KADANT DEF 14A 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
(Name of the Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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One Technology Park Drive
Westford, MA 01886
April 9, 2008
I am pleased to invite you to attend the 2008 annual meeting of stockholders of Kadant Inc. The meeting will be held on Thursday, May 22, 2008, at 2:30 p.m. at the Boston Marriott Burlington located at One Mall Road, 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 2007 annual report to stockholders, which contains information about our businesses and our 2007 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, you can ensure your shares of our common stock are voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by returning the enclosed proxy card. Please review the instructions in the enclosed proxy statement and proxy card regarding each of these voting options.
Thank you for your support and continued interest in Kadant.
One Technology Park Drive
Westford, MA 01886
April 9, 2008
To Stockholders of
NOTICE OF ANNUAL MEETING
The 2008 annual meeting of stockholders of Kadant Inc. will be held on Thursday, May 22, 2008, 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:
The record date for the determination of the stockholders entitled to receive notice of and to vote at the meeting is April 3, 2008. Our stock transfer books will remain open.
Our bylaws 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 ensure that your shares of our common stock are present and voted at the meeting by submitting your instructions by telephone, the Internet, or in writing by completing, signing, dating and returning the enclosed proxy card to our transfer agent in the enclosed, self-addressed 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 our board of directors.
SANDRA L. LAMBERT
Vice President, General Counsel and Secretary
TABLE OF CONTENTS
We are furnishing this proxy statement in connection with the solicitation of proxies by the board of directors of Kadant Inc. for use at our 2008 annual meeting of stockholders to be held on Thursday, May 22, 2008, 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 Technology Park Drive, Westford, Massachusetts 01886. The notice of annual meeting, this proxy statement and the enclosed proxy are being first furnished to our stockholders on or about April 11, 2008.
Purpose of Annual Meeting
Stockholders entitled to vote at the 2008 annual meeting will consider and act upon the matters outlined in the notice of meeting accompanying this proxy statement, including the election of two individuals constituting the class of directors to be elected for a three-year term expiring in 2011 and the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the 2008 fiscal year.
Voting Securities and Record Date
Only stockholders of record at the close of business on April 3, 2008, are entitled to vote at the meeting or any adjournment of the meeting. Each share is entitled to one vote. Our outstanding capital stock entitled to vote at the meeting (which excludes shares held in our treasury) as of April 3, 2008, consisted of 14,010,514 shares of our common stock.
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 broker non-votes and shares that abstain, withhold votes 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. A broker non-vote occurs when a broker or representative does not vote on a particular matter because it either does not have discretionary voting authority on that matter or it does not exercise its discretionary voting authority on that matter.
Manner of Voting
Each share of common stock you hold is entitled to one vote for or against a proposal. Shares entitled to be voted at the meeting can only be voted if the stockholder of record of such shares is present at the meeting, returns a signed proxy card, or authorizes proxies to vote his or her shares by telephone or over the Internet. Shares represented by valid proxy will be voted in accordance with your instructions. If you choose to vote your shares by telephone or over the Internet, you may do so until 11:59 p.m. Eastern time on Wednesday, May 21, 2008, by following the instructions on the proxy card.
You may revoke your proxy at any time before the shares are voted at the meeting by entering new voting instructions by telephone or over the Internet before 11:59 p.m. Eastern time on Wednesday, May 21, 2008, by written notice received by our corporate secretary before the meeting, by executing and returning a new proxy bearing a later date or by voting by ballot at the meeting. Attendance at the meeting without voting will not revoke a previously submitted proxy.
You may specify your choices 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 listed nominees for director, for
ratification of the selection of our independent registered public accounting firm and as the individuals named as proxy holders on the proxy deem advisable on all other matters that may properly come before the meeting.
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. Your broker or other representative will generally provide detailed voting instructions with your proxy material. These instructions may include information on whether your shares can be voted by telephone or over the Internet and the manner in which you may revoke your votes.
Vote Required for Approval
The election of directors is determined by a plurality of the votes cast in person or by proxy by the stockholders entitled to vote on the election of directors. An instruction to withhold authority to vote for a nominee for director and broker non-votes will have no effect upon the outcome of the vote on the election of directors.
Approval of the proposal to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm is determined by a majority of the votes cast by the holders of the shares present or represented by proxy and voting on such matter. Under our bylaws, abstentions and broker non-votes will have no effect on the determination of whether stockholders have approved the proposal.
Multiple Stockholders per Household
When more than one stockholder share the same address, we will 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 Technology Park Drive, Westford, Massachusetts 01886 (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.
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.
