<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BW/IP, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee
(Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2),
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3),
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
-------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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 offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
3) Filing Party:
-------------------------------------------------------------------------
4) Date Filed:
-------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROXY MATERIAL
BW/IP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 14, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of BW/IP, Inc.
will be held at The Long Beach Hilton Hotel, Two World Trade Center, Long Beach,
California, on Tuesday, May 14, 1996, at 11:00 a.m. (Pacific Daylight Savings
Time), for the following purposes:
1. To elect eight directors to serve for the ensuing year;
2. To consider and act upon the BW/IP, Inc. 1996 Long-Term Incentive
Plan;
3. To consider and act upon the BW/IP, Inc. 1996 Directors Stock and
Deferred Compensation Plan; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The close of business on April 2, 1996, has been fixed by the Board of Directors
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you plan
to attend the Annual Meeting, you may ensure your representation by completing,
signing, dating and promptly returning the enclosed proxy card. A return
envelope, which requires no postage if mailed in the United States, has been
provided for your use. If you attend the Annual Meeting and inform the Secretary
of BW/IP, Inc. in writing that you wish to vote your shares in person, your
proxy will not be used.
By Order of the Board of Directors,
JOHN D. HANNESSON
Secretary
Long Beach, California
April 9, 1996
1
<PAGE> 3
PRELIMINARY PROXY MATERIAL
BW/IP, INC.
200 OCEANGATE BOULEVARD, SUITE 900
LONG BEACH, CALIFORNIA 90802
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 14, 1996
This Proxy Statement is furnished in connection with the solicitation on behalf
of the Board of Directors of BW/IP, Inc. (the "Company") of proxies for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held at The Long
Beach Hilton Hotel, Two World Trade Center, Long Beach, California, on Tuesday,
May 14, 1996, at 11:00 a.m. and at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement and the accompanying proxy card are first being mailed on or about
April 9, 1996, to all stockholders of the Company.
Only holders of record of the Company's Common Stock, par value $.01 per share
("the Common Stock"), at the close of business on April 2, 1996, will be
entitled to vote at the Annual Meeting. As of that date, there were 24,275,000
shares of Common Stock outstanding. Each share of Common Stock entitles the
holder to one vote. In accordance with Section 216(1) of the General Corporation
Law of the State of Delaware (the "DGCL") and Section 1.04 of the Company's
Bylaws, a majority of the outstanding shares of Common Stock, present in person
or represented by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting. Under applicable Delaware law, abstentions and
broker non-votes will be treated as shares that are present and entitled to vote
for the purpose of determining the presence of a quorum. There is no cumulative
voting. There are no other voting securities of the Company outstanding. The
175,000 shares of Common Stock held in the Company's treasury will not be voted.
If the accompanying proxy card is properly signed and returned to the Company
prior to the Annual Meeting and not revoked, it will be voted in accordance with
the instructions contained therein. If no instructions are given, the persons
designated as proxies in the accompanying proxy card will vote FOR the election
as Directors of those persons named below and FOR all other proposals set forth
herein.
The Board of Directors is not currently aware of any matters other than those
referred to herein that will come before the Annual Meeting. If any other matter
should be presented at the Annual Meeting for action, the persons named in the
accompanying proxy card will vote the proxy in their own discretion.
You may revoke your proxy at any time before it is actually voted at the Annual
Meeting by delivering written notice of revocation to the Secretary of the
Company, by submitting a subsequently dated proxy or by attending the Annual
Meeting and requesting in writing that the proxy be withdrawn. Attendance at the
Annual Meeting will not, in itself, constitute revocation of the proxy.
2
<PAGE> 4
The expense of preparing, printing and mailing proxy materials to the Company's
stockholders will be borne by the Company. The Company has engaged Corporate
Investor Communications, Inc. to assist in the solicitation of proxies from
stockholders at a fee of approximately $3,000, plus reimbursement of reasonable
out-of-pocket expenses. In addition, proxies may be solicited personally or by
telephone by officers or employees of the Company, none of whom will receive
additional compensation therefor. The Company will also reimburse brokerage
houses and other nominees for their reasonable expenses in forwarding proxy
materials to beneficial owners of shares of Common Stock.
If a stockholder is a participant in the BW/IP International, Inc. Capital
Accumulation Plan (the "CAP") and shares of Common Stock have been allocated to
such person's account in the CAP, the proxy also serves as voting instructions
to the trustee of the CAP. The trustee will vote both allocated shares of Common
Stock for which it has not received direction and unallocated shares held by it
in the same proportion as directed shares are voted.
3
<PAGE> 5
BENEFICIAL OWNERSHIP OF COMMON STOCK
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table furnishes certain information as of February 15, 1996, as to
the shares of Common Stock beneficially owned by each director and nominee for
director of the Company, by the Chief Executive Officer and other individuals
named in the Summary Compensation Table (collectively, the "Named Executive
Officers") and by all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES SHARES UNDER
BENEFICIALLY EXERCISABLE PERCENT
NAME OWNED OPTIONS (1) OF CLASS (2)
---- ------------ ------------ ------------
<S> <C> <C> <C>
Peter C. Valli.............................. 238,847 48,500 1.2%
Bernard G. Rethore.......................... 26,500 -
Eugene P. Cross............................. 152,909 (3) 13,100 -
James J. Gavin, Jr.......................... 5,000 6,000 -
George D. Leal.............................. 1,500 (4) 6,000 -
H. Jack Meany............................... 50,000 6,000 -
James S. Pignatelli......................... 400 6,000 -
James O. Rollans............................ 1,000 -
William C. Rusnack.......................... 1,000 6,000 -
Ronald W. Hoppel............................ 188,678 (3) 14,900 -
Richard R. Testwuide........................ 191,838 (3) 13,100 -
All executive officers and directors
as a group (14)........................ 1,043,428 136,400 4.3
</TABLE>
- --------------
(1) Includes shares which could be acquired within 60 days of February 15,
1996, through the exercise of options.
(2) Unless otherwise indicated, beneficial ownership of any named
individual does not exceed 1% of the outstanding shares.
(3) Includes certain shares under the CAP over which the executive officer
has no dispositive power.
(4) Common Stock owned by The George and MaryAnn Leal Foundation, a
charitable non-profit corporation, as to which Mr. Leal may be deemed
the beneficial owner. Mr. Leal is President and Chairman of the Board
of the foundation and, subject to the approval and supervision of the
foundation's Board of Directors, is responsible for directing the
voting and disposition of these shares.
OWNERSHIP OF COMMON STOCK BY SIGNIFICANT STOCKHOLDER
The following table furnishes information as of December 31, 1995, as to the
only person known to the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES VOTING POWER INVESTMENT POWER
BENEFICIALLY PERCENT -------------------- --------------------
NAME AND BUSINESS ADDRESS OWNED OF CLASS SOLE SHARED SOLE SHARED
- ------------------------- ----------- -------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Pioneering Management
Corporation (1)........... 2,006,000 8.27% 2,006,000 0 246,000 1,760,000
60 State Street
Boston, Massachusetts 02114
</TABLE>
4
<PAGE> 6
- --------------
(1) Based on information set forth in a Schedule 13G, dated January 26,
1996, filed by Pioneering Management Corporation with the SEC.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and persons who own more than ten
percent of the Common Stock (collectively, the "Reporting Persons") to file
certain reports ("Section 16 Reports") with the SEC with respect to their
beneficial ownership of shares of Common Stock. The Reporting Persons are also
required to furnish the Company with copies of all Section 16 Reports they file.
Based solely on a review of copies of Section 16 Reports furnished to the
Company by the Reporting Persons and written representations by directors and
officers of the Company, the Company believes that all Section 16(a) filing
requirements applicable to the Reporting Persons during and with respect to 1995
were complied with on a timely basis except that on October 31, 1995, Alvin L.
Dubrow, former President and Chief Operating Officer, filed a Form 5 relating to
a transaction for the sale of Common Stock that occurred in August 1995, and on
February 7, 1996, Bernard G. Rethore, President and Chief Executive Officer,
filed a Form 5 and an amended Form 4 relating to transactions for purchases of
Common Stock that occurred in December 1995.
5
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL INFORMATION
As set by the Board of Directors pursuant to the Bylaws of the Company, the
authorized number of Directors to be elected is eight. Directors will hold
office from the time of their election until the next annual meeting of
stockholders of the Company and until their successors are duly elected and
qualify, or until their earlier resignation or removal. All nominees also serve
as members of the Board of Directors of the Company's subsidiary, BW/IP
International, Inc. ("BW/IP"). Each nominee is currently serving as a director.
Messrs. Valli, Gavin, Leal, Meany, Pignatelli and Rusnack were elected to the
Board of Directors at the last meeting of stockholders in May 1995. Mr. Rollans
was appointed to the Board of Directors in July 1995 and Mr. Rethore was
appointed concurrently with his election to the office of President and Chief
Executive Officer of the Company and BW/IP, in October 1995.
The Board of Directors has no reason to believe that any of the nominees will
not serve if elected, but if any of them should become unavailable to serve as a
director, and if the Board designates a substitute nominee, the persons named in
the accompanying proxy card will vote for the substitute nominee designated by
the Board.
INFORMATION CONCERNING NOMINEES
PETER C. VALLI, age 69
Director of the Company since 1987 and of BW/IP since 1984
Mr. Valli became Chairman of the Board of the Company and BW/IP in 1987. He
served as Chief Executive Officer of the Company and BW/IP from 1987 to 1995. He
was President of the Company from 1987 to 1991 and in 1995. He served as
President of BW/IP from 1984 to 1991 and in 1995 and has served as a director of
BW/IP since 1984. From 1972 to 1987 he also served as Vice President of
Borg-Warner Corporation, BW/IP's predecessor parent ("Borg-Warner"), principally
in conjunction with his affiliation with BW/IP. Mr. Valli is affiliated with a
family of investment funds registered under the Investment Company Act of 1940
(none of which own shares of Common Stock), including The Bond Fund of America,
Inc. and Capital World Bond Fund, Inc., for which he serves as a director, and
The American Funds Income Series, The American Funds Tax-Exempt Series II,
American High-Income Trust, The Cash Management Trust of America, Intermediate
Bond Fund of America, The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt
Money Fund of America and The U.S. Treasury Money Fund of America, for which he
serves as a trustee.
Committee Membership: Executive (Chairman)
BERNARD G. RETHORE, age 54
Director of the Company and BW/IP since 1995
Mr. Rethore has been President and Chief Executive Officer and a member of the
Board of Directors of the Company and BW/IP since 1995. Mr. Rethore was Senior
Vice President of Phelps Dodge Corporation and President of Phelps Dodge
Industries, its diversified international manufacturing business, from 1989 to
1995. Previously Mr. Rethore had been President and CEO of Microdot Industries,
the diversified manufacturing business of Microdot Inc. Mr. Rethore
6
<PAGE> 8
is also a director of Maytag Corporation.
Committee Membership: Executive
JAMES J. GAVIN, JR., age 73
Director of the Company and BW/IP since 1987
Mr. Gavin was Vice Chairman of Borg-Warner and President of its Protective
Services Group from 1985 to 1987 and Senior Vice President-Finance of
Borg-Warner from 1975 to 1985. Mr. Gavin currently is a director of Service
Corporation International and Huntco, Inc. and is a trustee of Benchmark Funds.
Committee Membership: Audit.
GEORGE D. LEAL, age 62
Director of the Company and BW/IP since 1993
Mr. Leal has been Chairman of the Board of Dames & Moore, a worldwide consulting
engineering firm, since 1981. He served as Chief Executive Officer of Dames &
Moore from 1981 to 1994 and as President from 1981 to 1993.
Committee Membership: Compensation and Benefits.
H. JACK MEANY, age 73
Director of the Company and BW/IP since 1987
Mr. Meany has been Chairman, President and Chief Executive Officer of Farr
Company since 1994 and a director since 1976. He was President and Chief
Executive Officer of NI Industries, Inc. from 1975 to 1988, a director from 1972
to 1988 and its Chairman of the Board, President and Chief Executive Officer
from 1981 to 1988. Mr. Meany is currently a director of Electronic Scales
International, Inc. and APS, Inc.
Committee Membership: Compensation and Benefits.
JAMES S. PIGNATELLI, age 52
Director of the Company and BW/IP since 1993
Mr. Pignatelli is Senior Vice President and Chief Operating Officer of Tucson
Electric Power Company. Prior to this he was a consultant to SCEcorp, a public
utility company. Mr. Pignatelli was President and Chief Executive Officer of
Mission Energy Company, an independent power company and subsidiary of SCEcorp,
from 1988 to 1993. From 1975 to 1987, Mr. Pignatelli was employed by SCEcorp,
holding various positions in the company including Manager of Taxes, Assistant
Treasurer and Director of Revenue Requirements. Mr. Pignatelli is currently a
director of Tejas Power Corporation.
Committee Membership: Audit (Chairman).
JAMES O. ROLLANS, age 53
Director of the Company and BW/IP since 1995
Mr. Rollans has been Senior Vice President and Chief Administrative Officer of
Fluor Corporation, a global engineering, construction and technical services
company since 1994. He was Senior Vice President and Chief Financial Officer of
Fluor Corporation from 1992 to 1994
7
<PAGE> 9
and its Vice President, Corporate Communications from 1982 to 1992.
Committee Membership: Audit.
WILLIAM C. RUSNACK, age 51
Director of the Company and BW/IP since 1993
Mr. Rusnack has been Senior Vice President of ARCO (an integrated petroleum
company) since July 1990, and President of ARCO Products Company since June
1993. He was President of ARCO Transportation Company from 1990 to 1993, Vice
President of Atlantic Richfield from 1987 to 1990 and Senior Vice President of
ARCO Oil & Gas Company from 1985 to 1987.
Committee Membership: Compensation and Benefits (Chairman) and Executive.
In accordance with Section 216(3) of the DGCL and Section 2.03 of the Company's
Bylaws, the affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting is required for
the election of Directors. Under applicable Delaware law, withheld votes on any
nominee or nominees, abstentions from voting on the election of Directors and
broker non-votes will have no effect on the outcome of the vote on this
proposal.
SHARES REPRESENTED BY THE ACCOMPANYING PROXY CARD WILL BE VOTED FOR THE ELECTION
OF THE ABOVE NOMINEES UNLESS AUTHORITY TO VOTE FOR ONE OR MORE NOMINEES IS
WITHHELD. STOCKHOLDERS MAY WITHHOLD AUTHORITY TO VOTE FOR THE ENTIRE SLATE AS
NOMINATED OR, BY WRITING THE NAME OF ONE OR MORE NOMINEES IN THE SPACE PROVIDED
IN THE PROXY CARD, WITHHOLD THE AUTHORITY TO VOTE FOR SUCH NOMINEE OR NOMINEES.
COMMITTEES AND MEETINGS OF THE BOARD
The composition of the Board of Directors of each of the Company and BW/IP is
identical. The Board of Directors of the Company held five regularly scheduled
or special meetings during the fiscal year ended December 31, 1995 (the "Fiscal
Year"), and the Board of Directors of BW/IP held five such meetings. Each Board
of Directors has three standing committees: an Executive Committee, an Audit
Committee and a Compensation and Benefits Committee. While the composition and
responsibilities of the standing committees of the two Boards are identical, the
level of activity of the corresponding committees of each Board varies depending
on the matters being considered.
