KEYSTONE INTERNATIONAL INC, 10-K405, 1997-03-18

KEYSTONE INTERNATIONAL INC
10-K405, 1997-03-18
MISCELLANEOUS FABRICATED METAL PRODUCTS

Previous: WESTERN RESOURCES INC /KS, DFAN14A, 1997-03-18

Next: KOLLMORGEN CORP, SC 13D/A, 1997-03-18

<PAGE> 1

================================================================================

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-2115

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

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

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

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy 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, 1997, the number of shares of common stock outstanding was
35,611,050 excluding 349,711 treasury shares. At that date, the aggregate market
value of voting stock held by nonaffiliates was $660,253,000.

DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
DOCUMENT PART OF 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 1997 annual meeting of shareholders. PART III
</TABLE>

================================================================================
<PAGE> 2

KEYSTONE INTERNATIONAL, INC.

1996 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I

Item 1. Business.................................................... 1
Item 2. Properties.................................................. 2
Item 3. Legal Proceedings........................................... 2
Item 4. Submission of Matters to a Vote of Security Holders......... 2

PART II

Item 5. Market for the Registrant's Common Equity and Related
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> 3

PART I

ITEM 1. BUSINESS.

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

The Company's operations are conducted in a single industry segment. For
information concerning geographic segments, see Note 12 to the Consolidated
Financial Statements in Item 8 of this Report. The seasonal trends of the
geographic regions and the various industries in which the Company's products
are used have substantially offset each other in the past, but there can be no
assurance that these geographic regions and various industries will continue to
offset each other in the future or that the Company will not experience seasonal
trends in the future.

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, South Korea, 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 1996. 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

1
<PAGE> 4

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.

The Company's products are sold in highly competitive markets, both in the
United States and internationally. Within each of these markets, there are
numerous competitors who, in some instances, operate as divisions of larger
corporations while others are companies with a limited product line. Management
considers advanced technology, global presence and experienced personnel to be
the primary competitive factors.

The Company's backlog of unshipped orders was $135.5 million at December
31, 1996, compared with $156.6 million at December 31, 1995, or a decrease of
13%. This decline is primarily due to improved efficiencies and velocity in the
manufacturing processes. 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, 1996, Keystone had approximately 4,276 employees worldwide.

ITEM 2. PROPERTIES.

Keystone's major domestic manufacturing operations are located in Houston,
Stafford and Harlingen, Texas; Blue Bell, Pennsylvania; Andrews, Indiana;
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 15 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 730,000 square feet
of office space and 1,850,000 square feet of manufacturing space on 210 acres of
land owned by the Company.

ITEM 3. LEGAL PROCEEDINGS.

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

During the fourth quarter of 1996, the Company settled for an immaterial
amount an outstanding claim brought by a former distributor in an action then
pending in Federal District Court in Houston, Texas.

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 1996.

2
<PAGE> 5

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>
1996
- -----
First Quarter............................................. $22 3/4 $19 3/8 $.185
Second Quarter............................................ 22 1/2 20 1/2 .185
Third Quarter............................................. 21 17 1/4 .185
Fourth Quarter............................................ 20 1/2 17 1/4 .185
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
</TABLE>

The approximate number of security holders of the Company's common stock
was 2,550 as of February 28, 1997. 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>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $677.9 $597.1 $535.1 $516.1 $528.4
Total Assets...................................... 542.8 556.6 496.3 456.5 438.1
Long-Term Debt.................................... 74.6 79.5 60.5 62.3(2) 14.3(2)
Restructuring, Severance, Asset Impairment and
Plant Closure Costs............................. -- 33.9 4.4 -- --
Gains on Sales of Certain Assets.................. -- 5.3 4.7 -- --
Income from Continuing Operations and Before
Change in Accounting Principle.................. 41.9 19.9(1) 33.0 39.1 42.5
Cumulative Effect of Change in Accounting
Principle....................................... -- -- -- 1.9(3) --
Earnings Per Share from Continuing Operations and
Before Change in Accounting Principle........... 1.18 .56(1) .94 1.12 1.22
Cash Dividends Per Share.......................... .74 .74 .74 .72 .68
</TABLE>

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

(1) In 1995, after considering estimated tax benefits of $9.4, the effect of
restructuring, severance, asset impairment, plant closure costs and gains on
sales of certain assets was to reduce income by $19.2, 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 $43.0 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 $45.0 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> 6

(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.

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

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 this Form
10-K and the Company's 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 bear to net sales of the Company and (ii) the percentage increase or
decrease of amounts of such items as compared to the indicated prior period:

<TABLE>
<CAPTION>
PERCENTAGE INCREASE
(DECREASE) OF
PERCENTAGE OF NET SALES AMOUNTS
------------------------ -------------------
YEARS ENDED
DECEMBER 31, YEARS ENDED
------------------------ -------------------
1996 1995 1994 1996-95 1995-94
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales............................................ 100.0 100.0 100.0 13.5 11.6
Cost and Expenses:
Cost of sales...................................... 62.4 60.6 58.9 17.0 14.8
Selling, general and administrative................ 25.9 27.3 29.7 7.5 2.8
Restructuring and severance costs.................. -- 3.8 -- * *
Impairment of assets held for sale................. -- 1.4 -- * *
Plant closure and related costs.................... -- .5 .8 * *
Interest expense................................... 1.2 1.0 1.0 29.0 12.7
Interest income.................................... (.2) (.2) (.3) (16.6) (14.3)
Other, net......................................... 1.0 .2 .1 * *
Income before Income Taxes........................... 9.7 5.4 9.8 105.6 (38.7)
Provision for Income Taxes........................... 3.5 2.1 3.6 97.5 (37.1)
Net Income........................................... 6.2 3.3 6.2 110.6 (39.7)
</TABLE>

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

* Percentage not meaningful

4
<PAGE> 7

RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN MILLIONS)

Net Sales

Net sales increased 14% in 1996 compared with a 12% increase in 1995. Shown
below is an analysis of the change in net sales. Gachot S.A. and Chemat GmbH,
two European companies acquired in the fourth quarter of 1995, accounted for 6%
of the increase in 1996.

<TABLE>
<CAPTION>
ANALYSIS OF NET SALES INCREASE
(DECREASE)
------------------------------
YEARS ENDED
------------------------------
1996-1995 1995-1994
------------- -------------
<S> <C> <C> <C> <C>
Domestic:
Internal growth........................................ $ .6 .2% $ 4.7 2.1%
----- -----
International:
Internal growth........................................ 47.4 13.0% 40.2 13.1%
Exchange rate effect................................... (1.8) (.5)% 17.1 5.6%
----- -----
Total international.................................... 45.6 12.5% 57.3 18.7%
----- -----
Acquisitions................................................ 34.6 5.8% -- *
----- -----
Total Net Sales Increase.................................... $80.8 13.5% $62.0 11.6%
===== =====
</TABLE>

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

* Percentage not meaningful

Excluding currency effects, international net sales increased 13% in both
1996 and 1995. These increases are primarily attributable to growth in the
Company's Italian and Asia-Pacific operations.

