Item
1.01. Entry
into a Material Definitive Agreement.
Employment
Arrangement with Paul R. Kuhn
At
a
meeting held on February 21, 2006, the Board of Directors (the “Board”) of Kaman
Corporation (the “Company”), upon recommendation of the Personnel and
Compensation Committee of the Board, took the actions (a) with respect to
employment terms for Mr. Paul R. Kuhn, the Company’s Chairman, President and
Chief Executive Officer, and (b) the Kaman Corporation Supplemental Employees’
Retirement Plan (“SERP”), which provides supplemental pension benefits to
certain of the Company’s senior management personnel, including its executive
officers.
The
Company has agreed to a new employment agreement (the “New Employment
Agreement”) with Mr. Kuhn who will attain age 65 in October 2006. Mr. Kuhn has
been the Company’s President and Chief Executive Officer since August 2, 1999.
The New Employment Agreement replaces and supersedes the Company’s Amended and
Restated Employment Agreement with Mr. Kuhn, as amended most recently on
February 17, 2004 (the “Prior Employment Agreement”), and the Company’s Second
Amended and Restated Change in Control Agreement with Mr. Kuhn dated November
11, 2003 (the “Change in Control Agreement”).
The
terms
of Mr. Kuhn’s employment set forth in the New Employment Agreement are as
follows:
(a) The
term
of Mr. Kuhn’s employment will extend until February 21, 2008 (the “Employment
Term”). The Company may appoint a successor President and Chief Executive
Officer to Mr. Kuhn during the Employment Term, in which case Mr. Kuhn’s duties
and responsibilities shall thereafter consist of assisting the Company and
his
successor in the senior management transition and serving as the Company’s
Chairman. Mr. Kuhn’s compensation and benefits under the New Employment
Agreement will not be affected by the appointment of a successor President
and
Chief Executive Officer.
(b) The
New
Agreement entitles Mr. Kuhn to an annual base salary of $900,000 a year,
and
eligibility to receive an annual bonus for 2006 and 2007 (and eligibility
for a
pro-rated annual bonus in 2008) to be determined by the Corporation’s Personnel
and Compensation Committee, with a target bonus opportunity to be not less
than
80% of base salary.
(c) The
New
Employment Agreement provides for Mr. Kuhn’s participation in the Company’s
employee benefit programs generally applicable to the Company’s senior
executives. The Company will also continue to provide Mr. Kuhn with up to
four
weeks vacation, premium payments on a $1.2 million life
insurance policy issued to Mr. Kuhn and
a
company car as currently provided to him.
(d) Mr.
Kuhn
shall be entitled to severance benefits from the Company only if (1) his
employment is terminated without “cause” (as defined) or he resigns with “good
reason” (as defined) during the Employment Term, and (2) he signs a release
agreement reasonably acceptable to the Company. “Good reason” has been adjusted
to reflect his duties and the compensation structure under the New Employment
Agreement. Mr. Kuhn’s reduced role after the Company elects a successor
President and Chief Executive Officer and the reduction to his benefit rights
under the SERP as described below shall not provide Mr. Kuhn good reason
to
terminate employment or otherwise result in a constructive employment
termination that triggers severance benefits. The termination of Mr. Kuhn’s
employment with the Board’s consent after the appointment of a successor as
President and Chief Executive Officer shall be treated as employment termination
without cause. Expiration of the Employment Term on February 21, 2008 shall
not
trigger any payment of severance benefits.
(e) Mr.
Kuhn’s outstanding equity awards shall become fully vested upon (i) Mr. Kuhn’s
“retirement” (as defined), (ii) the termination of his employment without cause,
for “disability” (as defined), or due to death, (iii) his resignation for good
reason or (iv) a “change in control” (as defined).
(f) The
lump
sum severance payment that may have otherwise been payable to Mr. Kuhn as
part
of his severance protection under the Prior Employment Agreement or Prior
Change
in Control Agreement (collectively, the “Prior Agreements”) is reduced under the
New Employment Agreement. The Prior Change in Control Agreement provided
a lump
sum severance payment equal to three times Mr. Kuhn’s then current base salary
and the most recent annual bonus paid to him (“Annual Compensation”). The lump
sum severance payment under the Prior Employment Agreement equaled two times
Mr.
Kuhn’s Annual Compensation. The New Employment Agreement provides that the
multiplier for the lump sum severance payment shall only reflect the period
between Mr. Kuhn’s employment termination date and February 21,
2008.
(g) Other
severance benefits payable to Mr. Kuhn upon a termination of employment without
cause or resignation for good reason are: (i) a pro-rata portion of his annual
bonus for the performance year in which his termination occurs, (ii) pro-rata
payment of each outstanding long-term performance award ("LTIP") based on
100%
of the target value, (iii) title to the Company automobile on an “as is” basis,
with the automobile’s fair market value being taxable to Mr. Kuhn; (iv)
continued payment of the premiums on his $1.2 million life insurance policy
during the remainder of his life; (v)
continued participation at the Company’s expense for 18 months in all medical,
dental and vision plans which cover Mr. Kuhn and his eligible dependents,
subject to offset due to future employment; (vi) pro-rata vesting of LTIP
awards; and (vii) all accrued and vested benefits under the Company’s
compensation and benefit plans, programs and arrangements (collectively,
“Accrued Benefits”).
