<PAGE> 1
TWIN DISC, INCORPORATED
1328 Racine Street, Racine, Wisconsin 53403
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 17, 1997
NOTICE IS HEREBY GIVEN TO THE
SHAREHOLDERS OF TWIN DISC, INCORPORATED
The Annual Meeting of Shareholders of Twin Disc, Incorporated, a
Wisconsin corporation will be held at 2 P.M. (Central Daylight Time) on
Friday, October 17, 1997 at its main offices, 1328 Racine Street, Racine,
Wisconsin for the following purposes:
1. Election of three Directors to serve until the Annual Meeting in 2000.
2. Ratification of election of independent public auditors for the fiscal
year to end June 30, 1998.
3. To transact such other business as may properly come before the
meeting.
Only holders of record of shares of common stock of the Corporation at
the close of business on August 29, 1997, shall be entitled to vote at said
meeting.
If you wish to propose business to be brought before the meeting or
nominate a person for election as director at the meeting, such proposal or
nomination must be received by the Secretary by the deadline stated in the
proxy statement. Any proposal or nomination not received before the deadline
will not be considered.
A proxy appointment and proxy statement are enclosed herewith. The proxy
appointment shows the form in which your shares are registered. Your signature
should be in the same form.
FRED H. TIMM
Secretary
September 17, 1997
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND
RETURN
YOUR PROXY APPOINTMENT IN THE ENCLOSED ENVELOPE BEFORE THE
DEADLINE STATED IN
THE PROXY STATEMENT. IF YOUR PROXY APPOINTMENT IS NOT RECEIVED BY
THE
SECRETARY BEFORE THAT DEADLINE, IT WILL BE RULED INVALID. SHOULD YOU
FIND IT
CONVENIENT TO ATTEND THE MEETING PERSONALLY, AND DESIRE TO VOTE IN
PERSON, YOU
MAY REQUEST BEFORE ANY VOTE THAT YOUR PROXY APPOINTMENT BE
RETURNED TO YOU IN
ORDER THAT YOU MAY VOTE IN PERSON.
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY APPOINTMENT
IMMEDIATELY.
<PAGE> 2
Proxy Statement
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of the Corporation of proxies for use at the Annual
Meeting of Shareholders to be held at 2 P.M. (Central Daylight Time), at 1328
Racine Street, Racine, Wisconsin on Friday, October 17, 1997, or any
adjournment thereof. Holders of common stock of record at the close of
business on the 29th day of August 1997, are entitled to vote at the meeting
and each shareholder shall have one vote for each share of common stock
registered in such shareholders name. Shares represented by a signed proxy
appointment will be voted in the manner specified in the form of proxy or, if
no specification is made, in favor of each of the propositions mentioned
therein. The presence of a majority of the outstanding shares of common stock
of the Corporation, either in person or represented by a signed proxy
appointment, will constitute a quorum at the meeting. The Corporation intends
to mail this statement to shareholders on or about September 17, 1997.
On August 29, 1997, there were outstanding 2,825,174 shares of common
stock of the Corporation entitled to vote at the Annual Meeting. There also
are 200,000 shares of no-par preferred stock authorized, of which 50,000
shares have been designated Series A Junior Preferred Stock, but none are
outstanding.
The enclosed proxy appointment form must be delivered to the Secretary
either in person, by mail, or by messenger. Appointment forms transmitted by
facsimile, telex, telegram, or electronic means will not be accepted.
Furthermore, appointment forms must be received by the Secretary not less than
forty-eight (48) hours prior to the date of the meeting. PROXY APPOINTMENT
FORMS NOT MEETING THE ABOVE REQUIREMENTS WILL BE RULED INVALID FOR
ANY
PURPOSE.
The proxy appointment form must be signed in handwriting. The signature
must be sufficiently legible to allow the inspector to distinguish it as
representing the name of the registered shareholder, or must be accompanied by
a rubber stamp facsimile or hand-printed name, including the shareholder s
surname and either the shareholder s first or middle name as represented on
the corporate records, and any titles, offices or words indicating agency
which appear in the corporate records.
