DEF 14A 1 kamn2013proxy.htm DEF 14A KAMN 2013 PROXY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_________________________

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
_________________________

Filed by the Registrant
x
Filed by a Party other than the Registrant
o
Check the appropriate box:

o
Preliminary Proxy Statement
o
Confidential, For Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
x
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12

KAMAN CORPORATION
(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.
o
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:
o
Fee paid previously with preliminary materials.
o
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:




BLOOMFIELD, CONNECTICUT



NEAL J. KEATING
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

March 1, 2013

To Our Shareholders:

I would like to extend a personal invitation to you to join us at our Annual Meeting of Shareholders, which will be held on Wednesday, April 17, 2013, at 11:00 a.m., local time, at the Hartford/Windsor Marriott Airport Hotel, 28 Day Hill Road, Windsor, Connecticut 06095.

At this year’s meeting, you will be asked to elect four Class 2 Directors, conduct an advisory vote to approve named executive officer compensation, approve the Company's 2013 Management Incentive Plan and ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors.

Your voice is important to us. We encourage you to attend the meeting in person, but if you are unable to attend, we urge you to vote your shares.

On behalf of our Board of Directors, we look forward to seeing you at the meeting.

Sincerely,

Neal J. Keating
Chairman of the Board, President and
Chief Executive Officer




NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
April 17, 2013

The Annual Meeting of Shareholders of Kaman Corporation will be held at the Hartford/Windsor Marriott Airport Hotel, 28 Day Hill Road, Windsor, Connecticut 06095, on Wednesday, April 17, 2013, at 11:00 a.m., local time, for the following purposes:
1.     To elect four (4) Class 2 Directors to serve for terms of three (3) years each and until their successors are duly elected and qualify.
2.    To approve, on an advisory basis, the compensation of the Company’s named executive officers.
3.    To approve the Company's 2013 Management Incentive Plan.
4.    To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.
5.    To transact such other business as may properly come before the meeting.

The close of business on February 15, 2013, has been fixed as the record date for determining the holders of Common Stock entitled to notice of, and to vote at, the Annual Meeting.

In connection with the Annual Meeting, we have prepared a meeting notice, a proxy statement, and our annual report to shareholders, all of which provide important information that our shareholders will want to review before the Annual Meeting. On March 1, 2013, we mailed a Notice of Internet Availability of Proxy Materials instructing our shareholders how to access these materials online and how to submit proxies by telephone or the Internet. We use this online access format because it expedites the delivery of materials, reduces printing and postage costs and eliminates bulky paper documents from your files, creating a more efficient process for both shareholders and the Company.

If you receive the Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of these materials unless you specifically request one. The Notice of Internet Availability of Proxy Materials contains instructions on how to obtain a paper copy of the materials. If you receive paper copies of the materials, a proxy card will also be enclosed.

You may vote using the Internet, telephone or mail, or by attending the meeting and voting in person. If you plan to attend in person, you will need to provide proof of share ownership, such as an account or brokerage statement, and a form of personal identification in order to vote your shares.

All shareholders are cordially invited to attend the meeting.

Date:
March 1, 2013
 
BY ORDER OF THE BOARD OF DIRECTORS
 
 
 

 
 
 
Richard S. Smith, Jr.
 
 
 
Vice President, Deputy General Counsel, and Secretary


____________________________


IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHODLERS TO BE HELD ON APRIL 17, 2013: This Notice of Annual Meeting and Proxy Statement and the Company's Annual Report for the year ended December 31, 2012, are available free of charge on our website at www.kaman.com/investor-relations/financial-information.




TABLE OF CONTENTS
 
Page #
 
Page #
1
18
1
19
1
20
1
20
1
21
2
22
2
22
2
22
2
24
3
24
3
24
3
25
4
25
4
28
4
28
4
30
6
31
8
33
8
34
8
35
9
35
9
36
10
36
10
36
10
37
11
38
12
38
12
39
12
40
13
41
13
42
14
42
15
53
16
54
16
59
16
61
16
61
17
62
18
63
18
A-1



PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
KAMAN CORPORATION

APRIL 17, 2013


GENERAL INFORMATION

The Board of Directors (the “Board” or “board”) of Kaman Corporation (the “Company” or “company”) is soliciting proxies for use in connection with our annual meeting of shareholders (the “meeting” or “annual meeting”) to be held on Wednesday, April 17, 2013 (or at any adjournments or postponements thereof), at the time, place and for the purposes described in the accompanying Notice of Annual Meeting of Shareholders, dated March 1, 2013. We will only conduct business at the meeting if shares representing a majority of all outstanding shares of Common Stock entitled to vote are either present in person or represented by proxy at the meeting. We believe that the only matters to be brought before the meeting are those referenced in this proxy statement. If any other matters are presented, the persons named as proxies may vote your shares in their discretion.

