UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LUFKIN INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
LUFKIN INDUSTRIES, INC.
Lufkin, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 5, 1999
TO THE SHAREHOLDERS OF LUFKIN INDUSTRIES, INC.
Notice is hereby given that the Annual Meeting of the Shareholders of
Lufkin Industries, Inc., a Texas corporation, will be held at the Museum of East
Texas, 503 North Second, Lufkin, Texas, on the 5th day of May, 1999, at 9:00
a.m. Lufkin Time, for the following purposes:
1. To elect four directors to the Company's board to serve until the
annual shareholders' meeting held in 2002 or until their successors
have been elected and qualified.
2. To consider and act upon a proposal of the Board of Directors of the
Company to approve and adopt the amendment of the Company's Fourth
Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 to 60,000,000.
3. To amend the Company's 1990 Stock Option Plan to increase the number
of shares of common stock of the Company as to which options may be
granted under the plan from 900,000 to 1,100,000.
4. To appoint Arthur Andersen LLP, independent certified public
accountants, as the Company's auditors for the year 1999.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 31, 1999, are
entitled to notice of and to vote at the meeting.
You are kindly requested to mark, sign, date and return the enclosed Proxy
promptly, regardless of whether you expect to attend the meeting, in order to
ensure a quorum. If you are present at the meeting, and wish to do so, you may
revoke the Proxy and vote in person.
It is sincerely hoped that it will be possible for you to personally attend
the meeting.
C. JAMES HALEY, JR.
Secretary
April 8, 1999
LUFKIN INDUSTRIES, INC.
601 South Raguet
Lufkin, Texas 75904
PROXY STATEMENT
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GENERAL INFORMATION
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The accompanying proxy is solicited by the Board of Directors of Lufkin
Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders
to be held on May 5, 1999, and any adjournments thereof. The annual meeting
will be held at 9:00 a.m. Lufkin Time, at the Museum of East Texas, 503 North
Second, Lufkin, Texas. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting in accordance with the
directions noted thereon; or if no direction is indicated, it will be voted in
favor of the proposals set forth in the notice attached hereto. Any shareholder
giving a proxy has the power to revoke it by oral or written notice to the
Secretary of the Company at any time before it is voted.
A shareholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for directors or can withhold authority to
vote for certain nominees for directors. Abstentions from the proposal to elect
directors, the proposal to amend the Articles of Incorporation, the proposal to
amend the 1990 Stock Option Plan or the proposal to approve the appointment of
independent certified public accountants are treated as votes against the
particular proposal. Broker non-votes on any of such matters are treated as
shares as to which voting power has been withheld by the beneficial holders of
those shares and, therefore, as shares not entitled to vote on the proposal as
to which there is the broker non-vote.
The cost of solicitation of these proxies will be borne by the Company. In
addition to solicitation by mail, certain directors, officers, and regular
employees of the Company may solicit proxies by telephone and personal
interview.
The approximate date on which this Proxy Statement will first be sent to
shareholders is April 8, 1999.
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VOTING SECURITIES
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At the close of business on March 31, 1999, which is the record date for
the determination of shareholders of the Company entitled to receive notice of
and to vote at the annual meeting or any adjournments thereof, the Company had
outstanding 6,531,151 shares of common stock, $1.00 par value (the "Common
Stock"). Each share of Common Stock is entitled to one vote upon each of the
matters to be voted on at the meeting.
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PROPOSAL NO. 1: ELECTION OF DIRECTORS
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The Board of Directors has nominated and urges you to vote FOR the election
of the four directors who have been nominated to serve a three-year term of
office in the 2002 class of directors. Proxies solicited hereby will be so
voted unless shareholders specify otherwise in their proxies. The affirmative
vote of the holders of a majority of the
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Common Stock present in person or by proxy at the meeting and entitled to vote
is required for approval of this Proposal.
The Company's Fourth Restated Articles of Incorporation (the "Articles")
divide the Board of Directors, with respect to terms of office, into three
classes, designated as Class I, Class II and Class III. Each class of directors
is to be elected to serve a three-year term and is to consist of, as nearly as
possible, one-third of the members of the entire Board. In accordance with the
Company's Bylaws, the Company's Board of Directors is currently fixed at 11
members.
The term of office of each of the Class II Directors expires at the time of
the 1999 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. Jalenak, Mr. King, Mr. Smith and Mr.
Trout have been nominated to serve an additional three-year term as Class II
Directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a director, if elected.
It is intended that the proxies solicited hereby will be voted FOR the
election of the nominees for director listed below, unless authority to do so
has been withheld. If, at the time of the 1999 Annual Meeting of Shareholders,
any of the nominees should be unable or decline to serve, the discretionary
authority provided in the proxy will be used to vote for a substitute or
substitutes designated by the Board of Directors. The Board of Directors has no
reason to believe that any substitute nominee or nominees will be required.
DIRECTORS AND NOMINEES FOR DIRECTOR
The nominees for Class II Directors, if elected, whose term of office will
expire in 2002, and certain additional information with respect to each of them,
are as follows:
L.R. Jalenak, Jr., manager of his own investments and a director of
Perrigo Company and Dyersburg Corp. He also serves as an Independent
Trustee for First Funds (a family of mutual funds). Age 68. Mr. Jalenak
has been a director since 1990 and also serves on the Compensation
Committee and Audit Committee.
Henry H. King, manager of his own investments. Age 66. Mr. King has
been a director since 1990 and also serves on the Executive Committee and
the Compensation Committee.
Douglas V. Smith, President, Chief Executive Officer and Chairman of
the Board of the Company. Age 56. Mr. Smith was elected President and
Chief Executive Officer of the Company in January 1993 and Chairman of the
Board in May 1995. He was also elected as a director in January 1993.
W. W. Trout, Jr., retired Vice President of the Company. Age 67. Mr.
Trout has been a director of the Company since 1968.
The Class III Directors, whose present term of office as directors will
continue after the meeting and expire in 2000, and certain additional
information with respect to each of them, are as follows:
Simon W. Henderson, III, manager of his own investments. Age 65. Mr.
Henderson has been a director of the Company since 1971 and currently
serves as a member of the Compensation Committee, the Executive Committee
and the Nominating Committee.
Melvin E. Kurth, Jr., manager of his own investments. Age 68. Mr.
Kurth has been a director of the Company since 1968 and currently serves as
a member of the Audit Committee and the Nominating Committee.
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W. T. Little, a self-employed management consultant. Age 65. He
became a director of the Company in 1968.
The Class I Directors, whose present term of office as directors will
continue after the meeting and expire in 2001, and certain additional
information with respect to each of them, are as follows:
John H. Lollar, Managing Partner of Newgulf Exploration, L.P. Age 60.
Mr. Lollar previously was Chairman, President and Chief Executive Officer
of Cabot Oil and Gas. He became a director of the Company in 1997. He is
a director of Plains Resources.
Bob H. O'Neal, formerly President of Stewart & Stevenson Services,
Inc. Age 64. Mr. O'Neal became a director in 1992 and currently serves on
the Compensation Committee and the Nominating Committee.
H. J. Trout, Jr., manager of his own investments. Age 54. Mr. Trout has
been a director of the Company since 1980 and serves as a member of the
Executive Committee and the Nominating Committee.
Thomas E. Wiener, attorney. Age 58. Mr. Wiener became a director of
the Company in 1987 and currently serves on the Audit Committee and the
Executive Committee.
Mr. W. W. Trout, Jr., is the first cousin of H. J. Trout, Jr.
The following table reflects the beneficial ownership of the Company's
Common Stock as of December 31, 1998, with respect to (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding shares
of the Company's Common Stock; (ii) the directors and nominees for director;
(iii) each executive officer named in the Summary Compensation Table and (iv)
the Company's directors and officers as a group.
Number of
Name of Shares Owned Percent
Beneficial Owner Beneficially/(1)/ of Class
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John F. Glick........................................... 13,075 *
Simon W. Henderson, III................................. 113,507 1.6%
Larry M. Hoes........................................... 8,020 *
L. R. Jalenak, Jr....................................... 8,400 *
Henry H. King........................................... 9,128 *
Melvin E. Kurth, Jr..................................... 119,584 1.7
W. T. Little............................................ 76,435 1.1
John H. Lollar.......................................... 6,000 *
Bob H. O'Neal........................................... 7,500 *
Ernest G. Pittman....................................... 8,000 *
Scott H. Semlinger...................................... 21,895 *
Douglas V. Smith........................................ 94,250 1.4
H. J. Trout, Jr......................................... 311,184 4.5
W. W. Trout, Jr......................................... 19,534 *
Thomas E. Wiener........................................ 74,936 1.1
Directors and Officers as a group (18 persons).......... 939,408 13.5
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* Indicates ownership of less than one percent of the outstanding shares of
Common Stock of the Company.