The enclosed proxy appointment may be revoked any time before it is voted
by submission, either in person, by mail, or by messenger, of a later dated
proxy appointment form to the Secretary at least forty-eight (48) hours prior
to the date of the meeting. Any such later dated proxy appointment form which
is not received by the Secretary by this deadline or by the correct method
shall not be effective as a new proxy appointment nor as a revocation of a
prior proxy appointment. In addition, a shareholder may revoke a proxy
appointment form signed by him or her by openly stating the revocation at the
meeting, by voting at the meeting in person, or by delivering a signed written
statement revoking the proxy to the Secretary prior to the date of the
meeting. Appointment forms or revocations transmitted by facsimile, telex,
telegram, or electronic means shall not be accepted. ANY ATTEMPTED REVOCATIONS
NOT MEETING THE ABOVE REQUIREMENTS WILL BE RULED INVALID FOR ANY
PURPOSE.
The proxy solicited hereunder will be voted in favor of the Directors
recommendations on each and all matters properly brought before the meeting,
unless the undersigned shareholder specifically instructs the holder or
holders of the proxy to the contrary. With regard to the election of
directors, votes may be cast in favor or withheld; votes that are withheld
will be excluded entirely from the vote and will have no effect. Abstentions
may be specified on all proposals submitted to shareholders (other than the
election of directors).
Abstentions and "broker non-votes" are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Under the
rules of the New York Stock Exchange, Inc., brokers who hold shares in street
name for customers may have authority to vote on certain items when they have
not received instructions from beneficial owners. A "broker non-vote" occurs
on an item submitted for shareholder approval when the broker does not have
authority to vote on the item in the absence of instructions from the
beneficial owner. Such "broker non-votes" will have no effect on the outcome
of the election of directors or the independent public auditors.
<PAGE> 3
SHAREHOLDER PROPOSALS FOR 1997
In order for a proposal or nomination to be timely for the 1997 meeting,
notice thereof must be delivered to or mailed and received at the principal
executive offices of the Corporation no earlier than September 17, 1997, and
no later than October 2, 1997. Any proposals or nominations not received
during this period will not be considered at the meeting. If you wish to
submit a proposal or nomination, please contact the Secretary for a copy of
the relevant Bylaw, which details the necessary information which must be
included in the proposal or nomination.
SHAREHOLDER PROPOSALS FOR 1998
The last day for the Corporation to receive proposals, for consideration
for inclusion in the Notice of the Meeting and Proxy Statement for the 1998
Annual Meeting is May 14, 1998.
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP
OF DIRECTORS AND EXECUTIVE OFFICERS
PRINCIPAL SHAREHOLDERS
Based upon the records of the Corporation and filings with the Securities
and Exchange Commission as of July 31, 1997 the following table sets forth the
persons or group of persons having beneficial ownership (as defined by the
Securities and Exchange Commission) of more than 5% of the issued and
outstanding common stock of the Corporation.
<TABLE>
<CAPTION>
Nature of
Beneficial Amount Percent of
Name Address Ownership Owned Class
- ----------------- ------------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Michael E. Batten 3419 Michigan Blvd. Power to vote 542,427<F1> 19.2%
Racine, WI Beneficial 132,897<F2> 4.7%
Dimensional Fund 1299 Ocean Ave. Power to vote & 234,500 8.3%
Advisors Santa Monica, CA dispose of stock
Fidelity 82 Devonshire St. Power to vote & 215,000 7.6%
Management and Boston, MA dispose of stock
Research
Corporation
Kennedy Capital 425 N. New Ballas Rd.Power to vote & 167,800 5.9%
Management, Inc. St. Louis, MO dispose of stock
Wachovia 100 North Main St. Power to vote & 152,000 5.4%
Corporation Winston-Salem, NC dispose of stock
<FN>
<F1>
(1) Held as trustee under various trusts.
<F2>
(2) Includes 2,600 shares owned by the wife of Michael E. Batten and 52,000
subject to currently exercisable stock options.
