<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
KEYSTONE INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
KEYSTONE INTERNATIONAL, INC.
9600 WEST GULF BANK DRIVE
HOUSTON, TEXAS 77040
MARCH 31, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Company's annual meeting of
shareholders to be held at 9:00 a.m. on Wednesday, May 7, 1997, at The Junior
League of Houston, 1811 Briar Oaks Lane, Houston, Texas. A map is included on
the back page of the attached proxy statement for your convenience.
Information on the various matters on which the shareholders will act is
provided in the enclosed notice of the meeting and proxy statement. Your
directors urge you, whether or not you plan to attend the meeting in person, to
execute the enclosed proxy and return it promptly in the enclosed envelope,
which requires no postage if mailed in the United States. If a shareholder who
returns a proxy is able to attend the meeting, the proxy can be canceled and the
shares voted in person at the meeting.
We hope you will participate in the annual meeting, either in person or by
proxy. Thank you for your continued interest and support of Keystone
International, Inc.
Sincerely,
Nishan Teshoian
Chairman of the Board of Directors
<PAGE> 3
KEYSTONE INTERNATIONAL, INC.
9600 WEST GULF BANK DRIVE
HOUSTON, TEXAS 77040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 7, 1997
---------------------
Notice is hereby given that the annual meeting of the shareholders of
Keystone International, Inc. (the "Company") will be held at The Junior League
of Houston, 1811 Briar Oaks Lane, Houston, Texas, on Wednesday, May 7, 1997, at
9:00 a.m., Houston time, for the following purposes:
1. To elect three Class II Directors to serve until the third annual
meeting of shareholders following their election and until their successors
are elected and qualified;
2. To amend the Company's Restated Articles of Incorporation to
increase the number of authorized shares of common stock from 50 million
shares to 100 million shares;
3. To consider and act upon a proposal to approve the Amended and
Restated 1985 Incentive Plan;
4. To consider and act upon such other business as may properly be
presented to the meeting or any adjournment thereof.
Shareholders of record as of the close of business on March 10, 1997 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
Please sign and date the enclosed proxy and return it promptly in the
enclosed envelope provided for your convenience which requires no postage if
mailed in the United States. The prompt return of proxies will ensure a quorum
and save the Company the expense of further solicitation.
By Order of the Board of Directors
DONNA D. MOORE
Secretary
March 31, 1997
<PAGE> 4
KEYSTONE INTERNATIONAL, INC.
9600 WEST GULF BANK DRIVE
HOUSTON, TEXAS 77040
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being mailed to
shareholders commencing on or about March 31, 1997, in connection with the
solicitation by the Board of Directors of Keystone International, Inc. (the
"Company") of proxies to be voted at the annual meeting of shareholders to be
held in Houston, Texas on Wednesday, May 7, 1997, and at any adjournment
thereof, for the purposes set forth in the accompanying notice. Proxies will be
voted in accordance with the directions specified thereon and otherwise in
accordance with the judgment of the persons designated as proxies. ANY PROXY ON
WHICH NO DIRECTION IS SPECIFIED WILL BE VOTED (I) FOR ELECTION OF THE NOMINEES
NAMED HEREIN TO THE BOARD OF DIRECTORS, (II) FOR THE APPROVAL OF THE AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION, (III) FOR THE APPROVAL OF THE AMENDED
AND RESTATED 1985 INCENTIVE PLAN, AND (IV) IN THE DISCRETION OF THE HOLDER OF
THE PROXY ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING. Any
proxy may be revoked at any time before its exercise by written notice of the
person giving the proxy.
As of March 10, 1997, the record date for the determination of shareholders
entitled to vote at the meeting, there were outstanding and entitled to vote
35,613,432 shares of common stock of the Company. Each share of common stock
entitles the shareholder to one vote on each matter presented at the meeting.
Votes will be tabulated by Continental Stock Transfer & Trust Company, the
transfer agent and registrar for the Company, and the results will be certified
by election inspectors who are required to resolve impartially any interpretive
questions as to the conduct of the vote. Any proxy containing an abstention from
voting or broker non-vote will be sufficient to represent the shares at the
meeting for purposes of determining whether a quorum is present. Abstentions are
counted in tabulations of the votes cast on proposals presented to shareholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the meeting, three Class II Directors are to be elected, each director
to hold office until the third annual meeting of shareholders following his
election. The persons named in the accompanying proxy have been designated by
the Board of Directors and, unless authority is withheld, they intend to vote
for the election of the nominees named below to the Board of Directors as Class
II Directors. If any nominee should become unavailable for election, the proxy
may be voted for a substitute nominee selected by the persons named in the
proxy, or the Board may be reduced accordingly; however, the Board of Directors
is not aware of any circumstances likely to render any nominee unavailable for
election.
<PAGE> 5
NOMINEES AND CONTINUING DIRECTORS
Certain information concerning the nominees, together with comparable
information for the Class I and Class III Directors, whose terms are not
expiring at the 1997 annual meeting, is set forth below:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED ON
FEBRUARY 5, 1997(1)
-------------------------
PRINCIPAL POSITION DIRECTOR PERCENT
NAME WITH THE COMPANY AGE SINCE SHARES OF CLASS
---- ------------------ --- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CLASS II DIRECTORS WHOSE TERM (IF ELECTED) WILL EXPIRE IN 2000
Nishan Teshoian(2)................... Chairman of the Board,
President & Chief
Executive Officer 55 1995 487,802(6)(7) 1.4%
John W. Guffey, Jr................... Nominee 59 -- 0 *
Ludvik F. Koci....................... Nominee 60 -- 0 *
CLASS III DIRECTORS WHOSE TERM WILL EXPIRE IN 1998
Bob G. Gower(3)...................... Director 59 1993 15,000(6) *
F. O'Neil Griffin(2)(4).............. Director 70 1993 430,284(7) 1.2%
CLASS I DIRECTORS WHOSE TERM WILL EXPIRE IN 1999
Dale P. Jones(4)(5).................. Director 60 1994 6,500(6) *
Constantine S. Nicandros(4).......... Director 63 1996 3,000 *
W. Wayne Patterson(5)................ Director 53 1984 7,453(6) *
Wallace S. Wilson(3)(5).............. Director 66 1974 35,918(6) 0.1%
</TABLE>
- ---------------
(1) Each person has voting and investment power with respect to the shares
listed (except for the shares shown under (7) which only have voting power)
and is a citizen of the United States.
(2) Member, Executive Committee of the Board.
(3) Member, Compensation Committee of the Board.
(4) Member, Committee on Director Affairs of the Board.
(5) Member, Audit Committee of the Board.
(6) Includes currently exercisable stock options of 20,000 shares for Mr.
Teshoian; 4,000 shares each for Messrs. Gower, Patterson and Wilson; and
2,000 shares for Mr. Jones.
(7) Includes an aggregate of 423,084 shares, or 1.2% of the class outstanding,
held in the Company's Employees' 401(k) Retirement Savings Plan of which
Messrs. Teshoian and Griffin are Committee Members. They disclaim beneficial
interest in such shares.
* Less than 1/10th of 1% of outstanding shares.
Nishan Teshoian became Chairman of the Board, Chief Executive Officer and
President of the Company in August 1995. Prior thereto, he was employed by
Cooper Industries for eighteen years in a series of successively more
responsible management positions culminating in his election in 1993 as
executive vice president of operations-tools and hardware.
John W. Guffey, Jr. is chairman, president and chief executive officer of
Coltec Industries, Inc., a manufacturer of highly engineered products for
aerospace, automotive and other industrial markets. He has been employed by
Coltec Industries for 12 years in a series of successively more responsible
management positions culminating in his election in 1995 as chief executive
officer. Mr. Guffey is also a director of Giddings & Lewis, Inc. and Gleason
Corporation.
Ludvik F. Koci has served as president, chief operating officer, and a
director of Detroit Diesel Corporation, a manufacturer of diesel and alternative
fuel engines and parts, since 1989. Prior to joining
2
<PAGE> 6
Detroit Diesel, Mr. Koci was employed by General Motors Corporation for
approximately 33 years. Mr. Koci is also a director of Wabash National
Corporation.
Bob G. Gower is chairman of the board of Lyondell Petrochemical Company. He
also served as its chief executive officer from 1988 until his retirement in
December 1996.
