<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
of the Securities Exchange Act of 1934
For the quarterly period ended June 27, 1997
Commission File Number 0-2115
KEYSTONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1058689
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 WEST GULF BANK DRIVE, HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 466-1176
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 [ ]
As of August 6, 1997 the number of shares of common stock outstanding was
35,798,296 excluding 335,269 treasury shares.
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 3 MONTHS 26 WEEKS 6 MONTHS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 30, JUNE 27, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 173.2 $ 173.6 $ 331.2 $ 337.8
-------- -------- -------- --------
Cost and Expenses:
Cost of sales 106.7 108.9 204.3 212.2
Selling, general and administrative 44.2 44.0 87.5 86.7
Interest expense 1.6 2.0 3.2 4.1
Interest income (0.2) (0.2) (0.5) (0.4)
Other (income) expense, net (0.9) 1.9 (0.4) 3.4
-------- -------- -------- --------
Income before Income Taxes 21.8 17.0 37.1 31.8
Provision for Income Taxes 8.3 6.3 14.1 11.8
-------- -------- -------- --------
Net Income $ 13.5 $ 10.7 $ 23.0 $ 20.0
======== ======== ======== ========
Weighted Average Outstanding
and Equivalent Shares 35.6 35.5 35.6 35.5
======== ======== ======== ========
Earnings Per Share $ .38 $ .30 $ .65 $ .56
======== ======== ======== ========
Cash Dividends Per Share $ .185 $ .185 $ .37 $ .37
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS)
JUNE 27, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 23.1 $ 24.8
Receivables (principally trade accounts,
net of allowances for doubtful accounts
of $7.4 at 6/27/97 and $6.3 at 12/31/96) 170.7 162.9
Inventories 138.3 142.1
Prepayments and other 6.2 6.3
--------- ---------
338.3 336.1
--------- ---------
Property, Plant and Equipment:
Land 20.6 22.4
Buildings and improvements 87.7 93.5
Machinery and equipment 242.2 237.5
--------- ---------
350.5 353.4
Less - accumulated depreciation 202.9 200.3
--------- ---------
147.6 153.1
Deferred Tax Asset 3.2 -
Other Assets 49.3 53.6
--------- ---------
52.5 53.6
--------- ---------
$ 538.4 $ 542.8
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 2.5 $ 2.4
Short-term bank borrowings 13.3 13.5
Accounts payable 45.0 40.5
Accrued liabilities 67.6 76.9
Dividends payable 6.6 6.6
Income taxes payable 8.9 4.5
--------- ---------
143.9 144.4
--------- ---------
Long-Term Debt:
6.34% Senior Notes payable 45.0 45.0
Other long-term notes payable 27.2 29.6
--------- ---------
72.2 74.6
--------- ---------
Deferred Income Taxes - 3.9
Other Long-Term Liabilities 18.1 19.1
--------- ---------
18.1 23.0
--------- ---------
Shareholders' Investment:
Common stock $1.00 par value, 100 million
shares authorized 36.0 35.9
Additional paid-in capital 114.2 113.8
Retained earnings 166.6 156.7
Treasury stock, at cost (5.3) (5.7)
Unamortized restricted stock grant expense (3.1) (3.5)
Foreign currency translation adjustments (4.2) 3.6
--------- ---------
304.2 300.8
--------- ---------
$ 538.4 $ 542.8
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS)
(UNAUDITED)
26 WEEKS 6 MONTHS
ENDED ENDED
JUNE 27, 1997 JUNE 30,1996
------------- ------------
Cash Flows From Operating Activities:
Net income $ 23.0 $ 20.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 12.9 12.3
Amortization 3.3 3.4
Decrease in deferred taxes (3.0) (1.6)
Gain on sale of property, plant and
equipment, net (2.5) (0.1)
Increase in receivables (7.8) (12.1)
Increase in prepayments and other assets (1.9) (1.6)
Decrease in inventories 3.8 13.2
Decrease in accounts payable and other
liabilities (11.8) (7.9)
Increase in income taxes payable 4.4 2.8
--------- ---------
Net Cash Provided by Operating Activities 20.4 28.4
--------- ---------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (14.9) (12.2)
Proceeds from sale of property, plant and
equipment 4.9 0.4
--------- ---------
Net Cash Used by Investing Activities (10.0) (11.8)
--------- ---------
Cash Flows From Financing Activities:
(Decrease) increase in short-term borrowings (0.2) 5.7
Payments of long-term debt (1.0) (1.6)
Proceeds from long-term borrowings 1.3 1.8
Cash dividends paid (13.2) (13.1)
Proceeds from stock plans and other 1.0 1.2
--------- ---------
Net Cash Used by Financing Activities (12.1) (6.0)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (1.7) 10.6
--------- ---------
Cash and Cash Equivalents at Beginning of Period 24.8 12.9
--------- ---------
Cash and Cash Equivalents at End of Period $ 23.1 $ 23.5
========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS)
(UNAUDITED)
(1) BASIS FOR PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, including significant accounting policies normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. All adjustments which are, in the
opinion of management, necessary to present a fair statement of the results of
the interim periods have been included. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest Form 10-K.
Effective in January 1997, the Company changed its fiscal year to consist of
three thirteen week periods and a fourth period which ends on December 31.
Management believes that the change in reporting periods did not have a material
impact on the Company's results of operations or financial position for the
first or second quarters of 1997. Prior year interim financial statements have
not been restated to reflect the new reporting calendar.
The Financial Accounting Standards Board has issued two new statements.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", is effective for years beginning after December 15, 1997,
and adoption is not expected to impact the financial results of the Company.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", is also effective in fiscal year 1998.
(2) ESTIMATES INVOLVED IN PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS
The Company's interim financial statements are prepared in accordance with
the same accounting policies followed at year-end. Certain items in the
financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and events that will occur later in the year. Several of the
significant accounting estimates related to the accompanying interim financial
statements are set forth below.