On March 1, 2013, we mailed a Notice of Internet Availability of Proxy Materials instructing our shareholders how to access this proxy statement and our annual report to shareholders and these materials were mailed to all shareholders who had previously requested paper copies. As of this date, all shareholders of record and all beneficial owners of shares of Common Stock had the ability to access the proxy materials relating to the annual meeting at a web-site referenced in the Notice of Internet Availability of Proxy Materials (www.envisionreports.com/KAMN). A shareholder will not receive a printed copy of these proxy materials unless the shareholder requests it by following the instructions set forth in the Notice of Internet Availability of Proxy Materials. The Notice of Internet Availability of Proxy Materials explains how a shareholder may access and review the important information contained in the proxy materials. The Notice of Internet Availability of Proxy Materials also explains how a shareholder may submit a proxy via telephone or the Internet. Our proxy materials, whether in paper or electronic form, are available to all shareholders free of charge.

INFORMATION ABOUT VOTING AT THE ANNUAL MEETING

Voting Rights and Outstanding Shares

Only holders of record of the Company’s Common Stock at the close of business on February 15, 2013 (the “record date”) are entitled to notice of and to vote at the annual meeting. As of February 15, 2013, the Company had 26,627,552 shares of Common Stock outstanding, each of which is entitled to one vote on each matter properly brought before the meeting. All votes will be counted by the Company’s transfer agent, Computershare Shareowner Services, LLC, who will be appointed as inspector of election for the annual meeting and who will separately tabulate “for”, “against” and “withhold” votes, as well as abstentions and broker non-votes.

Submitting Your Proxy

Before the annual meeting, you can appoint a proxy to vote your shares of Common Stock by following the instructions contained in the Notice of Internet Availability of Proxy Materials. You can do this by (i) using the Internet (www.envisionreports.com/KAMN), (ii) calling the toll-free telephone number (1-800-652-VOTE (8683)) or (iii) if you have a printed copy of our proxy materials, by completing, signing and dating the proxy card where indicated and mailing or otherwise returning the card to us prior to the beginning of the annual meeting. Voting using the Internet or telephone will be available until 1:00 a.m., Eastern Time, on Wednesday, April 17, 2013.

How to Submit Your Proxy if you are a “Beneficial Owner”

If your shares of Common Stock are held in the name of a bank or broker, you should follow the instructions on the form you receive from that firm. The availability of Internet or telephone voting will depend on that firm’s voting processes. If you choose not to vote by Internet or telephone, please return your proxy card, properly signed, and the shares represented will be voted in accordance with your directions. If you do not provide instructions to the broker, that firm will only be able to vote your shares with respect to “routine” matters. Under current broker voting regulations, the only routine matter for the Company’s 2013 annual meeting and the only matter for which brokers will have the discretion to vote, is Proposal 4 (Ratification of Independent Public Accounting Firm). The broker must have proper instructions from you in order to vote with respect to Proposal 1 (Election of Directors), Proposal 2 (Advisory Vote to approve Executive Compensation) and Proposal 3 (Approval of 2013 Management Incentive Plan). Without proper instructions from you, the broker will not have the power to vote on those three proposals and




this will be considered a “broker non-vote” for each such proposal. We recommend that you contact your broker to assure your shares are properly voted.

How Your Proxy Will be Voted

All properly submitted proxies received prior to the annual meeting will be voted in accordance with their terms. If a proxy is returned signed, but without instructions for voting, the shares of Common Stock it represents will be voted as recommended by the Board of Directors. If a proxy is returned improperly marked, the Common Stock it represents will be counted as present for purposes of determining a quorum but will be treated as an abstention for voting purposes. Unsigned proxies will not be counted for any purpose.

How to Revoke Your Proxy

Whichever voting method you choose, a properly submitted proxy may be revoked at any time before it is counted at the annual meeting. You may revoke your previously submitted proxy by (i) casting a new vote using the Internet or by telephone; (ii) giving written notice to the Company’s Corporate Secretary or submitting a written proxy bearing a later date prior to the beginning of the annual meeting, or (iii) attending the annual meeting and voting in person. If you submit a later dated proxy, it will have the effect of revoking any proxy that you submitted previously and will constitute a revocation of all previously granted authority to vote for every proposal included on any previously submitted proxy. If you plan to revoke a proxy for shares of Common Stock that are held in the name of a bank or broker, please be sure to contact your bank or broker to ensure that your revocation has been properly processed, or if you plan to revoke a proxy for such shares by voting in person at the annual meeting, be sure to bring personal identification and a statement from your bank or broker that shows your ownership of such shares.

