<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------- -----------------
Commission file number 0-12640
-------------------------------------------
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
KAYDON CORPORATION
ARBOR SHORELINE OFFICE PARK
19345 U.S. 19 NORTH
CLEARWATER, FL 33764
<PAGE> 2
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
The following documents are attached hereto as exhibits:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants A
Statement of Net Assets Available for Benefits as of
December 31, 1997 1
Statement of Net Assets Available for Benefits as of
December 31, 1996 2
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1997 3
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 1996 4-5
Notes to Financial Statements 6-11
Schedule I - Item 27a - Schedule of Assets Held for
Investment Purposes as of December 31, 1997 12
Schedule II - Item 27d - Schedule of Reportable Transactions
for the Year Ended December 31, 1997 13
Consent of Independent Public Accountants 14
</TABLE>
In accordance with the instructions to this Form 11-K, "plans subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") may file plan
financial statements and schedules prepared in accordance with the financial
reporting requirements of ERISA". As the plan is subject to the filing
requirements of ERISA, the aforementioned financial statements and schedules of
the Plan have been prepared in accordance with such requirements.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Administrative Committee of this plan have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
Electro-Tec Corporation Employee
Retirement Benefit Plan
Date: June 26, 1998
By: The Plan Administrative Committee
-----------------------------------
By: /s/ John F. Brocci
-----------------------------------
John F. Brocci
Chairman
Plan Administrative Committee
<PAGE> 4
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE> 5
Report of Independent Public Accountants
To the Administrative Committee of the
Electro-Tec Corporation Employee Retirement Benefit Plan:
We have audited the accompanying statements of net assets available for benefits
of the ELECTRO-TEC CORPORATION EMPLOYEE RETIREMENT BENEFIT PLAN as of December
31, 1997 and 1996, and the related statements of changes in net assets available
for benefits for the years then ended. These financial statements and the
schedules referred to below are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 net assets available for benefits of the Plan as of
December 31, 1997 and 1996, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The fund information in the
statements of net assets available for benefits and the statements of changes in
net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for plan benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan,
May 22, 1998.
<PAGE> 6
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Statement of Net Assets Available for Benefits as of December 31, 1997 1
Statement of Net Assets Available for Benefits as of December 31, 1996 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1997 3
Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1996 4-5
Notes to Financial Statements 6-11
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes as of December 31, 1997 12
Schedule II - Item 27d - Schedule of Reportable Transactions for the Year Ended December 31, 1997 13
</TABLE>
-(i)-
<PAGE> 7
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA Warburg Pincus
CIGNA Actively Fidelity Fidelity Advisor
Guaranteed Managed INVESCO Growth and Advisor Emerging
Short-Term Fixed Income Total Return Income Equity Growth Growth
Fund Fund Fund Fund Fund Fund
---------- ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $1,870,136 $ 447,539 $ 516,760 $1,588,302 $ 180,835 $1,125,122
Kaydon Corporation
common stock -- -- -- -- -- --
---------- ------------ ------------ ---------- ------------ ----------
Total investments 1,870,136 447,539 516,760 1,588,302 180,835 1,125,122
---------- ------------ ------------ ---------- ------------ ----------
Dividend receivable -- -- -- -- -- --
---------- ------------ ------------ ---------- ------------ ----------
NET ASSETS AVAILABLE
FOR BENEFITS $1,870,136 $ 447,539 $ 516,760 $1,588,302 $ 180,835 $1,125,122
========== ============ ============ ========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Fidelity
CIGNA Advisor
