<PAGE>
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as Permitted by Rule 14a-6(a)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
LUFKIN INDUSTRIES, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
(4) Date Filed:
Notes:
<PAGE>
LUFKIN INDUSTRIES, INC.
LUFKIN, TEXAS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 1995
TO THE SHAREHOLDERS OF LUFKIN INDUSTRIES, INC.
Notice is hereby given that the Annual Meeting of the Shareholders of Lufkin
Industries, Inc., a Texas corporation, will be held at the Lufkin Civic Center,
601 North Second, Lufkin, Texas, on the 17th day of May, 1995, at 9:00 a.m.
Lufkin Time, for the following purposes:
1. To elect four directors to the Company's board to serve until the annual
shareholders' meeting held in 1998 or until their successors have been
elected and qualified.
2. To appoint Arthur Andersen LLP, independent certified public
accountants, as the Company's auditors for the year 1995.
3. To amend the Company's 1990 Stock Option Plan to increase the number of
shares of common stock of the Company as to which options may be granted
under the plan from 400,000 to 900,000.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on March 30, 1995, are
entitled to notice of and to vote at the meeting.
You are kindly requested to mark, sign, date and return the enclosed Proxy
promptly, regardless of whether you expect to attend the meeting, in order to
ensure a quorum. If you are present at the meeting, and wish to do so, you may
revoke the Proxy and vote in person.
It is sincerely hoped that it will be possible for you to personally attend
the meeting.
C. JAMES HALEY, JR.
Secretary
April 5, 1995
<PAGE>
LUFKIN INDUSTRIES, INC.
P.O. BOX 849
601 SOUTH RAGUET
LUFKIN, TEXAS 75902
PROXY STATEMENT
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The accompanying proxy is solicited by the Board of Directors of Lufkin
Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders
to be held on May 17, 1995, and any adjournments thereof. The annual meeting
will be held at 9:00 a.m. Lufkin Time, at the Lufkin Civic Center, 601 North
Second, Lufkin, Texas. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting in accordance with the
directions noted thereon; or if no direction is indicated, it will be voted in
favor of the proposals set forth in the notice attached hereto. Any shareholder
giving a proxy has the power to revoke it by oral or written notice to the
Secretary of the Company at any time before it is voted.
A shareholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for directors or can withhold authority to
vote for certain nominees for directors. Abstentions from either the proposal
to elect directors, the proposal to approve the appointment of independent
certified public accountants or the proposal to amend the 1990 Stock Option
Plan are treated as votes against the particular proposal. Broker non-votes on
any of such matters are treated as shares as to which voting power has been
withheld by the beneficial holders of those shares and, therefore, as shares
not entitled to vote on the proposal as to which there is the broker non-vote.
The cost of solicitation of these proxies will be borne by the Company. In
addition to solicitation by mail, certain directors, officers, and regular
employees of the Company may solicit proxies by telephone and personal
interview.
The approximate date on which this Proxy Statement will first be sent to
shareholders is April 5, 1995.
- --------------------------------------------------------------------------------
VOTING SECURITIES
- --------------------------------------------------------------------------------
At the close of business on March 30, 1995, which is the record date for the
determination of shareholders of the Company entitled to receive notice of and
to vote at the annual meeting or any adjournments thereof, the Company had
outstanding 6,792,381 shares of common stock, $1.00 par value (the "Common
Stock"). Each share of Common Stock is entitled to one vote upon each of the
matters to be voted on at the meeting.
Quest Advisory Corp. is the beneficial owner of 486,472 shares of the
Company's Common Stock and Quest Management Company is the beneficial owner of
9,800 shares of the Company's Common Stock. Together these two related entities
own beneficially 7.3% of the Company's Common Stock.
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 1. ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors has nominated and urges you to vote FOR the election
of the four directors who have been nominated to serve a three-year term of
office in the 1998 class of directors. Proxies solicited hereby will be so
voted unless shareholders specify otherwise in their proxies. The affirmative
vote of the holders of a majority of the Common Stock present in person or by
proxy at the meeting and entitled to vote is required for approval of this
Proposal.
The Company's Fourth Restated Articles of Incorporation (the "Articles")
divide the Board of Directors, with respect to terms of office, into three
classes, designated as Class I, Class II and Class III. Each class of directors
is to be elected to serve a three-year term and is to consist of, as nearly as
possible, one-third of the members of the entire Board. In accordance with the
Company's Bylaws, the Company's Board of Directors is currently fixed at 11
members.
The term of office of each of the Class I Directors expires at the time of
the 1995 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. O'Neal, Mr. Stevenson, Mr. Trout and
Mr. Wiener have been nominated to serve an additional three-year term as Class
I Directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a director, if elected.
It is intended that the proxies solicited hereby will be voted FOR the
election of the nominees for director listed below, unless authority to do so
has been withheld. If, at the time of the 1995 Annual Meeting of Shareholders,
any of the nominees should be unable or decline to serve, the discretionary
authority provided in the proxy will be used to vote for a substitute or
substitutes designated by the Board of Directors. The Board of Directors has no
reason to believe that any substitute nominee or nominees will be required.
DIRECTORS AND NOMINEES FOR DIRECTOR
The nominees for Class I Directors, if elected, whose term of office as
directors will expire in 1998, and certain additional information with respect
to each of them, are as follows:
Bob H. O'Neal, President, Chief Executive Officer and a Director of
Stewart & Stevenson Services, Inc. Age 60. Mr. O'Neal became a director in
1992 and currently serves on the Compensation Committee.
Frank B. Stevenson, formerly Chairman of the Board, President and Chief
Executive Officer of the Company. Age 67. He became a director of the
Company in 1983 and currently serves on the Audit Committee.
H. J. Trout, Jr., manager of his own investments since 1990. He formerly
served as District Sales Manager for the Company. Age 50. Mr. Trout has
been a director of the Company since 1980 and serves as a member of the
Executive Committee.
Thomas E. Wiener, attorney with the law firm of Wiener & Caplan, P.C. Age
54. Mr. Wiener became a director of the Company in 1987 and currently
serves on the Audit Committee and the Executive Committee.
2
<PAGE>
The Class II Directors, whose present term of office as directors will
continue after the meeting and expire in 1996, and certain additional
information with respect to each of them, are as follows:
L. R. Jalenak, Jr., formerly Chairman of the Board of Cleo Inc., a Gibson
Greetings Company, is a director of Perrigo Company and Dyersburg Corp. He
also serves as an Independent Trustee for First Funds (a family of mutual
funds). Age 64. Mr. Jalenak has been a director since 1990 and also serves
on the Compensation Committee and Audit Committee.
Henry H. King, President of Henry H. King & Associates. Age 62. Mr. King
has been a director since 1990 and also serves on the Executive Committee
and the Compensation Committee.
Douglas V. Smith, President and Chief Executive Officer of the Company.
Age 52. Mr. Smith was elected President and Chief Executive Officer of the
Company in January 1993. He was also elected as a director in January 1993.
He previously served as Vice President--Worldwide Manufacturing for Cooper
Oil Tool Division of Cooper Industries (Houston, Texas).
W. W. Trout, Jr., retired Vice President of the Company. Age 63. Mr.
Trout has been a director of the Company since 1968.
The Class III Directors, whose present term of office as directors will
continue after the meeting and expire in 1997, and certain additional
information with respect to each of them, are as follows:
Simon W. Henderson, III, manager of his own investments. Age 61. Mr.
Henderson has been a director of the Company since 1971 and currently
serves as a member of the Compensation Committee and the Executive
Committee.
Melvin E. Kurth, Jr., manager of his own investments. Age 64. Mr. Kurth
has been a director of the Company since 1968 and currently serves as a
member of the Audit Committee.
W. T. Little, a management consultant. Age 61. Mr. Little has been a
self-employed management consultant for the last five years. He became a
director of the Company in 1968.