Our board of directors has nominated Dr. John M. Albertine and Mr. Thomas C. Leonard for election as directors for the three-year term expiring in 2011. Both nominees are currently members of our board of directors. If either nominee becomes unavailable, the proxy holders may vote the proxy for the election of a substitute nominee to be designated by our board of directors. We do not expect that either nominee will be unable to serve. Directors serve until the expiration of their terms, until their successors have been elected and qualified or until their earlier resignation, death or removal.
Our board of directors believes that the election of Dr. Albertine and Mr. Leonard as directors is in the best interests of our company and our stockholders and recommends a vote FOR their election.
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. Information regarding the compensation of our directors is provided in this proxy statement under the heading Director Compensation.
Nominees for Director for the Three-Year Term That Will Expire in 2011
Our directors listed below are not up for election this year and will continue in office for the remainder of their terms or earlier in accordance with our bylaws.
Directors Whose Term Will Expire in 2009
Director Whose Term Will Expire in 2010
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our board of directors has selected Ernst & Young LLP as the companys independent registered public accounting firm for the 2008 fiscal year. Ernst & Young LLP has served as the companys independent registered public accounting firm since 2002. Although we are not required to seek stockholder ratification of this selection, our board of directors decided to provide our stockholders with the opportunity to do so. If this proposal is not approved by our stockholders at the 2008 annual meeting, our audit committee will reconsider the selection of Ernst & Young LLP. Even if the selection of Ernst & Young LLP is ratified, our audit committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of our company and stockholders.
Representatives of Ernst & Young LLP are expected to be present at the 2008 annual meeting of stockholders. They will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from stockholders.
Our board of directors believes that the ratification of the selection of Ernst & Young LLP as our companys independent registered public accounting firm for the 2008 fiscal year is in the best interests of our company and stockholders and recommends you vote FOR ratification. Proxies solicited by our board of directors will be voted FOR the proposal unless stockholders otherwise specify to the contrary on their proxy.
Our board of directors believes that good corporate governance is important to ensure that our company is managed for the long-term benefit of stockholders. Current copies of our corporate governance guidelines, code of business conduct and ethics, and charters for our audit, compensation and nominating and corporate governance committees are available on our web site, www.kadant.com, in the Investors section under the caption Corporate Governance, and also may be obtained by any stockholder free of charge by writing to us at our principal executive office located at One Technology Park Drive, Westford, Massachusetts 01886.
Our board of directors has determined that each of our non-employee directors, Dr. Albertine, Dr. Allen, Mr. Leonard and Mr. McKone, qualifies as an independent director, as defined in the listing requirements of The New York Stock Exchange (NYSE), on which our common stock is listed. Its findings included an affirmative determination that none of our non-employee directors has a material relationship with our company. Our board of directors has established guidelines to assist it in determining whether a director has a material relationship with our company. Under these guidelines, a director is not considered to have a material relationship with our company if (1) the director is independent, as defined in the NYSE corporate governance rules, and (2) the director:
In addition, ownership of a significant amount of our companys stock, by itself, does not constitute a material relationship.
For relationships not covered by these guidelines, the determination of whether a material relationship exists is made by the other members of our board of directors who are independent.
Committees of our Board of Directors
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter that has been approved by our board of directors. Current copies of the committee charters are posted on our web site, as described above.
Our board of directors has determined that the members of each committee also meet the independence guidelines applicable to each committee set forth in the listing requirements of the NYSE.
The audit committee is responsible for the selection of our companys independent registered public accounting firm and assists our board of directors in its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firms performance, qualifications and independence, and the performance of our internal audit function. The committee meets regularly with management and our independent registered public accounting firm to discuss the annual audit of our financial statements, the quarterly reviews of our financial statements and our quarterly and annual earnings disclosures. The current members of the audit committee are Mr. Leonard (chairman), Dr. Albertine, Dr. Allen and Mr. McKone, and their committee report is included in this proxy statement under the heading Audit Committee Report. Mr. Leonard has been designated by our board of directors as its audit committee financial expert (as defined in Item 401(h) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the Exchange Act)).
The compensation committee reviews the performance and determines the compensation of the chief executive officer and other officers of our company, administers employee compensation, incentive compensation and incentive programs and policies, and reviews and assesses management succession planning. The current members of the compensation committee are Dr. Albertine (chairman), Mr. Leonard and Mr. McKone.
The nominating and corporate governance committee identifies and recommends to our board of directors qualified candidates for nomination as directors, develops and monitors our companys corporate governance principles and evaluates our boards performance. The current members of the nominating and corporate governance committee are Dr. Allen (chairman), Dr. Albertine and Mr. McKone.
