<PAGE> 1
TWIN DISC, INCORPORATED
1328 Racine Street, Racine, Wisconsin 53403
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 16, 1998
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 16, 1998 at Roma Lodge, 7130 Spring Street, Racine, Wisconsin
for the following purposes:
1. Election of 3 Directors to serve until the Annual Meeting in 2001.
2. Approval of the 1998 Incentive Compensation Plan.
3. Approval of the 1998 Stock Option Plan for Non-employee Directors.
4. To transact any other business that 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 28, 1998, shall be entitled to vote at the
meeting.
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 16, 1998
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
1998 Proxy Statement
TWIN DISC, INCORPORATED
September 16, 1998
DATE, TIME AND PLACE OF MEETING
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 Roma
Lodge, 7130 Spring Street, Racine, Wisconsin on Friday, October 16, 1998, or
any adjournment thereof. Holders of common stock of record at the close of
business on the 28th day of August 1998, are entitled to vote at the meeting
and each shareholder shall have one vote for each share of common stock
registered in the 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 before September 16, 1998.
The enclosed proxy appointment form must be signed and 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 48 hours prior to the date of the meeting. PROXY APPOINTMENT FORMS
NOT MEETING THE ABOVE REQUIREMENTS WILL BE RULED INVALID.
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.
If a shareholder wishes to present a proposal for consideration for
inclusion in the Notice of the Meeting and Proxy Statement for the 1999 Annual
Meeting, the proposal must be received at the Corporation's principal
executive offices no later than May 13, 1999. Shareholder proposals received
later than August 1, 1999 will be considered untimely, and will not be
considered at the Corporation's 1999 Annual Meeting.
The person giving the proxy may revoke it before it is exercised, either
in person, by mail, or by messenger, by submitting a later dated proxy
appointment form to the Secretary at least forty-eight (48) hours prior to the
date of the meeting. The person giving the proxy may also revoke it 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 will not be accepted. ANY
ATTEMPTED REVOCATIONS NOT MEETING THE ABOVE REQUIREMENTS WILL BE RULED
INVALID.
The record date with respect to this solicitation is August 28, 1998. On
August 28, 1998, there were outstanding 2,832,984 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.
<PAGE> 3
PERSONS MAKING THE SOLICITATION
The proxy solicited hereunder by the Corporation 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. The approval of a majority of the votes cast
on a particular matter, shall be the vote of the Corporation.
PRINCIPAL SHAREHOLDERS, 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, 1998, 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> 19.1%
Racine, WI Beneficial 135,897<F2> 4.8%
Fidelity 82 Devonshire St. Power to vote & 282,600 10.0%
Management and Boston, MA dispose of stock
Research
Corporation
Dimensional Fund 1299 Ocean Ave. Power to vote & 216,482 7.6%
Advisors Santa Monica, CA 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 55,000
subject to currently exercisable stock options.
</FN>
</TABLE>
<PAGE> 4
DIRECTORS AND EXECUTIVE OFFICERS
Based upon the records of the Corporation and filings with the Securities
and Exchange Commission as of July 31, 1998, the following table sets forth
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 678,324 <F5> 23.9%
Stuart W. Tisdale 10,000 <F6> *<F3>
James O. Parrish 30,734 <F6> 1.1%
Paul J. Powers 3,300 <F6> *
Michael H. Joyce 38,436 <F6> 1.4%
Richard T. Savage 4,900 <F6> *
David L. Swift 1,100 <F6> *
David R. Zimmer 1,978 <F6> *
George E. Wardeberg 400 <F6> *
Philippe Pecriaux 26,502 <F6> *
Lance J. Melik 5,875 <F6> *
Gerald W. Metzger 800 <F6> *
John A. Mellowes <F7> *
All Directors and
Executive Officers
as a group (15 persons) 826,972 <F6> 29.2%
<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 55,000 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 9,000, Mr. Parrish 24,800, Mr. Powers 3,000, Mr.
Joyce 32,000, Mr. Savage 2,200, Mr. Swift 900, Mr. Zimmer 900, Mr. Pecriaux
25,500, Mr. Melik 1,000, Mr. Metzger 800, Mr. Wardeberg 200, and all Directors
and executive officers as a group 174,300.
<F7>
(4)Currently not a director.
</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, 2001. 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 John A. Mellowes, who is currently not a Director.
<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 2001:
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
John A. Mellowes......Chairman and Chief Executive Officer,
March 16, 1938 Charter Manufacturing Co.,
Mequon, Wisconsin
(A privately held producer of bar,
rod wire and wire parts)
Currently not a director.
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.....Chairman and retired President and April 1993
October 5, 1938 Chief Executive Officer,
Modine Manufacturing Company,
Racine, Wisconsin
(A 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
<PAGE> 6
DIRECTORS 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
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
</TABLE>
<PAGE> 7
DIRECTOR COMMITTEES AND ATTENDANCE
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
The Corporation s Board of Directors met 6 times during the year ended
June 30, 1998. There was one absence from these meetings.
DIRECTORS COMMITTEE MEETINGS AND ATTENDANCE
The Executive Selection and Salary and Audit Committees met 1 and 3 times
respectively, during the year. The Director Nominating and Board Affairs
Committee met 1 time during the year. The Pension and Finance Committees met 3
and 2 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.
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.
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, actuarial valuations, investment performance,
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 Swift Savage Tisdale
Swift Swift Powers Powers Savage
Wardeberg Tisdale Savage Tisdale Wardeberg
Zimmer Wardeberg Zimmer
Joyce
Parrish
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation received by the
Corporation s Chief Executive Officer and the 4 most highly paid executive
officers for the 3 fiscal years ended June 30, 1996, 1997, and 1998,
respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Name and Compensation Compensation
Principal Stock All Other
Position Year Salary Bonus <F8> Options Compensation<F9>
- --------- ---- -------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Michael E. Batten 1998 $328,000 $190,000 9,000 $19,876
Chairman and 1997 313,000 125,700 8,000 13,072
Chief Executive 1996 305,000 53,699 9,000 16,424
Officer
Michael H. Joyce 1998 $245,000 $127,700 4,500 $5,965
President and 1997 234,000 94,000 3,500 5,525
Chief Operating 1996 228,176 40,142 4,500 6,939
Officer
Philippe Pecriaux 1998 $169,100 $73,100 3,000 -
Vice President 1997 165,000 52,800 3,000 -
Europe 1996 168,100 48,828 2,500 -
James O. Parrish 1998 $161,500 $65,500 2,500 7,786
Vice President 1997 154,500 46,500 2,000 5,364
Finance & 1996 150,113 19,806 2,500 5,945
Treasurer
Lance J. Melik 1998 $125,000 $43,500 1,000 6,787
Vice President 1997 120,000 30,800 1,000 4,406
Corp. Development 1996 117,000 12,900 1,000 3,685
Gerald W. Metzger 1998 $126,500 $45,000 600 5,100
General Manager 1997 122,500 31,000 800 4,000
1996 119,327 2,551 800 3,800
<F8>
(1)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.
<F9>
(2)Amounts are comprised of Corporation s 401(k) matching contributions and
Corporation paid life insurance includible in income.
</FN>
</TABLE>
STOCK OPTIONS
The following table summarizes option grants during fiscal year 1998 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 10 year option term.
<PAGE> 9
<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<F10>Employees Price<F11> Date 5% 10%
- ----------- ---------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
M. Batten 4,500 10.8% $28.750 8/11/02 $ 81,363 $206,190
M. Batten 4,500 10.8% $31.625 8/11/07 $ 89,500 $226,809
M. Joyce 4,500 10.8% $28.750 8/11/07 $ 81,363 $206,190
J. Parrish 2,500 6.0% $28.750 8/11/07 $ 45,202 $114,550
P. Pecriaux 3,000 7.2% $28.750 8/11/07 $ 54,242 $137,460
L. Melik 1,000 2.4% $28.750 8/11/07 $ 18,081 $ 45,820
G. Metzger 800 1.9% $28.750 8/11/07 $ 14,465 $ 36,656
<FN>
<F10>
(1) During the fiscal year ended June 30, 1998, a total 41,600 options were
granted to officers, key employees and directors, with 28,600 granted under
the 1988 Incentive Stock Option Plan and 13,000 options granted under the 1988
Non-Qualified Stock Option Plan. Options granted to Mr. Batten during the
fiscal year ended June 30, 1998 were 4,500 non-qualified stock options and
4,500 incentive stock options. Percentages reflected are based upon the total
amount of options granted under both plans. All options are exercisable upon
grant.
