<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1995
-----------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission file number 0-12640
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KAYDON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3186040
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
ARBOR SHORELINE OFFICE PARK, 19345 US 19 NORTH, CLEARWATER, FL 34624
(Address of principal executive offices)
Registrant's telephone number, including area code (813) 531-1101
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Yes X No
----- -----
Based on the closing sales price of March 12, 1996, the aggregate market value
of the voting stock held by nonaffiliates of the registrant was $538,035,307.
The number of shares outstanding of the registrant's common stock, $0.10 par
value was 16,428,559 as of March 12, 1996.
DOCUMENTS INCORPORATED BY REFERENCE AND THE PART(S) OF THIS FORM 10-K INTO
WHICH EACH DOCUMENT IS INCORPORATED:
KAYDON CORPORATION 1995 ANNUAL REPORT TO STOCKHOLDERS - PARTS I, II AND IV
KAYDON CORPORATION PROXY STATEMENT - PART III
<PAGE> 2
KAYDON CORPORATION FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
Part I Page No.
- ------ ------------
<S> <C> <C>
Item 1. Business 1 - 9
Item 2. Properties 10 - 12
Item 3. Legal Proceedings 12 - 13
Item 4. Submission of Matters to Vote of Security Holders 13
Part II
- -------
Item 5. Market for the Registrant's Common Equity &
Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) 1. Financial Statements 18
2. Financial Statement Schedules 18
3. Reference to Exhibits 19
(b) Reports on Form 8-K 19
Signatures 20
(c) 1. Exhibit Index 21 - 23
2. Exhibits 24 - 26
</TABLE>
<PAGE> 3
PART I
Item 1. BUSINESS
a. General Development of Business
Kaydon Corporation (the "Company" or "Kaydon") was formed in October
1983. The company has acquired the following operations from 1986 through
1990:
<TABLE>
<S> <C>
Kaydon Ring & Seal, Inc. 6/30/86
Spirolox 7/17/87
Electro-Tec Corp. 6/23/89
I.D.M. Electronics Ltd. 6/23/89
</TABLE>
Kaydon has made the following acquisitions and dispositions in the
past five years:
On December 16, 1991, Kaydon Corporation, through its wholly owned
subsidiaries, Kaydon Acquisition Corp. III and Kaydon Acquisition Corp. U.K.
Ltd., acquired for L.24,000,000 (approximately $43,440,000 when translated at
the exchange rate in effect at the time of purchase) all of the capital stock
of Prizerandom Limited, a United Kingdom corporation, from Clairmont PLC, a
Scotland corporation. Prizerandom Limited is a wholly owned subsidiary of
Clairmont PLC and is the holding company for Cooper Bearings Limited, a United
Kingdom corporation, which was the primary subject of the acquisition.
Cooper Bearings Ltd. is a holding company consisting of the following
operating subsidiaries, all of which are manufacturers or distributors of
complete bearings and related components parts:
<TABLE>
<CAPTION>
COUNTRY OF
SUBSIDIARY INCORPORATION
- --------------------------------------------------------- -------------
<S> <C>
Cooper Roller Bearings Company Limited ("Cooper U.K.") United Kingdom
Cooper Split Roller Bearings Corporation ("Cooper U.S.") U.S.A.
Cooper Geteilte Rollenlager GmbH ("Cooper Germany") Germany
</TABLE>
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<PAGE> 4
Cooper U.K. is a manufacturing operation located in King's Lynn,
Norfolk - U.K. that produces a range of split roller bearings including both a
standard line and custom-designed product. Split bearings are designed
specifically to aid the customer in solving problems where the application of
full round bearings would be impractical. Cooper U.S. and Cooper Germany are
distribution operations located in Virginia Beach, VA - U.S. and Krefeld,
Germany, respectively. The purchase price was financed through Kaydon
Corporation cash plus bank loans from the National Bank of Detroit and
Continental Bank, U.K.
On December 4, 1993, Cooper U.K., a wholly owned subsidiary of Kaydon,
acquired the assets of Kenyon Power Transmission Ltd. ("Kenyon") of Manchester,
England. Kenyon manufactures pulleys and drive components which are
complementary to their product offering. Subsequent to the purchase, Cooper
U.K. moved the assets to their manufacturing facility.
On January 28, 1994, Kaydon Corporation, through its wholly owned
subsidiary, Kaydon Acquisition VI, Inc., acquired for $7,268,000 certain assets
and liabilities of Industrial Tectonics Inc, the ball division of Axel Johnson,
Inc. Industrial Tectonics Inc, located in Dexter, Michigan, manufactures
specialty balls used in measuring devices, floats, valves, ball point pens and
antifriction bearings. This acquisition was consummated by Kaydon Acquisition
VI, Inc. with loaned funds from Kaydon Corporation.
On January 31, 1995, the Company, through its wholly owned subsidiary,
I.D.M. Electronics Ltd. ("I.D.M."), purchased the assets of D J Molding for
$759,000. I.D.M. moved the assets to its plant in Reading, England after the
purchase.
On May 1, 1995, Kaydon Corporation sold the majority of its automotive
operation assets. The net sale proceeds of $3,476,000 approximated the book
value of the assets sold. The Company and the buyer also entered into an
operating lease for the facility in which the business was located. The sales
of the automotive business were less than 4% of the consolidated net sales for
each of 1995, 1994 and 1993 with an operating income contribution percentage
lower than the rest of the Company. In addition, on May 17, 1995, Kaydon
Corporation sold the surplus building resulting from the 1993 plant
consolidation. The net sales proceeds of $1,789,000 approximated book value.
On August 31, 1995, Kaydon Corporation purchased the stock of Seabee
Corporation for approximately $22,753,000, net of cash received. Seabee,
located in Hampton, Iowa, is a manufacturer of large hydraulic cylinders and
alloy steel castings. This acquisition was accounted
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for using the purchase method of accounting and, accordingly, the results of
operations of Seabee have been included in the consolidated financial
statements since August 31, 1995, the effective date of the acquisition.
b. and c. Financial Information About Industry Segments
and Narrative Description of Business
The Company designs, manufactures and sells custom-engineered products
for a broad and diverse customer base. The Company's principal products
include antifriction bearings, bearing systems and components, filters and
filter housings, specialty retaining rings, specialty balls, custom rings,
shaft seals, hydraulic cylinders, metal castings and various types of
slip-rings. These products are used by customers in a wide variety of medical,
instrumentation, material handling, machine tool positioning, aerospace,
defense, construction and other industrial applications.
Products
Kaydon works closely with its customers to engineer the required
solutions to their design problems. Designed solutions are frequently unique
to a single customer or application. Depending upon the nature of the
application, the design may be used over a protracted time period and in large
numbers, or it may be for a single use.
The antifriction bearing products of Kaydon incorporate various types
of rolling elements. The ball, tapered roller, cylindrical roller and needle
roller bearings manufactured by Kaydon are made in sizes ranging from needle
bearings with a 1/2-inch outside diameter to heavy-duty ball bearings with an
outside diameter of 180 inches. These antifriction products are fabricated
from aluminum, bearing-quality steel, stainless steel or special tool steels.
They often incorporate a broad range of features such as gearing, special
sealing systems and mounting arrangements in combination with other mechanical
components.
As a custom manufacturer, many diverse applications are served.
Typical applications include large-diameter ball bearings for hydraulic cranes
and excavators; thin-section ball bearings for rotating joints of industrial
robots; lightweight airborne radar bearings; large-diameter aluminum roller
bearings for military vehicle turret systems; needle roller bearings for
passenger car transmissions; loose needle rollers for universal joints utilized
in light trucks, agricultural tractors
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and passenger cars; special coalescing elements and filter housings for diesel
fuel filtration on both commercial and military vehicles; hydraulic filter
elements for tractor-mounted farm implement units; and ultra high-precision
roller bearings for gear box applications.
Kaydon's subsidiary, Kaydon Ring and Seal, Inc., manufactures metallic
medium and large bore-size rings for low and medium-speed internal combustion
engines, steam engines, pumps and reciprocating compressors. Sealing rings are
engineered with metallic and nonmetallic products used to limit the leakage of
fluids and gases within engines and a wide variety of other mechanical
products. Sealing rings are used in industrial applications, such as:
compressors, transmissions, hydraulic and pneumatic cylinders, and commercial
and military aircraft, jet engines and control apparatus applications. Shaft
seals are used to seal gases or liquids usually under extreme conditions of
speed, pressure or temperature. Shaft seals are fabricated from a variety of
materials depending on the application.
Electro-Tec Corp. and I.D.M. Electronics Ltd., wholly owned
subsidiaries of Kaydon Corporation, design and manufacture precision,
high-performance slip-rings, slip-ring assemblies, capsules and related
electromechanical devices to meet customers' exact needs and specifications.
Slip-rings are manufactured from injection and transfer-molded plastics,
aluminum and stainless steel castings, bearings and electronic components and
connectors, and are sometimes subjected to an electro-deposition process. They
are used to transmit electrical signals or power between the rotating and
stationary members of an assembly and can be found in combat vehicles, aircraft
inertial guidance systems, telecommunications satellites, aircraft targeting
systems and medical diagnostic equipment.
Cooper Bearings Ltd., a wholly owned subsidiary of Kaydon Corporation,
designs and manufactures a range of split roller bearings, which include both
standard and custom-designed lines. Split bearings are designed specifically
to aid the customer in solving problems where the application of full round
bearings would be less desirable. The product is used in a wide range of
applications but particularly those where space and ease of change are
important selection criteria. With the acquisition of the assets of Kenyon
Power Transmission, Cooper U.K. now manufactures pulleys and drive components,
which are complimentary products.
Industrial Tectonics Inc, a wholly owned subsidiary of Kaydon
Corporation, manufactures specialty balls from alloyed steel, plastic, tungsten
carbide, glass and an assortment of other
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materials. These balls are used in a variety of applications including gauges,
measuring devices, floats, valves, ball point pens and antifriction bearings.
Seabee Corporation, a wholly owned subsidiary of Kaydon Corporation,
manufactures large hydraulic cylinders and alloy steel castings. The products
are primarily used in heavy industrial equipment.
Approximately 70 percent of Kaydon's sales are to original equipment
manufacturers, which incorporate the Kaydon products in the products they sell.
Many of the applications for the Company's products also provide the
opportunity for participation in the replacement or spare parts markets.
New Product and Industry Segment Information
The Company has not made any public announcement of, or otherwise made
public information about, a new product or a new industry segment which would
require the investment of a material amount of the Company's assets or which
would otherwise result in a material cost.
Patents, Trademarks, Licenses, Etc.
The Company does not believe that any material part of its business is
dependent on the continued availability of any one or all of its patents or
trademarks.
Seasonal Nature of Business
The Company does not consider its business to be seasonal in nature.
Working Capital Practices
The Company does not believe that it or the industry in general has
any special practices or special conditions affecting working capital items
that are significant for an understanding of the Company's business.
Customers
Kaydon sells its products to over 1,000 companies throughout the
world. The principal customers are generally large manufacturing corporations.
During 1995, 1994 and 1993, sales to no single customer exceeded 10% of total
sales.
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Customers can generally be divided into four major market groups:
Aerospace and Military Equipment, Replacement Parts and Exports, Special
Industrial Machinery and Heavy Industrial Equipment. Sales to these customer
groups for 1995, 1994 and 1993 are set forth in the following table:
Net Sales by Major Market Groups
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Aerospace and Military $ 37,921 16.5 $ 39,625 19.4 $ 40,838 22.2
Equipment
Replacement Parts and 88,586 38.5 78,675 38.4 68,624 37.3
Exports
Special Industrial 63,980 27.8 60,603 29.6 52,091 28.3
Machinery
Heavy Industrial 39,437 17.2 25,792 12.6 22,507 12.2
Equipment
Total $229,924 100.0% $204,695 100.0% $184,060 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Replacement parts are sold mainly through specialized distributors.
Kaydon had export sales of $20,040,000 in 1995, $17,184,000 in 1994, and
$10,979,000 in 1993, with most of such sales concentrated in Canada, Europe and
Japan.
Marketing
Kaydon's sales organization consists of salespersons and
representatives located throughout the United States, Canada, Europe and Asia.
Salespersons are trained to provide technical assistance to customers, as well
as to provide liaison with factory engineering staffs.
A nationwide network of specialized distributors and agents provides
local availability of Kaydon products to serve the requirements of the
replacement market and small original equipment manufacturers.
6
<PAGE> 9
Manufacturing
Kaydon manufactures virtually all of the products it sells and
utilizes subcontractors only for occasional specialized services. Kaydon's
products require sophisticated processes and equipment, and many of its
products incorporate unique Kaydon-developed production techniques. Certain
satellite and aircraft-type bearing products must meet extraordinary mechanical
tolerances (for example, within 20 millionths of an inch) and some products
such as slip-rings are assembled in quality-controlled "white room"
conditions. Nearly all of Kaydon's products require high levels of incoming
quality control and process quality control. The manufacturing equipment
required for Kaydon's operations entails a very high level of capital
investment for any given level of sales.
Suppliers
Kaydon and its subsidiaries purchase large quantities of raw
materials, mainly bearing-quality steel, special alloy steel, high-grade carbon
and filter media, aluminum alloy and stainless steel castings, plastics, wire
and electrical connectors, from multiple sources. Kaydon purchases large
amounts of certain types of bearing-quality steel from a number of foreign
suppliers. No significant supply problems have been encountered in recent
years as relationships with suppliers have generally been good.
Environmental Matters
Reference is made to "Management's Discussion and Analysis" on pages
15 and 16 of Kaydon's 1995 Annual Report to Stockholders which is incorporated
herein by reference.
7
<PAGE> 10
Employees
On December 31, 1995, Kaydon employed 2,015 employees. Hourly
employees at the Muskegon facilities (including Norton Shores) are represented
by the International Association of Machinists and Aerospace Workers. The
current collective bargaining agreement is effective until December 3, 1997.
The Baltimore hourly employees are also represented by the International
Association of Machinists and Aerospace Workers. The current collective
bargaining agreement is effective until November 8, 1998. Greeneville hourly
employees are represented by the United Steelworkers of America, with the
current collective bargaining agreement effective until February 2, 1996.
Dexter hourly employees are represented by the International Union United
Automobile, Aerospace and Agricultural Implement Workers of America, UAW, with
the current collective bargaining agreement effective until November 1, 1996.
The remaining domestic factory employees, as well as all office employees, are
non-union.
Kaydon provides its employees with a full range of insurance, pension
and deferred compensation benefits. The Company believes its levels of total
compensation are equal to or better than comparable companies in communities
adjacent to each facility.
Backlog
Kaydon sells certain products on a build-to-order basis that requires
substantial order lead time. This results in a backlog of unshipped, scheduled
orders. Other products are manufactured on the basis of sales projections or
annual blanket purchase orders. Orders for such products are not entered into
backlog until explicit shipping releases are received. Kaydon's backlog was
$101,852,000 at December 31, 1995 and $88,360,000 at December 31, 1994. Based
on experience, management would expect to ship over the following twelve months
about 90 percent of the year-end backlog. Backlog has become less indicative
of future results as the Company has made efforts to shorten manufacturing lead
times, creating a faster response to customer orders.
8
<PAGE> 11
Competition
Kaydon competes with divisions of SKF Industries, Timken Corporation,
Torrington/Fafnir, Rotek, FAG, EG&G Inc., Litton Poly-Scientific and numerous
other smaller companies.
The markets served by Kaydon are large and extremely competitive. The
major domestic competitors generally produce a wide line of standard products
and do not specialize in custom products. The major domestic bearing
manufacturers nonetheless do offer special-engineered bearings. The markets
for Kaydon's special-machined components, fabricated products, filters, rings
and seals are very diverse. Consequently, management feels that the size of
the total market for such products cannot be meaningfully estimated.
In all of the markets served by Kaydon, the principal methods of
competition involve price, product performance, engineering support and timely
delivery.
Many of Kaydon's domestic competitors are part of large, worldwide
manufacturing concerns and have significantly greater financial resources.
While foreign competition is intense and growing for all industrial components,
the special nature of Kaydon's products and the close working relationship with
its customers have somewhat limited the impact of foreign competition on
domestic business.
Government Contracts and Renegotiation
Various provisions of federal law and regulations require, under
certain circumstances, the renegotiation of military procurement contracts or
the refund of profits determined to be excessive. Based on Kaydon's experience
under such provisions, management believes that no material renegotiation or
refunds (if any) will be required.
d. Information About International Operations
Information with respect to operations by geographic area appears in
Note 17, "Business Segment Information" of the Notes to Consolidated Financial
Statements set forth on page 31 of the Annual Report to Stockholders, which is
incorporated herein by reference. Fluctuating exchange rates and factors
beyond the control of the Company, such as tariffs and foreign economic
policies, may affect future results of foreign operations.
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<PAGE> 12
Item 2. PROPERTIES
The following chart lists the principal locations, activity (use) and
square footage of Kaydon's most significant facilities as of December 31, 1995
and indicates whether the property is owned or leased:
<TABLE>
<CAPTION>
Location Activity Sq. Ft. Owned or
Leased
<S> <C> <C> <C>
Clearwater, FL Corporate Headquarters 9,383 Leased
Muskegon, MI Engineering Laboratory 232,250 Owned
(Norton Shores) Manufacturing Facility
Muskegon, MI Rental Property 162,476 Owned
(Norton Shores)
Newaygo, MI Rental Property 16,800 Owned
Dexter, MI Manufacturing Facility 56,627 Owned
Sumter, SC Manufacturing Facility 168,400 Leased
Sumter, SC Manufacturing Facility 115,200 Owned
Greeneville, TN Manufacturing Facility 80,700 Owned
LaGrange, GA Manufacturing Facility 87,000 Owned
Baltimore, MD Manufacturing Facility 725,000 Owned
St. Louis, MO Manufacturing Facility 18,500 Leased
Blacksburg, VA Manufacturing Facility 111,400 Owned
Virginia Beach, VA Warehouse 28,713 Owned
Offices 9,855 Owned
Hampton, IA Manufacturing Facility 298,380 Owned
Hampton, IA Manufacturing Facility 67,968 Owned
Krefeld, Germany Warehouse 10,032 Leased
King's Lynn, England Manufacturing Facility 153,000 Owned
Manufacturing Facility 26,000 Leased
Reading, England
Monterrey, NL, Mexico Manufacturing Facility 32,000 Owned
</TABLE>
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Kaydon owns the manufacturing facility and the leased building located
in Muskegon (Norton Shores), the leased building located in Newaygo, the
manufacturing facilities located in Dexter, Sumter, Greeneville, LaGrange,
Baltimore, Blacksburg, Hampton, Monterrey, Mexico, and King's Lynn, England and
the warehouse facility in Virginia Beach. Kaydon operates at two sites in
Sumter, one site is owned and the other is leased (under a capitalized lease)
in connection with a $4,000,000 Industrial Revenue Bond financing for a term
expiring April 1, 1997, with an option to purchase the property during the
pendency of the lease and an obligation to purchase the property for nominal
consideration upon its expiration. The St. Louis property is leased for a term
expiring July 31, 1997. The property in Reading, England, is leased for a term
expiring May 1, 2009. The Krefeld, Germany property is leased for a term
expiring September 30, 1996. The Corporate office located in Clearwater,
Florida is leased for a term expiring January 31, 1999.
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Kaydon Corporation is the sole shareholder of the following operating
subsidiaries:
<TABLE>
<CAPTION>
Date
Subsidiary Formed/Acquired
---------- ---------------
<S> <C>
Kaydon Ring and Seal, Inc. June 17, 1986
(a Delaware corporation)
Kaydon S.A. de C.V. April 10, 1987
(a Mexico corporation)
Electro-Tec Corp. June 23, 1989
(a Delaware corporation)
I.D.M. Electronics Ltd. June 23, 1989
(a United Kingdom corporation)
Cooper Roller Bearings Company Limited December 16, 1991
(a United Kingdom corporation)
Cooper Split Roller Bearings Corporation December 16, 1991
(a Virginia corporation)
Cooper Geteilte Rollenlager GmbH December 16, 1991
(a Germany corporation)
Industrial Tectonics Inc January 28, 1994
(a Delaware corporation)
Kaydon Acquisition Corp. V October 4, 1993
d/b/a Seabee Corporation
(a Delaware corporation)
</TABLE>
Item 3. LEGAL PROCEEDINGS
The Company, together with other companies, certain former officers,
and certain current and former directors, has been named as a co-defendant in
lawsuits filed in the federal court of New York in 1993. The suits purport to
be class actions on behalf of all persons who have unsatisfied personal injury
and property damage claims against Keene Corporation which filed for bankruptcy
under Chapter 11. The premise of the suits is that assets of Keene were
transferred to Bairnco subsidiaries, of which Kaydon was one in 1983, at less
than fair value. The suits also
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<PAGE> 15
allege that the Company, among other named defendants, was a successor to and
alter ego of Keene. In 1994, an examiner was appointed by a bankruptcy court
to examine the issues at stake. On September 23, 1994, the "Preliminary Report
of the Examiner" was made public. In the report, the examiner stated that the
alleged fraudulent conveyance claims against the Company appear to be
time-barred by the statute of limitations, subject to certain possible
exceptions which the Company does not believe are significant or factual.
Although the examiner has made certain recommendations regarding a mechanism to
resolve the claims against the Company, the Court has not taken any action
related to the report. Nevertheless, in the Company's opinion, the report
reinforces management's original view that the claims will ultimately not be
sustained. Accordingly, no provision has been reflected in the consolidated
financial statements for any alleged damages. In June 1995, the creditors'
committee filed a complaint in the same bankruptcy court asserting claims
against the Company similar to those previously filed. If Keene Corporation's
current plan of reorganization is approved by the bankruptcy court, the
lawsuits filed in 1993 would be permanently stayed and replaced by the
creditors' committee complaint. Management believes that the outcome of this
litigation will not have a material adverse effect on the Company's financial
position.
Various other claims, lawsuits and environmental matters arising in
the normal course of business are pending against the Company. Management
believes that the outcome of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1995.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER
MATTERS
a. and c. Market Information and Dividends
Information regarding the market price of Kaydon's common stock
appears in the "Quarterly Results of Operations" on page 30 of Kaydon's 1995
Annual Report to Stockholders, which is incorporated herein by reference.
During 1992, the Company effected a two-for-one stock split; accordingly, all
applicable financial data has been restated to reflect the split. Kaydon's
common stock is listed on the New York Stock Exchange ("NYSE") under the symbol
KDN. Kaydon declared cash dividends during 1995, 1994 and 1993 as follows (on
a per-share basis):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
March $0.11 $0.10 $0.09
June 0.11 0.10 0.09
September 0.11 0.10 0.09
December 0.12 0.11 0.10
</TABLE>
Effective with the cash dividend declared in December 1995 and paid in January
1996, Kaydon adopted a plan which calls for quarterly cash dividends of $0.12
per share. This recent increase in the dividend amount reflects Kaydon
management's continuing confidence in the growing financial strength of the
Company and their expectation of continued earnings growth.
<TABLE>
<CAPTION>
b. Holders
The number of common equity security holders is as follows:
<S> <C>
Number of Holders
of Record
Title of Class As of December 31, 1995
- ------------------------------------------------------- -----------------------
Common Stock, par value $0.10 per share 1,487
</TABLE>
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Item 6. SELECTED FINANCIAL DATA
Reference is made to "Financial History" on page 14 and "Management's
Discussion and Analysis" on pages 15 and 16 of Kaydon's 1995 Annual Report to
Stockholders, which is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to "To Our Stockholders" on pages 2 and 3 and
"Management's Discussion and Analysis" on pages 15 and 16 of Kaydon's 1995
Annual Report to Stockholders, which is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements and related notes
included on pages 18 through 31 of Kaydon's 1995 Annual Report to Stockholders,
which is incorporated herein by reference. Financial statement schedules are
included in Part IV of this filing.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to directors of Kaydon is
included in the Proxy Statement for the 1996 Annual Meeting of Stockholders of
Kaydon, which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The information required with respect to
executive officers of the Company is as follows:
<TABLE>
<CAPTION>
Name and Age of Data Pertaining to
Executive Officer Executive Officers
<S> <C>
Lawrence J. Cawley (61) Chief Executive Officer, Chief Financial Officer and
Chairman of the Board. Mr. Cawley was appointed as
President and Chief Executive Officer of Kaydon Corporation
in 1987 and relinquished the position of President in
September 1989, at which time he was appointed Chairman of
the Board. Effective January of 1992, Mr. Cawley was
appointed Chief Financial Officer. He was President of the
Bearings Division of Kaydon Corporation from 1985 to 1987.
Stephen K. Clough (42) President and Chief Operating Officer. Mr. Clough was
appointed President and Chief Operating Officer of Kaydon
Corporation and was elected to the Board of Directors in
September 1989. He had been Vice President and General
Manager of Kaydon's Bearings Division since 1987, after
having joined Kaydon as Vice President of its Automotive
operation in April 1986.
John F. Brocci (53) Vice President of Administration and Secretary. Mr. Brocci
has been Vice President of Administration since joining
Kaydon in March, 1989. He was appointed Secretary in
April, 1992. Prior to joining Kaydon, he was the
Operations Manager for the Sealed Power Division of SPX
Corporation.
</TABLE>
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Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is included in the Proxy Statement
for the 1996 Annual Meeting of Stockholders of Kaydon, which has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is included in the Proxy Statement
for the 1996 Annual Meeting of Stockholders of Kaydon, which has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is included in the Proxy Statement
for the 1996 Annual Meeting of Stockholders of Kaydon, which has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
17
<PAGE> 20
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a. 1. Financial Statements
The following consolidated financial statements of the Company
are included in the Annual Report of the registrant to its
stockholders for the year ended December 31, 1995 which is
incorporated herein by reference in Part II, Item 8 of this
report.
<TABLE>
<CAPTION>
Page Number in
Annual Report
to Stockholders
---------------
<S> <C>
Report of Independent Public Accountants 17
Consolidated Balance Sheets
as of December 31, 1995 and 1994 18
Consolidated Statements of Income
for the years ended December 31, 1995, 1994 and 1993 19
Consolidated Statements of Stockholders' Investment
for the years ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 21
Notes to Consolidated Financial Statements 22 - 31
</TABLE>
2. Financial Statement Schedules
All schedules required by Form 10-K Annual Report have been
omitted because they were inapplicable, the required
information is included in the notes to the consolidated
financial statements or otherwise is not required under
instructions contained in Regulation S-X.
Financial statements of the Company have been omitted since
the Company is primarily an operating company and all
subsidiaries included in the consolidated financial statements
filed are wholly owned subsidiaries.
18
<PAGE> 21
3. Reference to Exhibits
Reference is made to the Exhibit Index which is found on pages
21 through 23 of this Form 10-K.
b. Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth
quarter of 1995.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Kaydon has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KAYDON CORPORATION
------------------------------------------------
Registrant
Date: March 22, 1996 By: /s/Lawrence J. Cawley
-------------------------------------------------
Chief Executive Officer & Chief Financial Officer
Date: March 22, 1996 By: /s/Stephen K. Clough
-------------------------------------------------
President and Chief Operating Officer
Date: March 22, 1996 By: /s/Thomas C. Sorrells III
-------------------------------------------------
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of Kaydon and in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/Glenn W. Bailey
-----------------------------------------------------------
Glenn W. Bailey - Director March 22, 1996
/s/Gerald J. Breen
-----------------------------------------------------------
Gerald J. Breen - Director March 22, 1996
/s/Brian P. Campbell
-----------------------------------------------------------
Brian P. Campbell - Director March 22, 1996
/s/Lawrence J. Cawley
-----------------------------------------------------------
Lawrence J. Cawley - Chairman March 22, 1996
/s/Stephen K. Clough
-----------------------------------------------------------
Stephen K. Clough - Director March 22, 1996
/s/John H.F. Haskell, Jr.
-----------------------------------------------------------
John H.F. Haskell, Jr. - Director March 22, 1996
</TABLE>
20
<PAGE> 23
c. 1. Exhibits Index
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
------- ----------- ----------------------------
<S> <C> <C>
2.1 Stock and Asset Purchase Agreement between Exhibit 2 to Kaydon's Registration Statement
Kaydon Acquisition, Inc. (now Kaydon Ring on Form 8-K filed on July 15, 1986, as amended
and Seal, Inc.) and Koppers Company, Inc., by the Registration Statement filed on Form
dated June 26, 1986. 8-K on September 30, 1986 (SEC File
No. 0-12640).
2.2 Agreement of Purchase and Sale between Exhibit 2 to Kaydon's Annual Report on Form
Kaydon Corporation and TRW Automotive 10-K for the year ended December 31, 1987 (SEC
Products, Inc., dated as of June 29, 1987. File No. 0-12640).
