KEYSTONE INTERNATIONAL INC, 10-K, 1994-03-09

KEYSTONE INTERNATIONAL INC
10-K, 1994-03-09
MISCELLANEOUS FABRICATED METAL PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)

[/X/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-2115

KEYSTONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
TEXAS 74-1058689
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9600 WEST GULF BANK DRIVE, HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (713) 466-1176

Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK, $1.00 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [/X/]

As of February 22, 1994, the number of shares of common stock outstanding was
35,150,244, excluding 635,288 treasury shares. At that date, the aggregate
market value of common stock held by nonaffiliates was $756,954,000.

DOCUMENTS INCORPORATED BY REFERENCE

DOCUMENT PART OF 10-K

1. Proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 with respect to the 1994 annual meeting of
shareholders PART III

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<PAGE> 2

KEYSTONE INTERNATIONAL, INC.

1993 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 2
Item 3. Legal Proceedings............................................................ 2
Item 4. Submission of Matters to a Vote of Security Holders.......................... 2
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.... 2
Item 6. Selected Financial Data...................................................... 3
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 4
Item 8. Financial Statements and Supplementary Data.................................. 6
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 6
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 6
Item 11. Executive Compensation....................................................... 6
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 6
Item 13. Certain Relationships and Related Transactions............................... 6
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 7
</TABLE>

i
<PAGE> 3

PART I

ITEM 1. BUSINESS.

Keystone International, Inc. ("Keystone" or the "Company") designs,
manufactures and markets, on a worldwide basis, valves and other specialized
industrial products that control the flow of liquids, gases and fibrous and
slurry materials for use in various industries, including chemical, power, food
and beverage, marine and government, petroleum production and refining, water,
commercial construction, oil and gas pipeline, mining and metals, and pulp and
paper. Keystone, incorporated in Texas in 1947, is one of the leading
manufacturers of flow control products in the world.

The Company's operations are conducted in a single industry segment. For
information concerning geographic segments, see Note 12 to the Consolidated
Financial Statements in Item 8 of this Report.

Substantially all of the products sold outside the United States are
manufactured and assembled at facilities in Canada, The Netherlands, Japan, the
United Kingdom, France, Italy, Germany, Korea, Singapore, the People's Republic
of China, Mexico, Brazil, Australia, New Zealand, and India. Most of Keystone's
employees engaged in operations outside the United States, including plant
managers and other executive personnel, are citizens of the nations in which
they work. The various aspects of Keystone's operations outside the United
States take into account local conditions and customs, but basic business
methods are similar in all areas. Sales and operations outside the United States
are subject to the inherent risk of fluctuations in currency rates.

As with other United States companies engaged in business outside the
United States, Keystone is subject to political and economic uncertainties, the
risk of expropriation and embargo, foreign exchange restrictions and political
disruptions.

Keystone purchases virtually all castings and certain finished or
semi-finished components used in its products. Machining of components and
assembling are done primarily by the Company, although a limited amount of
machining and assembling is done under contract by outside parties. Keystone
does not believe that compliance with federal, state or local environmental laws
adversely affects its business, earnings or competitive position.

Management believes that the Company's present level of product liability
coverage is adequate, and will make adjustments in such coverage in the future
as it believes appropriate after considering the cost and availability of such
insurance and any legal developments in the product liability area.

While Keystone has a number of patents and patent applications relating to
or covering certain features of its products, its patents are not of a scope to
exclude competition in any significant way or preclude competitors from
successfully marketing substitute products. Competition is on the basis of
quality, service, delivery and price.

There was no single customer which accounted for more than 10% of sales
during 1993. Although the Company does not necessarily know the intended use or
ultimate customer for all of its products, particularly those sold through
distributors, its business is not dependent on a single customer or a few
customers. Sales in diverse geographic areas and to a large number of customers
and industries lessen exposure to adverse conditions in a single industry or
area. These factors, however, do not afford protection against a general
economic downturn.

Keystone extends 30-day credit to most customers except in certain foreign
markets where local trade practices differ. Credit losses have not been
material. Keystone carries some inventory of all its products, and it generally
satisfies its working capital requirements out of internally generated funds.

Reference is made to Note 5 of the Consolidated Financial Statements in
Item 8 of this Report for information about lines of credit that are available
to finance working capital.

In the fourth quarter of 1991, the Company recognized a pretax charge to
income of $22,372,000 for restructuring and merger expenses. For information
concerning these charges, see Note 3 to the Consolidated Financial Statements in
Item 8 of this Report.

1
<PAGE> 4

At December 31, 1993, the Company's backlog of unshipped orders was
$100,268,000 compared with $107,853,000 at December 31, 1992. Orders in backlog
at year-end are usually shipped during the following year. In the past, the
effect of changes or cancellations of orders has been minimal.

At December 31, 1993, Keystone had approximately 4,200 employees worldwide.

ITEM 2. PROPERTIES.

Keystone's domestic manufacturing operations are located in Houston and
Harlingen, Texas; Blue Bell, Pennsylvania; Andrews and Fort Wayne, Indiana;
Black Mountain, North Carolina; Penns Grove, New Jersey and Pelham, Alabama.
These facilities, including the corporate offices located in Houston, contain
approximately 309,000 square feet of office space and 810,000 square feet of
manufacturing space on 165 acres of land owned by the Company. Keystone's other
manufacturing and assembly facilities are in most cases owned by the Company and
are located in 16 other countries. The Company also leases warehouse and office
space in which it maintains its sales offices. Aggregate rentals for leased
premises totalled $3,015,000 during 1993.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a party to routine litigation incidental to its business,
none of which in the opinion of management will have a material adverse impact
on the consolidated financial position or future results of operations of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of 1993.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The common stock of Keystone is traded on the New York Stock Exchange under
the symbol KII. The following table shows the high and low sales prices as
reported by the New York Stock Exchange Composite Tape and cash dividends
declared per share.

<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
----- ----- ----
<S> <C> <C> <C>
1993
First Quarter.......................................... $29 1/8 $ 23 $.18
Second Quarter......................................... 28 3/4 26 1/2 .18
Third Quarter.......................................... 28 3/8 23 5/8 .18
Fourth Quarter......................................... 27 1/2 24 1/2 .18
1992
First Quarter.......................................... $30 3/8 $22 1/4 $.17
Second Quarter......................................... 27 3/8 21 3/8 .17
Third Quarter.......................................... 27 3/8 24 .17
Fourth Quarter......................................... 26 3/8 21 5/8 .17
</TABLE>

The approximate number of security holders of the Company's common stock
was 3,081 as of February 22, 1994. This number does not include the number of
security holders for whom shares are held in a "nominee" or "street" name.

2
<PAGE> 5

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Sales........................... $516,140 $528,372 $520,496 $446,232 $375,709
Total Assets........................ 456,500 438,099 458,752 417,441 365,856
Long-Term Debt...................... 62,300(2) 14,312(2) 58,365 48,221 51,465
Restructuring and Merger Expenses... -- -- 22,372 -- --
Income from Continuing Operations
before Change in Accounting
Principle......................... 39,136 42,541 22,834(1) 44,025 36,760
Cumulative Effect of Change in
Accounting Principle (1991 is Net
of $2,539 in Income Taxes)........ 1,879(3) -- (4,928)(3) -- --
Earnings Per Share from Continuing
Operations before Change in
Accounting Principle.............. 1.12 1.22 .66(1) 1.31 1.10
Cash Dividends Per Share............ .72 .68 .64 .60 .56
</TABLE>

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(1) After considering the estimated tax benefits of $5,235, the effect of
restructuring and merger expenses was to reduce income from continuing
operations by $17,137, or $.50 per share. See Note 3 to the Consolidated
Financial Statements in Item 8 of this Report.

(2) The 8.75% Notes totalling $43,000 were due November 1, 1993 and as of
December 31, 1992 were classified as current portion of long-term debt.
These 8.75% notes were refinanced on November 1, 1993 with $45,000 6.34%
Senior Notes due November 1, 2000. See Note 5 to the Consolidated Financial
Statements in Item 8 of this Report.

(3) In 1991, the cumulative effect of the change in accounting principle
represents a charge relating to the adoption of the accounting standard for
postretirements benefits other than pensions. See Note 9 to the Consolidated
Financial Statements in Item 8 of this Report. The 1993 cumulative effect of
change in accounting principle represents a credit relating to the adoption
of the new accounting standard for income taxes. See Note 6 to the
Consolidated Financial Statements in Item 8 of this Report.

Reference is made to the Notes to Consolidated Financial Statements in Item
8 of this Report for a summary of accounting policies and additional
information.

3
<PAGE> 6

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

SUMMARY

The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the accompanying Consolidated Statements of
Income bear to net sales of the Company and (ii) the percentage increase or
decrease of amounts of such items as compared to the indicated prior period:

<TABLE>
<CAPTION>
PERCENTAGE
INCREASE
(DECREASE) OF
PERCENTAGE OF NET SALES AMOUNTS
------------------------- ---------------
YEAR ENDED DECEMBER 31, YEARS ENDED
------------------------- ---------------
1993 1992 1991 1993-92 1992-91
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales.......................................... 100.0 100.0 100.0 (2.3) 1.5
Cost and Expenses:
Cost of sales.................................... 57.4 56.7 57.4 (1.2) .4
Selling, general and administrative.............. 28.9 28.1 27.9 .8 2.1
Restructuring and merger expenses................ -- -- 4.3 * *
Interest expense................................. 1.1 1.3 1.4 (16.8) (6.7)
Interest income.................................. (.3) (.3) (.4) (8.2) 2.5
Translation loss................................. .4 .2 .2 * *
Other, net....................................... .5 .8 .9 * *
Income before Income Taxes and Change in Accounting
Principle........................................ 12.0 13.2 8.3 (11.1) 62.0
Provision for Income Taxes......................... 4.4 5.1 3.9 (15.8) 34.7
Income before Change in Accounting Principle....... 7.6 8.1 4.4 (8.0) 86.3
Cumulative Effect of Change in Accounting
Principle, Net of Income Taxes................... .3 -- (1.0) * *
Net Income......................................... 7.9 8.1 3.4 (3.6) 137.6
</TABLE>

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* Percentage not meaningful.

RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)

Net Sales

Net sales decreased 2% in 1993 compared with a 2% increase in 1992. Shown
below is an analysis of net sales. The translation effect of weakening foreign
currencies had a significant impact in 1993 on the results of international
operations.

<TABLE>
<CAPTION>
ANALYSIS OF NET SALES INCREASE
(DECREASE)
---------------------------------------
YEARS ENDED
---------------------------------------
1993-1992 1992-1991
----------------- ----------------
<S> <C> <C> <C> <C>
Domestic:
Internal Growth (Decrease)........................ $ 653 .3% $(8,264) (3.6)%
-------- -------
International:
Internal Growth................................... 2,372 .8% 8,907 3.1%
Exchange Rate Effect.............................. (21,482) (7.1)% 4,254 1.5%
-------- -------
Total International....................... (19,110) (6.3)% 13,161 4.6%
-------- -------
Acquisitions........................................ 6,225 * 2,979 *
-------- -------
Total Net Sales Increase (Decrease)................. $(12,232) (2.3)% $ 7,876 1.5%
-------- -------
-------- -------
</TABLE>

- ---------------

* Percentage not meaningful.

4
<PAGE> 7

The Company's sales and results of operations outside the United States are
subject to the inherent risk of fluctuations in currency rates. During 1993, a
basket of European currencies weakened in relation to the U.S. dollar by
approximately 12%, which impacted the U.S. dollar results of the Company's
European operations. Further weakening may occur in 1994. Keystone's European
operations represent about 29% of the Company's consolidated sales.

Costs and Expenses

Cost of sales as a percentage of sales were 57.4%, 56.7% and 57.4% in 1993,
1992 and 1991, respectively. The decrease in gross profit as a percentage of
sales in 1993 compared to 1992 was due to lower margins earned in Europe where
the Company is experiencing increased price competition. In 1992, the
improvement in gross profit as a percentage of sales compared to 1991 was
primarily due to improvements in gross margins at the two Italian companies
acquired in 1989 and a decrease in lower margin project-oriented business,
reflective of more selective sales order activity.

Selling, general and administrative expenses increased by 1% and 2% in 1993
and 1992, respectively. The increases are primarily attributable to costs
related to increased sales volume primarily in the Asia-Pacific region,
partially offset by the translation effect of weakening foreign currencies. The
Company's ongoing program to maintain tight controls over selling, general and
administrative expenses has resulted in maintaining the amount as a percentage
of sales in the 28% range. As a percentage of net sales, selling, general and
administrative expenses were 28.9%, 28.1% and 27.9% in 1993, 1992 and 1991,
respectively.

Restructuring and merger expenses in 1991 of $22,372 represent $19,993
accrued for operational restructuring primarily in the United States and Europe
as well as $2,379 of expenses associated with the merger and rationalization of
operations of Kunkle Industries, Inc. The Company's restructuring actions focus
on strengthening its capabilities as a low-cost provider of quality flow control
products and systems worldwide.

During 1993, the majority of the remaining restructuring and merger
provision was utilized. Major restructuring and merger activities during 1993
related to the completion of the Houston, Texas-based product rationalization
and relocation in which a facility was acquired in Guadalajara, Mexico and
refurbished to accommodate the Company's manufacturing requirements. As part of
this relocation, several small product lines were moved from Houston to this
lower-cost facility. Other activities during the year included the consolidation
of certain facilities primarily in European locations. The Company believes the
remaining restructuring reserves, which are expected to be utilized during 1994,
are sufficient to cover the restructuring projects which are still in process.

Other expense includes amortization of intangible assets and debt costs as
well as exchange gains and losses on transactions denominated in foreign
currencies. In 1992, other expense also included a reserve of $2,000 for
management's estimate of potential environmental exposure at one of the
Company's inoperative facilities. Management still believes this reserve is
adequate and potential exposure will not have a material impact on the Company's
consolidated financial position or future results of operations.

The Company's effective income tax rate was 37%, 39% and 47% in 1993, 1992
and 1991, respectively. The Company records taxes on all unremitted foreign
earnings at a rate not less than the U.S. statutory rate. The primary components
of the difference between the domestic statutory tax rate and the actual
effective tax rate is caused by net operating losses of certain foreign entities
not currently realizable for tax purposes and foreign taxes in excess of the
U.S. statutory rate. The effective tax rate in 1993 includes the remeasurement
of deferred tax assets at the current U.S. statutory rate in accordance with the
new accounting standard for income taxes. See Note 6 to the Consolidated
Financial Statements in Item 8 of this Report for additional information.

The Internal Revenue Service (IRS) has completed its examination of the
Company's federal income tax returns for the years 1986 through 1988 and the
Company has received an assessment of additional tax. Most issues have been
resolved for these years, and the Company is vigorously pursuing administrative
remedies for the remaining issues. In addition, the IRS is currently examining
the federal income tax returns filed by the Company for the years 1989 and 1990.
Management believes that any adjustment that may result

5
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from these examinations will not have a material adverse impact on the Company's
consolidated financial position or future results of operations.

The 1993 cumulative effect of change in accounting principle of $1,879
represents a credit relating to the adoption of the new accounting standard for
income taxes. See Note 6 to the Consolidated Financial Statements in Item 8 of
this Report for additional information. In 1991 the cumulative effect of change
in accounting principle of $4,928 (net of $2,539 in income taxes) represents a
charge relating to the adoption of the accounting standard for postretirement
benefits other than pensions. See Note 9 to the Consolidated Financial
Statements in Item 8 of this Report for additional information.

LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS)

The Company's financial position remained strong during 1993. At December
31, 1993, the Company had working capital of $171,827 compared to $120,602 at
December 31, 1992. During 1993, the Company incurred capital expenditures of
$29,997 (net of proceeds from disposals) and paid cash dividends of $24,876.
Management is not aware of any potential impairments to the Company's liquidity,
and believes its internal and existing external sources of cash will provide the
necessary funds with which to meet its expected obligations. On November 1,
1993, the Company refinanced the $43,000 8.75% Notes with $45,000 6.34% Senior
Notes due November 1, 2000. See Note 5 to the Consolidated Financial Statements
in Item 8 of this Report for additional information.

INFLATION

During each year, inflation has had a relatively minor effect on the
majority of Keystone's operations. However, in Brazil, which accounted for only
1% of total net sales and net income in 1993, inflation often makes the
operating environment somewhat difficult. The 1993 translation losses reflected
on the Consolidated Statements of Income, included in Item 8 of this Report,
result from these operations. During 1991, the Company downsized its Brazilian
operations and reduced its assets exposed to devaluation. Beginning in 1992, the
Company determined that the economy and inflation rate in Mexico had stabilized
sufficiently to begin accounting for translation gains and losses as a separate
component of shareholders' investment consistent with the accounting treatment
of its other foreign subsidiaries.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this Report
on page 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

Part III (Items 10 through 13) is omitted since the Registrant expects to
file with the Securities and Exchange Commission within 120 days after the close
of the fiscal year ended December 31, 1993, a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934 which
involves the election of directors. If for any reason such a statement is not
filed within such a period, this Report will be appropriately amended.

6
<PAGE> 9

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this Report on page 9.

(a)(3) Exhibits:

<TABLE>
<CAPTION>
PAGE NUMBER IN THIS FILING OR
EXHIBIT NUMBER AND DESCRIPTION INCORPORATION BY REFERENCE TO
- -------------------------------------------------------------- ------------------------------
<C> <S> <C>
(3.1) Articles of Incorporation............................. Exhibit 4.1 to Registrant's
Form 10-Q for the quarter
ended June 30, 1988.
(3.2) Bylaws................................................ Filed herewith.
(4.1) Form of Note purchase agreement dated as of October
15, 1993 between the Company and several purchasers... Filed herewith.
(4.2) Shareholder Rights Plan dated as of March 31, 1990 by
and between Keystone International, Inc. and
NationsBank of Texas, N.A., as Rights Agent
(Shareholder Rights Plan)............................. Exhibit 4.2 to Registrant's
Form 10-K for the year ended
December 31, 1990.
(4.3) Agreement of the Company to provide to the Commission,
upon request, copies of certain long-term debt
agreements............................................ Exhibit 4.3 to Registrant's
Form 10-K for the year ended
December 31, 1991.
(10.1) Keystone International, Inc. 1985 Incentive Stock Plan
as amended............................................ Exhibit 4(a) to Registrant's
Registration Statement No.
33-37053.
(11.1) Statement re computation of per share earnings........ See financial statements.
(21.1) Subsidiaries of the registrant........................ Filed herewith.
(23.1) Consent of independent public accountants............. Filed herewith.
</TABLE>

(b) Reports on Form 8-K.

The Company filed no reports on Form 8-K for the quarter ended December 31,
1993.

7
<PAGE> 10

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 9th day of
March, 1994.

KEYSTONE INTERNATIONAL, INC.

By: RAYMOND A. LEBLANC
(Raymond A. LeBlanc)
Chairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 9th day of March, 1994.

<TABLE>
<S> <C>
RAYMOND A. LEBLANC Director and Principal Executive Officer
- ---------------------------------------------
(Raymond A. LeBlanc)
MALCOLM D. CLARK Director and Principal Operating Officer
- ---------------------------------------------
(Malcolm D. Clark)
ARTHUR L. FRENCH Director and Executive Vice President
- ---------------------------------------------
(Arthur L. French)
MARK E. BALDWIN Principal Financial Officer
- --------------------------------------------- and Duly Authorized Officer
(Mark E. Baldwin)
FLOYD A. CAILLOUX Director
- ---------------------------------------------
(Floyd A. Cailloux)
BOB G. GOWER Director
- ---------------------------------------------
(Bob G. Gower)
F. O'NEIL GRIFFIN Director
- ---------------------------------------------
(F. O'Neil Griffin)
MARTIN E. HAMILTON Director
- ---------------------------------------------
(Martin E. Hamilton)
FARRELL G. HUBER, JR. Director
- ---------------------------------------------
(Farrell G. Huber, Jr.)
W. WAYNE PATTERSON Director
- ---------------------------------------------
(W. Wayne Patterson)
DONATO F. RAIMONDI Director
- ---------------------------------------------
(Donato F. Raimondi)
ALLEN F. RHODES Director
- ---------------------------------------------
(Allen F. Rhodes)
WALLACE S. WILSON Director
- ---------------------------------------------
(Wallace S. Wilson)
</TABLE>

8
<PAGE> 11

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-K
ITEMS 8 AND 14(A)(1) AND (2)

INDEX OF FINANCIAL STATEMENTS AND SCHEDULES

The following financial statements of the Registrant and its subsidiaries
required to be included in Items 8 and 14(a)(1) are listed below:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated balance sheets as of December 31, 1993 and 1992................... 11
For the years ended December 31, 1993, 1992 and 1991:
Consolidated statements of income............................................ 10
Consolidated statements of cash flows........................................ 12
Consolidated statements of changes in shareholders' investment............... 13
Notes to consolidated financial statements..................................... 14
Report of independent public accountants....................................... 25
</TABLE>

The following financial statement schedules of the Registrant and its
subsidiaries are included in Item 14(a)(2):

Consolidated Financial Statement Schedules for the years ended December 31,
1993, 1992 and 1991:

<TABLE>
<C> <S> <C>
V -- Property, Plant and Equipment........................................... 23
VI -- Accumulated Depreciation of Property, Plant and Equipment............... 24
</TABLE>

---------------------------

Schedules other than those listed above are omitted because the conditions
requiring their filing do not exist or because the required information is given
in the financial statements, including the notes thereto.