(1) Includes shares subject to presently exercisable options.
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Each director and nominee for director listed above possesses sole voting
and investment powers as to all the shares listed as being beneficially owned by
such person, except Melvin E. Kurth, Jr. who has a limited term interest in the
income of 26,712 of the listed shares which are held in trust for the benefit of
himself and his sons; H. J. Trout, Jr., who has a remainder interest as to
215,880 of the listed shares which are held in a trust for his mother for which
he is trustee; and Thomas E. Wiener, who shares voting and dispositive powers as
to 48,864 of the listed shares. The shares listed above include 18,474 shares
held by a trust for the benefit of Mr. Henderson and his siblings over which he
exercises investment and voting control and 33,333 shares held in a family
limited partnership over which Mr. Henderson shares investment and voting
control.
The Board of Directors has a standing Audit Committee. The Audit Committee
is currently comprised of Messrs. L. R. Jalenak, Jr., M. E. Kurth, Jr., J. H.
Lollar and T. E. Wiener. The Audit Committee's functions include making
recommendations concerning the engagement of independent auditors, reviewing
with the independent auditors the plan and results of the auditing engagement,
reviewing the scope and results of the Company's procedures for internal
auditing, reviewing professional services provided by the independent auditors,
reviewing the independence of the independent auditors, considering the range of
audit and nonaudit fees and reviewing the adequacy of the Company's internal
accounting controls.
The Board of Directors also has a standing Compensation Committee which is
currently comprised of Messrs. S. W. Henderson III, L. R. Jalenak, Jr., H. H.
King and B. H. O'Neal. The functions performed by the Compensation Committee
include: reviewing executive salary and bonus structure; reviewing the
Company's stock option plan (and making grants thereunder); setting bonus goals;
and approving salary and bonus awards to key executives.
The Board of Directors also has a standing Nominating Committee which is
currently comprised of Messrs. M. E. Kurth, S. W. Henderson III, B. H. O'Neal
and H. J. Trout, Jr. The Nominating Committee does not consider nominees
recommended by the shareholders of the Company.
During 1998, the Audit Committee had two meetings, the Compensation
Committee had four meetings, the Executive Committee had two meetings and the
Board of Directors had five meetings. During 1998 each continuing member of the
Board of Directors attended 75% or more of the meetings of the Board of
Directors and the committees of which he was a member.
During 1998, the directors received $1,000 for each meeting of the Board of
Directors and $850 for each committee meeting that they attended in addition to
a quarterly payment of $3,500. In addition, each director receives a 5,000
share stock option grant on the date of his election to the Board of Directors
and 1,000 shares each year thereafter as long as he continues on the Board.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons holding more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission ("SEC") and any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted (i) initial
reports of ownership, (ii) reports of changes in ownership and (iii) annual
reports of ownership of Common Stock and other equity securities of the Company.
Such directors, officers and ten-percent stockholders are also required to
furnish the Company with copies of all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1998, the Company believes that, other than a Form 5 filing for Douglas Smith to
report the grant of options, all Section 16(a) reporting requirements related to
the Company's directors and executive officers were timely fulfilled during
1998.
-4-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, no executive officer of the Company served as (i) a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company, or (ii) a director of another entity, one of
whose executive officers served on the Board of Directors of the Company or its
subsidiaries.
During 1998, no member of the compensation committee (or board committee
performing equivalent functions) (i) was an officer or employee of the Company,
(ii) was formerly an officer of the Company or (iii) had any business
relationship or conducted any transactions with the Company.
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REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Lufkin Industries,
Inc. (the "Committee") is pleased to present the 1998 report on executive
compensation. This report of the Committee documents the components of the
Company's executive officer compensation program and describes the basis on
which the compensation program determinations were made by the Committee with
respect to the executive officers of the Company, including the executive
officers that are named in the compensation tables. The Committee meets
regularly and is comprised entirely of non-employee directors. The duty of the
Committee is to review compensation levels of members of management, as well as
administer the Company's various incentive plans including its annual bonus plan
and its stock option plan. The Committee reviews in detail, with the Board of
Directors, all aspects of compensation for all of the Company's senior officers.
The Committee has retained the services of a national compensation
consulting firm, to assist the Committee in connection with the performance of
its various duties. Such firm provides advice to the Committee with respect to
how compensation paid by the Company to its senior officers compares to
compensation paid by other companies. Members of the Committee review
compensation surveys provided by the consulting firm as well as surveys provided
by other sources.
EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY
The design of the Company's executive compensation program is based on
three fundamental principles. First, compensation must support the concept of
pay for performance, that is, compensation awards are directly related to the
financial results of the Company, to increasing shareholders' value, and to
individual contributions and accomplishments. As a result, much of an executive
officer's compensation is "at risk" with annual bonus compensation, at target
levels, amounting to approximately 35% of total cash compensation.
The second principle of the program is that it should offer compensation
opportunities competitive with those provided by other comparable industrial
companies. It is essential that the Company be able to retain and reward its
executives who are critical to the long-term success of the Company's
diversified and complex businesses.
The final principle is that the compensation program must provide a direct
link between the long-term interests of the executives and the shareholders.
Through the use of stock-based incentives, the Committee focuses the attention
of executives on managing the Company from the perspective of an owner with an
equity stake.
COMPENSATION PLAN COMPONENTS
Base Salary. The Committee has established base salary levels for the
Company's executive officers that are generally comparable to similar executive
positions in companies of similar size and complexity as the Company. The
Company obtains comparative salary information from published market surveys and
from a national compensation consulting firm. The comparative data is from
industrial companies of a comparable size in revenue during this period. The
Company's salaries were competitive with the market at the fiftieth percentile
in these comparisons. As part of its responsibilities, the Committee approves
all salary changes for the Company's officers and bases individual salary
changes on a combination of factors such as the performance of the executive,
salary level relative to the competitive market, the salary increase budget for
the Company, level of responsibility and the recommendation of the Chief
Executive Officer. In accordance with its review process, the Committee
approves base salary increases for those officers whose salary level and
performance warranted an adjustment. Only the Chief Executive Officer received
a base salary increase during 1998.
Incentive Compensation. The Company's performance, or that of a division
or business unit, as the case may be, for purposes of compensation decisions is
measured under the annual bonus plan against goals established at the start
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of the year by the Committee. In each instance, the goals consisted in most part
of making budgeted sales and expense levels, as well as subjective individual
performance goals.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1998
was $360,000 and he did not receive a bonus for this year. These amounts were
determined by the Compensation Committee as a part of a three year employment
contract that began on January 1, 1995 and expired on December 31, 1998. A new
three year contract became effective on January 1, 1999. The Committee believes
that the contract is competitive and that the employment contract is critical to
attract and retain the best qualified executives.
Stock Options. During 1998, the Committee also made stock option grants
to the CEO and to each of the senior officers of the Company. Each of those
officers received stock options which were based on his responsibilities and
relative position in the Company. In 1998, 55,500 shares of stock options were
granted to the Company's officers which compares to 43,300 shares granted to
officers in 1997. The Committee's policy is to make stock option grants
annually and for the purpose of tying a portion of the employees' compensation
to the long-term performance of the Company's Common Stock. By making such
grants, the Committee feels that these grants help senior officers' interests
coincide with those of the shareholders.
No member of the Committee is a former or current officer or employee of
the Company or any of its subsidiaries. The following members of the
Compensation Committee have delivered the foregoing report:
B. H. O'Neal, Chairman
S. W. Henderson III
L. R. Jalenak, Jr.
H. H. King
The foregoing report and the performance graph and related description
included in this proxy statement shall not be deemed to be filed with the
Securities and Exchange Commission except to the extent the Company specifically
incorporates such items by reference into a filing under the Securities Act of
1933 or Securities Exchange Act of 1934.
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Performance Graph
The following performance graph compares the performance of the Company's
common stock to the NASDAQ Market Value Index and to the Media General Oilfield
Services Index (which includes the Company) for the last five years. The graph
assumes that the value of the investment in the Company's common stock and each
index was $100 at December 31, 1993.
