<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(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.
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(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:
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(2) Form, Schedule or Registration Statement No.:
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(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 3, 2000
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 3rd day of May, 2000, 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 2003 or until their successors have
been elected and qualified.
2. To ratify and approve the Lufkin Industries, Inc. Incentive Compensation
Plan 2000.
3. To appoint Arthur Andersen LLP, independent certified public
accountants, as the Company's auditors for the year 2000.
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 31, 2000, 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.
PAUL G. PEREZ
Secretary
April 7, 2000
<PAGE>
LUFKIN INDUSTRIES, INC.
601 SOUTH RAGUET
LUFKIN, TEXAS 75904
PROXY STATEMENT
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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 3, 2000, 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 the proposal to elect
directors, the proposal to approve the Lufkin Industries, Inc. Incentive Stock
Compensation Plan 2000 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, 2000.
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VOTING SECURITIES
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At the close of business on March 31, 2000, 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 6,369,001 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.
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PROPOSAL NO. 1: ELECTION OF DIRECTORS
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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 2003 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.
-1-
<PAGE>
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 10
members.
The term of office of each of the Class III Directors expires at the time
of the 2000 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. W. T. Little, a Class III Director,
passed away in May 1999. Mr. Smith, currently a Class II Director, has been
nominated and has consented to run as a Class III Director. Mr. Henderson and
Mr. Kurth have also 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 2000 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 will
expire in 2003, and certain additional information with respect to each of them,
are as follows:
Douglas V. Smith, President, Chief Executive Officer and Chairman of
the Board of the Company. Age 57. 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.
Simon W. Henderson, III, manager of his own investments. Age 66.
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 69.
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.
The Class I Directors, whose present term of office as directors will
continue after the meeting and 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 61.
Mr. Lollar previously was Chairman, President and Chief Executive Officer
of Cabot Oil and Gas. He became a director of the Company in 1997 and
currently serves as a member of the Audit Committee and the Pension
Committee. He is a director of Plains Resources.
Bob H. O'Neal, formerly President of Stewart & Stevenson Services,
Inc. Age 65. Mr. O'Neal became a director in 1992 and currently serves as
a member of the Compensation Committee and the Nominating Committee.
H. J. Trout, Jr., manager of his own investments. Age 55. Mr. Trout
has been a director of the Company since 1980 and currently serves as a
member of the Executive Committee, the Nominating Committee and the Pension
Committee.
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<PAGE>
Thomas E. Wiener, attorney. Age 59. 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 will continue after
the meeting and expire in 2002, and certain additional information with respect
to each of them, are as follows:
L.R. Jalenak, Jr., manager of his own investments and a director of
Perrigo Company and Dyersburg Corp. He also serves as an Independent
Trustee for First Funds (a family of mutual funds). Age 69. Mr. Jalenak
has been a director since 1990 and also serves on the Compensation
Committee and Audit Committee.
Henry H. King, manager of his own investments. Age 67. Mr. King has
been a director since 1990 and also serves on the Executive Committee and
the Compensation Committee.
W. W. Trout, Jr., retired Vice President of the Company. Age 68.
Mr. Trout has been a director of the Company since 1968.
Mr. W. W. Trout, Jr. and Mr. H. J. Trout, Jr. are first cousins.
As noted above, Douglas V. Smith has agreed to run as a Class III Director
to fill the position vacated by the death of Mr. W. T. Little.
The following table reflects the beneficial ownership of the Company's
Common Stock as of December 31, 1999, 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/(1)/ OF CLASS
- ------------------------------------------------- ----------------- ---------
<S> <C> <C>
Heartland Advisors, Inc. 615,000 9.1%
Dimensional Fund Advisors Inc. 391,100 5.8
John F. Glick 19,150 *
Simon W. Henderson, III 80,179 1.2
Larry M. Hoes 12,645 *
L. R. Jalenak, Jr. 9,400 *
Henry H. King 10,128 *
Melvin E. Kurth, Jr. 100,584 1.5
John H. Lollar 7,000 *
Bob H. O'Neal 8,500 *
Paul G. Perez 17,213 *
Scott H. Semlinger 25,770 *
Douglas V. Smith 137,777 2.0
H. J. Trout, Jr. 307,409 4.5
W. W. Trout, Jr. 15,129 *
Thomas E. Wiener 73,036 1.1
Directors and Officers as a group (15 persons) 831,048 12.2
</TABLE>
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* 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.
-3-
<PAGE>
Each director and nominee for director listed above possesses 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
148,130 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 7,093 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.,
J. H. Lollar 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 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. B. H. O'Neal, S. W. Henderson III,
L. R. Jalenak, Jr. and H. H. King. 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 1999, 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 1999 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 1999, 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 $3,500. In addition, each director receives a 5,000
share stock option grant on the date of his election to the Board of Directors
and 1,000 shares each year thereafter as long as he continues on the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons holding more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission ("SEC") and any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted (i) initial
reports of ownership, (ii) reports of changes in ownership and (iii) annual
reports of ownership of Common Stock and other equity securities of the Company.
Such directors, officers and ten-percent shareholders are also required to
furnish the Company with copies of all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1999, the Company believes that, all Section 16(a) reporting requirements
related to the Company's directors and executive officers were timely fulfilled
during 1999.
-4-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, no executive officer of the Company served as (i) a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company, or (ii) a director of another entity, one of
whose executive officers served on the Board of Directors of the Company or its
subsidiaries.
During 1999, no member of the compensation committee (or board committee
performing equivalent functions) (i) was an officer or employee of the Company,
(ii) was formerly an officer of the Company or (iii) had any business
relationship or conducted any transactions with the Company.
-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 1999 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
approves base salary increases for those officers whose salary level and
performance warranted an adjustment. Base salary increases approved for these
officers in 1999 averaged 4.5%.