F. O'Neil Griffin is a private investor. He was chairman and owner of First
National Bank of Kerrville, which he purchased in 1984, until its merger with
Norwest Corporation in December 1994. Mr. Griffin serves as the Lead Director
and Chairman of the Executive Committee of the Board of Directors.
Dale P. Jones joined Halliburton Company in 1965 and was elected to his
present position of vice chairman in 1995. Mr. Jones also serves on Halliburton
Company's executive committee and board of directors. Mr. Jones serves as
Chairman of the Committee on Director Affairs of the Board of Directors.
Constantine S. Nicandros is chairman of CSN and Company, a private
investment and consulting firm. In 1996, he retired as chairman, president and
chief executive of Conoco Inc. and vice chairman of the board of directors of
its parent, E.I. duPont de Nemours and Company. He is also a director of Cooper
Industries, Inc. and Mitchell Energy & Development Corp.
W. Wayne Patterson is a private investor. He was chairman of the board and
chief executive officer of Texas Microsystems, Inc., a privately held
manufacturer of industrial computer products, from 1989 until its merger with
Sequoia Systems, Inc. in 1995. He serves as Chairman of the Audit Committee of
the Board of Directors.
Wallace S. Wilson is chairman of the board and chief executive officer of
Wilson Industries, Inc., a manufacturer and supplier of petroleum industry
equipment, supplies, and services.
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
During 1996, the Board of Directors convened on seven occasions. Committees
of the Board held meetings as follows: Executive Committee -- one meeting; Audit
Committee -- two meetings; Compensation Committee -- ten meetings; and Committee
on Director Affairs -- five meetings. Each director attended at least 93% of all
meetings of the Board and each committee on which he served during the year.
The Company's operations are managed under the broad supervision and
direction of the Board of Directors, which has the ultimate responsibility for
the establishment and implementation of the Company's general operating
philosophy, objectives, goals and policies. Pursuant to delegated authority,
various Board functions are discharged by the standing committees of the Board.
The Executive Committee is authorized to exercise, to the extent permitted by
law, the power of the full Board of Directors when a meeting of the full Board
is not practicable or necessary. The functions of the Audit Committee are
described under the caption "Other Information -- Auditors." The Compensation
Committee is responsible for the formulation and adoption of all executive
compensation, retirement and benefit programs, subject to full Board approval
where legally required or advisable. The Compensation Committee also supervises
the administration of all executive compensation programs, including the
establishment of specific criteria against which the Executive Officers' annual
performance-based compensation is measured. The Committee on Director Affairs is
responsible for reviewing the functions and operation of the Board and its
committees, evaluating the performance of incumbent directors and developing a
pool of potential future board nominees. Shareholders who may wish to suggest
individuals for possible future consideration for board positions should direct
recommendations to the Committee on Director Affairs at the Company's principal
offices.
Directors not employed by the Company receive annual retainers of $24,000
for service on the Board, plus meeting fees of $1,000 for each Board meeting
attended. Under the 1994 Directors' Stock Option Plan ("Director Plan") approved
by the shareholders in 1994, directors may elect to receive discounted stock
options in lieu of annual board retainers. Board members also receive meeting
fees of $1,000 for service on Board Committees, and the Chairman of each
Committee receives an additional annual retainer fee of $4,800. As discussed
below, if the Amended and Restated 1985 Incentive Plan is approved by the
shareholders, non-
3
<PAGE> 7
employee directors will be eligible to participate in the Amended and Restated
1985 Incentive Plan. Executive officers who also serve on the Board receive no
additional compensation for so serving.
The Company also maintains a directors' retirement plan pursuant to which
non-employee directors who meet certain criteria (and, subject to certain
limitations, their surviving spouses) are paid a pension of $2,000 per month for
up to a maximum of ten years. To be eligible to receive benefits under the
retirement plan, one of the following must apply: (i) a member has completed 10
years of service as an outside director, (ii) a member has reached age 70, or
(iii) a member dies while serving on the board. If a member dies while serving
on the Board, the member's eligible surviving spouse would receive any benefits
to which the member was entitled. In 1996, the Company made aggregate payments
of $88,000 to retired directors or spouses of deceased directors pursuant to
this plan.
CORPORATE GOVERNANCE GUIDELINES ADOPTED
The Company's Board of Directors adopted "Guidelines on Significant
Corporate Governance Issues" (the "Guidelines") during 1996. The Guidelines
cover a wide range of issues designed to help ensure that the Board consists of
outstanding individuals independent of management who are diligent in exercising
the Board's oversight responsibilities on behalf of the Company's shareholders.
Among the matters addressed by the Guidelines are:
- Appointment of a "Lead" director, who chairs regular sessions of the
Company's independent directors;
- Establishment of a maximum of two members of management on the Board of
Directors (there is currently only one member of management on the Board);
- Adoption of procedures for a formal annual evaluation of the performance
of the Company's Chief Executive Officer;
- Adoption of procedures for periodic director self-evaluations and
evaluations of the performance of the full Board;
- Establishment of criteria for the recommendation of new Board members to
the shareholders for election and for continuing service on the Board;
- Establishment of recommended minimum levels of ownership of Company
Common Stock for directors.
EXECUTIVE OFFICER TENURE AND IDENTIFICATION
The executive officers of the Company serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board at its first
meeting following the annual meeting of shareholders. In addition to Mr.
Teshoian who is identified under the caption "Nominees and Continuing
Directors," the Company's executive officers are as follows:
Mark E. Baldwin, age 43, Vice President of the Company since 1989, and
President of the Industrial Valves & Controls Group of companies joined the
Company in 1980.
Gregory E. Hyland, age 46, Vice President of the Company and President of
the Engineered Products Group of companies. Prior to joining Anderson, Greenwood
& Co. as Vice President of Sales and Marketing in 1991, he was vice president of
sales & marketing of BTR Inc.'s Edward Valve Unit.
Francis S. Kalman, age 49, Senior Vice President and Chief Financial
Officer, joined the Company in June 1996. Prior to joining the Company, Mr.
Kalman served as chief financial officer of American REF-Fuel Company since 1992
and served as senior vice president and chief financial officer of United Gas
Pipeline Company from 1982 to 1991.
4
<PAGE> 8
James M. Sweet, age 44, Vice President of Human Resources and
Administration, joined the Company in August 1996. Mr. Sweet was employed by W.
H. Brady in 1985 and served as its vice president of human
resources/administration since 1987 until he joined the Company.
CERTAIN EXECUTIVE COMPENSATION ARRANGEMENTS
In connection with Mr. Teshoian's acceptance of employment in July 1995, it
was agreed that he would be entitled to receive a severance payment in an amount
equal to his most recent bonus and two years' base pay if his employment were to
be terminated by the Company prior to July 31, 2000 (the "Teshoian Severance
Arrangement"). In connection with Mr. Kalman's acceptance of employment in June
1996, it was agreed that he would be entitled to receive his salary and bonus
through June 1, 1998 if his employment were to be terminated involuntarily
(other than for good reason) prior to that time (the "Kalman Severance
Arrangement"). The Board also agreed to consider "change of control" agreements
for senior executives, and in furtherance of this understanding, severance
agreements were later entered into between the Company and Messrs. Teshoian,
Baldwin, Hyland, Kalman and Sweet under which each would become entitled to
severance benefits upon termination of employment or reduction in pay or duties
following any "change of control" occurring prior to December 15, 2000. In such
event, Mr. Teshoian would become entitled to receive severance benefits (without
duplicating any benefit payable under the Teshoian Severance Arrangement)
consisting of (i) payment of an amount equal to three times his most recent
annual base pay and bonus, and (ii) continued participation in certain Company
employee benefit plans. All other participating senior executives would become
entitled to receive (and in the case of Mr. Kalman, without duplicating any
amounts payable under the Kalman Severance Arrangement) two times their recent
annual base pay and bonus upon termination or reduction in pay or duties
following a "change of control." In general, a "change of control" would occur
upon (i) the acquisition of, or obtaining the right to vote, 30% or more of the
Company's outstanding common stock by any person or group, (ii) a change in the
majority of the Board (other than as approved by the incumbent members), or
(iii) consummation of any merger or reorganization which would result in the
Company's shareholders owning less than a majority of the combined voting power
of the resulting entity.
