<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Kaydon Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
KAYDON CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
Tampa, Florida
March 9, 1998
To Shareholders:
The Annual Meeting of Shareholders of Kaydon Corporation ("Kaydon") will be
held at Tampa Airport Marriott Hotel, Tampa International Airport, Tampa,
Florida on Thursday, April 30, 1998 at 10:00 a.m. for the following purposes:
(1) to elect a Board of Directors; and
(2) to transact such other business as may properly come before the
meeting and any adjournment thereof.
Shareholders of record at the close of business on Friday, February 27,
1998 are entitled to notice of and to vote at the meeting.
JOHN F. BROCCI
Vice President Administration
and Secretary
THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND IMMEDIATE RETURN OF THE
ACCOMPANYING PROXY.
You can help avoid the necessity and expense of sending a follow-up letter by
the prompt completion and return of the enclosed proxy whether or not you expect
to attend the Annual Meeting of Shareholders. For your convenience, there is
enclosed a self-addressed envelope requiring no postage if mailed in the United
States.
<PAGE> 3
KAYDON CORPORATION
ARBOR SHORELINE OFFICE PARK
19345 U.S. 19 NORTH, SUITE 500
CLEARWATER, FLORIDA 33764
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1998
---------------------
PROXY STATEMENT
---------------------
March 9, 1998
INTRODUCTION
The Annual Meeting of Shareholders of Kaydon Corporation ("Kaydon") will be
held on Thursday, April 30, 1998, at the Tampa Airport Marriott Hotel, Tampa
International Airport, Tampa, Florida at 10:00 a.m. for the purposes set forth
in the accompanying notice. This statement is furnished in connection with the
solicitation by Kaydon's Board of Directors of proxies to be voted at such
meeting and at any and all adjournments thereof. Proxies properly executed, duly
returned and not revoked will be voted at the Annual Meeting (including
adjournments) in accordance with the specifications therein. The shares
represented by the proxy will be voted in accordance with the judgment of the
persons named as proxies with respect to any matter other than the election of
directors that may come before the meeting or any adjournment. For purposes of
determining the presence or absence of a quorum for the transaction of business
at the meeting, all shares for which a proxy or vote is received, including
abstentions and shares represented by a broker vote on any matter, will be
counted as present and represented at the meeting.
Participants in the Kaydon Corporation Employee Stock Ownership and Thrift
Plan, the Electro-Tec Corporation Employee Retirement Benefit Plan and the Fluid
Power Companies' Pension and Retirement Savings Plan will receive separate
voting instruction cards covering the shares held for participants in those
Plans. Voting instruction cards must be returned or the shares will not be voted
by the trustee.
If a proxy in the accompanying form is executed and returned, it may
nevertheless be revoked at any time prior to the exercise thereof by executing
and returning a proxy bearing a later date, by giving notice of revocation to
the Secretary of Kaydon, or by attending the Annual Meeting and voting in
person.
At the Annual Meeting, holders of Kaydon's Common Stock shall have one vote
per share.
ELECTION OF DIRECTORS
The persons designated as proxies in the accompanying proxy have been
selected by the Board of Directors of Kaydon and have indicated that they intend
to vote all proxies received by them for the election of each of the following
nominees for the office of director of Kaydon, unless instructed otherwise, each
to serve until the Annual Meeting of Shareholders next succeeding their election
and until their successors have been duly elected and qualified.
The Directors shall be elected by a plurality of votes validly cast in
person or by proxy at any meeting at which a quorum is present. Votes are
counted at the meeting by the Inspector of Elections. Abstentions will be
counted as votes for the election of all nominees as Directors. Broker non-votes
will be voted for the election of all nominees as Directors.
<PAGE> 4
If for any reason any of the following nominees is not a candidate when the
election occurs, which is not anticipated, it is intended that the proxies will
be voted for the election of a substitute nominee if one is designated by the
Board of Directors.
NAME AND AGE OF NOMINEES
- ------------------------
Gerald J. Breen (52)......... Mr. Breen has been the owner, President and Chief
Executive Officer of Cuyam Corporation since
1986. From 1983 to 1986, Mr. Breen was the
President and General Manager of Hendrickson
International, and was with Imperial Clevite,
Inc. from 1972 to 1983, his last position being
that of Vice President, Replacement Marketing. He
has been a Director of Kaydon since January 1992.
Brian P. Campbell (57)....... Mr. Campbell has been President of TriMas
Corporation since 1986. From 1974 to 1986 Mr.
Campbell held several executive positions at
Masco Corporation, including Vice President of
Business Development and Group President. He has
been a Director of Kaydon since September 1995.