Attendance at the annual meeting will not by itself revoke a proxy. Written revocations or later-dated proxies should be hand-delivered to the Corporate Secretary at the annual meeting or sent to Kaman Corporation, Corporate Headquarters, 1332 Blue Hills Avenue, Bloomfield, CT 06002, Attention: Corporate Secretary. In order to be effective, all written revocations or later-dated proxies must be received before the voting is conducted at the annual meeting.

Quorum and Voting Requirements

Under Connecticut law, our shareholders may take action on a matter at the annual meeting only if a quorum exists with respect to that matter. With respect to each of Proposals 1, 2, 3 and 4, a majority of the votes entitled to be cast on the matter will constitute a quorum for action on that matter. For this purpose, only shares of Common Stock held by those present at the annual meeting or for which proxies are properly provided by telephone, Internet or in writing and returned to the Company as provided herein will be considered to be represented at the annual meeting.

Directors (Proposal 1) are elected by a plurality of the votes cast, but our Board has supplemented the state law voting requirement with a majority voting policy which is described in more detail below. Approval of the Advisory Vote on Executive Compensation (Proposal 2), approval of the 2013 Management Incentive Plan (Proposal 3) and ratification of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm (Proposal 4) each requires that there be more votes cast for the Proposal than against the Proposal. In addition to these state law voting requirements, the New York Stock Exchange ("NYSE") Listed Company Manual provides that approval of the 2013 Management Incentive Plan (Proposal 3) requires a majority of the votes cast on the Proposal and also requires that the total votes cast with respect to the Proposal represent over 50% in interest of all securities entitled to vote on the Proposal.

Broker Non-Votes and Abstentions

All shares of Common Stock represented at the annual meeting will be counted for quorum purposes without regard to broker non-votes and abstentions. Broker non-votes and proxies marked to abstain or withhold from voting with respect to any item to be voted upon at the annual meeting generally are not considered for purposes of determining the tally of votes cast for or against the item and, therefore, will not affect the outcome of the voting with regard to any proposal, except that (i) proxies marked to withhold authority for the election of any Director are included in the tally of votes cast for purposes of our majority voting policy, which is described below, and (ii) the NYSE takes the position that, for purposes of the minimum vote required to approve the 2013 Management Incentive Plan under the NYSE Listed Company Manual, an abstention is counted as a vote cast but a broker non-vote is not. Accordingly, with respect to the election of Directors (Proposal 1), a vote to withhold authority for the election of any Director has the same effect as a negative vote under our majority voting policy, and with respect to the approval of the 2013 Management Incentive Plan (Proposal 3), an abstention will have the same effect as a vote against the Proposal and a broker non-vote will have a negative impact on the vote by making fewer shares available to be included in the numerator when




determining whether the total votes cast with respect to the Proposal represent over 50% in interest of all securities entitled to vote on the Proposal.

Board Voting Recommendations

The Board of Directors recommends that shareholders vote “FOR” the election of all Director nominees and "FOR" Proposals 2, 3 and 4. The Board does not know of any matters to be presented for consideration at the meeting other than the matters described in those Proposals and the Notice of Annual Meeting of Shareholders. However, if other matters are presented, the persons named in the proxy intend to vote on such matters in accordance with their judgment.

Voting Results

We will announce preliminary voting results at the annual meeting. We will file a Current Report on Form 8-K containing the final voting results with the SEC within four business days of the annual meeting or, if final results are not available at that time, within four business days of the date on which final voting results become available.

Policy Regarding Director Elections Where a Majority Vote Is Not Received

Since 2006, the Board has maintained a policy (set forth in the Company's Corporate Governance Principles which are available at http://www.kaman.com by clicking on the “Governance” link) that addresses certain circumstances when a Director nominee has not received a majority of the votes cast with respect to that Director’s election or re-election. Briefly, in an uncontested election for Directors (one in which the number of nominees does not exceed the number of Directors to be elected) at a properly called and held meeting of shareholders, any Director nominee who is elected by a plurality vote, but who does not receive a majority of the votes cast, shall promptly tender his or her resignation once the shareholder vote has been certified by the Company’s tabulation agent. A “majority of the votes cast” means that the number of shares voted “FOR” a Director’s election exceeds fifty percent (50%) of the number of votes cast with respect to that Director’s election. For this purpose, “votes cast” include votes to withhold authority and exclude abstentions and broker non-votes with respect to that Director’s election. The Corporate Governance Committee will thereafter recommend to the Board whether to accept or reject that resignation and, depending on the recommendation, whether or not a resulting vacancy should be filled. The Board will then act, taking into account the Committee’s recommendation. The Board will publicly disclose its decision and the rationale therefor in a press release to be disseminated in the customary manner, together with the filing of a Current Report on Form 8-K with the SEC. This process shall be completed within ninety (90) days after the shareholder vote certification. A Director who has tendered his or her resignation shall not participate in the Corporate Governance Committee’s determination process and/or the Board’s action regarding the matter.

