1
TWIN DISC, INCORPORATED
1328 Racine Street, Racine, Wisconsin 53403
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 20, 1995
NOTICE IS HEREBY GIVEN TO THE
SHAREHOLDERS OF TWIN DISC, INCORPORATED
The Annual Meeting of Shareholders of Twin Disc, Incorporated, a
Wisconsin corporation will be held at 2 P.M. (Central Daylight Time) on
Friday, October 20, 1995 at its main offices, 1328 Racine Street, Racine,
Wisconsin for the following purposes:
1. Election of three Directors to serve until the Annual Meeting in
1998.
2. Election of two Directors to serve until the Annual Meeting in 1996.
3. Ratification of election of independent public auditors for the
fiscal year to end June 30, 1996.
4. To transact such other business as may properly come before the
meeting.
Only holders of record of shares of common stock of the Corporation at
the close of business on September 1, 1995, shall be entitled to vote at said
meeting.
If you wish to propose business to be brought before the meeting or
nominate a person for election as director at the meeting, such proposal or
nomination must be received by the Secretary by the deadline stated in the
proxy statement. Any proposal or nomination not received before the deadline
will not be considered.
A proxy appointment and proxy statement are enclosed herewith. The proxy
appointment shows the form in which your shares are registered. Your signature
should be in the same form.
FRED H. TIMM
September 15, 1995 Secretary
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND RETURN
YOUR PROXY APPOINTMENT IN THE ENCLOSED ENVELOPE BEFORE THE DEADLINE STATED IN
THE PROXY STATEMENT. IF YOUR PROXY APPOINTMENT IS NOT RECEIVED BY THE
SECRETARY BEFORE THAT DEADLINE, IT WILL BE RULED INVALID. SHOULD YOU FIND IT
CONVENIENT TO ATTEND THE MEETING PERSONALLY, YOUR PROXY APPOINTMENT WILL BE
RETURNED TO YOU AT THAT TIME AND YOU MAY VOTE IN PERSON.
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY APPOINTMENT
IMMEDIATELY. 1
2
Proxy Statement
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of the Corporation of proxies for use at the Annual
Meeting of Shareholders to be held at 2 P.M. (Central Daylight Time), at 1328
Racine Street, Racine, Wisconsin on Friday, October 20, 1995, or any
adjournment thereof. Holders of common stock of record at the close of
business on the 1st day of September 1995, are entitled to vote at the meeting
and each shareholder shall have one vote for each share of common stock
registered in such shareholders' name. Shares represented by a signed proxy
appointment will be voted in the manner specified in the form of proxy or, if
no specification is made, in favor of each of the propositions mentioned
therein. The presence of a majority of the outstanding shares of common stock
of the Corporation, either in person or represented by a signed proxy
appointment, will constitute a quorum at the meeting. The Corporation intends
to mail this statement to shareholders on or about September 15, 1995.
On September 1, 1995, there were outstanding 2,790,111 shares of common
stock of the Corporation entitled to vote at the Annual Meeting. There also
are 200,000 shares of no-par preferred stock authorized, of which 50,000
shares have been designated Series A Junior Preferred Stock, but none
outstanding.
The enclosed proxy appointment form must be delivered to the Secretary
either in person, by mail, or by messenger. Appointment forms transmitted by
facsimile, telex, telegram, or electronic means will not be accepted.
Furthermore, appointment forms must be received by the Secretary not less than
forty-eight (48) hours prior to the date of the meeting. APPOINTMENT FORMS NOT
MEETING THE ABOVE REQUIREMENTS WILL BE RULED INVALID FOR ANY PURPOSE.
The appointment form must be signed in handwriting. The signature must be
sufficiently legible to allow the inspector to distinguish it as representing
the name of the registered shareholder, or must be accompanied by a rubber
stamp facsimile or hand-printed name, including the shareholder's surname and
either the shareholder's first or middle name as represented on the corporate
records, and any titles, offices or words indicating agency which appear in
the corporate records.
