shall apply:
(a) If the normal form of benefit of the Qualified Plan is other than a
straight life annuity, the benefit shall be expressed in the form of a straight
life annuity by using the actuarial assumptions contained in the Qualified Plan.
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<PAGE> 9
(b) If benefits under the Qualified Plan are paid or are payable to the
Participant prior to the date his benefits commence under the Plan, the
Actuarial Equivalent of such benefits as of his Normal Retirement Date (as
defined in the Qualified Plan) shall be used.
(c) The amount of a Participant's Qualified Plan Benefit shall be
determined based on the provisions of the Qualified Plan as in effect on the
date his benefits under the Plan are determined.
(d) The amount of a Participant's Qualified Plan Benefit shall be
determined by disregarding any offset for benefits payable under a terminated
retirement plan that was previously maintained by the Company as one of its
affiliates.
2.20 "SERVICE" means service for purposes of the Qualified Plan. In
determining a Participant's Service, all Years of Service after the
Participant's date of hire shall be taken into effect.
2.21 "SOCIAL SECURITY BENEFIT" means, for all purposes other than
determining the Disability benefit, the monthly amount payable commencing on the
later of the Participant's 65th birthday or the date of his termination of
employment with the Company under the provisions of Title II of the Social
Security Act. Such benefit shall be determined based on (1) the Participant's
average monthly wage or indexed earnings (as defined in the Social Security Act,
as amended) on the date of his termination of employment with the Company,
computed under the Social Security Act as in effect on the January 1 of the
calendar year in which benefits are determined and using the Participant's
annual total wages from the Company for the prior calendar year, as defined in
Section 3121(b), assuming his wages increased prior thereto at the rate of
increase in the average per worker total wages reported by the Social Security
Administration, and assuming continuation of such wages without increase
thereafter until his termination of employment with the Company (with no wages
thereafter); and (2) the Table of Primary Social Security Benefits under the
Social Security Act as in effect on the January 1 of the calendar year in which
his termination of employment with the Company actually occurs. "Social Security
Benefit" means, for purposes of determining a Disability benefit, any actual
disability benefit for which the Participant is eligible under Title II of the
Social Security Act.
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<PAGE> 10
ARTICLE III
PARTICIPATION
3.01 ELIGIBILITY TO PARTICIPATE. An Employee shall become eligible to
become a Participant in the Plan by designation of the Board. The Committee
shall notify each Participant of his eligibility. Each designated Employee shall
furnish such information and perform such acts as the Committee may require
prior to becoming a Participant.
3.02 REEMPLOYMENT. Any person who terminates employment with the Company
shall not be eligible to participate in the Plan upon his reemployment by the
Company unless the Board so determines. In such event, the Board shall specify
whether and under what conditions the person shall receive credit for all or any
of his Service completed prior to reemployment.
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ARTICLE IV
RETIREMENT BENEFITS
4.01 NORMAL RETIREMENT BENEFIT. Subject to Article VIII, if a Participant
terminates employment with the Company on or after his Normal Retirement Date,
he will be entitled to the lump-sum Actuarial Equivalent of a monthly benefit
payable to the Participant for life only in an amount equal to:
(a) 2.75 percent of his Final Average Earnings multiplied by his years of
Service (not in excess of 29.09 years), less
(b) the sum of:
(1) the Participant's Qualified Plan Benefit, and
(2) the Participant's Social Security Benefit.
4.02 DEFERRED RETIREMENT BENEFIT. If a Participant terminates employment
with the Company on or after his Normal Retirement Date, he will be entitled to
the lump-sum Actuarial Equivalent of a monthly benefit payable to the
Participant for life only determined in accordance with the provisions of
Section 4.01. The benefit will not be actuarially increased to reflect the later
benefit payment date or his shorter life expectancy. In determining a
Participant's deferred retirement benefit, his Service subsequent to his Normal
Retirement Date and the computation of his Final Average Earnings shall take
into account his Service after his Normal Retirement Date.
4.03 EARLY RETIREMENT BENEFIT. If a Participant terminates employment with
the Company on or after his Early Retirement Date but before age 65, he shall be
entitled to the lump-sum Actuarial Equivalent of a monthly benefit payable to
the Participant for life only determined in accordance with the provisions of
Section 4.01 based upon his years of Service and Final Average Earnings on the
date of his termination of employment with the Company. The monthly amount
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shall be reduced by a fraction, the numerator of which is the Participant's
actual years of Service as of the date of his termination of employment with the
Company and the denominator of which is the number of years of Service the
Participant would have if he continued to be employed by the Company until the
date of his 65th birthday.
4.04 DISABILITY BENEFIT. If a Participant who has completed six months of
Service terminates employment with the Company prior to his Early Retirement
Date due to his Disability, he shall receive a monthly Disability benefit, for
so long as he has a Disability but no longer than his Normal Retirement Date (on
which date the Participant shall be treated as a retiree entitled to benefits
under Section 4.01), in an amount equal to:
(a) 50 percent of the sum of his monthly Earnings in effect at the date of
his Disability and the monthly equivalent of the average of his Incentive
Bonuses for the prior three Plan Years, less
(b) the sum of:
(1) the Participant's Qualified Plan Benefit;
(2) the Participant's Social Security Benefit;
(3) the Participant's benefit under the Company's group long-term
disability insurance plan;
(4) the Participant's benefit under an individual disability policy
provided by the Company, and;
(5) the Participant's benefit under the Company's wage continuation policy
plan.
Upon the occurrence of the Normal Retirement Date of a former Participant
with a Disability, he will be entitled to the lump sum Actuarial Equivalent of a
monthly benefit payable to him for life only determined in accordance with the
provisions of Section 4.01. In determining his benefit payable upon the
occurrence of his Normal Retirement Date, his Final Average Earnings and his
years of Service shall be determined as of the date of his Disability.
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<PAGE> 13
4.05 DEFERRED VESTED BENEFIT. If a Participant terminates employment with
the Company prior to his Early Retirement Date but has five or more years of
Service, he will upon attaining age 55 be entitled to the lump-sum Actuarial
Equivalent of a monthly benefit payable to the Participant for life only
determined in accordance with the provisions of Section 4.01 based upon his
years of Service and Final Average Earnings at his termination of employment.
The benefit calculated under Section 4.01 however, shall be actuarially reduced,
using the factors described in Section 2.01 for the definition of Actuarial
Equivalent, because of the younger age and earlier commencement for all
Participants entering the Plan on or after June 1, 1988, and shall be reduced
because of the younger age and earlier commencement for all Participants who
were in the Plan on May 31, 1988 by a fraction, the numerator of which is the
Participant's years of Service he would have had had he continued to work until
his Early Retirement Date and the denominator of which is the number of years of
Service the Participant would have had had he continued to work until his Normal
Retirement Date. If the Participant has fewer than five years of Service when he
terminates employment prior to his Early Retirement Date, he shall not be
entitled to any benefits under the Plan.
4.06 CHANGE OF CONTROL BENEFIT. Notwithstanding any other provisions of the
Plan, if a Participant's termination of employment with the Company occurs after
a Change of Control, he will be entitled to the lump-sum Actuarial Equivalent of
a monthly benefit payable to the Participant for life only determined in
accordance with the provisions of section 4.01 based upon his years of Service
and Final Average Earnings at his termination of employment. The benefit
calculated under section 4.01 shall not be actuarially reduced because of the
Participant's age or early payment of his benefit under the Plan. Any benefit
paid pursuant to this Section 4.06 shall be in lieu of any other benefit
otherwise payable to the Participant under the Plan.
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<PAGE> 14
4.07 TIME OF PAYMENT OF BENEFIT. The lump sum payments provided for Normal
Retirement, Deferred Retirement, and Early Retirement, shall be paid on the 90th
day after the Participant's termination of employment with the Company. The
monthly Disability benefit shall commence being paid on the first day of the
month coincident with or next following the Participant's termination of
employment with the Company due to Disability and shall cease with the last
payment prior to his recovery or attainment of his Normal Retirement Date. If a
former Participant who terminated employment with the Company due to Disability
continues to have a Disability until his Normal Retirement Date, the lump sum
payment then due shall be paid on his Normal Retirement Date. A Participant's
deferred vested benefit or Change of Control benefit shall be payable on the
90th day after his attainment of age 55.
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<PAGE> 15
ARTICLE V
DEATH BENEFITS
5.01 IN GENERAL. The benefits under the Plan payable subsequent to a
Participant's or former Participant's death shall be limited to those contained
in this Article, and shall in any case be subject to Article VIII.
5.02 DEATH DURING EMPLOYMENT. If a Participant's death occurs while he is
in the employ of the Company, an Actuarially Equivalent lump sum benefit shall
be payable as hereinafter provided in this Section. The designated beneficiary
of a Participant shall be entitled to receive a lump-sum benefit that is
Actuarially Equivalent to 50 percent of the sum of the Participant's monthly
Earnings in effect at the date of his death and the monthly equivalent of the
average of his Incentive Bonuses for the prior three Plan Years, payable monthly
until the later of completion of 120 monthly payments or the date the
Participant would have attained his Normal Retirement Date. The lump-sum payment
shall be made on the 90th day after the death of the Participant. The designated
beneficiary of a Participant shall be determined under Article VI.
5.03 DEATH AFTER TERMINATION OF EMPLOYMENT.
(a) In General. Except as provided in this Section, no benefits shall be
payable to or on behalf of a Participant or former Participant whose death
occurs subsequent to his termination of employment.