5
<PAGE> 9
MANAGEMENT SHAREHOLDINGS
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock at February 5, 1997 of (i) all directors
and nominees for director of the Company (including executive officers who are
also directors), (ii) all Named Executive Officers (as defined below), and (iii)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT
AND PERCENT
NATURE OF OF
NAME OF BENEFICIAL COMMON
BENEFICIAL OWNER OWNERSHIP STOCK
---------------- ---------- -------
<S> <C> <C>
Bob G. Gower................................................ 15,000(2) *
F. O'Neil Griffin........................................... 430,284(1) 1.2%
John W. Guffey, Jr.......................................... 0 *
Farrell G. Huber, Jr........................................ 15,698 *
Dale P. Jones............................................... 6,500(2) *
Ludvik F. Koci.............................................. 0 *
Constantine S. Nicandros.................................... 3,000 *
W. Wayne Patterson.......................................... 7,453(2) *
Allen F. Rhodes............................................. 4,516 *
Nishan Teshoian............................................. 487,802(1)(2) 1.4%
Wallace S. Wilson........................................... 35,918(2) 0.1%
Mark E. Baldwin............................................. 12,237(2) *
Gregory E. Hyland........................................... 7,487 *
Francis S. Kalman........................................... 435,084(1) 1.2%
James M. Sweet.............................................. 429,084(1) 1.2%
All directors, nominees and executive officers as a group
(15 persons).............................................. 630,770(3) 1.8%
</TABLE>
- ------------
(1) Includes 423,084 shares held in the Company's Employee 401(k) Retirement
Savings Plan of which the named individuals are Committee Members with
voting power only, but as to which they disclaim beneficial ownership.
(2) Includes currently exercisable stock options covering 20,000 shares for Mr.
Teshoian; 4,000 shares for Messrs. Gower, Patterson, and Wilson; 2,000
shares for Mr. Jones; and 538 shares for Mr. Baldwin.
(3) Includes, without duplication, all shares referred to in Note 1 above.
* Less than 1/10th of 1% of outstanding shares.
VOTE REQUIRED
The three nominees for election as Class II Directors at the 1997 annual
meeting who receive the greatest number of votes cast for election by the
holders of common stock of record at the close of business on March 10, 1997
(the "record date") shall be the duly elected Class II Directors upon completion
of the vote tabulation at the meeting, provided a majority of the outstanding
shares as of the record date are present in person or by proxy at the meeting.
6
<PAGE> 10
PROPOSAL NO. 2 -- AMENDMENT OF THE COMPANY'S RESTATED
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
PROPOSED AMENDMENT
The Board of Directors has unanimously approved and recommended to the
Company's shareholders an amendment (the "Proposed Amendment") to Article Four
of the Company's Restated Articles of Incorporation increasing the number of
shares of Common Stock which the Company has the authority to issue from 50
million shares to 100 million shares. The Proposed Amendment would become
effective upon the filing of Articles of Amendment to the Articles of
Incorporation with the Secretary of State of Texas. Upon the effectiveness of
the Proposed Amendment, Section 1 of Article Four of the Company's Restated
Articles of Incorporation would read in its entirety as follows:
"The aggregate number of shares which the Corporation will have
the authority to issue is 105,000,000 of which 100,000,000 will be
shares of common stock, par value $1.00 per share ("Common Stock"),
and 5,000,000 will be shares of preferred stock, par value $10.00 per
share ("Preferred Stock")."
As of March 10, 1997, there were 35,613,432 shares of Common Stock
outstanding and an aggregate of 4,280,797 shares of Common Stock reserved (or to
be reserved) for issuance under the Company's current dividend reinvestment and
stock award plans and the Amended and Restated 1985 Incentive Plan discussed
under Proposal No. 3, leaving 10,105,771 shares of Common Stock authorized and
available for issuance, not including 347,329 shares in the treasury of the
Company.
Management believes that it is important for the Company to have a
sufficient reserve of shares of Common Stock available for the future needs of
the Company. Increasing the number of authorized shares of Common Stock will
facilitate the acquisition of other companies and properties and make shares of
Common Stock available for other corporate purposes, including any future
issuances of Common Stock in public or private financings, payment of stock
dividends, benefit plans, subdivision of outstanding shares through stock
splits, or conversion or exercise of any convertible securities, options,
warrants or rights which may hereafter be issued for any desirable corporate
purpose.
Having such additional authorized shares of Common Stock available for
issuance in the future will give the Company greater flexibility and will allow
such shares to be issued without the expense and delay of a special shareholders
meeting. The additional shares of Common Stock will be available for issuance
without further action by the shareholders, unless such action is required by
applicable law or the rules of any stock exchange on which the Company's
securities may then be listed. Other than its current dividend reinvestment,
stock award and benefit plans and the Amended and Restated 1985 Incentive Plan
proposed herein for approval by the shareholders, the Company does not have any
plans, agreements, understandings or arrangements that could or will result in
the issuance of any Common Stock.
Under certain circumstances, the shares available for additional issuance
could be used to create voting impediments or to frustrate persons seeking to
effect a merger or otherwise gain control of the Company. However, the Proposed
Amendment is not being sought in order to frustrate any attempt to acquire
control of the Company and the Company is not aware of any such attempt.
VOTE REQUIRED
Under Texas law, the affirmative vote of the holders of at least two-thirds
of the outstanding shares of the Company's Common Stock is required for approval
of the Proposed Amendment.
THE COMPANY RECOMMENDS VOTING "FOR" PROPOSAL NO. 2.
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<PAGE> 11
PROPOSAL NO. 3 -- ADOPTION OF AMENDED AND RESTATED 1985 INCENTIVE PLAN
GENERAL
The Company's 1985 Incentive Plan was initially adopted in 1985 and was
last amended in 1990 (the "Plan"). The Board of Directors of the Company has
adopted, subject to approval by shareholders, the Amended and Restated 1985
Incentive Plan (the "Amended and Restated Incentive Plan"), and has directed
that the Amended and Restated Incentive Plan be submitted to the shareholders
for approval. This summary of the material terms of the Amended and Restated
Incentive Plan is qualified in its entirety by reference to the complete text of
the Amended and Restated Incentive Plan which is attached to this Proxy
Statement as Appendix A.
PROPOSED AMENDMENTS CONTAINED IN THE AMENDED AND RESTATED INCENTIVE PLAN
The Plan currently provides for the grant to employees of up to an
aggregate of 2,500,000 restricted stock awards and options by the Compensation
Committee. The Amended and Restated Incentive Plan provides for the grant to
employees and directors (the "participants") of up to an aggregate of 4,250,000
restricted stock awards and options and sets the maximum number of shares which
may be issued as grants of restricted stock or under options to any participant
during the term of the Amended and Restated Incentive Plan at 4,250,000 shares.
The Amended and Restated Incentive Plan also provides for the grant of bonus
awards, payable in Common Stock, cash or a combination of Common Stock and cash,
based on the achievement of pre-established performance goals.
The Amended and Restated Incentive Plan extends the term of the Plan from
March 19, 2000 to March 18, 2007, and provides the Compensation Committee with
flexibility in allowing transferability of restricted stock, options and bonus
awards.
Certain of these amendments will allow the "performance-based compensation"
received under the Amended and Restated Incentive Plan to qualify as an
exception to the compensation deduction limitation pursuant to Section 162(m) of
the Internal Revenue Code (the "Code"). Other amendments recognize the changes
in Section 16 and the underlying rules and regulations of the Exchange Act. If
the shareholders of the Company do not approve the Amended and Restated
Incentive Plan, no Awards (as defined below) will be made to the Named Executive
Officers under the Amended and Restated Incentive Plan.
PURPOSE
The purpose of the Amended and Restated Incentive Plan is to provide a
means whereby certain employees and directors of the Company and its affiliates
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders. The Company
believes that the possibility of participation in the Amended and Restated
Incentive Plan through (i) grants of restricted stock ("Grants") (ii) receipt of
incentive options ("Incentive Options") or nonqualified options ("Nonqualified
Options") (Incentive Options and Nonqualified Options shall be collectively
referred to herein as "Stock Options"), or (iii) the grant of bonus awards
("Bonuses") based on the achievement of pre-established performance goals (some
or all of which Bonuses may be paid in Common Stock) (Grants, Stock Options and
Bonuses shall be collectively referred to herein as "Awards"), will provide
employees and directors an incentive to perform more effectively and will assist
the Company in obtaining and retaining people of outstanding training and
ability.
