UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
SCHEDULE 14A
Proxy Statement Pursuant To Section 14(a) of the Securities Exchange Act Of 1934
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 ss. 240.14a-12
KATY INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials. |_| Check box if any
part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
KATY INDUSTRIES, INC.
765 Straits Turnpike
Middlebury, Connecticut 06762
(203) 598-0397
April 28, 2005
Dear Stockholders:
You are cordially invited to attend the 2005 annual meeting of
stockholders of Katy Industries, Inc. (the "Company" or "Katy"), which will be
held at 10:00 a.m. (local time) on Thursday, May 26, 2005, at the principal
corporate offices of Katy, located at 765 Straits Turnpike, Suite 2000,
Middlebury, Connecticut.
The principal business of the annual meeting will be (i) the election of
our Class II directors, (ii) the ratification of the appointment by the
Company's Audit Committee of the Board of Directors of PricewaterhouseCoopers
LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2005, and (iii) the consideration of a stockholder proposal,
if it is properly presented at the meeting. We will also review our results for
the past fiscal year and report on significant aspects of our operations during
the first quarter of 2005.
It is important that your shares be represented at the annual meeting.
Whether or not you plan to attend the annual meeting, we encourage you to vote
by signing and returning the enclosed proxy card so that your shares will be
voted at the annual meeting. If you decide to attend the annual meeting, you may
revoke your proxy and personally cast your votes.
Thank you, and we look forward to seeing you at the annual meeting or
receiving your proxy vote.
Sincerely yours,
/s/ William F. Andrews
William F. Andrews
Chairman of the Board
KATY INDUSTRIES, INC.
765 Straits Turnpike
Middlebury, Connecticut 06762
(203) 598-0397
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Katy Industries, Inc.:
We are holding an annual meeting of stockholders of Katy Industries, Inc.
on May 26, 2005 at 10:00 a.m., local time. The meeting will be held at the
principal corporate offices of Katy, located at 765 Straits Turnpike, Suite
2000, Middlebury, Connecticut. At the meeting, you will be asked to vote on the
following:
1. The election of five Class II members of the Board of Directors to serve
for a term of two years;
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2005;
3. A stockholder proposal, if the proposal is properly presented at the
annual meeting; and
4. The transaction of other business as may properly come before the annual
meeting or any adjournment or postponement thereof.
The Proxy Statement that we are delivering with this Notice contains
important information concerning the proposals to be considered at the annual
meeting. You will be entitled to vote at the annual meeting if you were a
stockholder of Katy at the close of business on April 13, 2005.
By Order of the Board of Directors
/s/ Amir Rosenthal
Amir Rosenthal
Secretary
Middlebury, Connecticut
April 28, 2005
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO
ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY
AND VOTE IN PERSON.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The annual meeting will be held on May 26, 2005 at the principal corporate
offices of Katy, located at 765 Straits Turnpike, Suite 2000, Middlebury,
Connecticut, at 10:00 a.m., local time.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because our Board of Directors is
seeking your proxy to vote your shares of common stock at the annual meeting.
This Proxy Statement includes information that we are required to provide to you
under the rules of the Securities and Exchange Commission and is intended to
assist you in voting your shares. On or about April 28, 2005, we will begin
mailing information to all people who, according to our stockholder records,
owned shares of our common stock at the close of business on April 13, 2005. As
of April 13, 2005, there were 7,945,377 shares of our common stock outstanding.
Katy will pay the cost of requesting these proxies. Katy's directors,
officers and employees may request proxies in person or by telephone, mail,
facsimile or letter.
VOTING YOUR SHARES
You are entitled to one vote at the annual meeting for each share of
Katy's common stock that you owned of record at the close of business on April
13, 2005. The number of shares you own (and may vote) is listed on the enclosed
proxy card.
You may vote your shares of common stock at the annual meeting in person
or by proxy. To vote in person, you must attend the annual meeting and obtain
and submit a ballot. We will give you a ballot at the annual meeting. To vote by
proxy, you must complete and return the enclosed proxy card. By completing and
returning the proxy card, you will be directing the persons designated on the
proxy card to vote your shares at the annual meeting in accordance with the
instructions you give on the proxy card.
Your proxy card will be valid only if you sign, date and return it before
the annual meeting. IF YOU COMPLETE THE PROXY CARD EXCEPT FOR THE VOTING
INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF
DIRECTORS RECOMMENDATIONS. You may revoke your proxy at any time before it is
voted by any of the following means:
- Notifying the Secretary of Katy in writing addressed to our principal
corporate offices that you wish to revoke your proxy.
- Submitting a proxy dated later than your original proxy.
- Attending the annual meeting and voting. Merely attending the annual
meeting will not by itself revoke a proxy; you must vote your shares
of common stock at the annual meeting to revoke the proxy.
The Board of Directors does not expect any matter other than the proposals
discussed in this Proxy Statement to be presented at the annual meeting.
However, if any other matter properly comes before the annual meeting, your
proxies will act on such matter in their discretion.
QUORUM AND VOTES REQUIRED FOR APPROVAL
The presence in person or by proxy of holders of a majority of the
outstanding shares of common stock will constitute a quorum for the annual
meeting. For purposes of the quorum and the discussion below regarding the vote
necessary to take stockholder action, the stockholders who are present at the
annual meeting in person or by proxy and who abstain are considered stockholders
who are present and entitled to vote and they count toward the quorum.
Abstentions and shares of record held by a broker or its nominee that are voted
on any matter are included in determining whether a quorum is present. Broker
shares that are not voted on any matter will not be included in determining
whether a quorum is present.
Each share of common stock is entitled to one vote on each matter to come
before the annual meeting. With regard to the election of directors, you may
vote for a candidate or withhold your vote. If a quorum is present, directors
will be elected by a plurality of the votes cast for the election of directors.
"Plurality" means that the nominees who receive the largest number of votes cast
will be elected as directors, up to the maximum number of directors to be
elected at the annual meeting. Consequently, any shares not voted (whether by
abstention or withholding authority) will have no impact on the election of
directors except to the extent the failure to vote for one candidate results in
another candidate receiving a larger number of votes.
If a quorum is present, the approval of Proposals 2 and 3 require the
affirmative vote of the holders of a majority of the common stock present, in
person or by proxy, at the annual meeting. With respect to these matters, a
stockholder may (i) vote "For" the matter, (ii) vote "Against" the matter, or
(iii) "Abstain" from voting on the matter. A vote to abstain from voting on this
proposal has the same effect as a vote against such matter.
Under rules of self-regulatory organizations governing brokers, brokers
holding shares of record for customers generally are entitled to vote on routine
matters without voting instructions from their customers. The election of
directors and the ratification of the appointment of PricewaterhouseCoopers LLP
are considered routine matters. On non-routine matters, such as the stockholder
proposal included in this proxy statement, brokers must obtain voting
instructions from customers. If a broker does not receive voting instructions
from a customer on non-routine matters and accordingly does not vote on these
matters, this is called a broker non-vote. Broker non-votes will be counted for
the purposes of establishing a quorum to conduct business at the meeting and
will have the effect of a vote "Against" the stockholder proposal.
2
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
Katy's business is managed under the direction of its Board of Directors.
There are currently nine directors, divided into two classes serving staggered
terms. The classes are as nearly equal in number as possible with four Class I
directors, elected to two-year terms at the 2004 annual meeting, and five Class
II directors, elected to two-year terms at the 2003 annual meeting. Stockholders
will elect five Class II directors at the annual meeting to serve for a two-year
term ending at the time of the 2007 annual meeting.
Nominees for election whose terms will expire in 2007 (Class II):
Christopher W. Anderson
William F. Andrews
Samuel P. Frieder
James A. Kohlberg
Christopher Lacovara
All of the nominees are current directors of the Company and have
indicated their willingness to serve as directors. The four Class I directors of
Katy are: C. Michael Jacobi, Robert M. Baratta, Daniel B. Carroll, and Wallace
E. Carroll, Jr. The Class I directors are not up for re-election at the annual
meeting, as their terms expire at the time of the 2006 annual meeting.
For information concerning the nominees for director and the current
directors, see the sections of this Proxy Statement entitled "Information
Concerning Directors and Executive Officers," "Security Ownership of Management"
and "Security Ownership of Certain Beneficial Owners."