-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.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1999
was $360,000 and he did not receive a bonus. This amount was determined by the
Compensation Committee as a part of a three year employment contract that began
on January 1, 1999 the term of the contract automatically extends for an
additional year up each anniversary of the contract and currently expires on
December 31, 2002. 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 1999, 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 1999, 79,333 shares of stock options were
granted to the Company's officers which compares to 55,500 shares granted to
officers in 1998. Of the options granted to officers, 53,333 shares of stock
options were granted to Mr. Smith in 1999 compared to 30,000 granted to him in
1998. 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:
B. H. O'Neal, Chairman
S. W. Henderson III
L. R. Jalenak, Jr.
H. H. King
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, 1994.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lufkin Industries, Inc. 100.00 126.18 143.71 210.72 112.05 95.25
Oil & Gas Equipment/Svcs 100.00 134.62 199.91 302.99 155.80 208.99
NASDAQ Market Index 100.00 129.71 161.18 197.16 278.08 490.46
</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, 1999 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- --------------------------------------------------------------- -------------
STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
- ------------------------------ ---- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas V. Smith 1999 $360,000 $ - 53,333 $16,247
President and 1998 360,000 - 30,000 24,573
Chief Executive Officer 1997 308,000 185,000 20,000 19,943
Larry M. Hoes 1999 172,800 - 6,000 7,833
Vice President 1998 172,800 - 4,500 11,479
1997 161,477 81,780 4,000 9,256
John F. Glick 1999 160,000 - 6,000 8,376
Vice President 1998 160,000 25,000 4,500 8,494
1997 155,577 28,320 4,000 8,448
Scott H. Semlinger 1999 147,000 - 6,000 8,156
Vice President 1998 147,000 25,000 4,500 7,500
1997 136,385 43,690 4,000 7,086
Paul G. Perez 1999 118,000 - 5,000 5,402
Vice President 1998 118,000 - 3,250 6,876
1997 112,000 47,000 3,000 6,481
</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.
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. 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 were granted by the Compensation
Committee. The term of the Plan is expiring this year and no future grants of
awards under the Plan will be allowed. However, awards that have been issued
prior to the expiration of the Plan but that have not expired will still be
honored by the Company.
-9-
<PAGE>
The Company's shareholders are being asked to approve the 2000 Plan (as
defined herein) at the meeting to which this Proxy Statement relates. The terms
of the 2000 Plan to be approved are described under Proposal 2 below and the
2000 Plan, as proposed, 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>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------------------------------ VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO FOR OPTION TERM
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME (SHARES)/(1)/ IN 1999 (PER SHARE)/(2)/ DATE 5% 10%
- ----------------------------- ------------- ------------- --------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas V. Smith/(3)/ 53,333 24% $16.875 02/16/2009 566,002 1,434,359
Larry M. Hoes/(4)/ 6,000 3 14.00 11/09/2009 52,827 133,874
John F. Glick/(4)/ 6,000 3 14.00 11/09/2009 52,827 133,874
Scott H. Semlinger/(4)/ 6,000 3 14.00 11/09/2009 52,827 133,874
Paul G. Perez/(4)/ 5,000 2 14.00 11/09/2009 44,023 111,562
</TABLE>
- --------------
(1) The options were granted for a term of ten years subject to earlier
termination in certain events related to termination of employment.
(2) 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.
(3) Options are /1/3/ exercisable at time of grant, /1/3/ starting
twelve months after the grant date, with full vesting occurring on the
second anniversary date.
(4) Options granted are exercisable starting twelve 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.
There were no option exercises in the last fiscal year by the Chief
Executive Officer and the four most highly compensated executive officers.
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 and Bonus 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 $170,000, 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
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<PAGE>
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 years 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, seven
years (plus an additional three and one-half years under the SERP); Mr. Hoes,
three years; Mr. Glick, five years; Mr. Semlinger, 24 years and Mr. Perez, six
years.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
AVERAGE ANNUAL COMPENSATION FOR --------------------------------------------------------------
HIGHEST FIVE YEARS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST TEN YEARS OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF 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>
EMPLOYMENT CONTRACT AND CHANGE IN CONTROL ARRANGEMENT
The Company has entered into an employment agreement with Mr. Smith that
currently expires December 31, 2002, with a minimum annual salary of $360,000,
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, 1999, would be approximately $1,080,000, payable in a lump sum
payment, such amount representing three times the salary and bonus received by
Mr. Smith during the year. Similar agreements were entered into by Mssrs. Hoes,
Glick, Semlinger and Perez with maximum severance benefits at December 31, 999
of approximately $345,600, $346,000, $345,000 and $236,000, respectively. These
amounts represent two times the salary and bonus received by these individuals
during the year.
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PROPOSAL 2: APPROVAL OF THE COMPANY'S INCENTIVE STOCK COMPENSATION PLAN 2000
- --------------------------------------------------------------------------------
The Board of Directors has unanimously approved the Lufkin Industries, Inc.
Incentive Stock Compensation Plan 2000 (the "2000 Plan") and unanimously
recommends and urges a vote FOR approval of the 2000 Plan. The 2000 Plan
authorizes the grant of various stock, stock-based and cash awards to employees
of the Company. The 2000 Plan became effective as of February 16, 2000 and is
contingent upon the approval of the Shareholders. The purpose of the 2000 Plan
is to promote the interests of the Company, by encouraging officers, employees,
directors and consultants of the Company and its affiliates to acquire or
increase their equity interest in the Company and to provide a means whereby
they may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company thereby
advancing the interests of the Company and its Shareholders. The 2000 Plan is
also contemplated to enhance the ability of the Company and its affiliates to
attract and retain the services of individuals who are essential for the growth
and profitability of the Company.
SUMMARY OF THE 2000 PLAN
The full text of the 2000 Plan is set forth in Appendix A to this Proxy
Statement. The essential features of the 2000 Plan are summarized below, but
such summary is qualified in its entirety by reference to the full text of the
2000 Plan.
TYPES OF AWARDS
The 2000 Plan permits the granting of any or all of the following types of
awards ("Awards"): stock options, restricted stock, performance awards, phantom
stock, bonus shares, other stock-based awards and/or cash awards.
ELIGIBILITY FOR PARTICIPATION
Any employee, officer, or consultant of the Company and its affiliates and
any director of the Company will be eligible to be designated a participant and
receive an Award under the 2000 Plan. Currently, there are approximately 88
individuals eligible to participate in the 2000 Plan.
