Fansteel Inc.
Number One Tantalum Place
North Chicago, Illinois 60064
Proxy Statement
SOLICITATION OF PROXIES
This Statement is furnished in connection with the solicitation
of Proxies on behalf of the Board of Directors ("Board") of
Fansteel Inc. (the "Company") to be voted at the Annual Meeting
of Stockholders, including any and all adjournments thereof, to
be held on April 23, 1997.
If the enclosed Proxy is executed and returned it will be voted
in accordance with the specifications thereon, and if there are
no specifications thereon, it will be voted in accordance with
the proposals recommended by the Board. The only business which
the Board intends to present, or knows that others will present,
at the Annual Meeting, is specified in the accompanying notice of
the meeting. If, however, any other matters properly come before
the meeting for action, it is intended that the persons named in
the enclosed form of Proxy will vote the same in accordance with
their best judgment on such matters.
The enclosed Proxy may be revoked at any time insofar as it has
not been exercised.
The enclosed proxy material is being mailed to stockholders
before March 21, 1997. The cost of preparing, assembling and
mailing the enclosed proxy material will be paid by the Company.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On February 24, 1997, the record date for determination of
stockholders entitled to notice of and to vote at said Annual
Meeting, the Company had outstanding 8,598,858 shares of Common
Stock, each of which is entitled to one vote.
The persons owning beneficially 5% or more of the Company's
outstanding Common Stock as of February 24, 1997, and the stock
ownership of all the Officers and Directors of the Company as a
group as of that date are as follows:
Amount
Name and Address of Beneficially Percent
Beneficial Owner Owned of Class
T. M. Evans 4,050,786 (1) 47.11%
500 Round Hill Road
Greenwich, CT 06831
R. B. Haave Associates, Inc. 929,300 10.81%
36 Grove Street
New Canaan, CT 06840
Dimensional Fund Advisors Inc. 614,951 7.15%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
The TCW Group, Inc. 542,600 6.31%
865 South Figueroa Street
Los Angeles, CA 90017
All Officers and Directors as 17,616 .20%
a group
(3 persons)
(1) These shares do not reflect 15,116 shares the beneficial
ownership of which is held on behalf of B. B. Evans, wife of T.
M. Evans.
NOMINEES FOR ELECTION AS DIRECTORS
Unless the stockholder has exercised the right to withhold such
vote for any nominee, the persons named in the enclosed Proxy
will vote in favor of the election of all of the six nominees
named below as Directors to serve until the next Annual Meeting
of Stockholders or until their successors are elected. If, as a
result of circumstances not known or unforeseen, any nominee
shall be unavailable to serve as a Director, Proxies will be
voted for the election of such other person or persons as the
Board may select. The following table sets forth pertinent
information with respect to such nominees, including their
principal business experience and shares of the Company's Common
Stock beneficially owned by them, directly or indirectly, on
February 24, 1997.
Year in
Which
First Shares of
Became Common
Director Stock
Principal Business of Owned
Experience and the Beneficial Percent
Name Age Other Information Company ly of Class
B. B. Evans 73 Mrs. Evans is a 1983 15,116 (1) 0.18%
Director of HBD
Industries, Inc.
R. S. Evans 53 Chairman of the 1982 - -
Board and Chief
Executive Officer of
Crane Co. and Medusa
Corporation for the
past five years, and
a Director of HBD
Industries, Inc. He
is a son of T. M.
Evans.
T. M. Evans, 59 Mr. Evans has 1986 - -
Jr. engaged in personal
investments since
1988. Mr. Evans is
a Director of HBD
Industries, Inc. He
is a son of T. M.
Evans.
W. D. Jarosz 44 Mr. Jarosz is and 1995 _ _
has been Chairman of
the Board, President
and Chief Executive
Officer since April,
1996, President and
Chief Executive
Officer of the
Company from June,
1995 to April, 1996
and was President
and Chief Operating
Officer from
February, 1995 to
June, 1995. From
December, 1992 to
February, 1995, Mr.
Jarosz managed the
Company's
Plantsville, CT
operation and prior
to December, 1992,
he held the position
of General Manager
at a number of
companies within HBD
Industries, Inc.