2.3 Stock Purchase Agreement among Kaydon Exhibit 2 to Kaydon's Registration Statement
Corporation, Kaydon Acquisition Corp. III, on Form 8-K filed on July 7, 1989, as amended
Kaydon Acquisition Corp. IV, KDI Holdings, by the Registration Statement filed on Form
Inc. and KDI Corporation. 8-K on November 3, 1989 and Registration
Statement filed on Form 8-K on March 27, 1990
(SEC File No. 0-12640).
2.4 Stock Purchase Agreement among Kaydon Exhibit 2 to Kaydon's Registration Statement
Corporation, Kaydon Acquisition Corp. U.K. on Form 8-K filed on December 31, 1991, as
Limited, Murray Ventures PLC and others amended by the Registration Statement filed on
and William Terence Blaney and others. Form 8-K on February 28, 1992 (SEC File
No. 0-12640).
2.5 Asset Purchase Agreement among Kaydon Exhibit 2 to Kaydon's Annual Report on Form
Corporation, Industrial Tectonics Inc and 10-K for the year ended December 31, 1994 (SEC
Axel Johnson, Inc. dated January 28, 1994. File No. 0-12640).
2.6 Stock Purchase Agreement among Kaydon
Acquisition Corp. V and the shareholders
of Seabee Corporation.
3.1 Certificate of Incorporation of the Exhibit 3 to Kaydon's Registration Statement
Registrant, dated October 21, 1983. on Form S-1 (No. 2-89399).
3.2 Certificate of Amendment to the Exhibit 3 to Kaydon's Registration Statement
Certificate of Incorporation of the on Form S-1 (No. 2-89399).
Registrant, dated November 23, 1983.
3.3 Certificate of Amendment to the Exhibit 3 to Kaydon's Registration Statement
Certificate of Incorporation of the on Form S-1 (No. 2-89399).
Registrant, dated February 6, 1984.
3.4 Certificate of Correction to the Exhibit 3 to Kaydon's Registration Statement
Certificate of Amendment to the on Form S-1 (No. 2-89399).
Certificate of Incorporation of the
Registrant, dated February 17, 1984.
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
- ------- ----------- ----------------------------
<S> <C> <C>
3.5 Form of Restated Certificate of Exhibit 3 to Kaydon's Registration Statement
Incorporation of the Registrant, dated on Form S-1 (No. 2-89399).
March 1984.
3.6 Amendment to Certificate of Incorporation Exhibit 3 to Kaydon's Annual Report on
of the Registrant, dated February 24, Form 10-K for the year ended December 31, 1987
1987. (SEC File No. 0-12640).
3.7 Bylaws of the Registrant, as adopted on Exhibit 3 to Kaydon's Registration Statement
October 27, 1983. on Form S-1 (No. 2-89399).
3.8 Amended Bylaws of the Registrant, as Exhibit 3 to Kaydon's Annual Report on
adopted on February 19, 1986. Form 10-K for the year ended December 31, 1985
(SEC File No. 0-12640).
3.9 Amendment to the Bylaws of the Registrant, Exhibit 3 to Kaydon's Annual Report on
dated as of September 19, 1989. Form 10-K for the year ended December 31, 1989
(SEC File No. 0-12640).
3.10 Certificate of Amendment to the Exhibit 3 to Kaydon's Quarterly Report on
Certificate of Incorporation of the Form 10-Q for the quarter ended March 28, 1992
Registrant, dated April 27, 1992. (SEC File No. 0-12640).
4.1 Form of Stock Certificate for Kaydon Exhibit 3 to Kaydon's Registration Statement
Common Stock. on Form S-1 (No. 2-89399).
4.2 Shareholders Rights Plan dated June 21, Exhibit 1 to Kaydon's Registration of Certain
1995. Classes of Securities on Form 8-A filed June
28, 1995 (SEC File
No. 0-12640).
10.1 Amended and Restated Revolving Credit and Exhibit 4 to Kaydon's Annual Report on
Term Loan Agreement, dated March 14, 1990. Form 10-K for the year ended December 31, 1990
(SEC File No. 0-12640).
10.2 First Amendment to the Amended and Exhibit 4 to Kaydon's Annual Report on
Restated Revolving Credit and Term Loan Form 10-K for the year ended December 31, 1991
Agreement, dated February 22, 1991. (SEC File No. 0-12640).
10.3 Second Amendment to the Amended and Exhibit 4.1 to Kaydon's Annual Report on
Restated Revolving Credit and Term Loan Form 10-K for the year ended December 31, 1994
Agreement, dated February 28, 1994. (SEC File No. 0-12640).
10.4 Third Amendment to the Amended and Exhibit 4.2 to Kaydon's Annual Report on
Restated Revolving Credit and Term Loan Form 10-K for the year ended December 31, 1994
Agreement, dated March 29, 1994. (SEC File No. 0-12640).
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE TO
<S> <C> <C>
10.5 Letter, dated March 22, 1984, whereby the Exhibit 4 to Kaydon's Registration Statement
Registrant undertakes to furnish to the on Form S-1 (No. 2-89399).
Securities and Exchange Commission, upon
request, a copy of certain instruments as
provided in Item 601(b)(4)(iii)(A) of
Regulation S-K.
10.6 Kaydon Corporation Employee Stock Exhibit 10.1 to Kaydon's Annual Report on
Ownership and Thrift Plan as amended and Form 10-K for the year ended
restated December 14, 1994 effective December 31, 1994
January 1, 1989. (SEC File No. 0-12640).
10.7 Management Incentive Compensation Plan. Exhibit 10 to Kaydon's Registration Statement
on Form S-1 (No. 2-89399).
10.8 Electro-Tec Corporation Employee Exhibit 10.2 to Kaydon's Annual Report on
Retirement Benefit Plan as amended and Form 10-K for the year ended
restated December 14, 1994 effective July December 31, 1994
1, 1989. (SEC File No. 0-12640)
10.9 Kaydon Corporation 1993 Stock Option Plan. Exhibit A to Kaydon's Proxy Statement dated
March 10, 1993.
10.10 Kaydon Corporation 1993 Non-Employee Exhibit B to Kaydon's Proxy Statement dated
Directors Stock Option Plan. March 10, 1993.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.11 Kaydon Corporation Supplemental Executive
Retirement Plan.
10.12 Change in Control Compensation Agreements
Versions A & B.
11 Schedule of Computation of Net Income Per
Share.
13 Financial Section of Annual Report to
Stockholders.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule (for SEC use only)
</TABLE>
23
<PAGE> 1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, made and entered into as of the 31st day
of August, 1995, by and among those parties listed in Annex I, attached hereto
and made a part hereof, and KAYDON ACQUISITION CORPORATION V, a Delaware
corporation.
BACKGROUND
The Shareholders (this and other capitalized terms used in this
Agreement shall have the respective meanings set forth in Article I) are the
owners of all of the Capital Stock of the Company. The Shareholders desire to
sell, and the Purchaser desires to purchase, all of the Capital Stock on the
terms and conditions of this Agreement.
ARTICLE I: DEFINITIONS.
The following words and phrases, whenever capitalized in this
Agreement, shall have the following respective meanings:
1.1 "Agreement" shall mean this Stock Purchase Agreement.
1.1a "Best knowledge" means the actual personal knowledge
of one of the Management Shareholders after reasonable inquiry of the
Company's management as identified on Schedule 1.1.
1.2 "Capital Stock" shall mean all of the issued and outstanding
common stock, no par value, of the Company (owned by the Shareholders in the
respective amount set forth opposite each such Shareholder's name under "Number
of Shares of Capital Stock" on Annex I and Annex II). There is authorized
4,000,000 shares of Class A Common Stock and 1,000,000 shares of Class B Common
Stock.
1.3 "Charter" shall mean the certificate or articles of
incorporation pursuant to which a corporation was formed or is subsisting.
1.4 "Closing" shall mean the consummation of the purchase and sale
of the Capital Stock contemplated by this Agreement.
<PAGE> 2
1.5 "Closing Date" shall mean such date as is acceptable to the
Shareholders and the Purchaser upon the satisfaction of all conditions set
forth herein, but in no event shall the Closing Date be later than September
30, 1995.
1.6 "Company" shall mean Seabee Corporation, an Iowa corporation.
1.7 "Company's Rights" shall have the meaning set forth in Section
3.1.17.
1.8 "Encumbrance" shall mean any pledge, lien, security interest,
encumbrance, claim, demand, voting trust or agreement and any other interest
whatsoever.
1.9 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
1.10 "Financial Statements" shall have the meaning set forth in
Section 3.1.7.
1.11 "GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied.
1.12 "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
1.13 "IRC" shall mean the Internal Revenue Code of 1986, as
amended.
1.14 "Management Shareholder" means a Shareholder who is also an
officer and/or director of the Company.
1.15 "Non-Competition Covenants" shall mean the noncompetition
covenants between the Company and certain persons described in Section 5.1.11.
1.16 "PBGC" shall mean the Pension Benefit Guaranty Corporation or
any person succeeding to the present powers and functions of the Pension
Benefit Guaranty Corporation.
1.17 "Plans" shall have the meaning set forth in Section 3.1.22.2.
1.18 "Purchaser" shall mean Kaydon Acquisition Corporation V, a
Delaware corporation.
1.19 "Purchaser's Attorney" shall mean Lague, Newman & Irish.
1.20 "Real Property" shall have the meaning set forth in Section
3.1.14.
1.21 "Section" shall mean a section of this Agreement.
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<PAGE> 3
1.22 "Shareholders" shall mean the parties listed on Annex I (who
are also signatories to this Agreement), and a "Shareholder" shall mean any one
of them. "Class II Shareholders" shall mean the parties listed on Annex II
(who are not signatories to this Agreement).
1.23 "Shareholder's Address" shall mean the respective address set
forth for a Shareholder on Annex I and Annex II (or such other address as shall
have been specified by a Shareholder to the other parties to this Agreement by
notice.
1.24 "Shareholder's Attorney" shall mean Hagemann, Goeke, Egli &
Thalacker.
1.25 Accounting Terms. All accounting terms not otherwise defined
in this Agreement shall be construed in accordance with GAAP.
1.26 Singular and Plural. Where the context herein requires, the
singular number shall be deemed to include the plural, and vice versa.
ARTICLE II: SALE AND PURCHASE.
2.1 Agreement of Sale and Purchase. On the Closing Date, on the
terms and subject to the conditions of this Agreement, each of the Shareholders
agrees that he or she will sell, assign, transfer, convey, set-over and deliver
to the Purchaser the Capital Stock owned by such Shareholder and the Purchaser
will purchase and pay for the Capital Stock as described in Section 2.2.
2.2 Consideration for Capital Stock. In full consideration of the
receipt of the Capital Stock, Purchaser will pay the following consideration:
2.2.1 Cash Payment. On the Closing Date, the Purchaser
shall pay into escrow to a mutually satisfactory escrow agent the sum
of Sixteen Dollars ($16.00) per share, but not more than Nineteen
Million Nine Hundred Twenty-Five Thousand Two Hundred Eighty Dollars
($19,925,280), payable to each Shareholder and each Class II
Shareholder in the respective amount set forth opposite such
Shareholder's name under "Cash Payment" on Annex I and Annex II. The
purchase price shall be disbursed on the date that approval under, or
a waiver of application of the Hart-Scott-Rodino Act is obtained and
not less than 95% of all outstanding Class A and Class B shares have
been tendered pursuant to Paragraph 5.1.15. The purchase price shall
be refunded to the Purchaser if such a waiver or approval and tender
has not been obtained by September 30, 1995.
2.2.2 Method of Payment. All payments described in this
Agreement shall be made by certified or cashier's check, or by such
other method as the Shareholders and the Purchaser shall agree, and,
for payments other than those due on the Closing Date, shall be
forwarded by first class mail, postage prepaid, to the Shareholder's
Address.
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<PAGE> 4
2.3 Closing. The Closing shall occur at 10:00 a.m. local time on
the Closing Date at the offices of Purchaser's Attorney, or at such other time
and place as may be agreed by the Shareholders and the Purchaser.
ARTICLE III: REPRESENTATIONS AND WARRANTIES.
3.1 Management Shareholders' Representations and Warranties. The
Management Shareholders, severally, represent and warrant to the Purchaser that
to their Best Knowledge:
3.1.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Iowa, and has full power and authority
to own its properties and to carry on its business as now conducted,
and is in good standing and duly qualified to conduct business as a
foreign corporation in each of the jurisdictions in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification.
3.1.2 Charter and Bylaws. Exhibit 3.1.2 contains true,
correct and complete copies of the Charter of the Company and all
amendments thereto, certified as of a date reasonably near to the date
of this Agreement by the Secretary of State of Iowa, and of the Bylaws
of the Company, as amended through and including the date of this
Agreement, certified as of the day of this Agreement by the Secretary
of the Company.
3.1.3 Capitalization. The Company's authorized capital stock
consists of 5,000,000 shares of common stock, no par value, (4,000,000
Class A shares and 1,000,000 Class B shares) of which 1,245,330 shares
are validly issued and outstanding. No shares of capital stock of the
Company are issued or outstanding other than the Capital Stock. All
shares of the Capital Stock are validly issued, fully paid and
nonassessable, and there are no options, calls, warrants or other
securities or rights outstanding which are convertible into,
exercisable for or relate to the Capital Stock or any other shares of
capital stock of the Company.
3.1.4 Title and Authority. Each Shareholder is the absolute
owner, in the respective amounts set forth opposite each such
Shareholder's name under "Number of Shares of Capital Stock" on Annex
I, of the Capital Stock, free, clear and discharged of and from any
and all Encumbrances, and the Shareholder has full right, power and
authority to execute and deliver this Agreement and to perform his
respective obligations under this Agreement. Upon delivery of the
shares evidencing the Capital Stock owned by the Shareholder at the
Closing duly endorsed for transfer as contemplated in Section 5.1.8,
the Purchaser will be the absolute owner of such Capital Stock free,
clear and discharged of and from any and all Encumbrances. This
Agreement is the legal, valid and binding obligation of the
Shareholder and is enforceable in accordance with its terms,
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<PAGE> 5
except as the enforcement of this Agreement may be limited by laws of
general application relating to bankruptcy, insolvency and the relief
of debtors.
3.1.5 Subsidiaries and Investments. Except as described on
Exhibit 3.1.5, the Company does not have any subsidiaries or own
directly or indirectly any interest or have any investment in any
other corporation or business.
3.1.6 Corporate Records. All corporate actions, including
stock transfers, of the Company have been duly authorized and adopted
in accordance with applicable law and the Company's Charter and Bylaws
and have been duly recorded in the Company's corporate minute books if
required to be recorded therein, and all stock transfers of the
Company have been duly recorded in the Company's stock transfer books.
3.1.7 Financial Statements. Exhibit 3.1.7(a) consists of
copies of the Company's audited balance sheet as of the end of, and
the related audited statements of income, retained earnings and
changes in financial position for, each of the three (3) fiscal years
ended December 31, 1992 through December 31, 1994, and the notes
thereto, additional or supplemental information supplied therewith,
and the reports prepared in connection therewith by Carney, Alexander
and Marold or such other independent certified public accountants
reporting thereon. Exhibit 3.1.7(b) consists of copies of the
Company's unaudited balance sheets as of each of the months in the
period from January 1, 1995 through July 31, 1995 and the related
unaudited statements of income and retained earnings for each of the
respective monthly and year-to-date periods from January 1, 1995 to
such balance sheet dates. Exhibits 3.1.7(a) and 3.1.7(b)
(collectively, the "Financial Statements"):
(i) are true, complete and correct in all material respects;
(ii) fairly present the properties, assets, financial position
and results of operations of the Company as of the respective dates
and for the respective periods stated above; and
(iii) have been prepared pursuant to and in accordance with
GAAP.
All inventories reflected in the Financial Statements have been valued
at the lower of cost or market, with cost determined using the
first-in, first-out method; adequate provision has been timely made in
the Financial Statements for doubtful accounts or other receivables;
sales are stated in the Financial Statements net of discounts, returns
and allowances; and all taxes due or paid are timely reflected in the
Financial Statements and all taxes of the Company not yet due and
payable are fully accrued or otherwise provided for therein. Any
items of income or expense which are unusual or of a nonrecurring
nature and all transactions between the Company and any subsidiary
during any such
-5-
<PAGE> 6
period or at any such balance sheet date are separately disclosed in
the Financial Statements.
3.1.8 Unreported and Contingent Liabilities. Except as
described on Exhibit 3.1.8, as of the date of this Agreement and as of
the Closing Date, the Company does not have any liabilities or
obligations, whether accrued, absolute, contingent or otherwise,
existing or arising out of any transaction entered into, or state of
facts existing, on or prior to the date of this Agreement or the
Closing Date, other than such matters as are specifically and
expressly set forth in the Financial Statements or those which have
been incurred by the Company in the ordinary course of its business
during the period from the date of the latest of the Financial
Statements. Without limitation of the foregoing:
3.1.8.1 None of the Management Shareholders has any
knowledge of any fact, circumstance or condition which might
reasonably give rise to any liability of any significance to
the Company of any kind or nature whatsoever which is not
reflected or specifically disclosed in Exhibits 3.1.7(a) or
3.1.7(b).
3.1.8.2 The Company has no liability on account of
product warranties or arising out of working conditions in the
manufacture or sale of its products or with respect to the
manufacture or sale of defective products or the delivery of
faulty service greater than that historically incurred.
3.1.9 Environmental Matters. Except as disclosed on
Exhibit 3.1.9, the Company has no accrued or contingent liability to
any federal, state or local government or to any private party on
account of or arising out of sewage, waste or hazardous waste
disposal, air, water or land pollution or other environmental matters.
To the best of the Management Shareholder's knowledge, the Company has
no accrued or contingent liability to any person under the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended or under the Resource Conservation and Recovery
Act of 1976, as amended.
3.1.10 No Adverse Change. Since December 31, 1994, there
have not been any material adverse changes, either individually or in
the aggregate, in the general affairs, business, prospects, customers,
competition, properties, financial position, results of operations or
net worth of the Company, nor have there been any material casualties
affecting the Company or loss, damage or destruction to any of its
properties (whether or not covered by insurance). None of the
Management Shareholders has any knowledge of any events, transactions
or other facts which, either individually or in the aggregate, might
reasonably give rise to circumstances or conditions which might have a
material adverse effect on the general affairs, business, prospects,
customers, competition, properties, financial position, results of
operations or net worth of the Company. None of the Management
Shareholders is aware of any increased competitive activities, or of
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<PAGE> 7
any plans for such increased activities, in markets for the Company's
products over the level of competitive activities which have in the
past twelve months been experienced by the Company.
3.1.11 Taxes. Exhibit 3.1.11 consists of copies of the
Company's federal income tax returns filed for fiscal years ended on
and after December 31, 1990 through December 31, 1994. The Company
has prepared in accordance with law and filed all tax returns required
to be filed by it under the laws of the United States and any state,
and has paid or established an adequate reserve (which is set forth in
the Financial Statements) in respect of all taxes, penalties, interest
and related charges and fees for the periods covered by such returns.
The Company is not delinquent in the payment of any taxes claimed to
be due by any federal, state or local taxing authority. The Company
has established a tax reserve or account payable in any amount
sufficient for all accrued and unpaid federal, state, county and local
taxes of the Company, whether or not disputed, including any
penalties, interest and related charges and fees in connection
therewith, for the current year. The federal income tax returns of
the Company have been audited and reported upon by the Internal
Revenue Service through December 31, 1990. No agreements have been
made by or on behalf of the Company for any waiver or for the
extension of any statute of limitations governing the time of
assessment or collection of any federal, state or local taxes. The
Management Shareholders, the Company and the Company's officers have
received no notice of any pending or threatened audit by the Internal
Revenue Service or any state or local taxing authority related to the
Company's tax returns or tax liability for any period and no claim for
assessment or collection of taxes has been asserted against the
Company. There are no tax liens outstanding against any of the
assets, properties or business of the Company.
3.1.12 Litigation. Except as disclosed in the Financial
Statements or in Exhibit 3.1.8, there are no claims, demands,
disputes, actions, suits, proceedings or investigations pending or, to
the knowledge of the Management Shareholders, threatened against or
directly or indirectly affecting the Company, at law or in equity or
admiralty or before or by any federal, state, municipal or other
governmental court, department, commission, board, bureau, agency or
instrumentality, domestic or foreign, nor is the Company subject to
any presently effective adverse order, writ, injunction or decree of
any such body.
3.1.13 Conduct of Business. Since December 31, 1994, the
Company has operated its business only in the usual and ordinary
manner and has used its best efforts to preserve its present business
organization intact, keep available the services of its present
employees and preserve its present relationships with persons having
business dealings with it. Without limitation of the foregoing,
except as disclosed on Exhibit 3.1.13, since December 31, 1994, the
Company has not:
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<PAGE> 8
(i) issued any capital stock or declared or paid any
dividends other than the three quarterly dividends of 25 cents
per share or made any other payment from capital or surplus or
other distribution of any nature, or directly or indirectly
redeemed, purchased or otherwise acquired or recapitalized or
reclassified any of its capital stock or liquidated in whole
or in part;
(ii) merged or consolidated with any other
corporation;
(iii) created, incurred or assumed or committed to
create, incur or assume any indebtedness or other liability,
except for accounts payable or other current liabilities which
(1) are not for borrowed money, (2) were incurred in the usual
and ordinary course of business, and (3) have not been and
will not be materially adverse to the general affairs,
business, prospects, properties, financial position, results
of operations or net worth of the Company;
(iv) mortgaged, pledged or otherwise encumbered any
of its assets;
(v) raised salaries, hourly rates or the rate of
bonuses or commissions or other compensation in any material
amount, except for salaries and hourly pay rates raised on
July 1, 1995;
(vi) varied insurance coverage;
(vii) altered or amended its Charter or Bylaws,
except as described in Exhibit 3.1.2;
(viii) entered into, materially amended or
terminated any material contract, agreement, franchise, permit
or license;
(ix) experience any material labor disturbances;
(x) sold or transferred or agreed to sell or
transfer any material asset or property or material portion of
its business or cancelled or agreed to cancel any debt or
claim (or material portion thereof) or waived any right,
except in the usual and ordinary course of business;
(xi) made or authorized any capital expenditures for
additions to plant or equipment in excess of $25,000;
(xii) made any loan or advance, other than advances
for expenses made in the usual and ordinary course of
business, to any Shareholder or to any officer or
-8-
<PAGE> 9
employee of the Company, except for payroll advances made to
employees and subject to repayment via payroll deduction as
set forth on Exhibit 3.1.13; or
(xiii) entered into any other material transaction
other than in the ordinary course of business of the Company.
3.1.14 Real Property. Exhibit 3.1.14 sets forth by legal
description and address the real property owned by the Company (the
"Real Property") and a list of all licenses, rights-of-way, riparian
rights, flowage rights and other interests which the Company has
received or has granted in connection with the Real Property. Exhibit
3.1.14 also includes copies of all deeds for the Real Property,
together with copies of any title insurance policies, legal opinions,
title reports and surveys in the files of the Company applicable to
the Real Property. The Company owns the Real Property in fee simple
except as otherwise disclosed on Exhibit 3.1.14. All buildings and
other improvements on the Real Property are located within the
boundaries of the Real Property and there are no known encroachments
upon such boundaries and no building or other improvement situated on
any adjacent real estate is encroaching upon the boundaries of the
Real Property. Except as described in Exhibit 3.1.14, the use of the
Real Property by the Company and the conduct therein of the business
of the Company have not violated, and are not expected to violate, any
law, rule or regulation of any governmental body or authority. The
Real Property has an adequate water supply and sewage and waste
disposal, or facilities therefor, as are sufficient for the operation
of the Company's existing and expected business. The buildings and
improvements located on the Real Property, including the plumbing,
electrical, mechanical, water, water pumping and sewage systems, and
the ownership, operations and maintenance thereof as now owned,
operated and maintained, do not (i) contravene any ordinances,
statutes, regulations, covenants, or deed restrictions, including
those relating to zoning, building use, health and safety, fire, air
or water pollution, waste disposal, sanitation and noise control, or
(ii) violate any provision of federal, state or local law, the effect
of which materially interferes with or prevents the continued use of
the Real Property for the purposes for which it is now being used, or
would materially affect the value thereof. The Company has maintained
and repaired the buildings and other improvements on the Real Property
in a careful and prudent manner and all structures, buildings and
improvements are in good repair and operating condition and contain no
known latent defects. There exists no pending or threatened
condemnation or similar proceeding with respect to, or which could
affect, the Real Property.
3.1.15 Inventories and Receivables. All of the Company's
inventories (including raw materials, work in process and finished
goods) are in good condition, not obsolete or defective and useable or
saleable in the usual and ordinary course of business except to the
extent reflected on the Company's books and records. Exhibit
3.1.15(a) lists all raw materials, work in progress and inventory that
are owned by customers and not by the
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<PAGE> 10
Company. All of the Company's receivables of any nature are the
result of a bona fide sales or other transactions and will be
collected in the usual and ordinary course of business without resort
to legal proceedings within 90 days of the Closing Date except to the
extent listed on Exhibit 3.1.15(b) pursuant to part (ii) of the
following sentence. Exhibit 3.1.15(b) lists as of July 31, 1995, (i)
all receivables from any one customer or group of affiliated customers
outstanding on the date of this Agreement for amounts in excess of
$100,000 (whether or not currently due) and (ii) all receivables
written off or as to which a reserve has or should have been created
since December 31, 1994.
3.1.16 Machinery and Equipment. Exhibit 3.1.16 lists and
describes all of the Company's machinery and equipment existing on the
date of this Agreement. All such machinery and equipment is now and
shall be on the Closing Date in good working order and repair, with
each item being fit for its intended purpose. All such machinery and
equipment is now and on the Closing Date shall be situated on the
business premises of the Company and shall be used or useable by the
Company in connection with its business. Exhibit 3.1.16 also lists or
describes all tangible personal property owned by or an interest in
which is claimed by any other person (whether a customer, supplier or
other person) for which the Company is responsible (other than
personal property leases described in Exhibit 3.1.19), together with
copies of all agreements relating thereto, and all such property is in
the actual possession of the Company and is in such condition that
upon the return of such property in its present condition to its
owner, the Company will not be liable in any amount to such owner.
3.1.17 Intellectual Property. Exhibit 3.1.17 lists and
includes copies of all copyrights, patents, invention disclosures,
trademarks, trade names and service marks, whether registered or
common law, and all applications thereof that are pending or in the
process of preparation and will generally describe all trade secrets,
secret processes and other proprietary rights of every kind and
nature, in the United States and in foreign countries (the "Company's
Rights"), that are directly or indirectly owned, licensed, used,
necessary for use or controlled in whole or in part by any of the
Shareholders or by the Company or any of the officers, directors or
employees of the Company, and all licenses and other agreements
allowing the Company to use the Company's Rights of third parties in
the United States or foreign countries. Except as will be set forth
in Exhibit 3.1.17, the Company is the sole and exclusive owner of the
Company's Rights, free and clear of any claims, liens, security
interests, licenses, sublicenses, charges or encumbrances; no
governmental registration of any of the Company's Rights has lapsed,
expired or been abandoned, has been opposed, has been the subject of a
re-examination request or cancelled, and there are no claims or
threatened claims or any basis for challenging either the scope,
validity or enforceability of any of the copyrights, patents,
trademarks, trade names and service marks. There are no instances
where it has been held, claimed, or alleged, whether directly or
indirectly, and there is no basis upon which a claim may be made, that
any of the Company's Rights infringe the rights of any third party, or
that any
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<PAGE> 11
activity of any third party infringes upon any of the respective
Company's Rights. Except as will be set forth in Exhibit 3.1.17, the
Company has been and is now conducting its business in a manner which
has not been and is not in violation of any Company's Right of any
other party and does not require a license or other proprietary right
to so operate its business. The manufacturing and engineering
drawings, process sheets, specifications, bills of material, trade
secrets, "know-how" and other like data of the Company are in such
form and of such quality that the Company can, following the Closing,
design, produce, manufacture, assemble and sell the products and
provide the services heretofore provided by the Company so that such
products and services meet applicable specifications and conform with
the quality standards heretofore met by it.
3.1.18 Insurance. All policies of insurance covering the
Company's plant, machinery and equipment, inventory and other assets
or providing for business interruption, personal and product liability
coverage, or insuring against other risks, are described in Exhibit
3.1.18 (specifying the insurer, the policy number, type of insurance,
policy limits and deductibles and any pending claims thereunder).
Such insurance is in amounts sufficient with respect to the Company's
assets, properties, business, operations, products and services as the
same are presently owned or conducted. All such policies are in full
force and effect and will be outstanding and in full force and effect
at the Closing Date and the premiums therefor have been paid as they
become due and payable. There are no claims, actions, suits or
proceedings arising out of or based upon any of such policies of
insurance and no basis for any such claim, action, suit or proceeding
exists. The Company is not in default with respect to any provisions
contained in any such insurance policies and has not failed to give
any notice or present any claim under any such insurance policy in due
and timely fashion.