Attendance at Meetings
In 2007, our board of directors met five times, the audit committee met seven times, the compensation committee met twice, and the nominating and corporate governance committee met twice. Each director attended over 75% of all meetings of our board of directors and committees on which he served that were held during 2007.
Our directors are encouraged to attend the annual meeting of stockholders, to the extent practicable. All of our directors attended the 2007 annual meeting of stockholders.
Executive Sessions and Presiding Director
Our non-employee and independent directors meet at regularly scheduled executive sessions without management. The presiding director at these sessions is rotated among the chairmen of the committees of our board of directors.
Nomination of Directors
The nominating and corporate governance committee of our board of directors identifies and evaluates director candidates and recommends to our board of directors qualified candidates for nomination as directors for election at the companys annual meeting of stockholders or to fill vacancies on our board of directors. The process followed by the committee in fulfilling its responsibilities includes requests to board members and others for recommendations, meetings to evaluate biographical information, experience and other background material relating to potential candidates, and interviews of selected candidates.
In considering candidates, the committee applies the criteria for selection of directors adopted by our board of directors, which is set forth as an appendix to our companys corporate governance guidelines. The committee assesses, in its judgment, the criteria possessed by the candidate, which include: integrity; business acumen, experience and judgment; knowledge of the companys business and industry; ability to understand the interests of various constituencies of the company and to act in the interests of all stockholders; potential conflicts of interest; and contribution to diversity on our board of directors. The committee believes that the backgrounds and qualifications of our companys directors, considered as a group, should provide a significant breadth of experience, knowledge and abilities to assist our board of directors in fulfilling its responsibilities.
After completing its evaluation, the nominating and corporate governance committee makes a recommendation to our board of directors as to the persons who should be nominated for election to our board of directors, and our board of directors determines the nominees after considering the recommendation and report of the committee.
The nominating and corporate governance committee will consider candidates recommended by individual stockholders, if their names and credentials are provided to the committee on a timely basis for consideration prior to the annual meeting. Stockholders who wish to recommend an individual to the nominating and corporate governance committee for consideration as a potential candidate for director should submit the name, together with appropriate supporting documentation, to the committee at the following address: nominating and corporate governance committee, c/o corporate secretary, Kadant Inc., One Technology Park Drive, Westford, Massachusetts 01886. A submission will be considered timely if it is made during the timeframes disclosed in this proxy statement under Stockholder Proposals. The submission must be accompanied by a statement as to whether the stockholder or group of stockholders making the recommendation has owned more than 5% of our common stock for at least a year prior to the date the recommendation is made. Submissions meeting these requirements will be considered by the committee using the same process and applying substantially the same criteria as followed for candidates submitted by others. If our board of directors determines to nominate and recommend for election a stockholder-recommended candidate, then the candidates name will be included in our companys proxy card for the next annual meeting of stockholders.
Stockholders also have the right under our companys bylaws to directly nominate candidates for director, without any action or recommendation on the part of the nominating and corporate governance committee or our board of directors, by following the procedures described in this proxy statement under Stockholder Proposals. Candidates nominated by stockholders in accordance with these bylaw procedures will not be included in the companys proxy card for the next annual meeting of stockholders.
Communications with Directors
Stockholders and other interested parties who wish to send written communications on any topic to our board of directors, or the presiding director of executive sessions of the non-employee and independent directors, may do so by addressing such communications to our board of directors, c/o corporate secretary, Kadant Inc., One Technology Park Drive, Westford, Massachusetts 01886. The independent members of our board of directors have approved a process directing the corporate secretary to monitor communications and to forward certain communications to our board of directors and other matters relating to ordinary business affairs to management for response, if any.
Code of Business Conduct and Ethics
Our companys code of business conduct and ethics is applicable to all our employees, officers and directors. A current copy of our code of business conduct and ethics is posted on our web site, www.kadant.com, as described above. We intend to disclose any amendments to, or waivers from, our code of business conduct and ethics on our web site at that location.
Compensation Committee Interlocks and Insider Participation
Our compensation committee is comprised solely of independent directors, and none of our officers, former officers or employees serve on the committee. During fiscal 2007, none of our executive officers served as a member of the board of directors or compensation committee of any other company.
Certain Relationships and Related Party Transactions
We review relationships and transactions between our company and our directors, executive officers or their immediate family members to determine whether these individuals have a direct or indirect material interest in a transaction, based on the facts and circumstances. Such transactions are referred to the disinterested members of the audit committee of our board of directors to review and approve or ratify the transaction. Directors and executive officers are canvassed in writing to determine whether such related person transactions exist or are under consideration, and are required under our code of business conduct and ethics to disclose to us potential conflicts of interest with our company.