Mr. W. W. Trout, Jr., is the first cousin of H. J. Trout, Jr.
3
<PAGE>
The following table reflects the beneficial ownership of the Company's Common
Stock as of December 31, 1994, with respect to (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock; (ii) the directors and nominees for director; (iii)
each executive officer named in the Summary Compensation Table; and (iv) the
Company's directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF SHARES OWNED PERCENT
BENEFICIAL OWNER BENEFICIALLY OF CLASS
---------------- ------------ --------
<S> <C> <C>
Quest Advisory Corp./1/
Quest Management Company/1/ ........................... 496,272 7.3
James W. Barber ....................................... 400 *
C. James Haley, Jr. ................................... 3,620 *
Simon W. Henderson, III................................ 86,033 1.3
L. R. Jalenak, Jr. .................................... 400 *
Henry H. King.......................................... 2,128 *
Melvin E. Kurth, Jr. .................................. 112,896 1.7
W. T. Little........................................... 97,356 1.4
Bob H. O'Neal.......................................... 500 *
E. G. Pittman.......................................... 1,400 *
Scott H. Semlinger..................................... 105 *
Douglas V. Smith....................................... 6,000 *
Frank B. Stevenson..................................... 4,150 *
H. J. Trout, Jr. ...................................... 320,984 4.7
W. W. Trout, Jr. ...................................... 29,393 .1
Thomas E. Wiener....................................... 75,636 1.1
Directors and officers as a group...................... 745,146 10.9
</TABLE>
- --------
* Indicates ownership of less than one percent of the outstanding shares of
Common Stock of the Company.
1. Pursuant to a Schedule 13G filed with the Company, Quest Advisory Corp. and
Quest Management Company may be deemed to be controlled by Charles M. Royce.
Quest Advisory Corp. has sole voting power and sole dispositive power with
respect to 486,472 shares and Quest Management Company has sole voting power
and sole dispositive power with respect to 9,800 shares.
Each director and nominee for director listed above possessed sole voting and
investment powers as to all the shares listed as being beneficially owned by
such person, except Melvin E. Kurth, Jr. who has a limited term interest in the
income of 26,712 of the listed shares which are held in trust for the benefit
of himself and his sons, W. T. Little who shares voting and investment powers
as to 64,800 of the listed shares, H. J. Trout, Jr. who has a remainder
interest as to 272,980 of the listed shares which are held in a trust for his
mother for which he is trustee and Thomas E. Wiener who shares voting and
dispositive powers as to 48,864 of the listed shares.
The Board of Directors has a standing Audit Committee. The Audit Committee is
currently comprised of Messrs. L. R. Jalenak, Jr., M. E. Kurth, Jr., F.B.
Stevenson and T. E. Wiener. The Audit Committee's functions include making
recommendations concerning the engagement of independent auditors, reviewing
with the independent auditors the plan and results of the auditing engagement,
reviewing the scope and results of the Company's procedures for internal
auditing, reviewing professional services provided by the
4
<PAGE>
independent auditors, reviewing the independence of the independent auditors,
considering the range of audit and nonaudit fees and reviewing the adequacy of
the Company's internal accounting controls.
The Board of Directors also has a standing Compensation Committee which is
currently comprised of Messrs. S. W. Henderson, III, L. R. Jalenak, Jr., H. H.
King and B. H. O'Neal. The functions performed by the Compensation Committee
include: reviewing executive salary and bonus structure; reviewing the
Company's stock option plan (and making grants thereunder); setting bonus
goals; and approving salary and bonus awards to key executives.
The Board of Directors does not have a standing Nominating Committee.
During 1994, the Audit Committee had two meetings; the Compensation Committee
had four meetings; the Executive Committee had three meetings and the Board of
Directors had four meetings. During 1994 each continuing member of the Board of
Directors attended 75% or more of the meetings of the Board of Directors and
the committees of which he was a member.
During 1994, the directors received $850 for each meeting of the Board of
Directors or committee meeting that they attended in addition to a quarterly
payment of $2,000.
5
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Lufkin Industries,
Inc. (the "Committee") is pleased to present its 1994 report on executive
compensation. This Committee report documents the components of the Company's
executive officer compensation program and describes the basis on which 1994
compensation program determinations were made by the Committee with respect to
the executive officers of the Company, including the executive officers that
are named in the compensation tables. The Committee meets regularly and is
comprised entirely of non-employee directors. The duty of the Committee is to
review compensation levels of members of management, as well as administer the
Company's various incentive plans including its annual bonus plan and its stock
option plan. The Committee reviews with the Board of Directors in detail all
aspects of compensation for all of the Company's senior officers.
The Committee has retained the services of a national compensation consulting
firm, to assist the Committee in connection with the performance of its various
duties. Such firm provides advice to the Committee with respect to how
compensation paid by the Company to its senior officers compares to
compensation paid by other companies. Members of the Committee also review
compensation surveys provided by the compensation consulting firm and others.
EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY
The design of the Company's executive compensation program is based on three
fundamental principles. First, compensation must support the concept of pay for
performance, that is, compensation awards are directly related to the financial
results of the Company, to increasing stockholders value, and to individual
contributions and accomplishments. As a result much of an executive officer's
compensation is "at risk" with annual bonus compensation, at target levels,
amounting to approximately 35% of total cash compensation.
The second principle of the program is that it should offer compensation
opportunities competitive with those provided by other comparable industrial
companies. It is essential that the Company be able to retain and reward its
executives who are critical to the long-term success of the Company's
diversified and complex businesses.
The final principle is that the compensation program must provide a direct
link between the long-term interests of the executives and the stockholders.
Through the use of stock-based incentives, the Committee focuses the attention
of executives on managing the Company from the perspective of an owner with an
equity stake.
COMPENSATION PLAN COMPONENTS
Base Salary. The Committee establishes base salary levels for the Company's
executive officers that are generally comparable to similar executive positions
in companies of similar size and complexity as the Company. The Company obtains
comparative salary information from published market surveys and from a
national compensation consulting firm. The comparative data is from industrial
companies of a comparable size in revenue. The Company's salaries are
moderately below the competitive market at the fiftieth percentile in these
comparisons. The Committee approves all salary changes for the Company's
officers and bases individual salary changes on a combination of factors such
as the performance of the executive salary level relative to the competitive
market, the salary increase budget for the Company and the recommendation of
the Chief Executive Officer.
6
<PAGE>
The Company's compensation consulting firm has reviewed the salary for each
of the Company's officers for 1994 and has reported to the Committee that in
the opinion of such firm, the salary of each officer is within the competitive
range, in view of the Company's size and performance and the responsibility of
those officers.
Incentive Compensation. The Company's performance, or that of a division or
business unit, as the case may be, for purposes of compensation decisions is
measured under the annual bonus plan against goals established at the start of
the year by the Committee. In each instance, the goals consisted in most part
of making budgeted sales and expense levels, as well as subjective individual
performance goals. Such goals were generally not met in 1994. Nevertheless,
bonuses were given to executives associated with the Trailer and Foundry
Divisions, due to the performances of those divisions.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1994 was
$225,000 and his annual bonus was $50,000. These amounts were determined at the
time Mr. Smith was hired in January 1993. The Committee believed this salary
was competitive. The committee believes it is critical to attract and retain
the best qualified executives.
Stock Options. During 1994, the Committee also made stock option grants to
each of the senior officers of the Company, other than the Chief Executive
Officer. Each of those officers received stock options which were based on his
responsibilities and relative position in the Company. The Committee's policy
is to make stock option grants infrequently and for the purpose of tying a
portion of the employees compensation to the long-term performance of the
Company's Common Stock. By making such grants infrequently, the Committee feels
the long-term nature of such grants are emphasized.