<F11>
(2) 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
1998 by the named executive officers and the value of such officers
unexercised options at June 30, 1998.
<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 55,000 0 $263,000 $ 0
M. Joyce 11,000 149,500 32,000 0 $293,063 $ 0
J. Parrish 700 10,032 24,800 0 $185,275 $ 0
P. Pecriaux 0 N/A 25,500 0 $180,000 $ 0
L. Melik 1,600 3,200 1,000 0 $ 1,500 $ 0
G. Metzger 2,800 26,200 800 0 $ 1,200 $ 0
</TABLE>
Retirement Income Plan
The Twin Disc Employees Retirement Income Plan for salaried employees
provides non-contributory benefits based upon both years of service and the
employee s highest consecutive 5-year average annual compensation during the
last 10 calendar years of service. 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
<PAGE> 10
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 14 years; Mr. Parrish 31 years; Mr. Melik 41 years; and Mr.
Metzger 7 years. Mr. Pecriaux is not eligible for benefits under the Twin Disc
Retirement Income Plan.
In addition, for years of service subsequent to December 31, 1996, the
Company provides non-contributory benefits based on a percentage of
compensation, from 4.5% to 6.5% based on years of service, with interest at
the thirty year U.S. Treasury Bond rate with a minimum guarantee of 3%. This
benefit is payable as a lump sum or annuity.
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.
The supplemental retirement benefit is calculated as a single life annuity at
an amount approximating 60% of the highest rate of pay attained during a
specified period. The benefit is payable in the form of a single life
annuity, contingent annuity or a 10 year temporary annuity. The contingent
annuity provides for payments to continue to the surviving spouse at a rate
equal to 50% of the rate previously paid to the participant. In the event of
death of a plan member after attaining a retirement age but prior to
retirement, the surviving spouse will receive a lump sum benefit.
Compensation of Directors
Directors of the Corporation were paid a retainer fee of $9,000 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-Corporation employees) are eligible to participate
in the 1988 Non-Qualified Stock Option Plan for Officers, Key Employees and
Directors.
Outside Directors (non-Corporation 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) 6 monthly fees for Director Meetings at the rate prevailing at the
time of retirement.
Employment Contracts
The Corporation has entered into agreements with certain of its key
executives, including Messrs. Batten, Joyce, Parrish, Pecriaux and Melik. The
agreements provide for severance benefits to be paid to the executive
following a change in control of the Corporation (as defined) and a
termination (as defined) of the employment of the executive. Upon the
occurrence of the events, as specified in the agreements, which would entitle
the executive to the payment of severance benefits, the maximum contingent
liability of the Corporation for the payment of such severance benefits would
be approximately $3,176,000. 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 1.50 (2.75 for Messrs. Batten,
Joyce and Parrish) 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 and a continuance of fringe
benefits for 24 months following termination. The agreements are specifically
designed to assure that benefits will not exceed the limitations and
provisions of Sec. 280(g), of the Internal Revenue Code.
<PAGE> 11
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 3 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 comparative 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 comparative 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 comparative 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.
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.
<PAGE> 12
As reflected in the Summary Compensation Table on page 8, Mr. Batten's
base salary was increased in 1998 by $15,000. In determining Mr. Batten's base
salary in 1998, the Committee considered the Company's financial performance
for the year, Mr. Batten's individual performance, and his long-term
contributions to the success of the Corporation. The Committee also compared
Mr. Batten's base salary to the base salaries of CEOs at comparative
companies.
Annual Incentives
The Twin Disc Incentive Bonus Program (the "Annual Plan") promotes the
Corporation's pay-for-performance philosophy by providing executives with
direct financial incentives in the form of annual cash bonuses to achieve
corporate, business unit, and individual performance goals. Annual bonus
opportunities allow the 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 1998 bonus awards were granted as earnings targets were attained
indicating that prior long term decisions are providing favorable results.
Corporate goals in 1998 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 1998, Mr. Batten received a bonus under the Annual Plan of $190,000.
This reflects achievements towards he Corporation's goals relating to earnings
and return on net assets employed in 1998.
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 1998.
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.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the Company's CEO and four other highly compensated executive
officers. Qualifying performance-based compensation will not be subject to
the deduction limit if certain requirements are met. The compensation of the
Corporation's CEO and the four other most highly compensated executive
officers currently does not approach the disqualifying threshold. In the
future, in the event the disqualifying threshold becomes an issue, the
Committee will weigh all the facts and circumstances in existence at the time.
Executive Selection and Salary Committee
Richard T. Savage, Chairman
Stuart W. Tisdale
Paul J. Powers
July 31, 1998
<PAGE> 13
INDEPENDENT PUBLIC AUDITORS
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.
CORPORATE PERFORMANCE GRAPH
The following table compares total shareholder return over the last 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
Corporation s 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 30,1993, 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
06/30/93 06/30/94 06/30/95 06/30/96 06/30/97 06/30/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Twin Disc 97.63 114.78 148.11 142.65 180.85 199.71
S&P Div. Mach. 134.23 145.89 184.60 211.85 305.71 223.57
Russell 2000 125.96 131.50 157.90 195.68 227.64 210.56
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
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, 1997 to June 30,
1998, all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten (10%) beneficial owners were complied
with.
<PAGE> 14
1998 INCENTIVE COMPENSATION PLAN
THE PLAN
The Board of Directors has adopted the 1998 Incentive Compensation Plan
(the 1998 Plan"), in the form attached as Exhibit A, subject to approval and
ratification by the Corporation's shareholders. The following statements with
respect to the 1998 Plan are qualified by and made subject to the more
complete information contained in Exhibit A.
It is the judgment of the Board of Directors that the stock option grants
made under the Corporation's previous plans have been effective and useful in
attracting, retaining and motivating outstanding employees. The adoption of
the 1998 Plan is expected to benefit the Corporation and its shareholders by
enabling the Corporation to continue to be competitive in its search for and
retention of outstanding employees, and to encourage them to increase their
proprietary interests in the Corporation.
No additional stock options or other stock rights will be granted under
the previous plans upon approval of the 1998 Plan. It is believed that the
1998 Plan, providing for the issuance of incentive and non-qualified stock
options, and other stock-related benefits, should now be adopted so the
Corporation will be able to continue to attract and retain qualified
management personnel.
ADMINISTRATION
A Committee of the Board of Directors (the "Committee"), will administer
the 1998 Plan. The Committee is authorized to interpret the 1998 Plan;
establish and amend the rules for its administration; and determine which
officers and key employees shall be granted options or other stock related
benefits.
It is not possible at this time to determine who may be selected to
receive options and/or other benefits under the 1998 Plan or the amount of
common stock to be optioned or awarded to any person. It is expected, however,
that the Committee will make these determinations on the basis of the person's
responsibilities and present and potential contributions to the success of the
Corporation, and that among those who may qualify as recipients of options
and/ or related benefits will be officers and other key employees of the
Company and its majority-owned subsidiaries.
BENEFITS
Stock based or cash benefits ("Benefits") under the 1998 Plan may be
granted, awarded or paid in any one or a combination of Stock Options
(incentive stock options and non-qualified stock options), Stock Appreciation
Rights, Restricted Stock Awards, Performance Unit Awards, Performance Stock
Awards and Annual Incentive Awards, all as more specifically described in
Exhibit A. There is reserved for issuance under the 1998 Plan an aggregate of
165,000 shares of the Corporation's common stock, which may be authorized and
unissued shares or shares reacquired by the Corporation in the open market or
a combination thereof. The aggregate amount is subject to proportionate
adjustments for stock dividends, stock splits and similar changes.
Stock options will consist of options (either incentive stock options or
non-qualified stock options) to purchase shares of common stock. The
Committee will establish the time or times at which options may be exercised
and whether all of the options may be exercisable at one time or in increments
over time. The option price or procedure for setting the option price shall
be set by the Committee at the time of granting of an option. The option
price may not be less than the fair market value of the Corporation's stock on
the date of grant. For incentive stock options, in the event the recipient
owns more than 10% of the Corporation's stock, the option price must be at
least 110% of the fair market value on the date of grant. Likewise, with
respect to an incentive stock option, all options must be exercised within ten
(10) years after the date of grant unless the recipient of the option owns
more than 10% of the total stock, in which case it must be exercised within
five (5) years of its grant. In the event of stock dividends, splits and
similar capital changes, the 1998 Plan provides for appropriate adjustments in
the number of shares available for options and the number and option prices of
shares subject to outstanding options. Under certain circumstances,
extensions or other modifications and outstanding options may result in
disqualification of an option as an incentive option. The purchase price of
option shares may be paid in cash, Corporation stock, a combination of
Corporation stock and cash, or such other legal and appropriate forms or means
as the Committee may determine. For non-qualified options, the option holder
must also pay the Corporation, at the time of purchase, the amount of federal,
state and local withholding taxes required to be withheld by the Corporation.