In determining whether or not to accept a Director’s resignation for failure to secure a majority of the votes cast, the Corporate Governance Committee and the Board will consider the matter in light of the best interests of the Company and its shareholders and may consider any information they believe is relevant and appropriate, including the following:
the Director’s qualifications in light of the overall composition of the Board;
the Director’s past and anticipated future contributions to the Board;
the stated reasons, if any, for the “withheld” votes and the underlying cause for the "withheld" votes if it otherwise can be discerned; and
the potential adverse consequences of accepting the resignation, including the failure to comply with any applicable rule or regulation (including applicable stock exchange rules or federal securities laws) or triggering defaults or other adverse consequences under material contracts or the acceleration of change in control provisions and other rights in employment agreements, if applicable.

If the Board accepts the resignation, it may, in its sole discretion, (a) fill the resulting vacancy with any other person, or (b) reduce the number of Directors constituting the full Board to equal the number of remaining Directors. If the Board elects to fill the resulting vacancy on the Board, the term of the Director so elected shall expire at the next annual meeting of shareholders at which Directors are to be elected.

If the Board does not accept the resignation, the Director will continue to serve until the annual meeting for the year in which such Director’s term expires and until such Director’s successor shall be duly elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.





Solicitation Costs

The Company pays the cost of preparing, printing and mailing proxy material, as well as the cost of any required solicitation of proxies. The solicitation will be made by mail and Internet and may also include participation of the Company’s officers and employees personally or by telephone, facsimile, or Internet, without additional compensation. The Company has engaged Georgeson Inc. to assist with the solicitation of proxies and expects to pay approximately $8,000 for these services, plus expenses. The Company may also be required to reimburse brokers, dealers, banks, voting trustees or their nominees for reasonable expenses in sending proxies, proxy material and annual reports to beneficial owners.

Copies

Upon a shareholder’s written request, the Company will provide, free of charge, a copy of its annual report to shareholders, which includes the Company’s annual report on Form 10-K with financial statements and financial statement schedules for the year ended December 31, 2012.

    

PROPOSAL 1
ELECTION OF FOUR CLASS 2 DIRECTORS FOR THREE-YEAR TERMS
    

In accordance with the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (the “Bylaws”), each Director holds office until the annual meeting for the year in which such Director’s term expires and until his or her successor shall be elected and shall qualify, unless he or she dies, resigns, retires, or is removed from office and further subject to the Company’s majority voting policy, described on page 3. Four individuals are nominated for election at the 2013 Annual Meeting for three-year terms that will expire at the annual meeting to be held in 2016, each of whom is currently a Board member. This group includes: Neal J. Keating, Eileen S. Kraus, Scott E. Kuechle and Richard J. Swift. Mr. Kuechle was first elected to the Board on February 19, 2013. For more information about Mr. Kuechle's election to the Board, please see the discussion at page 10 under the caption "Director Nominees."

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES
_______________


Set forth below is information about each of the four Director nominees, as well as the six Directors whose terms continue after the annual meeting, including the name, age, and professional experience during the last five years of each individual and the qualifications, attributes and skills that the Board believes qualifies each individual for service on the Board. None of the organizations listed as business affiliates of the Directors is an affiliate of the Company.

Class 2 Director Nominees for Election at the 2013 Annual Meeting

 
Neal J. Keating
Mr. Keating, 57, was elected President and Chief Operating Officer as well as a Director of the Company in September 2007. In January 2008, he became President and Chief Executive Officer and, in March 2008, he was appointed to the additional position of Chairman. Prior to joining the Company, Mr. Keating served as Chief Operating Officer at Hughes Supply, a $5.4 billion wholesale distributor that was acquired by Home Depot in 2006. Prior to that, he held senior positions at GKN Aerospace, an aerospace subsidiary of GKN, plc, and Rockwell Collins, Commercial Systems, and was a board member for GKN, plc and AugustaWestland. He is also a Director of Hubbell Incorporated, an international manufacturer of electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. These positions demonstrate Mr. Keating’s extensive history of senior executive leadership and Board participation in both of the Company’s business segments (Aerospace and Distribution), with an emphasis on international operations and acquisitions experience. The Board believes that Mr. Keating’s combined role of CEO and Chairman provides the Company’s shareholders with the benefits of Board leadership by an executive with an extensive professional background, as well as day-to-day knowledge of the Company’s businesses and markets, strategic plan execution, and future needs.