</FN>
</TABLE>
<PAGE> 4
SECURITIES OWNED BY MANAGEMENT
The following table sets forth, as of August 29, 1997, the number of
shares of common stock of the Corporation beneficially owned by each of the
Directors of the Corporation, each of the executive officers named in the
Summary Compensation Table and the number of shares beneficially owned by all
Directors and executive officers of the Corporation as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial Percent of
Beneficial Owner Ownership <F4> Class
- ------------------ ----------------- ----------
<S> <C> <C>
Michael E. Batten 675,324 <F5> 23.9%
Stuart W. Tisdale 9,000 <F6> *<F3>
James O. Parrish 27,936 <F6> 1.0%
Paul J. Powers 2,500 <F6> *
Michael H. Joyce 37,750 <F6> 1.3%
Jerome K. Green 5,100 <F6> *
Richard T. Savage 4,100 <F6> *
David L. Swift 600 <F6> *
David R. Zimmer 1,478 <F6> *
Philippe Pecriaux 23,502 <F6> *
James McIndoe 20,703 <F6> *
All Directors and
Executive Officers
as a group (15 persons) 845,905 <F6> 29.9%
<FN>
<F3>
* Denotes ownership of less than one percent of shares outstanding.
<F4>
(1)Shares listed include any shares owned by a spouse, minor children and
immediate relatives who share the same household as a Director or officer.
Inclusion of any such shares is not to be considered an admission of
beneficial ownership.
<F5>
(2)Includes 2,600 shares held by Mr. Batten s wife, 495,849 shares held by him
as trustee under various family trusts, 124,872 shares held as limited
guardian for a cousin, and 52,000 shares subject to presently exercisable
stock options.
<F6>
(3)Shares subject to currently exercisable stock options included in the above
are as follows: Mr. Tisdale 8,000, Mr. Parrish 22,300, Mr. Powers 2,200, Mr.
Joyce 30,500, Mr. Green 4,900, Mr. Savage 1,400, Mr. Swift, 400, Mr. Zimmer
400, Mr. Pecriaux 22,500, Mr. McIndoe 18,600, and all Directors and executive
officers as a group 191,750.
</FN>
</TABLE>
<PAGE> 5
ELECTION OF DIRECTORS
Three directors are to be elected for a term to expire at the annual
meeting following the fiscal year ended June 30, 2000. Shares of common stock
represented by properly executed proxy appointments in the accompanying form
will be voted for the nominees listed for the term indicated unless authority
to do so is withheld.
The nominees for the Board of Directors and the Directors whose terms
will continue and the class to which he has been or is to be elected are as
set forth below. Each nominee and each Director was elected to his present
term of office by a vote of shareholders at a meeting for which proxies were
solicited, except for George E. Wardeberg.
<TABLE>
<CAPTION>
Served as
Principal Occupation Director
Name of Director and other Public Continuously
and Date of Birth Company Directorships Since
- ------------------ ------------------------------------- ------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2000:
Michael H. Joyce......President and Chief Operating Officer, October 1991
November 7, 1940 Twin Disc, Incorporated
Formerly, President
Mobile Fluid Products, Division of
Dana Corporation
(Diversified manufacturer)
Greenville, South Carolina
Richard T. Savage.....President and Chief Executive Officer, April 1993
October 5, 1938 Modine Manufacturing Company,
Racine, Wisconsin
(A leading manufacturer
of heat exchange equipment)
Also Director,
Marshall & Ilsley Corporation
George E. Wardeberg...President and Chief Executive Officer July 1997
August 27, 1935 WICOR, Inc.,
Milwaukee, Wisconsin
(Parent company of Wisconsin Gas Company
and Sta-Rite Industries, Inc.)
Also Director,
Marshall & Ilsley Corporation
NOMINEES WHOSE TERMS EXPIRE IN 1999:
Michael E. Batten.....Chairman and Chief Executive Officer, May 1974
April 14, 1940 Twin Disc, Incorporated
Also Director,
Briggs & Stratton Corporation,
Firstar Corporation,
Simpson Industries, and
Universal Foods Corporation
David L. Swift........Former Chairman, President and July 1995
September 20, 1936 Chief Executive Officer,
Acme-Cleveland Corporation,
Pepper Pike, Ohio
(Manufacturer of diversified
industrial products.)
Also Director,
Alltrista Corporation and
Cuno Incorporated
<PAGE> 6
David R. Zimmer.......Executive Vice President-Operations July 1995
August 21, 1946 United Dominion Industries
Charlotte, North Carolina
(Manufacturer of proprietary engineered
products.)