(b) Before Benefit is Paid. If a former Participant dies before his benefit
is paid but after his termination of employment with the Company on or after his
Normal Retirement Date, his Early Retirement Date or a Change of Control, his
designated beneficiary, if any, shall be entitled to receive a lump-sum benefit
equal to the benefit which he would have received had he lived to the date his
benefit would have been paid out. If a former Participant dies before his
benefit is paid and he was eligible for a Disability benefit or he terminated
employment with the Company prior to a Change of Control and he was entitled to
a deferred vested benefit under Section 4.05, his designated beneficiary, if
any, shall be entitled to receive a lump-sum benefit which is Actuarially
Equivalent to a survivor annuity equal to the survivor portion of a qualified
joint and 50 percent survivor annuity as if the former Participant had been
entitled to elect and had elected such survivor annuity
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<PAGE> 16
on the day before his death. The survivor lump-sum death benefit shall be
payable on the 90th day following the date of the Former Participant's death. In
calculating the survivor portion for the survivor lump-sum benefit, the benefit
shall be reduced in the same manner it is reduced under Section 4.03, 4.04 or
4.05, whichever is applicable, for payment earlier than Normal Retirement Date.
In the event of a Participant's termination of employment with the company after
a Change of Control, the death benefits payable under this Section 5.03 on his
behalf will not be reduced for payment before the Participant's Normal
Retirement Date.
(c) After Disability Benefits Commence. If a former Participant who is
receiving a Disability benefit dies prior to reaching his Normal Retirement Date
but while he still has a Disability, his designated beneficiary shall receive a
lump-sum benefit which is Actuarially Equivalent to the survivor portion of a
qualified joint and 50 percent survivor annuity as if the former Participant had
been entitled to elect and had elected such survivor annuity on the day before
his death. Such benefit shall be payable on the 90th day after his death.
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ARTICLE VI
BENEFICIARIES
6.01 DESIGNATION OF BENEFICIARY. Each Participant or former Participant
shall designate as his beneficiary the person or persons who shall, upon his
death, receive the death benefits, if any, payable pursuant to Article V. The
designation shall be in such form as the Committee requires and may include
contingent beneficiaries. A beneficiary designation shall be effective when
filed with the Committee during the Participant's or former Participant's life,
and shall cancel and revoke all prior designations.
6.02 PAYMENT OF BENEFITS UPON DEATH. If a Participant's or former
Participant's death occurs prior to payment of his benefit, the benefit payable
upon his death, if any, shall be paid to the persons or persons designated as
his primary beneficiary, but if the primary beneficiary does not survive him,
then to the person or persons designated as the contingent beneficiary. If no
primary or contingent beneficiary survives him or if no beneficiary designation
is in effect upon his death, then the benefit under Article V shall be paid to
his spouse. If his spouse does not survive him, then the benefit shall be paid
to his descendants who survive him by right of representation, and if no
descendants of the Participant or former Participant survive him, then to his
estate.
6.03 MINORS AND PERSONS UNDER LEGAL DISABILITY. Payments to a minor or a
person under a legal disability shall be made by the Company at the direction of
the Committee as follows:
(a) to the natural or adoptive parents or legal guardian or conservator of
such person, or to any other person in loco parent is;
(b) to a custodian for such person under the Uniform Gifts to Minors Act or
Gifts of securities to Minors Act; or
(c) by expending amounts directly for the education and support of such
person.
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ARTICLE VII
FORFEITURE FOR CAUSE
Except with respect to persons whose terminations of employment with the
Company occur after a Change of Control, notwithstanding any other provision of
the Plan to the contrary, in all cases where a written document is executed by
the Company expressly making acts of competition against the Company or acts in
aid of a competitor of the Company by the Participant or former Participant a
Forfeiting Act, if the Participant commits one or more Forfeiting Acts during
his employment with the Company or following his termination of employment, any
and all unpaid benefits due the Participant or his designated beneficiary shall
be forfeited. This provision shall apply regardless of the date the Company
first learns of the occurrence of a Forfeiting Act.
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ARTICLE VIII
AGREEMENT FUNDED THROUGH RABBI TRUST
The Company shall pay the benefits due the Participants and former
Participants under the Plan; however, should it fail to do so when a benefit is
due, such benefit shall be paid by the Trustee of that certain Trust Agreement
entered into contemporaneously with this Amendment, by and between the Company
and Norstar Trust Company, a New York banking corporation (the "Trust"). In any
event, if the Trust fails to pay for any reason, the Company still remains
liable for the payment of all benefits provided by the Plan. The Company may
contribute at any time and from time to time such assets to the Trust as it, in
its sole discretion, shall determine and shall have the right at any time and
from time to time to borrow from the Trust the fair market value of assets held
in the Trust which are in excess of the net present value of the largest benefit
all Participants and former Participants are entitled to under the Plan as of
the beginning of the Plan Year during which the loan is made (exclusive of any
Disability or death benefit). Any such loan shall be evidenced by an instrument
in writing, shall bear interest at such rate as the Company would be required to
pay to its prime lender under the same terms (except for the security), shall
provide a repayment schedule which would repay but only to the extent of the
funds so borrowed, such amount as is necessary to maintain at the beginning of
each Plan Year during the existence of the loan, non-borrowed funds in the Trust
at a level at least equal to the net present value of all benefits calculated
under the preceding sentence and shall provide for prepayment at the Company's
election, without penalty. The above calculations shall use the same actuarial
factors set out in the definition of Actuarial Equivalent under Section 2.01.
All assets contributed shall be held in and administered according to the terms
of the Trust which are incorporated by reference in the Plan for all purposes.
However,
VIII-1
<PAGE> 20
in no event shall the rights of Participants and former Participants in the
assets held by the Trust be greater than the rights of unsecured creditors of
the Company. Nothing contained in the Plan or the Trust constitutes a secured
promise by the Company that the assets of the Company will be sufficient to pay
any benefit to any person.
VIII-2
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ARTICLE IX
PLAN COMMITTEE
9.01 COMMITTEE. The Plan shall be administered by the Committee, which
shall have three members designated in writing by the Company. Any person may
resign from the Committee upon 30 days' prior notice to the Company and to any
other member of the Committee. The Company may remove any member of the
Committee by written notice to him and to any other member of the Plan
Committee. The Company shall fill any vacancy and shall give written notice
thereof to the other members of the Committee. In the interim, the other
member(s) of the Committee shall have full authority to act. If, at any time,
there are no members of the Committee, then the Board shall serve as the
Committee.
9.02 GENERAL RIGHTS, POWERS AND DUTIES OF PLAN COMMITTEE. The Committee
shall be responsible for the management, operation and administration of the
Plan. In addition to any powers, rights and duties set forth elsewhere in the
Plan, it shall have the following powers and duties:
(a) to adopt such rules and regulations consistent with the provisions of
the Plan as it deems necessary for the proper and efficient administration of
the Plan;
(b) to enforce the Plan in accordance with its terms and any rules and
regulations it establishes;
(c) to maintain records concerning the Plan sufficient to prepare reports,
returns and other information required by the Plan or by law;
(d) to construe and interpret the Plan and to resolve all questions arising
under the Plan;
(e) to direct the Company to pay benefits under the Plan, and to give such
other directions and instructions as may be necessary for the proper
administration of the Plan;
(f) to employ or retain agents, attorneys, actuaries, accounts or other
persons, who may also be employed by or represent the Company, and
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(g) to be responsible for the preparation, filing and disclosure on behalf
of the Plan of such documents and reports as are required by any applicable
Federal or State law.
The Committee shall have no power to add to, subtract from or modify any of the
terms of the Plan, or to change or add to any benefits provided by the Plan, or
to waive or fail to apply any requirements of eligibility for benefits under the
Plan.
9.03 RULES AND DECISIONS. The Committee may adopt such rules and actuarial
tables as it deems necessary, desirable or appropriate. All rules and decisions
of the Committee shall be uniformly and consistently applied to all Participants
in similar circumstances. When making a determination or calculation, the
Committee shall be entitled to rely upon information furnished to it by a
Participant or beneficiary, the Company, and the legal counsel, actuary and
accountant for the Company.
9.04 COMMITTEE PROCEDURES. The Committee may act at a meeting or in writing
without a meeting. The Committee shall elect one of its members as chairman and
appoint a secretary, who may or may not be a Committee member. The Secretary
shall keep a record of all meetings and forward all necessary communications to
the Company. The Committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs. All decisions of the Committee shall
be made by the vote of the majority, including actions in writing taken without
a meeting. A dissenting Committee member who, within a reasonable time after he
has knowledge of any action or failure to act by the majority, registers his
dissent in writing delivered to the other Committee members and the Company,
shall not, to the extent permitted by law, be responsible for any such action or
failure to act.
IX-2
<PAGE> 23
9.05 AUTHORIZATION OF BENEFIT PAYMENTS. The Committee shall issue
directions to the Company concerning all benefits which are to be paid pursuant
to the provisions of the Plan. The Company shall furnish the Committee such data
and information as it may require. The records of the Company shall be
determinative of each Participant's period of employment, termination of
employment and the reason therefor, leave of absence, reemployment, years of
Service, Earnings, and Final Average Earnings. Participants and their
beneficiaries shall furnish to the Committee such evidence, data, or
information, and execute such documents, as the Committee requests.
9.06 APPLICATION AND FORMS OF BENEFITS. The Committee may require a
Participant or former Participant to complete and file with the Committee an
application for retirement benefits and all other forms approved by the
Committee, and to furnish all pertinent information requested by the Committee.
The Committee may rely upon all such information so furnished it, including the
Participant's or former Participant's current mailing address.
9.07 FACILITY OF PAYMENT. Whenever, in the Committee's opinion, a person
entitled to receive any payment of a benefit or installment thereof hereunder is
under a legal disability or is incapacitated in any way so as to be unable to
manage his financial affairs, the Committee may direct the Company to make
payments to such person or to his legal representative or to a relative or
friend of such person for his benefit, or the Committee may direct the Company
to apply the payment for the benefit of such person in such manner as the
Committee considers advisable. Any payment of a benefit or installment thereof
in accordance with the provisions of this Section shall be a complete discharge
of any liabilities for the making of such payment under the provisions of the
Plan.