The Company's sales and results of operations outside the United States are
subject to the inherent risk of fluctuations in currency rates. During 1996,
sales declined by $1.8 primarily as a result of the fluctuation of several
European currencies against the U.S. dollar. During 1995, Asia-Pacific and
European currencies strengthened in relation to the U.S. dollar, resulting in
$17.1 of additional net sales related to currency fluctuations.

Cost and Expenses

Cost of sales as a percentage of sales was 62.4%, 60.6% and 58.9% in 1996,
1995, and 1994, respectively. Over the last three years, the Company has been
experiencing increased price competition, especially in the Asia-Pacific region
in 1996 and 1995 and in the U.S. and Europe in 1994. During 1996 and 1995, the
Company's project business which has lower margins, increased over 1994.

In 1996, the increase in cost of sales is primarily a result of increased
costs incurred by the Company's Vanessa operations in Italy to meet significant
demand and shorten lead time, start-up costs associated with establishing U.S.
Vanessa manufacturing capability, an increase in mix of aggressively-priced
project business in Europe, Japan, China, and the U.S., the impact of the
Japanese yen weakening against currencies of Keystone entities supplying
products to the Japanese market, and the addition of Gachot and Chemat activity
at lower gross margins than the Company reported in 1995. These increased costs
were partially offset by improvements in Yarway operations associated with the
divestiture of an underperforming product line and improvements related to 1996
cost reduction initiatives.

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 and rationalization of certain products, the
implementation of new manufacturing systems and reducing component and raw
material procurement costs. During the fourth quarter of 1996, the Company
established an aggressive program of pooling its purchasing volumes and driving
toward lower-cost sources more rapidly.

5
<PAGE> 8

Selling, general and administrative expenses as a percentage of sales were
25.9%, 27.3% and 29.7% in 1996, 1995 and 1994, respectively. The reduction in
selling, general and administrative expenses as a percent of sales in year over
year comparisons for 1996 and 1995 was primarily attributable to the Company's
ongoing efforts to reduce its infrastructure costs.

Restructuring and severance costs of $22.8, or $.43 per share, in 1995
relate to two initiatives 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 $8.4 before
income taxes, or $.15 per share. This workforce reduction was substantially
completed by the end of the second quarter of 1995.

The second initiative started in the fourth quarter of 1995 when the
Company recorded a charge of $14.4 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 $11.7
related to future cash outflows, while the remainder related to non-cash
write-offs of current assets. The balance of the related restructuring liability
as of December 31, 1996 was $5.7. The majority of these liabilities should be
paid or settled during 1997. 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 has
allowed for reductions in the infrastructure previously necessary to support a
larger number of divisions. The divestiture of underperforming assets included 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 $8.2 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.

The restructuring and divestiture plans initiated by the Company in the
fourth quarter of 1995 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 220, with 80
of these positions related to activities being divested and 140 associated with
ongoing operations. It is expected that these actions will reduce operating
costs by approximately $10.0 before income taxes on an annual basis. Due to the
timing of these initiatives, the 1996 benefit from these actions was $4.8.

Plant closure costs of $2.9 were recognized in 1995 in connection with the
closure of a manufacturing facility in Indiana. This is in addition to the $4.4
which was recorded in 1994. The 1995 costs include incremental costs incurred at
the facilities to which operations were transferred. The 1994 costs include $2.7
of termination pay and disposition of the Company's pension obligations related
to the facility. The remainder of these costs reflect the book value of fixed
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, and the closure
was complete in 1995.

"Other, net", generally represents 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 a gain of $4.6
in connection with the disposition of an interest in a former subsidiary and a
gain of $.7 with respect to the sale of the Company's previous facility in
Mexico. In 1994, "Other, net" includes a gain of $4.7 related to the sale of the
Company's previous manufacturing facility in South Korea.

The Company's effective income tax rates were 36.5%, 38.0% and 37.0% in
1996, 1995 and 1994, 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. See Note 6 to the Consolidated Financial
Statements in Item 8 of this Report for additional information on income taxes.

6
<PAGE> 9

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 (DOLLAR AMOUNTS IN MILLIONS)

The Company's financial position remained strong during 1996. At December
31, 1996, the Company had working capital of $191.7 compared to $174.2 at
December 31, 1995, an increase of $17.5. This increase was primarily a result of
a reduction in inventory of approximately $26.0 which enabled the Company to
reduce its short-term borrowings by approximately $14.0. During 1996, the
Company had capital expenditures of $25.2 (net of proceeds from disposals) and
paid cash dividends of $25.7. As of December 31, 1996, the Company had committed
and uncommitted lines of credit totaling $96.2, of which $82.7 is available to
the Company. 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 ongoing
obligations.

INFLATION

During 1994 through 1996, 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% of income in 1996, inflation often makes the
operating environment somewhat difficult. The 1996 translation losses reflected
in "Other, net" in the Consolidated Statements of Income, included in Item 8 of
this Report, result from these operations.

At the end of 1996, Mexico became a highly inflationary economy.
Accordingly, effective January 1, 1997, the translation adjustments related to
the Company's operations in Mexico will be reflected in the results of
operations. Mexico accounted for only 2% of net sales and 4% of net income in
1996. The Company does not expect this change to have a material effect on its
consolidated financial position or future 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, 1996, 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 amended appropriately.

7
<PAGE> 10

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
------------------------------ ---------------------------------------
<S> <C> <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 the year ended December 31, 1991.

(10.1) Keystone International, Inc. 1985 Incentive Stock
Plan as amended.................................. Exhibit 4(a) to Registrant's
Registration Statement No. 33-37053.

(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 Messrs. French,
Baldwin, Hyland and certain other
non-executive officer management personnel....... Exhibit 10.3 to Registrant's Form 10-K
for the year ended December 31, 1995.

(10.4) Change of Control Agreement dated December 15, 1995
between the Company and Nishan Teshoian.......... Exhibit 10.4 to Registrant's Form 10-K
for the year ended December 31, 1995.
</TABLE>

8
<PAGE> 11

<TABLE>
<C> <S> <C>
(10.5) Transition Agreement dated July 19, 1995 between the Company and
Raymond A. LeBlanc............................................ Exhibit 10.5 to Registrant's Form 10-K
for the year ended December 31, 1995.
(10.6) Change of Control Agreement dated June 3, 1996 between the
Company and Francis S. Kalman................................. Filed herewith.
(10.7) Change of Control Agreement dated August 5, 1996 between the
Company and James M. Sweet.................................... Filed herewith.
(10.8) Voluntary Deferred Compensation Plan............................ 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,
1996.

9
<PAGE> 12

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 18th day of
March, 1997.

KEYSTONE INTERNATIONAL, INC.
By: NISHAN TESHOIAN
----------------------------------
(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 18th day of March, 1997.

