KEYSTONE INTERNATIONAL INC, 10-K405, 1996-03-07

KEYSTONE INTERNATIONAL INC
10-K405, 1996-03-07
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, 1995

[_]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)

TEXAS 74-1058689
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

9600 WEST GULF BANK DRIVE, HOUSTON, 77040
TEXAS (Zip Code)
(Address of principal executive
offices)

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

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------------- ------------------
COMMON STOCK, $1.00 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE

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 or 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 28, 1996, the number of shares of common stock outstanding was
35,451,262 excluding 442,869 treasury shares. At that date, the aggregate
market value of voting stock held by nonaffiliates was $597,838,000.

DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
PART OF
DOCUMENT 10-K
- -------- --------
<S> <C>
1. Proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange
Act of 1934 with respect to the 1996 annual meeting of share-
holders. PART III
</TABLE>

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- --------------------------------------------------------------------------------
<PAGE>

KEYSTONE INTERNATIONAL, INC.

1995 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <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
Shareholder Matters........................................... 3
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.................... 7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 7
PART III
Item 10. Directors and Executive Officers of the Registrant............. 7
Item 11. Executive Compensation......................................... 7
Item 12. Security Ownership of Certain Beneficial Owners and Management. 7
Item 13. Certain Relationships and Related Transactions................. 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................... 8
</TABLE>

<PAGE>

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,
England, Scotland, 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 primarily on the
basis of price and quality, and to a lesser extent, service and delivery.

There was no single customer which accounted for more than 10% of sales
during 1995. 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 to the Consolidated Financial Statements in Item 8
of this Report for information about lines of credit that are available to
finance working capital.

1
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At December 31, 1995, the Company's backlog of unshipped orders was
$156,559,000 compared with $133,981,000 at December 31, 1994. Orders in backlog
at year-end are usually shipped during the following year. In the past, the
effect of changes to or cancellations of orders has been minimal.

At December 31, 1995, Keystone had approximately 4,250 employees worldwide.

ITEM 2. PROPERTIES.

Keystone's major domestic manufacturing operations are located in Houston,
Stafford and Harlingen, Texas; Blue Bell, Pennsylvania; Birmingham, Alabama;
and Black Mountain, North Carolina. 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. These facilities, including the corporate offices
located in Houston, contain approximately 750,000 square feet of office space
and 1,955,000 square feet of manufacturing space on 240 acres of land owned by
the Company.

ITEM 3. LEGAL PROCEEDINGS.

Keystone Sales, Inc., a wholly owned subsidiary of the registrant, was sued
in a counterclaim filed by Industrial Concepts, Inc., a former distributor, on
October 12, 1994 in the U.S. District Court for the Southern District of Texas.
Industrial Concepts, Inc. was a distributor of the registrant's Vanessa product
line in certain counties in the south central United States. The counterclaim
seeks compensatory damages from Keystone Sales, Inc. in the amount of $42
million and punitive damages of ten times that amount, arising out of the
termination of Industrial Concepts, Inc.'s distributor agreement in January
1994 and the purchase of certain assets from the majority owner of Industrial
Concepts, Inc. Keystone Sales, Inc. filed a declaratory judgment action on
August 30, 1994 in the same court requesting the court to declare that
Industrial Concepts, Inc. had been properly terminated in accordance with the
contractual provisions between the parties. Keystone's sales of the Vanessa
product line in all of the United States were approximately $12 million in
1993. Management considers the claims asserted as wholly without merit, and
that in the unlikely event of an unexpected, unfavorable outcome, the prospects
of a material impact upon Keystone's financial position are considered
extremely remote.

Keystone and its subsidiaries are engaged in various other 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.

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 1995.

2
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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
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>
1995
First Quarter...................................... $22 1/4 $16 3/4 $.185
Second Quarter..................................... 22 3/4 19 3/8 .185
Third Quarter...................................... 22 1/2 19 3/8 .185
Fourth Quarter..................................... 23 18 7/8 .185
1994
First Quarter...................................... $29 1/2 $23 3/4 $.185
Second Quarter..................................... 25 3/8 19 1/4 .185
Third Quarter...................................... 20 1/4 18 1/4 .185
Fourth Quarter..................................... 20 3/4 16 3/4 .185
</TABLE>

The approximate number of security holders of the Company's common stock was
3,277 as of February 28, 1996. This number does not include the number of
security holders for whom shares are held in a "nominee" or "street" name.

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales............... $597,095 $535,099 $516,140 $528,372 $520,496
Total Assets............ 556,562 496,270 456,500 438,099 458,752
Long-Term Debt.......... 79,502 60,455 62,300(/2/) 14,312(/2/) 58,365
Restructuring,
Severance, Merger,
Asset Impairment and
Plant Closure Costs.... 33,927 4,372 -- -- 22,372
Gains on Sales of
Certain Assets......... 5,287 4,652 -- -- --
Income before Change in
Accounting Principle... 19,927(/1/) 32,972 39,136 42,541 22,834(/4/)
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
before Change in
Accounting Principle... .56(/1/) .94 1.12 1.22 .66(/4/)
Cash Dividends Per
Share................... .74 .74 .72 .68 .64
</TABLE>
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(1) In 1995, after considering estimated tax benefits of $9,421, the effect of
restructuring, severance, asset impairment, plant closure costs and gains
on sales of certain assets was to reduce income by $19,219, or $.55 per
share. See Notes 2 and 3 to the Consolidated Financial Statements in Item 8
of this Report for additional discussion of these charges.
(2) The 8.75% Notes totaling $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 of 6.34%
Senior Notes due November 1, 2000. See Note 5 to the Consolidated Financial
Statements in Item 8 of this Report.

3
<PAGE>

(3) In 1993, the cumulative effect of the change in accounting principle
represents a credit relating to the adoption of a new accounting standard
involving income taxes. See Note 6 to the Consolidated Financial Statements
in Item 8 of this Report for further discussion of this credit. In 1991,
the cumulative effect of the change in accounting principle represents a
charge relating to the adoption of a new accounting standard involving
postretirement benefits other than pensions.
(4) In 1991, after considering the estimated tax benefits of $5,235, the effect
of restructuring and merger expenses was to reduce income by $17,137, or
$.50 per share.

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.

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
PERCENTAGE OF NET (DECREASE) OF
SALES AMOUNTS
------------------- ---------------------
YEARS ENDED
DECEMBER 31, YEARS ENDED
------------------- ---------------------
1995 1994 1993 1995-94 1994-93
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales......................... 100.0 100.0 100.0 11.6 3.7
Cost and Expenses:
Cost of sales.................... 60.6 58.9 57.4 14.8 6.3
Selling, general and
administrative.................. 27.3 29.7 28.9 2.8 6.3
Restructuring and severance
costs........................... 3.8 -- -- * *
Impairment of assets held for
sale............................ 1.4 -- -- * *
Plant closure and related costs.. .5 .8 -- * *
Interest expense................. 1.0 1.0 1.1 13.0 (6.0)
Interest income.................. (.2) (.3) (.3) (21.5) (19.2)
Translation loss................. -- .2 .4 * *
Other, net....................... .2 (.1) .5 * *
Income before Income Taxes and
Change in Accounting
Principle........................ 5.4 9.8 12.0 (38.6) (15.7)
Provision for Income Taxes........ 2.1 3.6 4.4 (37.0) (15.7)
Income before Change in Accounting
Principle........................ 3.3 6.2 7.6 (39.6) (15.7)
Cumulative Effect of Change in
Accounting Principle............. -- -- .3 * *
Net Income........................ 3.3 6.2 7.9 (39.6) (19.6)
</TABLE>
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* Percentage not meaningful

4
<PAGE>

RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)

Net Sales

Net sales increased 12% in 1995 compared with a 4% increase in 1994. Shown
below is an analysis of the change in net sales.

<TABLE>
<CAPTION>
ANALYSIS OF NET SALES INCREASE (DECREASE)
---------------------------------------------
YEARS ENDED
---------------------------------------------
1995-1994 1994-1993
---------------------------------------------
<S> <C> <C> <C> <C>
Domestic:
Internal growth (decrease)...... $ 4,744 2.1% $(4,257) (1.9)%
------- -------
International:
Internal growth................. 40,181 13.1% 7,069 2.5%
Exchange rate effect............ 17,071 5.6% 7,288 2.5%
------- -------
Total international............. 57,252 18.7% 14,357 5.0%
------- -------
Acquisitions...................... -- * 8,859 *
------- -------
Total Net Sales Increase.......... $61,996 11.6% $18,959 3.7%
======= =======
</TABLE>
- --------
* Percentage not meaningful

The Company's sales and results of operations outside the United States are
subject to the inherent risk of fluctuations in currency rates. During 1995 and
1994, Asia-Pacific and European currencies strengthened in relation to the U.S.
dollar, resulting in $17,071 and $7,288 of additional net sales, respectively,
related to currency fluctuations.

Cost and Expenses

Cost of sales as a percentage of sales were 60.6%, 58.9% and 57.4% in 1995,
1994, and 1993, respectively. Over the last three years, the Company has been
experiencing increased price competition, especially in the Asia-Pacific region
in 1995 and the U.S. and Europe in 1994 and 1993. In 1995, lower margin project
business increased over 1994.

To counteract this trend of reduced gross margins, the Company is continuing
its cost reduction initiatives. All major plants are emphasizing simplified and
shortened business processes, improvements in efficiency and on-time
deliveries, and reduced inventory levels. Other product cost reduction steps
include the redesign of certain products, the implementation of new
manufacturing systems and reducing component procurement costs.

Selling, general and administrative expenses increased by 3% and 6% in 1995
and 1994, respectively. Excluding foreign currency fluctuations, these expenses
were flat in 1995 and increased 5% in 1994. In 1995, selling, general and
administrative expenses remained flat while sales increased 8% in local
currencies due primarily to the cost reducing impact of the first quarter 1995
workforce reduction. In 1994, approximately one-half of the increase in these
expenses was in the Asia-Pacific region, where the Company was experiencing
significant sales growth. Other items contributing to the increase in selling,
general and administrative expenses in 1994 included information systems
expenses associated with various systems implementations, employee termination
costs and litigation expenses.