No member of the Committee is a former or current officer or employee of the
Company or any of its subsidiaries. The following members of the Compensation
Committee have delivered the foregoing report.
H. H. King, Chairman
S. W. Henderson, III
L. R. Jalenak, Jr.
B. H. O'Neal
The foregoing report and the performance graph and related description
included in this proxy statement shall not be deemed to be filed with the
Securities and Exchange Commission except to the extent the Company
specifically incorporates such items by reference into a filing under the
Securities Act of 1933 or Securities Exchange Act of 1934.
7
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
common stock to the NASDAQ Market Value Index and to the Media General Oilfield
Services Index (which includes the Company) for the last four years. The graph
assumes that the value of the investment in the Company's common stock and each
index was $100 at November 4, 1990. The Company's common stock began trading in
November 1990. Prior to that time there was no market in the Company's stock.
Therefore, five-year data is unavailable.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
NOVEMBER 4, ---------------------------------
1990 1990 1991 1992 1993 1994
----------- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lufkin Industries, Inc. .... 100 85.04 89.72 71.19 66.26 71.46
NASDAQ Market Value Index... 100 99.73 128.03 129.28 155.08 162.82
Media General Oilfield
Services Index............. 100 99.31 94.84 94.51 110.32 98.62
</TABLE>
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer and the four most highly compensated executive officers of
the Company as to whom the total annual salary and bonus for the year ended
December 31, 1994, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------- ------------
(A) (B) (C) (D) (E) (F)
--- --- --- --- --- ---
STOCK
NAME AND PRINCIPAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Douglas V. Smith........ 1994 $225,000 $50,000 -- $12,590
President and 1993 213,121 50,000 50,000 9,590
Chief Executive Officer
James W. Barber......... 1994 95,153 45,000 4,000 5,404
Vice President
Scott H. Semlinger...... 1994 113,136 17,000 4,000 5,926
Vice President 1993 108,514 22,500 5,000 5,193
1992 112,066 5,413 5,000 6,843
C. James Haley, Jr. .... 1994 106,272 -- 4,000 5,850
Secretary-Treasurer 1993 99,471 22,500 5,000 4,750
1992 101,835 4,979 5,000 6,066
E. G. Pittman........... 1994 103,597 -- 4,000 5,725
Vice President 1993 97,962 20,000 5,000 4,744
1992 97,844 4,543 2,800 6,081
</TABLE>
- --------
(1) Annual bonus amounts are earned and accrued during the years indicated, and
paid in the first quarter of the following year.
(2) The All Other Compensation consists of the Company's contribution to the
Thrift Plan.
9
<PAGE>
STOCK OPTION PLANS
The Company has a stock option plan (the "Plan"), pursuant to which options
to purchase shares of the Company's stock are outstanding or available for
future grants. The purpose of the Plan is to advance the best interests of the
Company by providing those persons who have substantial responsibility for the
management and growth of the Company with additional incentive by increasing
their proprietary interest in the success of the Company. All options for stock
are granted by the Compensation Committee.
The Company's shareholders are being asked to approve an amendment to the
Plan at the meeting to which this Proxy Statement relates. The proposed
amendment increases the number of shares of Common Stock as to which options
may be granted under the Plan from 400,000 shares to 900,000 shares. The terms
of the plan as proposed to be amended are described under Proposal 3 below and
the Plan is set forth in its entirety as Appendix A hereto.
The following table shows, as to the Chief Executive Officer and the four
most highly compensated executive officers of the Company, information about
option grants in the last year. The Company does not grant any Stock
Appreciation Rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
- ---------------------------------------------------------------------------- --------------------
(A) (B) (C) (D) (E) (F) (G) (H)
--- --- --- --- --- --- --- ---
PERCENTAGE
OF TOTAL
OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION
NAME (SHARES)(1)(2) IN 1994 (PER SHARE)(3) DATE 0% 5% 10%
---- -------------- ---------- -------------- ---------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ -- -- $ -- -- -- $ -- $ --
James H. Barber......... 4,000 4.2% 15.875 11/15/2004 -- 39,935 94,853
Scott H. Semlinger...... 4,000 4.2% 15.875 11/15/2004 -- 39,935 94,853
C. James Haley, Jr. .... 4,000 4.2% 15.875 11/15/2004 -- 39,395 94,853
E. G. Pittman........... 4,000 4.2% 15.875 11/15/2004 -- 39,395 94,853
</TABLE>
- --------
(1) Options granted are exercisable starting 12 months after the grant date,
with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.
(2) The options were granted for a term of 10 years subject to earlier
termination in certain events related to termination of employment.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
10
<PAGE>
The following table shows aggregate option exercises in the last fiscal year
of which there were none and the year-end option values for the Chief Executive
Officer and the four most highly compensated executive officers. The Company
does not grant any Stock Appreciation Rights.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1994 OPTION VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
--- --- --- ------------------------- -------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1994 (SHARES) DECEMBER 31, 1994
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ -0- -0- 33,500 16,500 33,500 16,500
James H. Barber......... -0- -0- 4,000 8,000 1,000 10,500
Scott H. Semlinger...... -0- -0- 8,665 11,250 2,500 13,000
C. James Haley, Jr. .... -0- -0- 10,950 10,250 2,500 13,000
E. G. Pittman........... -0- -0- 5,550 9,250 1,500 12,000
</TABLE>
RETIREMENT PLAN
Since the amount contributed each year by the Company to its Retirement Plan
for Salaried Employees is determined on an actuarial basis, it is not possible
to allocate the Company's contributions among the individuals shown in the
table above. During 1994, the Company did not make a contribution to the plan.
The plan is a defined benefit plan which provides benefits to salaried
employees based on an employee's years of service and covered compensation.
Covered compensation consists of Salary, Bonus and All Other Compensation as
set forth in the Summary Compensation Table on page 8 of this Proxy Statement.
The benefits are based on the average of the highest five consecutive years of
covered compensation received during the last ten years of service. Benefits
are estimated on straight-life annuity computations and do reflect offsets for
primary Social Security benefits. The following table shows the annual benefits
payable upon retirement at age 65 for various compensation and years of
credited service combinations under the Company's retirement plan. Payment of
the specified retirement benefits is contingent upon continuation of the plan
in its present form until the employee retires. Directors who are not, or who
have not been, employees of the Company will not receive benefits under the
plan. The years of credited service for the persons named in the Summary
Compensation Table are: Mr. Smith, two years; Mr. Barber, five years; Mr.
Semlinger, 19 years; Mr. Haley, 21 years; and Mr. Pittman, 39 years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ESTIMATED ANNUAL BENEFITS
COMPENSATION UPON RETIREMENT
FOR HIGHEST -----------------------------------------------------------
FIVE YEARS 25 YEARS 30 YEARS 35 YEARS
DURING 15 YEARS 20 YEARS OF OF OF 40 YEARS
LAST TEN YEARS OF SERVICE OF SERVICE SERVICE SERVICE SERVICE OF SERVICE
-------------- ---------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
$125,000...... $32,369 $43,827 $ 55,286 $ 66,744 $ 66,744 $ 66,744
150,000...... 39,244 52,994 66,744 80,494 80,494 80,494
175,000...... 46,119 62,161 78,202 94,244 94,244 94,244
200,000...... 52,994 71,327 89,661 107,994 107,994 107,994
225,000...... 59,869 80,494 101,119 121,744 121,744 121,744
250,000...... 66,744 89,661 112,577 135,494 135,494 135,494
300,000...... 80,494 107,994 135,494 162,994 162,994 162,994
</TABLE>
11
<PAGE>
EMPLOYMENT CONTRACT AND CHANGE IN CONTROL ARRANGEMENT
In connection with his employment in January 1993, the Company entered into
an employment agreement with Mr. Smith through December 31, 1995, with a
minimum annual salary of $225,000 and bonus of $50,000, subject to review
annually by the Compensation Committee. The Company has also entered into a
severance agreement with Mr. Smith that provides for severance benefits to be
paid to him following a change in control of the Company (as defined) or a
termination of his employment. Maximum severance benefits at December 31, 1994,
would be approximately $275,000 including salary and bonus payments through
December 31, 1995. A termination following a change in control of the Company
would cause the amount of such benefits to be tripled.