TERM
The Amended and Restated Incentive Plan was adopted by the Board of
Directors effective as of March 19, 1997, subject to approval by shareholders at
the meeting. No Award may be granted under the Amended and Restated Incentive
Plan after March 19, 2007.
8
<PAGE> 12
ADMINISTRATION
The Amended and Restated Incentive Plan is administered by the Compensation
Committee, which is comprised solely of at least two members who are both
outside directors and non-employee directors (as defined in the Amended and
Restated Incentive Plan). All questions of interpretation and application of the
Amended and Restated Incentive Plan shall be determined by the Compensation
Committee.
PARTICIPATION
Participation in the Amended and Restated Incentive Plan is limited to
employees and directors selected by the Compensation Committee. The Company
estimates approximately 4,300 employees and directors would be eligible to
participate in the Amended and Restated Incentive Plan. Awards shall be
transferable by the participant to the extent allowed under Rule 16b-3 under the
Exchange Act, and Sections 162(m) and 422 of the Code and the regulations
thereunder.
SHARES OF STOCK AVAILABLE FOR AWARDS
As of March 10, 1997, there were 640,044 shares of Common Stock reserved
and available for issuance under the Plan. The Amended and Restated Incentive
Plan would enable the Company to issue an additional 1,750,000 shares of Common
Stock pursuant to Awards. The shares issued may be treasury shares or authorized
but unissued shares. In the event an Award expires, or terminates for any
reason, or is surrendered, the shares of Common Stock allocable to the
unexercised portion of that Award may again be subject to an Award under the
Amended and Restated Incentive Plan.
The Amended and Restated Incentive Plan provides that the number of shares
subject thereto are subject to equitable adjustment in the event of stock
dividends, stock splits, or other capital readjustments before delivery by the
Company of all shares subject to the Amended and Restated Incentive Plan.
COMPENSATION DEDUCTION LIMITATION
Section 162(m) of the Code generally limits to $1 million per year per
employee the tax deduction available to publicly traded companies for certain
compensation paid to Named Executive Officers. There is an exception (Section
162(m)(4)(C)) to this deduction limitation for certain "performance-based
compensation," if specified requirements are satisfied, including: (i) the
establishment by a compensation committee comprised of outside directors of
performance goals which must be met for the additional compensation to be
earned, (ii) the approval of the material terms of the performance goals by the
shareholders after adequate disclosure, and (iii) the certification by the
Compensation Committee that the performance goals have been met. If this Amended
and Restated Incentive Plan is approved by shareholders, the Company anticipates
being entitled to deduct an amount equal to the ordinary income reportable by
each participant on exercise of a Nonqualified Option granted at fair market
value, the vesting of a Grant, the early disposition of shares of stock acquired
by exercise of an Incentive Option, and the payment of a Bonus in cash or Common
Stock.
STOCK OPTIONS
The Compensation Committee may designate a Stock Option as an Incentive
Option or as a Nonqualified Option. The terms of each Stock Option shall be set
out in a written agreement which incorporates the terms of the Amended and
Restated Incentive Plan.
The Stock Option price for an Incentive Option may not be less than 100% of
the fair market value of the Common Stock on the date of grant. Stock Options
may be exercised by payment of the Stock Option price in cash or, if the
Compensation Committee permits, in shares of Common Stock valued at fair market
value on the date of exercise. An Option Agreement may also provide for the
surrender of the right to purchase shares under an Option in return for a cash
payment representing the spread between the fair market value per share of the
Common Stock over the exercise price per share of the Stock Option. The
Compensation Committee may impose restrictions on the exercise of any Stock
Option.
9
<PAGE> 13
RESTRICTED STOCK AWARDS
The Compensation Committee may make Grants of restricted stock to employees
and directors of the Company, which shall be evidenced by a Restricted Stock
Agreement. The Compensation Committee shall determine the terms, conditions and
restrictions of a Grant, including the number of shares of Common Stock, voting
rights, dividend rights, and forfeiture restrictions.
BONUS AWARDS
The Compensation Committee may designate certain employees to receive a
Bonus if certain pre-established performance goals are satisfied. In determining
which employees shall be eligible for a Bonus, the Compensation Committee will
consider the nature of their duties, past and potential contributions to the
success of the Company and its affiliates, and such other factors as the
Compensation Committee deems relevant in connection with accomplishing the
purposes of the Amended and Restated Incentive Plan.
The Compensation Committee shall determine the terms of a Bonus, if any,
for each measurement period. The performance goals determined by the
Compensation Committee may be based on increases in the following business
criteria: net profits, operating income, stock price, earnings per share, sales,
return on capital and/or return on equity. Before any Bonus may be paid, the
Compensation Committee must certify in writing that the performance goal has
been satisfied. The maximum amount of Bonus payable, in cash, Common Stock, or a
combination of cash and Common Stock, to any employee during any year may not
exceed $2,500,000; but in no event shall any such Bonus be more than three times
the then base salary of the employee.
The Compensation Committee intends to establish performance goals in
accordance with Section 162(m) of the Code to enable the Company to deduct in
full the total payment of any Bonus as "performance-based compensation."
NON-EMPLOYEE DIRECTOR PARTICIPATION
Directors who are not employees of the Company are entitled to receive
Stock Options and Grants in any combination as determined by the Committee as
part of the overall compensation arrangement for non-employee directors.
AMENDMENT OF AMENDED AND RESTATED INCENTIVE PLAN
The Board of Directors of the Company may amend or terminate the Amended
and Restated Incentive Plan at any time, provided that no amendment may impair
the rights of any participant's Award, and that no amendment shall be made
without shareholder approval if such shareholder approval is required by
applicable law.
CHANGE IN CONTROL
Upon a change of control (as defined in the Amended and Restated Incentive
Plan), (i) each holder of an outstanding Stock Option shall surrender his or her
Stock Options to the Company in exchange for a cash payment by the Company in an
amount equal to the number of shares of Common Stock then covered by the Stock
Option multiplied by the spread between the fair market value of each share of
Common Stock and the exercise price per share of Common Stock specified in the
Stock Option, (ii) all forfeiture restrictions with respect to the Grants shall
lapse, and (iii) each Bonus shall immediately become payable to the fullest
extent of the Bonus.
FEDERAL TAX CONSEQUENCES TO U.S. PARTICIPANTS
The grant of Nonqualified Options under the Amended and Restated Incentive
Plan will not result in the recognition of any taxable income by the
participant. A participant will recognize ordinary income on the date of
exercise of the Nonqualified Option equal to the excess, if any, of (i) the fair
market value of the shares acquired as of the exercise date, over (ii) the
exercise price. The tax basis of these shares for purposes of a
10
<PAGE> 14
subsequent sale includes the Nonqualified Option price paid and the ordinary
income reported on exercise of the Nonqualified Option. The income reportable on
exercise of a Nonqualified Option is subject to federal income and employment
tax withholding. Generally, the Company will be entitled to a deduction in the
amount reportable as income by the participant on the exercise of a Nonqualified
Option.
Grants of restricted stock are not subject to taxation at the time of grant
because the shares are subject to forfeiture if the vesting criteria are not
met. Accordingly, the Company is not entitled to a compensation deduction at
that time. When the forfeiture restrictions on the restricted stock lapse, the
participant will have taxable income based upon the fair market value on the
date the restrictions lapse. The Company will then be entitled to a
corresponding compensation deduction.
The grant of Incentive Options to a participant does not result in any
income tax consequences. The exercise of an Incentive Option generally does not
result in any income tax consequences to the participant if the Incentive Option
is exercised by the participant during his employment with the Company or a
subsidiary, or within a specified period after termination of employment.
However, the excess of the fair market value of the shares of Common Stock as of
the date of exercise over the Incentive Option price is a tax preference item
for purposes of determining a participant's alternative minimum tax, if
applicable. A participant who sells shares acquired pursuant to the exercise of
an Incentive Option after the expiration of (i) two years from the date of grant
of the Incentive Option, and (ii) one year after the transfer of the shares to
him (the "Waiting Period") will generally recognize a long-term capital gain or
loss on the sale.
A participant who disposes of his Incentive Option shares prior to the
expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the Incentive
Option price. Any additional amount realized on an Early Disposition should be
treated as capital gain to the participant, short or long term, depending on the
participant's holding period for the shares. If the shares are sold for less
than the option price, the participant will not recognize any ordinary income
but will recognize a capital loss, short or long term, depending on the holding
period.