IX-3
<PAGE> 24
9.08 CLAIMS PROCEDURE. The Committee shall make all determinations as to
the right of any person to receive benefits under the Plan. Any denial by the
Committee of a claim for benefits under the Plan by a Participant, former
Participant beneficiary of a former Participant (collectively referred to herein
as "Claimant") shall be stated in writing by the Committee and delivered or
mailed to the Claimant on the 90th day after receipt of the claim, unless
special circumstances require an extension of time for processing the claim. If
such an extension of time is required, written notice of the extension shall be
furnished to the Claimant on the 90th day after receipt of the claim and the
claim shall thereafter be paid on the 180th day after the date of receipt of the
initial claim. Such notice shall set forth the specific reasons for the denial,
specific reference to pertinent provisions of the Plan upon which the denial is
based, a description of any additional material or information necessary for the
Claimant to perfect his claim with an explanation of why such material or
information is necessary, and an explanation of claim review procedures under
the Plan written to the best of the. Committee's ability in a manner that may be
understood without legal or actuarial counsel. A Claimant whose claim for
benefits has been wholly or partially denied by the Committee may, within 90
days following the date of such denial, request a review of such denial in a
writing addressed to the Committee. The Claimant shall be entitled to submit
such issues or comments, in writing or otherwise, as he shall consider relevant
to a determination of his claim, and may include in his request a request for a
hearing in person before the Committee. Prior to submitting his request, the
Claimant shall be entitled to review such documents as the Committee shall agree
are pertinent to his claim. The Claimant may, at all stages of review, be
represented by counsel, legal or otherwise, of his choice, provided that the
fees and expenses of such counsel shall be borne by the Claimant. All requests
for review shall be promptly resolved. The Committee's decisions with respect to
any
IX-4
<PAGE> 25
such review shall be set forth in writing and shall be mailed to the Claimant on
the 60th day following receipt by the Committee of the Claimant's request unless
special circumstances, such as the need to hold a hearing, require an extension
of time for processing, in which case the Committee's decision shall be so
mailed on the 120th day after receipt of such request.
9.09 RESPONSIBILITY. No member of the Committee or of the Board shall be
liable to any person for any action taken or omitted in connection with the
administration of the Plan unless attributable to his own fraud or willful
misconduct; nor shall the Company be liable to any person for any such action
unless attributable to fraud or willful misconduct on the part of a director,
officer or employee of the Company.
IX-5
<PAGE> 26
ARTICLE X
AMENDMENT AND TERMINATION
10.01 AMENDMENT. The Plan may be amended in whole or in part by the Company
at any time. Notice of any such amendment shall be given in writing to the
Committee and to each Participant, former Participant, and beneficiary of a
deceased former Participant. No such amendment however shall have the effect of
reducing that portion of the benefit the Participant or former Participant
ultimately becomes entitled to below that amount he would have received for
Service to the date of the amendment under the formula set out in the Plan prior
to the amendment.
10.02 RIGHT TO TERMINATE PLAN. The Company reserves the right to terminate
the accrual or vesting of additional benefits under the Plan by any or all
Participants at any time by written notice to the Committee. The Committee shall
notify any Participant affected by such termination of such action and its
effective date within 30 days after it receives notice from the Company. A
Participant whose accrual of additional benefits is terminated shall not lose
any previously earned and vested benefits, and, subject to Article VIII, any
such vested benefits shall be payable at the time and in the manner provided
hereunder.
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<PAGE> 27
ARTICLE XI
MISCELLANEOUS
11.01 INALIENABILITY OF BENEFITS. The right of any Participant, former
Participant or beneficiary to any benefit or payment under the Plan shall not be
subject to voluntary or involuntary transfer, alienation, pledge, assignment,
garnishment, sequestration or other legal or equitable process. Any attempt to
transfer, alienate, pledge, assign or otherwise dispose of such right or any
attempt to subject such right to attachment, execution, garnishment,
sequestration or other legal or equitable process shall be null and void.
11.02 NO IMPLIED RIGHTS. Neither the establishment of the Plan nor any
modification thereof shall be construed as giving any Participant, former
Participant beneficiary or other person any legal or equitable right unless such
right shall be specifically provided for in the Plan or conferred by affirmative
action of the Company in accordance with the terms and provisions of the Plan.
11.03 ACTIONS BY COMPANY. All actions by the Company under the Plan shall
be taken by the Board or by a person or persons designated by the Board.
11.04 BINDING EFFECT. The provisions of the Plan shall be binding on the
Company, the Committee, and all persons entitled to benefits under the Plan,
together with their respective heirs, legal representatives and successors in
interest.
11.05 NUMBER AND GENDER. Wherever appropriate, the singular shall include
the plural, the plural shall include the singular, and the masculine shall
include the feminine or neuter.
11.06 GOVERNING LAW. The Plan shall be construed and administered according
to the laws of the State of Texas.
XI-1
<PAGE> 28
IN WITNESS WHEREOF, effective June 1, 1999, the Company has adopted this
amendment and restatement of the Plan on the 18th day of June, 1999.
QUANEX CORPORATION
By: /s/ PAUL GIDDENS
----------------------------------------
Title: Vice President - Human Resources
-------------------------------------
<PAGE> 1
EXHIBIT 10.10
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between Quanex Corporation, a Delaware corporation (the
"Company"), and _________________________________ (the "Executive") is effective
as of___________________ (the "Effective Date"). Certain capitalized terms used
herein are defined in Section 21.
W I T N E S S E T H:
WHEREAS, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of certain key employees of
the Company notwithstanding the possibility, threat or occurrence of a Change in
Control of the Company (as that phrase is defined in Section 2); and
WHEREAS, the Executive is a key employee of the Company; and
WHEREAS, the Company believes that the possibility of the occurrence of
a Change in Control of the Company may result in the termination by the
Executive of the Executive's employment by the Company or in the distraction of
the Executive from the performance of his duties to the Company, in either case
to the detriment of the Company and its stockholders; and
WHEREAS, the Company recognizes that the Executive could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Executive if a Change in Control of the Company occurs, thereby encouraging the
Executive to remain in the employ of the Company and not to be distracted from
the performance of his duties to the Company by the possibility of a Change in
Control of the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Other Employment Arrangements.
(a) This Agreement does not affect the Executive's existing or future
employment arrangements with the Company unless a Change in Control of the
Company shall have occurred before the expiration of the term of this Agreement.
The Executive's employment with the Company shall continue to be governed by the
Executive's existing or future employment agreements with the Company, if any,
or, in the absence of any employment agreement, shall continue to be at the will
of the Board of Directors or, if the Executive is not an officer of the Company
at the time of the termination of the Executive's employment with the Company,
the will of the Chief Executive Officer of the Company, except that if (i) a
Change in Control of the Company shall have occurred before the expiration of
the term of this Agreement, and (ii) the Executive's employment with the Company
is terminated (whether by the Executive or the Company or automatically as
provided in Section 3) after the occurrence of that Change in Control of the
Company, then the Executive shall be entitled to receive certain benefits as
provided in this Agreement.
<PAGE> 2
(b) Notwithstanding anything contained in this Agreement to the
contrary, if following the commencement of any discussion with a third person
that ultimately results in a Change in Control of the Company, (i) the
Executive's employment with the Company is terminated, (ii) the Executive is
removed from any material duties or position with the Company, (iii) the
Executive's Base Salary is reduced, or (iv) the Executive's annual bonus is
reduced to an amount less than the Benchmark Bonus, then for all purposes of
this Agreement, such Change in Control of the Company shall be deemed to have
occurred on the date immediately prior to the date of such termination, removal,
or reduction.
(c) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice of
or provided by the Company or any of its Affiliates and for which the Executive
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its Affiliates. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, program, policy or practice of or
provided by, or any contract or agreement with, the Company or any of its
Affiliates at or subsequent to the date of termination of the Executive's
employment with the Company shall be payable or otherwise provided in accordance
with such plan, program, policy or practice or contract or agreement except as
explicitly modified by this Agreement.
Section 2. Change in Control of the Company. For purposes of this
Agreement, a "Change in Control of the Company" shall mean the occurrence of any
of the following after the Effective Date:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a " Covered
Person") of beneficial ownership (within the meaning of rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either (i) the then outstanding
shares of the common stock of the Company (the "Outstanding Company Common
Stock"), or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a) of this Section 2, the following
acquisitions shall not constitute a Change in Control of the Company: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any entity controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the Effective Date, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Covered Person other
than the Board; or
(c) Consummation of (xx) a reorganization, merger or consolidation or
sale of the Company, or (yy) a disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, direct or
indirectly, more than 80 percent of, respectively, the then outstanding shares
of common stock and
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<PAGE> 3
the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Covered Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20 percent or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination, were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board of Directors, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Section 3 . Term of This Agreement. The term of this Agreement shall
begin on the Effective Date and, unless automatically extended pursuant to the
second sentence of this Section 3, shall expire on the first to occur of:
(i) the Executive's death or the Executive's Disability, which
events shall also be deemed automatically to terminate Executive's
employment by the Company;
(ii) the termination by the Executive or the Company of the
Executive's employment by the Company; or
(iii) the end of the last day (the "Expiration Date") of:
(x) the three-year period beginning on the
Effective Date (or any period for which the term of
this Agreement shall have been automatically extended
pursuant to the second sentence of this Section 3) if
no Change in Control of the Company shall have
occurred during that three-year period (or any period
for which the term of this Agreement shall have been
automatically extended pursuant to the second
sentence of this Section 3); or
(y) if one or more Changes in Control of the
Company shall have occurred during the three-year
period beginning on the Effective Date (or any period
for which the term of this Agreement shall have been
automatically extended pursuant to the second
sentence of this Section 3), the three-year period
beginning on the date on which the last Change in
Control of the Company occurred.