J. S. Petrik 67 Mr. Petrik is Vice 1985 2,000 less than
President and 0.1%
Director, Retired,
Turner Broadcasting
System, Inc. From
1992 to 1996 he was
Consultant, New
Technologies, Turner
Broadcasting System,
Inc.
P. J. Kalis 47 Mr. Kalis has been a 1996 - -
partner in the law
firm Kirkpatrick &
Lockhart LLP for the
past eleven years
Each of the above-named persons has continuously served as a
Director of the Company since the year shown in the table.
(1) Does not include 4,050,786 shares of Common Stock held by T.
M. Evans, husband of B. B. Evans. Mrs. Evans disclaims any
beneficial interest in the above mentioned shares.
During 1996 there were eight Board meetings. Each Board member
attended at least 75% of the meetings of the Board. In addition,
each member of both the Audit Committee and the Compensation and
Nominating Committee attended all of the meetings held.
Messrs. T. M. Evans, Jr., and J. S. Petrik were members of the
Audit Committee from January 1, 1996 through December 31, 1996.
Mr. C. J. Queenan, Jr. (Chairman) was a member of the Audit
Committee from January 1, 1996 until his resignation, effective
August 14, 1996. Mr. P. J. Kalis was appointed as a member and
Chairman of the Audit Committee September 24, 1996 and served
through December 31, 1996. The Committee held two meetings during
the year 1996. The Committee reviews the scope and results of
the audit and proposes appointment of the auditors subject to the
approval of the Board and ratification of the stockholders. The
Committee also reviews the Company's system of internal controls
and procedures with the auditors and the rendering of non-audit
services by the auditors. Messrs. R. S. Evans (Chairman) and J.
S. Petrik were members of the Compensation and Nominating
Committee from January 1, 1996 through December 31, 1996. Mr. C.
J. Queenan, Jr. was a member of the Committee from January 1,
1996 until his resignation, effective August 14, 1996. Mr. P. J.
Kalis was appointed to the Compensation and Nominating Committee
September 24, 1996 and served through December 31, 1996. The
Committee held two meetings in 1996, and reviewed all matters
relating to executive compensation.
During 1996 the Company retained the law firm of Kirkpatrick &
Lockhart, of which firm Mr. Queenan was a Senior Counsel and Mr.
Kalis was a Partner.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Annual Compensation
Name & All Other
Principal Compensation
Position Year Salary Bonus Other (1)
William D. 1996 $212,653 $40,000 $24,181 $5,316
Jarosz 1995 164,366 40,000 3,002 2,799
Chairman of the 1994 80,366 0 454 6,060
Board,
President and
Chief Executive
Officer
Michael J. 1996 178,423 30,000 1,399 6,253
Mocniak 1995 169,077 30,000 880 2,821
Vice President, 1994 150,508 19,000 717 4,314
Secretary and
General Counsel
R. Michael 1996 166,846 30,000 1,813 5,905
McEntee 1995 154,077 30,000 1,883 2,596
Vice President 1994 135,878 19,000 1,800 3,894
and Chief
Financial
Officer
(1) Amounts of All Other Compensation are amounts contributed or
accrued for fiscal years 1996, 1995 and 1994 under the
Company's Savings and Profit Sharing Plan.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
$125,000 $32,321 $38,095 $43,869 $49,643 $55,417
150,000 39,071 46,095 53,119 60,143 67,167
175,000 40,961 48,335 55,709 63,083 70,457
200,000 42,311 49,935 57,559 65,183 72,807
225,000 43,661 51,535 59,409 67,283 75,157
250,000 44,247 52,229 60,211 68,193 76,176
300,000 44,247 52,229 60,211 68,193 76,176
400,000 44,247 52,229 60,211 68,193 76,176
500,000 44,247 52,229 60,211 68,193 76,176
The Fansteel Consolidated Employee Pension ("Plan") provides
benefits to the executive officers of the Company as well as
salaried and hourly employees. The annual benefit is calculated
using the employee's salary, overtime pay, commissions and bonus
payments as covered compensation. This covered compensation is
essentially identical to the compensation reported in the Summary
Compensation Table.
The Plan provides benefits upon retirement at age 65 based upon
years of service and compensation. Messrs. W.D. Jarosz, M.J.