These taxes may be settled in cash or with Corporation stock, including stock
that is part of the award or that is received upon exercise of the stock
<PAGE> 15
option that gives rise to withholding requirement. Shares of the
Corporation's common stock may also be used by participants for payment of the
option price or satisfaction of withholding tax obligations. The Plan also
permits other forms of payment if authorized by the Board and consistent with
applicable law and regulations.
Stock appreciation rights may be granted under the 1998 Plan with respect
to options granted concurrently or previously under the 1998 Plan. Each stock
appreciation right will permit the holder to receive up to 100%, or such
lesser amount as set by the Committee of the difference between the market
price (on the date of exercise) of the shares to which it relates and the
option price thereof. A stock appreciation right will be exercisable at the
time and to the extent the option to which it relates is exercisable. Holders
of stock appreciation rights will be permitted to exercise the right or the
related option, but not both. Upon exercise, rights will be paid in common
stock of the Corporation or cash, or a combination thereof, as determined by
the Committee. Any exercise will reduce the shares issuable under the Plan
under which the related option was granted by the number of shares with
respect to which the right is exercised, even if payment is made partly or
wholly in cash.
Restricted stock becomes vested in approximate equal installments over a
period of time specified from the date of grant, with each installment to
mature annually. Each installment becomes vested only if earned by the
recipient by remaining in the employment of the Corporation, subject to
certain exceptions.
Performance Unit Awards provide for units, contingently granted, which
entitle the employee to cash payments or their equivalent in shares of stock
valued at the time of grant (i.e., the unit value remains constant and does
not fluctuate with changes in the market value of the stock), provided
predetermined objections are met.
Performance Stock Awards provide for artificial shares, contingently
granted, and entitle the employee to actual shares of common stock or their
cash equivalent at the time of payment (i.e., the unit value may appreciate or
decline depending on future market value of the stock), if predetermined
objectives are achieved.
Annual Incentive Awards entitle a participant to receive a specified
payment in cash, common stock, deferred stock, restricted stock or a
combination thereof if and when certain conditions are satisfied. The maximum
annual formula bonus may be fixed at up to 100% of the participant's base
salary, with the Board or Committee designating the percentage level of
participation and maximum bonus for each officer while management designates
the percentage level of participation and maximum bonus for other
participants. The Board or Committee will determine whether the bonuses will
be payable to participants in stock or cash, or a combination of stock and
cash.
Non-transferability
-------------------
Unless otherwise provided in an agreement governing the grant of an
award, a participant's rights shall be exercisable during lifetime only by the
participant, and no award may be sold, transferred or assigned, except that
options and stock appreciation rights are transferable by will and pursuant to
the laws of descent and distribution.
Amendment
---------
The Board of Directors may amend, alter or discontinue the 1998 Plan.
However, no amendment, alteration or discontinuation of the 1998 Plan or any
Benefit granted under the 1998 Plan may impair the rights of any participant
under any Benefit Plan without the participant's consent.
Other Terms
-----------
The issuance of stock upon exercise of options or other grant or award of
Benefits is subject to the registration with the Securities and Exchange
Commission of the shares reserved by the Corporation for the Plan. The
closing price of the Corporation's common stock on the New York Stock Exchange
on September 2, 1998 was $_______ per share.
Effective Date
--------------
The 1998 Plan will be effective on the date it is approved by the
shareholders. No stock options or other Benefits included in the 1998 Plan
may be granted after October 16, 2008.
The federal income tax consequences and accounting aspects of an
employee's participation in the Plan are complex and subject to change. A
summary of such tax consequences and accounting aspects is included as
Exhibit A-1.
<PAGE> 16
Vote Required
-------------
The proposed 1998 Plan will be adopted if approved by the affirmative
vote of the holders of at least a majority of the outstanding shares of the
Corporation's common stock.
The Board of Directors recommends a vote FOR Adoption of the proposed
1998 Incentive Compensation Plan. Unless otherwise specified therein, proxies
solicited by the Board will be voted for this proposal.
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Plan
The Board of Directors believes that the Corporation's continued growth
and success depends upon maintaining and strengthening the Corporation's
ability to attract and maintain well-qualified individuals to serve as
directors. In furtherance of these goals. the Board of Directors recommends
approval of the 1998 Stock Option Plan for Non-Employee Directors, (the
"Directors' Plan") in the form attached as Exhibit B. The description herein
of the Directors' is qualified in its entirety by and subject to the more
complete information contained in Exhibit B.
The Board recommends approval of the 1998 Stock Option Plan for Non-
Employee Directors in addition to the 1998 Incentive Compensation Plan.
Administration
The Board of Directors will administer the directors' plan, but may
appoint a committee of two or more directors to administer the Plan if deemed
necessary or advisable in order to comply with the exemptive rules promulgated
pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended.
Grants of options under the Plan, and the amount, price and timing of the
grants will be automatic as described below. All questions of interpretation
of the director's plan will be determined by the Board or the Committee as
applicable and the determination by the Board or the Committee as applicable
will be final and binding on the parties.
Only directors who are not salaried employees of the Corporation are
eligible to receive Benefits.
On each annual shareholders meeting beginning in 1998, each director
elected or reelected is automatically granted an option to purchase 1,000
shares of common stock of the Corporation. If an eligible director is
appointed to the Board effective on any date other than the date of the annual
shareholders meeting, such director shall be granted an option to purchase 600
shares of the Corporation's common stock as of the date of appointment.
Stocks to be issued under the director's plan may be newly issued shares,
authorized but unissued shares or shares reacquired by the Corporation on the
open market or otherwise. No more than 35,000 shares of common stock in the
aggregate, subject to adjustments for its stock dividends, stock splits and
similar changes, may be issued pursuant to options granted under the
director's plan.
Benefits
--------
The director's plan authorizes the granting of non-qualified stock
options only. The director's plan provides that the option price per share
will be not less than 100% of the fair market value of the shares on the date
the option is granted, and that such options will be exercisable not later
than ten (10) years after the date they are granted and will terminate no
later than three (3) years after termination of a director's status for any
reason other than death. Payment upon exercise of the stock option may, at the
Board's discretion, be made in the form of Corporation stock, cash, a
combination of stock and cash, or such other legal and appropriate forms or
means as the Board may determine.
Transferability
---------------
Options granted under the director's plan may not be transferred or
assigned by a director other than by will or by the laws of descent or
distribution, except that such options may be assigned or transferred to or
for the benefit of a member of the participant's immediate family or to a
trust created for their benefit, provided such transfer is permissible and
consistent with the requirements of the securities laws then in effect.
<PAGE> 17
Amendment
---------
The Board may amend the director's plan at any time, but with the proviso
that no such amendment shall reduce the amount of an existing option or change
the terms and conditions without the participant's consent and that no
amendment shall, without the approval of the Corporation's shareholders, (i)
increase the total number of shares of common stock that may be issued under
the Plan or increase the amount or type of option that may be granted under
the Plan; (ii) change the minimum purchase price, if any, of shares of common
stock that may be subject to options under the Plan; (iii) modif~ the
requirements as to eligibility for an option under the Plan;~or (iv) extend
the term of the Plan.
Effective Date
--------------
The director's plan shall be effective on the date it is approved by the
shareholders.
Federal Income Tax Consequences
-------------------------------
Tax and accounting aspects of the director's plan as they relate to non-
qualified stock options are discussed in Exhibit A-i.
Vote Required
-------------
The director's plan will be ratified if approved by the affirmative vote
of the holders of a majority of the outstanding shares of the Corporation's
common stock.
The Board of Directors recommends a vote FOR adoption of the 1998 Stock
Option Plan for Non-Employee Directors. Unless other specified therein, a
proxy solicited by the Board will be voted FOR this proposal.
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 earliest
convenience. However, 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.