Restructuring and severance costs of $22,822, or $.43 per share, relate to
two initiatives during 1995 to streamline operations and divest underperforming
assets. The first initiative was a worldwide workforce reduction in the first
quarter of 1995 that resulted in the elimination of approximately 270
positions. Severance related costs associated with these terminations totaled
$8,458 before income taxes, or $.15 per share. This workforce reduction was
substantially completed by the end of the second quarter of 1995.

5
<PAGE>

The second initiative started in the fourth quarter of 1995 when the Company
recorded a charge of $14,364 before income taxes, or $.28 per share, for
restructuring and severance costs related to further operational consolidation
and divestiture of underperforming assets. Of this amount, approximately
$11,700 relates to future cash outflows, while the remainder represents non-
cash write-offs of current assets. The Company's restructuring plans center
around the reorganization of the Company's operations into two groups: the
Industrial Valves and Controls Group and the Engineered Products Group. This
alignment will allow for reductions in the infrastructure previously necessary
to support a larger number of divisions. The divestiture of underperforming
assets includes a discontinued product line and several small businesses with
total annual sales of approximately $13 million. In connection with this
divestiture decision, the Company also recognized a charge of $8,174 before
income taxes, or $.16 per share, in the fourth quarter of 1995 relating to the
impairment in certain long-lived assets held for sale as part of these
divestitures.

The restructuring and divestiture plans initiated by the Company in the
fourth quarter of 1995 are expected to result in the reduction of an additional
260 positions. Approximately 120 of these positions are related to activities
being divested and 140 are associated with ongoing operations. It is expected
that these actions will reduce operating costs by approximately $10 million
before income taxes on an annual basis. Projected timing of these initiatives
indicates approximately one-third of this annual benefit will impact 1996.

Plant closure costs of $2,931 were recognized in 1995 in connection with the
closure of a manufacturing facility in Indiana. This is in addition to the
$4,372 which was recorded in 1994. The 1995 costs include incremental costs
incurred at the facilities to which operations have been transferred. The 1994
costs include $2,710 of termination pay and disposition of the Company's
pension obligations related to the facility. The remainder of these costs
reflect the value of assets at the facility that will not be recovered, as well
as estimates of the costs associated with moving the facility's manufacturing
operations to other locations. The Company has terminated approximately 155
employees from the plant, of which 58% were hourly workers involved in
manufacturing processes and 42% were involved in engineering and administrative
functions. The Company does not expect to incur any additional costs associated
with the termination of operations at this facility.

Other, net, includes amortization of debt costs and intangible assets as well
as exchange gains and losses on transactions denominated in foreign currencies.
In 1995, other, net includes gains of $5,287 in connection with the
dispositions of an interest in a former subsidiary and of the Company's
previous facility in Mexico. In 1994, other, net, includes a gain of $4,652
related to the sale of the Company's previous manufacturing facility in South
Korea.

The Company's effective income tax rates were 38%, 37% and 37% in 1995, 1994
and 1993, respectively. The Company provides for taxes on all unremitted
foreign earnings at a rate not less than the U.S. statutory rate. The
difference between the domestic statutory tax rate and the actual effective tax
rate is primarily due to net operating losses of certain foreign entities not
currently realizable for tax purposes. 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 on income taxes.

The Internal Revenue Service ("IRS") has examined the Company's federal
income tax returns for calendar years 1989 through 1991. The Company has
resolved most issues with the IRS for 1989 and 1990. The Company is vigorously
contesting the remaining issues for these two years. In addition, the IRS has
recommended an assessment of additional tax for calendar year 1991. The IRS's
examination of the Company's 1992 tax return has not yet been completed.
Management believes that any adjustment that may result 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 the 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.

6
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS)

The Company's financial position remained strong during 1995. At December 31,
1995, the Company had working capital of $174,189 compared to $185,684 at
December 31, 1994. During 1995, the Company incurred capital expenditures of
$21,045 (net of proceeds from disposals) and paid cash dividends of $26,170.
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.

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 2% of
total net sales and 5% of total income before restructuring, severance and
asset impairment in 1995, inflation often makes the operating environment
somewhat difficult. The 1995 translation losses reflected on the Consolidated
Statements of Income, included in Item 8 of this Report, result from these
operations.

OTHER MATTERS

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal year 1996. The adoption of
SFAS No. 123 is not expected to have a material effect upon the Company's
financial position or results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this Report
on page 10.

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

None.

PART III

Part III (Items 10 through 13) is omitted because the Registrant expects to
file with the Securities and Exchange Commission within 120 days after the
close of the fiscal year ended December 31, 1995, 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.

7
<PAGE>

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 10.

(a)(3) Exhibits:

<TABLE>
<CAPTION>
INCLUDED 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............................... Exhibit 3.2 to Registrant's
Form 10-K for the year ended
December 31, 1993.

(4.1) Form of Note purchase agreement dated
as of October 15, 1993 between the
Company and several purchasers...... Exhibit 4.1 to Registrant's
Form 10-K for the year ended
December 31, 1993.

(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 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.

(10.2) 1994 Directors' Stock Option Plan.... Exhibit 10-A to Registrant's
Form 10-Q for the quarter ended
June 30, 1995.

(10.3) Form of Change of Control Agreement
dated December 15, 1995 between the
Company and Mssrs. French, Baldwin,
Hyland and certain other non-
executive officer management
personnel........................... Filed herewith.

(10.4) Change of Control Agreement dated
December 15, 1995 between the
Company and Nishan Teshoian......... Filed herewith.

(10.5) Transition Agreement dated July 19,
1995 between the Company and Raymond
A. LeBlanc.......................... Filed herewith.

(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) Exhibits and Reports on Form 8-K:

The Company filed no reports on Form 8-K for the quarter ended December 31,
1995.

8
<PAGE>

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 7th day of
March, 1996.

KEYSTONE INTERNATIONAL, INC.
Nishan Teshoian
By:__________________________________
(Nishan Teshoian)
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 7th day of March, 1996.

<TABLE>
<S> <C>
Nishan Teshoian Director and Chief Executive Officer
____________________________________
(Nishan Teshoian)

Arthur L. French Director and Executive Vice
____________________________________ President
(Arthur L. French)

Mark E. Baldwin Vice President and Chief Financial
____________________________________ Officer
(Mark E. Baldwin)

J. Gordon Beittenmiller Corporate Controller
____________________________________
(J. Gordon Beittenmiller)

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.)

Dale P. Jones Director
____________________________________
(Dale P. Jones)

W. Wayne Patterson Director
____________________________________
(W. Wayne Patterson)

Allen F. Rhodes Director
____________________________________
(Allen F. Rhodes)

Wallace S. Wilson Director
____________________________________
(Wallace S. Wilson)
</TABLE>

9
<PAGE>

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, 1995 and 1994............ 12
For the year ended December 31, 1995, 1994 and 1993:
Consolidated statements of income..................................... 11
Consolidated statements of cash flows................................. 13
Consolidated statements of changes in shareholders' investment........ 14
Notes to consolidated financial statements.............................. 15
Report of independent public accountants................................ 25
</TABLE>

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

All schedules have been 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.

10
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Sales........................................ $597,095 $535,099 $516,140
-------- -------- --------
Cost and Expenses:
Cost of sales.................................. 361,566 314,915 296,124
Selling, general and administrative............ 163,304 158,810 149,353
Restructuring and severance costs.............. 22,822 -- --
Impairment of assets held for sale............. 8,174 -- --
Plant closure and related costs................ 2,931 4,372 --
Interest expense............................... 6,267 5,546 5,897
Interest income................................ (1,137) (1,448) (1,791)
Translation loss............................... 22 908 2,078
Other, net..................................... 1,028 (341) 2,358
-------- -------- --------
564,977 482,762 454,019
-------- -------- --------
Income before Income Taxes and Change in
Accounting Principle............................ 32,118 52,337 62,121
Provision for Income Taxes....................... 12,191 19,365 22,985
-------- -------- --------
Income before Change in Accounting Principle..... 19,927 32,972 39,136
Cumulative Effect of Change in Accounting
Principle....................................... -- -- 1,879
-------- -------- --------
Net Income....................................... $ 19,927 $ 32,972 $ 41,015
======== ======== ========
Earnings Per Share:
Income before change in accounting principle... $ .56 $ .94 $ 1.12
Cumulative effect of change in accounting
principle..................................... -- -- .05
-------- -------- --------
Total........................................ $ .56 $ .94 $ 1.17
======== ======== ========
</TABLE>

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

11
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 12,879 $ 18,688
Receivables (principally trade accounts, net of
allowances for doubtful accounts of $6,037 in
1995 and $4,968 in 1994)........................ 160,580 131,532
Inventories...................................... 167,970 157,807
Prepayments and other............................ 6,112 4,625
-------- --------
347,541 312,652
-------- --------
Property, Plant and Equipment:
Land............................................. 22,451 22,230
Buildings and improvements....................... 94,737 85,168
Machinery and equipment.......................... 217,913 195,329
-------- --------
335,101 302,727
Less -- accumulated depreciation................. 184,906 154,164
-------- --------
150,195 148,563
-------- --------
Other Assets....................................... 58,826 35,055
-------- --------
$556,562 $496,270
======== ========
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt................ $ 2,470 $ 3,894
Short-term bank borrowings....................... 28,430 15,156
Accounts payable................................. 42,057 35,843
Accrued liabilities.............................. 87,388 60,908
Dividends payable................................ 6,556 6,532
Income taxes payable............................. 6,451 4,635
-------- --------
173,352 126,968
-------- --------
Long-Term Debt:
6.34% Senior Notes payable....................... 45,000 45,000
Other long-term notes payable.................... 34,502 15,455
-------- --------
79,502 60,455
-------- --------
Deferred Income Taxes.............................. 2,740 6,575
Other Long-Term Liabilities........................ 18,080 15,873
-------- --------
20,820 22,448
-------- --------
Commitments and Contingencies
Shareholders' Investment:
Common stock, $1.00 par value, 50 million shares
authorized...................................... 35,881 35,845
Additional paid-in capital....................... 112,419 111,615
Retained earnings................................ 140,627 146,131
Treasury stock, at cost.......................... (7,018) (8,067)
Unamortized restricted stock grant expense....... (3,739) (4,307)
Foreign currency translation adjustments......... 4,718 5,182
-------- --------
282,888 286,399
-------- --------
$556,562 $496,270
======== ========
</TABLE>