<TABLE>
<C> <S>
NISHAN TESHOIAN Director and Chief Executive Officer
- ---------------------------------------------
(Nishan Teshoian)

FRANCIS S. KALMAN Senior Vice President and Chief Financial Officer
- ---------------------------------------------
(Francis S. Kalman)

BOB G. GOWER Director
- ---------------------------------------------
(Bob G. Gower)

F. O'NEIL GRIFFIN Director
- ---------------------------------------------
(F. O'Neil Griffin)

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)

CONSTANTINE S. NICANDROS Director
- ---------------------------------------------
(Constantine S. Nicandros)
</TABLE>

10
<PAGE> 13

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, 1996 and
1995...................................................... 13
For the years ended December 31, 1996, 1995 and 1994:
Consolidated statements of income...................... 12
Consolidated statements of cash flows.................. 14
Consolidated statements of changes in shareholders'
investment............................................ 15
Notes to consolidated financial statements.................. 16
Report of independent public accountants.................... 27
</TABLE>

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

All schedules have been omitted because the conditions requiring their
filing do not exist or because the required information is provided in the
financial statements, including the notes thereto.

11
<PAGE> 14

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net Sales................................................... $677.9 $597.1 $535.1
------ ------ ------
Cost and Expenses:
Cost of sales.......................................... 422.9 361.6 314.9
Selling, general and administrative.................... 175.5 163.3 158.8
Restructuring and severance costs...................... -- 22.8 --
Impairment of assets held for sale..................... -- 8.2 --
Plant closure and related costs........................ -- 2.9 4.4
Interest expense....................................... 8.0 6.2 5.5
Interest income........................................ (1.0) (1.2) (1.4)
Other, net............................................. 6.5 1.2 .5
------ ------ ------
611.9 565.0 482.7
------ ------ ------
Income before Income Taxes.................................. 66.0 32.1 52.4
Provision for Income Taxes.................................. 24.1 12.2 19.4
------ ------ ------
Net Income.................................................. $ 41.9 $ 19.9 $ 33.0
====== ====== ======
Earnings Per Share.......................................... $ 1.18 $ .56 $ .94
====== ====== ======
</TABLE>

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

12
<PAGE> 15

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1995
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 24.8 $ 12.9
Receivables (principally trade accounts, net of
allowances for doubtful accounts of $6.3 in
1996 and $6.0 in 1995)................................ 162.9 160.6
Inventories............................................ 142.1 168.0
Prepayments and other.................................. 6.3 6.1
------ ------
336.1 347.6
------ ------
Property, Plant and Equipment:
Land................................................... 22.4 22.5
Buildings and improvements............................. 93.5 94.7
Machinery and equipment................................ 237.5 217.9
------ ------
353.4 335.1
Less -- accumulated depreciation....................... 200.3 184.9
------ ------
153.1 150.2
------ ------
Other Assets................................................ 53.6 58.8
------ ------
$542.8 $556.6
====== ======
LIABILITIES & SHAREHOLDERS' INVESTMENT

Current Liabilities:
Current portion of long-term debt...................... $ 2.4 $ 2.5
Short-term bank borrowings............................. 13.5 28.4
Accounts payable....................................... 40.5 42.1
Accrued liabilities.................................... 76.9 87.4
Dividends payable...................................... 6.6 6.6
Income taxes payable................................... 4.5 6.4
------ ------
144.4 173.4
------ ------
Long-Term Debt:
6.34% Senior Notes payable............................. 45.0 45.0
Other long-term notes payable.......................... 29.6 34.5
------ ------
74.6 79.5
------ ------
Deferred Income Taxes....................................... 3.9 2.7
Other Long-Term Liabilities................................. 19.1 18.1
------ ------
23.0 20.8
------ ------
Commitments and Contingencies

Shareholders' Investment:
Common stock, $1.00 par value, 50 shares authorized.... 35.9 35.9
Additional paid-in capital............................. 113.8 112.4
Retained earnings...................................... 156.7 140.6
Treasury stock, at cost................................ (5.7) (7.0)
Unamortized restricted stock grant expense............. (3.5) (3.7)
Foreign currency translation adjustments............... 3.6 4.7
------ ------
300.8 282.9
------ ------
$542.8 $556.6
====== ======
</TABLE>

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

13
<PAGE> 16

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN MILLIONS)

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................................. $ 41.9 $ 19.9 $ 33.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 24.3 23.6 19.9
Amortization...................................... 6.2 5.5 5.7
Restructuring costs............................... -- 14.4 --
Impairment of assets held for sale................ -- 8.2 --
Non-cash element of 401(k) and other profit
sharing plans................................... 1.1 -- --
Increase (decrease) in deferred income taxes...... 1.9 (3.5) 5.7
Gain on sale of interest in former subsidiary..... -- (4.6) --
Gain on sale of property, plant and equipment..... (.5) (.8) (5.5)
Increase in receivables........................... (1.6) (25.6) (6.6)
Decrease (increase) in inventories................ 26.7 (4.8) (17.5)
Decrease (increase) in prepayments and other
assets.......................................... (4.3) (2.8) .9
Increase (decrease) in accounts payable and other
liabilities..................................... (14.3) (3.6) 10.0
Increase (decrease) in income taxes payable....... (2.1) 1.7 (5.2)
------ ------ ------
Net Cash Provided by Operating Activities................... 79.3 27.6 40.4
------ ------ ------
Cash Flows From Investing Activities:
Proceeds from sale of interest in former subsidiary.... -- 4.8 --
Purchases of property, plant and equipment............. (27.8) (25.1) (35.1)
Proceeds from sale of property, plant and equipment.... 2.6 4.1 11.1
Acquisitions, net of cash acquired..................... -- (19.4) --
------ ------ ------
Net Cash Used by Investing Activities....................... (25.2) (35.6) (24.0)
------ ------ ------
Cash Flows From Financing Activities:
Increase (decrease) in short-term bank borrowings...... (14.3) 11.2 7.4
Payments on long-term debt............................. (4.2) (9.6) (6.1)
Proceeds from issuance of long-term debt............... 1.3 24.3 4.6
Cash dividends paid.................................... (25.7) (25.5) (25.0)
Proceeds from stock plans and other.................... .7 1.8 1.3
------ ------ ------
Net Cash Provided (Used) by Financing Activities............ (42.2) 2.2 (17.8)
------ ------ ------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... -- -- .2
------ ------ ------
Increase (Decrease) in Cash and Cash Equivalents............ 11.9 (5.8) (1.2)
Cash and Cash Equivalents at Beginning of Year.............. 12.9 18.7 19.9
------ ------ ------
Cash and Cash Equivalents at End of Year.................... $ 24.8 $ 12.9 $ 18.7
====== ====== ======
</TABLE>