Formerly President and Chief Executive Officer,
Core Industries, Inc.,
Bloomfield Hills, Michigan
DIRECTORS WHOSE TERMS EXPIRE IN 1998:
Stuart W. Tisdale.....Retired, former Chairman and October
1980
August 15, 1928 Chief Executive Officer,
WICOR, Inc.
(parent company of
Wisconsin Gas Company, and
Sta-Rite Industries, Inc.)
Milwaukee, Wisconsin
Also Director,
Marshall & Ilsley Corporation,
and Modine Manufacturing Company
James O. Parrish......Vice President-Finance December 1982
September 12, 1940 & Treasurer
Twin Disc, Incorporated
Paul J. Powers........Chairman, President and July 1992
February 5, 1935 Chief Executive Officer,
Commercial Intertech, Corp.,
Youngstown, Ohio
(A leading manufacturer of hydraulic
components, pre-engineered buildings
and stamped metal products.)
Also Chairman and CEO,
Cuno Incorporated,
Meriden, Connecticut
(A manufacturer of fluid purification products.)
Director of Global Marine Incorporated, and
Ohio Edison Company
</TABLE>
DIRECTOR COMMITTEES AND ATTENDANCE
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
The Corporation s Board of Directors met six times during the year ended
June 30, 1997. There was one absence from these meetings.
DIRECTORS COMMITTEES MEETINGS AND ATTENDANCE
The Executive Selection and Salary and Audit Committees met one and three
times respectively, during the year. The Board Affairs and Nominating
Committee met once during fiscal 1997. The Pension and Finance Committees met
three and two times respectively during the year. Each Director attended at
least 75% of the meetings requiring his attendance.
DIRECTOR COMMITTEE FUNCTIONS
Audit Committee
The Audit Committee reviews with the Corporation s Internal Auditor and
Independent Public Accountants their activities, reports and comments, and
recommends to the Board any action which it deems appropriate. The Committee
recommends to the Board the selection of auditors to stand for election at the
Annual Shareholders Meeting.
Finance Committee
The Finance Committee considers management s proposed financial policies
and actions, and makes appropriate recommendations to the Board regarding:
Debt and capital structure, acquisitions, capital budgets, dividend policy and
other financial matters.
<PAGE> 7
Director Nominating and Board Affairs Committee
The Director Nominating and Board Affairs Committee recommends nominees
for the Board to the Board of Directors. The Committee will consider nominees
recommended by shareholders in writing to the Secretary. In addition, The
Committee reviews proposed changes in corporate structure and governance,
committee structure and function, and meeting schedules making recommendations
to the Board as appropriate.
Executive Selection and Salary Committee
The Executive Selection and Salary Committee reviews nominees for
Corporate offices and related compensation levels, making recommendations to
the Board of Directors as considered necessary.
Pension Committee
The Pension Committee reviews and recommends to the Board for approval
the pension funds professional advisors and auditors. The Committee annually
reviews actuarial assumptions, funding policies and investment policies.
Committee Membership
The Directors committees are currently comprised of the following
Directors; the Chairman of the Committee is listed first:
Nominating
Executive and
Audit Finance Pension Selection Board Affairs
- ---------- ------------ ------------ --------------- ----------------
Powers Zimmer Savage Green Tisdale
Tisdale Green Joyce Powers Green
Swift Swift Parrish Savage Savage
Zimmer Powers Tisdale
Green Swift
Zimmer
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation received by the
Corporation s Chief Executive Officer and the four most highly paid executive
officers for the three fiscal years ended June 30, 1995, 1996 and 1997,
respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Name and Compensation Compensation
Principal Stock All Other
Position Year Salary Bonus<FN7> Options Compensation<FN8>
- --------- ---- -------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Michael E. Batten 1997 $313,000 $125,700 8,000 $ 13,072
Chairman and 1996 305,000 53,699 9,000 16,424
Chief Executive 1995 295,000 111,326 9,000 4,166
Officer
Michael H. Joyce 1997 234,000 94,000 3,500 5,525
President and 1996 228,176 40,142 4,500 6,939
Chief Operating 1995 220,000 83,022 4,500 2,579
Officer
Philippe Pecriaux 1997 165,000 52,800 3,000 -
Vice President 1996 168,100 48,828 2,500 -
Europe 1995 135,000 51,371 2,500 -
James O. Parrish 1997 154,500 46,500 2,000 5,364
Vice President 1996 150,113 19,806 2,500 5,945
Finance & 1995 144,600 41,017 2,500 4,341
Treasurer
James McIndoe 1997 129,000 22,600 2,500 3,503
Vice President 1996 124,092 16,705 2,000 2,973
International 1995 120,000 23,189 2,000 2,913
Marketing
<FN>
<FN7>
<PAGE> 8
Represents annual incentive bonuses determined by the Board of Directors. See
"Board Executive Selection and Salary Committee Report on Executive
Compensation-Annual Incentives". Bonuses are paid in the fiscal year following
the fiscal year in which earned.