REQUIRED VOTE
Directors are elected by the affirmative vote of a plurality of the votes
cast in the election.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF PROPOSAL 1. IF ANY NOMINEE BECOMES UNAVAILABLE TO SERVE ON THE BOARD
OF DIRECTORS FOR ANY REASON, YOUR PROXY WILL BE VOTED FOR A PERSON OR PERSONS TO
BE SELECTED BY THE BOARD OF DIRECTORS. PROXIES CANNOT BE VOTED FOR A NUMBER OF
NOMINEES GREATER THAN THE NUMBER OF CLASS II DIRECTORS.
3
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following table shows information with respect to nominees for
director, current directors, and executive officers of Katy:
Nominees - Class II Directors
The following table shows information about the nominees to Katy's Board
of Directors who are currently Class II directors.
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
------------------------ --------- ------------------------------------------- ------------------- ---------------
Christopher W. Anderson 30 1998 to Present: Associate at Kohlberg None 2001 to Present
& Co., L.L.C., a U.S. private equity
firm
William F. Andrews 73 2004 to Present: Chairman of Singer Black Box 1991 to Present
Worldwide, a leading seller of Corporation
consumer and artisan sewing machines Corrections Corp.
2001 to Present: Chairman of Katy of America
2001 to Present: Chairman of Allied TREX Corp.
Aerospace Industries, Inc., an O'Charley's Inc.
aerospace and defense engineering firm
and provider of comprehensive
aerospace and defense products and
services
2000 to Present: Chairman of
Corrections Corp. of America, a
private sector provider of detention
and correction services
1998 to 2001: Chairman of Northwestern
Steel & Wire Company, a manufacturer
of steel rods and beams
1997 to Present: Consultant with
Kohlberg & Co., L.L.C., a U.S. private
equity firm
1995 to 2001: Chairman of Scovill
Fasteners, a manufacturer of apparel
and industrial fasteners
Samuel P. Frieder 40 1989 to Present: Principal of Kohlberg Stanadyne 2001 to Present
& Co., L.L.C., a U.S. private equity Corporation
firm
James A. Kohlberg 47 1987 to Present: Co-Founder and Stanadyne 2001 to Present
Managing Principal of Kohlberg & Co., Corporation
L.L.C., a U.S. private equity firm
4
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
------------------------ --------- ------------------------------------------- ------------------- ---------------
Christopher Lacovara 40 1988 to Present: Principal of Kohlberg Schawk, Inc. 2001 to Present
& Co., L.L.C., a U.S private equity
firm
Class I Directors
The following directors were elected to two year terms at the 2004 annual
meeting, and are not up for re-election at the 2005 annual meeting.
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
------------------------ --------- ------------------------------------------- ------------------- ---------------
Robert M. Baratta 75 2001 to Present: Director of Katy None 2001 to Present
2001 (February) to 2001 (June):
President and Chief Executive Officer
of Katy
1999 to 2000 (June): Senior Vice
President of Katy
Daniel B. Carroll 69 2003 to Present: Private Investor None 1994 to Present
1994 to Present: Partner of Newgrange
L.P., a components supplier to the
global footwear industry
1985 to Present: Member and Manager of
ATP Manufacturing, LLC, a manufacturer
of molded poly-urethane components
1985 to 2003: Vice President of ATP
Manufacturing, LLC
Wallace E. Carroll, Jr. 67 1992 to Present: Chairman of CRL, Inc., None 1991 to Present
a diversified holding company
5
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
------------------------ --------- ------------------------------------------- ------------------- ---------------
C. Michael Jacobi 63 2001 to Present: Chief Executive Corrections Corp. 2001 to Present
Officer, President, and a Director of of America
Katy Webster Financial
2001 to Present: Chairman of Invisible Corporation
Technologies, Inc., a privately held
company engaged in the manufacturing
and distribution of electronic
products for the training, tracking
and containment of sporting dogs and
companion pets
1999 to 2001: Owner, Stable House
Consulting
1999 to 2000: Chairman of Timex Watches
Limited (India), a publicly held
company headquartered in New Delhi,
India
1999 to 2000: Chairman and Chief
Executive Officer of Beepwear
Paging Products, LLC, a company
jointly owned by Timex Corporation
and Motorola, Inc.
Daniel B. Carroll and Wallace E. Carroll, Jr. are first cousins.
6
Executive Officers
Principal Occupation and Business Experience
Name Age During the Past Five Years
------------------------ --------- ---------------------------------------------------------------------
David C. Cooksey 60 2001 to Present: Corporate Director of Accounting and Assistant
Treasurer, Katy
1999 to Present: Chief Financial Officer of Continental Commercial
Products, LLC, a wholly-owned subsidiary of Katy
Michael C. Paul 42 2003 to Present: Corporate Director of Financial Reporting and
Treasurer, Katy
2002 to 2003: Director of Financial Systems and Compliance, Asbury
Automotive Group, Inc., a national automotive retailer
2000 to 2002: Corporate Controller, Asbury Automotive Group, Inc.
1999 to 2000: Assistant Controller, Crompton Corporation, a producer
and marketer of specialty chemicals and polymer products and
equipment
David S. Rahilly 60 2002 to Present: President, Katy Consumer Products
2001 to 2002: President and General Manager, Woods Industries, Inc.,
a wholly-owned subsidiary of Katy
1998 to 2001: Principal and President of Stunt, L.L.C. and Radius,
L.L.C., companies engaged in the import and distribution of watches
Amir Rosenthal 44 2001 to Present: Vice President, Chief Financial Officer, General
Counsel and Secretary, Katy
2000 to 2001: Chairman of Timex Watches Limited (India), a publicly
held company headquartered in New Delhi, India
1997 to 2001: Treasurer, Timex Corporation
Officers hold office until their successors are elected or appointed by
the Board of Directors and duly qualified. Officers elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors.
7
PROPOSAL 2 -- RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP ("PwC"), an independent registered public
accounting firm, audited the financial statements of the Company for the fiscal
year ending December 31, 2004. The Board of Directors, upon the recommendation
of the Audit Committee, has approved the selection of PwC as independent
registered public accounting firm to audit the financial statements of Katy and
its subsidiaries for the fiscal year ending December 31, 2005, to report on the
consolidated balance sheets and related statement of operations of Katy and its
subsidiaries, and to perform such other appropriate accounting services as may
be required by the Board of Directors and approved by the Audit Committee. The
Board of Directors recommends that the stockholders vote in favor of ratifying
the selection of PwC for the purposes set forth above. PwC has advised the
Company that they are an independent registered public accounting firm with
respect to the Company, within the meaning of standards established by the
Public Company Accounting Oversight Board, the Independence Standards Board, and
federal securities laws administered by the Securities and Exchange Commission.
A representative of PwC will be present at the annual meeting with the
opportunity to make a statement and respond to appropriate questions.
PwC billed Katy for audit services and certain other professional services
during 2004 and early 2005. These amounts are divided into the following four
categories, and are detailed below.
Audit Fees
Fees for professional services rendered by PwC for the audit of the
Company's annual financial statements for 2004 were $597,263, of which an
aggregate amount of $524,254 had been billed through April 15, 2005.
Fees for professional services rendered by PwC for the audit of the
Company's annual financial statements for 2003 were $507,051.
Audit-Related Fees
Fees for audit-related services rendered by PwC for 2004 were $102,498, of
which an aggregate amount of $46,306 had been billed through April 15, 2005.
Audit-related fees in 2004 consisted of $84,878 for the review of inventory
controls at one of the Company's subsidiaries; $8,676 for review and preparation
for Section 404 of the Sarbanes-Oxley Act of 2002 and $9,344 for other
audit-related services.
PwC billed the Company $74,709 of audit-related fees in 2003, of which
$63,709 consisted of fees for employee benefit plan audits, and $11,000 is
related to review and preparation in accordance with the Section 404 of the
Sarbanes-Oxley Act of 2002.
Tax Fees
PwC billed the Company $13,375 for tax compliance and advisory services in
2004.
PwC billed the Company $10,530 for tax compliance and advisory services in
2003.
8
All Other Fees
There were no fees billed to the Company by PwC for all other services in
2004 or 2003.
REQUIRED VOTE
Approval of this proposal to ratify the appointment of PwC requires the
affirmative vote by the majority of the outstanding shares of common stock
present, in person, or by proxy, at the annual meeting.