SEC rules require us to disclose certain relationships and related party transactions our company enters into with our directors, executive officers, owners of more than 5% of the outstanding shares of our common stock, or members of their immediate families. Our company has not entered into any such disclosable relationships or transactions.
The following table sets forth the beneficial ownership of shares of our common stock as of March 1, 2008, with respect to:
Unless otherwise indicated, the address of any person or entity listed is c/o Kadant Inc., One Technology Park Drive, Westford, Massachusetts 01886.
* Less than 1%
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our common stock to file with the SEC 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 2007 on a timely basis, except as follows. The Forms 4 reporting the award of performance-based restricted stock units to our executive officers on May 24, 2007 (Mr. William A. Rainville, Mr. Thomas M. OBrien, Mr. Edward J. Sindoni, Mr. Eric T. Langevin and Mr. Jonathan W. Painter) were filed late.
Executive Compensation Objectives
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. We believe that an executive compensation program, designed and administered with a clear and strong link to our business strategy, long-term goals, and value creation for our stockholders, will accomplish these objectives.
The compensation committee of our board of directors has primary responsibility for developing and evaluating the executive compensation for the named executive officers of our company included in the Summary Compensation Table below under Executive Compensation. In making compensation decisions, our compensation committee reviews the companys performance and evaluates each executives performance during the year, taking into consideration performance goals, leadership qualities, scope of responsibilities, career experience and long-term potential.
Our compensation committee uses its judgment in making compensation decisions. It also has engaged Towers Perrin as its compensation consultant to assess the competitiveness and design of our executive compensation program and to advise the committee on the appropriate range of compensation for our named executive officers. Towers Perrin provides annual market data and other specific information on executive compensation and periodically meets with our compensation committee and management to discuss specific compensation data and compensation trends. To ensure that compensation levels are reasonably competitive with market rates, our compensation consultant conducts an annual competitive compensation review. For the review,
market data is extracted from (1) published executive compensation surveys from its own and other proprietary databases and (2) annual proxy filings from peer group companies. The companies we survey include paper and forest product companies and diversified technology companies principally based in New England with whom we could potentially compete for executive talent. In 2007, our peer group was comprised of the following companies:
Although we used substantially the same peer group in our 2008 competitive compensation review, we did reflect some changes in the composition of our peer companies to reflect mergers or other extraordinary corporate events (such as bankruptcy filings) or to add other comparable companies. In 2008, we excluded Bowater Inc., Pope & Talbot Inc., Stora Enso OY J, UPM-Kymmene Corporation from our peer group and added Dover Corporation.
Our compensation committee is responsible for evaluating the performance of our chief executive officer and determining his compensation in light of the goals and objectives of our compensation program. It also oversees the design, development and implementation of the executive compensation program for all executive officers. Our compensation committee assesses the performance of our other named executive officers and determines their compensation, based on initial recommendations from the chief executive officer. The other named executive officers do not play a role in their own compensation determinations, and our compensation committee delegates to the chief executive officer the responsibility to communicate its compensation decisions and assessment of performance to the other named executive officers.
Components of Executive Compensation
Our compensation program meets our executive compensation objectives by using the following pay and benefit elements:
The combination of these elements reward performance, through an assessment of individual performance and company financial measures, align the interests of management with our stockholders, and assist in the retention of our executives. The majority of the compensation for our named executive officers is in the form of performance-based pay, consisting of the cash incentive and equity incentive compensation elements of our compensation program.
Annual Cash Compensation
Base Salary. Base salaries are determined by considering the executives job responsibilities and competitive compensation rates for executives with similar roles in the marketplace. Base salaries are reviewed and adjusted annually based on a variety of factors, including general or regional economic conditions, cost of living changes, executive performance and changes in market rates of pay for comparable executives. We target our base salaries, on average, at the 50th percentile based on the companies in our survey results. Specific executive salaries may be higher or lower than the 50th percentile, based on performance, experience, skills and responsibilities.