International Growth Fidelity AIM
Equity Opportunities Magellan Value Stock
Fund Fund Fund Fund Fund Total
------- ------------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $32,323 $ 311,473 $59,787 $20,590 $ -- $6,152,867
Kaydon Corporation
common stock -- -- -- -- 1,026,816 1,026,816
------- ------------- ------- ------- ---------- ----------
Total investments 32,323 311,473 59,787 20,590 1,026,816 7,179,683
------- ------------- ------- ------- ---------- ----------
Dividend receivable -- -- -- -- 2,824 2,824
------- ------------- ------- ------- ---------- ----------
NET ASSETS AVAILABLE
FOR BENEFITS $32,323 $ 311,473 $59,787 $20,590 $1,029,640 $7,182,507
======= ============= ======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-1-
<PAGE> 8
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA Twentieth
CIGNA Actively Fidelity Fidelity Century
Guaranteed Managed INVESCO Growth and Advisor Heritage
Short-Term Fixed Income Total Return Income Equity Growth Investors
Fund Fund Fund Fund Fund Fund
---------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $2,054,863 $439,592 $376,521 $1,171,572 $95,896 $7,203
Kaydon Corporation
common stock -- -- -- -- -- --
---------- -------- -------- ---------- ------- ------
Total investments 2,054,863 439,592 376,521 1,171,572 95,896 7,203
---------- -------- -------- ---------- ------- ------
Dividend receivable -- -- -- -- -- --
---------- -------- -------- ---------- ------- ------
NET ASSETS AVAILABLE
FOR BENEFITS $2,054,863 $439,592 $376,521 $1,171,572 $95,896 $7,203
========== ======== ======== ========== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Warburg Pincus Fidelity
Advisor CIGNA Advisor
Emerging International Growth Fidelity
Growth Equity Opportunities Magellan Stock
Fund Fund Fund Fund Fund Total
------------- ------------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $1,126,094 $24,465 $96,137 $7,419 $ -- $5,399,762
Kaydon Corporation
common stock -- -- -- -- 681,237 681,237
---------- ------- ------- ------ -------- ----------
Total investments 1,126,094 24,465 96,137 7,419 681,237 6,080,999
---------- ------- ------- ------ -------- ----------
Dividend receivable -- -- -- -- 2,017 2,017
---------- ------- ------- ------ -------- ----------
NET ASSETS AVAILABLE
FOR BENEFITS $1,126,094 $24,465 $96,137 $7,419 $683,254 $6,083,016
========== ======= ======= ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE> 9
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA Twentieth
CIGNA Actively Fidelity Fidelity Century
Guaranteed Managed INVESCO Growth and Advisor Heritage
Short-Term Fixed Income Total Return Income Equity Growth Investors
Fund Fund Fund Fund Fund Fund
----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 54,630 $ 14,373 $ 12,980 $ 45,524 $ 8,399 $ 368
Participants 73,677 19,721 18,640 69,494 12,661 479
----------- --------- --------- ----------- --------- ---------
128,307 34,094 31,620 115,018 21,060 847
----------- --------- --------- ----------- --------- ---------
Investment earnings:
Interest and dividends -- -- -- -- -- --
Net appreciation (depreciation) in
current value of investments 76,730 33,452 91,115 352,027 26,478 (213)
----------- --------- --------- ----------- --------- ---------
76,730 33,452 91,115 352,027 26,478 (213)
----------- --------- --------- ----------- --------- ---------
205,037 67,546 122,735 467,045 47,538 634
Benefit payments (310,070) (14,758) (42,112) (59,243) (1,983) --
Administrative expenses (315) (211) -- (14) (35) --
Fund transfers (79,379) (44,630) 64,811 14,377 42,114 (7,837)
Transfers to other plan -- -- (5,195) (5,435) (2,695) --
----------- --------- --------- ----------- --------- ---------
Change in net assets
available for benefits (184,727) 7,947 140,239 416,730 84,939 (7,203)
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 2,054,863 439,592 376,521 1,171,572 95,896 7,203
----------- --------- --------- ----------- --------- ---------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 1,870,136 $ 447,539 $ 516,760 $ 1,588,302 $ 180,835 $ --
=========== ========= ========= =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Warburg Pincus Fidelity
Advisor CIGNA Advisor
Emerging International Growth Fidelity AIM
Growth Equity Opportunities Magellan Value Stock
Fund Fund Fund Fund Fund Fund Total
----------- -------- --------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 39,992 $ 3,330 $ 8,709 $ 4,963 $ 1,955 $ 28,487 $ 223,710