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

14
<PAGE> 17

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Common Stock, $1.00 Par Value:
Beginning balance...................................... $ 35.9 $ 35.9 $ 35.8
Issuance of stock under various plans and other........ -- -- .1
------ ------ ------
Ending balance......................................... 35.9 35.9 35.9
------ ------ ------
Additional Paid-in Capital:
Beginning balance...................................... 112.4 111.6 110.2
Tax (expense) benefit resulting from stock options and
grants................................................ -- (.1) .1
Issuance of stock under various plans and other........ 1.4 .9 1.3
------ ------ ------
Ending balance......................................... 113.8 112.4 111.6
------ ------ ------
Retained Earnings:
Beginning balance...................................... 140.6 146.1 138.5
Net income............................................. 41.9 19.9 33.0
Cash dividends declared ($.74 per share in 1996, 1995
and 1994)............................................. (26.3) (26.2) (26.1)
Issuance of treasury stock............................. .5 .8 .7
------ ------ ------
Ending balance......................................... 156.7 140.6 146.1
------ ------ ------
Treasury Stock, at Cost:
Beginning balance (.6 shares at 1-1-94)................ (7.0) (8.1) (9.5)
Exercise of stock options.............................. -- .6 .3
Restricted stock grant plans........................... .5 .1 .9
Other.................................................. .8 .4 .2
------ ------ ------
Ending balance (.4 shares at 12-31-96)................. (5.7) (7.0) (8.1)
------ ------ ------
Unamortized Restricted Stock Grant Expense:
Beginning balance...................................... (3.7) (4.3) (4.2)
Issuance of grants, net of cancellations............... (.9) (.6) (1.4)
Amortization........................................... 1.1 1.2 1.3
------ ------ ------
Ending balance......................................... (3.5) (3.7) (4.3)
------ ------ ------
Foreign Currency Translation Adjustments:
Beginning balance...................................... 4.7 5.2 (.2)
Translation adjustments................................ (1.8) (.7) 8.3
Income tax adjustments................................. .7 .2 (2.9)
------ ------ ------
Ending balance......................................... 3.6 4.7 5.2
------ ------ ------
Total Shareholders' Investment.............................. $300.8 $282.9 $286.4
====== ====== ======
</TABLE>

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

15
<PAGE> 18

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA OR OTHERWISE NOTED)

(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.

Reclassifications -- 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
operations in highly inflationary economies, are charged against 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 trade names,
are being amortized over periods ranging from one 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 did not have a material effect
upon the Company's financial position or results of operations. See Note 7 for
disclosures related to the adoption of SFAS No. 123.

Estimates -- Financial statements prepared in accordance with generally
accepted accounting principles require the use of management estimates and
accordingly, actual results could differ from these 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 $20.9. During the fourth quarter of 1996,
substantially all of the remaining shares of Gachot S.A. were purchased by the
Company.

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 was originally estimated to be $30.0. The
estimates of the fair market value of net assets acquired were adjusted based on
the results of appraisals in 1996. This adjustment resulted

16
<PAGE> 19

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in a net decrease of $3.6 in the amount of excess purchase price over net assets
acquired. The adjusted amount of excess purchase price over net assets acquired
is being amortized over 25 years using the straight line method.

Plant closure costs of $2.9 were recognized in 1995 in connection with the
closure of a manufacturing facility in Indiana. This is in addition to the $4.4
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
$2.7 of termination pay and disposition of the Company's pension obligations
related to the facility. The remainder of these costs reflect the book 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, and the closure
was complete in 1995.

(3) RESTRUCTURING, SEVERANCE AND ASSET IMPAIRMENT

During the first quarter of 1995, the Company recorded a charge of $8.4
before income taxes, or $.15 per share, and 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 first quarter charge
represented severance costs in connection with a worldwide workforce reduction
that resulted in the elimination of approximately 270 positions. This reduction
was substantially completed by the end of the second quarter of 1995. The fourth
quarter 1995 charge relates to restructuring plans aimed at further 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 220, with 80 of these positions related
to business activities being divested and 140 associated with ongoing
operations. The fourth quarter 1995 restructuring charge includes accruals for
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 balance of
the related restructuring liability as of December 31, 1996, was $5.7. The
majority of the remaining liabilities should be paid or settled during 1997.

The divestiture of underperforming assets associated with the fourth
quarter 1995 restructuring 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 $8.2 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.

It is reasonably possible that management's estimates of these amounts will
change as the Company proceeds with these initiatives. As of December 1996,
management believes that the Company's restructuring plans are on track in terms
of timing and charges against reserves.

(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 34% and 33% of consolidated inventories at December 31, 1996 and
1995, respectively. The remainder of Keystone's inventories are costed using the
first-in, first-out (FIFO) method.

17
<PAGE> 20

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inventories, which include material, labor and manufacturing overhead
costs, consisted of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Raw materials and parts..................................... $ 16.1 $ 23.9
Work-in-process............................................. 14.8 20.3
Components, sub-assemblies and finished goods............... 113.3 125.6
Less: LIFO adjustment....................................... (2.1) (1.8)
------ ------
$142.1 $168.0
====== ======
</TABLE>

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

In November 1995, the Company financed the Gachot/Chemat acquisition with a
66.0 French franc denominated note (equivalent to approximately $12.7 as of
December 31, 1996) at an interest rate of 6.8% and a 14.3 German mark
denominated note (equivalent to approximately $9.3 as of December 31, 1996) at
an interest rate of 6.0%. 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 $43.0
with $45.0 of 6.34% Senior Notes due November 1, 2000. Other long-term notes
payable at December 31, 1996, bear weighted average interest rates of
approximately 7.1% and consist of debt related to the construction of new
manufacturing facilities in Japan and South Korea and debt assumed in two 1989
Italian acquisitions. The fair value of the Senior Notes at December 31, 1996,
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.

Annual maturities of all long-term debt for the next five years are as
follows: 1997 -- $2.4; 1998 -- $2.6; 1999 -- $1.7; 2000 -- $68.6; 2001 -- $0.6;
2002 and thereafter -- $1.1.

Short-term bank borrowings of $13.5 at December 31, 1996, primarily
represent borrowings under various committed and uncommitted lines of credit
totaling $96.2. 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's various borrowing arrangements have certain restrictive
covenants with which the Company is in compliance. These covenants do not
materially restrict the Company's activities.

The Company made cash interest payments of $7.5, $5.7 and $5.1 during 1996,
1995 and 1994, respectively.

(6) INCOME TAXES

The Company accounts for income taxes in accordance with 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 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.

