KAMN » Topics » PERFORMANCE GRAPH

This excerpt taken from the KAMN DEF 14A filed Mar 9, 2006.

PERFORMANCE GRAPH

Following is a comparison of the company’s total shareholder return for the period 2000 – 2005 compared to the S&P 600 Small Cap Index, the Russell 2000 Small Cap Index, and the NASDAQ Non-Financial Composite Index. The performance graph does not include a published industry index or peer group of similar companies because the company’s diversified nature is such that management does not believe that a meaningful index or peer group can be reasonably identified. Accordingly, as permitted by regulation, the graph includes the S&P 600 and Russell 2000 small cap indices, both of which consist of companies with generally similar market capitalizations, and the NASDAQ Non-Financial Index calculated by the exchange on which the company’s shares are traded.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Relationships Related to the Recapitalization

On June 7, 2005, the company announced that it had entered into an agreement with certain members of the Kaman family that contemplated a recapitalization that would eliminate the company’s then existing dual class stock structure (Class B voting common and Class A nonvoting common) and replace it with one class of voting stock for all its shareholders. The parties to the agreement with the company were Charles H. Kaman, C. William Kaman II, Roberta C. Kaman, Steven W. Kaman, Cathleen H. Kaman-Wood, Newgate Associates Limited Partnership, and Oldgate Limited Partnership. At the time, these individuals and entities owned, in the aggregate, approximately 81% of the company’s Class B voting common stock.

Mr. Charles H. Kaman is the founder of the company and retired from the company in 2001 after becoming disabled. He holds the position of Chairman Emeritus of the Board but has attended no board meetings since 2001. Pursuant to an agreement between Mr. Kaman and the company which was approved by the Board in 1997, Mr. Kaman receives the amount of $850,000, which is equal to his base salary at the time of disability, on an annual basis. A portion of this amount is paid under the company’s SERP. In this transaction, Mr. Kaman acted through his attorney-in-fact, John C. Yavis, Jr., a retired partner of the law firm of Murtha Cullina LLP. Murtha Cullina is the company’s general outside counsel. Mr. C. William Kaman II, a son of Mr. Charles H. Kaman, retired as a director of the company in December 2005, having served on the Board since 1991. He is also a former executive officer of the company, having terminated his position as president of Kaman Music Corporation, a subsidiary of the company, in 1998. Roberta C. Kaman is Mr. Charles H. Kaman’s wife and Steven and Cathleen Kaman are his other son and daughter. The two limited partnerships mentioned above were entities established Mr. Charles H. Kaman several years ago.

The company completed the recapitalization on November 3, 2005. As part of the transaction, each share of Class A non-voting common stock became one share of voting common stock while each share of Class B voting common stock was reclassified into 3.58 shares of voting common stock, or alternatively, at the election of the holder of such shares, 1.84 shares of voting common stock and an amount in cash equal to $27.10. In addition to the Kaman family and related entities listed above, certain executive officers shown on the Summary Compensation Table also received payments in their capacity as Class B voting common stock shareholders. Specifically, the company paid $13.9 million to shareholders electing the part cash/part stock option, of which approximately $13.2 million was paid to the Kaman family and related entities listed above; $59,796 to Paul R. Kuhn; $443,594 to Robert M. Garneau; and $28,244 to Candace A. Clark. A total of 1,498,851 shares of common stock were issued in exchange for 667,814 shares of Class B voting common stock, of which 1,127,860 shares were issued to the Kaman family and related entities listed above; 7,932 shares to Mr. Kuhn; 58,885 shares to Mr. Garneau; 2,577 shares to Mr. Saunders, Jr.; and 1,917 shares to Ms. Clark.

Also as part of the recapitalization agreement, the company agreed to indemnify the Kaman family and Mr. Yavis for any and all out-of-pocket attorneys’ fees and related expenses arising out of or resulting from defense of any third party allegation, claim, action, suit, complaint, demand, litigation or legal or administrative proceeding alleging any wrongful action or inaction by any of them in his, her, or its capacity as a shareholder of the company in connection with authorization, execution, delivery and performance of the recapitalization agreement. On September 19, 2005, a legal proceeding was instituted by Mason Capital, Ltd. against the company and members of the Kaman family seeking, among other relief, to enjoin the recapitalization unless and until the transaction was approved by a supermajority vote. Mason Capital was at the time a Class B voting common shareholder and its affiliates were party to a share purchase agreement with members of the Kaman family, pursuant to which, under certain circumstances, the Kaman family could have caused an affiliate of Mason Capital to purchase the Kaman family’s shares of Class B voting common stock and also offer to purchase all remaining shares of Class B voting common stock. The company and the Kaman family defended the litigation and on October 31, 2005, a judgment was rendered in their favor. On November 3, 2005, all parties agreed to end the litigation with joint motions to the court requesting dismissal of the litigation. The court approved these motions on November 3, 2005 and the company closed the recapitalization on the same date. An