9
<PAGE> 12

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net Sales................................................ $516,140 $528,372 $520,496
-------- -------- --------
Cost and Expenses:
Cost of sales.......................................... 296,124 299,830 298,689
Selling, general and administrative.................... 149,353 148,211 145,171
Restructuring and merger expenses...................... -- -- 22,372
Interest expense....................................... 5,897 7,091 7,600
Interest income........................................ (1,791) (1,950) (1,902)
Translation loss....................................... 2,078 1,153 883
Other, net............................................. 2,358 4,183 4,576
-------- -------- --------
454,019 458,518 477,389
-------- -------- --------
Income before Income Taxes and Change in Accounting
Principle.............................................. 62,121 69,854 43,107
Provision for Income Taxes............................... 22,985 27,313 20,273
-------- -------- --------
Income before Change in Accounting Principle............. 39,136 42,541 22,834
Cumulative Effect of Change in Accounting Principle (1991
is Net of $2,539 in Income Taxes)...................... 1,879 -- (4,928)
-------- -------- --------
Net Income............................................... $ 41,015 $ 42,541 $ 17,906
-------- -------- --------
-------- -------- --------
Earnings (Loss) Per Share:
Continuing Operations.................................. $ 1.12 $ 1.22 $ .66
Cumulative Effect of Change in Accounting Principle.... .05 -- (.14)
-------- -------- --------
Total.................................................. $ 1.17 $ 1.22 $ .52
-------- -------- --------
-------- -------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

10
<PAGE> 13

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 19,873 $ 29,390
Receivables (principally trade accounts, net of allowances for
doubtful accounts of $5,983 in 1993 and $5,460 in 1992).......... 119,750 105,304
Inventories......................................................... 134,608 138,034
Prepayments and other............................................... 5,513 4,805
-------- --------
279,744 277,533
-------- --------
Property, Plant and Equipment:
Land................................................................ 22,753 22,397
Buildings and improvements.......................................... 81,437 77,062
Machinery and equipment............................................. 170,700 157,550
-------- --------
274,890 257,009
Less -- accumulated depreciation.................................... 140,037 133,035
-------- --------
134,853 123,974
-------- --------
Other Assets.......................................................... 41,903 36,592
-------- --------
$456,500 $438,099
-------- --------
-------- --------
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt................................... $ 2,216 $ 45,633
Short-term bank borrowings.......................................... 6,944 7,547
Accounts payable.................................................... 28,860 25,528
Accrued liabilities................................................. 54,533 61,259
Dividends payable................................................... 6,326 5,937
Income taxes payable................................................ 9,038 11,027
-------- --------
107,917 156,931
-------- --------
Long-Term Debt:
6.34% Senior Notes payable.......................................... 45,000 --
Other long-term notes payable....................................... 17,300 14,312
-------- --------
62,300 14,312
-------- --------
Other Long-Term Liabilities........................................... 15,651 14,247
-------- --------
Commitments and Contingencies
Shareholders' Investment:
Common stock, $1.00 par value, 50 million shares authorized......... 35,777 35,705
Additional paid-in capital.......................................... 110,231 108,157
Retained earnings................................................... 138,550 122,556
Treasury stock, at cost............................................. (9,535) (11,924)
Unamortized restricted stock grant expense.......................... (4,209) (4,961)
Foreign currency translation adjustments............................ (182) 3,076
-------- --------
270,632 252,609
-------- --------
$456,500 $438,099
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

11
<PAGE> 14

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................. $ 41,015 $ 42,541 $ 17,906
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 18,137 19,317 17,666
Amortization........................................ 6,400 4,432 4,826
Restructuring and merger expenses................... -- -- 22,372
Cumulative effect of change in accounting
principle......................................... (1,879) -- 8,299
Increase (decrease) in deferred income taxes........ 3,012 5,569 (12,929)
Loss (gain) on sale of property, plant and
equipment, net.................................... (1,347) 296 (251)
Decrease (increase) in receivables.................. (16,200) 4,092 (14,175)
Decrease (increase) in inventories.................. 709 7,968 (19,943)
Decrease (increase) in prepayments and other
assets............................................ (11,851) (3,633) 375
Increase (decrease) in accounts payable and
other liabilities................................. 919 (9,945) (972)
Increase (decrease) in income taxes payable......... (1,541) (4,710) 4,673
-------- -------- --------
Net Cash Provided by Operating Activities................ 37,374 65,927 27,847
-------- -------- --------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment............. (34,781) (19,537) (34,850)
Proceeds from sale of property, plant and equipment.... 4,784 1,375 4,626
Acquisitions (net of cash acquired).................... -- -- (3,865)
Proceeds from long-term investments.................... 832 434 2,479
-------- -------- --------
Net Cash Used by Investing Activities.................... (29,165) (17,728) (31,610)
-------- -------- --------
Cash Flows From Financing Activities:
Decrease in short-term bank borrowings................. (276) (8,184) (5,798)
Payments on long-term debt............................. (46,348) (6,600) (2,303)
Proceeds from issuance of long-term debt............... 50,193 5,495 10,121
Cash dividends paid.................................... (24,876) (23,267) (21,441)
Proceeds from stock plans and other.................... 3,658 2,130 3,373
-------- -------- --------
Net Cash Used by Financing Activities.................... (17,649) (30,426) (16,048)
-------- -------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents....................................... (77) (850) (57)
-------- -------- --------
Increase (Decrease) In Cash and Cash Equivalents......... (9,517) 16,923 (19,868)
Cash and Cash Equivalents at Beginning of Year........... 29,390 12,467 32,335
-------- -------- --------
Cash and Cash Equivalents at End of Year................. $ 19,873 $ 29,390 $ 12,467
-------- -------- --------
-------- -------- --------
Supplemental Schedule of Non-cash Financing Activities:
Stock issued in pooling acquisition.................... $ -- $ -- $ 7,970
</TABLE>

The accompanying notes are an integral part of these financial statements.

12
<PAGE> 15

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Common Stock, $1.00 Par Value:
Beginning balance...................................... $ 35,705 $ 35,675 $ 34,753
Issuance of stock for pooling acquisition.............. -- -- 867
Issuance of stock under various plans and other........ 72 30 55
-------- -------- --------
Ending balance......................................... 35,777 35,705 35,675
-------- -------- --------
Additional Paid-in Capital:
Beginning balance...................................... 108,157 107,308 98,522
Tax benefits resulting from stock options and grants... 200 136 287
Issuance of stock for pooling acquisition.............. -- -- 7,103
Issuance of stock under various plans and other........ 1,874 713 1,396
-------- -------- --------
Ending balance......................................... 110,231 108,157 107,308
-------- -------- --------
Retained Earnings:
Beginning balance...................................... 122,556 102,602 106,122
Net income............................................. 41,015 42,541 17,906
Cash dividends declared ($.72, $.68 and $.64 per share
in 1993, 1992 and 1991, respectively)............... (25,264) (23,658) (21,726)
Cash dividends of pooled company....................... -- -- (223)
Issuance of treasury stock............................. 243 1,071 523
-------- -------- --------
Ending balance......................................... 138,550 122,556 102,602
-------- -------- --------
Treasury Stock, at cost:
Beginning balance (1,167 shares at 1-1-91)............. (11,924) (15,740) (18,065)
Exercise of stock options.............................. 1,545 1,591 1,250
Restricted stock grant plans........................... 510 2,225 676
Other.................................................. 334 -- 399
-------- -------- --------
Ending balance (635 shares at 12-31-93)................ (9,535) (11,924) (15,740)
-------- -------- --------
Unamortized Restricted Stock Grant Expense:
Beginning balance...................................... (4,961) (2,401) (2,317)
Issuance of grants, net of cancellations............... (1,189) (3,638) (1,215)
Amortization........................................... 1,941 1,078 1,131
-------- -------- --------
Ending balance......................................... (4,209) (4,961) (2,401)
-------- -------- --------
Foreign Currency Translation Adjustments:
Beginning balance...................................... 3,076 11,929 12,297
Translation adjustments................................ (4,624) (14,551) (635)
Income tax adjustments................................. 1,366 5,698 267
-------- -------- --------
Ending balance......................................... (182) 3,076 11,929
-------- -------- --------
Total Shareholders' Investment........................... $270,632 $252,609 $239,373
-------- -------- --------
-------- -------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

13
<PAGE> 16

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation -- The consolidated financial statements include the accounts
of Keystone International, Inc. and its subsidiaries ("Keystone" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated.

Foreign Currency Translation -- Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates for the year. Since the
functional currencies of these subsidiaries are not the U.S. dollar, the
resulting translation adjustments are recorded as a separate component of
shareholders' investment. Translation gains and losses relating to the Company's
Brazilian subsidiary, which operates in a highly inflationary economy, are
charged against income.

Cash Equivalents -- The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.

Depreciation and Amortization -- Keystone provides depreciation for
financial reporting purposes primarily on a straight-line method over the
estimated useful lives of the assets. Goodwill is included in other assets and
is being amortized over periods ranging from ten to forty years. Other
intangible assets, which primarily include engineering drawings, patents and
tradenames, are being amortized over periods ranging from three to twenty years.

(2) ACQUISITIONS

During November 1991, the Company acquired Kunkle Industries, Inc. and an
associated company ("Kunkle") in a transaction accounted for as a
pooling-of-interests. As the effect of this acquisition was not significant to
the results of operations of the Company, prior year financial statements were
not restated.

Also, the Company has made other small acquisitions during 1993, 1992 and
1991. The total effect of these acquisitions was not material to the
consolidated results of Keystone.

(3) RESTRUCTURING AND MERGER EXPENSES

Restructuring and merger expenses in 1991 of $22,372 represent $19,993
accrued for operational restructuring primarily in the United States and Europe
as well as $2,379 of expenses associated with the merger and rationalization of
operations of Kunkle. The Company's restructuring actions focus on strengthening
its capabilities as a low-cost provider of quality flow control products and
systems worldwide.

(4) INVENTORIES

Inventories are stated at cost which is not in excess of market. Keystone
uses the last-in, first-out (LIFO) method of determining inventory cost for most
of its domestic inventories. Inventories valued at LIFO cost comprised
approximately 40% of consolidated inventories at December 31, 1993. The
remainder of Keystone's inventories are costed using the first-in, first-out
(FIFO) method.

14
<PAGE> 17

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inventories, which include material, labor and manufacturing overhead
costs, consisted of the following at December 31, 1993 and 1992:

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Raw materials and parts................................ $ 11,450 $ 13,418
Work-in-process........................................ 17,120 16,602
Components, sub-assemblies and finished goods.......... 109,763 112,532
Less: LIFO adjustment.................................. (3,725) (4,518)
-------- --------
$134,608 $138,034
-------- --------
-------- --------
</TABLE>

(5) LONG-TERM DEBT AND SHORT-TERM BANK BORROWINGS

In November 1993, the Company refinanced its 8.75% notes totalling $43,000
with $45,000 6.34% Senior Notes due November 1, 2000. Other long-term notes
payable at December 31, 1993 consists primarily of debt related to the
construction of new manufacturing facilities in Japan and debt assumed in two
1989 Italian acquisitions which bear interest at weighted average interest rates
of approximately 7% and 12%, respectively.

Annual maturities of all long-term debt for the next five years are as
follows: 1994 -- $2,216; 1995 -- $6,718; 1996 -- $2,495; 1997 -- $1,905;
1998 -- $1,477; 1999 and thereafter -- $49,705.

Short-term bank borrowings of $6,944 at December 31, 1993 primarily
represent borrowings under various committed and uncommitted lines of credit
aggregating $61,000. Interest rates on these borrowings vary according to the
country in which the funds are borrowed, but generally approximate the market
rate of interest.

The Company made cash interest payments of $5,654, $6,849, and $7,853
during 1993, 1992 and 1991, respectively.

(6) INCOME TAXES

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109 -- "Accounting for Income Taxes." This
statement provides, among other things, for the recognition and presentation of
deferred tax assets and liabilities for the future consequences of temporary
differences between the financial statement basis and the tax basis of assets
and liabilities using the tax rates in effect during the period when taxes are
actually paid or recovered. Accordingly, income tax provisions will increase or
decrease in the same period in which a change in tax rates is enacted.

The adoption of this accounting method resulted in a credit to income of
$1,879 which is reflected in the Consolidated Statements of Income as a
cumulative effect of change in accounting principle. The cumulative effect
results primarily from calculating temporary differences using currently enacted
tax rates as required. Prior year financial statements were not restated for
SFAS No. 109.

15
<PAGE> 18

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provisions (benefits) for income taxes are summarized as follows:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Current:
Domestic................................. $ 7,286 $ 8,389 $ 13,371
Foreign.................................. 11,707 13,355 17,823
------- ------- --------
$18,993 $21,744 $ 31,194
------- ------- --------
------- ------- --------
Deferred:
Domestic................................. $ 1,014 $ 3,012 $ (9,378)
Foreign.................................. 2,978 2,557 (1,543)
------- ------- --------
$ 3,992 $ 5,569 $(10,921)
------- ------- --------
------- ------- --------
</TABLE>

The tax effects of the significant temporary differences which comprise the
net deferred tax asset as of December 31, 1993 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1993
--------
<S> <C>
Deferred Taxes Relating to:
Deferred Tax Liabilities:
Property, Plant and Equipment and Other Assets............... $ 6,859
Unremitted Foreign Earnings.................................. 5,691
--------
Subtotal Deferred Tax Liabilities............................... 12,550
--------
Deferred Tax (Assets):
Inventories.................................................. (4,316)
Accounts Payable and Accrued Liabilities..................... (5,871)
Other Long-Term Liabilities.................................. (1,123)
Cumulative Translation Adjustment............................ (98)
Other, net................................................... (3,563)
--------
Subtotal Deferred Tax (Assets).................................. (14,971)
--------
Net Deferred Tax (Asset)........................................ $ (2,421)
--------
--------
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Keystone has recorded no
deferred tax assets for which a valuation reserve is required.

The major components in 1993 of the deferred tax provision include amounts
related to temporary differences between financial and tax reporting methods for
inventories of $1,387, reserves and accruals of $(1,859) and restructuring and
merger expenses of $3,210. In 1992, the primary components of the deferred tax
provision include amounts related to temporary differences between financial and
tax reporting methods for inventories of $1,401, depreciation and amortization
expense of $1,202 and restructuring and merger expenses of $2,256. In 1991, the
primary components of the deferred tax benefit include amounts related to
temporary differences between financial and tax reporting methods for
inventories of $(1,378), reserves and accruals of $(2,992), unremitted foreign
earnings of $(922), and restructuring and merger expenses of $(5,235).

16
<PAGE> 19

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation between the actual provision for income taxes and income
taxes computed by applying the federal statutory rate follows:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Taxes computed using statutory rate................. $21,743 $23,750 $14,656
Foreign losses for which no tax benefit is
recognized, net................................... 2,029 532 1,398
Foreign taxes in excess of the U.S. statutory
rate.............................................. -- 1,009 --
Restructuring charges for which no current benefit
is available...................................... -- -- 2,371
State income taxes.................................. 297 660 752
Other, net.......................................... (1,084) 1,362 1,096
------- ------- -------
Actual tax provision.............................. $22,985 $27,313 $20,273
------- ------- -------
------- ------- -------
</TABLE>

The Company made cash tax payments, net of refunds, of approximately
$20,651, $26,854 and $25,974 during 1993, 1992 and 1991, respectively.

Income from continuing operations before income taxes of foreign
subsidiaries was $36,215 in 1993, $43,982 in 1992, and $33,989, including $8,235
in restructuring expenses, in 1991.

(7) SHAREHOLDERS' INVESTMENT

Incentive Stock Plans -- Keystone has a number of restricted stock grant
and stock option plans which are incentive stock plans administered by a
committee of outside directors for the benefit of the Company's key employees.
As of December 31, 1993, 1,434 shares were available for award under these
plans.

Shares issued under the stock grant plans are owned by the employees at the
time of grant, subject to certain restrictions, principally continued employment
with Keystone for a period to be set by the committee, typically five years. The
deferred compensation expense related to the stock grants is being amortized to
expense on a straight-line basis over the period of time the stock is
restricted, and the unamortized portion is classified as a reduction of
shareholders' investment in the accompanying Consolidated Balance Sheets. As of
December 31, 1993, there were 309 shares as to which restrictions had not lapsed
under the stock grant plans.

17
<PAGE> 20

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options are issued at exercise prices which are not less than the
fair market value at the date of grant. Information about Keystone's stock
option plans for the three years ended December 31, 1993 is set forth below:

<TABLE>
<CAPTION>
OPTION PRICE
NUMBER RANGE
OF SHARES PER SHARE
---- -------------
<S> <C> <C>
Options outstanding at December 31, 1990...................... 646 10.30 - 21.06
Options issued................................................ 127 7.60 - 24.25
Options exercised, canceled or converted...................... (96) 10.30 - 24.25
----
Options outstanding at December 31, 1991...................... 677 7.60 - 24.25
Options issued................................................ 190 23.69 - 26.94
Options exercised, canceled or converted...................... (320) 10.30 - 24.25
----
Options outstanding at December 31, 1992...................... 547 7.60 - 26.94
Options issued................................................ 263 24.63 - 26.75
Options exercised, canceled or converted...................... (145) 7.60 - 24.88
----
Options outstanding at December 31, 1993...................... 665 8.43 - 26.94
----
----
Exercisable options at December 31, 1993...................... 6 10.90 - 15.05
----
----
</TABLE>

Shareholder Rights Plan -- In June 1990, the Company adopted a Shareholder
Rights Plan and declared a dividend of one Depositary Preferred Share purchase
right ("Right") for each share of Common Stock outstanding at the close of
business on July 2, 1990. Each Right entitles the shareholder to buy from the
Company 1/1000 of a share of a new series of preferred stock at an exercise
price of $80 per Right. The Board of Directors has authorized 900 preferred
shares, designated as Preferred Shares -- Junior Participating Series A, for
issuance upon exercise of such Rights. The Rights will not be exercisable unless
a party acquires, or announces a tender offer for, beneficial ownership of 20%
or more of the Company's Common Stock. The Rights may be redeemed by the Company
at a price of $.001 per Right at any time prior to their expiration on March 31,
2000 or any earlier distribution of Rights certificates in accordance with the
terms of the plan.

If a party acquires a 20% or more position in the Company, each Right,
except those held by the acquiring party, will entitle its holder to purchase,
at the exercise price, Depositary Preferred Shares having a value of two times
the $80 exercise price, with each Depositary Preferred Share valued at the
market price of a share of Common Stock. In the event the Company is acquired in
a merger or other business combination transaction, each Right will entitle its
holder to purchase, at the exercise price, that number of the acquiring
company's common shares having a value of two times the exercise price of the
Right.

(8) EARNINGS PER SHARE

Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. The weighted
average number of common shares and common equivalent shares used in computing
earnings per share was 35,085, 34,902 and 34,676 in 1993, 1992 and 1991,
respectively. There is no significant difference between earnings per share on a
primary and a fully diluted basis.

(9) EMPLOYEE BENEFIT PLANS

Defined Contribution and Benefit Plans -- Keystone has qualified and
nonqualified profit sharing and stock bonus plans for employees of its domestic
operations. Contributions to these plans, which may be in the form of cash or
shares of the Company's stock, are based on a discretionary percentage (as
approved by the Board of Directors) of pretax income before profit sharing and
stock bonus contributions. Certain foreign subsidiaries and one domestic
subsidiary also maintain retirement benefit plans for their employees.

18
<PAGE> 21

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Keystone's expenses related to these profit sharing, stock bonus and retirement
benefit plans were $5,183 in 1993, $5,322 in 1992 and $5,010 in 1991.

Bonus Plan -- Keystone has incentive bonus plans for certain key employees.
The amounts of such bonuses, which are included in selling, general and
administrative expenses, were $5,851, $5,689, and $6,669 for 1993, 1992 and
1991, respectively.

Postretirement Benefit Plans -- Effective January 1, 1991, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" on the immediate
recognition basis. The standard requires that the cost of these benefits,
primarily health care benefits, be recognized in the financial statements during
the employee's service period. The Company controls its obligation for retiree
health care by maintaining an unfunded, defined contribution plan for those
domestic retirees with at least 25 years of service. Postretirement benefit
expenses charged to operating income were $991, $899, and $832 for 1993, 1992,
and 1991, respectively.

Other long-term liabilities included $9,678 and $8,885 at December 31, 1993
and 1992, respectively, related to the long-term obligation for postretirement
benefits. Accrued liabilities included $175 at both December 31, 1993 and 1992
related to the current obligation for postretirement benefits.

(10) COMMITMENTS AND CONTINGENCIES

Litigation -- Keystone and its subsidiaries are engaged in various claims
and litigation arising from their operations. In the opinion of management,
uninsured losses, if any, resulting from these matters will not have a material
adverse impact on the consolidated financial position or future results of
operations of the Company.

Rental Expense -- Rental expense was $6,322, $6,348, and $6,114 for 1993,
1992 and 1991, respectively. The Company has entered into various leases,
including an insignificant amount of capital leases, which provide for future
minimum lease payments as follows: 1994 -- $5,429; 1995 -- $3,129;
1996 -- $1,351; 1997 -- $749; 1998 -- $329; 1999 and thereafter $2,755.

Letters of Credit -- At December 31, 1993 and 1992, the Company had
outstanding letters of credit of $4,949 and $5,288, respectively.

(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited quarterly results of
operations for each of the two years ended December 31, 1993:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales....................................... $127,980 $130,804 $126,356 $131,000
Gross Profit.................................... 54,011 56,689 53,625 55,691
% of Net Sales.................................. 42.2% 43.3% 42.4% 42.5%
Income Before Change in Accounting Principle.... $ 9,721 $ 10,450 $ 9,462 $ 9,503
% of Net Sales.................................. 7.6% 8.0% 7.5% 7.3%
Earnings Per Share Before Change in Accounting
Principle..................................... $ .28 $ .30 $ .27 $ .27
Net Income...................................... 11,600 10,450 9,462 9,503
% of Net Sales.................................. 9.1% 8.0% 7.5% 7.3%
Earnings Per Share.............................. $ .33 $ .30 $ .27 $ .27
</TABLE>

19
<PAGE> 22

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................................... $128,190 $135,132 $135,137 $129,913
Gross Profit.................................. 54,181 58,707 59,002 56,652
% of Net Sales................................ 42.3% 43.4% 43.7% 43.6%
Net Income.................................... $ 9,354 $ 11,970 $ 11,752 $ 9,465
% of Net Sales................................ 7.3% 8.9% 8.7% 7.3%
Earnings Per Share............................ $ .27 $ .34 $ .34 $ .27
</TABLE>

(12) INDUSTRY AND GEOGRAPHIC AREA INFORMATION

Industry Segments -- Keystone operates in one dominant industry segment
which involves the design, manufacture and marketing of flow control products.

Geographic Segments -- Keystone's export sales, other than those
intercompany sales reported below as sales between geographic areas, are not
significant. Sales between geographic areas consist of sales of finished
products, raw materials and unfinished products which are sold at adjusted
market prices. Keystone does not derive more than 10% of its revenue from any
single customer. Corporate assets consist primarily of cash, certificates of
deposit and other assets.