ADMINISTRATION
The 2000 Plan is administered by a committee (the "Committee"), appointed
by the Board of Directors, or if no committee is appointed, by the Board of
Directors. It is intended that the Committee consist of "outside directors,"
within the meaning of Section 162(m) of the Code, who are "disinterested
persons" within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Committee will select the
participants who will receive Awards, determine the type and terms of Awards to
be granted and interpret and administer the 2000 Plan.
AMENDMENT AND TERMINATION
The Board of Directors or the Committee, in their discretion may at any
time or times amend, suspend, discontinue or terminate the 2000 Plan without the
approval of the Shareholders of the Company, except (i) as is required by
applicable law or (ii) as the Board of Directors determines is necessary to
comply with any requirements of any securities exchange on which the Common
Stock is listed. Shareholder approval is necessary, however, to (x) materially
increase the shares authorized under the 2000 Plan or (y) materially increase
the persons eligible to receive Awards under the 2000 Plan.
-12-
<PAGE>
TERM OF THE 2000 PLAN
Although the 2000 Plan may be sooner terminated, no additional Awards may
be granted under the 2000 Plan after February 16, 2010. However, the 2000 Plan
will remain in effect until all Awards granted prior to February 16, 2010 have
been satisfied or expired.
STOCK SUBJECT TO THE 2000 PLAN
Subject to adjustment as described below, 900,000 shares of Common Stock
may be awarded under the 2000 Plan.
STOCK OPTIONS
Stock options may be granted as incentive stock options ("ISOs") under
Section 422 of the Code (but only to employees of the Company and its
subsidiaries), non-qualified stock options or a combination thereof. Stock
options granted under the 2000 Plan are subject to the terms and conditions
determined by the Committee, except that: (i) no stock options may be granted
after the termination of the 2000 Plan; (ii) the exercise price of each option
is determined by the Committee but, in no event may be less than fair market
value per share of Common Stock at the date of grant; and (iii) no ISO may be
granted to an employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, unless (a) at the
time such ISO is granted, the option price is at least 110% of the fair market
value of the stock subject to the option and (b) such ISO by its terms is not
exercisable more than 5 years after it is granted. The maximum number of stock
options that may be granted to any individual during a calendar year shall not
exceed 300,000 shares.
RESTRICTED STOCK
The Committee may also authorize grants of restricted stock. Restricted
stock may not be disposed of by the holder until the restrictions specified in
the Award expire. The Committee may base the expiration of the restrictions
upon (i) the attainment of certain performance objectives established by the
Committee and/or (ii) the holder's continued employment with the Company for a
specified period of time. To the extent provided in the grant agreement, the
holder will have the right to vote the shares, receive any dividends and enjoy
all other shareholder rights, with respect to restricted stock. The maximum
number of shares of restricted stock that may be granted to an individual during
any calendar year shall not exceed 150,000.
PERFORMANCE AWARDS
Performance Awards, if issued, may consist of payments in cash, shares of
Common Stock or a combination thereof, payable upon the achievement of certain
performance goals as determined by the Committee during the performance period.
Each Award shall have a maximum value established by the Committee at the time
of such Award. The maximum value of Performance Awards that may be granted to
any participant during any calendar year is $1,000,000.
BONUS SHARES
The Committee shall have the authority, in its discretion, to grant Bonus
Shares to participants. Each Bonus Share shall constitute a transfer of an
unrestricted share of Common Stock to a participant, without other payment
therefor, as additional compensation for the participant's services to the
Company. Bonus Shares shall be in lieu of a cash bonus that otherwise would be
granted to the participant.
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<PAGE>
PHANTOM SHARES
The Committee may grant Phantom Shares, payable in cash, shares of Common
Stock or a combination thereof, in consideration of the fulfillment of such
conditions as the Committee may specify including performance objectives. The
Committee shall establish a period over which or the event upon which the Award
shall vest, and each Award shall have a maximum value established by the
Committee at the time of such Award. During the restricted period of the
Phantom Shares, the participant will not have any right to transfer any rights
under the Award and will not have any rights of ownership in the Phantom Shares.
The maximum number of Phantom Shares that may be granted to any participant
during any calendar year shall not exceed 150,000.
CASH AWARDS
The Committee shall have the authority to determine the participants to
whom Cash Awards shall be granted, the amount, and the terms or conditions, if
any, as additional compensation for the participant's services to the Company or
its affiliates. A Cash Award may be granted (simultaneously or subsequently)
separately or in tandem with another Award and may entitle a participant to
receive a specific amount of cash from the Company upon such other Award
becoming taxable to the participant, which cash amount may be based on a formula
relating to the anticipated taxable income associated with such other Award and
the payment of the Cash Award.
OTHER STOCK-BASED AWARDS
The Committee may grant to participants an Other Stock-Based Award, which
shall consist of a right which is an Award denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Common
Stock as is deemed by the Committee to be consistent with the purposes of the
2000 Plan. Subject to the terms of the 2000 Plan, including the performance
objectives, if any, applicable to such Award, the Committee shall determine the
terms and conditions of any such Other Stock-Based Award. The maximum number of
shares or the value for which Other Stock-Based Awards may be granted to any
participant during any calendar year shall not exceed 300,000 shares, if the
Award is in shares, or $1,000,000, if the Award is denominated in dollars.
PERFORMANCE OBJECTIVES
The Committee shall determine the performance objectives, if any, to be
achieved with respect to an Award during any performance period and the length
of any performance period including one or more of the following: earnings per
share; earnings before interest, taxes, depreciation and amortization expenses
("EBITDA"); earnings before interest and taxes ("EBIT"); EBITDA, EBIT or
earnings before taxes and unusual or nonrecurring items as measured either
against the annual budget or as a ratio to revenue; market share; sales; costs;
return on equity; operating cash flow; discretionary cash flow; return on net
capital employed; and stock price performance.
TRANSFERABILITY
An Award is not transferable otherwise than by will or the laws of descent
and distribution and shall be exercisable during the holder's lifetime only by
such holder or the holder's guardian or legal representative. However, the
Committee may, in its discretion, provide in an option agreement (other than
with respect to an ISO) that the option right granted to the individual may be
transferred (in whole or in part) and shall be subject to such terms and
conditions as the Committee may impose thereon.