[GRAPH APPEARS HERE]
December 31,
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1993 1994 1995 1996 1997 1998
--------- ---------- --------- ---------- ---------- ---------
Lufkin Industries, Inc................................ 100.00 107.85 136.08 154.99 227.25 120.84
Media General Oilfield Services Index................. 100.00 94.59 127.33 189.09 286.60 147.37
NASDAQ Market Value Index............................. 100.00 104.99 136.18 169.23 207.00 291.96
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Executive Compensation
The following table sets forth information with respect to the Chief
Executive Officer and the four most highly compensated executive officers of the
Company as to whom the total annual salary and bonus for the year ended December
31, 1998 exceeded $100,000:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
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STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
- ------------------------------------- ---- --------- ----------- ------------------ ---------------
Douglas V. Smith..................... 1998 $360,000 $ - 30,000 $24,573
President and 1997 308,000 185,000 20,000 19,943
Chief Executive Officer 1996 280,000 140,000 16,000 17,250
Larry M. Hoes........................ 1998 172,800 - 4,500 11,479
Vice President 1997 161,477 81,780 4,000 9,256
John F. Glick........................ 1998 160,000 25,000 4,500 8,494
Vice President 1997 155,577 28,320 4,000 8,448
1996 147,616 34,740 3,500 8,869
Scott H. Semlinger................... 1998 147,000 25,000 4,500 7,500
Vice President 1997 136,385 43,690 4,000 7,086
1996 131,960 22,825 3,500 7,413
Ernest G. Pittman.................... 1998 126,700 - 3,250 7,930
Vice President 1997 117,367 48,160 4,000 6,829
1996 111,375 34,400 2,800 7,010
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(1) Annual bonus amounts are earned and accrued during the years indicated, and
paid in the first quarter of the following year.
(2) The All Other Compensation consists of the Company's contribution to the
Thrift Plan.
Stock Option Plans
The Company has a stock option plan (the "Plan"), pursuant to which options
to purchase shares of the Company's stock are outstanding or available for
future grants. The purpose of the Plan is to advance the best interests of the
Company by providing those persons who have substantial responsibility for the
management and growth of the Company with additional incentive by increasing
their proprietary interest in the success of the Company. All options for stock
are granted by the Compensation Committee.
The Company's shareholders are being asked to approve an amendment to the
Plan at the meeting to which this Proxy Statement relates. The proposed
amendment increases the number of shares of Common Stock as to which options may
be granted under the Plan from 900,000 shares to 1,100,000 shares. The terms of
the Plan as proposed to
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be amended are described under Proposal 3 below and the Plan, as proposed to be
amended, is set forth in its entirety as Appendix A hereto.
The following table shows, as to the Chief Executive Officer and the four
most highly compensated executive officers of the Company, information about
option grants in the last year. The Company does not grant any Stock
Appreciation Rights.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------------------------ VALUE OF ASSUMED
PERCENTAGE OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO FOR OPTION TERM
GRANTED EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME (SHARES)(1) IN 1998 (PER SHARE)(2) DATE 5% 10%
- --------------- --------------- ---------------- --------------- ---------- --------- -----------
Douglas V. Smith(3).......... 30,000 20% $30.50 02/17/2008 575,439 1,458,274
Larry M. Hoes(4)............. 4,500 3 21.75 11/10/2008 61,553 155,988
John F. Glick(4)............. 4,500 3 21.75 11/10/2008 61,553 155,988
Scott H. Semlinger(4)........ 4,500 3 21.75 11/10/2008 61,553 155,988
Ernest G. Pittman(4)......... 3,250 2 21.75 11/10/2008 44,455 112,658
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(1) The options were granted for a term of ten years subject to earlier
termination in certain events related to termination of employment.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(3) Options are 1/3 exercisable at time of grant, 1/3 starting twelve months
after the grant date, with full vesting occurring on the second anniversary
date.
(4) Options granted are exercisable starting twelve months after the grant
date, with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.
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The following table shows aggregate option exercises in the last fiscal
year and the year-end option values for the Chief Executive officer and the four
most highly compensated executive officers. The Company does not grant any
Stock Appreciation Rights.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1998 OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1998 (SHARES) DECEMBER 31, 1998
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ------------- ------------- ------------ -------------
Douglas V. Smith................ -0- -0- 84,250 46,750 53,000 3,000
Larry M. Hoes................... -0- -0- 6,000 12,500 -0- -0-
John F. Glick................... -0- -0- 12,375 10,125 -0- -0-
Scott H. Semlinger.............. 3,500 43,375 21,540 10,125 11,344 -0-
Ernest G. Pittman............... 8,100 78,100 6,200 8,350 2,625 -0-
Retirement Plan
Certain employees of the Company, including its executive officers, are
participants in the Company's Retirement Plan for Salaried Employees (the
"Qualified Plan"). The Qualified Plan is a defined benefit plan, qualified
under Section 401 of the Internal Revenue Code, which provides benefits based on
an employee's years of service and covered compensation. Covered compensation
consists of Salary and Bonus as set forth in the Summary Compensation Table on
page 9 of this Proxy Statement. The benefits are based on the average of the
highest five consecutive years of covered compensation received during the last
ten years of service. Benefits are estimated on straight-life annuity
computations and do reflect offsets for primary Social Security benefits. Under
the Code, the maximum amount of compensation that can be considered by a tax-
qualified plan is $160,000, subject to annual adjustments. In addition, the
Code limits the maximum amount of benefits that may be paid under such a plan.
Accordingly, the Company has adopted an unfunded, nonqualified plan
("Restoration Plan") to provide supplemental retirement benefits to covered
executives. The Restoration Plan benefit is based on the same benefit formula
for the Qualified Plan except that it does not limit the amount of a
participant's compensation or maximum benefit. The Company also maintains an
additional nonqualified plan ("SERP") for Mr. Smith, which credits him with an
additional .5 years of service for each year of service credited to him under
the Qualified Plan. The benefits calculated under the Restoration Plan and SERP
are offset by the participant's benefit payable under the Qualified Plan. The
following table shows the annual benefits payable upon retirement at age 65 for
various compensation and years of credited service combinations under these
plans. Payment of the specified retirement benefits is contingent upon
continuation of the plans in their present form until the employee retires.
Directors who are not, or who have not been, employees of the Company will not
receive benefits under the plans. The years of credited service for the persons
named in the Summary Compensation Table are: Mr. Smith, six years (plus an
additional three years under the SERP); Mr. Hoes, two years; Mr. Glick, four
years; Mr. Semlinger, 23 years; and Mr. Pittman, 37 years.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
AVERAGE ANNUAL COMPENSATION FOR -------------------------------------------------------------------------------
HIGHEST FIVE YEARS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST TEN YEARS OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
------------ ------------- --------------- ------------- ------------
$ 125,000.............................. $ 32,369 $ 43,827 $ 55,286 $ 66,744 $ 66,744
150,000.............................. 39,244 52,994 66,744 80,494 80,494
175,000.............................. 46,119 62,161 78,202 94,244 94,244
200,000.............................. 52,994 71,327 89,661 107,994 107,994
-11-
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
AVERAGE ANNUAL COMPENSATION FOR -------------------------------------------------------------------------------
HIGHEST FIVE YEARS DURING 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
LAST TEN YEARS OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
------------ ------------- --------------- ------------- ------------
225,000.............................. 59,869 80,494 101,119 121,744 121,744
250,000.............................. 66,744 89,661 112,577 135,494 135,494
300,000.............................. 80,494 107,994 135,494 162,994 162,994
400,000.............................. 107,994 144,661 181,327 217,994 217,994
EMPLOYMENT CONTRACT AND CHANGE IN CONTROL ARRANGEMENT
The Company has entered into an employment agreement with Mr. Smith through
December 31, 2001, with a minimum annual salary of $360,000, subject to review
annually by the Compensation Committee. The Company has also entered into a
severance agreement with Mr. Smith that provides for severance benefits to be
paid to him following a change in control of the Company (as defined) or a
termination of his employment. Maximum severance benefits at December 31, 1998,
would be approximately $1,080,000, payable in a lump sum payment, such amount
representing three times the salary and bonus received by Mr. Smith during the
year.
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PROPOSAL 2: ADOPTION OF AMENDMENT TO THE FOURTH RESTATED ARTICLES OF
INCORPORATION
- ------------------------------------------------------------------------------
The Board of Directors has approved and recommends a vote FOR the proposal
to approve and adopt the amendment to the Company's Fourth Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock. The
shares of Common Stock represented by returned proxy cards will be voted FOR the
amendment to the Fourth Restated Articles of Incorporation unless otherwise
specified.
The Company is currently authorized to issue 20,000,000 shares of Common
Stock. At the Annual Meeting, a vote will be taken on the proposal to adopt
the Company's Fifth Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from 20,000,000 to 60,000,000. The authorized
number of shares of the Company's preferred stock, par value $.01 per share,
will remain at 2,000,000. If the amendment is approved by the shareholders,
the first paragraph of Article IV of the Company's Articles of Incorporation, as
amended, will read as follows:
The aggregate number of shares of all classes of stock that the
Corporation shall have authority to issue is Sixty-Two Million (62,000,000)
shares, divided into Two Million (2,000,000) shares of Preferred Stock
without par value (the "Preferred Stock"), and Sixty Million (60,000,000)
shares of Common Stock $1.00 par value (the "Common Stock").
