<PAGE> 1
TWIN DISC, INCORPORATED
1328 Racine Street, Racine, Wisconsin 53403
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 15, 1999
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 15, 1999 at the Corporate Offices, 1328 Racine Street, Racine,
Wisconsin for the following purposes:
1. Election of three Directors to serve until the Annual Meeting in 2002.
2. 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 27, 1999, 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 15, 1999
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
1999 Proxy Statement
TWIN DISC, INCORPORATED
September 15, 1999
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 the
Corporate Offices, 1328 Racine Street, Racine, Wisconsin on Friday, October
15, 1999, or any adjournment thereof. Holders of common stock of record at the
close of business on the 27th day of August 1999, 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 15,
1999.
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 shareholders
surname and either the shareholders 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 2000 Annual
Meeting, the proposal must be received at the Corporation's principal
executive offices no later than May 19, 2000. Shareholder proposals received
later than August 1, 2000 will be considered untimely, and will not be
considered at the Corporation's 2000 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 27, 1999. On
August 27, 1999, there were outstanding 2,835,194 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.
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, 1999, 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 143,897<F2> 5.1%
Fidelity Management 82 Devonshire St. Power to vote & 268,600 9.5%
and Research Corp. Boston, MA dispose of stock
Dimensional Fund 1299 Ocean Ave. Power to vote & 209,600 7.4%
Advisors Santa Monica, CA dispose of stock
Kennedy Capital 10829 Olive Blvd. Power to vote & 222,950 7.9%
Management, Inc. St. Louis, MO dispose of stock
Wachovia 100 N. Main St. Power to vote & 168,200 5.9%
Corporation Winston-Salem, NC dispose of stock
<FN>
<F1>
(1) Held as trustee under various trusts.
<F2>
(2) Includes 2,600 shares owned by the wife of Michael E. Batten and 63,000
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, 1999, 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 686,324 <F5> 24.2%
James O. Parrish 31,223 <F6> 1.1%
Paul J. Powers 5,200 <F6> *<F3>
Michael H. Joyce 39,728 <F6> 1.4%
Richard T. Savage 6,700 <F6> *
David L. Swift 2,700 <F6> *
David R. Zimmer 3,578 <F6> *
George E. Wardeberg 1,400 <F6> *
Paul A. Pelligrino 6,506 <F6> *
Lance J. Melik 7,487 <F6> *
Gerald W. Metzger 1,400 <F6> *
John A. Mellowes 1,000 <F6> *
All Directors and
Executive Officers
as a group (14 persons) 809,245 <F6> 28.5%
<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. Battens wife, 605,611 shares held by him
as trustee under various family trusts, and 63,000 shares subject to presently
exercisable stock options.
<F6>
(3) Shares subject to currently exercisable stock options included in the
above are as follows: Mr. Parrish 24,800, Mr. Powers 4,900, Mr. Joyce 34,500,
Mr. Savage 4,000, Mr. Swift 2,500, Mr. Zimmer 2,500, Mr. Pelligrino 5,500,
Mr. Melik 2,500, Mr. Metzger 1,400, Mr. Wardeberg 1,200, and all Directors and
executive officers as a group 159,700.
</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, 2002. 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.
<TABLE>
<CAPTION>
Served as
Principal Occupation Director
Name of Director and other Public Continuously
and Date of Birth Company Directorships Since
- - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C>
NOMINEES FOR DIRECTORS FOR TERMS TO EXPIRE IN 2002:
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. . . . . . . Former Executive July 1995
August 21, 1946 Vice President-Operations
United Dominion Industries
Charlotte, North Carolina
(Manufacturer of proprietary
engineered products)
Formerly President and
Chief Executive Officer,
Core Industries, Inc.,
Bloomfield Hills, Michigan
<PAGE> 6
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)
DIRECTORS WHOSE TERMS EXPIRE IN 2000:
Michael H. Joyce . . . . . . President and October 1991
November 7, 1940 Chief Operating Officer,
Twin Disc, Incorporated
Richard T. Savage . . . . . .Retired Chairman, 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
</TABLE>
<PAGE> 7
DIRECTOR COMMITTEES AND ATTENDANCE
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
The Corporations Board of Directors met 6 times during the year ended
June 30, 1999. There were no absences 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 Corporations 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 managements 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:
Executive
Selection Nominating
and and
Audit Finance Pension Salary Board Affairs
- - - - - - - - - - - - - - - - - - - - - - - -
Powers Zimmer Swift Savage Wardeberg
Swift Swift Powers Powers Savage
Zimmer Wardeberg Savage Wardeberg Mellowes
Mellowes Mellowes Zimmer
Joyce
Parrish
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation received by the
Corporations Chief Executive Officer and the 4 most highly paid executive
officers for the 3 fiscal years ended June 30, 1997, 1998, and 1999,
respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
- - - - - - - - - - - - - -
Name and Stock All Other
Principal Position Year Salary Bonus <F8> Options Compensation<F9>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C> <C> <C> <C>
Michael E. Batten 1999 $347,600 $ - 9,000 $21,539
Chairman and 1998 328,000 190,000 9,000 19,876
Chief Executive 1997 313,000 125,700 8,000 13,072
Officer
Michael H. Joyce 1999 $259,100 $ - 4,500 $ 7,532
President and 1998 245,000 127,700 4,500 5,965
Chief Operating 1997 234,000 94,000 3,500 5,525
Officer
James O. Parrish 1999 $169,425 $ - 2,500 $ 8,878
Vice President 1998 161,500 65,500 2,500 7,786
Finance & 1997 154,500 46,500 2,000 5,364
Treasurer
Gerald W. Metzger 1999 $130,962 $ - 800 5,726
General Manager 1998 126,500 45,000 600 5,100