3.1.19 Leases of Personal Property. Exhibit 3.1.19 describes
all personal property that is currently being leased by the Company
and contains copies of all personal property leases to which the
Company is a party. All such leased property is in good working order
and repair, and is in such condition that upon the return of such
leased property in its present condition to its owner, the Company
will not be liable in any amount to such owner. All such leased
property is situated at the Company's business premises and is used or
useable by the Company in the operation of its business.
3.1.20 Leases of Real Property. Exhibit 3.1.20 describes all
real estate that is being leased by the Company and contains copies of
all real property leases to which the Company is a party. Except as
described in Exhibit 3.1.20, the use of the leased real estate by the
Company and the conduct therein of the business of the Company have
not violated, and are not expected to violate, any law, rule or
regulation of any governmental body or authority. The leased real
estate has an adequate water supply and sewage and waste disposal, or
facilities therefor, as are sufficient for the operation of the
Company's existing and expected business. The buildings and
improvements located on the leased
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<PAGE> 12
real estate, including the plumbing, electrical, mechanical, water,
water pumping and sewage systems, and the ownership, operations and
maintenance thereof as now operated and maintained, do not (i)
contravene any ordinances, statutes, regulations, covenants or deed
restrictions, including those relating to zoning, building use, health
and safety, fire, air or water pollution, waste disposal, sanitation
and noise control, or (ii) violate any provision or federal, state or
local law, the effect of which materially interferes with or prevents
the continued use of the leased real estate for the purposes for which
it is now being used, or would materially affect the value thereof.
The Company has maintained and repaired the buildings and other
improvements on the leased real estate in a careful and prudent manner
and all structures, buildings and improvements are in good repair and
operating condition and, to the Management Shareholders' knowledge
contain no latent defects. There exist no pending or threatened
condemnation or similar proceeding with respect to, or which could
affect, the leased real estate.
3.1.21 Contracts and Commitments. Exhibit 3.1.21 lists and,
if the same are written, contains copies of all of the existing
contracts, obligations, agreements, plans, arrangements and
commitments of the Company of any kind or nature whatsoever, whether
written or unwritten (including, without limiting the generality of
the foregoing, all labor or collective bargaining agreements, leases,
loan agreements, indentures, notes or other evidences of indebtedness,
mortgages, pension, stock option, stock purchase, bonus, profit
sharing and other employee or executive welfare or benefit plans or
agreements, consulting agreements, joint venture or partnership
agreement, guaranties, indemnities, reimbursement agreements,
"comfort" letters, non-competition agreements, non-disclosure
agreements, licenses, franchises, sales representation and
distribution agreements, purchase orders and commitments and powers of
attorney), except only:
(i) contracts copies of which are included and
which are described on another Exhibit;
(ii) each contract with a customer made in the
ordinary course of business whereby the Company is obligated
to deliver less than $100,000 in invoice value of finished
goods in each transaction or series of related transactions;
(iii) purchase commitments made in the ordinary
course of business at prevailing prices which is not in excess
$50,000 in each transaction; and
(iv) employment contracts of less than one year's
duration and presently terminable by the Company at will
without liability, payment or any penalty.
The forms of written purchase and sales orders used by the Company
also are provided in Exhibit 3.1.21.
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<PAGE> 13
All of the agreements and contracts listed in Exhibit 3.1.21 and all
of the agreements and contracts not required to be listed by reason of
clauses (i), (ii), (iii) or (iv) are valid and binding obligations of
the Company thereto in accordance with their respective terms and
there are no liabilities of any of the parties thereto arising from
any breach of or default in any provision of any such contract or
agreement or which would permit the acceleration of any obligation of
any party thereto or the creation of a lien or encumbrance upon any
asset of the Company.
3.1.22 Employee Matters.
3.1.22.1 Non-Salaried and Salaried Employees.
Exhibit 3.1.22 is a complete and accurate list of the
following:
(a) All employment and consulting
agreements, executive compensation plans, bonus
plans, deferred compensation plans, employee pension
plans or retirement plans, employee profit-sharing
plans, employee stock purchase and stock option
plans, hospitalization insurance, and other plans and
arrangements providing for employee benefits of
employees of the Company. Copies of each of the
preceding documents are included in Exhibit 3.1.22.
(b) The names, position, and compensation
paid to all the present directors, officers and
employees of the Company on an annual basis, together
with a summary of the bonuses, and description of
agreements for commissions or additional compensation
and other like benefits, if any, payable to such
persons. Except as described on Exhibit 3.1.22,
there are no insurance policies on the lives of any
such persons the premiums of which are paid or
contributed to by the Company.
(c) The names of all retired employees, if
any, of the Company who are receiving or are entitled
to receive any payments not covered by a fully funded
pension plan of the Company or by any union pension
related to a collective bargaining agreement to which
the Company is a party, their ages, and their current
annual funded and unfunded pension benefits.
3.1.22.2 Employee Pension Plan. The Company does
not have any "pension plans" (as defined in ERISA) other than
as listed in Schedule 3.1.22 (all of said plans being
sometimes hereinafter collectively referred to as the
"Plans"). Each of the Plans is a "qualified plan" within the
meaning of IRC, and no pension plan has been terminated or
experienced any "reportable event" within the meaning of
ERISA. Based upon an actuarial method of valuation of assets
which complies with ERISA and upon actuarial assumptions and
methods which comply
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<PAGE> 14
with ERISA; (i) the present value of all accrued pension
benefits under each of the Plans determined as of the date of
the latest actuarial valuation report did not exceed the value
of the assets of such Plan on that date; and no amendment or
proposed amendment to such Plan adopted or proposed subsequent
to such date would, retroactively applied, make the foregoing
information inaccurate; and (ii) as of the date of the latest
actuarial valuation report there existed no "accumulated
funding deficiency" as defined in ERISA with respect to any
pension plan. No termination or partial termination of the
Plans has created, or will create or give rise to, any
liability to the PBGC under ERISA or otherwise operate in a
manner so as to permit the PBGC to acquire a lien upon any of
the Company's properties or assets. Except as disclosed in
Schedule 3.1.22, the Company does not participate and has not
participated in any "multi-employer plan" as defined in ERISA.
Exhibit 3.1.22 contains copies of the most recent actuarial
reports and trustee reports with respect to the Plans and
copies of all Internal Revenue Service "determination letters"
received by the Company in connection with any existing or
terminated plan.
3.1.22.3 Labor Relations. On the date of this
Agreement and on the Closing Date, there is not any strike,
lock-out, sit-down, slow-down, grievance or other labor
dispute or trouble of any nature whatsoever pending or, to the
knowledge of the Management Shareholders, threatened against
the Company which to any extent or in any manner affects the
Company. Further, to the knowledge of the Management
Shareholder, there has been no attempt to unionize any
employees of the Company within the last 5 years. The Company
is and has been in compliance with all laws regulating wages,
hours or working conditions of employees.
3.1.22.4 Payments to Employees. All accrued
obligations of the Company relating to employees and agents of
the Company, whether arising by operation of law, by contract
or by past service, for payments to trusts or other funds or
to any governmental agency, or to any individual employee or
agent (or their respective heirs, devisees, legatees or
personal representatives) with respect to unemployment
compensation benefits, profit-sharing or retirement benefits,
social security or other benefits have been paid when due, and
shall be paid if due on or before the Closing Date, by the
Company. All obligations of the Company as an employer or
principal relating to employees or agents, whether arising by
operation of law, by contract or by past practice, for
vacation and holiday pay, bonuses, and other forms of
compensation which are or have become payable to such
employees or agents, have been paid by the Company or have
been accrued on the Company's books as of July 31, 1995.
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<PAGE> 15
3.1.23 Warranties; Product Liability. Exhibit 3.1.23 is a
complete and accurate list of any and all warranties made by the
Company covering or relating to any products or property sold or
leased by the Company and for any services furnished or rendered by
the Company. Except for losses, claims, damages and expenses
adequately covered by the Company's insurance coverages described on
Exhibit 3.1.18, there are no (a) liabilities of the Company, fixed or
contingent, asserted and arising out of or based upon incidents
occurring on or before the Closing Date with respect to any product
liability or any similar claim that relates to any product sold by the
Company to others on or before the Closing Date or (b) liabilities of
the Company, fixed or contingent, asserted and arising out of or based
upon incidents occurring on or before the Closing Date with respect to
any claim for the breach of any express or implied product warranty,
or any similar claim that relates to any product sold by the Company
on or before the Closing Date, and the Company and the Management
Shareholders have no knowledge of any product defects which could give
rise to any such liabilities or claims.
3.1.24 Compliance with Laws. At all times prior to the date
of this Agreement, the Company has materially complied with all laws,
orders, regulations, rules, decrees and ordinances affecting to any
extent or in any manner any aspect of its business. There are no
existing or proposed laws, orders, regulations, rules, decrees or
ordinances of such a nature as could be expected to adversely affect
the continued conduct of the Company's business in the manner
presently being carried on and conducted.
3.1.25 Compliance with Agreements, Etc. Neither the
execution of this Agreement by the Shareholders nor the consummation
of the transactions contemplated herein will constitute or cause a
breach or violation of any covenants or obligations binding upon any
of the Shareholders or affecting any of their respective properties.
Neither the execution of this Agreement nor the consummation of the
transactions contemplated herein will constitute or cause a breach or
violation of the Charter, bylaws or other covenants or obligations
binding upon the Company or affecting any of the Company's properties,
or cause a lien or other encumbrance to attach to any of its
properties, or result in the acceleration of or the right to
accelerate any obligation under or the termination of or the right to
terminate any license, franchise, lease, permit, approval or agreement
to which the Company is a party, or require a consent of any person to
prevent any such breach, default, violation, lien, encumbrance,
acceleration, right or termination, except certain bank loan
agreements described on Exhibit 3.1.25.
3.1.26 Approvals. No approval of or filing with any federal,
state or local court, authority or administrative agency is necessary
to authorize the execution and delivery of this Agreement by the
Shareholders or the consummation by the Shareholders of the
transactions contemplated herein, except for the filing of premerger
notification reports generally required by law with the United States
Federal Trade Commission and the U.S. Department of Justice.
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<PAGE> 16
3.1.27 Bank Accounts. Exhibit 3.1.27 is a complete list
certified as of the date of this Agreement by the Treasurer of the
Company containing the names and locations of all banks or other
financial institutions which are depositaries of funds of the Company,
the names of all persons authorized to draw or sign checks or drafts
upon such accounts and the names and locations of any institutions in
which the Company has safe deposit boxes and the names of the persons
having access thereto.
3.1.28 Agreements. The Non-Competition Covenants will be,
when executed and delivered by the parties thereto, legal, valid and
binding agreements of the Company and the other parties (including
certain of the Shareholders) signatory thereto, enforceable in
accordance with their respective terms, except as the enforceability
of such agreements may be limited by laws of general application
relating to bankruptcy, insolvency and the relief of debtors.
3.1.29 Materiality. Except as already disclosed in this
Agreement, there are no events, transactions or other facts which,
either individually or in the aggregate, might reasonably give rise to
circumstances or conditions which might have a material adverse effect
on any of the general affairs, business, prospects, customers,
competition, properties, financial position, results of operation or
net worth of the Company.
3.2 Purchaser's Representations and Warranties. Purchaser
represents and warrants to the Shareholders as follows:
3.2.1 Incorporation. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has full power and authority to own its
properties and to carry on its business as now conducted, and is in
good standing and duly qualified to conduct business as a foreign
corporation in each of the jurisdictions in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification.
3.2.2 Authority. Purchaser has full power to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement, and neither the execution of this Agreement nor the
consummation of the transactions contemplated by this Agreement will
constitute or cause a breach or violation of the Charter or bylaws of
the Purchaser or of any covenants or obligations binding upon it or
affecting any of its properties.
3.2.3 Authorization. No approval of or filing with any
federal, state or local court, authority or administrative agency is
necessary to authorize the execution of this Agreement or the
consummation by Purchaser of the transactions contemplated by this
Agreement, except for the filing of premerger notification reports
generally required by law with United States Federal Trade Commission
and the Department of Justice.
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<PAGE> 17
3.2.4 Investment Intent. The Capital Stock has not been
registered under the Securities Act of 1933, as amended (the "Act"),
in reliance on the non-public offering exemption contained in Section
4(2) thereof. The Capital Stock is being and will be acquired by the
Purchaser for its own account, for investment purposes (meaning to
hold for an indefinite period), and without any intention to
distribute or otherwise dispose of the same.
3.2.5 Informed Purchase.
(a) Purchaser has been furnished with and has had
access to such information as Purchaser has considered
necessary including documents and conversations with Officers
and Shareholders to make a determination as to the purchase of
the Capital Stock together with such additional information as
is necessary to verify the accuracy of the information
supplied.
ARTICLE IV: COVENANTS
4.1 Management Shareholder Covenants. Each of the Management
Shareholders covenants and agrees that after the date hereof until Closing he
or she shall use his or her best efforts to cause the following:
4.1.1 The Company will carry on its business consistent with
prior practice in the usual and ordinary course, will not introduce
any new method of management or operation, and will use its best
efforts to preserve its business organization intact and conserve the
good will and relationships of its customers, suppliers and others
having business relations with it and the services of all officers,
employees, agents and representatives.
4.1.2 The Company will maintain its corporate existence and
good standing in its jurisdiction of incorporation and in each
jurisdiction in which it is qualified to do business, and it will not
amend its Charter or Bylaws from the forms to be delivered to the
Purchaser as Exhibit 3.1.2.
4.1.3 No payment, dividend or other distribution of any
nature will be declared, made, set aside or paid on or in respect of
any of the capital stock of the Company (except the final dividend of
$.25 per share payable August 3, 1995), nor will the Company directly
or indirectly issue, redeem, retire, purchase or otherwise acquire any
of its shares of capital stock.
4.1.4 Except with the Purchaser's prior written consent, and
except the bonus payable to Don Yadon described in Exhibit 4.1.4 no
increase will be made in the compensation or rate of compensation
payable or to become payable to the officers or
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<PAGE> 18
employees of the Company, and no bonus, profit-sharing, retirement,
insurance, death, fringe benefit or other extraordinary or indirect
compensation shall accrue, be set aside or be paid for or on behalf of
any such officers or employees, and no agreement or plan with respect
to the same shall be adopted or committed for, except that nothing in
this paragraph is to preclude or void any benefits or Compensation
Reviews called for in the Seabee Corporation Employees Handbook as
described in Exhibit 4.1.4.
4.1.5 Except with the Purchaser's prior written consent, the
Company will not waive any material right or cancel any material
contract, debt or claim, nor will the Company assume or enter into any
contract, lease, license, obligation, indebtedness, commitment,
purchaser or sale except in the usual and ordinary course of business.
Without limitation of the foregoing, all indebtedness for borrowed
money, and commitments or agreements having a duration in excess of
three months (other than sales contracts with customers in the usual
and ordinary course of business), are deemed to be material and not in
the usual and ordinary course of business.
4.1.6 Except with the Purchaser's prior written consent, the
Company will not dispose of any capital assets having an initial cost
of $10,000 or more, nor will the Company discharge or satisfy any lien
or encumbrance or pay or perform any obligation or liability other
than (i) liabilities and obligations reflected in the Financial
Statements, and (ii) current liabilities and obligations incurred in
the usual and ordinary course of business since the date of the most
recent Financial Statements, and, in either case, only as required by
the express terms of the agreement or other instrument pursuant to
which the obligation or liability was incurred.
4.1.7 Except with the Purchaser's prior written consent, the
Company will not enter into or assume any mortgage, pledge,
conditional sale, security agreement or other title retention
agreement, permit any lien, encumbrance or claim of any kind to attach
to any of its assets, whether now owned or hereafter acquired, or
guarantee or otherwise become contingently liable for any obligations,
securities or dividends of any corporation, business or other person
except obligations arising by reason of endorsement for collection and
other similar transactions in the usual and ordinary course of
business, or make any capital contributions or investments in any
corporation, business or other person.
4.1.8 The Company will not alter the physical contents or
character of any of its inventories so as to affect the nature of its
business or result in a change in the total dollar valuation thereof
other than as a result of transactions in the usual and ordinary
course of business.
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<PAGE> 19
4.1.9 The Company shall:
(i) duly and timely file all reports and returns
required to be filed with any governmental agency and will
promptly pay when due all taxes, assessments and governmental
charges including interest and penalties levied or assessed,
unless diligently contested in good faith by appropriate
proceedings;
(ii) maintain and keep in good order, consistent
with past practice, all buildings, offices, shops and other
structures, and keep all machinery, tools, equipment, fixtures
and other property in good condition, repair and working
order;
(iii) maintain in full force and effect all
policies of insurance now in effect;
(iv) not merge or consolidate with any other
corporation, business or other entity or acquire any assets of
any other corporation, business or other person (other than
inventory in the usual and ordinary course);
(v) not do any act or omit any act or permit any
omission to act which will cause a breach or default in any of
its contracts, commitments or obligations;
(vi) from the date hereof on reasonable notice
afford the Purchaser, its counsel, accountants, and other
agents and representatives full access during normal business
hours throughout the period prior to the Closing to all of its
plants, offices, properties and records, including such access
as may be necessary to allow the Purchaser to make an audit or
otherwise satisfy itself of the accuracy of the
representations and warranties contained in this Agreement and
that the conditions contained in this Agreement have been
complied with and will furnish documents and all such other
information, and access to the Management Shareholders and the
Company's officers and employees for interviews, concerning
its properties and business as the Purchaser may reasonably
request; provided, however, that any investigation or inquiry
made by the Purchaser shall not in any way affect the
representations and warranties contained in this Agreement or
their survival of the Closing; and
(vii) cause Carney, Alexander and Marold to duly
complete the balance sheet and other financial books and
records of the Company for the period ended July 31, 1995, in
accordance with GAAP, and cause the working papers of such
auditors to have been provided to the Purchaser for review by
the Purchaser and its independent certified public
accountants.
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<PAGE> 20
4.1.10 Neither the Company nor the Management Shareholders
shall take any action or omit to take any action within the control of
any of them to the extent such action or omission might result in any
of the representations or warranties of the Management Shareholders
set forth in this Agreement being inaccurate or incorrect on and as of
the Closing Date.
4.1.11 On or prior to the Closing Date, each of the
Shareholders shall pay to the Company any outstanding indebtedness
owed by any of them to the Company, except for payroll advances being
repaid by payroll deductions which are to be repaid according to the
originally agreed repayment schedule as set forth on Exhibit 3.1.13.
4.1.12 The Company may pay the Company's expenses of
completing the audit described in Section 4.1.9(vii) and may pay up to
$35,000 of the actual and reasonable legal and accounting expenses of
the Shareholders incurred in connection with the transactions
contemplated by this Agreement at any time on or before the Closing
Date.
ARTICLE V: CONDITIONS PRECEDENT
5.1 Purchaser's Conditions Precedent. The obligation of the
Purchaser to consummate the transactions contemplated by this Agreement on the
Closing Date is subject to the satisfaction, prior to or on the Closing Date,
of each of the following conditions, the failure of any one of which shall
excuse the Purchaser from consummating such transactions unless any such
conditions are waived (in whole or in part) by the Purchaser in writing:
5.1.1 Representations and Warranties. The representations
and warranties made by the Shareholders contained in this Agreement or
in any written document delivered to the Purchaser pursuant to this
Agreement shall be accurate and correct in all material respects on
and as of the Closing Date as if made on and as of that date. The
Exhibits referred to herein and the documents and schedules delivered
pursuant hereto shall likewise be accurate and correct in all material
respects on and as of the Closing Date as if prepared on and as of
that date. There shall not have been any material error, misstatement
or omission in any of the Exhibits, or other documents or schedules
delivered in connection with the Exhibits.
5.1.2 Covenants. The Management Shareholders shall have
complied with (and caused the Company to have complied with) all of
their respective obligations, covenants and agreements under this
Agreement required to be performed on or prior to the Closing Date.
5.1.3 Opinion of Counsel. The Purchaser shall have been
furnished with an opinion of the Shareholders' Attorney, dated as of
the Closing Date in substantially the form of Exhibit 5.1.3 attached
hereto and made a part hereof.
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5.1.4 No Adverse Change. On the Closing Date, the business
and properties of the Company shall not have been or then be adversely
affected in any way as a result of any casualty or disaster, accident,
labor dispute, exercise of the power of eminent domain or other
governmental act or any other fortuitous event, act of God or the
public enemy, nor shall have there occurred any adverse change in the
general affairs, business, prospects, customers, competition,
properties, financial position, results of operations or net worth of
the Company.
5.1.5 Litigation. No suit, action or other proceeding shall
be pending or threatened before any court or governmental agency
seeking to restrain, prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated herein and there shall have been no investigations or
inquiry made or commenced by any governmental agency in connection
with this Agreement or the transactions contemplated in this
Agreement.
5.1.6 Certificate. The Purchaser shall have received a
certificate dated the Closing Date and signed by the Management
Shareholders representing and warranting that the conditions precedent
provided in Sections 5.1.1, 5.1.2, 5.1.4 and 5.1.5 are satisfied.
5.1.7 Hart-Scott-Rodino. As to disbursement of the purchase
price, the waiting period imposed under the Hart-Scott-Rodino Act
shall have terminated or a waiver shall have been obtained.
5.1.8 Share Certificates. The Shareholders and Class II
Shareholders shall deliver to the Purchaser certificates representing
all of the Capital Stock registered in the name of the Shareholders
(without any restrictive legend thereon or together with such
instruments and items as shall permit, in the opinion of Purchaser's
Attorney, the sale and transfer of such shares free, clear and
discharged of and from any such legend), endorsed in blank or with
accompanying stock powers duly signed, in either such case with
signatures guaranteed by a national banking association or attested to
by an officer or director of the Company who has personal knowledge of
the identity of the Shareholder, and such other instruments or
documents as shall, in the opinion of the Purchaser's Attorney, be
reasonably required to vest good and marketable title in the Purchaser
to the Capital Stock, free, clear and discharged of and from any and
all Encumbrances.
5.1.9 Resignations. Each director and officer of the Company
shall have delivered to the Purchaser resignations from such positions
and any other positions held in, or by appointment by or from, the
Company.
-21-
<PAGE> 22
5.1.10 Good Standing. The Purchaser shall have received a
certificate of the Secretary of State of Iowa and of each of the
states set forth in Exhibit 3.1.1, dated as of a date reasonably near
to the Closing Date, listing all corporate documents relating to the
Company on file and certifying that the Company is a corporation duly
organized and existing under the laws of such state.
5.1.11 Non-Competition Covenants. The individuals listed in
Exhibit 5.1.11 shall each have entered into a three (3) year
non-competition agreement with the Company.
5.1.12 Financial Statement. The Company shall have completed
its balance sheet and other financial books and records for the period
ended July 31, 1995, and the results shall be satisfactory to the
Purchaser and its independent certified public accountants.
5.1.13 Due Diligence. Purchaser shall have reviewed,
investigated, ascertained and verified to its satisfaction the
business and affairs of the Company and all facts, information and
other matters regarding the Company referred to in this Agreement or
given or provided in connection with this Agreement.
5.1.14 Board Approval. The transactions contemplated under
this Agreement shall have been approved in all respects by the Board
of Directors of the Purchaser.
5.1.15 Tender of All Shares. It is the essence of this
transaction that the Purchaser shall be able to purchase at least 95%
of the Class A and Class B Capital Stock owned by Shareholders and the
Class II Shareholders and unless the transaction shall be closed as to
at least 95% of the Capital Stock as provided herein, the Purchaser
may at its option either (i) terminate this Agreement, or (ii)
purchase the Capital Stock tendered at the Closing while reserving its
rights to structure a merger between Company and Purchaser to deal
with the non-tendering Stockholders.
The Class II Shareholders are not signatories to this Stock
Purchase Agreement but will be asked to sign a separate Class II
Shareholders Stock Purchase Letter (a copy of which is attached hereto
and designated as Exhibit 5.1.15). The Company acting through its
Management and Board of Directors shall send a letter to all of the
Class II Shareholders indicating that the Purchaser is offering to
purchase their shares of stock on the same terms and conditions as the
purchase between Purchaser and Management Shareholders and describing
the mechanics by which the Shareholder can tender his or her shares to
the Company which will hold those shares as Escrow Agent until the
Closing Date. On the Closing Date, all the shares of Stock tendered
by the Class I and II Shareholders shall be delivered to the Purchaser
and the consideration to be paid to the Class I and II Shareholders
shall be paid on that date. The letter to the Class I and II
Shareholders [a copy of which is set forth in Exhibit 5.1.15(a)]
indicates that the
-22-
<PAGE> 23
Directors of Company recommend to the Class II Shareholders the stock
purchase transaction and shall include the Class II Shareholder Stock
Purchase Agreement, the fairness opinion of Northstar Industries,
Inc., and a Stock Power to be signed and transmitted at the time the
share certificates are tendered to the Company.
5.2 Shareholders' Conditions Precedent. The obligation of the
Shareholders to consummate the transactions contemplated by this Agreement on
the Closing Date is subject to the satisfaction, prior to or on the Closing
Date, of each of the following conditions, the failure of any one of which
shall excuse the Shareholders from consummating such transactions unless any
such conditions are waived (in whole or in part) by each of the Management
Shareholders in writing.
5.2.1 Representations and Warranties. The representations
and warranties made by the Purchaser in this Agreement shall be
accurate and correct in all material respects on and as of the Closing
Date as if made on and as of that date and the Shareholders shall have
received a certificate dated the Closing Date signed by the Purchaser
to such effect.
5.2.2 Covenants. The Purchaser shall have complied with all
of its obligations, covenants and agreements under this Agreement
required to be performed on or prior to the Closing Date.
5.2.3 Opinion of Counsel. The Shareholders shall have been
furnished with an opinion of the Purchaser's Attorney, dated the
Closing Date, in substantially the form of Exhibit 5.2.3 attached
hereto and made a part hereof.
ARTICLE VI: INDEMNIFICATION.
6.1 Indemnification by the Shareholders. The Management
Shareholders shall indemnify, defend and hold harmless Purchaser and
Purchaser's officers, directors, employees and shareholders from, against and
with respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense (including, without limitation, reasonable
attorney's and accountant's fees and costs and expenses reasonably incurred in
investigating, preparing, defending against or prosecuting any litigation or
claim, action, suit, proceeding or demand), of any kind or character, arising
out of or in any manner incident, relating or attributable to (i) any
inaccuracy in any representation or warranty of any Management Shareholder
contained in this Agreement or in any certificate, instrument of transfer or
other document or agreement executed by any Management Shareholder or the
Company in connection with this Agreement, or otherwise made or given in
connection with this Agreement, or (ii) any failure by any Management
Shareholder to perform or observe, or to have performed or observed, in full
any covenant, agreement or condition to be performed or observed by such
Management Shareholder under this Agreement or under any certificate or other
document or agreement executed by any
-23-
<PAGE> 24
Management Shareholder or the Company in connection with this Agreement. In
the event of an occurrence of any item prior to closing in (i) or (ii) as set
forth above, the sole and exclusive remedy of the parties to this transaction
shall be to terminate the agreement and no further liability shall exist.
6.2 Indemnification by the Purchaser. The Purchaser shall
indemnify, defend and hold harmless the Shareholders from, against and with
respect to any claim liability, obligation, loss, damage, assessment, judgment,
cost and expense (including, without limitation, reasonable attorney's and
accountant's fees and costs and expenses reasonably incurred in investigating,
preparing, defending against or prosecuting any litigation or claim, action,
suit, proceeding or demand), of any kind or character, arising out of or in any
manner incident, relating or attributable to (i) any inaccuracy in any
representation or warranty of the Purchaser contained in this Agreement or in
any certificate, instrument of transfer or other document or instrument
executed by Purchaser in connection with this Agreement or otherwise made or
given in connection with this Agreement, or (ii) any failure by Purchaser to
perform or observe, or to have performed or observed, in full any covenant,
agreement or condition to be performed or observed by Purchaser under this
Agreement or under any certificate or other document or agreement executed by
Purchaser in connection with this Agreement.
ARTICLE VII: MISCELLANEOUS.
7.1 Entire Agreement, Waivers and Amendment. This Agreement,
including for such purposes other agreements among the parties to this
Agreement to be executed and delivered at the Closing, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and
there are no other agreements between the parties in connection with the
subject matter hereof except as set forth specifically herein. No amendment,
supplement, modification, waiver or termination of this Agreement shall be
implied or be binding (including, without limitation, any alleged wavier based
on a party's knowledge of any inaccuracy in any representation or warranty
contained herein) unless in writing and signed by the party against which such
amendment, supplement, modification, waiver or termination is asserted. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver, unless otherwise expressly
therein provided.
7.2 No Brokerage. Each party to this Agreement represents and
warrants that except for the Engagement Agreement between the Company and
Northstar Industries, Inc., no broker, agent or finder has been retained or is
entitled to be paid in connection with the transactions contemplated by this
Agreement and that no brokerage or finder's fee or agent's or other commission
other than to Northstar Industries, Inc. has been agreed to be paid for or on
account of this Agreement by Seabee.
