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:
[ ] 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 Section 240.14a-12
-
KADANT INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[X] No fee required.
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[LOGO] KADANT
AN ACCENT ON INNOVATION
One Acton Place, Suite 202
Acton, MA 01720
April 7, 2003
Dear Stockholder:
I am pleased to invite you to attend the 2003 annual meeting of
stockholders of Kadant Inc. The meeting will be held on Thursday, May 15, 2003,
at 2:30 p.m. at the Boston Marriott Burlington located at One Mall Road in
Burlington, Massachusetts. Details regarding the business to be conducted at the
meeting are described in the enclosed notice of the meeting and proxy statement.
This mailing also includes our 2002 annual report to shareholders,
which contains information about our businesses and our 2002 financial
statements, a proxy card for you to record your vote and a return, postage-paid
envelope for your proxy card.
Your vote is very important. Whether or not you plan to attend the
meeting in person, I hope you will vote as soon as possible. Please register
your vote by completing and signing the enclosed proxy card and returning it to
our transfer agent, American Stock Transfer & Trust Company, in the addressed,
postage-paid envelope we have provided.
Thank you for your support and continued interest in Kadant.
Sincerely,
/s/ William A. Rainville
WILLIAM A. RAINVILLE
Chairman and Chief Executive Officer
[LOGO] KADANT
AN ACCENT ON INNOVATION
One Acton Place, Suite 202
Acton, MA 01720
April 7, 2003
To Stockholders of
KADANT INC.
NOTICE OF ANNUAL MEETING
The 2003 annual meeting of stockholders of Kadant Inc. will be held on
Thursday, May 15, 2003, at 2:30 p.m. at the Boston Marriott Burlington located
at One Mall Road, Burlington, Massachusetts. The purpose of the meeting is to
consider and take action upon the following matters:
1. Election of two directors, constituting the class of directors to
be elected for a three-year term expiring in the year 2006.
2. Such other business as may properly be brought before the meeting
and any adjournment of the meeting.
The record date for the determination of the stockholders entitled to
receive notice of and to vote at the meeting is April 2, 2003. Our stock
transfer books will remain open.
Our by-laws require that the holders of a majority of the shares of our
common stock, issued and outstanding and entitled to vote at the meeting, be
present in person or represented by proxy at the meeting in order to constitute
a quorum for the transaction of business. Accordingly, it is important that your
shares be represented at the meeting regardless of the number of shares you may
hold. Whether or not you plan to attend the meeting in person, please promptly
sign and return the enclosed proxy in the accompanying envelope, which requires
no postage if mailed in the United States.
This notice, the proxy and proxy statement are sent to you by order of
the board of directors.
SANDRA L. LAMBERT
Vice President, General Counsel and Secretary
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation
of proxies by the board of directors of Kadant Inc. for use at our 2003 annual
meeting of stockholders to be held on Thursday, May 15, 2003, at 2:30 p.m. at
the Boston Marriott Burlington, One Mall Road, Burlington, Massachusetts, and at
any adjournment of that meeting. The mailing address of our executive office is
One Acton Place, Suite 202, Acton, Massachusetts 01720. This notice, proxy
statement and the enclosed proxy are being first furnished to our stockholders
on or about April 10, 2003.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election
of two directors for the class of directors whose three-year term will expire in
2006.
The holders of a majority of the shares of our common stock, $.01 par
value per share, that are issued and outstanding and entitled to vote at the
meeting constitute a quorum for the transaction of business at the meeting.
Shares present in person or represented by proxy (including shares that abstain
or do not vote on one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
meeting.
The election of directors is determined by a plurality of the votes
cast by the stockholders entitled to vote on the election of directors. Each
share of common stock you hold is entitled to one vote for or against a
proposal. Shares represented by proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on the
proxy card. If your proxy card is signed and returned without specifying
choices, your shares will be voted for the nominees listed, and as the
individuals named as proxy holders on the proxy deem advisable on all other
matters that may properly come before the meeting. An instruction to withhold
authority to vote for a nominee for director will have no effect upon the
outcome of the vote on the election of directors.
If you hold your shares in "street name" through a broker, bank or
other representative, generally the broker or other representative may only vote
the shares that it holds for you in accordance with your instructions. However,
if the broker or other representative has not timely received your instructions,
it may vote on certain matters for which it has discretionary voting authority.
If a broker or other representative cannot vote on a particular matter because
it does not have discretionary voting authority, this is a "broker non-vote" on
that matter. Brokers have discretionary voting authority on the election of
directors. On matters other than the election of directors presented to the
stockholders at a meeting, shares that abstain from voting on the particular
matter, and shares held in street name by brokers or nominees who indicate on
their proxies that they do not have discretionary authority to vote the shares
as to a particular matter, will be not be counted as voting on the matter and
will have no effect upon the outcome of the vote on such matter.
Once you have returned your proxy, you may revoke it at any time before
the shares are voted at the meeting by written notice to our secretary received
before the meeting, by executing and returning a new proxy bearing a later date
or by voting in person at the meeting. Attendance at the meeting without voting
will not revoke a previously submitted proxy.