If (i) the term of this Agreement shall not have expired as a result of the
occurrence of one of the events described in clause (i) or (ii) of the
immediately preceding sentence, and (ii) the Company shall not have given notice
to the Executive at least ninety (90) days before the Expiration Date that the
term of this Agreement will expire on the Expiration Date, then the term of this
Agreement shall be automatically
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<PAGE> 4
extended for successive one-year periods (the first such period to begin on the
day immediately following the Expiration Date) unless the Company shall have
given notice to the Executive at least ninety (90) days before the end of any
one-year period for which the term of this Agreement shall have been
automatically extended that such term will expire at the end of that one-year
period. The expiration of the term of this Agreement shall not terminate this
Agreement itself or affect the right of the Executive or the Executive's legal
representatives to enforce the payment of any amount or other benefit to which
the Executive was entitled before the expiration of the term of this Agreement
or to which the Executive became entitled as a result of the event (including
the termination, whether by the Executive or the Company or automatically as
provided in this Section 3, of the Executive's employment by the Company) that
caused the term of this Agreement to expire.
Section 4. Event of Termination for Cause. An "Event of Termination for
Cause" shall have occurred if, after a Change in Control of the Company, the
Executive shall have committed:
(i) gross negligence or willful misconduct in connection with
his duties or in the course of his employment with the Company;
(ii) an act of fraud, embezzlement or theft in connection with
his duties or in the course of his employment with the Company;
(iii) intentional wrongful damage to property of the Company;
(iv) intentional wrongful disclosure of secret processes or
confidential information of the Company; or
(v) an act leading to a conviction of a felony or a
misdemeanor involving moral turpitude.
For purposes of this Agreement, no act, or failure to act, on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error in
judgment or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated as a result of an "Event of Termination for Cause" hereunder unless
and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the Board of Directors then in office at a meeting of the Board of Directors
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with his counsel, to be heard before
the Board of Directors), finding that, in the good faith opinion of the Board of
Directors, the Executive had committed an act set forth above in this Section 4
and specifying the particulars thereof in detail. Nothing herein shall limit the
right of the Executive or his legal representatives to contest the validity or
propriety of any such determination.
Section 5. An Event of Termination for Good Reason. An "Event of
Termination for Good Reason" shall have occurred if, after a Change in Control
of the Company, the Company shall:
(i) assign to the Executive any duties inconsistent with the
Executive's position (including offices, titles and reporting
requirements), authority, duties or responsibilities with the Company
in effect immediately before the occurrence of the first Change in
Control of the Company or otherwise make any change in any such
position, authority, duties or responsibilities;
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<PAGE> 5
(ii) remove the Executive from, or fail to re-elect or appoint
the Executive to, any duties or position with the Company or any of its
Affiliates that were assigned or held by the Executive immediately
before the occurrence of the first Change in Control of the Company,
except that a nominal change in the Executive's title that is merely
descriptive and does not affect rank or status shall not constitute
such an event;
(iii) take any other action that results in a material
diminution in such position, authority, duties or responsibilities or
otherwise take any action that materially interferes therewith;
(iv) reduce the Executive's annual base salary as in effect
immediately before the occurrence of the first Change in Control of the
Company or as the Executive's annual base salary may be increased from
time to time after that occurrence (the "Base Salary");
(v) reduce the Executive's annual bonus (x) to an amount less
than $_______________ at any time on or prior to the third anniversary
of the Effective Date, or (y) to an amount less than the average of the
two annual bonuses earned by such Executive with respect to the two
preceding years at any time after the third anniversary of the
Effective Date (the amount determined pursuant to clause (x) or (y), as
applicable, is referred to herein as the "Benchmark Bonus");
(vi) relocate the Executive's principal office outside of the
portion of the metropolitan area of the City of Houston, Texas that is
located within the highway known as "Beltway 8";
(vii) fail to (x) continue in effect any bonus, incentive,
profit sharing, performance, savings, retirement or pension policy,
plan, program or arrangement (such policies, plans, programs and
arrangements collectively being referred to herein as "Basic Benefit
Plans"), including, but not limited to, any deferred compensation,
supplemental executive retirement or other retirement income, stock
option, stock purchase, stock appreciation, or similar policy, plan,
program or arrangement of the Company, in which the Executive was a
participant immediately before the occurrence of the first Change in
Control of the Company, or any substitute plan adopted by the Board of
Directors and in which the Executive was a participant immediately
before the occurrence of the last Change in Control of the Company,
unless an equitable and reasonably comparable arrangement (embodied in
a substitute or alternative benefit or plan) shall have been made with
respect to such Basic Benefit Plan promptly following the occurrence of
the last Change in Control of the Company, or (y) continue the
Executive's participation in any Basic Benefit Plan (or any substitute
or alternative plan) on substantially the same basis, both in terms of
the amount of benefits provided to the Executive (which are in any
event always subject to the terms of any applicable Basic Benefit Plan)
and the level of the Executive's participation relative to other
participants, as existed immediately before the occurrence of the first
Change in Control of the Company;
(viii) fail to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of
the Company's other Executive benefit plans, policies, programs and
arrangements, including, but not limited to, life insurance, medical,
dental, health, hospital, accident or disability plans, in which the
Executive was a
-5-
<PAGE> 6
participant immediately before the occurrence of the first Change in
Control of the Company;
(ix) take any action that would directly or indirectly
materially reduce any other non-contractual benefits that were provided
to the Executive by the Company immediately before the occurrence of
the first Change in Control of the Company or deprive the Executive of
any material fringe benefit enjoyed by the Executive immediately before
the occurrence of the first Change in Control of the Company;
(x) fail to provide the Executive with the number of paid
vacation days to which the Executive was entitled in accordance with
the Company's vacation policy in effect immediately before the
occurrence of the first Change in Control of the Company;
(xi) fail to continue to provide Executive with office space,
related facilities and support personnel (including, but not limited
to, administrative and secretarial assistance) (y) that are both
commensurate with Executive's responsibilities to and position with the
Company immediately before the occurrence of the first Change in
Control of the Company and not materially dissimilar to the office
space, related facilities and support personnel provided to other
Executives of the Company having comparable responsibility to the
Executive, or (z) that are physically located at the Company's
principal executive offices;
(xii) require the Executive to perform a majority of his
duties outside the Company's principal executive offices for a period
of more than 21 consecutive days or for more than 90 days in any
calendar year;
(xiii) fail to honor any provision of any employment agreement
Executive has or may in the future have with the Company or fail to
honor any provision of this Agreement;
(xiv) give effective notice of an election to terminate at the
end of the term or extended the term of any employment agreement
Executive has or may in the future have with the Company in accordance
with the terms of any such agreement; or
(xv) purport to terminate the Executive's employment by the
Company unless notice of that termination shall have been given to the
Executive pursuant to, and that notice shall meet the requirements of,
Section 6.
Section 6. Notice of Termination. If a Change in Control of the Company
shall have occurred before the expiration of the term of this Agreement, any
subsequent termination by the Executive or the Company of the Executive's
employment by the Company, or any determination of the Executive's Disability,
shall be communicated by notice to the other party that shall indicate the
specific paragraph of Section 7 pursuant to which the Executive is to receive
benefits as a result of the termination. If the notice states that the
Executive's employment by the Company has been automatically terminated as a
result of the Executive's Disability, the notice shall (i) specifically describe
the basis for the determination of the Executive's Disability, and (ii) state
the date of the determination of the Executive's Disability, which date shall be
not more than ten (10) days before the date such notice is given. If the notice
is from the Company and states that the Executive's employment by the Company is
terminated by the Company as a result of the occurrence of an Event of
Termination for Cause, the notice shall specifically describe the action or
inaction of the Executive that the Company believes constitutes an Event of
Termination for Cause and shall be accompanied by a copy of the resolution
satisfying Section 4. If the notice is from the Executive and states
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<PAGE> 7
that the Executive's employment by the Company is terminated by the Executive as
a result of the occurrence of an Event of Termination for Good Reason, the
notice shall specifically describe the action or inaction of the Company that
the Executive believes constitutes an Event of Termination for Good Reason. Each
notice given pursuant to this Section 6 (other than a notice stating that the
Executive's employment by the Company has been automatically terminated as a
result of the Executive's Disability) shall state a date, which shall be not
fewer than thirty (30) days nor more than sixty (60) days after the date such
notice is given, on which the termination of the Executive's employment by the
Company is effective. The date so stated in accordance with this Section 6 shall
be the "Termination Date". If a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement, any subsequent
purported termination by the Company of the Executive's employment by the
Company, or any subsequent purported determination by the Company of the
Executive's Disability, shall be ineffective unless that termination or
determination shall have been communicated by the Company to the Executive by
notice that meets the requirements of the foregoing provisions of this Section 6
and the provisions of Section 9.
Section 7. Benefits Payable on Change in Control and Termination.(a)If
(x) a Change in Control of the Company shall have occurred before the expiration
of the term of this Agreement, and (y) the Executive's employment by the Company
is terminated (whether by the Executive or the Company or automatically as
provided in Section 3) after the occurrence of that Change in Control of the
Company, the Executive shall be entitled to the following benefits:
(i) If the Executive's employment by the Company is terminated
(x) by the Company as a result of the occurrence of an Event of
Termination for Cause, or (y) by the Executive before the occurrence of
an Event of Termination for Good Reason, then the Company shall pay to
the Executive the Base Salary accrued through the Termination Date but
not previously paid to the Executive, and the Executive shall be
entitled to any other amounts or benefits provided under any plan,
policy, practice, program, contract or arrangement of or with the
Company, including, but not limited to, the Basic Benefit Plans and the
Other Benefit Plans, which shall be governed by the terms thereof
(except as explicitly modified by this Agreement).