At March 23, 1999, there were 6,531,151 shares of Common Stock outstanding,
and an additional 361,230 shares of Common Stock were held in the Company's
treasury. At March 23, 1999, there were approximately 856,063 shares of Common
Stock reserved for issuance pursuant to exercise of stock options under the
Company's stock option plans. Currently, the Company has approximately
12,251,556 shares of Common Stock authorized, unissued and not subject to
reservation for future issuance. If the amendment is adopted, approximately
52,251,556 shares of Common Stock would be authorized, unissued and not subject
to reservation for future issuance. Except to the extent that the Company may
issue the shares of Common Stock reserved therefor pursuant to its stock option
plans, the Company has not entered into any agreements or understandings, and
has no present plans, for the issuance of additional shares of Common Stock, but
wishes to have such shares available for future issuances as the need may arise.
No further shareholder approval would be required prior to the issuance of the
additional shares authorized by this amendment, except as may be required by law
or the rules of the Nasdaq National Market System. Any future issuances of
additional shares could significantly dilute the equity interests of current
shareholders of the Company.
The authorization to issue the additional shares of Common Stock would
provide management with a capacity to negate the efforts of unfriendly tender
offerors through the issuance of securities to others who are friendly or
desirable to management.
The Company has in place certain mechanisms which have an anti-takeover
effect. The Company's Bylaws and Articles of Incorporation include provisions
which provide, among other things (i) for a classified board of directors, (ii)
for a maximum permissible number of directors, (iii) that a director may not be
removed without cause, (iv) for an 80% vote of the shareholders to amend the
Bylaws and certain provisions of the Articles of Incorporation and (v) that
certain business combinations, sales, stock issuances, etc. involving the
Company and a shareholder who, together with its affiliates, is the beneficial
owner of more than 10% of the Company's capital stock ("Related Person") or any
reclassification of securities or recapitalization of the Company or any similar
transaction which has the effect of increasing the proportionate share of the
outstanding securities of the Company which is beneficially owned by any Related
Person, must (except as otherwise expressly provided in the Articles) be
approved by holders of at least 80% of the outstanding shares of the Company's
Common Stock, excluding shares beneficially owned by the Related Person.
Additionally, the Company has in place a shareholder rights plan or "poison
pill."
This proposal is not the result of management's knowledge of any specific
effort to accumulate the Company's securities or to obtain control of the
Company by means of a merger, tender offer or proxy solicitation in opposition
to management or otherwise. The Company is not submitting this proposal to
enable it to frustrate any efforts by another party to acquire a controlling
interest or to seek Board representation. The Board of Directors has proposed
the increase in the number of authorized shares of Common Stock to assure that
an adequate supply of shares of Common Stock are available for future corporate
needs. The Board believes that the adoption of the proposed amendment is
advisable to provide the Company with adequate flexibility in connection with
possible future transactions, stock splits or stock dividends,other corporate
purposes, and other programs to facilitate expansion and growth of the Company.
The submission of this proposal is not a part of any plan by the
Company's management to adopt a series of amendments to the Articles of
Incorporation or Bylaws so as to render the takeover of the Company more
difficult. Except as indicated above, management is not aware of the existence
of any other provisions in the Articles or Bylaws having an anti-takeover
effect.
The Articles do not provide for cumulative voting. As a result, in order
to be ensured of representation on the Board, a shareholder must control the
votes of a majority of the shares present and voting at a shareholders' meeting
at which a quorum is present. The lack of cumulative voting requires an entity
seeking a takeover to acquire a substantially greater number of shares to ensure
representation on the Board than would be necessary were cumulative voting
available.
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PROPOSAL 3: APPROVAL OF AMENDMENT TO THE COMPANY'S 1990 STOCK OPTION PLAN
- ------------------------------------------------------------------------------
General. In February 1999, the Board of Directors of the Company adopted
an amendment to the Lufkin Industries, Inc. 1990 Stock Option Plan (the "Plan")
which would increase the number of shares of Common Stock as to which options
may be granted under the Plan from 900,000 shares to 1,100,000 shares. The
Board urges you to vote for approval of such amendment. Proxies solicited
hereby will be so voted unless shareholders specify otherwise in their proxies.
The affirmative vote of a majority of the outstanding shares of Common Stock is
required for approval of this Proposal. The purpose of the Plan is to advance
the best interests of the Company by providing incentive awards and stock
ownership opportunities to those key employees (including directors who are
employees) who contribute significantly to the performance of the Company. In
addition, the Plan is intended to enhance the ability of the Company to attract
and retain individuals of superior managerial ability and to motivate such
individuals to exert their best efforts towards future progress and
profitability of the Company. The terms of the Plan, as proposed to be amended,
are described below and the Plan is set forth in its entirety as Appendix A
hereto.
The Plan provides for the grant of stock options to purchase shares of the
Company's Common Stock to key employees of the Company as determined by the
Company's Compensation Committee. Subject to approval by the shareholders of
the amendment to the Plan, the maximum number of shares of Common Stock as to
which options may be granted under the Plan is 1,100,000 shares, subject to
certain adjustments to prevent dilution. Options granted under the Plan to key
employees may be either incentive stock options ("ISOs") under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options ("NSOs").
The Plan is administered by the Company's Compensation Committee, which,
under the terms of the Plan, must consist of at least three members of the Board
of Directors, none of which may be a key employee who is eligible to be, or is,
a participant in the Plan. The Compensation Committee has complete discretion
in determining the key executives and employees of the Company or its
subsidiaries who shall receive stock options and the number of such options to
be granted. The Plan provides that, in granting options to key employees, the
Compensation Committee shall take into consideration the contribution an
employee has made or may make to the success of the Company or its subsidiaries
and such other factors as the Compensation Committee shall determine. As of
March 31, 1999, 105 key employees were eligible to participate in the Plan.
The term of each stock option granted to a key employee shall be determined
by the Compensation Committee on the date of grant, subject to limitations that
(i) all such options will expire no later than ten years from the date of grant
and (ii) the exercise price of such options may not be less than 100% of the
fair market value per share of the Common Stock on the date of grant. In the
event that the employment of a key employee shall terminate for reasons other
than retirement with the consent of the Company, permanent disability or death,
such employee's options shall be exercisable only within three months after such
termination and only to the extent that such options were exercisable
immediately prior to such termination of employment. If such termination is due
to retirement or permanent disability, the key employee may exercise options in
full at any time during the remaining term provided therefor at the time of
grant. Upon the termination of employment of a key employee by reason of death,
such employee's options, to the extent then exercisable, may be exercised for a
period of one year after the date of the employee's death, but no more than ten
years after the date an option was granted.
The Plan permits the Company to allow an optionee, upon exercise of an
option, to satisfy any applicable federal income tax requirements in the form of
either cash, or, at the discretion of the Compensation Committee, shares of
Common Stock, including shares issuable upon exercise of such option.
The Plan provides that upon a change of control of the Company (i)
outstanding stock options would become immediately vested and exercisable (with
certain exceptions) and (ii) upon exercise of an option, the optionee would
receive cash based on the spread between the exercise price of such option and
the premium price, if any, paid for the Common Stock in connection with such
change of control. A change of control shall be deemed to occur if a person
-13-
or group acquires 25% or more of the Company's voting securities, the Directors
of the Company at the beginning of any two-year period ceased to constitute a
majority of the Board of Directors during such period for any reason, the
shareholders of the Company approve a merger or consolidation of the Company
with any other company (with certain exceptions), the shareholders of the
Company approve an agreement for the sale, exchange or disposition by the
Company of all or a substantial portion of the Company's assets or the
shareholders of the Company adopt a plan of complete liquidation of the Company.
The Board of Directors of the Company has amended the Plan to limit grants
under the Plan to no more than 100,000 shares of Common Stock to any one person
in any calendar year.
The Board of Directors of the Company may amend, suspend or terminate the
Plan at any time, except that any amendment that would (i) increase the maximum
number of shares that may be issued under the options granted pursuant to the
Plan, (ii) change the class of employees eligible to receive grants under the
Plan, (iii) extend beyond ten years the term of any option or (iv) extend the
terms of the Plan requires stockholder approval unless, in each case, such
approval is not required to meet the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless the
term of the Plan is extended or earlier terminated, the Plan will terminate on
August 22, 2000.