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PROPOSAL 2: APPROVAL OF AUDITORS
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The Board of Directors proposes the appointment of the firm of Arthur
Andersen LLP as the Company's auditors for the year ending December 31, 1995.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting of Shareholders and will have an opportunity to make a statement if
they desire to do so and to respond to appropriate questions from those
attending such meeting. Arthur Andersen LLP has served as auditors for the
Company since 1958. Their appointment as auditors for the year ended December
31, 1994 was approved by the shareholders at the last annual meeting on May 18,
1994.
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PROPOSAL 3: APPROVAL OF AMENDMENT TO THE COMPANY'S 1990 STOCK OPTION PLAN
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General. In November 1994, the Board of Directors of the Company adopted an
amendment to the Lufkin Industries, Inc. 1990 Stock Option Plan (the "Plan")
which would increase the number of shares of Common Stock as to which options
may be granted under the Plan from 400,000 shares to 900,000 shares. The Board
urges you to vote for approval of such amendment. Proxies solicited hereby will
be so voted unless shareholders specify otherwise in their proxies. The
affirmative vote of a majority of the outstanding shares of Common Stock is
required for approval of this Proposal. The purpose of the Plan is to advance
the best interests of the Company by providing incentive awards and stock
ownership opportunities to those key employees (including directors who are
employees) who contribute significantly to the performance of the Company. In
addition, the Plan is intended to enhance the ability of the Company to attract
and retain individuals of superior managerial ability and to motivate such
individuals to exert their best efforts towards future progress and
profitability of the Company. The terms of the Plan, as proposed to be amended,
are described below and the Plan is set forth in its entirety as Appendix A
hereto.
The Plan provides for the grant of stock options to purchase shares of the
Company's Common Stock to key employees of the Company as determined by the
Company's Compensation Committee. Subject to approval by the shareholders of
the amendment to the Plan, the maximum number of shares of Common Stock as to
which options may be granted under the Plan is 900,000 shares, subject to
certain adjustments to prevent dilution. Options granted under the Plan to key
employees may be either incentive stock options ("ISOs") under the provisions
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or nonqualified stock options ("NSOs").
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The Plan is administered by the Company's Compensation Committee, which,
under the terms of the Plan, must consist of at least three members of the
Board of Directors, none of which may be a key employee who is eligible to be,
or is, a participant in the Plan. The Compensation Committee has complete
discretion in determining the key executives and employees of the Company or
its subsidiaries who shall receive stock options and the number of such options
to be granted. The Plan provides that, in granting options to key employees,
the Compensation Committee shall take into consideration the contribution an
employee has made or may make to the success of the Company or its subsidiaries
and such other factors as the Compensation Committee shall determine. As of
February 15, 1995, 75 key employees were eligible to participate in the Plan.
The term of each stock option granted to a key employee shall be determined
by the Compensation Committee on the date of grant, subject to limitations that
(i) all such options will expire no later than ten years from the date of grant
and (ii) the exercise price of such options may not be less than 100% of the
fair market value per share of the Common Stock on the date of grant. In the
event that the employment of a key employee shall terminate for reasons other
than retirement with the consent of the Company, permanent disability or death,
such employee's options shall be exercisable only within three months after
such termination and only to the extent that such options were exercisable
immediately prior to such termination of employment. If such termination is due
to retirement or permanent disability, the key employee may exercise options in
full at any time during the remaining term provided therefor at the time of
grant. Upon the termination of employment of a key employee by reason of death,
such employee's options, to the extent then exercisable, may be exercised for a
period of one year after the date of the employee's death, but no more than ten
years after the date an option was granted.
The Plan permits the Company to allow an optionee, upon exercise of an
option, to satisfy any applicable federal income tax requirements in the form
of either cash or, at the discretion of the Compensation Committee, shares of
Common Stock, including shares issuable upon exercise of such option.
The Plan provides that upon a change of control of the Company (i)
outstanding stock options would become immediately vested and exercisable (with
certain exceptions) and (ii) upon exercise of an option, the optionee would
receive cash based on the spread between the exercise price of such option and
the premium price, if any, paid for the Common Stock in connection with such
change of control. A change of control shall be deemed to occur if a person or
group acquires 25% or more of the Company's voting securities, the Directors of
the Company at the beginning of any two-year period ceased to constitute a
majority of the Board of Directors during such period for any reason, the
shareholders of the Company approve a merger or consolidation of the Company
with any other company (with certain exceptions), the shareholders of the
Company approve an agreement for the sale, exchange or disposition by the
Company of all or a substantial portion of the Company's assets or the
shareholders of the Company adopt a plan of complete liquidation of the
Company.
The Board of Directors of the Company has amended the Plan to limit grants
under the Plan to no more than 100,000 shares of Common Stock to any one person
in any calendar year.
The Board of Directors of the Company may amend, suspend or terminate the
Plan at any time, except that any amendment that would (i) increase the maximum
number of shares that may be issued under the options granted pursuant to the
Plan, (ii) change the class of employees eligible to receive grants under the
Plan, (iii) extend beyond 10 years the term of any option or (iv) extend the
term of the Plan requires stockholder approval unless, in each case, such
approval is not required to meet the requirements of Rule
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16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Unless the term of the Plan is extended or earlier terminated, the Plan
will terminate on August 22, 2000.
Federal Income Taxes. As a general rule, no income will be recognized by an
employee upon the grant of either ISOs or NSOs. Upon the exercise of a NSO, the
optionee will be treated as receiving compensation income in an amount equal to
the excess of the fair market value of the shares at the time of exercise over
the option price paid for the shares, and the Company may claim a deduction for
compensation paid in the same amount and at the same time as compensation is
taxable to the optionee, provided the Company makes the proper tax withholding
with respect to the exercise by an employee. Upon a subsequent disposition of
the shares, any difference between the fair market value of the shares at the
time of exercise and the amount realized on the disposition would be eligible
for treatment as long-term capital gain or loss if the shares were held for
more than twelve months. The exercise of an ISO, on the other hand, does not
subject the optionee to federal income tax; however, the "spread" upon the
exercise of an ISO is an item of adjustment for purposes of the alternative
minimum tax. If the optionee holds the shares of Common Stock received upon the
exercise of an ISO for the requisite holding period, gain on the disposition of
such shares is treated as long-term capital gain. If a disposition of such
shares is made in a taxable transaction before expiration of the holding
period, a portion of the gain on disposition will be treated as ordinary income
and the balance as long-term or short-term capital gain, depending on the
length of time the shares were held. The Company is allowed a deduction in the
year of disposition of shares received upon exercise of an ISO only to the
extent the amount of any gain is taxable to the optionee as ordinary income.
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PROPOSALS OF SHAREHOLDERS
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A proposal of a shareholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than November 30, 1995 if the shareholder making the proposal desires such
proposal to be considered for inclusion in the Company's proxy statement and
form of proxy relating to such meeting. The Company has also adopted Bylaw
provisions which require that nominations of persons for election to the Board
of Directors and the proposal of business by shareholders at an annual meeting
of shareholders must fulfill certain requirements which include the requirement
that notice of such nominations or proposals must be delivered to the Secretary
of the Company not less than 60 days nor more than 90 days prior to the
anniversary of the prior annual meeting. In order to be timely for next year's
annual meeting such notice must be delivered between February 17, 1996 and
March 18, 1996.