-24-
<PAGE> 25
7.3 Successors and Assigns. All of the terms and provisions of
this Agreement by or for the benefit of the parties shall be binding upon and
inure to the benefit of their successors, assigns, heirs and personal
representatives. The rights and obligations provided by this Agreement shall
not be assignable by any party, except by the Purchaser to a subsidiary or a
successor to its business, and except as expressly provided herein nothing
herein is intended to confer upon any person other than the parties and their
successors any rights or remedies under or by reason of this Agreement.
7.4 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given if personally delivered,
forwarded by overnight air express and receipted for by the recipient or an
agent of the recipient or mailed by registered or certified United States mail,
postage prepaid and return receipt requested, to the following addresses (or to
such other address of a party as shall have been specified to the other parties
to this Agreement by notice):
(a) If to the Purchaser, at:
Kaydon Corporation
Arbor Shoreline Office Park, Suite 500
19345 US 19 North
Clearwater, Florida 34624-3148
ATTN: John F. Brocci
with a copy to Purchaser's Attorney, at:
Lague, Newman & Irish
600 Terrace Plaza, P.O. Box 389
Muskegon, Michigan 49443-0389
ATTN: Mr. Richard C. Lague
(b) If to a Shareholder, at:
Seabee Corporation
Highway 3 West
P.O. Box 457
Hampton, Iowa 50441-0457
ATTN: Don Yadon
-25-
<PAGE> 26
with a copy to Shareholder's Attorney, at:
Hagemann, Goeke, Egli & Thalacker
100 East Bremer Avenue
Century Building, P.O. Box 89
Waverly, Iowa 50677
ATTN: Don L. Hagemann
(c) If to the Management Shareholders, at the addresses
of each Management Shareholder.
7.5 Headings. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
7.6 Exhibits, Etc. All Exhibits, Annexes and schedules referred
to in this Agreement shall be deemed to be attached to and made a part of this
Agreement.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.8 Payment of Expenses. Except as described in Section 4.1.12,
each of the parties shall pay all of the costs and expenses which such party
incurs incident to the preparation, negotiation, execution and delivery of this
Agreement and the performance of the obligations hereunder, including, without
limitation, the fees and disbursements of counsel, accountants and consultants,
without right of reimbursement from any other party or the Company.
7.9 Further Assurances. The Shareholders shall, from time to time
after the Closing Date, upon the Purchaser's reasonable request and without
further consideration, execute and deliver such additional papers, instruments
and documents and take such other action and give such further assurances as
may be necessary, proper or convenient more effectively to transfer to and vest
in the Purchaser the full and complete ownership of the Capital Stock free and
clear of any Encumbrance. The parties further agree to exercise their good
faith efforts to satisfy all conditions to the consummation of this Agreement,
including, without limitation, the satisfaction of the requirements of the
Hart-Scott-Rodino Act.
7.10 Governing Law and Choice of Forum. This Agreement shall be
governed by and construed under and pursuant to the internal laws of the State
of Iowa. Any and all actions concerning any dispute arising under this
Agreement shall be filed and maintained only in a state or federal court
sitting in the State of Iowa.
-26-
<PAGE> 27
7.11 Public Information. Prior to the Closing Date, except for
information required to be given by law (including the Hart-Scott-Rodino Act,
the IRC or state taxation statutes) or by court, administrative or other
governmental order, no press release or other information relating to the
transactions contemplated by this Agreement shall be made or given to the
public by the Shareholders except upon the written agreement of the Purchaser.
IN WITNESS WHEREOF, the parties to this Agreement have made, executed
and delivered this Agreement as of the day and year first above written.
KAYDON ACQUISITION CORPORATION V
A DELAWARE CORPORATION
By
/s/ Stephen K. Clough
------------------------------------
Its President
-------------------------------
SHAREHOLDERS:
/s/ Donald E. Yadon
-------------------------------------
Donald E. Yadon
/s/ Catherine J. Yadon
-------------------------------------
Catherine J. Yadon
/s/ Larry Gansen
-------------------------------------
Larry Gansen
/s/ Vern Iserman
-------------------------------------
Vern Iserman
/s/ Della Speich
-------------------------------------
Della Speich
-27-
<PAGE> 28
Seabee Corporation Employee
Stock Ownership Plan:
/s/ Donald E. Yadon
-------------------------------------
Trustee
/s/ Catherine J. Yadon
-------------------------------------
Trustee
/s/ Della Speich
-------------------------------------
Trustee
-28-
<PAGE> 29
TAB 2
ANNEX I - CLASS A CAPITAL STOCK SHAREHOLDERS
<PAGE> 30
ANNEX I Page 1
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Larry C. Gansen
1015 6th Ave. SE
Hampton, Iowa 50441 ###-##-#### 3,450 $ 55,200.00
Vern Iserman
323 3rd Street NE
Waverly, Iowa ###-##-#### 26,000 416,000.00
Della J. Speich
1540 Olive Ave.
Hampton, Iowa 50441 ###-##-#### 8,700 139,200.00
Catherlne J. Yadon
1000 4th Ave. SE
Hampton, Iowa 50441 ###-##-#### 320,000 5,120,000.00
Donald E. Yadon
1000 4th Ave. SE
Hampton, Iowa 50441 ###-##-#### 295,000 4,720,000.00
Seabee Corporation E.S.O.T
PO Box 457
Hampton, Iowa 50441 42-6383245 238,302 3,812,832.00
-------- -------------
TOTAL ANNEX I 891,452 $14,263,232.00
</TABLE>
<PAGE> 31
TAB 3
ANNEX II - CLASS B CAPITAL STOCK SHAREHOLDERS
<PAGE> 32
ANNEX II Page 1
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Dawn C. Bakker
903 17th Street East
Atlantic, Iowa 50022 ###-##-#### 2,775 $44,400.00
Dennis D. Becker
214 1st Street
Hansell, Iowa 50640 ###-##-#### 15 240.00
Bonnie L. DeVries
116 7th Street SW
Hampton, Iowa 50441 ###-##-#### 398 6,368.00
David V. Fielding
315 3rd Avenue SW
Hampton, Iowa 50441 ###-##-#### 25 400.00
Glenn A. Futrell
1641 Dorell Drive
Hampton, Iowa 50441 ###-##-#### 265 4,240.00
Laurie Holze
RR 2 Box 102
Garner, Iowa 50438-9649 ###-##-#### 3 48.00
Harlan A. Hunt
1640 Dorell Drive
Hampton, Iowa 50441 ###-##-#### 1,300 20,800.00
Tammy Janssen
302 5th Ave. SE
Hampton, Iowa 50441 ###-##-#### 2 32.00
Robert J. Kelm
315 N. Ely
Clarksville, Iowa 50619 ###-##-#### 4,000 64,000.00
James A. Knapp
Box 388
Clarksville, Iowa 50619 ###-##-#### 2,100 33,600.00
Romain R. Lampe
3127 140th Street
Sumner, Iowa 50674 ###-##-#### 500 8,000.00
James P. Mango
1302 2nd Ave. SW
Waverly, Iowa 50677 ###-##-#### 4,435 70,960.00
</TABLE>
<PAGE> 33
ANNEX II Page 2
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Sherwood L. Marsh
123 President Court
Mason City, Iowa 50401 ###-##-#### 500 $ 8,000.00
Steve M. Metz
442 11th Ave. NE
Hampton, Iowa 50441 ###-##-#### 250 4,000.00
John Miller
322 5th SE
Hampton, Iowa 50441 ###-##-#### 100 1,600.00
Dwight G. Peterson
R.P
Dumont, Iowa 50625 ###-##-#### 100 1,600.00
Steven R. Ries
RR 2
Rockwell, Iowa 50469 ###-##-#### 50 800.00
Gary E. Rooney
214 Thompson
Sheffield, Iowa 50475 ###-##-#### 89 1,424.00
Tamara Schmitt
115 llth Place NE
Hampton, Iowa 50441 ###-##-#### 16 256.00
Charles R. Schneider
609 1st Street NE
Hampton, Iowa 50441 ###-##-#### 3,200 51,200.00
Alan L. Sly
914 4th Ave. SE
Hampton, Iowa 50441 ###-##-#### 500 8,000.00
Alan L. Steenhard
814 6th Street SE
Mason City, Iowa 50401 ###-##-#### 40 640.00
Keith C. Thurman
1224 250th Street
Waverly, Iowa 50677 ###-##-#### 500 8,000.00
Dung Anh Tran
6804 Caffe Rd. Apt. 51
Des Moines, Iowa 50315 ###-##-#### 1 16.00
</TABLE>
<PAGE> 34
ANNEX II Page 3
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Mark A. Uthe
225 Bickford Street
Dumont, Iowa 50625 ###-##-#### 200 $ 3,200.00
Russell A. Vance
402 S. Hilton Street
Clarksville, Iowa 50619 ###-##-#### 12,591 201,456.00
Susan M. Diggins
1929 181 St. SE
Botthell, Washington 98012-6925 ###-##-#### 363 5,808.00
Gaylen G. Weiland
412 3rd Street SW
Hampton, Iowa 50441 ###-##-#### 450 7,200.00
Betty J. Whitesell
211 7th Street SE
Hampton, Iowa 50441 ###-##-#### 210 3,360.00
Dean A. Whitmore
218 2nd Street NE
Hampton, Iowa 50441 ###-##-#### 100 1,600.00
Betty J. Wickwire
909 North Federal
Hampton, Iowa 50441 ###-##-#### 1,090 17,440.00
Kenneth E. Wilkinson, Jr.
1402 Sunset Drive
Hampton, Iowa 50441 ###-##-#### 4,699 75,184.00
William W. Wilkinson
520 12th Ave. SE
Hampton, Iowa 50441 ###-##-#### 7,250 116,000.00
Ernest L. Willms
1015 1st Street NE
Hampton, Iowa 50441 ###-##-#### 1,000 16,000.00
Karen L. Wirtjes
409 5th Street SW
Hampton, Iowa 50441 ###-##-#### 608 9,728.00
David Miller
409 NW 5th Ave.
Pocahontas, Iowa 50574 ###-##-#### 10 160.00
Timothy L. Miller
RR 1 Box 35
Gilmore City, Iowa 50541 ###-##-#### 6 96.00
</TABLE>
<PAGE> 35
ANNEX II Page 4
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Gary L. Schoon
Box 425
Pomeroy, Iowa 50575 ###-##-#### 20 $ 320.00
Harold Tiedeman
405 3rd Avenue NE
Pocahontas, Iowa 50574 ###-##-#### 9 144.00
David E. Arens
1806 69th Street
Des Moines, Iowa 50322 ###-##-#### 468 7,488.00
Thomas J. Arens
1148 230th Street
Waverly, Iowa 50677 ###-##-#### 469 7,504.00
Paul R. Arens
###-##-#### 469 7,504.00
Roger A. Arens
###-##-#### 469 7,504.00
Ed C. Barnes
1303 Meadow Brook Lane
Waverly, Iowa 50677 ###-##-#### 100 1,600.00
Margaret Barnes
1303 Meadow Brook Lane
Waverly, Iowa 50677 ###-##-#### 100 1,600.00
Vivian Bramer Revocable Trust
601 N. 1st Box 188
Greene, Iowa 50636 ###-##-#### 7,000 112,000.00
Elmer Bramer Revocable Trust
601 N. 1st Box 188
Greene, Iowa 50636 ###-##-#### 7,000 112,000.00
Albert Carlsen
708 1st Ave. NW
Hampton, Iowa 50441 ###-##-#### 913 14,608.00
Ruthanne Chazen
16 E. Salem Road
Fishkill, New York 12524 ###-##-#### 6,000 96,000.00
John & Alice Coppic
841 Kent Road
Waynesboro, Virginia 22980 ###-##-#### 1,000 16,000.00
</TABLE>
<PAGE> 36
ANNEX II Page 5
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Herbert Dorfman
1603 Hilside Ave
Waverly, Iowa 50677 ###-##-#### 1,500 $ 24,000.00
Linda Ford
12216 Greenwood Ave. No.
Seattle, WA 98103 ###-##-#### 1,500 24,000.00
Marvin Fosse Revocable Trust
RR 2 Box 208
Nashua, Iowa 50658 42-6510665 39,000 624,000.00
Paul M. Fosse
5715 Piney Lane Drive
Tampa, Florida 33625 ###-##-#### 8,625 138,000.00
Anne C.F. Farraher
4018 N. Vincent Ave.
Minneapolis, MN 55412-1508 ###-##-#### 1,250 20,000.00
John Willis Fryer
5715 Piney Lane
Tampa, Florida 33625 ###-##-#### 1,250 20,000.00
Ligia Maria Clementino Fryer
5715 Piney Lane
Tampa, Florida 33625 ###-##-#### 1,250 20,000.00
Paul M. Fosse Custodian for
Kaitlin Nicole Fosse
5715 Piney Lane
Tampa, Florida 33625 ###-##-#### 625 10,000.00
Joan B. Frein
203 2nd Ave.
Charles City, Iowa 50616 ###-##-#### 300 4,800.00
Fred Hagemann
Box 58
Waverly, Iowa 50677 ###-##-#### 6,600 105,600.00
Susan C. Hagemann
P.O. Box 58
Waverly, Iowa 50677 ###-##-#### 5,812 92,992.00
St. Paul's Lutheran Church
112 2nd Ave. NW
Waverly, Iowa 50677 42-0754662 125 2,000.00
St. Paul's Lutheran School Endowment
112 2nd Ave. NW
Waverly, Iowa 50677 42-0754662 63 1,008.00
</TABLE>
<PAGE> 37
ANNEX II Page 6
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Fred Hagemann IRA
State Bank of Waverly
Box 58
Waverly, Iowa 50677 ###-##-#### 1,900 $ 30,400.00
Mark Hanawalt
411 3rd Ave. NE
Waverly, Iowa 50677 ###-##-#### 8,600 137,600.00
Dona1d A. Hanson
Box 125
Leroy, Minnesota 55951 ###-##-#### 10,000 160,000.00
Duane L. Harms
RR 1
Shell Rock, Iowa 50670 ###-##-#### 75 1,200.00
John & Katherine Harms
RR 2 Box 85
Aplington, Iowa 50604 ###-##-#### 100 1,600.00
Mary L. Hunt
1640 Dorell Drive
Hampton, Iowa 50441 ###-##-#### 400 6,400.00
Josephine Iserman
323 3rd Street NE
Waverly, Iowa 50677 ###-##-#### 2,000 32,000.00
Vern & Josephine Iserman Trust
State Bank of Waverly
Box 58
Waverly, Iowa 50677 ###-##-#### 10,000 160,000.00
Janice Johnson
916 20th Street SW
Waverly, Iowa 50677 ###-##-#### 210 3,360.00
Redeemer Lutheran Church
2001 W. Bremer
Waverly, Iowa 50677 42-106-9598 375 6,000.00
Keith Kreiman
RR 2
Bloomfield, Iowa 52537 ###-##-#### 2,709 43,344.00
</TABLE>
<PAGE> 38
ANNEX II Page 7
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ---------- ------------- -------------
<S> <C> <C> <C>
Steven K. Kulow
109 8th St. NW
Hampton, Iowa 50441 ###-##-#### 2,000 $ 32,000.00
Marilyn J. Nysather
459 River Bluff Dr. Castellan
Dixon, Illinois 61021 ###-##-#### 8,250 132,000.00
Olaf M. Nysather
459 River Bluff Dr. Castellan
Dixon, Illinois 61021 ###-##-#### 7,750 124,000.00
Timothy C. Oehlert
404 12th Ave. NW
Hampton, Iowa 50441 ###-##-#### 1,500 24,000.00
Terry &/or Helga Olin
2608 Cottage Row Drive
Cedar Falls, Iowa 50613 ###-##-#### 18,000 288,000.00
Joe Pitsor
913 1st Ave. SE
Hampton, Iowa 50441 ###-##-#### 24,000 384,000.00
Shirley Pitsor
913 1st Ave. SE
Hampton, Iowa 50441 ###-##-#### 1,000 16,000.00
Wayne Platte
1909 Ivory Ave
Waverly, Iowa 50677 ###-##-#### 1,500 24,000.00
Ann M. Sheehan
1410 Cedar River Drive
Waverly, Iowa 50677 ###-##-#### 140 2,240.00
Michael Sheehan
1410 Cedar River Drive
Waverly, Iowa 50677 ###-##-#### 400 6,400.00
Pamela Sheehan
1410 Cedar Drive
Waverly, Iowa 50677 ###-##-#### 600 9,600.00
Michael Sheehan Pension Trust
%R.D. Drenkow & Co., Inc.
PO Box 118
Waverly, Iowa 50677 42-1314890 1,700 27,200.00
</TABLE>
<PAGE> 39
ANNEX II
Page 8
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ------------- ------------- ------------
<S> <C> <C> <C>
Michael Sheehan Profit Sh.Trust
% R.D. Drenkow & Co., Inc.
PO Box 118
Waverly, Iowa 50677 42-1314889 3,560 $ 56,960.00
Delores P. Smith
220 W. Wamsley
Clarksville, Iowa 50619 ###-##-#### 65,200 1,043,200.00
Katharine Sue Miller
Box 214
Fairbank, Iowa 50629 ###-##-#### 500 8,000.00
Barbara L. Smith-Kazenelson
3522 Augusta Circle
Waterloo, Iowa 50701 ###-##-#### 500 8,000.00
Teresa M. Roose
120 Mather
Clarksville, Iowa 50619 ###-##-#### 500 8,000.00
Deborah A. Schellhorn
218 E. Greene St.
Clarksville, Iowa 50619 ###-##-#### 500 8,000.00
Barry L. Speich
Stanley Ranger Station
HC 64 Box 9900-0
Stanley, Idaho 83278 ###-##-#### 764 12,224.00
Michelle R. Speich
Sawtooth National Rec. Area
Star Route
Ketchum, Idaho 83340 ###-##-#### 650 10,400.00
Stabow & Company
PO Box 58
Waverly, Iowa 50677 42-6072035 2,000 32,000.00
Stabow & Company #291
PO Box 58
Waverly, Iowa 50677 42-6524724 10,000 160,000.00
Marlene Thurman
RR 2
Waverly, Iowa 50677 ###-##-#### 500 8,000.00
Waverly First Nat'l Bank
David Huser IRA
Waverly, Iowa 50677 ###-##-#### 100 1,600.00
</TABLE>
<PAGE> 40
ANNEX II Page 9
<TABLE>
<CAPTION>
Names and Number of
addresses of SS or Shares of
Shareholders ID # Capital Stock Cash Payment
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Michael Wilkinson
913 1st Street NW
Hampton, Iowa 50441 ###-##-#### 27 $ 432.00
St. Patrick's Catholic Church
1405 North Federal
Hampton, Iowa 50441 42-0698076 400 6,400.00
Baptist Church of Marion
1260 29th Street
Marion, Iowa 52302 42-1138398 400 6,400.00
Lion's Club of Hampton
309 1st St. SE
Hampton, Iowa 50441 42-6092420 64 1,024.00
Pleasant Hill
Dean Whitmore, Sec'y
Hampton, Iowa 50441 ###-##-#### 136 2,176.00
Dorthy Yadon
1108 Plato Apt. 52
Duncan, Oklahoma 73533 ###-##-#### 1,000 16,000.00
Evalyn Zimmerman
Dumont, Iowa 50625 ###-##-#### 11,500 184,000.00
Karl Zimmerman
Greene, Iowa 50636 ###-##-#### 3,500 56,000.00
Joseph & Mary Zweck
RR 1 Box 112
Cannon Falls, MN 55009 ###-##-#### 10 160.00
Mark Hanawalt for:
Michael J. Hanawalt ###-##-####
Matthew J. Hanawalt ###-##-####
David M. Hanawalt ###-##-####
Daniel M. Hanawalt ###-##-####
Under Iowa Gifts to Minors 2,400 38,400.00
Delores Smith foe:
Brian M. Miller ###-##-####
Jackie R. Miller ###-##-####
Jacob A. Kazenelson ###-##-####
Holly M. Roose ###-##-####
Kenneth J. Roose ###-##-####
Heather J. Schellhorn ###-##-####
Tyler J. Schellhorn ###-##-####
Carissa A. Schellhorn ###-##-####
Under Iowa Gifts to Minors 4,800 76,800.00
------- -----------
TOTAL ANNEX II 353,878 $5,662,048.00
</TABLE>
<PAGE> 1
EXHIBIT 10.11
KAYDON CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Active Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Actuarial Equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Average Monthly Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Covered Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Disability Retirement Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Early Disability Retirement Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Early Retirement Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Normal Retirement Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.15 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Vested Retirement Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Year of Credited Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Year of Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Normal Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Early Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Vested Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Benefit Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 Special Transfer Employee Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 Actuarial Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Change in Control Override . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Time and Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Change of Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Facility of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Distribution in the Event of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
V Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Limitation of Liability and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
VI Amendment and Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Employment Rights Not Enlarged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Participants' Rights Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Interpretation and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.6 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix A
Appendix B
</TABLE>
-ii-
<PAGE> 4
KAYDON CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On this 9th day of February, 1995, Kaydon Corporation (the
Employer) adopts the Kaydon Corporation Supplemental Executive Retirement Plan
(the Plan).
ARTICLE I
ESTABLISHMENT
1.1 EFFECTIVE DATE. This Plan is generally effective as of
January 1, 1994.
1.2 INTENT. The Plan is intended to be an unfunded deferred
compensation arrangement for purposes of the Internal Revenue Code of 1986, as
amended (the Code) and for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan is provided for the
benefit of a select group of management employees, is intended to result in
taxation to participants only when amounts are actually received under this
Plan and is intended to be exempt from the participation, funding, vesting and
fiduciary requirements of ERISA. The Plan constitutes only a promise by the
Employer to make benefit payments in the future. Participants have the status
of general unsecured creditors of the Employer.
1.3 TRUST. Any trust created by the Employer and any assets
held by the trust to assist the Employer in meeting its obligations under this
Plan will conform to the terms of the model trust described in Rev. Proc. 92-64
as modified from time to time.
-1-
<PAGE> 5
ARTICLE II
DEFINITIONS
2.1 ACCRUED BENEFIT. A participant's Accrued Benefit is the
Normal Retirement Benefit earned to date under the Basic form (as defined in
the Kaydon Corporation Retirement Plan) taking into account the offset of the
participant's benefit under the Kaydon Corporation Retirement Plan from time
to time. The Accrued Benefit is based on the Average Monthly Compensation,
Years of Vesting Service, Years of Credited Service, the benefit formula and
the remaining Plan provisions in effect at the earlier of termination of
employment, cessation of Active Participation, or other earlier computation
date and, for purposes of determining the benefit under the Kaydon Corporation
Retirement Plan, the terms of that Plan in effect from time to time. The
Accrued Benefit of a participant who receives payment of any benefits under the
Plan is reduced by the Actuarial Equivalent of the payments.
2.2 ACTIVE PARTICIPANT. An Active Participant is an employee
of Kaydon Corporation or a wholly owned subsidiary of Kaydon Corporation who
has been designated by the Board of Directors as eligible to begin accruing
benefits under this Plan and is identified in Appendix B. An employee who
becomes an Active Participant remains an Active Participant until the earlier
of the date the employee is no longer actively employed in that manner and the
date the employee is removed from this Plan by the Board of Directors. An
individual who is or was an Active Participant remains a participant until no
further amounts are payable to the individual under this Plan.
2.3 ACTUARIAL EQUIVALENT. Actuarial Equivalence is determined
under the assumptions and methods set forth in Appendix A.
-2-
<PAGE> 6
2.4 AVERAGE MONTHLY COMPENSATION. Average Monthly
Compensation is the participant's Average Monthly Compensation determined under
the Kaydon Corporation Retirement Plan using the definition of Compensation
contained in this Plan.
2.5 BOARD OF DIRECTORS. The Board of Directors is the Board
of Directors of Kaydon Corporation.
2.6 COMPENSATION. Compensation is Compensation as provided in
the Kaydon Corporation Retirement Plan, except that Compensation is determined
without application of the Code Section 401(a)(17) Dollar Limit and the
Compensation Dollar Limit of the Kaydon Corporation Retirement Plan.
2.7 COMMITTEE. The Committee consists of one or more persons
appointed by the Board of Directors of Kaydon Corporation. In the absence of a
Committee, the Board of Directors of Kaydon Corporation has the
responsibilities of the Committee provided in this Plan. Any members of the
Committee who are employees may not receive compensation for their services to
the Committee.
2.8 COVERED COMPENSATION. Covered Compensation is Covered
Compensation as provided in the Kaydon Corporation Retirement Plan.
2.9 DISABILITY. Disability is any physical or mental
condition which causes the individual to cease active work with the Employer,
is reasonably expected to be permanent, and is approved by the Board of
Directors or the Committee in its discretion, based on evidence satisfactory to
it. Receipt of permanent and total disability benefits under the Social
-3-
<PAGE> 7
Security Act, as amended, or a finding of Disability for purposes of the Kaydon
Corporation Retirement Plan may be considered by the Board or the Committee,
but are not dispositive.
2.10 DISABILITY RETIREMENT ELIGIBILITY. Disability Retirement
Eligibility is the later of Normal Retirement Eligibility and the first day of
the month on or following the last payment made under the Employer's long term
disability insurance program with respect to an individual who has completed
ten (10) Years of Vesting Service or ten (10) Years of Credited Service,
incurred a Disability while an Active Participant and after attaining age 55,
and ceased active work with the Employer.
2.11 EARLY DISABILITY RETIREMENT ELIGIBILITY. Early Disability
Retirement Eligibility is the later of Early Retirement Eligibility and the
first day of the month on or following the last payment made under the
Employer's long term disability insurance program with respect to an individual
who has completed ten (10) Years of Vesting Service, incurred a Disability
while an Active Participant and after attaining age 55 and ceased active work
with the Employer.
2.12 EARLY RETIREMENT ELIGIBILITY. Early Retirement Eligibility is
the first day of the month on or following the date an Active Participant
attains age 55, completes at least ten (10) Years of Vesting Service and ceases
active work with the Employer.
2.13 EMPLOYER. Employer means Kaydon Corporation and any wholly
owned subsidiary of Kaydon Corporation.
-4-
<PAGE> 8
2.14 NORMAL RETIREMENT ELIGIBILITY. Normal Retirement Eligibility
is the first day of the month on or following the date an Active Participant
who has completed ten (10) Years of Vesting Service or ten (10) Years of
Credited Service attains age 65.
2.15 PLAN YEAR. The Plan Year is an annual accounting period
ending each December 31.
2.16 VESTED RETIREMENT ELIGIBILITY. Vested Retirement Eligibility
is the first day of the month on or following the date a participant who is no
longer an Active Participant but who has a vested interest in an Accrued
Benefit ceases active work with the Employer. The Accrued Benefit is vested
upon the later of attainment of age 55 while an Active Participant and the
completion of either ten (10) Years of Vesting Service or ten (10) Years of
Credited Service.
2.17 YEAR OF CREDITED SERVICE. A Year of Credited Service is a
Year of Credited Service determined under the Kaydon Corporation Retirement
Plan, except that Years of Credited Service are not credited under this Plan
after an individual ceases to be an Active Participant in this Plan.
2.18 YEAR OF VESTING SERVICE. A Year of Vesting Service is a Year
of Vesting Service determined under the Kaydon Corporation Retirement Plan,
except that Years of Vesting Service are not credited under this Plan after an
individual ceases to be an Active Participant in this Plan.
-5-
<PAGE> 9
ARTICLE III
BENEFITS
3.1 NORMAL RETIREMENT BENEFIT. An Active Participant who
attains Normal, Early, Vested, Disability, or Early Disability Retirement
Eligibility is entitled to the following benefit, calculated in the Basic Form
as defined in the Kaydon Corporation Retirement Plan, payable beginning on the
first day of the month following attainment of age 65. The benefit is one
percent (1%) of Average Monthly Compensation plus fifty-eight hundredths
percent (.58%) of Average Monthly Compensation in excess of Covered
Compensation, multiplied by Years of Credited Service (to a maximum of 30
years), less the Participant's benefit under the Kaydon Corporation Retirement
Plan, calculated in the Basic Form, payable beginning at the same date.
3.2 EARLY RETIREMENT BENEFIT. The Committee may, in its
discretion, begin the payment of benefits to an Active Participant who retires
after attaining Early Retirement Eligibility. In that case, notwithstanding
any other provision of the Plan, the benefit is calculated by subtracting from
the Actuarial Equivalent (determined under Appendix A.1) of the Participant's
Accrued Benefit (calculated without the offset of the benefit under the Kaydon
Corporation Retirement Plan), the Participant's actuarially adjusted benefit
under the Kaydon Corporation Retirement Plan from time to time.
3.3 VESTED RETIREMENT BENEFIT. The Committee may, in its
discretion, begin the payment of benefits to a participant who terminates
service and retires after attaining Vested Retirement Eligibility. In that
case, the benefit is calculated in the same manner as an Early Retirement
Benefit.