-14-
<PAGE>
ADJUSTMENTS
The Committee may provide for adjustment of Awards under the 2000 Plan if
it determines such adjustment is required to prevent dilution or enlargement of
the rights of participants in the 2000 Plan that would otherwise result from a
stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, reorganization or other similar corporate transaction.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is based on the applicable provisions of the Code as
currently in effect and the income tax regulations and proposed income tax
regulations thereunder. The 2000 Plan is not qualified under Section 401(a) of
the Code.
Non-qualified Options. No federal income tax is imposed on the optionee
upon the grant of a non-qualified option. Upon the exercise of a non-qualified
option, the optionee will generally be treated as receiving compensation taxable
as ordinary income in the year of exercise, in an amount equal to the excess of
the fair market value of the shares of Common Stock at the time of exercise over
the exercise price paid for such shares of Common Stock. Upon a subsequent
disposition of the shares of Common Stock received upon exercise of a non-
qualified option, any difference between the fair market value of the shares of
Common Stock at the time of exercise and the amount realized on the disposition
would be treated as long-term or short-term capital gain or loss, depending on
the holding period of the shares. Upon an optionee's exercise of a non-
qualified option, the Company may claim a deduction for compensation paid at the
same time and in the same amount as income is recognized by the optionee, if and
to the extent that the amount is an ordinary expense and satisfies the test of
reasonable compensation.
Incentive Stock Options. No federal income tax is imposed on the optionee
upon the grant of an ISO. If the optionee does not dispose of shares acquired
pursuant to his exercise of an ISO within two years from the date the option was
granted or within one year after the shares were transferred to him (the
"Holding Period"), except for the item of tax adjustment described below under
"Alternative Minimum Tax," no income would be recognized by the optionee by
reason of his exercise of the option, and the difference between the option
price and the amount realized upon a subsequent disposition of the shares of
Common Stock would be treated as a long-term capital gain or loss. In such
event, the Company would not be entitled to any deduction in connection with the
grant or exercise of the option or the disposition of the shares of Common Stock
so acquired.
If, however, an optionee disposes of shares of Common Stock acquired
pursuant to his exercise of an ISO before the Holding Period has expired, the
optionee would be treated as having received, at the time of disposition,
compensation taxable as ordinary income. In such event the Company may claim a
deduction for compensation paid at the same time and in the same amount as
compensation is treated as being received by the optionee. The amount treated
as compensation is the excess of the fair market value of the shares of Common
Stock at the time of exercise (or, in the case of a sale in which a loss, if
sustained, would be recognized, the amount realized on the sale, if less) over
the option price; any amount realized in excess of the fair market value of the
shares of Common Stock at the time of exercise would be treated as long-term or
short-term capital gain, depending on the holding period of the shares of Common
Stock.
Alternative Minimum Tax. The excess of the fair market value of shares of
Common Stock acquired upon exercise of an ISO over the exercise price paid for
such shares is an adjustment to alternative minimum taxable income for the
optionee's taxable year in which such exercise occurs (unless the shares of
Common Stock are disposed of in the same taxable year).
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<PAGE>
Payment of Option Price in Shares. In the case of a non-qualified option,
if the option price is paid by the delivery of shares of Common Stock previously
acquired by the optionee having a fair market value equal to the option price
("Previously Acquired Shares"), gain or loss would not be recognized on the
exchange of the Previously Acquired Shares for a like number of shares of Common
Stock pursuant to such an exercise of the option, and the optionee's basis in
the number of shares of Common Stock received equal to the Previously Acquired
Shares would be the same as his basis in the Previously Acquired Shares. In
addition, the optionee would be treated as receiving compensation taxable as
ordinary income equal to fair market value at the time of exercise of the shares
of Common Stock received in excess of the number of Previously Acquired Shares,
and the optionee's basis in such excess shares of Common Stock would generally
be equal to their fair market value at the time of exercise.
In the case of an ISO, the federal income tax consequences to the optionee
of the payment of the option price with Previously Acquired Shares will depend
on the nature of the Previously Acquired Shares. If the Previously Acquired
Shares were acquired through the exercise of a qualified stock option, an ISO or
an option granted under an employee stock purchase ("Statutory Option") and if
such Previously Acquired Shares were being transferred prior to the expiration
of the applicable minimum statutory holding period, the transfer would be
treated as a disqualifying disposition of the Previously Acquired Shares. If
the Previously Acquired Shares were acquired other than pursuant to the
exercise of a Statutory Option, or were acquired pursuant to the exercise of a
Statutory Option but have been held for the applicable minimum statutory holding
period, no gain or loss should be recognized on the exchange of the Previously
Acquired Shares. In either case, (i) the optionee's basis in the number of
shares of Common Stock acquired equal to the number of Previously Acquired
Shares would be the same as his basis in the Previously Acquired Shares,
increased by any income recognized to the optionee upon the disqualifying
disposition of the Previously Acquired Shares, (ii) the optionee's basis in the
shares of Common Stock acquired in excess of the number of Previously Acquired
Shares would be zero and (iii) the other incentive stock option rules would
apply. Upon a subsequent disqualifying disposition of the shares of Common
Stock so received, the shares of Common Stock with the lowest basis would be
treated as disposed of first.
Restricted Stock. In general, a participant will not recognize any
taxable income at the time of the grant of an award of Restricted Stock, but
upon the lapse of the restrictions applicable to such award (i.e., when the
shares subject to the award are issued to the participant as either vested or
transferable shares) will recognize ordinary income equal to the fair market
value of the shares on the date the restrictions on the award lapsed, and the
Company will be entitled to a deduction for a corresponding amount to the extent
such amount is an ordinary and necessary expense and satisfies the test of
reasonable compensation. A taxable disposition of such shares by the
participant will be subject to the same treatment described above for a taxable
disposition of shares acquired upon an exercise of a non-qualified stock option.