Lawrence J. Cawley (63)...... Mr. Cawley has been Chairman of the Board of
Kaydon Corporation since June 1996. Prior to that
he was Chairman and Chief Executive Officer from
September 1989 to June 1996. From November 1987
to September 1989, he was President and Chief
Executive Officer of Kaydon. Mr. Cawley served as
President and Chief Operating Officer of Kaydon
from April 1987 to November 1987 and was
President of the Bearing Division of Kaydon from
October 1985 to April 1987. He has been a member
of Kaydon's Board of Directors since April 1986.
Prior to joining Kaydon, Mr. Cawley was President
and General Manager of Clevite, a division of
Imperial Clevite Corporation.
Stephen K. Clough (44)....... Mr. Clough has been President and Chief Executive
Officer of Kaydon Corporation since June 1996. He
was President and Chief Operating Officer of
Kaydon from September 1989 to June 1996. He was
Vice President and General Manager of Kaydon's
Bearing Division from April 1987 to September
1989 and was Vice President of Operations of the
Automotive Division of Kaydon from April 1986 to
April 1987. Mr. Clough has been a member of
Kaydon's Board of Directors since September 1989.
Prior to joining Kaydon, Mr. Clough was a Plant
Manager in the Engine Parts Division of Imperial
Clevite Corporation.
John H. F. Haskell, Jr.
(65)......................... Mr. Haskell has served as a Managing Director of
Dillon, Read & Co. Inc. and its successor
Corporation, SBC Warburg Dillon Read Inc., since
1975. Mr. Haskell is Chairman of the Supervisory
Board of Dillon, Read (France) Gestion, an
indirect subsidiary of Dillon, Read & Co. Inc.
located in France. Mr. Haskell is a Director of
The Equitable Companies Incorporated and The
Equitable Life Assurance Society of the United
States. He is also a member of the Council on
Foreign Relations. He has been a Director of
Kaydon since December 1984.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
During 1997, Kaydon's Board of Directors met six times for regular meetings
and one time for a special telephonic meeting. Each outside Director received
$2,000 for each attendance of the Board of Directors
2
<PAGE> 5
regular meeting. Each outside Director was paid $15,000 as a retainer for the
year, which amount is paid quarterly. In addition to the payment of such fees,
the Company reimburses all Directors for expenses incurred in carrying out their
duties. During the year Mr. Gerald J. Breen, who is an outside Director, was
awarded 20,000 shares (the number of shares has been adjusted to reflect the
two-for-one stock split on October 21, 1997) of Kaydon stock in accordance with
the 1993 Non-Employee Directors Stock Option Plan. Each Director attended more
than 75% of the aggregate of the total meetings of the Board of Directors and
the total number of meetings held by all committees of the Board of Directors on
which the Directors served.
The Board of Directors has an Audit Committee and a Compensation Committee.
The principal responsibilities of the Audit Committee are to ensure for the
Board of Directors: (a) that generally accepted accounting principles are being
followed; and (b) that the total audit coverage of the Corporation and its
subsidiaries is satisfactory. The Audit Committee provides an open avenue of
communication between management and the external auditors and the Board of
Directors. The Committee reviews the nature of all services performed by the
external auditors, including the scope and extent of their audit, the results of
their audit, and their compensation. The Committee met two times during the
year. The members of the Committee are: John H. F. Haskell, Jr. (Chairman),
Gerald J. Breen and Brian P. Campbell.
The principal responsibilities of the Compensation Committee are to: (a)
review and advise management on broad compensation policies, incentive programs,
stock option and stock purchase plans, deferred compensation and retirement
plans; (b) approve and recommend base salaries, salary increases and other
benefits for elected officers; (c) take certain actions required or permitted to
be taken by the Board of Directors under the stock option plan and incentive
compensation plans of Kaydon; and (d) review recommendations for major changes
in compensation, benefit and retirement plans which have application to
significant numbers of Kaydon's total employees and which require review or
approval of the Board of Directors. The Committee met three times during the
year. The members of the Committee are: Gerald J. Breen (Chairman), Brian P.
Campbell and John H. F. Haskell, Jr. (Mr. Haskell does not participate as a
member of the Committee for purposes of Stock Option Grants).
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
NUMBER OF SHARES OUTSTANDING, RECORD DATE AND LIST OF SHAREHOLDERS
Only shareholders of record at the close of business on Friday, February
27, 1998 are entitled to notice of and to vote at the Annual Meeting. At the
close of business on such date there were 33,018,674 shares of common stock of
Kaydon outstanding. A shareholders list will be available for examination by
shareholders at the Annual Meeting in accordance with Section 219 of the
Delaware Corporation Law.
COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of December 31, 1997,
concerning the only persons known to Kaydon to be the beneficial owners of more
than 5% of Kaydon's issued and outstanding stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS AMOUNT AND NATURE OF ISSUED AND OUTSTANDING
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK
- ------------------- ----------------------- ----------------------
<S> <C> <C>
FMR Corporation.............................. 3,442,600 10.13%
82 Devonshire Street
Boston, MA 02109
Neuberger & Berman, LLC...................... 1,872,600 5.51%
605 Third Avenue
New York, NY 10158
NewSouth Capital Management, Inc............. 1,764,860 5.2%
1000 Ridgeway Loop Rd., Suite 233
Memphis, TN 38120
</TABLE>
3
<PAGE> 6
- ---------------
(1) These shares are owned by various individual and institutional investors for
which FMR Corporation, Neuberger & Berman and NewSouth Capital Management,
Inc. respectively serve as investment advisors with power to direct
investments and/or shared power to vote the shares. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, FMR
Corporation, Neuberger & Berman and NewSouth Capital Management, Inc. are
deemed to be beneficial owners of such shares; however, each expressly
disclaims that they are, in fact, the beneficial owners of such shares.
The following table presents information regarding beneficial ownership of
Kaydon's common stock by each member of the Board of Directors and other
Executive Officers as of December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF ISSUED
AMOUNT AND NATURE AND OUTSTANDING
OF BENEFICIAL OWNERSHIP COMMON STOCK ON
BOARD OF DIRECTORS OF COMMON STOCK DECEMBER 31, 1997
- ------------------ ----------------------- --------------------
<S> <C> <C>
Gerald J. Breen.......................................... 15,000(1) *
5200 Harvard Ave.
Cleveland, OH 44105
Brian P. Campbell........................................ 14,000(2) *
315 East Eisenhower Parkway, Suite 300
Ann Arbor, MI 48108
Lawrence J. Cawley....................................... 316,120(3) *
19345 U.S. 19 North, Suite 500
Clearwater, FL 33764
Stephen K. Clough........................................ 183,852(4) *
19345 U.S. 19 North, Suite 500
Clearwater, FL 33764
John H.F. Haskell, Jr.................................... 56,000(5) *
535 Madison Ave., 15th Floor
New York, NY 10022
OTHER EXECUTIVE OFFICERS
John F. Brocci........................................... 122,840(6) *
19345 U.S. 19 North, Suite 500
Clearwater, FL 33764
All officers and directors as a.......................... 707,812 2.1%
group, 6 persons
</TABLE>
- ---------------
* Less than one percent.
Note: Common Stock amounts represented above have been adjusted to reflect
the stock split on October 21, 1997.
(1) Included in these shares are 5,000 shares which are acquirable under the
Stock Option Plan in 1998.
(2) Included in these shares are 2,000 shares owned by a trust as to which Mr.
Campbell disclaims beneficial ownership, and 10,000 shares which are
acquirable under the Stock Option Plan in 1998.
(3) Included in these shares are 50,000 owned by Mrs. Cawley as to which Mr.
Cawley disclaims beneficial ownership, and 151,250 shares which are
acquirable under the Stock Option Plan in 1998.
(4) Included in these shares are 73,750 shares which are acquirable under the
Stock Option Plan in 1998.
(5) Included in these shares are 10,000 shares which are acquirable under the
Stock Option Plan in 1998.
(6) Included in these shares are 73,750 shares which are acquirable under the
Stock Option Plans in 1998.
4
<PAGE> 7
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPEN- STOCK OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) SATION($) AWARDS($) SARS(#) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H) (I)
- --------------------------------- ---- -------- -------- ---------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence J. Cawley,.............. 1997 $345,000 $451,400 0 0 25,000 0 0
Chairman 1996 $345,000 $775,500 0 0 110,000* 0 0
1995 $325,288 $500,000 0 0 0 0 0
Stephen K. Clough,............... 1997 $315,000 $639,300 0 0 35,000 0 0
President and Chief 1996 $275,000 $775,500 0 0 90,000* 0 0
Executive Officer 1995 $238,171 $400,000 0 0 0 0 0
John F. Brocci,.................. 1997 $125,525 $205,700 0 0 25,000 0 0
Vice President 1996 $118,750 $255,400 0 0 70,000* 0 0
Administration 1995 $112,249 $156,784 0 0 0 0 0
</TABLE>
- ---------------
Column (C): Includes deferrals into the 401(k) plan.