Inventories -
The Company performs physical counts of its inventories at various times
during the year. The amounts reflected as raw materials and parts, work-in-
process, and components, sub-assemblies and finished goods as of June 27, 1997,
and June 30, 1996, and thereby the related amounts for cost of sales, have been
determined using the Company's normal accounting procedures.
The majority of the Company's domestic inventories (approximately 34% of
consolidated inventories at December 31, 1996) are priced at cost using the LIFO
(last-in, first-out) method. Since amounts for inventories under the LIFO
method are based upon computations determined at year-end, the inventory at June
27, 1997, has been based on certain estimates of what quantities and costs will
be at December 31, 1997.
Inventories at June 27, 1997, and December 31, 1996, are comprised of the
following:
JUNE 27, DECEMBER 31,
1997 1996
------------- ------------
Raw materials and parts $ 15.9 $ 16.1
Work-in-process 17.9 14.8
Components, sub-assemblies and finished goods 106.8 113.3
Less: LIFO Adjustment (2.3) (2.1)
--------- ---------
$ 138.3 $ 142.1
========= =========
5
<PAGE>
Income Taxes -
The Company provides for income taxes for an interim period by making, at
the end of the interim period, an estimate of the effective tax rate expected to
be applicable for the full year and applying that rate to the current year-to-
date income before taxes.
(3) FOREIGN CURRENCY TRANSLATION AND COMMITMENTS
An analysis of changes in the foreign currency translation adjustments
included in Shareholders' Investment is as follows:
Balance as of December 31, 1996 $ 3.6
Currency translation adjustments (11.9)
Income tax adjustments 4.1
---------
Balance as of June 27, 1997 $ (4.2)
=========
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 its operations. These hedging techniques limit exchange rate
exposure and the resulting impact on the Company's reported margins.
At June 27, 1997, the Company had obligations of $6.3 under forward exchange
contracts primarily for Italian lire and Japanese Yen at various dates through
the fourth quarter of 1997. Deferred gains or losses related to these contracts
as of June 27, 1997, were not material.
(4) EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. There is no
significant difference between earnings per share on a primary and a fully
diluted basis.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which is effective for
fiscal years ending after December 15, 1997. When adopted, this statement
requires restatement of prior years' earnings per share. Had SFAS No. 128 been
adopted as of January 1, 1997, there would have been no effect on the Company's
earnings per share.
(5) INTEREST AND TAX PAYMENTS
Interest payments made during the thirteen and twenty-six week periods ended
June 27, 1997, were $2.3 and $3.1, respectively. This represented decreases of
$0.4 and $0.7 from the comparable periods of 1996.
Payments for income taxes made during the second quarter of 1997 and the
first half of 1997 were $10.6 and $10.7, respectively. Income tax payments for
the second quarter of 1996 and the first half of 1996 were $5.0 and $9.4,
respectively.
(6) FINANCIAL INSTRUMENTS
The Company's financial strategy includes the limited use of two types of
derivative financial instruments. It periodically enters into forward exchange
contracts to mitigate the exposure risk related to known future foreign currency
transactions. These specific transactions are accounted for in accordance with
the guidelines established in SFAS No. 52, "Foreign Currency Translation."
Transaction gains and losses are included in Other Income and Expense.
Additionally, the Company has entered into two interest rate swap agreements
in order to mitigate the risk of interest rate fluctuations on two specific
loans. These agreements replaced the original floating interest rates with
fixed interest rates and thereby provide the Company with the stability of
fixed interest expense and cash payments.
6
<PAGE>
(7) MERGER
On May 20, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among Tyco International Ltd., a Massachusetts
corporation ("Tyco"), T6 Acquisition Corp., a Texas corporation and direct,
wholly-owned subsidiary of Tyco (the "Subsidiary"), and the Company, which
Merger Agreement provides for the merger of the Subsidiary with and into the
Company. Pursuant to the Merger Agreement, the shareholders of the Company will
receive 0.54183 shares of common stock of Tyco, or its successor, for each share
of outstanding Company common stock, subject to certain adjustments and limits
as provided in the Merger Agreement. The transaction, which will be accounted
for as a pooling of interests, is contingent upon customary regulatory review
and approval by Keystone shareholders. The Boards of Directors of both
companies have approved the transaction, which is expected to close in late
August, 1997. It is also expected to be a tax-free transaction for Keystone
shareholders. On July 18, 1997, the Antitrust Division of the U.S. Department
of Justice issued to Tyco and the Company a request for additional information
and documentation. On July 29, 1997, Tyco filed an amended S-4 registration
statement in connection with the merger. Additionally, on July 29, 1997, the
Company mailed a proxy statement/prospectus to its shareholders announcing a
special shareholders' meeting to be held on August 28, 1997, to approve the
merger. Tyco and Keystone do not intend to consummate the Merger unless and
until the concerns identified by the Antitrust Division are resolved. Each
state and country where either Tyco or Keystone has operations may also review
the Merger under such jurisdiction's antitrust law. Keystone shareholders have
been asked to authorize a vote in favor of any proposal to adjourn the Special
Meeting to a later date, which adjournment is proposed or recommended by the
Chairman of the Special Meeting. There is no present intention to adjourn the
Special Meeting. However, without modifying Keystone's obligations under the
Merger Agreement, the Chairman could determine to propose to adjourn the Special
Meeting for any reason deemed advisable and in the best interests of Keystone
shareholders.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY
In management's discussion and analysis of financial condition and results
of operations, various comments are made regarding the Company's future
expectations or plans that constitute forward-looking statements for purposes of
the safe harbor provisions of the Private Securities Litigation Act of 1995.
Actual results may differ materially from those indicated by these forward-
looking statements as a result of certain factors described in the Company's
most recent Form 10-K and Annual Report to Shareholders.