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

12
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................ $19,927 $32,972 $41,015
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring and severance costs............... 14,364 -- ---
Impairment of assets held for sale.............. 8,174 -- --
Depreciation.................................... 23,554 19,868 18,137
Amortization.................................... 5,479 5,740 6,400
Cumulative effect of change in accounting
principle...................................... -- -- (1,879)
Increase (decrease) in deferred income taxes.... (3,485) 5,756 3,012
Gain on sale of interest in former subsidiary... (4,578) -- --
Gain on sale of property, plant and equipment... (834) (5,538) (1,347)
Increase in receivables......................... (25,614) (6,595) (16,200)
Decrease (increase) in inventories.............. (4,770) (17,536) 709
Decrease (increase) in prepayments and other
assets......................................... (2,811) 900 (11,851)
Increase (decrease) in accounts payable and
other liabilities.............................. (3,555) 10,048 919
Increase (decrease) in income taxes payable..... 1,716 (5,220) (1,541)
------- ------- -------
Net Cash Provided by Operating Activities........... 27,567 40,395 37,374
------- ------- -------
Cash Flows From Investing Activities:
Proceeds from the sale of interest in former
subsidiary....................................... 4,843 -- --
Purchases of property, plant and equipment........ (25,134) (35,111) (34,781)
Proceeds from sale of property, plant and
equipment........................................ 4,089 11,097 4,784
Acquisitions, net of cash acquired................ (19,443) -- --
Proceeds from long-term investments............... -- -- 832
------- ------- -------
Net Cash Used by Investing Activities............... (35,645) (24,014) (29,165)
------- ------- -------
Cash Flows From Financing Activities:
Increase (decrease) in short-term bank borrowings. 11,177 7,360 (276)
Payments on long-term debt........................ (9,551) (6,037) (46,348)
Proceeds from issuance of long-term debt.......... 24,343 4,564 50,193
Cash dividends paid............................... (26,170) (25,890) (24,876)
Proceeds from stock plans and other............... 2,403 2,212 3,658
------- ------- -------
Net Cash Provided (Used) by Financing Activities.... 2,202 (17,791) (17,649)
------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents........................................ 67 225 (77)
------- ------- -------
Decrease in Cash and Cash Equivalents............... (5,809) (1,185) (9,517)
Cash and Cash Equivalents at Beginning of Year...... 18,688 19,873 29,390
------- ------- -------
Cash and Cash Equivalents at End of Year............ $12,879 $18,688 $19,873
======= ======= =======
</TABLE>

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

13
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Common Stock, $1.00 Par Value:
Beginning balance.............................. $ 35,845 $ 35,777 $ 35,705
Issuance of stock under various plans and
other......................................... 36 68 72
-------- -------- --------
Ending balance................................. 35,881 35,845 35,777
-------- -------- --------
Additional Paid-in Capital:
Beginning balance.............................. 111,615 110,231 108,157
Tax effect in connection with stock options and
grants........................................ (62) 114 200
Issuance of stock under various plans and
other......................................... 866 1,270 1,874
-------- -------- --------
Ending balance................................. 112,419 111,615 110,231
-------- -------- --------
Retained Earnings:
Beginning balance.............................. 146,131 138,550 122,556
Net income..................................... 19,927 32,972 41,015
Cash dividends declared ($.74, $.74 and $.72
per share in 1995, 1994 and 1993,
respectively)................................. (26,194) (26,096) (25,264)
Issuance of treasury stock..................... 763 705 243
-------- -------- --------
Ending balance................................. 140,627 146,131 138,550
-------- -------- --------
Treasury Stock, at Cost:
Beginning balance (778 shares at 1-1-93)....... (8,067) (9,535) (11,924)
Exercise of stock options...................... 627 278 1,545
Restricted stock grant plans................... 67 914 510
Other.......................................... 355 276 334
-------- -------- --------
Ending balance (442 shares at 12-31-95)........ (7,018) (8,067) (9,535)
-------- -------- --------
Unamortized Restricted Stock Grant Expense:
Beginning balance.............................. (4,307) (4,209) (4,961)
Issuance of grants, net of cancellations....... (577) (1,412) (1,189)
Amortization................................... 1,145 1,314 1,941
-------- -------- --------
Ending balance................................. (3,739) (4,307) (4,209)
-------- -------- --------
Foreign Currency Translation Adjustments:
Beginning balance.............................. 5,182 (182) 3,076
Translation adjustments........................ (714) 8,252 (4,624)
Income tax adjustments......................... 250 (2,888) 1,366
-------- -------- --------
Ending balance................................. 4,718 5,182 (182)
-------- -------- --------
Total Shareholders' Investment................... $282,888 $286,399 $270,632
======== ======== ========
</TABLE>

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

14
<PAGE>

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. Certain reclassifications of prior period amounts have been made to
conform to current period classifications.

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 to income. Because exchange rate changes do not themselves
give rise to cash flows, their effects on items other than cash and cash
equivalents are excluded from the Consolidated Statements of Cash Flows.

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 basis over periods ranging from
five to thirty years on buildings and improvements and three to ten years for
machinery and equipment. 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.

New Accounting Standards -- In 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of
this standard did not have a significant impact on the Company's financial
position or results of operations.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective for
fiscal year 1996. The adoption of SFAS No. 123 is not expected to have a
material effect upon the Company's financial position or results of operations.

Estimates -- Financial statements prepared in accordance with generally
accepted accounting principles require the use of management estimates. See
Note 3 regarding the estimates related to restructuring activities.

(2) ACQUISITIONS AND PLANT CLOSING

In November 1995, the Company acquired 95% of the shares of Gachot, S. A., a
publicly traded French manufacturer of ball valves, and 100% of the shares of
Chemat GmbH, a privately held German affiliate of Gachot, S.A. that distributes
ball valves (collectively referred to as "Gachot/Chemat"). The purchase price
for Gachot/Chemat totaled $20,905.

The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values. The excess of purchase price over net
assets acquired approximated $30 million and will be amortized over 25 years
using the straight-line method. The estimates of the fair market values as of
the date of acquisition of net assets acquired are subject to adjustment based
on the results of appraisals currently being conducted. Any such adjustments
will be reflected in the amount of excess of purchase price over net assets
acquired.

15
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) RESTRUCTURING, SEVERANCE AND ASSET IMPAIRMENT

During the first quarter of 1995, the Company recorded a charge of $8,458
before income taxes, or $.15 per share, and during the fourth quarter of 1995,
the Company recorded a charge of $14,364 before income taxes, or $.28 per
share, for restructuring and severance related costs. The first quarter charge
represented severance costs in connection with a worldwide workforce reduction
of approximately 270 positions. This reduction was substantially completed by
the end of the second quarter of 1995. The fourth quarter charge relates to
restructuring plans focused on further streamlining of operations and
divestiture of underperforming assets. These steps are expected to result in
the reduction of an additional 260 positions. Approximately 120 of these
positions are related to business activities being divested and 140 are
associated with ongoing operations. The restructuring charge includes severance
and related costs of $9,295, the write-down of certain assets totaling $2,732
and $2,337 of other costs associated with divesting assets. The divestiture of
underperforming assets includes a discontinued product line and several small
businesses with total annual sales of approximately $13 million. In connection
with this divestiture decision, the Company also recognized a charge of $8,174
before income taxes, or $.16 per share, in the fourth quarter of 1995 relating
to impairment of certain long-lived assets held for sale as part of these
divestitures.

The aggregate balance of the restructuring-related liabilities as of December
31, 1995 was $10,939. The majority of these liabilities should be paid or
settled during 1996.

Management has made estimates of the amounts necessary to implement its
restructuring and asset divestiture plans. It is reasonably possible that
management's estimates of these amounts will change as the Company proceeds
with these initiatives.

(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 33% of consolidated inventories at December 31, 1995. The
remainder of Keystone's inventories are costed using the first-in, first-out
(FIFO) method.

Inventories, which include material, labor and manufacturing overhead costs,
consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Raw materials and partS.................................. $ 23,867 $ 16,526
Work-in-process.......................................... 20,314 24,368
Components, sub-assemblies and finished goods............ 125,635 119,812
Less: LIFO adjustment.................................... (1,846) (2,899)
-------- --------
$167,970 $157,807
======== ========
</TABLE>

16
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

In November 1995, the Company financed the Gachot/Chemat acquisition with a
66,000 French franc denomiated note (equivalent to approximately $13,457 as of
December 31, 1995) at an effective rate of 6.68%, and a 14,300 German mark
denominated note (equivalent to approximately $9,954 as of December 31, 1995)
at an effective rate of 5.89%. Both are payable in November 2000. See Note 2
for further discussion of the Gachot/Chemat acquisition.

In November 1993, the Company refinanced its 8.75% notes totaling $43,000
with $45,000 of 6.34% Senior Notes due November 1, 2000. Other long-term notes
payable at December 31, 1995 bear weighted average interest rates of
approximately 8% and consist primarily of debt related to the construction of
new manufacturing facilities in Japan and Korea and debt assumed in two 1989
Italian acquisitions. The fair value of the Senior Notes at December 31, 1995
approximates book value based on current market interest rates and discounted
future cash flows. The Company believes, based upon current terms, that the
carrying value of all other long-term debt approximates fair value.

The Company's long-term debt agreements contain various covenants including a
requirement that the Company maintain a ratio of debt to capital below 55%.

Annual maturities of all long-term debt for the next five years are as
follows: 1996 -- $2,470; 1997 -- $3,966; 1998 -- $2,356; 1999 -- $1,529; 2000
- -- $24,844; 2001 and thereafter -- $46,807.

Short-term bank borrowings of $28,430 at December 31, 1995 primarily
represent borrowings under various committed and uncommitted lines of credit
totaling $107,000. 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 $5,661, $5,081 and $5,654 during
1995, 1994 and 1993, respectively.

(6) INCOME TAXES

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109-- "Accounting for Income Taxes." This statement
provides, among other things, for the recognition and presentation of deferred
tax assets and liabilities considering the future consequences of temporary
differences between the financial statement bases and the tax bases of assets
and liabilities using the tax rates in effect during the period when taxes are
actually paid or recovered.