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ADDITIONAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 1994 from the Company's Form 10-K Report filed with the Securities
and Exchange Commission. A copy of the Form 10-K Report may be obtained without
charge by written request to the Secretary, Lufkin Industries, Inc., P.O. Box
849, Lufkin, Texas 75902.
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OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors has at this time no knowledge of any matters to be
brought before the meeting other than those referred to above. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote said proxy in accordance with
their best judgment on such matters.
By Order of the Board of Directors
C. JAMES HALEY, JR.
Secretary
April 5, 1995
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APPENDIX A
LUFKIN INDUSTRIES, INC.
1990 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Lufkin Industries, Inc. 1990 Stock Option Plan (the
"Plan") is to advance the interests of Lufkin Industries, Inc. (the "Company")
by providing incentive awards and stock ownership opportunities to those key
employees (including officers and directors who are employees) who contribute
significantly to the performance of the Company ("Key Employees"). In addition,
the Plan is intended to enhance the ability of the Company to attract and
retain individuals of superior managerial ability and to motivate such
individuals to exert their best efforts towards future progress and
profitabilty of the Company.
2. ADMINISTRATION AND INTERPRETATION
a. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three members of the Board of
Directors of the Company (the "Board") appointed by and serving at the pleasure
of the Board; provided that each member shall be a "disinterested person"
within the meaning of paragraph (d)(3) of Rule 16b-3 which has been adopted by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as such Rule or its equivalent is in effect from time to time. The Board
may from time to time appoint members of the Committee in substitution for or
in addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee may prescribe, amend and rescind rules
and regulations for the administration of the Plan and shall have the full
power and authority to construe and interpret the Plan. A majority of the
members of the Committee shall constitute a quorum and the acts of a majority
of the members present at a meeting or the acts of a majority of the members
evidenced in writing shall be the acts of the Committee. The Committee may
correct any defect or any omission or reconcile any inconsistency in the Plan
or in any award or grant made hereunder in the manner and to the extent it
shall deem desirable.
The Committee shall have the full and exclusive right to grant all Options
(as defined below). In granting Options the Committee shall take into
consideration the contribution the employee has made or may make to the success
of the Company and such other considerations as the Committee shall determine.
The Committee shall also have the authority to consult with and receive
recommendations from officers and other employees of the Company with regard to
these matters. In no event shall any employee, his legal representatives,
heirs, legatees, distributees, or successors have any right to participate in
the Plan, except to such extent, if any, as the Committee shall determine.
The Committee may from time to time in granting Options under the Plan
prescribe such other terms and conditions concerning such Options as it deems
appropriate, provided that such terms and conditions are not more favorable to
the Key Employee than those expressly set forth in the Plan.
The day-to-day administration of the Plan may be carried out by such officers
and employees of the Company as shall be designated from time to time by the
Committee.
b. Interpretation. The interpretation and construction by the Committee of
any provisions of the Plan or of any award or grant under the Plan and any
determination by the Committee under any provision of the Plan or any such
award or grant shall be final and conclusive for all purposes.
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c. Limitation on Liability. Neither the Committee nor any member thereof
shall be liable for any act, omission, interpretation, construction or
determination made in connection with the Plan in good faith, and the members
of the Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including counsel
fees) arising therefrom to the full extent permitted by law and under any
directors and officers liability insurance coverage that may be in effect from
time to time.
3. SHARES SUBJECT TO AWARDS UNDER THE PLAN
a. Limitations on Number of Shares. The shares subject to grants of Options
shall be shares of the Company's authorized but unissued common stock, par
value $1.00 per share, and shares, if any, of such common stock that are issued
but not outstanding and held as treasury stock by the Company ("Common Stock").
Subject to adjustment as hereinafter provided, the aggregate number of shares
of Common Stock as to which Options may be granted under the Plan shall not
exceed 100,000 shares; provided, however, that, if the shareholders of the
Company approve an amendment to the Articles of Incorporation of the Company to
increase the authorized number of shares of Common Stock to 20,000,000 and
following such approval the proposed three-for-one share dividend is
distributed to the shareholders of the Company, the aggregate number of shares
of Common Stock as to which Options may be granted under the Plan shall not
exceed 900,000 shares, and; provided, however, (only if the Securities and
Exchange Commission states (either orally or written) that this provision
complies with the provisions of Rule 16b-3), that the aggregate number of
shares of Common Stock as to which Options may be granted shall not include,
and shall not be reduced by, any shares subject to Reload Options (as described
below).
Shares of Common Stock ceasing to be subject to an Option because of the
exercise of such Option may no longer be subject to any further grant under the
Plan. If any outstanding Option in whole or in part, expires or terminates
unexercised or is cancelled for any reason prior to August 23, 2000, the shares
of Common Stock allocable to the unexercised, terminated, cancelled or
forfeited portion of such Option may again be made the subject of grants under
the Plan.
b. Adjustments of Aggregate Number of Shares. The aggregate number of shares
of Common Stock stated in Section 3(a) shall be subject to appropriate
adjustment, from time to time, in accordance with the provisions of Section 6
hereof. In the event of a change in the Common Stock of the Company that is
limited to a change in the designation thereof to "Capital Stock" or other
similar designation, or to a change in the par value thereof, or from par value
to no par value, without increase or decrease in the number of issued shares,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of the Plan.
4. ELIGIBILITY
The individuals eligible to receive Options under the Plan shall be those Key
Employees as the Committee from time to time shall determine; provided,
however, no employee may receive in any calendar year a grant or grants of
Options with respect to more than 100,000 shares of Common Stock.
5. STOCK OPTIONS
a. Grants of Options.
(1) In General. Options granted under the Plan may be either "Incentive
Stock Options" or "Non-qualified Stock Options" (both as defined below and
collectively referred to as "Options"), or both.
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Options granted under the Plan shall be of such type and for such number of
shares of Common Stock, subject to such terms and conditions as the
Committee shall designate.
The Committee may grant Incentive Stock Options and/or Non-qualified
Stock Options to Key Employees at any time and from time to time before
August 23, 2000.
(2) Incentive Stock Options. The term "Incentive Stock Option" shall mean
an Option, or portion thereof, that is intended to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
(3) Non-qualified Stock Options. The term "Non-qualified Stock Option"
shall mean any Option, or portion thereof, that is not an Incentive Stock
Option. Except as specifically provided herein, the provisions of this Plan
shall apply in the same manner to Incentive Stock Options and to Non-
qualified Stock Options.
(b) Terms of Options. Options granted pursuant to this Plan shall be
evidenced by stock option agreements (referred to herein as "agreements") that
shall comply with and be subject to the following terms and conditions and may
contain such other provisions, consistent with this Plan, as the Committee
shall deem advisable. Reference herein to agreements shall include, to the
extent applicable, any amendments to such agreements.
(1) Payment of Option Exercise Price. Upon exercise of an Option, the
full option exercise price for the shares with respect to which the Option
is being exercised shall be payable to the Company (i) in cash or by check
payable and acceptable to the Company or (ii) subject to the approval of
the Committee, by tendering to the Company shares of Common Stock owned by
the optionee having an aggregate Market Value Per Share (as defined below)
as of the date of exercise and tender that is not greater than the full
option exercise price for the shares with respect to which the Option is
being exercised and by paying any remaining amount of the option exercise
price as provided in (i) above (provided that the Committee may, upon
confirming that the optionee owns the number of shares being tendered,
authorize the issuance of a new certificate for the number of shares being
acquired pursuant to the exercise of the Option less the number of shares
being tendered upon the exercise and return to the optionee (or not require
surrender of) the certificate for the shares being tendered upon the
exercise). Payment instruments will be received subject to collection.
(2) Number of Shares. Each agreement shall state the total number of
shares of Common Stock that are subject to the Option.
(3) Exercise Price. The exercise price for each Option shall be fixed by
the Committee at the date of grant, but in no event may such exercise price
per share be less than the Market Value Per Share on the date of the grant
of the Option.