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the accompanying consolidated statements of
income represent of total net sales of the Company and (ii) the percentage
increase or decrease of amounts of such items as compared to the corresponding
prior year period.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE OF NET SALES
----------------------- -----------------------
13 WEEKS 3 MONTHS 26 WEEKS 6 MONTHS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 30, % JUNE 27, JUNE 30, %
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 100.0 (0.2) 100.0 100.0 (2.0)
Cost and Expenses:
Cost of sales 61.6 62.7 (2.0) 61.7 62.8 (3.7)
Selling, general and administrative 25.5 25.3 0.5 26.4 25.7 0.9
Interest expense 0.9 1.0 (20.0) 1.0 1.2 (22.0)
Interest income 0.1 0.1 - 0.2 0.1 25.0
Other expense, net 0.5 1.0 * 0.1 1.0 *
Income before Income Taxes 12.6 9.8 28.2 11.2 9.4 16.7
Provision for Income Taxes 4.8 3.6 31.7 4.3 3.5 19.5
Net Income 7.8 6.2 26.2 6.9 5.9 15.0
</TABLE>
* percentage not meaningful
() denotes decrease
8
<PAGE>
RESULTS OF OPERATIONS (AMOUNTS IN MILLIONS)
Net sales for the thirteen and twenty-six week periods ended June 27, 1997,
decreased 0.2% and 2.0%, respectively, from the comparable periods of the prior
year. The Company's sales and results of operations outside the United States
are subject to the inherent risk of fluctuations in currency rates. For the
thirteen and twenty-six week periods ended June 27, 1997, sales declined $6.0
and $11.9, respectively, as a result of the fluctuation of several currencies,
primarily the European currencies, the Japanese yen and the Korean won against
the U.S. dollar.
Excluding currency effects, sales for the thirteen and twenty-six week
periods ended June 27, 1997, increased 3.4% and 1.6%, respectively, from the
comparable periods in 1996. These increases were primarily attributable to the
benefits of one additional shipping day during the second quarter of 1997. The
second quarter of 1997 also included sales of $1.4 for Century Valve and Machine
Ltd. and $0.7 for Keystone Valve India, both of which became fully consolidated
subsidiaries at the end of 1996. Additional sales increases resulted from
productivity improvements at Anderson Greenwood's Black Mountain facility and
Keystone Pacific plants.
The Company is structured into two major operating groups. The Industrial
Valves and Controls group provides standard flow control products to several
markets including the chemical, power, and food and beverage industries. The
Engineered Products group meets the more technical needs of processing
industries such as the chemical and petrochemical, oil and gas, and power
industries.
An analysis of net sales by operating group is shown below.
<TABLE>
<CAPTION>
% INCREASE % INCREASE
(DECREASE) vs. (DECREASE) vs.
13 WEEKS 3 MONTHS 26 WEEKS 6 MONTHS
ENDED ENDED ENDED ENDED
June 27, 1997 JUNE 30, 1996 JUNE 27, 1997 JUNE 30, 1996
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Industrial Valves and Controls $ 121.8 (1.9) $ 232.5 (3.9)
Engineered Products 51.4 3.8 98.7 2.9
-------- -------
Total Net Sales $ 173.2 (0.2) $ 331.2 (2.0)
======== ========
</TABLE>
For the thirteen and twenty-six week periods ended June 27, 1997, cost of
sales as a percentage of net sales decreased to 61.6% and 61.7% as compared to
the comparable prior year periods' percentages of 62.7% and 62.8%, respectively.
These improvements were based on cost reduction programs implemented at several
plants in the United States and Asia Pacific regions. The elimination of an
underperforming product line at Yarway further contributed to the reduction in
cost of sales for the first half of 1997.
Selling, general and administrative expenses for the thirteen and twenty-six
week periods ended June 27, 1997, increased 0.5% and 0.9% in relation to their
comparable periods in 1996. Excluding the effect of the strong U.S. dollar, the
percentage increases for the applicable periods rose to 3.6% and 4.4%,
respectively. These increases resulted primarily from severance costs related to
reductions in Yarway's worldwide sales force. Other contributing factors to the
increase in selling, general and administrative expenses included annual salary
adjustments and the addition of normal expenses incurred by the two newly
consolidated operations, Century Valve and Machine Ltd. and India.
Interest expense for the thirteen and twenty-six week periods ended June 27,
1997, decreased compared to the comparable periods in 1996 due primarily to a
decrease in the level of outstanding short-term debt. Additionally, the Company
discontinued the practice of factoring the receivables at a French ball valve
operation, the costs of which were classified as interest expense in 1996.
9
<PAGE>
Other expense, net, generally represents amortization of intangible assets,
as well as exchange gains and losses related to currency fluctuations. The
thirteen week period ended June 27, 1997, included a non-recurring gain of $1.9
related to the sale of property owned by Yarway. Combined with the $0.5 gain on
the sale of assets during the first quarter of 1997, the year-to-date gain was
$2.4. The fluctuation in foreign currencies compared to the U.S. dollar
resulted in a $0.3 gain for the second quarter of 1997 versus the $0.4 loss that
was incurred during the comparable period of 1996. The foreign currency effect
for the twenty-six week period ended June 27, 1997, also resulted in a $0.3
gain, however, the currency effect for the comparable period of 1996 was a $0.6
loss. Amortization costs for the thirteen and twenty-six week periods ended
June 27, 1997, were $0.2 and $0.4 less than the comparable periods of 1996.
The Company's income tax rate was 38% for the twenty-six week period ended
June 27, 1997, and 37% for the six month period ended June 30, 1996.
The Internal Revenue Service ("IRS") has examined the Company's federal
income tax returns for calendar years 1989 through 1992. The Company has
resolved most issues with the IRS for calendar years 1989 through 1991. In
addition, the IRS has recommended an assessment of additional tax for calendar
year 1992. The Company is vigorously contesting the remaining issues for these
years. 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.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN MILLIONS)
At June 27, 1997, the Company had working capital of $194.4 compared to
$191.7 at December 31, 1996. Management is not aware of any potential
impairments to the Company's liquidity and believes its internal and external
sources of cash will provide the necessary funds with which to meet its expected
capital requirements.
