<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[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)
C. JAMES HALEY, JR.
------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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).
[_] $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:*
(4) Proposed maximum aggregate value of transaction:
*Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] 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:
<PAGE>
LUFKIN INDUSTRIES, INC.
LUFKIN, TEXAS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 7, 1997
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 Museum of East
Texas, 503 North Second, Lufkin, Texas, on the 7th day of May, 1997, at 9:00
a.m. Lufkin Time, for the following purposes:
1. To elect three directors to the Company's board to serve until the
annual shareholders' meeting held in 2000 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 1997.
3. 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 31, 1997, 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 7, 1997
<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 7, 1997, and any adjournments thereof. The annual meeting
will be held at 9:00 a.m. Lufkin Time, at the Museum of East Texas, 503 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 or the proposal to approve the appointment of independent
certified public accountants 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 7, 1997.
- --------------------------------------------------------------------------------
VOTING SECURITIES
- --------------------------------------------------------------------------------
At the close of business on March 31, 1997, 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 6,544,808 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.
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 1. ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors has nominated and urges you to vote FOR the election
of the three directors who have been nominated to serve a three-year term of
office in the 2000 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 III Directors expires at the time of
the 1997 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. Henderson, Mr. Kurth, and Mr. Little
have been nominated to serve an additional three-year term as Class III
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 1997 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 III Directors, if elected, whose term of office as
directors will expire in 2000, and certain additional information with respect
to each of them, are as follows:
Simon W. Henderson, III, manager of his own investments. Age 63. Mr.
Henderson has been a director of the Company since 1971 and currently
serves as a member of the Compensation Committee, the Executive Committee
and the Nominating Committee.
Melvin E. Kurth, Jr., manager of his own investments. Age 66. Mr. Kurth
has been a director of the Company since 1968 and currently serves as a
member of the Audit Committee and the Nominating Committee.
W. T. Little, a self-employed management consultant. Age 63. He became a
director of the Company in 1968.
The Class I Directors, whose present term of office as directors will
continue after the meeting and expire in 1998, and certain additional
information with respect to each of them, are as follows:
Bob H. O'Neal, President and a Director of Stewart & Stevenson Services,
Inc. Age 62. Mr. O'Neal became a director in 1992 and currently serves on
the Compensation Committee and the Nominating Committee. In May 1995, an
indictment was returned by a Federal Grand Jury accusing Stewart &
Stevenson Services, Inc., a former consultant and four of its employees,
including
2
<PAGE>
Mr. O'Neal, of one count of major fraud against the United States, four
counts of false statements and one count of conspiracy to commit major
fraud, make false statements and interfere with the administration of a
foreign military sale. Mr. O'Neal is currently on administrative leave from
his duties at Stewart & Stevenson Services, Inc.
Frank B. Stevenson, formerly Chairman of the Board, President and Chief
Executive Officer of the Company. Age 69. 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. Age 52. Mr. Trout has
been a director of the Company since 1980 and serves as a member of the
Executive Committee and the Nominating Committee.
Thomas E. Wiener, attorney. Age 56. Mr. Wiener became a director of the
Company in 1987 and currently serves on the Audit Committee and the
Executive Committee.
The Class II Directors, whose present term of office as directors will
continue after the meeting and expire in 1999, 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 66. 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 64. Mr. King
has been a director since 1990 and also serves on the Executive Committee
and the Compensation Committee.
Douglas V. Smith, President, Chief Executive Officer and Chairman of the
Board of the Company. Age 54. Mr. Smith was elected President and Chief
Executive Officer of the Company in January 1993 and Chairman of the Board
in May 1995. 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 65. Mr.
Trout has been a director of the Company since 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, 1996, 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>
The TCW Group, Inc. (1)................................ 374,060 5.5%
Quest Advisory Corp. (2) .............................. 357,972 5.3
James W. Barber (3).................................... 10,275 *
John F. Glick (3)...................................... 4,775 *
C. James Haley, Jr. (3)................................ 21,170 *
Simon W. Henderson, III (3)............................ 91,033 1.3
L. R. Jalenak, Jr. (3)................................. 6,400 *
Henry H. King (3)...................................... 7,128 *
Melvin E. Kurth, Jr. (3)............................... 117,740 1.7
W. T. Little (3)....................................... 74,675 1.1
Bob H. O'Neal (3)...................................... 5,500 *
Scott H. Semlinger (3)................................. 17,770 *
Douglas V. Smith (3)................................... 61,750 *
Frank B. Stevenson (3)................................. 31,150 *
H. J. Trout, Jr. (3)................................... 325,184 4.8
W. W. Trout, Jr. (3)................................... 24,614 *
Thomas E. Wiener (3)................................... 74,836 1.1
Directors and officers as a group (20 persons) (3)..... 918,615 13.6
</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, The TCW Group, Inc. may
be deemed to be controlled by Robert Day.
