<PAGE>
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(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 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] No fee required
[_] 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:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
LUFKIN INDUSTRIES, INC.
LUFKIN, TEXAS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1998
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 6th day of May, 1998, 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 2001 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 1998.
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, 1998, 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 6, 1998
<PAGE>
LUFKIN INDUSTRIES, INC.
601 SOUTH RAGUET
LUFKIN, TEXAS 75904
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 6, 1998, 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 6, 1998.
- -------------------------------------------------------------------------------
VOTING SECURITIES
- -------------------------------------------------------------------------------
At the close of business on March 31, 1998, 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 6,612,088 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 four directors who have been nominated to serve a three-year term of
office in the 2001 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 1998 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. Lollar, Mr. O'Neal, Mr. Trout, and
Mr. Wiener have been nominated to serve an additional three-year term as Class
I Directors. Mr. Stevenson has reached the mandatory retirement age for
directors and will not stand for re-election. 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 1998 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 will
expire in 2001, and certain additional information with respect to each of
them, are as follows:
John H. Lollar, Managing Partner of Newgulf Exploration, L.P. Age 59. Mr.
Lollar previously was Chairman, President and Chief Executive Officer of
Cabot Oil and Gas. He became a director of the Company in 1997. He is a
director of Plains Resources and Inspectorate, PLC.
Bob H. O'Neal, formerly President of Stewart & Stevenson Services, Inc.
Age 63. Mr. O'Neal became a director in 1992 and currently serves on the
Compensation Committee and the Nominating Committee.
H. J. Trout, Jr., manager of his own investments. Age 53. 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 57. 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:
2
<PAGE>
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 67. 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 65. 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 55. 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.
W. W. Trout, Jr., retired Vice President of the Company. Age 66. 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 2000, and certain additional
information with respect to each of them, are as follows:
Simon W. Henderson, III, manager of his own investments. Age 64. 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 67. 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 64. 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, 1997, 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>
James W. Barber (1).................................... 6,150 *
John F. Glick (1)...................................... 8,275 *
Simon W. Henderson, III (1)............................ 137,352 2.0%
Larry M. Hoes (1)...................................... 4,520 *
L. R. Jalenak, Jr. (1)................................. 7,400 *
Henry H. King (1)...................................... 8,128 *
Melvin E. Kurth, Jr. (1)............................... 118,740 1.7
W. T. Little (1)....................................... 75,675 1.1
John H. Lollar (1)..................................... 5,000 *
Bob H. O'Neal (1)...................................... 6,500 *
Scott H. Semlinger (1)................................. 21,770 *
Douglas V. Smith (1)................................... 71,500 1.0
Frank B. Stevenson (1)................................. 31,950 *
H. J. Trout, Jr. (1)................................... 326,184 4.8
W. W. Trout, Jr. (1)................................... 21,334 *
Thomas E. Wiener (1)................................... 74,836 1.1
Directors and officers as a group (21 persons) (1)..... 991,374 14.5
</TABLE>
- --------
* Indicates ownership of less than one percent of the outstanding shares of
Common Stock of the Company.
1. 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 231,880 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 shares listed above include
43,319 shares held by a trust for the benefit of Mr. Henderson and his
siblings over which he exercises investment and voting control and 33,333
shares held in a family limited partnership over which Mr. Henderson shares
investment and voting control.
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 independent
4
<PAGE>
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. The Nominating Committee does not consider nominees
recommended by the shareholders of the Company.
During 1997, the Audit Committee had one meeting; the Compensation Committee
had five meetings; the Executive Committee had two meetings and the Board of
Directors had five meetings. During 1997 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 1997, 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 1997 report on executive
compensation. This report of the Committee 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 in detail, with the
Board of Directors, 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, level of responsibility 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 1997 averaged 6.4%.