During the fourth quarter of 1995, the Company recorded a charge of $14.4
before income taxes, or $.28 per share, for restructuring and severance-related
costs. The fourth quarter 1995 charge related to restructuring plans focused on
streamlining of operations and divestiture of underperforming assets. These
steps were originally expected to result in the reduction of an additional 260
positions. Management currently believes the ultimate reduction of positions in
connection with these steps will be approximately 180, with 40 of these
positions related to business activities being divested and 140 associated with
ongoing operations.
The fourth quarter 1995 restructuring charge included severance and related
costs of $9.3, the write-down of certain assets totaling $2.7, and $2.4 of other
costs associated with divesting assets. The aggregate balance of the
restructuring-related liability as of June 27, 1997, was $2.2. The majority of
the liability related to the original charge was paid or settled during 1996,
with the remaining amount to be paid or settled during 1997. Management
believes the Company's restructuring plans are on track in terms of general
timing, charges against reserves, annualized savings and impact on results.
INFLATION
Since 1994, inflation has had a relatively minor effect on the majority of
Keystone's operations. However, in Brazil, which accounted for only 2% of net
sales and 5.9% of net income in the second quarter of 1997, inflation often
makes the operating environment somewhat difficult. A portion of the 1997
translation losses reflected in "Other expense, net" in the Consolidated
Statements of Income, included in Part I of this Report, resulted from these
operations.
At the end of 1996, Mexico's economy became highly inflationary.
Accordingly, effective January 1, 1997, the translation adjustments related to
the Company's operations in Mexico also have been reflected in "Other expense,
net" in the Consolidated Statements of Income. Mexico accounted for only 1.0%
of net sales and 3.0% of net income in the second quarter of 1997. The Company
does not expect this change to have a material effect on its consolidated
financial position or future results of operations.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
1.1 Supplemental Executive Retirement Plan.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on May 27, 1997, covering the
proposed merger with Tyco International, Ltd .
(c) Financial Data Schedule. 12
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
KEYSTONE INTERNATIONAL, INC.
DATE: August 8, 1997 By: /s/ Francis S. Kalman
_________________________
Francis S. Kalman
Senior Vice President and
Chief Financial Officer
DATE: August 8, 1997 By: /s/ Michael J. Kershaw
_________________________
Michael J. Kershaw
Corporate Controller
12
<PAGE>
EXHIBIT 1.1
KEYSTONE INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
[Effective: January 1, 1997]
<PAGE>
KEYSTONE INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Article I
Purpose
1.1 Purpose of Plan. The purpose of the Keystone International, Inc.
Supplemental Executive Retirement Plan (the "Plan") is to advance the interests
of Keystone International, Inc. (the "Company") and its subsidiaries and
affiliates (hereinafter sometimes collectively or individually referred to as
the "Employer") and of its shareholders by assisting the Employer in retaining
and attracting certain key executives for the successful conduct of its
business. The Employer hopes to accomplish this objective by providing for
certain supplemental retirement benefits and death benefits for such executives.
1.2 ERISA Status. The Plan is intended to qualify for the exemptions under
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") provided for plans that are unfunded and maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees.
Article II
Definitions
2.1 "Accrued Benefit" means, as calculated as of a particular date, the
Supplemental Retirement Benefit under Section 4.2 with Final Average
Compensation, offsets of employer-provided benefits, and Years of Service
(Service Prorate Factor) calculated as of the particular date.
2
<PAGE>
2.2 "Actuarial Basis" means a determination based on the following
actuarial assumptions:
(i) Interest Rate Assumptions:
. For lump sums - 30 year U.S. Treasury Bill rate in
effect as of the January 1st of the calendar year
such benefit is paid.
. For life annuities - 7% fixed rate.
(ii) Mortality assumptions - 83 GAM Mortality Table (male table
for a Participant and female table for the Spouse)
2.3 "Actuarially Equivalent" means a benefit which has the same value, on
an Actuarial Basis, as the benefit that it replaces.
2.4 "Actuary" means the actuary utilized by the Administrative Committee
for purposes of computing benefits under this Plan.
2.5 "Administrative Committee" means the committee designated to administer
the Plan.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Cause" means (i) an act or acts of personal dishonesty taken by a
Participant and intended to result in personal enrichment of Participant at the
expense of the Company, (ii) repeated material breaches by a Participant of
Participant's employment obligations with the Company (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful and
deliberate on Participant'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 a Participant of a felony.
3
<PAGE>
2.8 "Change of Control" means:
(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 January 1, 1997, constitute the Board
(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 January 1, 1997, 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 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 Plan, 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
4
<PAGE>
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.
2.9 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.10 "Company" means Keystone International, Inc., or any successor
thereto.
2.11 "Compensation" means a Participant's total annual pay, including base
pay, bonus, incentive pay, 401(k) deferrals, any deferrals into any non-
qualified plans maintained by the Company, or any other programs which reduce
current pay (including, but not limited to, Section 125 deferrals).
2.12 "Compensation Committee" means the Compensation Committee of the
Board.
2.13 "Disability" means the total and permanent disability of a Participant
within the meaning of the Company's long-term disability policy or as otherwise
determined by the Administrative Committee on the basis of proper medical
evidence.
2.14 "Effective Date" means January 1, 1997, which is the effective date of
the Plan.
2.15 "Employer" means the Company and its subsidiaries and affiliates
(collectively or individually).
5
<PAGE>
2.16 "Final Average Compensation" means the average Compensation for the
most recent three (3) consecutive and completed calendar years of employment.
For purposes of the preceding sentence:
(i) Compensation in the year of termination shall be included only
if Participant's date of termination was December 31 of the year
of termination (or the last business day of the year if
earlier).