Column (G): Reflects the number of Non-qualified Stock Options granted. The
Options asterisked (*) above have been adjusted for the two-for-one
stock split on October 21, 1997. Kaydon does not have a Stock
Appreciation Rights (SAR) Plan.
The Company has not entered into any employment contract with any of the
named Officers or Directors. However, it has entered into Change-in-Control
Compensation Agreements with its named executive officers, as described more
fully below, and has entered into a Supplemental Executive Retirement Plan
("SERP") as described in the Pension Plan section of this Proxy.
CHANGE IN CONTROL COMPENSATION AGREEMENTS
Kaydon Corporation entered into Change-in-Control Compensation Agreements
dated October 23, 1995 with the three Executive Officers. The Change-in-Control
Compensation Agreements provide that in the event of (i) the termination by
Kaydon of the executive officer's employment within three years after a change
in control (as defined in the agreement) of the Company (except for reasons of
retirement, death, disability or cause), or (ii) the termination by the officer
within three years after a change in control of the Company for specified
reasons, such officer will be entitled to termination benefits. The permissible
reasons for the executive officer to terminate his employment and receive
termination benefits include a substantial reduction in his duties and
responsibilities, a reduction in his compensation or benefits package or the
transfer of the executive officer to a location requiring a change in his
residence or a material increase in the amount of travel normally required.
The termination benefits to which the Executive Officer is entitled, which
coordinate with benefits provided upon a Change-in-Control under the SERP,
include three times the executive's annual base salary at the time of
termination, payable in a lump sum payment, and certain other benefits provided
in the agreement. None of the benefits would be affected or reduced if the
officer were to obtain new employment after his termination by Kaydon. The
Change-in-Control Compensation Agreements were approved by the Board as
reasonable termination compensation for the Executive Officers in order to
encourage management to remain with the Company and to continue to devote full
attention to Kaydon's business in the event of a threatened change-in-control of
the Company.
REPORT OF THE KAYDON CORPORATION COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Board of Directors is composed of Messrs.
Breen, Campbell and Haskell. Messrs. Breen and Campbell are outside directors.
Mr. Haskell is also likely an outside director but does not participate as a
member of the Committee for the purposes of stock option grants because of his
association with SBC Warburg Dillon Read Inc., an investment banking firm which
occasionally renders
5
<PAGE> 8
services to the Company. The Committee is responsible for establishing and
administering the Company's Executive Compensation program.
(A) COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's compensation philosophy is designed to support the overall
objective of creating value for Kaydon's shareholders through:
- Hiring, developing, rewarding and retaining talented and productive
employees;
- Emphasizing pay-for-performance by having a significant portion of
cash compensation for senior managers and executives at-risk through
performance bonus plans based upon financial, operating, strategic and
growth objectives; and
- Providing equity-based incentives for selected employees to ensure
they are motivated over the long-term to respond to the Company's business
challenges and opportunities as owners, as well as employees.
(B) THE PROGRAM IN GENERAL
Kaydon Corporation's executive pay program is made up of the following
elements:
- Base Salary
Salaries of officers are listed in the Summary Compensation Table. Each
executive officer's performance and salary is reviewed annually by the
Compensation Committee. The following considerations are used in determining the
appropriate salary level: (a) the individual's sustained performance and
contribution to the company; (b) their experience and job mastery; (c) their
level of responsibility; (d) internal equity; (e) external pay practices; and
(f) the Company's overall financial results.
The Base Pay component of annual compensation is based upon competitive pay
practices of other industrial companies of similar size for persons in
comparable positions. The Hewitt Associates Middle Market Index and other
national independent published surveys are used to establish salary midpoints
for comparable positions within Kaydon. Companies participating in these surveys
differ from those companies represented in the comparator group in the
Performance Graph on Page 11 because Kaydon competes for talent with a broader
group of employers than just those in its industry. For example, of the 121
employers participating in the Middle Market Survey, only four are also in the
comparator group. Salary range midpoints are generally set at approximately the
50th percentile of the market. An individual executive's base salary may be
above or below the salary midpoint depending on such variables as the
individual's performance and achievement, experience and job mastery, time in
position and overall contributions. The weight given these factors or other
performance objectives during the annual review in setting each executive
officer's base salary is determined subjectively by the Compensation Committee.
Kaydon believes that maximum performance can be encouraged through the use
of substantial annual incentive programs based upon attaining planned operating
and growth goals, with increased proportional rewards for exceeding targets.