<PAGE> 18
EXHIBIT A
TWIN DISC, INCORPORATED
1998 INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE
1.1 Purpose. The purpose of the Twin Disc, Incorporated 1998 Incentive
Compensation Plan (the "Plan") is to promote the overall financial objectives
of Twin Disc, Incorporated (the "Company") and its majority owned subsidiaries
("Subsidiaries") by providing opportunities for the officers and key employees
selected to participate in the Plan to acquire Common Stock of the Company
("Common Stock"), to receive cash payments based on the value of Common Stock,
or to receive cash or Common Stock bonuses upon attainment of specified
financial goals of the Company or its Subsidiaries. The Plan gives the
Executive Selection and Salary Committee of the Company's Board of Directors,
or such other c9mmittee as the Board of Directors shall designate (the
"Committee") the authority and discretion to award stock options, stock
appreciation rights, restricted stock awards, performance unit awards,
performance stock awards, and/or annual incentive awards (collectively,
"Awards") to eligible employees of the Company.
ARTICLE II
EFFECTIVE DATE AND TERM
2.1 Effective Date. The Plan shall become effective on the date that it
is approved by a majority of the outstanding shares of Common Stock of the
Company, provided that such approval occurs within twelve months after the
date that the Plan is adopted by the Company's Board of Directors (the
"Board"). Awards may be granted under this Plan prior to shareholder approval
of the Plan, provided that all such Awards are made subject to such
shareholder approval. If shareholder approval is not obtained within twelve
months after the date this Plan is adopted by the Board, the Board's adoption
of this Plan, and the grant of any Awards under this Plan, shall be null and
void.
2.2 Term. No Award may be granted more than ten years after the date
that the Plan is adopted by the Board. Awards granted within this time frame
may, subject to the terms of the Plan and the agreement(s) governing the grant
of the Awards, be exercised, paid out, or modified more than ten years after
the adoption of the Plan.
ARTICLE III
STOCK SUBJECT TO PLAN
3.1 Maximum Number. The maximum number of shares of Common Stock that
may be issued pursuant to Awards under the Plan is 165,000 subject to the
adjustments provided in Article X, below. Such shares may be newly-issued
shares, authorized but unissued shares or shares reacquired by the Company on
the open market or otherwise.
3.2 Availability of Shares for Award. Shares of Common Stock that are
subject to issuance pursuant to an Award may thereafter be subject to a new
Award:
(a) if the prior Award to which such shares were subject lapses,
expires or terminates without the issuance of such shares;
(b) to the extent that the value of such shares is paid out in cash
rather than in Common Stock; or
(c) shares issued pursuant to an Award are reacquired by the Company
pursuant to rights reserved by the Company upon the issuance of
such shares; provided, that shares reacquired by the Company may
only be subject to new Awards if the participant received no
benefit of ownership from the shares.
Shares of Common Stock that are received by the Company in connection with the
exercise of an Award, including the satisfaction of any tax liability or the
satisfaction of a tax withholding obligation, may be made subject to issuance
pursuant to a later Award.
<PAGE> 19
ARTICLE IV
ADMINISTRATION
4.1 General Administration. The Board shall supervise and administer
the Plan. The Board shall have discretionary authority to determine all issues
with respect to the interpretation of the Plan and Awards granted under the
Plan, and with respect to all Plan administration issues.
4.2 Powers of the Board. Subject to the terms of the Plan, the Board
shall have the authority, in its discretion: (i) to prescribe, amend and
rescind rules and regulations relating to the Plan; (ii) to select the
eligible employees who shall receive Awards under the Plan; (iii) to grant
Awards under the Plan and to determine the terms and conditions of such
Awards, including without limitation the authority to determine the number of
shares subject to issuance with respect to any Award, the vesting or exercise
schedule of any Award, and the specific performance goals that shall cause an
Award to vest or become payable; (iv) to determine the terms and conditions of
the respective agreements (which need not be identical) pursuant to which
Awards are granted, and (with the consent of the holder thereof) to modify or
amend any Award; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of any Award; (vi) to
determine the exercise price per share of options granted under the Plan;
(vii) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements or whether and under what terms to
loan all or a portion of the exercise price; (viii) to decide whether an Award
shall be settled in cash or Common Stock; (ix) to determine the remaining
number of shares of Common Stock available for issuance under the Plan; (x) to
appoint and compensate agents, counsel, auditors or other specialists to aid
it in the discharge of its duties; and (xi) to make all other determinations
necessary or advisable for the administration of the Plan.
4.3 Committee. Any or all powers and discretion vested in the Board
under this Plan (except the power to amend or terminate the Plan) may be
exercised by the Committee. The Committee shall consist of at least three
directors, each of whom shall be a "non-employee director" as that term is
defined in Rule 16b-3(b)(3) promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"). A majority of the members of the Committee shall constitute a quorum at
any meeting thereof (including telephone conference), and all determinations
of the Committee shall be made by a majority of the members present, or by a
writing by a majority of the members of the entire Committee without notice or
meeting.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. An Award may be granted under the Plan to those key
employees (including officers) of the Company or its present or future
Subsidiaries who, in the opinion of the Board or Committee, are mainly
responsible for the success and future growth of the Company and/or any of its
Subsidiaries.
ARTICLE VI
AWARDS
6.1 Types of Awards. Awards under the Plan may be granted in any one
or a combination of the following:
(a) Stock Options. An Option shall entitle the participant to receive
shares of Common Stock upon exercise of such Option, subject to the
participant's satisfaction in full of any conditions, restrictions
or limitations imposed in accordance with the Plan or the agreement
between the Company and the participant governing the award of such
Option. The agreement governing the award of an option shall
designate whether such option is intended to be an incentive stock
option or a non-qualified stock option, and to the extent that any
stock option is not designated as an incentive stock option (or
even if so designated does not qualify as an incentive stock
option), it shall constitute a non-qualified stock option.
(i) Exercise Price. The exercise price per share of the Common
Stock purchasable under an Option shall be determined by the
Board or Committee. The exercise price per share shall
not be less than the fair market value per share of Common
Stock on the date the option is granted (or not less than
110% of the such fair market value if the option is granted
to an individual owns or is deemed to own stock possessing
more than 10% of the combined voting power of all classes of
<PAGE> 20
stock or the Company, a corporation which is the parent of he
Company or and subsidiary of the Company (each as defined in
Section 424 of the Code) (a "10% Shareholder")). For this and
all other purposes under the Plan, the fair market value
shall be the closing price per share of Common Stock on the
New York Stock Exchange ("NYSE") on the date of grant;
provided, that if the Common Stock ceases to be listed on the
NYSE, the Board or Committee shall designate an alternative
method of determining the fair market value of the Common
Stock.
(ii) Option Period. An Option shall be exercisable at such time
and subject to such terms and conditions as shall be
determined by the Board or Committee. An option that is
intended to qualify as an incentive stock option shall not be
exercisable more than ten years after the date it is granted
(or five years after the date it is granted, if granted to a
10% Shareholder).
(b) Stock Appreciation Rights. A Stock Appreciation Right shall entitle
the participant to surrender to the Company the Stock Appreciation
Right and to be paid therefor the amount described in Section
6.l(b)(i)(3) or 6.l(b)(ii) below, subject to the participant's
satisfaction in full of any conditions, restrictions or limitations
imposed in accordance with the Plan or the agreement between the
Company and the participant governing the award of such Stock
Appreciation Right. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option under this Plan
("Tandem SAR's"), or may be granted on a stand-alone basis ("Stand
Alone SAR's").
(i) Tandem SAR's.
(1) Grant. Tandem SAR's may be granted in connection with
non-qualified Stock Options at or after the time that
such non-qualified Stock Options are granted, but may
only be granted in connection with incentive Stock
Options at the time of grant of such incentive Stock
Options.
(2) Term. A Tandem SAR shall have the same term as the
Stock Option to which it relates and shall be
exercisable only at such time or times and to the
extent the related Stock Option would be exercisable.
(3) Exercise. Upon the exercise of a Tandem SAR, the
participant be entitled to receive an amount in cash
equal in value to the excess of the fair market value
per share of Common Stock on the date of exercise over
the Option Price per share of Common Stock as specified
in the agreement governing the Tandem SAR, multiplied
by the number of shares in respect to which the Tandem
SAR is exercised. The exercise of Tandem SAR's shall
require the cancellation of a corresponding number of
Stock Options to which the Tandem SAR's relate, and the
exercise of Stock Options shall require the
cancellation of a corresponding number of Tandem SAR's
to which the Stock Options relate.