<FN8>
Amounts are comprised of Corporation s 401(k) matching contributions and
Corporation paid insurance.
</FN>
</TABLE>
STOCK OPTIONS
The following table summarizes option grants during fiscal 1997 to the
executive officers named in the Summary Compensation Table above, and the
potential realizable values at assumed annual rates of stock price
appreciation for the ten year option term.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants or Option Term
---------------------------------- -----------------------------
% of Total
Options
Options Granted to Exercise Expiration
Name Granted Employees<F9> Price<F10> Date 5% 10%
- ------------- ------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
M. Batten 4,000 10.2% $24.063 8/12/01 $ 60,531 $153,398
M. Batten 5,000 12.7% $21.875 8/12/06 $ 68,785 $174,316
M. Joyce 3,500 8.9% $21.875 8/12/06 $ 48,150 $122,021
J. Parrish 2,000 5.1% $21.875 8/12/06 $ 27,514 $ 69,726
P. Pecriaux 3,000 7.6% $21.875 8/12/06 $ 41,271 $104,589
J. McIndoe 2,500 6.4% $21.875 8/12/06 $ 34,393 $ 87,158
<FN>
<FN9>
During the fiscal year ended June 30, 1997, a total 39,350 options were
granted to officers, key employees and directors, with 24,250 granted under
the 1988 Incentive Stock Option Plan and 15,100 options granted under the 1988
Non-Qualified Stock Option Plan. Options granted to Mr. Batten during the
fiscal year ended June 30, 1997 were 5,000 non-qualified stock options and
4,000 incentive stock options. Percentages reflected are based upon the total
amount of options granted under both plans. All options are exercisable upon
grant.
<FN10>
The exercise price is the fair market value on the date of grant, except for
incentive stock options granted to Mr. Batten which are exercisable at 110% of
the fair market value at date of grant.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal
1997 by the named executive officers and the value of such officers
unexercised options at June 30, 1997.
<TABLE>
<CAPTION>
Total Number Total Value
of Unexercised of Unexercised,
Options Held In-the-Money Options
Shares Value at Fiscal Year End Held at Fiscal Year End
Acquired on Real- Exer- Unexer- Exer- Unexer-
Name Exercise ized cisable cisable cisable cisable
- --------- ----------- ----- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
M. Batten 0 N/A 52,000 0 $274,897 $ 0
M. Joyce 0 N/A 38,500 0 $383,688 $ 0
J. Parrish 0 N/A 23,000 0 $159,813 $ 0
P. Pecriaux 0 N/A 22,500 0 $143,938 $ 0
J. McIndoe 0 N/A 19,200 0 $142,188 $ 0
</TABLE>
<PAGE> 9
COMPENSATION PURSUANT TO PLANS
RETIREMENT INCOME PLAN
The Twin Disc Employees Retirement Income Plan for salaried employees
provides non-contributory benefits based upon both years of service and
employee s highest consecutive 5-year average annual compensation during the
last 10 calendar years of service excluding any annual incentive awards paid.
The Plan is integrated with Social Security. The following table presents the
non-contributory benefits payable for life under the Plan to employees
assuming normal retirement in the current year.