The Company will not be entitled to a deduction as a result of the grant of
an Incentive Option, the exercise of an Incentive Option, or the sale of
Incentive Option shares after the Waiting Period. If a participant disposes of
Incentive Option shares in an Early Disposition, the Company would be entitled
to deduct the amount of ordinary income recognized by the participant at the
time of the Early Disposition.
Bonuses paid in cash generally result in taxable income to the participant
at the time the cash payment is made and a compensation deduction to the
Company. Bonuses paid in shares of Common Stock result in taxable income to the
recipient at the fair market value of the Common Stock on the date of transfer
and result in a corresponding compensation deduction for the Company. Bonuses
are subject to federal income and employment tax withholding.
PLAN BENEFITS TABLE
Effective March 19, 1997, the Board of Directors of the Company adopted the
Amended and Restated Incentive Plan subject to approval by the shareholders. No
new Awards have been granted under the Amended and Restated Incentive Plan;
however, the table below sets forth the benefits received or allocated in 1996
under the Plan to the Named Executive Officers, all current executive officers
as a group, all non-employee directors as a group, and all other employees as a
group:
11
<PAGE> 15
NEW PLAN BENEFITS
AMENDED AND RESTATED 1985 INCENTIVE PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS RESTRICTED STOCK AWARDS
----------------- ----------------- -----------------------
<S> <C> <C>
Nishan Teshoian.......................................... 0 0
Chairman, President and Chief Executive Officer
Arthur L. French......................................... 0 0
Executive Vice President
Mark E. Baldwin.......................................... 1,914 0
Vice President
Gregory E. Hyland........................................ 2,686 0
Vice President
Francis S. Kalman........................................ 20,000 12,000
Senior Vice President and Chief Financial Officer
James M. Sweet........................................... 15,000 6,000
Vice President of Human Resources and Administration
All current executive officers as a group................ 39,600 18,000
All non-employee directors as a group.................... 0 0
All other employees as a group........................... 127,474 37,164
</TABLE>
VOTE REQUIRED
Approval of the proposed Amended and Restated Incentive Plan will require
the majority vote of shareholders voting in person or by proxy with respect to
the Amended and Restated Incentive Plan at the Annual Meeting.
THE COMPANY RECOMMENDS VOTING "FOR" PROPOSAL NO. 3.
OTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock at December 31, 1996 of each shareholder
who is known by the Company to own beneficially more than 5% of the outstanding
common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES COMMON STOCK
------------------- --------- ------------
<S> <C> <C>
Norwest Bank Texas, Kerrville, N.A.(1)...................... 4,514,980 12.7%
222 Sidney Baker South
Kerrville, Texas 78029
FMR Corporation............................................. 4,442,800 12.5%
82 Devenshire Street
Boston, Massachusetts 02109
The State Teachers Retirement Board of Ohio................. 3,091,230 8.7%
275 East Broad Street
Columbus, Ohio 43215
</TABLE>
- ---------------
(1) Norwest Bank holds these shares in its capacities as (i) executor of the
estate of Floyd A. Cailloux and (ii) trustee to various trusts established
by Mr. Cailloux. Mr. Cailloux, a director of the Company, died on January
21, 1997. The estate of Mr. Cailloux will be distributed to various
recipients, primarily his wife, certain family partnerships and trusts and
to charitable institutions.
12
<PAGE> 16
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the periods indicated for (i) the chief executive officer, (ii) the
Company's four most highly compensated executive officers other than the chief
executive officer who were serving as executive officers at December 31, 1996,
and (iii) an executive officer who was not serving as such at December 31, 1996
(collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- -----------------------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION(2) AWARDS(3) (SHARES) SATION(4)
--------------------------- ---- -------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Nishan Teshoian.................................... 1996 $429,200 $258,566 -- $ -0- -0- $ 46,400
Chairman, President & Chief 1995 171,700 218,875 -- 531,250 100,000 13,700
Executive Officer
Arthur L. French(5)................................ 1996 $266,620 $120,583 -- $ -0- -0- $ 8,550
Executive Vice President 1995 296,900 96,038 -- -0- -0- 10,650
1994 286,900 47,700 -- 35,162 50,000 8,375
Mark E. Baldwin.................................... 1996 $196,300 $ 87,181 -- $ -0- 1,914 $ 8,100
Vice President 1995 168,000 54,335 -- 7,982 5,000 5,750
1994 148,100 18,600 -- 69,329 -0- -0-
Gregory E. Hyland.................................. 1996 $184,800 $153,844 -- $ -0- 2,686 $ 7,800
Vice President 1995 155,000 79,263 -- 10,436 5,000 7,750
Francis S. Kalman(6)............................... 1996 $125,417 $130,492 -- $262,500(8) 20,000(8) -0-
Senior Vice President & Chief Financial Officer
James M. Sweet(7).................................. 1996 $ 73,731 $ 35,465 -- $109,500(8) 15,000(8) $ 94,500(9)
Vice President of Human Resources &
Administration
</TABLE>
- ---------------
(1) Includes aggregate discount under a program where senior executives receive
a portion of their bonuses earned in the form of a restricted stock award.
These awards are reflected in the total aggregate holdings of restricted
stock shown in footnote 3.
(2) The Company provides to certain of its executive officers benefits
consisting of payments under its medical reimbursement plan, club
memberships, limited legal and accounting services and other personal
benefits. Because the value of such benefits did not exceed the lesser of
$50,000 or 10% of annual compensation for any individual, amounts are
omitted.
(3) Represents the aggregate value of restricted stock grant awards based upon
the closing price for the common stock on the New York Stock Exchange on the
date of grant. All grants have been made subject to forfeiture to the extent
not vested upon any voluntary termination prior to complete vesting five to
ten years following the date of award and to other customary restrictions
under the Company's 1985 Incentive Stock Plan. Restricted stock grant
recipients are entitled to receive all cash and stock dividends paid with
respect to their shares. The aggregate holdings of restricted stock and the
value of such holdings based upon the closing price for the Common Stock on
the New York Stock Exchange at December 31, 1996 of $20.125 was as follows:
Nishan Teshoian -- 23,218 shares, $467,262; Mark E. Baldwin -- 6,084 shares,
$122,441; Gregory E. Hyland -- 7,066 shares, $142,203; Francis S.
Kalman -- 12,000 shares, $241,500; and James M. Sweet -- 6,000 shares,
$120,750.
(4) Includes contributions by the Company for the accounts of the named
individuals under defined contribution retirement plans in which
substantially all domestic employees participate.
(5) Resigned November 5, 1996.
(6) Employed by the Company on June 1, 1996.
(7) Employed by the Company on August 5, 1996.
(Footnotes continued on following page)
13
<PAGE> 17
(8) These awards include one-time awards intended to replace equity awards
forfeited when the individuals left their former employers to join the
Company. See "Option Grants" table.
(9) Includes $750 of contributions by the Company for the account of the named
individual under a defined contribution retirement plan and $93,750 in
relocation expenses reimbursed to Mr. Sweet. If Mr. Sweet voluntarily
terminates his employment prior to August 5, 1998, he is required to repay
to the Company the relocation expenses.
OPTION GRANTS
The following table sets forth additional information with respect to stock
options granted in 1996 under the Company's 1985 Incentive Stock Plan to the
Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED(1) IN 1996 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nishan Teshoian........................... -0- -0- -0- -0- -0- -0-
Arthur L. French(3)....................... -0- -0- -0- -0- -0- -0-
Mark E. Baldwin........................... 1,914 1.1% $20.50 02/08/06 $ 24,676 $ 62,534
Gregory E. Hyland......................... 2,686 1.6% $20.50 02/08/06 $ 34,629 $ 87,756
Francis S. Kalman......................... 20,000 12.0% $21.875 06/01/06 $275,141 $697,262
James M. Sweet............................ 15,000 9.0% $18.125 08/05/06 $170,981 $433,299
</TABLE>
- ------------
(1) If a "change of control" were to occur prior to exercise or expiration of
the option, the entire option would automatically be converted into an
amount of cash equal to any unrealized appreciation in the option.
(2) Potential values stated are the result of using the SEC method of
calculations of 5% and 10% appreciation in value from the date of grant to
the end of the option term. Such assumed rates of appreciation and potential
realizable values are not necessarily indicative of the appreciation, if
any, which may be realized in future periods.