(ii) If the Executive's employment by the Company is
automatically terminated as a result of the Executive's death or the
Executive's Disability, then (x) the Company shall pay to the Executive
the Base Salary accrued through the date of the occurrence of that
event but not previously paid to the Executive, and (y) the Executive
shall be entitled to any other amounts or benefits provided under any
plan, policy, practice, program, contract or arrangement of or with the
Company, including, but not limited to, the Basic Benefit Plans and the
Other Benefit Plans, which shall be governed by the terms thereof
(except as explicitly modified by this Agreement).
(iii) If the Executive's employment by the Company is
terminated (x) by the Company otherwise than as a result of the
occurrence of an Event of Termination for Cause, or (y) by the
Executive after the occurrence of an Event of Termination for Good
Reason, then the Executive shall be entitled to the following:
(1) the Company shall pay to the Executive the Base
Salary and compensation for earned but unused vacation time
accrued through the Termination Date but not previously paid
to the Executive;
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<PAGE> 8
(2) the Company shall pay to the Executive an amount
equal to the product of (A) the greater of (I) the Executive's
target performance bonus for the Fiscal Year in which the
Termination Date occurs and (II) the Executive's performance
bonus for the Fiscal Year preceding the Fiscal Year in which
the Termination Date occurs (including any deferred portion
thereof) (the greater of the amounts described in clauses (I)
and (II) of this Section 7(a)(iii)(2)(A) being referred to
herein as the "Highest Bonus"), and (B) a fraction, the
numerator of which is the number of days in the current Fiscal
Year through the Termination Date and the denominator of which
is 365;
(3) the Company shall pay to the Executive, as a lump
sum, an amount (the "Severance Payment") equal to three (3)
times the sum of:
(A) the amount (including any deferred
portion thereof) of the Base Salary that would have
been paid to the Executive during the Fiscal Year in
which the Termination Date occurs based on the
assumption that the Executive's employment by the
Company had continued throughout that Fiscal Year at
the Base Salary rate in effect in the Fiscal Year in
which the Termination Date occurs, or in the
immediately preceding Fiscal Year, whichever is
higher;
(B) the amount of the Highest Bonus;
(4) the Company (at its sole expense) shall take the
following actions:
(A) throughout the Relevant Period, the
Company shall maintain in effect, and not materially
reduce the benefits provided by, each of the Other
Benefit Plans in which the Executive was a
participant immediately before the Termination Date;
and
(B) the Company shall arrange for the
Executive's uninterrupted participation throughout
the Relevant Period in each of such Other Benefit
Plans,
provided that if the Executive's participation after the
Termination Date in any such Other Benefit Plan is not
permitted by the terms of that Other Benefit Plan, then
throughout the Relevant Period, the Company (at its sole
expense) shall provide the Executive with substantially the
same benefits that were provided to the Executive by that
Other Benefit Plan immediately before the Termination Date;
and
(5) the Executive shall be entitled to any other
amounts or benefits provided under any plan, policy, practice,
program, contract or arrangement of or with the Company,
including, but not limited to, the
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Basic Benefit Plans and the Other Benefit Plans, which shall
be governed by the terms thereof (except as explicitly
modified by this Agreement).
(b) Each payment required to be made to the Executive pursuant to the
foregoing provisions of this Section 7(a) above (i) shall be made by check drawn
on an account of the Company at a bank located in the United States of America,
and (ii) shall be paid (x) if the Executive's employment by the Company was
terminated as a result of the Executive's death or the Executive's Disability,
not more than thirty (30) days immediately following the date of the occurrence
of that event, and (y) if the Executive's employment by the Company was
terminated for any other reason, not more than ten (10) days immediately
following the Termination Date.
(c) The following shall occur immediately upon the occurrence of a
Change in Control of the Company:
(i) all options to acquire Voting Stock and all stock
appreciation rights pertaining to Voting Stock held by the
Executive immediately prior to a Change in Control of the
Company shall become fully exercisable, regardless of whether
or not the vesting conditions set forth in the relevant stock
option agreements have been satisfied in full; and
(ii) all restrictions on any restricted Voting Stock
granted to the Executive prior to a Change in Control of the
Company shall be removed and the stock shall be freely
transferable, regardless of whether the conditions set forth
in the relevant restricted stock agreements have been
satisfied in full.
Section 8. Successors. If a Change in Control of the Company shall have
occurred before the expiration of the term of this Agreement,
(i) the Company shall not, directly or indirectly, consolidate
with, merge into or sell or otherwise transfer its assets as an
entirety or substantially as an entirety to, any person, or permit any
person to consolidate with or merge into the Company, unless
immediately after such consolidation, merger, sale or transfer, the
Successor shall have assumed in writing the Company's obligations under
this Agreement; and
(ii) not fewer than ten (10) days before the consummation of
any consolidation of the Company with, merger by the Company into, or
sale or other transfer by the Company of its assets as an entirety or
substantially as an entirety to, any person, the Company shall give the
Executive notice of that proposed transaction.
Section 9. Notice. Notices required or permitted to be given by either
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as certified or registered mail with postage
prepaid and addressed:
(i) if to the Executive, at the Executive's address last shown
on the Company's records, and
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<PAGE> 10
(ii) if to the Company, at 1900 West Loop West, Suite 1500,
Houston, Texas 77027, directed to the attention of the Chief Financial
Officer.
or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.
Section 10. Withholding Taxes. The Company may withhold from all
payments to be paid to the Executive pursuant to this Agreement all taxes that,
by applicable federal or state law, the Company is required to so withhold.
Section 11. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by, or benefit
from, the Company or any of its Affiliates to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments, distributions or
benefits being individually referred to herein as a "Payment," and any two or
more of such payments, distributions or benefits being referred to herein as
"Payments"), would be subject to the excise tax imposed by Section 4999 of the
Code (such excise tax, together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect to such excise tax, and any
interest in respect of such penalties, additions to tax or additional amounts,
being collectively referred herein to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment or payments (individually
referred to herein as a "Gross-Up Payment" and any two or more of such
additional payments being referred to herein as "Gross-Up Payments") in an
amount such that after payment by the Executive of all taxes (as defined in
Section 11(k)) imposed upon the Gross-Up Payment, the Executive retains an
amount of such Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 11(c) through (i), any
determination (individually, a "Determination") required to be made under this
Section 11(b), including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall initially be made, at the Company's expense, by
nationally recognized tax counsel mutually acceptable to the Company and the
Executive ("Tax Counsel"). Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and the
Executive within 15 business days of the termination of the Executive's
employment, if applicable, or such other time or times as is reasonably
requested by the Company or the Executive. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. The Executive shall have the right to dispute any
Determination (a "Dispute") within 15 business days after delivery of Tax
Counsel's opinion with respect to such Determination. The Gross-Up Payment, if
any, as determined pursuant to such Determination shall, at the Company's
expense, be paid by the Company to the Executive within five business days of
the Executive's receipt of such Determination. The existence of a Dispute shall
not in any way affect the Executive's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon the Company and the Executive,
subject in all respects, however, to the provisions of Section 11(c) through (i)
below. As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up Payments (or portions thereof)
which will not have been made by the Company should have been made
("Underpayment"), and if upon any reasonable written request from the Executive
or the Company to Tax Counsel, or upon Tax Counsel's own initiative, Tax
Counsel, at the Company's expense, thereafter determines that the Executive is
required to make a payment of any Excise Tax or any additional Excise Tax,
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as the case may be, Tax Counsel shall, at the Company's expense, determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to the Executive.
(c) The Company shall defend, hold harmless, and indemnify the
Executive on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of the Executive resulting from any Final Determination (as
defined in Section 11(j)) that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by the
Executive against the Company under this Section 11 ("Claim"), including, but
not limited to, a claim for indemnification of the Executive by the Company
under Section 11(c), then such party shall promptly notify the other party
hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against the Executive ("Executive Claim"),
the Executive shall take or cause to be taken such action in connection with
contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Executive Claim (or such earlier date that any payment of the taxes
claimed is due from the Executive, but in no event sooner than five
calendar days after the Company receives or delivers such Tax Claim
Notice), the Company shall have notified the Executive in writing
("Election Notice") that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to control the
defense or prosecution of, such Executive Claim at the Company's sole
risk and sole cost and expense; and
(ii) the Company shall have advanced to the Executive on an
interest-free basis, the total amount of the tax claimed in order for
the Executive, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of Section 11(g), sue for a refund of
such tax if such claim for refund is disallowed by the appropriate
taxing authority (it being understood and agreed by the parties hereto
that the Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold the
Executive harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse the Executive for any and
all costs and expenses resulting from any such request by the Company
and shall indemnify and hold the Executive harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
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<PAGE> 12
(f) Subject to the provisions of Section 11(e) hereof, the Company
shall have the right to defend or prosecute, at the sole cost, expense and risk
of the Company, such Executive Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a Final
Determination; provided, however, that (i) the Company shall not, without the
Executive's prior written consent, enter into any compromise or settlement of
such Executive Claim that would adversely affect the Executive, (ii) any request
from the Company to the Executive regarding any extension of the statute of
limitations relating to assessment, payment, or collection of taxes for the
taxable year of the Executive with respect to which the contested issues
involved in, and amount of, the Executive Claim relate is limited solely to such
contested issues and amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the Executive Claim and
the Executive shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any other
taxing authority. So long as the Company is diligently defending or prosecuting
such Executive Claim, the Executive shall provide or cause to be provided to the
Company any information reasonably requested by the Company that relates to such
Executive Claim, and shall otherwise cooperate with the Company and its
representatives in good faith in order to contest effectively such Executive
Claim. The Company shall keep the Executive informed of all developments and
events relating to any such Executive Claim (including, without limitation,
providing to the Executive copies of all written materials pertaining to any
such Executive Claim), and the Executive or his authorized representatives shall
be entitled, at the Executive's expense, to participate in all conferences,
meetings and proceedings relating to any such Executive Claim.