Keystone's geographic area data for each of the three years ended December
31, 1993 are as follows:

<TABLE>
<CAPTION>
NORTH &
EUROPE, SOUTH
MIDDLE AMERICA
UNITED EAST & ASIA- EXCEPT
STATES AFRICA PACIFIC THE U.S. ELIMINATIONS CONSOLIDATED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1993
Sales to unaffiliated customers.... $228,236 $150,593 $103,910 $ 33,401 $ -- $516,140
Sales between geographic areas..... 27,402 20,244 3,959 1,475 (53,080) --
-------- -------- -------- -------- -------- --------
Net sales.......................... $255,638 $170,837 $107,869 $ 34,876 $(53,080) $516,140
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Operating income................... $ 30,746 $ 29,082 $ 19,252 $ 3,557 $ -- $ 82,637
General corporate expenses......... (11,974)
Other, net......................... (8,542)
--------
Income before income taxes and
change in accounting principle... $ 62,121
--------
--------
Identifiable assets................ 183,280 117,604 99,260 25,667 -- $425,811
Corporate assets................... 30,689
--------
Total assets....................... $456,500
--------
--------
1992
Sales to unaffiliated customers.... $223,597 $177,618 $ 93,389 $ 33,768 $ -- $528,372
Sales between geographic areas..... 18,960 20,080 2,771 519 (42,330) --
-------- -------- -------- -------- -------- --------
Net sales.......................... $242,557 $197,698 $ 96,160 $ 34,287 $(42,330) $528,372
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Operating income................... $ 30,320 $ 38,946 $ 17,773 $ 4,507 $ -- $ 91,546
General corporate expenses......... (11,215)
Other, net......................... (10,477)
--------
Income before income taxes......... $ 69,854
--------
--------
Identifiable assets................ 165,350 124,286 82,530 22,222 -- $394,388
Corporate assets................... 43,711
--------
Total assets....................... $438,099
--------
--------
</TABLE>

(Table continued on following page)

20
<PAGE> 23

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
NORTH &
EUROPE, SOUTH
MIDDLE AMERICA
UNITED EAST & ASIA- EXCEPT
STATES AFRICA PACIFIC THE U.S. ELIMINATIONS CONSOLIDATED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1991
Sales to unaffiliated customers.... $230,133 $171,984 $ 83,696 $ 34,683 $ -- $520,496
Sales between geographic areas..... 22,231 17,841 3,367 892 (44,331) --
-------- -------- -------- -------- -------- --------
Net sales.......................... $252,364 $189,825 $ 87,063 $ 35,575 $(44,331) $520,496
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Operating income before
restructuring and merger
expenses......................... $ 33,979 $ 34,779 $ 15,619 $ 6,892 $ -- $ 91,269
Restructuring and merger
expenses......................... (12,137) (8,235) -- -- -- (20,372)
-------- -------- -------- -------- -------- --------
Operating income................... 21,842 26,544 15,619 6,892 -- 70,897
General corporate expenses,
including $2,000 of restructuring
and merger expenses.............. (16,633)
Other, net......................... (11,157)
--------
Income before income taxes and
change in accounting principle... $ 43,107
--------
--------
Identifiable assets................ 177,375 146,052 85,502 20,213 -- $429,142
Corporate assets................... 29,610
--------
Total assets....................... $458,752
--------
--------
</TABLE>

(13) OTHER ASSETS

The following presents details of other assets, including certain prior
year reclassifications which have been made to conform with current year
presentation, at December 31, 1993 and 1992:

<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Intangible assets, net of accumulated amortization of $18,987 in
1993 and $15,773 in 1992....................................... $20,413 $20,519
Goodwill, net of accumulated amortization of $3,162 in 1993 and
$2,810 in 1992................................................. 7,592 5,687
Deferred tax assets.............................................. 2,421 2,662
Other............................................................ 11,477 7,724
------- -------
$41,903 $36,592
------- -------
------- -------
</TABLE>

(14) ACCRUED LIABILITIES

The following presents details of accrued liabilities at December 31, 1993
and 1992:

<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Accrued wages, commissions and benefits.......................... $21,767 $21,269
Accrued restructuring and merger expenses........................ 5,401 11,327
Other............................................................ 27,365 28,663
------- -------
$54,533 $61,259
------- -------
------- -------
</TABLE>

21
<PAGE> 24

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) SUPPLEMENTARY INCOME STATEMENT INFORMATION

The following presents selected income statement information for the years
ended:

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Maintenance and repairs................................ $4,616 $4,777 $4,936
Taxes, other than payroll and income taxes............. 3,860 4,232 3,575
Advertising costs...................................... 3,832 4,329 5,469
</TABLE>

22
<PAGE> 25

SCHEDULE V

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE BALANCE
AT SALES RECLASSIFICATIONS AT
BEGINNING AND AND END
CLASSIFICATION OF YEAR ADDITIONS(2) RETIREMENTS OTHER(1) OF YEAR
- -------------------------------------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Land................................ $ 19,613 $ 1,214 $ -- $ 390 $ 21,217
Buildings and improvements.......... 61,252 15,392 723 3,932 79,853
Machinery and equipment............. 123,765 19,043 2,473 13,627 153,962
-------- ------- ------- -------- --------
$204,630 $35,649 $ 3,196 $ 17,949 $255,032
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Year Ended December 31, 1992
Land................................ $ 21,217 $ 2,381 $ 458 $ (743) $ 22,397
Buildings and improvements.......... 79,853 3,432 2,225 (3,998) 77,062
Machinery and equipment............. 153,962 13,724 4,704 (5,432) 157,550
-------- ------- ------- -------- --------
$255,032 $19,537 $ 7,387 $(10,173) $257,009
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Year Ended December 31, 1993
Land................................ $ 22,397 $ 744 $ 587 $ 199 $ 22,753
Buildings and improvements.......... 77,062 9,361 4,225 (761) 81,437
Machinery and equipment............. 157,550 23,534 7,474 (2,910) 170,700
-------- ------- ------- -------- --------
$257,009 $33,639 $12,286 $ (3,472) $274,890
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
</TABLE>

- ---------------

(1) Includes the change in asset cost due to application of Statement No. 52 of
the Financial Accounting Standards Board regarding foreign currency
translation. Also, 1991 includes assets acquired in pooling transactions of
$18,090.

(2) Includes assets acquired in purchase transactions of $2,076, $1,294 and $799
in 1993, 1992 and 1991, respectively.

The notes to consolidated financial statements are an integral part of this
schedule.

23
<PAGE> 26

SCHEDULE VI

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE BALANCE
AT SALES RECLASSIFICATIONS AT
BEGINNING AND AND END
CLASSIFICATION OF YEAR ADDITIONS(1) RETIREMENTS OTHER(2) OF YEAR
- -------------------------------------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Buildings and improvements.......... $ 17,099 $ 3,315 $ 319 $ 1,549 $ 21,644
Machinery and equipment............. 78,797 14,351 1,966 10,585 101,767
-------- ------- ------- -------- --------
$ 95,896 $17,666 $ 2,285 $ 12,134 $123,411
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Year Ended December 31, 1992
Buildings and improvements.......... $ 21,644 $ 3,647 $ 1,303 $ (344) $ 23,644
Machinery and equipment............. 101,767 15,670 4,156 (3,890) 109,391
-------- ------- ------- -------- --------
$123,411 $19,317 $ 5,459 $ (4,234) $133,035
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Year Ended December 31, 1993
Buildings and improvements.......... $ 23,644 $ 3,666 $ 2,416 $ (637) $ 24,257
Machinery and equipment............. 109,391 14,471 5,780 (2,302) 115,780
-------- ------- ------- -------- --------
$133,035 $18,137 $ 8,196 $ (2,939) $140,037
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
</TABLE>

- ---------------

(1) The annual straight-line depreciation rates generally in use are as follows:

<TABLE>
<S> <C>
Buildings and improvements........................... 3 1/3%-20%
Machinery and equipment.............................. 10%-33%
</TABLE>

(2) Represents primarily the change in accumulated depreciation due to
application of Statement No. 52 of the Financial Accounting Standards Board
regarding foreign currency translation. Also, 1991 includes $11,751 in
accumulated depreciation of assets acquired in pooling transactions.

The notes to consolidated financial statements are an integral part of this
schedule.

24
<PAGE> 27

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors,
Keystone International, Inc.:

We have audited the accompanying consolidated balance sheets of Keystone
International, Inc. (a Texas corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income, changes in
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1993. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keystone
International, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.

As explained in Note 6 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
As explained in Note 9 to the consolidated financial statements, effective
January 1, 1991, the Company changed its method of accounting for postretirement
benefit obligations.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index of financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN & CO.

February 4, 1994
Houston, Texas

<PAGE> 1
EXHIBIT 3.2

BYLAWS

KEYSTONE INTERNATIONAL, INC.

AS RESTATED MARCH 17, 1993

ARTICLE I

SHAREHOLDERS

Section 1. Annual Meeting. The annual meeting of shareholders shall
be held on the first Wednesday in May each year, at ten o'clock in the morning,
if not a legal holiday, and, if a legal holiday, then on the next succeeding
business day, or at such other time and date, as is fixed by the Board of
Directors, for the purpose of electing Directors for those positions which are
open in accordance with Article II of these Bylaws and for such other purposes
as are determined by the Board of Directors.

Section 2. Special Meeting. A special meeting of shareholders may be
called at any time by the Chairman of the Board of Directors, the President, or
by not less than a quorum of the Board of Directors or by the holders of not
less than one-half of all the shares entitled to vote at such meeting.

Section 3. Place. Each meeting of shareholders shall be held at such
place either within or without the State of Texas as shall be specified in the
notice of such meeting upon designation by the Chairman of the Board of
Directors, the President, the Board of Directors or the person or persons
calling such meeting. Each meeting of shareholders shall be held at the
principal office of the corporation unless another place is designated in the
manner provided herein.

1
<PAGE> 2
Section 4. Notice. Written or printed notice stating the place, day
and hour of each meeting of shareholders and the purpose or purposes for which
the meeting is to be held shall be delivered not less than 10 nor more than
sixty days before the date of the meeting, either personally or by mail, to
each shareholder of record entitled to vote at such meeting. Only such
business shall be transacted at any meeting as may be stated or indicated in
the notice of such meeting.

Section 5. Quorum and Voting. The holders of a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. Except with respect to the election of directors
and except as otherwise required by law or the Articles of Incorporation, the
vote of the holders of a majority of the shares entitled to vote and thus
represented at a meeting at which a quorum is present shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote at a
meeting of shareholders at which a quorum is present.

The shareholders present at any meeting, though less than a quorum, may
adjourn the meeting and any business may be transacted at the adjournment (if a
quorum is then present) that could be transacted at the original meeting. No
notice of adjournment, other than the announcement at the meeting, need be
given. A meeting may be adjourned on more than one occasion.

Section 6. Proxies. At all meetings of shareholders, a shareholder
may vote either in person or by proxy duly appointed by a written instrument
delivered to the corporation before or at the time of the meeting. No proxy
shall be valid after 11 months from the date of its

2
<PAGE> 3
execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable and unless
otherwise made irrevocable by law.

Section 7. Voting of Shares. Each outstanding share entitled to vote
upon a matter submitted to a vote at a meeting of shareholders shall be
entitled to one vote on such matter.

Section 8. Officers. The Chairman of the Board of Directors shall
preside at and the Secretary shall keep the records of each meeting of
shareholders, and in the absence of either such officer, his duties shall be
performed by some person appointed by the Chairman or, if no such appointment
is made by the Chairman, by the Board of Directors, or if no such appointment
is made by the Chairman or by the Board of Directors, by the meeting. The
Chairman of any meeting may appoint judges or inspectors of election or any
other officers to assist in the conduct of the meeting.

Section 9. List of Shareholders. A complete list of shareholders
entitled to vote at each shareholders' meeting, arranged in alphabetical order,
with the address and the number of shares held by each, shall be prepared by
the officer or agent having charge of the stock transfer books and shall be
filed at the registered office of the corporation. This list shall be subject
to inspection by any shareholder during usual business hours for a period of
ten days prior to such meeting and shall be produced at such meeting and at all
times during such meeting shall be subject to inspection by any shareholder.

3
<PAGE> 4
ARTICLE II

BOARD OF DIRECTORS

Section 1. Number and Term of Office. The business and affairs of the
corporation shall be managed by the Board of Directors.

The Board of Directors shall consist of not less than nine Directors,
but the number of Directors may be increased or decreased (provided such
decrease does not shorten the term of any incumbent Director) from time to time
by a resolution of the Board of Directors, provided that the number of
Directors shall never be less than nine.

The Directors shall be divided into three classes, in as nearly equal
number as possible. The term of the first class shall end at the 1984 annual
meeting of shareholders, and every three years thereafter. The term of the
second class shall end at the 1985 annual meeting of shareholders, and every
three years thereafter. The term of the third class shall end at the 1986
annual meeting of shareholders, and every three years thereafter.

Each Director shall hold office until the third succeeding annual
meeting of shareholders of his election, unless his classification places him
in a class that expires at a previous annual meeting, and until his successor
shall have been elected and qualified. Directors need not be shareholders nor
residents of Texas. Any Director, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least 70% of all of the outstanding
shares of capital stock of the Corporation entitled to vote for the election of
Directors at the meeting of shareholders called for that purpose, except that
if the Board of Directors, by an affirmative vote of at least 80% of the

4
<PAGE> 5
entire Board of Directors, recommends removal of a Director to the
shareholders, such removal may be affected by the affirmative vote of the
holders of at least a majority of the outstanding shares of capital stock of
the Corporation entitled to vote on the election of directors at the meeting of
shareholders called for that purpose.

Any vacancy occurring in the Board of Directors may be filled by the
election at any annual or special meeting of shareholders called for that
purpose or may be filled by the affirmative vote of a majority of the remaining
Directors though less than a quorum of the Board of Directors. Any Director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.

A directorship to be filled by reason of an increase in the number of
directors may be filled by election at any annual or special meeting of
shareholders called for that purpose or may be filled by the Board of Directors
for a term of office continuing until the next annual meeting of shareholders,
provided that the Board of Directors may not fill more than two (2) such
directorships during the period between any two successive annual meetings of
shareholders.

Section 2. Meeting of Directors. The Directors may hold their
meetings and may have an office and keep the books of the corporation, except
as otherwise provided by statute, in such place or places either within or
without the State of Texas, as the Board of Directors may from time to time
determine.

Section 3. First Meeting. The newly elected Directors and the
Directors whose terms have not expired may hold their first meeting for the
purpose of organization and the transaction of business, if a quorum is
present, immediately after and at the same place as the annual

5
<PAGE> 6
meeting of shareholders, or at such time and place as may be designated by the
shareholders' meeting, and no notice of such meeting will be necessary.

Section 4. Election of Officers. At the first meeting of the Board of
Directors in each year at which a quorum shall be present, held next after the
annual meeting of shareholders, the Board of Directors shall proceed to the
election of the officers of the corporation.

Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated, from
time to time by resolution of the Board of Directors.

Section 6. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors, the President or by a majority of the Directors for the time being
in office.

Section 7. Notice. The Secretary shall give notice of each meeting to
each Director in person or by telephone or telegraph at least two days or by
mail at least five days before the meeting. The attendance of a Director at
any meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened. The business to be transacted at, or the purpose of, each
meeting of the Board of Directors shall be stated in the notice or waiver of
notice of such meeting, and only such business as is indicated in the notice of
a meeting may be transacted at such meeting. At any meeting at which every
Director shall be present, even though without any notice, any business may be
transacted.

Section 8. Quorum. A majority of the number of Directors fixed by
these Bylaws shall constitute a quorum for the transaction of business, but if
at any meeting of the Board of

6
<PAGE> 7
Directors there be less than a quorum present, a majority of those present or
any Director solely present may adjourn the meeting from time to time without
further notice. The act of a majority of the Directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors, unless
the act of a greater number is required by the Articles of Incorporation or by
these Bylaws.

Section 9. Order of Business. At meetings of the Board of Directors,
business shall be transacted in such order as from time to time the board may
determine. At all meetings of the Board of Directors, the Chairman of the
Board of Directors shall preside. In the absence of the Chairman of the Board
of Directors, a Chairman shall be chosen by the Board from the Directors
present. The Secretary of the corporation shall act as Secretary of all
meetings of the Board of Directors, but in the absence of the Secretary, the
presiding officer may appoint any person to act as Secretary of the meeting.

Section 10. Compensation. In consideration for their services,
Directors, by a resolution of the Board, may be allowed a fixed fee and
expenses for their attendance at each regular or special meeting of the Board
of Directors and for their attendance at each committee meeting of which they
are a member. In addition, Directors may receive an annual retainer and/or
other compensation as the Board may, from time to time, determine. Nothing
contained herein shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.

Section 11. Presumption of Assent. A Director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his abstention or dissent shall be entered in the

7
<PAGE> 8
minutes of the meeting or unless he shall file his written abstention or
dissent to such action with the person acting as Secretary of the meeting
before the adjournment thereof or shall forward such abstention or dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to abstain or dissent shall not apply
to a Director who voted in favor of such action.

Section 12. Executive Committee. The Board of Directors, by
resolution adopted by a majority of the number of Directors fixed by the
Bylaws, may designate two or more Directors to constitute an Executive
Committee, which Committee, to the extent provided in such resolution, shall
have and may exercise all of the authority of the Board of Directors in the
business and affairs of the corporation except where action of the Board of
Directors is specified by law, but the designation of such Committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.

Section 13. Other Committees. The Board of Directors, by resolution
adopted by a majority of the full Board, may designate two or more directors to
constitute other standing or temporary Committees, and the Board of Directors
may invest such Committees with such powers as it may see fit, subject to such
conditions as may be prescribed by such Board and the law, but the designation
of such Committees and the delegation of authority thereto shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.

8
<PAGE> 9
ARTICLE III

OFFICERS

Section 1. Number, Titles and Term of Office. The officers of the
corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer and such other officers as the Board of
Directors may from time to time elect or appoint. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. One person may hold more than one office, except that
the President shall not hold the office of Secretary. None of the officers
need be a director. Each officer shall be subject to the Board of Directors to
the extent provided by law.

Section 2. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.

Section 3. Vacancies. A vacancy in any office may be filled by the
Board of Directors for the unexpired portion of the term.

Section 4. Powers and Duties of the Chairman of the Board of
Directors. The Chairman of the Board of Directors shall be the chief executive
officer of the corporation and, subject to the Board of Directors, shall have
general executive charge, management and control of the properties and
operations of the corporation in the ordinary course of its business with all
such

9
<PAGE> 10
powers with respect to such properties and operations as may be reasonably
incidental to such responsibilities. He shall when present, preside at all
meetings of the shareholders and at meetings of the Board of Directors, he may
agree upon and execute all division and transfer orders, bonds, contracts and
other obligations in the name of the corporation, and he may sign all
certificated for shares of stock of the corporation.

Section 5. Powers and Duties of the President. The President, subject
to the Board of Directors and to the Chairman of the Board of Directors, shall
be the chief operating officer of the Company and shall have general operating
charge, management and control in regard to its day to day operations. He
shall have such powers as are reasonably incidental to this responsibilities,
as are designed by the Board of Directors or the Chairman of the Board of
Directors or as are specified in the Texas Business Corporation Act. In case
of absence or incapacity of the Chairman of the Board of Directors, unless the
Board of Directors determines otherwise, he shall have and may exercise the
powers of the Chairman of the Board of Directors.

Section 6. Vice Presidents. Each Vice President shall have such
powers and duties as may be assigned to him by the Board of Directors or the
Chairman of the Board of Directors and, in case of the absence or incapacity of
the President, shall have and may exercise, unless the Board of Directors
determines otherwise, the powers of the President. In case of any such absence
of the President, if there are two or more Vice Presidents, the powers of the
President shall be had and exercised, unless the Board of Directors determines
otherwise, by the Vice President who has held such office for the longest
period.

Section 7. Treasurer. The Treasurer shall have custody of all the
funds and securities

10
<PAGE> 11
of the corporation which come into his hands. When necessary or proper, he may
endorse, on behalf of the corporation, for collection, checks, notes and other
obligations and shall deposit the same to the credit of the corporation in such
bank or banks or depositaries as shall be designated in the manner prescribed
by the Board of Directors, he may sign all receipts and vouchers for payments
made to the corporation, either alone or jointly with such other officer as is
designated by the Board of Directors. Whenever required by the Board of
Directors, he shall render a statement of his cash account, he shall enter or
cause to be entered regularly in the books of the corporation to be kept by him
for that purpose full and accurate accounts of all moneys received and paid out
on account of the corporation, he shall perform all acts incident to the
position of Treasurer subject to the control of the Chairman of the Board of
Directors. He shall, if required by the Board of Directors, give such bond for
the faithful discharge of his duties in such form as the Board of Directors may
require.

Section 8. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of the shareholders, in
books provided for that purpose, he shall attend to the giving and serving of
all notices, he may sign with the Chairman of the Board in the name of the
corporation, all contracts of the corporation and affix the seal of the
corporation thereto, he may sign with the Chairman of the Board all
certificates for shares of stock of the corporation, he shall have charge of
the certificate books, transfer books and stock ledgers, and such other books
and papers as the Chairman of the Board of Directors may direct, all of which
shall at all reasonable times be open to inspection of any Director upon
application at the office of the corporation during business hours, and he
shall in general perform all duties incident to the office of Secretary,
subject to the control of the Board of Directors.

11
<PAGE> 12
Section 9. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Chairman of the Board of
Directors or the Secretary. The Assistant Secretaries shall exercise the
powers of the Secretary during that officer's absence or inability to act.

12
<PAGE> 13
ARTICLE IV

INDEMNIFICATION OF DIRECTORS

AND OFFICERS

Each Director or former Director (for purposes of this article,
"Director") and each officer or former officer (for purposes of this article,
"Officer") of this corporation and each person who is or who may have served at
its request as a director or officer of another corporation in which it owned
shares of stock or of which it is a creditor, or as a partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise, shall be indemnified by the corporation against all
liabilities imposed upon him and actual expenses reasonably incurred by him in
connection with any claim made against him or any action, suit, or proceeding
in which he is or is threatened to be made a named defendant or respondent by
reason of his being or having been such Director or Officer. In no event,
however, shall such Director or Officer be entitled to indemnification in any
action, suit, or proceeding in which such Director shall have been found not to
have acted in good faith and in the reasonable belief that his conduct as such
Director was in the corporation's best interests; and, in the case of an
Officer of the corporation, that such Officer did not act in good faith in the
reasonable belief that his conduct was at least not opposed to the
corporation's best interests; and in the case of any criminal proceeding, such
Director or Officer had no reasonable cause to believe his conduct was
unlawful. Moreover, no Director shall be indemnified for any obligations
arising from any action, suit, or proceeding in which (i) such Director is
found liable on the basis that personal

13
<PAGE> 14
profit was improperly received by him, whether or not the action resulted from
an action taken in his official capacity, or (ii) such Director is found liable
to the corporation.

The corporation shall indemnify such Director or Officer to the
greatest extent permitted by law for reasonable expenses incurred in connection
with any action, suit, or proceeding in which such Director or Officer has been
wholly successful in the defense of the proceeding, on the merits or otherwise,
except that if such action, suit, or proceeding was brought by or on behalf of
the corporation, indemnification shall be limited to reasonable expenses
actually incurred by such Director or Officer with respect to such proceeding;
provided, however, that such indemnity shall be conditioned upon the prior
determination by a majority of the Board of Directors or a committee thereof
who are not named defendants or respondents in such action, suit, or
proceeding, or special legal counsel appointed thereby, or, solely in the event
the Board of Directors is not able to act and unable to select special legal
counsel, by vote of those shareholders who are not also Directors named as
defendant or respondent in such action, suit, or proceeding, that such Director
or Officer has acted in good faith and in the reasonable belief as to the best
interests of the corporation described above.

If any pending, threatened, or completed proceeding is settled, amounts
paid as indemnification of the settlement shall not exceed costs, fees and
expenses which would have been reasonably incurred if the action, suit, or
proceeding had been litigated to a conclusion. The determination by the Board
of Directors, or by independent counsel, and the payment of amounts by the
corporation on the basis thereof, shall not prevent a shareholder from
challenging such indemnification by appropriate legal proceedings. Neither
shall a determination by the Board of Directors, a committee thereof, or
special legal counsel appointed thereby, that indemn-

<PAGE> 15

ification is not permissible prevent a Director or Officer from challenging
such determination by appropriate legal proceedings. Reasonable expenses of
a Director or Officer who was, is, or is threatened to be made a named
defendant or respondent in any proceeding shall be paid in advance before
any final disposition upon appropriate written request to the corporation.

The corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, Officer, employee, or agent of the corporation
as a director, officer, partner, venturer, proprietor, trustee, employee,
agent, or similar functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise, against any liability asserted against him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
this article. The foregoing rights and indemnification shall be construed in
accordance with the laws of the State of Texas as presently in force and as
hereafter amended. In all events, these bylaws shall be deemed to grant the
Directors and Officers the maximum protection consistent with law and shall be
deemed amended from time to time to reflect any changes in such law. The
foregoing shall not be exclusive of any private contractual right of
indemnification, nor shall it limit the same; provided, however, such
contractual agreement shall not be inconsistent with the Texas Business
Corporation Act as presently in force or hereafter enacted.