-6-
<PAGE> 10
3.4 DISABILITY BENEFIT. An Active Participant who retires due
to Disability after attaining Disability Retirement Eligibility is entitled to
the individual's Accrued Benefit calculated based on the Years of Credited
Service the Participant would have completed had employment continued to Normal
Retirement Eligibility and Average Monthly Compensation determined on the first
day of the month coincident with or next following the occurrence of the
Disability.
(a) REDUCED DISABILITY BENEFIT. An Active Participant who
retires due to Disability after attaining Early Disability Retirement
Eligibility prior to age 65 is entitled to the actuarial equivalent of the
individual's Accrued Benefit, calculated and payable in the same manner as an
Early Retirement Benefit. Notwithstanding any other provision of the Plan, the
Years of Credited Service and Average Monthly Compensation of an individual who
begins receiving a reduced Disability Benefit at or after Early Disability
Retirement Eligibility are frozen on the Early Disability Retirement
Eligibility date.
(b) NOTICE. A participant whose employment terminated as the
result of a permanent disability must advise the Committee within sixty (60)
days should payment of Social Security disability insurance benefits be
discontinued.
(c) EXAMINATION. The Committee may require any participant
whose employment terminated as the result of a permanent disability to provide
evidence the Committee considers appropriate verifying the participant's
continued eligibility for disability benefits under this Plan.
(d) EFFECT OF DISCONTINUANCE. If the permanent disability of
a participant ceases, the Disability Benefit shall also cease and the
participant shall receive no further Years of Credited Service unless, in the
case of a participant receiving an unreduced Disability Benefit, the
participant returns to the employ of an Employer within thirty (30) days after
the cessation of disability. In that event, the participant shall receive
Years of Credited Service for the entire period of permanent disability. If
the participant does not return to the employ of an
-7-
<PAGE> 11
Employer within that thirty (30) day period, or if the participant was
receiving a reduced Disability Benefit, the participant shall not receive any
Years of Credited Service for the period of permanent disability and shall be
entitled only to the benefit, if any, applicable on the date of commencement of
the permanent disability, determined as if employment with the Employer had
terminated as of that date.
3.5 DEATH BENEFIT. Death Benefits are payable only under this
Section.
(a) NON-ELIGIBLE. If an individual dies before vesting, no
benefit is payable under this Plan.
(b) ELIGIBLE DEATH. The Qualifying Spouse (as defined in the
Kaydon Corporation Retirement Plan) of a participant who dies after vesting but
before benefits are payable is entitled to the Spousal Survivor Annuity. If
the Spousal Survivor Annuity is not payable, no benefit is payable under this
Plan. The Spousal Survivor Annuity is an equal monthly benefit for the
Qualifying Spouse's life equal to the Qualifying Spouse's benefit under the
Joint and Spousal Survivor form of benefits (as defined in the Kaydon
Corporation Retirement Plan) less the Spousal Survivor Annuity benefit payable
under the Kaydon Corporation Retirement Plan from time to time. The Spousal
Survivor Benefit is payable at the earliest time payment of the Spousal
Survivor Annuity benefit under the Kaydon Corporation Retirement Plan could
commence and is not payable if the spouse does not survive until the actual
commencement date. The benefit is actuarially reduced as provided in Appendix
A.
(c) POST-BENEFIT DEATH. The designated beneficiary of a
participant who dies after benefits are payable is entitled to a continuation
of payment under the elected payment form if the participant was properly
receiving payments in the Joint and Spousal Survivor form, the Joint and
Survivor form, or the Period Certain form (as defined in the Kaydon Corporation
Retirement Plan).
-8-
<PAGE> 12
3.6 BENEFIT LIMITATIONS. Notwithstanding any other provision
of the Plan:
(a) FORFEITURE OF VESTED BENEFITS. An individual forfeits all
amounts payable under the Plan, whether or not vested and whether or not
benefits have yet commenced, if the individual:
(i) FOR CAUSE. Is discharged for cause; or
(ii) EMPLOYMENT. Is employed other than by Kaydon
Corporation or one of its wholly-owned subsidiaries or is
self-employed, in any capacity to any extent, prior to attainment of
age 62, without prior written approval of the Committee or the Board
of Directors.
(b) RECEIPT OF BENEFIT. Receipt of any benefit under the Plan
fully terminates the employment relationship with the Employer.
(c) KAYDON CORPORATION RETIREMENT PLAN BENEFIT. An individual
is entitled to a benefit under this Plan only if the individual is entitled to
a benefit from the Kaydon Corporation Retirement Plan or would be entitled to a
benefit from that Plan except that the individual's Employer did not maintain
that Plan.
(d) SINGLE BENEFIT. A participant is eligible for only one
(1) type of benefit under the Plan. The receipt of a Plan benefit during any
month precludes payment of another type of benefit for the same month. Under
no circumstances will the Plan pay duplicate benefits with respect to the same
participant or surviving spouse benefits in excess of the actuarial present
value of the benefits described in this Article III determined as of the
earlier of the commencement of benefits or the date of the participant's death.
(e) EMPLOYMENT AFTER BENEFIT COMMENCEMENT. Benefit payments
under the Plan cease and are forfeited during any period of reemployment with
an Employer or a prior Employer and during any other period during which
benefits under the Kaydon Corporation Retirement Plan are suspended.
-9-
<PAGE> 13
(f) WITHHOLDING AND PAYROLL TAXES. Benefit payments shall be
reduced as determined in the sole discretion of the Employer for any
withholding for federal, state and local income, employment and other taxes
required to be withheld by the Employer in connection with the benefits paid
under this Plan.
3.7 SPECIAL TRANSFER EMPLOYEE RULE. An Active Participant who
is employed while an Active Participant by a subsidiary of Kaydon Corporation
which does not maintain the Kaydon Corporation Retirement Plan:
(a) SERVICE. Is credited with Years of Vesting Service and
Years of Credited Service under this Plan as though the subsidiary had
maintained the Kaydon Corporation Retirement Plan during the Active
Participant's employment by the subsidiary as an Active Participant; and
(b) BENEFIT. Receives a benefit under this Plan calculated
taking that imputed service into account for purposes of this Plan. The
benefit offset under this Plan is then calculated based on the greater of:
(i) PENSION BENEFIT. The participant's benefit under
the Kaydon Corporation Retirement Plan based on the aggregate of the
participant's actual service under that Plan and imputed service
under this Plan; or
(ii) OTHER BENEFIT. The sum of the participant's
actual benefit under the Kaydon Corporation Retirement Plan, the
participant's actual benefit under any other Kaydon Corporation or
other subsidiary defined benefit plan, and the Actuarial Equivalent
of the participant's actual benefit under any other Kaydon
Corporation or other subsidiary defined contribution plan.
3.8 ACTUARIAL ADJUSTMENT. To the extent a participant
receives a benefit under this Plan paid in a different form, or commencing at a
different time, than the benefit paid to
-10-
<PAGE> 14
participant under the Kaydon Corporation Retirement Plan, the amounts shall be
adjusted actuarially to effect as nearly as possible the intent of the offset
contemplated by Sections 2.1 and 3.1 of this Plan.
3.9 CHANGE IN CONTROL OVERRIDE. To the extent a participant
is a party to an effective Change in Control Agreement with the Employer which
explicitly provides for amendment of this Plan as to the participant, upon a
Change in Control as defined in that Agreement and a Termination triggering the
operation of that Agreement as to participant, notwithstanding the contrary
provisions of this Plan:
(a) ADDITIONAL YEARS OF CREDITED SERVICE. The participant
shall be credited with three additional years of Credited Service for purposes
of this Plan;
(b) VESTING. The participant shall immediately fully vest
in the participant's Accrued Benefit (determined after the application of
subsection (a));
(c) EARLY COMMENCEMENT ADJUSTMENT. No actuarial adjustment
shall be taken into account for payment of the participant's benefit prior to
age 62; and
(d) LUMP SUM. The present value of the participant's Accrued
Benefit (determined after the application of subsection (a)) shall be paid to
participant in a lump sum thirty (30) days from the date of Termination. The
present value shall be determined using reasonable actuarial assumptions
selected by the Committee, which need not be the same as those identified in
Appendix A.
-11-
<PAGE> 15
ARTICLE IV
DISTRIBUTION
4.1 TIME AND METHOD OF PAYMENT. Except as provided in this
Article, benefits under this Plan will be paid (other than in the case of death
of the participant) in the presumptive form of payment applicable to the
participant provided for in the Kaydon Corporation Retirement Plan (or which
would be applicable to the participant if the individual were a participant in
that plan), commencing on the first day of the month following attainment of
age 65.
(a) COMMITTEE. Notwithstanding those rules, the Committee
may, in its sole discretion and without the consent of the individual, spouse,
or beneficiary:
(i) MODIFY TIME OR FORM. Accelerate the commencement
of benefits to a date not prior to the participant's termination of
employment and attainment of eligibility for Retirement and pay
benefits in any form of payment allowed under the Kaydon Corporation
Retirement Plan from time to time; and
(ii) LUMP SUM. Pay the Actuarial Equivalent of the
remaining benefit in a lump sum before or after benefits commence.
Any such payment satisfies the obligation of the Employer under this
Plan.
(b) EQUIVALENCE. Each optional form and time of payment of
benefits must be the Actuarial Equivalent of the benefit payable under the
Basic form.
(c) LIMITATION. A participant may not participate in any
decision of the Committee involving that individual.
4.2 CHANGE OF CIRCUMSTANCES. Once payments have begun, no
method of payment may be revoked or modified, nor the benefit increased, by
reason of a subsequent divorce or death of the spouse of a participant before
that of the participant or by reason of the
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<PAGE> 16
participant's actual retirement after benefits have begun because of the
participant's attainment of age 70 1/2.
4.3 DESIGNATION OF BENEFICIARY. The beneficiary or contingent
beneficiary designated to receive amounts payable under the Plan (other than
the Spousal Survivor Annuity or the Spousal Survivor portion of the Joint and
Spousal Survivor Annuity) in the event of the participant's death is the same
beneficiary and contingent beneficiary, respectively, applicable to the
participant from time to time under the Kaydon Corporation Retirement Plan.
4.4 CLAIMS PROCEDURE. A participant or beneficiary, the
Committee and the Board of Directors must observe the following procedures for
claims to benefits.
(a) CLAIM. If a participant, beneficiary or legal
representative asserts that a benefit which is payable has not been paid in a
timely manner, the individual must file an Application for Distribution with
the Committee. The Committee must grant or deny the request within ninety (90)
days after receipt unless special circumstances require an extension of time.
The extension must not exceed an additional ninety (90) days. The Committee
must notify the applicant in writing of the extension and the reasons for the
extension.
(b) DENIAL OF CLAIM. If a claim is denied, the Committee must
provide to the applicant a written notice containing the reason for the denial.
If notice of a denial of claim or an extension of time is not received by the
applicant within ninety (90) days, the claim is deemed denied.
(c) EMPLOYER REVIEW. Within sixty (60) days after a denial is
received, the applicant may request a review upon written application to the
Board of Directors. The applicant may submit issues and comments in writing to
the Board. The Board must make a decision on review and notify the applicant
of the decision within ninety (90) days of receipt of the request for review
unless circumstances require an extension of time. The extension may not
-13-
<PAGE> 17
exceed an additional ninety (90) days. The Board has the duty and power in
this regard to exercise discretionary authority to construe and interpret the
Plan and decide all questions of eligibility for benefits. The decision of the
Board upon review is final and binding on the applicant unless the applicant
establishes that the decision of the Board is arbitrary and capricious.
(d) LIMITATION. This section does not allow a participant to
request or demand payment of benefits at any time or in any form other than at
age 65 in the presumptive form applicable to the participant under the Kaydon
Corporation Retirement Plan, or to challenge in any manner the Committee's
failure to exercise the discretion available to it under subsection 4.1(a).
4.5 FACILITY OF PAYMENT. A payment made under this section
fully discharges the Employer and the Committee from all future liability with
respect to the payment.
(a) INCAPACITY. If a person entitled to payment is legally,
physically or mentally incapable of receiving or acknowledging payment, the
Committee may direct payment: directly to the person; to the person's legal
representative; to the spouse, child or relative by blood or marriage of the
person; to the person with whom the person resides; or by expending the payment
directly for the benefit of the person. A payment made other than to the
person is intended to be used for the person's exclusive benefit.
(b) LEGAL REPRESENTATIVE. The Committee is not required to
commence probate proceedings or to secure the appointment of a legal
representative.
(c) DETERMINATIONS. The Committee may act upon affidavits in
making any determination. The Committee, in relying upon affidavits or having
made a reasonable effort to locate any person entitled to payment, is
authorized to direct payment to a successor beneficiary or another person. A
person omitted from payment has no rights on account of payments so made.
-14-
<PAGE> 18
(d) ANTI-ESCHEAT. If the Committee cannot locate a person
entitled to payment, the amount is a forfeiture which is reinstated if a claim
is made within the applicable limitations period by a person entitled to
payment.
4.6 OFFSET. The Committee shall offset any benefit by the
value of benefits received before reemployment or when or to the extent
benefits should not have been paid. In addition, in all cases the benefit
payable under this Plan is reduced by the benefit payable under the Kaydon
Corporation Retirement Plan.
4.7 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any
reason, all or any portion of the participant's benefit under this Plan becomes
taxable to the participant prior to receipt, the participant may petition the
Committee for a distribution of assets sufficient to meet the participant's tax
liability (including additions to tax, penalties and interest).
(a) CALCULATION. Upon the grant of such a petition, which
grant shall not be unreasonably withheld, the Employer shall distribute to the
participant immediately available funds in an amount equal to the participant's
federal, state and local tax liability associated with such taxation (not to
exceed the participant's Vested Accrued Benefit under the Plan). The liability
shall be measured by using the participant's then current highest federal,
state and local marginal tax rate, plus the rates or amounts for the applicable
additions to tax, penalties and interest.
(b) TIMING. If the petition is granted, the tax liability
distribution shall be made within 90 days of the grant.
(c) EFFECT. The distribution shall affect and reduce the
participant's Accrued Benefit and the benefits to be paid under this Plan.
-15-
<PAGE> 19
ARTICLE V
ADMINISTRATION
5.1 COMMITTEE. The Committee has responsibility for general
administration of the Plan.
(a) AUTHORITY. The Committee has the duty and power to:
(i) CONSTRUCTION. Exercise discretionary authority to
construe and interpret the Plan and decide all questions of
eligibility for participation and benefits;
(ii) PROCEDURES. Prescribe procedures and forms for
the payment of benefits; and
(iii) BENEFIT AUTHORIZATION. Determine entitlement to,
the amount of, the timing of and the form of benefits and authorize
benefit payments.
(b) PROCEDURE AND ACTION. The Committee may elect one of its
members as chairperson and may designate a secretary. The Committee must keep a
brief record of all meetings. Any delegation of duties by the Committee must
state the scope of the delegation with reasonable specificity. The Committee
acts by a majority of its members, either by vote at a meeting or by signature
to a writing. Action by the Committee must be evidenced by written and duly
executed instrument.
(c) FINALITY. The decision or action of the Committee with
respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan is final and
conclusive and binding on all persons having any interest in the Plan.
5.2 LIMITATION OF LIABILITY AND INDEMNIFICATION. As a
condition of participation in the Plan, each participant agrees that neither
the Employer, the Committee, nor the Board of Directors shall in any way be
subject to any suit, litigation, or legal liability for any cause or reason in
connection with the Plan or its operation, and each participant releases the
-16-
<PAGE> 20
Employer, its officers and agents, the Committee and the Board of Directors
from any and all such liability or obligation. The Board of Directors, the
Committee and their respective individual members shall not be liable for any
act, omission, determination, construction, or communication made by that
individual or any other party. Each shall be indemnified by Kaydon Corporation
against any and all liabilities arising by reason of any act or failure to act
made in good faith pursuant to the provisions of the Plan, including expenses
reasonably incurred in the defense of any claim of liability.
-17-
<PAGE> 21
ARTICLE VI
AMENDMENT AND TERMINATION OF PLAN
6.1 AMENDMENT OR TERMINATION. The Board of Directors of
Kaydon Corporation may amend or terminate the Plan at any time.
(a) LIMITATION. No amendment or termination may retroactively
decrease the vested Accrued Benefit of a participant who completed ten (10)
Years of Credited Service or ten (10) Years of Vesting Service and attained age
55 while an Active Participant and prior to the amendment or termination. No
individual has any right to continuation of the Plan, to continued
participation in the Plan, or to continued accrual under the Plan, however.
(b) AUTOMATIC. Any freeze of benefit accrual or termination
of the Kaydon Corporation Retirement Plan shall automatically effect a freeze
or termination of this Plan, as the case may be.
-18-
<PAGE> 22
ARTICLE VII
MISCELLANEOUS
7.1 NONASSIGNABILITY. Benefits are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, attachment, garnishment, execution, or levy (Assignment), before actual
receipt, by creditors of the participant or the participant's beneficiary. Any
assignment which violates this section is void. The right to receive a benefit
is not an asset for insolvency or bankruptcy.
7.2 EMPLOYMENT RIGHTS NOT ENLARGED. The Plan does not create
any employment rights or restrict an Employer's right to discharge an employee.
7.3 PARTICIPANTS' RIGHTS LIMITED. The Plan does not give any
participant or beneficiary: any interest in any Employer's assets, business or
affairs; the right to question any Employer action or policy; or the right to
examine Employer books and records. The rights of all participants are limited
to the right to receive payment of benefits when due. The Employer's
obligation under the Plan is simply an unfunded and unsecured promise to pay
money in the future and its assets remain the general, unpledged and
unrestricted assets of the Employer. Notwithstanding these limits and any
other provision of this Plan, the Employer shall not be a party to any merger,
consolidation, or reorganization unless its obligations under this Plan are
expressly assumed by its successor. This Plan shall inure to the benefit of
and shall be binding upon the successors and assigns of the Employer and each
participant.
7.4 INTERPRETATION AND CONSTRUCTION. The use of the singular
includes the plural where applicable, and vice versa. The headings in the Plan
do not limit or extend the provisions of the Plan. Capitalized terms, except
where capitalized solely for grammar, have the meanings
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<PAGE> 23
as provided in the Plan. If a provision is unenforceable in a legal
proceeding, the provision is severed only for that proceeding.
7.5 GOVERNING LAW. The Plan is governed by the applicable
laws of the United States of America (including the Code, ERISA, securities
law, labor law, age discrimination law, and civil rights law) and, to the
extent not preempted, by the laws of Florida.
7.6 ARBITRATION. Any claim which cannot be resolved under
this Plan shall be submitted to arbitration.
(a) RULES. The arbitration shall be conducted by the American
Arbitration Association under its commercial arbitration rules within the
county where the Employer maintains its registered office.
(b) AWARD. The Arbitrator's decision shall be embodied in an
award which shall be final and binding on the parties. In making an award,
the arbitrator may include any remedy contemplated by this Agreement and shall
allocate the fees and expenses of the arbitration.
KAYDON CORPORATION
By /s/ Lawrence J. Cawley
-------------------------------------------
Lawrence J. Cawley
Its Chairman and Chief Executive Officer
And /s/ John F. Brocci
------------------------------------------
John F. Brocci
Its Secretary
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<PAGE> 24
APPENDIX A
ACTUARIAL FACTORS
A.1 TIME OF PAYMENT ACTUARIAL EQUIVALENCE. Actuarially reduced from age
62 based on:
(a) INTEREST RATE. 7.5%
(b) MORTALITY. 1971 Group Annuity Table with annuity values
based on 75% male and 25% female mortality.
A.2 FORM OF PAYMENT ACTUARIAL EQUIVALENCE.
(a) INTEREST RATE. 7.5%
(b) MORTALITY. 1971 Group Annuity Table with annuity values
based on 75% male and 25% female mortality.
A.3 OTHER. For any other purpose for which Actuarial Equivalence is
specified:
(a) INTEREST RATE. 7.5%
(b) MORTALITY. 1971 Group Annuity Table with annuity values
based on 75% male and 25% female mortality.
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<PAGE> 25
APPENDIX B
ACTIVE PARTICIPANTS
<TABLE>
<CAPTION>
Effective Date of
Effective Date of Cessation of
Name Active Participation Active Participation
---- -------------------- --------------------
<S> <C> <C>
John F. Brocci January 1, 1994
Thomas A. Bushar January 1, 1994
Lawrence J. Cawley January 1, 1994
Stephen K. Clough January 1, 1994
Patrick T. Kirk January 1, 1994
Arthur Ridler January 1, 1994
</TABLE>
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<PAGE> 1
EXHIBIT 10.12
(Version A)
KAYDON CORPORATION
CHANGE IN CONTROL COMPENSATION AGREEMENT
AGREEMENT made and executed
_________________________, 1995 between
KAYDON CORPORATION, a Delaware corporation, 19345 US 19 North, Clearwater,
Florida 34624 (Kaydon), and _______________________________, (the Executive).
The Board of Directors of Kaydon has recommended and approved that
Kaydon enter into agreements providing for compensation under certain
circumstances after a change in control.
Executive is a key executive of Kaydon or one or more of its
subsidiaries and has been selected by the Compensation Committee to enter into
this Agreement.
In the event Kaydon should become subject to any proposed or
threatened Change in Control (as defined below), the Board of Directors of
Kaydon believes it is imperative that Kaydon and the Board of Directors be able
to rely upon Executive to continue in his position, and that Kaydon be able to
receive and rely upon his advice, if requested, as to the best interests of
Kaydon and its stockholders, without concern that he might be distracted by the
personal uncertainties and risks created by such a proposal or threat.
In the event Kaydon should receive any such proposal, in addition to
Executive's regular duties, he may be called upon to assist in the assessment
of such proposals, advise management and the Board of Directors as to whether
such proposal would be in the best interests of Kaydon and its stockholders,
and to take such other actions above and beyond his regular duties as the Board
might determine to be appropriate.
To assure Kaydon that it will have the continued dedication of
Executive and the availability of his advice and counsel notwithstanding the
possibility, threat or occurrence of an effort to take over control of Kaydon,
and to induce Executive to remain in the employ of Kaydon and for other good
and valuable consideration, Kaydon and Executive agree as follows:
1. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes
other steps to effect a Change in Control (as defined below),
Executive agrees that he will not voluntarily leave the employ of
Kaydon or the subsidiary then employing him on less than three months
written notice to the Chairman of the Board of Kaydon, will render the
services expected of his position, and will act in all things related
to the interests of the shareholders of Kaydon until the third person
has abandoned or terminated the efforts to effect a Change in Control
or until a Change in Control has occurred.
2. Termination Following Change in Control. Except as provided in
Section 4, Kaydon will provide or cause to be provided to Executive
the rights and benefits described in Section 3 in the event that
Executive's employment is terminated under the circumstances stated in
(a) or
<PAGE> 2
(b) below at any time within three years following a Change in Control
(as that term is defined in this Section 2) which occurs during the
original term of this Agreement or prior to or during any renewal term
as set forth in Section 6:
(a) By Kaydon. By Kaydon or the subsidiary employing Executive
for reasons other than for "cause" (as such term is defined in
Section 4) and other than as a consequence of Executive's
death, permanent disability or attainment of the normal
retirement date as provided under the Kaydon Corporation
Retirement Plan (the Retirement Plan) as in effect immediately
preceding such date (Normal Retirement Date); or
(b) By Executive. By Executive following the occurrence of any of
the following events:
(i) The assignment of Executive to any duties or
responsibilities that are a reduction of or are
materially inconsistent with his position, duties,
responsibilities or status immediately preceding such
Change in Control; or a change in his reporting
responsibilities or titles in effect at such time
resulting in a reduction of his responsibilities or
position;
(ii) The reduction of Executive's annual salary, projected
or target annual bonus (including any deferred
portions of it), level of benefits (except for a
reduction uniformly applicable to all similarly
situated executives), target long-term incentives,
stock options, projected Supplemental Executive
Retirement Plan benefits, or supplemental
compensation;
(iii) The transfer of Executive to a location at least
fifty miles from his present location requiring a
change in his residence or a material increase in the
amount of travel normally required of Executive in
connection with his employment.
(c) For purposes of this Agreement, a "Change in Control" is
deemed to have occurred as of the first day that any one or
more of the following conditions has been satisfied:
(i) Any person (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of
1934)(other than those persons in control of Kaydon
as of the effective date of the Change in Control
Agreement, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of
Kaydon, or a corporation, partnership, or other
entity owned directly or indirectly by the
stockholders of Kaydon in substantially the same
proportions as their ownership of stock of Kaydon)
becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or
indirectly, of securities of Kaydon representing
twenty percent (20%) or more of the combined voting
power of Kaydon's then outstanding securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such
period constitute the Board (and any new Director,
whose election by Kaydon's stockholders was approved
by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were
Directors at the beginning of the period or
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<PAGE> 3
whose election or nomination for election was so
approved), cease for any reason to constitute a
majority thereof; or
(iii) The stockholders of Kaydon approve or there is
otherwise implemented: (A) a plan of complete
liquidation of Kaydon; (B) an agreement for the sale
or disposition of all or substantially all of
Kaydon's assets to a party not within a "controlled
group of corporations" (as defined in Section 1563 of
the Internal Revenue Code of 1986, as amended) in
which Kaydon is a member; or (C) a merger,
consolidation, or reorganization of Kaydon with or
involving any other corporation, other than a merger,
consolidation, or reorganization that would result in
the voting securities of Kaydon outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity), at least fifty percent (50%) of the combined
voting power of the voting securities of Kaydon (or
such surviving entity) outstanding immediately after
such merger, consolidation, or reorganization.
Notwithstanding those rules, in no event shall a Change in
Control be deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing group
which consummates the Change- in-Control transaction. The
Executive shall be deemed "part of a purchasing group" for
purposes of the preceding sentence if the Executive is an
equity participant in the purchasing company or group (except
for: (i) passive ownership of less than three percent (3%) of
the stock of the purchasing company; or (ii) ownership of
equity participation in the purchasing company or group which
is otherwise not significant, as determined prior to the
Change in Control by a majority of the nonemployee continuing
Directors).
3. Rights and Benefits Upon Termination. In the event of the termination
of Executive's employment under any of the circumstances set forth in
Section 2 (Termination), Kaydon agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of 3 times
Executive's Compensation (as such term is defined in this
Section 3(a)).
(i) Payment shall be made in a lump sum no later than the
first day of the second month following Termination.
(ii) If Executive dies prior to the time all payments
which may otherwise have been due to Executive, under
this Section 3(a) or otherwise in this agreement,
have been made, then as soon as practicable after
such death but in no event later than three months
thereafter, Kaydon shall pay in a lump sum in cash
all sums not distributed to Executive prior to his
death. Payment shall be made to the beneficiary or
beneficiaries (in addition to the amount of life
insurance proceeds payable to each beneficiary) named
as such under the life insurance plan or plans
maintained by Kaydon on the date of Executive's
death. If no such beneficiary is
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<PAGE> 4
named, such sums shall be paid to Executive's estate.
No reduction to present value of any such sums shall
be made.
For purposes of this Agreement, "Compensation" means the
greater of the Executive's base salary for the calendar year
in which the Termination occurs or the preceding calendar
year, plus the average bonus payable to Executive during the
most recent three-year fiscal period (or the period during
which the Executive has been employed by Kaydon or any of its
subsidiaries if less than three years.)
(b) Supplemental Executive Retirement Plan Benefits. Except to
the extent expressly prohibited by any applicable law or
regulation and notwithstanding, any restrictions or
requirements provided in the Kaydon Corporation Supplemental
Executive Retirement Plan (or any successor to it), Executive
shall be entitled to receive all benefits previously granted
to or accrued by him under that Plan, whether previously
vested or not increased as provided in this subsection and at
the time provided below. The Supplemental Executive
Retirement Plan benefits will be computed by:
(i) Adding three Years of Credited Service to the Years
of Credited Service otherwise credited to Executive
under that Plan; and
(ii) Ignoring any reduction for early commencement of
benefits imposed by that Plan.
The actuarial equivalent of the payments from the Supplemental
Executive Retirement Plan determined un that Plan and this
subsection (b) will be payable in a lump sum thirty (30) days
from Termination. The actuarially equivalent amount shall be
determined using reasonable actuarial assumptions.
The execution of this Change in Control Compensation Agreement
constitutes an amendment of the Supplemental Executive
Retirement Plan to effect these provisions.
(c) Incentive Compensation. The Executive shall receive any
incentive compensation (including but not limited to the right
to receive and exercise stock options and stock appreciation
rights and to receive restricted stock and grants thereof and
similar incentive compensation benefits) to which Executive is
entitled under all incentive compensation plans maintained by
Kaydon or to which Executive would be entitled to by virtue of
Executive's employment with the corporation or entity who
succeeds Kaydon after a Change in Control. Without limitation
of the above, the vesting and exercisability of any
outstanding stock option, stock appreciation, restricted
stock, or other similar incentive compensation rights shall
also be accelerated to extent authorized under the terms of
that option or other program and the plan under which the
option or other right was granted.