Except for base pay, all other elements of executive compensation are at risk.
- Annual Incentive Compensation Program
Kaydon believes in results. Its incentive compensation program is designed
to reward results by providing:
- incentive compensation that varies in a manner consistent with the
financial performance of the Company or business unit; and
- incentive compensation that effectively rewards corporate and
business units and individual performance.
Kaydon's Management Incentive Compensation (MIC) Program is a combination
of Management by Objectives (MBO) and profit sharing that focuses the company
and its business units on performance objectives relative to financial,
operating and strategic business unit and corporate growth goals which are
6
<PAGE> 9
considered fundamental to the future success of our business(es) and which build
shareholder value. Officers and certain other salaried employees are eligible to
participate.
Management's performance, and hence its rewards, are measured in such
stockholder terms as Earnings Per Share (EPS), Earnings Before Interest and
Taxes (EBIT), and Return On Capital Employed (ROCE).
The annual bonus pool for the MIC program for executive officers is
generated at the rate of $80,000 for each 1% improvement in Kaydon's EPS over
the prior year, after reflecting the management incentive compensation annual
pool as a cost in arriving at pre-tax income. The Compensation Committee may add
to, or delete from, the formula generated pool by up to 25% or $750,000,
whichever is greater, at their discretion, based upon their subjective
evaluation of non-EPS performance factors. The actual award to executive
officers under this program is a function of the number of points each has been
awarded under the program multiplied by the dollar amount produced by the
Earnings Per Share formula described above. The points assigned to executive
officers and the comparison of performance to predetermined specific goals are
determined subjectively for each executive officer by the Compensation Committee
and approved by the non-employee Directors of the Board. In 1997, Kaydon's EPS
improved 21.6% (diluted). The non-employee directors added to the formula
generated pool for officers and certain other selected participants.
The total annual payout from Kaydon's Management Incentive Compensation
Program for all eligible operations and participants within the Company is
limited to no more than 15% of Kaydon's pre-tax earnings.
All awards under this program for both corporate and business unit
participants are subject to review and approval by the Compensation Committee.
- Employee Stock Options
Stock options encourage and reward effective management that results in
long-term corporate financial success as measured by stock price appreciation.
Stock options only have value if the price of Kaydon's stock appreciates in
value from the date the stock options are granted. Stockholders of Kaydon also
benefit from such stock price appreciation.
Kaydon's Employee Stock Option Plan has two components: incentive stock
options and non-qualified stock options. No incentive stock options have been
awarded since 1986. To encourage a longer-term perspective, the options cannot
be exercised immediately. Further, grants have not been made at an option price
less than the market value on the day of the grant. Stock options may be awarded
annually consistent with the Company's objective to weight total compensation
toward long-term equity interest for managers and executive officers with
greater opportunity for reward if long-term performance is sustained.
The Employee Stock Option Plan is overseen by the Compensation Committee
(which consists of non-employee directors under the Plan). The Plan terms are
supplemented by administrative guidelines and internal policies which govern the
day-to-day workings of the Plan. However, consideration for and/or the granting
of any stock option is within the subjective determination of the Committee and
each employee stock option award requires approval by the Compensation
Committee. As noted above, Mr. Haskell is not a member of the Committee for this
purpose.
Generally, the Compensation Committee reviews stock option grant
recommendations each year. In December, 1997 the Committee awarded a total
194,150 stock option grants to 83 employees.
- CEO Compensation -- Stephen K. Clough
Stephen K. Clough is the President and Chief Executive Officer (CEO). He
has been the Chief Executive Officer since June, 1996.
- Base Salary
Mr. Clough's base pay range and midpoint is established in the manner
described above. As Chief Executive Officer, his performance is formally
reviewed no less than annually by the Compensation Committee. In 1997 Mr.
Clough's base salary was increased based on a consideration of such measures as:
Earnings Growth Rate (22.1%); Return on Average Stockholders Equity (23.9%);
Return on Average Capital
7
<PAGE> 10
Employed (23.6%) and Earnings Per Share (21.6%-diluted). However, no specific
weighting was attached to any single factor or other performance objectives, and
the final determination was based on the Committee's subjective judgement
regarding his overall performance and that of the Company.
- Incentive Compensation
Mr. Clough's incentive compensation is determined in the manner described
above. His actual award is a function of the number of points he has been
awarded under the program (his points were established in 1996 and remain
unchanged) multiplied by the dollar amount produced by the program formula.
Based upon the subjective judgment of the Compensation Committee in
consideration of (a) the Company's performance this year and over a several year
timeframe; and (b) Mr. Clough's performance and contribution to that success,
the Committee determined it would increase Mr. Clough's formula based incentive
compensation payment for 1997.