When more than one stockholder share the same address, we may deliver
only one annual report and one proxy statement to that address. Similarly,
beneficial owners with the same address who hold their shares in street name
through a broker, bank or other representative may have elected to receive only
one copy of these documents at that address. We will promptly send a separate
copy of either document to you if you request one by writing or calling us at
Kadant Inc., One Acton Place, Suite 202, Acton, Massachusetts 01720 (telephone:
978-776-2000). If you are receiving multiple copies and would like to receive
only one copy for your household in the future, you should contact your broker,
bank or other representative if you hold shares in street name, or contact our
transfer agent, American Stock Transfer & Trust Company, Shareholder Services
Department, 59 Maiden Lane, New York, New York 10038 (telephone: 718-921-8200)
if you hold shares in your own name.
Our outstanding capital stock entitled to vote at the meeting (which
excludes shares held in our treasury) as of April 2, 2003, consisted of
13,581,780 shares of our common stock. Only stockholders of record at the close
of business on April 2, 2003, will be entitled to vote at the meeting. Each
share is entitled to one vote.
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PROPOSAL 1
ELECTION OF DIRECTORS
Our board of directors is divided into three classes of directors
serving staggered three-year terms, with each class being as nearly equal in
number as possible. Directors for each class are elected at the annual meeting
of stockholders held in the year in which the term for their class expires. Two
directors, John K. Allen and Francis L. McKone, who are currently members of our
board of directors, are being nominated for reelection at this meeting. If a
nominee becomes unavailable, the persons acting under the proxy may vote the
proxy for the election of a substitute. Directors serve until the expiration of
their terms, until their successors have been elected and qualified or until
their earlier resignation, death or removal.
Information regarding the business experience of each of our directors
is provided below. Information on the stock ownership of our directors is
provided in this proxy statement under the heading "Stock Ownership."
Nominees for Directors for the Three-Year Term That Will Expire in 2006
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John K. Allen Dr. Allen, 50, joined our board of directors in April 2002. Dr. Allen has been
chairman, president and chief executive officer of Lawrence R. McCoy & Co., Inc.,
a privately held wholesale distributor of fencing, flooring, specialty building
material and industrial wood components, since 2001. From 1999 to 2001, Dr. Allen
was a principal of Allen Associates, a national management consulting practice
assisting companies in strategic planning and executive development. From 1994 to
1998, he was an executive with WPI Group, Inc., a manufacturer of power
conversion products, hand-held terminals and computers, and related software
products, as its vice president, planning and development from 1994 to 1995, and
as group vice president of its power solutions group from 1995 to 1998.
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Francis L. McKone Mr. McKone, 68, has been a member of our board of directors since March 1998. Mr.
McKone was chairman of the board of Albany International Corp. from 1998 until
his retirement in June 2001 and was its chief executive officer from 1993 until
October 2000, its co-chief executive officer from 1984 to 1993 and its president
from 1984 to 1998. Albany International Corp. is a worldwide supplier of
paper-machine fabrics. Mr. McKone is currently a director of Albany International
Corp. and is a trustee and member of the finance committee of the Rensselaer
Polytechnic Institute.
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Our directors listed below are not up for election this year and
continue in office for the remainder of their terms or earlier in accordance
with our by-laws.
Director Whose Term Will Expire in 2004
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William A. Rainville Mr. Rainville, 61, has been our president and chief executive officer since our
incorporation in 1991, a member of our board of directors since 1992 and our
chairman since August 2001. Mr. Rainville was chief operating officer, recycling
and resource recovery, of Thermo Electron Corporation, a manufacturer of
high-tech instrumentation, from 1998 until our spinoff in August 2001. He was
also a senior vice president of Thermo Electron from 1993 to 1998. He joined
Thermo Electron in 1972 and became a vice president in 1986. Prior to joining
Thermo Electron, he held positions at Drott Manufacturing, Paper Industry
Engineering and Sterling Pulp and Paper.
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Director Whose Term Will Expire in 2005
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John M. Albertine Dr. Albertine, 58, has been a member of our board of directors since June 2001.
Dr. Albertine has been the chief executive officer of Albertine Enterprises,
Inc., a consulting and merchant-banking firm, since 1990. He has also been a
managing partner and founder of High Street Capital Management, LLC, a private
equity fund, since March 2001. Dr. Albertine served as president of the American
Business Conference, founded by Arthur Levitt, Jr., from 1981 to 1986, executive
director of the Congressional Joint Economic Committee under Chairman Senator
Lloyd Bentsen from 1979 to 1980, and the head of a presidential committee on
aviation safety under President Ronald Reagan from 1987 to 1988. Dr. Albertine is
also a director of Intermagnetics General Corp. and Semco Energy, Inc., and
serves on the board of trustees of the Virginia Retirement System.
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Committees of the Board of Directors and Meetings
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance committee, each
consisting of our independent directors.
The audit committee assists the board of directors in its oversight of
the integrity of our financial statements, our compliance with legal and
regulatory requirements, our independent auditor's performance, qualifications
and independence and the performance of our internal audit function. The
committee meets regularly with management and our independent auditors to
discuss the annual audit of our financial statements, the quarterly reviews of
our financial statements and our quarterly and annual earnings disclosure. Each
member of the audit committee meets the independence guidelines set forth in the
listing requirements of the American Stock Exchange, on which our common stock
is listed. The current members of the audit committee are Mr. McKone (chairman),
Dr. Albertine and Dr. Allen.
The compensation committee reviews the performance of senior members of
management and determines their compensation, and administers employee
compensation, incentive compensation and incentive programs and policies. The
current members of the compensation committee are Dr. Albertine (chairman) and
Mr. McKone.