15
<PAGE> 16
ARTICLE V

CAPITAL STOCK

Section 1. Certificates of Shares. The certificates for shares of
stock of the corporation shall be in such form as shall be approved or
recognized by the Board of Directors. The certificates shall be signed by the
Chairman of the Board of Directors, by the President or by a Vice President,
and also by the Secretary or by an Assistant Secretary or by the Treasurer and
may be sealed with the seal of this corporation or a facsimile thereof. Where
any such certificate is countersigned by a transfer agent, or registered by a
registrar, either of which is other than the corporation itself or an employee
of the corporation, the signature of any such Chairman of the Board of
Directors, President or Vice President and Secretary or Assistant Secretary or
Treasurer may be facsimiles. They shall be consecutively numbered and shall be
entered in the books of the corporation as they are issued and shall exhibit
the holder's name and the number of shares.

Section 2. Transfer of Shares. The shares of stock of the corporation
shall be transferable only on the books of the corporation by the holder
thereof in person or by his duly authorized attorney or legal representative,
upon surrender and cancellation of a certificate or certificates for a like
number of shares, except as may be otherwise determined by the Board of
Directors.

Section 3. Closing of Transfer Books. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders,
or any adjournment thereof, or entitled to receive payment of any dividend, or
in order to make a determination of shareholders

16
<PAGE> 17
for any other proper purpose, the Board of Directors of the corporation may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, 50 days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least 10
days immediately preceding such meeting. In lieu of closing the stock transfer
books the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 50 days and, in case of a meeting of shareholders, not less than 10 days
prior to the date on which the particular action requiring such determination
of shareholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which the notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders.

Section 4. Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of stock of the corporation.

17
<PAGE> 18
ARTICLE VI

MISCELLANEOUS PROVISIONS

Section 1. Offices. Until the Board of Directors otherwise
determines, the registered office of the corporation required by the Texas
Business Corporation Act to be maintained in the State of Texas, shall be the
principal place of business of the corporation, but such registered office may
be changed from time to time by the Board of Directors in the manner provided
by law and need not be identical to the principal place of business of the
corporation.

Section 2. Notice and Waiver of Notice. Whenever any notice
whatsoever is required to be given under the provisions of these Bylaws, said
notice shall be deemed to be sufficient if given by depositing the same in a
post office box in a sealed postpaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the books of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. A waiver of notice, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.

Section 3. Resignations. Any Director or officer may resign at any
time. Any such resignations shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the Chairman of the Board of Directors, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.

Section 4. Securities of Other Corporations. The Chairman of the
Board of Directors, the President or any Vice President of the corporation
shall have power and authority to transfer,

18
<PAGE> 19
endorse for transfer, vote, consent or take any other action with respect to
any securities of another issuer which may be held or owned by the corporation
and to make, execute and deliver any waiver, proxy or consent with respect to
any such securities.

<PAGE> 1
EXHIBIT 4.1

KEYSTONE INTERNATIONAL, INC.

$45,000,000 Principal Amount

6.34% Senior Notes due November 1, 2000

NOTE PURCHASE AGREEMENT

as of October 15, 1993
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
Section 1. Issuance of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Sale of Notes; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section 2. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Prepayments Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2. Optional Prepayments of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3. Notice of Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4. Partial Prepayment Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5. Surrender of Notes on Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 3. Registration, Transfer and Exchange of Notes; Replacement of Notes . . . . . . . . . . . . . . 3
Section 3.1. Registration, Transfer and Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.2. Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Section 4. General Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.1. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.2. Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3. Due Corporate Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.5. Patents, Copyrights, Permits and Trademarks . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.7. Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.8. Compliance with Contractual Obligations and Requirements of Law . . . . . . . . . . . . 8
Section 4.9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.10. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.11. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.12. Absence of Foreign or Enemy Status, etc. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.14. No Margin Regulation Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Section 5. Representations and Warranties Relating to Securities Act, etc. . . . . . . . . . . . . . . . 13
Section 5.1. By the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2. By the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Section 6. Closing Conditions of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.1. Opinions of Counsel for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.2. Opinion of Purchaser's Special Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.3. Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.4. Representations True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.5. No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.6. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.7. Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.8. Proceedings, Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C>
Section 7. Business Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.1. Payment of Notes and Maintenance of Office . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.2. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3. Maintenance of Properties and Corporate Existence . . . . . . . . . . . . . . . . . . . 20
Section 7.4. Debt to Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.5. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.6. Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.7. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.8. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.9. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.10. Tax Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.11. Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.12. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Section 8. Reports, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.2. Officers' Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.3. Accountants' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.4. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Section 9. Purchaser's Special Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.1. Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.2. Delivery Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.3. Issue Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.1. Nature of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.2. Default Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 10.3. Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Section 11. Interpretation of Agreement and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.3. NEW YORK LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.4. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.5. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Section 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.1. Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.2. Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.3. Extension of Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.6. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>

ii
<PAGE> 4
KEYSTONE INTERNATIONAL, INC.

NOTE PURCHASE AGREEMENT

as of October 15, 1993

MONY LIFE INSURANCE COMPANY
OF AMERICA
c/o The Mutual Life Insurance
Company of New York
1740 Broadway
New York, NY 10019
Attention: MONY Capital
Management Unit

Dear Sirs:

KEYSTONE INTERNATIONAL, INC., a corporation organized and existing under
the laws of the State of Texas (said corporation, together with its successors
and assigns, being hereinafter called the "Company"), hereby agrees with you as
follows:

Section 1. Issuance of Notes.

Section 1.1. Authorization. The Company has duly authorized
the issuance of a series of its promissory notes, hereby designated as the
6.34% Senior Notes (such notes, together with any such notes issued in exchange
therefor, or on registration of transfer or replacement thereof, being
hereinafter called the "Notes"), which shall have a stated maturity of November
1, 2000 and shall be in an aggregate principal amount of $45,000,000. The
Notes shall, with the appropriate insertions, be substantially in the form
annexed hereto as Exhibit A.

Section 1.2. Sale of Notes; Closing. Upon and subject to the
terms and conditions hereof, the Company agrees to sell to you, and you agree
to purchase from the Company, the entire principal amount of the Notes set
forth opposite your name under the heading "Principal Amount of Notes to be
Purchased" in Appendix I hereto on the Closing Date (as hereinafter defined) at
a price equal to 100% of such principal amount. The Notes are to be sold and
delivered at a closing to be held at the office of Dewey Ballantine, 1301 Sixth
Avenue, New York, New York 10019, at 11 A.M., New York City time, on November
1, 1993 or such other date or time as shall be agreed upon by the Company and
each institution purchasing one or more Notes on such date (the institution to
whom this Agreement is addressed, together with any nominees thereof, is
hereinafter individually called the "Purchaser" and, collectively with the
"Other Purchasers" as hereinafter defined, the "Purchasers"). The date on
which the foregoing closing shall take place is hereinafter called the
("Closing Date").
<PAGE> 5
On the Closing Date, the Company will deliver to the Purchaser
one or more printed or typewritten Notes which shall be (a) dated and bear
interest from the Closing Date and (b) made in an aggregate principal amount
equal to the principal amount of the Notes as specified for the Purchaser in
Appendix I hereto and payable to the Purchaser or its registered assigns (or to
such nominee as the Purchaser shall have designated by written notice to the
Company at least three business days prior to the Closing Date). The delivery
of such Note to the Purchaser shall be made against payment of the purchase
price therefor by transfer of immediately available funds to the account of the
Company at Texas Commerce Bank N.A. Houston, ABA No. 113000609, Account No.
00101770296, in the amount of the purchase price of such Note.

Section 1.3. Use of Proceeds. The proceeds of the sale of
the Notes (net of expenses and costs) will be used to repay the Company's
8-3/4% Notes due November 1, 1993 and for general corporate purposes.

Section 1.4. Other Agreements. Concurrently with the execution
of this Agreement, the Company is executing nine other agreements, identical
in all respects hereto (except as to the name and address of the Purchaser)
with the other Purchasers listed in Appendix I hereto (the "Other Purchasers"),
but each purchase is to be a separate transaction made by the Company directly
with each Purchaser making such purchase, and shall relate only to the
aggregate principal amount of the Notes set forth opposite the name of such
Purchaser under the heading "Principal Amount of Notes to be Purchased" in
Appendix I hereto.

Section 2. Prepayments.

Section 2.1. Prepayments Generally. The Company agrees that
no prepayment of the Notes, either in whole or in part, will be made by it or
on its behalf except to the extent and in the manner expressly permitted or
required by this Section 2.

Section 2.2. Optional Prepayments of Notes. The Company may
at its option prepay the Notes (in a principal amount of $1,000,000 or multiple
thereof) at any time, in whole or in part, at a price equal to the aggregate
principal amount so to be prepaid plus accrued interest thereon to the date
fixed for such prepayment plus a premium equal to the Make Whole Premium as
such term is defined in Section 11.1.

Section 2.3. Notice of Prepayment. Not less than thirty nor
more than sixty days prior to any date fixed for prepayment of any Notes
pursuant to Section 2.2 hereof, the

2
<PAGE> 6
Company will give notice of such prepayment to each holder of the Notes to be
prepaid, specifying (a) such date, (b) the principal amount of Notes of such
holder to be prepaid on such date, and (c) the prepayment price (specifying the
portions attributable to principal, interest and an estimate of the applicable
premium, if any). Notice of prepayment having been so given, the aggregate
principal amount of Notes specified in such notice, together with the premium,
if any, and accrued interest thereon, shall become due and payable on the date
fixed for such prepayment. The Company will provide each holder of Notes being
prepaid with a calculation by facsimile of the applicable Make Whole Premium,
if any, at least one day before the date fixed for prepayment.

Section 2.4. Partial Prepayment Pro Rata. If Notes are to be
prepaid in part at any time, the aggregate principal amount of Notes to be
prepaid shall be allocated in units of $1,000, or multiples thereof, among the
holders of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amount of the Notes then
outstanding held by each such holder, with adjustments, to the extent
practicable, to compensate for any prior prepayments not made exactly in such
proportion.

Section 2.5. Surrender of Notes on Prepayment. Subject to
Section 9.1, upon any partial prepayment of a Note, such Note shall, at the
option of the holder thereof, be either (a) surrendered to the Company pursuant
to Section 3.1 in exchange for a new Note of the same stated maturity as the
surrendered Note and in an aggregate principal amount equal to the principal
amount remaining unpaid on the surrendered Note, or (b) made available to the
Company for notation thereon of the portion of the principal so prepaid. In
case the entire principal amount of a Note is prepaid, such Note shall be
surrendered to the Company for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the prepaid principal amount of any Note.

Section 3. Registration, Transfer and Exchange of Notes; Replacement of
Notes.

Section 3.1. Registration, Transfer and Exchange of Notes.
All Notes issued from time to time under this Agreement shall be registered as
herein provided. All Notes issued and delivered to the Purchaser pursuant to
this Agreement shall be registered by the Company in the name of the Purchaser,
or in the name of the nominee of the Purchaser, and thereafter, upon surrender
thereof as provided herein, in such name or names as the Purchaser or its duly
registered successors and assigns may request. The Company will keep at its
office or agency required to be

3
<PAGE> 7
maintained pursuant to Section 7.1 hereof, appropriate books for the
registration of the Notes and transfers thereof, and at such office or agency
the Company, under such reasonable regulations as it may prescribe but at its
own expense (other than transfer taxes, if any), will register, or cause to be
registered, Notes and transfers thereof permitted under the provisions of this
Agreement.

Except as provided in Section 2.5, whenever any Note or Notes
shall be presented at said office or agency for registration of transfer or
exchange, the Company shall execute and deliver, in exchange therefor and upon
cancellation thereof, a new Note or Notes, registered in such name or names and
in such denominations as may be requested and in the same aggregate principal
amount and dated as of the date to which interest has been paid on (or, if no
interest has yet been so paid, then dated the date of) the Note or Notes so
surrendered.

No transfer of any Note shall be registered unless evidenced
by a written instrument of transfer, in form reasonably satisfactory to the
Company, duly executed by the registered owner in person or by his duly
authorized attorney and unless such transfer is made on the aforesaid registry
books.

The Company may treat the Person in whose name any Note is
registered as the holder of such Note for the purpose of receiving payment of
principal of (and premium, if any) and interest on such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue.

Section 3.2. Replacement. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (except
that if the payee of such Note is an insurance company, a pension fund or a
bank, the payee's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and
cancellation thereof, the Company at its own expense will execute and deliver
in lieu thereof a new Note, executed by the Company and registered in the same
manner and in the aggregate unpaid principal amount as the Note being replaced
and dated as of the date to which interest has been paid on (or if no interest
has as yet been so paid, then dated the date of) such Note.

Section 4. General Representations and Warranties.

The Company hereby represents and warrants as follows:

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<PAGE> 8
Section 4.1. Financial Condition. (a) Financial Statements.
The Company has heretofore furnished the Purchaser a consolidated balance sheet
of the Company as of the end of the fiscal years ended December 31, 1990, 1991
and 1992, a consolidated statement of income of the Company for such fiscal
years, and a consolidated statement of cash flows of the Company for such
fiscal years, together with the auditors' opinion thereon of Arthur Andersen &
Co., certified public accountants, for such fiscal years and an unaudited
consolidated balance sheet of the Company as of June 30, 1993, and an unaudited
consolidated statement of earnings of the Company for the three months ended on
said date, all in reasonable detail and certified as complete and correct in
all material respects by the principal financial officer of the Company. Said
financial statements, including in each case the related schedules and notes,
are true, complete and correct in all material respects and have been prepared
in accordance with generally accepted accounting principles consistently
applied and present fairly the financial position of the Company as at the
respective dates of said balance sheets and the results of operations for the
respective periods covered thereby, subject to year-end audit adjustments in
the case of the unaudited financial statements. Said financial statements
include the accounts of all corporations which were Subsidiaries of the Company
from time to time during the periods of such statements other than Keystone
Valves India Ltd.

(b) No Material Change. Since December 31, 1992,

(i) there have been no changes in the condition,
financial or otherwise, of the Company, or its Subsidiaries
which, individually or in the aggregate, have been materially
adverse to the Company and its Subsidiaries taken together, or
have occurred other than in the ordinary course of business;
and

(ii) neither the business nor the properties of
the Company and its Subsidiaries taken together have been
materially adversely affected as the result of any fire,
explosion, earthquake, accident, strike, lockout, combination
of workmen, flood, drought, sabotage, storm, embargo,
confiscation, riot, activities of armed forces, or Act of God
or of the public enemy or other casualty; and on the Closing
Date there shall have been no changes in the condition of the
Company and its Subsidiaries taken together materially and
adversely affecting the ability of the Company to pay
principal, premium and interest on the Notes as the same
become due.

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<PAGE> 9
Section 4.2. Subsidiaries and Affiliates. Exhibit B hereto
correctly sets forth and/or refers to and incorporates by reference documents
correctly setting forth, as of the date hereof:

(i) the name of each Subsidiary of the Company
(with each Restricted Subsidiary designated as such) and its
jurisdiction of incorporation;

(ii) the name of each of the corporate Affiliates
of the Company and the nature of the affiliation.

The Company and each Subsidiary has good and indefeasible title to all of the
shares of the capital stock of each Subsidiary, other than Keystone Valve
Middle East, Inc., as well as to all of the shares of the capital stock of each
corporate Affiliate so shown to be owned by it, free and clear in each case of
any Liens (except as set forth on Exhibit B and as permitted by Section 7.5).
All such shares have been duly issued and are fully paid and non-assessable and
(except as permitted by Section 7.5) all certificates representing such shares
are in the possession or direct control of the Company or such Subsidiary.

Section 4.3. Due Corporate Organization and Authority. The
Company and each of its Subsidiaries (i) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) has all requisite corporate power and authority to own and
operate its properties and to conduct its business as now conducted and as
presently proposed to be conducted, and has all necessary material licenses,
permits, consents or approvals from or by, and has made all necessary filings
with, all governmental agencies or instrumentalities having jurisdiction, to
the extent requisite for such ownership, operation and conduct of its business,
and (iii) has duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the property owned or leased by it or the character of the business transacted
by it requires such qualification and where failure to maintain such
qualification would have a material adverse effect on the business, operations,
properties, assets, prospects or condition of the Company and the Subsidiaries,
taken as a whole, or the ability of the Company to perform this Agreement.

Section 4.4. Title to Properties. Subject to the last clause
of this sentence, the Company and each of its Subsidiaries has good record and
marketable title to all of its real properties and has good and indefeasible
title to

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<PAGE> 10
all other property purported to be owned by it, including all property
reflected in the most recent balance sheet referred to in Section 4.1(a)
(except for property sold or otherwise disposed of in the ordinary course of
business since the date thereof), and there are no Liens on the property of the
Company and its Subsidiaries (other than the Liens described on Exhibit B
hereto and Liens permitted by Section 7.5). None of the assets or property the
value of which is reflected in said balance sheet is held by the Company or any
of its Subsidiaries as lessee or conditional vendee or under any other title
retention agreement, except as set forth in said balance sheet or the notes
relating thereto or in Exhibit B. No financing or continuation statement which
names the Company or any of its Subsidiaries as debtor has been filed under the
Uniform Commercial Code in any state or other jurisdiction and neither the
Company nor any of its Subsidiaries has signed any such statement or agreement
authorizing or permitting any secured party thereunder to file any such
statement except (i) in respect of Liens permitted by Section 7.5, (ii) in
respect of personal property leased by the Company or a Subsidiary as lessee or
(iii) as to which a termination statement has been filed or as to which the
underlying obligation has been paid in full. The material real estate leases
to which the Company and its Subsidiaries are parties as lessees are valid and
binding and enforceable by them in all material respects in accordance with
their terms and, to the best of the knowledge and belief of the Company,
entitle the lessee to undisturbed possession of the real estate covered thereby
during the full terms thereof and are not in default in any material respect.

Section 4.5. Patents, Copyrights, Permits and Trademarks.
The Company and the Subsidiaries each owns or possesses all the patents,
trademarks, permits, service marks, tradenames, copyrights and licenses, or
rights with respect to the foregoing, necessary for the present and planned
future conduct of its business, without any known substantial conflict with the
rights of others.

Section 4.6. Taxes. (a) All tax returns required to be filed
by the Company and each of its Subsidiaries in any jurisdiction have been
filed; except as described in Section 4.6(b), all taxes, assessments, fees and
other governmental charges upon the Company, and each of its Subsidiaries, or
upon any of their respective properties, income or franchises, which are due
and payable have been paid, other than those being contested in good faith and
for which reserves have been established in accordance with generally accepted
accounting principles; and except as described in Section 4.6(b), the Company
knows of no proposed material tax assessment in respect of taxes, assessments,
fees and other governmental charges which are

7
<PAGE> 11
due and payable (exclusive of real and personal property assessments) against
it or any of its Subsidiaries nor of any basis therefor.

(b) The provisions for taxes on the books of the Company and
the Subsidiaries are adequate for all open years, and for the current period.
Examinations of the Company's federal income tax returns have been completed by
the Internal Revenue Service through 1988. An examination of the federal
income tax returns filed for calendar years 1989 and 1990 is in progress. A
waiver of the statutes of limitation for assessment of income taxes is in
effect for calendar year 1989. The Company may revoke this waiver at any time,
which revocation would be effective 90 days after being made.

The Company has received an assessment of additional income
tax for calendar years 1986 through 1988 which it is vigorously contesting. In
the opinion of management, these events will not result in an adjustment which
will result in a material adverse change in the business, operations,
properties, assets, prospects or condition, financial or otherwise, of the
Company and the Subsidiaries taken as a whole or the ability of the Company to
perform this Agreement.

Section 4.7. Pending Litigation. Except as referred to in
Exhibit B hereto, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
the Subsidiaries in any court or before any arbitrator or governmental
authority which, if adversely determined against the Company or any of the
Subsidiaries, would result in any material adverse change in the business,
operations, properties, assets, prospects or condition, financial or otherwise,
of the Company and the Subsidiaries taken as a whole or the ability of the
Company to perform this Agreement.

Section 4.8. Compliance with Contractual Obligations and
Requirements of Law. (a) Neither the Company nor any of the Subsidiaries (i)
is in default in any material respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
evidence of Debt or any agreement or instrument under or pursuant to which any
evidence of Debt has been issued, or is in default in the performance,
observance or fulfillment of any other agreement or instrument to which it is a
party which defaults will, in the aggregate, have a material adverse affect on
the Company and its Subsidiaries taken together (all such evidences, agreements
or instruments being hereinafter sometimes collectively referred to as

8
<PAGE> 12
"Contractual Obligations") or (ii) has failed to comply in any material respect
with any of the terms, conditions or provisions of any law, or of any
regulation, order, writ, injunction or decree of any court or governmental
instrumentality, domestic or foreign, or of the certificate of incorporation or
bylaws of the Company or the Subsidiaries (hereinafter sometimes collectively
referred to as "Requirements of Law") which failure to comply will result in
any material adverse change in the business, operations, properties, assets,
prospects or condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole or the ability of the Company to perform this
Agreement.

(b) Neither the execution and delivery of this Agreement or
the Notes, nor the consummation of the transactions herein or therein
contemplated, nor compliance with the terms, conditions and provisions hereof
or thereof by the Company or the Subsidiaries:

(i) will conflict with or result in a breach of,
or constitute a default under, any Requirements of Law or any
Contractual Obligations;

(ii) will result in the creation or imposition of
any Lien upon any of the properties or assets of the Company
or its Subsidiaries; or

(iii) requires any action of, or filing with, any
governmental or public regulatory body or authority.

(c) Neither the Company nor any of its Subsidiaries is a
party to any Contractual Obligations or subject to any Requirements of Law
which materially adversely affect, or in the future may (so far as the Company
can now reasonably foresee) materially adversely affect, the business,
operations, properties, assets, prospects or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole.

Section 4.9. Insurance. All of the Properties and operations
of the Company and its Subsidiaries of a character usually insured by Persons
of established reputation engaged in the same or a similar business similarly
situated are adequately insured, by financially sound and reputable insurers
(or, in the case of workmen's compensation, by the posting of adequate bonds as
permitted by applicable law), against loss or damage of the kinds and in
amounts customarily insured against by such Persons, and the Company and its
Subsidiaries carry, with such insurers in customary amounts, such other
insurance, including public

9
<PAGE> 13
liability and business interruption insurance, as is usually carried by Persons
of established reputation engaged in the same or a similar business similarly
situated.

Section 4.10. Full Disclosure. Neither the financial
statements referred to in Section 4.1(a), the confidential private placement
memorandum furnished by the Company through Texas Commerce Investment Banking,
a division of Texas Commerce Bank National Association, nor this Agreement nor
any certificate or statement furnished by or on behalf of the Company to the
Purchasers in connection with the negotiation of this Agreement and the sale of
the Notes contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained therein or herein, in light of
the circumstances under which such statements were made, not misleading. There
is no fact which the Company has not disclosed to the Purchasers in writing
which materially adversely affects or in the future may (so far as the Company
can now reasonably foresee) materially adversely affect the business,
operations, properties, assets, prospects or condition, financial or otherwise,
of the Company and the Subsidiaries taken as a whole.

Section 4.11. Compliance with ERISA. (a) Except as
described on Exhibit B, the present value of all benefits under each Plan,
determined as of the most recent valuation date, does not exceed the value of
the assets of such Plan allocable to such benefits.