1997 122,500 31,000 800 4,000
Lance J. Melik 1999 $130,685 $ - 1,500 4,700
Vice President 1998 125,000 43,500 1,000 6,787
Corp. Development 1997 120,000 30,800 1,000 4,406
Paul A. Pelligrino 1999 $129,615 $ - 2,500 6,728
Vice President 1998 123,400 44,000 2,500 6,236
Engineering 1997 121,700 32,000 1,500 2,719
<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 Corporations 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 1999 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 3,800 7.1% $28.6000 8/10/03 $ 68,348 $173,208
M. Batten 3,400 6.3% 26.0000 8/10/08 55,594 140,887
M. Batten 700 1.3% 25.2300 10/16/03 11,107 28,147
M. Batten 1,100 2.0% 22.9375 10/16/08 15,868 40,212
M. Joyce 3,850 7.2% 26.0000 8/10/08 62,952 159,534
M. Joyce 650 1.2% 22.9375 10/16/08 9,376 23,762
J. Parrish 1,950 3.6% 26.0000 8/10/08 31,885 80,803
J. Parrish 550 1.0% 22.9375 10/16/08 7,934 20,106
G. Metzger 600 1.1% 26.0000 8/10/08 9,811 24,862
L. Melik 1,150 2.1% 26.0000 8/10/08 18,804 47,653
L. Melik 350 .7% 22.9375 10/16/08 5,049 12,795
P. Pelligrino 1,950 3.6% 26.0000 8/10/08 31,885 80,803
P. Pelligrino 550 1.0% 22.9375 10/16/08 7,934 20,106
<FN>
<F10>
(1) During the fiscal year ended June 30, 1999, a total of 53,750 options were
granted to officers, key employees and directors, with 30,550 granted under
the 1988 Incentive Stock Option Plan, 10,850 options granted under the
1988 Non-Qualified Stock Option Plan, 6,350 options granted under the 1998
Incentive Compensation Plan and 6,000 options granted under the 1998 Stock
Option Plan for Non-Employee Directors.
<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
1999 by the named executive officers and the value of such officers
unexercised options at June 30, 1999.
<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 63,000 0 $10,281 $ 0
M. Joyce 2,000 $18,750 34,500 0 25,594 0
J. Parrish 0 N/A 24,800 0 9,906 0
P. Pelligrino 0 N/A 5,500 0 3,322 0
L. Melik 0 N/A 5,500 0 3,322 0
G. Metzger 0 N/A 1,400 0 0 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
employees 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 Corporations executive
officers named in the Summary Compensation Table is as follows: Mr. Batten 35
years; Mr. Joyce 14 years; Mr. Parrish 31 years; Mr. Pelligrino 37 years; Mr.
Melik 41 years; and Mr. Metzger 7 years.
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.
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 and the 1998 Stock Option Plan for Non-Employee 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, Pelligrino and Melik.
The agreements provide for severance benefits to be paid to the executive
following a change in control of the Corporation (as defined in those
agreements) and a termination (as defined in those agreements) 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 $2,975,000.
Severance benefits for an executive officer would generally consist of
the sum of the executives highest annual base salary between the change in
control and the date of termination plus the executives 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 leader-ship 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 1999 by $19,600. In determining Mr. Batten's base
salary in 1999, 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.
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.
No bonus awards were granted to the officers named in the Summary
Compensation Table in 1999 due to actual performance results relative to
Annual Plan goals in 1999. Corporate goals in 1999 were based on target
earnings and return on net assets employed.
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, the
1988 Incentive Stock Option Plan, the 1998 Incentive Compensation Plan and the
1998 Stock Option Plan for Non-Employee Directors.
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 1999.
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 most 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
Paul J. Powers
George E. Wardeberg
July 29, 1999
<PAGE> 13
INDEPENDENT PUBLIC AUDITORS
The firm has audited the Corporations 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 & Poors Diversified Machinery Index and the
Russell 2000 index. The S&P Diversified Machinery Index
consists of a broad range of manufacturers. The Russell 2000 Index consists of
a broad range of 2,000 Companies. The Corporation believes, because of the
similarity of its business with those companies contained in the S&P
Diversified Machinery Index, that comparison of shareholder return with this
index is appropriate. Total return values for the Corporations common stock,
the S&P Diversified Machinery Index and the Russell 2000 Index were calculated
based upon an assumption of a $100 investment on June 30, 1994 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
06/30/94 06/30/95 06/30/96 06/30/97 06/30/98 06/30/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Twin Disc 100.00 120.04 124.28 157.57 169.86 117.03
S&P Div. Mach. 100.00 126.54 145.19 209.12 209.39 214.32
Russell 2000 100.00 120.07 148.80 173.11 201.68 204.70
</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, 1998 to June 30,
1999, all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten (10%) beneficial owners were complied
with.
<PAGE> 14
GENERAL
The Corporation will bear the cost of the solicitation of proxies. The
firm of Georgeson & Co., Inc., New York, NY has been retained to assist in
solicitation of proxies for the Annual Meeting at a fee not to exceed $6,500
plus expenses.
Management does not know of any other business to come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
upon such matters in their discretion in accordance with the authorization of
the proxy.
If you do not contemplate attending in person, we respectfully request
that you fill in, sign and return the accompanying proxy at your early
convenience. However, remember that in order to have your proxy validated, it
must be delivered to the Secretary either in person, by mail, or by messenger,
and it must be received by the Secretary not less than forty-eight (48) hours
prior to the date of the meeting.