(4) Market Value Per Share. The Market Value Per Share as of any
particular date shall be determined by any fair and reasonable means
determined by the Committee.
(5) Term. The term of each Option shall be determined by the Committee at
the date of grant; provided, however, that each Option shall,
notwithstanding anything in the Plan or an agreement to the contrary,
expire ten years from the date the Option is granted or, if earlier, the
date specified in the agreement at the date of grant of such Option.
(6) Date of Exercise. In the discretion of the Committee, each agreement
may contain a provision not inconsistent with Section 8 hereof stating that
the Option granted therein may not be exercised in
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whole or in part for a period or periods of time specified in such
agreement, subject to Section 8, and except as so specified therein, any
Option may be exercised in whole at any time or in part from time to time
during its term. The Committee may, however, at any time, in its sole
discretion amend any outstanding Option to accelerate the time that such
Option shall be exercisable or to provide that the time for exercising such
Option shall be accelerated upon the occurrence of a specified event.
(7) Termination of Employment. In the event that an individual's
employment with the Company shall terminate, for reasons other than (i)
retirement with the consent of the Company ("retirement"), (ii) permanent
disability or (iii) death, the individual's Options shall be exercisable by
him, subject to subsections (5) and (6) above, only within three months
after such termination, but only to the extent the Option was exercisable
immediately prior to such termination of employment.
If, however, any termination of employment is due to retirement or
permanent disability, the individual shall have the right after such
termination of employment, subject to the provisions of subsections (5) and
(6) above, to exercise any outstanding Option in full at any time during
the remaining term provided therefor in the related agreements. Whether any
termination of employment is due to retirement or permanent disability
shall be determined by the Committee.
If an individual shall die while entitled to exercise an Option, the
individual's estate, personal representative or beneficiary, as the case
may be, shall have the right, subject to the provisions of subsections (5)
and (6) above, to exercise such Option at any time within 12 months from
the date of the optionee's death, to the extent that the optionee was
entitled to exercise the same on the day immediately prior to the
optionee's death.
(8) Reload Options. An option may, in the discretion of the Committee,
include the right to receive a reload stock option ("Reload Option"). An
option which contains the right to receive a Reload Option shall entitle
the optionee, upon the exercise of such option and payment of the
appropriate exercise price in shares of Common Stock that have been owned
by such option holder for at least six months prior to the date of
exercise, to receive a Reload Option. The Reload Option shall be the option
to purchase, at the Market Value Per Share on the date of grant of the
Reload Option, the number of shares of Common Stock equal to the sum of the
number of whole shares delivered by the optionee in payment of the exercise
price of the original option. Such Reload Option shall expire on the same
date that the option it was granted in conjunction with would have expired
had it not been exercised.
6. RECAPITALIZATION
Except as set forth in Section 3a, the aggregate number of shares stated in
Section 3a, the number of shares of Common Stock to which each outstanding
Option relates, and the exercise price in respect of each such Option shall be
adjusted in an equitable manner determined by the Committee, in its sole
discretion and without liability to any person, in the event of (i) a
subdivision or consolidation of shares of Common Stock or other capital
adjustments, (ii) the payment of a stock dividend or a recapitalization or
(iii) a "corporate transaction," as such term is defined in Treasury Regulation
(S) 1.425-1(a)(1)(iii), or any other transaction which, in the opinion of the
Committee, is similar to a "corporate transaction," as defined by the said
Treasury Regulations as in effect on August 23, 1990, including without
limitation any spin-off or other distribution to the security holders of the
Company of securities or property of the Company. The Committee may exercise
its discretion to make any such adjustments on an optionee-by-optionee basis
and with respect to all or only some of the Options held by an optionee.
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7. MERGER OR CONSOLIDATION
Except as otherwise provided in Section 8 below, after a merger of one or
more entities into the Company in which the Company shall survive, or after a
consolidation of the Company and one or more entities, in which the resulting
entity remains, as an independent, publicly-owned entity, an optionee shall, at
the same cost, be entitled upon the exercise of an Option to receive (subject
to any required action by shareholders) such stock, cash and/or securities of
the surviving or resulting entity as the board of directors, or its equivalent,
of such entity, in its sole discretion and without liability to any person,
shall determine to be equivalent, as nearly as practicable, to the nearest
whole number and class of shares of Common Stock or other securities that were
then subject to such Option and such shares of stock or other securities shall,
after such merger or consolidation, be deemed to be shares of Common Stock for
all purposes of the Plan and any agreement.
8. CHANGE IN CONTROL
In the event of a Change in Control (as defined below), then, notwithstanding
any other term of this Plan or any agreement to the contrary, any and all
outstanding Options not fully vested shall automatically vest in full and,
except as provided below with respect to a person subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), be
immediately exercisable. The date on which such accelerated vesting and
immediate exercisability shall occur (the "Acceleration Date") shall be the
date of the occurrence of the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportion as their ownership of stock of the
Company) together with its "Affiliates" and "Associates," as such term is
defined in Rule 12b-2 of the Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years (not including any period
prior to the effective date of this Plan), individuals who at the beginning
of such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clauses (a), (c) or (d) of
this definition) whose election by the Board or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(c) the shareholders of the Company approve a merger or consolidation of
the Company with any other company other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting securities
of the Company (or such surviving entity) outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation effected to
implement
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a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 25% of the combined
voting power of the Company's then outstanding securities, or
(d) the shareholders of the Company adopt a plan of complete liquidation
of the Company or approve an agreement for the sale, exchange or
disposition by the Company of all or a significant portion of the Company's
assets. For purposes of this clause (d), the term "the sale, exchange or
disposition by the Company of all or a significant portion of the Company's
assets" shall mean a sale or other disposition transaction or series of
related transactions involving assets of the Company or any Subsidiary (as
defined below) (including the stock of any Subsidiary) in which the value
of the assets or stock being sold or otherwise disposed of (as measured by
the purchase price being paid therefor or by such other method as the Board
determines is appropriate in a case where there is no readily ascertainable
purchase price) constitutes more than 25% of the fair market value of the
Company (as hereinafter defined). For purposes of the preceding sentence,
the "fair market value of the Company" shall be the aggregate market value
of the outstanding shares of common stock of the Company (on a fully
diluted basis) plus the aggregate market value of the Company's other
outstanding equity securities. The aggregate market value of the shares of
common stock of the Company shall be determined by multiplying the number
of shares of the Company's common stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a definitive
agreement with respect to the transaction or series of related transactions
(the "Transaction Date") by the Market Value Per Share immediately
preceding the Transaction Date or by such other method as the Board shall
determine is appropriate. The aggregate market value of any other equity
securities of the Company shall be determined in a manner similar to that
prescribed in the immediately preceding sentence for determining the
aggregate market value of the shares of common stock of the Company or by
such other method as the Board shall determine is appropriate.
Notwithstanding the foregoing however, a Change in Control shall not be
deemed to have occurred if, prior to the time a Change in Control would
otherwise be deemed to have occurred pursuant to the above provisions, the
Board determines otherwise.
If during the 60-day period following any such Acceleration Date or, with
respect to an Option granted to an officer or director subject to Section 16(b)
of the Exchange Act, the 60-day period following the earlier of the date that
Section 16(b) of the Exchange Act ceases to apply to such person or six months
following the date of grant of such Option (but not to exceed the remaining
term of such Option), a participant (or beneficiary thereof) elects to exercise
an Option, the holder shall receive in cash whichever of the following amounts
is applicable:
(i) with respect to an acquisition of Common Stock described in clause
(a) of the definition of Change in Control, an amount equal to the
Acquisition Spread (as defined below);
(ii) with respect to a change in composition of the Board described in
clause (b) of the definition of Change in Control, an amount equal to the
Spread (as defined below); or
(iii) with respect to stockholder approval of an agreement or adoption of
a plan described in clause (c) or (d) of the definition of Change in
Control, an amount equal to the Merger Spread (as defined below).