The adoption of this accounting method resulted in a credit to income of
$1,879 in 1993 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.

The Company's provision for income taxes includes federal, foreign, state and
local income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.

17
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The income tax provisions (benefits) are summarized as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Domestic............................................. $ 2,738 $ 1,346 $ 7,286
Foreign.............................................. 12,903 11,911 11,707
------- ------- -------
$15,641 $13,257 $18,993
======= ======= =======
Deferred:
Domestic............................................. $ (658) $ 3,580 $ 1,014
Foreign.............................................. (2,792) 2,528 2,978
------- ------- -------
$(3,450) $ 6,108 $ 3,992
======= ======= =======
</TABLE>

The significant components of the net deferred tax liability at December 31,
1995 and 1994 are as follows:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred Taxes Relating to:
Deferred tax liabilities:
Property, plant and equipment and other assets........... $ 4,675 $ 6,411
Unremitted foreign earnings.............................. 7,011 5,691
Other, net............................................... 7,140 4,692
------- -------
Sub-total deferred tax liabilities......................... 18,826 16,794
------- -------
Deferred tax (assets):
Inventories.............................................. (5,768) (4,793)
Accounts payable and accrued liabilities................. (9,683) (4,823)
Other long-term liabilities.............................. (3,175) (3,393)
------- -------
Sub-total deferred tax (assets)............................ (18,626) (13,009)
------- -------
Net deferred tax liabilities before cumulative translation
adjustment................................................ 200 3,785
------- -------
Cumulative translation adjustment.......................... 2,540 2,790
------- -------
Net deferred tax liability................................. $ 2,740 $ 6,575
======= =======
</TABLE>

18
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1995 and 1994, deferred income taxes were provided for significant
temporary differences between revenue and expenses for tax and financial
statement purposes. Following is a summary of the significant components of the
deferred income tax provision (benefit):

<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Property, plant and equipment and other.................... $(1,736) $ (448)
Unremitted foreign earnings................................ 1,320 --
Inventories................................................ (975) (477)
Accounts payable and accrued liabilities................... (4,860) (1,412)
Other long-term liabilities................................ 218 190
Other, net................................................. 2,583 8,255
------- ------
Deferred income tax provision............................ $(3,450) $6,108
======= ======
</TABLE>

A reconciliation between the actual provision for income taxes and income
taxes computed by applying the federal statutory rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Taxes computed using statutory rate............... $11,241 $18,318 $21,743
Foreign losses for which no tax benefit is
recognized, net.................................. 419 1,455 2,029
State income taxes................................ 378 370 297
Other, net........................................ 153 (778) (1,084)
------- ------- -------
Actual tax provision............................ $12,191 $19,365 $22,985
======= ======= =======
</TABLE>

The Company made cash tax payments, net of refunds, of approximately $13,514,
$18,597 and $20,651 during 1995, 1994 and 1993, respectively.

Income before income taxes of foreign subsidiaries was $31,196 in 1995,
$35,608 in 1994 and $36,215 in 1993.

(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, 1995, 926 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
ranging from five to ten 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, 1995, there were 274 shares as
to which restrictions had not lapsed under the stock grant plans.

19
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options are generally 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, 1995 is set forth below:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE RANGE
SHARES PER SHARE
--------- ------------------
<S> <C> <C>
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
Options issued.................................. 178 19.13 - 27.44
Options exercised, canceled or converted........ (62) 8.43 - 26.94
-----
Options outstanding at December 31, 1994........ 781 10.90 - 27.44
Options issued.................................. 368 8.63 - 21.75
Options exercised, canceled or converted........ (62) 14.25 - 26.94
-----
Options outstanding at December 31, 1995........ 1,087 8.63 - 27.44
=====
Exercisable options at December 31, 1995........ 33 10.31 - 21.06
=====
</TABLE>

Shareholder Rights Plan--In June 1990, the Company adopted a Shareholder
Rights Plan and declared a dividend of one Depository 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, Depository Preferred Shares having a value of two times the $80
exercise price, with each Depository 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 and common equivalent shares used in computing earnings per
share was 35,372, 35,250 and 35,085 in 1995, 1994 and 1993, 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 non-
qualified 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

20
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Keystone's expenses
related to these profit sharing, stock bonus and retirement benefit plans were
$5,544 in 1995, $5,239 in 1994, and $5,183 in 1993.

Postretirement Benefit Plans -- The Company maintains an unfunded, defined
contribution postretirement medical benefit program for those domestic retirees
with at least 25 years of service. Postretirement benefit expenses charged to
operating income were $105, $92, $991 for 1995, 1994, and 1993, respectively.
These amounts included credits of $283 for gain amortization in each of 1995
and 1994.

Other long-term liabilities included $8,881 and $9,491 at December 31, 1995
and 1994, respectively, related to the long-term 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 financial position or results of operations of the
Company.

Rental Expense -- Rental expense was $5,229, $5,697 and $6,322 for 1995, 1994
and 1993, respectively. The Company has entered into various leases, including
an insignificant amount of capital leases, which provide for future minimum
lease payments as follows: 1996 -- $4,407; 1997 -- $3,155; 1998 -- $2,009;
1999-- $1,463; 2000 -- $685; 2001 and thereafter $3,306.

Letters of Credit -- At December 31, 1995 and 1994, the Company had
outstanding letters of credit of $6,092 and $5,447, respectively.

Concentrations of Credit Risk -- The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash equivalents,
trade receivables and financial instruments used to hedge foreign currency
exposures. The Company's cash equivalents are high quality securities placed
with major banks and financial institutions. Concentrations of credit risk with
respect to receivables are limited due to the large number of customers and
their dispersion across industries and geographic regions. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. See Item I of this Report for information on trade
receivables.

From time to time, the Company enters into forward exchange contracts and
borrows in foreign currencies to mitigate the effect of exchange rate
fluctuations on identifiable transactions. These hedging techniques limit
exchange rate exposure and the resulting impact on the Company's reported
margins. Concentrations of credit risk with respect to foreign exchange
contracts are minimal due to the limited use of such contracts by the Company.
At December 31, 1995, the Company has obligations of $2,600 under forward
exchange contracts primarily for Dutch guilders, with various settlement dates
throughout 1996.

On an overall basis, management does not believe the Company is exposed to
concentrations of credit risks that are likely to have a material impact on the
Company's financial position or results of operations.

21
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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, 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales............................ $138,178 $152,137 $147,264 $159,516
Gross Profit......................... 54,651 61,054 59,041 60,783
% of Net Sales....................... 39.6% 40.1% 40.1% 38.1%
Net Income........................... $ 4,037 $ 9,763 $ 11,551 $ (5,424)
% of Net Sales....................... 2.9% 6.4% 7.8% (3.4)%
Earnings Per Share................... $ .11 $ .28 $ .33 $ (.16)
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales............................ $121,662 $133,105 $135,896 $144,436
Gross Profit......................... 50,545 56,009 55,370 58,260
% of Net Sales....................... 41.5% 42.1% 40.7% 40.3%
Net Income........................... $ 7,232 $ 9,212 $ 7,420 $ 9,108
% of Net Sales....................... 5.9% 6.9% 5.5% 6.3%
Earnings Per Share................... $ .21 $ .26 $ .21 $ .26
</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. These
products primarily include valves and actuators, the devices often used to
operate valves. The Company's valves and actuators are generally used in
industrial and infrastructure process and flow applications, and range from
small, simple products to large, complex configurations.

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.
Corporate assets consist primarily of cash, certificates of deposit and other
assets.

22
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Keystone's geographic area data for each of the three years ended December
31, 1995 are as follows:

<TABLE>
<CAPTION>
NORTH &
SOUTH
EUROPE, AMERICA
MIDDLE EXCEPT
UNITED EAST & ASIA- THE
STATES AFRICA PACIFIC U.S. ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1995
Sales to unaffiliated
customers.............. $232,951 $175,902 $149,700 $38,542 $ -- $597,095
Sales between geographic
areas.................. 45,971 33,131 5,926 3,010 (88,038) --
-------- -------- -------- ------- -------- --------
Net sales............... $278,922 $209,033 $155,626 $41,552 $(88,038) $597,095
======== ======== ======== ======= ======== ========
Operating income before
plant closure,
restructuring and asset
impairment............. $ 30,246 $ 30,920 $ 19,177 $ 5,919 $ -- $ 86,262
Plant closure and
related costs.......... (2,931) -- -- -- -- (2,931)
Asset impairment........ (8,024) -- (150) -- -- (8,174)
Restructuring and
severance costs........ (14,721) (6,248) (1,508) (345) -- (22,822)
-------- -------- -------- ------- -------- --------
Operating income........ 4,570 24,672 17,519 5,574 -- 52,335
General corporate
expenses............... (14,038)
Other, net.............. (6,179)
--------
Income before income
taxes.................. $ 32,118
========
Identifiable assets..... 164,410 206,440 140,160 22,203 -- $533,213
Corporate assets........ 23,349
--------
Total assets............ $556,562
========
1994
Sales to unaffiliated
customers.............. $228,209 $145,414 $123,791 $37,685 $ -- $535,099
Sales between geographic
areas.................. 34,378 22,206 6,560 3,598 (66,742) --
-------- -------- -------- ------- -------- --------
Net sales............... $262,587 $167,620 $130,351 $41,283 $(66,742) $535,099
======== ======== ======== ======= ======== ========
Operating income before
plant closure
and related costs...... $ 25,110 $ 23,539 $ 20,798 $ 3,781 $ -- $ 73,228
Plant closure and
related costs.......... (4,372) -- -- -- -- (4,372)
-------- -------- -------- ------- -------- --------
Operating income........ 20,738 23,539 20,798 3,781 -- 68,856
General corporate
expenses............... (11,854)
Other, net.............. (4,665)
--------
Income before income
taxes.................. $ 52,337
========
Identifiable assets..... 186,257 132,948 128,962 22,096 -- $470,263
Corporate assets........ 26,007
--------
Total assets............ $496,270
========
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
========
</TABLE>

23
<PAGE>

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) OTHER ASSETS

The following presents details of other assets at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Intangible assets, net of accumulated amortization of
$25,862 in
1995 and $22,406 in 1994................................... $14,761 $18,230
Goodwill, net of accumulated amortization of $6,075 in 1995
and
$3,647 in 1994............................................. 35,972 8,310
Other....................................................... 8,093 8,515
------- -------
$58,826 $35,055
======= =======
</TABLE>

(14) ACCRUED LIABILITIES

The following presents details of accrued liabilities at December 31, 1995
and 1994:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accrued wages, commissions and benefits..................... $26,195 $23,945
Accrued restructuring and severance costs................... 10,939 --
Other....................................................... 50,254 36,963
------- -------
$87,388 $60,908
======= =======
</TABLE>

(15) SALE OF ASSETS

A gain of $4,578 was recognized in "other, net" during 1995, in connection
with the disposition of the Company's interest in a former subsidiary. Other,
net, also included a gain of $709 with respect to the sale of the Company's
previous facility in Mexico.