(ii) If the number of completed calendar years during which a
Participant was employed by the Employer is less than three (3),
"Final Average Compensation" shall mean the total Compensation
for the period of employment divided by the number of completed
months of employment, multiplied by twelve (12).
2.17 "Good Reason" means the termination of employment by a Participant
within three years after a Change of Control on account of the following:
(i) the assignment to Participant of any duties inconsistent in any
respect with Participant's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities held, exercised or assigned during the 90-day
period immediately preceding the Change of Control, 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 Participant;
6
<PAGE>
(ii) any failure by the Company to comply with any of the provisions
of any employment contract, severance agreement or any other
arrangement entered into between the Company and Participant,
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 a Participant;
(iii) the Company's requiring Participant to be based at any office or
location other than the location where Participant was employed
immediately preceding the Change of Control or any office or
location which is the headquarters of the Company which is more
than 34 miles from such pre-Change of Control location, except
for travel reasonably required in the performance of
Participant's responsibilities;
(iv) any purported termination by the Company of Participant's
employment otherwise than as expressly permitted by any
employment contract or severance agreement between the Company
and Participant; or
(v) any failure by the Company to 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 to agree to
perform all contracts and agreements between the Company and
Participant 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 (for these purposes,
7
<PAGE>
the "Company" shall mean the Company and any successor to its
business and/or assets).
For these purposes, any good faith determination of "Good Reason" made by a
Participant shall be conclusive.
2.18 "Participant" means any employee designated in writing by the
Compensation Committee as a Participant in the Plan.
2.19 "PIA" means the Social Security Primary Insurance Amount commencing at
age 65, based on the law in effect at the date of calculation. If the Accrued
Benefit is calculated as of an age prior to age 65, the PIA will be the amount
projected to age 65 assuming Participant has no future pay accruals as of the
particular date.
2.20 "Plan" means the "Keystone International, Inc. Supplemental Executive
Retirement Plan" as set forth herein and as amended from time to time.
2.21 "Retirement" means the termination of a Participant's employment with
the Employer on or after the date on which Participant attains age 65.
2.22 "Spouse" means the individual to whom a Participant is legally married
on the date of retirement, disability, death, or at any time a benefit is paid
hereunder to a Participant, if earlier.
2.23 "Supplemental Retirement Benefit" means the normal form of benefit
payable under this Plan, which is a single life annuity form of benefit for a
Participant commencing at age 65, or if later, actual retirement. The
methodology for computing the Supplemental Retirement Benefit is defined in
Section 4.2 hereof.
8
<PAGE>
2.24 "Year of Service" means the 12-month period, commencing on a
Participant's date of hire, during which Participant was employed on a full-time
basis by the Employer.
Article III
Forms of Benefits
3.1 Supplemental Retirement Benefit. The Supplemental Retirement Benefit,
as defined in Section 2.23, means the Accrued Benefit payable in a life annuity
form for Participant's lifetime commencing at age 65. Each other form of
benefit hereunder will be Actuarially Equivalent to the Supplemental Retirement
Benefit.
3.2 Joint and 66 2/3% Contingent Benefit. The Joint and 66 2/3% Contingent
benefit is Actuarially Equivalent to the Supplemental Retirement Benefit. This
benefit is payable for the life of a Participant and upon the death of the
Participant, two thirds of such amount will be paid to the surviving Spouse, if
any, for life.
3.3 Lump Sum. An immediate single payment made to a Participant that is
Actuarially Equivalent to the Supplemental Retirement Benefit. In calculating
the Actuarially Equivalent value of the Supplemental Retirement Benefit, the
Supplemental Retirement Benefit is assumed to commence at the later of age 65 or
Retirement.
3.4 Optional Forms of Benefit Election. No later than age 63, a
Participant may elect out of the life only form of benefit and elect either a
Lump Sum or, if a Participant is married, a Joint and 66 2/3% Contingent
benefit. Such election must be in writing on a form approved by the
Administrative Committee. The most recent form on file with the Administrative
Committee shall govern.
9
<PAGE>
Notwithstanding any optional form of benefit election previously made
by a Participant, if, as of the date Plan benefits are to commence Participant
is not married, any previous Joint and 66 2/3% Contingent benefit election shall
revert to a life only form.
Article IV
Supplemental Benefits
4.1 Benefit Limitations. Benefits under this Plan are only payable in
accordance with this Article IV or Section 9.10. To the extent a Participant
terminates employment with the Employer and does not satisfy one of the Plan
benefit provisions of this Article IV, no benefits will be payable under this
Plan.
4.2 Supplemental Retirement Benefit. Except as set forth in this Article
IV or otherwise, a Supplemental Retirement Benefit provided hereunder shall be
payable to a Participant only if a Participant retires on or after age 65. This
benefit computation shall be made as of a Participant's Retirement, and shall be
calculated as (a)-(b)-(c), with such net amount multiplied by (d) where:
(a) equals 50% of Final Average Compensation
(b) equals 100% of the PIA
(c) equals 100% of all employer-provided benefits derived from any of
Participant's former employer's (or the current Employer's) tax-
qualified retirement plans and non-qualified deferred
compensation plans or arrangements. The Actuary shall convert any
such employer-provided benefits to an annuity payable in the
normal form (i.e. a life annuity commencing at Participant's age
65) in accordance with the applicable plan or, if no conversion
is specified, the Actuarial Basis as defined herein shall be
used. In the case of a defined contribution type plan, such
account balance shall be accumulated with interest from the date
of the calculation to age 65 (only when the calculation date of
the Supplemental Retirement Benefit is less than age 65) using
the 30 year U.S. Treasury Bill rate in effect as of the January
1st of the calendar year such calculation is made.