Executive Committee. The Executive Committee of each Board has authority, with
certain exceptions, during the intervals between the meetings of the Board of
Directors, to take all actions that may be taken by its respective full Board of
Directors in the management of the property, affairs and business of the Company
or BW/IP, as the case may be. The Executive Committee of the Company's Board did
not meet during the Fiscal Year, while the Executive Committee of BW/IP's Board
met one time during the Fiscal Year.
Audit Committee. The Audit Committee of each Board reviews and approves the
scope and results of any outside audit of the Company or BW/IP, as the case may
be, and the fees therefor, and reviews, considers and acts upon all matters
concerning auditing and accounting matters and the selection of outside auditors
for the Company or BW/IP, as the case may be. The Audit
8
<PAGE> 10
Committee of the Company's Board met two times during the Fiscal Year, while the
corresponding committee of BW/IP's Board did not meet during the Fiscal Year.
Compensation and Benefits Committee. The Compensation and Benefits Committee of
each Board reviews, considers and acts upon matters of salary and other
compensation and benefits of all officers and other employees of the Company or
BW/IP, as the case may be, as well as acts upon all matters concerning, and
exercises such authority as is delegated to it under the provisions of, any
benefit, retirement or pension plan. The Compensation and Benefits Committee of
the Company's Board met four times during the Fiscal Year, and the corresponding
committee of BW/IP's Board met two times during the Fiscal Year.
Each current member of the Board of Directors of the Company nominated for
election attended at least 75% of the aggregate of the total number of meetings
of the Board of Directors of the Company and of the committees of such Board on
which he served during the Fiscal Year except for Mr. Rollans who missed only
one meeting of the Board of Directors.
COMPENSATION OF DIRECTORS
Each director of the Company and BW/IP, other than any director employed by the
Company or BW/IP, is entitled to receive an annual retainer of $12,000 plus a
fee of $1,000 for each Board meeting attended in person or by conference
telephone and $1,000 for each committee meeting attended that is not held
concurrently with a Board meeting, plus all reasonable travel and other expenses
of attending such meetings. The Chairman has the discretion to determine in each
circumstance whether meetings of Committees held by conference telephone shall
be paid as regular meetings or no meeting fee paid.
As part of its overall program to promote charitable giving, the Company has
established the Non-Employee Directors' Charitable Gift Plan pursuant to which
the Company purchased life insurance policies on non-employee directors.
Eligibility is based on length of service as a non-employee director, with a
minimum of two years of vesting service required after the March 1993 adoption
of this plan by the Board of Directors, and full benefits vesting after five
years of service. Upon the death of an individual non-employee director, the
Company will donate up to $1 million to one or more qualifying charitable
organizations recommended by the individual director and subsequently be
reimbursed by life insurance proceeds. Individual directors derive no financial
benefit from this program since all charitable deductions accrue solely to the
Company. The program results in only nominal cost to the Company over time.
Participants in this program are Messrs. Gavin, Leal, Meany, Pignatelli, Rollans
and Rusnack.
Pursuant to the Company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), each non-employee director who is reelected or who is
continuing as a member of the Board of Directors shall be granted, as of the
date of each year's annual meeting of the Company's stockholders, a
non-qualified option ("Option") to purchase 2,000 shares of Common Stock, while
each new non-employee director upon initial election as a member of the Board is
granted an Option to purchase 5,000 shares of Common Stock.
9
<PAGE> 11
The following table summarizes for all non-employee directors of the Company
Options granted in fiscal year 1995 under the Directors' Plan.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------
Options Exercise Expiration
Name Granted (1) Price/Share (2) Date
---- ----------- --------------- ----------
<S> <C> <C> <C>
James J. Gavin ...................... 2,000 $16.875 5/16/05
George D. Leal ...................... 2,000 16.875 5/16/05
H. Jack Meany ....................... 2,000 16.875 5/16/05
James S. Pignatelli ................. 2,000 16.875 5/16/05
James O. Rollans .................... 5,000 18.750 7/25/05
William C. Rusnack .................. 2,000 16.875 5/16/05
</TABLE>
- -------------------
(1) Except for the Option granted to Mr. Rollans upon his initial election
as a director on July 25 1995, all Options were granted on May 16,
1995, the date of the last annual meeting of the Company's
stockholders. Fifty percent of the total number of shares of Common
Stock covered in an Option will be exercisable beginning with the first
anniversary date of the grant and the remaining fifty percent shall be
exercisable on the second anniversary date of the grant. Payment of the
exercise price may be made in cash, Common Stock or a combination of
both.
(2) The exercise price for shares under the Options is the mean of the high
and low prices for the Common Stock as reported on the NASDAQ National
Market System on the date of grant.
Following his retirement as President and Chief Executive Officer of the Company
and BW/IP on October 19, 1995, and as an employee of the Company on December 31,
1995, Mr. Valli has been retained by the Company as a consultant. He will
receive annual consulting fees in the amount of $200,000 until May 15, 1997.
Except for the annual retainer and meeting fees otherwise payable to
non-employee directors, Mr. Valli is not eligible to participate in any
compensatory plan or program for non-employee directors.
10
<PAGE> 12
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
One of the Company's principal objectives is to maximize the long-term return to
the Company's stockholders. Under the supervision of the Compensation and
Benefits Committee, the Company has developed and implemented compensation
policies and programs designed to increase the profitability of the Company, and
thus stockholder value, by aligning the financial interests of the Company's
executives and managers with those of the stockholders. The strategy of the
compensation program is to relate compensation to business objectives and
performance, and enable the Company to attract, retain and provide incentives to
executives who contribute to the success of the Company.
Because an important consideration for managers and directors is to identify
with the interests of stockholders, the Committee adopted a policy in December
of 1995 which requires substantial stock ownership (ranging from 5,000 shares to
80,000 shares depending upon position) be achieved by all executive officers and
a significant number of other senior management employees within 5 years. In
addition, the Committee recommended and the full Board of Directors adopted, a
policy requiring all outside members of the Board of Directors to own 5,000
shares of the Company's stock within 5 years.
The Committee is comprised entirely of outside, non-employee directors of the
Company. The task of establishing compensation programs generally, and
determining the compensation of executive officers individually, requires
experience in dealing with these matters and applying judgment to them. It
requires the analysis of considerable data and its application in a rapidly
changing business environment while balancing a number of important, and
sometimes competing factors. The Company must be competitive in the marketplace
for executive talent and reward both corporate and individual performance, while
at the same time maintaining a focus on building long- term shareholder value.
With these requirements in mind the Committee has supervised the setting of base
salaries, as well as the creation of incentive compensation programs intended to
appropriately compensate individuals on both measurable financial and
non-financial goals, while reserving the authority to make adjustments to
compensate for individual circumstances and a changing market.
The compensation package for the CEO and all other executive officers is
comprised of three components: base salary, cash bonus (paid under the
Management Incentive Plan (the "MIP") and long term equity based incentives,
through stock options and/or performance units under the Long Term Incentive
Plan (the "LTIP").
Base salaries of the CEO and all other executive officers are set by the
Committee. There is no formula for the setting of base salaries, but each year a
review is conducted of general corporate compensation and executive compensation
survey data and periodically of special compensation surveys commissioned by the
Company. Some of the survey data reviewed include corporations which are in the
S&P 500 and the S&P
11
<PAGE> 13
Manufacturing (Diversified Industrials) indices. The surveyed data also include
information from corporations which are competitors of the Company and
manufacturing companies of similar size but which are not direct competitors.
The companies against which the Company competes for executive talent are a
broader group than those companies in the Standard & Poor's Manufacturing
Divisified Industrial Index shown in the performance graph for Common Stock. A
special survey by Towers Perrin, commissioned by the Company in 1994, was one of
the sources of data considered by the Committee in setting 1995 base salaries.
In addition to the survey data the Committee considers the merit of each
individual's performance, and the individual's compensation in the context of
both the Company and its industry. The surveys, and what they reveal about base
salaries paid by the Company for comparably responsible positions at other
companies, are considered the most important single factor in setting salaries.
However, the setting of individual base salaries is not entirely a function of
matching the pay for comparable positions, but rather consists of an analysis of
all of the factors, many of which are inherently subjective. The Company's
policy is to generally set base salaries at or near the medians for positions it
believes are comparable to those of the CEO and the other executive officers.
The base salary for Bernard Rethore who became the CEO effective October 19,
1995, was determined by the Committee and reflects an amount considered
appropriate for an individual with the qualifications and experience required
for the position of CEO. This salary is commensurate with the salary provided to
the Company's prior CEO.
The Committee believes that the contingent or incentive compensation of the
Company's CEO and other executive officers should be substantially influenced by
the Company's performance and by their individual performance. Therefore, the
MIP provides that a portion of the annual bonus opportunity for each officer is
dependent upon the Company's meeting certain previously defined financial goals.
These goals are determined annually after review of the compensation surveys
described above, which include incentive compensation data. The Plan was
intended to result in correlating the Company's projected performance relative
to its peers with total cash compensation. The Company had established a
difficult target performance level, reversing a downward earnings trend, which
would result in 3rd quartile total cash compensation if the target level was
attained.
In 1995 the former CEO's financial goal, and a common financial goal
for all other officers was a specified level of net income for the Company. The
current CEO did not participate in the MIP in 1995, and will receive no bonus
for the portion of 1995 during which he was employed by the Company. In
addition, certain officers other than the CEO have a portion of their bonus
opportunity dependent upon additional financial goals based on other performance
measures which by virtue of their job responsibilities they are in a position to
influence, such as operating cash flow or net cash flow, division operating
income, or bookings. The CEO and all other officers also have a portion of their
bonus opportunity based upon their individual performance in meeting certain
non-financial goals. These goals are determined by each officer and his
supervisor, or in the case of the CEO by the Committee, and relate to specific
items within the authority of that officer which are determined to have benefit
to the Company. Examples of these non-financial goals during 1995 are items such
as succession planning and implementation for the former CEO, and for other
officers the implementation of restructuring, and the reduction of product costs
and selling, administrative and operating expenses.
Failure to reach the targeted goals results in lower annual bonus awards and
may, in appropriate circumstances result in no award. In 1995 the range of
potential bonus payments at target performance levels ranged from 58% of salary
for the CEO and descended in steps to 28% for certain other executive officers.
The range of actual payouts for cash
12
<PAGE> 14
bonuses in 1995 was from 38% to 19% based upon the Company's performance against
its financial targets and the evaluation of each individual's degree of
completion of his or her non-financial goals.
The LTIP is a plan under which awards are available in the form of stock options
and performance units. The general principle governing the granting of awards
was to determine a desired level of Company performance and a total compensation
level for executive officers at targeted levels of corporate performance, and
then relate the two through the reward system so that through a combination of
base salary, bonus, and the LTIP the desired level of compensation was delivered
at target performance. The percentage of total compensation derived through base
salary is lowest for the CEO, who has the largest portion of his total
compensation available through the MIP and LTIP, and therefore contingent upon
the Company's and his own individual performance, and then cascades down in
levels for other officers based upon the scope of their responsibilities.
The value of stock options to participants in the LTIP depends totally upon
increases in the value of the Company's Common Stock over the ten year period
over which the options are outstanding. The goal of the option feature of the
LTIP is to create a commonality of interest between the Company's management and
stockholders by giving an incentive for management to create value for
stockholders through being personally rewarded by doing so. When stock options
are granted, the exercise price cannot be lower than the fair market value on
the grant date. As a result, executives receive future gains from these options
only to the extent the price of the Company's stock increases.
The purpose of the LTIP is to provide an incentive for future performance and
encourage the officers and other covered employees to own stock and increase
their proprietary interest in the Company.
The number of performance units or options previously granted was not considered
in determining 1995 awards.
The size of options awards varies, depending upon the recipient's position,
performance and responsibilities with the Company which is determined under the
Hay point evaluation system, with the more senior executives receiving a
larger award. The Committee determined a target dollar amount to be awarded to
each executive in stock options and converted that amount into a number of
stock options based upon the Black-Scholes model for valuation of stock
options. Under the terms of his employment agreement and pursuant to the LTIP,
on October 9,1995, Mr. Rethore was granted stock options covering 250,000
shares of Common Stock, 150,000 of which have an exercise price equal to the
fair market value of the stock on the date of grant, $18.25, and 100,000 of
which had an exercise price of $25.00 per share. Because of uncertainty in the
Company's markets and difficulty in establishing meaningful targets for
performance, no performance units were granted in 1995.
The total compensation paid to the CEO and to other executive officers remained
approximately the same or decreased in 1995 compared to 1994 as a result of
lower MIP payments caused by the Company's lower profits against targets which
required increased earnings compared to
13
<PAGE> 15
the prior year. The setting of financial performance targets was done relative
to the actual market conditions in existence at the time the targets were
established and would not always require year to year improvement unless
warranted by business conditions.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to one or more of the executive officers named in the Summary Compensation
Table except to the extent that any amount in excess of such limit is paid
pursuant to a plan containing a performance standard or stock option plan
meeting certain requirements. The Company has studied the $1 million cap on the
deductibility of compensation, and although the current compensation of the
Company's executive officers is not expected to approach $1 million in the near
term, the 1996 Long Term Incentive Plan was drafted to comply with this
limitation.
William C. Rusnack, Chairman
H. Jack Meany
George D. Leal
Compensation and Benefits Committee
14
<PAGE> 16
PERFORMANCE GRAPH FOR COMMON STOCK
The following graph compares the Company's cumulative total return on the Common
Stock with the Standard & Poor's 500 Stock Index and the Standard & Poor's
Manufacturing Diversified Industrials Index. The graph assumes that $100 was
invested on May 24, 1991 (the date the Common Stock was registered under the
Exchange Act) in each of the Common Stock, the Standard & Poor's 500 Stock Index
and the Standard & Poor's Manufacturing Diversified Industrials Index and that
all dividends were reinvested. The historical stock price performance of the
Common Stock shown on the following graph is not necessarily indicative of
future price performance.
TOTAL STOCKHOLDER RETURNS
<TABLE>
<CAPTION>
S&P MANUFACTURING -
MEASUREMENT PERIOD BW/IP INC -CL: ($) S&P 500 ($) DIVER. IND. ($)
- --------------------- ------------------ ----------- -------------------
<S> <C> <C> <C>
STARTING BASIS - 1990 $100.00 $100.00 $100.00
1991 $153.96 $108.95 $ 95.01
1992 $211.01 $117.25 $102.98
1993 $178.24 $129.07 $125.02
1994 $123.54 $130.77 $129.41
1995 $122.01 $179.42 $182.21
</TABLE>
NOTE: Data complete through last fiscal year.