 
Eileen S. Kraus
Ms. Kraus, 74, has been a Director since 1995, and she currently serves as the Board’s Lead Independent Director. She is the retired Chairman of Fleet Bank Connecticut; a current Director of Stanley Black & Decker, Inc., a global provider of hand tools, power tools, related accessories and electronic security solutions; and a former Director of Rogers Corporation, a global technology leader in specialty materials and components for consumer electronics, power electronics, mass transit, clean technology, and telecommunications infrastructure. She also Chairs the Audit Committees of Ironwood Mezzanine Funds II and III and serves as a member of Advisory Committee of Ironwood Mezzanine Funds I, and she serves as a Director of Connecticare, Inc., a privately held health plan serving individuals in Connecticut and Western Massachusetts. Ms. Kraus provides the Board with broad financial and operational management experience in the banking industry, having served in several positions at Fleet Bank, N.A. and its predecessors over approximately a twenty-year period. Her industry experience provides the Board with additional perspective on the banking and financial industries, marketing and acquisitions. She also has significant Board organizational leadership experience with manufacturing companies, including membership on the Corporate Governance Committees of the Boards of Stanley Black & Decker and Rogers Corporation (where she Chaired that Committee). She also Chairs the Audit Committee of Stanley Black & Decker.

 
Scott E. Kuechle
Mr. Kuechle, 53, has been a Director since his election to the Board on February 19, 2013. He previously served as the Chief Financial Officer of Goodrich Corporation, one of the largest worldwide suppliers of aerospace components, systems and services to the commercial and general aviation airplane market, from August 2005 until his retirement in July 2012. Prior to serving as Chief Financial Officer, he also served as Vice President and Controller from 2004-2005 and Vice President and Treasurer from 1998-2004 and in various other financial leadership roles during his 29-year tenure with Goodrich. He also serves as a Director of Esterline Corporation, a leading specialty manufacturer serving the global aerospace and defense markets, Wesco Aircraft Holdings, Inc., a leading provider of comprehensive supply chain management services to the global aerospace industry, and Crisis Assistance Ministries, a non-profit organization in Charlotte, North Carolina, that provides assistance and advocacy for people in financial crisis. Mr. Kuechle's extensive background and experience within the aerospace and defense industry, coupled with his financial expertise and past experience as a Chief Financial Officer, provide the Board with a powerful skill set upon which to draw as the Company continues to execute on its strategic plan. This type of expertise and experience was particularly important to the Board as a means to provide additional depth of capability to the Audit Committee, to which he was appointed upon his election to the Board. Mr. Kuechle’s background also provides the Board with additional perspective on international operations, financial management, acquisitions, and other finance-related matters.
 
Richard J. Swift
Mr. Swift, 68, has been a Director since 2002. He is the former Chairman of the Financial Accounting Standards Advisory Council and the retired Chairman, President and Chief Executive Officer of Foster Wheeler Ltd., a provider of design, engineering, construction, and other services. Mr. Swift is a graduate of the U.S. Military Academy, and he served four years as an infantry officer in the United States Army. He is also a Director of Ingersoll-Rand Company, Ltd., Public Service Enterprise Group Incorporated, Hubbell Incorporated and CVS Caremark Corporation. Mr. Swift brings to the Board a broad range of operations management experience acquired in a career with Foster Wheeler, Ltd. that spanned almost thirty years and involved increasingly senior executive leadership positions culminating in his role as Chairman and CEO for seven years. Mr. Swift also has finance experience, with a Masters of Business Administration from Fairleigh Dickinson University, and service in the role of Chairman of the Financial Accounting Standards Advisory Council for about five years. He also was a Licensed Professional Engineer for approximately 35 years. In addition, he has Audit Committee and/or Compensation Committee membership experience on the Boards of Ingersoll-Rand Company, Ltd., Public Service Enterprise Group Incorporated, Hubbell Incorporated, and CVS Caremark Corporation. This type of experience is important to the Board as a means to provide additional depth of capability to the Audit and Personnel & Compensation Committees. Mr. Swift’s background also provides the Board with additional perspective on international operations, financial management, investments, acquisitions, and other finance-related matters.