10
<PAGE>
(d) equals a Service Prorate Factor based on the number of Years of
Service at retirement. This factor is defined in the following
table:
YEARS OF SERVICE AT RETIREMENT SERVICE PRORATE FACTOR
10 100%
9 95
8 90
7 85
6 80
5 75
4 70
3 65
2 60
1 55
0 50
With respect to the foregoing table, if a Participant has service that is in
between a full Year of Service, such service shall be interpolated based upon
the number of months completed in the applicable 12-month period. The
Supplemental Retirement Benefit shall commence as of the first day of the month
coinciding with or next following the date on which a Participant's employment
with the Employer terminates by reason of Retirement.
4.3 Supplemental Disability Benefits. A Participant whose employment with
the Employer terminates by reason of Disability shall receive a Supplemental
Disability Benefit under this Plan commencing as of the first day of the month
coinciding with or next following the date on which such Participant's
employment with the Employer terminates by reason of such Disability .
The Supplemental Disability Benefit is calculated as (a) x (b) x (c) x (d)
where:
(a) equals the Accrued Benefit computed as of the date a Participant's
employment with the Employer is terminated on account of Disability.
11
<PAGE>
(b) equals an Early Retirement Factor based on a Participant's age at
Disability. This factor is defined in the following table:
PARTICIPANT'S AGE AT DISABILITY EARLY RETIREMENT FACTOR
65 100%
64 94
63 88
62 82
61 76
60 70
59 64
58 58
57 52
56 46
55 or less 40
(c) equals an Actuarially Equivalent early commencement factor for the
commencement of benefits prior to age 55. Note, if a Participant is
age 55 or older, this factor will equal 1.0.
(d) equals an Actuarially Equivalent Joint and 66 2/3% Contingent benefit
factor, if married.
With respect to the foregoing table, if a Participant has service that is in
between a full Year of Service, such service shall be interpolated based upon
the number of months completed in the applicable 12-month period. This benefit
is paid for the life of a Participant if Participant is single as of the date of
his Disability or as a Joint and 66 2/3% Contingent benefit if married.
4.4 Supplemental Death Benefit. If a married Participant dies prior to
Retirement, the Participant's surviving Spouse shall receive,
commencing as of the first day of the month next following the date of
the Participant's death, a Supplemental Death Benefit under this Plan.
The Supplemental Death Benefit is calculated as (a) x (b) x (c) x (d) x (e)
where:
(a) equals the Accrued Benefit computed as of the date of a Participant's
death.
12
<PAGE>
(b) equals an Early Retirement Factor based on a Participant's age at
death. This factor is defined in the following table:
PARTICIPANT'S AGE AT DEATH EARLY RETIREMENT FACTOR
65 100%
64 94
63 88
62 82
61 76
60 70
59 64
58 58
57 52
56 46
55 or less 40
(c) equals an Actuarially Equivalent early commencement factor for the
commencement of benefits prior to age 55. Note, if a Participant is
age 55 or older, this factor will equal 1.0.
(d) equals an Actuarially Equivalent Joint and 66 2/3% Contingent benefit
factor.
(e) equals 2/3.
With respect to the foregoing table, if a Participant has service that is in
between a full Year of Service, such service shall be interpolated based upon
the number of months completed in the applicable 12-month period. This benefit
is paid for the life of the Spouse.
4.5 Change of Control. Upon a Change of Control, the Company will
establish an irrevocable "rabbi trust" and immediately fund such trust with
assets sufficient to cover the value of the Accrued Benefit payable as a Lump
Sum to a Participant calculated as if the Participant terminated employment
concurrent with the Change of Control. On each January 1st thereafter, a
determination will be made by the Actuary as to the value of the Accrued Benefit
payable as a Lump Sum as of such January
13
<PAGE>
1st without regard to eligibility for payment. Annual funding by the Company,
equal to the shortfall, if any, between the value of the Lump Sum and the amount
of funds accumulated in the rabbi trust will be made no later than thirty (30)
days after such shortfall is certified by the Actuary and such certification is
provided to the Company.
In the event of a Change of Control, all of the obligations of the
Company under the Plan shall continue to be enforceable against the Company and
any successor to all or substantially all of the Company's business or assets.
If, within three years following a Change of Control (i) a
Participant's employment with the Company is terminated for any reason (other
than on account of Disability, death, by the Company for Cause, or by a
Participant other than on account of Good Reason), or (ii) as a result of a
Change of Control, a Participant's employment position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities are not 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 Change of Control, or (iii) a Participant's
services are required to be performed (a) at a location other than the location
where the Participant was employed immediately preceding the Change of Control
or (b) at any office or location of the Company which is more than 34 miles from
the Participant's pre-Change of Control job location, the Participant will be
entitled to payment of his/her Accrued Benefit, computed as of the date set out
in (i), (ii) or (iii) above, whichever is applicable. This Accrued Benefit
shall be paid in the form of a Lump Sum as soon as practicable thereafter.
14
<PAGE>
4.6 Involuntary Termination Other Than For Cause. Notwithstanding any
other provision herein, if a Participant's employment is terminated by the
Company for any reason other than for Cause, such Participant will be entitled
to payment of his/her Accrued Benefit as of the date of such termination of
employment. This Accrued Benefit shall be paid in the form of a Lump Sum as
soon as practicable thereafter.
Article V
Method of Payment
5.1 Nature and Source of Payments. The Company's obligation to make
payments under the Plan is a contractual obligation only. The Company's
obligation is unfunded and unsecured, and all benefits hereunder shall be paid
by the Company out of its general assets. Nothing herein, and no action taken
pursuant to the provisions hereof, shall be deemed to create a trust of any
kind, or a fiduciary relationship, between the Company and any Participant, or
other person. Except in the event of a Change of Control, no special or
separate fund shall be established nor shall any other segregation of assets be
made to assure the payment of benefits under the Plan. Participants shall not
have any interest in or lien against any particular asset of the Company by
virtue of the existence of the Plan. Participants' rights hereunder shall be
limited to those of general unsecured creditors of the Company, and all assets
used to pay benefits pursuant to the Plan shall be subject to the claims of the
general creditors of the Company.