(3) Resigned November 5, 1996
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to options
exercised during 1996 by the Named Executive Officers and the year-end value of
unexercised options then held by them.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Nishan Teshoian............ 0 0 0/100,000 $ 0/$ 0
Arthur L. French(1)........ 0 0 1,437/ 50,000 $16,526/$40,625
Mark E. Baldwin............ 0 0 538/ 16,914 $ 6,187/$13,125
Gregory E. Hyland.......... 0 0 0/ 20,686 $ 0/$13,125
Francis S. Kalman.......... 0 0 0/ 20,000 $ 0/$ 0
James M. Sweet............. 0 0 0/ 15,000 $ 0/$30,000
</TABLE>
- ------------
(1) Resigned November 5, 1996
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") has
furnished the following report on executive compensation for 1996. The 1996
compensation program for executive officers who were incumbent at the beginning
of the year was approved by the Committee and ratified without change by the
Board of Directors on November 15, 1995. The 1996 compensation packages for
Messrs. Kalman and Sweet,
14
<PAGE> 18
who joined the Company as executive officers in June and August, respectively,
were negotiated at arm's length, approved by the Committee and ratified by the
Board of Directors.
Under the supervision of the Committee, the Company has long sought to
maintain and enhance its profitability, and thus the value of its Common Stock,
by relating overall executive compensation to its financial performance. In
general, executive financial rewards may be segregated into the following
significant components: salary, bonus, stock ownership and other benefit plans.
Salary for the Chief Executive Officer and other Executive Officers is
intended to be competitive with that paid by durable goods manufacturers of
comparable size, with a reasonable degree of financial security and flexibility
afforded to those individuals who are regarded by the Board of Directors as
acceptably discharging the levels and types of responsibility implicit in the
various senior executive positions and is not intended to be quantitatively
related to any element of the Company's financial performance. In furtherance of
these objectives, the Committee periodically, though not necessarily annually,
reviews the salary levels of a sampling of companies regarded by the Committee
as having sufficiently similar characteristics to provide a reasonable basis for
comparison. For example, salaries authorized in late 1995 to be paid during 1996
to the Company's senior officers were targeted for the second quartile of
salaries paid in 1994, aged for valid current comparison, for comparable
positions with companies included in the Watson Wyatt Data Services compensation
survey. The 1996 authorized salaries for Messrs. Kalman and Sweet were arrived
at using the same methodology. Notwithstanding comparisons with the Wyatt
Survey, the Company does not specifically "index" executive salary to that
offered by any particular sampling of companies, although it regards such
comparisons as useful benchmarks in calibrating the Company's salary policy. The
Watson Wyatt Survey includes a broader range of companies than are included in
the "Fluid Controls Group" used by the Company for purposes of stock performance
comparability, since the latter grouping consists of direct competitors against
whose financial and market performance the Company's performance can be most
directly measured, while the Watson Wyatt Survey encompasses a broader range of
manufacturers, many of whom are likely to compete with the Company only for
qualified executive personnel. Against this backdrop, the Committee intends that
the Company's Executive Officers be compensated through salary levels that are
sufficient to discourage recruiting of Company executives by other
manufacturers, and also considers the credentials, experience and consistent
performance of the individual senior executives, as viewed in the Committee's
collective best judgment, all of which necessarily involve subjective as well as
objective elements.
Annual bonuses are intended to reflect a general policy of requiring a
minimum level of financial performance for the year before any bonuses are
earned by senior executives, with bonuses for achieving higher levels of
performance directly related to the level achieved. The Board's primary emphasis
in recent years has been on encouraging management to concentrate on improving
the Company's Return on Capital as well as focusing on inventory levels.
Accordingly, in establishing its bonus program, the Committee has tied potential
bonus compensation to the Company's operating returns on capital and inventory
turns. Under the bonus program established for 1996, senior executives were
entitled to bonuses ranging from zero, if a 9% qualifying "threshold" return on
beginning capital had not been achieved, and increasing with a graduated scale
with the Company's performance to a limit of 100% of salary. Based on a
restructuring adjusted 11.63% Return on Capital employed in the business,
Messrs. Teshoian, French, and Baldwin received a bonus of approximately 56.6%,
45.2%, and 41.8%, respectively, of salary for 1996. Mr. Baldwin and Mr. Hyland
will receive restricted stock grants for a number of shares of Common Stock
having an aggregate market price equal to 8.9% and 7.2%, respectively, of their
aggregate salary plus bonus earned. Messrs. Kalman and Sweet received
approximately 98% (including an amount intended to replace the bonus forfeited
when Mr. Kalman left his former employer to join the Company) and 48% of salary
in 1996, respectively, based on a return on capital of 12.31% (not adjusted for
restructuring charges). Mr. Hyland's cash bonus for 1996 was determined using
two factors: the amount by which the pro forma income of the Engineered Products
Group exceeded a threshold amount and the extent to which fourth quarter
inventory turns for the Engineered Products Group exceeded a target level. In
addition to the cash bonus, Mr. Hyland received a bonus award payable in the
form of a stock option based on the return on capital achieved for the
Engineered Products Group. The Committee may in the future consider that the
continuing orderly development of the Company's business would be served at that
time by weighing bonus calculations differently than at present or by including
performance
15
<PAGE> 19
criteria other than return on capital and, subject to any necessary Board
concurrence, reserves the right to do so when in its best collective judgment
such adjustments might be expected to result in enhanced operating results for
the Company.
The Board of Directors is of the view that properly designed and
administered stock-based incentives for senior executives closely aligns the
executives' economic interest with those of shareholders and provide a direct
and continuing focus upon the goal of constantly striving to increase long-term
shareholder value and to that end, the Committee has followed a general policy
of awarding large stock option grants only every fifth year to senior
executives, most recently in 1993.
The Company also maintains defined contribution retirement plans which are
funded by annual contributions of a percentage of Company income for the benefit
of substantially all domestic employees, including Executive Officers. The
profit-sharing percentages are uniformly applied to all participating employees,
(except with respect to Mr. Teshoian whose profit-sharing contribution
percentage is contractually fixed) with the only variance in annual credits
otherwise attributable to an employee's compensation and years of service with
the Company, and to differences in the profitability of the Company's domestic
operating divisions. For purposes of the divisional profitability component,
contributions for the accounts of Executive Officers are measured by the average
profitability of the entire Company.
Preservation of Tax Deductibility of Executive Compensation. The Code
generally disallows a tax deduction to public corporations for compensation
payments to the corporation's chief executive officer and its four other most
highly compensated executive officers in excess of $1 million individual annual
limitation. Such excess payments may continue to be deducted, however, if they
are (i) performance based, as established by a compensation committee consisting
solely of "outside" directors, (ii) made pursuant to a plan approved by
shareholders prior to payment, and (iii) certified by such a compensation
committee (subject to certain exceptions) as payable due to the satisfaction of
the performance goals. If it appears to the Committee that compensation might
likely be earned by any Executive Officer in excess of the permissible limits
under any compensation program in effect for the ensuing year, the Committee and
the Board of Directors may submit the same to shareholders for approval at the
relevant annual meeting of shareholders and to comply with any other applicable
requirements of the Code, so as to secure for the Company the deductibility of
the entire amount of such compensation.
The Compensation Committee: Allen F. Rhodes, Chairman; Bob G. Gower,
Wallace S. Wilson.
16
<PAGE> 20
COMMON STOCK PERFORMANCE GRAPH
The following graph illustrates the yearly change in the cumulative total
shareholder return on the Company's common stock, compared with the cumulative
total return on the Standard & Poor's 500 Stock Index and a Peer Group, which is
referred to as the Fluid Controls Group, for the five years ended December 31,
1996. The Peer Group is comprised of BWIP Holding, Inc., The Duriron Company,
Inc., Gorman-Rupp Company, Goulds Pumps, Inc., Graco, Inc., IDEX Corp.,
Parker-Hannifin Corporation, TRINOVA Corp. and Watts Industries, Inc. The graph
assumes that the value of the investment in the Company's common stock and each
index was $100.00 at December 31, 1991 and that all dividends were reinvested.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD KEYSTONE
(FISCAL YEAR COVERED) INTERNATIONAL, INC. S&P 500 PEER GROUP ONLY
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 90.49 107.61 106.81
1993 101.30 118.41 130.89
1994 66.04 120.01 141.90
1995 79.43 164.95 175.41
1996 82.87 202.72 203.27
</TABLE>
CERTAIN TRANSACTIONS
Floyd A. Cailloux, a director and retired Chairman of the Board, provided
consulting services to the Company upon request under arrangements which
contemplated the payment of annual consulting fees of $48,000 and reimbursement
for office accommodations and automobile and other miscellaneous expenses
aggregating approximately $50,000 annually. This consulting arrangement
terminated upon Mr. Cailloux's death on January 21, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, the Company believes all filings were made timely in accordance
with Section 16 of the Exchange Act.