The nominating and corporate governance committee was formed in
December 2002 to identify and recommend to the board of directors qualified
candidates for nomination as directors, to develop and monitor the company's
corporate governance principles, to evaluate the board's performance and to
review and make recommendations regarding management succession planning. The
current members of the nominating and corporate governance committee are Dr.
Allen (chairman) and Mr. McKone. Shareholders may submit names of qualified
candidates for director along with detailed information on their backgrounds to
the company's secretary for referral to the nominating and corporate governance
committee.
In 2002, the board of directors met eight times, the audit committee
met eight times and the compensation committee met three times. The nominating
and corporate governance committee was formed in December 2002 and did not meet
during 2002. Each director attended at least 75% of all meetings of the board of
directors and committees on which he served that were held during 2002.
Compensation of Directors
Our independent directors may elect to be paid for their services in
either cash or restricted stock. Directors are also reimbursed for their
out-of-pocket expenses incurred in attending meetings of the board of directors.
A director who elects to be paid in cash receives an annual retainer of
$10,000 and meeting fees of $1,000 for attending regular meetings of the board
of directors in person and $500 for participating in meetings of the board of
directors by telephone. Members of committees of the board of directors (other
than the committee chairman) receive an additional meeting fee of $500 for
participating in these meetings; committee chairmen receive an additional
meeting fee of $1,000.
A director who elects to be paid in restricted stock receives 2,500
shares annually under our directors' restricted stock plan. The shares must be
held for five years or until the director retires from the board of directors,
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whichever comes first. Directors are permitted to sell enough shares to satisfy
the federal and state income taxes incurred as a consequence of the issuance of
shares. Only treasury shares may be issued as restricted stock under the plan.
The plan has a five-year term. In the event of a change in control during the
plan term and the failure of a director to be reelected within one year, the
director will receive additional unrestricted shares equal to the number of
shares he would have received if he had remained a director for the remainder of
the plan term. Restrictions on the shares lapse upon death.
Our independent directors may also be granted stock options
periodically under our equity incentive plan. In March 2002, Dr. Albertine and
Mr. McKone were each granted an option to purchase 25,000 shares of our common
stock at $14.15, the fair market value on the date of grant. In April 2002, in
conjunction with his appointment as a director, Dr. Allen was granted an option
to purchase 25,000 shares of our common stock at $14.12, the fair market value
on the date of grant. All of these options vest in equal installments over the
next three years, assuming the individual continues to serve as a director, and
have a term of seven years.
Our independent directors were compensated using a different system
prior to April 2002. Directors were paid their annual retainer and meeting fees
in cash and could elect to defer the receipt of these fees under a deferred
compensation plan for directors. The amounts deferred were valued at the end of
each quarter as units of common stock and could be distributed solely in shares.
This plan was discontinued on April 1, 2002. Amounts already deferred under the
plan will continue to be deferred until a director resigns from the board of
directors, retires or dies. In the event of an actual or proposed change in
control that is not approved by our board of directors, deferred amounts become
payable immediately. There are currently deferred units equal to 2,568.9628
shares allocated under this plan.
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of shares of
our common stock as of March 1, 2003, with respect to (i) those persons we know
to beneficially own more than 5% of our outstanding shares, (ii) each of our
directors, (iii) each of our executive officers named in the summary
compensation table under the heading "Executive Compensation" and (iv) all of
our directors and current executive officers as a group. Unless otherwise
indicated, the address of any person or entity listed is c/o Kadant Inc., One
Acton Place, Suite 202, Acton, Massachusetts 01720.
Shares of Common Stock
Beneficially Owned
------------------
Name of Beneficial Owner (1) Number (2) % of Class
---------------------------- ---------- ----------
State Street Research & Management Company (3).......................... 1,695,100 12.51%
John M. Albertine....................................................... 10,833 *
John K. Allen........................................................... 10,833 *
Edwin D. Healy.......................................................... 61,091 *
Francis L. McKone....................................................... 14,062 *
Thomas M. O'Brien....................................................... 129,984 *
Jonathan W. Painter..................................................... 120,615 *
William A. Rainville.................................................... 464,056 3.3%
Edward J. Sindoni....................................................... 128,162 *
All directors and current executive officers as a group (10 persons).... 1,106,455 7.6%
* Less than 1%
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the person and by that person for the
benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares beneficially owned by Dr. Albertine, Dr. Allen, Mr. Healy, Mr.
McKone, Mr. O'Brien, Mr. Painter, Mr. Rainville, Mr. Sindoni and all
directors and current executive officers as a group include 8,333,
8,333, 59,333, 8,733, 122,199, 114,348, 428,010, 120,219 and 1,032,836
shares that the person or group had the right to acquire within 60 days
of March 1, 2003, through the exercise of stock options. Shares
beneficially
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(3) owned by Mr. McKone and all directors and current executive officers as
a group include 2,568 shares allocated to Mr. McKone's account
maintained under our deferred compensation plan for directors, which
was discontinued last year. Shares beneficially owned by Mr. Painter
include 3 shares held in a custodial account for the benefit of a minor
child.
(4) The address of State Street Research & Management Company is One
Financial Center, 30th Floor, Boston, Massachusetts 02111-2690. The
address and number of shares of our common stock beneficially owned by
State Street Research & Management Company is based on the Schedule 13G
it filed with the U.S. Securities and Exchange Commission on February
14, 2003 and is as of December 31, 2002.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and beneficial owners of more
than 10% of our common stock, to file with the U.S. Securities and Exchange
Commission initial reports of ownership and periodic reports of changes in
ownership of our securities. Based upon a review of these filings, all Section
16(a) filing requirements applicable to such persons were complied with during
2002 on a timely basis, with the following exceptions. Mr. Rainville, Mr.