The participant may elect to recognize income with respect to the
Restricted Stock on the date of grant ("Section 83(b) election"). In such case,
the amount of the participant's ordinary income on such date will be determined
as the fair market value of the shares (determined without regard to the risk of
forfeiture or restrictions on transfer) over any purchase price paid for the
shares. The Section 83(b) election must be made within 30 days of the grant and
must satisfy certain other requirements. The Company will, in general, be
entitled to a deduction equivalent in amount to that which is included in the
participant's income if and to the extent such amount is an ordinary and
necessary expense and satisfies the test of reasonable compensation
Performance Awards and Phantom Shares. In general, a participant who
receives a Performance Award or Phantom Shares will not be taxed on the receipt
of the Performance Award or Phantom Shares but instead will be taxed on the fair
market value of the shares upon the lapse of the restrictions applicable to such
award (i.e., when the shares subject to the award are issued to the employee as
either vested or transferable shares). If the payment is made in cash, the
participant will be taxed upon receipt of the cash payment.
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<PAGE>
The Company will be entitled to a deduction for a corresponding amount if
and to the extent that the amount is an ordinary and necessary expense and
satisfies the test of reasonable compensation. If, upon a taxable disposition
of the shares, the participant receive more or less than its basis in the
shares, the gain or loss will be long-term or short-term capital gain or loss,
depending on the holding period of the shares, measured from the date that the
receipt of the shares was a taxable event to the participant.
Bonus Shares. In general, a participant who receives Bonus Shares will be
taxed on the fair market value of the Bonus Shares on the date the Bonus Shares
are issued to the participant. The Company will be entitled to a deduction for
a corresponding amount if and to the extent that the amount is an ordinary
expense and satisfies the test of reasonable compensation. If, upon a taxable
disposition of the Bonus Shares, the participant receives more or less than his
or her basis in the Bonus Shares, the gain or loss will be long-term or short-
term capital gain or loss, depending on the holding period of the Bonus Shares,
measured from the date that the receipt of the Bonus Shares was a taxable event
to such participant.
Other Stock-Based Awards. Generally, other Stock-Based Awards will be
subject to tax in the same manner as described above for a similar stock award.
Cash Awards. An individual who receives a Cash Award will be taxed upon
receipt of the cash payment. The Company will be entitled to a deduction for a
corresponding amount if and to the extent that the amount is an ordinary expense
and satisfies the test of reasonable compensation.
Additional Tax Consequences. In the event that the acceleration of vesting
or any payment, distribution or issuance of stock is subject to the golden
parachute 20% excise tax pursuant to Section 4999(a) of the Code, the
participant whose benefit is subject to such tax is entitled to receive a gross-
up payment from the Company so that the amount of the "net" benefit received by
such participant shall equal the amount of the benefit that would have been
received in the absence of a golden parachute tax. Section 280G of the Code
prevents the deductibility by the Company of amounts subject to the excise tax
under Code Section 4999.
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PROPOSAL 3: 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, 2000.
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, 1999 was
approved by the shareholders at the last annual meeting on May 5, 1999.
- --------------------------------------------------------------------------------
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 8, 2000 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 2, 2001
-17-
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and March 4, 2001. If such timely notice of a shareholder proposal is not given,
the proposal may not be brought before the annual meeting. If timely notice is
given but is not accompanied by a written statement to the extent required by
applicable securities laws, the Company may exercise discretionary voting
authority over proxies with respect to such proposal if presented at the annual
meeting.
- --------------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 1999 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
PAUL G. PEREZ
Secretary
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APPENDIX A
LUFKIN INDUSTRIES, INC.
INCENTIVE STOCK COMPENSATION PLAN 2000
SECTION 1. Purpose of the Plan.
-------------------
The Lufkin Industries, Inc. Incentive Stock Compensation Plan 2000 (the
"Plan") is intended to promote the interests of Lufkin Industries, Inc., a
Delaware corporation (the "Company"), by encouraging officers, employees,
directors and consultants of the Company and its Affiliates to acquire or
increase their equity interest in the Company and to provide a means whereby
they may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company thereby
advancing the interests of the Company and its stockholders. The Plan is also
contemplated to enhance the ability of the Company and its Affiliates to attract
and retain the services of individuals who are essential for the growth and
profitability of the Company.
SECTION 2. Definitions.
-----------
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean (i) any "parent corporation" of the Company (as
defined in Section 424(e) of the Code) and any "subsidiary corporation" of any
such corporation (as defined in Section 424(f) of the Code), (ii) any entity
that, directly or through one or more intermediaries, is controlled by the
Company, and (iii) any entity in which the Company has a significant equity
interest, as determined by the Committee.
"Award" shall mean any Option, Restricted Stock, Performance Award, Phantom
Shares, Bonus Shares, Other Stock-Based Award or Cash Award.
"Award Agreement" shall mean any agreement, contract, or other instrument
or document (written or electronic) evidencing any Award, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to Section
6(d) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(f) of the Plan.
"Change in Control" shall mean the occurrence of any one of the following
events:
(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 executive benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions 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
Company's common stock or of the combined voting power of the Company's
then outstanding securities entitled to vote generally in the election of
directors;
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<PAGE>
(b) during any period of two consecutive years, 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 clause (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 (A) 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 65% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement 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," which for this purpose shall mean a sale or other
disposition transaction or series of related transactions involving assets
of the Company or any subsidiary (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 35% 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 reasonably 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 reasonably determine
is appropriate.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations thereunder.
"Committee" shall mean the committee appointed by the Board to administer
the Plan or, if none, the Board.
"Consultant" shall mean any individual, other than a Director or an
Employee, who renders consulting services to the Company or an Affiliate for a
fee.
"Director" shall mean a "non-employee director" of the Company, as defined
in Rule 16b-3.
"Employee" shall mean any employee of the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" shall mean, with respect to Shares, the closing sales
price of a Share on the applicable date (or if there is no trading in the Shares
on such date, on the next preceding date on which there was trading) as reported
in The Wall Street Journal (or other reporting service approved by the
Committee). In the event the Shares are not publicly traded at the time a
determination of its fair market value is required to be made hereunder, the
determination of fair market value shall be made in good faith by the Committee.
"Option" shall mean an option granted under Section 6(a) of the Plan.
Options granted under the Plan may constitute "incentive stock options" for
purposes of Section 422 of the Code or nonqualified stock options.