Mocniak, and R.M. McEntee have 3, 14, and 17 years of credited
service, respectively, under the Plan.
Annual pension benefits payable under the Plan, at age 65,
based on an annuity for ten years certain and for life
thereafter, are equal to 1.8% of the employee's average annual
compensation for each of his first 15 years of credited service,
plus 1.0% of his average annual compensation for each year of
credited service after the 15th year less .325% of the lesser of
the employee's average compensation for the three years prior to
retirement or the average of the taxable wage basis under the
Social Security Act for each calendar year during the 35-year
period ending with the year the employee attains Social Security
retirement age multiplied by the lesser of the employee's actual
years of credited service or 35. The amounts in the table have
been reduced by the offset.
The standard arrangement with the Directors provides for
Directors' fees in the amount of $20,000 per year, $500 per board
meeting attended, $1,000 per committee meeting attended, and
$3,000 per year for serving as a committee chairman.
Prior to the formation of the Compensation and Nominating
Committee on January 26, 1993, all decisions regarding executive
compensation were made by the entire Board. Any officer and
employee of the Company who was a member of the Board
participated in deliberations of the Board during the last
completed fiscal year concerning executive officer compensation.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Compensation and Nominating Committee of the Company
reviews all matters relating to executive compensation and
reports its actions and recommendations to the Board of
Directors.
The Company's policy on executive officer compensation is to
provide compensation which enables the Company to attract and
retain a highly qualified complement of executive officers who
will enhance shareholder value by optimizing the profitability of
the Company's manufacturing operations and maintaining sound,
conservative fiscal policies. The Company's compensation package
for 1996 consisted of three parts: base salary, a potential
annual bonus and equity-related compensation.
Base Salary. Base salaries are set near the median for
similarly-sized businesses competing in the same or similar
industries as the Company. The sources of comparisons are
publications dealing with executive compensation. The
information reported in those publications does not usually
reveal the identity of the companies which are the subject of the
reports. The companies which are the basis of that information,
accordingly, are not necessarily those which comprise the peer
group for comparison of shareholder returns. By pegging salaries
at a median level, the Company believes that it can attract and
retain the caliber of executive officer desired.
Incentive Compensation. During 1995 and previous years, annual
bonuses were specifically related to corporate performance as
evaluated by the Committee. The factors that have been
considered in determining whether a bonus would be paid and, if
so, in what amount, were the Company's income before taxes,
inventory turns, return on investment and speed of collection of
accounts receivable. These incentive compensation criteria were
designed to maximize the return to the Company's shareholders
while maintaining liquidity for expanding existing businesses or
acquiring new ventures. In determining the bonuses of the
executive officers other than the Chief Executive Officer,
additional factors such as the relative performance of the
particular officer's area of functional responsibility and the
individual officer's past performance and future potential were
considered.
On January 23, 1996, the Committee approved a bonus plan for
1996 in which the executive officers participate. This new plan
was designed to strengthen the performance-related nature of the
Company's incentive compensation program by providing a more
formal and objective plan structure and tying incentive pay more
closely to performance measures that closely reflect
stockholders' interests. The plan is based upon improvement in
economic value added (EVA). EVA is the difference between the
return on capital and the cost of that capital multiplied by the
amount of capital invested. The key factors utilized in
calculating bonuses under the new plan are the Company's cost of
capital, return on capital, capital employed, and net operating
profit after tax.
Under the new plan, the Committee determines the portion of an
available bonus pool which would be paid to executive officers.
The total amount of the available pool is calculated by comparing
the current year's EVA with the prior year's EVA. If the prior
year's EVA was negative, the bonus pool will be 25% of the
difference. If the prior year's EVA was positive, the bonus pool
will be 15% of the difference plus 6% of any positive EVA. The
portion of the bonus pool awarded by the Committee to an
executive officer will be added to an accrual account for such
executive officer and one-third of the account balance will be
paid out in cash to him. The accrual account balance can be
reduced for years in which there is a decline in EVA. The
Committee will determine each executive officer's award from the
bonus pool based upon his relative performance for the year as
well as his relative performance compared to the other officers.