The enclosed proxy appointment may be revoked any time before it is voted
by submission, either in person, by mail, or by messenger, of a later dated
proxy appointment form to the Secretary at least forty-eight (48) hours prior
to the date of the meeting. Any such later dated proxy appointment form which
is not received by the Secretary by this deadline or by the correct method
shall not be effective as a new proxy appointment nor as a revocation of a
prior proxy appointment. In addition, a shareholder may revoke a proxy
appointment form signed by him or her by openly stating the revocation at the
meeting, by voting at the meeting in person, or by delivering a signed written
statement revoking the proxy to the Secretary prior to the date of the
meeting. Appointment forms or revocations transmitted by facsimile, telex,
telegram, or electronic means shall not be accepted. ANY ATTEMPTED REVOCATIONS
NOT MEETING THE ABOVE REQUIREMENTS WILL BE RULED INVALID FOR ANY PURPOSE.
3
The proxy solicited hereunder will be voted in favor of the Directors'
recommendations on each and all matters properly brought before the meeting,
unless the undersigned shareholder specifically instructs the holder or
holders of the proxy to the contrary. With regard to the election of
directors, votes may be cast in favor or withheld; votes that are withheld
will be excluded entirely from the vote and will have no effect. Abstentions
may be specified on all proposals submitted to shareholders (other than the
election of directors). Abstentions and "broker non-votes" are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business. Under the rules of the New York Stock Exchange, Inc.,
brokers who hold shares in street name for customers may have authority to
vote on certain items when they have not received instructions from beneficial
owners. A "broker non-vote" occurs on an item submitted for shareholder
approval when the broker does not have authority to vote on the item in the
absence of instructions from the beneficial owner. Such "broker non-votes"
will have no effect on the outcome of the election of directors or the
independent public auditors.
2
4
SHAREHOLDER PROPOSALS FOR 1995
The last day for the Corporation to receive proposals, for inclusion in
the Notice of the Meeting and Proxy Statement for the 1996 Annual Meeting is
May 15, 1996.
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP
OF DIRECTORS AND EXECUTIVE OFFICERS
PRINCIPAL SHAREHOLDERS
Based upon the records of the Corporation and filings with the Securities
and Exchange Commission as of July 31, 1995, the following table sets forth
the persons or group of persons having beneficial ownership (as defined by the
Securities and Exchange Commission) of more than 5% of the issued and
outstanding common stock of the Corporation.
Nature of
Beneficial Amount Percent
Name Address Ownership Owned of Class
----------------- ------------------- --------------- ------- --------
Michael E. Batten 3419 Michigan Blvd. Power to vote 542,427 19.4%
Racine, WI Beneficial 118,897 4.3%
Kennedy Capital 425 N. New Ballas Rd. Power to vote & 264,000 9.5%
Management, Inc. St. Louis, MO dispose of stock
Dimensional Fund 1299 Ocean Ave. Power to vote & 204,000 7.3%
Advisors Santa Monica, CA dispose of stock
Fidelity Management 82 Devonshire St. Power to vote & 165,000 5.9%
and Research Boston, MA dispose of stock
Corporation
Harry L. Allen, Jr. 7455 Tyler Blvd. Power to vote & 141,200 5.1%
Mentor, OH dispose of stock
Held as trustee under various trusts.
Includes 2,600 shares owned by the wife of Michael E. Batten and 38,000
subject to currently exercisable stock options.
3
5
SECURITIES OWNED BY MANAGEMENT
The following table sets forth, as of September 1, 1995, the number of
shares of common stock of the Corporation beneficially owned by each of the
Directors of the Corporation, each of the executive officers named in the
Summary Compensation Table and the number of shares beneficially owned by all
Directors and executive officers of the Corporation as a group.
Amount and Nature
Name of of Beneficial Percent of
Beneficial Owner Ownership Class
----------------- ------------------- -----------
Michael E. Batten 661,324 23.7%
John L. Murray 6,400 *
William W. Goessel 4,900 *
Stuart W. Tisdale 7,000 *
James O. Parrish 22,800 *
Paul J. Powers 1,100 *
Michael H. Joyce 31,261 1.1%
Jerome K. Green 3,200 *
Richard T. Savage 1,900 *
David L. Swift 200 *
David R. Zimmer 1,016 *
Phillipe Pecriaux 18,000 *
James McIndoe 16,620 *
All Directors and
Executive Officers
as a group (15 persons) 808,173 29.0%
Shares listed include any shares owned by a spouse, minor children and
immediate relatives who share the same household as a Director or officer.
Inclusion of any such shares is not to be considered an admission of
beneficial ownership.