(b) Except as described on Exhibit B, each of the Company and
the ERISA Affiliates:

(i) has fulfilled all obligations under the
minimum funding standards of ERISA and the Code with respect
to each Pension Plan that is not a Multiemployer Plan;

(ii) has satisfied all respective contribution
obligations in respect of each Multiemployer Plan;

(iii) is in compliance in all material respects with
all other applicable provisions of ERISA and the Code with
respect to each Welfare Plan, each Pension Plan and each
Multiemployer Plan; and

(iv) has no outstanding liability under Title IV of
ERISA to the PBGC (other than in respect of required insurance
premiums, all of which that are due having been paid) with
respect

10
<PAGE> 14
to any Pension Plan, any Multiemployer Plan or any trust
established thereunder.

(c) Except as described on Exhibit B, no Pension Plan, or
trust created thereunder, has incurred any accumulated funding deficiency (as
such term is defined in section 302 of ERISA or section 412 of the Code),
whether or not waived, as of the last day of the most recently ended plan year
of such Pension Plan.

(d) Neither the Company nor any of the Subsidiaries (nor any
other Person required to be indemnified by the Company or any of the
Subsidiaries) has engaged in a transaction prohibited by section 4975 of the
Code or section 406 of ERISA.

(e) The execution and delivery of this Agreement and the
issue and sale by the Company, and the purchase by the Purchaser hereunder, of
the Notes will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code. This representation and
warranty is made in reliance on the Purchaser's representation in Section
5.1(b) hereof.

Section 4.12. Absence of Foreign or Enemy Status, etc.
Neither the Company nor any of the Subsidiaries is an "enemy" or an "ally of
the enemy" within the meaning of section 2 of the Trading with the Enemy Act
(50 U.S.C. App. Section Section 1 et seq.), as amended. Neither the Company
nor any of the Subsidiaries is in violation of, and neither the issuance and
sale of the Notes by the Company nor its use of the proceeds thereof as
contemplated hereby will violate, the Trading with the Enemy Act, as amended,
or any executive orders, proclamations or regulations issued pursuant thereto,
including without limitation, regulations administered by the Office of Foreign
Asset Control of the Department of the Treasury (31 C.F.R., Subtitle B, Chapter
V). Without limiting the foregoing, neither the Company nor any of the
Subsidiaries is in violation of, and neither the issuance and sale of the Notes
by the Company nor its use of the proceeds thereof as contemplated hereby will
violate, the Foreign Assets Control Regulations, the Foreign Funds Control
Regulations, the Iranian Assets Control Regulations, the Iraqi Sanctions
Regulations, the Libyan Sanctions Regulations or the Soviet Gold Coin
Regulations of the United States Treasury Department or any other regulations
administered by the Office of Foreign Asset Control of the Department of the
Treasury (31 C.F.R., Subtitle B, Chapter V), or Executive Orders Nos. 12543
(Libya), 12544 (Libya), 12722 (Iraq), 12724 (Iraq), 12775 (Haiti) or 12779
(Haiti), as amended, of the President of the United States of America, or any
rules or regulations issued thereunder. The Company's warranties and
representations set forth in this

11
<PAGE> 15
Section 4.12 assume (without investigation by Company) that none of the
Purchasers is a Person the Company's transactions with which, as contemplated
by this Agreement, would cause any of such warranties and representations to be
untrue.

Section 4.13. Environmental Compliance. (a) Each of the
Company and the Subsidiaries is in compliance with all Environmental Protection
Laws in effect in each jurisdiction where it is presently doing business,
except where the failure so to comply could not reasonably be expected to have
a material adverse effect on the business, operations, properties, assets,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations set forth herein and in the Notes.

(b) Neither the Company nor any Subsidiary is subject to any
liability under any Environmental Protection Laws that, in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, prospects or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole, or the ability of the
Company to perform its obligations set forth herein and in the Notes.

(i) notice from any Governmental Authority by
which any of its present or previously-owned or leased
Properties has been designated, listed, or identified in any
manner by any Governmental Authority charged with
administering or enforcing any Environmental Protection Law as
a Hazardous Substance disposal or removal site, "Super Fund"
clean-up site or candidate for removal, closure or other
remediation pursuant to any Environmental Protection Law,

(ii) notice of any Lien arising under or in
connection with any Environmental Protection Law that has
attached to any revenues of, or to, any of its owned or leased
Properties, or

(iii) summons, citation, notice, directive, letter
or other communication, written or oral, from any Governmental
Authority concerning any intentional or unintentional action
or omission by the Company or such Subsidiary in connection
with its ownership or leasing of any Property resulting in the
releasing, spilling, leaking, pumping,

12
<PAGE> 16
pouring, emitting, emptying, dumping, or otherwise disposing of
any Hazardous Substance into the environment resulting in any
material violation of any Environmental Protection Law;

in each case where the effect of which could reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations set forth herein and in the Notes.

Section 4.14. No Margin Regulation Violation. Neither the
Company nor any Subsidiary owns, directly or indirectly, or has the present
intention of acquiring or owning in the future, any "margin stock" as such term
is defined in Regulation G of the Board of Governors of the Federal Reserve
System (12 C.F.R., Part 207), as amended except for stock of the Company held
as treasury stock. The Company will not use any part of the proceeds from the
sale of the Notes, directly or indirectly, to "purchase or carry" (within the
meaning of said Regulation G) any security (as defined in Section 3(10) of the
Securities Exchange Act of 1934, as amended), or to reduce or retire any
indebtedness originally incurred to "purchase or carry" any such security.
None of the transactions contemplated by this Agreement (including, without
limitation, the direct or indirect use of the proceeds from the sale of the
Notes) will violate or result in a violation of Section 7 of said Securities
Exchange Act or any regulations issued pursuant thereto, including, without
limitation, said Regulation G and Regulations T and X of said Board of
Governors.

Section 5. Representations and Warranties Relating to Securities Act,
etc.

Section 5.1. By the Purchaser. (a) The Purchaser hereby
represents that it is purchasing the Notes for its own account for investment
and with no present intention of distributing or reselling such Notes or any
part thereof, subject, nevertheless, to any requirements of law that the
disposition thereof by it shall at all times be within its control. The
Purchaser is fully informed as to the applicable limitations upon the resale of
the Notes, which have not been registered under the Securities Act. The
acquisition of the Notes by the Purchaser shall be deemed to be a reaffirmation
as of the time of purchase of the representations made by the Purchaser under
this Section 5.1(a). The Purchaser further represents that it is an
"Accredited Investor" as defined by Regulation 230.215 of the Securities Act of
1933.

13
<PAGE> 17
(b) The Purchaser hereby represents that no part of the
purchase price for the Notes to be paid by it hereunder will be drawn from the
assets of any separate account maintained by the Purchaser in which any
employee benefit plan, with respect to which the Company is a party in interest
as identified to the Purchaser in writing by the Company, has any interest. As
used in this Section 5.1(b), the terms "employee benefit plan", "party in
interest" and "separate account" shall have the respective meanings assigned to
them in subsections (3), (14) and (17) of Section 3 of ERISA.

Section 5.2. By the Company. The Company hereby represents
that neither it nor anyone acting on its behalf has, either directly or
indirectly, sold or offered for sale or disposed of, or attempted or offered to
sell or dispose of, any of the Notes or any similar securities of the Company,
to, or solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any Person or Persons other than the
Purchasers and thirty-three other institutional investors, nor will the Company
hereafter take any such action with respect to the Notes or any similar
securities of the Company which would affect the exemption of the sale of the
Notes from the registration provisions of the Securities Act.

Section 6. Closing Conditions of the Purchaser.

The obligation of the Purchaser to purchase and pay for the
Notes on the Closing Date shall be subject to the satisfaction, on the Closing
Date, of the following conditions precedent:

Section 6.1. Opinions of Counsel for the Company. The Purchaser
shall have received from Porter & Hedges, L.L.P., ("Company Counsel") (with
respect to Section 6.1(a), (d)-(f) and (h)-(l)), and from Jerry M. Sokolow,
corporate counsel to the Company (with respect to Section 6.1(b), (c), (g) and
(k)) a favorable opinion dated as of the Closing Date, in form, scope and
substance satisfactory to the Purchaser, to the effect that:

(a) the Company is a duly organized and validly existing
corporation in good standing under the laws of the State of Texas, and
has all requisite corporate power and authority to own its properties,
to carry on its business as now being conducted, and to execute,
deliver and perform this Agreement and to issue the Notes;

(b) the Restricted Subsidiaries are duly organized and validly
existing corporations in good standing under the laws of their
respective

14
<PAGE> 18
jurisdictions of incorporation, and have all requisite corporate power
and authority to own their respective properties and to carry on their
respective businesses as now being conducted;

(c) the Company and the Restricted Subsidiaries are duly
qualified and in good standing as foreign corporations in each
jurisdiction where, in the opinion of corporate counsel, the character
of their respective properties or the nature of their respective
activities makes such qualification necessary and where failure to
maintain such qualification would have a material adverse effect on
the business, operations, properties, assets, prospects or condition
of the Company and the Subsidiaries, taken as a whole, or the ability
of the Company to perform this Agreement;

(d) this Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes a legal, valid
and binding contract of the Company enforceable in accordance with its
terms, except as enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally from time to time in
effect;

(e) the Notes delivered to the Purchaser on the Closing
Date have been duly authorized by all necessary corporate action on
the part of the Company, have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of the
Company enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally from time to time in
effect; and the Notes are entitled to the benefits provided by this
Agreement;

(f) neither the execution and delivery of this Agreement,
nor the issuance and sale of the Notes pursuant hereto, nor the
compliance with the provisions of this Agreement or the Notes, will
conflict with, or result in any breach of any of the provisions of, or
constitute a default under, any Contractual Obligations known to
Company Counsel or any Requirements of Law or result in the creation
or imposition of any Lien upon any of the property of the Company or
its Subsidiaries;

(g) the Company directly or indirectly is the registered
owner of all of the shares of the

15
<PAGE> 19
outstanding capital stock of the Restricted Subsidiaries, free and
clear of any Lien (except as provided in Section 7.5 hereof), and all
such shares have been validly issued and are fully paid and
non-assessable;

(h) either (i) all consents, approvals or authorizations
of any governmental authority (which shall be described in such
opinion) required on the part of the Company in connection with the
execution and delivery of this Agreement and the offer, issue, sale or
delivery to the Purchaser of the Notes have been duly obtained, and
the Company has complied with any applicable provisions of law
requiring any designation, declaration, filing, registration and/or
qualification with any governmental authority in connection with such
offer, issue, sale or delivery; or (ii) if no such consent, approval,
authorization, designation, declaration, filing, registration and/or
qualification is required, such opinion shall so state;

(i) there are no actions, suits, proceedings, inquiries or
investigations pending or threatened against or affecting the Company
or its Subsidiaries of a character referred to in Section 4.7 which
are not disclosed and correctly summarized in Exhibit B;

(j) neither the Company nor any Subsidiary is, in any
material respect, in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any evidence of Debt or any agreement or instrument under
or pursuant to which any such evidence of Debt has been issued, or is
in default in the performance, observance or fulfillment of any other
Contractual Obligation to which it is a party which defaults will, in
the aggregate, have a material adverse affect on the Company and its
Subsidiaries taken together (and no event has occurred which
constitutes, or but for any requirement of notice or lapse of time, or
both, would constitute, an event of default by the Company or any
Subsidiary or result in the acceleration of any obligation of the
Company or any Subsidiary, under any such Contractual Obligation which
defaults would, in the aggregate, have a material adverse affect on
the Company and the Subsidiaries taken together);

(k) neither the Company nor any Subsidiary is in breach
or violation of, or in default under, any Requirement of Law, which
breach, violation or default would have a material adverse effect on
the Company and its Subsidiaries, taken as a whole; and

16
<PAGE> 20
(l) the offering, execution and delivery of the Notes
under the circumstances contemplated by this Agreement constitute an
exempted transaction under the Securities Act, and do not require
registration thereunder of the Notes being purchased on the Closing
Date, or the qualification of an indenture under the Trust Indenture
Act of 1939, as amended and in effect at the date hereof.

Such opinion shall also cover such other legal matters
incident to the transactions contemplated by this Agreement as the Purchaser or
its counsel may reasonably request. The opinions in Sections 6.1(j) and (k)
may be qualified "to the best of Company Counsel's knowledge", except to the
extent that such opinion given pursuant to subsection (k) deals with charter
documents and by-laws. In giving his opinion Company Counsel may rely (A) as
to questions of fact material thereto, upon certificates of officers of the
Company and the representations set forth in this Agreement, and (B) to the
extent considered appropriate by the Purchaser's counsel, upon opinions
delivered to the Purchaser on the Closing Date of counsel satisfactory to the
Purchaser as to matters involving the law of any state other than New York and
Texas, provided that in the case of any such reliance Company Counsel shall
state that in his opinion such counsel are deemed by him to be responsible and
they, the Purchaser, and the Purchaser's counsel are justified in relying upon
such opinions of counsel as to such matters.

Section 6.2. Opinion of Purchaser's Special Counsel. The
Purchaser shall have received from Messrs. Dewey Ballantine, who are acting as
special counsel for the Purchasers in connection with this transaction, a
favorable opinion dated as of the Closing Date, in form, scope and substance
satisfactory to the Purchaser:

(a) as to all matters specified in subparagraphs (a),
except that such opinion will speak of due incorporation of the
Company and except with respect to the corporate power and authority
to own its properties and to carry on its business as now being
conducted, (d), (e), (f) (as to charter instruments and by-laws of the
Company only), (h) (except as such opinion would relate to state
securities or "blue sky" laws) and (1) of Section 6.1 hereof.

In giving their opinion said special counsel may rely (i) as to questions of
fact material thereto, upon certificates of officers of the Company and the
representations set forth in this Agreement, and (ii) to the extent considered
appropriate by the Purchaser's counsel, upon opinions delivered to the
Purchaser on the Closing Date of counsel

17
<PAGE> 21
satisfactory to the Purchaser as to matters involving the law of any state
other than New York and the general corporation law of Delaware.

Section 6.3. Evidence of Insurance. The Purchaser shall have
received a certificate, dated as of the Closing Date, signed by either the
Chairman, the President, a Vice President or the Treasurer of the Company,
stating that the officer signing such certificate considers the types and
respective amounts of insurance then in force with respect to the business and
properties of the Company and its Subsidiaries and the specific risks covered
by each type of insurance to be adequate and appropriate in accordance with
sound business practice for the businesses which the Company and its
Subsidiaries operate.

Section 6.4. Representations True. The representations and
warranties in Section 4 above shall be true on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date, except as affected by the transactions herein
provided for.

Section 6.5. No Event of Default. The Company will not upon
the execution and delivery of the Notes to be sold to, and purchased by, the
Purchaser on the Closing Date be in default in the performance of any of the
covenants and agreements hereunder and no Event of Default under this
Agreement, or event which with the passage of time or the giving of notice or
both, would constitute an Event of Default under this Agreement has happened or
is continuing.

Section 6.6. Officer's Certificate. The Company shall have
delivered to the Purchaser on the Closing Date a certificate or certificates,
signed by the Chairman, the President, a Vice President or the Treasurer of the
Company, to the effect that the facts required to exist by Section 6.4 and
Section 6.5 exist on the Closing Date.

Section 6.7. Legality. The Notes shall on the Closing Date
qualify as a legal investment for insurance companies under any applicable law
or governmental regulation, and the purchase thereof shall not subject the
Purchaser to any tax, penalty, liability, or other onerous condition under or
pursuant to any law or governmental regulation and the Purchaser shall have
received a certificate satisfactory to it, or such other evidence as it may
reasonably request, to establish compliance with this condition.

Section 6.8. Proceedings, Instruments, etc. All proceedings
to be taken in connection with the transactions contemplated by this Agreement,
and all documents incidental

18
<PAGE> 22
thereto, shall be satisfactory in form, scope and substance to the Purchaser
and to its counsel, and the Purchaser shall have received copies of all
documents which it may reasonably request in connection with said transactions
and copies of the records of all corporate proceedings in connection therewith
in form, scope and substance satisfactory to it and to its counsel.

Section 6.9. PPN Number. The Company shall have delivered to
the Purchaser satisfactory evidence that Standard & Poors, Inc. has assigned a
Private Placement Number for the Notes.

Section 7. Business Covenants.

The Company covenants and agrees that so long as any Note shall be
outstanding:

Section 7.1. Payment of Notes and Maintenance of Office. The
Company will punctually pay or cause to be paid the principal and interest (and
premium, if any) to become due in respect of the Notes according to the terms
thereof and will maintain an office or agency in the United States where
notices, presentations and demands in respect of this Agreement or the Notes
may be made upon it and will notify each holder of a Note of any change of
location of such office or agency.

Section 7.2. Payment of Taxes and Claims. The Company and
its Subsidiaries will each pay and discharge promptly:

(a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its
properties, before the same shall become delinquent; and

(b) all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar Persons for labor,
materials, supplies and rentals which, if unpaid, might by law become
a Lien upon its property;

provided, however, that neither the Company nor any such Subsidiary shall be
required to pay any of the foregoing if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such Subsidiary, as the case may be, shall have set aside
on its books reserves in accordance with generally accepted accounting
principles.

19
<PAGE> 23
Section 7.3. Maintenance of Properties and Corporate
Existence. The Company and its Subsidiaries will each:

(a) do or cause to be done all things necessary to maintain
its property taken as a whole (including property leased by it) in
good condition, and make all needful and proper renewals,
replacements, additions, betterments and improvements to its property
(including property leased by it and the leases relating thereto), so
that the business carried on in connection therewith by the Company
and its Subsidiaries taken as a whole may be conducted properly and
efficiently at all times;

(b) keep adequately insured, by financially sound and
reputable insurers, all of its property of a character usually insured
by corporations of established reputation engaged in the same or a
similar business similarly situated against loss or damage of the
kinds and in amounts customarily insured against, and with customary
deductible and co-insurance provisions, by such corporations, and
carry, with such insurers in customary amounts, and with customary
deductible and co-insurance provisions, such other insurance,
including public liability and business interruption insurance, as is
usually carried by corporations of established reputation engaged in
the same or a similar business similarly situated;

(c) keep proper books of record and account in which full,
true and correct entries will be made of all its business transactions
in accordance with generally accepted accounting principles;

(d) set aside on its books from its earnings in amounts
deemed adequate in the opinion of the Company all proper accruals and
reserves which, in accordance with generally accepted accounting
principles, should be set aside from such earnings in connection with
its business, including, without limitation, reserves for
depreciation, obsolescence and/or amortization and accruals for taxes
for such period, including all taxes based on or measured by income or
profits; and

(e) except as otherwise permitted by Sections 7.7 and 7.8,
do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights, licenses and
franchises; and

(f) not be in violation of any law, ordinance or governmental
rule or regulation to which it is subject (including, without
limitation, any Environmental

20
<PAGE> 24
Protection Law) and not fail to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of its
Property or to the conduct of its business if such violation or
failure to obtain could be reasonably expected to have a material
adverse effect on the business, prospects, profits, Property or
condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, the ability of the Company to perform
its obligations set forth herein or in the Notes or the ability of the
Company or any Subsidiary to conduct in the future the business it
conducts at the time of such violation or failure to obtain;

provided, however, that nothing in Subsection (a) or (e) above shall prevent
the Company or any Subsidiary from (i) abandoning any of its property, or
abandoning or terminating any right, license or franchise (including its
qualification to do business in any state in which the nature of the property
owned or leased by it or the character of the business transacted by it does
not require such qualification), or (ii) liquidating or dissolving any
Subsidiary of the Company, if, in the case of liquidation or dissolution, in
the opinion of the Board of Directors of the Company, such liquidation or
dissolution or, in the case of abandonment or termination, in the reasonable
opinion of the Chairman or President of the Company such abandonment or
termination, is in the best interests of the Company, and is not detrimental in
any material respect to the holder of any Note.

Section 7.4. Debt to Capitalization Ratio. The Company will
not, nor will it permit any Subsidiary to in any manner become or be liable,
contingently or otherwise, in respect of Funded Debt unless, at the time of
issue thereof and after giving effect thereto, the ratio of Consolidated Funded
Debt to Consolidated Capitalization does not exceed 55%.

For the purpose of this Section 7.4, the Company and any
Subsidiary shall be deemed to have become liable for Funded Debt at the time of
the consummation of a consolidation or merger permitted by Section 7.7 as to
any Funded Debt of the corporation or corporations being merged into the
Company or such Subsidiary which is Funded Debt of the Company or such
Subsidiary immediately after such consolidation or merger becomes effective.

Section 7.5. Limitation on Liens. Neither the Company nor
any Restricted Subsidiary will create, assume or incur or suffer to be created,
assumed or incurred or to exist any mortgage, lien, charge, security interest
or encumbrance of any kind upon, or pledge of, or subject to

21
<PAGE> 25
the prior payment of any Debt, any of its property or assets, whether now owned
or hereafter acquired, or acquire or agree to acquire any property or assets
subject to any conditional sale agreement or other title retention agreement or
as lessee under a Capitalized Lease (the foregoing mortgages, liens, charges,
security interests, encumbrances, pledges, prior rights of payment and the
rights of others under conditional sale agreements and other title retention
agreements and Capitalized Leases being hereinafter sometimes collectively
called "Liens") other than:

(a) Liens existing on September 30, 1993 and disclosed on
Exhibit B hereto;

(b) Liens on any property of a Restricted Subsidiary to
secure Debt of such Subsidiary to the Company or to another
wholly-owned Restricted Subsidiary;

(c) Liens on property or capital stock of a Restricted
Subsidiary which are existing at the time it becomes a Subsidiary or
is merged into the Company or a Subsidiary provided, however that no
such Lien shall extend to any property other than said property or
capital stock;

(d) Liens, or deposits made to secure the release
thereof, securing taxes, assessments or governmental charges or levies
or the claims of materialmen, mechanics, carriers, warehousemen,
landlords and other similar persons, the payment of which is not at
the time required by Section 7.2 and for which adequate reserves have
been established in accordance with generally accepted accounting
principles;

(e) Liens incurred or deposits made in the ordinary
course of business (i) in connection with workmen's compensation,
unemployment insurance, social security and other similar laws, or
(ii) to secure the performance of letters of credit, bids, tenders,
contracts, leases, public or statutory obligations, governmental
permits, surety, customs, appeal and performance bonds and other
similar obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the deferred
purchase price of property;

(f) attachment, judgment and other similar Liens arising
in connection with court proceedings, provided, the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are currently being contested in good faith by appropriate

22
<PAGE> 26
proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles;

(g) Liens arising in the ordinary course of business
(including easements, rights of way, restrictions, leases, licenses,
minor irregularities in title and other similar encumbrances affecting
real properties) which are not incurred in connection with the
borrowing of money and, which do not in the aggregate materially
interfere with the business of the Company and its Subsidiaries taken
as a whole;

(h) Liens on real or tangible personal property (including
leaseholds), acquired, constructed or improved subsequent to September
30, 1993, securing the purchase price of such property or securing
Debt incurred to pay such purchase price or to finance the
construction or improvement thereof (including refinancing of
construction loans); provided, however, that (i) the Lien shall be
created contemporaneously with or within 120 days of such acquisition,
construction or improvement, (ii) the amount of the Debt secured by
any such Lien shall not exceed 100% of the cost or fair market value
at the date of acquisition, whichever is less, of the property subject
thereto, (iii) no such Lien shall extend to any property other than
said property, any fixed improvements thereon and the proceeds
thereof, (iv) if such Lien secures Funded Debt, after giving effect
thereto the incurrence of the aggregate amount of Funded Debt secured
by any such Lien would be permitted by Section 7.4;

(i) Liens securing extensions, renewals or replacements of
Debt secured by Liens permitted by subsections 7.5(a), (b), (c) and
(h) provided, however that (i) the principal amount of the Debt is not
increased and (ii) if such Lien secures Funded Debt after giving
effect thereto the incurrence of the aggregate amount of Funded Debt
secured by such Liens would be permitted by Section 7.4; and

(j) Liens in addition to those permitted by subsections
7.5(a) through (i), provided, however that after giving effect thereto
(i) the Debt secured by Liens incurred pursuant to this subsection
7.5(j) would not exceed 15% of Consolidated Net Tangible Assets and
(ii) if such Lien secures Funded Debt the incurrence of the aggregate
amount of Funded Debt secured by such Liens would be permitted by
Section 7.4.