O'Brien and Mr. Painter each amended their previously filed Form 5 report for
the fiscal year 2002, which was filed on a timely basis, three weeks later to
include disclosure of the surrender to the company of 744, 104 and 104 shares,
respectively, to satisfy tax withholding obligations related to the vesting of
restricted stock in January 2002.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation information for our chief
executive officer and our four other executive officers who were the most highly
compensated in the fiscal year ended December 28, 2002, based on their salary
and bonus compensation. These executive officers are collectively referred to as
the "named executive officers."
Summary Compensation Table
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Long Term
Compensation
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Fiscal Year Salary Bonus Options Compensation (1)
--------------------------- ----------- ------ ----- ------- ----------------
William A. Rainville 2002 $400,000 $225,000 400,000 $100,907 (2)
Chief Executive Officer 2001 $291,000 $200,000 100,000 $ 17,859 (2)
2000 $245,000 $157,500 -- $ 23,150 (2)
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Thomas M. O'Brien 2002 $215,000 $100,000 50,000 $ 12,831
Executive Vice President and 2001 $195,000 $100,000 100,000 $ 16,600
Chief Financial Officer 2000 $184,000 $ 77,000 -- $ 18,205
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Edward J. Sindoni 2002 $205,000 $ 95,000 50,000 $ 12,987
Senior Vice President 2001 $187,000 $100,000 100,000 $ 16,418
2000 $181,000 $ 98,000 -- $ 18,067
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Jonathan W. Painter 2002 $190,000 $ 95,000 -- $217,813 (3)
Executive Vice President 2001 $183,000 $ 85,000 75,000 $ 12,601 (3)
2000 $173,000 $ 81,500 -- $ 5,568 (3)
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Edwin D. Healy 2002 $230,000 $ 55,000 -- $ 12,598
Vice President (4)
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(1) The amounts disclosed in this column include payment of employer
contributions under our company's and subsidiaries' 401(k) savings or
profit sharing plans.
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(2) In 1996, the company extended an interest-free loan to Mr. Rainville to
purchase 2,000 shares of our common stock in order to comply with a
stock holding policy for executive officers adopted in 1996. The stock
holding policy was terminated and the outstanding balances of the loans
that had not already been repaid by our officers were forgiven
effective January 2, 2002. The amount disclosed in this column for 2002
includes the $49,121 outstanding balance of the original $118,104 loan
that was forgiven in January 2002, and $40,762 that was paid to Mr.
Rainville as a tax reimbursement to cover the additional federal and
state income taxes due in connection with the forgiveness of the loan.
The amounts disclosed in this column for 2001 and 2000 include $2,193
and $5,038 of interest imputed on this loan. See "Certain Relationships
and Related Transactions."
(3) In 1997, the company extended an interest-free loan to Mr. Painter to
purchase 2,600 shares of our common stock in order to comply with a
stock holding policy for executive officers adopted in 1996. The stock
holding policy was terminated and the outstanding balances of the loans
that had not already been repaid by our officers were forgiven
effective January 2, 2002. The amount disclosed in this column for 2002
includes the $114,078 outstanding balance of the original $157,303 loan
that was forgiven in January 2002, and $94,665 that was paid to Mr.
Painter as a tax reimbursement to cover the additional federal and
state income taxes due in connection with the forgiveness of the loan.
The amounts disclosed in this column for 2001 and 2000 include $4,725
and $7,918 of interest imputed on this loan. See "Certain Relationships
and Related Transactions."
(4) Mr. Healy was named an executive officer in October 2002.
Stock Options Granted During Fiscal Year 2002
The following table presents information concerning individual grants
of stock options made during fiscal 2002 to our named executive officers. It has
not been our policy in the past to grant stock appreciation rights, and no such
rights were granted during fiscal 2002.
Option Grants in Fiscal 2002
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Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Number of Total Options Price Appreciation for
Securities Granted to Exercise Option Term (2)
Underlying Options Employees in Price Per Expiration ---------------
Name Granted (1) Fiscal Year Share Date 5% 10%
----------- ----------- ----- ---- -- ---
William A. Rainville 100,000 16.7% $14.50 1/02/09 $ 590,295 $1,375,640
300,000 50.1% $16.00 5/16/09 $1,954,082 $4,553,852
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Thomas M. O'Brien 50,000 8.4% $14.50 1/02/09 $ 295,148 $ 687,820
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Edward J. Sindoni 50,000 8.4% $14.50 1/02/09 $ 295,148 $ 687,820
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Jonathan W. Painter -- -- -- -- -- --
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Edwin D. Healy -- -- -- -- -- --
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(1) The vesting and exercise schedule for these options is 1/3 after the
first year, 2/3 after the second year and 100% after the third year.
The exercise price may be paid in cash or by delivery of already-owned
shares, and tax-withholding obligations arising from the exercise may
be paid by surrendering shares, subject to certain conditions.
(2) The potential realizable values stated in this table represent
hypothetical gains that could be achieved if the options are exercised
at the end of the option term. These gains are based on assumed rates
of stock appreciation of 5% and 10% compounded annually from the grant
date to the expiration date of the options. The hypothetical gains
shown are net of the option exercise price and do not include
deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the
future performance of our shares, the executive's continued employment
during the option term and the date the options are exercised. The
potential realizable values are calculated based on requirements of the
U.S. Securities and Exchange Commission and do not represent the
estimated growth of our stock price.