AUDITORS
Arthur Andersen LLP, a certified public accounting firm, has served as the
independent auditor of the Company for a number of years. While management
anticipates that this relationship will continue to be maintained during 1997,
no formal action is proposed to be taken at the annual meeting with respect to
the
17
<PAGE> 21
continued employment of Arthur Andersen LLP inasmuch as no such action is
legally required. A representative of Arthur Andersen LLP plans to attend the
annual meeting and will be available to answer appropriate questions. The
representative also will have the opportunity to make a statement at the meeting
if he so desires, although it is not expected that any statement will be made.
The Audit Committee of the Board of Directors assists the Board in assuring
that the accounting and reporting practices of the Company are in accordance
with all applicable requirements. The Committee reviews with the auditors the
scope of the proposed audit work and meets with the auditors to discuss matters
pertaining to the audit and any other matter which the Committee or the auditors
may wish to discuss. In addition, the Audit Committee would recommend the
appointment of new auditors to the Board of Directors if future circumstances
were to indicate that such action is desirable.
LIMITATION ON INCORPORATION BY REFERENCE
Notwithstanding any reference in prior or future filings of the Company
with the Securities and Exchange Commission which purports to incorporate this
proxy statement by reference into another filing, such incorporation shall not
include any material included herein under the captions "Other Information --
Compensation Committee Report" or "Other Information -- Common Stock Performance
Graph."
OTHER MATTERS
The annual report to shareholders covering the year ended December 31, 1996
has been mailed to each shareholder entitled to vote at the annual meeting or
accompanies this proxy statement.
Any shareholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to the Company's 1998 annual
meeting of shareholders is required to submit such proposal in writing to the
Secretary of the Company on or before December 1, 1997.
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to solicitations by mail, several regular employees of
the Company may solicit proxies in person or by telephone. The Company has
retained the services of Corporate Investor Communications, Inc. to assist in
the solicitation of proxies either in person or by mail, telephone, telecopy or
any other means at an estimated cost of $3,500, plus expenses, which cost will
be paid by the Company.
The persons designated as proxies to vote shares at the meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the meeting. Management does not expect that any matters other than
those referred to in this proxy statement will be presented for action at the
meeting.
By Order of the Board of Directors:
DONNA D. MOORE
Secretary
March 31, 1997
18
<PAGE> 22
APPENDIX A
KEYSTONE INTERNATIONAL, INC.
1985 INCENTIVE PLAN
(As Amended and Restated March 19, 1997)
I. PURPOSE OF THE PLAN
The Keystone International, Inc. 1985 Incentive Plan, as amended and
restated (the "Plan"), is intended to provide a means whereby certain employees
and directors (the "participants") of Keystone International, Inc., a Texas
corporation (the "Company"), and its subsidiaries may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, and to encourage them to remain with and devote their best
efforts to the business of the Company, thereby advancing the interests of the
Company and its shareholders. Accordingly, the Company may grant to certain
participants (i) restricted stock awards (such awards being hereinafter referred
to as "Grants") of shares of the $1.00 par value common stock of the Company
("Stock"), (ii) options ("Options") to purchase shares of Stock, and (iii)
performance bonuses, payable in cash, Stock, or a combination of cash and Stock
(such bonuses being hereinafter referred to as "Bonuses" and, together with the
Grants and Options collectively, the "Awards"). Options granted under the Plan
may be either incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which do not constitute Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (or any
similar committee) of the Board of Directors of the Company (the "Committee").
The Committee shall at all times consist solely of two or more members of the
Board of Directors, and all members of the Committee shall be both (i) "non-
employee directors" as that term is defined in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) "outside
directors" as that term is defined in Regulation 1.162-27(e)(3) under the Code.
The Committee shall have sole authority to select the participants who are to
receive Awards and to establish the number of shares which may be issued under
each Grant or Option and the amount that may be paid under each Bonus. The
Committee is authorized to interpret the Plan and may from time to time adopt
such rules and regulations, not inconsistent with the provisions of the Plan, as
it may deem advisable to carry out the Plan, including, without limitation, any
rules and regulations necessary to comply with the governing laws of foreign
countries. All decisions made by the Committee in selecting the participants to
whom Awards shall be granted, in establishing the number of shares which may be
issued under each Grant or Option, in establishing the amount that may be paid
under each Bonus, and in construing the provisions of the Plan shall be final.
III. RESTRICTED STOCK AGREEMENTS
Each Grant shall be evidenced by a Restricted Stock Agreement and shall
contain such terms, conditions and restrictions as may be approved by the
Committee. The terms, conditions and restrictions of the respective Restricted
Stock Agreements, including, without limitation, the number of shares of Stock
to be issued to the participant, the consideration for such shares, forfeiture
restrictions and forfeiture restriction periods, voting rights, dividend rights,
performance criteria, if any, and other rights with respect to the shares, need
not be identical.
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IV. OPTION AGREEMENTS
Each Option shall be evidenced by an Option Agreement and shall contain
such terms, conditions and restrictions, and may be exercisable for such
periods, as may be approved by the Committee. The terms, conditions and
restrictions of the respective Option Agreements need not be identical.
Specifically, an Option Agreement may provide for the surrender of the right to
purchase shares under the Option in return for a payment in cash or shares of
Stock or a combination of cash and shares of Stock equal in value to the excess
of the fair market value of the shares with respect to which the right to
purchase is surrendered over the option price therefor ("Stock Appreciation
Right"), on such terms and conditions as the Committee in its sole discretion
may prescribe. Moreover, an Option Agreement may provide for the payment of the
option price, in whole or in part, by the delivery of a number of shares of
Stock (plus cash, if necessary) having a fair market value equal to such option
price. For the purposes of the Plan, the fair market value of a share of Stock
on a particular date shall be equal to the mean of the reported high and low
sales prices of the Stock on the New York Stock Exchange-Composite Tape on that
date, or if no prices are reported on that date, on the last preceding date on
which such prices of the Stock are so reported. If the Stock is not traded on
the New York Stock Exchange or any other exchange at the time a determination of
the fair market value is required to be made hereunder, the determination of
fair market value shall be made by the Committee in such manner as it deems
appropriate.
V. BONUS AWARDS
(a) The Committee, in its sole discretion, may designate employees to
receive a Bonus if certain pre-established performance goals are met. In
determining which employees shall be eligible for a Bonus, the Committee may
consider the nature of their duties, past and potential contributions to the
success of the Company and its affiliates, and such other factors as the
Committee deems relevant in connection with accomplishing the purposes of the
Plan. The Committee shall determine the terms and conditions of the Bonus, if
any, to be made to an employee for each measurement period designated by the
Committee (the "Measurement Period").
(b) The performance goals shall be pre-established by the Committee in
accordance with Section 162(m) of the Code and regulations issued thereunder.
Performance goals determined by the Committee may include, but are not limited
to, increases in net profits, operating income, Stock price, earnings per share,
sales, return on capital and/or return on equity for the Company or any division
or operating unit thereof.
(c) The Committee must certify in writing that a performance goal has been
met prior to payment to any employee of the Bonus. If the Committee certifies
the entitlement of an employee to the performance based Bonus, the payment shall
be made to the employee subject to other applicable provisions of the Plan,
including but not limited to, all legal requirements and tax withholding.
(d) Bonuses shall be paid on or before the 90th day following both (i) the
end of the Measurement Period, and (ii) certification by the Committee that the
performance goals and any other material terms of the Bonus and the Plan have
been satisfied, or as soon thereafter as is reasonably practicable. The maximum
amount which may be paid to any employee pursuant to one or more Bonuses under
this Paragraph V in respect of any calendar year period shall not exceed
$2,500,000, but in no event shall any such Bonus be greater than three times the
then base salary of the employee.