Participants 56,797 4,461 14,950 8,519 2,462 42,434 324,295
----------- -------- --------- -------- --------- ----------- -----------
96,789 7,791 23,659 13,482 4,417 70,921 548,005
----------- -------- --------- -------- --------- ----------- -----------
Investment earnings:
Interest and dividends -- -- -- -- -- 9,048 9,048
Net appreciation (depreciation) in
current value of investments 190,756 (972) 57,086 9,984 2,129 271,014 1,109,586
----------- -------- --------- -------- --------- ----------- -----------
190,756 (972) 57,086 9,984 2,129 280,062 1,118,634
----------- -------- --------- -------- --------- ----------- -----------
287,545 6,819 80,745 23,466 6,546 350,983 1,666,639
Benefit payments (66,362) (9,254) (649) (476) (284) (20,528) (525,719)
Administrative expenses (258) (140) (34) (8) (36) (1) (1,052)
Fund transfers (217,178) 10,433 137,969 29,386 14,364 35,570 --
Transfers to other plan (4,719) -- (2,695) -- -- (19,638) (40,377)
----------- -------- --------- -------- --------- ----------- -----------
Change in net assets
available for benefits (972) 7,858 215,336 52,368 20,590 346,386 1,099,491
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 1,126,094 24,465 96,137 7,419 -- 683,254 6,083,016
----------- -------- --------- -------- --------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 1,125,122 $ 32,323 $ 311,473 $ 59,787 $ 20,590 $ 1,029,640 $ 7,182,507
=========== ======== ========= ======== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE> 10
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA Twentieth
CIGNA Actively Fidelity Fidelity Century
Guaranteed Managed INVESCO Growth and Advisor Heritage
Short-Term Fixed Income Total Return Income Equity Growth Investors
Fund Fund Fund Fund Fund Fund
----------- ------------ ------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 64,620 $ 14,360 $ 11,542 $ 36,535 $ 2,415 $ 732
Participants 89,918 20,506 16,109 57,626 3,586 912
----------- --------- --------- ----------- -------- ---------
154,538 34,866 27,651 94,161 6,001 1,644
----------- --------- --------- ----------- -------- ---------
Investment earnings:
Interest and dividends -- -- -- -- -- --
Net appreciation in current value
of investments 93,381 6,615 37,623 194,868 6,764 519
----------- --------- --------- ----------- -------- ---------
93,381 6,615 37,623 194,868 6,764 519
----------- --------- --------- ----------- -------- ---------
247,919 41,481 65,274 289,029 12,765 2,163
Benefit payments (352,563) (184,535) (15,144) (78,979) (216) (210)
Administrative expenses (35) (427) -- -- -- --
Fund transfers 2,159,542 583,073 326,391 961,522 83,347 5,250
----------- --------- --------- ----------- -------- ---------
Change in net assets
available for benefits 2,054,863 439,592 376,521 1,171,572 95,896 7,203
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year -- -- -- -- -- --
----------- --------- --------- ----------- -------- ---------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 2,054,863 $ 439,592 $ 376,521 $ 1,171,572 $ 95,896 $ 7,203
=========== ========= ========= =========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Warburg Pincus Fidelity
Advisor CIGNA Advisor
Emerging International Growth Fidelity
Growth Equity Opportunities Magellan
Fund Fund Fund Fund
----------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Contributions:
Employer $ 42,880 $ 1,806 $ 1,203 $1,122
Participants 67,389 2,410 1,898 1,552
----------- -------- -------- ------
110,269 4,216 3,101 2,674
----------- -------- -------- ------
Investment earnings:
Interest and dividends -- -- -- --
Net appreciation in current value
of investments 83,851 437 10,579 551
----------- -------- -------- ------
83,851 437 10,579 551
----------- -------- -------- ------
194,120 4,653 13,680 3,225
Benefit payments (56,840) (166) (4,658) --
Administrative expenses (163) (35) (35) --
Fund transfers 988,977 20,013 87,150 4,194
----------- -------- -------- ------
Change in net assets
available for benefits 1,126,094 24,465 96,137 7,419
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year -- -- -- --
----------- -------- -------- ------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 1,126,094 $ 24,465 $ 96,137 $7,419
=========== ======== ======== ======
</TABLE>
The accompanying notes are an integral part of this statement.