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Stock Options Exercised During Fiscal 2002 and Fiscal Year-End Option Values
The following table reports certain information regarding stock option
exercises during fiscal 2002 and outstanding stock options held at the end of
fiscal 2002 by our named executive officers. No stock appreciation rights were
exercised or were outstanding during fiscal 2002.
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Number of Securities
Underlying Unexercised Value of Unexercised-In-the-
Shares Options at Fiscal Year- Money Options at Fiscal
Acquired on Values End (Exercisable/ Year-End (Exercisable/
Name Exercise Realized (1) Unexercisable) (2) Unexercisable) (3)
---- -------- ------------ ------------------ ------------------
William A. Rainville -- -- 394,677 /466,667 $1,124,651 /$223,334
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Thomas M. O'Brien (4) -- -- 105,533 /116,667 $ 264,213 /$185,334
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Edward J. Sindoni (4) -- -- 103,553 /116,667 $ 128,413 /$185,334
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Jonathan W. Painter -- -- 114,348 / 50,000 $ 446,866 /$110,550
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Edwin D. Healy -- -- 59,533 / 26,667 $ 138,960 /$ 58,934
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(1) The amounts shown in this table represent the difference between the
option exercise price and the market price on the date of exercise
multiplied by the number of option shares exercised, which is the
amount that would have been realized if the shares had been sold
immediately upon exercise.
(2) The vesting and exercise schedule for options granted in 2001 and after
is 1/3 after the first year, 2/3 after the second year and 100% after
the third year. Options granted prior to 2001 are immediately
exercisable, but can be repurchased by us at the exercise price if the
executive ceases to be an employee. The repurchase rights lapse over
varying periods ranging from one to ten years, depending on the option
term, which may vary from two to twelve years, provided that the
executive continues to be employed during the period. The exercise
price may be paid in cash or by delivery of already-owned shares, and
tax-withholding obligations arising from the exercise may be paid by
surrendering shares, subject to certain conditions.
(3) The value of unexercised stock options is based on the difference
between the exercise price and the closing price of our common stock on
the American Stock Exchange on December 27, 2002, of $15.26.
(4) In January 2002, Mr. O'Brien and Mr. Sindoni each exercised options to
purchase 261 shares of the common stock of Thermo Electron Corporation,
our former parent company, that they had received as part of Thermo
Electron's executive compensation program prior to our spinoff from
Thermo Electron. In connection with the spinoff, our employees were
allowed to exercise their outstanding Thermo Electron options up to
January 31, 2002. Any options not exercised by that date expired.
Defined Benefit Retirement Plan
One of our subsidiaries maintains a defined benefit retirement plan for
eligible U.S. employees, in which all of our named executive officers
participate.
The following table states the estimated annual benefits payable upon
retirement to eligible employees in specified compensation and years-of-service
classifications under the retirement plan. The estimated benefits at certain
compensation levels reflect the statutory limits on compensation that can be
recognized for plan purposes. The limit in 2002 was $200,000 per year.
Average Annual Compensation Years of Service
--------------------------- ------------------------------------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
$100,000 $26,250 $35,000 $43,750 $48,125 $48,125
$125,000 $32,813 $43,750 $54,688 $60,156 $60,156
$150,000 $39,375 $52,500 $65,625 $72,188 $72,188
$175,000 $45,938 $61,250 $76,563 $84,219 $84,219
$200,000 $52,500 $70,000 $87,500 $96,250 $96,250
Each eligible employee receives a monthly retirement benefit, beginning at normal retirement
age (65), based on a percentage (1.75%) of his average monthly compensation before retirement,
multiplied by his years of
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service (up to a maximum of 30 years). Full credit is given for the first 25
years of service, and half credit is given for years over 25 and less than 30.
Benefits are reduced for retirement before normal retirement age. Average
monthly compensation is generally defined as average monthly base salary over
the five consecutive years of highest compensation in the ten-year period
preceding retirement. For 2002, the compensation recognized for plan purposes
was $200,000 for Mr. Rainville, Mr. O'Brien, Mr. Sindoni, Mr. Painter and Mr.
Healy. Assuming retirement at age 65, the estimated credited years of service
recognized under the retirement plan would be 30, 26, 23, 30 and 5 for Mr.
Rainville, Mr. O'Brien, Mr. Sindoni, Mr. Painter and Mr. Healy. Benefits under
the retirement plan are fully vested after five years of participation. The
benefits shown in the table are subject to reduction for Social Security
benefits. The plan benefits shown are payable during the employee's lifetime
unless the employee elects another form of benefit that provides death benefit
protection.
Change in Control Agreements
We have change in control agreements with our officers and key
employees that provide severance pay and continuation of certain welfare
benefits in the event of a change in control and a subsequent loss of employment
within 18 months. A "change in control" is defined in the agreements as:
- the acquisition by any person of 40% or more of our outstanding
common stock or voting securities;
- the failure of our incumbent directors to constitute a
majority of the board of directors, meaning directors who are
members of the board of directors on the date of the agreement
and members who are subsequently nominated or elected by a
majority of the incumbent directors;
- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange, or the sale or
other disposition of all or substantially all of our assets
unless immediately after such transaction (a) the holders of
our common stock immediately prior to the transaction own more
than 60% of the outstanding voting securities of the resulting
or acquiring corporation in substantially the same proportions
as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the
outstanding voting securities of the resulting or acquiring
corporation; or
- approval by our stockholders to completely liquidate or
dissolve our company.