18
<PAGE> 21

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Current:
Domestic............................................... $ 8.2 $ 2.7 $ 1.4
Foreign................................................ 14.1 12.9 11.9
----- ----- -----
$22.3 $15.6 $13.3
===== ===== =====
Deferred:
Domestic............................................... $(1.0) $ (.6) $ 3.6
Foreign................................................ 2.8 (2.8) 2.5
----- ----- -----
$ 1.8 $(3.4) $ 6.1
===== ===== =====
</TABLE>

The significant components of the net deferred tax liability at December
31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred Taxes Relating to:
Deferred tax (assets):
Receivables....................................... $ (1.4) $ (1.0)
Inventories....................................... (2.1) (5.8)
Accounts payable and accrued liabilities.......... (10.1) (9.6)
Other long-term liabilities....................... (3.0) (3.2)
------ ------
Sub-total deferred tax (assets)........................ (16.6) (19.6)
------ ------
Deferred tax liabilities:
Property, plant and equipment and other assets.... 6.6 4.7
Unremitted foreign earnings....................... 6.0 7.0
Other, net........................................ 6.0 8.1
------ ------
Sub-total deferred tax liabilities..................... 18.6 19.8
------ ------
Net deferred tax liabilities before cumulative
translation adjustment................................ 2.0 .2
------ ------
Cumulative translation adjustment...................... 1.9 2.5
------ ------
Net deferred tax liability............................. $ 3.9 $ 2.7
====== ======
</TABLE>

During 1996 and 1995, 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>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Receivables................................................. $ (.4) $ (.1) $ 1.4
Inventories................................................. 3.7 (1.0) (.4)
Accounts payable and accrued liabilities.................... (.5) (4.9) (1.4)
Other long-term liabilities................................. .2 .2 .2
Property, plant and equipment and other..................... 1.9 (1.7) (.4)
Unremitted foreign earnings................................. (1.0) 1.3 --
Other, net.................................................. (2.1) 2.8 6.7
----- ----- -----
Deferred income tax provision (benefit)................ $ 1.8 $(3.4) $ 6.1
===== ===== =====
</TABLE>

19
<PAGE> 22

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Taxes computed using statutory rate......................... $23.1 $11.2 $18.3
Foreign losses for which no tax benefit is recognized,
net....................................................... .5 .4 1.5
State income taxes.......................................... .2 .4 .4
Other, net.................................................. .3 .2 (.8)
----- ----- -----
Actual tax provision................................... $24.1 $12.2 $19.4
===== ===== =====
</TABLE>

The Company made cash tax payments, net of refunds, of approximately $24.0,
$13.5 and $18.6 during 1996, 1995 and 1994, respectively.

Income from continuing operations before income taxes of foreign
subsidiaries was $35.2 in 1996, $31.2 in 1995 and $35.6 in 1994.

(7) SHAREHOLDERS' INVESTMENT (SHARE AMOUNTS IN THOUSANDS)

Incentive Stock Plans -- Effective January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation" which is effective for
all awards granted after December, 1994. 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 and directors. As of December 31, 1996, 764 shares were available for
award under these plans. The total compensation cost recognized in income for
stock-based compensation awards was $1.2, $1.0 and $1.4 for 1996, 1995 and 1994,
respectively.

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
one to ten years. As of December 31, 1996, there were 261 shares as to which
restrictions had not lapsed under the stock grant plans. 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. The Company granted 54 and 69
shares of restricted stock during 1996 and 1995, respectively. The weighted
average grant-date fair value for the stock grants was $21.32 and $21.31 per
share for 1996 and 1995, respectively.

20
<PAGE> 23

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As allowed by SFAS No. 123, the Company accounts for these plans under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized for stock options as they are issued at exercise prices not less
than the fair market value at the date of grant. Had compensation cost for these
plans been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C> <C>
Net Income: As Reported $41.9 $19.9
Pro Forma 41.4 19.6
Earnings Per Share: As Reported $1.18 $ .56
Pro Forma 1.17 .55
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

Stock options are generally issued at exercise prices which are not less
than the fair market value at the date of grant. The options vest after one to
five years and expire after five to ten years from the date of grant.
Information about Keystone's stock option plans for the three years ended
December 31, 1996, is set forth below:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1993.................. 665 $23
Options issued............................................ 178 22
Options exercised, canceled or converted.................. (62) 16
-----
Options outstanding at December 31, 1994.................. 781 24
Options issued............................................ 368 18
Options exercised, canceled or converted.................. (62) 21
-----
Options outstanding at December 31, 1995.................. 1,087 22
Options issued............................................ 179 20
Options exercised, canceled or converted.................. (76) 22
-----
Options outstanding at December 31, 1996.................. 1,190 22
=====
</TABLE>

The 1,190 options outstanding at December 31, 1996, have exercise prices
between $9 and $27 per share and a weighted average remaining contractual life
of 7 years. 192 of these options are exercisable with exercise prices between $9
and $27 per share and a weighted average remaining contractual life of 2 years.
These exercisable options as of December 31, 1996, have a weighted average
exercise price of $21 per share.

The weighted average fair values of options granted in 1996 and 1995 were
$6 and $4 per share, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for options issued in 1996 and
1995, respectively: risk-free interest rates of 6.4 and 6.1 percent; expected
lives of 7 and 6 years; expected volatility of 26.3 and 25.9 percent; and
expected dividend yields of 3.7 percent in both years.

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

21
<PAGE> 24

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 35.5, 35.4 and 35.3 in 1996, 1995 and 1994, 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 the Board of Directors) of pretax income before profit sharing and
stock bonus contributions. Effective in 1996, revisions to the Company's plans
that will affect most domestic employees include cash profit sharing
contributions of not less than 2% of eligible compensation and Company matching
of 50% in the form of Company stock, of individual employee 401(k) plan
contributions of up to 3% of the eligible compensation. 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 $5.9 in 1996, $5.5 in 1995, and $5.2 in
1994.

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 benefits charged to operating
income were a gain of $.2 in 1996 and expenses of $.1 and $.1 for 1995 and 1994,
respectively.

Other long-term liabilities included $8.5 and $8.9 at December 31, 1996 and
1995, 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 consolidated financial position or future results of
operations of the Company.

Rental Expense -- Rental expense was $7.4, $5.2 and $5.7 for 1996, 1995 and
1994, respectively. The Company has entered into various leases, including an
insignificant amount of capital leases, which provide for future minimum lease
payments as follows: 1997 -- $6.6; 1998 -- $4.2; 1999 -- $2.8; 2000 -- $1.7;
2001 -- $1.0; 2002 and thereafter $2.8.

22
<PAGE> 25

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Letters of Credit -- At December 31, 1996 and 1995, the Company had
outstanding letters of credit of $4.5 and $6.1, 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.

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
results of operations. 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, 1996, the Company has obligations of $18.1 under
forward exchange contracts primarily for Dutch guilders, British pounds and
Australian dollars with various settlement dates throughout the first half of
1997.

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

(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, 1996:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales...................................... $164.2 $173.6 $163.3 $176.8
Gross Profit................................... 60.9 64.6 63.5 66.0
% of Net Sales................................. 37.1% 37.2% 38.9% 37.3%
Net Income..................................... $ 9.3 $ 10.7 $ 10.1 $ 11.8
% of Net Sales................................. 5.7% 6.2% 6.2% 6.7%
Earnings Per Share............................. $ .26 $ .30 $ .29 $ .33
</TABLE>

<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...................................... $138.2 $152.1 $147.3 $159.5
Gross Profit................................... 54.7 61.1 59.0 60.7
% of Net Sales................................. 39.6% 40.2% 40.1% 38.1%
Net Income..................................... $ 4.0 $ 9.8 $ 11.6 $ (5.5)
% of Net Sales................................. 2.9% 6.4% 7.9% (3.4%)
Earnings Per Share............................. $ .11 $ .28 $ .33 $ (.16)
</TABLE>

23
<PAGE> 26

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) INDUSTRY AND GEOGRAPHIC AREA INFORMATION

Industry Segments -- Keystone operates in one 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.