(d) Executive Incentive Plan Benefits. Any award under the Kaydon
Management Incentive Compensation Plan for a prior Plan Year
which has not been paid to Executive at the time of his
Termination shall be paid to him within 30 days of his
Termination. This payment shall be accompanied by a payment
to Executive of an
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<PAGE> 5
amount equal to 1/12 of the greater of the projected award for
the year in which Termination occurs or the award to the
Executive for the most recently ended Plan Year for each full
or partial month in the current Plan Year prior to the month
of Executive's Termination.
(e) Insurance and Other Special Benefits. Until the earlier of
the following: the Executive's Normal Retirement Date (as
defined in the Kaydon Corporation Retirement Plan) (and, in
the case of medical insurance, until Executive is eligible for
Parts A and B of Medicare or their equivalent, if later) or
the date Executive obtains reasonably comparable life
insurance, medical insurance, dental insurance, accident
insurance, or disability insurance, as the case may be, at no
greater cost to Executive than was the case at Kaydon
Corporation, Executive shall continue to be covered by the
life insurance, medical and dental insurance, and accident and
disability insurance plans of Kaydon and its subsidiaries or
any successor plan or program in effect at or after
Termination for employees in the same class or category as was
Executive prior to his Termination, subject to the terms of
such plans (other than any exclusion preventing Executive's
participation because he is no longer an employee) and to
Executive's making any payments therefor required of employees
in the same class or category as was Executive prior to his
Termination.
(i) In the event Executive is ineligible to continue to
be so covered under the terms of any such benefit
plan or program (other than because of expiration of
the three year coverage period described below) or in
the event Executive is eligible but the benefits
applicable to Executive under any such plan or
program after Termination are not substantially
equivalent to the benefits applicable to Executive
immediately prior to Termination, then, until
Executive's Normal Retirement Date (or the later date
identified above), Kaydon shall provide such
substantially equivalent benefits, or such additional
benefits as may be necessary to make the benefits
applicable to Executive substantially equivalent to
those in effect before Termination, through other
sources; provided, however, that if during such
period Executive should enter into the employ of
another company or firm which provides substantially
similar benefit coverage, Executive's participation
in the comparable benefit provided by Kaydon either
directly or through such other sources shall cease.
(ii) Nothing contained in this paragraph shall be deemed
to require or permit termination or restriction of
any Executive's coverage under any plan or program of
Kaydon or any of its subsidiaries or any successor
plan or program to which Executive is entitled under
the terms of such plan or program.
(f) Outplacement Services. Executive shall be entitled to full
outplacement services provided by the professional
outplacement consulting firm of Executive's choosing, to a
maximum cost of 15% of Executive's base salary for the
calendar year preceding the calendar year in which Termination
occurs.
-5-
<PAGE> 6
(g) Excise Tax Payment. If any portion of the rights and benefits
or any other payment under this Agreement, or under any other
agreement with, or plan of, Kaydon or its subsidiaries (in the
aggregate, Total Payments) would constitute an "excess
parachute payment," such that a golden parachute excise tax is
due, the Executive shall be entitled to, in cash, an
additional payment in an amount to cover the full cost of the
excise tax and the Executive's state and Federal income and
employment taxes on this excise tax payment, except to the
extent Kaydon is obligated to provide such additional payment
to the Executive under a separate plan or agreement. This
payment shall be made as soon as possible following the date
of the Executive's Termination, but in no event later than
thirty (30) calendar days of such date.
In the event the Internal Revenue Service subsequently adjusts
the excise tax computation described here, Kaydon shall
reimburse the Executive for the full amount necessary to make
the Executive whole (less any amount received by the executive
that the Executive would not have received had the
computations initially been computed as subsequently
adjusted), including the value of any underpaid excise tax,
and any related interest and/or penalties due to the Internal
Revenue Service.
For purposes of this Agreement, the terms "golden parachute
excise tax" and "excess parachute payment," shall have the
meanings assigned to such terms in Sections 280G and 4999 of
the Internal Revenue Code.
The specific arrangements referred to in this Section 3 are not
intended to exclude Executive's participation in other benefit plans
in which Executive currently participates or which are or may become
available to executive personnel generally in the class or category of
Executive or to preclude other compensation or benefits as may be
authorized by the Board of Directors from time to time.
In addition to the rights and benefits of this Section 3. and any
other rights or remedies available to Executive, Kaydon shall
reimburse Executive in full for all attorneys' fees and costs
reasonably incurred by Executive in enforcing or seeking enforcement
of this Agreement against Kaydon or in seeking damages for Kaydon's
failure to fully perform its obligations under this Agreement.
4. Conditions to the Obligations of Kaydon. Kaydon shall have no
obligation to provide or cause to be provided to Executive the rights
and benefits described in Section 3 if either of the following events
shall occur:
(a) Termination for Cause. Kaydon shall terminate Executive's
employment for "cause". For purposes of this Agreement,
termination of employment for "cause" shall mean termination
solely for conviction of a felony by Executive.
(b) Resignation as Director or Officer. Executive shall fail,
within a reasonable time after Termination and upon receiving
a written request to do so, to resign as a director and/or
officer of Kaydon and each subsidiary and affiliate of Kaydon
of which he is then serving as a director and/or officer.
-6-
<PAGE> 7
In all other events, Kaydon's obligation to pay or cause to be paid to
Executive the benefits and to make the arrangements provided in
Section 3 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set
off, counterclaim, recoupment, defense or other right which Kaydon may
have against him or anyone else.
Except as provided in Section 3(e), Executive's entitlement to
benefits under this plan shall not be subject to any duty to mitigate
his damages by seeking further employment nor offset by any
compensation which he may receive from future employment.
All amounts payable by or on behalf of Kaydon under this agreement
shall, unless specifically stated to the contrary in this agreement,
be paid without notice or demand. Each and every payment made
hereunder by or on behalf of Kaydon shall be final and Kaydon and its
subsidiaries shall not, for any reason whatsoever, seek to recover all
or any part of such payment from Executive or from whomever shall be
entitled thereto.
5. Confidentiality; Non-Solicitation; Cooperation; Consultancy.
(a) Confidentiality. Executive agrees that at all times following
Termination, he will not, without the prior written consent of
Kaydon, disclose to any person, firm or corporation any
confidential information of Kaydon or its subsidiaries which
is now known to him or which hereafter (whether before or
after his Termination) may become known to him as a result of
his employment or association with Kaydon and which could be
helpful to a competitor; provided, however, that the foregoing
shall not apply to confidential information that becomes
publicly disseminated by means other than a breach of this
Agreement.
(b) Cooperation. Executive agrees that, at all times following
Termination, he will furnish such information and render such
assistance and cooperation as may reasonably be requested in
connection with any litigation or legal proceedings concerning
Kaydon or any of its subsidiaries (other than any legal
proceedings concerning Executive's employment). In connection
with such cooperation, Kaydon will pay or reimburse Executive
for all reasonable expenses incurred in cooperating with such
requests.
(c) Remedies for Breach. It is recognized that damages in the
event of breach of this Section 5 by Executive would be
difficult, if not impossible, to ascertain, and it is
therefore agreed that Kaydon in addition to and without
limitation of any other remedy or right it may have shall have
the right to an injunction or other equitable relief in any
court of competent jurisdiction enjoining any such breach, and
Executive waives any and all defenses he may have on the
ground of lack of jurisdiction or other equitable relief. The
existence of this right shall not preclude Kaydon from
pursuing any other rights and remedies at law or in equity
which Kaydon may have.
6. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on ______________, 1998; provided, however, that this
Agreement shall automatically renew for successive three-year terms
unless Kaydon notifies Executive in writing at least 180 days prior to
the expiration date that it does not desire to renew the Agreement for
an additional term; and provided further, however, that such notice
shall not be given and if given shall
-7-
<PAGE> 8
have no effect (i) within three years after a Change in Control or
(ii) during any period of time when Kaydon has reason to believe that
any third person has begun a tender or exchange offer, circulated a
proxy to stockholders, or taken other steps or formulated plans to
effect a Change in Control. That period of time ends when, in the
opinion of the Board of Directors, the third person has abandoned or
terminated his efforts or plans to effect a Change in Control.
7. Miscellaneous.
(a) Assignment. No right, benefit or interest under this
agreement shall be subject to assignment, anticipation,
alienation, sale, encumbrance, charge, pledge, hypothecation
or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process; provided,
however, that Executive may assign any right, benefit or
interest under this Agreement if such assignment is permitted
under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of
Kaydon other than as specifically stated here. This Agreement
is not, and nothing here shall be deemed to create, an
employment contract between Executive and Kaydon or any of its
subsidiaries. Executive acknowledges that the rights of
Kaydon and the subsidiary employing him to change or reduce at
any time and from time to time his compensation, title,
responsibilities, location and other aspects of the employment
relationship or to discharge him prior to a Change in Control
shall remain wholly unaffected by the provisions of this
Agreement. No waiver by either party to this Agreement at any
time of any breach by the other party to this Agreement, or
noncompliance with any condition or provision of this
Agreement to be performed by such other party, shall be deemed
a waiver of that or of any other provision or condition. This
Agreement sets forth the entire agreement of the parties on
the subjects addressed here and no agreements or
representations express or implied on such subjects have been
made by either party which are not set forth expressly in this
Agreement.
(c) Amendment. This Agreement may not be amended, modified or
cancelled except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except
by a writing signed by the party to be bound there.
(e) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall remain in full force and effect to the fullest
extent permitted by law.
(f) Successors. This Agreement shall be binding upon and inure to
the benefit of Executive and his personal representative and
heirs, and Kaydon and any successor organization or
organizations which shall succeed to substantially all of the
business and property of Kaydon whether by means of merger,
consolidation, acquisition of substantially all of the assets
of Kaydon or otherwise, including by operation of law.
-8-
<PAGE> 9
References here to duties and obligations of Kaydon following
a Change in Control are binding upon and shall be the joint
and several liability of Kaydon and any successor of it and
all subsidiaries of Kaydon and any successors of any of them.
(g) Taxes. Any payment or delivery required under this Agreement
shall be subject to all requirements of the law with regard to
withholding of taxes, filing, making of reports and the like.
Kaydon shall use its best efforts to satisfy promptly all such
requirements.
IN WITNESS, the parties have executed this Agreement as of the day and
year first above written.
KAYDON CORPORATION EXECUTIVE
By:
------------------------------------- ----------------------------
Its Name of Executive
---------------------------------- -----------------------------
-9-
<PAGE> 10
(VERSION B)
KAYDON CORPORATION
CHANGE IN CONTROL COMPENSATION AGREEMENT
AGREEMENT made and executed ___________________, 1995 between KAYDON
CORPORATION, a Delaware corporation, 19345 US 19 North, Clearwater, Florida
34624 (Kaydon), and _______________________________, (the Executive).
The Board of Directors of Kaydon has recommended and approved that
Kaydon enter into agreements providing for compensation under certain
circumstances after a change in control.
Executive is a key executive of Kaydon or one or more of its
subsidiaries and has been selected by the Compensation Committee to enter into
this Agreement.
In the event Kaydon should become subject to any proposed or
threatened Change in Control (as defined below), the Board of Directors of
Kaydon believes it is imperative that Kaydon and the Board of Directors be able
to rely upon Executive to continue in his position, and that Kaydon be able to
receive and rely upon his advice, if requested, as to the best interests of
Kaydon and its stockholders, without concern that he might be distracted by the
personal uncertainties and risks created by such a proposal or threat.
In the event Kaydon should receive any such proposal, in addition to
Executive's regular duties, he may be called upon to assist in the assessment
of such proposals, advise management and the Board of Directors as to whether
such proposal would be in the best interests of Kaydon and its stockholders,
and to take such other actions above and beyond his regular duties as the Board
might determine to be appropriate.
To assure Kaydon that it will have the continued dedication of
Executive and the availability of his advice and counsel notwithstanding the
possibility, threat or occurrence of an effort to take over control of Kaydon,
and to induce Executive to remain in the employ of Kaydon and for other good
and valuable consideration, Kaydon and Executive agree as follows:
1. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes
other steps to effect a Change in Control (as defined below),
Executive agrees that he will not voluntarily leave the employ of
Kaydon or the subsidiary then employing him on less than three months
written notice to the Chairman of the Board of Kaydon, will render the
services expected of his position, and will act in all things related
to the interests of the shareholders of Kaydon until the third person
has abandoned or terminated the efforts to effect a Change in Control
or until a Change in Control has occurred.
2. Termination Following Change in Control. Except as provided in
Section 4, Kaydon will provide or cause to be provided to Executive
the rights and benefits described in Section 3 in the event that
Executive's employment is terminated under the circumstances stated in
(a) or
<PAGE> 11
(b) below at any time within three years following a Change in Control
(as that term is defined in this Section 2) which occurs during the
original term of this Agreement or prior to or during any renewal term
as set forth in Section 6:
(a) By Kaydon. By Kaydon or the subsidiary employing Executive
for reasons other than for "cause" (as such term is defined in
Section 4) and other than as a consequence of Executive's
death, permanent disability or attainment of the normal
retirement date as provided under the Kaydon Corporation
Retirement Plan (the Retirement Plan) as in effect immediately
preceding such date (Normal Retirement Date); or
(b) By Executive. By Executive following the occurrence of any of
the following events:
(i) The assignment of Executive to any duties or
responsibilities that are a reduction of or are
materially inconsistent with his position, duties,
responsibilities or status immediately preceding such
Change in Control; or a change in his reporting
responsibilities or titles in effect at such time
resulting in a reduction of his responsibilities or
position;
(ii) The reduction of Executive's annual salary, projected
or target annual bonus (including any deferred
portions of it), level of benefits (except for a
reduction uniformly applicable to all similarly
situated executives), target long-term incentives,
stock options, projected Supplemental Executive
Retirement Plan benefits, or supplemental
compensation;
(iii) The transfer of Executive to a location at least
fifty miles from his present location requiring a
change in his residence or a material increase in the
amount of travel normally required of Executive in
connection with his employment.
(c) For purposes of this Agreement, a "Change in Control" is
deemed to have occurred as of the first day that any one or
more of the following conditions has been satisfied:
(i) Any person (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of
1934)(other than those persons in control of Kaydon
as of the effective date of the Change in Control
Agreement, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of
Kaydon, or a corporation, partnership, or other
entity owned directly or indirectly by the
stockholders of Kaydon in substantially the same
proportions as their ownership of stock of Kaydon)
becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or
indirectly, of securities of Kaydon representing
twenty percent (20%) or more of the combined voting
power of Kaydon's then outstanding securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such
period constitute the Board (and any new Director,
whose election of Kaydon's stockholders was approved
by a vote of at least two-thirds (2/3) of the
Directors
-2-
<PAGE> 12
then still in office who either were Directors at the
beginning of the period or whose election or
nomination for election was so approved), cease for
any reason to constitute a majority thereof; or
(iii) The stockholders of Kaydon approve or there is
otherwise implemented: (A) a plan of complete
liquidation of Kaydon; (B) an agreement for the sale
or disposition of all or substantially all of
Kaydon's assets to a party not within a "controlled
group of corporations" (as defined in Section 1563 of
the Internal Revenue Code of 1986, as amended) in
which Kaydon is a member; or (C) a merger,
consolidation, or reorganization of Kaydon with or
involving any other corporation other than a merger,
consolidation, or reorganization that would result in
the voting securities of Kaydon outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity), at least fifty percent (50%) of the combined
voting power of the voting securities of Kaydon (or
such surviving entity) outstanding immediately after
such merger, consolidation, or reorganization.
Notwithstanding those rules, in no event shall a Change in
Control be deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing group
which consummates the Change- in-Control transaction. The
Executive shall be deemed "part of a purchasing group" for
purposes of the preceding sentence if the Executive is an
equity participant in the purchasing company or group (except
for: (i) passive ownership of less than three percent (3%) of
the stock of the purchasing company; or (ii) ownership of
equity participation in the purchasing company or group which
is otherwise not ignificant, as determined prior to the Change
in Control by a majority of the nonemployee continuing
Directors).
3. Rights and Benefits Upon Termination. In the event of the termination
of Executive's employment under any of the circumstances set forth in
Section 2 (Termination), Kaydon agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of 3 times
Executive's Compensation (as such term is defined in this
Section 3(a)).
(i) Payment shall be made in a lump sum no later than the
first day of the second month following Termination.
(ii) If Executive dies prior to the time all payments
which may otherwise have been due to Executive, under
this Section 3(a) or otherwise in this agreement,
have been made, then as soon as practicable after
such death but in no event later than three months
thereafter, Kaydon shall pay in a lump sum in cash
all sums not distributed to Executive prior to his
death. Payment shall be made to the beneficiary or
beneficiaries (in addition to the amount of life
insurance proceeds payable to each beneficiary) named
as such under the life insurance plan or plans
-3-
<PAGE> 13
maintained by Kaydon on the date of Executive's
death. If no such beneficiary is named, such sums
shall be paid to Executive's estate. No reduction to
present value of any such sums shall be made.
For purposes of this Agreement, "Compensation" means the
greater of the Executive's base salary for the calendar year
in which the Termination occurs or the preceding calendar
year, plus the average bonus payable to Executive during the
most recent three-year fiscal period (or the period during
which the Executive has been employed by Kaydon or any of its
subsidiaries if less than three years).
(b) Incentive Compensation. The Executive shall receive any
incentive compensation (including but not limited to the right
to receive and exercise stock options and stock appreciation
rights and to receive restricted stock and grants thereof and
similar incentive compensation benefits) to which Executive is
entitled under all incentive compensation plans maintained by
Kaydon or to which Executive would be entitled to by virtue of
Executive's employment with the corporation or entity who
succeeds Kaydon after a Change in Control. Without limitation
of the above, the vesting and exercisability of any
outstanding stock option, stock appreciation, restricted
stock, or other similar incentive compensation rights shall be
accelerated to the extent authorized under the terms of that
option or other program and the plan under which the option
was granted.
(c) Executive Incentive Plan Benefits. Any award under the Kaydon
Management Incentive Compensation Plan for a prior Plan Year
which has not been paid to Executive at the time of his
Termination shall be paid to him within 30 days of his
Termination. This payment shall be accompanied by a payment
to Executive of an amount equal to 1/12 of the greater of the
projected award for the year in which Termination occurs or
the award to the Executive for the most recently ended Plan
Year for each full or partial month in the current Plan Year
prior to the month of Executive's Termination.
(d) Insurance and Other Special Benefits. To the earlier of three
years from the date of Termination or the date Executive
obtains reasonably comparable life insurance, medical
insurance, dental insurance, accident insurance, or disability
insurance, as the case may be, at no greater cost to Executive
than was the case at Kaydon Corporation, Executive shall
continue to be covered by the life insurance, medical and
dental insurance, and accident and disability insurance plans
of Kaydon and its subsidiaries or any successor plan or
program in effect at or after Termination for employees in the
same class or category as was Executive prior to his
Termination, subject to the terms of such plans (other than
any exclusion preventing Executive's participation because he
is no longer an employee) and to Executive's making any
payments therefor required of employees in the same class or
category as was Executive prior to his Termination.
(i) In the event Executive is ineligible to continue to
be so covered under the terms of any such benefit
plan or program (other than because of expiration of
the three year coverage period described above) or in
the event Executive is eligible but
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<PAGE> 14
the benefits applicable to Executive under any such
plan or program after Termination are not
substantially equivalent to the benefits applicable
to Executive immediately prior to Termination, then,
until the expiration of that period, Kaydon shall
provide such substantially equivalent benefits, or
such additional benefits as may be necessary to make
the benefits applicable to Executive substantially
equivalent to those in effect before Termination,
through other sources; provided, however, that if
during such period Executive should enter into the
employ of another company or firm which provides
substantially similar benefit coverage, Executive's
participation in the comparable benefit provided by
Kaydon either directly or through such other sources
shall cease.
(ii) Nothing contained in this paragraph shall be deemed
to require or permit termination or restriction of
any Executive's coverage under any plan or program of
Kaydon or any of its subsidiaries or any successor
plan or program to which Executive is entitled under
the terms of such plan or program.
(e) Outplacement Services. Executive shall be entitled to full
outplacement services provided by the professional
outplacement consulting firm of Executive's choosing, to a
maximum cost of 15% of the Executive's base salary for the
calendar year preceding the calendar year in which Termination
occurs.
(f) Excise Tax Payment. If any portion of the rights and benefits
or any other payment under this Agreement, or under any other
agreement with, or plan of, Kaydon or its subsidiaries (in the
aggregate, Total payments) would constitute an "excess
parachute payment," such that a gold parachute excise tax is
due, the Executive shall be entitled to, in cash, an
additional payment in an amount to cover the full cost of the
excise tax and the Executive's state and Federal income and
employment taxes on this excise tax payment, except to the
extent Kaydon is obligated to provide such additional payment
to the Executive under a separate plan or agreement. This
payment shall be made as soon as possible following the date
of the Executive's Termination, but in no event later than
thirty (30) calendar days of such date.
In the event the Internal Revenue Service subsequently adjusts
the excise tax computation described here, Kaydon shall
reimburse the Executive for the full amount necessary to make
the Executive whole (less any amounts received by the
executive that the Executive would not have received had the
computation initially been computed as subsequently adjusted),
including the value of any underpaid excise tax, and any
related interest and/or penalties due to the Internal Revenue
Service.
For purposes of this Agreement, the terms "golden parachute
excise tax" and "excess parachute payment," shall have the
meanings assigned to such terms in Sections 280G and 4999 of
the Internal Revenue Code.
The specific arrangements referred to in this Section 3 are not
intended to exclude Executive's participation in other benefit plans
in which Executive currently participates or which are or may become
available to executive personnel generally in the class or category
-5-
<PAGE> 15
of Executive or to preclude other compensation or benefits as may be
authorized by the Board of Directors from time to time.
In addition to the rights and benefits of this Section 3. and any
other rights or remedies available to Executive, Kaydon shall
reimburse Executive in full for all attorneys' fees and costs
reasonably incurred by Executive in enforcing or seeking enforcement
of this Agreement against Kaydon or in seeking damages for Kaydon's
failure to fully perform its obligations under this Agreement.
4. Conditions to the Obligations of Kaydon. Kaydon shall have no
obligation to provide or cause to be provided to Executive the rights
and benefits described in Section 3 if either of the following events
shall occur:
(a) Termination for Cause. Kaydon shall terminate Executive's
employment for "cause". For purposes of this Agreement,
termination of employment for "cause" shall mean termination
solely for conviction of a felony by Executive.
(b) Resignation as Director or Officer. Executive shall fail,
within a reasonable time after Termination and upon receiving
a written request to do so, to resign as a director and/or
officer of Kaydon and each subsidiary and affiliate of Kaydon
of which he is then serving as a director and/or officer.
In all other events, Kaydon's obligation to pay or cause to be paid to
Executive the benefits and to make the arrangements provided in
Section 3 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set
off, counterclaim, recoupment, defense or other right which Kaydon may
have against him or anyone else.
Except as provided in Section 3(d), Executive's entitlement to
benefits under this plan shall not be subject to any duty to mitigate
his damages by seeking further employment nor offset by any
compensation which he may receive from future employment.
All amounts payable by or on behalf of Kaydon under this agreement
shall, unless specifically stated to the contrary in this agreement,
be paid without notice or demand. Each and every payment made
hereunder by or on behalf of Kaydon shall be final and Kaydon and its
subsidiaries shall not, for any reason whatsoever, seek to recover all
or any part of such payment from Executive or from whomever shall be
entitled thereto.
5. Confidentiality; Non-Solicitation; Cooperation; Consultancy.
(a) Confidentiality. Executive agrees that at all times following
Termination, he will not, without the prior written consent of
Kaydon, disclose to any person, firm or corporation any
confidential information of Kaydon or its subsidiaries which
is now known to him or which hereafter (whether before or
after his Termination) may become known to him as a result of
his employment or association with Kaydon and which could be
helpful to a competitor; provided, however, that the foregoing
shall not
-6-
<PAGE> 16
apply to confidential information that becomes publicly
disseminated by means other than a breach of this Agreement.
(b) Cooperation. Executive agrees that, at all times following
Termination, he will furnish such information and render such
assistance and cooperation as may reasonably be requested in
connection with any litigation or legal proceedings concerning
Kaydon or any of its subsidiaries (other than any legal
proceedings concerning Executive's employment). In connection
with such cooperation, Kaydon will pay or reimburse Executive
for all reasonable expenses incurred in cooperating with such
requests.
(c) Remedies for Breach. It is recognized that damages in the
event of breach of this Section 5 by Executive would be
difficult, if not impossible, to ascertain, and it is
therefore agreed that Kaydon in addition to and without
limitation of any other remedy or right it may have shall have
the right to an injunction or other equitable relief in any
court of competent jurisdiction enjoining any such breach, and
Executive waives any and all defenses he may have on the
ground of lack of jurisdiction or other equitable relief. The
existence of this right shall not preclude Kaydon from
pursuing any other rights and remedies at law or in equity
which Kaydon may have.
6. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on _______________, 1998; provided, however, that this
Agreement shall automatically renew for successive three-year terms
unless Kaydon notifies Executive in writing at least 180 days prior to
the expiration date that it does not desire to renew the Agreement for
an additional term; and provided further, however, that such notice
shall not be given and if given shall have no effect (i) within three
years after a Change in Control or (ii) during any period of time when
Kaydon has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other
steps or formulated plans to effect a Change in Control. That period
of time ends when, in the opinion of the Board of Directors, the third
person has abandoned or terminated his efforts or plans to effect a
Change in Control.
7. Miscellaneous.
(a) Assignment. No right, benefit or interest under this
agreement shall be subject to assignment, anticipation,
alienation, sale, encumbrance, charge, pledge, hypothecation
or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process; provided,
however, that Executive may assign any right, benefit or
interest under this Agreement if such assignment is permitted
under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of
Kaydon other than as specifically stated here. This Agreement
is not, and nothing here shall be deemed to create, an
employment contract between Executive and Kaydon or any of its
subsidiaries. Executive acknowledges that the rights of
Kaydon and the subsidiary employing him to change or reduce at
any time and from time to time his compensation, title,
responsibilities, location and other aspects of the employment
relationship or to discharge him prior to a Change in Control
shall remain wholly unaffected by the provisions of this
Agreement.
-7-
<PAGE> 17
No waiver by either party to this Agreement at any time of any
breach by the other party to this Agreement, or noncompliance
with any condition or provision of this Agreement to be
performed by such other party, shall be deemed a waiver of
that or of any other provision or condition. This Agreement
sets forth the entire agreement of the parties on the subjects
addressed here and no agreements or representations express or
implied on such subjects have been made by either party which
are not set forth expressly in this Agreement.
(c) Amendment. This Agreement may not be amended, modified or
cancelled except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except
by a writing signed by the party to be bound there.
(e) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall remain in full force and effect to the fullest
extent permitted by law.
(f) Successors. This Agreement shall be binding upon and inure to
the benefit of Executive and his personal representative and
heirs, and Kaydon and any successor organization or
organizations which shall succeed to substantially all of the
business and property of Kaydon whether by means of merger,
consolidation, acquisition of substantially all of the assets
of Kaydon or otherwise, including by operation of law.
References here to duties and obligations of Kaydon following
a Change in Control are binding upon and shall be the joint
and several liability of Kaydon and any successor of it and
all subsidiaries of Kaydon and any successors of any of them.
(g) Taxes. Any payment or delivery required under this Agreement
shall be subject to all requirements of the law with regard to
withholding of taxes, filing, making of reports and the like.
Kaydon shall use its best efforts to satisfy promptly all such
requirements.
IN WITNESS, the parties have executed this Agreement as of the day and
year first above written.