15
<PAGE> 17
SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation of the Named Executive
Officers for fiscal year 1995, as well as the total compensation paid to each
such individual for the Company's two previous fiscal years in all capacities in
which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------
AWARDS
------
NAME AND OTHER ANNUAL SHARES SUBJECT ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION (2) TO OPTIONS (#) COMPENSATION (3)
- ------------------ ---- ------ -------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Valli(4) ............ 1995 $425,000 $160,000 $4,507 60,000 $ 2,044
Chairman and Former 1994 410,000 175,000 3,381 35,000 2,184
President and Chief 1993 390,000 120,000 2,306 26,000 12,391
Executive Officer
Bernard G. Rethore(5) ....... 1995 80,512 0 0 250,000 0
President, Chief
Executive Officer
and Director
Eugene P. Cross .............. 1995 232,000 60,000 3,148 20,000 2,240
Executive Vice 1994 223,000 80,000 2,640 11,500 2,148
President--Finance, 1993 208,000 55,000 1,865 7,000 2,249
Chief Financial Officer
Ronald W. Hoppel ............. 1995 232,000 70,000 3,239 19,000 2,250
Vice President 1994 222,000 85,000 98 11,000 2,599
President Pump Division 1993 211,000 55,000 1,685 8,000 2,732
Richard R. Testwuide ......... 1995 204,000 70,000 3,528 17,000 2,015
Vice President 1994 195,000 80,000 2,288 10,000 2,383
President Seal Division 1993 188,000 55,000 1,679 7,000 2,249
</TABLE>
- -------------------
(1) These amounts are the cash awards to the named individuals under BW/IP
Management Incentive Plans. Amounts shown for performance in 1995, 1994
and 1993 were paid by March 15 of the calendar year following the year
for which bonuses were awarded.
(2) Reflects amount reimbursed for the payment of taxes ("gross-up").
(3) Includes amounts contributed or accrued for the fiscal year under the
BW/IP International, Inc. Capital Accumulation Plan, and for Mr. Valli
a corporate paid life insurance premium in the amount of $0 in 1995, $0
in 1994 and $10,468 in 1993.
(4) Mr. Valli retired as President and Chief Executive Officer effective
October 19, 1995, and remained an employee until December 31, 1995.
(5) Mr. Rethore was elected President and Chief Executive Officer of the
Company, effective October 19, 1995. Salary for the period October 19,
1995 through December 31, 1995 is based on an annualized base salary of
$400,000.
16
<PAGE> 18
OPTION GRANTS
The following table summarizes for the Named Executive Officers
options to acquire shares of the Common Stock granted in fiscal year 1995 under
the LTIP.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENTAGE OF
TOTAL OPTIONS POTENTIAL REALIZABLE VALUE
GRANTED TO AT ASSUMED ANNUAL RATES OF
EMPLOYEES IN STOCK PRICE APPRECIATION
OPTIONS FISCAL YEAR EXERCISE EXPIRATION FOR TEN YEAR OPTION TERM(1)
NAME GRANTED (2) 1995 PRICE/SHARE DATE ------------------------------------------
- ---- ----------- ------------- ----------- ----------
0% 5% 10%
---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter C. Valli........ 60,000 10.6 $15.875 2/22/05 $ 0 $ 599,040 $ 1,518,060
Bernard G. Rethore.... 150,000 26.4 18.250 10/19/05 0 1,721,550 4,362,900
100,000 17.6 25.000 10/19/05 0 472,700 2,233,600
Eugene P. Cross....... 20,000 3.5 15.875 2/22/05 0 199,680 506,020
Ronald W. Hoppel...... 19,000 3.3 15.875 2/22/05 0 189,696 480,719
Richard R. Testwuide.. 17,000 3.0 15.875 2/22/05 0 169,728 430,117
All Stockholders...... N/A N/A N/A N/A 0 276,419,425 (3) 700,527,950 (3)
All Optionees......... 568,400 (4) 100.0 18.107 (5) 0 5,373,156 (6) 14,652,338 (6)
Optionee Gain as a %
of All Stockholders'
Gain............... N/A N/A N/A N/A N/A 1.9% 2.1%
</TABLE>
- -------------------
(1) Based upon assumed annual rates of stock price appreciation (as used in
the table above) from the date of grant through the expiration date of
such options. Actual gains, if any, are dependent on the future
performance of the Common Stock, as well the continued employment of
the Named Executive Officers through the vesting period. The potential
realizable values indicated have not taken into account amounts
required to be paid as income tax under the Internal Revenue Code of
1986, as amended (the "Code"), and any applicable state laws.
(2) BW/IP granted stock options to purchase shares of the Common Stock
pursuant to LTIP. Unless otherwise determined by the Compensation and
Benefits Committee, a stock option may be exercised commencing three
years after the date of grant in one or more installments. A stock
option may only be exercised upon full payment of the option price.
(3) "All Stockholders" value is calculated from $18.107, the weighted
average exercise price for all options awarded in fiscal 1995, based on
the outstanding shares of Common Stock on December 31, 1995.
(4) Net of options forfeited.
(5) Options expire on various dates during the year 2005. Exercise price
shown is an average of all grants in fiscal 1995.
(6) No gain to the optionees is possible without an increase in stock price
appreciation, which will benefit all stockholders commensurately.
17
<PAGE> 19
OPTION VALUES
The following table sets forth the number and the dollar value of unexercised
options to purchase Common Stock held by the Named Executive Officers at
December 31, 1995. No options were exercised by these individuals during 1995.
AGGREGATED LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR END (#) YEAR-END($)(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter C. Valli................. 22,500 121,000 $ 0 $37,500
Bernard G. Rethore............. 0 250,000 0 0
Eugene R. Cross................ 6,100 38,500 0 12,500
Ronald W. Hoppel............... 6,900 38,000 0 11,875
Richard R. Testwuide........... 6,100 34,000 0 10,625
</TABLE>
- -------------------
(1) Based on the last reported sale price per share of the Common Stock as
quoted through the NASDAQ National Market System on December 31, 1995
($16.50).
OTHER PLANS AND ARRANGEMENTS
Retirement Benefits. The following table indicates the estimated maximum annual
retirement benefit that persons in specified compensation and years of service
classifications would be entitled to receive under the BW/IP International, Inc.
Retirement Plan (the "BW/IP RP") and the Supplemental Executive Retirement Plan
(the "SERP") on a straight-life annuity basis as if retirement had occurred on
December 31, 1995 at age 65 after the indicated years of credited service and as
if average annual earnings for the highest five consecutive years in the ten
years preceding retirement equaled the amounts indicated. Benefits in the table
are not subject to any deduction for social security benefits. The table does
not reflect limitations imposed by the Code.
18
<PAGE> 20
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Years of Service
Annual --------------------------------------------------------------------
Earnings 15 20 25 30 35 40
- -------- -------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C>
$125,000 $ 28,250 $ 37,667 $ 47,084 $ 56,501 $ 59,626 $ 62,751
150,000 34,250 45,667 57,084 68,501 72,251 76,001
175,000 40,250 53,667 67,084 80,501 84,876 89,251
200,000 46,250 61,667 77,084 92,501 97,501 102,501
225,000 52,250 69,667 87,084 104,501 110,126 115,751
250,000 58,250 77,667 97,084 116,501 122,751 129,001
300,000 70,250 93,667 117,084 140,501 148,001 155,501
350,000 82,250 109,667 137,084 164,501 173,251 182,001
400,000 94,250 125,667 157,084 188,501 198,501 208,501
450,000 106,250 141,667 177,084 212,501 223,751 235,001
500,000 118,250 157,667 197,084 236,501 249,001 261,501
550,000 130,250 173,667 217,084 260,501 274,251 288,001
600,000 142,250 189,667 237,084 284,501 299,501 314,501
650,000 154,250 205,667 257,084 308,501 324,751 341,001
700,000 166,250 221,667 277,084 332,501 350,001 367,501
750,000 178,250 237,667 297,084 356,501 375,251 394,001
800,000 190,250 253,667 317,084 380,501 400,501 420,501
</TABLE>
Eligible BW/IP U.S. salaried and certain hourly employees participate in the
BW/IP RP, which provides retirement benefits based on an employee's years of
service and earnings with Borg-Warner, BW/IP and its subsidiaries and such
employee's average annual earnings (subject to limitations imposed by the Code)
for the highest consecutive five years of the ten years preceding retirement.
Participants are covered in the BW/IP RP for wages, salary and bonuses, and up
to 50% of an employee's award under the 1981 Borg-Warner Contingent Compensation
Plan through 1987.
As of December 31, 1995, the credited years of service for each Named Executive
Officer are: Mr. Valli, 35 years; Mr. Rethore, 0 years; Mr. Cross, 26 years; Mr.
Hoppel, 31 years; and Mr. Testwuide, 23 years.
Mr. Rethore will have an additional retirement benefit that recognizes his
experience prior to employment by the Company. The additional benefit will be
equal to the excess of (i) the retirement benefit payable under the SERP
assuming one additional year of service for each year of actual service over
(ii) the retirement benefit actually payable under the SERP.
Mr. Valli waived the prescribed payments under the SERP in 1995, and the Board
of Directors approved the purchase of split dollar life insurance using a
second-to-die life insurance policy on the lives of Mr. Valli and his spouse.
This arrangement will deliver greater economic value to Mr. Valli and provide a
long-term earnings benefit to the Company. The Company will make five annual
insurance premium payments of approximately $405,000 each. At the earlier of the
deaths of Mr. Valli and his spouse or twenty years from the date of the policy,
the Company will receive an amount equal to the premiums paid, and Mr. Valli's
beneficiary will receive the remaining benefit amount paid pursuant to the
policy.
19
<PAGE> 21
Employment Agreements. On October 19, 1995, the Company entered into an
agreement covering a period of five years for the employment of Mr. Rethore as
President and Chief Executive Officer of the Company. Mr. Rethore's annual base
salary until January 1, 1997, is $400,000 and is subject to increase based on
annual reviews thereafter. Beginning in 1996, Mr. Rethore will participate in
the MIP and have the opportunity to receive an annual bonus up to 100% of his
base salary, based upon attainment of performance objectives. [Pursuant to the
employment agreement Mr. Rethore will have an additional retirement benefit as
described under "Retirement Benefits" above.] Mr. Rethore's employment agreement
also provides for the payment of a severance benefit if the Company terminates
his employment without cause or if Mr. Rethore terminates his employment for
"good reason" (which includes a reduction in base salary or incentive
compensation opportunity, a reduction in Mr. Rethore's duties or positions, or a
material breach of the agreement by the Company). The severance benefit is a
lump sum amount equal to two times the sum of base salary and bonus that would
have been payable at target performance for the year in which termination
occurs.
Under the terms of his employment agreement, Mr. Rethore is required to purchase
no later than December 31, 1996, shares of Common Stock with an aggregate fair
market value of at least $800,000 ("Base Stock"). When Mr. Rethore completes
purchase of the Base Stock ("Stock Award Date"), Mr. Rethore shall be granted
shares of restricted Common Stock ("Premium Shares") equal to the greatest
number of whole shares determined by dividing $160,000 by the closing price per
share on the Stock Award Date. The Premium Shares vest over five years, except
that in the event of Mr. Rethore's termination for death or disability, all
Premium Shares become fully vested. No later than December 31, 1998, and at all
times thereafter, Mr. Rethore must own directly or beneficially Common Stock
with an aggregate fair market value equal to three times his then current base
salary or the amount required under stock ownership guidelines established by
the Board of Directors for the Company's executive officers, but in no event
more than five times his then current base salary. On the commencement date of
his employment, Mr. Rethore was granted an option under the LTIP to purchase
150,000 shares of Common Stock at an exercise price of the fair market value on
the date of grant ($18.25) and 100,000 shares at an exercise price of $25.00 per
share.
Employment Continuation Program. On December 14, 1995, the Company adopted an
employment continuation program (the "Program"). All seven of the executive
officers of the Company are eligible to participate in the Program. The Program
provides for the officer's continued employment for two years following a change
in control of the Company. Compensation for this period will be based on the
officer's then current base salary with an annual bonus opportunity no less
favorable than the bonus available before the change in control and provide for
continued participation in long-term incentive and benefit plans.
The employment continuation agreement for Mr. Rethore provides that in the event
his employment is terminated during the two year period by the Company without
cause or by Mr. Rethore for good reason (which includes failure to continue in
the position of President and Chief Executive Officer or assignment of duties
inconsistent with such position, a reduction in compensation, a material breach
of the agreement by the Company, failure of the successor to the Company to
assume the agreement or relocation (more than 40 miles) from the location at
which services were performed before the change), Mr. Rethore will receive a
severance benefit equal to three times the sum of his base salary and an amount
equal to the greater of either his last bonus or the average bonus paid as a
percentage of base salary for the three years prior to the change in control
plus certain other benefits (welfare and fringe benefits and a Company- provided
20
<PAGE> 22
automobile for up to three years, outplacement services and immediate vesting in
the Premium Shares). The employment continuation agreements for each of the
other officers provide that in the event the officer's employment is terminated
during the two year period without cause or by the officer for good reason
(which includes an adverse change in position or assignment of duties
inconsistent with such position, a reduction in compensation, relocation (more
than 35 miles) from the location at which services were performed before the
change, a material breach of the agreement by the Company, or failure of the
successor to the Company to assume the agreement), the officer covered by the
Program will receive a severance benefit equal to two and one fourth times the
sum of his or her base salary and an amount equal to the greater of either the
last bonus or the average bonus paid as a percentage of base salary for the last
three calendar years prior to the change in control plus certain other benefits
(welfare and fringe benefits and a Company-provided automobile for up to two
years and outplacement services). The Program provides that if any amount
payable under the Program is deemed to be an "excess parachute payment" under
section 280G(b) of the Code, which generally would limit deductibility of such
payment by the Company for Federal income tax purposes, then the amount payable
under the Program shall be limited to an amount that would not cause such
limitation on the deduction.
Under the employment continuation agreements a change in control is deemed to
have occurred if (a) another person or group unaffiliated with the Company,
becomes the beneficial owner of at least 30% of the voting power of the Company;
or (b) members of the Board of Directors as of the beginning of any consecutive
twenty-four calendar month period (the "Incumbent Directors") cease to
constitute at least a majority of the Board of Directors, unless the new
directors were elected with the approval of at least two-thirds of the Incumbent
Directors and were not designated by a person who had entered into an agreement
with the Company to effect a merger, consolidation, share exchange, division,
sale or other disposition of all or substantially all of the Company ("Corporate
Event"); or (c) the Company's stockholders approve a Corporate Event as a result
of which such stockholders do not hold a majority of the voting power in a
surviving, resulting or acquiring corporation. If the officer's employment is
terminated by the Company without cause within one year after a potential change
in control but before a change in control and a change in control actually
occurs, the officer will be considered employed as of the date of a change in
control for purposes of his or her rights under the Program. A potential change
in control is deemed to have occurred if a person commences a tender offer for
securities representing at least 20% of the Company's securities, the Company
enters into an agreement that would consummate a change in control, proxies are
solicited by anyone other than the Company, or any other event which is deemed
to be a potential change in control by the Board of Directors.
21
<PAGE> 23
PROPOSAL NO. 2
BW/IP, INC. 1996 LONG-TERM INCENTIVE PLAN
The stockholders are asked to consider and vote upon a proposal to adopt the
BW/IP, Inc. 1996 Long-Term Incentive Plan (the "Plan"). The Plan replaces the
BW/IP International, Inc. 1992 Long-Term Incentive Plan ("1992 Plan") that was
approved by the Stockholders on May 19, 1992.
The following description of the Plan is qualified in its entirety by reference
to the full text of the Plan, in the form attached to this Proxy Statement as
Exhibit A.