Although the ratification of the independent registered public accounting
firm is not required to be submitted to a vote of the stockholders, the Company
believes that such ratification is a matter on which the stockholders should
express their opinion. Notwithstanding stockholder approval of the ratification
of the independent registered public accounting firm, the Audit Committee, in
its discretion, may direct the appointment of a new independent registered
public accounting firm at any time during the year, if the Audit Committee
believes that such a change would be in the best interest of Katy and its
stockholders. If the stockholders fail to ratify the selection, the Audit
Committee will reconsider whether to retain PwC as independent registered public
accounting firm for the fiscal year ending December 31, 2005.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
9
PROPOSAL 3 - STOCKHOLDER PROPOSAL REGARDING STOCKHOLDER
RIGHTS AGREEMENT
GAMCO Investors, Inc., One Corporate Center, Rye, NY, 10580, owner of
1,060,683 shares of common stock, has given notice that it intends to present
for action at the annual meeting the following resolution and has furnished the
following statement in support of the proposal:
RESOLVED: that the shareholders of Katy Industries, Inc. (the "Company")
request the Board of Directors redeem the Rights issued pursuant to the Rights
Agreement, dated as of January 13, 1995, unless the holders of a majority of the
outstanding shares approve the issuance at a meeting of the shareholders held as
soon as practical.
On January 13, 1995, the Board of Directors declared a dividend of one
Common Share Purchase Right pursuant to a Rights Agreement dated as of January
13, 1995. Generally, the shareholders may exercise the Rights only when a person
or group acquires, or through an exchange or tender offer attempts to acquire, a
beneficial interest in 10% or more of the common stock of the Company.
Shareholders -- other than the person or group attempting to acquire 10% -- may
then exercise the Rights and receive stock at a fraction of its fair market
value. The Agreement permitted certain shareholders, including GAMCO and
affiliates, to retain existing shareholdings that exceeded 10%. The Company may
redeem the Rights for $.01 per Right.
These Rights represent a corporate anti-takeover device, commonly known as
a "poison pill." Issuing the Rights allows the Company to increase vastly the
cost to a potential bidder of effecting any merger or tender offer unless the
Board of Directors favors the bid. Potential bidders cannot take their offer
directly to the shareholders even if an overwhelming majority would have
accepted the offer. The potential bidder must instead negotiate with management,
and a Board or management may sometimes have interests that conflict with the
interests of shareholders. We believe the Board should allow its shareholders to
decide for themselves what represents a fair price for their holdings.
The power of shareholders to accept an offer by a potential bidder
provides an important check and balance on management and the Board in their
stewardship of the shareholders' interests. Should this proposal prevail, the
Board, in an effort to improve shareholder value, should itself redeem the
Rights or put the decision whether to continue using a poison pill to a vote of
the shareholders at a special meeting to be held as soon as practical.
GAMCO URGES SHAREHOLDERS TO VOTE FOR THIS RESOLUTION
10
COMPANY STATEMENT IN OPPOSITION TO PROPOSAL
The Board of Directors recommends a vote AGAINST the adoption of this
proposal relating to the Company's Stockholder Rights Agreement (the "Rights
Agreement"), which is sometimes referred to as a "poison pill," for the
following reasons:
The Board of Directors believes that rights plans such as the Company's
Rights Agreement help maximize stockholder value and protect Company
stockholders from unfair and abusive takeover tactics. The Board of Directors
believes that the Rights Agreement is in the best interests of the Company and
its stockholders. The Rights Agreement does not prevent offers to acquire the
Company at a fair price. The Rights Agreement is designed instead to encourage
any potential acquirer to negotiate directly with the Board of Directors, which
is in the best position to evaluate the adequacy and fairness of proposed offers
and to negotiate on behalf of stockholders. The opportunity of the Board of
Directors to seek a higher price in a takeover contest on behalf of all
stockholders is significantly greater than the ability of the individual
stockholder to seek a higher price. In addition, the Board of Directors is in
the best position to protect stockholders against abusive tactics during a
takeover process, such as partial or two-tiered tender offers that do not treat
all stockholders fairly and equally or acquisitions in the open market of shares
constituting control without offering fair value to all stockholders. For these
reasons, many of the companies in the S&P 500 Index have stockholder rights
plans similar to the Company's Rights Agreement.
The Rights Agreement encourages a potential acquirer of control of the
Company to negotiate with the Board of Directors on behalf of all stockholders,
thereby strengthening the leverage of the Company and its stockholders. The
Board of Directors believes that in certain instances, a potential acquirer of
control could have the effect of reducing the public float of the company's
common stock and unfavorably impacting the value of the stock. In responding to
an acquisition proposal, your Board of Directors recognizes its obligation to
fulfill its fiduciary duties to the Company and its stockholders. The Rights
Agreement gives the Board of Directors the time and flexibility to fully
evaluate an acquisition proposal and provides the Board leverage to negotiate
better terms for the Company's stockholders. The terms of the Rights Agreement
allow the Board of Directors to redeem the rights and to permit an acquisition
that it determines, in the exercise of its fiduciary duties, reflects the full
value of the Company and is fair to all stockholders. In evaluating whether to
redeem the rights and approve an acquisition proposal, your Board will act in
the best interests of the Company's stockholders.
Stockholder rights plans do not prevent unsolicited acquisition proposals
and do not prevent companies from being acquired. The Board of Directors
believes the Company's Rights Agreement is appropriately within the scope of
responsibilities of the Board of Directors, acting on behalf of all
stockholders. The continuation of the Rights Agreement accords with the Board's
responsibilities for the management of the Company's affairs. Redeeming the
rights under the Company's Rights Agreement would remove an important tool that
the Board of Directors should have for the protection of stockholders. The Board
of Directors believes that any decision to redeem the rights under the Rights
Agreement should be made in the context of a specific acquisition proposal.
11
Studies have validated the economic benefits of rights plans to
stockholders. A study by Georgeson & Company published in November 1997
concluded that companies with rights plans received $13 billion dollars in
additional premiums during the study period, 1992 to 1996. The study also found
that (i) premiums paid for target companies with rights plans were on average
eight percentage points higher than premiums paid for companies without a rights
plan, (ii) having a rights plan in place did not increase the likelihood of the
withdrawal of a friendly bid or a hostile takeover being defeated, and (iii)
rights plans did not reduce the likelihood that a Company would become a
takeover target.
Georgeson & Company's study was followed by a study published in September
2000 by two business school professors that concluded that rights plans
"contribute to premiums and higher shareholders gains." The same study also
showed such plans do not "materially alter the likelihood of takeover success."
"On the Use of Poison Pills and Defensive Payouts by Targets of Hostile
Takeovers;" Randall A. Heron & Erik Lie, 2000.
A more recent study published in early 2004 by Institutional Shareholder
Services and Georgia State University found that strong shareholder protection
measures were correlated with, among other things, higher shareholder returns
over three-, five- and ten-year periods, stronger profitability measures and
higher dividend payouts and dividend yields. "The Correlation Between Corporate
Governance and Company Performance;" Lawrence D. Brown, Marcus L. Caylor, 2004.
These studies suggest that rights plans achieve their intended objectives
of protecting stockholders against inadequate offers and abusive tactics and
increasing the bargaining power of the Board of Directors, resulting in a higher
value for stockholders.
REQUIRED VOTE
Approval of the stockholder proposal requires the affirmative vote by a
majority of the outstanding shares of common stock present, in person or by
proxy, at the annual meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"AGAINST" PROPOSAL 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE.
12
INFORMATION ABOUT KATY STOCK OWNERSHIP
OUTSTANDING SHARES
The only outstanding class of Katy voting securities is its common stock.
As of April 13, 2005, there were 7,945,377 shares of Katy common stock
outstanding and 1,795,300 options to acquire shares of common stock exercisable
within the next 60 days.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and notes show, as of April 13, 2005, information on
the beneficial ownership of those persons or entities (including certain members
of the family of Wallace E. Carroll, former Chairman of the Board, since
deceased (the "Carroll Family")), and related persons and entities, who are
known to Katy to be the beneficial owners of more than 5% of the shares of the
Company's common stock. The notes below the table describe the nature of that
beneficial ownership. Unless otherwise indicated, the nature of beneficial
ownership is that of sole voting power and sole investment power. In calculating
percentages for a given person, shares for which such person has the right to
acquire beneficial ownership within 60 days (e.g., through exercising options)
are deemed to be outstanding.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Notes Class
------------------------------------------- -------------------- ----- ----------
Wallace E. Carroll, Jr. and 3,118,361 (1) 39.1%
the WEC Jr. Trusts
c/o CRL, Inc.