Federal Income Taxes. As a general rule, no income will be recognized by
an employee upon the grant of either ISOs or NSOs. Upon the exercise of a NSO,
the optionee will be treated as receiving compensation income in an amount equal
to the excess of the fair market value of the shares at the time of exercise
over the option price paid for the shares, and the Company may claim a deduction
for compensation paid in the same amount and at the same time as compensation is
taxable to the optionee, provided the Company makes the proper tax withholding
with respect to the exercise by an employee. Upon a subsequent disposition of
the shares, any difference between the fair market value of the shares at the
time of exercise and the amount realized on the disposition would be eligible
for treatment as long-term capital gain or loss if the shares were held for more
than twelve months. The exercise of an ISO, on the other hand, does not subject
the optionee to federal income tax; however, the "spread" upon the exercise of
an ISO is an item of adjustment for purposes of the alternative minimum tax. If
the optionee holds the shares of Common Stock received upon the exercise of an
ISO for the requisite holding period, gain on the disposition of such shares is
treated as long-term capital gain. If a disposition of such shares is made in a
taxable transaction before expiration of the holding period, a portion of the
gain on disposition will be treated as ordinary income and the balance as long-
term or short-term capital gain, depending on the length of time the shares were
held. The Company is allowed a deduction in the year of disposition of shares
received upon exercise of an ISO only to the extent the amount of any gain is
taxable to the optionee as ordinary income.
- ------------------------------------------------------------------------------
PROPOSAL 4: APPROVAL OF AUDITORS
- ------------------------------------------------------------------------------
The Board of Directors proposes the appointment of the firm of Arthur
Andersen LLP as the Company's auditors for the year ending December 31, 1999.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting of Shareholders and will have an opportunity to make a statement if they
desire to do so and to respond to appropriate questions from those attending
such meeting. Arthur Andersen LLP has served as auditors for the Company since
1958. Their appointment as auditors for the year ended December 31, 1998 was
approved by the shareholders at the last annual meeting on May 6, 1998.
-14-
- ------------------------------------------------------------------------------
PROPOSALS OF SHAREHOLDERS
- ------------------------------------------------------------------------------
A proposal of a shareholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than December 1, 1999 if the shareholder making the proposal desires such
proposal to be considered for inclusion in the Company's proxy statement and
form of proxy relating to such meeting. The Company has also adopted Bylaw
provisions which require that nominations of persons for election to the Board
of Directors and the proposal of business by shareholders at an annual meeting
of shareholders must fulfill certain requirements which include the requirement
that notice of such nominations or proposals must be delivered to the Secretary
of the Company not less than 60 days nor more than 90 days prior to the
anniversary of the prior annual meeting. In order to be timely for next year's
annual meeting such notice must be delivered between February 5, 2000 and March
6, 2000. If such timely notice of a stockholder proposal is not given, the
proposal may not be brought before the annual meeting. If timely notice is
given but is not accompanied by a written statement to the extent required by
applicable securities laws, the Company may exercise discretionary voting
authority over proxies with respect to such proposal if presented at the annual
meeting.
- ------------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 1998 from the Company's Form 10-K Report filed with the Securities
and Exchange Commission. A copy of the Form 10-K Report may be obtained without
charge by written request to the Secretary, Lufkin Industries, Inc., P.O. Box
849, Lufkin, Texas 75902.
- ------------------------------------------------------------------------------
OTHER MATTERS
- ------------------------------------------------------------------------------
The Board of Directors has at this time no knowledge of any matters to be
brought before the meeting other than those referred to above. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote said proxy in accordance with
their best judgment on such matters.
By Order of the Board of Directors
C. JAMES HALEY, JR.
Secretary
April 8, 1999
-15-
APPENDIX A
LUFKIN INDUSTRIES, INC.
1990 STOCK OPTION PLAN
1. PURPOSE
The Purpose of the Lufkin Industries, Inc. 1990 Stock Option Plan (the
"Plan") is to advance the interests of Lufkin Industries, Inc. (the "Company")
by providing incentive awards and stock ownership opportunities to those key
employees (including officers and directors who are employees) who contribute
significantly to the performance of the Company ("Key Employees"). In addition,
the Plan is intended to enhance the ability of the Company to attract and retain
individuals of superior managerial ability and to motivate such individuals to
exert their best efforts towards future progress and profitability of the
Company.
2. ADMINISTRATION AND INTERPRETATION
a. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three members of the Board of Directors
of the Company (the "Board") appointed by and serving at the pleasure of the
Board; provided that each member shall be a "disinterested person" within the
meaning of paragraph (d)(3) of Rule 16b-3 which has been adopted by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
such Rule or its equivalent is in effect from time to time. The Board may from
time to time appoint members of the Committee in substitution for or in addition
to members previously appointed and may fill vacancies, however caused, in the
Committee. The Committee may prescribe, amend and rescind rules and regulations
for the administration of the Plan and shall have the full power and authority
to construe and interpret the Plan. A majority of the members of the Committee
shall constitute a quorum and the acts of a majority of the members present at a
meeting or the acts of a majority of the members evidenced in writing shall be
the acts of the Committee. The Committee may correct any defect or any omission
or reconcile any inconsistency in the Plan or in any award or grant made
hereunder in the manner and to the extent it shall deem desirable.
The Committee shall have the full and exclusive right to grant all Options
(as defined below). In granting Options the Committee shall take into
consideration the contribution the employee has made or may make to the success
of the Company and such other considerations as the Committee shall determine.
The Committee shall also have the authority to consult with and receive
recommendations from officers and other employees of the Company with regard to
these matters. In no event shall any employee, his legal representatives,
heirs, legatees, distributees, or successors have any right to participate in
the Plan, except to such extent, if any, as the Committee shall determine.
The Committee may from time to time in granting Options under the Plan
prescribe such other terms and conditions concerning such Options as it deems
appropriate, provided that such terms and conditions are not more favorable to
the Key Employee than those expressly set forth in the Plan.
The day-to-day administration of the Plan may be carried out by such
officers and employees of the Company as shall be designated from time to time
by the Committee.
b. Interpretation. The interpretation and construction by the Committee
of any provisions of the Plan or of any award or grant under the Plan and any
determination by the Committee under any provision of the Plan or any such award
or grant shall be final and conclusive for all purposes.
c. Limitation on Liability. Neither the Committee nor any member thereof
shall be liable for any act, omission, interpretation, construction or
determination made in connection with the Plan in good faith, and the members of
the Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss,
A-1
damage or expense (including counsel fees) arising therefrom to the full extent
permitted by law and under any directors and officers liability insurance
coverage that may be in effect from time to time.
3. SHARES SUBJECT TO AWARDS UNDER THE PLAN
a. Limitations on Number of Shares. The shares subject to grants of
Options shall be shares of the Company's authorized but unissued common stock,
par value $1.00 per share, and shares, if any, of such common stock that are
issued but not outstanding and held as treasury stock by the Company ("Common
Stock"). Subject to adjustment as hereinafter provided, the aggregate number of
shares of Common Stock as to which Options may be granted under the Plan shall
not exceed 100,000 shares; provided, however, that, if the shareholders of the
Company approve an amendment to the Articles of Incorporation of the Company to
increase the authorized number of shares of Common Stock to 20,000,000 and
following such approval the proposed three-for-one share dividend is distributed
to the shareholders of the Company, the aggregate number of shares of Common
Stock as to which Options may be granted under the Plan shall not exceed
1,100,000 shares, and; provided, however, (only if the Securities and Exchange
Commission states (either orally or written) that this provision complies with
the provisions of Rule 16b-3), that the aggregate number of shares of Common
Stock as to which Options may be granted shall not include, and shall not be
reduced by, any shares subject to Reload Options (as described below).
Shares of Common Stock ceasing to be subject to an Option because of the
exercise of such Option may no longer be subject to any further grant under the
Plan. If any outstanding Option in whole or in part, expires or terminates
unexercised or is canceled for any reason prior to August 23, 2000, the shares
of Common Stock allocable to the unexercised, terminated, canceled or forfeited
portion of such Option may again be made the subject of grants under the Plan.
b. Adjustments of Aggregate Number of Shares. The aggregate number of
shares of Common Stock stated in Section 3(a) shall be subject to appropriate
adjustment, from time to time, in accordance with the provisions of Section 6
hereof. In the event of a change in the Common Stock of the Company that is
limited to a change in the designation thereof to "Capital Stock" or other
similar designation, or to a change in the par value thereof, or from par value
to no par value, without increase or decrease in the number of issued shares,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of the Plan.
4. ELIGIBILITY
The individuals eligible to receive Options under the Plan shall be those
Key Employees as the Committee from time to time shall determine; provided,
however, no employee may receive in any calendar year a grant or grants of
Options with respect to more than 100,000 shares of Common Stock.
5. STOCK OPTIONS
a. Grants of Options.