DESCRIPTION OF THE PLAN
Purpose. The Plan was created to promote the long-term financial success of the
Company and increase shareholder value by providing to selected employees an
ownership interest in the Company as an incentive for superior performance. On
February 23, 1996, the Board of Directors adopted the Plan, subject to approval
by the stockholders. The Plan shall be effective on the date the Plan is
approved by the stockholders. No award may be granted under the Plan after May
13, 2006.
Administration. The Plan provides for administration by a committee (the
"Committee") to be comprised of either the Compensation and Benefits Committee
of the Board of Directors or another committee designated by the Board of
Directors; provided, however, each member of the Committee must be a
"disinterested person" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Among the powers granted to the Committee are the authority to interpret the
Plan and to establish rules and regulations for its operation. [In addition to
administering the Plan, the Committee may also establish recommended guidelines
for stock ownership by employees.]
Types of Awards. The Plan provides for the grant of any or all of the following
types of awards: (1) stock options, including incentive stock options; (2) stock
appreciation rights (SARs) in tandem with stock options, in addition to stock
options, or freestanding; (3) restricted stock and restricted units; (4)
incentive stock and incentive units; (5) deferred stock units; and (6) stock in
lieu of cash (hereinafter referred to as "Awards").
Eligibility and Participation. The Plan provides that Awards will be granted to
executive officers and other key employees selected by the Committee.
[Non-employee directors are not eligible to participate in the Plan.] At March
1, 1996, seven executive officers and approximately 35 employees were eligible
to participate in the Plan.
Limitation on Awards. The maximum number of shares of Common Stock which shall
be available for Awards granted under the Plan during its term shall be
1,500,000 plus any shares that remain available for awards under the 1992 Plan.
The maximum number of shares of stock that may be issued with respect to
restricted stock and restricted units is 100,000 and with respect to incentive
stock and incentive units is 200,000. The maximum number of shares for which
options or stock appreciation rights may be granted to any one participant in a
calendar year is 500,000. The maximum number of
22
<PAGE> 24
shares subject to awards of incentive stock or incentive units to an executive
officer in any calendar year is 50,000. If any option or SAR expires or is
terminated unexercised, or if any other award in respect of shares is canceled
or forfeited, the shares subject to such option, SAR or other Award again will
be available for purposes of the Plan.
In the event of a stock dividend, stock split, recapitalization, merger,
consolidation or any other similar event which affects the Common Stock, the
Committee shall make such adjustments in the aggregate number of shares reserved
for issuance, the number of shares covered by outstanding Awards, limits on
individual grants, and the exercise prices for such Awards as are provided in
the Plan.
Stock Options. Under the Plan, the Committee may grant Awards in the form of
options to purchase shares of the Company's Common Stock. With regard to each
stock option, the Committee will determine the number of shares subject to the
option, the exercise price and conditions and limitations on the option's
exercise. In no event, however, may the exercise price be less than the mean
between the closing bid and asked prices for a share of Common Stock on a
nationally recognized system of price quotation or the closing price for a share
of Common Stock on a national exchange ("fair market value") on the date of
grant. The exercise price of the option is payable in cash or its equivalent or,
as permitted by the Committee, by exchanging shares of Common Stock owned by the
participant, or by a combination of the foregoing. Unless the Committee
establishes a different schedule, each option shall become exercisable on a
cliff basis on the third anniversary of the date the option is granted. If a
participant's employment terminates because of death, disability, early
retirement (with the Committee's consent) or normal retirement, the participant
may exercise any option held at the time of termination for a period of three
years, or such other period determined by the Committee at the date of grant,
but in no event after the date the option otherwise expires. If a participant's
employment is terminated for Cause (as defined in the Plan), all outstanding
options terminate. In the event of termination for any reason not described
above, the option is exercisable for a period of ninety days after termination.
Any stock option granted in the form of an incentive stock option will satisfy
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code" ). The Committee may provide that a participant who delivers shares
of Common Stock to exercise an option will be automatically granted new options
for the number of shares delivered to exercise the option ("reload options").
Reload options will be subject to the same terms and conditions as the related
option except that the exercise price is the fair market value on the date the
reload option is granted and will not be exercisable for six months.
Stock Appreciation Rights. The Plan authorizes the Committee to grant SARs in
tandem with a stock option, in addition to a stock option, or freestanding and
unrelated to a stock option. SARs entitle the participant to receive the excess
of the fair market value of a stated number of shares of Common Stock on the
date of exercise over the base price of the SAR. The base price may not be less
than 100% of the market value of the Common Stock on the date the SAR is
granted. The Committee shall determine when an SAR is exercisable, the method of
exercise, and whether settlement of the SAR is to be made in cash, shares of
Common Stock or a combination of the foregoing.
Restricted Stock and Restricted Units. The Plan authorizes the Committee to
grant Awards in the form of restricted stock and restricted units. For purposes
of the Plan,
23
<PAGE> 25
restricted stock is an Award of Common Stock and a restricted unit is a
contractual right to receive Common Stock (or cash based on fair market value of
Common Stock). Such awards will be subject to such terms and conditions, if any,
as the Committee deems appropriate. Unless otherwise determined by the
Committee, participants shall be entitled to receive either currently or at a
future date, dividends or other distributions paid with respect to restricted
stock or the corresponding number of shares covered by restricted units.
Restricted stock and restricted units become vested and nonforfeitable and the
restricted period shall lapse upon the third anniversary of the date of grant
unless the Committee determines otherwise. If a participant's employment
terminates because of death, disability, early retirement (with the Committee's
consent) or normal retirement, during the period in which the transfer of shares
is restricted, the restricted stock or restricted units become vested and
nonforfeitable as to that percentage of the shares based upon the days worked as
a percentage of total days in the restricted period. Unless nonforfeitable on
the date of termination or otherwise determined by the Committee, a restricted
stock or restricted unit award is forfeited on termination.
Incentive Stock and Incentive Units. The Plan allows for the grant of Awards in
the form of incentive stock and incentive units. For purposes of the Plan,
incentive stock is an Award of Common Stock and an incentive unit is a
contractual right to receive Common Stock. Such awards will be contingent upon
the attainment, in whole or in part, of certain performance objectives over a
period to be determined by the Committee. With regard to a particular
performance period, the Committee shall have the discretion, subject to the
Plan's terms to determine the terms and conditions of such Awards, including the
performance objectives to be achieved during such period and the determination
of whether and to what degree such objectives have been attained. Unless
otherwise determined by the Committee, participants shall be entitled to
receive, either currently or at a future date, all dividends and other
distributions paid with respect to the incentive stock or the corresponding
number of shares covered by the incentive units. If a participant's employment
terminates because of death, disability, early retirement (with the Committee's
consent) or normal retirement during the measurement period, an Award of
incentive stock or incentive units shall become vested and nonforfeitable as to
that percentage of the award that would have been earned based on the attainment
of performance objectives for the days worked as a percentage of total days in
the performance period. Unless nonforfeitable on the date of termination, any
incentive stock or incentive unit award is forfeited on termination.
Deferred Stock. An Award of deferred stock confers upon a participant the right
to receive shares of Common Stock at the end of a specified deferral period. On
such date or dates established by the Committee and subject to such terms and
conditions as the Committee shall determine, a participant may be permitted to
defer receipt of all or a portion of his annual compensation and/or annual
incentive bonus ("Deferred Annual Amount") and receive the equivalent amount in
elective stock units based on the fair market value of Common Stock on the date
of grant. To the extent determined by the Committee, a participant may also
receive supplemental stock units for a percentage of the Deferred Annual Amount.
If the participant elects to receive any portion of a bonus in Common Stock in
lieu of cash as allowed by the Plan, the Committee may grant an Award of
deferred stock as free standing stock units, in such number and on such terms as
the Committee may determine. Deferred stock units carry no voting rights until
the shares have been issued. The Committee shall determine whether any dividend
24
<PAGE> 26
equivalents attributable to deferred units are paid currently or credited to the
participant's account and deemed reinvested in deferred stock units. Deferred
stock units and dividend equivalents with respect thereto are fully vested at
all times. Unless the Committee provides otherwise supplemental stock units and
dividend equivalents with respect thereto will become fully vested on the third
anniversary of the date the corresponding deferred amount would have been paid
and free standing stock units and dividend equivalents with respect thereto will
become fully vested on the third anniversary of the corresponding Common Stock
in lieu of cash Award. Free standing units may be forfeited if the corresponding
Common Stock is not held for a specified holding period.
Stock in Lieu of Cash. The Plan authorizes the Committee to grant Awards of
Common Stock to executive officers in lieu of all or a portion of an award
otherwise payable in cash pursuant to any bonus or incentive compensation plan
of the Company. The number of shares of Common Stock issued will be the greatest
number of whole shares which has an aggregate fair market value equal to or less
than the amount of cash that otherwise would have been payable.
Change in Control. In the event of a Change In Control (as defined in the Plan),
a participant would be entitled to the following treatment under the Plan: (i)
each option and SAR would be immediately cashed out on the basis of the Change
in Control Price (as defined in the Plan); (ii) restricted stock and restricted
units become nonforfeitable and immediately transferable; (iii) incentive stock
and incentive units become fully vested and the shares of stock with respect
thereto immediately payable; and (iv) deferred stock units become fully vested
and the shares of Common Stock with respect thereto immediately payable.
Notwithstanding the above, no cancellation, acceleration of exercisability,
vesting, cash settlement or other payment shall occur if the Committee
determines prior to the Change in Control that any of the awards shall be
honored or new rights substituted by a Participant's employer immediately
following a Change in Control. The alternative award must be substantially
equivalent and based on stock traded on an established securities market.
Amendment of the Plan. The Board of Directors or the Committee may amend,
suspend or terminate the Plan, except that shareholder approval is required if
the amendment would increase the number of shares of Common Stock subject to the
Plan, change the price at which options may be granted or remove administration
of the Plan from the Committee.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief summary of the principal Federal income tax
consequences generally arising with respect to Awards under the Plan. This
summary is not intended to be exhaustive and, among other things, does not
describe state or local tax consequences.
Stock Options. A participant who is granted an incentive stock option does not
realize any taxable income at the time of grant or at the time of exercise.
Similarly, the Company is not entitled to any deduction at the time of grant or
at the time of exercise. If the participant makes no disposition of the shares
acquired pursuant to an incentive
25
<PAGE> 27
stock option before the later of two years from the date of grant of such option
and one year from the exercise of such option, any gain or loss realized on a
subsequent disposition of the shares will be treated as a long-term capital gain
or loss. Under such circumstances, the Company will not be entitled to any
deduction for Federal income tax purposes. For a disposition occurring within
two years from the date of grant or within one year from the date of exercise (a
"disqualifying disposition") in which a loss, if sustained, would be recognized,
the participant generally will recognize ordinary compensation income (and the
deduction taken by the Company) equal to the lesser of (i) the excess of the
fair market value of the shares on the date of exercise over the exercise price,
or (ii) the excess of the amount realized on the sale of the shares over the
exercise price. In the case of any other disqualifying disposition where a loss,
if sustained, would not be recognized, the participant will recognize ordinary
income equal to the excess of fair market value of the shares on the date of
exercise over the option exercise price. Any amount realized on a disqualifying
disposition in excess of the amount treated as ordinary compensation income (or
any loss realized) will be a capital gain or loss. The Company generally will be
entitled to a tax deduction on a disqualifying disposition corresponding to the
ordinary compensation income recognized by the participant.
The participant who is granted a nonstatutory stock option does not realize any
taxable income at the time of grant, but will be taxed on the gain (as
compensation income), measured as the difference between the exercise price for
the shares and the fair market value of the shares on the date of exercise. The
Company is entitled to a corresponding Federal income tax deduction for the same
amount. Upon the sale of shares acquired by exercise of a nonstatutory stock
option, a participant will have a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the exercise price plus the amount of income
recognized by the participant at the time of exercise).
Stock Appreciation Rights. The grant of an SAR will produce no Federal tax
consequences for the participant or the Company. The exercise of an SAR results
in taxable income to the participant, equal to the difference between the
exercise price of the shares and the fair market value of the shares on the date
of exercise. The Company is entitled to a corresponding deduction for the same
amount.
Incentive Stock and Incentive Units. A participant who has been granted either
incentive units or incentive shares expressed in the form of units of Common
Stock will not realize taxable income at the time of the grant, and the Company
will not be entitled to a deduction at such time. A participant will realize
ordinary income at the time the Award is paid, and the Company will have a
corresponding deduction.
Restricted Stock and Restricted Units. A participant who has been granted
restricted shares of Common Stock will not realize taxable income at the time of
grant, and the Company will not be entitled to a deduction at the time of the
grant, assuming that the restrictions constitute a substantial risk of
forfeiture for Federal income tax purposes. When such restrictions lapse, the
participant will receive taxable income in an amount equal to the excess of the
fair market value of the shares at such time over the amount, if any, paid for
such shares. The Company will be entitled to a corresponding deduction.
26
<PAGE> 28
Deferred Stock. Awards that are properly deferred will be taxable when actually
or constructively received. At the time a participant realizes income from an
Award, the Company will generally be entitled to a deduction for Federal income
tax purposes equal to the amount of such income realized by the participant.
Section 162(m). Under Section 162(m) of the Code the Company may be limited as
to Federal income tax deductions to the extent that total compensation paid to
any one "covered employee" exceeds $1,000,000 in any one year. The Company can
preserve the deductibility of certain compensation in excess of $1,000,000,
however, provided that it complies with the conditions imposed by Section 162(m)
of the Code, including the payment of "performance based compensation" pursuant
to a plan approved by the shareholders. This Plan is intended to make grants of
incentive stock options, non-statutory stock options with an exercise price not
less than fair market at the date of grant, incentive stock, incentive units and
SARs meet the requirements of "performance based compensation" within the
meaning of Section 162(m) of the Code.
Approval of the Plan requires the affirmative vote of a majority of the shares
of Common Stock present or represented at the Annual Meeting. Abstentions from
voting on the Plan (including broker non-votes) will have the effect of votes
against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE RATIFICATION OF THE ADOPTION
OF THE BW/IP, INC. 1996 LONG-TERM INCENTIVE PLAN AND YOUR PROXY WILL BE SO VOTED
UNLESS YOU SPECIFY OTHERWISE.
PROPOSAL NO. 3
BW/IP, INC. 1996 DIRECTORS STOCK AND DEFERRED COMPENSATION PLAN
The stockholders are asked to consider and vote upon a proposal to adopt the
BW/IP, Inc. 1996 Directors Stock and Deferred Compensation Plan (the "Directors
Plan"), in the form attached to this Proxy Statement as Exhibit B.
DESCRIPTION OF PLAN
The Directors Plan is designed to enable the Company to attract, retain and
motivate highly qualified persons to serve as directors and to enhance a
long-term mutuality of interest between the directors and stockholders of the
Company by providing an opportunity to obtain the benefits of stock ownership on
a tax deferred basis. On February 23, 1996 the Board of Directors adopted the
Directors Plan, subject to approval by the stockholders.