Continuing Directors

Class 3 Directors Whose Terms Expire in 2014
 
Brian E. Barents
Mr. Barents, 69, has been a Director since 1996. He is the retired President and Chief Executive Officer of Galaxy Aerospace Company LP, having served in those positions, as well as its Managing Partner, from 1997 to 2001. He previously served as the Chairman, President and Chief Executive Officer of Learjet, Inc. from 1989 to 1996. He also served as a senior executive with Toyota Motor Corporation from January 1987 to April 1989 and as a Senior Vice President with Cessna Aircraft Company from 1976 to 1987. He enjoyed a distinguished military career, having retired from the U.S. Air Force as Brigadier General after 34 years of service. He is also a Director of CAE, Inc., a global leader in modelling, simulation and training for civil aviation and defense; Nordam Corp., one of the world’s largest independently owned aerospace companies; and Aerion Corp, a leading aerodynamics technology company. In addition, he previously served as a Director of Hawker Beechcraft Corporation, a leading manufacturer of business, special-mission, trainer and light attack aircraft. These positions demonstrate Mr. Barents’ extensive history of senior executive leadership and Board participation in the aerospace industry. His professional background provides the Board with additional perspectives about the aerospace industry from both commercial and defense-related standpoints, as well as about marketing and sales trends, acquisitions and international markets.

 
George E. Minnich
Mr. Minnich, 63, has been a Director since 2009. He served as Senior Vice President and Chief Financial Officer of ITT Corporation, then a $9 billion commercial and defense business, from 2005 until his retirement in 2007. Prior to that, he served for twelve years in several senior finance positions at United Technologies Corporation, including Vice President and Chief Financial Officer of Otis Elevator Company and of Carrier Corporation. As a Certified Public Accountant, he also held various increasingly senior positions with PricewaterhouseCoopers (then Price Waterhouse) from 1971 to 1993, culminating in Audit Partner from 1984 to 1993. He is also a Director of AGCO Corporation and Belden Inc. Mr. Minnich possesses a Bachelor of Science degree in Accounting from Albright College. He provides the Board with extensive financial and accounting experience gained over a more than thirty-five year career. This experience was important to the Board in connection with his initial election as a means to provide additional depth of capability to the Board’s Finance and/or Audit Committees. As the current Chair of the Audit Committee, he is designated an “audit committee financial expert,” as defined by applicable SEC regulations. Mr. Minnich has also served on the Boards and Audit Committees of other organizations during the past five years, including AGCO Corporation, a manufacturer and distributor of agricultural equipment, and Belden Inc., a manufacturer of high-speed electronic cables, connectivity and networking products. Mr. Minnich’s senior-level operational background also provides the Board with additional perspectives regarding the aerospace industry, defense contracting, international sales and acquisitions.

 
Thomas W. Rabaut
Mr. Rabaut, 64, has been a Director since 2008. Mr. Rabaut has served as a Senior Advisor to The Carlyle Group, a global private equity firm, since January 2007. From June 2005 to January 2007, he was President of the Land & Armaments Operating Group of BAE Systems, a global leader in the design, development and production of military systems. From January 1994 to June 2005, he served as the President and Chief Executive Officer of United Defense Industries, Inc., which was acquired by BAE Systems in 2005. Mr. Rabaut is a graduate of the U.S. Military Academy and he served five years in the United States Army. He is currently Vice Chairman of the Association of the United States Army (AUSA). He is also a Director of Cytec Industries, Inc., a premier supplier of advanced composite products, and Allison Transmission, Inc., the world’s largest manufacturer of fully-automatic transmissions for medium-and heavy-duty commercial vehicles, medium- and heavy-tactical U.S. military vehicles and hybrid-propulsion systems for transit buses. These positions demonstrate Mr. Rabaut’s extensive history of senior executive leadership in the defense and aerospace industries. At Carlyle, Mr. Rabaut also serves as Chairman of Radio Holdings, the owner of ARINC, a Carlyle portfolio company that provides communication and information technology products and services to government and industry. Early in his career, Mr. Rabaut was associated with FMC Corporation, a predecessor of United Defense Industries in a variety of increasingly senior operations roles. His professional and Board experience provide the Board with additional perspectives about the aerospace industry, defense markets, international markets, acquisitions from both commercial and defense-related standpoints, as well as market and sales trends.