2. Pursuant to a Schedule 13G filed with the Company, Quest Advisory Corp. may
be deemed to be controlled by Charles M. Royce. Mr. Royce disclaims any
beneficial ownership of the shares owned by Quest Advisory Corp.
3. Includes shares subject to presently exercisable options.
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, 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 also has a standing Nominating Committee which is
currently comprised of Messrs. M. E. Kurth, S. W. Henderson III, B. H. O'Neal
and H. J. Trout, Jr.
During 1996, the Audit Committee had two meetings; the Compensation Committee
had four meetings; the Executive Committee had one meeting and the Board of
Directors had four meetings. During 1996 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 1996, the directors received $1,000 for each meeting of the Board of
Directors and $850 for each committee meeting that they attended in addition to
a quarterly payment of $3,000.
Each director and officer of the Company filed on a timely basis all reports
required pursuant to Section 16 of the Securities Exchange Act of 1934.
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 the 1996 report on executive
compensation. This Committee report documents the components of the Company's
executive officer compensation program and describes the basis on which the
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 review
compensation surveys provided by the consulting firm as well as surveys
provided by other sources.
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 shareholders 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 shareholders.
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 has established 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 during this period. The
Company's salaries were competitive with the market at the fiftieth percentile
in these comparisons. As part of its responsibilities 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. In
accordance with its review process, the Committee approved base salary
increases for those officers whose salary level and performance warranted an
adjustment. Base salary increases approved for those officers in 1996 averaged
5.5%.
6
<PAGE>
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 met in 1996.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1996 was
$280,000 and his annual bonus was $140,000. These amounts were determined by
the Compensation Committee as a part of a four year employment contract that
began on January 1, 1995 and will expire on December 31, 1998. Factors that
influenced the Committee's recommendation to amend the CEO contract were the
Company's improved operating results and the reorganizational plans that were
successfully implemented. The amount of Mr. Smith's bonus was predetermined
based on the final earnings per share of the Company. The maximum amount of
bonus that could have been paid to Mr. Smith under the bonus arrangement was
$140,000. The Committee believes that the contract is competitive and that the
employment contract is critical to attract and retain the best qualified
executives.
Stock Options. During 1996, the Committee also made stock option grants to
the CEO and to each of the senior officers of the Company. Each of those
officers received stock options which were based on his responsibilities and
relative position in the Company. In 1996, 48,600 shares of stock options were
granted to the Company's officers which compares to 37,700 shares granted to
officers in 1995. Of the options granted to officers, 16,000 shares of stock
options were granted to Mr. Smith in 1996 compared to 15,000 shares granted to
him in 1995. The number of options granted is determined as a percentage of
each officer's salary. The increase in options granted from 1995 to 1996 is due
to increases in the officers' salaries. The Committee's policy is to make stock
option grants annually 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, the Committee feels that these grants help senior officers'
interests coincide with those of the shareholders.
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 the 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 five years. The graph
assumes that the value of the investment in the Company's common stock and each
index was $100 at December 31, 1991.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1991 1992 1993 1994 1995 1996
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lufkin Industries, Inc. .......... 100 79.34 73.86 79.65 100.51 114.47
Media General Oilfield Services
Index............................ 100 99.65 116.32 103.98 153.69 227.84
NASDAQ Market Value Index......... 100 100.98 121.13 127.17 164.96 204.98
</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, 1996, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------- ------------
STOCK
NAME AND PRINCIPAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Douglas V. Smith........ 1996 $280,000 $140,000 16,000 $17,250
President and 1995 255,000 100,000 15,000 13,786
Chief Executive Officer 1994 225,000 50,000 -- 12,590
John F. Glick........... 1996 147,616 34,740 3,500 8,869
Vice President 1995 140,811 47,650 3,500 6,453
James W. Barber......... 1996 125,762 40,000 3,500 8,822
Vice President 1995 118,545 54,000 3,500 7,481
1994 95,153 45,000 4,000 5,404
Scott H. Semlinger...... 1996 131,960 22,825 3,500 7,413
Vice President 1995 124,008 31,255 3,500 6,381
1994 113,136 17,000 4,000 5,926
C. James Haley, Jr...... 1996 113,754 34,355 2,800 6,858
Secretary-Treasurer 1995 112,020 36,700 2,800 5,157
1994 106,272 -- 4,000 5,850
</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 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)
- ---------------------------------------------------------------------------- -----------------
PERCENTAGE
OF TOTAL
OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION
NAME (SHARES)(1)(2) IN 1996 (PER SHARE)(4) DATE 5% 10%
---- -------------- ---------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ 16,000 15% $18.13 2/19/2006 $182,379 $462,185
John F. Glick........... 3,500 3 21.75 11/11/2006 47,875 121,324
James H. Barber......... 3,500 3 21.75 11/11/2006 47,875 121,324
Scott H. Semlinger...... 3,500 3 21.75 11/11/2006 47,875 121,324
C. James Haley, Jr...... 2,800 3 21.75 11/11/2006 38,300 97,059
</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) Of the options granted to officers, 16,000 shares of stock options were
granted to Mr. Smith in 1996 compared to 15,000 shares granted to him in
1995. The number of options granted is determined as a percentage of each
officer's salary. The increase in options granted from 1995 to 1996 is due
to increases in the officers' salaries.