(1) In General. Options granted under the Plan may be either
"Incentive Stock Options" or "Nonqualified Stock Options" (both as defined
below and collectively referred to as "Options"), or both. Options granted
under the Plan shall be of such type and for such number of shares of
Common Stock, subject to such terms and conditions as the Committee shall
designate.
The Committee may grant Incentive Stock Options and/or Non-qualified
Stock Options to Key Employees at any time and from time to time before
August 23, 2000.
(2) Incentive Stock Options. The term "Incentive Stock Option" shall
mean an Option, or portion thereof, that is intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
A-2
(3) Non-qualified Stock Options. The term "Non-qualified Stock
Option" shall mean any Option, or portion thereof, that is not an Incentive
Stock Option. Except as specifically provided herein, the provisions of
this Plan shall apply in the same manner to Incentive Stock Options and to
Non-qualified Stock Options.
(b) Terms of Options. Options granted pursuant to this Plan shall be
evidenced by stock option agreements (referred to herein as "agreements") that
shall comply with and be subject to the following terms and conditions and may
contain such other provisions, consistent with this Plan, as the Committee shall
deem advisable. Reference herein to agreements shall include, to the extent
applicable, any amendments to such agreements.
(1) Payment of Option Exercise Price. Upon exercise of an Option, the
full option exercise price for the shares with respect to which the Option
is being exercised shall be payable to the Company (i) in cash or by check
payable and acceptable to the Company or (ii) subject to the approval of
the Committee, by tendering to the Company shares of Common Stock owned by
the optionee having an aggregate Market Value Per Share (as defined below)
as of the date of exercise and tender that is not greater than the full
option exercise price for the shares with respect to which the Option is
being exercised and by paying any remaining amount of the option exercise
price as provided in (i) above (provided that the Committee may, upon
confirming that the optionee owns the number of shares being tendered,
authorize the issuance of a new certificate for the number of shares being
acquired pursuant to the exercise of the Option less the number of shares
being tendered upon the exercise and return to the optionee (or not require
surrender of) the certificate for the shares being tendered upon the
exercise). Payment instruments will be received subject to collection.
(2) Number of Shares. Each agreement shall state the total number of
shares of Common Stock that are subject to the Option.
(3) Exercise Price. The exercise price for each Option shall be fixed
by the Committee at the date of grant, but in no event may such exercise
price per share be less than the Market Value Per Share on the date of the
grant of the Option.
(4) Market Value Per Share. The Market Value Per Share as of any
particular date shall be determined by any fair and reasonable means
determined by the Committee.
(5) Term. The term of each Option shall be determined by the
Committee at the date of grant; provided, however, that each Option shall,
notwithstanding anything in the Plan or an agreement to the contrary,
expire ten years from the date the Option is granted or, if earlier, the
date specified in the agreement at the date of grant of such Option.
(6) Date of Exercise. In the discretion of the Committee, each
agreement may contain a provision not inconsistent with Section 8 hereof
stating that the Option granted therein may not be exercised in whole or in
part for a period or periods of time specified in such agreement, subject
to Section 8, and except as so specified therein, any Option may be
exercised in whole at any time or in any time or in part from time to time
during its term. The Committee may, however, at any time, in its sole
discretion amend any outstanding Option to accelerate the time that such
Option shall be exercisable or to provide that the time for exercising such
Option shall be accelerated upon the occurrence of a specified event.
(7) Termination of Employment. In the event that an individual's
employment with the Company shall terminate, for reasons other than (i)
retirement with the consent of the Company ("retirement"), (ii) permanent
disability or (iii) death, the individual's Options shall be exercisable by
him, subject to subsections (5) and (6) above, only within three months
after such termination, but only to the extent the Option was exercisable
immediately prior to such termination of employment.
A-3
If, however, any termination of employment is due to retirement or
permanent disability, the individual shall have the right after such
termination of employment, subject to the provisions of subsections (5) and
(6) above, to exercise any outstanding Option in full at any time during
the remaining term provided therefor in the related agreements. Whether
any termination of employment is due to retirement or permanent disability
shall be determined by the Committee.
If an individual shall die while entitled to exercise an Option, the
individual's estate, personal representative or beneficiary, as the case
may be, shall have the right, subject to the provisions of subsections (5)
and (6) above, to exercise such Option at any time within 12 months from
the date of the optionee's death, to the extent that the optionee was
entitled to exercise the same on the day immediately prior to the
optionee's death.
(8) Reload Options. An option may, in the discretion of the
Committee, include the right to receive a reload stock option ("Reload
Option"). An option which contains the right to receive a Reload Option
shall entitle the optionee, upon the exercise of such option and payment of
the appropriate exercise price in shares of Common Stock that have been
owned by such option holder for at least six months prior to the date of
exercise, to receive a Reload Option. The Reload Option shall be the
option to purchase, at the Market Value Per Share on the date of grant of
the Reload Option, the number of shares of Common Stock equal to the sum of
the number of whole shares delivered by the optionee in payment of the
exercise price of the original option. Such Reload Option shall expire on
the same date that the option it was granted in conjunction with would have
expired had it not been exercised.
6. RECAPITALIZATION
Except as set forth in Section 3a, the aggregate number of shares stated in
Section 3a, the number of shares of Common Stock to which each outstanding
Option relates, and the exercise price in respect of each such Option shall be
adjusted in an equitable manner determined by the Committee, in its sole
discretion and without liability to any person, in the event of (i) a
subdivision or consolidation of shares of Common Stock or other capital
adjustments, (ii) the payment of a stock dividend or a recapitalization or (iii)
a "corporate transaction," as such term is defined in Treasury Regulation (S)
1.425-1(a)(1)(iii), or any other transaction which, in the opinion of the
Committee, is similar to a "corporate transaction," as defined by the said
Treasury Regulations as in effect on August 23, 1990, including without
limitation any spin-off or other distribution to the security holders of the
Company of securities or property of the Company. The Committee may exercise
its discretion to make any such adjustments on an optionee-by-optionee basis and
with respect to all or only some of the Options held by an optionee.
7. MERGER OR CONSOLIDATION
Except as otherwise provided in Section 8 below, after a merger of one or
more entities into the Company in which the Company shall survive, or after a
consolidation of the Company and one or more entities, in which the resulting
entity remains, as an independent, publicly-owned entity, an optionee shall, at
the same cost, be entitled upon the exercise of an Option to receive (subject to
any required action by shareholders) such stock, cash and/or securities of the
surviving or resulting entity as the board of directors, or its equivalent, of
such entity, in its sole discretion and without liability to any person, shall
determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of shares of Common Stock or other securities that were then
subject to such Option and such shares of stock or other securities shall, after
such merger or consolidation, be deemed to be shares of Common Stock for all
purposes of the Plan and any agreement.
8. CHANGE IN CONTROL
In the event of a Change in Control (as defined below), then,
notwithstanding any other term of this Plan or any agreement to the contrary,
any and all outstanding Options not fully vested shall automatically vest in
full and, except as provided below with respect to a person subject to Section
16 of the Securities Exchange Act of 1934, as
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amended (the "Exchange Act"), be immediately exercisable. The date on which such
accelerated vesting and immediate exercisability shall occur (the "Acceleration
Date") shall be the date of the occurrence of the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportion as their ownership of stock of the
Company) together with its "Affiliates" and "Associates," as such term is
defined in Rule 12b-2 of the Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years (not including any
period prior to the effective date of this Plan), individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clauses (a), (c) or
(d) of this definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at least a
majority thereof;
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 25% of the combined voting power of the Company's then
outstanding securities, or
(d) the shareholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale, exchange
or disposition by the Company of all or a significant portion of the
Company's assets. For purposes of this clause (d), the term "the sale,
exchange or disposition by the Company of all or a significant portion of
the Company's assets" shall mean a sale or other disposition transaction or
series of related transactions involving assets of the Company or any
Subsidiary (as defined below) (including the stock of any Subsidiary) in
which the value of the assets or stock being sold or otherwise disposed of
(as measured by the purchase price being paid therefor or by such other
method as the Board determines is appropriate in a case where there is no
readily ascertainable purchase price) constitutes more than 25% of the fair
market value of the Company (as hereinafter defined). For purposes of the
preceding sentence, the "fair market value of the Company" shall be the
aggregate market value of the outstanding shares of common stock of the
Company (on a fully diluted basis) plus the aggregate market value of the
Company's other outstanding equity securities. The aggregate market value
of the shares of common stock of the Company shall be determined by
multiplying the number of shares of the Company's common stock (on a fully
diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series of related
transactions (the "Transaction Date") by the Market Value Per Share
immediately preceding the Transaction Date or by such other method as the
Board shall determine is appropriate. The aggregate market value of any
other equity securities of the Company shall be determined in a manner
similar to that prescribed in the immediately preceding sentence for
determining the aggregate market value of the shares of common stock of the
Company or by such other method as the Board shall determine is
appropriate.