7505 Village Square Drive, Suite 200
Castle Rock, CO 80104
Amelia M. Carroll and 3,144,361 (2) 39.4%
the WEC Jr. Trusts
c/o CRL, Inc.
7505 Village Square Drive, Suite 200
Castle Rock, CO 80104
Dimensional Fund Advisors, Inc. 441,400 (3) 5.6%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Gabelli Funds, LLC, GAMCO Investors, 1,728,883 (4) 21.8%
Inc., MJG Associates, Inc., Gabelli
Advisers, Inc.
One Corporate Center
Rye, NY 10580-1434
Supplemental Disclosure Regarding
Convertible Preferred Stock
--------------------------------------
KKTY Holding Company, L.L.C. * (5) *
111 Radio Circle
Mt. Kisco, NY 10549
13
(1) Wallace E. Carroll, Jr. directly holds 169,839 shares and options
to acquire 27,000 shares. He is a trustee of trusts for his and his descendants'
benefit (the "WEC Jr. Trusts") which collectively hold 804,635 shares. He and
certain of the WEC Jr. Trusts own all the outstanding shares of CRL, Inc. which
holds 2,071,036 shares. He is also a trustee of the Wallace Foundation which
holds 32,910 shares. Wallace E. Carroll, Jr. also beneficially owns 8,729 shares
directly owned by his wife, Amelia M. Carroll, and 2,106 shares held by a "rabbi
trust" for his wife and 2,106 shares held for him in connection with the Katy
Industries, Inc. Directors' Deferred Compensation Plan. Amounts shown for
Wallace E. Carroll, Jr. and Amelia M. Carroll reflect multiple counting of
shares where more than one of them is a trustee of a particular trust and is
required to report beneficial ownership of shares that these trusts hold.
(2) Amelia M. Carroll holds 8,729 shares directly. She is a trustee of
the WEC Jr. Trusts which collectively own 804,635 shares, and the Wallace
Foundation which holds 32,910 shares. Wallace E. Carroll, Jr., her husband, and
certain of the WEC Jr. Trusts, of which she is a trustee, own all the
outstanding shares of CRL, Inc., which holds 2,071,036 shares. Amelia M. Carroll
is also trustee of trusts for Lelia Carroll and her descendants' benefit holding
26,000 shares in the aggregate. Amelia M. Carroll also beneficially owns 169,839
shares and options to acquire 27,000 shares directly owned by her husband, and
2,106 shares held by a "rabbi trust" for her and 2,106 shares held for her
husband in connection with the Katy Industries, Inc. Directors' Deferred
Compensation Plan. Amounts shown for Amelia M. Carroll and Wallace E. Carroll,
Jr. reflect multiple counting of shares where more than one of them is a trustee
of a particular trust and is required to report beneficial ownership of shares
that these trusts hold.
(3) Information obtained from Schedule 13G dated December 31, 2004
filed by Dimensional Fund Advisors, Inc. for the calendar year 2004.
(4) Information obtained from Schedule 13D/A dated November 23, 2004,
filed by Gabelli Asset Management, Inc. ("GAMI"). That Schedule 13D/A was filed
by Mario Gabelli and various entities which he directly or indirectly controlled
or for which he acted as chief investment officer. The reporting persons
beneficially owning the stock shown in the chart are as follows: Gabelli Funds,
LLC ("Gabelli Funds") 537,600 shares, GAMCO Investors, Inc. ("GAMCO") 1,013,883
shares, MJG Associates, Inc. ("MJG") 113,400 shares, and Gabelli Advisers, Inc.
("Gabelli Advisers") 64,000 shares. Mario Gabelli, Gabelli Asset Management,
Inc. ("GAMI") and Gabelli Group Capital Partners, Inc. ("Gabelli Partners") are
all deemed to have beneficial ownership of the securities owned beneficially by
each of these persons. Each of the reporting persons has the sole power to vote
or direct the vote and sole power to dispose or to direct the disposition of the
securities reported for it, except that (i) GAMCO does not have the authority to
vote 22,000 of the reported shares, and (ii) Gabelli Funds has sole dispositive
and voting power with respect to the shares of Katy held by the funds so long as
the aggregate voting interest of all joint filers does not exceed 25% of their
total voting interest in Katy, and, in that event, the proxy voting committee of
each fund shall vote that funds shares, (iii) the proxy voting committee of each
fund may take and exercise in its sole discretion the entire voting power with
respect to the shares held by such fund under special circumstances such as
regulatory considerations, and (iv) the power of Mario Gabelli, GAMI and Gabelli
Partners is indirect with respect to securities beneficially owned directly by
other reporting persons.
(5) KKTY Holding Company, L.L.C., a Delaware limited liability
company, currently owns 1,131,551 shares of the Company's convertible preferred
stock, which is convertible into 18,859,183 shares of the Company's common
stock. The preferred stock is convertible upon the earlier of June 28, 2006 or
the occurrence of certain fundamental changes in
14
Katy. Until December 31, 2004 (except under certain circumstances), the holders
of the convertible preferred stock were entitled to a paid-in-kind (PIK) stock
dividend. KKTY Holding Company is controlled by several entities, which have
Kohlberg Management IV, L.L.C., a Delaware limited liability company ("KMIV"),
as their general partner. Christopher Lacovara, Samuel P. Frieder, Christopher
W. Anderson, James A. Kohlberg and C. Michael Jacobi, all of whom are members of
the Board of Directors of Katy, are members of KMIV. Each of Messrs. Lacovara,
Frieder, Anderson, Kohlberg and Jacobi disclaim beneficial ownership of these
securities for purposes of Section 16 of the Exchange Act and any other purpose.
It is not expected that the preferred shares will be converted into common stock
prior to June 28, 2006. However, if a conversion did occur, based upon the
ownership level of convertible preferred stock at April 13, 2005, the disclosed
percentage ownerships of the Katy common stock on the above table would change
as follows:
Ownership
Percentage
Name of Beneficial Owner Upon Conversion
------------------------------ ---------------
Wallace E. Carroll, Jr. 11.6%
Amelia M. Carroll 11.7%
Dimensional Fund Advisors, Inc 1.6%
Gabelli Funds, GAMCO, MJG, 6.4%
Gabelli Advisers
KKTY Holding Company, L.L.C. 70.4%
15
SECURITY OWNERSHIP OF MANAGEMENT
The following tables show, as of April 13, 2005, 1) the number of shares
of common stock (first table) and 2) the number of shares of Convertible
Preferred Stock (second table) that directors and certain executive officers
beneficially own, and that directors and executive officers as a group own.
Unless otherwise indicated, the nature of beneficial ownership is that of sole
voting power and sole investment power. In calculating percentages, shares for
which a person has the right to acquire beneficial ownership within 60 days
(e.g., through exercising options) are deemed to be outstanding.
Common Stock
Amount and Nature
of Beneficial Percent
Name Ownership Notes of Class
--------------------------------------- ----------------- --------- ---------
Christopher W. Anderson -- *
William F. Andrews 17,000 (1) *
Robert M. Baratta 68,985 (1) *
Daniel B. Carroll 36,000 (1) *
Wallace E. Carroll, Jr. 3,118,361 (1)(2)(3) 39.1%
David C. Cooksey 30,400 (1) *
Samuel P. Frieder -- *
C. Michael Jacobi 1,054,500 (1) 11.7%
James A. Kohlberg -- *
Christopher Lacovara -- *
Michael C. Paul 30,000 (1) *
David S. Rahilly 75,000 (1) *
Amir Rosenthal 260,000 (1) 3.2%
All directors and executive officers of 4,690,246 (1)(2)(3) 49.4%
Katy as a group (13 persons)
* Indicates 1% or less
Convertible Preferred Stock
Amount and Nature
of Beneficial Percent
Name Ownership Notes of Class
--------------------------------------- ----------------- --------- ---------
Christopher W. Anderson -- (4) *
Samuel P. Frieder -- (4) *
James A. Kohlberg -- (4) *
Christopher Lacovara -- (4) *
C. Michael Jacobi -- (4) *
All directors and executive officers of -- (4) *
Katy as a group (5 persons)
* Indicates 1% or less
16
(1) Includes options to acquire the following number of shares within 60
days:
William F. Andrews 12,000
Robert M. Baratta 47,500
Daniel B. Carroll 27,000
Wallace E. Carroll, Jr. 27,000
David C. Cooksey 30,000
C. Michael Jacobi 1,050,000
Michael C. Paul 30,000
David S. Rahilly 75,000
Amir Rosenthal 250,000
(2) Includes shares deemed beneficially owned by Wallace E. Carroll,
Jr. in his capacity as trustee of certain trusts for the benefit of members of
the Carroll Family (see notes (1) and (2) under "Security Ownership of Certain
Beneficial Owners").