24
<PAGE> 27

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, 1996, is as follows:

<TABLE>
<CAPTION>
NORTH &
EUROPE, SOUTH
MIDDLE AMERICA
UNITED EAST & ASIA- EXCEPT
STATES AFRICA PACIFIC THE U.S. ELIMINATIONS CONSOLIDATED
------ ------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1996
- -----
Sales to unaffiliated customers......... $233.5 $226.7 $179.3 $38.4 $ -- $677.9
Sales between geographic areas.......... 49.0 34.2 12.3 3.3 (98.8) --
------ ------ ------ ----- ------ ------
Net sales............................... $282.5 $260.9 $191.6 $41.7 $(98.8) $677.9
====== ====== ====== ===== ====== ======
Operating income........................ $ 37.1 $ 35.9 $ 18.9 $ 2.5 $ -- $ 94.4
General corporate expenses.............. (14.9)
Other, net.............................. (13.5)
------
Income before income taxes.............. $ 66.0
======
Identifiable assets..................... 151.9 210.8 127.7 20.3 -- $510.7
Corporate assets........................ 32.1
------
Total assets............................ $542.8
======
1995
- -----
Sales to unaffiliated customers......... $233.0 $175.9 $149.7 $38.5 $ -- $597.1
Sales between geographic areas.......... 46.0 33.1 5.9 3.0 (88.0) --
------ ------ ------ ----- ------ ------
Net sales............................... $279.0 $209.0 $155.6 $41.5 $(88.0) $597.1
====== ====== ====== ===== ====== ======
Operating income before plant closure,
restructuring and asset impairment.... $ 30.2 $ 30.9 $ 19.2 $ 5.9 $ -- $ 86.2
Plant closure and related costs......... (2.9) -- -- -- -- (2.9)
Asset impairment........................ (8.0) -- (.2) -- -- (8.2)
Restructuring and severance costs....... (14.7) (6.2) (1.5) (.4) -- (22.8)
------ ------ ------ ----- ------ ------
Operating income........................ 4.6 24.7 17.5 5.5 -- 52.3
General corporate expenses.............. (14.0)
Other, net.............................. (6.2)
------
Income before income taxes.............. $ 32.1
======
Identifiable assets..................... 164.4 206.4 140.2 22.2 -- $533.2
Corporate assets........................ 23.4
------
Total assets............................ $556.6
======
1994
- -----
Sales to unaffiliated customers......... $228.2 $145.4 $123.8 $37.7 $ -- $535.1
Sales between geographic areas.......... 34.4 22.2 6.6 3.6 (66.8) --
------ ------ ------ ----- ------ ------
Net sales............................... $262.6 $167.6 $130.4 $41.3 $(66.8) $535.1
====== ====== ====== ===== ====== ======
Operating income before plant closure
and related costs..................... $ 25.1 $ 23.5 $ 20.8 $ 3.8 $ -- $ 73.2
Plant closure and related costs......... (4.4) -- -- -- -- (4.4)
------ ------ ------ ----- ------ ------
Operating income........................ 20.7 23.5 20.8 3.8 -- 68.8
General corporate expenses.............. (11.8)
Other, net.............................. (4.7)
------
Income before income taxes.............. $ 52.3
======
Identifiable assets..................... 186.2 133.0 129.0 22.1 -- $470.3
Corporate assets........................ 26.0
------
Total assets............................ $496.3
======
</TABLE>

25
<PAGE> 28

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) OTHER ASSETS

The following presents details of other assets at December 31, 1996 and
1995:

<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Intangible assets, net of accumulated amortization of $29.4
in
1996 and $25.9 in 1995.................................... $15.4 $14.8
Goodwill, net of accumulated amortization of $7.5 in 1996
and
$6.1 in 1995.............................................. 28.9 35.9
Other....................................................... 9.3 8.1
----- -----
$53.6 $58.8
===== =====
</TABLE>

(14) ACCRUED LIABILITIES

The following presents details of accrued liabilities at December 31, 1996
and 1995:

<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Accrued wages, commissions and benefits..................... $29.1 $26.2
Accrued restructuring and severance costs................... 5.7 10.9
Other....................................................... 42.1 50.3
----- -----
$76.9 $87.4
===== =====
</TABLE>

(15) SALE OF ASSETS

A gain of $4.6 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 $.7 with respect to the sale of the Company's
previous facility in Mexico.

A gain of $4.7 related to the sale of the Company's former facility in
South Korea was recognized in "Other, net" in 1994.

26
<PAGE> 29

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,
1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

January 31, 1997
Houston, Texas

27
<PAGE> 30

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
(3.1) Articles of Incorporation (incorporated by reference to
Exhibit 4.1 to Registrant's Form 10-Q for the quarter
ended June 30, 1988.)
(3.2) Bylaws (incorporated by reference to 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 (incorporated
by reference to 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)
(incorporated by reference to 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
(incorporated by reference to Exhibit 4.3 to Registrant's
Form 10-K for the year ended December 31, 1991.)
(10.1) Keystone International, Inc. 1985 Incentive Stock Plan as
amended (incorporated by reference to Exhibit 4(a) to
Registrant's Registration Statement No. 33-37053.)
(10.2) 1994 Directors' Stock Option Plan (incorporated by reference
to 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 Messrs. French, Baldwin, Hyland
and certain other non-executive officer management
personnel (incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-K for the year ended December 31,
1995.)
(10.4) Change of Control Agreement dated December 15, 1995 between
the Company and Nishan Teshoian (incorporated by reference
to Exhibit 10.4 to Registrant's Form 10-K for the year
ended December 31, 1995.)
(10.5) Transition Agreement dated July 19, 1995 between the Company
and Raymond A. LeBlanc (incorporated by reference to
Exhibit 10.5 to Registrant's Form 10-K for the year ended
December 31, 1995.)
(10.6) Change of Control Agreement dated June 3, 1996 between the
Company and Francis S. Kalman (Filed herewith).
(10.7) Change of Control Agreement dated August 5, 1996 between the
Company and James M. Sweet (Filed herewith).
(10.8) Voluntary Deferred Compensation Plan (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).
(27) Financial Data Schedule
</TABLE>

<PAGE> 1
EXHIBIT 10.6

EXECUTIVE SEVERANCE AGREEMENT

AGREEMENT by and between Keystone International, Inc. (the "Company")
and Francis S. Kalman (the "Employee"), dated as of the 3rd day of June, 1996.

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:

(a) 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 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

Page 1

<PAGE> 2

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 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

Page 2

<PAGE> 3

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. Section 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").