- Stock Options
In 1997 Mr. Clough was granted options for 35,000 shares of Kaydon stock.
The Committee considered the length of time since Mr. Clough's last grant, the
options previously granted, his performance and his overall contribution to the
Company's performance. No particular weight was attached to any single factor
and the final determination was based on the Compensation Committee's subjective
judgment of these and other factors.
- Committee Policy Regarding Compliance with Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code, effective January 1, 1994,
establishes a limit on the deductibility of annual compensation for certain
executive officers that exceeds $1,000,000 per year per executive unless such
pay is pursuant to qualifying performance-based plans approved by the
stockholders of the Company. Compensation as defined includes, among other
things, base salary, incentive compensation and gains on stock option
transactions.
The Committee establishes individual executive compensation based primarily
upon the Company's performance and competitive considerations. As a result,
executive compensation may exceed $1 million in a given year. The Committee will
continue to consider ways to maximize deductibility of executive compensation,
while retaining the discretion the Compensation Committee deems necessary to
compensate executive officers in a manner commensurate with the performance of
Kaydon and the competitive environment for executive talent. In particular, the
Kaydon Corporation 1993 Stock Option Plan was amended in a manner which the
Company believes will continue to allow options granted under the Plan to
qualify for the Code's provision for performance-based compensation.
COMPENSATION COMMITTEE:
Gerald J. Breen (Chairman)
Brian P. Campbell
John H. F. Haskell, Jr.*
- ---------------
* Except as to the portion of the report dealing with Employee Stock Options.
8
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer, Director or member of the Compensation Committee of
the Company had any interlocking relationship which would require disclosure in
this Proxy Statement, except that Mr. Haskell is an executive officer of SBC
Warburg Dillon Read Inc., an investment banking firm that performed services for
the Company during 1997. The services involved during 1997 were not investment
banking services (and instead were brokerage services) and were de minimis in
amount.
OPTION/SAR GRANTS TABLE
DECEMBER 1997 GRANT
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF ALTERNATIVE TO
STOCK PRICE (F) AND (G):
APPRECIATION FOR GRANT DATE
INDIVIDUAL GRANTS OPTION TERM VALUE
- ----------------------------------------------------------------------------- ----------------- --------------
(A) (B) (C) (D) (E) (F) (G) (H)
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($) VALUE($)
- ---- ------------ ------------ ----------- ---------- ------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence J. Cawley... 25,000 12.8% 33.00 12/17/2002 -- -- $11.02
Stephen K. Clough.... 35,000 18.0% 33.00 12/17/2002 -- -- $11.02
John F. Brocci....... 25,000 12.8% 33.00 12/17/2002 -- -- $11.02
</TABLE>
- ---------------
(1) Column (H) calculation made in accordance with the Black-Scholes option
pricing model. The model assumes:
(a) An option term of five (5) years which is the life of the grant.
(b) Expected volatility which is calculated using the daily closing price of
the stock for the six (6) months immediately preceding the option grant.
(c) Dividend yield at $.36 per share which is the annualized dividend paid
to shareholders on the date of the grant.
(d) The risk-free rate of return is the average monthly U.S. Treasury note
with a maturity date corresponding to the option term (i.e., 5 years).
(e) No adjustments for non-transferability or risk of forfeiture.
(2) The material terms of the option are as follows: 25% of the option is
exercisable one year from the date of the grant and an additional 25% is
exercisable each of the following three years. The right to purchase is
cumulative. Exercisability may be accelerated upon death, disability,
retirement, certain mergers or other corporate events, or a change in
control of Kaydon. The option price may be paid in stock or cash.
(3) Column (B) and (C) -- Kaydon does not have a Stock Appreciation Rights (SAR)
Plan.
(4) (a) Mr. Cawley received an option grant of 25,000 shares in December, 1997.
(b) Mr. Clough received an option grant of 35,000 shares in December 1997.
(c) Mr. Brocci received an option grant of 25,000 shares in December 1997.