The purpose of these agreements is to retain our management and assure
their continued dedication without distraction by the possibility of a change in
control. The agreements provide for severance payments and the continuation of
certain welfare benefits to an executive whose employment is terminated, either
voluntarily with "good cause," or involuntarily "without cause," during the
18-month period following a change in control.
The amount of severance pay and the length of time welfare benefits
continue is based on the executive's position. Mr. Rainville, our chief
executive officer, would be entitled to severance pay equal to three times his
highest annual salary and annual bonus during the prior five years, and would be
provided benefits for a three-year period, substantially equivalent to the
benefit package he otherwise would have been entitled to receive if his
employment had not been terminated. All of the other named executive officers
would be entitled to severance pay equal to two times their highest annual
salary and annual bonus during the prior five years, and would be provided
benefits for a two-year period, substantially equivalent to the benefit package
they otherwise would have been entitled to receive if their employment had not
been terminated. The agreements also require tax reimbursement payments to
executives to mitigate any excise tax imposed on the executive if payments under
the agreements are deemed to be "excess parachute payments" under the Internal
Revenue Code.
The agreements also provide that upon a change in control all
outstanding options will be fully vested, all resale and repurchase rights will
lapse, and all restrictions on restricted stock will lapse. Each executive also
is entitled to a cash payment to be used toward outplacement services equal to
$25,000 for Mr. Rainville and $20,000 for each of the other named executive
officers.
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COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our executive compensation program is administered by the compensation
committee of our board of directors. The committee consists solely of
independent directors and is responsible for approving all elements of
compensation for our executive officers. The following report was provided by
the committee.
Compensation Philosophy
Our compensation policies are designed to reward and motivate
executives to achieve long-term value for our stockholders by meeting our
business objectives, and to attract and retain dedicated, talented individuals
to accomplish our objectives. We believe that an executive compensation program
designed and administered with a clear and strong link to our business strategy
and long-term goals, and to stockholder returns, will accomplish these
objectives.
In late 2001, following our spinoff from Thermo Electron, we engaged an
outside compensation consultant to assess the competitiveness of our executive
compensation program. We made several changes in 2002 salary and reference
bonuses for our executive officers based on the recommendations of our
compensation consultant. These changes were made to ensure that our executive
compensation packages were competitive and to reflect the additional
responsibilities of our management team as a consequence of our status as an
independent public company. We also granted significant awards of stock options
in late 2001 and 2002 to accomplish our objective of providing competitive
long-term incentive compensation to our management team.
Components of Executive Compensation
Our executive compensation program consists of the following elements:
- base salary
- annual cash incentive compensation or bonus
- long-term incentives, primarily in the form of stock options or
restricted stock
We review and determine the components of executive compensation for
the executive officers as described below.
Base Salary. Base salary is annual cash compensation and is determined
by the executive's job responsibilities and competitive market factors,
including general or regional economic conditions and cost of living changes.
Base salary is reviewed and adjusted annually based on a salary range, which
reflects competitive salaries for executives with similar responsibilities.
Bonus. The annual incentive component of executive compensation links
pay to objective financial measures and achievement of subjective goals that we
believe enhance stockholder value. At the beginning of each year, we determine a
reference bonus for each executive based on a competitive range, which reflects
the executive's job responsibilities and competitive market conditions. At
year-end, we determine the actual bonus to be paid to the executive based on our
company's overall performance and the performance of the businesses reporting to
the executive, as well our assessment of the achievement of stated subjective
goals, which vary for each executive. In 2002, we measured our company's
performance on growth in earnings per share and return on stockholders' equity,
and individual businesses were measured on growth in their operating income and
return on net assets. There are no targeted, minimum or maximum levels of annual
incentive compensation.
Long-Term Incentive Compensation. We use stock-based compensation in
the form of stock options or restricted stock to link long-term executive
compensation to long-term increases in stockholder value. Our determination of
the number of stock options to be granted or restricted stock to be awarded is
based on competitive practices and the executive's level of responsibility. We
give consideration to the number of stock options or shares of restricted stock
previously granted to an executive in considering the appropriate size of an
award.
In late 2001, we reviewed the total participation of our executives in
our long-term incentive compensation program with an outside compensation
consultant. We had not regularly granted stock options to our employees in the
past several years and we determined that our long-term incentive compensation
program was no longer competitive and was not achieving the objectives we
desired. Based on these findings, we adopted a plan that provided for
significant awards of stock options in late 2001 and early 2002.
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2002 CEO Compensation
We used the same compensation philosophy and guidelines discussed above
to determine Mr. Rainville's 2002 compensation. In late 2001, we engaged an
outside compensation consultant to assess the competitiveness of our executive
compensation program. As part of its engagement, the consultant surveyed the
total compensation for chief executive officers of companies we considered our
peers in the industries we serve and other market surveys for companies
comparable to our size to determine a total compensation package for Mr.
Rainville. The increase in Mr. Rainville's 2002 salary reflects the
recommendations of our compensation consultant, taking into account Mr.
Rainville's increased responsibilities as the chief executive officer of an
independent public company after our spinoff from Thermo Electron and other
competitive considerations. In addition, we also increased Mr. Rainville's
reference bonus to reflect competitive considerations. We used the same process
to determine Mr. Rainville's 2002 bonus as we used for other executive officers,
as explained above, and we assessed Mr. Rainville's achievement of subjective
factors, including his leadership in establishing and implementing strategic and
operational goals in response to the difficult business environment in the pulp
and paper industry, as well as his guidance in advancing the business objectives
of our composite building products business.