"Other Stock-Based Award" shall mean an award granted pursuant to Section
6(g) of the Plan that is not otherwise specifically provided for, the value of
which is based in whole or in part upon the value of a Share.
"Participant" shall mean any Director, Employee or Consultant granted an
Award under the Plan.
"Performance Award" shall mean any right granted under Section 6(c) of the
Plan.
"Performance Objectives" means the objectives, if any, established by the
Committee that are to be achieved with respect to an Award granted under this
Plan, which may be described in terms of Company-wide objectives, in terms of
objectives that are related to performance of a division, subsidiary, department
or function within the Company or an Affiliate in which the Participant
receiving the Award is employed or in individual or other terms, and which will
relate to the period of time determined by the Committee. The Performance
Objectives intended to qualify under Section 162(m) of the Code shall be with
respect to one or more of the following: earnings per share; earnings before
interest, taxes, depreciation and amortization expenses ("EBITDA"); earnings
before interest and taxes ("EBIT"); EBITDA, EBIT or earnings before taxes and
unusual or nonrecurring items as measured either against the annual budget or as
a ratio to revenue; market share; sales; costs; return on equity; operating cash
flow; discretionary cash flow; return on net capital employed; and stock price
performance. Which objectives to use with respect to an Award, the weighting of
the objectives if more than one is used, and whether the objective is to be
measured against a Company-established budget or target, an index or a peer
group of companies, shall be determined by the Committee in its discretion at
the time of grant of the Award. A Performance Objective need not be based on an
increase or a positive result and may include, for example, maintaining the
status quo or limiting economic losses.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Phantom Shares" shall mean an Award of the right to receive Shares issued
at the end of a Restricted Period which is granted pursuant to Section 6(e) of
the Plan.
"Restricted Period" shall mean the period established by the Committee with
respect to an Award during which the Award either remains subject to forfeiture
or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of restrictions
thereon, granted under Sections 6(b) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
"SEC" shall mean the Securities and Exchange Commission, or any successor
thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common stock
of the Company, $1.00 par value, and such other securities or property as may
become the subject of Awards under the Plan.
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SECTION 3. Administration.
--------------
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the following, the Committee, in its
sole discretion, may delegate any or all of its powers and duties under the
Plan, including the power to grant Awards under the Plan, to the Chief Executive
Officer of the Company, subject to such limitations on such delegated powers and
duties as the Committee may impose. Upon any such delegation all references in
the Plan to the "Committee", other than in Section 7, shall be deemed to include
the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officer's right to receive Awards under the Plan.
Notwithstanding the foregoing, the Chief Executive Officer may not grant Awards
to, or take any action with respect to any Award previously granted to, a person
who is an officer or a member of the Board. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of Shares to
be covered by, or with respect to which payments, rights, or other matters are
to be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to an Award made under the Plan; (viii) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (ix) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations, and other decisions under or
with respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any Participant, any
holder or beneficiary of any Award, any stockholder and any Employee.
SECTION 4. Shares Available for Awards.
---------------------------
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the number of Shares with respect to which Awards may be granted under the Plan
shall be 900,000. If any Award is exercised, paid, forfeited, terminated or
canceled without the delivery of Shares, then the Shares covered by such Award,
to the extent of such payment, exercise, forfeiture, termination or
cancellation, shall again be Shares with respect to which Awards may be granted.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise
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price with respect to any Award or, if deemed appropriate, make provision for a
cash payment to the holder of an outstanding Award.
SECTION 5. Eligibility.
-----------
Any Employee, Director or Consultant shall be eligible to be designated a
Participant and receive an Award under the Plan.
SECTION 6. Awards.
------
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Participants to whom Options shall be
granted, the number of Shares to be covered by each Option, the purchase price
therefor and the conditions and limitations applicable to the exercise of the
Option, including the following terms and conditions and such additional terms
and conditions, as the Committee shall determine, that are not inconsistent with
the provisions of the Plan.
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time the Option is
granted, but shall not be less than the Fair Market Value per Share on such
grant date.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part
(which may include the achievement of one or more Performance Objectives),
and the method or methods by which, and the form or forms (which may
include, without limitation, cash, check acceptable to the Company, Shares
already-owned for more than six months, outstanding Awards, Shares that
would otherwise be acquired upon exercise of the Option, a "cashless-
broker" exercise through procedures approved by the Company, other
securities or other property, loans, notes approved by the Committee, or
any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which payment of the exercise
price with respect thereto may be made or deemed to have been made.
(iii) Incentive Stock Options. The terms of any Option granted under
the Plan intended to be an incentive stock option shall comply in all
respects with the provisions of Section 422 of the Code, or any successor
provision, and any regulations promulgated thereunder. Incentive stock
options may be granted only to employees of the Company and its parent
corporation and subsidiary corporations, within the meaning of Section 424
of the Code. To the extent the aggregate Fair Market Value of the Shares
(determined as of the date of grant) of an Option to the extent exercisable
for the first time during any calendar year (under all plans of the Company
and its parent and subsidiary corporations) exceeds $100,000, such Option
Shares in excess of $100,000 shall be nonqualified stock options.
(iv) Limits. The maximum number of Options that may be granted to any
Participant during any calendar year shall not exceed 300,000 Shares.
(b) Restricted Stock. Subject to the provisions of the Plan, the Committee
shall have the authority to determine the Participants to whom Restricted Stock
shall be granted, the number of Shares of Restricted Stock to be granted to each
such Participant, the duration of the Restricted Period during which, and the
conditions, including Performance Objectives, if any, under which if not
achieved, the Restricted Stock may be forfeited to the Company, and the other
terms and conditions of such Awards. Unless subject to the achievement of
Performance Objectives or a special determination is made by the Committee as to
a shorter Restricted Period, the Restricted Period shall not be less than three
years.
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(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture and/or
transfer restrictions during any period established by the Committee or
sequestered and held in a bookkeeping cash account (with or without
interest) or reinvested on an immediate or deferred basis in additional
shares of Common Stock, which credit or shares may be subject to the same
restrictions as the underlying Award or such other restrictions, all as
determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
during the applicable Restricted Period, all Restricted Stock shall be
forfeited by the Participant and reacquired by the Company. Unrestricted
Shares, evidenced in such manner as the Committee shall deem appropriate,
shall be issued to the holder of Restricted Stock promptly after the
applicable restrictions have lapsed or otherwise been satisfied.