The Committee has the discretion to adjust the awards during the
initial years of the plan to prevent any material discrepancies
from awards under the prior bonus award format. For 1996, as
reported in the accompanying Summary Compensation Table, bonuses
were awarded to executive officers of the Company in accordance
with the new plan. The Committee adjusted the awards upward by
reducing the balance of the accrual accounts carried forward into
subsequent years in order to prevent a material discrepancy from
awards under the prior bonus format.
Equity-Related Compensation. The Board of Directors
established the Stock Appreciation Rights Plan (the "SAR Plan")
in 1989. The Company utilizes stock appreciation rights for
executive officers to provide longer-term performance-related
incentives that link their rewards directly to shareholder gains.
Awards under that SAR Plan are designed to provide officers and
key employees with the long-term incentive to continue and
increase their efforts to improve the operating results of the
Company and thereby the value of the common stock. No stock
appreciation rights were granted to any officer or employee in
1996.
On February 18, 1996, the Board approved a long-term incentive
plan, subject to ratification by the stockholders of the Company
at the 1996 Annual Meeting. The plan was designed to enable the
Company to offer competitive equity-based compensation packages
to executives, provide the Company flexibility in designing
equity-based compensation programs to suit current needs and
offer a vehicle for providing long-term, performance-based
compensation to supplement the Company's existing programs. The
plan was submitted to the stockholders for ratification at the
Annual Meeting held on April 24, 1996; however, it was not
ratified and was not implemented.
Chief Executive Officer Compensation. William D. Jarosz was
elected President and Chief Operating Officer of the Company in
February 1995. Keith R. Garrity was Chairman of the Board until
his death in June 1995, at which time Mr. Jarosz was elected
President and Chief Executive Officer. Mr. Jarosz was elected
Chairman of the Board, President and Chief Executive Officer in
April, 1996.
Mr. Jarosz's base salary was initially set at a level below
that which Mr. Garrity had been receiving, and his salary was not
increased in 1995 when he assumed the duties of Chief Executive
Officer. Mr. Jarosz's base salary was increased in April, 1996
by 31.4% based upon his performance and in order to bring his
salary in line with the criteria established by the Committee for
the base salary for the Chairman of the Board, President and
Chief Executive Officer as described previously in this Report.
Mr. Jarosz received a bonus for 1995 and 1996 based upon the
attainment of performance objectives as determined by the
Committee in accordance with the incentive compensation plan in
effect at the time.
Other Matters. On January 15, 1996, the Board of Directors
directed that the Company enter into a Change in Control
Agreement with each of the three executive officers which
provides appropriate protections to such executives in the event
of a change in control of the Company. Such Agreements are
intended to ensure that the Company be able to receive and rely
upon the advice of key executives with respect to a possible
change in control without concern that they may be distracted by
the personal uncertainties and risks created by the possibility
of a change in control. A detailed summary of the Change in
Control Agreements is set forth in this Proxy Statement in the
section entitled "Change in Control Agreement."
The Company does not anticipate that it will be affected in the
near future by Section 162(m) of the Internal Revenue Code, which
imposes an annual limit of $1,000,000 per person on the federal
income tax deduction for executive compensation. If the Company
should determine that this limitation might impact the Company,
the Company would likely take the necessary steps to bring its
compensation programs into compliance with Section 162(m) so that
non-deductibility would be avoided.
R. S. Evans, Chairman of the Committee
P. J. Kalis
J. S. Petrik
The Company compares its total shareholder return in the
following performance graph with the MG Industry Group 012 -
Aerospace Components as well as the MG Industry Group 301 -
Metals Fabrication. The Company began comparing its shareholder
returns in 1994 with MG Industry Group 301 - Metals Fabrication
as a better measure of the overall business of the Company and
because of the reduced concentration of the Company's sales in
the aerospace components market in 1994 as compared to previous
years.
Graph submitted under separate cover of Form SE.
CHANGE IN CONTROL AGREEMENT
On January 15, 1996, the Board of Directors approved a Change in
Control Agreement (the "Agreement" or "Agreements") with each of
the three current officers named in the summary compensation
table. The purpose of the Agreement is to reenforce and
encourage the officers to maintain objectivity and a high level
of attention to their duties without distraction from the
possibility of a change in control. These Agreements provide
that each officer is entitled to certain benefits (the "Severance
Benefits") in the event that a change in control of the Company,
as that term is defined in the Agreement and summarized below,
shall occur and within two years after the change in control
either of the following shall occur: (i) an involuntary
termination of the officer's employment with the Company without
Cause as that term is defined in the Agreements and summarized
below; or (ii) a voluntary termination of the officer's
employment with the Company for Good Reason, as that term is
defined in the Agreements and summarized below.