(4) Expiration or Termination. A Tandem SAR shall expire or
terminate at such time as the Stock Option to which it
relates expires or terminates, unless otherwise
provided in the agreement governing the grant of the
Tandem SAR.
(ii) Stand Alone SAR's. A Stand Alone SAR may be granted at such
time and for such term as the Board or Committee shall
determine, and shall be exercisable at such time as
specified in the agreement governing the grant of the Stand
Alone SAR. Upon exercise of a Stand Alone SAR, the
participant shall be entitled to receive, in cash, Common
Stock or a combination of both (as determined by the Board
or Committee), an amount equal to the falr market value per
share of Common Stock over a value specified in the
agreement governing the grant of the Stand Alone SAR,
multiplied by the number of shares in respect to which the
Stand Alone SAR is exercised.
(c) Restricted Stock Awards. Restricted Stock consists of shares of
Common Stock that are transferred or sold to the participant, but
which carry restrictions such as a prohibition against disposition
or an option to repurchase in the event of employment termination,
and may be subject to a substantial risk of forfeiture. Until such
restrictions lapse, the participant may not sell, assign, pledge or
otherwise transfer, whether voluntarily or involuntarily, the
Restricted Stock. A sale of Restricted Stock to a participant shall
be at such price as the Board or Committee determines, which price
may be substantially below the fair market value of the Common
Stock at the date of grant.
<PAGE> 21
(i) Lapse of Restrictions. The Board or Committee shall establish
the conditions under which the restrictions applicable to
shares of Restricted Stock shall lapse. Lapse of the
restrictions may be conditioned upon continued employment of
the participant for a specified period of time, satisfaction
of performance goals of the Company or a Subsidiary, or any
other factors as the Board or Committee deems appropriate.
(ii) Rights of Holder of Restricted Stock. Except for the
restrictions on transfer and/or the Company's option to
repurchase the Restricted Shares, the participant shall have,
with respect to shares of Restricted Stock, all of the
rights of a shareholder of Common Stock, including, if
applicable, the right to vote the shares and the right to
receive any cash or stock dividends. Unless otherwise
determined by the Board or Committee and subject to the terms
of the Plan, cash or stock dividends on shares of Restricted
Stock shall be automatically deferred, and shall be paid to
the participant if and when the restrictions on the shares of
Restricted Stock to which such dividends relate lapse. Cash
dividends shall be paid with an appropriate rate of interest,
as determined by the Board or Committee.
(iii) Certificates. The Company may require that the certificates
evidencing shares of Restricted Stock be held by the Company
until the restrictions thereon have lapsed. If and when such
restrictions lapse, certificates for such shares shall be
delivered to the participant. Such shares may further
restrictions on transfer if they have not been registered
under the Exchange Act, but shall no longer be subject to a
substantial risk of forfeiture.
(d) Performance Unit Awards. Performance Unit Awards entitle the
participant to cash payments (or, at the election of the Board or
Committee, their equivalent in shares of Common Stock), if
predetermined objectives are met. Because the payment of a
Performance Unit Award is based on a predetermined cash amount, the
value of each unit remains constant and does not fluctuate with
changes in the market value of the Common Stock.
(i) Performance Goals. The Board or Committee shall establish one
or more performance goals with respect to each grant of a
Performance Stock Award. The performance goals may be tailored
to meet specific objectives, and may relate to, without
limitation, one or more of the following: sales, net asset
turnover, earnings per share, cash flow, cash flow from
operations, operating profit or income, net income, operating
income, net income margin, return on net assets, return on
total sales, return on common equity, return on total capital,
or total shareholder return. In addition, performance goals
may relate to attainment of specified objectives by the
participant or by the Company or an affiliate, including a
division or a department of the Company or an affiliate, or
upon any other factors or criteria as the Board or Committee
shall determine.
(ii) Certification of Satisfaction of Performance Goals. Following
the completion of a period for which performance goals have
been established, the Board or Committee shall certify the
extent to which such goals have been achieved.
(e) Performance Stock Awards. Performance Stock Awards are artificial
shares that are contingently granted to a participant, which
entitle the participant to actual shares of Common Stock (or, at
the election of the Board or Committee, their cash equivalent), if
predetermined objectives are met. Because the payment of a
Performance Stock Award is based on a predetermined number of
shares of Common Stock, the value of the award may increase or
decrease depending on the fair market value of the Common Stock
after the date of grant.
(i) Performance Goals. The Board or Committee shall establish one
or more performance goals with respect to each grant of a
Performance Stock Award. The performance goals may be
tailored to meet specific objectives, and may relate to,
without limitation, one or more of the following: sales, net
asset turnover, earnings per share, cash flow, cash flow from
operations, operating profit or income, net income, operating
income, net income margin, return on net assets, return on
total sales, return on common equity, return on total
capital, or total shareholder return. In addition,
performance goals may relate to attainment of specified
objectives by the participant or by the Company or an
affiliate, including a division or a department of the
Company or an affiliate, or upon any other factors or
criteria as the Board or Committee shall determine.
(ii) Certification of Satisfaction of Performance Goals. Following
the completion of a period for which performance goals have
been established, the Board or Committee shall certify the
extent to which such goals have been achieved.
<PAGE> 22
(f) Annual Incentive Awards. An Annual Incentive Award entitles a
participant to receive a specified payout in cash, common stock,
deferred stock, restricted stock or a combination thereof (subject
to approval of the Committee), if and when certain conditions are
satisfied. To elect the payout of a portion of the award in common
stock, the participant must inform the Committee in writing prior
to the start of the fiscal year to which it relates. The maximum
annual formula bonus may be fixed at up to 100% of the
participant's base salary with the Board or Committee designating
the percentage level of participation and maximum bonus for each
officer of the Company while management designates the percentage
level of participation and maximum bonus for other participants.
The Board or Committee will determine whether the bonuses will be
payable to participants in stock or cash, or a combination of stock
and cash.
6.2 Written Agreements. Each Award granted under the Plan shall be
evidenced by a written agreement, the form of which shall be consistent with
the terms and conditions of the Plan and applicable law, which shall be signed
by an officer of the Company and the participant. Until such agreement has
been entered into between the Company and the participant, the participant
shall have no rights in any Award approved by the Board or the Committee.
6.3 Application of Code Section 162(m). Code Section 162(m) prohibits a
publicly-held corporation from taking a deduction for remuneration paid to
certain employees in excess of $1,000,000. Code Section 162(m)(4)(C) provides
that remuneration payable solely on account of the attainment of one or more
performance goals is not counted toward this limitation, but only if certain
conditions are satisfied. To the extent that any Award is intended to satisfy
the exception contained in Code Section 162(m)(4)(C), the following shall
apply to such Award:
(a) Determination of Performance Goals. The performance goals pursuant
to which an Award is made must be determined by a committee of the
Board comprised solely of two or more "outside directors," as that
term is defined under Code Section 162 and the regulations
thereunder (the "Outside Directors Committee"). The Committee may
serve as the Outside Directors Committee if it meets these
requirements. The performance goals established by the Outside
Directors Committee must be objective, and remuneration intended to
be excepted under Code Section 162(m)(4)(C) must be contingent upon
the attainment of the performance goals.
(b) Approval of Performance Goals. The material terms under which the
remuneration is to be paid, including the performance goals, are
disclosed to shareholders and approved by a majority of the vote in
a separate shareholder vote before the payment of such
remuneration.
(c) Certification of Satisfaction of Performance Goals. The Outside
Directors Committee must certify that the performance goals and any
other material terms and conditions were in fact satisfied.
(d) Satisfaction of Code Section 162(m). In all other respects, the
requirements of Code Section 162(m)(4)(C) and the regulations
thereunder must be satisfied.
ARTICLE VII
PAYMENT FOR AWARDS
7.1 General. Payments required, if any, upon a participant's exercise
of an Award under the Plan may be made in the form of: (i) cash; (ii) Company
stock; (iii) a combination of cash and Company stock; or (iv) such other forms
or means that the Board or Committee shall determine in its discretion and in
such manner as is consistent with the Plan's purpose and the Code, the
Exchange Act, or other applicable laws or regulations.