5.2 Payment of Benefits to Others. If the Administrative Committee finds
that any Participant is unable to care for his or her affairs by reason of
illness or other disability, any amount to be distributed to such Participant
hereunder (unless prior claim
15
<PAGE>
thereto shall have been made by a duly qualified guardian or other legal
representative) may, in the discretion of the Administrative Committee, be paid
to the Spouse, child, parent, brother or sister of such person or to any other
person deemed by the Administrative Committee to be maintaining or responsible
for the maintenance of the Participant. Any such payment shall be a payment for
the account of the person entitled to receive such distribution, and shall
constitute a complete discharge of any liability therefor under the Plan.
5.3 Delivery of Benefit Payments. All payments under the Plan shall be
delivered in person or mailed to the last known address of a Participant (or to
that of any other person entitled to such payments under the terms of the Plan).
In no event shall any delay as a result of the inability of the Administrative
Committee, by a reasonably diligent attempt by mail, to locate any Participant
or applicable Spouse give rise to any claim for interest with respect to any
amount payable pursuant to the Plan.
5.4 Overpayments. In the event that the Administrative Committee
determines that the benefits actually paid with respect to a Participant, or
Spouse, if applicable, exceed the benefits that were properly payable pursuant
to the Plan, the Administrative Committee may, in addition to exercising any
other legal remedies available, reduce or suspend future benefits in any manner
that the Administrative Committee in its sole discretion deems equitable.
5.5 Current Address. Participants shall be responsible for furnishing the
Administrative Committee with their correct current address.
16
<PAGE>
5.6 Release. If in the opinion of the Administrative Cimmittee any present
former or future spouse of a Participant shall by reason of the law of any
jurisdiction appear to have any interest in the benefits that might be or become
payable under the Plan to such Participant, the Administrative Committee may, as
a condition precedent to the making of a benefit payment hereunder, require such
written release or releases, or such other proof in lieu thereof, as in its
discretion it shall determine to be necessary, desirable or appropriate either
to protect the rights of any such present, former or future spouse or to prevent
or avoid any conflict or multiplicity of claims with respect to the payment of
any benefits under the Plan.
Article VI
Suspension and Termination of Benefits
6.1 Termination of Supplemental Disability Benefits. If any Participant
who is receiving Supplemental Disability Benefits becomes employed in a position
that the Administrative Committee determines, in its sole discretion, is
inconsistent with the purpose intended to be served by providing such benefits
under the Plan, such benefits may be stopped by the Administrative Committee.
Article VII
Administrative Committee
7.1 Appointment and Membership. The Administrative Committee shall
initially consist of the following individuals:
Bruce M. Taten
Francis S. Kalman
James M. Sweet
17
<PAGE>
The members of the Administrative Committee shall serve until resignation, death
or removal by the Compensation Committee. Any member of the Administrative
Committee may resign at any time by mailing written notice of such resignation
to the Compensation Committee. Any member of the Administrative Committee may
be removed by the Compensation Committee with or without cause. Vacancies in
the Administrative Committee arising by resignation, death, removal or otherwise
shall be filled by such persons as may be appointed by the Compensation
Committee.
7.2 Powers and Duties. In addition to any powers and duties specified in
other provisions hereof and any implied powers and duties that may be needed to
carry out the provisions of the Plan, the Administrative Committee shall have
the following specific powers and duties:
(a) To interpret the Plan and to decide any and all matters hereunder,
including the right to remedy possible ambiguities,
inconsistencies or omissions;
(b) To adopt and enforce from time to time such rules and regulations,
and to prescribe such forms and take such other actions, not
inconsistent with the declared purposes of the Plan, as it may
deem necessary to enable it to administer the Plan and to carry
out the provisions hereof;
(c) To determine the amount and method of payment of benefits that
shall be payable to any Participant, or Spouse, if applicable, in
accordance with the provisions of the Plan;
(d) To appoint other persons to carry out such responsibilities under
the Plan as it may determine and
(e) To employ one or more persons, including the Actuary, to render
advice with respect to any of its responsibilities under the Plan.
7.3 Actions of Administrative Committee. The Administrative Committee
shall establish appropriate procedures to conduct its operations and to carry
out its rights
18
<PAGE>
and duties under the Plan. These procedures shall cover
meetings, quorums and voting, and may cover written consents in lieu of meetings
and other matters.
7.4 Authority and Liability of the Administrative Committee. All
decisions and directions made or given by the Administrative Committee in the
exercise of its powers and duties hereunder prior to the date on which a Change
of Control occurs shall be final and binding upon all parties concerned. Except
as otherwise provided by law, no member of the Administrative Committee shall be
liable to the Company or to any Participant or other persons by reason of the
exercise in good faith of any power or discretion vested in such member by the
terms of the Plan.
7.5 Benefit Claims Procedure. A claim for a benefit under the Plan by any
person shall be filed with the Administrative Committee in the manner and
governed by procedures set forth in the Keystone International, Inc. 401(k)
Plan, as amended from time to time, or other procedures established by the
Administrative Committee.
7.6 Compensation and Expenses. The members of the Administrative Committee
shall serve without compensation for their services, but all expenses of the
Administrative Committee and all other expenses incurred in administering the
Plan shall be paid by the Employer.
7.7 Indemnification. The Company shall indemnify the members of the
Compensation Committee, and members of the Administrative Committee against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding, or in connection with any appeal thereto, to which they or any of
them may be a party by reason of any action
19
<PAGE>
taken or failure to act under or in connection with the Plan and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) and against all amounts
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such indemnified person is liable for
fraud, deliberate dishonesty or willful misconduct in the performance of his or
her duties; provided that within 60 days after the institution of any such
action, suit or proceeding an indemnified person has offered in writing to allow
the Company, at its own expense, to handle and defend any such action, suit or
proceeding.
