<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:
/ / Preliminary Proxy Statement
/X/ 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
[LOGO] 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
<PAGE> 3
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.
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.
<PAGE> 4
BENEFICIAL OWNERSHIP OF COMMON STOCK
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table furnishes certain information as of March 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........................................ 239,647 48,500 1.2%
Bernard G. Rethore.................................... 26,500 --
Eugene P. Cross....................................... 152,929(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...................................... 188,699(3) 14,900 --
Richard R. Testwuide.................................. 194,428(3) 13,100 --
All executive officers and directors as a group
(14)................................................ 1,046,903 136,400 4.9
</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 Mary Ann 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>
- ---------------
(1) Based on information set forth in a Schedule 13G, dated January 26, 1996,
filed by Pioneering Management Corporation with the SEC.
2
<PAGE> 5
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.
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)
3
<PAGE> 6
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 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 and its Vice President, Corporate
Communications from 1982 to 1992.
Committee Membership: Audit.
4
<PAGE> 7
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 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.
5
<PAGE> 8
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.
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.
6
<PAGE> 9
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 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 Diversified Industrials 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
7
<PAGE> 10
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 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.
8
<PAGE> 11
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 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
9
<PAGE> 12
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 MANU-
MEASUREMENT PERIOD FACTURING
(FISCAL YEAR COVERED) BW/IP, INC. S&P 500 (DIVER. IND.)
--------------------- ----------- ------- -------------
<S> <C> <C> <C>
5/24/91 100.00 100.00 100.00
12/31/91 153.96 108.95 95.01
12/31/92 211.01 117.25 102.98
12/31/93 178.24 129.07 125.02
12/31/94 123.54 130.77 129.41
12/31/95 122.01 179.42 182.21
</TABLE>
10
<PAGE> 13
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
COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- --------------
NAME AND PRINCIPAL OTHER ANNUAL SHARES SUBJECT ALL OTHER
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.
11
<PAGE> 14
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 POTENTIAL REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR TEN YEAR
EMPLOYEES IN OPTION TERM(1)
OPTIONS FISCAL YEAR EXERCISE EXPIRATION ----------------------------------
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 $18.107, the weighted average
exercise price for all options awarded in fiscal 1995, based on the
outstanding shares of Common Stock on December 31, 1995.
(4) Net of options forfeited.
(5) Options expire on various dates during the year 2005. Exercise price shown
is an average of all grants in fiscal 1995.
(6) No gain to the optionees is possible without an increase in stock price
appreciation, which will benefit all stockholders commensurately.
12
<PAGE> 15
OPTION VALUES
The following table sets forth the number and the dollar value of
unexercised options to purchase Common Stock held by the Named Executive
Officers at December 31, 1995. No options were exercised by these individuals
during 1995.
AGGREGATED LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR END(#) YEAR-END($)(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 P. 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.
13
<PAGE> 16
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL -------------------------------------------------------------------------
EARNINGS 15 20 25 30 35 40
- -------- -------- -------- -------- -------- -------- --------
<S> <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.
Employment Agreement. 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
14
<PAGE> 17
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 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
15
<PAGE> 18
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.
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 other 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
16
<PAGE> 19
one participant in a calendar year is 500,000. The maximum number of shares
subject to awards of incentive stock or incentive units to an executive officer
in any 12 month period is 50,000. In addition, if any Award in respect of shares
is canceled or forfeited, the shares subject to such 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
(or, in the event of death or disability, the participant's beneficiary or legal
representative) 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 or
after 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 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 such reload options 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, 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 and, if and to the extent determined by the
Committee, either to be credited with or receive currently an amount equal to
dividends paid with respect to 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
17
<PAGE> 20
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 and, if and to the extent
determined by the Committee, either to be credited with or receive currently an
amount equal to dividends paid with respect to 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 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.
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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 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 or restricted units 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 cash received or the fair market value of the shares at such time.
The Company will be entitled to a corresponding deduction.
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.
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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"). The following description of the Directors Plan is qualified
in its entirety by reference to the full text of 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
shall become effective on May 14, 1996 and shall terminate on December 31, 2006.
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 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
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<PAGE> 23
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. 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 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.
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.
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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 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
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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.
"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.
"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.
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<PAGE> 26
"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.
"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.
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SECTION 3. Administration.
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 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
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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
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
("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
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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 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
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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.
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 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,
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(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 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
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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
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 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
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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.
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, Incentive Stock and
Incentive Units become fully vested and the shares with respect thereto
immediately payable 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 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.
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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.
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
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
."
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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
(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.
(l) 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.
(m) Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
A-12
<PAGE> 36
EXHIBIT B
BW/IP, INC.
1996 DIRECTORS STOCK AND DEFERRED COMPENSATION PLAN
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.
(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 or 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.
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<PAGE> 37
(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 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 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
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<PAGE> 38
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
(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
B-3
<PAGE> 39
Fees shall be credited to the Interest Account. By written notice to the
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
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
B-4
<PAGE> 40
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.
(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 lumpsum 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
(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.
B-5
<PAGE> 41
(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 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.
B-6
<PAGE> 42
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> 43
<TABLE>
<C> <S>
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
FOR all nominees WITHHOLD AUTHORITY NOMINEES: James J. Gavin Jr.
listed to right (Except as to vote for all George D. Leal
1. ELECTION OF marked to the contrary below) nominees listed H. Jack Meany
DIRECTORS [ ] [ ] James S. Pignatelli
Bernard G. Rethore
INSTRUCTION: To withhold authority to vote for one or more nominees, print each James O. Rollans
such nominee's name on the line provided below. William C. Rusnack
Peter C. Valli
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
2. ADOPTION OF BW/IP, INC. 1996 LONG- FOR AGAINST ABSTAIN
TERM INCENTIVE PLAN. [ ] [ ] [ ]
3. ADOPTION OF BW/IP, INC. 1996 DIRECTOR FOR AGAINST ABSTAIN
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.