KAYDON CORPORATION EXECUTIVE
By:
---------------------------------------- -----------------------------
Its Name of Executive
----------------------------------- -----------------------------
-8-
<PAGE> 1
EXHIBIT 11
KAYDON CORPORATION
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
================================================================================
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net Income $38,203,000 $29,226,000 $27,695,000
----------- ----------- -----------
Average common shares outstanding 16,619,000 16,683,000 17,252,000
Net common shares issuable in respect to
common stock equivalents, with a dilutive effect 122,000 43,000 61,000
----------- ----------- -----------
Total common and common share
equivalent shares 16,741,000 16,726,000 17,313,000
Primary earnings per common share $2.28 $1.75 $1.60
FULLY DILUTED EARNINGS PER SHARE:
Net Income $38,203,000 $29,226,000 $27,695,000
----------- ----------- -----------
Average common shares outstanding 16,619,000 16,684,000 17,252,000
Net common shares issuable in respect to
common stock equivalents, with a dilutive effect 133,000 50,000 66,000
----------- ----------- -----------
Total common and common share
equivalent shares 16,752,000 16,734,000 17,318,000
Fully diluted earnings per common share $2.28 $1.75 $1.60
</TABLE>
26
<PAGE> 1
EXHIBIT 13
FINANCIAL HISTORY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Ten Year Summary 1995 1994 (1) 1993 1992 (1) 1991
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENT DATA (000 omitted)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales ..................... $229,924 204,695 184,060 183,904 160,989
Gross Profit .................. $ 88,599 76,150 67,781 66,180 55,981
Operating Income .............. $ 59,286 49,759 44,314 42,222 39,827
Interest Income (Expense), net $ 2,505 609 142 (1,471) (389)
Provision for Income Taxes .... $ 23,588 19,142 16,761 15,133 13,983
Net Income .................... $ 38,203 29,226 27,695 10,374 25,455
BALANCE SHEET
Total Assets .................. $267,675 243,584 217,422 210,967 217,451
Plant & Equipment, net ........ $ 72,345 61,247 60,077 63,513 68,759
Working Capital ............... $ 91,407 85,886 71,810 56,754 59,171
Capital Employed:
Total Debt .................. $ 8,000 8,000 15,312 18,090 40,634
Stockholders' Investment..... $187,905 166,570 143,840 136,076 137,501
-------- ------- ------- ------- -------
Capital Employed ........ $195,905 174,570 159,152 154,166 178,135
CASH FLOW DATA
Capital Expenditures, net...... $ 7,371 6,746 5,088 6,057 11,075
Acquisition of Businesses ..... $ 23,512 7,268 716 -- 42,793
Depreciation & Amortization ... $ 11,176 10,641 10,264 11,194 9,250
Net Cash Provided by
Operating Activities ........ $ 49,487 44,176 39,237 38,382 35,153
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
PROFITABILITY
Operating Margin .............. 25.8% 24.3% 24.1% 23.0% 24.7%
Return on Net Sales ........... 16.6% 14.3% 15.0% 5.6% 15.8%
Return on Average Assets ...... 14.9% 12.7% 12.9% 4.8% 12.9%
Return on Average Capital
Employed .................... 20.6% 17.5% 17.7% 6.8% 16.1%
Return on Average Stockholders'
Investment .................. 21.6% 18.8% 19.8% 7.6% 20.3%
LIQUIDITY
Current Ratio ................. 3.1 3.1 3.1 2.4 2.6
Debt to Debt - Equity Ratio ... 4.1% 4.6% 9.6% 11.7% 22.8%
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings per Share ............ $ 2.28 1.75 1.60 0.59 1.47
Dividends Declared per Share .. $ 0.45 0.41 0.37 0.32 0.26
Book Value per Share,
net of treasury stock........ $ 11.48 10.01 8.62 7.83 7.94
Market Price per Share,
Annual High ................. $ 31-1/2 25-1/4 31-3/4 26-5/8 23-7/8
Market Price per Share,
Annual Low .................. $ 22-3/4 19-3/4 18 19-1/2 16
Year End Closing
Stock Price ................. $ 30-3/8 24 20-3/4 23-1/2 22-1/8
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER
Weighted Average Shares and
Equivalents Outstanding
(000 omitted) ............. 16,741 16,726 17,313 17,439 17,336
Backlog of Orders on
Hand (000 omitted) ......... $101,852 88,360 84,385 83,296 93,192
Average Number of
Employees .................. 1,805 1,703 1,661 1,731 1,441
Net Sales per
Employee ................... $127,382 120,197 110,813 106,241 111,720
Number of Common
Stockholders ................ 1,487 1,615 1,742 1,929 2,010
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Ten Year Summary 1990 1989 1988 1987 1986
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENT DATA (000 omitted)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales ..................... 169,442 151,238 135,029 133,473 112,569
Gross Profit .................. 59,410 51,426 47,133 45,565 34,642
Operating Income .............. 42,648 37,973 35,556 33,940 23,729
Interest Income (Expense), net. (1,878) (2,026) (2,506) (3,638) (4,282)
Provision for Income Taxes .... 14,761 13,100 12,207 12,784 9,674
Net Income .................... 26,009 22,847 20,843 17,119 10,013
BALANCE SHEET
Total Assets .................. 176,098 153,949 122,425 120,193 120,062
Plant & Equipment, net ........ 61,931 64,012 48,613 49,888 51,009
Working Capital ............... 62,867 42,989 31,921 23,944 30,866
Capital Employed:
Total Debt .................. 27,069 29,815 22,457 40,371 62,661
Stockholders' Investment 113,757 90,686 69,874 50,327 33,629
------- ------ ------ ------ ------
Capital Employed ........ 140,826 120,501 92,331 90,698 96,290
CASH FLOW DATA
Capital Expenditures, net 5,817 9,107 4,839 3,286 2,773
Acquisition of Businesses ..... -- 22,860 -- 5,100 29,600
Depreciation & Amortization ... 8,622 7,388 6,407 6,225 5,506
Net Cash Provided by
Operating Activities ........ 30,072 25,451 23,905 30,376 22,644
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
PROFITABILITY
Operating Margin .............. 25.2% 25.1% 26.3% 25.4% 21.1%
Return on Net Sales ........... 15.3% 15.1% 15.4% 12.8% 8.9%
Return on Average Assets ...... 15.8% 16.5% 17.2% 14.3% 9.2%
Return on Average Capital
Employed .................... 20.8% 22.7% 24.5% 20.5% 13.6%
Return on Average Stockholders'
Investment .................. 25.4% 28.5% 34.7% 40.8% 34.8%
LIQUIDITY
Current Ratio ................. 3.1 2.6 2.3 1.8 2.4
Debt to Debt - Equity Ratio ... 19.2% 24.7% 24.3% 44.5% 65.1%
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings per Share ............ 1.51 1.33 1.22 1.00 0.60
Dividends Declared per Share .. 0.21 0.16 0.11 0.05 0.03
Book Value per Share,
net of treasury stock ....... 6.63 5.31 4.13 3.01 2.03
Market Price per Share,
Annual High ................. 18-7/8 19-1/4 16-3/4 17 7-7/8
Market Price per Share,
Annual Low .................. 13-5/8 13-7/16 11-3/8 7-5/16 5-1/8
Year End Closing
Stock Price ................. 17 15-7/8 13-7/16 12-3/8 7-5/16
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER
Weighted Average Shares and
Equivalents Outstanding
(000 omitted) ............. 17,228 17,180 17,128 17,116 16,892
Backlog of Orders on
Hand (000 omitted) ......... 93,079 97,359 74,128 73,949 75,895
Average Number of
Employees .................. 1,638 1,446 1,265 1,255 1,170
Net Sales per
Employee ................... 103,444 104,591 106,742 106,353 96,213
Number of Common
Stockholders ................ 2,199 2,241 2,519 2,718 2,888
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Financial results include the impact (net of tax) of the adoption of
the following Statements of Financial Accounting Standards:
1994 Postemployment benefits - SFAS 112 $ 2,000,000
1992 Postretirement benefits - SFAS 106 and
Income Taxes - SFAS 109 $15,244,000
(2) All per share data presented in 1992 and prior years has been restated
to reflect the two-for-one stock split effected in 1992.
14
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
1995 Compared to 1994
Net sales increased to $229,924,000 in 1995, up 12.3% from $204,695,000 in
1994. Internal sales growth accounted for essentially all of the growth, as the
acquisitions of DJ Moldings in January and Seabee Corporation in September were
practically offset by the decrease in sales from the disposition of our
automotive operation in May. All of the Company's divisions except Filtration,
contributed to the gains, with the greatest percentage improvements coming from
the domestic bearing and the U.K. split roller bearing operations. Similarly,
the backlog of unshipped orders at year end increased to $101,852,000, up
$3,791,000 from $98,061,000 in the prior quarter and $88,360,000 at this time
last year.
Gross profit as a percentage of sales was 38.5% compared to 37.2% in 1994.
The increase is attributable to operating efficiencies related to our plant
consolidation, increased volume and continued cost control.
Selling and administrative expenses as a percentage of sales in 1995 was
12.7% compared to 12.9% in 1994. The slight decrease was attributable to
increased sales volume.
Net interest income this year was $2,505,000, up $1,896,000 from $609,000
in 1994. The increase in interest income is attributable to much larger cash
and securities balances throughout the year.
The effective tax rate of 38.2% remains essentially unchanged from 38.0%
in 1994.
1994 Compared to 1993
Net sales increased to $204,695,000 in 1994 from $184,060,000 in 1993, up
11.2%. The increase was attributable to increases in most operations as well as
the addition of Industrial Tectonics Inc ("ITI"), acquired in January of 1994
and Kenyon Power Transmission acquired in December of 1993. The backlog of un-
shipped orders at the end of the year also increased to $88,360,000 from
$84,385,000 in 1993.
Gross profit as a percentage of sales in 1994 was 37.2% compared to 36.8%
in 1993. The increase primarily reflected improved manufacturing results as
well as continued cost control.
Selling and administrative expenses as a percentage of sales in 1994 was
12.9% compared to 12.7% in 1993. The small increase is predominately a result
of slightly higher expense accruals.
Net interest income in 1994 was $609,000 compared to $142,000 in 1993. The
increase resulted from larger cash and securities balances and lower debt
levels throughout 1994.
The effective tax rate for 1994 of 38.0% was essentially unchanged from
37.7% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $91,407,000 at December 31, 1995 as compared to
$85,886,000 at December 31, 1994, reflecting current ratios of 3.1 for both
periods. The increase of $5,521,000 is primarily attributable to an increase in
cash and securities offset by higher expense accruals. Cash and securities
account for approximately 51.6% of net working capital compared to 46.2% last
year.
Total debt, consisting of long-term Industrial Revenue Bonds ("IRB")
issued at favorable interest rates, remained at $8,000,000. Cash and securities
on hand exceed debt by $39,159,000 at December 31, 1995 compared to $31,667,000
at the end of December 31, 1994, for an increase of $7,492,000.
Operating cash flow was a record high at $49,487,000, an increase of 12.0%
from $44,176,000 in 1994. The increase is the result of continued strong
working capital management. Working capital, excluding cash and securities,
decreased to 19.2% of sales from 22.6% last year. Net capital expenditures were
$7,371,000 and dividends were $7,336,000, resulting in free cash flow of
$34,780,000 for the year. The Company increased its cash by $5,265,000 from the
sale of a surplus building and the majority of its automotive operation assets,
and in turn, the Company spent $23,512,000 for acquisitions. During the year,
22,557 shares of treasury stock were acquired in association with the exercise
of stock options while $9,957,000 was spent to repurchase 347,900 shares of
Kaydon stock on the open market. The Company has now purchased 1,181,500 shares
of the 2,000,000 shares approved for repurchase by the Board of Directors.
Planned capital requirements for 1996 consist principally of capital
expenditures relating to plant and equipment, cash dividends to stockholders
and the potential purchase of the remaining shares of the Company's stock
approved for repurchase. Planned capital expenditures relating to environmental
issues are not expected to be material, however, such expenditures could be
influenced by the enactment of new or revised environmental regulations and
laws. It is expected that these capital requirements will be financed by
operating activities.
The Company is actively seeking potential acquisitions and, depending upon
the size and structure of such acquisitions, financing may be required.
During 1995, the Company continued its agreements with its banks for a
domestic credit line of $85,000,000. The Company also had in place at December
31, 1995, short-term lines of credit of $30,000,000 and a foreign revolving
credit and term loan agreement of $2,500,000. No borrowings existed under the
short-term lines of credit or the revolving credit and term loan agreements at
December 31, 1995 or December 31, 1994.
15
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OTHER
Effect of Foreign Currency Translation
A portion of the Company's sales, income and cash flows is derived from
its international operations. The financial position and the results of
operations of the Company's foreign subsidiaries (primarily Europe) are
measured using local currency of the countries in which they operate and are
translated into U.S. dollars. Accordingly, the Company's consolidated
operating results and net assets will fluctuate depending upon the
strengthening or weakening of the U.S. dollar. To date, the impact of the
fluctuations of foreign currencies relative to the U.S. dollar has not had a
significant impact on the Company's consolidated financial statements.
Impact of Recently Issued Accounting Standard
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" was issued. This
pronouncement establishes the method for identifying and recording assets which
have incurred an impairment in value. The statement is effective for 1996,
however, the Company does not believe the adoption will have a material
effect on its financial statements.
Supplemental Information on Changing Prices
The impact of inflation on the Company has been moderate over the last
several years and is believed to be consistent with that of the industry as a
whole.
Environmental
Environmental protection laws continue to affect the Company's
manufacturing operations. The Company has complied with these laws by making
various capital expenditures for pollution control equipment and through plant
operational practices. This compliance has not had, nor does the Company expect
it to have, a material effect on financial results. Of course, the Company
cannot assess the possible effect of compliance with the enactment of future
regulations and laws.
In late 1985, Kaydon entered into discussions with the Michigan Department
of Natural Resources ("MDNR") to develop a remedial cleanup plan for one of its
plant sites in Muskegon, Michigan, which is on the Environmental Protection
Agency's ("EPA") National Priority List. In 1986, Kaydon took measures
necessary to clean up the site according to the plan approved by the MDNR.
These measures included the removal and disposal of contaminated soils and the
drilling of groundwater monitoring wells, the results of which have been
continually reported to the MDNR. Management believes that it has worked with
the MDNR and EPA to the letter and spirit of the law. The site is being
evaluated to determine if further action is required. While it is impossible to
forecast the ultimate future cost, management believes, based upon eleven years
of evaluating the site, that such cost will not be material to its operating
results.
Litigation
The Company, together with other companies, certain former officers, and
certain current and former directors, has been named as a co-defendant in
lawsuits filed in federal court in New York in 1993. The suits purport to be
class actions on behalf of all persons who have unsatisfied personal injury and
property damage claims against Keene Corporation which filed for bankruptcy
under Chapter 11. The premise of the suits is that assets of Keene were
transferred to Bairnco subsidiaries, of which Kaydon was one in 1983, at less
than fair value. The suits also allege that the Company, among other named
defendants, was a successor to and alter ego of Keene. In 1994, an examiner was
appointed by a bankruptcy court to examine the issues at stake. On September
23, 1994, the "Preliminary Report of the Examiner" was made public. In the
report, the examiner stated that the alleged fraudulent conveyance claims
against the Company appear to be time-barred by the statute of limitations,
subject to certain possible exceptions which the Company does not believe are
significant or factual. Although the examiner has made certain recommendations
regarding a mechanism to resolve the claims against the Company, the Court has
not taken any action related to the report. Nevertheless, in the Company's
opinion, the report reinforces management's original view that the claims will
ultimately not be sustained. Accordingly, no provision has been reflected in
the consolidated financial statements for any alleged damages. In June 1995,
the creditors' committee filed a complaint in the same bankruptcy court
asserting claims against the Company similar to those previously filed. If
Keene Corporation's current plan of reorganization is approved by the
bankruptcy court, the lawsuits filed in 1993 would be permanently stayed and
replaced by the creditors' committee complaint. Management believes that the
outcome of this litigation will not have a material adverse effect on the
Company's financial position.
Various other claims, lawsuits and environmental matters arising in the
normal course of business are pending against the Company. Management believes
that the outcome of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
16
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Kaydon Corporation:
We have audited the accompanying consolidated balance sheets of Kaydon
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kaydon Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 10 to the consolidated financial statements,
effective January 1, 1994, the Company changed its method of accounting for
postemployment benefits to adopt the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits."
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
January 18, 1996
_______________________________________________________________________________
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements of Kaydon Corporation and
subsidiaries were prepared by and are the responsibility of management. The
statements have been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and include amounts that are based
on management's best estimates and judgments.
The Company maintains systems of internal accounting controls designed to
provide reasonable assurance that all transactions are properly recorded in the
company's books and records, that policies and procedures are adhered to, and
that assets are protected from unauthorized use. The systems of internal
accounting controls are supported by written policies and guidelines and are
complemented by the selection, training, and development of professional
financial managers.
The consolidated financial statements have been audited by the independent
public accounting firm Arthur Andersen LLP. The independent public accountants
conduct a review of internal accounting controls to the extent required by
generally accepted auditing standards and perform such tests and related
procedures as they deem necessary to arrive at an opinion on the fairness of
the financial statements.
The Audit Committee of the Board of Directors, composed solely of
directors from outside the Company, regularly meets with the independent public
accountants and management. The independent public accountants have full and
free access to the Audit Committee.
/s/ Lawrence J. Cawley /s/ Thomas C. Sorrells, III
- ------------------------------------ ------------------------------
Lawrence J. Cawley Thomas C. Sorrells, III
Chairman and Chief Executive Officer Corporate Controller
17
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
KAYDON CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 4,808,000 $ 28,575,000
Marketable securities ........................ 42,351,000 11,092,000
Accounts receivable, less allowances of
$1,257,000 in 1995 and $1,224,000
in 1994 ................................. 30,186,000 27,230,000
Inventories .................................. 50,145,000 53,746,000
Other current assets ......................... 7,964,000 6,145,000
------------- -------------
Total current assets .................... 135,454,000 126,788,000
------------- -------------
Plant and Equipment, at cost:
Land and improvements ........................ 3,727,000 3,303,000
Buildings and leasehold improvements ......... 38,618,000 32,557,000
Machinery and equipment ...................... 124,364,000 129,246,000
------------- -------------
166,709,000 165,106,000
Less - accumulated depreciation and
amortization ............................... (94,364,000) (103,859,000)
------------- -------------
72,345,000 61,247,000
------------- -------------
Cost in excess of net tangible assets of
purchased businesses, net ...................... 49,909,000 43,691,000
Other assets ...................................... 9,967,000 11,858,000
------------- -------------
$ 267,675,000 $ 243,584,000
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable ............................. $ 8,877,000 $ 8,856,000
Accrued expenses:
Salaries and wages......................... 8,487,000 6,238,000
Employee benefits ......................... 9,117,000 9,141,000
Income taxes .............................. 3,248,000 3,805,000
Other accrued expenses .................... 14,318,000 12,862,000
------------- -------------
Total current liabilities ............. 44,047,000 40,902,000
------------- -------------
Long-term postretirement and postemployment
benefit obligations ............................. 27,723,000 28,112,000
------------- -------------
Long-term debt .................................... 8,000,000 8,000,000
------------- -------------
Stockholders' Investment:
Preferred stock -
($.10 par value, 2,000,000 shares
authorized; none issued) .............. -- --
Common stock -
($.10 par value, 48,000,000 shares
authorized; 17,633,165 and 17,540,790
shares issued in 1995 and 1994) ....... 1,763,000 1,754,000
Paid-in capital.................................... 17,699,000 15,762,000
Retained earnings ............................ 200,953,000 170,718,000
Less - treasury stock, at cost; (1,263,681
and 893,224 shares in 1995 and 1994) ........... (27,613,000) (17,047,000)
Cumulative translation adjustment ................. (4,897,000) (4,617,000)
------------- -------------
187,905,000 166,570,000
------------- -------------
$ 267,675,000 $ 243,584,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
KAYDON CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales .................................. $ 229,924,000 $ 204,695,000 $ 184,060,000
Cost of sales ........................... 141,325,000 128,545,000 116,279,000
------------- ------------- -------------
Gross Profit ............................... 88,599,000 76,150,000 67,781,000
Selling and administrative
expenses ............................... 29,313,000 26,391,000 23,467,000
------------- ------------- -------------
Operating Income ........................... 59,286,000 49,759,000 44,314,000
Interest expense ........................ (345,000) (304,000) (270,000)
Interest income ......................... 2,850,000 913,000 412,000
------------- ------------- -------------
Income Before Income Taxes and Cumulative
Prior Year Effect of Change in
Accounting Principle ............. 61,791,000 50,368,000 44,456,000
Provision for income taxes ........ 23,588,000 19,142,000 16,761,000
------------- ------------- -------------
Income Before Cumulative Prior Year
Effect of Change in Accounting
Principle ......................... 38,203,000 31,226,000 27,695,000
Cumulative Prior Year Effect of Change in
Accounting Principle for
postemployment benefits,
net of income tax benefit
of $1,200,000 ..................... -- (2,000,000) --
------------- ------------- -------------
Net Income ................................. $ 38,203,000 $ 29,226,000 $ 27,695,000
============= ============= =============
Earnings Per Share Before Cumulative
Prior Year
Effect of Change in Accounting
Principle............................... $ 2.28 $ 1.87 $ 1.60
Cumulative Prior Year Effect of Change in
Accounting Principle for postemployment
benefits ............................... -- (0.12) --
------------- ------------- -------------
Earnings Per Share ......................... $ 2.28 $ 1.75 $ 1.60
============= ============= =============
Dividends Per Share ........................ $ 0.45 $ 0.41 $ 0.37
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
KAYDON CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
------------ ------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992 ............ $ 1,743,000 $ 13,672,000 $ 127,442,000
Net income, 1993 ............. -- -- 27,695,000
Cash dividends declared ...... -- -- (6,387,000)
Issuance of 73,625 shares
of common stock under
stock option plan ........ 8,000 1,507,000 --
Purchase of 761,182 shares
of treasury stock ........ -- -- --
Current year translation
adjustment ............... -- -- --
Adjustment for minimum
pension liability ........ -- -- (536,000)
------------ ------------ -------------
Balance, December 31, 1993 ............ 1,751,000 15,179,000 148,214,000
Net income, 1994 ............. -- -- 29,226,000
Cash dividends declared ...... -- -- (6,840,000)
Issuance of 31,525 shares
of common stock under
stock option plan ........ 3,000 583,000 --
Purchase of 73,600 shares
of treasury stock ........ -- -- --
Current year translation
adjustment ............... -- -- --
Adjustment for minimum
pension liability ........ -- -- 118,000
------------ ------------ -------------
Balance, December 31, 1994 ............ 1,754,000 15,762,000 170,718,000
Net income, 1995 ............. -- -- 38,203,000
Cash dividends declared ...... -- -- (7,471,000)
Issuance of 92,375 shares
of common stock under
stock option plan ........ 9,000 1,937,000 --
Purchase of 370,457 shares
of treasury stock ........ -- -- --
Current year translation
adjustment ............... -- -- --
Adjustment for minimum
pension liability ........ -- -- (497,000)
------------ ------------ -------------
Balance, December 31, 1995 ............ $ 1,763,000 $ 17,699,000 $ 200,953,000
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Treasury Translation
Stock Adjustment Total
------------ ------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1992 ............ (963,000) $ (5,818,000) $ 136,076,000
Net income, 1993 ............. -- -- 27,695,000
Cash dividends declared ...... -- -- (6,387,000)
Issuance of 73,625 shares
of common stock under
stock option plan ........ -- -- 1,515,000
Purchase of 761,182 shares
of treasury stock ........ (14,433,000) -- (14,433,000)
Current year translation
adjustment ............... -- (90,000) (90,000)
Adjustment for minimum
pension liability ........ -- -- (536,000)
------------- ------------ -------------
Balance, December 31, 1993 ............ (15,396,000) (5,908,000) 143,840,000
Issuance of 31,525 shares
Net income, 1994 ............. -- -- 29,226,000
Cash dividends declared ...... -- -- (6,840,000)
Issuance of 31,525 shares
of common stock under
stock option plan ........ -- -- 586,000
Purchase of 73,600 shares
of treasury stock ........ (1,651,000) -- (1,651,000)
Current year translation
adjustment ............... -- 1,291,000 1,291,000
Adjustment for minimum
pension liability ........ -- -- 118,000
------------- ------------ -------------
Balance, December 31, 1994 ............ (17,047,000) (4,617,000) 166,570,000
Net income, 1995 ............. -- -- 38,203,000
Purchase of 370,457 shares
Cash dividends declared ...... -- -- (7,471,000)
Issuance of 92,375 shares
of common stock under
stock option plan ........ -- -- 1,946,000
Purchase of 370,457 shares
of treasury stock ........ (10,566,000) -- (10,566,000)
Current year translation
adjustment ............... -- (280,000) (280,000)
Adjustment for minimum
pension liability ........ -- -- (497,000)
------------- ------------ -------------
Balance, December 31, 1995 ............ $ (27,613,000) $ (4,897,000) $ 187,905,000
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
KAYDON CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................................... $ 38,203,000 $ 29,226,000 $ 27,695,000
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization ..................... 11,176,000 10,641,000 10,264,000
Cumulative prior year effect of change
in accounting principle ....................... -- 2,000,000 --
Deferred taxes .................................... (2,773,000) (2,594,000) (2,625,000)
Changes in assets and liabilities, net of
effects of acquisitions of businesses:
Accounts receivable ........................ 157,000 (1,097,000) (2,710,000)
Inventories ................................ 4,133,000 (483,000) 4,290,000
Other current assets ....................... 374,000 171,000 1,236,000
Accounts payable ........................... (1,385,000) 1,650,000 819,000
Accrued expenses ........................... (9,000) 3,934,000 1,202,000
Long-term postretirement and
postemployment benefit obligations ...... (389,000) 728,000 (934,000)
------------ ------------ ------------
Net cash provided by operating
activities............................ 49,487,000 44,176,000 39,237,000
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of marketable securities .................................. (80,478,000) (32,318,000) --
Maturities of marketable securities ................................. 49,219,000 21,226,000 --
Additions to plant and equipment, net ............................... (7,371,000) (6,746,000) (5,088,000)
Acquisitions of businesses, net of cash acquired .................... (23,512,000) (7,268,000) (716,000)
Proceeds from sale of surplus building and
automotive operation ....................................... 5,265,000 -- --
------------ ------------ ------------
Net cash used in investing activities ... (56,877,000) (25,106,000) (5,804,000)
------------ ------------ ------------
Cash Flows from Financing Activities:
Principal payments of long-term debt ................................ -- (7,000,000) (10,000,000)
Cash dividends paid ................................................. (7,336,000) (6,687,000) (6,270,000)
Net (payments) borrowings under lines of credit ..................... -- (312,000) 222,000
Proceeds from issuance of common stock .............................. 1,637,000 518,000 1,189,000
Purchase of treasury stock .......................................... (10,566,000) (1,651,000) (14,433,000)
Proceeds from issuance of long-term debt ............................ -- -- 7,000,000
------------ ------------ ------------
Net cash used in financing activities ... (16,265,000) (15,132,000) (22,292,000)
------------ ------------ ------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents ................................................ (112,000) 109,000 (277,000)
------------ ------------ ------------
Net (Decrease)/Increase in Cash and Cash Equivalents ......................... (23,767,000) 4,047,000 10,864,000
Cash and Cash Equivalents - Beginning of Year................................. 28,575,000 24,528,000 13,664,000
------------ ------------ ------------
Cash and Cash Equivalents - End of Year ...................................... $ 4,808,000 $ 28,575,000 $ 24,528,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KAYDON CORPORATION AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Kaydon
Corporation and its wholly-owned domestic and foreign subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
DESCRIPTION OF BUSINESS:
The Company designs, manufactures and sells custom-engineered products for
a broad and diverse customer base. The Company's principal products include
antifriction bearings, bearing systems and components, filters and filter
housings, specialty retaining rings, specialty balls, custom rings, shaft
seals, hydraulic cylinders, metal castings and various types of slip-rings.
These products are used by customers in a wide variety of medical,
instrumentation, material handling, machine tool positioning, aerospace,
defense, construction and other industrial applications.
CASH AND CASH EQUIVALENTS AND MARKETABLE
SECURITIES:
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the provisions
of this statement, the Company's cash and cash equivalents and marketable
securities are considered "held-to-maturity" and are stated at amortized cost
which approximates fair market value at December 31, 1995 and 1994. Cash and
cash equivalents have maturity dates of three months or less from the date of
purchase. Marketable securities include United States Treasury Bills with
maturity dates of less than one year. Both cash equivalents and marketable
securities are high-credit quality financial instruments. The Company's
portfolio of cash and cash equivalents and marketable securities consists of
the following at December 31,:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Cash held in banks ........ $ 4,058,000 $ 2,725,000
U.S. Treasury Bills ....... -- 20,294,000
Other cash equivalents..... 750,000 5,556,000
----------- -----------
4,808,000 28,575,000
Marketable securities:
U.S. Treasury Bills ....... 42,351,000 11,092,000
----------- -----------
Total ................ $47,159,000 $39,667,000
=========== ===========
</TABLE>
INVENTORIES:
Inventories are valued at the lower of cost or market and include
material, labor and overhead. Cost is determined using the first-in, first-out
("FIFO") method for all inventories. Inventories are summarized as follows at
December 31,:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw material ............. $13,764,000 $13,136,000
Work in process .......... 13,040,000 11,995,000
Finished goods ........... 23,341,000 28,615,000
----------- -----------
$50,145,000 $53,746,000
=========== ===========
</TABLE>
PLANT AND EQUIPMENT:
Plant and equipment are stated at cost. The cost is depreciated over the
estimated useful lives of the assets using the straight-line method. Useful
lives vary among the classifications, but generally fall within the following
ranges:
Buildings, land improvements and
leasehold improvements.................. 10-40 years
Machinery and equipment................... 3-15 years
Leasehold improvements are amortized over the terms of the respective
leases or over their useful lives, whichever is shorter. Renewals and
betterments are capitalized while maintenance and repairs are charged to
operations in the year incurred.