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

Page 3

<PAGE> 4

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
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.

Page 4

<PAGE> 5

(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 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 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.

(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, accidental death and travel
accident insurance plans and programs), at least as

Page 5

<PAGE> 6

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 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

Page 6

<PAGE> 7

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 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

Page 7

<PAGE> 8

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;

(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.

Page 8

<PAGE> 9

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) 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

Page 9

<PAGE> 10

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

(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 full 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 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 10

<PAGE> 11

(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.

(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

Page 11

<PAGE> 12

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 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

Page 12

<PAGE> 13

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.

(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 paragraph labeled "Termination" in the letter dated May 8, 1996
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 13

<PAGE> 14

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 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.

(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.

Page 14

<PAGE> 15

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, are 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.

(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 to make a payment of any
Excise Tax, the Accounting Firm shall

Page 15

<PAGE> 16

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;

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

Page 16

<PAGE> 17

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 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 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.

Page 17

<PAGE> 18

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.

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.

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.

Page 18

<PAGE> 19

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.

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 or 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:

Francis S. Kalman
10 Pinewood Circle
Houston, Texas 77056-1410

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.

Page 19

<PAGE> 20

(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.

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.

/s/ Francis S. Kalman
---------------------------------
Francis S. Kalman

KEYSTONE INTERNATIONAL, INC.

By: /s/ Nishan Teshoian
------------------------------

Page 20

<PAGE> 1
EXHIBIT 10.7

EXECUTIVE SEVERANCE AGREEMENT

AGREEMENT by and between Keystone International, Inc. (the "Company")
and James M. Sweet (the "Employee"), dated as of the 5th day of August, 1996.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

Page 1

<PAGE> 2

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:

(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

Page 2

<PAGE> 3

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

Page 3

<PAGE> 4

(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 (or pursuant to
the Company's normal payroll practices, if different), 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.

Page 4

<PAGE> 5

Page 5

<PAGE> 6

(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

Page 6

<PAGE> 7

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.

Page 7

<PAGE> 8

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:

(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.

Page 8

<PAGE> 9

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) 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.

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

Page 9

<PAGE> 10

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

(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 full 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 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 10

<PAGE> 11

(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.

Page 11

<PAGE> 12

(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

Page 12

<PAGE> 13

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

Page 13

<PAGE> 14

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 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.

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, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be

Page 14

<PAGE> 15

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.

(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 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

Page 15

<PAGE> 16

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;

(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;

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

Page 16

<PAGE> 17

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 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 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 17

<PAGE> 18

(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.

Page 18

<PAGE> 19

If to the Employee:

James M. Sweet
Keystone International, Inc.
9600 West Gulf Bank Road
Houston, Texas, 77240

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.

(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.

Page 19

<PAGE> 20

(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.

/s/ James M. Sweet
---------------------------------
James M. Sweet

KEYSTONE INTERNATIONAL, INC.

By: /s/ Nishan Teshoian
--------------------------------

Page 20

<PAGE> 1
EXHIBIT 10.8

KEYSTONE INTERNATIONAL, INC.

VOLUNTARY DEFERRED COMPENSATION PLAN

1. Purpose

The purpose of this Deferred Compensation Plan (the "Plan") is to provide
selected senior executive employees of Keystone International, Inc. ("KII") and
its Subsidiaries and Affiliates (hereinafter collectively referred to as the
"Company") an opportunity to defer compensation received by them from the
Company in accordance with the terms and conditions set forth herein.

2. Administration

The Plan shall be administered by the Compensation Committee of the Board of
Directors of KII (the "Committee") which shall consist of at least three members
who are not employees of the Company. The Committee shall have sole and complete
authority to interpret the terms and provisions of the Plan and to adopt, alter
and repeal such administrative rules, regulations and practices governing the
operation of the Plan as it shall from time to time deem advisable.

3. Eligibility

The Committee shall select those senior executive employees who shall be
eligible to participate in the Plan. Such persons shall be referred to as the
"Participant" or "Participants" as the case may be.

4. Election to Defer

(a) Participant may elect in writing to defer receipt of a
specified portion of his or her compensation (including up to
fifty percent (50%) of annual base salary and up to one
hundred percent (100%) of annual and long-term incentive
compensation). Amounts deferred under this Paragraph 4(a)
shall be referred to as the "Deferred Amounts." Once an
election to defer is received by the Committee from a
Participant, it cannot be revoked.

(b) The election must be made prior to the beginning of the fiscal
year (or period) to which the compensation applies. A
Participant must make a separate election with respect to each
year of participation in the Plan. A new Participant in the
Plan shall have 15 days following his or her selection by the
Committee to make an election with respect to compensation to
be earned for the balance of the year.

5. Establishment of Deferred Compensation Account

At the time of the Participant's initial election to defer pursuant to Paragraph
4, the Company shall establish a memorandum account (a "Deferred Compensation
Account") for such Participant on its books. The Deferred Amount shall be
credited to the Participant's Deferred Compensation

<PAGE> 2

Account as of the last day of the calendar quarter during which the election
applies (or, in the case of incentive payments as of the date on which such
amounts otherwise would be payable).

6. Additions to Deferred Amounts

The Committee shall credit the balance in the Participant's Deferred
Compensation Account as of the last day of each calendar quarter with an
interest factor equivalent to (the prime rate of interest as reported by The
Wall Street Journal, the U.S. Treasury Bill rate, long-term government bond rate
or KII's short-term borrowing rate, at the Committee's discretion) as of such
date. The crediting of an interest factor shall occur so long as there is a
balance in the Participant's Deferred Compensation Account regardless of whether
the Participant has terminated employment with the Company, or has died.

7. Payment of Deferred Amounts

(a) Except as otherwise provided in subparagraph (c) or (d) below,
a Participant's Deferred Compensation Amount shall be paid, or
commence to be paid, to the Participant, or the Participant's
beneficiary as specified by the Participant in connection with
the Company's life insurance program, as soon as practicable
after the earliest to occur of the following:

(i) the Participant's death,
(ii) the Participant's termination of employment with
the Company, or
(iii) the date specified in the election made by the
Participant.

In the event of the Participant's death, payment of the
balance in the Participant's Deferred Compensation Account
shall be made to the Participant's designated beneficiary, or
if none, to the Participant's estate.

(b) The Participant may elect to receive payment of the balance in
his or her Deferred Compensation Account either (i) in a lump
sum or (ii) in such number of annual installments, not to
exceed fifteen, as the Participant shall elect. The election
must be made at least two (2) years before the Deferred Amount
is payable. If no election is made, a lump sum payment will be
made.

(c) A Participant shall receive the balance in the Deferred
Compensation Account upon the occurrence of a Change in
Control of the Company. The term "Change in Control" shall
have the same meaning as set forth in the KII 1985 Incentive
Stock Plan, as amended, except that the term shall not apply
to a transaction to which a majority of the members of the
Board of Directors of KII has consented.