Includes 2,600 shares held by Mr. Batten's wife, 495,849 shares held by him as
trustee under various family trusts, 124,872 shares held as limited guardian
for a cousin, and 38,000 shares subject to presently exercisable stock
options.
Shares subject to currently exercisable stock options included in the above
are as follows: Mr. Murray 6,000, Mr. Goessel 3,900, Mr. Tisdale 6,000, Mr.
Parrish 18,500, Mr. Joyce 30,500, Mr. Green 3,000, Mr. Pecriaux 17,000, Mr.
McIndoe 15,100, Mr. Powers 900 and all Directors and executive officers as a
group 168,700.
* Denotes ownership of less than one percent of shares outstanding.
4
6
ELECTION OF DIRECTORS
Three directors are to be elected for a term to expire at the annual
meeting following the fiscal year ended June 30, 1998, and two directors are
to be elected for a term to expire at the annual meeting following the fiscal
year ended June 30, 1996. Shares of common stock represented by properly
executed proxy appointments in the accompanying form will be voted for the
nominees listed for the term indicated unless authority to do so is withheld.
The nominees for the Board of Directors and the Directors whose terms
will continue and the class to which he has been or is to be elected are as
set forth below. Except for David L. Swift and David R. Zimmer, each nominee
and each Director was elected to his present term of office by a vote of
shareholders at a meeting for which proxies were solicited.
In July, 1995, the Board of Directors was increased from nine to eleven
and the Board appointed David L. Swift and David R. Zimmer as directors to
hold office until the next succeeding annual meeting, and each of them has
been nominated to complete a partial term which will expire at the Annual
Meeting in 1996, at which time John L. Murray and William W. Goessel will
retire. The Restated By-Laws of the Corporation classify the Board of
Directors into three classes: one class consisting of five directors, two
classes of three directors, with each director serving a term of office of
three years (other than those elected to fill a partial term). This year, the
terms of Stuart W. Tisdale, James 0. Parrish and Paul J. Powers expire at the
1995 Annual Meeting of Shareholders and each of them has been nominated for a
new three-year term expiring at the Annual Meeting in 1998.
Served as
Principal Occupation Director
Name of Director and other Public Continuously
and Date of Birth Company Directorships Since
----------------------- ----------------------- ------------
NOMINEES WHOSE TERMS EXPIRE
IN 1998:
Stuart W. Tisdale . . . . . . Retired, former October 1980
August 15, 1928 Chairman & Chief Executive
Officer WICOR, Inc.
(parent company of
Wisconsin Gas Company, and
Sta-Rite Industries, Inc.)
Milwaukee, Wisconsin
Also Director,
Marshall & Ilsley Corporation,
and Modine Manufacturing Company
James O. Parrish . . . . . . Vice President-Finance December 1982
September 12, 1940 & Treasurer
Twin Disc, Incorporated
7
Paul J. Powers . . . . . . . Chairman, President and July 1992
February 5, 1935 Chief Executive Officer,
Commercial Intertech, Corp.,
Youngstown, Ohio.
(A leading manufacturer of hydraul ic
components, fluid purification pro ducts,
pre-engineered buildings and stamp ed
metal products.)
Director of Acme-Cleveland Corp.,
Ohio Edison Company
NOMINEES WHOSE TERMS EXPIRE
IN 1996:
David L. Swift . . . . . . . Chairman, President and July 1995
September 20, 1936 Chief Executive Officer,
Acme-Cleveland Corporation,
Pepper Pike, Ohio
(Manufacturer of diversified
industrial products.)
5
David R. Zimmer . . . . . . . President and Chief Executive July 1995
August 21, 1946 Officer Core Industries Inc.
Bloomfield Hills, Michigan
(Manufacturer of specialized
products for the electronics,
fluid controls, construction and
farm equipment markets.)
DIRECTORS WHOSE TERMS EXPIRE
IN 1997:
Michael H. Joyce . . . . . . President and Chief Operating October 1991
November 7, 1940 Officer, Twin Disc, Incorporated
Formerly, President
Mobile Fluid Products, Division of
Dana Corporation
(Diversified manufacturer)
Greenville, South Carolina
Jerome K. Green . . . . . . . Retired, former Group Vice June 1988
July 5, 1936 President, The Marmon Group
(diversified manufacturer)
Chicago, Illinois
Formerly, President and
Chief Executive Officer
J.I. Case Company, a subsidiary
of Tenneco, Inc.