A gain of $4,652 related to the sale of the Company's former facility in
South Korea was recognized in "Other, net" in the second quarter of 1994.

24
<PAGE>

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,
1995 and 1994, 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, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, 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.

ARTHUR ANDERSEN LLP

February 2, 1996
Houston, Texas

<PAGE>

Exhibit 10.3

Form of Change of Control Agreement dated December 15, 1995,
between the Company and Messrs. French,
Baldwin, Hyland and certain other nonexecutive
officer management personnel.

EXECUTIVE SEVERANCE AGREEMENT

AGREEMENT by and between Keystone International, Inc. (the "Company") and
(the "Employee"), dated as of the day of 19 .

The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Employee, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Employee by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Employee's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Employee with compensation arrangements upon a Change of Control which provide
the Employee with individual financial security and which are competitive with
those of other corporations and, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Certain Definitions. (a) The "Effective Date" shall be the first date
during the "Change of Control Period" (as defined in Section 1(b)) on which a
Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the

<PAGE>

Employee's employment with the Company is terminated involuntarily prior to the
date on which a Change of Control occurs, and it is reasonably demonstrated that
such termination (1) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (2) otherwise arose in
connection with or in anticipation of a Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination.

(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the fifth anniversary of such date.

2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:

(i) The acquisition (other than from the Company) by any person, entity or
"group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership, (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either the then outstanding shares of common stock or the combined voting power
of the Company's then outstanding voting securities entitled to vote generally
in the election of directors; or

(ii) Individuals who, as of the date hereof, constitute the Board (as of
the date hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided, however, that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the

2
<PAGE>

Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or

(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated company's then outstanding voting
securities, or a liquidation or dissolution of the Company or of the sale of all
or substantially all of the assets of the Company; provided, however, that a
judicially supervised reorganization under 11 U.S.C. (S)101 et. seq. shall not
be considered a Change of Control.

3. Employment Period. The Company hereby agrees to continue the Employee in
its employ, and the Employee hereby agrees to remain in the employ of the
Company, in accordance with the terms and provisions of this Agreement for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").

3
<PAGE>

4. Terms of Employment. (a) Position and Duties.

(i) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 90-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date or any office or location
which is the headquarters of the Company and is less than thirty-five (35) miles
from such pre-Effective Date location.

(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Employee hereunder, to use the Employee's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Employee to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Employee's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Employee prior to the Effective
Date, the continued conduct of

4
<PAGE>

such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Employee's responsibilities to the
Company.

(b) Compensation. (i) Base Salary. During the Employment Period, the
Employee shall receive an annual base salary (the "Annual Base Salary") which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Employee by the
Company and its affiliates in respect of the twelve month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be substantially consistent
with increases in base salary awarded in the ordinary course of business to
other key employees of the Company and its affiliates. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Employee under this Agreement. Annual Base Salary shall not be reduced after any
such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliates" shall include any company controlled by, controlling or
under common control with the Company.

(ii) Annual Bonus. In addition to Annual Base Salary, the Employee shall be
awarded, for each fiscal year during the Employment Period, an annual bonus (an
"Annual Bonus") in cash (or cash and stock if the Employee is then required to
take a percentage of his bonus in stock pursuant to the Company's executive
stock

5
<PAGE>

ownership policy) at least equal to the highest annual bonus payable to the
Employee from the Company and its subsidiaries in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date occurs
(or the annualized bonus for any fiscal year consisting of less than twelve full
months or with respect to which the Employee has been employed by the Company
for less than twelve full months).

(iii) Incentives Savings and Retirement Plans. In addition to Annual Base
Salary and Annual Bonus payables as herein provided, the Employee shall be
entitled to participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other key employees of the Company and its subsidiaries. Such plans, practices,
policies and programs, in the aggregate, shall provide the Employee with
compensation, benefits and reward opportunities at least as favorable as the
most favorable of such compensation, benefits and reward opportunities provided
by the Company for the Employee under such plans, practices, policies and
programs as in effect at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Employee, as provided at any
time thereafter with respect to other key employees of the Company and its
subsidiaries.

(iv) Welfare Benefit Plans. During the Employment Period, the Employee
and/or the Employee's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans
practices, policies and programs provided by the Company and its subsidiaries
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life,

6
<PAGE>

accidental death and travel accident insurance plans and programs), at least as
favorable as the most favorable of such plans, practices, policies and programs
in effect at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee and/or the Employee's
family, as in effect at any time thereafter with respect to other key employees
of the Company and its subsidiaries.

(v) Expenses. During the Employment Period, the Employee shall be entitled
to receive prompt reimbursement for all reasonable employment expenses incurred
by the Employee in accordance with the most favorable policies, practices and
procedures of the Company and its subsidiaries in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee, as in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries.

(vi) Fringe Benefits. During the Employment Period, the Employee shall be
entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its subsidiaries in effect
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Employee, as in effect at any time thereafter with
respect to other key employees of the Company and its subsidiaries.

(vii) Office and Support Staff. During the Employment Period, the Employee
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to secretarial and other assistance, at least equal to
the most favorable of the foregoing provided to the Employee by the Company
and its

7
<PAGE>

subsidiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee, as provided at any time
thereafter with respect to other key employees of the Company and its
subsidiaries.

(viii) Vacation. During the Employment Period, the Employee shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its subsidiaries as in effect for the
Employee at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee, as in effect at any time
thereafter with respect to other key employees of the Company and its
subsidiaries.

5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Employee's death during the
Employment Period. If the Company determines in good faith that Disability of
the Employee has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth below), it may give to the Employee written
notice of its intention to terminate the Employee's employment. In such event,
the Employee's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Employee (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Employee shall
not have returned to full-time performance of the Employee's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Employee
from the Employee's duties with the Company on a full-time basis for 180
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the

8
<PAGE>

Company or its insurers and acceptable to the Employee or the Employee's legal
representatives (such agreement as to acceptability not to be withheld
unreasonably).

(b) Cause. The Company may terminate the Employee's employment during the
Employment Period for "Cause." For purposes of this Agreement, "Cause" means (i)
an act or acts of personal dishonesty taken by the Employee and intended to
result in personal enrichment of the Employee at the expense of the Company,
(ii) repeated material breaches by the Employee of the Employee's obligations
under Section 4(a) of this Agreement (other than as a result of incapacity due
to physical or mental illness) which are demonstrably willful and deliberate on
the Employee's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Company specifying such breach or (iii)
the conviction of the Employee of a felony.

(c) Good Reason. The Employee's employment may be terminated by the
Employee during the Employment Period for Good Reason. For purposes of this
Agreement, "Good Reason" means:

(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company or any affiliate which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Employee;

<PAGE>

(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the Employee;

(iii) The Company's requiring the Employee to be based at any office
or location other than that described in Section 4(a)(i)(B) hereof, except
for travel reasonably required in the performance of the Employee's
responsibilities;

(iv) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Employee shall be conclusive.

(d) Notice of Termination. Any termination by the Company for Cause or by
the Employee for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's employment under the
provisions so indicated, and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15)

10
<PAGE>

days after the giving of such notice). The failure by the Employee or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Employee or the Company hereunder or preclude the Employee or the Company
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.

(e) Date of Termination. "Date of Termination" means the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be; provided, however, that (i) if the Employee's employment is terminated by
the Company other than for Cause or Disability, the Date of Termination shall be
the date on which the Company notifies the Employee of such termination, and
(ii) if the Employee's employment is terminated by reason of death or
Disability, the Date shall be the date of death of the Employee or the
Disability Effective Date, as the case may be.

6. Obligations of the Company upon Termination. (a) Good Reason; Other than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Employee's employment other than for Cause, Disability or
death or if the Employee shall terminate his employment for Good Reason:

(i) the Company shall pay to the Employee in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following
amounts;

(A) to the extent not theretofore paid, the Employee's Annual
Base Salary through the Date of Termination; and

11
<PAGE>

(B) the product of (x) the Annual Bonus (computed as if any bonus
amount paid in stock pursuant to the Company's executive stock
ownership policy was paid in cash) paid to the Employee for the last
full fiscal year (if any) ending during the Employment Period or, if
higher, the Annual Bonus paid to the Employee for the last fiscal year
prior to the Effective Date (as applicable, the "Recent Bonus") and
(y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination and the
denominator of which is 365; and

(C) in the case of compensation previously deferred by the
Employee, all amounts previously deferred (together with any accrued
interest thereon) and not yet paid by the Company, and any accrued
vacation pay not yet paid by the Company (the sum of the amounts in
clauses (A), (B), and (C) shall be hereinafter referred to as the
"Accrued Obligations"); and

(D) the product of (x) 2.00 and (y) the sum of (i) the Annual
Base Salary and (ii) the Recent Bonus; and

(E) all amounts in the Employee's retirement plan accounts which
will become fully vested upon the Date of Termination notwithstanding
the existing vesting schedule; and

12
<PAGE>

(ii) for two years from the Date of Termination, or such longer period
as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Employee and/or the Employee's family at least
equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Employee's employment had not been terminated,
including health insurance and life insurance, in accordance with the most
favorable plans, practices, programs or policies of the Company and its
subsidiaries during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Employee, as in effect at any time
thereafter with respect to other key employees of the Company and its
subsidiaries and their families and for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and policies, the
Employee shall be considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such period. If
the terms of any benefit plan referred to in this section do not permit
continued participation by the Employee, then the Company will arrange for
other coverage, providing substantially similar benefits.

(iii) all options and similar awards granted to Employee by the
Company shall immediately vest notwithstanding any vesting schedule in any
option or award agreement.