<PAGE> 27
Section 7.6. Sale and Leaseback Transactions. The Company
will not, nor will it permit any Restricted Subsidiary to, enter into any
arrangement with any Person providing for the leasing to the Company or any
Restricted Subsidiary of any Principal Property owned or hereafter acquired by
the Company or such Restricted Subsidiary (with the exception of leases for a
term, including any renewal thereof, of not more than three years and except
for leases between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries), which Principal Property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such Person (a
"Sale and Leaseback Transaction") unless the net proceeds of such sale are at
least equal to the fair value (as determined by the Board of Directors of the
Company) of such Property and either (a) the Company or such Restricted
Subsidiary would be entitled to incur Debt in such amount secured by a Lien on
the Principal Property to be leased, or (b) the Company shall, and in any case
the Company covenants that it will, within 120 days of the effective date of
any such arrangement, apply an amount equal to the fair value (as so
determined) of such Property to the prepayment or redemption of the principal
of the Notes (pursuant to Section 2.2 hereof) or other Funded Debt which ranks
senior to or pari passu with the Notes, or (c) the Company shall at or prior to
entering into the Sale and Leaseback Transaction, enter into a bona fide
commitment or commitments to expend for the acquisition or improvement of a
Principal Property an amount at least equal to the fair value (as so
determined) of such Property.

Section 7.7. Merger or Consolidation. The Company will not
merge into or consolidate with any other Person or permit any other Person to
merge into or consolidate with it, or directly or indirectly sell, lease,
transfer, abandon or otherwise dispose of all or substantially all of its
properties or assets to any Person unless:

(a) no Event of Default (or event which with notice or
passage of time or both would become an Event of Default) exists immediately
before, or would exist immediately after, such transaction; and

(b) the continuing or surviving entity shall be a U.S.
corporation which shall assume all of the obligations of the Company hereunder
and under the Notes pursuant to an instrument of assumption in form and
substance satisfactory to the holders of the Notes, as to which the Company
shall provide an opinion of counsel satisfactory in form and substance to the
holders of the Notes that such instrument of assumption is a valid and
enforceable obligation of the continuing or surviving entity.

<PAGE> 28
Section 7.8. Sale of Assets. The Company will not, nor will
it permit any Restricted Subsidiary to sell, lease, transfer, abandon or
otherwise dispose of (including by way of a merger or consolidation of a
Subsidiary) any Property (other than inventory, accounts receivable or other
current assets disposed of in the ordinary course of business) to any other
Person (other than the Company or any wholly-owned Restricted Subsidiary), if
the greater of the net book value of, and the aggregate consideration received
for, such Property, when added to the greater of the net book value of, and the
aggregate consideration received for, all such other Properties disposed of
pursuant to this Section 7.8 (i) in any period of twelve consecutive months
which includes the date of such sale, lease, transfer, abandonment or other
disposition (each such Property to be considered individually for the purposes
hereof) does not exceed 15% of the Consolidated Net Tangible Assets of the
Company and its Subsidiaries at the beginning of such period or (ii) from the
date of this Agreement through such sale, lease, transfer, abandonment or other
disposition does not exceed 25% of Consolidated Net Tangible Assets of the
Company and its Subsidiaries at the time of such sale, lease, transfer
abandonment or other disposition; provided that, to the extent such aggregate
net book value and/or consideration received is in excess of the limitation
contained in subclause (i) or (ii) above, such sale, lease, transfer,
abandonment or other disposition will only be permitted if not later than 360
days after the date of such sale, lease, transfer, abandonment or other
disposition the net proceeds thereof in excess of such limitation are used in
full either to acquire other Property of a similar nature which is used or
useful in the ordinary course of business of the Company and its Subsidiaries
or are applied to the prepayment or redemption of the principal of the Notes
(pursuant to Section 2.2 hereof) or other Funded Debt which ranks senior to or
pari passu with the Notes.

Section 7.9. Limitation on Transactions with Affiliates.
Neither the Company nor any Restricted Subsidiary will enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any Affiliate except in the
ordinary course of and pursuant to the reasonable requirements of the business
of the Company or such Restricted Subsidiary and upon fair and reasonable terms
no less favorable to the Company or such Restricted Subsidiary than would
obtain in a comparable arm's length transaction with a Person not an Affiliate.

Section 7.10. Tax Consolidation. Neither the Company nor any
Restricted Subsidiary will file or consent to the filing of any consolidated
income tax return with any Person other than the Company or a Subsidiary.

<PAGE> 29
Section 7.11. Auditors. The Company will employ a firm of
certified public accountants of recognized national standing who will examine
the financial statements referred to in Section 8.1(b) in accordance with
generally accepted auditing standards and accordingly will include in such
examination such tests of the accounting records and such other procedures as
they consider necessary in the circumstances; such firm of certified public
accountants will report on such financial statements without reliance upon the
opinion of any other accountant, except as such opinion relates to Subsidiaries
prior to the date when they became such. Such financial statements will
present fairly, in accordance with generally accepted accounting principles,
the financial position of the Company and its Restricted Subsidiaries at the
end of, and the results of operations and changes in financial position for,
the periods specified in Section 8.1(b). The opinion to be expressed by such
firm of certified public accountants shall be without any qualification arising
from departure from generally accepted accounting principles.

Section 7.12. Compliance with ERISA. The Company and its
Subsidiaries will take all actions and fulfill all conditions necessary to
maintain, and will maintain, compliance of all Plans (whether now existing or
established in the future) with the requirements of ERISA, as presently in
effect and as it may be amended from time to time, and the rules and
regulations adopted or that may be adopted thereunder except where failure to
comply will not result in any material adverse change in the business,
operations, properties, assets, prospects or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or the ability of the
Company to perform the obligations set forth herein and in the Notes.

Section 7.13. Compliance with Environmental Protection
Laws. The Company and its Subsidiaries will take all actions and fulfill all
conditions necessary to comply with all Environmental Protection Laws in effect
in each jurisdiction in which they are doing business, except where the failure
to comply could not reasonably be expected to have a material adverse effect on
the business, prospects, profits, Property or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or the
ability of the Company to perform its obligations set forth herein and in the
Notes.

Section 8 Reports, etc.

Section 8.1. Financial Statements. The Company will deliver
to the Purchaser from the date of this Agreement and so long as it or its
nominee holds any Note, and to each other holder of the then outstanding Notes:

<PAGE> 30
(a) as soon as practicable after the end of each of the first
three quarterly fiscal periods in each fiscal year of the Company, and in any
event within 45 days thereafter, duplicate copies of a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such quarter, and
consolidated statements of income and stockholders' equity and cash flows of
the Company and its Subsidiaries for such quarter and for the portion of the
fiscal year ending with such quarter, setting forth in each case in comparative
form the figures for the corresponding period one year earlier, all in
reasonable detail and certified as complete and correct, in all material
respects, subject to changes resulting from year-end audit adjustments, by the
principal financial officer of the Company;

(b) as soon as practicable after the end of each fiscal year
of the Company, and in any event within 90 days thereafter, duplicate copies of
a consolidated balance sheet of the Company and its Subsidiaries as at the end
of such year, and consolidated statements of income and stockholders' equity
and cash flows of the Company and its Subsidiaries for such year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and reported on by Arthur Andersen & Co., or
other certified public accountants of recognized national standing selected by
the Company;

(c) promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by the Company or
any Subsidiary to shareholders generally, other than communications furnished
solely to the Company or a Subsidiary, and of each regular or periodic report,
if any, and any registration statement or prospectus filed by the Company or
any Subsidiary with any securities exchange or with the Securities and Exchange
Commission or any successor agency; and

(d) with reasonable promptness, such other data and
information as to the business and properties of the Company and its
Subsidiaries as from time to time may be reasonably requested by the Purchaser
or any holder of any Note;

Recipients of any financial statements or reports delivered by
the Company pursuant to this Section 8.1 may furnish such statements and
reports to any regulatory authority having jurisdiction over them and to the
National Association of Insurance Commissioners. The Company agrees to furnish
to the Purchaser or any institutional holder of any Note additional copies of
the materials referred to in this Section 8.1 upon request therefor.

<PAGE> 31
Section 8.2. Officers' Certificates. Each set of financial
statements delivered to the Purchaser or any other holder of the Notes pursuant
to Section 8.1(a) or (b) will be accompanied by a certificate of the Chairman,
the President or a Vice President and the Treasurer or an Assistant Treasurer
of the Company setting forth (i) in the case of statements delivered pursuant
to said Section 8.1(b), the calculations required in order to establish whether
the Company was in compliance with the requirements of Sections 7.4, 7.5, 7.6
and 7.8 during the period covered by the financial statements then being
furnished and a certification as to insurance in force at the close of the
preceding fiscal year meeting the requirements of Section 7.3(b); and (ii)
whether there exists on the date of the certificate any condition or event
which then constitutes, or which after notice or the passage of time or both
would constitute, an Event of Default, and, if any such condition or event then
exists, specifying the nature and period of existence thereof and the action
being taken and proposed to be taken with respect thereto.

Section 8.3. Accountants' Certificate. Each set of annual
financial statements delivered pursuant to Section 8.1(b) above will be
accompanied by a report of the certified public accountants who examined such
financial statements, stating that such accountants, in performing their audit
of such financial statements, have obtained no knowledge of any condition or
event which then constitutes, or which after notice or the passage of time or
both would constitute, an Event of Default and, if any such condition or event
then exists, specifying the nature and period of existence thereof.

Section 8.4. Inspection. The Company will permit the
Purchaser's representatives, so long as it or its nominee holds any Note, or
the representatives of any other institutional holder of then outstanding
Notes, (which shall be at the Company's expense if an Event of Default has
occurred and is continuing), (a) to visit and inspect any of the properties of
the Company or any Restricted Subsidiary and (b) at the office of the Company,
to examine all their books of account, records, reports and other papers as
reasonably necessary, (which shall be made available by the Company at its
office), to make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and their
independent public accountants, all at such reasonable times and as often as
may be reasonably requested.

Section 9. Purchaser's Special Rights.

Section 9.1. Home Office Payment. Notwithstanding any
provision to the contrary in this

<PAGE> 32
Agreement or the Notes, the Company will punctually pay all amounts payable
with respect to any Notes registered in the name of the Purchaser or any other
institutional investor or its nominee (without any presentment thereof and
without any notation of such payment being made thereon), (a) if specified in
Appendix I hereto or by written notice to the Company, by crediting before
12:00 noon, New York City time, by federal funds bank wire transfer, your or
such holder's designated bank account, (b) if payment in the manner provided by
the foregoing clause (a) has not been specified and no other manner has been
agreed to pursuant to clause (c) by check drawn upon New York Clearing House or
other funds of comparable availability duly mailed and addressed (in the case
of the Purchaser) to the address as set forth in Appendix I for notices in
respect of payment and marked for the attention of Securities Custody Division,
or (c) by such a check duly mailed to any other address in the United States
designated in writing. The Purchaser agrees that if it sells or transfers any
Note it will notify the Company of the name and address of the transferee, and
it will, prior to the delivery of such Note, make a notation on such Note of
the date to which interest has been paid thereon and of the amount of any
prepayments made on account of the principal thereof.

Section 9.2. Delivery Expenses. If any Note shall be
presented to the Company pursuant to this Agreement, the Company will pay the
reasonable cost of delivering to or from the Purchaser's or institutional
holder's home office from or to the Company, insured to the Purchaser's or such
holder's satisfaction, the Note so presented and any Note issued in
substitution or replacement for the Note so presented.

Section 9.3. Issue Taxes. The Company will pay any and all
taxes in connection with the original issue by the Company and the sale of the
Notes pursuant to this Agreement and in connection with any modification of the
Notes and will save the Purchaser and any subsequent holder of the Notes
harmless without limitation as to time against any and all liabilities
(including any interest or penalty for nonpayment or delay in payment) with
respect to all such taxes (other than transfer taxes on a transfer thereof).
The obligations of the Company under this Section 9.3 shall survive the payment
or prepayment of the Notes and the termination of this Agreement.

Section 10. Events of Default.

Section 10.1. Nature of Events. An "Event of Default" shall
exist if any of the following occurs and is continuing:

<PAGE> 33
(a) any payment or prepayment of principal or premium, if
any, on any Note is not made on or before the date such payment or prepayment
is due;

(b) any payment of interest on any Note is not made on or
before the fifth day after the date such payment is due;

(d) the Company fails to comply with any other provision of
this Agreement and such failure continues for more than thirty days after the
earlier of (i) the date the Company has knowledge of such failure or (ii)
receipt of notice from any holder of a Note of such failure;

(e) any representation or warranty by the Company contained
in this Agreement or in any instrument furnished in compliance with this
Agreement is false in any respect;

(f) the Company or any Restricted Subsidiary (i) fails to
make any payment in respect of any obligation for borrowed money in excess of
$10,000,000 when due or within any applicable period of grace or in respect of
any other Security of the Company or any Restricted Subsidiary outstanding at
the time in excess of $10,000,000 or (ii) any event shall occur or any
condition shall exist in respect of any such Debt or other Security or under
any agreement securing or relating to such obligation or other Security and the
effect of such event or existence of such condition is to cause, or permit the
holder of such obligation or other Security or a trustee to cause, such
obligation or other Security to become due prior to its stated maturity or to
permit a trustee or the holder of any such obligation or other Security (other
than Voting Stock of the Company or a Restricted Subsidiary) to elect a
majority of the Board of Directors of the Company or such Restricted
Subsidiary;

(g) the Company or any Material Restricted Subsidiary shall

(i) make a general assignment for the benefit of,
or enter into any composition or arrangement with, creditors;

(ii) apply for, or consent (by admission of
material allegations of a petition or otherwise) to the
appointment of a receiver, trustee, custodian, liquidator (or
similar official) of the Company or any Material Restricted
Subsidiary or of a substantial part of any of such
corporation's assets, or authorize such application or
consent;

<PAGE> 34
(iii) file a petition under Title 11 of the United
States Code (or similar law of the United States or any other
jurisdiction which relates to the liquidation or
reorganization of companies or to the modification or
alteration of the rights of creditors); or

(iv) permit or suffer all or any substantial part
of its property to be sequestered or attached by court order
and such order shall remain undismissed for 60 days;

(h) there shall have been entered an order or decree for
relief in a case under Title 11 of the United States Code (or similar law of
the United States or any other jurisdiction which relates to liquidation or
reorganization of companies or the modification or alteration of the rights of
creditors) commenced by the filing of a petition against the Company or a
Material Restricted Subsidiary or for appointment of a receiver, trustee,
custodian, liquidator (or similar official) of the Company or a Material
Restricted Subsidiary, or of a substantial part of any of such corporation's
assets obtained without the consent of the Company or such Material Restricted
Subsidiary, or for the winding-up or liquidation of the Company or a Material
Restricted Subsidiary, and such order or decree shall have continued unstayed
or undismissed and in effect for a period of 60 days; or

(i) final judgment for the payment of money in excess of
$10,000,000 shall be rendered against the Company or any Material Restricted
Subsidiary and shall remain undischarged for a period of sixty days during
which execution shall not be effectively stayed;

Section 10.2. Default Remedies. If an Event of Default of
the type described in Section 10.1(a) or (b) exists, the holder of any Note may
exercise any right, power or remedy permitted to them by law and shall have, in
particular, without limiting the generality of the foregoing, the right by
notice to the Company to declare the entire principal of and all interest
accrued on such Note to be, and such Note shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. If an Event of Default (other
than as specified in Section 10.1(g) or (h)) exists, the holder or holders of
not less than 35% in aggregate principal amount of the Notes then outstanding
shall have, in addition to any right, power or remedy permitted to such holder
or holders by law, the right to declare the principal of and all interest
accrued on all Notes to be, and such Notes shall thereupon become, forthwith
due and payable, without any presentment, demand,

<PAGE> 35
protest or other notice of any kind, all of which are hereby expressly waived.
If any Event of Default specified in Section 10.1(g) or (h) exists, the
principal of and all interest accrued on all Notes shall, without any notice to
the Company or other act by the holders or the Notes, immediately become due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. If any Note or Notes shall
become due and payable pursuant to this Section 10.2, the Company will
forthwith pay to the holder of any such Note the entire principal of and
interest accrued on such Note and, to the extent permitted by law, the Make
Whole Premium at such time with respect to the principal amount of such Note.
No course of dealing on the part of any holder nor any delay or failure on the
part of any holder to exercise any right shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies. If the
Company fails to pay when due the principal of, premium, if any, or interest on
any Note, the Company will pay to the holder of such Note, to the extent
permitted by law, such further amount as shall be sufficient to cover the costs
and expenses of collection, including but not limited to, reasonable attorneys
fees.

At any time after the principal of and interest accrued on any
Note is declared due and payable, and before a judgment or decree for payment
of the money due has been obtained, the holders of at least 51% in aggregate
principal amount of the Notes then outstanding by written notice to the
Company, may rescind and annul such declaration and its consequences as to all
the Notes if (1) there shall have been paid (i) all overdue installments of
interest on all the Notes, (ii) the principal of and premium, if any, on any
Notes, which has become due otherwise than by such declaration, and (iii)
interest on such overdue principal and premium and (to the extent permitted by
applicable law) on any overdue installments of interest, and (2) all Events of
Default other than non-payment of amounts which have become due solely by such
declaration, have been cured or waived as provided in Section 12.2. No
rescission shall affect any subsequent declaration or impair any right
consequent thereon.

Section 10.3. Notice of Default. If any one or more of the
Events of Default specified in Section 10.1 shall occur, or if the holder of
any Note or of any other evidence of Debt for borrowed money with an aggregate
outstanding amount of $10 million or more of the Company or any Restricted
Subsidiary gives any notice or takes any other action with respect to a claimed
default, the Company will forthwith give written notice thereof to all holders
of Notes then outstanding describing the notice or action and the nature of the
claimed default or Event of Default.

<PAGE> 36
Section 11. Interpretation of Agreement and Notes.

Section 11.1. Definitions. For all purposes of this
Agreement and the Notes, the following definitions shall apply unless the
context otherwise requires:

"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with, the Company or (ii) which beneficially
owns or holds 5% or more of any class of Voting Stock of the Company,
or (iii) 5% or more of the Voting Stock of which is beneficially owned
or held by the Company or any Restricted Subsidiary. The term
Affiliate shall not be deemed to include a Subsidiary. The term
"control" (including the terms "controlled by" and "under common
control") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract, or
otherwise.

"this Agreement" means this Note Purchase Agreement (including
the annexed Appendix and Exhibits), as executed and delivered and as
the same may from time to time be amended, supplemented or modified,
in accordance with its terms. The terms "hereunder", "hereof" and
"hereby", and other words of similar import, refer to this Agreement
as a whole, and not to any particular Section, Subsection or other
subdivision.

"Applicable Treasury Rate" means the yield to maturity determined
by reference to the most recent Federal Reserve Statistical Release
H.15(519), or any comparable successor publication reasonably
acceptable to the holders of at least 51% an aggregate principal
amount of the Notes at the time outstanding, which has become publicly
available at least two business days prior to the date fixed for the
payment of the Notes in question, and shall be the most recent weekly
average yield to maturity on actively traded U.S. Treasury securities
adjusted to a constant maturity equal to the then remaining Weighted
Average Life to Maturity of the Notes being paid (the "Remaining
Life"); provided that if the Remaining Life of the Notes being paid is
not equal to the constant maturity of a U.S. Treasury security for
which a weekly average yield is given, the Applicable Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yield of U.S. Treasury
securities for which such yields are given.

<PAGE> 37
"Capitalized Lease" means any lease of Property to the extent
that an amount in respect of rentals payable thereunder is, or in
accordance with generally accepted accounting principles should be,
capitalized and reflected on the liability side of the balance sheet
of the lessee thereunder.

"Closing Date" has the meaning set forth in Section 1.2.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" has the meaning set forth in the first paragraph of
this Agreement.

"Company Counsel" has the meaning set forth in Section 6.1.

"Consolidated Capitalization" means the sum of (i)
Consolidated Funded Debt, and (ii) Stockholders' Equity.

"Consolidated Funded Debt" means the aggregate of the Funded
Debt of the Company and its Subsidiaries after eliminating all
intercompany items in accordance with generally accepted accounting
principles.

"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, the aggregate of all assets of the Company and
its Subsidiaries (less applicable reserves and other items properly
deductible under generally accepted accounting principles) after
deducting therefrom (a) all items which would be included as current
liabilities under generally accepted accounting principles (except
those liabilities constituting Funded Debt by reason of their being
renewable or extendible) and (b) all goodwill, tradenames, trade
marks, patents, unamortized debt discount and expense and other
similar intangibles.

"Contractual Obligations" has the meaning set forth in Section
4.8.

"Debt" means all items which in accordance with generally
accepted accounting principles would be included in determining total
liabilities as shown on the liability section of a balance sheet as at
the date on which Debt is to be determined, including, but not limited
to, and whether or not shown on such Person's balance sheet, (i)
indebtedness, obligations and liabilities secured by any Lien or
Capitalized Lease existing on property owned subject to such Lien or

<PAGE> 38
Capitalized Lease whether or not the Debt secured thereby shall have
been assumed and (ii) all Guaranties; but not including deferred
income tax liabilities, deferred pension liabilities and other
deferred liabilities (except for money borrowed) and expenses.

"Discount Rate" means the Applicable Treasury Rate plus fifty
basis points (i.e., .5%).

"Environmental Protection Law" means any federal, state,
county, regional or local law, statute or regulation (including,
without limitation, CERCLA, RCRA and SARA) enacted in connection with
or relating to the protection or regulation of the environment,
including, without limitation, those laws, statutes and regulations
regulating the disposal, removal, production, storing, refining,
handling, transferring, processing or transporting of Hazardous
Substances, and any regulations issued or promulgated in connection
with such statutes by any Governmental Authority, and any orders,
decrees or judgments issued by any court of competent jurisdiction in
connection with any of the foregoing.

As used in this definition:

"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith;

"RCRA" means the Resource Conservation and Recovery Act of
1976, as amended, and any rules and regulations issued in connection
therewith; and

"SARA" means the Superfund Amendments and Reauthorization Act
of 1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.