(Manufacturer of farm and
construction equipment)
8
Richard T. Savage . . . . . . President and Chief Executive April 1993
October 5, 1936 Officer, Modine Manufacturing
Company (A leading manufacturer
of heat exchange equipment)
DIRECTORS WHOSE TERMS EXPIRE
IN 1996:
Michael E. Batten . . . . . . Chairman, and Chief Executive, May 1974
April 14, 1940 Twin Disc, Incorporated
Also Director,
Briggs & Stratton Corporation,
Firstar Corporation, and
Universal Foods Corporation
John L. Murray . . . . . . . Retired, former October 1981
April 11, 1927 Chairman of the Board,
Universal Foods Corporation
(Manufacturer and marketer of
food ingredients and specialty
foods)Milwaukee, Wisconsin
Also Director,
Marcus Corporation,
Wisconsin Energy Corporation,
Universal Foods Corporation, and
Briggs & Stratton Corporation
6
William W. Goessel . . . . . Retired, Chairman October 1987
October 24, 1927 of the Board and former
Chief Executive Officer,
Harnischfeger Industries, Inc.
(Manufacturer of cranes,
mining equipment and
papermaking machines)
Milwaukee, Wisconsin
Also Director,
Goulds Pumps, Incorporated,
and Measurex Corporation
DIRECTOR COMMITTEES AND ATTENDANCE
BOARD OF DIRECTORS' MEETINGS AND ATTENDANCE
The Corporation's Board of Directors met six times during the year ended
June 30, 1995. There were no absences from these meetings.
DIRECTORS' COMMITTEES MEETINGS AND ATTENDANCE
The Executive Selection and Salary and Audit Committees met two and three
times respectively, during the year. The Board Affairs and Nominating
Committee met three times in fiscal 1995. The Pension and Finance Committees
each met twice during the year. Each Director attended at least 75% of the
meetings requiring his attendance.
9
DIRECTOR COMMITTEE FUNCTIONS
AUDIT COMMITTEE
The Audit Committee reviews with the Corporation's Internal Auditor and
Independent Public Accountants their activities, reports and comments, and
recommends to the Board any action which it deems appropriate. The Committee
recommends to the Board the selection of auditors to stand for election at the
Annual Shareholders' Meeting.
FINANCE COMMITTEE
The Finance Committee considers management's proposed financial policies
and actions, and makes appropriate recommendations to the Board regarding:
Debt and capital structure, acquisitions, capital budgets, dividend policy and
other financial matters.
DIRECTOR NOMINATING AND BOARD AFFAIRS COMMITTEE
The Director Nominating and Board Affairs Committee recommends nominees
for the Board to the Board of Directors. The Committee will consider nominees
recommended by shareholders in writing to the Secretary. In addition, The
Committee reviews proposed changes in corporate structure and governance,
committee structure and function, and meeting schedules making recommendations
to the Board as appropriate.
EXECUTIVE SELECTION AND SALARY COMMITTEE
The Executive Selection and Salary Committee reviews nominees for
Corporate offices and related compensation levels, making recommendations to
the Board of Directors as considered necessary.
PENSION COMMITTEE
The Pension Committee reviews and recommends to the Board for approval
the pension funds' professional advisors and auditors. The Committee annually
reviews actuarial assumptions, funding policies and investment policies.