(g) If, after actual receipt by the Executive of an amount of a tax
claimed (pursuant to an Executive Claim) that has been advanced by the Company
pursuant to Section 11(e)(ii) hereof, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, the Executive shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, the Executive
with respect to such tax (together with any interest paid or credited thereon by
the taxing authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due and payable
by the Company to the Executive, whether under the provisions of this Agreement
or otherwise. If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 11(e)(ii), a determination is made by the
Internal Revenue Service or other appropriate taxing authority that the
Executive shall not be entitled to any refund with respect to such tax claimed
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.
(h) With respect to any Executive Claim, if the Company fails to
deliver an Election Notice to the Executive within the period provided in
Section 11(e)(i) hereof or, after delivery of such Election Notice, the Company
fails to comply with the provisions of Section 11(e)(ii) and (iii) and (f)
hereof, then the Executive shall at any time thereafter have the right (but not
the obligation), at his election and in his sole and absolute discretion, to
defend or prosecute, at the sole cost, expense and risk of the Company, such
Executive Claim. The Executive shall have full control of such defense or
prosecution and such proceedings, including any settlement or compromise
thereof. If requested by the Executive, the Company shall cooperate, and shall
cause its Affiliates to cooperate, in good faith with the Executive and his
authorized representatives in order to contest effectively such Executive Claim.
The Company may attend, but not participate in or control, any
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<PAGE> 13
defense, prosecution, settlement or compromise of any Executive Claim controlled
by the Executive pursuant to this Section 11(h) and shall bear its own costs and
expenses with respect thereto. In the case of any Executive Claim that is
defended or prosecuted by the Executive, the Executive shall, from time to time,
be entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by the Executive in
connection with such defense or prosecution.
(i) In the case of any Executive Claim that is defended or prosecuted
to a Final Determination pursuant to the terms of this Section 11(i), the
Company shall pay, on a fully grossed-up after tax basis, to the Executive in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Executive Claim that have not
theretofore been paid by the Company to the Executive, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to the Executive,
within ten calendar days after such Final Determination. In the case of any
Executive Claim not covered by the preceding sentence, the Company shall pay, on
a fully grossed-up after tax basis, to the Executive in immediately available
funds the full amount of any taxes arising or resulting from or incurred in
connection with such Executive Claim at least ten calendar days before the date
payment of such taxes is due from the Executive, except where payment of such
taxes is sooner required under the provisions of this Section 11(i), in which
case payment of such taxes (and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under this Section 11(i) shall be
made within the time and in the manner otherwise provided in this Section 11(i).
(j) For purposes of this Agreement, the term "Final Determination"
shall mean (A) a decision, judgment, decree or other order by a court or other
tribunal with appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and "taxes" mean
any and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.
Section 12. Expenses of Enforcement. If a Change in Control of the
Company shall have occurred before the expiration of the term of this Agreement,
then, upon demand by the Executive made to the Company, the Company shall
reimburse the Executive for the reasonable expenses (including attorneys' fees
and expenses) incurred by the Executive in enforcing or seeking to enforce the
payment of any amount or other benefit to which the Executive shall have become
entitled pursuant to this Agreement, including those incurred in connection with
any arbitration initiated pursuant to Section 20. To the extent that any such
reimbursement would be subject to the Excise Tax, then the Executive shall be
entitled to receive Gross-Up Payments in an amount such that after payment by
the Executive of all taxes imposed on such Gross-Up Payments, the Executive
retains an amount equal to the Excise Tax imposed upon the reimbursement, and
the other provisions of Section 11 hereof shall also apply to such circumstance
unless the context thereof otherwise indicates.
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Section 13. Employment by Wholly Owned Entities. If, at or after the
Effective Date, the Executive is or becomes an Executive of one or more
corporations, partnerships, limited liability companies or other entities that
are, directly or indirectly, wholly owned by the Company ("Wholly Owned
Entities"), references in this Agreement to the Executive's employment by the
Company shall include the Executive's employment by any such Wholly Owned
Entity.
Section 14. No Obligation to Mitigate; No Rights of Offset.
(a) The Executive shall not be required to mitigate the amount of any
payment or other benefit required to be paid to the Executive pursuant to this
Agreement, whether by seeking other employment or otherwise, nor shall the
amount of any such payment or other benefit be reduced on account of any
compensation earned by the Executive as a result of employment by another
person.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others.
Section 15. Amendment and Waiver. No provision of this Agreement may be
amended or waived (whether by act or course of conduct or omission or otherwise)
unless that amendment or waiver is by written instrument signed by the parties
hereto. No waiver by either party of any breach of this Agreement shall be
deemed a waiver of any other or subsequent breach.
Section 16. Governing Law. The validity, interpretation, construction
and enforceability of this Agreement shall be governed by the laws of the State
of Texas.
Section 17. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
Section 18. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together will constitute the same instrument.
Section 19. Assignment. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representative. The Company may not
assign any of its obligations under this Agreement unless (i) such assignment is
to a Successor and (ii) the requirements of Section 8 are fulfilled.
Section 20. Arbitration. Except as otherwise explicitly provided in
Section 11, any dispute between the parties arising out of this Agreement,
whether as to this Agreement's construction, interpretation or enforceability or
as to any party's breach or alleged breach of any provision of this Agreement,
shall be submitted to arbitration in accordance with the following procedures:
(i) Either party may demand such arbitration by giving notice
of that demand to the other party. The notice shall state (x) the
matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(ii) Not more than 15 days after such notice is given, the
other party shall give notice to the party who demanded arbitration of
the name of the arbitrator selected by the other party. If the other
party shall fail to timely give such notice, the arbitrator that the
other party was entitled to select shall be named by the Arbitration
Committee of the
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<PAGE> 15
American Arbitration Association. Not more than 15 days after the
second arbitrator is so named, the two arbitrators shall select a third
arbitrator. If the two arbitrators shall fail to timely select a third
arbitrator, the third arbitrator shall be named by the Arbitration
Committee of the American Arbitration Association.
(iii) The dispute shall be arbitrated at a hearing that shall
be concluded within ten days immediately following the date the dispute
is submitted to arbitration unless a majority of the arbitrators shall
elect to extend the period of arbitration. Any award made by a majority
of the arbitrators (x) shall be made within ten days following the
conclusion of the arbitration hearing, (y) shall be conclusive and
binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(iv) All expenses of the arbitration shall be borne by the
Company.
The agreement of the parties contained in the foregoing provisions of this
Section 20 shall be a complete defense to any action, suit or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute between the parties arising out of this Agreement.
Section 21. Interpretation.
(a) As used in this Agreement, the following terms and phrases have the
indicated meanings:
(i) "Affiliate" and "Affiliates" mean, when used with respect
to any entity, individual, or other person, any other entity,
individual, or other person which, directly or indirectly, through one
or more intermediaries controls, or is controlled by, or is under
common control with such entity, individual or person.
(ii) "Base Salary" has the meaning assigned to that term in
Section 5.
(iii) "Basic Benefit Plans" has the meaning assigned to that
term in Section 5.
(iv) "Benchmark Bonus" has the meaning assigned to that term
in Section 5.
(v) "Board of Directors" means the Board of Directors of the
Company.
(vi) "Business Combination" has the meaning assigned to that
term in Section 2.
(vii) "Change in Control of the Company" has the meaning
assigned to that phrase in Section 2.
(viii) "Claim" has the meaning assigned to such term in
Section 11.
(ix) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(x) "Commission" means the United States Securities and
Exchange Commission or any successor agency.
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<PAGE> 16
(xi) "Company" has the meaning assigned to that term in the
preamble to this Agreement. The term "Company" shall also include any
Successor, whether the liability of such Successor under this Agreement
is established by contract or occurs by operation of law.
(xii) "Covered Person" has the meaning assigned to that term
in Section 2.
(xiii) "Determination" has the meaning assigned to that term
in Section 11.
(xiv) "Dispute" has the meaning assigned to that term in
Section 11.
(xv) "Effective Date" has the meaning assigned to that term in
the preamble to this Agreement.
(xvi) "Election Notice" has the meaning assigned to such term
in Section 11.
(xvii) "Executive" has the meaning assigned to such term in
the preamble to this Agreement.
(xviii) "Executive Claim" has the meaning assigned to such
term in Section 11.
(xix) "Executive's Disability" means:
(A) if no Change in Control of the Company shall have
occurred before the date of determination, the physical or
mental disability of the Executive determined in accordance
with the disability policy of the Company at the time in
effect and generally applicable to its salaried Executives;
and
(B) if a Change in Control of the Company shall have
occurred at that date, the physical or mental disability of
the Executive determined in accordance with the disability
policy of the Company in effect immediately before the
occurrence of the first Change in Control of the Company and
generally applicable to its salaried Executives.
The Executive's Disability, and the automatic termination of the
Executive's employment by the Company by reason of the Executive's
Disability, shall be deemed to have occurred on the date of
determination, provided that if (1) a Change in Control of the Company
shall have occurred before the expiration of the term of this
Agreement, (2) the Company shall have subsequently given notice
pursuant to Section 6 of the Company's determination of the Executive's
Disability, and (3) the Executive shall have given notice to the
Company that the Executive disagrees with that determination, then (A)
whether the Executive's Disability shall have occurred shall be
submitted to arbitration pursuant to Section 20, and (B) if a majority
of the arbitrators decide that the Executive's Disability had not
occurred, at the date of determination by the Company, then (I) the
Executive's Disability, and the automatic termination of the
Executive's employment by the Company by reason of the Executive's
Disability, shall be deemed not to have occurred, and (II) on demand by
the Executive made to the Company, the Company shall reimburse the
Executive for the reasonable expenses (including attorneys' fees and
expenses) incurred by the Executive in obtaining that decision.