Article VIII
Amendment and Termination
8.1 Power to Amend and Terminate Reserved. The Board shall have the
right to amend or modify the terms of the Plan at any time, retroactively or
prospectively, and may terminate the Plan at any time, provided that no
amendment, modification or termination of the Plan shall in any way reduce,
adversely affect, or impair any Participant's current Accrued Benefit pursuant
to the terms and conditions of the Plan as in effect on the date immediately
preceding such amendment unless the affected Participant agrees in writing to
such amendment, modification or termination of the Plan which gives rise to such
reduction in the Participant's current Accrued Benefit. After a Change of
Control, neither the Board nor any successor shall have the right to terminate
the Plan.
20
<PAGE>
Article IX
Miscellaneous
9.1 Plan Does Not Affect the Rights of Participants. Nothing contained in
this Plan shall be deemed to give any Participant the right to be retained in
the employment of the Employer, to interfere with the rights of the Employer to
discharge any Participant at any time, or to interfere with a Participant's
right to terminate his or her employment at any time.
9.2 Nonalienation and Nonassignment. No amounts payable or to become
payable under the Plan to Participants (or Spouses, if applicable) shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge or encumbrance, and if any Participant or Spouse, if applicable, shall
attempt to or shall anticipate, alienate, sell, transfer, assign, pledge or
encumber the same prior to distribution as herein provided, or if by bankruptcy
or other events his or her benefits would devolve upon anyone other than a
Participant or Spouse, if applicable, then the Administrative Committee, in its
sole discretion, may cause the interest of such Participant or Spouse, if
applicable, in any such amounts to be terminated and to be held or applied to or
for the benefit of such person or persons and in such manner as the
Administrative Committee may deem proper.
9.3 Tax Withholding. The Employer shall have the right to deduct from any
payments to any payee under the Plan any taxes required by law to be withheld
with respect to any amounts payable under the Plan. Participants shall pay all
taxes on
21
<PAGE>
amounts paid under the Plan to the extent that taxes are not withheld,
irrespective of whether withholding is required.
9.4 Setoffs. To the fullest extent permitted by law, any amounts owed by a
Participant to the Employer may be deducted by the Employer from any benefits
otherwise payable under this Plan to the Participant, or his Spouse, if
applicable.
9.5 Construction. Unless the context clearly indicates to the contrary,
the masculine gender shall include the feminine and neuter, and the singular
shall include the plural and vice versa.
9.6 Applicable Law. The terms and provisions of the Plan shall be
construed in accordance with the laws of the State of Texas, except to the
extent preempted by ERISA or other federal law.
9.7 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Employer and its successors and assigns, and upon the
Participants and their heirs, legal representatives and assigns in accordance
with its terms.
9.8 Severability. If any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
such illegal or invalid provision had never been inserted herein.
9.9 Entire Plan. This Plan constitutes the entire Plan with respect to the
subject matter hereof and supersedes any and all other prior agreements and
understandings, both written and oral, if any, among the Employer and the
Participants with respect to the subject matter hereof.
22
<PAGE>
9.10 Certain Additional Payments by the Company. Anything in this Plan to
the contrary notwithstanding, in the event it shall be determined that any
payment under this Plan to or for the benefit of any Participant (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then such Participant shall be entitled to receive an
additional payment under the Plan (or directly from the Company) (a "Gross-Up
Payment") in an amount such that after payment by the Participant of all taxes,
including any income or Excise Tax imposed upon the Gross-Up Payment, the net
amount payable to the Participant hereunder shall be equal to the aggregate
amount the Participant would have received hereunder if such Excise Tax were not
applicable.
Except as otherwise specifically provided in this Section, all
determinations required to be made under this Section, 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 a Participant within 25
days of the date benefits are to commence hereunder, or such earlier time as is
requested by the Company. The initial Gross-Up Payment, if any, as determined
pursuant to this paragraph, shall be paid to a Participant within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable to a Participant, it shall furnish the
Participant with an opinion that the Participant has substantial authority not
to report any Excise Tax on the Participant's federal income tax return. Any
determination
23
<PAGE>
by the Accounting Firm shall be binding upon the Company and Participant. 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 the next following paragraph and the Participant thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine that 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
Participant.
A Participant shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company (or the Plan) of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after a Participant
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. A Participant shall
not pay such claim prior to the expiration of the thirty-day period following
the date on which the Participant 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 a Participant in writing prior to the
expiration of such period that it desires to contest such claim, the Participant
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
24
<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 to effectively
contest such claim;
(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
Participant 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, 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 Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
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 Participant to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to the Participant, on an interest-free
basis and shall indemnify and hold the Participant harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest or penalties with
respect thereto, imposed with respect to such advance or 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 Participant with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
25
<PAGE>
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
Participant 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.
If, after the receipt by a Participant of an amount advanced by the
Company pursuant to this Section, the Participant becomes entitled to receive
any refund with respect to such claim, the Participant shall (subject to the
Company's complying with the requirements hereunder) 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 a Participant of an
amount advanced by the Company pursuant to this Section, a determination is made
that the Participant shall not be entitled to any refund with respect to such
claims and the Company does not notify the Participant 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.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by
its duly authorized officer and its corporate seal to be affixed hereto as of
the _____ day of _____________________, 1997.
KEYSTONE INTERNATIONAL, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-27-1997
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 178
<ALLOWANCES> 7
<INVENTORY> 138
<CURRENT-ASSETS> 338
<PP&E> 351
<DEPRECIATION> 203
<TOTAL-ASSETS> 538
<CURRENT-LIABILITIES> 144
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 267
<TOTAL-LIABILITY-AND-EQUITY> 538
<SALES> 173
<TOTAL-REVENUES> 173
<CGS> 107
<TOTAL-COSTS> 151
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 22
<INCOME-TAX> 8
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