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Notwithstanding the foregoing however, a Change in Control shall not be
deemed to have occurred if, prior to the time a Change in Control would
otherwise be deemed to have occurred pursuant to the above provisions, the Board
determines otherwise.
If during the 60-day period following any such Acceleration Date or, with
respect to an Option granted to an officer or director subject to Section 16(b)
of the Exchange Act, the 60-day period following the earlier of the date that
Section 16(b) of the Exchange Act ceases to apply to such person or six months
following the date of grant of such Option (but not to exceed the remaining term
of such Option), a participant (or beneficiary thereof) elects to exercise an
Option, the holder shall receive in cash whichever of the following amounts is
applicable:
(i) with respect to an acquisition of Common Stock described in clause
(a) of the definition of Change in Control, an amount equal to the
Acquisition Spread (as defined below);
(ii) with respect to a change in composition of the Board described in
clause (b) of the definition of Change in Control, an amount equal to the
Spread (as defined below); or
(iii) with respect to stockholder approval of an agreement or
adoption of a plan described in clause (c) or (d) of the definition of
Change in Control, an amount equal to the Merger Spread (as defined below).
Notwithstanding the foregoing provisions of this Section 8, in the case of
an exercise in respect of an Incentive Stock Option, the holder may not receive
an amount in excess of the maximum amount that will enable such option to
continue to qualify as an Incentive Stock Option.
As used in this Section 8, the following terms shall have the meaning
indicated:
(1) The term "Acquisition Price Per Share" shall mean the greater of
(i) the highest price paid by a person (or an Affiliate or Associate
thereof) for any share of Common Stock acquired prior to, but in connection
with, a Change in Control described in clause (a) of the definition of a
Change in Control or (ii) the highest Market Value Per Share for any day
during the 60-day period ending on the date the Option is exercised.
(2) The term "Acquisition Spread" shall mean an amount equal to the
product obtained by multiplying (i) the excess of (A) the Acquisition Price
Per Share over (B) the price per share of Common Stock at which the Option
is exercisable, by (ii) the number of shares of Common Stock with respect
to which such Option is being exercised.
(3) The term "Merger Price Per Share" shall mean the greater of (i)
the fixed or formula price for the acquisition of shares of Common Stock
specified in such agreement or adoption, if such fixed or formula price is
determinable on the date on which such Option is exercised, and (ii) the
highest Market Value Per Share for any day during the 60-day period ending
on the date on which such Option is exercised.
(4) The term "Merger Spread" shall mean an amount equal to the product
obtained by multiplying the excess of (A) the Merger Price Per Share over
(B) the price per share of Common Stock at which the Option is exercisable,
by (ii) the number of shares of Common Stock with respect to which such
Option is being exercised.
(5) The term "Spread" shall mean an amount equal to the product
obtained by multiplying (i) the excess of (A) the highest Market Value Per
Share for any day during the 60-day period ending on the date the Option is
exercised over (B) the price per share of Common Stock at which the Option
is exercisable, by (ii) the number of shares of Common Stock with respect
to which the Option is being exercised.
A-6
(6) The term "Subsidiary" shall mean any entity in which the Company
has a direct or indirect ownership interest of 50% or more of the total
combined voting power of all classes of stock in such entity.
The Company intends that this Section 8 shall comply with the requirements
of Rule 16b-3 and any future rules promulgated in substitution therefor ("the
Rule") under the Exchange Act during the term of the Plan. Should any provision
of this Section 8 not be necessary to comply with the requirements of the Rule
or should any additional provisions be necessary for this Section 8 to comply
with the requirements of the Rule, the Board may amend the Plan to add to or
modify the provisions of the Plan accordingly.
9. EMPLOYEE'S AGREEMENT
If, at the time of the exercise of any Option, in the opinion of counsel
for the Company, it is necessary or desirable, in order to comply with any then
applicable laws or regulations relating to the sale of securities, for the
individual exercising the Option to agree to hold any shares issued to the
individual for investment and without intention to resell or distribute the same
and for the individual to agree to dispose of such shares only in compliance
with such laws and regulations, the individual will, upon the request of the
Company, execute and deliver to the Company a further agreement to such effect.
10. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts required to
be withheld or paid with respect thereto under all present or future federal,
state and local tax and other laws and regulations that may be in effect as of
the date of each such payment ("Tax Amounts"). Any issuance of Common Stock
pursuant to the exercise of an Option or other distribution of Common Stock
under the Plan shall not be made until appropriate arrangements have been made
for the payment of any amounts that may be required to be withheld or paid with
respect thereto. Such arrangements may, at the discretion of the Committee,
include allowing the optionee to tender to the Company shares of Common Stock
owned by optionee, or to request the Company to withhold a portion of the shares
of Common Stock being acquired pursuant to the exercise or otherwise distributed
to optionee, which have a Market Value Per Share as of the date of such
exercise, tender or withholding that is not greater than the sum of all Tax
Amounts, together with payment of any remaining portion of all Tax Amounts in
cash or by check payable and acceptable to the Company in the manner and subject
to the requirements described in this Section 10.
(a) Grant of Right. The Committee may, in its sole discretion, grant to a
participant the right to satisfy, in whole or in part, any obligation of the
participant to pay to the Company any Tax Amount as a result of the exercise of
an Option by electing to require that the Company, upon any exercise of the
Option, withhold from the shares of Common Stock issuable to the participant
upon the exercise of the Option, up to that number of full shares of Common
Stock having a fair market value equal to the full amount (or portion of the
amount) necessary to satisfy such participant's Tax Amount arising from such
exercise; provided, however, such withholding shall not exceed the Participant's
marginal tax rate arising from such exercise or vesting (the "Withholding
Right"). The Withholding Right may be granted with respect to all or any
portion of the shares of Common Stock subject to an Option.
(b) Election to Have Shares Withheld. If the Committee grants to a
participant a Withholding Right with respect to an Option, the participant
shall, subject to the terms and conditions set forth below and the terms and
conditions set forth in the related agreement (including the provisions thereof
relating to the election and exercise of the Withholding Right), have the right
at any time thereafter to elect to require that the Company withhold shares of
Common Stock upon exercise of the Option, or any portion thereof, to which the
Withholding Right relates; and such election may, subject to such procedures and
limitations as the Committee may adopt, relate to all or any portion of the
Withholding Right granted to the participant.
(1) Any election pursuant to this paragraph 10(b) by a participant who
at the date of the making of the election is not a director or officer of
the Company within the meaning of Section 16(b) of the Exchange Act (a
"Section 16(b) Person"), shall be subject to the following conditions and
limitations:
A-7
(A) the election may only be made by delivery by a participant of
written notice of such election to the Committee on or prior to the
date that the amount of tax to be withheld is, under applicable
federal income tax laws, fixed and determined by the Company (the "Tax
Date");
(B) unless disapproved by the Committee as provided in paragraph
10(b)(1)(C) below, the election once made shall be irrevocable; and
(C) no election shall be valid unless and until the Committee shall
have consented to the election; the Committee shall have the right and
power, in its sole and absolute discretion, with or without cause or
reason therefor, to consent to the election, to refuse to consent to
the election or to disapprove the election; and if the Committee shall
not have consented to the election on or Prior to the Tax Date, the
election shall be deemed disapproved.
(2) Any election pursuant to this paragraph 10(b) by any person who at
the date of the making of the election is a Section 16(b) Person shall be
subject to the following conditions and limitations:
(A) no election may be made by any Section 16(b) Person during the
period commencing on the date of the grant by the Committee of the
Option to which such Withholding Right relates and terminating six
calendar months following that date; provided, however, that this
paragraph (b)(2)(A) shall not be applicable to any Section 16(b)
Person at any time subsequent to the death or "Permanent Disability"
("Permanent Disability" means that a participant is totally disabled,
whether due to physical or mental condition, so as to be prevented
from engaging in further employment by the Company and that such
disability is likely to remain permanent and continuous during the
remainder of his fife, as determined by the Committee upon the basis
of medical evidence satisfactory to it) of the Section 16(b) Person;
(B) the election may only be made by delivery by the Section 16(b)
Person of written notice of such election to the Committee during any
of the following time periods: (x) that period which is not less than
six calendar months less one day prior to the Tax Date, or (y) any ten
business day period commencing on the third business day following the
date on which the quarterly or annual summary statements of sales or
earnings of the Company appear on a wire service, in a financial news
service, in a newspaper of general circulation, or are otherwise
publicly made available and ending at the closing of business on the
twelfth business day following such date (a "Window Period"); and
(C) no election shall be valid unless and until the Committee shall
have consented to the election; the Committee shall have the right and
power, in its sole and absolute discretion, with or without cause or
reason therefor, to consent to the election, refuse to consent to the
election or to disapprove the election; and if the Committee shall not
have consented to the election on or prior to the Tax Date, the
election shall be deemed disapproved.