-4-
<PAGE> 11
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Continued)
<TABLE>
<CAPTION>
Intermediate
Small High Income Government Prime
Stock Capitalization Equity Bond Obligations Obligations
Fund Fund Fund Fund Fund Fund
--------- ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 25,296 $ -- $ -- $ -- $ -- $ --
Participants 37,757 -- -- -- -- --
--------- ----------- ----------- --------- -------- -----------
63,053 -- -- -- -- --
--------- ----------- ----------- --------- -------- -----------
Investment earnings:
Interest and dividends 7,260 -- -- -- -- 4,527
Net appreciation in current value
of investments 243,939 -- -- -- -- --
--------- ----------- ----------- --------- -------- -----------
251,199 -- -- -- -- 4,527
--------- ----------- ----------- --------- -------- -----------
314,252 -- -- -- -- 4,527
Benefit payments (20,604) -- -- -- -- --
Administrative expenses (35) -- -- -- -- --
Fund transfers 389,641 (1,041,571) (1,076,527) (447,998) (28,611) (1,001,357)
--------- ----------- ----------- --------- -------- -----------
Change in net assets
available for benefits 683,254 (1,041,571) (1,076,527) (447,998) (28,611) (996,830)
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year -- 1,041,571 1,076,527 447,998 28,611 996,830
--------- ----------- ----------- --------- -------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 683,254 $ -- $ -- $ -- $ -- $ --
========= =========== =========== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Income Common
Balanced Advantage Stock
Fund Fund Fund Total
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contributions:
Employer $ -- $ -- $ -- $ 202,511
Participants -- -- -- 299,663
--------- ----------- ----------- -----------
-- -- -- 502,174
--------- ----------- ----------- -----------
Investment earnings:
Interest and dividends -- 5,716 -- 17,503
Net appreciation in current value
of investments -- -- -- 679,127
--------- ----------- ----------- -----------
-- 5,716 -- 696,630
--------- ----------- ----------- -----------
-- 5,716 -- 1,198,804
Benefit payments -- -- -- (713,915)
Administrative expenses -- -- -- (730)
Fund transfers (294,336) (1,290,419) (428,281) --
--------- ----------- ----------- -----------
Change in net assets
available for benefits (294,336) (1,284,703) (428,281) 484,159
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 294,336 1,284,703 428,281 5,598,857
--------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ -- $ -- $ -- $ 6,083,016
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE> 12
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The accompanying financial statements of the Electro-Tec
Corporation Employee Retirement Benefit Plan (the "Plan") have
been prepared on the accrual basis of accounting. The Plan is
subject to the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended.
Investments are stated at current value, which is based on the
quoted market price.
Effective January 1, 1996, the Company changed trustees from
First of America Investment Corporation to CG Trust Company (a
CIGNA company). As a result, the Plan assets were transferred
into funds with comparable investment options administered by
Connecticut General Life Insurance Company (a CIGNA company).
In order to provide a variety of investment options, CIGNA has
developed alliances with other companies, including Fidelity
Management and Research Company, Warburg Pincus Asset
Management, Inc., INVESCO Funds Group, Inc., Twentieth Century
Investors, Inc. and AIM Advisors, Inc. Plan assets are
invested in a CIGNA Separate Account (measured in units) which
holds investments in funds offered by these alliance
companies.