COMMITTEE MEMBERSHIP
The Directors' committees are currently comprised of the following
Directors; the Chairman of the Committee is listed first:
NOMINATING
EXECUTIVE AND
AUDIT FINANCE PENSION SELECTION BOARD AFFAIRS
--------- --------- --------- ----------- ---------------
Goessel Murray Green Tisdale Powers
Powers Green Joyce Goessel Goessel
Savage Savage Parrish Green Murray
Tisdale Powers Murray Tisdale
Savage
7
10
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation received by the
Corporation's Chief Executive Officer and the four most highly paid executive
officers for the three fiscal years ended June 30, 1993, 1994 and 1995,
respectively.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Name and Compensation Compensation
Principal Stock All Other
Position Year Salary Bonus Options Compensation
---------- ---- -------- ---------- --------- ----------------
Michael E. Batten 1995 $303,335 $111,326 9,000 $ 4,166
Chairman and 1994 293,048 61,560 10,000 4,976
Chief Executive 1993 276,617 85,000 8,000 10,020
Officer
Michael H. Joyce 1995 227,780 83,022 4,500 2,579
President and 1994 215,700 46,008 5,000 -
Chief Operating 1993 209,699 106,500 4,000 3,486
Officer
James O. Parrish 1995 149,393 41,017 2,500 4,341
Vice President 1994 142,820 22,680 3,000 3,394
Finance & 1993 137,919 27,500 2,500 6,934
Treasurer
Philippe Pecriaux 1995 161,000 51,371 2,500 -
Vice President 1994 138,004 42,858 2,500 -
Europe 1993 148,360 25,000 2,000 -
James McIndoe 1995 123,845 23,189 2,000 2,913
Vice President 1994 117,773 35,690 2,500 2,098
International 1993 113,240 22,500 2,500 5,113
Marketing
Represents annual incentive bonuses determined by the Board of Directors. See
"Board Executive Selection and Salary Committee Report on Executive
Compensation-Annual Incentives". Bonuses are paid in the fiscal year following
the fiscal year in which earned.
Amounts are comprised of Corporation's 401(k) matching contributions and
Corporation paid insurance.
11
STOCK OPTIONS
The following table summarizes option grants during fiscal 1995 to the
executive officers named in the Summary Compensation Table above, and the
potential realizable values at assumed annual rates of stock price
appreciation for the ten year option term.
8
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants or Option Term
----------------------------------- ----------------------------
% of Total
Options
Options Granted to Exercise Expiration
Name Granted EmployeesPrice Date 5% 10%
------------ --------- ----------- --------- ---------- -------- --------
M. Batten 4,500 12.1% $20 8/15/99 $ 56,601 $143,437
M. Batten 4,500 12.1% $22 8/15/04 $ 62,261 $157,781
M. Joyce 4,500 12.1% $20 8/15/04 $ 56,600 $143,400
J. Parrish 2,500 6.7% $20 8/15/04 $ 31,400 $ 79,700
P. Pecriaux 2,500 6.7% $20 8/15/04 $ 31,400 $ 79,700
J. McIndoe 2,000 5.4% $20 8/15/04 $ 25,200 $ 63,700
During the fiscal year ended June 30, 1995, a total 37,050 options were
granted to officers, key employees and directors, with 24,450 granted under
the 1988 Incentive Stock Option Plan and 12,600 options granted under the 1988
Non-Qualified Stock Option Plan. Options granted to Mr. Batten during the
fiscal year ended June 30, 1995, were 4,500 non-qualified stock options and
4,500 incentive stock options. Percentages reflected are based upon the total
amount of options granted under both plans. All options are exercisable upon
grant.
The exercise price is the fair market value on the date of grant, except for
incentive stock options granted to Mr. Batten which are exercisable at 110% of
the fair market value at date of grant.
12
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal
1995 by the named executive officers and the value of such officers'
unexercised options at June 30, 1995.
Total Number Total Value
of Unexercised of Unexercised,
Options Held In-the-Money Options
Shares Value at Fiscal Year End Held at Fiscal Year End
Acquired on Real- Exer- Unexer- Exer- Unexer-
Name Exercise ized cisable cisable cisable cisable
--------- ----------- ----- --------- --------- ----------- -----------
M. Batten 0 N/A 38,000 0 $179,507 $ 0
M. Joyce 0 N/A 30,500 0 $231,125 $ 0
J. Parrish 0 N/A 19,000 0 $143,438 $ 0
P. Pecriaux 1,000 6,000 17,000 0 $120,812 $ 0
J. McIndoe 0 N/A 15,600 0 $150,335 $ 0
COMPENSATION PURSUANT TO PLANS
RETIREMENT INCOME PLAN
The Twin Disc Employees' Retirement Income Plan for salaried employees
provides non-contributory benefits based upon both years of service and
employee's highest consecutive 5-year average annual compensation during the
last 10 calendar years of service excluding any annual incentive awards paid.
The Plan is integrated with Social Security. The following table presents the
non-contributory benefits payable for life under the Plan to employees
assuming normal retirement in the current year.