7.2 Financial Assistance. The Board or the Committee may cause the
Company or a Subsidiary to give or arrange for financial assistance (including
without limitation direct loans, with or without interest, secured or
unsecured, or guaranties of third-party loans) to a participant for the
purpose of providing funds for the exercise of an Award under the Plan, when
in the judgment of the Board or Committee such assistance may reasonably be
expected to be in the best interests of the Company, and provided that such
assistance as may be granted shall be consistent with the certificate of
incorporation and by-laws of the Company and applicable law, and will permit
any Common Stock to be fully paid and nonassessable when issued.
<PAGE> 23
ARTICLE VIII
EFFECT OF TERMINATION OF EMPLOYMENT ON BENEFITS
8.1 Termination by Reason of Death. Unless otherwise provided in an
agreement governing the grant of an Award or as determined by the Committee,
if a participant incurs termination of employment due to death:
(a) Any unexpired and unexercised Options and/or Stock Appreciation
Rights held by such participant shall thereafter be fully
exercisable (whether or not such Options or Stock Appreciation
Rights were fully vested at the time of the participant's death)
for a period of one year immediately following the date of death,
or until the expiration of the Option or Stock Appreciation Right
if shorter.
(b) Any restrictions on shares of Restricted Stock shall lapse and the
participant shall be fully vested in the Restricted Stock.
(c) The participant shall receive a prorated payout of any Performance
Unit Awards, Performance Stock Awards and Annual Incentive Awards.
The prorated payout shall be determined by the Board or Committee,
in their sole discretion, and shall be base upon the length of time
that the participant held such Awards during the period for which
performance is measured and the achievement of the established
performance goals.
8.2 Termination by Reason of Disability. Unless otherwise provided in
an agreement governing the grant of an Award or as determined by the
Committee, if a participant incurs termination of employment due to
disability:
(a) Any unexpired and unexercised Options and/or Stock Appreciation
Rights held by such participant shall thereafter be fully
exercisable (whether or not such Options or Stock Appreciation
Rights were fully vested at the time the participant became
disabled) for a period of one year immediately following the date
of such termination of employment, or until the expiration of the
Option or Stock Appreciation Right if shorter. The participant's
death at any time following such termination due to disability
shall not affect the foregoing. In the event of termination due to
disability, if an incentive stock option is exercised more than
three (3) months after such termination of employment (or such
other time period as may apply under Section 422 of the Code), such
Option shall thereafter be treated as a non-qualified stock option.
(b) Any restrictions on shares of Restricted Stock shall lapse and the
participant shall be fully vested in the Restricted Stock. (c)The
participant shall receive a prorated payout of any Performance Unit
Awards, Performance Stock Awards and Annual Incentive Awards. The
prorated payout shall be determined by the Board or Committee, in
their sole discretion, and shall be base upon the length of time
that the participant held such Awards during the period for which
performance is measured and the achievement of the established
performance goals.
Unless otherwise defined in the agreement governing the grant of an Award,
"disability" shall mean a mental or physical illness or injury that entitles
the participant to receive benefits under the long term disability plan of the
Company or a Subsidiary, or if the participant is not covered by such a plan,
a mental or physical illness that renders a participant totally and
permanently incapable of performing the participant's duties for the Company
or a Subsidiary. Notwithstanding the foregoing, a "disability" shall not
qualify under the Plan if it is the result of: (i) a willfully self-inflicted
injury or willfully self-induced sickness; or (ii) an injury or disease
contracted, suffered or incurred, while participating in a criminal offense.
The determination of disability shall be made by the Committee. The
determination of disability for purposes of the Plan shall not be construed as
an admission of disability for any other purpose.
8.3 Voluntary Termination Before Retirement or Termination for Cause.
Unless otherwise provided in an agreement governing the grant of an Award or
as determined by the Committee, if a participant voluntarily terminates his or
her employment before retirement or is terminated for cause:
(a) Any unexpired and unexercised Options and/or Stock Appreciation
Rights held by such participant shall immediately terminate. The
death or disability of the participant after such a termination of
employment shall not renew the exercisability of any Option or
Stock Appreciation Right.
<PAGE> 24
(b) All shares of Restricted Stock still subject to restriction shall
be forfeited by the participant, except the Board or Committee
shall have the discretion in whole or in part any or all remaining
restrictions with respect to any or all of such participant's
shares of Restricted Stock.
(c) All Performance Unit Awards, Performance Stock Awards and Annual
Incentive Awards shall be forfeited by the participant to the
Company.
Unless otherwise defined in the agreement governing the grant of an Award,
"termination for cause" shall mean termination because of (i) any act or
failure
to act deemed to constitute cause under the Company's established practices
policies or guidelines applicable to the participant or (b) the participant's
act
or omission constituting gross misconduct with respect to the Company or a
Subsidiary in any material respect.
8.4 Other Termination. Unless otherwise provided in an agreement
governing
the grant of an Award or as determined by the Committee, if a participant's
employment terminates for any reason (including retirement) other than the
reasons listed in Section 8.1 through 8.3 above his or her employment or is
terminated for cause:
(a) Any unexpired and unexercised Options and/or Stock Appreciation
Rights held by such participant shall thereupon terminate, except
that any such Option or Stock Appreciation Right, to the extent
vested on the date of the participant's termination, may be
exercised by the participant for the lesser of the three-month
period commencing with the date of such termination of employment,
or until the expiration of the Option or Stock Appreciation Right
if shorter. The death or disability of the participant after such a
termination of employment shall not extend the time permitted to
exercise an Option or Stock Appreciation Right.
(b) All shares of Restricted Stock still subject to restriction shall
be forfeited by the participant, except the Board or Committee
shall have the discretion in whole or in part any or all remaining
restrictions with respect to any or all of such participant's
shares of Restricted Stock.
(c) The participant shall receive a prorated payout of any Performance
Unit Awards, Performance Stock Awards and Annual Incentive Awards.
The prorated payout shall be determined by the Board or Committee,
in their sole discretion, and shall be base upon the length of time
that the participant held such Awards during the period for wh~ch
performance is measured and the achievement of the established
performance goals.
Unless otherwise defined in the agreement governing the grant of an Award,
"retirement" shall mean the participant's termination of employment after
attaining either normal retirement age or the early retirement age as defined
in the principal (as determined by the Board or Committee) tax-qualified plan
of the Company or Subsidiary, and if the participant is not covered by such a
plan, then age 65, or age 55 with the accrual of 10 years of service.
ARTICLE IX
NONTRANSFERABILITY
9.1 General. Unless otherwise provided in an agreement governing the
grant of an Award, a participant's rights shall be exercisable during the
participants lifetime only by the participant, and no Award may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated;
provided, that Options and Stock Appreciation Rights are transferable by will
or pursuant to the laws of descent and distribution.
ARTICLE X
ADJUSTMENT PROVISIONS
10.1 Changes in Capitalization. If the Company shall at any time change
the number of issued shares of Common Stock without new consideration to the
Company (by stock dividends, stock splits, split-up, spin-off, or similar
transactions), the total number of shares reserved for issuance under this
Plan and the number of shares covered by or subject to each outstanding Award
shall be adjusted so that the aggregate consideration payable to the Company,
if any, and the value of each such Award shall not be changed.
10.2 Reorganization, Sale, etc. Options granted hereunder may also
contain provisions for their continuation, acceleration, immediate vesting, or
for other equitable adjustments after changes in the Common Stock resulting
from reorganization, sale, merger, consolidation, dissolution, liquidation or
similar circumstances.
<PAGE> 25
10.3 Substitutions and Assumptions. If the Company acquires an entity
which has issued and outstanding stock options or other rights, the Company
may substitute stock options or rights for options or rights of such entity,
including options or other rights to acquire stock at less than 100% of the
fair market price of the stock at grant. The number and kind of such stock
options and other rights shall be determined by the Board or Committee and the
total number of shares reserved for issuance under this Plan shall be
appropriately adjusted consistent with such determination and in such manner
as the Board or Committee may deem equitable to prevent substantial dilution
or enlargement of the Awards granted to, or available for, present or future
participants of this Plan. The number of shares reserved for issuance pursuant
to Article III 'nay be increased by the corresponding number of options or
other benefits assumed, and, in the ~~se of a substitution, by the net
increase in the number of shares subject to options or other benefits before
and after the substitution.