AVERAGE HIGH NON-CONTRIBUTORY PENSION BASED ON
5-YEAR ANNUAL YEARS OF CREDIT SERVICE
COMPENSATION 10 YEARS 20 YEARS 25 YEARS 30 YEARS 40 YEARS
$ 50,000 $ 9,683 $19,366 $ 24,208 $ 25,149 $ 27,391
75,000 14,883 29,766 37,208 38,799 42,341
100,000 20,083 40,166 50,208 52,449 57,291
150,000 30,483 60,966 76,208 79,749 87,191
The values reflected in the table represent the application of the Plan
formula to the appropriate amounts of compensation and years of service.
Benefits payable under the Plan, however, must be in compliance with the
applicable guidelines or maximum prescribed in the Employees Retirement Income
Security Act of 1974 (ERISA), as currently stated or as adjusted from time to
time. Assuming continued employment to normal retirement age (age 65) the
estimated credited years of service for each of the Corporation s executive
officers named in the Summary Compensation Table is as follows: Mr. Batten 35
years; Mr. Joyce 16 years; Mr. Parrish 33 years; and Mr. McIndoe 25 years. Mr.
Pecriaux is not eligible for benefits under the Twin Disc Retirement Income
Plan.
The Corporation has adopted an unfunded supplemental plan which will
provide those benefits which are otherwise produced by application of the Plan
formula, but which, under ERISA, are not permitted to be funded or paid
through a qualified plan and its related trust. Such an arrangement is
specifically provided for under the law.
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
A supplemental retirement benefit is extended to qualified Management
Group participants. The supplemental retirement benefits extend over a period
of 10 years after normal retirement or in the event of disability at an amount
equal to sixty percent of the highest rate of pay attained during a specified
period of time, plus keyman group life insurance premiums or their equivalent
supplemental benefit payable to those electing early retirement. In the event
of death of a member of the Management Group, whether active or retired, an
amount equal to 2 years supplemental retirement benefits is payable to the
widow or other designated beneficiaries over a 4 to 10 year period.
COMPENSATION OF DIRECTORS
Directors of the Corporation were paid a retainer fee of $8,000 for the
year. In addition, Directors received a $1,300 fee for each board meeting
attended and $1,100 for each committee meeting attended. Directors who are
officers do not receive any fees in addition to their remuneration as
officers.
Outside Directors (non-Twin Disc employees) are eligible to participate
in the 1988 Non-Qualified Stock Option Plan for Officers, Key Employees and
Directors.
Outside Directors (non-Twin Disc employees) who reach the age of 68 or
who retire from full-time employment are required to retire from the Board of
Directors effective as of the completion of their current term. Retired
outside directors are entitled to a retirement benefit for a limited period
equal to the sum of:
a) The annual retainer at the time of retirement.
b) Six monthly fees for Director Meetings at the rate prevailing at the
time of retirement.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE
IN CONTROL
ARRANGEMENTS
The Corporation has entered into Severance Agreements with certain of its
key executives, including Messrs. Batten, Joyce, Parrish, Pecriaux and
McIndoe.
The Agreement provides for severance benefits to be paid to any such executive
following a change in control of the Corporation (as defined) and a
termination (as defined) of the employment of such executive. Upon the
occurrence of the events, as specified in the Severance Agreements, which
would entitle such executive to the payment of severance benefits, the maximum
contingent liability of the Corporation for the payment of such severance
benefits would be
<PAGE> 10
approximately $2,971,000. Severance benefits for an executive officer would
generally consist of the sum of the executive s highest annual base salary
between the change in control and the date of termination plus the executive s
most recent annual bonus times the lesser of 2.75 or the number of whole and
fractional years between the termination date and his normal retirement date.
In addition, the executive would be entitled to the cash value of any shares
of common stock subject to unexercised stock options held by the executive.
The Severance Agreements are specifically designed to assure that benefits
will not exceed the limitations and provisions of Sec. 280G, of the Internal
Revenue Code.
Board Executive Selection and Salary Committee Report
on Executive Compensation
Compensation Philosophy
The Corporation's primary business objective is to maximize shareholder
value over the long term. To accomplish this objective, the Corporation has
developed a comprehensive business strategy that emphasizes maximizing
long-term cash flow and earnings, maintaining leadership or becoming the
leader in its markets, and providing products of the highest quality.