Cash Incentive Compensation. Cash incentive compensation is paid annually and, beginning with the 2007 fiscal year, determined based on the achievement of pre-determined performance measures under our cash incentive plan adopted and approved by our stockholders in 2007. Each year, our compensation committee selects the executives who will receive an award under the plan, determines the performance period applicable to the award and establishes the performance goals applicable to the awards. In February 2007, our compensation committee made awards to the named executive officers and established the 2007 fiscal year as the applicable performance period. For 2007, the corporate financial measures established by our compensation committee related to performance of our continuing operations and were (i) growth in earnings per share as compared to the average earnings per share for the prior two fiscal years and (ii) average return on shareholders equity. Certain named executive officers are also measured on the performance of the businesses they supervise. In 2007, the financial measures used for these businesses were based on (i) operating income growth relative to net operating assets and (ii) return on net assets. We adjust these measures for certain non-recurring items, restructuring charges, gains or losses on dispositions of operations, results of discontinued operations, effects or changes in or adoption of accounting principles, and write-downs of assets or asset impairment, to reflect the performance of our continuing operations. In addition, our compensation committee annually determines a reference bonus (i.e., target bonus) for each executive based on a competitive range, which reflects the executives job responsibilities, length of service and competitive market conditions. Base salary and reference bonus together are meant to approximate a range between the 50th to 75th percentile of competitive compensation for executives with similar responsibilities and experience, based on our survey results.
At the end of the performance period, the actual performance is then measured against a scale of performance that yields a bonus factor of up to four, in the case of earnings per share growth of up to 30%, and up to two, in the case of return on shareholders equity up to 16%. Measurement of our corporate financial performance for 2007 yielded earnings per share growth of 71% and a bonus factor of 4, and return on shareholders equity of 9.6% and a bonus factor of 1.4. The weighting of the corporate financial measures for 2007 was one-third earnings per share growth and two-thirds return on shareholders investment for Mr. Rainville, Mr. OBrien and Mr. Sindoni, and resulted in a weighted bonus factor of 2.27. Mr. Painter and Mr. Langevin were also measured on the performance of the business sectors they supervise, and these performance measures yielded bonus factors of 1.85 and 2.26, respectively. In determining the final bonuses of Mr. Painter and Mr. Langevin, business sector performance measures were weighted 60% and corporate financial measures were weighted 40%, and resulted in a weighted bonus factor of 2.02 and 2.26, respectively. Historically, our compensation committee weighted the objective bonus factors 75% and subjective bonus factors 25%, based on a subjective assessment of each executives performance, which would have yielded comparable weighted bonus factors in 2007. In February 2008, our compensation committee determined to pay cash incentives based on applying the weighted objective bonus factors to the reference bonus for each executive.
In March 2008, our compensation committee made awards under our cash incentive plan to the named executive officers and established the 2008 fiscal year as the applicable performance period. For 2008, the corporate financial measures established by our compensation committee relate to our continuing operations and are (i) growth in earnings per share as compared to the average earnings per share for the prior two fiscal years and (ii) average return on shareholders equity. Mr. Painter and Mr. Langevin also are to be measured on the performance of the businesses they supervise and the additional financial measures applicable to their awards are
based on (i) operating income growth relative to net operating assets and (ii) return on net assets for those businesses.
Equity Incentive Compensation
In May 2007, our compensation committee awarded performance-based restricted stock units (RSUs) to the named executive officers under our 2006 equity incentive plan. Each RSU represents the right to receive one share of our common stock when vested. The RSU awards vest in their entirety on the last day of our 2009 fiscal year provided the executive remains employed with our company. Our compensation committee established as the performance-based element of the RSU earnings before interest, taxes, depreciation and amortization (EBITDA) generated from our continuing operations for the nine-month period ended December 29, 2007. The target EBITDA established by our compensation committee for the performance period was $32.4 million. The number of target RSUs awarded to each executive was determined by estimating the value of the long-term incentive (using an expected value method) which was targeted to the 50th percentile of market compensation for long-term equity incentives for executives in comparable positions based on our survey data, and then adjusted to reflect the committees assessment of individual performance, value to the organization, and similar factors. In addition, our compensation committee approved a one-time 30% premium to the value of the target RSUs awarded in 2007 to reflect the fact that our executives had not been awarded equity incentive compensation for several years. The RSUs provided for an adjustment in the number of shares deliverable of between 0% and 150% of the target RSU award based on actual EBITDA from continuing operations for the measurement period. If actual EBITDA was below 80% of the target EBITDA, no shares were earned and the RSU would be forfeited. If actual EBITDA was between 80% and 125% of the EBITDA target, the number of shares deliverable upon vesting varied between 50% and 150% of the target RSU amount. In February 2008, our compensation committee determined that the actual EBITDA from continuing operations for the measurement period was $37.1 million and equaled 114% of the EBITDA target, resulting in an adjustment to the target RSUs by 129% in each case, which is reported below in the table Executive CompensationGrants of Plan-Based Awards in Fiscal 2007.