Class 1 Directors Whose Terms Expire in 2015

 
E. Reeves Callaway III
Mr. Callaway, 65, has been a Director since 1995. He is the founder, President and Chief Executive Officer of The Callaway Companies, an engineering services firm which is involved in the high technology composites industry and has presence in Europe and the U.S. Mr. Callaway provides the Board with senior executive insight into the conduct of global operations, the composites business, and marketing and sales trends. As a sitting CEO, Mr. Callaway provides the Board with important insights and perspectives as an executive leading another company.
 
Karen M. Garrison
Ms. Garrison, 64, has been a Director since 2006. She retired as President of Pitney Bowes Business Services, a major manufacturer of postal equipment/software and service provider, having served in that position from 1999 until her retirement in 2004. She is also a Director of Standard Parking Corporation, a leading national provider of parking facility management services, and Tenet Healthcare Corporation, one of the largest investor-owned health care delivery systems in the nation, and during the past five years was a Director at North Fork Bank, a regional bank holding company that was acquired by Capital One Financial Corporation in 2006. These positions demonstrate Ms. Garrison’s senior executive roles which provide operational insight to the Board, particularly from acquisition, human resources, information technology, government contracting and distribution perspectives. Ms. Garrison also brings to the Board extensive experience in finance and accounting, from her Bachelor of Science degree in Accounting from Rollins College and Master of Business Administration from Florida Institute of Technology to progressively senior roles as Controller, Worldwide Controller, Vice President - Finance and Chief Financial Officer over a ten-year period during her tenure at Pitney Bowes and its subsidiary, Dictaphone Corporation. This experience was important to the Board in connection with her initial election as a means to provide additional depth of capability to the Finance and/or Audit Committees. During her previous tenure on the Board’s Audit Committee, Ms. Garrison was designated an “audit committee financial expert,” as defined by applicable SEC regulations.


 
A. William Higgins
Mr. Higgins, 54, has been a Director since 2009. He is the former Chairman, CEO and President of CIRCOR International, Inc., having served in those positions from March 2008 until his retirement in December 2012. CIRCOR is a global diversified manufacturing company that designs, manufactures, and supplies valves, related products and services to OEMs, processors, manufacturers, the military, and utilities that rely on fluid-control to accomplish their missions. Prior to March 2008, he held the offices of President and Chief Operating Officer and Executive Vice President and Chief Operating Officer of CIRCOR. Prior to joining CIRCOR in 2005, Mr. Higgins spent thirteen years in a variety of senior management positions with Honeywell International and Allied Signal. Leslie Controls, Inc., a wholly owned subsidiary of CIRCOR and an entity for which Mr. Higgins served as a Director and Vice President, filed for bankruptcy protection in July 2010 in order to eliminate certain asbestos litigation liabilities. The subsidiary successfully emerged from bankruptcy the following year. Mr. Higgins’ professional background provides the Board with additional perspective on talent development, international operations and global strategic development, lean manufacturing and continuous improvement processes, the defense industry, acquisitions, and both distribution and aerospace markets. In addition, his experience at Honeywell International and Allied Signal provide him with a strong background in the aerospace industry.





INFORMATION ABOUT THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

The Board is elected by our shareholders to oversee their interests as owners of the Company. The Board is the ultimate decision-making authority for the Company, except for those matters that are reserved for, or shared with, our shareholders. The Board appoints and oversees the Company’s senior management, which is responsible for conducting the Company’s business.

Board Leadership Structure

Our Bylaws and Corporate Governance Principles provide the Board with the flexibility to select and revise its leadership structure on the basis of the best interests of the Company and its shareholders at any given point in time. The Board evaluates this structure in connection with the annual appointments to the positions of Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”). The Board believes that it is currently in the best interests of the Company and its shareholders to combine the Chairman and CEO roles and to appoint a Lead Independent Director annually. In this way, the Company’s shareholders have the benefit of Board leadership by Mr. Keating, an executive with extensive day-to-day knowledge of the Company’s operations, strategic plan execution and future needs, as well as a Lead Independent Director who provides Board member leadership. In arriving at its determination, the Board has also considered the fact that the Board consists entirely of independent Directors (other than Mr. Keating) having diverse professional and other Board experience.

The Lead Independent Director is Eileen S. Kraus. The Lead Independent Director position has existed since 2002 and its responsibilities currently include membership on the Corporate Governance Committee; Chair of the Board’s Executive Sessions and of Board meetings at which the Chairman is not in attendance; review and approval of all Board and committee meeting agendas; liaison between the Chairman and the independent Directors, which includes facilitating communications and assisting in the resolution of conflicts, if any, between the independent Directors and the Company’s management; providing counsel to the Chairman and CEO, including provision of appropriate feedback regarding effectiveness of Board meetings, and otherwise as needed or requested; and such other responsibilities as the Board delegates. In performing these responsibilities, the Lead Independent Director is expected to consult with the chairpersons of other Board committees as appropriate and solicit their participation in order to avoid the appearance of diluting the authority or responsibility of the Board committees and their chairpersons.