AVERAGE HIGH NON-CONTRIBUTORY PENSION BASED ON
5-YEAR ANNUAL YEARS OF CREDIT SERVICE
COMPENSATION 10 YEARS 20 YEARS 25 YEARS 30 YEARS 40 YEARS
$ 50,000 $10,257 $20,513 $25,641 $26,869 $29,133
75,000 15,456 30,913 38,641 40,519 44,082
100,000 20,656 41,313 51,641 54,169 59,032
150,000 31,056 62,113 77,641 81,469 88,932
9
13
The values reflected in the table represent the application of the Plan
formula to the appropriate amounts of compensation and years of service.
Benefits payable under the Plan, however, must be in compliance with the
applicable guidelines or maximum prescribed in the Employees Retirement Income
Security Act of 1974 (ERISA), as currently stated or as adjusted from time to
time. Assuming continued employment to normal retirement age (age 65) the
estimated credited years of service for each of the Corporation's executive
officers named in the Summary Compensation Table is as follows: Mr. Batten 34
years; Mr. Joyce 15 years; Mr. Parrish 32 years; and Mr. McIndoe 24 years. Mr.
Pecriaux is not eligible for benefits under the Twin Disc Retirement Income
Plan.
The Corporation has adopted an unfunded supplemental plan which will
provide those benefits which are otherwise produced by application of the Plan
formula, but which, under ERISA, are not permitted to be funded or paid
through a qualified plan and its related trust. Such an arrangement is
specifically provided for under the law.
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
A supplemental retirement benefit is extended to qualified Management
Group participants. The supplemental retirement benefits extend over a period
of 10 years after normal retirement or in the event of disability at an amount
equal to sixty percent of the highest rate of pay attained during a specified
period of time, plus keyman group life insurance premiums or their equivalent
supplemental benefit payable to those electing early retirement. In the event
of death of a member of the Management Group, whether active or retired, an
amount equal to 2 years' supplemental retirement benefits is payable to the
widow or other designated beneficiaries over a 4 to 10 year period.
COMPENSATION OF DIRECTORS
Directors of the Corporation were paid a retainer fee of $8,000 for the
year. In addition, Directors received a $1,200 fee for each board meeting
attended and $1,000 for each committee meeting attended. Directors who are
officers do not receive any fees in addition to their remuneration as
officers.
Outside Directors (non-Twin Disc employees) are eligible to participate
in the 1988 Non-Qualified Stock Option Plan for Officers, Key Employees and
Directors.
Outside Directors (non-Twin Disc employees) who reach the age of 68 or
who retire from full-time employment are required to retire from the Board of
Directors effective as of the completion of their current term. Retired
outside directors are entitled to a retirement benefit for a limited period
equal to the sum of:
a) The annual retainer at the time of retirement.
b) Six monthly fees for Director Meetings at the rate prevailing at the
time of retirement.
14
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Corporation has entered into Severance Agreements with certain of its
key executives, including Messrs. Batten, Joyce, Parrish, Pecriaux and
McIndoe. The Agreement provides for severance benefits to be paid to any such
executive following a change in control of the Corporation (as defined) and a
termination (as defined) of the employment of such executive. Upon the
occurrence of the events, as specified in the Severance Agreements, which
would entitle such executive to the payment of severance benefits, the maximum
contingent liability of the Corporation for the payment of such severance
benefits would be approximately $3,500,000. Severance benefits for an
executive officer would generally consist of the sum of the executive's
highest annual base salary between the change in control and the date of
termination plus the executive's most recent annual bonus times the lesser of
2.75 or the number of whole and fractional years between the termination date
and his normal retirement date. In addition, the executive would be entitled
to the cash value of any shares of common stock subject to unexercised stock
options held by the executive. The Severance Agreements are specifically
designed to assure that benefits will not exceed the limitations and
provisions of Sec. 280G, of the Internal Revenue Code.
10
BOARD EXECUTIVE SELECTION AND SALARY COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Corporation's primary business objective is to maximize shareholder
value over the long term. To accomplish this objective, the Corporation has
developed a comprehensive business strategy that emphasizes maximizing
long-term cash flow and earnings, maintaining leadership or becoming the
leader in its markets, and providing products of the highest quality.
The Executive Selection and Salary Committee of the Board of Directors
(the "Committee") establishes compensation programs which are designed to
foster the Corporation's business objectives. The Committee approves the
design of, assesses the effectiveness of, and administers executive
compensation programs in support of compensation policies. The Committee also
reviews and approves all salary arrangements and other remuneration for
executives, evaluates executive performance, and considers related matters.