"ERISA Affiliate" means any entity that

(a) is a member of the same controlled group of
corporations (within the meaning of section 414(b) of the
Code) as the Company, or

<PAGE> 39
(b) is under common control (within the meaning of
section 414(c) of the Code with the Company, or

(c) for purposes of the representations contained in
Section 4.11(b)(i) and (c), is required to be aggregated with
Company under sections 414(m) or (o) of the Code.

"Event of Default" means one of the Events of Default
enumerated in Section 10.1.

"Foreign Pension Plan" means any plan, fund or other similar
program

(a) established or maintained outside of the United
States of America by any one or more of the Company or the
Subsidiaries primarily for the benefit of employees
(substantially all of whom are aliens not residing in the
United States of America) of the Company or such Subsidiaries
which plan, fund or other similar program provides for
retirement income for such employees or results in a deferral
of income for such employees in contemplation of retirement,
and

(b) not otherwise subject to ERISA.

"Funded Debt" of any Person means all Debt of such Person
which would be classified as long-term debt under generally accepted
accounting principles, including, in any case, all Debt, whether
secured or unsecured, of such Person having a final maturity, or which
is renewable or extendible at the sole option of such Person without
requiring the lenders' consent for a period ending, more than one year
after the date of creation thereof, excluding payments in respect
thereof (whether installment, serial maturity or sinking fund payments
or otherwise) which are required to be made by such Person less than
one year after the date of determination thereof. Any Debt which is
extended or renewed shall be deemed to have been created at the time
of such extension or renewal.

"Governmental Authority" means the government of the United
States of America or any other jurisdiction in which the Company or
any of its Subsidiaries conducts all or any part of its business, or
any political subdivision of any thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative
functions with respect to any of the above.

<PAGE> 40
"Guaranty" by any particular Person means all obligations of
such Person guaranteeing or in effect guaranteeing any Debt,
Capitalized Leases, dividends or other obligations for borrowed money
of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, but not limited to, obligations
incurred through an agreement, contingent or otherwise, by such Person
(i) to purchase such Debt or obligation or any Property constituting
security therefor, (ii) to advance or supply funds (y) for the
purchase or payment of such Debt or obligation or (z) to maintain
working capital or equity capital or otherwise to advance or make
available funds for the purchase or payment of such Debt or
obligation, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of such Debt or
obligation of the ability of the primary obligor to make payment of
the Debt or obligation of (iv) otherwise to assure the owner of the
Debt or obligation of the primary obligor against loss in respect
thereof.

"Hazardous Substances" means any and all pollutants,
contaminants, toxic or hazardous wastes or any other substances that
might pose a hazard to health or safety, the removal of which may be
required or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage or filtration of
which is or shall be, in each of the foregoing cases, restricted,
prohibited or penalized by any applicable law (including, without
limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

"Liens" has the meaning set forth in Section 7.5.

"Make Whole Premium" means an amount equal to the excess of
(a) the present value, discounted semi-annually at the applicable
Discount Rate, of the payment at stated final maturity and the
remaining scheduled interest payments on and in respect of the Notes
being paid, from the respective dates on which such payments are due,
with all such discounts to be computed on the basis of a 360-day year
of twelve 30-day months, over (b) the principal amount of the Notes
being paid.

"Material Restricted Subsidiary" means, for purposes of
determining whether an Event of Default has occurred pursuant to
Sections 10.1(g), (h) or (i), any Restricted Subsidiary which (i)
individually or in the aggregate with all other Restricted
Subsidiaries which,

<PAGE> 41
during any period of twelve consecutive months which end on the date
of determination, has taken or suffered any action referred to in the
corresponding Section, accounted for 15% or more of the Consolidated
Net Tangible Assets or (if the Company and its Subsidiaries had
positive consolidated net income) 15% or more of positive consolidated
net income of the Company and its Subsidiaries as of the last day of
the fiscal year preceding the date of determination in the case of Net
Tangible Assets or for the fiscal year preceding the date of
determination in the case of positive consolidated net income or (ii)
individually, or in the aggregate with all other Restricted
Subsidiaries which, during the period from the date of this Agreement
through the date of determination, has taken or suffered any action
referred to in the corresponding Section, accounted for 25% or more of
the Consolidated Net Tangible Assets or (if the Company and its
Subsidiaries had positive consolidated net income) 25% or more of
positive consolidated net income of the Company and its Subsidiaries
as of the last day of the fiscal year preceding the date of
determination in the case of Net Tangible Assets or for the fiscal
year preceding the date of determination in the case of positive net
consolidated income.

"Multiemployer Plan" means any multiemployer plan (as defined
in section 3(37) of ERISA) in respect of which the Company or any
ERISA Affiliate is an "employer" (as such term is defined in section 3
of ERISA).

"Multiple Employer Pension Plan" means any employee benefit
plan within the meaning of section 3(3) of ERISA (other than a
Multiemployer Pension Plan), subject to Title IV of ERISA, to which
the Company or any ERISA Affiliate and an employer (as such term is
defined in section 3 of ERISA) other than an ERISA Affiliate or the
Company contribute.

"Note" or "Notes" has the meaning set forth in Section 1.1.

"PBGC" means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.

"Pension Plan" means, at any time, any "employee pension
benefit plan" (as such term is defined in section 3 of ERISA)
maintained or to which contributions have been made by the Company or
any ERISA Affiliate for employees, including former employees of the
Company or such ERISA Affiliate,

<PAGE> 42
excluding any Multiemployer Plan, but including, without limitation,
any Multiple Employer Pension Plan.

"Person" means individuals, corporations, partnerships, joint
ventures, trusts, estates, unincorporated organizations and government
agencies and political subdivisions thereof.

"Plans" means Multiemployer Plans, Pension Plans and Welfare
Plans.

"Principal Property" means (i) any manufacturing plant,
including land, all buildings and other improvements thereon, and all
manufacturing machinery and equipment located therein, used by the
Company or a Restricted Subsidiary primarily for the manufacture of
products to be sold by the Company or such Restricted Subsidiary, (ii)
the executive offices and administrative buildings of the Company, and
(iii) research and development facilities, including land and
buildings and other improvements thereon and research and development
machinery and equipment locate therein, except in any case property of
which the aggregate fair value as determined by the Board of Directors
does not at the time exceed 1% of Consolidated Net Tangible Assets, as
shown on the audited consolidated balance sheet contained in the
latest annual report to stockholders of the Company.

"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.

"Purchaser" has the meaning set forth in Section 1.2.

"Remaining Life" has the meaning set forth in the definition
of Applicable Treasury Rate contained in this Section 11.1.

"Requirements of Law" has the meaning set forth in Section 4.8.

"Restricted Subsidiary" means any Subsidiary of the Company
(i) engaged in, or whose principal assets consist of property used by
the Company or any Restricted Subsidiary in, the manufacture of
products within the United States or Canada or in the sale of products
principally to customers located in the United States or Canada, or
(ii) which the Company has designated as a Restricted Subsidiary in
Exhibit B or by notice in writing given to the holders of the Notes,
provided that any Subsidiary that is or that has been

<PAGE> 43
designated a Restricted Subsidiary shall remain a Restricted
Subsidiary so long as it is a Subsidiary of the Company. No
Subsidiary shall be designated a Restricted Subsidiary if, on the date
when it is designated as a Restricted Subsidiary, such designation
would result in a breach or violation by the Company of any of the
provisions of Section 7 hereof or of the Notes.

"Security" has the meaning set forth in Section 2(1) of the
Securities Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Stockholders' Equity" means, as of the date of determination
thereof, the sum of capital stock, additional paid in capital,
retained earnings (or minus accumulated deficit) and foreign currency
translation adjustment gains (or minus foreign currency translation
adjustment losses) less treasury stock and unamortized restricted
stock grant expense of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles.

"Subsidiary" means any corporation of which the Company at the
time owns or controls directly or through any intervening medium more
than 50% of the shares of Voting Stock.

"Voting Stock" means capital stock of any class or classes of
a corporation having general voting power under ordinary circumstances
to elect the board of directors of such corporation, or Persons
performing similar functions (irrespective of whether or not at the
time stock of any other class or classes shall have or might have
special voting power or rights by reason of the happening of any
contingency).

"Weighted Average Life to Maturity" of any borrowed funds, as
of the date of determination thereof, means the number of years
obtained by dividing the then Remaining Dollar-years of such borrowed
funds by the then outstanding principal amount of such borrowed funds.
The term "Remaining Dollar-years" of any borrowed funds means the
amount obtained by (i) multiplying the amount of each then remaining
sinking fund, serial maturity or other required repayment or
redemption, including repayment at final maturity, by the number of
years (calculated to the nearest one-twelfth) which will elapse
between the time in question and the date of that repayment or
redemption and (ii) totalling all of the products obtained in (i).

<PAGE> 44
"Welfare Plan" means, at any time, any "employee welfare
benefit plan" (as such term is defined in section 3 of ERISA)
maintained by the Company or any of its Subsidiaries for employees,
including former employees, of the Company or any of its Subsidiaries.

Section 11.2. Accounting Terms. All accounting terms used
herein which are not otherwise expressly defined shall have the meanings
respectively given to them in accordance with generally accepted accounting
principles. References in this Agreement to "consolidated financial
statements" shall refer to such statements of the Company and its consolidated
Subsidiaries.

Section 11.3. NEW YORK LAW. THIS AGREEMENT AND THE NOTES
ISSUED HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND FOR
ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.

Section 11.4. Headings. The heading of the sections and
subsections of this Agreement are inserted for convenience only and shall not
be deemed to constitute a part hereof.

Section 11.5. Survival of Representations and Warranties.
All covenants, agreements, representations and warranties made herein or in
certificates delivered in connection herewith by or on behalf of the Company or
any Subsidiary shall survive the issue and delivery of the Notes to the
Purchaser and the payment thereof and as provided in Section 9.3.

Section 11.6. Successors and Assigns. All covenants,
agreements, representations and warranties made herein shall bind and inure to
the benefit of the successors and assigns of the Company, whether so expressed
or not, and all such covenants, agreements, representations and warranties
shall bind and inure to the benefit of the Purchaser's successors and assigns.
All provisions of this Agreement are intended to be for the benefit of all
holders, from time to time, of the Notes issued pursuant hereto (except those
of Sections 8 and 9 to the extent expressly limited thereby), and shall (except
to said extent) be enforceable by any such holder, whether or not an express
assignment to such holder of rights under this Agreement has been made by the
Purchaser, or any of its successors or assigns.

Section 11.7. Severability. If any provision hereof or the
application thereof to any Person or circumstance shall be invalid, illegal or
unenforceable, the remaining provisions or the application of such provision to
Persons or circumstances other than those as to which it is

<PAGE> 45
invalid or enforceable, shall continue to be valid and enforceable.

Section 12 Miscellaneous.

Section 12.1. Communications. Subject to Section 9.1, all
communications provided for under this Agreement or under the Notes shall be in
writing, and if to the Purchaser, mailed or delivered to its address, and to
the attention, as set forth on Appendix I, if to any other holder, mailed or
delivered to its address appearing in the Note register, and if to the Company,
mailed or delivered to its address shown at the beginning of this Agreement,
Attention of President, or addressed to either party at any other address in
the United States of America which such party may hereafter designate by
written notice to the other party hereto. Any communication so addressed and
mailed by registered or certified mail shall be deemed to be given five days
after being mailed.

Section 12.2. Amendment and Waiver. Any term, covenant,
agreement or condition of this Agreement may, with the consent of the Company,
be amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), by one or more
substantially concurrent written instruments signed by the holders of not less
than 51% in aggregate principal amount of the Notes at the time outstanding;
provided, however, that no such amendment or waiver shall, without the consent
in writing of the holders of all of the Notes at the time outstanding affected
by such amendment or waiver, change the amount of or the date of final maturity
of, the principal of any of the Notes, or reduce or change the time of payment
of interest on any of the Notes, or reduce the amount of any premium payable
upon any prepayment of the Notes or change the percentage of holders of Notes
required to approve any such amendment or effectuate any such waiver. Any
amendment or waiver pursuant to this Section 12.2 shall apply equally to all
the holders of the Notes and shall be binding upon them, upon each future
holder of any Note and upon the Company, and no endorsement need be made on any
Note with respect thereto. The Company will provide a copy of each such
amendment or waiver to each holder of Notes promptly after it has been
approved.

Section 12.3. Extension of Time. Whenever any payment
hereunder or under the Notes shall be due on a day on which banking
institutions at the place of payment specified in the Notes are authorized or
obligated by law to close (a "legal holiday"), such payment shall become due on
the next succeeding day which is not a legal holiday.

<PAGE> 46
Section 12.4. Expenses. Whether or not any of the Notes are
sold, the Company agrees to pay all expenses relating to this Agreement or any
amendment hereof or waiver or consent hereunder, including, but not limited to,
(i) the reasonable fees and disbursements of any special counsel retained by
the holders of the Notes; (ii) the Purchaser's reasonable out-of-pocket
expenses in connection with any such waiver, amendment or consent; (iii) the
cost of delivering to the Purchaser's home office, insured to its satisfaction,
the Note or Notes purchased by the Purchaser on the Closing Date; and (iv) the
reasonable fees and disbursements of counsel for giving any opinions required
pursuant to Section 6.2.

Section 12.5. Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument, and either party hereto may execute this Agreement by
signing one or more counterparts hereof.

Section 12.6. Consent to Jurisdiction. The Company hereby
irrevocably consents and agrees that any legal action or proceedings with
respect to this Agreement may be brought in any of the Federal or state courts
having subject matter jurisdiction located in the Borough of Manhattan, The
City of New York, and, by execution and delivery hereof the Company hereby (i)
accepts the non-exclusive jurisdiction of those courts (ii) irrevocably agrees
to be bound by any final judgment (after any appeal) of any such court with
respect to this Agreement or any Note, and (iii) irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding in such
court as well as any claim that any such suit, action or proceeding brought has
been brought in an inconvenient forum. The Company hereby appoints C.T.
Corporation, 1633 Broadway as its agent for service of process in New York, New
York.

<PAGE> 47
If the foregoing is satisfactory to you, will you please sign
the form of acceptance on the enclosed counterparts of this Agreement and
forward the same to the undersigned, whereupon this Agreement will become a
binding agreement between us.

Very truly yours,

KEYSTONE INTERNATIONAL, INC.

By: /s/ Jeffrey M. Johanson
-----------------------------
JEFFREY M. JOHANSON,
TREASURER

The foregoing Agreement is hereby
accepted, as of the date first above
written.

MONY LIFE INSURANCE COMPANY OF AMERICA

By: /s/ William H. Sidford
-----------------------
WILLIAM H. SIDFORD, CFA
AUTHORIZED AGENT

<PAGE> 48

Appendix I

<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- -------------------------------- -------------------------------
<S> <C>
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK $12,000,000
1740 Broadway
New York, New York 10019
Attention: MONY Capital
Management Unit

Denominations and Payees

The 6.34% Senior Notes being purchased by The Mutual
Life Insurance Company of New York will be evidenced by
two Notes, one in the principal amount of $10,000,000
and one in the principal amount of $2,000,000, each
issued in the name of The Mutual Life Insurance Company
of New York.

Payments

All payments on or in respect of the $10,000,000 Note
issued in the name of The Mutual Life Insurance Company
of New York to be by bank wire or intra-bank transfer
of Federal or other immediately available funds
(identifying the issue upon which payment is being made
and the application of the payment as between interest,
principal and premium) to:

Chemical Bank, ABA # 021000128, for credit to
The Mutual Life Insurance Company of New York's
Security Remittance Account No. 312-023803

All payments on or in respect of the $2,000,000 Note
issued in the name of The Mutual Life Insurance
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Company of New York to be made by bank wire or intra-
bank transfer of Federal or other immediately available
funds (identifying the issue upon which payment is
being made and the application of the payment as
between interest, principal and premium) to:

Chemical Bank, ABA #021000128, for credit to
The Mutual Life Insurance Company of New York,
Account No. 323-161235

MONY LIFE INSURANCE COMPANY $3,000,000
OF AMERICA
c/o The Mutual Life Insurance Company of New York
1740 Broadway
New York, NY 10019
Attention: MONY Capital
Management Unit

Denominations and Payees

The 6.34% Senior Notes being purchased by MONY Life
Insurance Company of America will be evidenced by one
Note issued in the name of MONY Life Insurance Company
of America.

Payments

All payments on or in respect of the $3,000,000 Note
issued to MONY Life Insurance Company of America to be
made by bank wire or intra-bank transfer of Federal or
other immediately available funds (identifying the
issue upon which payment is being made and the
application of the payment as between interest,
principal and premium) to:
</TABLE>

2
<PAGE> 50
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Chemical Bank, ABA #021000128, for credit to
MONY Life Insurance Company of America, Account
No. 323-161243

All Notices and Confirmations
Relating to Payments

Telecopy Confirms and Notices:
(212) 907-6979
Attention: Securities Custody

Mailing Confirms and Notices:

Glenpointe Marketing & Operations
Center - MONY
Glenpointe Center West
500 Frank W. Burr Blvd.
Teaneck, NJ 07666-6888
Attention: Securities Custody

Addresses for All Other
Communications

If to The Mutual Life Insurance Company of New York:

The Mutual Life Insurance
Company of New York
1740 Broadway
New York, NY 10019
Attention: MONY Capital
Management Unit

If to MONY Life Insurance Company
of America:

MONY Life Insurance Company
of America
c/o The Mutual Life Insurance Company
of New York
1740 Broadway
New York, NY 10019
Attention: MONY Capital
Management Unit
</TABLE>

3
<PAGE> 51
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY $10,000,000
c/o MIMLIC Asset Management Company
400 North Robert Street
St. Paul, Minnesota 55101

Denominations and Payees

The 6.34% Senior Notes being purchased by The Minnesota
Mutual Life Insurance Company will be evidenced by one
Note, issued in the name of The Minnesota Mutual Life
Insurance Company.

Payments

All payments on or in respect of the $10,000,000 Note
issued in the name of The Minnesota Mutual Life
Insurance Company to be by bank wire or intra-bank
transfer of Federal or other immediately available
funds (identifying the issued upon which payment is
being made and the application of the payment as
between interest, principal and premium) to:

The Federal Reserve Bank of Minneapolis, for
the Account of The First Bank National
Association, Minneapolis, Minnesota, ABA #
091000022, for credit to The Minnesota Mutual
Life Insurance Company Account No. 801-10-00600
</TABLE>

4
<PAGE> 52
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Address for All Notices and
Communications

The Minnesota Mutual Life
Insurance Company
400 North Robert Street
St. Paul, Minnesota 55101
Attention: MIMLIC Asset
Management Company
Tax ID # 41-0417830

NATIONWIDE LIFE INSURANCE COMPANY $7,500,000
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220

Denominations and Payees

The 6.34% Senior Notes being purchased by Nationwide
Life Insurance Company will be evidenced by one Note
issued in the name of Nationwide Life Insurance
Company.

Payments

All payments on or in respect of the $7,500,000 Note
issued to Nationwide Life Insurance Company to be made
by bank wire or intra-bank transfer of Federal or other
immediately available funds (identifying the issue upon
which payment is being made and the application of the
payment as between interest, principal and premium) to:

Society National Bank/Cleveland, ABA #
041001039, for credit to Nationwide Life
Insurance Company, Account No.1000-52-9588
</TABLE>

5
<PAGE> 53
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

With Notice of Each Payment to:

Nationwide Life Insurance
Company
One Nationwide Plaza
Columbus, Ohio 43215-2220
Attn: Corporate Money
Management

Address for All Other Notices and
Communications

Nationwide Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attn: Corporate Fixed-Income
Securities
Tax ID # 31-4156830

EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU $2,000,000
2000 Westwood Avenue
Wausau, Wisconsin 54401
Attn: Ms. Lorraine Moran

Denominations and Payees

The 6.34% Senior Notes being purchased by Employers
Life Insurance Company of Wausau will be evidenced by
one Note issued in the name of EMPL & Co.

Payments

All payments on or in respect of the $2,000,000 Note
issued to EMPL & Co. to be made by bank wire or intra-
bank transfer of Federal or other immediately available
funds (identifying the issue upon which payment is
being made and the application of the payment as
between interest, principal and premium) to:
</TABLE>

6
<PAGE> 54
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Firstar Bank Milwaukee, N.A., Account of
Firstar Trust Company, ABA # 075000022, for
credit to Account No. 112 950 027, for further
credit to Account No. 0557511, Attention:
Accounting Department

With notice of each such payment to:

Employers Life Insurance
Company of Wausau
2000 Westwood Avenue
Wausau, Wisconsin 54401
Attn: Ms. Lorraine Moran

Address for All Other Notices and
Communications

Employers Life Insurance
Company of Wausau
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attn: Corporate Fixed-Income
Securities
Tax I.D. # 39-1049873

WISCONSIN HEALTH CARE LIABILITY INSURANCE PLAN $500,000
2000 Westwood Avenue
Wausau, Wisconsin 55401
Attn: Ms. Lorraine Moran

Denominations and Payees

The 6.34% Senior Notes being purchased by Wisconsin
Health Care Liability Insurance Plan will be evidenced
by one Note issued in the name of Band & Co.
</TABLE>

7
<PAGE> 55
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Payments

All payments on or in respect of the $500,000 Note
issued to Band & Co. to be made by bank wire or intra-
bank transfer of Federal or other immediately available
funds (identifying the issue upon which payment is
being made and the application of the payment as
between interest, principal and premium) to:

Firstar Bank Milwaukee, N.A., Account of
Firstar Trust Company, ABA # 075000022, for
credit to Account No. 112 950 027, for further
credit to Account No. 1690000

With notice of each such
payment to:

Wisconsin Health Care
Liability Insurance Plan
2000 Westwood Avenue
Wausau, Wisconsin 55401
Attn: Ms. Lorraine Moran

Address for All Other Notices and
Communications

Wisconsin Health Care Liability
Insurance Plan
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attn: Corporate Fixed-
Income Securities
Tax I.D. # 39-1256796

LIFE INSURANCE COMPANY OF GEORGIA $4,000,000
c/o INNA Investment Centre, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30339
</TABLE>

8
<PAGE> 56
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Denominations and Payees

The 6.34% Senior Notes being purchased by Life
Insurance Company of Georgia will be evidenced by one
Note, in the principal amount of $4,000,000 issued in
the name of Life Insurance Company of Georgia.

Payments

All payments on or in respect of the $4,000,000 Note
issued in the name of Life Insurance Company of Georgia
to be by bank wire or intra-bank transfer of Federal or
other immediately available funds (identifying the
issue upon which payment is being made and the
application of the payment as between interest,
principal and premium) to:

Wachovia Bank, Winston-Salem, North Carolina,
ABA # 053100494, for the account of Life
Insurance Company of Georgia, Account # 58-
16680-10, template # 401216 to the attention of
"Trust Income Processing", Tax ID # 580298930.

Address for Delivery of Note

Wachovia Bank of Georgia
191 Peachtree Street, N.E.
23rd Floor
Atlanta, Georgia 30303
Attn: Trust Department,
Burdi Henri
</TABLE>

9
<PAGE> 57
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Address for Communications

INNA Investment Centre, Inc.
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
Attn: Chris Lyons

SECURITY LIFE OF DENVER INSURANCE COMPANY $3,000,000
c/o INNA Investment Centre, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30339

Denominations and Payees

The 6.34% Senior Notes being purchased by Security Life
of Denver Insurance Company will be evidenced by one
Note, in the principal amount of $3,000,000 issued in
the name of Security Life of Denver Insurance Company.