The Severance Benefits include: (i) a lump sum severance payment
within thirty days of the effective date of termination equal to
2.99 times the sum of his annual salary and average bonus; (ii) a
payment equal to the officer's unpaid salary, accrued but unused
vacation pay and earned but unpaid bonuses, all other cash
entitlements through the effective date of termination and (iii)
an amount equal to the aggregate amount of matching contributions
that would be credited to the officer under the Fansteel Savings
and Profit Sharing Plan (the "Plan") for the three years
following the effective date of termination. In addition, for a
period of eighteen months, the Company must continue to provide
all welfare benefits, including medical, dental, vision, life and
disability benefits pursuant to plans under which the officer
and/or his family were entitled to participate at the same levels
and same costs to the officer as existed at the date of the
change in control.
If tax counsel selected by the Company and reasonably
acceptable to the officer determines that any portion of any
payment under the Agreement would constitute an "excess parachute
payment" as defined in the Internal Revenue Code, then the
payments to be made to the officer shall be reduced (but not
below zero) such that the value of the aggregate payments that
the officer is entitled to receive under the Agreement and any
other agreement, plan or program of the Company, shall be one
dollar ($1.00) less that the maximum amount of payments which the
officer may receive without becoming subject to the tax imposed
by Section 4999 of the Internal Revenue Code.
Under the Agreements, certain terms are defined which are
summarized as follows: Change in control is deemed to occur upon
(i) the acquisition (other than from the Company) by any person
or group of 30% or more of the outstanding common stock or voting
securities of the Company, other than by a Company benefit plan
or where the acquiror has substantially similar ownership as the
Company; (ii) a significant change in the Company's Board of
Directors not approved by the incumbent Board or a stockholder
owning in excess of 40% of the Company's common stock on the date
of the agreement; (iii) shareholder approval of certain
significant reorganizations, mergers and similar transactions
involving the Company; or (iv) shareholder approval of a complete
liquidation or dissolution of the Company or the sale of 60% or
more by value of the Company's assets. Cause includes: (i)
conviction or plea of no contest to a felony or a misdemeanor
involving moral turpitude; (ii) dishonesty or breach of trust by
the officer which is injurious to the Company; or (iii) willful
misconduct by the officer in the performance of his duties. The
term Good Reason includes: (i) a material reduction in the
officer's duties, authorities and responsibilities; (ii) a
relocation of the officer place of work by more than 35 miles;
(iii) a material reduction of the officer's compensation or
benefits; or (iv) failure to obtain a successor's assumption of
the Company's obligations under the Agreement or a purported
termination of the officer not in accordance with the Agreement.
SELECTION OF AUDITORS
The Board, upon recommendation of the Audit Committee, favors
ratification of the appointment of Ernst & Young LLP, Certified
Public Accountants, as auditors for the Company for the year
ending December 31, 1997. Representatives of Ernst & Young LLP
are expected to attend the meeting; they will be given the
opportunity to make a statement if they desire to do so, and will
be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
In the event a stockholder desires to make a proposal for the
Company's Annual Meeting scheduled for April 22, 1998, the
proposal must be submitted to the Secretary of the Company by
November 20, 1997.
FORM 10-K ANNUAL REPORTS
The Company will furnish to any stockholder upon request and
without charge a copy of the Company's Annual Report on Form 10-K
for the year 1996. Requests for said Report must be in writing
and directed to the attention of the Secretary of the Company at
the address set forth in the Notice of Meeting immediately
preceding this Proxy Statement, and must contain a representation
by the person requesting said Report that such person was the
beneficial owner of securities of the Company on February 24,
1997.
Stockholders who do not expect to attend the meeting in person
are urged to vote, date, sign and return the enclosed Proxy in
the enclosed self-addressed envelope, which requires no postage
if mailed in the United States.
By order of the Board of
Directors,
W. D. Jarosz
Chairman of the Board,
President and Chief
Executive Officer
March 17, 1997