The Executive Selection and Salary Committee of the Board of Directors
(the "Committee") is comprised of four independent directors, none of whom has
interlocking or other relationships which might be considered conflicts of
interest. The Committee establishes compensation programs which are designed
to foster the Corporation's business objectives. The Committee approves the
design of, assesses the effectiveness of, and administers executive
compensation programs in support of compensation policies. The Committee also
reviews and approves all salary arrangements and other remuneration for
executives, evaluates executive performance, and considers related matters.
The Committee members believe that the compensation program should target
compensation levels at rates that are reflective of current market practices.
Offering market-comparable pay opportunities allows the Corporation to
maintain a stable, successful management team.
Competitive market data is provided by an independent compensation
consultant. The data provided compares the Corporation's compensation
practices to a group of comparator companies. The Corporation's market for
compensation comparison purposes is comprised of a group of companies that
have national and international business operations and similar sales volumes,
market capitalizations, employment levels, and lines of business. In
establishing a comparator group for compensation purposes, the Committee
exercises its judgment and makes its decision after considering the factors it
deems relevant.
The companies chosen for the comparator group used for compensation
purposes are not necessarily the same companies which comprise the peer group
index in the Performance Graph included in this proxy statement. The Committee
believes that the Corporation's most direct competitors for executive talent
include many companies in geographical areas in which the Corporation operates
as well as many of the companies that are included in the peer group
established for comparing shareholders returns.
The key elements of the Corporation's executive compensation are base
salary, annual incentives, long-term compensation, and benefits. These key
elements are addressed separately below. In determining compensation, the
Committee considers all elements of an executive's total compensation package,
including severance plans, insurance, and other benefits, with the objective
of being competitive but not trend setting.
Base Salaries
The Committee regularly reviews each executive's base salary. Base
salaries are targeted at market levels, based upon the Committee's analysis of
marketplace practices. Base salaries for executives are initially determined
by evaluating executives' levels of responsibility, prior experience, breadth
of knowledge, internal equity issues, and external pay practices.
Base salaries offer stability to executives and allow the Corporation to
attract competent executive talent and maintain an effective management team.
They also allow executives to be rewarded for individual performance based on
the Corporation's evaluation process which encourages the development of
executives. Pay for individual performance rewards executives for achieving
goals which may not be immediately evident in common financial measurement.
<PAGE> 11
Increases to base salaries are driven primarily by individual performance.
Individual performance is evaluated based on sustained levels of individual
contribution to the Corporation. When evaluating individual performance, the
Committee considers the executive's effort in promoting Corporate values;
improving product quality; developing relationships with customers,
suppliers, and employees; demonstrating leadership abilities among coworkers;
and other goals. Overall, executive salaries were increased at rates
comparable to the increases provided at other companies and are near market
levels.
As reflected in the Summary Compensation Table on page 8, Mr. Batten's
base salary was increased in 1997 by $8,000. In determining Mr. Batten's base
salary in 1997, the Committee considered the Company's financial performance
for the year, Mr. Batten's individual performance, and his long-term
contributions to thesuccess of the Corporation. The Committee also compared
Mr. Batten's base salary to the base salaries of CEOs at comparator companies.
Annual Incentives
The Twin Disc Incentive Bonus Program (the "Annual Plan") promotes the
Corporation's pay-for-performance philosophy by providing executives with
directfinancial incentives in the form of annual cash bonuses to achieve
corporate, business unit, and individual performance goals. Annual bonus
opportunities allowthe Corporation to communicate specific goals that are of
primary importance during the coming year and motivate executives to achieve
these goals.
Eligibility to participate in the Annual Plan, as well as the individual
payout percentages assigned to each eligible executive's position, are
determined annually by Mr. Batten, as chief executive officer, subject to the
approval of the Committee.
Each year, the Committee approves specific goals relating to each
executive's bonus opportunity. Eligible executives are assigned threshold and
target bonus levels based on a percentage of base salary. Executives earn
bonuses to the extent to which preestablished goals are achieved.
In 1997 bonus awards were granted as earnings targets were attained
indicating that prior long term decisions are providing favorable results.
Corporate goals in 1997 were based on target earnings and return on net assets
employed.