The Directors Plan allows a non-employee director to elect to exchange all or a
portion of the fees otherwise payable in cash for services as a director
[(including the annual retainer fee and any fee for attending a meeting of the
Board of Directors or any Committee of the Board of Directors)] into Common
Stock or to defer receipt of all or a portion of such fees and have the amount
credited either to a deferred cash account ("Interest Account") or to a deferred
stock account ("Stock Account"). The number of shares of Common Stock received
or the equivalent number of shares allocated to the Stock Account will be based
on the mean between the high and low sales price of a share as reported in the
principal consolidated transaction reporting system or such other
27
<PAGE> 29
national exchange or the over-the-counter market on which the Common Stock is
traded ("fair market value") on the date shares are issued or the fees are
payable. The Interest Account will be credited with a fixed annual return during
the deferral period and the Stock Account with dividend equivalents or
distributions with respect to Common Stock during the deferral period. To
receive Common Stock, a director must file an irrevocable written election with
the Secretary of the Company no later than the date of the 1996 annual meeting
of stockholders for fees payable in 1996, and thereafter by July 1 for fees
payable for the following calendar year. To defer amounts to an Interest Account
or to a Stock Account, a director must file a written election no later than
December 31 for fees payable in the following calendar year, provided that any
election to have fees credited to a Stock Account must be made at least six
months in advance of the date fees are payable. A director may terminate or
change any deferral election as of the end of the calendar year in which the
notice is given, provided that any change in the amount of deferred compensation
credited to a Stock Account shall not become effective earlier than six months
after it is received by the Secretary. At the time a deferral election is made
the director must also file an election for distribution upon termination of
service as a director. For a distribution prior to termination of service, the
director must file an election at least one full year before the date of
distribution.
The Directors Plan will be administered by the Board of Directors, each member
of which is "disinterested" for purposes of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. The Board of Directors may amend or terminate
the Directors Plan provided that the manner in which the Stock Account operates
may not be amended more than once every six months other than to comport with
changes in the Code and regulations thereunder.
A total of 50,000 shares of Common Stock are reserved and available for issuance
under the Directors Plan. Shares that may be delivered in settlement of a Stock
Account will not be considered to be available after such Stock Account has been
credited, except for issuance in connection with such shares in the Stock
Account. Based upon the average compensation paid to directors and the per share
price of Common Stock on February 29, 1996, the maximum number of shares issued
to an individual director in any year would be approximately 1,200. In the event
of a stock dividend, stock split, recapitalization, merger, consolidation or any
other similar event, the Board of Directors may adjust the number and kind of
shares available for issuance under the Plan.
FEDERAL INCOME TAX CONSIDERATIONS
A director who acquires Common Stock in lieu of cash fees, will recognize
ordinary income equal to the fair market value of the Common Stock on the date
of acquisition. With respect to an Interest Account or Stock Account, a director
must generally recognize ordinary income equal to the fair market value of the
Interest Account or Stock Account at the end of the deferral period. The Company
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the director.
Approval of the Directors Plan requires the affirmative vote of a majority of
the shares of Common Stock present or represented at the Annual Meeting.
Abstentions from voting on the Directors Plan (including broker non-votes) will
have the effect of votes against the proposal.
THIS BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE RATIFICATION OF THE ADOPTION
OF THE BW/IP, INC. 1996 DIRECTORS STOCK AND DEFERRED COMPENSATION PLAN AND YOUR
PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
28
<PAGE> 30
INDEPENDENT AUDITORS
The Company has eliminated the formality of seeking ratification of the
appointment of Price Waterhouse as the Company's independent auditors for 1996
because it determined there was little beneficial purpose in continuing with
this unnecessary action.
Price Waterhouse has served as the Company's independent auditors since March
1993. Representatives of Price Waterhouse will attend the meeting, and respond
to any questions, or make a statement if they so desire.
ANNUAL REPORT
The Company's 1995 Annual Report to Stockholders, containing audited financial
statements for the year ended December 31, 1995, is being mailed to all
stockholders of record with this Proxy Statement.
PROPOSALS BY STOCKHOLDERS
Proposals by stockholders intended to be presented at the 1997 annual meeting of
stockholders must be received by the Secretary of the Company no later than
December 10, 1996 to be included in the Company's proxy, notice of meeting and
proxy statement relating to such meeting.
29
<PAGE> 31
EXHIBIT A
BW/IP, INC.
1996 LONG-TERM INCENTIVE PLAN
Section 1. Purpose.
The purpose of the Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related
incentives,
(b) encouraging and providing for the acquisition of an ownership interest
in the Company by Eligible Employees and
(c) enabling the Company to attract and retain the services of an
outstanding management team upon whose judgment, interest and special
effort the successful conduct of its operations is largely dependent.
Section 2. Definitions.
"Award" shall mean any grant or award under the Plan, as evidenced in a
written document delivered to a Participant as provided in Section 12(b).
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) the willful failure by the Participant to
perform substantially the Participant's duties as an employee of the Company
(other than due to physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the Company or any Subsidiary (iii) the
Participant's having been convicted of, or entered a plea of nolo contendere to,
a crime that constitutes a felony, or (iv) the breach by the Participant of any
written covenant or agreement not to compete with the Company or any Subsidiary.
"Change in Control" shall mean the occurrence of any of the following
events:
(i) a majority of the members of the Board at any time cease for any
reason other than due to death or disability to be persons who were members
of the Board twenty-four months prior to such time (the "Incumbent
Directors"); provided that any director whose election, or
1
<PAGE> 32
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the members of the Board then still in
office who are Incumbent Directors shall be treated as an Incumbent
Director; or
(ii) any "person," including a "group" (as such terms are used in
Sections 13(d) and 14(d)(2) of the Exchange Act, but excluding the Company,
its Subsidiaries, any employee benefit plan of the Company or any
Subsidiary, employees of the Company or any Subsidiary or any group of
which any of the foregoing is a member) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or
indirectly, including without limitation, by means of a tender or exchange
offer, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or
(iii) the stockholders of the Company shall approve a definitive
agreement (x) for the merger or other business combination of the Company
with or into another corporation immediately following which merger or
combination (A) the stock of the surviving entity is not readily tradable
on an established securities market, (B) a majority of the directors of the
surviving entity are persons who (1) were not directors of the Company
immediately prior to the merger and (2) are not nominees or representatives
of the Company or (C) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d)(2) of the Exchange Act, but excluding the
Company, its Subsidiaries, any employee benefit plan of the Company or any
Subsidiary, employees of the Company or any Subsidiary or any group of
which any of the foregoing is a member) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or
indirectly, of 30% or more of the securities of the surviving entity or (y)
for the direct or indirect sale or other disposition of all or
substantially all of the assets of the Company, or
(iv) any other event or transaction that is declared by resolution of
the Board to constitute a Change in Control for purposes of the Plan.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
occur in the event the Company files for bankruptcy, liquidation or
reorganization under the United States Bankruptcy Code.
"Change in Control Price" shall mean the highest price per share paid
or offered in any bona fide transaction related to a Change in Control, as
determined by the Committee, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be the Fair Market Value on the date on which the cash out described in
Section 11(a) occurs.
2
<PAGE> 33
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Committee" shall mean the Compensation and Benefits Committee of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan.
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of the Company.
"Company" shall mean BW/IP, Inc. and any successor thereto.
"Deferred Annual Amount" shall mean, with respect to any year, the
amount of compensation that a Participant elects to defer in exchange for an
award of Elective Units as determined pursuant to Section 9 hereof.
"Deferred Stock" shall mean a contractual right to receive a share of
Common Stock at the time and subject to the conditions set forth in Section 9
hereof.
"Disability" shall mean long-term disability as defined under the terms
of the Company's applicable long term disability plans or policies.
"Early Retirement" shall mean retirement at or after the earliest age
at which the Participant may retire and receive an immediate, but actuarially
reduced, retirement benefit under any defined benefit pension plan maintained by
the Company or any of its Subsidiaries in which such Participant participates.
"Elective Units" shall mean an award of Deferred Stock made pursuant to
Section 9 in respect of a Participant's Deferred Annual Amount.
"Eligible Employee" shall mean each Executive Officer and each other
key employee of the Company or its Subsidiaries, but shall not include Directors
who are not employees of any such entity.
"Employment" shall mean, for purposes of Sections 5(d), 7(b) and 8(b),
continuous and regular salaried employment with the Company or a Subsidiary,
which shall include (unless the Committee shall otherwise determine) any period
of vacation, any approved leave of absence or any salary continuation or
severance pay period and, at the discretion of the Committee, may include
service with any former Subsidiary of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
3
<PAGE> 34
"Executive Officer" shall mean those persons who are officers of the
Company within the meaning of Rule 16a-1(f) of the Exchange Act.
"Fair Market Value" shall mean, on any date, the closing price of a
share of Common Stock, as reported for such day on a national exchange, or the
mean between the closing bid and asked prices for a share of Common Stock on
such date, as reported on a nationally recognized system of price quotation. In
the event that there are no Common Stock transactions reported on such exchange
or system on such date, Fair Market Value shall mean the closing price on the
immediately preceding date on which Common Stock transactions were so reported.
"Free Standing Units" shall mean an award of Deferred Stock made
pursuant to Section 9 in respect of a Common Stock award made to a Participant
under Section 10.
"Incentive Stock" shall mean any Award of Common Stock granted under
Section 8 which becomes vested and nonforfeitable upon the attainment, in whole
or in part, of performance objectives determined by the Committee.
"Incentive Stock Option" shall mean an Option which is intended to meet
the requirements of Section 422 of the Code.
"Incentive Unit" shall mean any Award of a contractual right granted
under Section 8 to receive Common Stock (or, at the discretion of the Committee,
cash based on the Fair Market Value of the Common Stock) which becomes vested
and nonforfeitable upon the attainment, in whole or in part, of performance
objectives determined by the Committee.
"Nonstatutory Stock Option" shall mean an Option which is not intended
to be an Incentive Stock Option.
"Normal Retirement" shall mean retirement at or after the earliest age
at which the Participant may retire and receive a retirement benefit without an
actuarial reduction for early commencement of benefits under any defined benefit
pension plan maintained by the Company or any of its Subsidiaries in which such
Participant participates.
"Option" shall mean the right to purchase the number of shares of
Common Stock specified by the Committee, at a price and for the term fixed by
the Committee in accordance with the Plan and subject to any other limitations
and restrictions as this Plan and the Committee shall impose.
4
<PAGE> 35
"Participant" shall mean an Eligible Employee who is selected by the
Committee to receive an Award under the Plan.
"Plan" shall mean the BW/IP, Inc. 1996 Long-Term Incentive Plan,
described herein, and as may be amended from time to time.
"Predecessor Plan" means the BW/IP International, Inc. 1992 Long-Term
Incentive Plan.
"Reload Option" shall have the meaning ascribed thereto in Section
5(e).
"Restricted Period" shall mean the period during which a grant of
Incentive Stock, Restricted Stock, Incentive Units or Restricted Units is
subject to forfeiture.
"Restricted Stock" shall mean any Award of Common Stock granted under
Section 7 which becomes vested and nonforfeitable, in whole or in part, upon the
completion of such period of service as shall be determined by the Committee.
"Restricted Unit" shall mean any Award of a contractual right granted
under Section 7 to receive Common Stock (or, at the discretion of the Committee,
cash based on the Fair Market Value of the Common Stock) which becomes vested
and nonforfeitable, in whole or in part, upon the completion of such period of
service as shall be determined by the Committee.
"Stock Appreciation Right" shall mean a contractual right granted under
Section 6 to receive cash, Common Stock or a combination thereof.
"Subsidiary" shall mean any corporation of which the Company possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power of all classes of stock of such corporation and any other business
organization, regardless of form, in which the Company possesses directly or
indirectly fifty percent (50%) or more of the total combined equity interests in
such organization.
"Supplemental Units" shall mean an award of Deferred Stock made
pursuant to Section 9 with respect to a number of shares in excess of the number
of shares corresponding to the Participant's Elective Units.
Section 3. Administration.
5
<PAGE> 36
The Plan shall be administered by the Committee, which Committee shall consist
of at least two Directors of the Company chosen by the Board each of whom is a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
The Committee shall have the responsibility of construing and interpreting the
Plan and of establishing and amending such rules and regulations as it deems
necessary or desirable for the proper administration of the Plan. Any decision
or action taken or to be taken by the Committee, arising out of or in connection
with the construction, administration, interpretation and effect of the Plan and
of its rules and regulations, shall, to the maximum extent permitted by
applicable law, be within its absolute discretion (except as otherwise
specifically provided herein) and shall be conclusive and binding upon all
Participants and any person claiming under or through any Participant.
Section 4. Maximum Amount of Shares Available for Awards.
(a) Maximum Number of Shares. The maximum number of shares of Stock in
respect of which Awards may be made under the Plan shall be a total of 1,500,000
shares of Common Stock, plus any shares which, as of the effective date of the
Plan (as determined pursuant to Section 12(h)), remain available for awards
under the Predecessor Plan. Without limiting the generality of the foregoing,
whenever shares are received by the Company in connection with the exercise of
or payment for any Award granted under the Plan or any Option granted under the
Predecessor Plan only the net number of shares actually issued shall be counted
against the foregoing limit. Notwithstanding the foregoing, but subject to the
provisions of Section 4(c), in no event shall the number of shares of Common
Stock issued under the Plan with respect to (i) Restricted Stock and Restricted
Units exceed 100,000 shares of Common Stock or (ii) Incentive Stock or Incentive
Units exceed [200,000] shares of Common Stock.
(b) Shares Available for Issuance. Shares of Common Stock may be made
available from the authorized but unissued shares of the Company or from shares
held in the Company's treasury and not reserved for some other purpose. In the
event that any Award is payable solely in cash, no shares shall be deducted from
the number of shares available for issuance under Section 4(a) by reason of such
Award. In addition, if any Award in respect of shares is canceled or forfeited
for any reason without delivery of shares of Common Stock, the shares subject to
such Award shall thereafter again be available for award pursuant to the Plan.
(c) Adjustment for Corporate Transactions. In the event that the
Committee shall determine that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
6
<PAGE> 37
event affects the Common Stock such that an adjustment is required to preserve,
or to prevent enlargement of, the benefits or potential benefits made available
under this Plan, then the Committee may, in such manner as the Committee may
deem equitable, adjust any or all of (i) the number and kind of shares which
thereafter may be awarded or optioned and sold or made the subject of Stock
Appreciation Rights under the Plan, (ii) the number and kinds of shares subject
to outstanding Options and other Awards and (iii) the grant, exercise or
conversion price with respect to any of the foregoing. Additionally, the
Committee may make provisions for a cash payment to a Participant or a person
who has an outstanding Option or other Award. However, the number of shares
subject to any Option or other Award shall always be a whole number.
Section 5. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall
have the authority to grant Options to an Eligible Employee and to determine (i)
the number of shares to be covered by each Option, (ii) the exercise price
therefor and (iii) the conditions and limitations applicable to the exercise of
the Option. Notwithstanding the foregoing, in no event shall the Committee grant
any Participant Options in any single calendar year for more than 500,000 shares
of Common Stock, as such number may be adjusted pursuant to Section 4(c). The
Committee shall have the authority to grant Incentive Stock Options or
Nonstatutory Stock Options; provided that Incentive Stock Options may not be
granted to any Participant who is not an employee of the Company or one of its
Subsidiaries at the time of grant. In the case of Incentive Stock Options, the
terms and conditions of such grants shall be subject to and comply with Section
422 of the Code and the regulations thereunder.