Our compensation committee intends to consider a performance-based RSU award for the named executive officers each year, as part of our compensation program. In March 2008, our compensation committee awarded performance-based RSUs to our named executive officers that will vest in their entirety on the last day of our 2010 fiscal year, provided that the executive remains employed with our company and the performance measures applicable to the award are met. Our compensation committee established as the performance period our 2008 fiscal year and a target EBITDA from continuing operations for the performance period, which it considers reasonably aggressive. The RSUs provide for an adjustment in the number of shares deliverable of between 0% and 150% of the target RSU award based on actual EBITDA from continuing operations for the measurement period. If actual EBITDA is below 80% of the target EBITDA, no shares will be earned and the RSU will be forfeited in its entirety. If actual EBITDA is between 80% and 115% of the EBITDA target, the number of shares deliverable upon vesting will vary between 50% and 150% of the target RSU amount.
Other Elements of Compensation
Retirement and 401(k) Plans. We offer 401(k) plans to our employees based in the United States, including our named executive officers. These plans vary by subsidiary, but in general provide for a company matching contribution based on the amount the employee voluntarily contributes, up to a maximum amount. In addition, our named executive officers are all participants in a defined benefit retirement plan, which is described in Executive Compensation Pension Benefits in Fiscal 2007. This plan was closed to new participants at the end of fiscal 2005, as we shifted our focus to providing defined contribution benefit plans to employees.
All our named executive officers are employees-at-will and can retire at any time. Executives who retire early (before the normal retirement age of 65 under our retirement plans) will receive reduced benefits. We do not offer extra years of credited service to participants in retirement plans, except under our change in control agreements with our named executive officers, and we do not have a supplemental executive retirement plan.
Health and Welfare Benefits. We offer health and welfare benefits to all salaried employees. These benefits include medical benefits, dental benefits, life insurance, short- and long-term disability plans, accidental death and dismemberment insurance, travel insurance, dependent care and flexible spending accounts and other similar benefits. The cost of these programs is not included in our Summary Compensation Table below for the named executive officers (except as noted) because they are offered to employees generally. We do not provide post-retirement health coverage to our named executive officers.
Change in Control Agreements. We have change in control arrangements that provide severance benefits to our named executive officers if their employment terminates within 24 months after a change in control (known as a double trigger). We believe that such agreements help retain key management in times of transition and enable them to focus on the business and the best interests of stockholders without undue concern for the security of their jobs. These agreements are described below under Executive Compensation Potential Payments Upon Termination or Change in Control.
No Employment and Severance Agreements. In general, we do not enter into employment or severance agreements with our named executive officers, and none of our current named executive officers have such agreements other than change in control agreements.
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 the chief executive officer and other named 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 programs, 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).
Stock Ownership Guidelines
We do not require our named executive officers to hold a minimum number of our shares in the aggregate, as we believe our named executive officers voluntarily have increased their direct ownership of our shares generally from year to year through the acquisition of shares in our employee stock purchase plan or through the exercise of stock options. For example, our chief executive officer retained approximately all of the net shares acquired through the exercise of stock options in 2007 and directly holds over 2% of our outstanding shares. For this purpose, net shares means the number of shares acquired on exercise of stock options, less the number of shares sold to pay the exercise price, applicable taxes and brokerage commissions. The stock ownership of our named executive officers is reported in Stock Ownership above.
COMPENSATION COMMITTEE REPORT
The compensation committee of our board of directors has reviewed and discussed the preceding Compensation Discussion and Analysis with management. Based on such review and discussions, the compensation committee has recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
By the compensation committee of the board of directors,
John M. Albertine (chairman)
Thomas C. Leonard
Francis L. McKone
Summary Compensation Table
The following table summarizes compensation information for our chief executive officer (our principal executive officer), our chief financial officer (our principal financial officer), and our three other most highly compensated executive officers for our last two fiscal years. These executive officers are collectively referred to as the named executive officers.
Summary Compensation Table
Grants of Plan-Based Awards in Fiscal 2007
The following table provides information on individual grants and awards of equity-based compensation made to our named executive officers during fiscal 2007.
Grants of Plan-Based Awards in Fiscal 2007
Outstanding Equity Awards at 2007 Fiscal Year-End
The following table provides information on outstanding equity awards held by our named executive officers as of the end of fiscal 2007.
Outstanding Equity Awards at 2007 Fiscal Year-End
Option Exercises and Stock Vested in Fiscal 2007
The following table provides information on stock options exercised during fiscal 2007 by each of our named executive officers. No other stock awards vested or were exercised during fiscal 2007.