(h) A
tax
gross-up for excise taxes under Section 4999 of the Internal Revenue Code
(and
income taxes on the gross-up) that become payable by Mr. Kuhn will be paid
only
if payments (including vesting of outstanding equity compensation awards)
contingent on a change in ownership or control of the Company exceed the
maximum
amount (as determined under applicable tax rules) that Mr. Kuhn could receive
without having any such payments become subject to such tax by at least
$100,000.
(i) If
Mr.
Kuhn is discharged with cause or if he resigns without good reason, he will
receive his unpaid base salary and earned bonus through the date of termination
and the Accrued Benefits.
(j) If
Mr.
Kuhn’s employment is terminated due to his death or disability, Mr. Kuhn or his
estate, as applicable, will receive Mr. Kuhn’s unpaid base salary and earned
bonus through the date of termination, the Accrued Benefits and a pro-rata
portion of Mr. Kuhn’s annual bonus for the performance year in which his death
or disability occurred.
(k)
If
Mr. Kuhn retires, he will receive (i) a pro-rata portion of his annual bonus
for
the year of retirement, (ii) pro-rata vesting of LTIP awards, (iii) continued
payment of the premiums on his $1.2 million life insurance policy during
the remainder of his life, (iv) title to the company automobile on an "as
is"
basis, with the automobile's fair market value being taxable to Mr. Kuhn,
and
(v) the Accrued Benefits.
(l)
Mr.
Kuhn has agreed not to compete with the Company and not to solicit its employees
during the 2-year period following termination of employment for any
reason.
(m) Following
termination of employment for any reason, Mr. Kuhn will assist and cooperate
with the Company regarding any matter or project in which he was involved
during
the Executive’s employment. The Company shall compensate Mr. Kuhn for any lost
wages or expenses associated with such cooperation and assistance.
(n) Mr.
Kuhn
acknowledges and agrees that the Prior Agreements are terminated and cancelled,
and releases and discharges the Company from any and all obligations and
liabilities now existing under or by virtue of the Prior
Agreements.
(o) The
parties have agreed in good faith to amend the New Employment Agreement as
may be required to comply with final regulations issued by the Treasury
Department under Section 409A of the Internal Revenue Code without materially
impacting the economic cost to the Company or economic value to Mr.
Kuhn.
A
copy of
the New Employment Agreement dated as of February 24, 2006 and signed by
Mr. Kuhn is filed as Exhibit 10.1 hereto and incorporated herein by
reference.
Sixth
Amendment to SERP
At
its
meeting on February 21, 2006, the Board also approved the Sixth Amendment
to the
SERP. The material changes to the SERP as reflected under the Sixth Amendment
and effective on January 1, 2006 are as follows:
(a) Only
salary and annual bonus payable before the date of the Participant’s employment
termination with respect to periods of active employment shall be eligible
compensation under the SERP for all periods after December 31,
2005.
(b) Severance
and equity compensation under any plan, program, arrangement or agreement
of the
Company or its affiliates that becomes taxable after December 31, 2005 shall
be
disregarded when determining a participant’s benefits under the
SERP.
(c) The
Sixth
Amendment clarifies and modifies the terms of the Second Amendment to the
SERP
dated September 2, 1999, which provides for three years of credited service
for
each completed year of employment beginning on or after January 1, 2004.
Mr.
Kuhn shall continue to accrue credited service under the Second Amendment
for
2006 and 2007 provided that he remains employed as of the end of such year.
Mr.
Kuhn shall not earn any credited service based on employment after 2007.
Mr.
Kuhn shall receive credited service as if he remained employed with the Company
through December 31, 2007 if his employment terminates before then in a manner
that entitles him to severance benefits under the New Employment
Agreement.
(d) The
maximum lump sum payment (or its actuarial equivalent if payment is made
in a
form other than a single lump sum payment) to Mr. Kuhn shall be (1) $8.912
million if Mr. Kuhn does not remain employed by the Company on December 31,
2006; (2) $10.5 million if Mr. Kuhn does not remain employed by the Company
on
December 31, 2007; and (3) $12 million if Mr. Kuhn remains employed on or
after
December 31, 2007. The maximum benefit that Mr. Kuhn may receive from the
SERP
shall be increased to $12,000,000 if his employment terminates prior to December
31, 2007 in a manner that entitles him to severance benefits under the New
Employment Agreement.
An
executed copy of the Sixth Amendment is filed as Exhibit 10.2 hereto
and incorporated herein by reference.