22
<PAGE> 10
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD:
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" was issued. This
pronouncement establishes the method for identifying and recording assets which
have incurred an impairment in value. The statement is effective for 1996,
however, the Company does not believe the adoption will have a material effect
on its financial statements.
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs, which are not material to the consolidated
statements of income, are expensed as incurred.
COST IN EXCESS OF NET TANGIBLE ASSETS OF PURCHASED
BUSINESSES:
Cost in excess of net tangible assets of purchased businesses ("goodwill")
totaling $16,239,000 arose prior to 1971 and is not being amortized since, in
the opinion of management, there has been no diminution in value. Goodwill
acquired after 1970 is being amortized on a straight-line basis over a period
of 20 to 40 years and is stated net of accumulated amortization of $3,816,000
and $2,807,000 at December 31, 1995 and 1994, respectively. The increase in
goodwill during 1995 is primarily due to the acquisition of Seabee Corporation,
as discussed further in Note 12.
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance may not be recoverable. When
factors indicate that such cost should be evaluated for possible impairment,
the Company uses an estimate of the related business segment's undiscounted net
income over the remaining life of the goodwill in measuring whether the cost is
recoverable.
OTHER ASSETS:
Other assets include, among other items, deferred tax assets and various
patents and noncompete agreements. Deferred tax assets are further discussed in
Note 3. Patents and noncompete agreements are being amortized on a
straight-line basis ranging from 4 to 15 years. They are stated net of
accumulated amortization of $2,848,000 and $2,474,000 at December 31, 1995 and
1994, respectively.
FOREIGN CURRENCY TRANSLATION:
The financial position and results of operations of the Company's United
Kingdom and German subsidiaries are measured using the local currency as the
functional currency. Assets and liabilities are translated at the exchange rate
in effect at year end. Income statement accounts are translated at the average
rate of exchange in effect during the year. The resulting translation
adjustment is recorded as a separate component of stockholders' investment.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of financial instruments included in current assets
and current liabilities approximate fair value due to the short-term nature of
these instruments. The stated value of the Company's long-term debt
approximates fair value as interest rates on that debt are tied to the prime
rate and adjust frequently to prevailing market conditions.
(2) EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average of
outstanding common shares and common share equivalents to the extent they are
dilutive during the three years presented (approximately 16,741,000,
16,726,000, and 17,313,000, in 1995, 1994 and 1993, respectively).
23
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KAYDON CORPORATION AND SUBSIDIARIES
(3) INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
Current:
<S> <C> <C> <C> <C>
U.S. Federal . $ 23,426,000 $ 17,909,000 $ 15,263,000
State ........ 2,632,000 2,393,000 2,060,000
Foreign ...... 132,000 1,348,000 1,401,000
U.S. Federal
Rate Change -- -- 445,000
------------ ------------ ------------
26,190,000 21,650,000 19,169,000
------------ ------------ ------------
Deferred:
U.S. Federal . (3,088,000) (1,669,000) (1,260,000)
State ........ (247,000) (277,000) (43,000)
Foreign ...... 733,000 (562,000) (928,000)
U.S. Federal
Rate Change -- -- (177,000)
------------ ------------ ------------
(2,602,000) (2,508,000) (2,408,000)
------------ ------------ ------------
$ 23,588,000 $ 19,142,000 $ 16,761,000
============ ============ ============
</TABLE>
In 1995, 1994 and 1993, the Company's effective tax rates were 38.2%,
38.0%, and 37.7%, respectively, of income before income taxes and cumulative
prior year effect of change in accounting principle and differed from the U.S.
federal statutory income tax rate primarily due to the effect of state income
taxes, net of the federal tax benefit.
Cash expended for income taxes totaled $26,506,000 in 1995, $21,261,000 in
1994, and $19,603,000 in 1993.
The tax effect and type of significant temporary differences by component
which gave rise to the net deferred tax asset as of December 31, 1995 and 1994
were as follows:
1995 1994
------------ ------------
Deferred tax assets:
<TABLE>
<S> <C> <C>
Postretirement and
postemployment
benefit obligations ........ $ 11,426,000 $ 11,594,000
Financial accruals and reserves
not currently deductible ... 5,298,000 5,496,000
Inventory accounting method
and basis differences ...... 5,702,000 3,405,000
Other ......................... 519,000 643,000
Valuation allowance ........... -- --
------------ ------------
22,945,000 21,138,000
------------ ------------
Deferred tax liabilities:
Plant and equipment basis
differences, including
depreciation and
amortization ............... (8,839,000) (7,398,000)
Other ......................... (392,000) (666,000)
------------ ------------
(9,231,000) (8,064,000)
------------ ------------
$ 13,714,000 $ 13,074,000
============ ============
</TABLE>
The Company has not provided for United States income taxes on
undistributed earnings of foreign subsidiaries. Recording of deferred income
taxes on these undistributed earnings is not required as these earnings have
been permanently reinvested. The amounts subject to U.S. taxation upon
remittance of these earnings as dividends would be substantially offset by
available foreign tax credits.
24
<PAGE> 12
(4) SHORT-TERM DEBT
The Company has short-term lines of credit with banks totaling $30,000,000
with no outstanding borrowings at December 31, 1995. The rates of interest on
the outstanding balances of each of these lines are at or slightly below the
applicable prime commercial rate (as defined in the respective agreements),
which was 8.5% at December 31, 1995. The weighted average interest rate during
1995 was approximately 8.9%.
(5) LONG-TERM DEBT
The Company's long-term debt consists of long-term Industrial Revenue
Bonds ("IRB's") at December 31, 1995 and 1994.
The Company has $85,000,000 of domestic and $2,500,000 of foreign
borrowings available under its revolving credit and term loan agreements, none
of which are outstanding at December 31, 1995. The borrowing rate is defined in
the agreements and is the prime commercial rate or lower. The available
interest rate at December 31, 1995 was 6.25%. Commitment fees ranging from .2%
to .375% of the unused portion of credit are charged quarterly.
The IRB's are due from 1997 through 1999 and provide for monthly interest
payments at a floating rate derived from the prime commercial rate, market
conditions and the credit rating of the bank issuing the letter of credit
collateralizing the bonds.
The annual maturities for long-term debt are summarized as follows:
Year ending December 31,
1996 ................... $ --
1997 ................... 4,000,000
1998 ................... --
1999 ................... 4,000,000
2000 ................... --
Provisions of the IRB and revolving credit agreements contain covenants
which require, among other things, the maintenance of a minimum working capital
ratio and a specified level of stockholders' investment. At December 31, 1995,
the Company was in compliance with these provisions.
Cash expended for interest on debt totaled $344,000 in 1995, $306,000 in
1994, and $349,000 in 1993.
(6) STOCK OPTIONS
On April 21, 1993, the Company's stockholders approved two new stock
option plans, the 1993 Stock Option Plan and the 1993 Non-Employee Directors
Stock Option Plan. The Company's previous stock option plan, created in 1984
with a term of ten years, was terminated in 1993. The 1993 Stock Option Plan
has a maximum 1,000,000 shares available for grant of which 832,250 remained
available for grant at December 31, 1995. The 1993 Non-Employee Directors Stock
Option Plan has a maximum 100,000 shares available for grant of which 90,000
remained available for grant at December 31, 1995. Under the terms of both
Plans, the purchase price of shares subject to each option granted will not be
less than fair market value at the date of grant. Options granted become
exercisable at the rate of 25% per year, commencing one year after the date of
grant and expiring five years from the date of grant. No charges to operations
are recorded with respect to authorization, grants or exercising of these
options.
25
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KAYDON CORPORATION AND SUBSIDIARIES
A summary of stock option information is as follows:
<TABLE>
<CAPTION>
Options Price Range
------- -----------
<S> <C> <C>
Outstanding at
December 31, 1992 .................... 631,700 $12.69-$24.25
Granted ................................. 124,750 $22.00-$27.00
Exercised ............................... (73,625) $12.69-$19.38
Canceled ................................ (17,250) $19.38-$24.25
------- -------------
Outstanding at
December 31, 1993 .................... 665,575 $16.25-$27.00
Granted ................................. 54,000 $23.88
Exercised ............................... (31,525) $16.25-$19.38
Canceled ................................ (9,875) $19.38-$22.00
------- -------------
Outstanding at
December 31, 1994 .................... 678,175 $16.88-$27.00
Granted ................................ -- --
Exercised ............................... (92,375) $16.88-$22.00
Canceled ................................ (750) $19.38
------- -------------
Outstanding at
December 31, 1995 .................... 585,050 $19.38-$27.00
======= =============
Exercisable at December 31, 1995 ....... 476,325 $19.38-$27.00
======= =============
</TABLE>
(7) SHAREHOLDERS RIGHTS PLAN
On June 21, 1995, the Board of Directors of the Company adopted a
Shareholders Rights Plan which attaches one right to each share of Kaydon
Common Stock effective at the close of business on July 7, 1995. When the right
becomes exercisable, each holder will be entitled to purchase from the Company
additional common stock having a value of twice the exercise price upon payment
of the exercise price. The exercise price, subject to adjustment, is thirty
dollars ($30.00) per Right. The Rights will become exercisable eight days
following a public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of common stock (the "Stock
Acquisition Date"). The Rights are not exercisable until the Stock Acquisition
Date and will expire at the close of business on July 7, 2000, unless earlier
redeemed by the Company.
(8) EMPLOYEE BENEFIT PLANS
The Company maintains several defined benefit pension plans which cover
the majority of employees. Benefits paid under these plans are based generally
on employees' years of service and compensation during the final years of
employment. The Company's policy is to fund the minimum amounts required by the
Employee Retirement Income Security Act of 1974. Plan assets consist
principally of publicly traded equity and debt securities which included 80,000
shares of Kaydon Corporation common stock at December 31, 1995 and 1994.
Net pension cost includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
Service cost - benefits
earned during the year..... $ 1,262,000 $ 1,170,000 $ 1,187,000
Interest cost on projected
benefit obligation ........ 2,637,000 2,417,000 2,288,000
Actual return on plan
assets .................... (6,077,000) (1,236,000) (3,314,000)
Net amortization and
deferral:
Amortization ........... 14,000 14,000 49,000
Deferral of unrecognized
net (loss) gain ...... 3,835,000 (1,057,000) 1,290,000
Curtailment losses
(Note 14) ................ 764,000 -- 1,163,000
----------- ----------- -----------
Net pension cost ............. $ 2,435,000 $ 1,308,000 $ 2,663,000
=========== =========== ===========
</TABLE>
26
<PAGE> 14
The funded status of the plans as of September 30, 1995 and amounts
recognized in the accompanying consolidated balance sheet as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
Plans With Plans With
Assets Accumulated
Exceeding Benefits
Accumulated Exceeding
Benefits Assets
------------ ------------
<S> <C> <C>
Accumulated present value of
benefit obligation-
Vested benefits ................. $(13,079,000) $(18,260,000)
Nonvested benefits ............... (322,000) (2,739,000)
------------ ------------
Accumulated benefit obligation ..... (13,401,000) (20,999,000)
Effect of projected future
salary increases ................. (3,618,000) (250,000)
------------ ------------
Projected benefit obligation ....... (17,019,000) (21,249,000)
Fair value of plan assets .......... 18,835,000 13,403,000
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation ..... 1,816,000 (7,846,000)
Unrecognized net transition
(asset) obligation ............... (280,000) 304,000
Unrecognized prior service cost .... (528,000) 1,362,000
Unrecognized net (gain) loss ....... (2,407,000) 2,064,000
Adjustments required to recognize
minimum liability ................ -- (3,459,000)
------------ ------------
Pension costs accrued as of
September 30, 1995 ............... (1,399,000) (7,575,000)
Accrual for fourth quarter 1995 .... (102,000) (316,000)
Contributions for fourth
quarter 1995 ..................... 515,000 3,223,000
------------ ------------
Pension costs accrued as of
December 31, 1995 ................ $ (986,000) $ (4,668,000)
============ ============
</TABLE>
The funded status of the plans as of September 30, 1994 and amounts
recognized in the accompanying consolidated balance sheet as of December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Plans With Plans With
Assets Accumulated
Exceeding Benefits
Accumulated Exceeding
Benefits Assets
----------- -----------
<S> <C> <C>
Accumulated present value of
benefit obligation-
Vested benefits ................. $(12,031,000) $(15,299,000)
Nonvested benefits .............. (320,000) (1,797,000)
------------ ------------
Accumulated benefit obligation ...... (12,351,000) (17,096,000)
Effect of projected future
salary increases .................. (3,424,000) (204,000)
------------ ------------
Projected benefit obligation ........ (15,775,000) (17,300,000)
Fair value of plan assets ........... 16,061,000 11,118,000
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation ...... 286,000 (6,182,000)
</TABLE>
<TABLE>
<CAPTION>
Plans With Plans With
Assets Accumulated
Exceeding Benefits
Accumulated Exceeding
Benefits Assets
------------ -----------
<S> <C> <C>
Unrecognized net transition
(asset) obligation .............. (325,000) 527,000
Unrecognized prior service cost ... (379,000) 1,395,000
Unrecognized net (gain) loss ...... (606,000) 1,241,000
Adjustments required to recognize
minimum liability ............... -- (2,826,000)
----------- -----------
Pension costs accrued as of
September 30, 1994 ................ (1,024,000) (5,845,000)
Accrual for fourth quarter 1994 (70,000) (263,000)
Contributions for fourth
quarter 1994 .................... -- 577,000
----------- -----------
Pension costs accrued as of
December 31, 1994 ............... $(1,094,000) $(5,531,000)
=========== ===========
</TABLE>
The assumptions used in the determination of net pension cost were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Discount rate .................... 7.00-7.75% 7.75% 7.50%
Rate of salary progression ....... 4.50% 4.50% 4.50%
Long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
The Company and its domestic subsidiaries also offer 401(k) savings plans
in which substantially all of their employees may participate. The majority of
the contributions to the plans are made by the employees.
(9) OTHER POSTRETIREMENT BENEFITS
The Company provides certain retiree health care and life insurance
benefits covering the majority of U.S. salaried and hourly employees. Employees
are generally eligible for benefits upon retirement or long-term disability and
completion of a specified number of years of credited service. These benefits
are subject to cost-sharing provisions and other limitations. The Company does
not pre-fund these benefits and has the right to modify or terminate certain of
these benefits in the future.
27
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KAYDON CORPORATION AND SUBSIDIARIES
The Company accrues for the cost of providing postretirement benefits for
medical, dental and life insurance coverage over the active service period of
the employee.
The components of net postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Service cost ................ $ 568,000 $ 586,000 $ 689,000
Interest cost on accumulated
benefit obligation ........ 1,689,000 1,848,000 1,850,000
Amortization of unrecognized
prior service cost ......... (311,000) (241,000) (301,000)
Gain due to curtail-
ments (Note 14) .......... (965,000) - (2,158,000)
----------- ----------- -----------
Net postretirement
benefit cost ............. $ 981,000 $ 2,193,000 $ 80,000
=========== =========== ===========
</TABLE>
The plans' funded status at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees ............... $ (9,750,000) $(10,809,000)
Fully eligible active
plan participants .... (823,000) (163,000)
Other active plan
participants ......... (11,939,000) (10,826,000)
------------ ------------
Projected benefit
obligation ....... (22,512,000) (21,798,000)
Unrecognized prior service
cost ..................... (2,392,000) (3,078,000)
Unrecognized net gain ...... (2,394,000) (2,536,000)
------------ ------------
Accrued postretirement
benefit obligation ....... $(27,298,000) $(27,412,000)
============ ============
</TABLE>
The accumulated postretirement benefit obligation ("APBO") was actuarially
determined based on assumptions regarding the discount rate and projected
future increases in postretirement benefit costs ("the healthcare cost trend
rate").
The assumptions used in the determination of the APBO and the net
postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------ ------
<S> <C> <C> <C>
Discount rate ........................ 7.00-7.75% 7.75% 7.50%
Healthcare cost trend rates -
Participants under 65 years of age 13.00% 14.00% 15.00%
Participants 65 years of age
and over ....................... 9.50% 10.00% 10.50%
</TABLE>
The healthcare cost trend rates for participants under the age of 65 and
participants 65 years of age and over are assumed to decrease ratably to 6% by
2002 and remain at that level thereafter. A 1% increase in the healthcare cost
trend rate would have increased the accumulated postretirement benefit
obligation by approximately $3,043,000, and the net postretirement benefit cost
by approximately $367,000 in 1995.
(10) POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This statement
requires employers to accrue for benefits provided to former or inactive
employees after employment, but prior to retirement. For the Company, this
statement primarily applies to costs associated with disability-related
benefits. The cumulative effect of this change in accounting principle resulted
in a charge to net income of $2,000,000 in 1994.
(11) LEASE COMMITMENTS
Total minimum rentals payable under operating leases that have initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1995 are as follows:
Year ending December 31,
1996 ........................ $ 624,000
1997 ......................... 535,000
1998 ........................ 495,000
1999 ....................... 350,000
2000 ....................... 254,000
Thereafter .................. 1,924,000
Aggregate rental expense charged to operations was $1,261,000, $1,351,000,
and $1,249,000 in 1995, 1994 and 1993, respectively.
28
<PAGE> 16
(12) ACQUISITIONS
On January 31, 1995, the Company, through it's U.K. subsidiary, I.D.M.
Electronics, purchased a product line for $759,000. In addition, on August 31,
1995, the Company acquired substantially all of the common stock of Seabee
Corporation ("Seabee") for approximately $22,753,000, net of cash received.
Seabee is a manufacturer of large hydraulic cylinders and alloy steel castings
located in Hampton, Iowa. The acquisitions have been accounted for using the
purchase method of accounting, and accordingly, the results of operations have
been included in the 1995 consolidated financial statements since the date of
the acquisitions.
On January 28, 1994, the Company acquired certain assets and certain
liabilities of Industrial Tectonics Inc ("ITI"), a manufacturer of specialty
balls used in measuring devices, floats, valves, ball point pens and
antifriction bearings, located in Dexter, Michigan. The acquisition was
accounted for using the purchase method of accounting, and accordingly, the
results of operations of ITI have been included in the 1994 consolidated
financial statements since the effective date of the acquisition. The cash
consideration for the acquisition, net of cash acquired, was approximately
$7,268,000.
(13) SALE OF AUTOMOTIVE OPERATION AND SURPLUS BUILDING
On May 1, 1995, the Company sold the majority of its automotive operation
assets. The net sale proceeds of $3,476,000 approximated the book value of the
assets sold. The Company and the buyer also entered into an operating lease for
the facility in which the business was located. The sales of the automotive
business were less than 4% of the consolidated net sales for each of 1995, 1994
and 1993 with an operating income contribution percentage lower than the rest
of the Company.
During 1995, the Company also sold the surplus building resulting from the
1993 plant consolidation described in Note 14. The net sale proceeds of
$1,789,000 approximated book value.
(14) PLANT CONSOLIDATIONS
During 1995, the Company authorized and implemented its production
facility realignment, completing the consolidation process started during 1993.
The movement of the physical location for certain production did not result in
the discontinuation of any product lines. Severance and relocation expenses of
approximately $300,000 were recognized as part of the realignment. The
consolidation also resulted in a $965,000 reduction in the accrued
postretirement benefit obligation, partially offset by a $764,000 increase in
accrued pension cost. The net effect of the plant consolidation was not
significant to the operating results or financial position of the Company.
During 1993, the Company closed one of its plants and moved the operations
to two existing plants. This consolidation did not result in the
discontinuation of any product lines. In addition to severance and relocation
costs incurred of approximately $900,000, the consolidation generated a
$2,158,000 reduction in the accrued postretirement benefit obligation, offset
by a $1,163,000 increase in accrued pension cost. The net effect of the plant
consolidation was not significant to the operating results or financial
position of the Company.
(15) CONTINGENCIES
The Company, together with other companies, certain former officers,
and certain current and former directors, has been named as a co-defendant in
lawsuits filed in federal court in New York in 1993. The suits purport to be
class actions on behalf of all persons who have unsatisfied personal injury and
property damage claims against Keene Corporation which filed for bankruptcy
under Chapter 11. The
29
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KAYDON CORPORATION AND SUBSIDIARIES
premise of the suits is that assets of Keene were transferred to Bairnco
subsidiaries, of which Kaydon was one in 1983, at less than fair value. The
suits also allege that the Company, among other named defendants, was a
successor to and alter ego of Keene. In 1994, an examiner was appointed by a
bankruptcy court to examine the issues at stake. On September 23, 1994, the
"Preliminary Report of the Examiner" was made public. In the report, the
examiner stated that the alleged fraudulent conveyance claims against the
Company appear to be time-barred by the statute of limitations, subject to
certain possible exceptions which the Company does not believe are significant
or factual. Although the examiner has made certain recommendations regarding a
mechanism to resolve the claims against the Company, the Court has not taken
any action related to the report. Nevertheless, in the Company's opinion, the
report reinforces management's original view that the claims will ultimately
not be sustained. Accordingly, no provision has been reflected in the
consolidated financial statements for any alleged damages. In June 1995, the
creditors' committee filed a complaint in the same bankruptcy court asserting
claims against the Company similar to those previously filed. If Keene
Corporation's current plan of reorganization is approved by the bankruptcy
court, the lawsuits filed in 1993 would be permanently stayed and replaced by
the creditors' committee complaint. Management believes that the outcome of
this litigation will not have a material adverse effect on the Company's
financial position.
Various other claims, lawsuits and environmental matters arising in the
normal course of business are pending against the Company. Management believes
that the outcome of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarters (amounts in thousands except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th Total
-------------------- ----------------- --------------- --------------- ----------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
-------- ------ ------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 55,465 50,125 57,560 52,032 56,087 50,279 60,812 52,259 229,924 204,695
Gross Profit $ 21,031 17,912 22,782 19,966 21,434 18,871 23,352 19,401 88,599 76,150
Income Before Cumulative
Prior Year Effect of
Change in Accounting
Principle ................... $ 9,036 7,192 9,715 8,023 9,415 7,710 10,037 8,301 38,203 31,226
Cumulative Prior Year
Effect of Change in
Accounting Principle......... $ -- (2,000) -- -- -- -- -- -- -- (2,000)
-------- ------ ------ ------ ------ ------ ------ ------ ------- -------
Net Income..................... $ 9,036 5,192 9,715 8,023 9,415 7,710 10,037 8,301 38,203 29,226
======== ====== ====== ====== ====== ====== ====== ====== ======= =======
Earnings per Share:
Income Before Cumulative
Prior Year Effect of
Change in Accounting
Principle ................... $ 0.54 0.43 0.58 0.48 0.56 0.46 0.60 0.50 2.28 1.87
Cumulative Prior Year
Effect of Change in
Accounting Principle ........ $ -- (0.12) -- -- -- -- -- -- -- (0.12)
-------- ------ ------ ------ ------ ------ ------ ------ ------- -------
Net Income..................... $ 0.54 0.31 0.58 0.48 0.56 0.46 0.60 0.50 2.28 1.75
======== ====== ====== ====== ====== ====== ====== ====== ======= =======
Market Price: .................
High........................ $ 27.63 25.25 30.25 24.25 31.50 23.50 30.75 24.88 31.50 25.25
Low......................... $ 22.75 20.25 25.38 19.75 27.38 20.38 28.00 22.50 22.75 19.75
</TABLE>
30
<PAGE> 18
(17) BUSINESS SEGMENT INFORMATION
The Company operates predominately in one industry segment, the design,
manufacture and sale of custom-engineered products. During 1995, 1994 and 1993,
sales to no single customer exceeded 10% of total sales. Transfers between
geographic areas represent the selling price of sales to affiliates, which is
generally based on cost plus a mark-up. Corporate assets are those assets
maintained for general purposes, principally cash, cash equivalents,
marketable securities and cost in excess of net tangible assets of purchased
businesses. All other assets have been identified with domestic or foreign
operations. Information regarding the Company's operations in the United States
and Europe for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $ 205,342,000 $ 24,582,000 $ -- $ 229,924,000
Transfers between geographic areas........ -- 3,538,000 (3,538,000) --
------------- ------------ ------------ -------------
Total sales...................... $ 205,342,000 $ 28,120,000 $ (3,538,000) $ 229,924,000
============= ============ ============ =============
Operating income.......................... $ 54,517,000 $ 5,162,000 $ (393,000) $ 59,286,000
Interest income, net ..................... 2,505,000
-------------
Income before income taxes and
cumulative prior year effect of change
in accounting principle ................ $ 61,791,000
=============
Identifiable assets....................... $ 155,130,000 $ 14,407,000 -- $ 169,537,000
Corporate assets.......................... 98,138,000
-------------
Total assets..................... $ 267,675,000
=============
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994 United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers........... $ 183,865,000 $ 20,830,000 $ -- $ 204,695,000
Transfers between geographic areas........ -- 3,119,000 (3,119,000) --
------------- ------------ ------------ -------------
Total sales...................... $ 183,865,000 $ 23,949,000 $ (3,119,000) $ 204,695,000
============= ============ ============ =============
Operating income ......................... $ 46,069,000 $ 4,147,000 $ (457,000) $ 49,759,000
Interest income, net...................... 609,000
-------------
Income before income taxes and
cumulative prior year
effect of change in
accounting principle ................... $ 50,368,000
=============
Identifiable assets....................... $ 145,083,000 $ 13,995,000 -- $ 159,078,000
Corporate assets.......................... 84,506,000
-------------
Total assets..................... $ 243,584,000
=============
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993 United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers........... $ 165,611,000 $ 18,449,000 $ -- $ 184,060,000
Transfers between geographic
areas .................................. -- 4,503,000 (4,503,000) --
------------- ------------ ------------ -------------
Total sales...................... $ 165,611,000 $ 22,952,000 $ (4,503,000) $ 184,060,000
============= ============ ============ =============
Operating income ......................... $ 40,267,000 $ 4,764,000 $ (717,000) $ 44,314,000
Interest income, net...................... 142,000
-------------
Income before income taxes
and cumulative prior year
effect of change in accounting
principle............................... $ 44,456,000
=============
Identifiable assets....................... $ 135,940,000 $ 13,100,000 -- $ 149,040,000
Corporate assets.......................... 68,382,000
-------------
Total assets..................... $ 217,422,000
=============
</TABLE>
31
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<S> <C>
1. Name: Kaydon International, Inc.
Place of Incorporation: United States Virgin Islands
Date of Incorporation: July 16, 1991
2. Name: Kaydon Ring and Seal, Inc.
Place of Incorporation: Delaware
Date of Incorporation: June 30, 1986
3. Name: Kaydon S.A. de C.V.
Place of Incorporation: Nuevo Leon, United Mexican States
Date of Incorporation: April 10, 1987
4. Name: I.D.M. Electronics Ltd.
Place of Incorporation: United Kingdom
Date of Incorporation: July 1, 1957
5. Name: Electro-Tec Corp.
Place of Incorporation: Delaware
Date of Incorporation: October 27, 1967
6. Name: Cooper Roller Bearings Company Limited
Place of Incorporation: United Kingdom
Date of Incorporation: June 16, 1982
7. Name: Cooper Split Roller Bearings Corporation
Place of Incorporation: Virginia
Date of Incorporation: January 1, 1974
8. Name: Cooper Geteilte Rollenlager GmbH
Place of Incorporation: Germany
Date of Incorporation: March 19, 1974
9. Name: Industrial Tectonics Inc
Place of Incorporation: Delaware
Date of Incorporation: November 22, 1991
10. Name: Kaydon Acquisition Corp. V
(d/b/a Seabee Corporation)
Place of Incorporation: Delaware
Date of Incorporation: October 4, 1993
</TABLE>
24
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kaydon Corporation:
As independent public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this Form 10-K, into
the Company's previously filed Form S-8 Registration Statement Numbers 2-89399,
2- 92778, 33-48762, 33-61646 and 33-61648.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
March 22, 1996
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,808
<SECURITIES> 42,351
<RECEIVABLES> 31,443
<ALLOWANCES> 1,257
<INVENTORY> 50,145
<CURRENT-ASSETS> 135,454
<PP&E> 166,709
<DEPRECIATION> 94,364
<TOTAL-ASSETS> 267,675
<CURRENT-LIABILITIES> 44,047
<BONDS> 8,000
0
0
<COMMON> 1,763
<OTHER-SE> 186,142
<TOTAL-LIABILITY-AND-EQUITY> 267,675
<SALES> 229,924
<TOTAL-REVENUES> 229,924
<CGS> 141,325
<TOTAL-COSTS> 141,325
<OTHER-EXPENSES> 29,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,505)
<INCOME-PRETAX> 61,791
<INCOME-TAX> 23,588
<INCOME-CONTINUING> 38,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,203
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
</TABLE>