(c) Exercise of Withholding Right and Option to Which It Relates. If the
Committee consents to an election of a participant's Withholding Right the
exercise of the Option (or any portion thereof) to which the Withholding Right
relates shall constitute an exercise of the Withholding Right, and the Committee
shall, in its discretion, allow the optionee to tender to the Company shares of
Common Stock owned by the optionee or shall cause the Company to withhold from
the shares otherwise issuable upon the exercise of the Option that number of
full shares of the Common Stock having an aggregate Market Value Per Share equal
to no less than the amount (or portion of the amount, as applicable) required to
be withheld under applicable federal and state income tax laws as a result of
the exercise and no greater than to the amount (or portion of the amount, as
applicable) necessary to satisfy the participant's federal, state and local tax
liability, including F.I.C.A. tax, arising from such exercise; provided,
however, such withholding shall not exceed the participant's marginal tax rate
arising from such exercise or vesting.
A-8
11. TERMINATION OF AUTHORITY TO GRANT AWARDS.
No Options may be granted pursuant to this Plan after August 22, 2000.
12. AMENDMENT AND TERMINATION
The Board may from time to time and at any time alter, amend, suspend
discontinue or terminate this Plan and any grants hereunder; provided, however,
that no such action of the Board may, without the approval of the shareholders
of the Company, alter the provisions of the Plan so as to (i) increase the
maximum number of shares of Common Stock that may be subject to grants and
distributed in the payment of exercises under the Plan (except as provided in
Section 3b); (ii) change the class of employees eligible to receive grants under
the Plan; or (iii) extend beyond ten years the maximum terms of Options granted
under the Plan or extend the term of the Plan unless, in each case, such
approval is not required to meet the requirements of the Rule.
13. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the Plan to
the contrary notwithstanding, if, at any time specified herein or therein for
the making of any determination, the issuance or other distribution of shares of
Common Stock any law, regulation or requirement of any governmental authority
having jurisdiction in the premises shall require either the Company or the
employee (or the employee's beneficiary), as the case may be, to take any action
in connection with any such determination, the shares then to be issued or
distributed, or such payment, the issue or distribution of such shares or the
making of such determination or payment, as the case may be, shall be deferred
until such action shall have been taken.
14. CHANGE IN CONTROL LIMITATION
Notwithstanding any other provision in the Plan, to the extent that the
acceleration of exercisability of an Option under this Plan following a Change
in Control, when aggregated with other payments or benefits to the participant,
whether or not payable pursuant to this Plan, would, as determined by tax
counsel selected by the Company, result in "excess parachute payments" (as
defined in Section 28OG of the Code) such parachute payments or benefits
provided to a participant under this Plan shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Code, but only if, by reason of such reduction, the
participant's net after tax benefit shall exceed the net after tax benefit if
such reduction were not made. "Net after tax benefit" shall mean the sum of (i)
all payments and benefits which a participant receives or is then entitled to
receive that would constitute a "parachute payment" within the meaning of
Section 28OG of the Code, less (ii) the amount of federal income taxes payable
with respect to the payments and benefits described in (i) above calculated at
the maximum marginal income tax rate for the year in which such payments and
benefits shall be paid to the participant (based upon the rate for such year as
set forth in the Code at the time of the first payment of the foregoing), less
(iii) the amount of excise taxes imposed with respect to the payments and
benefits described in (i) above by Section 4999 of the Code.
15. MISCELLANEOUS
a. No Employment Contract. Nothing contained in the Plan shall be
construed as conferring upon any employee the right to continue in the employ of
the Company.
b. Employment with Subsidiaries. Employment by the Company for the
purpose of this Plan shall be deemed to include employment by, and, to continue
during any period in which an employee is in the employment of, any Subsidiary.
c. No Rights as a Shareholder. A participant shall have no rights as a
shareholder with respect to shares covered by such participant's Option until
the date of the issuance of shares to the participant Pursuant thereto. No
A-9
adjustment will be made for dividends or other distributions or rights for which
the record date is prior to the date of such issuance.
d. No Right to Corporate Assets. Nothing contained in the Plan shall be
construed as giving any participant, such participant's beneficiaries or any
other person, any equity or other interest of any kind, in any assets of the
Company or creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
e. No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company from taking any corporate action that
is deemed by the Company to be appropriate or in its best interest, whether or
not such action would have an adverse effect on the Plan or any grant made under
the Plan. No participant, beneficiary or other person shall have any claim
against the Company as a result of any such action.
f. Non-assignability. A participant shall not have the power or right to
sell, exchange, pledge, transfer, assign or otherwise encumber or dispose of
such participant's interest any grant under the Plan nor shall such interest be
subject to seizure for the payment of a participant's debts, judgments, alimony,
or separate maintenance or be transferable by operation of law in the event of a
participant's bankruptcy or insolvency and to the extent any such interest
arising under the Plan is awarded to a spouse pursuant to any divorce
proceeding, such interest shall be deemed to be terminated and forfeited
notwithstanding any vesting provisions or other terms herein or in the agreement
evidencing such award.
g. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to the Plan will be used for general corporate purposes.
h. Sale Of Subsidiary or Assets. In the event a Key Employee ceases to be
employed by the Company as a result of a sale or other disposition by the
Company of a Subsidiary or all or part of the business operations of the
Company, the Committee, in its sole discretion, may accelerate the
exercisability of any grant under the Plan, in whole or in part, as it deems
appropriate.
i. Governing Law; Construction. All rights and obligations under the Plan
shall be governed by, and the Plan shall be construed in accordance with, the
laws of the State of Texas without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of reference
only, and shall in no way limit, define or otherwise affect the meaning or
interpretation of any provisions of the Plan.
A-10
LUFKIN INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. Election of L. R. Jalenak, Jr., Henry H. King, Douglas V. Smith and W. W.
Trout, Jr. as Directors
----------------------
Nominee Exception
For Withheld For All
All All Except
0 0 0
2. To approve and adopt the amendment of the Company's Fourth Restated Articles
of Incorporation to increase the number of authorized shares of common stock
from 20,000,000 to 60,000,000.
For Against Abstain
0 0 0
3. To amend the Company's 1990 Stock Option Plan to increase the number of
shares of common stock of the Company as to which options may be granted
under the plan from 900,000 to 1,100,000.
For Against Abstain
0 0 0
4. To appoint Arthur Andersen LLP as the independent auditors of the Company
for the year 1999.
For Against Abstain
0 0 0
NOTE: (Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, etc., please give full title as
such. For joint accounts, each joint owner should sign.)
Dated: _____________________________________, 1999
Signature(s) ___________________________________________________________________
Dated: _____________________________________, 1999
Signature(s) ___________________________________________________________________
FOLD AND DETACH HERE
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
LUFKIN INDUSTRIES, INC.
This Proxy is Solicited by the Board of Directors
The undersigned hereby constitutes and appoints DOUGLAS V. SMITH and C.J.
HALEY, JR., and each or either of them, lawful attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of
LUFKIN INDUSTRIES, INC., (herein the "Company") to be held at the Museum of
East Texas, 503 North Second, Lufkin, Texas, at 9:00 a.m., Lufkin Time, on the
5th day of May, 1999, and any adjournment(s) thereof, with all powers the
undersigned would possess if personally present and to vote thereat, as
provided below, the number of shares the undersigned would be entitled to vote
if personally present.
1. Election of L. R. Jalenak, Jr., Henry H. King, Douglas V. Smith and W. W.
Trout, Jr. to the Company's board to serve until the annual shareholders'
meeting held in 2002 or until their successors have been elected and
qualified.
2. The amendment of the Company's Fourth Restated Articles of Incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
60,000,000.
3. The amendment of the Company's 1990 Stock Option Plan to increase the number
of shares of common stock of the Company as to which options may be granted
under the plan from 900,000 to 1,100,000.
4. The appointment of Arthur Andersen LLP, independent certified public
accountants, as the Company's auditors for the year 1999.
In accordance with their discretion, said attorneys and proxies are
authorized to vote upon such other business as may properly come before such
meeting or any adjournments thereof.
Every properly signed proxy will be voted in accordance with the
specification made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 and 4. All prior proxies are hereby revoked.
This proxy will also be voted in accordance with the discretion of the
proxies or proxy on any other business. Receipt is hereby acknowledged of the
Notice of Annual Meeting and Proxy Statement of the Company dated April 8,
1999.