9
<PAGE> 12
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR VALUE
- ---------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
SHARES ------------- -------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Lawrence J. Cawley.......................... 0 0 (E) 110,000 2,126,320
(U) 115,000 1,234,790
Stephen K. Clough........................... 20,000 385,620 (E) 37,500 612,372
(U) 107,500 968,347
John F. Brocci.............................. 17,500 228,125 (E) 55,000 485,615
(U) 80,000 709,305
</TABLE>
- ---------------
Note: Kaydon stock closed at $32.63 on December 31, 1997.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE BASED PLANS
-------------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD
OR OTHER UNTIL MATURA- THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) TION OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ---- ------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Lawrence J. Cawley........................ 0 0 0 0 0
Stephen K. Clough......................... 0 0 0 0 0
John F. Brocci............................ 0 0 0 0 0
</TABLE>
10
<PAGE> 13
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
KAYDON CORP, STANDARD & POORS 500 AND VALUE LINE MACHINERY INDEX
(PERFORMANCE RESULTS THROUGH 12/31/97)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STANDARD & POORS
(FISCAL YEAR COVERED) KAYDON CORP. 500 MACHINERY
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $ 89.71 $110.09 $130.58
1994 $105.62 $111.85 $129.43
1995 $135.77 $153.80 $149.39
1996 $213.22 $189.54 $179.26
1997 $298.53 $252.50 $233.81
</TABLE>
- Assumes $100 invested at the close of trading in December, 1992
in Kaydon Corporation common stock, Standard & Poors 500 and
Machinery group.
- Total Return Assumes Reinvestment of Dividends.
- Based Upon Fiscal Year Ending December 31, 1997.
- Value Line Machinery Index, published by Value Line, Inc.
11
<PAGE> 14
PENSION PLAN TABLE
The following table presents information regarding estimated annual
benefits payable as a straight life annuity upon retirement to executives named
in the Summary Compensation Table.
<TABLE>
<CAPTION>
FINAL YEARS OF CREDITED SERVICE AT RETIREMENT
AVERAGE -----------------------------------------------------------------
PAY 5 10 15 20 25 30 OR MORE
- ------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000......................... $ 14,100 $ 28,201 $ 42,301 $ 42,301 $ 42,301 $ 42,301
200,000......................... 29,900 59,801 89,701 89,701 89,701 89,701
300,000......................... 45,700 91,401 137,101 137,101 137,101 137,101
400,000......................... 61,500 123,001 184,501 184,501 184,501 184,501
500,000......................... 77,300 154,601 231,901 231,901 231,901 231,901
600,000......................... 93,100 186,201 279,301 279,301 279,301 279,301
700,000......................... 108,900 217,801 326,701 326,701 326,701 326,701
800,000......................... 124,700 249,401 374,101 374,101 374,101 374,101
900,000......................... 140,500 281,001 421,501 421,501 421,501 421,501
1,000,000......................... 156,300 312,601 468,901 468,901 468,901 468,901
1,100,000......................... 172,100 344,201 516,301 516,301 516,301 516,301
1,200,000......................... 187,900 375,801 563,701 563,701 563,701 563,701
</TABLE>
The Table combines benefits paid under the Kaydon Corporation Retirement
Plan (the "Retirement Plan") and the Kaydon Corporation Supplemental Executive
Retirement Plan (the "SERP").
Covered compensation is based on salary and bonus as shown in the Summary
Compensation Table, except that, prior to January 1, 1997, covered compensation
excluded Management Incentive Compensation Plan ("MIC") payments to the employee
during the calendar year in excess of 50% of the employee's base rate of pay in
effect on the December 31 preceding the date of payment. The 1996 compensation
covered by the plans includes MIC compensation paid during 1996 based on 1995
awards.
Final Average Compensation is the average compensation for the three
highest consecutive calendar years during the ten most recent calendar years.
Remuneration covered in a particular year includes (1) that year's salary (base
pay), and (2) compensation received in that year under the Management Incentive
Compensation Plan. The 1997 remuneration covered by the plans for each
participant, therefore, includes Management Incentive Compensation paid during
1997 in respect of 1996 awards.
Federal regulations require that no more than $160,000 in compensation be
considered for the calculation of retirement benefits from the Retirement Plan,
the Company's qualified defined benefit plan, in 1997. The maximum amount paid
from a qualified defined benefit plan cannot exceed $125,000 per year as of
January 1, 1997. The Company previously adopted the SERP to address these
limitations.
The SERP is a non-qualified supplemental pension plan for designated
executive officers that provides increased benefits that would otherwise be
denied because of certain Internal Revenue Code limitations on qualified benefit
plans. In general, the SERP provides retirement, early retirement, disability
and death benefits based on the benefit formula contained in the Retirement Plan
applied to all compensation, reduced by benefits actually provided under the
Retirement Plan. In certain cases, additional service credit for purposes of the
SERP benefit formula is provided.