Option Exercises and Stock Vested in Fiscal 2007
Pension Benefits in Fiscal 2007
The following table provides information on the pension benefits provided to our named executive officers in fiscal 2007. All our named executive officers are participants in the Kadant Web Systems Inc. Retirement Plan, a noncontributory defined benefit retirement plan that covers eligible employees located at our corporate headquarters or employed by this subsidiary. At the end of fiscal 2005, this plan was closed to new participants.
Under this plan, each eligible employee receives a monthly retirement benefit, beginning at normal retirement age (65), based on 1.75% of his average monthly compensation before retirement, multiplied by his years of 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. Named executive officers who retire early (before the normal retirement age of 65) will receive reduced benefits. 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, but the annualized compensation used may not exceed an IRS-prescribed limit applicable to tax-qualified plans, which was $225,000 in 2007. Benefits under the retirement plan are fully vested after five years of service. The actual benefits that would be received by the participants are subject to reduction for Social Security benefits.
No pension benefits were paid to any of our named executive officers in fiscal 2007. We do not have a policy for granting extra pension service, except that in the event of a change in control, we are contractually required to recognize additional age and length of service in calculating the pension benefit payable to named executive officers.
The amounts reported in the table below equal the present value of the accumulated benefit at the end of fiscal 2007 for the named executive officers using the assumptions described in the footnote.
Pension Benefits in Fiscal 2007
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We have no nonqualified defined contribution or other nonqualified deferred compensation plans for our named executive officers.
Potential Payments Upon Termination or Change in Control
We have no employment agreements or severance agreements with our named executive officers that provide benefits upon termination of employment. We have change in control agreements with each of our named executive officers 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 24 months. A change in control is defined in the agreements as:
The change in control agreements provide for the immediate vesting of all of the named executive officers equity incentive awards upon a change in control.
In addition, the agreements provide benefits in the event the named executive officers employment is terminated during the 24-month period following the change in control. If the named executive officers employment terminates due to death, disability or voluntarily without good reason, the named executive officer receives a lump sum payment equal to (i) his salary through the date of termination, (ii) any cash incentives earned but not yet paid for the most recently completed fiscal year, and (iii) a pro rata cash incentive for the year in which his employment terminates based on the higher of the individuals current reference bonus or cash incentive for the most recently completed fiscal year (a pro rata bonus). If such event occurred on December 29, 2007, our named executive officers would have received the cash incentive payment reported in the Summary Compensation Table under the column headed Non-Equity Plan Compensation. In the event of a termination for cause, the named executive officer only receives his salary through the date of termination and any previously paid but deferred bonus. If such event occurred on December 29, 2007, no additional payments would have been received by our named executive officers.
In the event the named executive officers employment is terminated, either voluntarily with good cause or involuntarily without cause, during the 24-month period following a change in control, the change in control agreements provide for severance payments and the continuation of certain welfare benefits. In such event, the named executive officer would receive (i) his salary through the date of termination, (ii) any bonus earned but not yet paid for the most recently completed fiscal year, (iii) a pro rata bonus (calculated as above) and (iv) a lump sum severance payment equal to two times (three times for Mr. Rainville, our chief executive officer) the sum of the highest annual salary and bonus (or current year reference bonus if higher) within the five years prior to the year of termination. The change in control agreements also provide that health, welfare and other fringe benefits applicable immediately prior to the termination would be continued for a period of two years (three years in the case of Mr. Rainville), and would require gross-up payments for any excise tax imposed on the named executive officer if payments under the agreements are deemed to be excess parachute payments under Section 280G of the Internal Revenue Code. Each named executive officer also would be entitled to a cash payment to be used toward outplacement services equal to $25,000 for our chief executive officer and $20,000 for each of the other named executive officers.
The following table sets forth the estimated compensation that would have been payable to our named executive officers had a change in control event occurred as of December 29, 2007 and their employment terminated for good reason by the executive or without cause by the company on that date.
Estimated Payments Upon a Change in Control and Termination of Employment for Good Reason or Without Cause as of December 29, 2007
Our directors who are not employees or members of management are paid the following meeting and retainer fees for serving on our board of directors:
In fiscal 2008, each of our non-employee directors received an award of restricted stock units representing 15,000 shares of our common stock. The restricted stock units vest in installments of 1,250 shares each on the last day of each of our fiscal quarters during the 2008 fiscal year. The remaining 10,000 restricted stock units vest only in the event that a change-in-control of the company occurs or is approved during the period beginning on the first day of our second fiscal quarter of fiscal 2008 and ending on the last day of our first fiscal quarter of fiscal 2009. In February 2007, our non-employee directors received 15,000 shares of restricted common stock that vested in installments of 1,250 restricted shares each on the last day of each of our fiscal quarters during the 2007 fiscal year. The remaining 10,000 restricted shares vested only in the event that a change in control of the company occurred prior to the end of the first quarter of the 2008 fiscal year and have been forfeited. In the case of both the 2008 and 2007 awards, the awards, to the extent not previously vested, are forfeited if the individual is no longer a member of the board of directors on the vesting dates. The vesting of all awards accelerate in the event of a change in control of the company. All awards were made under our stockholder-approved equity incentive plans.