Payments

All payments on or in respect of the $3,000,000 Note
issued in the name of Security Life of Denver Insurance
Company to be by bank wire or intra-bank transfer of
Federal or other immediately available funds
(identifying the issue upon which payment is being made
and the application of the payment as between interest,
principal and premium) to:
</TABLE>

10
<PAGE> 58
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

Bank of America, SPSTC-Advantage/South Coast,
ABA # 121-000-358, Account # 12574-03335, for
further credit to Security Life of Denver
Insurance Company, Sec. Pac. Account # QA-7-
00060-0, Tax ID # 84-0499703.

Address for Delivery of Note

Bank of America
2 Rector Street, 3rd Floor
New York, New York 10006
Attn: Bob Fairfield

Address for Communications

INNA Investment Centre, Inc.
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
Attn: Chris Lyons

INDIANA INSURANCE COMPANY $2,000,000
c/o INNA Investment Centre, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30339

Denominations and Payees

The 6.34% Senior Notes being purchased by Indiana
Insurance Company will be evidenced by one Note, in the
principal amount of $2,000,000 issued in the name of
Indiana Insurance Company.

Payments

All payments on or in respect of the $2,000,000 Note
issued in the name of Indiana Insurance Company to be
by bank wire or intra-bank transfer of Federal or other
</TABLE>

11
<PAGE> 59
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

immediately available funds (identifying the issue upon
which payment is being made and the application of the
payment as between interest, principal and premium) to:

First Wachovia, Winston-Salem, North Carolina,
ABA # 053100494, Account # 58-16760-10,
Template # 401216, Attention: Trust Income
Processing, Tax ID # 350410010.

Address for Delivery of Note

Wachovia National Bank's
Atlanta Vault
191 Peachtree Street, N.E.
23rd Floor
Atlanta, Georgia 30303
Attn: Trust Department,
Burdi Henri

Address for Communications

INNA Investment Centre, Inc.
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
Attn: Chris Lyons

FIRST OF GEORGIA INSURANCE COMPANY $1,000,000
c/o INNA Investment Centre, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30339

Denominations and Payees

The 6.34% Senior Notes being purchased by First of
Georgia Insurance Company will be evidenced by one
Note, in the principal amount of $1,000,000
</TABLE>

12
<PAGE> 60
<TABLE>
<CAPTION>
Names and Address of Purchasers;
Payment Instructions; Note Principal Amount of Notes to be
Information Purchased
- --------------------------------- -------------------------------
<S> <C>

issued in the name of First of Georgia Insurance
Company.

Payments

All payments on or in respect of the $1,000,000 Note
issued in the name of First of Georgia Insurance
Company to be by bank wire or intra-bank transfer of
Federal or other immediately available funds
(identifying the issue upon which payment is being made
and the application of the payment as between interest,
principal and premium) to:

First Wachovia, Winston-Salem, North Carolina,
ABA # 053100494, Account # 58-16759-10,
Template # 401216, Attention: Trust Income
Processing, Tax ID # 581438724.

Address for Delivery of Note

Wachovia National Bank's
Atlanta Vault
191 Peachtree Street, N.E.
23rd Floor
Atlanta, Georgia 30303
Attn: Trust Department,
Burdi Henri

Address for Communications

INNA Investment Centre, Inc.
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
Attn: Chris Lyons
</TABLE>

13
<PAGE> 61
EXHIBIT A

KEYSTONE INTERNATIONAL, INC.

6.34% Senior Note

Due November 1, 2000
R-

$ , 19

Keystone International, Inc., a Texas corporation (the
"Company"), for value received, hereby promises to pay to _____________ or
registered assigns, the principal amount of __________________________ Dollars
($ ) on November 1, 2000; and to pay interest (computed as if each
full calendar year consisted of 360 days and each full calendar month consisted
of 30 days) on the unpaid principal amount hereof from the date of this Note at
the rate of six and thirty-four one hundredths per cent. (6.34%) per annum,
semi-annually on May 1 and November 1 in each year, commencing with the
interest payment date next succeeding the date hereof, until the principal
amount hereof or any portion of such principal amount shall become due and
payable. The Company also promises to pay on demand interest on any overdue
principal (including any overdue prepayment of principal) and premium, if any,
and (to the extent permitted by applicable law) on any overdue installment of
interest, at the rate of seven and thirty-four one hundredths per cent. (7.34%)
per annum.

Payments of principal, premium, if any, and interest shall be
made, in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts, at the
principal office of Chemical Bank, New York, New York or as otherwise provided
in the Note Purchase Agreements hereinafter referred to.

This Note is one of an issue of promissory notes of the
Company (the "Notes") limited in aggregate principal amount at any one time
outstanding to $45,000,000, issued pursuant to Note Purchase Agreements dated
as of October 15, 1993, between the Company and the Purchasers listed on
Appendix I thereto (the "Note Purchase Agreements").

Prior to the presentment of this Note for registration of
transfer, the Company or any agent of the Company may treat the person in whose
name this Note is registered as the owner hereof for all purposes whether or
not this Note shall be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.

A-1
<PAGE> 62
As provided in the Note Purchase Agreements, in case an Event
of Default (as defined in the Note Purchase Agreements) shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Note Purchase Agreements.

As provided in and subject to the terms of the Note Purchase
Agreements, this Note is transferable on the Note register of the Company, upon
surrender of this Note for registration of transfer at the office or agency of
the Company, maintained for the purpose, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly
executed by the person in whose name this Note is registered in the Note
register or his attorney duly authorized in writing and thereupon one or more
new Notes in the denomination of $1,000 and any integral multiple of $1,000 for
the same aggregate principal amount will be issued to the designated transferee
or transferees.

KEYSTONE INTERNATIONAL, INC.

By:
------------------------

A-2
<PAGE> 63
KEYSTONE INTERNATIONAL, INC.
6.34% SENIOR NOTE
PAYMENTS ON ACCOUNT OF PRINCIPAL

Date Amount Paid Signature

A-3
<PAGE> 64
EXHIBIT B

Selected Information Concerning
the Company and the Subsidiaries

Unless otherwise indicated, terms defined in the Note Purchase Agreement to
which this Exhibit B is annexed have the same meanings herein as defined in
said Note Purchase Agreement.

A. Subsidiaries. Except as noted below, the Company has the
following Subsidiaries, of which the Voting Stock of each Subsidiary is owned
directly or indirectly, in its entirety, by the Company.

<TABLE>
<CAPTION>
Name and Address Jurisdiction of Incorporation
---------------- -----------------------------

<S> <C>
Keystone International Holdings Corp. Delaware
9600 West Gulf Bank Drive
Houston, Texas 77040

Keystone Valve Corp. Delaware
9700 West Gulf Bank Drive
Houston, Texas 77040

Keystone Sales, Inc. Texas
9700 West Gulf Bank Drive
Houston, Texas 77040

Keystone Polymers, Inc. Delaware
9700 West Gulf Bank Drive
Houston, Texas 77040

Keystone Morin, Inc. Alabama
705 Thanes Court
Pelham, Alabama 35124

Yarway Corporation Pennsylvania
480 Norristown Road
Blue Bell, PA 19422

Keystone Valvtron, Inc. Delaware
7230 Empire Central Drive
Houston, Texas 77040

Anderson, Greenwood & Co. Delaware
3950 Greenbriar
Stafford, Texas 77477

Yarway Properties, Inc. North Carolina
480 Norristown Road
Blue Bell, PA 19422
</TABLE>

B-1
<PAGE> 65
<TABLE>
<S> <C>
Keystone Technology, Inc. Delaware
9600 West Gulf Bank Drive
Houston, Texas 77040

A-G Safety Sales, Inc. Louisiana
1514 Cottondale Drive
Baton Rouge, LA 70815

A-G Frangible Discs, Inc. Delaware
7th and Lanning Avenue
Penns Grove, New Jersey 08069

A-G Safety Services, Inc. Delaware
8934 Kirby Drive
Houston, Texas 77054

A-G Safety Sales & Services, Inc. Delaware
3950 Greenbriar
Stafford, Texas 77477

A-G Safety Sales & Services of Alabama, Inc. Alabama
35580 Hwy 59
Stapleton, Alabama 36657

A-G Safety Sales & Services of Florida, Inc. Florida
US 1 and 7th Street
Hillard, Florida 32046

A-G Safety Sales & Services of Georgia, Inc. Georgia
1 River Court
Cartersville, Georgia 30120

A-G Safety Sales & Services of New Jersey, Inc. Delaware
7th and Lanning Avenue
Penns Grove, New Jersey 08069

Kunkle Industries, Inc. Indiana
8122 Bluffton Road
Fort Wayne, Indiana 46801

Kunkle Foundry Company, Inc. Indiana
8122 Bluffton Road
Fort Wayne, Indiana 46801

Keystone Valve Middle East, Inc. Texas
P.O. Box 22745
Sharjah, United Arab Emirates

Keystone Saudi, Inc. Texas
P.O. Box 1017
Damman 31431 Saudi Arabia

Keystone Pacific Pty Ltd. Australia
</TABLE>

B-2
<PAGE> 66
<TABLE>
<S> <C>
114 Albatross Road
Nowra, NSW 2541
Australia

Anderson, Greenwood Acquisition, Inc. Delaware
9600 West Gulf Bank Dr.
Houston, Texas 77040

Keystone Valve (China) Ltd. China
189 Industrial Area
Heng Gang
Bao An County
Shenzhen SEZ, Guangdong
China 518115

Keystone Valves (India) Ltd. India (51% owned)
301 Vasant Vihar Comm. Complex
Dr. C.D. Gidwani Road
Bombay 400074 India

Keystone Valve (U.K.) Ltd. U.K.
91 Meiklewood Road
Drumoyne, Glasgow
G51 4DU Scotland

Keystone Valve (Europa) B.V. Holland
Mijkenbroek 22
4824 AB Breda
The Netherlands

Keystone S.A. France
125, Avenue de Rosny
93250 Villemomble, BP 35
France

Keystone GMBH Germany
Nobelstrasse 14
4050 Moenchengladbach 4
Germany

Keystone S.r.l. Italy
Via di Coselli 13/15
55060 Coselli/Lucca
Italy

Biffi Italia S.r.l. Italy
29017 Fiorenzuola d'Arda
Piacenza, Italy

Keystone Vanessa S.r.l. Italy
29018 Lugagnano Val d'Arda
Piacenza, Italy
</TABLE>

B-3
<PAGE> 67
<TABLE>
<S> <C>
Keystone Canada, Inc. Canada
1001 Century Drive
Burlington, Ontario
L7L 5J8 Canada

Valvulas Keystone de Mexico, S.A. de C.V. Mexico
Apartado Postal 1-736
Guadalajara, Jalisco
Mexico

Keystone Do Brasil, Ltda. Brazil
Av. Antonio Bardella, Nr. 3000
18100 Sorocaba
Sao Paolo, Brazil

Nippon Keystone Corporation Japan
5-1, 1-Chome, Murotani
Nishi-Ku, Kobe 651-22
Japan

Keystone Valve (Korea) Ltd. Korea (90% owned)
60-28 Garibong Dong
Kuro Ku
Seoul, Korea

Keystone Valve (Taiwan) Ltd. Taiwan
Rm. 12-5, 155 Sec. 1 Keelung Road
Taipei, Taiwan R.O.C.

Keystone Southeast Asia Pte, Ltd. Singapore
No. 45, Tuas Avenue 9
Jurong, Singapore 2263

Keystone Valve Hong Kong Ltd. Hong Kong
Rm. 1704
17I/F Shanghai Industrial
Investment Bldg.
48-62 Hennessy Road
Hong Kong

Keystone Valve (M) SDH BHD Malaysia
No. 1 & b 3, Jalan 17/45
Section 17
47400 Petaling Jaya
Selangor Darul Ehsan
Malaysia

Keystone Valve Thailand Ltd. Thailand
126/9-10 Park Avenue
Sukhumvit 63
Prakanong, Bangkok 10110
Thailand
</TABLE>

B-4
<PAGE> 68
<TABLE>
<S> <C>
Yarway Australia Pty. Ltd. Australia
114 Albatross Road
Nowra, NSW 2541
Australia

Nortrac Engineering Ltd. New Zealand
4 Te Apunga Place
Mount Wellington, Auckland
New Zealand

Keystone Kuwait, Inc. Delaware
Rami Trading Corp
P.O. Box 1822
Safat, 13019
Kuwait

KFSC, Inc. US Virgin Islands
9600 West Gulf Bank Drive
Houston, Texas 77040

Keystone Argentina S.A. Argentina
Av. Antonio Bardella, Nr. 3000
18100 Sorocaba
Sao Paulo, Brazil

A-G Casualty, Ltd. British Virgin
3950 Greenbriar
Islands
Stafford, Texas 77477

Anderson, Greenwood Overseas, Ltd. Cayman Islands
9600 West Gulf Bank Drive
Houston, Texas 77040

Keystone Technology, Inc. Delaware
9600 West Gulf Bank Drive
Houston, Texas 77040

Bethany Trading Company Uruguay
Av. Antonio Bardella, Nr. 3000
18100 Sorocaba
Sao Paulo, Brazil

New Zealand Valve Company New Zealand
P.O. Box 12169
Penrose, New Zealand
</TABLE>

B-5
<PAGE> 69
B. Corporate Affiliate of the Company and Affiliation. The Company
has the following affiliates:

<TABLE>
<S> <C>
Floyd A. Cailloux Owns excess of 5% of the common stock of the Company.

Thompson, Siegel & Owns excess of 5% of the common stock
Walmsley, Inc. of the Company.
</TABLE>

C. Restricted Subsidiaries.

<TABLE>
<CAPTION>
Subsidiary Jurisdiction Where
Name and Address Subsidiary Incorporated Owned
- ---------------- ----------------------- -----
<S> <C> <C>
Keystone Valve Corp. Delaware 100%
9700 West Gulf Bank Drive
Houston, Texas 77040

Keystone Sales, Inc. Texas 100%
9700 West Gulf Bank Drive
Houston, Texas 77040

Keystone Polymers, Inc. Delaware 100%
9700 West Gulf Bank Drive
Houston, Texas 77040

Yarway Corporation Pennsylvania 100%
480 Norristown Road
Blue Bell, PA 19422

Keystone Valvtron, Inc. Delaware 100%
7230 Empire Central Drive
Houston, Texas 77040

Anderson, Greenwood & Co. Delaware 100%
3950 Greenbriar
Stafford, Texas 77477

A-G Safety Sales, Inc. Louisiana 100%
1514 Cottondale Drive
Baton Rouge, LA 70815

Kunkle Industries, Inc. Indiana 100%
8122 Bluffton Road
Fort Wayne, Indiana 46801
</TABLE>

B-6
<PAGE> 70
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Where
Name and Address Subsidiary Incorporated Owned
- ---------------- ----------------------- -----
<S> <C> <C>
Kunkle Foundry Company, Inc. Indiana 100%
8122 Bluffton Road
Fort Wayne, Indiana 46801

Keystone Canada, Inc. Canada 100%
1001 Century Drive
Burlington, Ontario
L7L 5J8 Canada

A-G Frangible Discs, Inc. Delaware 100%
7th and Lanning Avenue
Pennsgrove, NJ 08069

Keystone Morin, Inc. Alabama 100%
705 Thames Court
Pelham, Alabama 35124-1929
</TABLE>

D. Major Litigation. Yarway Corporation is a very minor
player in asbestos litigation in Alabama, Mississippi, New Jersey, New York and
Ohio. In the opinion of management of the Company, we do not expect this to
have a material effect on Yarway.

E. ERISA Matters. The present value of the benefits of the
Kunkle Industries, Inc. Restated Employers Pension Plan, as of the most recent
valuation date, exceeded the value of the assets of such Plan, allocable to
such benefits by not more than $1 million. The Company has accrued a liability
for the related obligation.

F. Permitted Liens and Funded Debt. Annexed hereto as Annex
I is a list of Permitted Liens. Annexed hereto as Annex II is a list of Funded
Debt outstanding on September 30, 1993.

B-7
<PAGE> 71
ANNEX I

Permitted Liens

<TABLE>
<CAPTION>
Subsidiary Lienholder Security Amount
------------------------------ ---------------------- -------------------------- --------------------
<S> <C> <C> <C>
Kunkle Industries, Inc. NBD Bank Building and $1,000,000
Equipment

Kunkle Industries, Inc. NBD Bank Building 300,000

Kunkle Industries, Inc. NBD Bank Property and Building 254,334

Kunkle Industries, Inc. NBD Bank CAD System 25,733

Kunkle Industries, Inc. NBD Bank Mfg. Equipment 82,987
------
$1,663,054
==========
</TABLE>

Certain of the Subsidiaries which are not Restricted Subsidiaries have entered
into working capital and other financing arrangements with foreign lenders.
The resulting loans are secured by a lien upon accounts receivable, inventory
and other assets of certain of the Subsidiaries of the Company which are not
Restricted Subsidiaries.

Liens on real or tangible personal property (including leaseholds), incurred in
the ordinary course of business prior to September 30, 1993, and securing the
purchase price of such properties.

See Capital Leases on Annex II.

<PAGE> 72
ANNEX II

FUNDED DEBT
<TABLE>
<CAPTION>
Long-Term Debt:
Subsidiary Bank Amount Purpose
--------------------------- -------------------------------- --------------- ---------------------------
<S> <C> <C> <C>
Kunkle Industries, Inc. NBD Bank $800,000 Industrial Revenue Bond
NBD Bank 250,000 Industrial Revenue Bond
NBD Bank 217,472 Building
NBD Bank 13,852 Cad System
NBD Bank 27,863 Mfg. Machines

Biffi Italia S.r.l. Banca Nazionale Del Lavoro 198,770 Product Development
Banca Nazionale Del Lavoro 1,264,467 Technological Innovations
Inter Banca 193,903 Shop Equipment

Keystone S.A. CEPME 58,500 Shop Equipment

Keystone Vanessa S.r.l. Banca Nazionale Del Lavoro 78,245 Product Development
Inter Banca 171,182 Shop Equipment

Keystone Pacific ANZ Banking Group 165,120 Operating Needs

Nippon Keystone Corp. Japan Long Term Bank 3,819,825 Plant Expansion
Japan Development Bank 4,434,000 Plant Expansion
Daiichi Kangyo Bank 849,000 Operating Needs
Mistubishi Bank 566,000 Operating Needs

Keystone Valve (Korea) KHB Kura Branch 1,236,000 Operating Needs
Ltd. 1,379,129 New Factory
---------

Total Long-Term Debt $15,723,328
===========
</TABLE>

* Funded Debt is the Long-Term Debt as reflected on the balance sheet.
Current Maturities of Long-Term Debt which amount to $45,391,043
are not included.

CAPITAL LEASES:
<TABLE>
<CAPTION>
Subsidiary Description Amount
------------------------------------------ ------------------------------ -------------------------
<S> <C> <C>
Keystone Valve (U.K.) Ltd. CAD Systems and Kardexs $70,782
Fork Lift 7,191

Keystone GMBH Automobiles 1,010,895
Furniture 101,411
Computer Hardware 269,065

Keystone S.A. Facsimile Machine 13,372

Valvales Keystone de Mexico S.A. de C.V. Automobiles 180,872

Keystone S.r.l. Automobiles 88,661

Biffi Italia S.r.l. Automobiles 175,689

Keystone Vanessa S.r.l. Automobiles 125,055
-------

Total Capital Leases $2,042,993
==========
</TABLE>

<PAGE> 1
EXHIBIT 21.1

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

SUBSIDIARIES OF THE REGISTRANT

The following subsidiaries are included in the Company's Consolidated
Financial Statements and are wholly owned, with the exception of Keystone Valve
(Korea) Limited, which is 90% owned, and Keystone Valves (India) Limited, which
is 51% owned.

(1) Keystone International Holdings Corp., incorporated under the laws of the
State of Delaware.

(2) Keystone Valve Corp., incorporated under the laws of the State of Delaware.

(3) Keystone Sales, Inc., incorporated under the laws of the State of Texas.

(4) Keystone Polymers, Inc., incorporated under the laws of the State of
Delaware.

(5) Keystone Morin, Inc., incorporated under the laws of the State of Alabama.

(6) Yarway Corporation, incorporated under the laws of the Commonwealth of
Pennsylvania.

(7) Keystone Valvtron, Inc., incorporated under the laws of the State of
Delaware.

(8) Anderson, Greenwood & Co., incorporated under the laws of the State of
Delaware.

(9) AG Safety Sales, Inc., incorporated under the laws of the State of
Louisiana.

(10) AG Safety Sales & Service, Inc., incorporated under the laws of the State
of Delaware.

(11) Anderson, Greenwood Frangible Discs, Inc., incorporated under the laws of
the State of Delaware.

(12) Kunkle Industries, Inc., incorporated under the laws of the State of
Indiana.

(13) Kunkle Foundry Company, Inc., incorporated under the laws of the State of
Indiana.

(14) Keystone Valve Middle East, Inc., incorporated under the laws of the State
of Texas.

(15) Keystone Saudi, Inc., incorporated under the laws of the State of Texas.

(16) Keystone Kuwait, Inc., incorporated under the laws of the State of
Delaware.

(17) Keystone Canada, Inc., incorporated under the laws of the Province of
Ontario, Canada.

(18) Keystone do Brasil, Ltda., incorporated under the laws of the Federal
Republic of Brazil.

(19) Valvulas Keystone de Mexico, S.A. de C.V., incorporated under the laws of
the Republic of Mexico.

(20) Keystone Valve (Europa) B.V., incorporated under the laws of The
Netherlands.

(21) Keystone Valve (U.K.) Ltd., incorporated under the laws of the United
Kingdom.

(22) Keystone G.m.b.H., incorporated under the laws of the Federal Republic of
Germany.
<PAGE> 2

(23) Keystone S. A., incorporated under the laws of France.

(24) Keystone S.r.1., incorporated under the laws of Italy.

(25) Biffi Italia S.r.1., incorporated under the laws of Italy.

(26) Keystone Vanessa S.r.1., incorporated under the laws of Italy.

(27) Keystone Pacific Pty. Ltd., incorporated under the laws of the State of
New South Wales, Australia.

(28) Keystone Valve (Korea) Limited, incorporated under the laws of the
Republic of Korea.

(29) Nippon Keystone Corporation, incorporated under the laws of Japan.

(30) Keystone Southeast Asia Pte. Ltd., incorporated under the laws of
Singapore.

(31) Keystone Valve Hong Kong Ltd., incorporated under the laws of Hong Kong.

(32) Keystone Valve (M) Sdn. Bhd., incorporated under the laws of Malaysia.

(33) Keystone Valve Thailand Ltd., incorporated under the laws of Thailand.

(34) Keystone Valve (Taiwan) Ltd., incorporated under the laws of the Republic
of Taiwan.

(35) Keystone Valve (China) Ltd., incorporated under the laws of the People's
Republic of China.

(36) Keystone Valves (India) Pvt. Ltd., incorporated under the laws of India.

(37) Nortrac Engineering Limited, incorporated under the laws of New Zealand.

<PAGE> 1
EXHIBIT 23.1

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report dated February 4, 1994 included in this Form 10-K, into the
Company's previously filed Registration Statements File No. 33-37053, File No.
33-69814, File No. 33-50845 and File No. 33-44303.

ARTHUR ANDERSEN & CO.

March 9, 1994
Houston, Texas