The amounts reported in this Pension Plan Table are the amounts payable at
the normal retirement age of 65, in the form of a single life annuity, from the
Retirement Plan and the SERP for officers and other key executives. The amounts
shown are not subject to reduction for Social Security benefits but are reduced
by any pension benefits payable from other Company plans. A participant may
retire as early as age 55, but benefits payable at early retirement are subject
to reductions that approximate actuarial values (except that benefits under the
SERP are not reduced on retirement at age 62 or later).
For each of the following officers of Kaydon, the credited Years of Service
under the Retirement Plan and the SERP, as of December 31, 1997, and the
remuneration received during 1997 covered by the Plans were,
12
<PAGE> 15
respectively, as follows: Mr. Cawley, 12 years and $1,120,500; Mr. Clough, 12
years and $1,090,500; Mr. Brocci, 9 years and $380,925.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of Kaydon has selected Arthur Andersen LLP
independent public accountants, to audit Kaydon's consolidated financial
statements for the year ending December 31, 1997. A representative of Arthur
Andersen LLP will be present at the Annual Meeting of Shareholders with an
opportunity to make a statement, if desired, and will be available to respond to
appropriate questions from shareholders present.
PROPOSALS BY HOLDERS OF COMMON STOCK
Any proposal which a shareholder of Kaydon desires to have included in the
proxy relating to the 1999 Annual Meeting of Shareholders must be received by
Kaydon at its Corporate offices (sent to the attention of the Corporate
Secretary) no later than October 31, 1998. The Corporate offices of Kaydon are
located at 19345 U.S. 19 North, Suite 500, Clearwater, Florida 33764-3148.
EXPENSES AND OTHER MATTERS
EXPENSES OF SOLICITATION
Kaydon will pay the costs of preparing, assembling and mailing this proxy
statement and the material enclosed herewith. Kaydon has requested brokers,
nominees, fiduciaries and other custodians who hold shares of its common stock
in their names to solicit proxies from their clients who own such shares, and
Kaydon has agreed to reimburse them for their expenses in so doing.
In addition to the use of the mails, certain officers, directors and
regular employees of Kaydon, at no additional compensation, may request the
return of proxies by personal interview or by telephone or telegraph.
OTHER ITEMS OF BUSINESS
The management does not intend to present any further items of business to
the meeting, and knows of no such items which will or may be presented by
others. However, if any other matter properly comes before the meeting, the
persons named in the enclosed proxy form will vote thereon in such manner as
they may in their discretion determine.
John F. Brocci
Vice President Administration and
Secretary
March 9, 1998
PLEASE SIGN, DATE AND IMMEDIATELY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ADDRESSED ENVELOPE.
13
<PAGE> 16
APPENDIX
PROXY KAYDON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS, APRIL 30, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF KAYDON CORPORATION
The undersigned hereby appoints LAWRENCE J. CAWLEY and JOHN F. BROCCI, and
each of them, the proxies of the undersigned, with power of substitution in
each, to vote all stock of Kaydon Corporation that the undersigned is entitled
to vote at the Annual Meeting of Shareholders of such Corporation to be held at
Tampa Airport Marriott Hotel, Tampa International Airport, Tampa, Florida on
Thursday, April 30, 1998 at 10:00 AM, Eastern time, and at any adjournment
thereof.
Gerald J. Breen, Brian P. Campbell, Lawrence J. Cawley, Stephen K. Clough,
and John H. F. Haskell, Jr. have been nominated for election as Directors. Your
vote for the five directors may be indicated below.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO CONTRARY SPECIFICATION IS INDICATED, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
AS DIRECTORS. PLEASE MARK BOX [SHADE IN BOX] OR [X] .
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
1. Election of Directors:
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] FOR all nominees (except as [ ] AUTHORITY WITHHELD for all. [ ] AUTHORITY WITHHELD for the following only (write
listed to the contrary). each nominee's name in the space below).
</TABLE>
- --------------------------------------------------------------------------------
Name(s)
(Continued and to be signed on the reverse side)
2. In their discretion, on other matters which properly come before the meeting
or any postponement or adjournment thereof.
You are urged to date, sign, and return promptly this proxy in the envelope
provided. It is important for you to be represented at the Meeting. The
execution of this proxy will not affect your right to vote in person if you are
present at the Meeting and wish to so vote.
Dated:
-------------------, 1998
--------------------------------
Signature
--------------------------------
Signature if held jointly
IMPORTANT: Please sign exactly
as your name or names appear
hereon. If signing as an
attorney, executor,
administrator, trustee,
guardian, or in some other
representative capacity, or as
officer of a corporation, please
indicate your capacity or full
title. For joint accounts, all
tenants should sign.