(3) Includes 2,106 shares held by a "rabbi trust" in connection with the
Katy Industries, Inc. Supplemental Retirement and Deferral Plan.
(4) Christopher Lacovara, Samuel P. Frieder, Christopher W. Anderson,
James A. Kohlberg and C. Michael Jacobi have membership interests in Kohlberg
Management IV, L.L.C., a Delaware limited liability company ("KMIV"). KMIV is
the general partner of several entities with ownership interests in KKTY Holding
Company, which currently owns 1,131,551 shares of the Company's convertible
preferred stock, which is convertible into 18,859,183 shares of the Company's
common stock. The preferred stock is convertible upon the earlier of June 28,
2006 or the occurrence of certain fundamental changes in Katy. Through December
31, 2004 (except under certain circumstances) the holders of the convertible
preferred stock were entitled to a paid-in-kind (PIK) stock dividend. KKTY
Holding Company is controlled by several entities, which have KMIV as their
general partner. Each of Messrs. Lacovara, Frieder, Anderson, Kohlberg and
Jacobi disclaim beneficial ownership of these securities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Exchange Act, Katy's directors, executive officers
and persons beneficially owning more than 10% of Katy's shares of equity
securities must file reports of ownership and changes in ownership with the SEC,
and copies of these reports with the New York Stock Exchange and Katy. Based
solely on reviewing copies of the Section 16 reports from its most recent fiscal
year, Katy believes that, through December 31, 2004, its directors, executive
officers and greater than 10% beneficial owners complied with their Section 16
filing requirements.
17
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the years ending December 31, 2004, 2003
and 2002, the compensation paid by Katy and its subsidiaries (and certain other
compensation paid or accrued for those years) to Katy's Chief Executive Officer
("CEO"), and the four other most highly compensated executive officers for the
year ended December 31, 2004.
Annual Compensation Long-Term Compensation
Securities
Other Restricted Underlying
Name and Annual Stock Options/ All Other
Principal Position Year Salary Bonus Compensation(1) Awards SARs Compensation
-------------------------- ---- --------- --------- --------------- ---------- ---------- ------------
C.Michael Jacobi 2004 $ 569,125 $ -- $ 32,360 $ -- 125,000 $ --
President and Chief 2003 537,511 167,400 34,612 -- -- --
Executive Officer 2002 509,803 133,000 58,881 -- -- --
Amir Rosenthal 2004 $ 317,019 $ -- $ 19,853 $ -- 50,000 $ --
Vice President, Chief 2003 300,000 93,000 13,557 -- -- --
Financial Officer, 2002 266,346 75,000 11,765 -- 50,000 --
General Counsel and
Secretary
David S. Rahilly 2004 $ 254,808 $ -- $ 14,736 $ -- -- $ --
President, Katy 2003 250,000 121,000 11,953 -- -- --
Consumer Products 2002 221,154 187,500 9,365 -- 25,000 --
David C. Cooksey 2004 $ 166,774 $ -- $ 13,146 $ -- -- $ --
Corporate Director of 2003 159,032 39,717 12,645 -- -- --
Accounting and 2002 152,354 23,000 9,216 -- -- --
Assistant Treasurer
Michael C. Paul 2004 $ 165,477 $ -- $ 12,795 $ -- -- $ --
Corporate Director of 2003 67,692 20,000 4,104 -- 30,000 --
Financial Reporting 2002 -- -- -- -- -- --
and Treasurer
(1) The 2004, 2003 and 2002 figures include employer contributions to the
named executive Officers' 401(k) retirement accounts, automobile and other
allowances, certain club memberships and non-cash compensation in the form of
group term life insurance.
The 2004 figures include the following amounts:
Auto Other Club Group Term 401(k)
Allowance Allowances Memberships Life Insurance Match
--------- ---------- ----------- -------------- -------
C. Michael Jacobi $ 12,000 $ 1,950 $ 8,195 $ 5,148 $ 5,067
Amir Rosenthal 9,600 5,484 -- 540 4,229
David S. Rahilly 7,200 2,400 -- 3,564 1,572
David C. Cooksey 7,200 -- -- 2,194 3,753
Michael C. Paul 7,200 1,200 -- 330 4,065
18
The 2003 figures include the following amounts:
Auto Other Club Group Term 401(k)
Allowance Allowances Memberships Life Insurance Match
--------- ---------- ----------- -------------- -------
C. Michael Jacobi $ 12,000 $ 4,097 $ 7,367 $ 5,148 $ 6,000
Amir Rosenthal 9,600 1,200 -- 540 2,217
David S. Rahilly 7,200 1,200 -- 2,135 1,418
David C. Cooksey 7,200 -- -- 1,387 4,058
Michael C. Paul 3,000 500 -- 112 492
The 2002 figures include the following amounts:
Auto Other Club Group Term 401(k)
Allowance Allowances Memberships Life Insurance Match
--------- ---------- ----------- -------------- -------
C. Michael Jacobi $ 12,000 $ -- $ 38,983 $ 5,148 $ 2,750
Amir Rosenthal 9,600 -- -- 540 1,625
David S. Rahilly 7,200 -- -- 965 1,200
David C. Cooksey 7,200 -- -- 1,316 700
Michael C. Paul -- -- -- -- --
Option/SAR Grants in last fiscal year
This table presents information regarding stock appreciation rights
("SARs") granted to Katy's named executive officers during the year ended
December 31, 2004. In accordance with SEC rules, the table shows the
hypothetical "gains" or "option spreads" that would exist for the respective
SARs based on assumed rates of annual compound stock price appreciation of 5%
and 10% from the date the SARs were granted over the full term. There were no
stock options granted to the named executive officers during 2004.
Potential Realizable Value
Individual Grants at Assumed Annual
------------------------------------------------------------- Rates of Stock Price
Appreciation for the
Percentage of Option/SAR Term (3)
Number of Total Options/SARs --------------------------
Securities Granted to
Underlying Employees in Exercise Price Expiration
Grants (1) Fiscal Year (1) Per Share (2) Date 5% 10%
---------- ------------------ -------------- ---------- ----------- ------------
C. Michael Jacobi 125,000 45% $ 5.90 2/18/2014 $ 463,810 $ 1,175,385
Amir Rosenthal 50,000 18% $ 5.90 2/18/2014 $ 185,524 $ 470,154
David S. Rahilly -- -- -- -- -- --
David C. Cooksey -- -- -- -- -- --
Michael C. Paul -- -- -- -- -- --
(1) The total number of stock appreciation rights granted to employees during
the year ended December 31, 2004 was 275,000.
(2) The exercise price per share of the stock appreciation rights granted
represented the fair market value of the underlying shares of Common Stock on
the date the stock appreciation rights were granted.
19
(3) As required under the SEC's rules, amounts represent hypothetical gains
that could be achieved for the respective stock appreciation rights at the end
of the option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date the respective
stock appreciation rights were granted to their expiration date. These
assumptions are not intended to forecast future appreciation of our stock price.
The potential realizable value computation does not take into account federal or
state income tax consequences. If our stock price does not actually increase to
a level above the applicable exercise price at the time of exercise, the
realized value to the named executive officers from these stock appreciation
rights will be zero.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
The following table shows the number of shares of common stock subject to
exercisable and unexercisable stock options and SARS held by each named
executive officers as of December 31, 2004. The table also shows the value of
in-the-money options and SARs at December 31, 2004 held by the named executive
officers. The named executive officers did not exercise any stock options or
SARs in 2004.