13
<PAGE>

(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than payment of the Accrued Obligations. All such Accrued
Obligations shall be paid to the Employee's estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Date of
Termination. Anything in this Agreement to the contrary notwithstanding, the
Employee's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its subsidiaries to
surviving families of employees of the Company and such subsidiaries under such
plans, programs, practices and policies relating to family death benefits, if
any, in accordance with the most favorable plans, programs, practices and
policies of the Company and its subsidiaries in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee and/or the Employee's family, as in effect on the date of the
Employee's death with respect to other key employees of the Company and its
subsidiaries and their families.

(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than payment of all
Accrued Obligations. All such Accrued Obligations shall be paid to the Employee
in a lump sum in cash within 30 days of the Date of Termination. Anything in
this Agreement to the contrary notwithstanding, the Employee shall also be
entitled after the Disability Effective Date to receive disability and other
benefits at least equal to the most

14
<PAGE>

favorable of those provided by the Company and its subsidiaries to disabled
employees and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the Company and its
subsidiaries in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Employee and/or the
Employee's family, as in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries and their families.

(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Employee other than the obligation
to pay to the Employee the Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the Employee
(together with accrued interest thereon) in each case to the extent theretofore
unpaid. If the Employee terminates employment other than for Good Reason, this
Agreement shall terminate without further obligations to the Employee, other
than those obligations accrued or earned and vested (if applicable) by the
Employee through the Date of Termination, including for this purpose, all
Accrued Obligations. All such Accrued Obligations shall be paid to the Employee
in a lump sum in cash within 30 days of the Date of Termination.

15
<PAGE>

subsidiaries and for which the Employee may qualify, nor shall anything herein
limit or otherwise affect such rights as the Employee may have under any stock
option or other agreements with the Company or any of its subsidiaries. Amounts
which are vested benefits or which the Employee is otherwise entitled to receive
under any plan, policy, practice or program of the Company or any of its
subsidiaries at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program.

8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Employee or others. In no event shall the Employee be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this Agreement.
The Company agrees to pay, to the full extent permitted by law, all legal fees
and expenses which the Employee may incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof, plus in each case interest at the applicable
Federal rate provided for in Section7872(f)(2) of the Code for any period during
which the Company is in default in its obligation to make any payment hereunder.

16
<PAGE>

(b) If there shall be any dispute between the Company and the Employee (i)
in the event of any termination of the Employee's employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Employee, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Employee of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Employee's family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 6 as though such
termination were by the Company without Cause or by the Employee for Good
Reason; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Employee to repay all such amounts to which
the Employee is ultimately adjudged by such court not to be entitled.

9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest and penalties, and
hereinafter collectively referred to as the "Excise Tax"),

17
<PAGE>

then the Employee shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Employee of all
taxes, including any income or Excise Tax imposed upon the Gross-Up Payments,
the net amount payable to Employee hereunder shall be equal to the aggregate
amount Employee would have received hereunder if such Excise Tax were not
applicable.

(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall be made by Arthur
Andersen & Co. (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Employee within 25 days of the Date of
Termination, if applicable, or such earlier time as is requested by the Company.
The initial Gross-Up Payment, if any, as determined pursuant to this Section
9(b), shall be paid to the Employee within 5 days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable to the Employee, it shall furnish the Employee with an
opinion that he has substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting Firm shall be
binding upon the Company and the Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the Employee
thereafter is required

18
<PAGE>

to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Employee.

(c) The Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee knows of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Employee shall not pay such claim
prior to the expiration of the thirty-day period following the date on which the
Employee gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Employee in writing prior to the expiration of such period
that it desires to contest such claim, the Employee shall:

(i) give the Company any information reasonably requested by the
Company relating to such claim;

(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company;

(iii) cooperate with the Company in good faith in order effectively to
contest such claim;

19
<PAGE>

(iv) permit the Company to participate in any proceedings relating to
such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including attorneys fees and any additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee, on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax or income tax, including interest or penalties with respect thereto, imposed
with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year

20
<PAGE>

of the Employee with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Employee shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other authority.

(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 9(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the employee shall not be entitled to any refund with respect to such claims and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

21
<PAGE>

knowledge (other than by acts by the Employee or his representatives in
violation of this Agreement). After termination of the Employee's employment
with the Company, the Employee shall not, without the prior written consent of
the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute a basis for
deferring or withholding any amounts otherwise payable to the Employee under
this Agreement.

11. Successors. (a) This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets.

22
<PAGE>

12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto and their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employee:

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

If to the Company:

Keystone International, Inc.
9600 West Gulf Bank Road
Houston, Texas 77240
Attention: Board of Directors

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressees.

(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.

23
<PAGE>

(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.

(e) The Employee's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof.

(f) This Agreement contains the entire understanding of the Company and the
Employee with respect to the subject matter hereof.

(g) The Employee and the Company acknowledge the employment of the
Employee by the Company is "at will", and, prior to the Effective Date, may be
terminated by either the Employee or the Company at any time. Upon a termination
of the Employee's employment prior to the Effective Date, there shall be no
further rights under this Agreement.

[Remainder of page intentionally left blank--signature page follows.]

24
<PAGE>

IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.

---------------------------------
Name:

KEYSTONE INTERNATIONAL, INC.

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

<PAGE>

Exhibit 10.4

EXECUTIVE SEVERANCE AGREEMENT

AGREEMENT by and between Keystone International, Inc. (the "Company") and
Nishan Teshoian (the "Employee"), dated as of the 15th day of December, 1995.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

<PAGE>

(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the fifth anniversary of such date.

2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:

2
<PAGE>

3. Employment Period. The Company hereby agrees to continue the Employee in
its employ, and the Employee hereby agrees to remain in the employ of the
Company, in accordance with the terms and provisions of this Agreement for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").

3
<PAGE>

4. Terms of Employment. (a) Position and Duties.

4
<PAGE>

5
<PAGE>

ownership policy) at least equal to the highest annual bonus payable to the
Employee from the Company and its subsidiaries in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date (or the
annualized bonus for any fiscal year consisting of less than twelve full months
or with respect to which the Employee has been employed by the Company for less
than twelve full months).

(iii) Incentives Savings and Retirement Plans. In addition to Annual Base
Salary and Annual Bonus payable as herein provided, the Employee shall be
entitled to participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other key employees of the Company and its subsidiaries. Such plans, practices,
policies and programs, in the aggregate, shall provide the Employee with
compensation, benefits and reward opportunities at least as favorable as the
most favorable of such compensation, benefits and reward opportunities provided
by the Company for the Employee under such plans, practices, policies and
programs as in effect at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Employee, as provided at any
time thereafter with respect to other key employees of the Company and its
subsidiaries.

6
<PAGE>

7
<PAGE>

5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Employee's death during the
Employment Period. If the Company determines in good faith that Disability of
the Employee has occurred during the Employment Period (pursuant to the
definition of "Disability" as set forth below), it may give to the Employee
written notice of its intention to terminate the Employee's employment. In such
event, the Employee's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Employee (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Employee shall not have returned to full-time performance of the Employee's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Employee from the Employee's duties with the Company on a full-time basis
for 180 calendar days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected
by the

8
<PAGE>

Company or its insurers and acceptable to the Employee or the Employee's legal
representatives (such agreement as to acceptability not to be withheld
unreasonably).

(c) Good Reason. The Employee's employment may be terminated by the
Employee during the Employment Period for Good Reason. For purposes of this
Agreement, "Good Reason" means:

9
<PAGE>

(iv) any purported termination by the Company of the Employee's
employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Employee shall be conclusive.

<PAGE>

(i) the Company shall pay to the Employee in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following
amounts;

(A) to the extent not theretofore paid, the Employee's Annual
Base Salary through the Date of Termination; and

<PAGE>

(D) the product of (x) 3.00 and (y) the sum of (i) the Annual
Base Salary and (ii) the Recent Bonus; and

(E) all amounts in the Employee's retirement plan accounts which
will become fully vested upon the Date of Termination notwithstanding
the existing vesting schedule; and

<PAGE>

(ii) for three years from the Date of Termination, or such longer
period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Employee and/or the Employee's family at
least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Employee's employment had not been
terminated, including health insurance and life insurance, in accordance
with the most favorable plans, practices, programs or policies of the
Company and its subsidiaries during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Employee, as in effect at
any time thereafter with respect to other key employees of the Company and
its subsidiaries and their families and for purposes of eligibility for
retiree benefits pursuant to such plans, practices, programs and policies,
the Employee shall be considered to have remained employed until the end of
the Employment Period and to have retired on the last day of such period.
If the terms of any benefit plan referred to in this section do not permit
continued participation by the Employee, then the Company will arrange for
other coverage, providing substantially similar benefits.

(iii) all options and similar awards granted to Employee by the
Company shall immediately vest notwithstanding any vesting schedule in any
option or award agreement.

<PAGE>

(e) The payments made to Employee pursuant to this Agreement shall be in
lieu of any amounts to which Employee would otherwise be entitled pursuant to
the

<PAGE>

paragraph labeled "Termination" in the letter dated July 12, 1995 to Employee
from the Company describing the terms of Employee's employment.

7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Amounts which are vested benefits or which the Employee is
otherwise entitled to receive under any plan, policy, practice or program of the
Company or any of its subsidiaries at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program.

<PAGE>

provision of this Agreement or any guarantee of performance thereof, plus in
each case interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code for any period during which the Company is in
default in its obligation to make any payment hereunder.

<PAGE>

Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, and hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes, including any income or Excise Tax imposed
upon the Gross-Up Payment, the net amount payable to Employee hereunder shall
be equal to the aggregate amount Employee would have received hereunder if such
Excise Tax were not applicable.

<PAGE>

Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee.

(i) give the Company any information reasonably requested by the
Company relating to such claim;

(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without

<PAGE>

limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company;

(iii) cooperate with the Company in good faith in order effectively to
contest such claim;

(iv) permit the Company to participate in any proceedings relating to
such claim;

<PAGE>

harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Employee with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other authority.