(b) Option Price. The Committee shall establish the exercise price at
the time each Option is granted, which price shall not be less than 100% of the
Fair Market Value of the Common Stock at the date of grant, except that, for
purposes of satisfying the foregoing requirement with respect to a Nonstatutory
Stock Option, the Committee may elect to credit against the exercise price
payable by a Participant the value of any compensation otherwise payable to the
Participant under the terms of the Company's compensation practices and programs
which is surrendered, foregone or exchanged pursuant to such rules or procedures
as the Committee shall establish from time to time.
(c) Exercise. Each Option shall be exercised at such times and subject
to such terms and conditions as the Committee may specify in the applicable
Award or thereafter; provided, however, that if the Committee does not establish
a different exercise schedule at or after the date of grant of an Option, such
Option shall become exercisable on a cliff basis on the third anniversary of the
date the Option is granted. The Committee may impose such conditions with
7
<PAGE> 38
respect to the exercise of Options as it shall deem appropriate, including
without limitation, any conditions relating to the application of federal or
state securities laws. No shares shall be delivered pursuant to any exercise of
an Option unless arrangements satisfactory to the Committee have been made to
assure full payment of the option price therefor. Without limiting the
generality of the foregoing, payment of the option price may be made in cash or
its equivalent or, if and to the extent permitted by the Committee, by
exchanging shares of Common Stock owned by the optionee (which are not the
subject of any pledge or other security interest), or by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents and
the Fair Market Value of any such Common Stock so tendered to the Company,
valued as of the date of such tender, is at least equal to such option price.
(d) Termination of Employment. Unless the Committee shall otherwise
determine at or after grant, an Option shall be exercisable following the
termination of a Participant's Employment only to the extent provided in this
Section 5(d). If a Participant's Employment terminates due to the Participant's
(i) death, (ii) Disability, (iii) Early Retirement with the consent of the
Committee or (iv) Normal Retirement, the Participant (or, in the event of the
Participant's death or Disability during Employment or during the period during
which an Option is exercisable under this sentence, the Participant's
beneficiary or legal representative) may exercise any Option held by the
Participant at the time of such termination, regardless of whether then
exercisable, for a period of three years (or such greater or lesser period as
the Committee shall determine at or after grant), but in no event after the date
the Option otherwise expires. If a Participant's Employment is terminated for
Cause (or, if after the Participant's termination of Employment, the Committee
determines that the Participant's Employment could have been terminated for
Cause had the Participant still been employed or has otherwise engaged in
conduct that is detrimental to the interests of the Company, as determined by
the Committee in its sole discretion), all Options held by the Participant shall
immediately terminate, regardless of whether then exercisable. In the event of a
Participant's termination of Employment for any reason not described in the
preceding two sentences, the Participant (or, in the event of the Participant's
death or Disability during the period during which an Option is exercisable
under this sentence, the Participant's beneficiary or legal representative) may
exercise any Option which was exercisable at the time of such termination for 90
days (or such greater or lesser period as the Committee shall specify at or
after the grant of such Option) following the date of such termination, but in
no event after the date the Option otherwise expires.
(e) Reload Options. The Committee may provide that a Participant (or,
if applicable, his permitted transferee) who delivers shares of Common Stock
that have been owned by such Participant (or permitted transferee) for any
minimum period of time specified by the Committee to exercise an Option or an
option granted under the Predecessor Plan, will automatically be granted new
Options
8
<PAGE> 39
("Reload Options") for a number of shares of Common Stock equal to the number of
shares so delivered. Unless the Committee determines otherwise, such Reload
Options will be subject to the same terms and conditions (including the same
expiration date) as the related Option except (i) that the exercise price shall
be equal to the Fair Market Value of a share of Common Stock on the date such
Reload Option is granted and (ii) such Reload Option shall not be exercisable
prior to the six month anniversary of the date of grant and, thereafter, shall
be exercisable in full.
Section 6. Stock Appreciation Rights.
(a) Grant of SARs. The Committee shall have the authority to grant
Stock Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Notwithstanding the foregoing, in no
event shall the Committee grant any Participant Stock Appreciation Rights in any
single calendar year for more than 500,000 shares of Common Stock, as such
number may be adjusted pursuant to Section 4(c). Stock Appreciation Rights
granted in tandem or in addition to an Option may be granted either at the same
time as the Option or at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from the date of grant and shall
have a base price determined in the same manner as, and subject to the same
conditions as apply with respect to, a Nonstatutory Stock Option under Section
5(b).
(b) Exercise of SARs. A Stock Appreciation Right shall entitle the
Participant to receive from the Company an amount equal to the excess of the
Fair Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right over the base price thereof. The Committee shall
determine the time or times at which or the event or events (including, without
limitation, a Change of Control) upon which a Stock Appreciation Right may be
exercised in whole or in part, the method of exercise and whether such Stock
Appreciation Right shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock; provided, however, that unless
otherwise specified by the Committee at or after grant, a Stock Appreciation
Right granted in tandem with an Option shall be exercisable only at the same
time or times as the related Option is exercisable.
Section 7. Restricted Stock and Restricted Units
(a) Grant of Restricted Stock or Restricted Units. The Committee may
grant Awards of Restricted Stock or Restricted Units to Participants at such
times and in such amounts, and subject to such other terms and conditions not
inconsistent with the Plan, as it shall determine. Each grant of Restricted
Stock
9
<PAGE> 40
or Restricted Units shall be evidenced by an Award Agreement. Unless the
Committee provides otherwise at or after the date of grant, stock certificates
evidencing any shares of Restricted Stock so granted shall be held in the
custody of the Secretary of the Company until the Restricted Period lapses, and,
as a condition to the grant of any Award of shares of Restricted Stock, the
Participant shall have delivered to the Secretary of the Company a stock power,
endorsed in blank, relating to the shares of Common Stock covered by such Award.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Restricted Stock or Restricted Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
7(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, any award of Restricted
Stock or Restricted Units shall become vested and nonforfeitable as to that
number of shares which is equal to the number of shares of Common Stock subject
to such Award times a fraction, the numerator of which is the number of days
actually worked during the Restricted Period (or, in the case of an Award which
has previously vested in part (an "Installment Award"), the number of days
worked since the last vesting date) and the denominator of which is the total
number of days during the Restricted Period (or, in the case of an Installment
Award, the number of days between the last vesting date and the end of the
Restricted Period). Unless the Committee otherwise determines, any portion of
any Restricted Stock or Restricted Unit Award that has not become nonforfeitable
at the date of a Participant's termination of Employment shall be forfeited as
of such date.
(c) Delivery of Shares. Upon the expiration or termination of the
Restricted Period and the satisfaction (as determined by the Committee) of any
other conditions determined by the Committee, the restrictions applicable to the
Restricted Stock or Restricted Units shall lapse and a stock certificate for the
number of shares of Common Stock with respect to which the restrictions have
lapsed shall be delivered, free of all such restrictions, except any that may be
imposed by law, to the Participant or the Participant's beneficiary or estate,
as the case may be. No payment will be required to be made by the Participant
upon the delivery of such shares of Common Stock and/or cash, except as
otherwise provided in Section 12(a) of the Plan. At or after the date of grant,
the Committee may accelerate the vesting of any award of Restricted Stock or
Restricted Units or waive any conditions to the vesting of any such award.
(d) Restricted Period; Restrictions on Transferability during
Restricted Period. Unless otherwise determined by the Committee at or after the
date of grant, the Restricted Period applicable to any award of Restricted Stock
or Restricted Units shall lapse, and the shares related to such award Stock
shall become freely transferable, on the third anniversary of the date of grant.
10
<PAGE> 41
Restricted Stock or Restricted Units may not be sold, assigned, pledged or
otherwise encumbered, except as herein provided, during the Restricted Period.
Any certificates issued in respect of Restricted Stock shall be registered in
the name of the Participant and deposited by such Participant, together with a
stock power endorsed in blank, with the Company. At the expiration of the
Restricted Period with respect to any award of Restricted Stock, unless
otherwise forfeited, the Company shall deliver such certificates to the
Participant or to the Participant's legal representative. Payment for Restricted
Stock Units shall be made by the Company in shares of Common Stock, cash or in
any combination thereof, as determined by the Committee.
(e) Rights as a Stockholder; Dividend Equivalents. Unless otherwise
determined by the Committee at or after the date of grant, Participants granted
shares of Restricted Stock shall be entitled to receive, either currently or at
a future date, as specified by the Committee, all dividends and other
distributions paid with respect to those shares, provided that if any such
dividends or distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject to the same
forfeiture restrictions and restrictions on transferability as apply to the
shares of Restricted Stock with respect to which they were paid. The Committee
will determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of Restricted Units, an amount equal to any
dividends paid by the Company during the Restricted Period with respect to the
corresponding number of shares of Common Stock ("Dividend Equivalents"). To the
extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of additional Restricted Units shall be credited to such Participant's
account equal to the greatest whole number which may be obtained by dividing (x)
the value of such Dividend Equivalent on the record date by (y) the Fair Market
Value of a share of Common Stock on such date.
Section 8. Incentive Awards.
(a) Incentive Stock and Incentive Units. Subject to the provisions of
the Plan, the Committee shall have the authority to grant Incentive Stock or
Incentive Units to any Eligible Employee and to determine (i) the number of
shares of Incentive Stock and the number of Incentive Units to be granted to
each Participant and (ii) the other terms and conditions of such Awards;
provided that, to the extent necessary to comply with applicable law, Incentive
Stock shall only be awarded to an Eligible Employee who has been employed for
such minimum period of time as shall be determined by the Committee. The
Restricted Period related to Incentive Stock or Incentive Units shall lapse upon
the determination by
11
<PAGE> 42
the Committee that the performance objectives established by the Committee have
been attained, in whole or in part. Such performance objectives may be related
to the performance of (i) the Company, (ii) a Subsidiary, (iii) a division or
unit of the Company or any Subsidiary, (v) the Participant or (vi) any
combination of the foregoing, over a measurement period or periods established
by the Committee. The maximum number of shares of Common Stock that may be
subject to any Awards of Incentive Stock and Incentive Units granted to an
Executive Officer in any 12 month period shall not exceed 50,000 shares, as each
such number may be adjusted pursuant to Section 4(c). Unless the Committee
otherwise determines at the time of grant of Incentive Stock or Incentive Units
to an Executive Officer, the performance objectives with respect to such Award
shall be related to at least one of the following criteria, which may be
determined solely by reference to the performance of the Company or a Subsidiary
or based on comparative performance relative to other companies: (i) total
return to shareholders, (ii) return on equity, (iii) operating income or net
income, (iv) return on capital or (v) economic value added. Except to the extent
otherwise expressly provided herein, the Committee may, at any time and from
time to time, change the performance objectives applicable with respect to any
Incentive Stock or Incentive Units to reflect such factors, including, without
limitation, changes in a Participant's duties or responsibilities or changes in
business objectives (e.g., from corporate to Subsidiary or business unit
performance or vice versa), as the Committee shall deem necessary or
appropriate. In making any such adjustment, the Committee shall adjust the
number of Incentive Stock or Incentive Units or take other appropriate actions
to prevent any enlargement or diminution of the Participant's rights related to
service rendered and performance attained prior to the effective date of such
adjustment.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Incentive Stock or Incentive Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
8(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, any award of Incentive Stock
or Incentive Units shall become vested and nonforfeitable at the end of the
measurement period as to that number of shares which is equal to that
percentage, if any, of such award that would have been earned based on the
attainment or partial attainment of such performance objectives times a
fraction, the numerator of which is the number of days actually worked during
the Restricted Period (or, in the case of an Award which has previously vested
in part (an "Installment Award"), the number of days worked since the last
vesting date) and the denominator of which is the total number of days during
the Restricted Period (or, in the case of an Installment Award, the number of
days between the last vesting date and the end of the Restricted Period);
provided that, any portion of any Incentive Stock or Incentive Unit award that
does not become vested as of the times set forth in this
12
<PAGE> 43
sentence shall be forfeited at such times. In all other cases, any portion of
any award of Incentive Stock or Incentive Units that has not become
nonforfeitable at the date of a Participant's termination of Employment shall be
forfeited as of such date.
(c) Awards Nontransferable. Incentive Stock or Incentive Units may not
be sold, assigned, pledged or otherwise encumbered, except as herein provided,
during the Restricted Period. Any certificates issued in respect of Incentive
Stock shall be registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period with respect to any award of Incentive
Stock, unless otherwise forfeited, the Company shall deliver such certificates
to the Participant or to the Participant's legal representative. Payment for
Incentive Stock Units shall be made by the Company in shares of Common Stock,
cash or in any combination thereof, as determined by the Committee.
(d) Rights as a Stockholder; Dividend Equivalents. Unless otherwise
determined by the Committee at or after the date of grant, Participants granted
shares of Incentive Stock shall be entitled to receive, either currently or at a
future date, as specified by the Committee, all dividends and other
distributions paid with respect to those shares, provided that if any such
dividends or distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject to the same
forfeiture restrictions and restrictions on transferability as apply to the
shares of Incentive Stock with respect to which they were paid. The Committee
will determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of Incentive Units, an amount equal to any
dividends paid by the Company during the period of deferral with respect to the
corresponding number of shares of Common Stock ("Dividend Equivalents"). To the
extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of additional Incentive Units shall be credited to such Participant's
account equal to the greatest whole number which may be obtained by dividing (x)
the value of such Dividend Equivalent on the record date by (y) the Fair Market
Value of a share of Common Stock on such date.
(e) Interpretation. Notwithstanding anything else contained in this
Section 8 to the contrary, if any award of Incentive Stock or Incentive Units is
intended, at the time of grant, to be other performance based compensation
within the meaning of Section 162(m)(4)(C) of the Code, to the extent required
to so qualify any Award hereunder, the Committee shall not be entitled to
exercise any discretion otherwise authorized under this Section 8 with respect
to such award if the ability to exercise such discretion (as opposed to the
exercise of such
13
<PAGE> 44
discretion) would cause such award to fail to qualify as other performance based
compensation.
Section 9. Deferred Stock.
(a) Deferred Stock Awards. On such date or dates as shall be
established by the Committee and subject to such terms and conditions as the
Committee shall determine, a Participant may be permitted to elect to defer
receipt of all or a portion of his annual compensation and/or annual incentive
bonus ("Deferred Annual Amount") payable by the Company or a Subsidiary and
receive in lieu thereof a number of Elective Units equal to the greatest whole
number which may be obtained by dividing (x) the amount of the Deferred Annual
Amount by (y) the Fair Market Value of a share of Common Stock on the date of
grant. To the extent the Committee so determines, a Participant who receives an
award of Elective Units shall receive that number of Supplemental Units equal to
the greatest whole number which may be obtained by dividing (x) such percentage
of the Deferred Annual Amount as is determined by the Committee at the date of
grant by (y) the Fair Market Value of a share of Common Stock on the date of
grant. Additionally, the Committee may award Free Standing Units in connection
with the payment of an annual bonus in Common Stock pursuant to Section 10, in
such number and on such terms and conditions as the Committee shall determine,
including, without limitation, requiring the forfeiture of the Free Standing
Units if the corresponding Common Stock is not held for a specified holding
period.