Aggregate Fiscal Year-End Option Value
--------------------------------------------------------
Number of Securities
Underlying Unexercised Value of In-the-Money
Options/SARs at Year End Options/SARs at Year End (1)
-------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- --------------
Name
C. Michael Jacobi 1,050,000 125,000 $ 1,029,000 $ --
Amir Rosenthal 250,000 50,000 342,500 --
David S. Rahilly 75,000 -- 141,250 --
David C. Cooksey 30,000 -- 53,400 --
Michael C. Paul 30,000 -- 9,900 --
(1) Based on closing price of the New York Stock Exchange Composite Tape on
December 31, 2004 of $5.18.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, CHANGE OF CONTROL AND OTHER
ARRANGEMENTS
President and Chief Executive Officer
On June 28, 2001, C. Michael Jacobi entered into an employment agreement
with Katy, which was subsequently amended on October 1, 2004. The contract, as
amended, states that if Mr. Jacobi is terminated other than for cause, or he is
required to relocate, Katy will continue to pay his base salary for (i) one
year, if such termination occurs other than as a result of a Change in Control,
or (ii) two years, if such termination is a result of or within the six month
period following a Change in Control.
20
Vice President, Chief Financial Officer, General Counsel and Secretary
On August 6, 2001, Amir Rosenthal entered into an employment agreement
with Katy, which was subsequently amended on October 1, 2004. The contract, as
amended, states in the event that, if Mr. Rosenthal's employment is terminated
other than for cause, or there is a Change of Control event after which (i) Mr.
Rosenthal is terminated other than for cause, (ii) he is required to relocate or
(iii) there is substantial change in his job responsibilities, Katy will
continue to pay his regular base salary for a period of one year.
For purposes of Messrs. Jacobi's and Rosenthal's agreements, "Change in
Control" means (i) a sale of 100% of Katy's outstanding capital stock, (ii) a
sale of all or substantially all of Katy's operating subsidiaries or assets or
(iii) a transaction or transactions in which any third party acquires Katy stock
in an amount greater than that held by KKTY Holding Company and in which KKTY
Holding Company relinquishes its right to nominate a majority of the candidates
for election to the Board.
DIRECTORS' COMPENSATION
For 2004, directors who were not employed by Katy or its subsidiaries
received: (i) an annual retainer of $10,000; (ii) options to acquire 2,000
shares under the Directors Stock Option Plan (see below); (iii) a stock grant of
1,000 shares for service on the Board of Directors; and (iv) $2,500 for
attending each meeting of the Board. This group of directors also received in
2004: (i) an annual retainer of $6,000 if they chaired a Board committee, and
(ii) $1,000 for attending each meeting of a Board committee. Class II directors
and those directors that are also officers do not receive the compensation
described in this section for their service on the Board of Directors. For 2005,
there is no change anticipated for directors' compensation.
Under the Katy Industries, Inc. Non-Employee Director Stock Option Plan
(the "Directors' Stock Option Plan"), each non-employee director who is not a
Class II director receives on the date immediately following the annual meeting
an annual grant of options to acquire 2,000 shares of Katy common stock. The
exercise price is the fair market value on the date of grant. The director may
exercise these options at any time during the ten years from the date of grant.
Directors receiving compensation for their services may also participate
in the Directors' Deferred Compensation Plan which became effective June 1, 1995
(the "Directors' Deferred Compensation Plan"). Under this Plan, a director may
defer directors' fees, retainers and other compensation paid for services as a
director until the later of the director's attainment of age 62 or ceasing to be
a director. Each director has 30 days before the beginning of a Plan Year (as
defined in the Directors' Deferred Compensation Plan) in which to elect to
participate in the Directors' Deferred Compensation Plan. Directors may invest
these amounts in one or more investment alternatives offered by Katy. Directors
may elect to receive distributions of deferred amounts in a lump sum or five
annual installments.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") presents the following executive compensation report for the 2004
fiscal year:
21
The Compensation Committee consists of Wallace E. Carroll, Jr.,
(Chairman), Christopher Lacovara and Christopher W. Anderson. A current copy of
the Compensation Committee charter is available on the Company's website at
www.katyindustries.com. The Committee makes decisions on executive officer
compensation and reports its decisions to the Board. It also seeks the Board's
approval on the Chief Executive Officer's compensation. The following summarizes
the compensation practice and philosophy that was in effect at Katy for the
fiscal year ended December 31, 2004. Modifications to such philosophy have been,
and may continue to be, made.
Compensation Philosophy
Katy's compensation program aims to align executive officers' economic
interests with those of stockholders (including Katy's financial objectives and
market performance). The Compensation Committee seeks to adjust compensation
levels (through competitive base salaries and bonus payments) based on
individual and Company performance. It reviews the executive compensation
program annually in view of Katy's annual strategic and financial objectives and
performance.
Compensation Program Components
Annual compensation for Katy's Chief Executive Officer and other executive
officers (including the named executive officers) consists of two cash
compensation components: base salary and annual cash bonuses. A third component,
stock options and SARs, are used for executive retention, to attract new key
people, and to align the long-term interests of eligible executives with those
of stockholders.
Salary and bonus levels reflect job responsibility, Compensation Committee
judgments of individual effort and performance, and Katy's financial and market
performance (in light of the competitive environment in which Katy operates).
Annual cash compensation is also influenced by comparable companies'
compensation practices so that Katy remains reasonably competitive in the
market. While competitive pay practices are important, the Compensation
Committee believes that the most important considerations are individual merit
and Katy's financial and market performance. In considering Katy's financial and
market performance, the Compensation Committee reviews, among other things, net
income, cash flow, working capital and revenues and share price performance
relative to comparable companies and historical performance.
The base salaries for Katy's executive officers for the year ended
December 31, 2004 were generally established in March 2004 by considering the
performance and contribution of each officer and by comparing base salaries
offered for similar positions by taking into account the compensation paid to
executives of comparable companies.
The annual bonus plan compensates employees based on target bonus
opportunities established by the Compensation Committee stated as a percentage
of annual base salary for recommended key employees each year (including the
Chief Executive Officer and the other named executive officers). An employee
achieves the target bonus opportunity if he or she meets 100% of pre-established
performance goals. A higher or lower bonus is earned if performance exceeds or
falls short of the target levels. All bonuses paid to employees for 2004 were
based on the provisions of the annual bonus plan. For 2004, no bonuses paid were
to any of the named executive officers under the provisions of the annual bonus
plan due to failure to achieve specific performance goals. Other employees at
certain subsidiaries received bonuses based on the operating performance at
their divisions.
22
The Supplemental Retirement and Deferral Plan (the "Supplemental Deferral
Plan"), among other things, allows participants to voluntarily defer up to 100%
of their annual bonus and up to 50% of their base salary until retirement or
termination of his or her employment. Katy invests voluntary deferrals and
profit sharing allocations at the employee's election in several investment
alternatives offered by Katy.
The third compensation component is a stock option and SAR program,
implemented under the Company's Long-Term Incentive Plan, 1997 Long-Term
Incentive Plan and 2002 Stock Appreciation Plan. Under Katy's current stock
option and SAR program, the Board may provide compensation in the form of
incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock, performance units or shares, and other incentive awards
including cash bonuses, contingent on Katy's share price reaching certain goals
specified under the stock option and SAR program. The Compensation Committee
believes that the stock option and SAR program optimizes Katy's growth and
profitability by providing incentives to employees which are consistent with
Katy's goals and which link employees' personal interests to those of the
stockholders. The stock option and SAR program is also intended to give Katy
flexibility to attract, motivate, and retain the services of employees and other
individuals who contribute to its success. During 2004, no stock options were
granted to employees while 275,000 SARs were granted to employees, including
125,000 to C. Michael Jacobi and 50,000 to Amir Rosenthal.
Chief Executive Officer Compensation
C. Michael Jacobi became President and Chief Executive Officer in June
2001. Mr. Jacobi's compensation is primarily governed by his employment
agreement. Mr. Jacobi's salary for 2004 was increased in March 2004 from
$540,000 to $565,000 on an annual basis. This increase was based upon his
experience, qualifications and responsibilities. Mr. Jacobi was not awarded a
cash bonus for 2004, as the Company did not reach its pre-established
performance goals. Pursuant to an understanding with the Board of Directors,
whereby the Board of Directors determined that Mr. Jacobi would not be diluted
by the PIK stock dividend paid to KKTY Holding Company, Mr. Jacobi was granted
125,000 SARs in 2004.
Summary
The Compensation Committee believes that the total compensation program
for executive officers is appropriately related to individual performance and
Katy's performance (including Katy's financial results and stockholder value).