 

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invoice was subsequently submitted to the company for reimbursement by the Kaman family. The company responded with a request for more detail with respect thereto and has received no further communications on this subject. Therefore, as of the date of this proxy statement, the company has not reimbursed the Kaman family for any litigation expenses.

Also in connection with the recapitalization, the company entered into indemnification agreements with certain executive officers listed in the Summary Compensation Table and Directors who were then serving at the request of the company as voting trustees under a Voting Trust Agreement dated August 14, 2000 and/or attorneys in fact under a Durable Power of Attorney dated May 7, 1996 given by Charles H. Kaman in connection with his estate planning arrangements. These individuals were Paul R. Kuhn, Robert M. Garneau, T. Jack Cahill and Wanda L. Rogers as well as John S. Murtha, a former director of the company and founding partner of Murtha Cullina LLP. The indemnification agreements are intended to have the same basic scope as Connecticut statutory indemnification for actions taken as directors or officers and the company will indemnify such officers and directors for any and all expenses and damages, including attorneys’ fees, settlements and judgments, incurred in connection with a claim arising from any action taken or not taken in their capacity as a voting trustee or attorney in fact. As of the date of this proxy statement, no claims have been brought and no reimbursements made under these agreements.

Marsh

Marsh USA, Inc. has served as the company’s insurance broker for various lines of insurance coverage since 1992. Fees paid to Marsh for these services were $137,500 in 2005; and $450,000 in each of 2004 and 2003. The amount is less in 2005 because a line of coverage was removed from the scope of services for that year. In addition, the company had retained Putnam Investments as its defined contribution plan trustee and record keeper from 1996 to 2004. Beginning in 2000, Putnam waived most administration fees due to the size of the company’s defined contribution plan. Finally, Seabury & Smith, another affiliate of Marsh, has provided brokerage services for many years regarding the company’s business travel accident and aviation testing insurance. Total commissions earned by Seabury & Smith in 2004, the most current year available, were about $2,500.

 

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AUDIT COMMITTEE REPORT

The directors named below constitute the current Audit Committee (the “Committee”) of the Board. We each serve for a term of one year and until our successors are elected and qualify. The Board has made an affirmative determination that each of us is independent, as defined by the NASDAQ Stock Market, Inc. and the Securities Exchange Commission and otherwise in accordance with the Committee’s charter and the company’s Governance Principles. Sadly, Walter H. Monteith, Jr., the Committee’s Chairman, died on February 14, 2006. The Board will appoint a new Chairman at the April 18, 2006 meeting.

During 2005, the Committee monitored the qualifications, performance, effectiveness and independence of KPMG LLP, the company’s independent registered public accounting firm. In that regard, the Committee has received from KPMG, and discussed with it, a written report relative to the matters required by Independence Standards Board, Standard No. 1 (Independent Discussions with Audit Committees, as amended).

The Committee reviewed and discussed with management and KPMG the company’s audited consolidated financial statements for the year ended December 31, 2005, the representations of management and KPMG’s opinion regarding such statements, and the company’s system of internal controls over financial reporting required by Section 404 of the Sarbanes Oxley Act. The Committee discussed with the company’s Assistant Vice President—Internal Audit and with KPMG the overall scope and plan of their individual audits and reviewed the results of their examinations and the overall quality of the company’s financial reporting. The Committee also received from KPMG a written report relative to matters required by Statement on Auditing Standards No. 61 and discussed the report with KPMG and management. Based upon these reviews and discussions and in reliance upon them, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the company’s annual report on Form 10-K for the year ended December 31, 2005.

The Committee also approved KPMG as the independent registered public accounting firm for 2006, which approval has been ratified by the Board and is being recommended for ratification by shareholders at the 2006 annual meeting of shareholders.

Audit Committee

E. Reeves Callaway III

Eileen S. Kraus

Richard J. Swift

 

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