(4) 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, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1996 (SHARES) DECEMBER 31, 1996
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ -0- -0- 53,750 27,250 397,500 67,500
John F. Glick........... -0- -0- 4,375 9,625 26,688 46,813
James H. Barber......... -0- -0- 9,875 9,125 48,500 46,375
Scott H. Semlinger...... 125 266 17,540 9,375 73,719 35,906
C. James Haley, Jr...... -0- -0- 18,650 8,150 72,844 42,381
</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 1996, 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 9 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, four years; Mr. Glick, two years; Mr.
Barber, seven years; Mr. Semlinger, 21 years and Mr. Haley, 23 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
LAST TEN YEARS OF SERVICE OF SERVICE SERVICE SERVICE SERVICE
-------------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................. $32,369 $ 43,827 $ 55,286 $ 66,744 $ 66,744
150,000.................. 39,244 52,994 66,744 80,494 80,494
175,000.................. 46,119 62,161 78,202 94,244 94,244
200,000.................. 52,994 71,327 89,661 107,994 107,994
225,000.................. 59,869 80,494 101,119 121,744 121,744
250,000.................. 66,744 89,661 112,577 135,494 135,494
300,000.................. 80,494 107,994 135,494 162,994 162,994
400,000.................. 107,994 144,661 181,327 217,994 217,994
</TABLE>
11
<PAGE>
EMPLOYMENT CONTRACT AND CHANGE IN CONTROL ARRANGEMENT
The Company has entered into an employment agreement with Mr. Smith through
December 31, 1998, with a minimum annual salary of $255,000 and with a minimum
bonus payment of $60,000, 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, 1996, would be approximately
$335,000 including salary and bonus payments through December 31, 1996. A
termination following a change in control of the Company would cause the amount
of such benefits to be tripled.
- --------------------------------------------------------------------------------
PROPOSAL 2: APPROVAL OF AUDITORS
- --------------------------------------------------------------------------------
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, 1997.
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, 1996 was approved by the shareholders at the last annual meeting on May 15,
1996.
12
<PAGE>
- --------------------------------------------------------------------------------
PROPOSALS OF SHAREHOLDERS
- --------------------------------------------------------------------------------
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 December 1, 1997 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 6, 1998 and March
8, 1998.
- --------------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 1996 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.
- --------------------------------------------------------------------------------
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 7, 1997
13
<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 Museum of
East Texas, 503 North Second, Lufkin, Texas, at 9:00 a.m., Lufkin Time, on the
7th day of May, 1997, 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
Simon W. Henderson, III; Melvin E. Kurth, Jr.; W.T. Little
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 AND 2. 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 7,
1997.
(SEE REVERSE SIDE)
<PAGE>
__ __
LUFKIN INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY 0
For All
For Withheld Except
1. Election of Directors 0 0 0 -------------
Nominee
Exception
For Against Abstain
2. To approve the appointment of 0 0 0
Arthur Andersen LLP as the
independent auditors of the
Company for the year 1997.
NOTE: (Please sign exactly as name appears
hereon. When signing as attorney,
executor, administrator, trustee or
guardian, etc., please give full title as
such. For joint accounts, each joint owner
should sign.)
Dated: __________________, 1997
Signature(s) ______________________________
Dated: __________________, 1997
Signature(s) ______________________________
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
__ __