The Committee members believe that each element of the compensation
program should target compensation levels at rates that are reflective of
current market practices. Offering market-comparable pay opportunities allows
the Corporation to maintain a stable, successful management team.
Competitive market data is provided by an independent compensation
consultant. The data provided compares the Corporation's compensation
practices to a group of comparator companies. The Corporation's market for
compensation comparison purposes is comprised of a group of companies that
have national and international business operations and similar sales volumes,
market capitalizations, employment levels, and lines of business. The
Committee reviews and approves the selection of companies used for
compensation comparison purposes.
15
In establishing a comparator group for compensation purposes, the
Committee neither bases its decisions on quantitative relative weights of
various factors, nor follows mathematical formulae. Rather, the Committee
exercises its judgment and makes its decision after considering the factors it
deems relevant.
The companies chosen for the comparator group used for compensation
purposes generally are not the same companies which comprise the peer group
index in the Performance Graph included in this proxy statement. The Committee
believes that the Corporation's most direct competitors for executive talent
include many companies in geographical areas in which it operates as well as
many of the companies that are included in the peer group established for
comparing shareholders returns.
The key elements of the Corporation's executive compensation are base
salary, annual incentives, long-term compensation, and benefits. These key
elements are addressed separately below. In determining compensation, the
Committee considers all elements of an executive's total compensation package,
including severance plans, insurance, and other benefits, with the objective
of being competitive but not trend setting.
BASE SALARIES
The Committee regularly reviews each executive's base salary. Base
salaries are targeted at market levels, based upon the Committee's analysis of
marketplace practices. Base salaries for executives are initially determined
by evaluating executives' levels of responsibility, prior experience, breadth
of knowledge, internal equity issues, and external pay practices.
Base salaries offer security to executives and allow the Corporation to
attract competent executive talent and maintain a stable management team. They
also allow executives to be rewarded for individual performance based on the
Corporation's evaluation process which encourages the development of
executives. Pay for individual performance rewards executives for achieving
goals which may not be immediately evident in common financial measurement.
Increases to base salaries are driven primarily by individual
performance. Individual performance is evaluated based on sustained levels of
individual contribution to the Corporation. When evaluating individual
performance, the Committee considers the executive's effort in promoting
Corporate values; improving product quality; developing relationships with
customers, suppliers, and employees; demonstrating leadership abilities among
coworkers; and other goals. Overall, executive salaries were increased at
rates comparable to the increases provided at other companies and are near
market levels.
11
16
As reflected in the Summary Compensation Table on page 7, Mr. Batten's
base salary was increased in 1995 by $10,287 (3.5%). In determining Mr.
Batten's base salary in 1995, the Committee considered the Company's financial
performance for the year, Mr. Batten's individual performance, and his
long-term contributions to the success of the Corporation. The Committee also
compared Mr. Batten's base salary to the base salaries of CEOs at comparator
companies.
ANNUAL INCENTIVES
The Twin Disc Incentive Bonus Program (the "Annual Plan") promotes the
Corporation's pay-for-performance philosophy by providing executives with
direct financial incentives in the form of annual cash bonuses to achieve
corporate, business unit, and individual performance goals. Annual bonus
opportunities allow the Corporation to communicate specific goals that are of
primary importance during the coming year and motivate executives to achieve
these goals.
Eligibility to participate in the Annual Plan, as well as the individual
payout percentages assigned to each eligible executive's position, are
determined annually by Mr. Batten, as chief executive officer, subject to the
approval of the Committee.
Each year, the Committee approves specific goals relating to each
executive's bonus opportunity. Eligible executives are assigned threshold and
target bonus levels based on a percentage of base salary. Executives earn
bonuses to the extent to which preestablished goals are achieved.
In 1995 bonus awards were granted as earnings targets were attained
indicating that prior long term decisions are providing favorable results.
Corporate goals in 1995 were based on target earnings and return on net assets
employed.
Target bonus awards are established at levels approximating marketplace
practices for each executive. Targets are considered by the Committee to be
achievable, but to require above average performance from each of the
executives.
In 1995, Mr. Batten received a bonus under the Annual Plan of $111,326.