The Compensation Committee monitors the executive compensation of comparable
companies and believes that Katy's compensation program is competitive and
provides appropriate incentives for Katy's executive officers to work towards
continued improvement in Katy's overall performance.
Compensation Committee of the Board of Directors
Wallace E. Carroll, Jr. (Chairman)
Christopher Lacovara
Christopher W. Anderson
The Compensation Committee Report on Executive Compensation shall not be
deemed to be incorporated by reference as a result of any general incorporation
by reference of this Proxy Statement or any part hereof in the Company's 2004
Annual Report to Stockholders, its Annual Report on Form 10-K for the year ended
December 31, 2004 or any other filings with the SEC.
23
COMPENSATION COMMITTEE INTERLOCKS
The Committee currently consists of Messrs. Carroll, Jr., Lacovara and
Anderson. No member of the Committee was an employee of Katy during the last
fiscal year or an officer of Katy in any prior period. There are no Compensation
Committee interlocks between Katy and other entities involving Katy's executive
officers and members of the Board of Directors who serve as an executive officer
or board member of such other entities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2004, Katy paid Kohlberg & Co. $500,000 for ongoing management
advisory services. Katy expects to pay $500,000 per year for these services, as
outlined in the Recapitalization Agreement of June 2, 2001. Christopher W.
Anderson is an Associate at Kohlberg & Co. Samuel P. Frieder and Christopher
Lacovara are Principals of Kohlberg & Co. James A. Kohlberg is Co-Founder and
Managing Principal of Kohlberg & Co. William F. Andrews, Chairman of the Board,
is a consultant, or "Operating Principal," with Kohlberg & Co.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met seven times during 2004. Each director in
office at the time of such meeting attended at least 75% of the Board meetings
and the meetings of the Board committees of which he is a member. The
non-management directors meet in executive session without members of management
present at every regular Board meeting. At these meetings, the presiding
director rotates through each non-management director based on the alphabetical
order of the directors' last names. In addition, eight directors attended the
2004 annual meeting.
Katy's bylaws provide for an Executive Committee to which the Board of
Directors has assigned all powers delegable by law. The Executive Committee met
informally through numerous telephone conferences at intervals between meetings
of the full Board of Directors, and acted by unanimous consent without formal
meetings. The Executive Committee consists of Christopher Lacovara, Christopher
W. Anderson and C. Michael Jacobi.
The Board of Directors also has an Audit Committee, Compensation Committee
and Nominating and Governance Committee. All of the members of these three Board
committees are independent within the meaning of SEC regulations (as
applicable), the listing standards of the New York Stock Exchange and Katy's
Corporate Governance Guidelines.
The Corporate Governance Guidelines adopted by the Board meet or exceed
the standards adopted by the New York Stock Exchange. The full text of the
Corporate Governance Guidelines can be found in the Corporate Governance section
of the Company's website (www.katyindustries.com). A copy may also be obtained
upon request from the Company's Corporate Secretary.
Pursuant to the Corporate Governance Guidelines, the Board undertook its
annual review of director independence in April 2005. During this review, the
Board considered transactions and relationships between each director or any
member of his or her immediate family and the Company and its subsidiaries and
affiliates, including those reported under "Certain
24
Relationships and Related Transactions" above. The Board also examined
transactions and relationships between directors or their affiliates and members
of the Company's senior management or their affiliates. The purpose of this
review was to determine whether any such relationships or transactions were
inconsistent with a determination that the director is independent.
As a result of this review, the Board affirmatively determined that all of
the directors nominated for election at the annual meeting are independent of
the Company and its management under the standards set forth in the Corporate
Governance Guidelines and Section 3.03A.02 of the NYSE listing standards, with
the exception of C. Michael Jacobi and Robert M. Baratta. Mr. Jacobi is
considered a non-independent inside director because of his employment as a
senior executive of the Company. Mr. Baratta is considered a non-independent
director because he was a senior executive of the Company within the past three
years.
The Audit Committee consists of Daniel B. Carroll (Chairman), Christopher
Lacovara and William F. Andrews, each of whom satisfy the qualification and
independence requirements of Section 303A.07 of the NYSE listing standards. This
Committee met four times during 2004. The Audit Committee reviews the results of
the annual audit with Katy's independent registered public accounting firm,
reviews the scope and adequacy of Katy's internal auditing procedures and its
system of internal controls, reviews Katy's financial statements and related
financial issues with management and the independent registered public
accounting firm, and reports its findings and recommendations to the Board of
Directors. Mr. Lacovara, a member of the Audit Committee, is qualified as an
audit committee financial expert within the meaning of SEC regulations and the
Board has determined that he has accounting and related financial management
expertise within the meaning of the listing standards of the New York Stock
Exchange. As mentioned above, the Board of Directors has determined that Mr.
Lacovara is an independent director.
The Compensation Committee consists of Wallace E. Carroll, Jr. (Chairman),
Christopher Lacovara and Christopher W. Anderson. This Committee, which reviews
current and deferred compensation for Katy officers and for some officers and
key employees of its subsidiaries, met six times during 2004. It makes decisions
on executive officer compensation and reports its decisions to the Board of
Directors. It also seeks the Board's approval on the Chief Executive Officer's
compensation.
The Nominating and Governance Committee consists of Samuel P. Frieder
(Chairman), William F. Andrews and Daniel B. Carroll. This Committee met two
times during 2004. The Nominating and Governance Committee is responsible for
developing and implementing policies and practices relating to corporate
governance, including reviewing and monitoring implementation of Katy's
Corporate Governance Guidelines, and sets and reviews policies and procedures in
place throughout various disciplines within the Company to ensure high ethical
standards are practiced. In addition, the Committee makes recommendations to the
Board regarding candidates for the Board. The Committee reports its findings and
recommendations to the Board. A current copy of the Nominating and Governance
Committee charter is available on the Company's website at
www.katyindustries.com.
The entire Board of Directors considers and selects nominees for directors
on the basis of recommendations from the Nominating and Governance Committee.
The Governance and Nominating Committee considers candidates for Board
membership suggested by its members and other Board members, as well as
management. Additionally, subject to compliance with the
25
requirement of the bylaws, the Nominating and Governance Committee will consider
nominations from stockholders.
Once the Governance and Nominating Committee has identified a prospective
nominee, the Committee makes an initial determination as to as to whether to
conduct a full evaluation of the candidate. This initial determination is based
on whatever information is provided to the Committee with the recommendation of
the prospective candidate, as well as the Committee's own knowledge of the
prospective candidate, which may be supplemented by inquiries to the person
making the recommendation or others. The preliminary determination is based
primarily on the need for additional Board members to fill vacancies or expand
the size of the Board and the likelihood that the prospective nominee can
satisfy the Committee's evaluation factors. The Committee's evaluation factors
are:
o the ability of the prospective nominee to represent the interests of
the stockholders of the Company;
o the prospective nominee's standards of integrity, commitment and
independence of thought and judgment;
o the prospective nominee's ability to dedicate sufficient time, energy
and attention to the diligent performance of his or her duties,
including the prospective nominee's service on other public company
boards; and
o the extent to which the prospective nominee contributes to the range
of talent, skill and expertise appropriate for the Board.
The Committee also considers such other relevant factors as it deems
appropriate, including the current composition of the Board, the balance of
management and independent directors, the need for Audit Committee expertise and
the evaluations of other prospective nominees. In connection with this
evaluation, the Committee determines whether to interview the prospective
nominee, and if warranted, one or more members of the Committee, and others as
appropriate, will interview prospective nominees in person or by telephone.
After completing this evaluation and interview, the Committee makes a
recommendation to the full Board as to the persons who should be nominated by
the Board, and the Board determines the nominees after considering the
recommendation and report of the Committee.
Pursuant to the advance notice provision of our bylaws, stockholder
nominations for directors must be received by Katy not less than 50 days or more
than 90 days before the annual meeting. Any nominations for directors made by
stockholders must include the following information regarding the nominee: name;
age; business address; residence address; principal occupation or employment;
class and number of shares of Katy beneficially owned; and any other information
required to be disclosed in a proxy solicitation for the election of directors.
Additionally, the stockholder making such nomination must provide his or her
name and address, and the number of shares of the Company beneficially owned by
such stockholder. No person is eligible for election as a director of the
Company unless he or she is nominated (i) by the Board of Directors or (ii) in
accordance with the foregoing requirements.