No shares of Common Stock will be issued at the time an award of
Deferred Stock is made and the Company shall not be required to set aside a fund
for the payment of any such award. The Company will establish a separate account
for the Participant and will record in such account the number of Elective Units
awarded to the Participant.
(b) Rights as a Stockholder; Dividend Equivalents. A Participant shall
not have any right in respect of Deferred Stock awarded pursuant to the Plan to
vote on any matter submitted to the Company's stockholders until such time as
the shares of Common Stock attributable to such Deferred Stock have been issued
to such Participant or his beneficiary. The Committee will determine whether and
to what extent to credit to the account of, or to pay currently to, each
recipient of a Deferred Stock Unit award, any Dividend Equivalents. To the
extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of Deferred Stock Units shall be credited to such Participant's account
equal to the greatest whole number which may be obtained by dividing (x) the
value of such
14
<PAGE> 45
Dividend Equivalent on the record date by (y) the Fair Market Value of a share
of Common Stock on such date.
(c) Vesting of Deferred Stock Unit Awards. The portion of each Deferred
Stock Unit award that consists of Elective Units, together with any Dividend
Equivalents credited with respect thereto, shall be fully vested at all times.
Unless the Committee provides otherwise at or after the date of grant, any
Deferred Stock Unit award that consists of Supplemental Units, together with any
Dividend Equivalents credited with respect thereto, will become vested in full
on the third anniversary of the date the corresponding Deferred Annual Amount
would have been paid absent the Participant's election to defer provided the
Participant remains in the continuous employ of the Company or a Subsidiary
through such date. Unless the Committee provides otherwise at or after the date
of grant, any Deferred Stock Unit award that consists of Free Standing Units
granted in respect of an award of Common Stock under Section 10, together with
any Dividend Equivalents credited with respect thereto, will become vested in
full on the third anniversary of the grant date of the corresponding Common
Stock award. Notwithstanding the foregoing, the Committee may accelerate the
vesting of any Deferred Stock award at or after the date of grant.
(d) Settlement of Deferred Stock. Unless the Committee determines
otherwise at or after the date of grant, a Participant shall receive (i) one
share of Common Stock for each Elective Unit (and related Dividend Equivalents)
as of the date of such Participant's termination of employment (or such later
date as may be elected by the Participant in accordance with the rules and
procedures of the Committee and (ii) one share of Common Stock for each
Supplemental Unit or Free Standing Unit (and related Dividend Equivalents) that
shall have become vested on or prior to the date of such Participant's
termination of employment with the Company and the Subsidiaries, other than any
such termination for Cause, on the date of such termination of employment (or on
such earlier date as the Committee shall permit or such later date as may be
elected by the Participant in accordance with the rules and procedures of the
Committee). In the event of the termination of a Participant's employment with
the Company and the Subsidiaries for Cause, the Participant shall immediately
forfeit all rights with respect to any Supplemental Units and Free Standing
Units (and related Dividend Equivalents) credited to his account. The Committee
may provide in the Award Agreement applicable to any award of Deferred Stock
that, in lieu of issuing shares of Common Stock in settlement of the vested
portion of such Deferred Stock, the Committee may direct the Company to pay to
the Participant the cash balance of such Deferred Stock.
Section 10. Stock in Lieu of Cash.
15
<PAGE> 46
The Committee may grant Awards or shares of Common Stock in lieu of all
or a portion of an award otherwise payable in cash to an Executive Officer
pursuant to any bonus or incentive compensation plan of the Company. If shares
are issued in lieu of cash, the number of shares of Common Stock to be issued
shall be the greatest number of whole shares which has an aggregate Fair Market
Value on the date the cash would otherwise have been payable pursuant to the
terms of such other plan equal to or less than the amount of such cash.
Section 11. Change in Control
(a) Accelerated Vesting and Payment. Subject to the provisions of
Section 11(b) below, in the event of a Change in Control, each Option and Stock
Appreciation Right shall promptly be canceled in exchange for a payment in cash
of an amount equal to the excess of the Change of Control Price over the
exercise price for such Option or the base price for such Stock Appreciation
Right, whichever is applicable, the Restricted Period applicable to all shares
of Restricted Stock or Restricted Units shall expire and all such shares shall
become nonforfeitable and immediately transferable and all Deferred Stock shall
become fully vested and the shares of Common Stock with respect thereto shall be
immediately payable.
(b) Alternative Awards. Notwithstanding Section 11(a), no cancellation,
acceleration of exercisability, vesting, cash settlement or other payment shall
occur with respect to any Award or any class of Awards if the Committee
reasonably determines in good faith prior to the occurrence of a Change in
Control that such Award or class of Awards shall be honored or assumed, or new
rights substituted therefor (such honored, assumed or substituted award
hereinafter called an "Alternative Award") by a Participant's employer (or the
parent or a subsidiary of such employer) immediately following the Change in
Control, provided that any such Alternative Award must:
(i) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days following the Change in
Control;
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or
better than the rights and entitlements applicable under such Incentive
Award, including, but not limited to, an identical or better exercise or
vesting schedule and identical or better timing and methods of payment;
(iii) have substantially equivalent economic value to such Incentive
Award (determined by the Committee as constituted immediately prior to
16
<PAGE> 47
the Change in Control, in its sole discretion, promptly after the Change in
Control); and
(iv) have terms and conditions which provide that in the event that
the Participant's employment is involuntarily terminated or constructively
terminated (other than for Cause) upon or following such Change in Control,
any conditions on a Participant's rights under, or any restrictions on
transfer or exercisability applicable to, each such Alternative Award shall
be waived or shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's compensation, a
material reduction in the Participant's responsibilities or the relocation of
the Participant's principal place of employment to another location a material
distance farther away from the Participant's home, in each case, without the
Participant's prior written consent.
17
<PAGE> 48
Section 12. General Provisions.
(a) Withholding. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of any Award satisfied in the form of Common Stock, no shares shall be
issued unless and until arrangements satisfactory to the Committee shall have
been made to satisfy any withholding tax obligations applicable with respect to
such Award. Without limiting the generality of the foregoing and subject to such
terms and conditions as the Committee may impose, the Company shall have the
right to retain, or the Committee may, subject to such terms and conditions as
it may establish from time to time, permit Participants to elect to tender,
Common Stock (including Common Stock issuable in respect of an Award) to
satisfy, in whole or in part, the amount required to be withheld.
(b) Awards. Each Award hereunder shall be evidenced in writing. The
written agreement shall be delivered to the Participant and shall incorporate
the terms of the Plan by reference and specify the terms and conditions thereof
and any rules applicable thereto.
(c) Nontransferability. Unless the Committee shall permit (on such
terms and conditions as it shall establish) an Award to be transferred to a
member of the Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members (collectively, the "Permitted
Transferees"), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant or, if applicable, the Permitted Transferees.
(d) No Right to Employment. No person shall have any claim or right to
be granted an Award, and 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
Subsidiary. Further, the Company and each Subsidiary expressly reserves the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any agreement entered into with
respect to an Award.
(e) No Rights to Awards, No Shareholder Rights. No Participant or
Eligible Employee shall have any claim to be granted any Award under the Plan,
and there is no obligation of uniformity of treatment of Participants and
Eligible Employees. Subject to the provisions of the Plan and the applicable
Award, no
18
<PAGE> 49
person shall have any rights as a shareholder with respect to any shares of
Common Stock to be issued under the Plan prior to the issuance thereof.
(f) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Delaware.
(g) Legend. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock or Incentive Stock awarded
under the Plan prior to the expiration of the applicable Restricted Period, such
certificate shall be registered in the name of the Participant and shall bear
the following (or similar) legend:
"The shares of stock represented by this certificate are subject to the
terms and conditions contained in the BW/IP Inc. 1996 Long-Term Incentive
Plan and the Award Agreement, dated as of _____, between the Company and
the Participant, and may not be sold, pledged, transferred, assigned,
hypothecated or otherwise encumbered in any manner (except as provided in
Section 12(c) of the Plan or in such Award Agreement) until
_______________."
Upon the lapse of the Restricted Period with respect to any such shares of
Restricted Stock or Incentive Stock, the Company shall issue or have issued new
share certificates without the legend described herein in exchange for those
previously issued.
(h) Effective Date. Subject to the approval of the shareholders of the
Company (which shall be sought by the Company if so authorized by the Board),
the Plan shall be effective on the date the Plan is approved by shareholders. No
Awards may be granted under the Plan after May 13, 2006. Upon shareholder
approval of the Plan, no further awards may be made under the Predecessor Plan.
Subject to shareholder approval of the Plan, if the Committee so determines and
the holder thereof shall consent to any amendment to any outstanding option that
has an adverse affect on such holder's rights thereunder, the provisions of the
Plan relating to Options shall apply to, and govern, existing option grants
under the Predecessor Plan and, such options shall be amended to provide such
holder with such additional benefits.
(i) Amendment of Plan. The Board or the Committee may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without shareholder approval if such amendment would
19
<PAGE> 50
(1) increase the number of shares of Common Stock subject to the Plan,
except pursuant to Section 4(c);
(2) change the price at which Options may be granted; or
(3) remove the administration of the Plan from the Committee.
Without the written consent of an affected Participant, no termination,
suspension or modification of the Plan shall adversely affect any right of such
Participant under the terms of an Award granted before the date of such
termination, suspension or modification.
(j) Application of Proceeds. The proceeds received by the Company from
the sale of its shares under the Plan will be used for general corporate
purposes.
(k) Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Common Stock under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
listing or registration or qualification of such Common Stock or other required
action under any federal or state law, rule, or regulation and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Common Stock
in compliance with applicable laws, rules, and regulations. The Company shall
not be obligated by virtue of any provision of the Plan to recognize the
exercise of any Award or to otherwise sell or issue Common Stock in violation of
any such laws, rules, or regulations; and any postponement of the exercise or
settlement of any Award under this provision shall not extend the term of such
Awards, and neither the Company nor its directors or officers shall have any
obligation or liability to the Participant with respect to any Award (or Stock
issuable thereunder) that shall lapse because of such postponement.
(k) Deferrals. The Committee may postpone the exercising of Awards, the
issuance or delivery of Common Stock under any Award or any action permitted
under the Plan to prevent the Company or any of its Subsidiaries from being
denied a federal income tax deduction with respect to any Award other than an
Incentive Stock Option.
(l) Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the
20
<PAGE> 51
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
* * * * *
21
<PAGE> 52
EXHIBIT B
BW/IP INC.
1996 DIRECTORS STOCK AND DEFERRED COMPENSATION PLAN
(Effective as of May 14, 1996)
1. Purposes
The purposes of the Plan are to enable the Company to attract, retain
and motivate the best qualified directors and to enhance a long-term mutuality
of interest between the directors and stockholders of the Company by providing
them with the opportunity to obtain the economic benefits of stock ownership on
a tax deferred basis.
2. Definitions
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings ascribed to each below, it being understood
that masculine, feminine and neuter pronouns are used interchangeably, and that
each comprehends the others.
(a) "Accounts" shall mean a Participant's Interest Account and Stock
Account.
(b) "Applicable Interest Rate" shall mean the annual rate of interest
in effect under the Company's principal bank credit agreement on the first
business day of the current calendar year, except that, in the case of an
interest calculation being made as of the end of the month in which a
Participant dies, the Applicable Interest Rate shall equal the product of (i)
such annual rate and (ii) a fraction, the numerator of which is the number of
full calendar months during such year which have been completed on or prior to
such date and the denominator of which is 12.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cash Fees" shall mean the amount of any fees that would, absent an
election pursuant to the terms of the Plan, be payable by the Company in cash to
a Participant for any services to be performed by the Participant as a director.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" shall mean the common stock of the Company, par
value $0.01, any common stock into which such common stock may be changed, and
any common stock resulting from any reclassification of such common stock.
1
<PAGE> 53
(g) "Company" shall mean BW/IP Inc.
(h) "Exchange Share" shall mean a Share granted under the Exchange
Share Program.
(i) "Exchange Share Program" shall mean the program for the grant of
Shares pursuant to Section 5 hereof in exchange for a Participant's election to
forgo receipt of all or a portion of his or her Cash Fees.
(j) "Fair Market Value" on any date shall mean the mean between the
high and low sales price of a Share on such date as reported in the principal
consolidated transaction reporting system on such other national exchange or the
over-the-counter market on which the Common Stock is principally traded.
(k) "Interest Account" shall mean a memorandum account established to
record the deferral of certain compensation otherwise payable to a Participant
which shall be credited with a fixed annual return during the period of
deferral.
(l) "Participant" shall mean a director of the Company who is not an
officer or employee of the Company or any of its subsidiaries.
(m) "Plan" shall mean the BW/IP Inc. 1996 Directors Stock and Deferred
Compensation Plan, as set forth herein and as amended from time to time.
(n) "Share" shall mean a share of Common Stock.
(o) "Stock Account" shall mean a memorandum account established to
record the deferral of certain compensation otherwise payable to a Participant
which shall be deemed invested in notional Shares.
(p) "Units" shall have the meaning ascribed thereto in Section 6(e).
3. Administration
(a) Rules; Interpretation; and Determinations. The Plan shall be
administered by the Board. The Board shall have full authority to interpret and
administer the Plan, to establish, amend and rescind rules for carrying out the
Plan and to make all other determinations and to take all other actions that it
deems necessary or desirable for administering the Plan. Each determination,
interpretation or other action made or taken by the Board shall be final and
binding for all purposes and upon all persons. The Board may delegate its powers
and functions hereunder to a duly appointed committee of the Board.
(b) Agents and Expenses. The Board may appoint agents (who may be
employees of the Company) to assist in the administration of the Plan and
2
<PAGE> 54
1996 Directors Stock and Deferred Compensation Plan
may grant authority to such persons to execute agreements or other documents on
its behalf. The Board may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. All expenses incurred in the
administration of the Plan, including, without limitation, for the engagement of
any counsel, consultant or agent, shall be paid by the Company.
(c) Indemnification. No member or former member of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan. To the maximum extent permitted by applicable law, each member or former
member of the Board or any designated agent shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan, unless arising out of such person's willful misconduct.
4. Shares; Adjustment Upon Certain Events
Shares to be issued under the Plan may consist, in whole or in part, of
treasury shares or authorized but unissued Shares not reserved for any other
purpose. The aggregate number of Shares that may be issued under the Plan shall
not exceed 50,000 Shares, except as provided in this Section. In the event of
any Share dividend or Share split, recapitalization, merger, consolidation,
combination, spin-off, distribution of assets to stockholders (other than
ordinary cash dividends), exchange of shares, or other similar corporate change,
the aggregate number of Shares available for Awards under Section 4(a) shall be
appropriately adjusted by the Board and the Board's determination shall be
conclusive, provided that any fractional shares resulting from any such
adjustment shall be disregarded.
5. Awards and Terms of Exchange Shares
(a) Grant. Each Participant may elect in each of 1996 through 2006 to
receive Exchange Shares pursuant to the formula set forth in (d) below by
agreeing to forgo all or any portion of the Participant's Cash Fees for the
calendar year following the date of such election.