ARTICLE XI
AMENDMENT AND TERMINATION OF PLAN
11.1 General. The Board, without further approval of the Company's
shareholders, may amend the Plan from time to time or terminate the Plan at
any time, provided that:
(a) no action authorized by this Article shall reduce the amount of any
existing Award or change the terms and conditions thereof without
the participant's consent; and
(b) no amendment of the Plan shall, without the approval of the
Company's shareholders, (i) increase the total number of shares of
Common Stock that may be issued under the Plan or increase the
amount or type of Awards that may be granted under the Plan; (ii)
change the minimum purchase price, if any, of shares of Common
Stock that may be made subject to Awards under the Plan; (iii)
modify the requirements as to eligibility for an Award under the
Plan; or (iv) extend the term of the Plan.
ARTICLE XII
MISCELLANEOUS
12.1 Unfunded Status of Plan. It is intended that the Plan constitute an
"unfunded" plan for incentive and deferred compensation. The Board
or Committee may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Common Stock or make
payments; provides, however, that unless the Board or Committee otherwise
determines, he existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan.
12.2 Withholding Taxes. No later than the date as of which an amount
first becomes includible in the gross income of the participant for federal
income tax purposes with respect to any Award or with respect to any exercise
of any Option or Stock Appreciation Right granted under the Plan, the
participant shall pay to the Company, or make arrangements satisfactory to the
Company or other entity identified by the Board or Committee regarding the
payment of any federal, state, local or foreign taxes of any kind required by
law to be withheld. Such withholding obligations may be settled with Common
Stock, including Common Stock that is part of the Award or that is received
upon the exercise of the Award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional upon such
payment or arrangements, and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment otherwise due to
the participant. If the participant disposes of shares of Common Stock
acquired pursuant to an incentive stock option in any transaction considered
to be a disqualifying transaction under the Code, the participant must give
written notice of such transfer and the Company shall have the right to deduct
any taxes required by law to be withheld from any amounts otherwise payable to
the participant.
12.3 No Guaranty of Employment. Nothing herein shall be construed to
constitute a contract of employment between the Company or Subsidiary and the
participant. Except as may be provided in a written contract, the Company or
Subsidiary and each of the participants continue to have the right to
terminate the employment relationship at any time for any reason.
<PAGE> 26
12.4 Controlling Law. The Plan and all Awards made and actions taken
hereunder shall be governed by and construed in accordance with the laws of
the State of Wisconsin (other than its law respecting choice of law). The Plan
shall be construed to comply with all applicable law and to avoid liability to
the Company or a Subsidiary, including, without limitation, liability under
Section 16(b) of the Exchange Act.
12.5 Headings. The headings contained in the Plan are for reference
purposes only, and shall not affect the meaning or interpretation of the Plan.
12.6 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
12.7 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a participant, and all rights granted to the Company hereunder,
shall be binding upon the participant's heirs, legal representatives and
successors.
12.8 Entire Agreement. This Plan and any agreements governing the grant
of Awards hereunder to any participant constitute the entire agreement with
respect to the subject matter hereof with respect to such participant,
provided that in the event of any inconsistency between the Plan and any such
agreement(s), the terms and conditions of the Plan shall control.
<PAGE> 27
EXHIBIT A-1
TAX AND ACCOUNTING ASPECTS
OF THE 1998 INCENTIVE COMPENSATION PLAN
AND THE 1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Stock Options
Options which meet the requirements of Section 422A of the Internal
Revenue Code are called "incentive stock options." All other options are
called "non-qualified stock options." The following is a brief summary of the
Corporation's interpretation of the federal income tax results of incentive
and non-qualified stock options under the present law and regulations (state
income tax results may vary):
a. The granting of a non-qualified stock option does not produce
taxable income to the employee or a tax deduction to the Corporation
or any subsidiary. Upon exercise of such an option, the excess of
the fair market value of the common stock acquired over the option
price is (a) taxable to the employee as ordinary income and (b)
deductible by the employer (assuming withholding, if required). The
tax basis for the common stock acquired is the option plus that
taxable excess.
b. The granting of an incentive stock option does not produce taxable
income to the employee or a tax deduction to the Corporation or any
subsidiary. Upon exercise of such an option, the excess of the fair
market value of the common stock acquired over the option price will
be an item of tax preference to the employee (unless the employee
disposes of the common stock in that same year). If the common stock
is held by the employee for at least two years after the date of
grant and one year after the date of exercise of the option (i) the
employee does not realize any income as a result of exercising the
option, (ii) the tax basis of the common stock received is the
option price, and (iii) the employer is not entitled to any tax
deduction by reason of the exercise. While any gain realized on the
ultimate sale of the common stock, which is held for the appropriate
period, is treated as gain resulting from the disposition of a
capital asset, the Tax Reform Act of 1986 eliminated preferential
tax treatment for capital gains and such gains are taxed for federal
tax purposes as ordinary income. If the employee does not hold the
common stock for at least two years after the date of a grant and
one year after the date of exercise, the excess of the fair market
value of the common stock at the time of exercise of the option (or
the proceeds of disposition, if less) over the option price will, in
the year of disposition, be (a) taxable to the employee as ordinary
income and (b) deductible by the employer (assuming withholding, if
required). The tax basis for the common stock received will be the
option price plus that taxable excess.
c. If an optioned exchanges common stock which he already owns for
option shares, the optioned's taxable basis in the shares owned will
be transferred to the shares acquired upon exercise of the option.
If the common stock exchanged by the optioned are shares previously
acquired by exercise of an incentive stock option and the exchanged
shares have not been held by the optioned for at least two years
after the date of grant and one year after the date of exercise of
the prior option, the optioned will realize ordinary income equal to
the excess of the fair market value of the exchanged shares at the
time of such prior exercise over the option price for those
exchanged shares.
2. Stock Appreciation Rights
No income will be recognized by the recipient of a stock appreciation
right until shares representing the amount of the appreciation or the tax
equivalent, if so elected, are transferred to the recipient pursuant to the
exercise of the right. The amount of such income will be equal to the fair
market value of such shares on the exercise date (or the cash equivalent), and
will be ordinary income. Subject to the applicable provisions of the Code,
the Corporation will be entitled to a deduction at the same time and in the
same amount as the employee realizing ordinary income as a result of the
exercise of the right.
3. Restricted Stock Awards
Generally at the time the substantial risk of forfeiture terminates with
respect to a restricted stock award, the then fair market value of the stock
will constitute ordinary income to the employee. Subject to the applicable
provisions of the Code, a deduction for federal income tax purposes will be
allowable to the Corporation in an amount equal to the compensation realized
by the employee.
<PAGE> 28
4. Performance Unit and Performance Stock Awards
The grant of a performance unit award or a performance stock award
generally will result in taxable income to the employee on the earlier of
actual receipt of compensation pursuant to the award or when compensation is
credited to the employee's account, or set apart, or otherwise made available.
Subject to the applicable provisions of the Code, a deduction for federal
income tax purposes will be allowable to the Corporation in an amount equal to
the compensation realized by the employee.
5. Annual Incentive Awards
An annual incentive award generally will result in taxable income to the
employee at such time as all conditions to the entitlement to such award have
been satisfied, regardless of whether the participant elects to receive the
award in the form of cash or common stock. Subject to the applicable
provisions of the Code, a deduction for federal income tax purposes will be
allowable to the Corporation in an amount equal to the compensation realized
by the employee.
6. Non-Qualified Stock Options to Non-Employee Directors
The tax and accounting aspects of non-qualified stock options issued to
non-employee directors are the same as those applicable to non-qualified stock
option employees issued to employees as described above.
<PAGE> 29
EXHIBIT B
TWIN DISC, INCORPORATED
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE
1.1 Purpose. The purpose of the Twin Disc, Incorporated 1998 Stock
Option Plan for Non-Employee Directors (the "Directors' Plan" or '1Plan'1) is
to promote the financial interests of Twin Disc, Incorporated (the
'1Company'1) and its shareholders by providing non-employee members of the
Company's Board of Directors the opportunity to acquire Common Stock of the
Company ("Common Stock"), thereby assisting the Company in its efforts to
attract and retain well qualified individuals to serve as directors and
further aligning the interests of such directors with those of the Company's
shareholders. Options granted under the Directors' Plan are not intended to
meet all of the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and the Directors' Plan shall be construed so
as to carry out that intent.