The investment funds offered by CIGNA through the CIGNA Separate
Account do not pay dividends or interest, nor do they produce
realized or unrealized gains. Rather, the plan participates in
investment earnings through an increase or decrease in the
unit values of each fund. As a result, the funds' investment
earnings are reported as net appreciation (depreciation) in
the Statement of Changes in Net Assets Available for Benefits,
except for the Stock Fund in which the participants have a
direct interest in the underlying stock.
Conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts in the Plan's financial
statements. Actual results may differ from those estimates.
-6-
<PAGE> 13
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) DESCRIPTION OF THE PLAN
Electro-Tec Corporation (the "Company" or "Employer"), a
wholly-owned subsidiary of Kaydon Corporation ("Kaydon"),
sponsors the Plan, a defined contribution plan. The following
description of the major provisions of the Plan is provided
for general information purposes only. Reference should be
made to the Plan document, as amended, for more complete
information.
Eligibility requirements - All employees of the Company who
are 21 years of age and have completed at least 500 hours of
service during a six-month period (1,000 hours of service
during a one-year period effective January 1, 1998 for
individuals first hired after December 31, 1997) are eligible
to participate in the Plan on the January 1st, April 1st, July
1st and October 1st coincident with or immediately following
such period.
Contributions - Participants may elect to make, through
payroll deductions, both tax-deferred contributions, which may
not exceed 15% of compensation, and after-tax voluntary
contributions. The maximum contributions for the year, which
includes pre-tax, after-tax voluntary and employer matching
and discretionary contributions is 25% of compensation less
tax-deferred contributions. Under the terms of the Plan, the
Company contributes to the Plan an amount equal to the payroll
deduction contribution by each participant up to 3% of the
participant's compensation, as defined by the Plan, and 75% of
each participant's contribution in excess of 3% of
compensation, not to exceed an additional 4% of each
participant's compensation, as defined. In addition, the
Company may, with the approval of the Board of Directors of
Kaydon, make discretionary contributions to the Plan. There
were no discretionary Employer contributions in 1997 or 1996.
Allocation of investment earnings - Individual accounts are
maintained for each participant to reflect the participant's
contributions, the employer's contributions, forfeitures,
investment earnings and administrative expenses. Investment
earnings are allocated based on each participant's relative
account balance within the respective fund.
Vesting - All participant contributions are fully vested and
nonforfeitable. Company matching and discretionary
contributions become fully vested and nonforfeitable either
upon attainment of age 65, upon the employee's death or
disability or ratably over seven years of service, as defined
by the Plan. Forfeitures are used to reduce Employer
contributions.
-7-
<PAGE> 14
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Investment of participant accounts - Plan participants may direct the investment
of their account balances in the following investment options:
The CIGNA Guaranteed Short-Term Fund invests in a portfolio of
high quality money market instruments with a guarantee of
principal and interest, including U.S. Treasury securities,
U.S. Government securities, certificates of deposit, time
deposits, repurchase agreements, and commercial paper issued by
major domestic and foreign corporations.
The CIGNA Actively Managed Fixed Income Fund invests in a
portfolio of predominately high quality corporate and
Government fixed income securities including issues of the U.S.
Government and its Agencies, U.S. corporate bonds, Yankee
bonds, mortgage-backed securities and asset-backed securities.
The INVESCO Total Return Fund invests in a combination of equity
and fixed and variable income securities including common stock
and securities that are convertible into common stock, issues
of the U.S. Government and its Agencies, and investment-grade
corporate debt obligations.
The Fidelity Growth and Income Fund invests in equity securities
of domestic and foreign companies including preferred stocks
and investment-grade debt instruments, and all types of foreign
securities.