(b) Date of Issuance. Exchange Shares shall be issued as of the first
day of each calendar quarter with respect to which a Participant has elected to
forgo a portion of his or her fees payable for services to be performed during
such
3
<PAGE> 55
1996 Directors Stock and Deferred Compensation Plan
calendar quarter (the "Date of Issuance"). Notwithstanding the foregoing,
if the Date of Issuance in any calendar quarter is not a business day, the grant
shall be made on the next following business day.
(c) Method of Election. A Participant who wishes to elect to receive
Exchange Shares in accordance with Section 5(a) shall deliver to the Secretary
of the Company a written irrevocable election, in a form acceptable to the
Company, not later than (i) in the case of 1996 Cash Fees payable thereafter,
the date of the annual meeting of shareholders of the Company in 1996 and (ii)
in respect of Cash Fees payable after 1996, July 1, 1996 and each anniversary
thereof with respect to the Cash Fees payable for services in the following
calendar year, specifying the amount or percentage of such Participant's Cash
Fees which he or she wishes to forgo. (If the date an election is due is not a
business day, such election shall be due on the last business day immediately
preceding such otherwise applicable date.) In the event that a Participant
elects to forego less than 100% of his or her Cash Fees for a relevant year,
such Participant may provide in his or her election that such foregone Cash Fees
be applied to the issuance of Exchange Shares pro rata in each calendar quarter
or from the full amount of Cash Fees otherwise payable for each quarter until
the full amount elected has been so applied. If a Participant fails to specify
the timing of the deductions, the amount of the Participant's foregone fees will
be applied to the issuance of Exchange Shares (i) pro rata in each calendar
quarter, with respect to Cash Fees foregone from the Participant's annual
retainer fee or with respect to any percentage election with regard to any other
Cash Fees and (ii) with respect to any election of an amount of Cash Fees other
than the annual retainer fee, from the full amount of any other Cash Fees
otherwise payable for each quarter until the full amount of such other Cash Fees
foregone has been so applied.
(d) Number of Shares. The number of Exchange Shares to be issued as of
each Date of Issuance shall equal the greatest number of whole Shares derived
from the quotient of (i) the dollar amount of the Cash Fees being forgone with
respect to services to be performed during the applicable quarter in accordance
with an election under this Section 5 and (ii) the Fair Market Value on the Date
of Issuance. If, after the application of the preceding formula as of any Date
of Issuance, there is a cash remainder, the Company shall pay the Participant
the amount of such cash remainder as soon as practicable following such Date of
Issuance.
6. Deferred Compensation Program
4
<PAGE> 56
1996 Directors Stock and Deferred Compensation Plan
(a) Deferral Election. On or before December 31 of any calendar year, a
Participant may elect to defer receipt of all or any part of any Cash Fees
payable in respect of the calendar year following the year in which such
election is made, and to have such amounts credited, in whole or in part, to an
Interest Account or a Stock Account; provided that any election to have any Cash
Fees deferred credited to the Stock Account shall be made at least six months in
advance of the date the corresponding Cash Fees would otherwise have been
payable. Any person who shall become a Participant during any calendar year
(including, without limitation, all directors who first become eligible to
participate in the Plan in 1996 upon its approval by shareholders) may elect,
not later than the 30th day after he or she becomes eligible to participate in
the Plan, to defer payment of all or any part of his Cash Fees payable for the
portion of such calendar year following such election.
(b) Form and Duration of Deferral Election. A deferral election shall
be made by written notice filed with the Secretary of the Company. Such election
shall continue in effect (including with respect to Cash Fees payable for
subsequent calendar years) unless and until the Participant revokes or modifies
such election by written notice filed with the Secretary of the Company. Any
such revocation or modification of a deferral election shall become effective as
of the end of the calendar year in which such notice is given and only with
respect to Cash Fees payable for services rendered thereafter; provided that if
the effect of such revocation or modification of a deferral election is to
change the amount of deferred compensation that would otherwise have been
credited to the Stock Account it shall in no event become effective earlier than
six months after it is received by the Secretary. Amounts credited to the
Participant's Accounts prior to the effective date of any such revocation or
modification of a deferral election shall not be affected by such revocation or
modification and shall be distributed only in accordance with the otherwise
applicable terms of the Plan. A Participant who has revoked an election to
participate in the Plan may file a new election to defer Cash Fees payable for
services to be rendered in the calendar year following the year in which such
election is filed.
(c) Investment Elections for Deferred Fees. At the time a Participant
elects to defer receipt of Cash Fees pursuant to Section 6(a), the Participant
shall designate in writing the portion of such Cash Fees, stated as a whole
percentage, to be credited to the Interest Account and the portion to be
credited to the Stock Account. Any Cash Fees to be credited to either Account
shall be rounded to the nearest whole cent, with amounts equal to or greater
than $.005 rounded up and amounts below $.005 rounded down. If a Participant
fails to notify the Secretary as to how to allocate any Cash Fees between the
two Accounts, 100% of such Cash Fees shall be credited to the Interest Account.
By written notice to the
5
<PAGE> 57
1996 Directors Stock and Deferred Compensation Plan
Secretary of the Company, a Participant may change the manner in which Cash Fees
payable with respect to services to be rendered after the end of such calendar
year are allocated among the Accounts, provided that any such election shall
only be effective with respect to Cash Fees payable six months after it is
received by the Secretary.
(d) Interest Account. Any Cash Fees allocated to the Interest Account
pursuant to this Section 6 shall be credited to the Interest Account as of the
date such Fees would have been paid to the Participant. Any amounts credited to
the Interest Account shall be credited with interest annually on December 31 of
each calendar year, except that if the entire balance credited to a
Participant's Interest Account is distributed prior to the end of the calendar
year, interest shall be credited on such balance as of the date such
distribution is made. The amount to be credited as interest with respect to
amounts credited to the Interest Account for the entire calendar year shall be
equal to the product of such amounts and the Applicable Interest Rate. With
respect to each amount credited to the Interest Account for less than the entire
calendar year, the amount to be credited as interest pursuant to this Section
6(d) shall be equal to (i) the product of such amount and the Applicable
Interest Rate times (ii) a fraction, the numerator of which is the number of
days in such calendar year during which such amount is credited to the Interest
Account and the denominator of which is 365.
(e) Stock Account. Any Cash Fees allocated to the Stock Account
pursuant to this Section 6 shall be deemed to be invested in a number of
notional Shares of the Company (the "Units") equal to the quotient of (i) such
Cash Fees divided by (ii) the Fair Market Value on the date the Fees then being
allocated to the Stock Account would otherwise have been paid or the Shares
would have been granted, as the case may be. Fractional Units shall be credited,
but shall be rounded to the nearest hundredth percentile, with amounts equal to
or greater than .005 rounded up and amounts less than .005 rounded down.
Whenever a dividend other than a dividend payable in the form of Shares is
declared with respect to the Shares, the number of Units in the Participant's
Stock Account shall be increased by the number of Units determined by dividing
(i) the product of (A) the number of Units in the Participant's Stock Account on
the related dividend record date and (B) the amount of any cash dividend
declared by the Company on a Share (or, in the case of any dividend
distributable in property other than Common Shares, the per share value of such
dividend, as determined by the Company for purposes of income tax reporting) by
(ii) the Fair Market Value on the related dividend payment date. In the case of
any dividend declared on Shares which is payable in Shares, the Participant's
Stock Account shall be increased by the number of Units equal to the product of
(i) the number of Units credited to the Participant's Stock Account on the
related dividend record date
6
<PAGE> 58
1996 Directors Stock and Deferred Compensation Plan
and (ii) the number of Shares (including any fraction thereof) distributable as
a dividend on a Share. In the event of any change in the number or kind of
outstanding Shares by reason of any recapitalization, reorganization, merger,
consolidation, stock split or any similar change affecting the Shares, other
than a stock dividend as provided above, the Board shall make an appropriate
adjustment in the number of Units credited to the Participant's Stock Account.
(f) Distribution from Accounts Upon Termination of Service as a
Director. At the time a Participant makes a deferral election pursuant to
Section 6(a), the Participant shall also file with the Secretary of the Company
a written election (a "Distribution Election") with respect to whether (i) the
aggregate amount, if any, credited to the Interest Account at any time and the
value of any Units to be credited to the Stock Account shall be distributed
wholly in cash, in the greatest number of whole Shares (with any fractional
interest payable in cash) or a combination of cash and whole Shares, (ii) such
distribution shall commence immediately following the date the Participant
ceases to be a director or on the first business day of any calendar year
following the calendar year in which the Participant ceases to be a director and
(iii) such distribution shall be in one lump-sum payment or in such number of
annual installments (not to exceed ten) as the Participant may designate. A
Participant may at any time, and from time to time, change any Distribution
Election applicable to his or her Accounts, provided that no election to change
the timing of any terminal distribution shall be effective unless it is made in
writing and received by the Secretary of the Company at least one full calendar
year prior to the time at which the Participant ceases to be a director.
(g) Distribution from Accounts Prior to Termination of Service as a
Director. Any Participant may, by filing a written election with the Secretary
of the Company, elect to receive a distribution of all or any portion of the
amounts credited to the Participant's Account as of a date which is at least one
full year after the date as of which such election is so filed with the
Secretary; provided that, any Participant who elects to receive a distribution
pursuant to this first sentence of this Section 6(g) shall cease to be eligible
to make any additional deferrals under this Section 6 with respect to
compensation payable in the two calendar years immediately following the year in
which such election is filed with the Secretary. Additionally, if after
submission of a written request by a Participant to the Secretary of the Company
and such written evidence of the Participant's financial condition as the Board
shall reasonably request, the Board determines that the Participant has suffered
or will (absent a withdrawal hereunder) suffer a financial hardship, such
Participant may withdraw from his Interest Account (but not from his Stock
Account) up to such amount as the Board shall determine to be necessary to
alleviate such financial hardship.
7
<PAGE> 59
1996 Directors Stock and Deferred Compensation Plan
(h) Payment of Plan Distributions. Any distribution to be made
hereunder, whether in the form of a lump-sum payment or installments, following
the termination of a Participant's service as a director shall commence in
accordance with the Distribution Election made by the Participant in accordance
with Section 6(f). If a Participant fails to specify a form of payment or a
commencement date for a distribution in accordance with Section 6(f), such
distribution shall be made in Shares and commence on the first business day of
the calendar year immediately following the year in which the Participant ceases
to be a director. If a Participant fails to specify in accordance with Section
6(g) that a distribution shall be made in a lump-sum payment or a number of
installments, such distribution shall be made in a lump-sum payment. In the case
of any distribution being made in annual installments, each installment after
the first installment shall be paid on the first business day of each subsequent
calendar year until the entire amount subject to such installment Distribution
Election shall have been paid.
7. Nontransferability
The interest of a Participant in his or her Accounts shall not be
transferable by the Participant otherwise than by will or under the applicable
laws of descent and distribution. In addition, a Participant may not assign,
negotiate, pledge or hypothecate in any way (whether by operation of law or
otherwise) any interest in such Accounts, and such Accounts shall not be subject
to execution, attachment or similar process.
8. Effectiveness, Termination and Amendment
The Plan shall become effective on May 14, 1996 and shall terminate at
the close of business on December 31, 2006 unless sooner terminated pursuant to
the third sentence of this Section 8. The Board at any time or from time to time
may amend or terminate the Plan, provided that (i) the manner in which the Stock
Account operates may not be amended more than once every six months other than
to comport with changes in the Code and the regulations thereunder and (ii) no
termination, amendment or modification of the Plan may, without the consent of a
Participant, alter or impair the rights and obligations arising with respect to
any amount then credited to a Participant's Accounts.
9. General Provisions
8
<PAGE> 60
1996 Directors Stock and Deferred Compensation Plan
(a) No Right to Remain as a Director. The Plan shall not impose any
obligations on the Company to retain any Participant as a director nor shall it
impose any obligation on the part of any Participant to remain as a director of
the Company.
(b) No Right to Specific Assets. Nothing contained in the Plan and no
action taken pursuant to the Plan shall create or be construed to create a trust
of any kind or any fiduciary relationship between the Company and any
Participant, the executor, administrator or other personal representative or
designated beneficiary of such Participant, or any other persons. To the extent
that any Participant or his executor, administrator, or other personal
representative, as the case may be, acquires a right to receive any payment from
the Company pursuant to the Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company.
(c) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to any Shares until he shall have become the holder of
record of such Shares.
(d) Non-Exclusivity. Neither the adoption of the Plan by the Board nor
the submission of the Plan to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting or issuance of stock options, Shares and/or other
incentives otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific instances.
(e) Issuance of Stock Certificates; Legends; Listing. Upon the issuance
of Shares pursuant to Section 5 or 6, a certificate or certificates for the
Shares shall be issued by the Company in the name of the person or persons
receiving such Shares and shall be delivered to or upon the order of such person
or persons. Certificates for Shares shall bear such legend or legends as the
Board, in its discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act, or to implement the provisions of any agreements between the
Company and the Participant with respect to such Shares. If at any time the
Board shall determine in its discretion that the listing, registration or
qualification of the Shares covered by the Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale of
9
<PAGE> 61
1996 Directors Stock and Deferred Compensation Plan
Shares under the Plan, no Shares will be delivered unless and until such
listing, registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board.
(f) Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provision had not been included.
(g) Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced according
to the laws of the State of Delaware.
* * * * * * *
10
<PAGE> 62
BW/IP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 1996
The undersigned hereby appoints John D. Hannesson, John M. Nanos and M. J.
Young, and each or any of them, as proxies of the undersigned, with full power
of substitution, to represent the undersigned and to vote all shares of the
Common Stock of BW/IP, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Stockholders to be held on May 14, 1996 at 11:00 a.m. at The
Long Beach Hilton Hotel, Two World Trade Center, Long Beach, California, and at
any adjournment thereof, upon the matters listed below and, in their discretion,
upon such other matters as may properly come before the meeting. The undersigned
hereby revokes all proxies heretofore given by the undersigned to vote at the
meeting or any adjournment thereof. The proxies appointed hereby may act by a
majority of said proxies present at the meeting (or if only one is present, by
that one).
(Continued and to be signed on the reverse side.)
<PAGE> 63
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
FOR all nominees WITHHOLD AUTHORITY
listed to right (Except as to vote for all
marked to the contrary below) nominees listed
1. Election of / / / /
Directors
INSTRUCTION: To withhold authority to vote for one or more nominees, print each
such nominee's name on the line provided below.
________________________________________________________________________________
NOMINEES: James J. Gavin Jr.
George D. Leal
H. Jack Meany
James S. Pignatelli
Bernard G. Rethore
James O. Rollans
William C. Rusnack
Peter C. Valli
FOR AGAINST ABSTAIN
2. Ratification of adoption of BW/IP, Inc. / / / / / /
1996 Long-Term Incentive Plan.
3. Ratification of adoption of BW/IP, Inc. / / / / / /
1996 Director Stock and Deferred
Compensation Plan.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON
THIS CARD, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. WHEN PROPERLY EXECUTED, THIS PROXY
WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3. THE PROXIES CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Receipt of the Notice of Annual Meeting of Stockholders and the Proxy Statement
furnished therewith is hereby acknowledged.
SIGNATURE ____________________________ DATE ________________, 1996
SIGNATURE ____________________________ DATE ________________, 1996
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, give full title as such. If a corporation, please sign in
full corporate name by duly authorized officer. If a partnership,
please sign in full partnership name by duly authorized person.