Notwithstanding the foregoing provisions of this Section 8, in the case of an
exercise in respect of an Incentive Stock Option, the holder may not receive an
amount in excess of the maximum amount that will enable such option to continue
to qualify as an Incentive Stock Option.
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As used in this Section 8, the following terms shall have the meaning
indicated:
(1) The term "Acquisition Price Per Share" shall mean the greater of (i)
the highest price paid by a person (or an Affiliate or Associate thereof)
for any share of Common Stock acquired prior to, but in connection with, a
Change in Control described in clause (a) of the definition of a Change in
Control or (ii) the highest Market Value Per Share for any day during the
60-day period ending on the date the Option is exercised.
(2) The term "Acquisition Spread" shall mean an amount equal to the
product obtained by multiplying (i) the excess of (A) the Acquisition Price
Per Share over (B) the price per share of Common Stock at which the Option
is exercisable, by (ii) the number of shares of Common Stock with respect
to which such Option is being exercised.
(3) The term "Merger Price Per Share" shall mean the greater of (i) the
fixed or formula price for the acquisition of shares of Common Stock
specified in such agreement or adoption, if such fixed or formula price is
determinable on the date on which such Option is exercised, and (ii) the
highest Market Value Per Share for any day during the 60-day period ending
on the date on which such Option is exercised.
(4) The term "Merger Spread" shall mean an amount equal to the product
obtained by multiplying (i) the excess of (A) the Merger Price Per Share
over (B) the price per share of Common Stock at which the Option is
exercisable, by (ii) the number of shares of Common Stock with respect to
which such Option is being exercised.
(5) The term "Spread" shall mean an amount equal to the product obtained
by multiplying (i) the excess of (A) the highest Market Value Per Share for
any day during the 60-day period ending on the date the Option is exercised
over (B) the price per share of Common Stock at which the Option is
exercisable, by (ii) the number of shares of Common Stock with respect to
which the Option is being exercised.
(6) The term "Subsidiary" shall mean any entity in which the Company has
a direct or indirect ownership interest of 50% or more of the total
combined voting power of all classes of stock in such entity.
The Company intends that this Section 8 shall comply with the requirements of
Rule 16b-3 and any future rules promulgated in substitution therefor ("the
Rule") under the Exchange Act during the term of the Plan. Should any provision
of this Section 8 not be necessary to comply with the requirements of the Rule
or should any additional provisions be necessary for this Section 8 to comply
with the requirements of the Rule, the Board may amend the Plan to add to or
modify the provisions of the Plan accordingly.
9. EMPLOYEE'S AGREEMENT
If, at the time of the exercise of any Option, in the opinion of counsel for
the Company, it is necessary or desirable, in order to comply with any then
applicable laws or regulations relating to the sale of securities, for the
individual exercising the Option to agree to hold any shares issued to the
individual for investment and without intention to resell or distribute the
same and for the individual to agree to dispose of such shares only in
compliance with such laws and regulations, the individual will, upon the
request of the Company, execute and deliver to the Company a further agreement
to such effect.
A-7
<PAGE>
10. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts required to
be withheld or paid with respect thereto under all present or future federal,
state and local tax and other laws and regulations that may be in effect as of
the date of each such payment ("Tax Amounts"). Any issuance of Common Stock
pursuant to the exercise of an Option or other distribution of Common Stock
under the Plan shall not be made until appropriate arrangements have been made
for the payment of any amounts that may be required to be withheld or paid with
respect thereto. Such arrangements may, at the discretion of the Committee,
include allowing the optionee to tender to the Company shares of Common Stock
owned by optionee, or to request the Company to withhold a portion of the
shares of Common Stock being acquired pursuant to the exercise or otherwise
distributed to optionee, which have a Market Value Per Share as of the date of
such exercise, tender or withholding that is not greater than the sum of all
Tax Amounts, together with payment of any remaining portion of all Tax Amounts
in cash or by check payable and acceptable to the Company in the manner and
subject to the requirements described in this Section 10.
(a) Grant of Right. The Committee may, in its sole discretion, grant to a
participant the right to satisfy, in whole or in part, any obligation of the
participant to pay to the Company any Tax Amount as a result of the exercise of
an Option by electing to require that the Company, upon any exercise of the
Option, withhold from the shares of Common Stock issuable to the participant
upon the exercise of the Option, up to that number of full shares of Common
Stock having a fair market value equal to the full amount (or portion of the
amount) necessary to satisfy such participant's Tax Amount arising from such
exercise; provided, however, such withholding shall not exceed the
Participant's marginal tax rate arising from such exercise or vesting (the
"Withholding Right"). The Withholding Right may be granted with respect to all
or any portion of the shares of Common Stock subject to an Option.
(b) Election to Have Shares Withheld. If the Committee grants to a
participant a Withholding Right with respect to an Option, the participant
shall, subject to the terms and conditions set forth below and the terms and
conditions set forth in the related agreement (including the provisions thereof
relating to the election and exercise of the Withholding Right), have the right
at any time thereafter to elect to require that the Company withhold shares of
Common Stock upon exercise of the Option, or any portion thereof, to which the
Withholding Right relates; and such election may, subject to such procedures
and limitations as the Committee may adopt, relate to all or any portion of the
Withholding Right granted to the participant.
(1) Any election pursuant to this paragraph 10(b) by a participant who at
the date of the making of the election is not a director or officer of the
Company within the meaning of Section 16(b) of the Exchange Act (a "Section
16(b) Person"), shall be subject to the following conditions and
limitations:
(A) the election may only be made by delivery by a participant of
written notice of such election to the Committee on or prior to the
date that the amount of tax to be withheld is, under applicable federal
income tax laws, fixed and determined by the Company (the "Tax Date");
(B) unless disapproved by the Committee as provided in paragraph
10(b)(1)(C) below, the election once made shall be irrevocable; and
(C) no election shall be valid unless and until the Committee shall
have consented to the election; the Committee shall have the right and
power, in its sole and absolute discretion, with or without cause or
reason therefor, to consent to the election, to refuse to consent to
the election or to disapprove the election; and if the Committee shall
not have consented to the election on or prior to the Tax Date, the
election shall be deemed disapproved.
A-8
<PAGE>
(2) Any election pursuant to this paragraph 10(b) by any person who at
the date of the making of the election is a Section 16(b) Person shall be
subject to the following conditions and limitations:
(A) no election may be made by any Section 16(b) Person during the
period commencing on the date of the grant by the Committee of the
Option to which such Withholding Right relates and terminating six
calendar months following that date; provided, however, that this
paragraph (b)(2)(A) shall not be applicable to any Section 16(b) Person
at any time subsequent to the death or "Permanent Disability"
("Permanent Disability" means that a participant is totally disabled,
whether due to physical or mental condition, so as to be prevented from
engaging in further employment by the Company and that such disability
is likely to remain permanent and continuous during the remainder of
his life, as determined by the Committee upon the basis of medical
evidence satisfactory to it) of the Section 16(b) Person;
(B) the election may only be made by delivery by the Section 16(b)
Person of written notice of such election to the Committee during any
of the following time periods: (x) that period which is not less than
six calendar months less one day prior to the Tax Date, or (y) any ten
business day period commencing on the third business day following the
date on which the quarterly or annual summary statements of sales or
earnings of the Company appear on a wire service, in a financial news
service, in a newspaper of general circulation, or are otherwise
publicly made available and ending at the closing of business on the
twelfth business day following such date (a "Window Period"); and
(C) no election shall be valid unless and until the Committee shall
have consented to the election; the Committee shall have the right and
power, in its sole and absolute discretion, with or without cause or
reason therefor, to consent to the election, refuse to consent to the
election or to disapprove the election; and if the Committee shall not
have consented to the election on or prior to the Tax Date, the
election shall be deemed disapproved.