The total compensation package for Mr. Rainville recommended by our
outside compensation consultant also included recommendations for equity
participation, and we concluded that Mr. Rainville's existing equity
participation in the company in the form of stock options was not competitive.
We established a goal of granting Mr. Rainville stock options equal to
approximately 4% of our outstanding shares, or 500,000 shares, within the
following year. We met this goal through a combination of awards in December
2001, January 2002 and May 2002.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction
available to public companies for annual compensation paid to certain executive
officers in excess of $1 million, unless the compensation qualifies as
"performance-based" or is otherwise exempt from Section 162(m). We consider the
potential effect of Section 162(m) in designing our executive compensation
program, but we reserve the right to use our independent judgment to approve
nondeductible compensation, while taking into account the financial effects such
action may have on our company. From time to time, we re-examine our executive
compensation practices and the effect of Section 162(m).
Dr. John M. Albertine (chairman)
Mr. Francis L. McKone
AUDIT COMMITTEE REPORT
The role of the audit committee is to assist the board of directors in
its oversight of the company's financial reporting process, as stated in the
charter of the committee.
Management is responsible for the preparation, presentation and
integrity of the company's financial statements, its accounting and financial
reporting principles, and its internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The company's independent auditors are responsible for auditing the company's
financial statements and expressing an opinion as to their conformity with
generally accepted accounting principles.
In the performance of our oversight function, we have reviewed and
discussed the audited financial statements of the company for the fiscal year
ended December 28, 2002, with management and our independent auditors, Ernst &
Young LLP. We also discussed with Ernst & Young LLP the reasonableness of
significant judgments and the clarity of disclosures in the financial
statements, the quality, not just the acceptability, of the company's accounting
principles and such other matters as are required to be discussed with the
committee under generally accepted auditing standards, including the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. We have received
from Ernst & Young LLP the letter and other written disclosures required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as currently in effect, and have discussed with Ernst & Young LLP
their independence. We have also considered whether the provision of other
non-audit services by Ernst & Young LLP is compatible with maintaining their
independence.
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In reliance upon the review and discussions described in this report,
we recommended to the board of directors that the audited financial statements
be included in the company's annual report on Form 10-K for the year ended
December 28, 2002, for filing with the U.S. Securities and Exchange Commission.
Mr. Francis L. McKone (chairman)
Dr. John M. Albertine
Dr. John K. Allen
COMPARATIVE PERFORMANCE GRAPH
The following line graph compares the cumulative, five-year total
stockholder return assuming an investment of $100 (and the reinvestment of any
dividends) in our common stock, the Standard & Poor's 500 Stock Index, and the
Dow Jones U.S. Paper Products Index. We are replacing the American Stock
Exchange Composite Index with the Standard & Poor's 500 Stock Index as our broad
equity market index this year as we believe it is a more comprehensive index of
comparable equity securities. Our common stock trades on the American Stock
Exchange under the ticker symbol "KAI."
Comparison of Total Returns Among Kadant Inc.,
the Standard & Poor's 500 Stock Index,
the American Stock Exchange Composite Index and
the Dow Jones U.S. Paper Products Index
from January 2, 1998 to December 27, 2002.
[CHART]
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1/2/98 12/31/98 12/31/99 12/29/00 12/28/01 12/27/02
------------------------------------------------------------------------------------------------------------------
Kadant Inc. 100 58 58 28 24 25
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S&P 500 Index 100 129 156 141 125 97
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Amex Composite Index 100 107 142 131 122 100
------------------------------------------------------------------------------------------------------------------
Dow Jones US Paper Products 100 100 129 118 118 103
------------------------------------------------------------------------------------------------------------------
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The compensation committee of our board of directors terminated our
stock holding assistance plan effective January 2, 2002, and forgave the
outstanding balances of loans to our executive officers under the plan. This
plan, which was adopted in 1996, was originally intended to assist executive
officers in acquiring and holding a minimum number of shares of our common stock
by providing them with interest-free loans to purchase our shares. Two of our
executive officers were extended loans under this program. Mr. William A.
Rainville received a loan under this program in 1996 in the principal amount of
$118,104 to purchase 2,000 shares, of which he had repaid $68,983 by the end of
December 2001. The balance of $49,121 remaining outstanding at the end of 2001
was forgiven effective January 2, 2002. The largest amount of net indebtedness
owed to us by Mr. Rainville under this loan since December 30, 2001 (the
beginning of our last fiscal year), was $49,121. Mr. Jonathan W. Painter
received a loan under this program in 1997 in the principal amount of $157,304
to purchase 2,600 shares, of which he had repaid $43,226 by the end of December
2001. The balance of $114,078 remaining outstanding at the end of 2001 was
forgiven effective January 2, 2002. The largest amount of net indebtedness owed
to us by Mr. Painter under this loan since December 30, 2001, was $114,078. In
connection with the forgiveness of the outstanding balance of the loans on
January 2, 2002, our compensation committee also authorized tax reimbursement
payments of $40,762 to Mr. Rainville and $94,665 to Mr. Painter to mitigate
federal and state income taxes arising from the forgiveness of the loans.