The Fidelity Advisor Equity Growth Fund invests primarily in the
common and preferred stock and securities convertible into the
common stock of companies of all sizes with above-average
growth characteristics. The Fund may also invest in foreign
securities.
The Twentieth Century Heritage Investors Fund invests primarily in
common stocks of small to medium-sized companies. The Fund may
also invest in the securities of foreign companies, primarily
in developed markets. This fund was replaced by the AIM Value
Fund, effective April 1, 1997.
The Warburg Pincus Advisor Emerging Growth Fund invests in equity
securities of small to medium-sized domestic companies with
emerging or renewed growth potential. The Fund may also invest
in foreign securities, investment-grade debt securities, and
domestic and foreign short-term or medium-term money market
obligations.
-8-
<PAGE> 15
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
The CIGNA International Equity Fund invests primarily in
non-U.S. stocks in European, Australian and Far East stock
markets. The Fund may also invest in U.S. and non-U.S. cash
equivalents.
The Fidelity Advisor Growth Opportunities Fund invests
primarily in common stocks and securities convertible into
common stock of companies believed to have long-term growth
potential. The Fund may also invest in other securities such as
preferred stocks and bonds that may produce capital growth, and
securities of foreign companies.
The Fidelity Magellan Fund invests primarily in common stocks
and securities convertible into common stock. The Fund may
invest in securities of domestic, foreign and multinational
issuers.
The AIM Value Fund invests primarily in common stocks,
convertible bonds and convertible preferred stocks of
undervalued companies. This fund replaced the Twentieth Century
Heritage Investors Fund, effective April 1, 1997.
The Stock Fund invests solely in Kaydon Corporation Common
Stock.
The CIGNA International Equity Fund and the Fidelity Magellan
Fund are no longer investment options as of January 1, 1998.
Participant balances will transfer directly to the Templeton
Foreign Fund and the Fidelity Advisor Equity Growth Fund,
respectively, unless participants direct otherwise. In
addition, the Lazard Small Cap Portfolio Fund will be an
investment option as of January 1, 1998.
Payment of benefits - Amounts credited to an individual
participant's account are distributed at termination of
employment, generally as a lump sum or in installments.
Distributions may be deferred until the participant reaches the
age of 65 if the value of the distribution exceeds $3,500. As
described in the Plan, in certain hardship situations,
participants may withdraw a portion of their account balances
while actively employed.
Administrative expenses - Although not required to do so, the
Employer paid certain administrative expenses of the Plan
during 1997 and 1996. The remaining expenses were paid for out
of Plan assets by CG Trust Company.
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<PAGE> 16
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
Voting rights - Each participant is entitled to exercise voting
rights attributable to the Kaydon Corporation common shares
allocated to his or her account and is notified by the trustee
prior to the time that such rights are to be exercised. The
trustee is not permitted to vote any share for which
instructions have not been given by a participant.
Plan termination - The Company has the right to terminate the
Plan at any time, although it has not expressed an intent to do
so. Upon termination of the Plan, participants will become
fully vested. Expenses arising from the termination would be
allocated to the participants' accounts in accordance with the
Plan and the Internal Revenue Code.
(3) TRUST FUND
A trust fund is maintained by the trustee for all purposes of
the Plan; and the monies and other assets thereof are held,
administered, invested and distributed in accordance with the
terms of the Plan, as it may be amended from time to time, for
the exclusive benefit of the participants and their
beneficiaries.
(4) RELATED PARTY TRANSACTIONS
Plan investments include interests in mutual funds managed by
Connecticut General Life Insurance Company (a CIGNA company).
CG Trust Company (a CIGNA company) is the trustee as defined by
the Plan.
(5) TAX STATUS
The Internal Revenue Service issued a determination dated
October 12, 1995, stating that the Plan was in accordance with
applicable plan design requirements as of that date. The Plan
has been amended since receiving the determination letter.