(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 9(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claims and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

<PAGE>

10. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and their
respective businesses, which shall have been obtained by the Employee during the
Employee's employment by the Company or any of its subsidiaries and which shall
not be or become public knowledge (other than by acts by the Employee or his
representatives in violation of this Agreement). After termination of the
Employee's employment with the Company, the Employee shall not, without the
prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Employee under this Agreement.

(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.

<PAGE>

required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets.

If to the Employee:

Nishan Teshoian
24 Misty Grove Circle
The Woodlands, Texas 77380

If to the Company:

Keystone International, Inc.
9600 West Gulf Bank Road
Houston, Texas 77240
Attention: Board of Directors

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressees.

<PAGE>

(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.

(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.

(e) The Employee's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof.

(f) This Agreement contains the entire understanding of the Company and the
Employee with respect to the subject matter hereof.

[Remainder of page intentionally left blank--signature page follows.]

<PAGE>

/s/ Nishan Teshoian
---------------------------------
Nishan Teshoian

KEYSTONE INTERNATIONAL, INC.

By: /s/ Allen F. Rhodes
------------------------------
Chairman of the Compensation Committee
of the Board of Directors

<PAGE>

Exhibit 10.5

TRANSITION AGREEMENT

This Agreement (the "Agreement") dated as of July 19, 1995, is entered into
by and between Keystone International, Inc., a Texas corporation ("Company") and
Raymond A. LeBlanc ("Executive").

W I T N E S S E T H:

Whereas, Executive is presently serving the Company as its chairman of the
board and chief executive officer; and

Whereas, Executive will cease to serve the Company in such capacities on
July 31, 1995 (the "Effective Date"), and absent this Agreement his employment
with the Company would then terminate; and

Whereas, the parties are desirous of providing for the continued employment
of Executive beyond the Effective Date and desire to formalize such continuing
employment relationship;

Now, Therefore, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:

1. Board Approval. This Agreement is subject to approval of the board of
directors of the Company (the "Board"). If the Board has not approved this
Agreement by July 20, 1995, then this Agreement shall be null and void.

2. If this Agreement is approved by the Board as contemplated in paragraph
1, the Company agrees it will employ the Executive and the Executive agrees to
serve the Company for a period beginning on the Effective Date and ending at the
earlier of (i) Executive's death or (ii) unless sooner terminated in accordance
with paragraph 5, July 31, 2001 (with the earliest of such events to occur being
hereinafter referred to as the "Expiration Date").

3. Nature of Duties.

(a) Active Period. Until 60 days from the Effective Date (the "Active
Period"), the Executive shall serve the Company in an executive capacity and, if
so requested by the Company's chief executive officer, shall devote
substantially his full time during normal business hours to insuring an orderly
management transition at the Company and shall undertake such additional
executive duties during the Active Period (of a stature and dignity appropriate
to a former chief executive officer of the Company) as shall be assigned to
Executive by the chief executive officer of the Company.

(b) Transition Period. Commencing upon expiration of the Active Period
and ending on the Expiration Date (the "Transition Period"), Executive shall
consult with the Company's chief executive officer on an "as requested" basis,
but such services shall not be required during more than two days in any week.
In addition, such services will be required only at such times and such places
as will result in the least inconvenience to Executive, having regard for other
business commitments during such period which may obligate him to meet such
other commitments prior to

<PAGE>

performing services requested hereunder. To the end that there shall be a
minimum interference with Executive's other commitments, his Transition Period
services shall be rendered by personal consultation at his residence or office,
wherever maintained, or by correspondence through the mails, telephone, or
telegraph, including weekends and evenings, as may be most convenient to
Executive. During the Transition Period, Executive shall not be obligated (i) to
act as a member of the board of directors of the Company or any of its
subsidiaries, (ii) to occupy any office of the Company or any of its
subsidiaries, or (iii) to render any services whatsoever to the Company or any
of its subsidiaries other than those specified in this paragraph 3(b). During
the Transition Period, Executive may accept employment with any employer other
than an employer which is prohibited by paragraph 5(a) of this Agreement.

4. (a) Compensation. As compensation for the Executive's services, the
Company agrees to pay the Executive from the Effective Date through the
Expiration Date, basic compensation at a rate of $18,375 per month (the "Base
Salary"), payable on a current basis not less frequently than monthly in
accordance with the Company's established policy, subject only to such payroll
and withholding deductions as may be required by law.

(b) In addition to the Base Salary payable during the remainder of 1995,
the Executive shall be awarded 7/12ths of the bonus, if any, which he would have
otherwise earned in respect of the 1995 year had he continued to serve as
chairman of the board and chief executive officer of the Company throughout the
remainder of 1995, such bonus to be calculated in the manner and payable (in
cash only) at the time bonuses are calculated and paid in respect of the 1995
year for senior executive officers generally. Other than as provided for in this
paragraph 4(b), the Executive shall not be eligible for any bonus compensation
which is calculable or payable for any accounting period ending subsequent to
July 31, 1995.

(c) Expense Reimbursement. The Company shall reimburse the Executive for
all direct out-of-pocket expenses incurred by him in the performance of services
through the Expiration Date at the specific request of the Company's chief
executive officer, to the extent such expenses are consistent with the Company's
normal expense reimbursement policies.

(d) Insurance and Defined Contribution Plan Benefits Through the
Transition Period. To the extent permitted by applicable plan provisions, the
Executive and his spouse shall be permitted to continue participation through
the Expiration Date in all medical, health, Exec-U-Care, life, accidental death
and disability insurance programs and non-contributory defined contribution
plans (i.e., the base and supplemental profit sharing and ESOP plans) maintained
by the Company for the benefit of its executive officers, with all premium and
medical reimbursement expense of insurance plans to be borne by the Company to
the same extent applicable to executive officers generally.

(e) Office and Auto Allowance. The Executive will maintain an office
from and after the Effective Date at his home or in other premises of his choice
at a location other than Company owned or leased premises, and in lieu of any
other expense reimbursement for the costs of such office facilities and
secretarial support and any business automobile used by Executive, the

2
<PAGE>

Company will pay to Executive a monthly automobile and office allowance of
$2,000, payable monthly in arrears, from the Effective Date through the
Expiration Date.

(f) Club Dues and Expenses. Executive agrees to accept sole
responsibility for all dues and usage charges incurred after the date of this
Agreement for country club and luncheon club memberships held by him in his
individual name or owned by the Company for Executive's designated use. The
Company hereby relinquishes any interest it may have in such individually-owned
memberships and agrees to cooperate with Executive in converting (at no
out-of-pocket cost to the Company) any Company-owned corporate club memberships
on which Executive is the designated user into individual memberships in the
name of Executive. If Executive is unable to so convert any Company-owned
membership into an individual membership by December 31, 1995, the Executive
agrees to cooperate with the Company in effecting a transfer of the use
privilege to one or more Company-designated successor users.

(g) Tax and Financial Planning Services. In lieu of continuing to
reimburse Executive's cost of tax and financial consulting services, the Company
will pay to Executive a non-accountable annual stipend of $5,000 through the
Expiration Date.

(h) Business Automobiles. The Company agrees to sell to Executive and
Executive agrees to purchase from the Company as of the Effective Date, the
Company-owned business automobile presently used by Executive on an as-is basis,
at a cash price equal to its depreciated book carrying value.

(i) Business Furniture and Equipment. The Company agrees to transfer to
Executive at no cost the furniture located in Executive's personal office at
5600 West Gulf Bank Drive, Houston, Texas and the Company-owned office equipment
presently located at Executive's residence.

(j) No Other Benefits. In view of the part-time character of Executive's
duties hereunder, Executive hereby irrevocably declines, waives and rejects
participation at all times after the Effective Date in any Company benefit plan
in which participation is at the option of employees; provided, however, that
this provision shall not affect the terms of any outstanding stock options or
stock grants held by Executive.

5. Noncompetition/Nonsolicitation; No Detrimental Conduct.

(a) Noncompetition. From and after the date hereof, Executive agrees
that all times through the Expiration Date, he will refrain from serving as an
owner, financier, director, officer, agent, representative or employee of, or
consultant to, any "Competing Business". For purposes of this Agreement, the
term "Competing Business" means any corporation, partnership, joint venture,
unincorporated business association, business trust, proprietorship or any other
form of business enterprise wherever located which at any time during such
period engages, directly or indirectly, in the design, manufacture, assembly,
marketing, sale, lease, distribution, or service of valves, actuators, steam
traps or any other device or contrivance (i) used for controlling the flow of

3
<PAGE>

liquids, solids or gases, and (ii) competitive with any product manufactured,
marketed, distributed and/or sold by the Company or any of its direct or
indirect subsidiaries now or through the Expiration Date.

(b) Nonsolicitation. From and after the date hereof, Executive further
agrees that at all times through the Expiration Date, he will not, in any way,
directly or indirectly (i) solicit, divert, or take away, or attempt to solicit,
divert, or take away, from the Company the business of any customer for any
product or service of the Company or any of its direct or indirect subsidiaries
sold or offered for sale prior to the Expiration Date or (ii) attempt to seek to
cause any such customer to refrain, in any respect, from acquiring from or
through the Company or any of its direct or indirect subsidiaries any product or
service of the Company sold or offered for sale prior to the Expiration Date.

(c) No Detrimental Conduct. From and after the date hereof, Executive
agrees that at all times hereafter he will not engage in any conduct detrimental
to the Company (including any conduct in violation of paragraph 7 hereof), such
determination to be made by the Company's Committee as provided in paragraph
5(d) hereof.

(d) Committee. All determinations with respect to compliance or
noncompliance by Executive with the provisions of clauses (a), (b) and (c) of
this paragraph 5 shall be within the reasonable discretion of the compensation
committee of the board of directors of the Company ("Committee"), acting in its
official capacity. Absent manifest error, bad faith, or arbitrary or capricious
exercise of discretion, any such determination by the Committee shall be final
and binding upon both parties. In making any such determination, the Committee
shall be obligated to use only ordinary care and to make reasonable inquiry with
respect to factual matters. Promptly following any determination that Executive
is in breach of clauses (a), (b) or (c) of this paragraph 5 or of paragraph 7,
the Committee shall give Executive written notice stating in reasonable detail
the basis for such determinations. Such notice shall give Executive five days to
remedy violations of any clause of this paragraph 5. Any payments due Executive
under this Agreement shall be stayed for said five day period and shall not be
restored unless such violations are corrected within said five day period. If
violations of this paragraph 5 are not corrected, or if Executive violates
paragraph 7 hereof, then Executive shall forfeit all remaining payments and
benefits which would otherwise be made available to him pursuant to this
Agreement.