(c) Exercise of Withholding Right and Option to Which It Relates. If the
Committee consents to an election of a participant's Withholding Right the
exercise of the Option (or any portion thereof) to which the Withholding Right
relates shall constitute an exercise of the Withholding Right, and the
Committee shall, in its discretion, allow the optionee to tender to the Company
shares of Common Stock owned by the optionee or shall cause the Company to
withhold from the shares otherwise issuable upon the exercise of the Option
that number of full shares of the Common Stock having an aggregate Market Value
Per Share equal to no less than the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and state income
tax laws as a result of the exercise and no greater than to the amount (or
portion of the amount, as applicable) necessary to satisfy the participant's
federal, state and local tax liability, including F.I.C.A. tax, arising from
such exercise; provided, however, such withholding shall not exceed the
participant's marginal tax rate arising from such exercise or vesting.
11. TERMINATION OF AUTHORITY TO GRANT AWARDS.
No Options may be granted pursuant to this Plan after August 22, 2000.
12. AMENDMENT AND TERMINATION
The Board may from time to time and at any time alter, amend, suspend
discontinue or terminate this Plan and any grants hereunder; provided, however,
that no such action of the Board may, without the approval
A-9
<PAGE>
of the shareholders of the Company, alter the provisions of the Plan so as to
(i) increase the maximum number of shares of Common Stock that may be subject
to grants and distributed in the payment of exercises under the Plan (except as
provided in Section 3b); (ii) change the class of employees eligible to receive
grants under the Plan; or (iii) extend beyond ten years the maximum terms of
Options granted under the Plan or extend the term of the Plan unless, in each
case, such approval is not required to meet the requirements of the Rule.
13. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the Plan to
the contrary notwithstanding, if, at any time specified herein or therein for
the making of any determination, the issuance or other distribution of shares
of Common Stock any law, regulation or requirement of any governmental
authority having jurisdiction in the premises shall require either the Company
or the employee (or the employee's beneficiary), as the case may be, to take
any action in connection with any such determination, the shares then to be
issued or distributed, or such payment, the issue or distribution of such
shares or the making of such determination or payment, as the case may be,
shall be deferred until such action shall have been taken.
14. CHANGE IN CONTROL LIMITATION
Notwithstanding any other provision in the Plan, to the extent that the
acceleration of exercisability of an Option under this Plan following a Change
in Control, when aggregated with other payments or benefits to the participant,
whether or not payable pursuant to this Plan, would, as determined by tax
counsel selected by the Company, result in "excess parachute payments" (as
defined in Section 280G of the Code) such parachute payments or benefits
provided to a participant under this Plan shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Code, but only if, by reason of such reduction, the
participant's net after tax benefit shall exceed the net after tax benefit if
such reduction were not made. "Net after tax benefit" shall mean the sum of (i)
all payments and benefits which a participant receives or is then entitled to
receive that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (ii) the amount of federal income taxes payable
with respect to the payments and benefits described in (i) above calculated at
the maximum marginal income tax rate for the year in which such payments and
benefits shall be paid to the participant (based upon the rate for such year as
set forth in the Code at the time of the first payment of the foregoing), less
(iii) the amount of excise taxes imposed with respect to the payments and
benefits described in (i) above by Section 4999 of the Code.
15. MISCELLANEOUS
a. No Employment Contract. Nothing contained in the Plan shall be construed
as conferring upon any employee the right to continue in the employ of the
Company.
b. Employment with Subsidiaries. Employment by the Company for the purpose of
this Plan shall be deemed to include employment by, and to continue during any
period in which an employee is in the employment of, any Subsidiary.
c. No Rights as a Shareholder. A participant shall have no rights as a
shareholder with respect to shares covered by such participant's Option until
the date of the issuance of shares to the participant pursuant
A-10
<PAGE>
thereto. No adjustment will be made for dividends or other distributions or
rights for which the record date is prior to the date of such issuance.
d. No Right to Corporate Assets. Nothing contained in the Plan shall be
construed as giving any participant, such participant's beneficiaries or any
other person, any equity or other interest of any kind, in any assets of the
Company or creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
e. No Restriction on Corporate Action. Nothing contained in the Plan shall be
construed to prevent the Company from taking any corporate action that is
deemed by the Company to be appropriate or in its best interest, whether or not
such action would have an adverse effect on the Plan or any grant made under
the Plan. No participant, beneficiary or other person shall have any claim
against the Company as a result of any such action.
f. Non-assignability. A participant shall not have the power or right to
sell, exchange, pledge, transfer, assign or otherwise encumber or dispose of
such participant's interest in any grant under the Plan nor shall such interest
be subject to seizure for the payment of a participant's debts, judgments,
alimony, or separate maintenance or be transferable by operation of law in the
event of a participant's bankruptcy or insolvency and to the extent any such
interest arising under the Plan is awarded to a spouse pursuant to any divorce
proceeding, such interest shall be deemed to be terminated and forfeited
notwithstanding any vesting provisions or other terms herein or in the
agreement evidencing such award.
g. Application of Funds. The proceeds received by the Company from the sale
of shares pursuant to the Plan will be used for general corporate purposes.
h. Sale of Subsidiary or Assets. In the event a Key Employee ceases to be
employed by the Company as a result of a sale or other disposition by the
Company of a Subsidiary or all or part of the business operations of the
Company, the Committee, in its sole discretion, may accelerate the
exercisability of any grant under the Plan, in whole or in part, as it deems
appropriate.
i. Governing Law; Construction. All rights and obligations under the Plan
shall be governed by, and the Plan shall be construed in accordance with, the
laws of the State of Texas without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of reference
only, and shall in no way limit, define or otherwise affect the meaning or
interpretation of any provisions of the Plan.
Effective Date: August 23, 1990.
A-11
<PAGE>
LUFKIN INDUSTRIES, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints DOUGLAS V. SMITH and C.
J. HALEY, JR., and each or either of them, lawful attorneys and proxies
of the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to attend the annual meeting
of shareholders of LUFKIN INDUSTRIES, INC., (herein the "Company") to
be held at the Lufkin Civic Center, 601 North Second, Lufkin, Texas, at
9:00 a.m., Lufkin Time, on the 17th day of May, 1995, and any
adjournment(s) thereof, with all powers the undersigned would possess
if personally present and to vote thereat, as provided below, the
number of shares the undersigned would be entitled to vote if
personally present.
Election of Directors
Bob H. O'Neal, Frank B. Stevenson, H. J. Trout, Jr., Thomas E. Wiener
In accordance with their discretion, said attorneys and proxies are
authorized to vote upon such other business as may properly come before
such meeting or any adjournments thereof.
Every properly signed proxy will be voted in accordance with the
specification made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. All prior proxies are hereby
revoked.
This Proxy will also be voted in accordance with the discretion of
the proxies or proxy on any other business. Receipt is hereby
acknowledged of the Notice of Annual Meeting and Proxy Statement of the
Company dated April 5, 1995.
P R O X Y
SEE REVERSE
SIDE
<PAGE>
/X/ Please mark your SHARES IN YOUR NAME
votes as in this
example.
FOR WITHHELD
/ / / /
1 Election of Directors
For, except vote withheld from the following nominees(s):
- ---------------------------------------------------------
FOR AGAINST ABSTAIN
/ / / / / /
2 To approve the appointment of Arthur Andersen LLP
as the independent auditors of the Company for
the year 1995.
FOR AGAINST ABSTAIN
/ / / / / /
3 To approve the amendment to the Lufkin
Industries, Inc. 1990 Stock Option Plan.
SIGNATURE(S) DATE
------------------------------- ------
SIGNATURE(S) DATE
------------------------------- ------
NOTE: (Please sign exactly as 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.)