However, the Plan administrator and the Plan's legal counsel
believe that the Plan and underlying trust are currently
designed and being operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, they
believe that the Plan was qualified and the related trust was
tax-exempt as of the financial statement date.
-10-
<PAGE> 17
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) INVESTMENTS
The fair market value of investments that represent 5% or more
of the Plan's total net assets is as follows as of December
31,:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CIGNA Guaranteed Short-Term Fund $1,870,136 $2,054,863
CIGNA Actively Managed Fixed Income Fund 447,539 439,592
INVESCO Total Return Fund 516,760 376,521
Fidelity Growth and Income Fund 1,588,302 1,171,572
Warburg Pincus Advisor Emerging
Growth Fund 1,125,122 1,126,094
Stock Fund 1,026,816 681,237
</TABLE>
-11-
<PAGE> 18
SCHEDULE I
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
EIN: 59-1226757
PLAN NUMBER: 001
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Current
Identity of Issuer Description of Investment Cost Value
------------------ ------------------------- ---------- ----------
<S> <C> <C> <C>
Mutual Funds:
*Connecticut General Life CIGNA Guaranteed Short-
Insurance Company Term Fund, 43,207 units $1,870,136 $1,870,136
*Connecticut General Life CIGNA Actively Managed
Insurance Company Fixed Income Fund,
3,735 units 410,699 447,539
*Connecticut General Life INVESCO Total Return Fund,
Insurance Company 15,582 units 397,848 516,760
*Connecticut General Life Fidelity Growth and Income
Insurance Company Fund, 34,528 units 1,114,664 1,588,302
*Connecticut General Life Fidelity Advisor Equity
Insurance Company Growth Fund, 3,139 units 150,204 180,835
*Connecticut General Life Warburg Pincus Advisor
Insurance Company Emerging Growth Fund,
25,628 units 904,394 1,125,122
*Connecticut General Life CIGNA International Equity
Insurance Company Fund, 510 units 34,197 32,323
*Connecticut General Life Fidelity Advisor Growth
Insurance Company Opportunities Fund,
5,242 units 244,815 311,473
*Connecticut General Life Fidelity Magellan Fund,
Insurance Company 479 units 50,882 59,787
*Connecticut General Life AIM Value Fund,
Insurance Company 551 units 18,531 20,590
---------- ----------
5,196,370 6,152,867
Common Stock:
*Kaydon Corporation Stock Fund, 31,460 shares 550,319 1,026,816
---------- ----------
$5,746,689 $7,179,683
========== ==========
</TABLE>
* Represents a party-in-interest
-12-
<PAGE> 19
SCHEDULE II
ELECTRO-TEC CORPORATION
EMPLOYEE RETIREMENT BENEFIT PLAN
EIN: 59-1226757
PLAN NUMBER: 001
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Purchases Sales or Maturities
------------------------- ---------------------------------------------------
Identity of Issuer and Number of Purchase Number of Cost of
Description of Investment Transactions Price Transactions Proceeds Asset Net Gain
- ------------------------- ------------ --------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
*Connecticut General Life Insurance
Company:
CIGNA Guaranteed Short-Term Fund 65 $346,664 21 $608,121 $608,121 $ -
Fidelity Growth and Income Fund 71 232,439 30 167,736 126,771 40,965
Warburg Pincus Advisor Emerging
Growth Fund 69 207,732 33 399,460 352,291 47,169
</TABLE>
*Represents a party-in-interest
NOTE: This schedule was prepared in accordance with the
regulations of the Employee Retirement Income
Security Act of 1974 to report all transactions
involving securities of the same issue which, in the
aggregate, exceed 5% of the net assets of the Plan at
the beginning of the period.
-13-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kaydon Corporation:
As independent public accountants, we hereby consent to the incorporation
of our report, dated May 22, 1998, included in this Form 11-K, into the
Company's previously filed Form S-8 Registration Statement Number 33-48762.
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan,
June 26, 1998.
-14-