(d) Anything contained in this Paragraph to the contrary
notwithstanding, in the event a Participant incurs a severe
financial hardship or if a Participant becomes disabled, the
Committee, in its sole discretion and upon written application
of such Participant, may direct immediate payment of all or a
portion of such Participant's Deferred Compensation Account;
provided that, in the case of a hardship, such

<PAGE> 3

payment shall in no event exceed the amount necessary to
alleviate such financial hardship.

8. Participant Reports

The Committee shall provide a statement to the Participant at least annually
concerning the status of his or her Deferred Compensation Account.

9. Transferability of Interests

During the deferral period, all Deferred Amounts shall be considered as general
assets of the Company for use as it deems necessary and shall be subject to the
claims of the Company's creditors.

The rights and interests of a Participant during the Deferral Period shall be
those of a general creditor except that such Participant's rights and interests
may not be anticipated, assigned, pledged, transferred or otherwise encumbered
except in the event of the death of the Participant, and then only by will or
the laws of descent and distribution.

10. Amendment, Suspension and Termination

KII, acting through its Board of Directors, may amend, suspend or terminate the
Plan or any portion thereof in such manner and to such extent as it may deem
advisable and in the best interests of the Company. No amendment, suspension and
termination shall alter or impair any then Deferred Amounts without the consent
of the Participant affected thereby.

11. Definitions

(a) The term "Subsidiary" shall mean any corporation fifty percent
(50%) or more of the voting stock of which shall at the time
be owned directly or indirectly by KII.

(b) The term "Affiliate" means any corporation or other entity
which is not a Subsidiary but as to which KII possesses a
direct or indirect ownership interest.

12. ERISA Claims Procedure

Within ninety (90) days after a Participant retires or otherwise terminates
service with the Company, the Committee shall give notice in writing to the
Participant (or beneficiary), stating that the amount of the Plan benefit (if
any) to which the person is entitled. If such person disagrees with the
Committee's determination, such person shall file with the Committee, in writing
and sent by the registered or certified mail, a claim for Plan benefits. If no
claim is received by the Committee within sixty (60) days after such person
receives notification of his entitlement (if any) to a Plan benefit from the
Committee, no such claim shall be permitted and the Committee's determination
shall be final. In the event such a claim is filed, the Committee shall exercise
its best efforts to act upon such claim within sixty (60) days after its
receipt. If such claim is denied, in whole or in part, the Committee shall give
notice in writing, by mail, of such

<PAGE> 4

denial to the claimant, setting forth (i) the specific reasons for such denial;
(ii) specific reference to pertinent Plan provisions on which the denial is
based; (iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and (iv) advice to
the effect that the claimant may request a full review of such claim by filing
with the Committee, within sixty (60) days after receipt by the claimant of the
Committee's initial denial of the claim, a request for such review. In the event
such request is submitted, the Committee shall review the claim within sixty
(60) days and the claimant shall be given written notice of the result of such
review. Such notice shall include specific reasons for the decision.

13. 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.

14. Unfunded Obligation

The Company may, but is not obliged to, establish a grantor trust which shall
qualify as a "rabbi trust" for the purpose of holding assets to provide benefits
under the terms of the Plan.

15. Indemnification

The Company shall indemnify the members of the 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 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 Committee member is
liable for fraud, deliberate dishonesty or willful misconduct in the performance
of his duties; provided that within sixty (60) days after the institution of any
such action, suit or proceeding Committee member has offered in writing to allow
the Company, at its own expense, to handle and defend any such action, suit or
proceeding.

16. No Right to Employment or Other Benefits

Nothing contained herein shall be construed as conferring upon any Participant
the right to continue in the employ of the Company. Any compensation deferred
and any benefits paid under this Plan shall not be included in creditable
compensation in computing benefits under any employee benefit plan of the
Company except to the extent expressly provided for therein.

4
<PAGE> 5

17. 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.

18. Successors

The Plan shall be binding upon KII and its successors and assigns, in accordance
with its terms.

19. Setoffs

To the fullest extent permitted by law, any amounts owed by a Participant or
beneficiary to the Company may be deducted by the Company from the value of such
Participant's Deferred Compensation Account at the time and to the extent that
such account is otherwise payable hereunder.

20. Effective Date

The Plan shall be effective immediately upon approval by the Board of Directors
of KII. Thereupon, eligible Participants shall be permitted to make an election
under Paragraph 4, above, within 15 days with respect to compensation to be
earned during the balance of the fiscal year.

KEYSTONE INTERNATIONAL, INC.

By: ___________________________
James M. Sweet

<PAGE> 1

EXHIBIT 21.1

KEYSTONE INTERNATIONAL, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT

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

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

(2) Keystone Valves and Controls, Inc., incorporated under the laws of the
State of Texas (doing business as Keystone Valve U.S.A., Inc., Keystone
Sales, Inc., and Keystone Controls, Inc.).

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

(4) Yarway Corporation, incorporated under the laws of the Commonwealth of
Pennsylvania (doing business as Yarway Corporation and Keystone Vanessa,
Inc.).

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

(6) Anderson, Greenwood & Co., incorporated under the laws of the State of
Delaware (doing business as Anderson, Greenwood & Co., Kunkle Valve
Division, and A-G Safety Sales & Services of Texas, Inc.).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(28) Kumpulan Injap Kebesan (M) Sdn. Bhd., incorporated under the laws of
Malaysia.
<PAGE> 2

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

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

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

(32) Keystone Valves (India) Pvt. Limited, incorporated under the laws of India.

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

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

(35) No. 300-33-01 Nova Scotia Company, incorporated under the laws of Nova
Scotia.

(36) Century Industries, Inc., incorporated under the laws of the Province of
Alberta, Canada.

(37) Century Valve and Machine, Ltd., incorporated under the laws of the
Province of Alberta, Canada.

(38) Keystone France Holdings Corp., incorporated under the laws of the State of
Delaware.

(39) Gachot S.A., incorporated under the laws of France.

(40) Keystone Germany Holdings Corp., incorporated under the laws of the State
of Delaware.

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

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

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

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

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

(46) S.I.R.R.O.S., incorporated under the laws of France.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report dated January 31, 1997 included in this Form 10-K, into the
Company's previously filed Registration Statements File No. 33-37053 and File
No. 33-50845.

ARTHUR ANDERSEN LLP

March 17, 1997
Houston, Texas

<ARTICLE> 5
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 169
<ALLOWANCES> 6
<INVENTORY> 142
<CURRENT-ASSETS> 336
<PP&E> 353
<DEPRECIATION> 200
<TOTAL-ASSETS> 543
<CURRENT-LIABILITIES> 144
<BONDS> 0
<COMMON> 36
0
0
<OTHER-SE> 265
<TOTAL-LIABILITY-AND-EQUITY> 543
<SALES> 678
<TOTAL-REVENUES> 678
<CGS> 423
<TOTAL-COSTS> 598
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 66
<INCOME-TAX> 24
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18

</TABLE>