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<PAGE> 17
(xx) "Event of Termination for Good Reason" has the meaning
assigned to that phrase in Section 5.
(xxi) "Event of Termination for Cause" has the meaning
assigned to that phrase in Section 4.
(xxii) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
(xxiii) "Excise Tax" has the meaning assigned to that term in
Section 11.
(xxiv) "Expiration Date" has the meaning assigned to that term
in Section 3.
(xxv) "Final Determination" has the meaning assigned to such
term in Section 11.
(xxvi) "Fiscal Year" means the fiscal year of the Company.
(xxvii) "Gross-Up Payment" has the meaning assigned to that
term in Section 11.
(xxviii) "Other Benefit Plan" means any employee welfare
benefit plan (within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) maintained by the
Company.
(xxix) "Outstanding Company Common Stock" has the meaning
assigned to that term in Section 2.
(xxx) "Outstanding Company Voting Securities" has the meaning
assigned to that term in Section 2.
(xxxi) "Payment" has the meaning assigned to that term in
Section 11.
(xxxii) "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited
partnership, limited liability company, trust, unincorporated
organization, government, or agency or political subdivision of any
government.
(xxxiii) "Relevant Period" means a period beginning on the
Termination Date and ending on the first to occur of (x) the third
anniversary of the Termination Date, or (y) the date on which the
Executive becomes employed on a full-time basis by another person.
(xxxiv) "Severance Payment" has the meaning assigned to that
term in Section 7.
(xxxv) "Successor" means a person with or into which the
Company shall have been merged or consolidated or to which the Company
shall have transferred its assets as an entirety or substantially as an
entirety.
(xxxvi) "Tax" has the meaning assigned to that term in Section
11.
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<PAGE> 18
(xxxvii) "Tax Claim Notice" has the meaning assigned to that
term in Section 11.
(xxxviii) "Tax Counsel" has the meaning assigned to that term
in Section 11.
(xxxix) "Termination Date" has the meaning assigned to that
term in Section 6.
(xl) "This Agreement" means this Change in Control Agreement
as it may be amended from time to time in accordance with Section 15.
(xli) "Underpayment" has the meaning assigned to that term in
Section 11.
(xlii) "Wholly Owned Entities" has the meaning assigned to
that term in Section 13.
(b) In the event of the enactment of any successor provision to any
statute or rule cited in this Agreement, references in this Agreement to such
statute or rule shall be to such successor provision.
(c) The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement.
(d) References in this Agreement to any Section are to the
corresponding Section of this Agreement unless the context otherwise indicates.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the Effective Date.
COMPANY:
QUANEX CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXECUTIVE:
--------------------------------------------
Name:
---------------------------------------
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<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO THE
QUANEX CORPORATION 1987 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1987 Non-Employee Director Stock
Option Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees that
Section 8 of the Plan is completely amended to provide as follows:
8. TRANSFERABILITY OF OPTIONS. Except as expressly provided
otherwise in an Optionee's Agreement, an Option 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.
<PAGE> 1
EXHIBIT 10.14
AMENDMENT TO
THE QUANEX CORPORATION
1987 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1987 Non-Employee Director Stock
Option Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Paragraph 13 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Paragraph 9 of the Plan is hereby amended, effective
with respect to all Options issued in the future under this Plan, as follows:
9. TERMINATION OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein all Options shall terminate on the
earlier of the date of the expiration of the Option or the date that is
three months after the optionee ceases to be a member of the Company's
Board of Directors, for any reason other than the death, permanent
disability or, retirement of the optionee, during which period the
optionee shall be entitled to exercise the Option in respect of the
number of shares that the optionee would have been entitled to purchase
had the optionee exercised the Option on the date the optionee ceased
to be a member of the Company's Board of Directors.
In the event the optionee ceases to be a member of the
Company's Board of Directors because of his death, permanent disability
or retirement from the Board of Directors of the Company, before the
date of expiration of his Option, such Option shall continue fully in
effect, including provisions providing for subsequent vesting of such
Option, for a period of not longer than three years commencing on the
date of his retirement, and shall terminate on the earlier of the date
of the expiration of
<PAGE> 2
such three-year period or the date of expiration of the Option
notwithstanding any provision to the contrary in the optionee's Option
Agreement. After the death of the optionee, his executors,
administrators or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall
have the right, at any time prior to the termination of the Option to
exercise the Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he were still alive.
In any event, an Option shall terminate on the tenth
anniversary of the date of grant of such Option.
For purposes of this Paragraph 9, an Optionee will be treated
as having retired from the Company's Board of Directors if the Optionee
shall, at the time the Optionee ceases to be a member of the Board of
Directors of the Company, have served at least two full three-year
terms of office as a director of the Company or six years of service as
a director of the Company.
Dated: December 9, 1999.
-2-
<PAGE> 1
EXHIBIT 10.16
AMENDMENT TO THE
QUANEX CORPORATION 1989 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1989 Non-Employee Director Stock
Option Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees that
Section 8 of the Plan is completely amended to provide as follows:
8. TRANSFERABILITY OF OPTIONS. Except as expressly provided
otherwise in an Optionee's Option Agreement, an Option 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.
<PAGE> 1
EXHIBIT 10.17
AMENDMENT TO
THE QUANEX CORPORATION
1989 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1989 Non-Employee Director Stock
Option Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Section 13 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Paragraph 9 of the Plan is hereby amended, effective
with respect to all Options issued in the future under this Plan, as follows:
9. TERMINATION OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein all Options shall terminate on the
earlier of the date of the expiration of the Option or the date that is
three months after the optionee ceases to be a member of the Company's
Board of Directors, for any reason other than the death, permanent
disability or, retirement of the optionee, during which period the
optionee shall be entitled to exercise the Option in respect of the
number of shares that the optionee would have been entitled to purchase
had the optionee exercised the Option on the date the optionee ceased
to be a member of the Company's Board of Directors.
In the event the optionee ceases to be a member of the
Company's Board of Directors because of his death, permanent disability
or retirement from the Board of Directors of the Company, before the
date of expiration of his Option, such Option shall continue fully in
effect, including provisions providing for subsequent vesting of such
Option, for a period of not longer than three years after the date of
his death, permanent disability or retirement from the Board of
Directors of the Company and
<PAGE> 2
shall terminate on the earlier of the date of the expiration of such
three-year period or the date of the expiration of the Option
notwithstanding any provision to the contrary in the optionee's Option
Agreement. After the death of the optionee, his executors,
administrators or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall
have the right, at any time prior to the termination of the Option to
exercise the Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he were still alive.
In any event, an Option shall terminate on the tenth
anniversary of the date of grant of such Option.
For purposes of this Paragraph 9, an Optionee will be treated
as having retired from the Company's Board of Directors if the Optionee
shall, at the time the Optionee ceases to be a member of the Board of
Directors of the Company, have served at least two full three-year
terms of office as a director of the Company or six years of service as
a director of the Company.
Dated: December 9, 1999.
-2-
<PAGE> 1
EXHIBIT 10.19
AMENDMENT TO THE
QUANEX CORPORATION EMPLOYEE
STOCK OPTION AND RESTRICTED STOCK PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation Employee Stock Option and
Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees that
paragraph G of Section 7 of the Plan is completely amended to provide as
follows:
G. TRANSFERABILITY OF OPTIONS. Except as expressly provided
otherwise in an Optionee's Agreement with respect to a Non-Incentive
Stock Option, an Option 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.
<PAGE> 1
EXHIBIT 10.20
AMENDMENT TO
THE QUANEX CORPORATION
EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation Employee Stock Option and
Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Section 12 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Paragraph H. of Section 7 of the Plan is hereby amended,
effective with respect to all Options issued in the future under this Plan, as
follows:
H. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein with respect to an Option that is a
Non-Incentive Stock Option, all Options shall terminate on the earlier
of the date of the expiration of the Option or one day less than three
months after the date of severance, upon severance of the employment
relationship between the Company and the optionee, whether with or
without cause, for any reason other than the death, Disability or, in
the case of Non-Incentive Stock Options only, Retirement of the
optionee, during which period the optionee shall be entitled to
exercise the Option in respect of the number of shares that the
optionee would have been entitled to purchase had the optionee
exercised the Option on the date of such severance of employment.
Whether authorized leave of absence, or absence on military or
government service, shall constitute severance of the employment
relationship between the Company and the optionee shall be determined
by the Committee at the time thereof. In the event of severance because
of the Disability of the holder of any Incentive Stock Option while in
the employ of the Company and before the date of expiration of such
Incentive Stock Option, such Incentive Stock Option shall terminate on
the earlier
<PAGE> 2
of such date of expiration or one year following the date of such
severance because of Disability, during which period the optionee shall
be entitled to exercise the Incentive Stock Option in respect to the
number of shares that the optionee would have been entitled to purchase
had the optionee exercised the Incentive Stock Option on the date of
such severance because of Disability. In the event of the death of the
holder of any Incentive Stock Option while in the employ of the Company
and before the date of expiration of such Incentive Stock Option, such
Incentive Stock Option shall terminate on the earlier of such date of
expiration or one year following the date of death. After the death of
the optionee, his executors, administrators or any person or persons to
whom his Incentive Stock 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 an Incentive Stock Option to exercise the
Incentive Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he had exercised the
Incentive Stock Option on the date of his death while in employment.