This reflects a 90% achievement of the Corporation's goal relating to target
earnings and 98.1% achievement of the Corporation's goal relating to return on
net assets employed in 1995.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Corporation's 1988
Non-Qualified Stock Option Plan for Officers, key employees and Directors, and
the 1988 Incentive Stock Option Plan.
In keeping with the Corporation's commitment to provide a total
compensation package which includes at-risk components of pay, the Committee
makes annual decisions regarding appropriate stock option grants for each
executive. When awarding stock options, the Committee considers executives'
levels of responsibility, prior experience, historical award data, various
performance criteria, and compensation practices at comparator companies.
17
Stock options are granted at an option price not less than the fair
market value of the Corporation's common stock on the date of grant.
Accordingly, stock options have value only if the stock price appreciates from
the date the options are granted. This design focuses executives on the
creation of shareholder value over the long term and encourages equity
ownership in the Corporation.
On August 14, 1995, Mr. Batten received non-qualified options to purchase
shares at the fair market value of shares on the date of grant and qualified
options to purchase shares at 110% of the fair market value on the date of
grant. In 1994, Mr. Batten received non-qualified options to purchase 4,500
shares at the fair market value on the date of grant and qualified options to
purchase 4,500 at 110% of the fair market value on the date of grant. Mr.
Batten is claimed to be the beneficial owner of 80,713 shares of the
Corporation's common stock and holds options to purchase an additional 38,000
shares. The Committee believes that this equity interest provides a strong
link to the interest of shareholders.
Executive Selection and Salary Committee
Stuart W. Tisdale, Chairman
William W. Goessel
Jerome K. Green
John L. Murray
July 28, 1995
12
18
CORPORATE PERFORMANCE GRAPH
The following table compares total shareholder return over the last five
(5) fiscal years to the Standard & Poor's Diversified Machinery Index and the
Russell 2000 index. The S&P Diversified Machinery Index consists of a broad
range of manufacturers (including the Corporation). The Russell 2000 Index
consists of a broad range of 2,000 Companies (including the Corporation). The
Corporation believes, because of the similarity of its business with those
companies contained in the S&P Diversified Machinery Index, that comparison of
shareholder return with this index is appropriate. Total return values for the
Corporation's common stock, the S&P Diversified Machinery Index and the
Russell 2000 Index were calculated based upon an assumption of a $100
investment on June 30,1990, and based upon cumulative total return values
assuming reinvestment of dividends on a quarterly basis.
Comparison of Five-Year Cumulative Total Return
Twin Disc, Inc.; S&P Diversified Machinery; and Russell 2000
06/30/90 06/30/91 06/30/92 06/30/93 06/30/94 06/30/95
-------- -------- -------- -------- -------- --------
Twin Disc 100.00 77.60 94.68 92.43 108.68 140.23
S&P Div. Mach. 100.00 96.16 93.76 125.23 136.11 172.22
Russell 2000 100.00 101.23 115.96 146.06 152.49 183.09
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, and persons who beneficially own more than ten percent
(10%) of the Corporation's common stock, to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by the SEC regulations to furnish the
Corporation with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Corporation and representations from executive officers and directors, the
Corporation believes that during the period from July 1, 1994 to June 30,
1995, all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten (10%) beneficial owners were complied
with.
13
19
INDEPENDENT PUBLIC AUDITORS
The Directors of the Corporation recommend that you vote in favor of the
appointment of Coopers & Lybrand as independent public accountants for the
Corporation for the fiscal year to end June 30, 1996. The firm has audited the
Corporation's books annually since 1928. Representatives of Coopers & Lybrand
are expected to be present at the meeting and, while no formal statement will
be made by them, they will be available to respond to appropriate questions.
If the shareholders should not approve such appointment, the Directors would
reconsider the appointment.
GENERAL
The Corporation will bear the cost of the solicitation of proxies. The
firm of Georgeson & Co., Inc., New York, NY has been retained to assist in
solicitation of proxies for the Annual Meeting at a fee not to exceed $6,000
plus expenses.
Management does not know of any other business to come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
upon such matters in their discretion in accordance with the authorization of
the proxy.
If you do not contemplate attending in person, we respectfully request
that you fill in, sign and return the accompanying proxy at your early
convenience. However, remember that in order to have your proxy validated, it
must be delivered to the Secretary either in person, by mail, or by messenger,
and it must be received by the Secretary not less than forty-eight (48) hours
prior to the date of the meeting.
14