Stock
Ownership Guidelines for Non-employee Directors and Management; Change to
Director Compensation Structure
At
its
meeting on February 21, 2006, the Board of Directors also approved stock
ownership guidelines both for non-employee Directors and for corporate
management, effective immediately. The Board believes that the Directors
and
senior management should have a significant equity position in the company
and
that these guidelines will serve to further the Board's interest in encouraging
a longer-term focus in managing the company.
The
stock
ownership guidelines that were adopted by the Board of Directors for
non-employee Directors were recommended to the Board by the Corporate Governance
Committee pursuant to a meeting held on February 21, 2006. The guidelines
require each non-employee Director to have an ownership multiple of 3 times
the
annual cash retainer, which for the period 2006 and 2007 is $45,000. In
addition, it was determined that the restricted stock awards of 2,000 shares
of
Common Stock that will be granted to the non-employee Directors as part of
the
director compensation package approved to take effect January 1, 2006 (and
reported by Form 8-K dated November 10, 2005, ref.
no.0000054381-05-000088) will have restrictions immediately lapse and
Directors who do not meet the ownership guidelines must hold shares received
pursuant to such grants (with such shares being netted for the income tax
effect
thereof) for a period of 3 years or until the guidelines are met, whichever
is
earlier. In determining whether the guidelines have been achieved at any
particular point, the price of the Common Stock will be the higher of (i)
the
then current market value determined by the closing price of the Common Stock
on
the date of the determination; or (ii) the closing price on February 21,
2006,
which was $21.13.
The
stock
ownership guidelines that were adopted by the Board of Directors for management
were recommended to the Board by the Personnel and Compensation Committee
pursuant to a meeting held on February 21, 2006. The guidelines require the
following Common Stock ownership multiples: CEO, 3 times base salary;
participants in the long-term incentive award program under the company's
2003
Stock Incentive Plan or its predecessor plan (currently 8 individuals), 2
times
their base salary; and all other elected officers of the company, 1 times
their
base salary. A total of sixteen individuals are currently subject to the
guidelines. These individuals are required to take and retain one-third of
any
earned long-term incentive award in the form of stock and to retain any shares
realized from the exercise of stock options or the vesting of restricted
stock
under the 2003 Stock Incentive Plan or its predecessor plan until such time
as
the required ownership guidelines are met. Stock options, including vested
options, as well as restricted stock which remains subject to restrictions,
are
not included in determining whether an individual has achieved the ownership
levels required by the guidelines. In determining whether the guidelines
have
been achieved at any particular point, the price of the Common Stock will
be the
higher of (i) the then current market value determined by the closing price
of
the Common Stock on the date of the determination; or (ii) the closing price
on
February 21, 2006, which was $21.13.
Tax
Accounting and Tax/Estate Planning Services
In
addition, at the February 21, 2006 Board of Directors' meeting, the Board
approved a recommendation of the Personnel and Compensation Committee (which
was
adopted at its meeting on the same date) to authorize the company's
reimbursement of the following officers for tax accounting and tax/estate
planning services: Paul R. Kuhn, the company's Chairman, CEO and President;
Robert M. Garneau, the company's Executive Vice President and Chief Financial
Officer; Candace A. Clark, the company's Senior Vice President and Chief
Legal
Officer; Ronald M. Galla, the company's Senior Vice President and Chief
Information Officer; Russell H. Jones, the company's Senior Vice President
and
Chief Investment Officer; T. Jack Cahill, President of the company's Industrial
Distribution segment; and Robert H. Saunders, Jr., President of the company's
Music segment. Services eligible for reimbursement include tax return
preparation, development of tax strategies and tax related aspects of estate
and
investment planning, preparation of wills or trust, and development of personal
financial objectives and investment strategies. The total amount that can
be
reimbursed to the entire group for the calendar year is Seventy Thousand
Dollars
($70,000) and generally not more than $10,000 may be provided to any particular
individual in a calendar year.
Recapitalization
Bonus Award for Candace A. Clark
On
February 21, 2006, the Board of Directors awarded a special bonus equal to
$50,000 to Candace A. Clark in recognition of her extraordinary services
over a
three-year period in connection with the successful recapitalization of the
company.
Item
2.02
Results of Operations and Financial Condition
On
February 27, 2006, the company issued a press release describing the company's
financial results for the quarter and twelve month period ended December
31,
2005. A copy of this press release is furnished as Exhibit 99.1 hereto and
is
incorporated herein by reference.
Item
9.01. Financial Statement and Exhibits.
The
following exhibits are furnished as part of this Form 8-K
No. Description
| 10.1 |
Executive Employment Agreement with Mr. Kuhn
dated as of
February 24, 2006.
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| 10.2 |
Sixth Amendment to Kaman Corporation Supplemental
Employees’ Retirement Plan.
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| 99.1 |
Press Release of the Company regarding
financial performance for the quarter and twelve month period ended
December 31, 2005, dated February 27,
2006. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Date:
February 27, 2006
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By:
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/s/ Robert
M. Garneau
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Robert
M. Garneau
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Executive
Vice President and
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Chief
Financial Officer
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