INDEPENDENT AUDITORS
The board of directors has retained Ernst & Young LLP as our
independent auditors for the current fiscal year and the fiscal year ended
December 28, 2002. Representatives of Ernst & Young LLP are expected to be
present at the meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
Fees of Independent Auditors
The aggregate fees for professional services rendered by Ernst & Young
LLP during 2002 are as follows.
Audit Fees. Ernst & Young LLP billed us an aggregate of $345,000 in
2002 for the audit of our 2002 financial statements, the review of our financial
statements included in our quarterly reports on Form 10-Q, and other services in
connection with statutory and regulatory filings and engagements.
Audit-Related Fees. We were not billed by Ernst & Young LLP in 2002 for
any other professional services for assurance and related services reasonably
related to the performance of the audit or the review of our financial
statements.
Tax Fees. Ernst & Young LLP billed us an aggregate of $189,000 for tax
services relating to consultation and compliance.
All Other Fees. There were no other fees billed to us by Ernst &
Young LLP during 2002.
Disclosure Relating to Former Independent Public Accountant
On June 19, 2002, we dismissed our former independent public
accountant, Arthur Andersen LLP, and engaged Ernst & Young LLP, as reported in
our current report on Form 8-K filed with the U.S. Securities and Exchange
Commission on June 20, 2002. The decision to change auditors was approved by the
audit committee of our board of directors and ratified by our board of
directors.
The reports of Arthur Andersen on the company's consolidated financial
statements for the fiscal years ended December 29, 2001 and December 30, 2000,
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
In addition, during the fiscal years ended December 29, 2001 and
December 20, 2000, and the subsequent interim period preceding the date of the
dismissal of Arthur Andersen, there were no disagreements between the company
and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Arthur Andersen, would have
caused it to make reference to the subject matter of the disagreement in
connection with its reports on the company's
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consolidated financial statements, and there were no reportable events
within the meaning of Item 304(a)(1)(v) of Regulation S-K under the Securities
Exchange Act of 1934.
The company did not consult with Ernst & Young LLP during the fiscal
years ended December 29, 2001 and December 30, 2000, and the subsequent interim
period preceding the firm's engagement, regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the company's
consolidated financial statements, or any other matters or reportable events
listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.
OTHER ACTION
We are not aware at this time of any other matters that will be
presented for action at the meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of the proxy holders.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be included in the proxy statement
and form of proxy relating to our 2004 annual meeting of stockholders and to be
presented at that meeting must be received by us for inclusion in the proxy
statement and form of proxy no later than December 12, 2003. In addition, our
by-laws contain an advance notice provision that requires stockholders who
desire to bring proposals before an annual meeting (which proposals are not to
be included in our proxy statement and are submitted outside the processes of
Rule 14a-8 of the Securities Exchange Act of 1934) to comply with the advance
notice provision. The advance notice provision requires that stockholders give
timely written notice of their proposal to our secretary. To be timely, notices
must be delivered to our secretary at our principal executive office not less
than 60 nor more than 75 days before the first anniversary of the date the
company mailed its proxy materials the prior year. Accordingly, a stockholder
who intends to present a proposal at the 2004 annual meeting of stockholders
must provide written notice of the proposal to the secretary after January 26,
2004 and before February 10, 2004. Proposals received at any other time will not
be voted on at the meeting. Stockholders who wish to nominate director
candidates for the stockholders to consider must include in the notice the
additional information specified in our by-laws, including, among other things,
the candidate's name, biographical data and qualifications. If a stockholder
makes a timely notification, the proxies that we solicit for the meeting may
still exercise discretionary voting authority on the proposal, consistent with
the proxy rules of the U.S. Securities and Exchange Commission.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the company.
Solicitation will be made primarily by mail, but our regular employees may
solicit proxies personally or by telephone, facsimile transmission or telegram.
Brokers, nominees, custodians and fiduciaries are requested to forward
solicitation materials to obtain voting instructions from beneficial owners of
shares registered in their names, and we will reimburse such parties for their
reasonable charges and expenses.
Acton, Massachusetts
April 7, 2003
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FORM OF PROXY
KADANT INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 15, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints William A. Rainville, Thomas M. O'Brien and
Jonathan W. Painter, or any one of them in the absence of the others, as
attorneys and proxies of the undersigned, with full power of substitution, for
and in the name of the undersigned, to represent the undersigned at the Annual
Meeting of the Stockholders of Kadant Inc., a Delaware corporation (the
"Company"), to be held on Thursday, May 15, 2003 at 2:30 p.m. at the Boston
Marriott Burlington, One Mall Road, Burlington, Massachusetts, and at any
adjournment or postponement thereof, and to vote all shares of common stock of
the Company standing in the name of the undersigned on April 2, 2003, with all
of the powers the undersigned would possess if personally present at such
meeting:
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
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ANNUAL MEETING OF STOCKHOLDERS OF
KADANT INC.
May 15, 2003
Please date, sign and mail your proxy card in the enveloped provided as soon as
possible.
Please detach and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. [ x ]
1. Election of two directors to the class to be elected for a three-year term
expiring in 2006.
Nominees: John K. Allen
Francis L. McKone
[ ] FOR ALL NOMINEES
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
-----------
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
2. In their discretion on such other matters as may properly come before the
Meeting.
The shares represented by this Proxy will be voted "FOR" the proposals set forth
above if no instruction to the contrary is indicated or if no instruction is
given.
Copies of the Notice of Meeting and of the Proxy Statement have been received by
the undersigned.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
Signature of Stockholder_________________________________ DATE________________
Note: This proxy must be signed exactly as the name appears hereon. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.
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