For purposes of Incentive Stock Options issued under this Plan, an
employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by
the Company, a corporation issuing or assuming an option in a
transaction to which Section 424(a) of the Code applies, or a parent or
subsidiary corporation of such corporation issuing or assuming an
option. For this purpose, the phrase "corporation issuing or assuming
an option" shall be substituted for the word "Company" in the
definitions of parent and subsidiary corporations in Section 5 and the
parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code.
In the event of the death, Disability or Retirement of a
holder of a Non-Incentive Stock Option, before the date of expiration
of such Non-Incentive Stock Option, such Non-Incentive Stock Option
shall continue fully in effect, including provisions providing for
subsequent vesting of such Option, for a period of not more than three
years commencing on the date of the optionee's death, Disability or
Retirement and shall terminate on the earlier of the date of the
expiration of such three-year period or the date of expiration of the
Non-Incentive Stock Option. After the death of the optionee, his
executors, administrators or any person or persons to whom his
Non-Incentive Stock 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 Non-Incentive Stock Option to exercise the
Non-Incentive Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he were still alive.
Notwithstanding the foregoing provisions of this Section, in the case
of a Non-Incentive Stock Option the Committee may provide for a
different option termination date in the Option Agreement with respect
to such Option.
Dated: December 9, 1999.
-2-
<PAGE> 1
EXHIBIT 10.26
AMENDMENT TO THE
QUANEX CORPORATION 1996 EMPLOYEE
STOCK OPTION AND RESTRICTED STOCK PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1996 Employee Stock Option and
Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right to
amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, the Board of Directors of the Company agrees that
paragraph G of Section 7 of the Plan is completely amended to provide as
follows:
G. TRANSFERABILITY OF OPTIONS. Except as expressly provided
otherwise in an Optionee's Agreement with respect to a Non-Incentive
Stock Option, an Option 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.
<PAGE> 1
EXHIBIT 10.27
AMENDMENT TO
THE QUANEX CORPORATION
1996 EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1996 Employee Stock Option and
Restricted Stock Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Section 12 of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Paragraph H. of Section 7 of the Plan is hereby amended,
effective with respect to all Options issued in the future under this Plan, as
follows:
H. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except as may be
otherwise expressly provided herein with respect to an Option that is a
Non-Incentive Stock Option, all Options shall terminate on the earlier
of the date of the expiration of the Option or one day less than three
months after the date of severance, upon severance of the employment
relationship between the Company and the optionee, whether with or
without cause, for any reason other than the death, Disability or, in
the case of Non-Incentive Stock Options only, Retirement of the
optionee, during which period the optionee shall be entitled to
exercise the Option in respect of the number of shares that the
optionee would have been entitled to purchase had the optionee
exercised the Option on the date of such severance of employment.
Whether authorized leave of absence, or absence on military or
government service, shall constitute severance of the employment
relationship between the Company and the optionee shall be determined
by the Committee at the time thereof. In the event of severance because
of the Disability of the holder of any Incentive Stock Option while in
the employ of the Company and before the date of expiration of such
Incentive Stock Option, such Incentive Stock Option shall terminate on
the earlier
<PAGE> 2
of such date of expiration or one year following the date of such
severance because of Disability, during which period the optionee shall
be entitled to exercise the Incentive Stock Option in respect to the
number of shares that the optionee would have been entitled to purchase
had the optionee exercised the Incentive Stock Option on the date of
such severance because of Disability. In the event of the death of the
holder of any Incentive Stock Option while in the employ of the Company
and before the date of expiration of such Incentive Stock Option, such
Incentive Stock Option shall terminate on the earlier of such date of
expiration or one year following the date of death. After the death of
the optionee, his executors, administrators or any person or persons to
whom his Incentive Stock 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 an Incentive Stock Option to exercise the
Incentive Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he had exercised the
Incentive Stock Option on the date of his death while in employment.
For purposes of Incentive Stock Options issued under this Plan, an
employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by
the Company, a corporation issuing or assuming an option in a
transaction to which Section 424(a) of the Code applies, or a parent or
subsidiary corporation of such corporation issuing or assuming an
option. For this purpose, the phrase "corporation issuing or assuming
an option" shall be substituted for the word "Company" in the
definitions of parent and subsidiary corporations in Section 5 and the
parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code.
In the event of the death, Disability or Retirement of a
holder of a Non-Incentive Stock Option, before the date of expiration
of such Non-Incentive Stock Option, such Non-Incentive Stock Option
shall continue fully in effect, including provisions providing for
subsequent vesting of such Option, for a period of not more than three
years commencing on the date of the optionee's death, Disability or
Retirement and shall terminate on the earlier of the date of the
expiration of such three-year period or the date of expiration of the
Non-Incentive Stock Option. After the death of the optionee, his
executors, administrators or any person or persons to whom his
Non-Incentive Stock 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 Non-Incentive Stock Option to exercise the
Non-Incentive Stock Option, in respect to the number of shares that the
optionee would have been entitled to exercise if he were still alive.
Notwithstanding the foregoing provisions of this Section, in the case
of a Non-Incentive Stock Option the Committee may provide for a
different option termination date in the Option Agreement with respect
to such Option.
Dated: December 9, 1999.
-2-
<PAGE> 1
EXHIBIT 10.29
APPOINTMENT OF THE TRUSTEE OF THE
QUANEX CORPORATION DEFERRED COMPENSATION TRUST
AND THE AMENDMENT OF THE QUANEX CORPORATION
DEFERRED COMPENSATION TRUST
RESOLVED, that pursuant to the power retained by Quanex
Corporation (the "Company") in Section 11 of that certain Trust
Agreement dated August 1, 1996, by the Company, entitled "Quanex
Corporation Deferred Compensation Trust,", the Company hereby appoints
Fleet Bank N.A. as successor Trustee of the Trust, and the proper
officers of the Company are hereby authorized and directed to execute
such documents as are necessary to make such appointment effective as
of the end of business on December 9, 1999; and
RESOLVED FURTHER, that the Trust Agreement be amended,
effective as of the effective date of the appointment of successor
Trustee, as follows:
1. The words "NBD Bank" shall be deleted in the Trust
Agreement, and the words "Fleet Bank N.A." shall be
substituted in their stead.
2. Section 13.(c) of the Trust Agreement shall be amended in
its entirety as follows:
(c) This Trust Agreement shall be governed
by and construed in accordance with the laws of the
State of New York.
<PAGE> 1
EXHIBIT 10.31
AMENDMENT TO
THE QUANEX CORPORATION
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
THIS AGREEMENT by Quanex Corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company previously adopted the
plan agreement known as the "Quanex Corporation 1997 Non-Employee Director Stock
Option Plan" (the "Plan"); and
WHEREAS, the Board of Directors of the Company retained the right in
Article IV of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has approved the
following amendment to the Plan;
NOW, THEREFORE, effective January 1, 2000, the Board of Directors of
the Company agrees that Section 3.6 the Plan is hereby amended, effective with
respect to all Options issued in the future under this Plan, as follows:
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 due to
his death, Disability or Retirement, his Option shall continue to vest
after such cessation of service as a director for a period of not
longer than three years commencing on the
<PAGE> 2
date of the Optionee's death, disability or Retirement until the Option
expires upon the earlier of date of the expiration of such three-year
period or ten years after the grant of the Option.
Dated: December 9, 1999.
-2-
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF QUANEX CORPORATION JURISDICTION OF INCORPORATION
- ---------------------------------- -----------------------------
<S> <C>
Piper Impact, Inc. Delaware
Quanex Bar, Inc. Delaware
Quanex Steel, Inc. Delaware
Quanex Health Management Company, Inc. Delaware
Quanex Manufacturing, Inc. Delaware
Quanex Solutions, Inc. Delaware
Quanex Technologies, Inc. Delaware
Quanex Foreign Sales Corporation U.S. Virgin Islands
Piper Impact Europe B.V. The Netherlands
Nichols Aluminum-Alabama, Inc. Delaware
Quanex Windows, Inc. Delaware
Quanex Two, Inc. Delaware
Quanex Three, Inc. Delaware
Quanex Four, Inc. Delaware
Quanex Five, Inc. Delaware
Quanex Six, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT NO. 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-23474, No. 33-29585, No. 33-22550, No. 33-35128, No. 33-38702, No.
33-46824, No. 33-57235, No. 33-54081, No. 33-54085, No. 33-54087, No. 333-18267,
No. 333-22977, No. 333-36635, No. 333-89853 and No. 333-66777 of Quanex
Corporation of our report dated November 19, 1999 appearing in this Annual
Report on Form 10-K of Quanex Corporation for the year ended October 31, 1999.
/s/ Deloitte & Touche LLP
Houston, Texas
January 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF OCTOBER 31, 1999 AND THE INCOME STATEMENT FOR THE YEAR ENDED OCTOBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 25,874
<SECURITIES> 0
<RECEIVABLES> 87,204
<ALLOWANCES> 12,154
<INVENTORY> 78,463
<CURRENT-ASSETS> 212,387
<PP&E> 753,811
<DEPRECIATION> 346,970
<TOTAL-ASSETS> 690,446
<CURRENT-LIABILITIES> 136,140
<BONDS> 179,121
0
0
<COMMON> 7,135
<OTHER-SE> 293,926
<TOTAL-LIABILITY-AND-EQUITY> 690,446
<SALES> 810,094
<TOTAL-REVENUES> 810,094
<CGS> 738,337
<TOTAL-COSTS> 738,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 921
<INTEREST-EXPENSE> 14,402
<INCOME-PRETAX> 60,349
<INCOME-TAX> 21,048
<INCOME-CONTINUING> 39,301
<DISCONTINUED> 0
<EXTRAORDINARY> 415
<CHANGES> 0
<NET-INCOME> 39,716
<EPS-BASIC> 2.790
<EPS-DILUTED> 2.590
</TABLE>