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 1997.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1997 was
$308,000 and his annual bonus was $185,000. These amounts were determined by
the Compensation Committee as a part of a three 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 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 1997, 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 1997, 43,300 shares of stock options were
granted to the Company's officers which compares to 48,600 shares granted to
officers in 1996. 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 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, 1992.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lufkin Industries, Inc. .......... 100.00 93.08 100.39 126.67 144.27 211.53
Media General Oilfield Services
Index............................ 100.00 116.73 104.35 154.24 228.65 344.13
NASDAQ Market Value Index......... 100.00 119.95 125.94 163.35 202.99 248.30
</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, 1997, 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........ 1997 $308,000 $185,000 20,000 $19,943
President and 1996 280,000 140,000 16,000 17,250
Chief Executive Officer 1995 225,000 100,000 15,000 13,786
Larry M. Hoes........... 1997 161,477 81,780 4,000 9,256
Vice President
James W. Barber......... 1997 135,000 63,045 4,000 8,143
Vice President 1996 125,762 40,000 3,500 8,822
1995 118,545 54,000 3,500 7,481
John F. Glick........... 1997 155,577 28,320 4,000 8,448
Vice President 1996 147,616 34,740 3,500 8,869
1995 140,811 47,650 3,500 6,453
Scott H. Semlinger...... 1997 136,385 43,690 4,000 7,086
Vice President 1996 131,960 22,825 3,500 7,413
1995 124,008 31,255 3,500 6,381
</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
INDIVIDUAL GRANTS OF ASSUMED ANNUAL
- ------------------------------------------------------------------------------- RATES OF STOCK
PERCENTAGE OF PRICE
TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM(1)
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------
NAME (SHARES)(1)(2) 1997 (PER SHARE)(4) DATE 5% 10%
---- -------------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ 20,000 17% $18.13 2/20/2007 $271,997 $689,294
Larry M. Hoes........... 4,000 3 38.00 11/12/2007 95,592 242,249
John F. Glick........... 4,000 3 38.00 11/12/2007 95,592 242,249
James H. Barber......... -- -- -- -- -- --
Scott H. Semlinger...... 4,000 3 38.00 11/12/2007 95,592 242,249
</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, 20,000 shares of stock options were
granted to Mr. Smith in 1997 compared to 16,000 shares granted to him in
1996. The number of options granted is determined as a percentage of each
officer's salary. The increase in options granted from 1996 to 1997 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, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1997 (SHARES) DECEMBER 31, 1997
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith........ -0- -0- 61,500 39,500 1,108,625 337,125
Larry M. Hoes........... -0- -0- 2,500 11,500 36,875 110,625
John F. Glick........... -0- -0- 7,875 10,125 129,719 94,281
James H. Barber......... 7,875 60,809 5,750 5,375 71,781 84,188
Scott H. Semlinger...... 125 797 21,540 9,375 302,574 84,188
</TABLE>
RETIREMENT PLAN
Certain employees of the Company, including its executive officers, are
participants in the Company's Retirement Plan for Salaried Employees (the
"Qualified Plan"). The Qualified Plan is a defined benefit plan, qualified
under Section 401 of the Internal Revenue Code, which provides benefits 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. Under the Code, the maximum amount of
compensation that can be considered by a tax-qualified plan is $160,000,
subject to annual adjustments. In addition, the Code limits the maximum amount
of benefits that may be paid under such a plan. Accordingly, the Company has
adopted an unfunded, nonqualified plan ("Restoration Plan") to provide
supplemental retirement benefits to covered executives. The Restoration Plan
benefit is based on the same benefit formula for the Qualified Plan except
that it does not limit the amount of a participant's compensation or maximum
benefit. The Company also maintains an additional nonqualified plan ("SERP")
for Mr. Smith, which credits him with an additional .5 year of service for
each year of service credited to him under the Qualified Plan. The benefits
calculated under the Restoration Plan and SERP are offset by the participant's
benefit payable under the Qualified Plan. The following table shows the annual
benefits payable upon retirement at age 65 for various compensation and years
of credited service combinations under these plans. Payment of the specified
retirement benefits is contingent upon continuation of the plans in their
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 plans.
The years of credited service for the persons named in the Summary
Compensation Table are: Mr. Smith, five years (plus an additional 2 1/2 years
under the SERP); Mr. Hoes, one year; Mr. Glick, three years; Mr. Barber, eight
years; and Mr. Semlinger, 22 years.
11
<PAGE>
<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
450,000.................. 121,744 162,944 204,244 245,494 245,494
500,000.................. 135,494 181,327 227,161 272,994 272,994
</TABLE>
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, 1997, would be
approximately $420,000, including salary and bonus payments through December
31, 1997. 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, 1998.
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, 1997 was approved by the shareholders at the last annual meeting
on May 7, 1997.
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, 1998 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, 1999
and March 8, 1999.
- -------------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 1997 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 6, 1998
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
6th day of May, 1998, 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
John H. Lollar; Bob H. O'Neal; 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 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 6,
1998.
(SEE REVERSE SIDE)
<PAGE>
LUFKIN INDUSTRIES, INC. 0
I
0
PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER
USING DARK INK ONLY
- -
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -
For All
0
Withheld All
0
For All
Except
0
1. Election of Directors
For
0
Against
0
Abstain
0
- --------------------------------------------------------------------------------
Nominee Exception
2. To approve the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the year 1998.
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: _________________________________________________________, 1998
Signature(s) ___________________________________________________________________
Dated: _________________________________________________________, 1998
Signature(s) ___________________________________________________________________