(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in Section
6(h)(iii).
(v) Limits. The maximum number of Shares of Restricted Stock that
may be granted to any Participant during any calendar year shall not exceed
150,000 Shares.
(c) Performance Awards. The Committee shall have the authority to
determine the Participants who shall receive a Performance Award, which shall be
denominated as a cash amount (e.g., $100 per award unit) at the time of grant
and confer on the Participant the right to receive payment of such Award, in
whole or in part, upon the achievement of such Performance Objectives during
such performance periods as the Committee shall establish with respect to the
Award.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the Performance
Objectives to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of
any payment or transfer to be made pursuant to any Performance Award.
(ii) Payment of Performance Awards. Performance Awards, to the
extent earned, shall be paid (in cash and/or in Shares, in the sole
discretion of the Committee) in a lump sum following the close of the
performance period.
(iii) Limits. The maximum value of Performance Awards that may be
granted to any Participant during any calendar year shall not exceed
$1,000,000.
(d) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to Participants. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor, as additional compensation for the Participant's services to
the Company. Bonus Shares shall be in lieu of a cash bonus that otherwise would
be granted to the Participant.
(e) Phantom Shares. The Committee shall have the authority to grant Awards
of Phantom Shares to Participants upon such terms and conditions as the
Committee may determine.
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(i) Terms and Conditions. Each Phantom Share Award shall constitute
an agreement by the Company to issue or transfer a specified number of
Shares or pay an amount of cash equal to a specified number of Shares, or a
combination thereof to the Participant in the future, subject to the
fulfillment during the Restricted Period of such conditions, including
Performance Objectives, if any, as the Committee may specify at the date of
grant. During the Restricted Period, the Participant shall not have any
right to transfer any rights under the subject Award, shall not have any
rights of ownership in the Phantom Shares and shall not have any right to
vote such shares.
(ii) Dividends. Any Phantom Share award may provide that amount
equal to any or all dividends or other distributions paid on Shares during
the Restricted Period be credited in a cash bookkeeping account (without
interest) or that equivalent additional Phantom Shares be awarded, which
account or shares may be subject to the same restrictions as the underlying
Award or such other restrictions as the Committee may determine.
(iii) Limits. The maximum number of Phantom Shares that may be
granted to any Participant during any calendar year shall not exceed
150,000.
(f) Cash Awards. The Committee shall have the authority to determine the
Participants to whom Cash Awards shall be granted, the amount, and the terms or
conditions, if any, as additional compensation for the Participant's services to
the Company or its Affiliates. A Cash Award may be granted (simultaneously or
subsequently) separately or in tandem with another Award and may entitle a
Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.
(g) Other Stock-Based Awards. The Committee may grant to Participants an
Other Stock-Based Award, which shall consist of a right which is an Award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares as is deemed by the Committee to be
consistent with the purposes of the Plan. Subject to the terms of the Plan,
including the Performance Objectives, if any, applicable to such Award, the
Committee shall determine the terms and conditions of any such Other Stock-Based
Award. The maximum number of Shares or the value for which Other Stock-Based
Awards may be granted to any Participant during any calendar year shall not
exceed 300,000 Shares, if the Award is in Shares, or $1,000,000, if the Award is
denominated in dollars.
(h) General.
(i) Awards May Be Granted Separately or Together. Awards may, in
the discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award granted under the
Plan or any award granted under any other plan of the Company or any
Affiliate. Awards granted in addition to or in tandem with other Awards or
awards granted under any other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from the grant of
such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the terms
of the Plan and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant, exercise or payment
of an Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, and may be made
in a single payment or transfer, in installments, or on a deferred basis,
in each case in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments.
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(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each right
under any Award, shall be exercisable only by the Participant during
the Participant's lifetime, or by the person to whom the Participant's
rights shall pass by will or the laws of descent and distribution.
(B) Except as provided in (C) below, no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of
Restricted Stock, to the Company) and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Affiliate.
(C) Notwithstanding anything in the Plan to the contrary, to the
extent specifically provided by the Committee with respect to a grant,
a nonqualified stock option may be transferred to immediate family
members or related family trusts, or similar entities on such terms
and conditions as the Committee may establish.
(iv) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, that in no event shall the
term of any Award exceed a period of 10 years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the
SEC, any stock exchange upon which such Shares or other securities are then
listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award Agreement
(including, without limitation, any exercise price, tax payment or tax
withholding) is received by the Company. Such payment may be made by such
method or methods and in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, withholding of Shares, cashless exercise
with simultaneous sale, or any combination thereof; provided that the
combined value, as determined by the Committee, of all cash and cash
equivalents and the Fair Market Value of any such Shares or other property
so tendered to the Company, as of the date of such tender, is at least
equal to the full amount required to be paid pursuant to the Plan or the
applicable Award Agreement to the Company.
SECTION 7. Amendment and Termination.
-------------------------
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. Except as required by applicable law or the
rules of the principal securities market on which the shares are traded and
subject to paragraph (b) below, the Board or the Committee may amend, alter,
suspend, discontinue, or terminate the Plan without the consent of any
stockholder, Participant, other holder or
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beneficiary of an Award, or other Person; provided, however, no such amendment
may be made without stockholder approval, if such amendment would (i) materially
increase the number of Shares authorized under the Plan or (ii) materially
increase the Persons eligible to receive Awards under the Plan.