VI. ELIGIBILITY OF AWARD RECIPIENT
Awards may be granted only to individuals who are employees or directors of
the Company or any parent or subsidiary corporation (as defined in Section 424
of the Code) of the Company at the time the Awards are granted; provided,
however, that Bonuses may not be awarded to non-employee directors. Awards may
be granted to the same participant on more than one occasion.
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<PAGE> 24
VII. SHARES SUBJECT TO GRANTS UNDER THE PLAN
The aggregate number of shares which may be issued pursuant to Grants or
Options under the Plan shall not exceed 4,250,000 shares of Stock. The maximum
number of shares which may be issued pursuant to Grants or Options under the
Plan to any participant during the term of the Plan shall be 4,250,000 shares.
Such shares may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. If, on or before the
termination of the Plan, any Stock shall be returned to the Company as a result
of the application of the restrictions contained in the Restricted Stock
Agreement evidencing the grant of such Stock, such Stock may again be awarded
under the Plan. The aggregate number of shares which may be issued as Grants
under the Plan shall be subject to adjustment as provided in Paragraph XII
hereof.
VIII. SHARES SUBJECT TO OPTIONS UNDER THE PLAN
The aggregate number of shares which may be issued pursuant to Options or
Grants under the Plan shall not exceed 4,250,000 shares of Stock. The maximum
number of shares which may be issued pursuant to Options or Grants under the
Plan to any participant during the term of the Plan shall be 4,250,000 shares.
Such shares may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. Should any
Option hereunder expire or terminate prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the Plan. The aggregate number of shares which may be issued under Options
granted under the Plan shall be subject to adjustment as provided in Paragraph
XII hereof. Exercise of an Option in any manner, including an exercise involving
an election of an alternative settlement method referred to in Paragraph IV
hereof, shall result in a decrease in the number of shares of Stock which may
thereafter be available, both for purposes of the Plan and for issuance to the
participant who exercised the Option, by the number of shares as to which the
Option is exercised. Separate stock certificates shall be issued by the Company
for those shares acquired pursuant to the exercise of an Incentive Stock Option
and for those shares acquired pursuant to the exercise of any Option which does
not constitute an Incentive Stock Option.
The aggregate fair market value (determined as of the time the Option is
granted) of the Stock for which any participant may be granted Incentive Stock
Options in any calendar year under the Plan (and under any other incentive stock
option plans of the Company and any parent or subsidiary corporation) shall not
exceed $100,000. Further, no Incentive Stock Option shall be granted to a
participant if, at the time the Option is granted, such participant owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or any subsidiary corporation, within the
meaning of Section 422(c)(5) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the fair market value of the Stock
subject to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
IX. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined by
the Committee, but in the case of an Incentive Stock Option, such purchase price
shall not be less than the fair market value (as determined in accordance with
the provisions of paragraph IV hereof) of the Stock subject to the Option on the
date the Option is granted.
X. PARTICIPATION BY NON-EMPLOYEE DIRECTORS
Directors who are not employees of the Company shall be entitled to receive
Options and Grants in any combination as determined by the Committee as part of
the overall compensation arrangement for non-employee directors.
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<PAGE> 25
XI. TERM OF PLAN
The Plan shall be effective on March 19, 1997, provided the Plan is
subsequently approved by the shareholders of the Company within 12 months
thereafter. Except with respect to Awards then outstanding, if not sooner
terminated under the provisions of Paragraph XIII hereof, the Plan shall
terminate upon, and no further Awards shall be granted after, March 19, 2007.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board of Directors or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of debt or equity securities ahead of or affecting Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding.
(b) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the termination
of the Plan or the expiration of an Award theretofore granted, the Company shall
effect a subdivision or consolidation of shares of Stock or the payment of a
stock dividend on Stock without receipt or consideration by the Company, the
remaining shares of Stock available under the Plan and the number of shares of
Stock with respect to which any Option may thereafter be exercised (i) in the
event of an increase in the number of outstanding shares, shall be
proportionately increased, and the purchase price per share under an outstanding
Option shall be proportionately reduced, and (ii) in the event of a reduction in
the number of outstanding shares, shall be proportionately reduced, and the
purchase price per share under an outstanding Option shall be proportionately
increased.
(c) If the Company recapitalizes or otherwise changes its capital structure
or merges or consolidates with one or more corporations and the Company shall be
the surviving corporation, thereafter upon any exercise of an Option granted the
participant prior to the effective time of such recapitalization or merger or
consolidation, the participant shall be entitled to receive under such Option,
in lieu of the number of shares of Stock underlying such Option, the number and
class of shares of stock and securities to which the optionee would have been
entitled pursuant to the terms of the recapitalization or agreement of merger or
consolidation if, immediately prior to the effective time thereof, the
participant had been the holder of record of the number of shares of Stock
underlying such Option. This Subparagraph shall be subject to the terms of
Paragraph XV hereof.
(d) Any adjustment provided for in Subparagraphs (b) and (c) above shall be
subject to any required shareholder action.
(e) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of stock subject to Awards theretofore granted or the purchase price per
share.
XIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors in its discretion may terminate the Plan at any
time; provided, that no change in any Award theretofore granted may be made
which would impair the rights of the participant without the consent of such
participant; and provided, further, that the Board of Directors may not make any
alteration or amendment which requires shareholder approval under applicable
law, without the approval of the shareholders of the Company.
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XIV. TRANSFERABILITY OF AWARDS
The Committee may provide that any Award may be transferred to the maximum
extent transferability of such Award is then allowed pursuant to Rule 16b-3
under the Exchange Act, and Section 162(m) and Section 422 of the Code or the
regulations thereunder.
XV. CHANGE OF CONTROL
In the event of a Change of Control (as defined below):
(a) all exercisable and unexercisable Options shall be surrendered by
the participant to the Company and cancelled in exchange for a cash payment
by the Company to each such participant, in an amount equal to the number
of shares of Stock then covered by such participant's Option multiplied by
the excess of the fair market value of each share of Stock over the
exercise price per share of Stock specified in the Option;
(b) all forfeiture restrictions with respect to Grants shall lapse;
and
(c) all Bonuses shall become immediately payable to their fullest
extent regardless of whether the Measurement Period upon which they are
based have been completed.
For these purposes, "Change of Control" shall mean any of the following
events:
(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 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 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 of
Directors (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors;
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 Plan, considered as though such person were a member of
the Incumbent Board; or
(iii) approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which persons who
were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated
company's then outstanding voting securities.
A-5
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PROXY KEYSTONE INTERNATIONAL, INC. PROXY
9600 WEST GULF BANK DRIVE
HOUSTON, TEXAS 77040
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 7, 1997
The undersigned hereby appoints Nishan Teshoian and Francis S.
Kalman, or either of them, attorneys-in-fact and proxies of the
undersigned, with full power of substitution, to vote in respect
of the undersigned's shares of the Common Stock of Keystone
International, Inc. ("Company") which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of the Company to be
held on May 7, 1997, at 9:00 a.m., local time, at The Junior
League of Houston, 1811 Briar Oaks Lane, Houston, Texas and at any
adjournment(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES SET
FORTH BELOW AND FOR EACH OF PROPOSALS 2 AND 3.
<TABLE>
<S> <C> <C>
1. ELECTION OF "CLASS II" DIRECTORS [ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY to vote for the
(except as marked to the contrary nominees listed below
below)
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Nishan Teshoian John W. Guffey, Jr. Ludvik F. Koci
2. To amend the Company's Restated Articles of Incorporation to
increase the authorized shares of common stock from 50 million
shares to 100 million shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Amended and Restated 1985 Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, on such other business as may properly be
presented at the meeting.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
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<PAGE> 28
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This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder(s). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE DIRECTOR
NOMINEES SET FORTH ON THE REVERSE SIDE, FOR THE APPROVAL OF THE
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION, FOR THE
APPROVAL OF THE AMENDED AND RESTATED 1985 INCENTIVE PLAN, AND IN
THE DISCRETION OF THE PROXY HOLDER ON ALL OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE MEETING. All prior proxies are hereby
revoked.
-----------------------------
-----------------------------
Signature(s)
Dated -----------------, 1997
(Please sign exactly as your
name appears hereon. When
signing as attorney, executor,
administrator, trustee, guardian,
etc., give full title as such. For
joint accounts, each joint owner
should sign.)
PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE PROXY CARD USING THE
ENCLOSED ENVELOPE.
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