AUDIT COMMITTEE REPORT
The Audit Committee acts pursuant to a written charter, a current copy of
which is available on the Company's website at www.katyindustries.com. As set
forth in more detail in the charter, the Audit Committee's primary
responsibilities are focused in four broad categories:
26
1. Recommend to the Board of Directors the appointment of the independent
registered public accounting firm;
2. Consult with management or the independent registered public
accounting firm regarding the audit scope and the audit plan;
3. Review and approve company financial statements; and
4. Review with management and the independent registered public
accounting firm the adequacy of internal controls.
The Audit Committee has adopted pre-approval policies and procedures for
audit and permissible non-audit procedures provided by all auditors (including
our independent registered public accounting firm), consistent with the
requirements of SEC regulations. The policy provides that all audit and
non-audit services provided by all auditors must be individually pre-approved by
the Audit Committee. In determining whether to pre-approve services, the Audit
Committee considers whether such services are consistent with the rules of the
SEC on auditor independence. The Audit Committee delegates to its members the
authority to address any requests for pre-approval of services between Audit
Committee meetings. Any pre-approval determination by a member of the committee
must be reported to the Audit Committee at its next scheduled meeting. There is
no delegation of the Audit Committee's pre-approval authority to management.
Requests or applications to provide services that require pre-approval by the
Audit Committee must be submitted to the Audit Committee by both the independent
registered public accounting firm and the Chief Financial Officer, Treasurer or
Assistant Treasurer of the Company, and must include a joint statement as to
whether, in their view, the request or application is consistent with the SEC's
rules on auditor independence. All services provided by Katy's independent
registered public accounting firm were approved pursuant to Katy's pre-approval
policies and procedures.
The Audit Committee has reviewed and discussed the audited financial
statements for the year ending 2004 with management and the Company's
independent registered public accounting firm, and has discussed with the
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards 61 (Communications with Audit
Committees). The Audit Committee has received the written disclosures and the
letter from the independent registered public accounting firm required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and has discussed with the independent registered public accounting
firm the independent registered public accounting firm's independence from Katy
and the Company's management. Based on these reviews and discussions, the Audit
Committee recommended to the Board of Directors, and the Board approved, that
the audited financial statements be included in Katy's Annual Report on Form
10-K for the year ended December 31, 2004 filed with the Securities and Exchange
Commission.
Audit Committee of the Board of Directors
Daniel B. Carroll (Chairman)
Christopher Lacovara
William F. Andrews
The Audit Committee Report shall not be deemed to be incorporated by
reference as a result of any general incorporation by reference of this Proxy
Statement or any part hereof in the
27
Company's 2004 Annual Report to Stockholders, its Annual Report on Form 10-K for
the year ended December 31, 2004 or any other filings with the SEC.
CODE OF ETHICS
Katy has adopted a Code of Business Conduct and Ethics for directors,
executive officers and employees. A copy of the Code of Business Conduct and
Ethics may be found at Katy's website at www.katyindustries.com
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders and other parties interested in communicating directly with
whole Board of Directors or the non-management directors as a group may do so by
writing to Chairman of the Board, Katy Industries, Inc., 765 Straits Turnpike,
Middlebury, CT 06762.
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative
total stockholder return on the shares of Katy common stock with the cumulative
total return of the Russell 2000 index, the cumulative total return of the Dow
Jones US Industrial Diversified Index and the cumulative total return of the S&P
Smallcap 600 Industrial Conglomerates index for the fiscal years ending December
31, 1999 through 2004. The graph below assumes $100 invested, including
reinvestment of dividends, on December 31, 1999.
28
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG KATY INDUSTRIES, INC., THE RUSSELL 2000 INDEX,
THE DOW JONES US INDUSTRIAL DIVERSIFIED INDEX
AND THE S & P SMALLCAP 600 INDUSTRIAL CONGLOMERATES INDEX
[GRAPH OMITTED]
* $ 100 invested on 12/31/99 in stock or index-including reinvestement of
dividends. Fiscal year ending December 31.
Copyright(C) 2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
Comparison of Five Year Cumulative Total Return
Cumulative Total Return
-------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
Katy Industries, Inc. 100.00 71.46 40.73 40.97 68.00 61.69
Russell 2000 100.00 96.98 99.39 79.03 116.38 137.71
Dow Jones US Industrial Diversified 100.00 100.72 90.55 58.80 79.54 94.79
S&P Smallcap 600 Industrial Conglomerates 100.00 89.65 98.38 87.31 96.41 117.43
29
PROPOSALS OF STOCKHOLDERS FOR 2006 ANNUAL MEETING
In order to be considered for inclusion in Katy's proxy materials for the
2006 annual meeting of stockholders, any stockholder proposal must be addressed
to Katy Industries, Inc., 765 Straits Turnpike, Middlebury, Connecticut 06762,
Attention: Secretary, and must be received no later than December 29, 2005. The
2006 annual stockholders meeting is tentatively scheduled for May 25, 2006.
If proposals are not received in time to be included in the proxy
materials, Katy's bylaws set forth additional requirements and procedures
regarding the submission of stockholder proposals for consideration at an annual
meeting of stockholders. A stockholder proposal or nomination intended to be
brought before the 2006 annual meeting must be received by the Secretary in
writing not less than 50 days or more than 90 days prior to the 2006 annual
meeting. A nomination or proposal that does not comply with such requirements
and procedures will be disregarded.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any matters to be presented at the meeting other than the proposals
noted in this Proxy Statement. However, if other matters come before the
meeting, it is the intention of the persons named on the accompanying proxy to
vote on such matters in accordance with their best judgment. Katy's Board of
Directors has adopted an advance notice bylaw provision requiring that
stockholder proposals to be made at any annual meeting be received by Katy not
less than 50 days nor more than 90 days prior to the annual meeting. No such
stockholder proposals were received for the 2005 annual meeting.
HOUSEHOLDING
Unless we have received contrary instructions, the Company may send a
single copy of the annual report, proxy statement and notice of annual meeting
to any household at which two or more stockholders reside if the Company
believes the stockholders are members of the same family. Each stockholder in
the household will continue to receive a separate proxy card. This process,
known as "householding," reduces the volume of duplicate information received at
your household and helps to reduce the Company's expenses.
If you would like to receive your own set of the Company's annual
disclosure documents this year or in future years, follow the instructions
described below. Similarly, if you share an address with another stockholder and
together both of you would like to receive only a single set of the Company's
annual disclose documents, follow these instructions:
If your shares are registered in your own name, please contact our
corporate office at 765 Straits Turnpike, Middlebury, Connecticut 06762, Attn:
Secretary, and inform us of your request.
If a bank, broker or other nominee holds your shares please contact your
bank, broker or other nominee directly.
30
FORM 10-K
Upon written request to our corporate office at 765 Straits Turnpike,
Middlebury, Connecticut 06762, stockholders will be furnished without charge a
copy of our Annual Report on Form 10-K required to be filed with the Securities
and Exchange Commission, including the financial statements and the schedules
thereto for the most recent fiscal year.
Middlebury, Connecticut
April 28, 2005
31
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted "FOR" proposals 1 and 2, and
"AGAINST" proposal 3.
1. Election of Directors:
Nominees:
Christopher W. Anderson
William F. Andrews
Samuel P. Frieder
James A. Kohlberg
Christopher Lacovara
|_| For All |_| Withhold All |_| For All Except*
--------------------------------------------------------------------------------
* To withhold authority to vote for any individual nominee, write the nominee's
name in the space provided above and fill in the "For All Except" oval.
Proposal 2. To ratify the selection of PricewaterhouseCoopers LLP as the
independent public accountants of Katy.
|_| For |_| Against |_| Abstain
Proposal 3. To consider and vote upon a stockholder proposal regarding Katy's
Stockholder Rights Agreement.
|_| For |_| Against |_| Abstain
Please check this box if you plan to attend the annual meeting.
|_|
Date: --------------------------------
(signature)
Date: --------------------------------
(signature)
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of a
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed in corporate name by the President or
Vice President and the Secretary or Assistant Secretary, and the corporate seal
should be affixed thereto. If shares of stock are held of record by any other
legal entity, the Proxy should be executed in the entity name by an authorized
person. Executors or administrators or other fiduciaries who execute the above
Proxy for a deceased stockholder should give their full title. Where applicable,
indicate your official position or representative capacity. Please date the
proxy.
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