(e) Petition. In the event that Executive desires to engage in any
activity which might constitute a breach of paragraphs 5(a), (b) or (c), he may
petition the Committee for an interpretation in advance of undertaking the
proposed activity for a determination whether the proposed activity would
constitute a breach or request a written waiver from the Committee. The
Committee will consider any such petition within five business days after
receipt and will respond promptly in writing.

(f) Binding Arbitration. Should any disputes arise between the parties
regarding any determination made by the Committee, each of the parties hereby
irrevocably agrees that the exclusive remedy of each of them shall be to
commence binding arbitration proceedings under the

4
<PAGE>

rules of the American Arbitration Association, with any such arbitration
proceeding to be conducted in Houston, Texas, applying the substantive law of
the State of Texas. Each party agrees to deposit with the neutral arbitrator, an
amount equal to 50% of the arbitrator's preliminary estimate of the costs of
arbitration (excluding counsel fees) as security for costs. Actual costs of
arbitration (including counsel fees of both parties) shall be apportioned by the
arbitrator in such manner as he shall deem equitable in light of any final
arbitration award.

6. Contemporaneous with the execution of this Agreement, Executive has
executed and delivered the letter of resignation attached to this Agreement as
Exhibit A.

7. Confidentiality. Executive agrees and acknowledges that he is currently
bound by, and after the date of this Agreement will continue to be bound by, the
Company's "Employee Invention and Confidential Disclosure Agreement." Executive
agrees and acknowledges that agreement restricts him from disclosing any
proprietary information (including, without limitation, customer lists, price
discounts, sales information, company methods of doing business, accounting
procedures, production methods, engineering designs, and any other items that
are not published for general distribution to the public) in an unauthorized
manner. Executive agrees to keep the terms and conditions of this Agreement
confidential; provided, however, that Executive may disclose the terms of this
agreement to his spouse, attorney and accountant and to any prospective
employer, if he obtains the prior agreement of such person to hold such
information in confidence. Without limiting any other remedy available under
this Agreement or under applicable law, a violation of this paragraph 7 shall
constitute an irreparable breach of this Agreement and shall result in (i) a
forfeiture of all unpaid amounts to which Executive would otherwise be entitled
hereunder and (ii) the immediate termination of any then existing employment
relationship.

8. Supplemental Retirement Benefits. Subject to any prior termination of
this Agreement pursuant to paragraph 5, during the period commencing on the
Expiration Date and ending on the later of (i) Executive's death or (ii) the
death of his spouse (the "Retirement Period"), the Company shall:

(x) pay to Executive or his estate, as the case may be, a monthly
stipend of $5,000; plus

(y) provide to Executive and his spouse the same medical benefits to
which the Company's executive officers (and their spouses) are
entitled to receive.

During the Retirement Period, Executive shall not be entitled to any
compensation or other benefits except as set forth in this paragraph 8, shall
not be required to perform any services for the Company, shall not be an
employee of the Company, and may accept employment with any other employer or
participate in any other business venture without limitation.

9. Severability. If any provision of this Agreement shall be adjudged by a
court of competent jurisdiction to be void or unenforceable, that finding shall
in no way affect any other provision of this Agreement or the validity or
enforceability of this Agreement. However, if any court

5
<PAGE>

having jurisdiction over the parties shall issue any order (i) holding the
provisions of paragraphs 5(a), 5(b), 5(c) or 7 to be void or unenforceable, then
any obligation of Keystone to make further payments hereunder shall be deemed to
have been extinguished in full, or (ii) reforming the provisions of paragraph
5(a) so as to restrict or reduce its duration, geographic scope or the
activities prohibited, then the Company's ongoing payment obligations shall be
deemed to have been correspondingly reduced in amount or value, determined in
the Company's sole discretion by such equitable method as shall reasonably
reflect the lessened value of Executive's covenant not to compete for such
shorter period, in such lesser territory, or in such more restricted scope of
activity, as the case may be.

10. Notices. All notices under this Agreement shall be in writing and given
either in person or mailed first class mail, postage prepaid, to the address of
the party to this Agreement set forth below his or its signature to such other
address as a party to this Agreement may furnish to the other as provided in
this sentence.

11. Binding Agreement; Captions. This Agreement is binding upon the parties
to this Agreement and their respective legal representatives, heirs, devisees,
legatees or other successors and assigns. Titles and captions of or in this
Agreement are inserted only as a matter of convenience and for reference and in
no way affect the scope of this Agreement or the intent of its provisions.

12.Entire Agreement. This Agreement constitutes the entire agreement of the
parties to this Agreement with respect to its subject matter, supersedes all
prior agreements, if any, of the parties to this Agreement with respect to its
subject matter, and may not be amended except in writing signed by the party to
this Agreement against whom the change is being asserted.

13. Release. Executive hereby unconditionally and irrevocably forever
releases and discharges the Company, its officers, employees, shareholders,
agents and assigns, and all other persons, firms or corporations in control of,
under the direction of, or associated with the Company (for purposes of this
paragraph 13, collectively the "Employer") from all claims, charges,complaints,
obligations, liabilities, promises, agreements, contracts, damages, causes of
action, suits, accrued benefits or other liabilities of any kind or character,
whether known or hereafter discovered, arising from or in any way connected with
or related to Executive's employment with Employer or the terms under which such
employment is to be continued and terminated in the future or the terms of any
supplemental retirement benefit herein provided for; provided, however, that
such release shall not affect (i) the Company's future obligations to Executive
under this Agreement, under the Company's Articles of Incorporation, Bylaws or
any preexisting contractual indemnity agreement, or (ii) its indemnity
obligations to Executive with respect to any litigation against the Company, its
subsidiaries or corporate affiliates, or against Executive by third parties.
Executive voluntarily accepts the consideration described in this Agreement as
sufficient payment for the foregoing release and agrees that no other promises
or representations have been made to him by the Company or any other person
purporting to act on the behalf of the Company, except as expressly stated
herein.

14. Survival. Anything else in this Agreement to the contrary
notwithstanding, the representations, warranties, covenants and agreements
herein contained shall survive the termination of Executive's employment with
the Company.

6
<PAGE>

15. Miscellaneous. The failure of any party to this Agreement at any time
or times to require the performance of any provisions of this Agreement shall in
no manner affect the right to enforce the same; and no waiver by any party to
this Agreement of any provision (or of a breach of any provision) of this
Agreement, whether by conduct or otherwise, shall be deemed or construed either
as a further or continuing waiver of any such provision or breach or as a waiver
of any other provision (or of a breach of any other provision) of this
Agreement. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Texas. This Agreement may be executed
in two or more copies, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement or its terms to produce or
account for more than one of such copies.

In Witness Whereof, the undersigned have executed this Agreement effective
as of the date first above written, subject to approval of the Board of
Directors of the Company.

The Company: KEYSTONE INTERNATIONAL, INC.

By: /s/ F. O. Griffin
---------------------------

Address:
9600 West Gulf Bank Drive
Houston, Texas 77040

Executive: /s/ R. A. LeBlanc
---------------------------
R. A. LeBlanc

Address:
6 Windermere
Houston, Texas 77063

<PAGE>

Exhibit A

July 19, 1995

The Board of Directors
Keystone International, Inc.
9600 West Gulf Bank Drive
Houston, Texas 77040

Gentlemen:

I hereby resign from my position as chairman of the board of directors,
chief executive officer and a director of Keystone International, Inc.
("Keystone") but not as an employee of Keystone, and I also resign from any and
all directorships, officerships and other positions that I hold with each
directly and indirectly held subsidiary and corporate affiliate of Keystone,
effective July 31, 1995.

Very truly yours,

/s/ R. A. LeBlanc

R. A. LeBlanc

<PAGE>

EXHIBIT 21.1

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT

The following subsidiaries are included in the Company's Consolidated Financial
Statements are wholly owned, with the exception of Keystone Valve (Korea)
Limited, which is 90% owned, Keystone Valves (India) Pvt. Limited, which is 51%
owned and Gachot, S.A. and its subsidiary S.I.R.R.O.S. which are 95% 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
(doing business as Keystone Valve U.S.A., Inc. and Keystone Controls, Inc.).

(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 (doing business as Yarway Corporation and Keystone Vanessa, Inc.).

(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 (doing business as Anderson, Greenwood & Co. and A-G Safety Sales &
Services of Texas, Inc.).

(9) A-G Safety Sales, Inc., incorporated under the laws of the State of
Louisiana.

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

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

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

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

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

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

(16) Keystone Canada, Inc., incorporated under the laws of the Providence of
Ontario, Canada.

(17) Keystone do Brasil, Ltd., incorporated under the laws of the Federal
Republic of Brazil.

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

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

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

(21) Keystone G.m.b.H., incorporated under the laws of the Federal Republic of
Germany.

(22) Biffi Italia, S.r.l., incorporated under the laws of Italy.

(23) Keystone Vanessa S.r.l., incorporated under the laws of Italy.

<PAGE>

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

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

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

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

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

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

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

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

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

(33) Phoenix Automation International, Inc., incorporated under the laws of the
State of Texas.

(34) Keystone International Distribution Company, Inc., incorporated under the
laws of the State of Delaware.

(35) Keystone France Holdings Corporation, incorporated under the laws of the
State of Delaware.

(36) Keystone Germany Holdings Corporation, incorporated under the laws of the
State of Delaware.

(37) Keystone Middle East, Inc., incorporated under the laws of the State of
Delaware.

(38) Chemat G.m.b.H., incorporated under the laws of the Federal Republic of
Germany.

(39) Chemat Verw., incorporated under the laws of the Federal Republic of
Germany.

(40) Yarway Properties, Inc., incorporated under the laws of the State of North
Carolina

(41) Keystone Asia Pacific Pty. Ltd., incorporated under the laws of Australia.

<PAGE>

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 2, 1996 included in this Form 10-K, into the
Company's previously filed Registration Statements File No. 33-37053, File No.
33-69814 and File No. 33-50845.

ARTHUR ANDERSEN LLP

March 7, 1996
Houston, Texas

<PAGE>
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