Target bonus awards are established at levels approximating marketplace
practices for each executive. Targets are considered by the Committee to be
achievable, but to require above average performance from each of the
executives.
In 1997, Mr. Batten received a bonus under the Annual Plan of $125,700.
This reflects achievements towards he Corporation's goals relating to
earnings and return on net assets employed in 1997.
Long-Term Incentives
Long-term incentives are provided pursuant to the Corporation's 1988 Non-
Qualified Stock Option Plan for Officers, key employees and Directors, and the
1988 Incentive Stock Option Plan.
In keeping with the Corporation's commitment to provide a total
compensation package which includes at-risk components of pay, the Committee
makes annual decisions regarding appropriate stock option grants for each
executive. When awarding stock options, the Committee considers executives'
levels of responsibility, prior experience, historical award data, various
performance criteria, and compensation practices at comparator companies.
Consistent with the above stated goals, Mr. Batten received options to
purchase 9,000 shares in 1997.
Stock options are granted at an option price not less than the fair
market value of the Corporation's common stock on the date of grant.
Accordingly, stock options have value only if the stock price appreciates from
the date the options are granted. This design focuses executives on the
creation of shareholder value over the long term and encourages equity
ownership in the Corporation.
Executive Selection and Salary Committee
Jerome K. Green, Chairman
Stuart W. Tisdale
Paul J. Powers
Richard T. Savage
July 25, 1997
<PAGE> 12
CORPORATE PERFORMANCE GRAPH
The following table compares total shareholder return over the last five
(5) fiscal years to the Standard & Poor s Diversified Machinery Index and the
Russell 2000 index. The S&P Diversified Machinery Index consists of a broad
range of manufacturers (including the Corporation). The Russell 2000 Index
consists of a broad range of 2,000 Companies (including the Corporation). The
Corporation believes, because of the similarity of its business with those
companies contained in the S&P Diversified Machinery Index, that comparison of
shareholder return with this index is appropriate. Total return values for the
Corporations common stock, the S&P Diversified Machinery Index and the Russell
2000 Index were calculated based upon an assumption of a $100 investment on
June 30,1988, and based upon cumulative total return values assuming
reinvestment of dividends on a quarterly basis.
<TABLE>
<CAPTION>
Comparison of Five-Year Cumulative Total Return
Twin Disc, Inc.; S&P Diversified Machinery; and Russell 2000
06/30/92 06/30/93 06/30/94 06/30/95 06/30/96 06/30/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Twin Disc 100.00 97.63 114.78 148.11 142.65 180.85
S&P Div. Mach. 100.00 134.23 145.89 184.60 211.85 305.71
Russell 2000 100.00 125.96 131.50 157.90 195.68 227.64
</TABLE>
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than ten percent
(10%) of the Corporation s common stock, to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by the SEC regulations to furnish the
Corporation with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Corporation and representations from executive officers and directors, the
Corporation believes that during the period from July 1, 1996 to June 30,
1997, all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten (10%) beneficial owners were complied
with.
<PAGE> 13
INDEPENDENT PUBLIC AUDITORS
The Directors of the Corporation recommend that you vote in favor of the
appointment of Coopers & Lybrand as independent public accountants for the
Corporation for the fiscal year to end June 30, 1998. The firm has audited the
Corporation s books annually since 1928. Representatives of Coopers & Lybrand
are expected to be present at the meeting and, while no formal statement will
be made by them, they will be available to respond to appropriate questions.
If the shareholders should not approve such appointment, the Directors would
reconsider the appointment.
GENERAL
The Corporation will bear the cost of the solicitation of proxies. The
firm of Georgeson & Co., Inc., New York, NY has been retained to assist in
solicitation of proxies for the Annual Meeting at a fee not to exceed $6,500
plus expenses.
Management does not know of any other business to come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
upon such matters in their discretion in accordance with the authorization of
the proxy.
If you do not contemplate attending in person, we respectfully request
that you fill in, sign and return the accompanying proxy at your early
convenience. However, remember that in order to have your proxy validated, it
must be delivered to the Secretary either in person, by mail, or by messenger,
and it must be received by the Secretary not less than forty-eight (48) hours
prior to the date of the meeting.