Our non-employee directors may also be granted stock options or restricted stock periodically under our stockholder-approved equity incentive plans. The size and the terms of any grant are determined by the compensation committee of our board of directors.
The compensation of our non-employee directors is reviewed by the compensation committee of our board of directors using competitive market data provided by its compensation consultant based on our peer survey groups, described under Compensation Discussion and Analysis. The compensation committee periodically recommends changes in director compensation, based on the survey results, to our board of directors for review and approval.
Director Compensation for Fiscal 2007
The following table provides compensation information for our non-employee directors in fiscal 2007. Our directors do not receive any non-equity incentive plan compensation, hold deferred compensation cash balances, receive pension benefits or perquisites or other personal benefits for service on our board of directors.
2007 Director Compensation
AUDIT COMMITTEE REPORT
The role of the audit committee is to assist the board of directors in its oversight of our companys financial reporting process, as stated in the charter of the committee, which is available on the companys web site at www.kadant.com. The committee provided the following report.
Management is responsible for the preparation, presentation and integrity of our companys 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. Our companys independent registered public accounting firm is responsible for auditing the companys financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. The audit committee is responsible for providing independent, objective oversight of these functions.
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 29, 2007, with management and our independent registered public accounting firm, 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 our companys 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 from the company. We have also considered whether the provision of other non-audit services by Ernst & Young LLP is compatible with maintaining their independence.
Based on our review of the materials and discussions with management and the independent registered public accounting firm described in this report, we recommended to the board of directors that the audited financial statements be included in our companys annual report on Form 10-K for the year ended December 29, 2007, for filing with the SEC.
By the audit committee of the board of directors,
Thomas C. Leonard (chairman)
John M. Albertine
John K. Allen
Francis L. McKone
Fees of Independent Registered Public Accounting Firm
The following table summarizes the aggregate fees billed for professional services rendered by Ernst & Young LLP, our independent registered public accounting firm, for each of the last two fiscal years. All such services were approved by our audit committee in accordance with its pre-approval policy and procedures as described below in the section captioned Pre-approval Policy and Procedures.
Pre-Approval Policy and Procedures
The audit committee of our board of directors has adopted a policy requiring that all audit and non-audit services to be performed by our companys independent registered public accounting firm be approved in advance by the committee. Generally, the services must be approved in advance by the audit committee at a meeting, at which the services to be provided are described, any non-audit service to be performed is confirmed to be a permissible non-audit service and a maximum amount for the service is provided. The monetary limit may not be exceeded without obtaining further pre-approval under this policy.
The audit committee may pre-approve specified types of services that are expected to be provided to our company by its independent registered public accounting firm during the next 12 months. A condition to such pre-approval is that the service be described in sufficient detail and be subject to a maximum dollar amount. An example of such services would be the quarterly review of the companys interim financial statements.
The audit committee has delegated to the chairman of the committee the authority to pre-approve any audit or non-audit services to be provided by the independent registered public accounting firm, provided that the
service is described in sufficient detail and is subject to a maximum dollar amount. The approval of such services must be reported to the entire committee at its next regular meeting.
We are not aware at this time of any other matters that will be presented for action at the 2008 annual meeting of stockholders. 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 intended to be included in the proxy statement and form of proxy relating to our 2009 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 17, 2008. In addition, our bylaws 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 Exchange Act) to comply with the advance notice provision. The advance notice provision requires that stockholders give timely written notice of their proposal to our corporate secretary. To be timely, notices must be delivered to our corporate secretary at our principal executive office not less than 60 nor more than 90 days before the first anniversary of the prior years annual meeting of stockholders. Accordingly, a stockholder who intends to present a proposal at the 2009 annual meeting of stockholders must provide written notice of the proposal to our corporate secretary after February 21, 2009 and before March 23, 2009. 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 bylaws including, among other things, the candidates 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 SEC.
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.
April 9, 2008
FORM OF PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 22, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Rainville, Edward J. Sindoni and Thomas M. OBrien, 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 22, 2008 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 3, 2008, with all of the powers the undersigned would possess if personally present at such meeting:
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
May 22, 2008
PROXY VOTING INSTRUCTIONS