ARTICLE II
EFFECTIVE DATE AND TERM
2.1 Effective Date. The Directors' Plan shall become effective on the
date that it is approved by a majority of the outstanding shares of Common
Stock of the Company, provided that such approval occurs within twelve months
after the date that the Plan is adopted by the Company's Board of Directors
(the "Board"). Options may be granted pursuant to the terms of the Plan prior
to shareholder approval of the Plan, provided that all such Options are made
subject to such shareholder approval. If shareholder approval is not obtained
within twelve months after the date this Plan is adopted by the Board, the
Board's adoption of this Plan, and the grant of any Options under this Plan,
shall be null and void.
2.2 Term. No Option may be granted more than ten years after the date
that the Plan is adopted by the Board. Options granted within this time frame
may, subject to the terms of the Plan and any agreement(s) governing the
Options, be exercised, paid out, or modified more than ten years after the
adoption of the Plan.
ARTICLE III
STOCK SUBJECT TO PLAN
3.1 Maximum Number. The maximum number of shares of Common Stock that
may be issued pursuant to Options under the Plan is 35,000 subject to the
adjustments provided in Article IX, below. Such shares may be newly-issued
shares, authorized but unissued shares or shares reacquired by the Company on
the open market or otherwise.
3.2 Availability of Shares for Award. Shares of Common Stock that are
subject to issuance pursuant to an Option may thereafter be subject to a new
Option if the prior Option to which such shares were subject lapses, expires
or terminates without the issuance of such shares. In addition, shares of
Common Stock that are received by the Company in connection with the exercise
of an Option, including the satisfaction of any tax liability or the
satisfaction of a tax withholding obligation, may be made subject to issuance
pursuant to a later Option.
ARTICLE IV
ADMINISTRATION
4.1 General Administration. The Board will supervise and administer the
Plan; provided, however, that the Board may appoint a committee (the
"Committee") of two (2) or more directors to administer the Plan if deemed
necessary or advisable in order to comply with the exemptive rule promulgated
pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
<PAGE> 30
4.2 Powers. Grants of Options under the Plan and the amount, price and
timing of the awards to be granted will be automatic as described in Article
VI. However, the Board or Committee shall have discretionary authority to
determine all issues with respect to the interpretation of the Plan and
Options granted under the Plan, and with respect to all Plan administration
issues.
4.3 Section 16 Compliance. Transactions under this Directors' Plan are
intended to comply with all applicable conditions of the exemptive rules
promulgated pursuant to Section 16(b) of the Exchange Act. To the extent any
provision of the Directors' Plan or action of the Board or Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board or Committee.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. All present or future directors of the Company who are
not employees of the Company shall be eligible to participate in the
Directors' Plan.
ARTICLE VI
GRANT OF OPTIONS
6.1 Automatic Grant. On each annual stockholders' meeting beginning in
calendar year 1998, each eligible director who is elected or re-elected to the
Board, and each eligible director who is continuing to serve on the Board,
shall be granted Options to purchase 1,000 shares of Common Stock, and the
grant date for such Options being the date of the annual stockholders'
meeting. If an eligible director is appointed to the Board effective on any
date other than the date of the annual stockholders' meeting, said director
shall be granted an Option to purchase 600 shares of Common Stock, and the
grant date for such Options shall be the date that said director is appointed
to the Board.
6.2 Exercise Price. The exercise price per share shall be the fair
market value per share of Common Stock on the date the option is granted. For
this and all other purposes under the Plan, the fair market value shall be the
closing price per share of Common Stock on the New York Stock Exchange
("NYSE") on the date of grant; provided, that if the Common Stock ceases to be
listed on the NYSE, the Board or Committee shall designate an alternative
method of determining the fair market value of the Common Stock.
6.3 Option Period. No Option granted under the Plan shall be
exercisable unless and until shareholder approval of the Plan is obtained.
Following such approval, Options may be exercised in whole at any time or in
part from time to time. An Option shall not be exercisable more than ten years
after the date it is granted, and will terminate no later than three years
after termination of director status for any reason other than death.
6.4 Written Agreement. Each Option shall be evidenced by an appropriate
written agreement, the form of which shall be consistent with the terms and
conditions of the Plan and applicable law, which shall be signed by an officer
of the Company and the participant. A single written agreement may cover the
grant of Options in subsequent or prior years.
ARTICLE VII
PAYMENT FOR OPTIONS
7.1 General. Payments required, if any, upon a participant's exercise
of an Option under the Plan may be made in the form of: (i) cash; (ii) Company
stock; (iii) a combination of cash and Company stock; or (iv) such other forms
or means that the Board or Committee shall determine in its discretion and in
such manner as is consistent with the Plan's purpose and the Code, the
Exchange Act, or other applicable laws or regulations.
7.2 Financial Assistance. The Board or the Committee may cause the
Company or a Subsidiary to give or arrange for financial assistance (including
without limitation direct loans, with or without interest, secured or
unsecured, or guaranties of third-party loans) to a participant for the
purpose of providing funds for the exercise of an Option under the Plan, when
in the judgment of the Board or Committee such assistance may reasonably be
expected to be in the best interests of the Company, and provided that such
assistance as may be granted shall be consistent with the certificate of
incorporation and by-laws of the Company and applicable law, and will permit
any Common Stock to be fully paid and nonassessable when issued.
<PAGE> 31
ARTICLE VIII
NONTRANSFERABILITY
8.1 General. A participant's rights shall be exercisable during the
participant's lifetime only by the participant, and no Option may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, except
by will or pursuant to the laws of descent and distribution.
ARTICLE IX
ADJUSTMENT PROVISIONS
9.1 Changes in Capitalization. If the Company shall at any time change
the number of issued shares of Common Stock without new consideration to the
Company (by stock dividends, stock splits, split-up, spin-off, or similar
transactions), the total number of shares reserved for issuance under this
Plan and the number of shares subject to each outstanding Option shall be
adjusted so that the aggregate consideration payable to the Company, if any,
and the value of each such Option shall not be changed.
9.2 Reorganization, Sale, etc. Options granted hereunder may also
contain provisions for their continuation, acceleration, immediate vesting, or
for other equitable adjustments after changes in the Common Stock resulting
from reorganization, sale, merger, consolidation, dissolution, liquidation or
similar circumstances.
ARTICLE X
AMENDMENT AND TERMINATION OF PLAN
10.1 General. The Board, without further approval of the Company's
shareholders, may amend the Plan from time to time or terminate the Plan at
any time, provided that:
(a) no action authorized by this Article shall reduce the amount of any
existing Option or change the terms and conditions thereof without
the participant's consent; and
(b) no amendment of the Plan shall, without the approval of the
Company's shareholders, (i) increase the total number of shares of
Common Stock that may be issued under the Plan or increase the
amount or type of Option that may be granted under the
Plan; (ii) change the minimum purchase price, if any, of shares of
Common Stock that may be made subject to Options under the Plan;
(iii) modify the requirements as to eligibility for an Option under
the Plan; or (iv) extend the term of the Plan.
ARTICLE XI
MISCELLANEOUS
11.1 Withholding Taxes. No later than the date as of which an amount
first becomes includible in the gross income of the participant for federal
income tax purposes with respect to the exercise of any Option granted under
the Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Company or other entity identified by the Board or
Committee regarding the payment of any federal, state, local or foreign taxes
of any kind required by law to be withheld. Such withholding obligations may
be settled with Common Stock, including Common Stock that is received upon the
exercise of the Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional upon such
payment or arrangements, and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment otherwise due to
the participant.
11.2 Tenure. A participant's right, if any, to continue to serve the
Company as a director shall not be enlarged or otherwise affected by his
designation as a participant under the Directors' Plan.
11.3 Controlling Law. The Plan and all Options granted and actions taken
hereunder shall be governed by and construed in accordance with the laws of
the State of Wisconsin (other than its law respecting choice of law). The Plan
shall be construed to comply with all applicable law and to avoid liability to
the Company or a Subsidiary, including, without limitation, liability under
Section 16(b) of the Exchange Act.
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11.4 Headings. The headings contained in the Plan are for reference
purposes only, and shall not affect the meaning or interpretation of the Plan.
11.5 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
11.6 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a participant, and all rights granted to the Company hereunder,
shall be binding upon the participant's heirs, legal representatives and
successors.
11.7 Entire Agreement. This Plan and any agreements governing the grant
of Options hereunder to any participant constitutes the entire agreement with
respect to the subject matter hereof with respect to such participant,
provided that in the event of any inconsistency between the Plan and any such
agreement(s), the terms and conditions of the Plan shall control.