(b) Amendments to Awards. Subject to paragraph (d) below, the Committee may
waive any conditions or rights under, amend any terms of, or alter any Award
theretofore granted, provided no change, other than pursuant to paragraph (c),
in any Award shall reduce the benefit to Participant without the consent of such
Participant.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. Subject to paragraph (d) below, the Committee is hereby
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(c) of the Plan) affecting
the Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(d) Section 162(m). The Committee, in its sole discretion and without the
consent of the Participant, may amend (i) any stock-based Award to reflect (1) a
change in corporate capitalization, such as a stock split or dividend, (2) a
corporate transaction, such as a corporate merger, a corporate consolidation,
any corporate separation (including a spinoff or other distribution of stock or
property by a corporation), any corporate reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code), (3) any partial or complete corporate liquidation, or (4) a change in
accounting rules required by the Financial Accounting Standards Board and (ii)
any Award that is not intended to meet the requirements of Section 162(m) of the
Code, to reflect significant event that the Committee, in its sole discretion,
believes to be appropriate to reflect the original intent in the grant of the
Award. With respect to an Award that is subject to Section 162(m) of the Code,
the Committee (i) shall not take any action that would disqualify such Award and
(ii) must first certify that the Performance Objectives, if applicable, have
been achieved before the Award may be paid.
SECTION 8. Change in Control.
-----------------
(a) Subject to paragraph (b) below, in the event of a Change in Control of
the Company all outstanding Awards automatically shall become fully vested
immediately prior to such Change in Control (or such earlier time as set by the
Committee), all restrictions, if any, with respect to such Awards shall lapse,
all performance criteria, if any, with respect to such Awards shall be deemed to
have been met in full (at the highest level), and unless the Company survives as
an independent publicly traded company, all Options outstanding at the time of
the event or transaction shall terminate, except to the extent provision is made
in writing in connection with such event or transaction for the continuation of
the Plan and/or the assumption of the Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
entity, or the parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares and exercise prices, in which event the Plan and
Options theretofore granted shall continue in the manner and under the terms so
provided.
(b) Notwithstanding anything to the contrary in this Plan, if a Participant
is a "disqualified individual" (as defined in Section 280G(c) of the Code) and
the accelerated vesting of an Award and/or the termination of the Restricted
Period occurs with respect to a Change in Control, together with any other
payments which the Participant has the right to receive from any Person, whether
or not under this Plan, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), such accelerated vesting and/or termination of
the Restricted Period provided under the paragraph above shall be reduced to the
extent necessary (beginning with Options) so that the present value thereof (as
determined for parachute purposes) to the Participant will be $1.00 less than
three times the Participant's "base amount" (as defined in Section 280G of the
Code) but only if such reduction produces a better net after-tax position to the
Participant. Such determination shall be made by the Company in good faith.
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SECTION 9. General Provisions.
------------------
(a) No Rights to Awards. No Director, Employee, Consultant or other Person
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Consultants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or under
the Plan or from any compensation or other amount owing to a Participant the
amount (in cash, Shares, other securities, Shares that would otherwise be issued
pursuant to such Award, other Awards or other property) of any applicable taxes
payable in respect of an Award, its exercise, the lapse of restrictions thereon,
or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. Notwithstanding the above, a
Participant who is subject to Rule 16b-3 may direct the Company to satisfy such
Participant's tax withholding obligation through the "constructive" tender of
already-owned Shares or the withholding of Shares otherwise to be acquired upon
the exercise or payment of such Award.
(c) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware, without regard to conflicts of laws
principles, and applicable federal law.
(e) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance of transfer or such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any general unsecured creditor of the Company or any
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
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(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
SECTION 10. Designation of Beneficiary.
--------------------------
Each Participant to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an entity
other than a natural person) to exercise any rights or receive any payment that
under the terms of such Award may become exercisable or payable on or after the
Participant's death. At any time, and from time to time, any such designation
may be changed or cancelled by the Participant without the consent of any such
beneficiary. Any such designation, change or cancellation must be on a form
provided for that purpose by the Committee and shall not be effective until
received by the Committee. If no beneficiary has been named by a deceased
Participant, or the designated beneficiaries have predeceased the Participant,
the beneficiary shall be the Participant's estate. If a Participant designates
more than one beneficiary, any such exercise or payment under this Plan shall be
made in equal shares unless the Participant has designated otherwise, in which
case the exercise or payment shall be made in the shares designated by the
Participant.
SECTION 11. Effective Date of the Plan.
--------------------------
The Plan shall become effective upon its adoption by the Board; however,
no Award may become exercisable or payable unless, and until the Plan is
approved by the stockholders of the Company within 12 months of the date it is
adopted by the Board. In the event such stockholder approval is not obtained,
all Awards then outstanding on the first anniversary of the date adopted by the
Board shall be automatically cancelled without payment.
SECTION 12. Term of the Plan.
----------------
No Award shall be granted under the Plan after the 10th anniversary of the
date the Plan is adopted by the Board. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
prior to such termination, and the authority of the Board or the Committee to
amend, alter, adjust, suspend, discontinue, or terminate any such Award or to
waive any conditions or rights under such Award, shall extend beyond such
termination date.
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LUFKIN INDUSTRIES, INC.
This Proxy is Solicited by the Board of Directors
The undersigned hereby constitutes and appoints DOUGLAS V. SMITH and PAUL G.
PEREZ, 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
3rd day of May, 2000, 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.
1. Election of Douglas V. Smith, Simon W. Henderson, III and Melvin E. Kurth,
Jr. to the Company's board to serve until the annual shareholders' meeting
held in 2003 or until their successors have been elected and qualified.
2. The ratification and approval of the Lufkin Industries, Inc. Incentive
Compensation Plan 2000.
3. The appointment of Arthur Andersen LLP, independent certified public
accountants, as the Company's auditors for the year 2000.
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 7,
2000
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____ ____
LUFKIN INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [_]
[ ]
<S> <C> <C> <C>
1. Election of Directors. For Withheld For All
Nominees: 01) Douglas V. Smith, 02) Simon W. Henderson, All All Except
III and 03) Melvin E. Kurth, Jr. [_] [_] [_]
_________________________
Nominee Exception
For Against Abstain
2. To ratify and approve the Lufkin Industries, Inc. [_] [_] [_]
Incentive Compensation Plan 2000.
For Against Abstain
3. To appoint Arthur Andersen LLP as the independent auditors [_] [_] [_]
of the Company for the year 2000.
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: ___________________________, 2000
Signature(s) ________________________________________________
Dated: ___________________________, 2000
Signature(s) ________________________________________________
____ ____
FOLD AND DETACH HERE
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
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