Board Meetings and Committees

The Board met five times in 2012 and its committees met a total of 24 times. Each Director attended 75% or more of the aggregate of all meetings of the Board and committees on which he or she served during 2012. All of the Directors then in office attended the 2012 annual meeting and all Directors are expected to attend the 2013 annual meeting.

The Board maintains the following standing committees: Corporate Governance, Audit, Personnel & Compensation, and Finance. Each committee has a charter that has been approved by the Board. The complete text of each committee charter is available on the Company’s website located at www.kaman.com by first clicking on the “Governance” link followed by the “Board Committee Charters” link. Each committee and the Board periodically, but not less than annually, review and revise committee charters, as appropriate.





The following table describes the current members of each committee and the number of meetings held during 2012:
Board Member
 
Audit
Committee
 
Corporate
Governance
Committee
 
Finance
Committee
 
Personnel &
Compensation
Committee
Brian E. Barents(1)
 
 
 
  
 
X
 
X
E. Reeves Callaway III
 
  
 
  
 
X
 
X
Karen M. Garrison
 
  
 
X
 
Chair
 
  
A. William Higgins
 
  
 
  
 
X
 
X
Neal J. Keating(2)
 
  
 
  
 
  
 
  
Eileen S. Kraus(3)
 
X
 
Chair
 
  
 
  
Scott E. Kuechle(4)
 
X
 
 
 
X
 
 
George E. Minnich
 
Chair
 
X
 
 
 
  
Thomas W. Rabaut
 
  X
 
  
 
X
 
 
Richard J. Swift
 
  
 
X
 
  
 
Chair
Number of Meetings
 
8
 
6
 
4
 
6
_______________
(1)
Served as a member of the Audit Committee during 2012 and until February 19, 2013.
(2)
Not an independent Director.
(3)
Lead Independent Director.
(4)
First elected to the Board on February 19, 2013.

Following is a summary of the various committees’ responsibilities:

Corporate Governance Committee

Under its charter, the Corporate Governance Committee consists of the chairpersons of the standing committees and the Lead Independent Director, if the Lead Independent Director is not already a committee chairperson. The committee assists the Board in fulfilling its corporate governance responsibilities and serves as the Board’s nominating committee. These corporate governance responsibilities include board and committee organization and function, membership, compensation, and annual performance evaluation; annual goals development and evaluation for the CEO with participation by the Personnel & Compensation Committee and the Board in executive session; succession planning; development and periodic review of governance policies and principles; monitoring director compliance with stock ownership guidelines; consideration and recommendation of shareholder proposals; establishment of selection criteria for, and review and recommendation of, new Board members; and administration of the Company’s majority voting policy for Director elections.

Audit Committee

The Audit Committee is responsible for assisting the Board in fulfilling its responsibility to oversee the Company’s financial reporting and accounting policies and procedures, its system of internal accounting and financial controls, the internal audit function and the annual independent audit of the Company’s financial statements. The committee is also responsible for overseeing the performance, qualifications and independence of the Company’s independent registered public accounting firm (which reports directly to the committee) as well as the performance of the internal audit department. The committee reviews the Company’s business risk assessment framework and identifies principal business risks with management, the independent auditor and the internal audit director (however, this committee is not the only Board committee that reviews such business risks), and pre-approves all auditing services and permitted non-audit services to be performed by its independent auditor (which approval authority has been delegated to the committee’s chairman for certain immaterial items that may arise between meetings, subject to ratification at the committee’s next meeting).

The Audit Committee has also established a policy for the Company’s hiring of current or former employees of the independent auditor to ensure that the auditor’s independence under applicable SEC rules and accounting standards is not impaired. The committee has also established, and monitors management’s operation of, procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing, or other matters; as well as the confidential, anonymous submission by the Company’s employees of concerns regarding questionable accounting, auditing, or other matters. The committee meets regularly in executive session with the internal audit director and the independent auditor without management present.

A committee member may not simultaneously serve on the audit committees of more than three companies whose stock is publicly traded (including this committee) unless the Board has provided its consent. No such determination is currently required.





George E. Minnich, Eileen S. Kraus, Scott E. Kuechle and Thomas W. Rabaut each has been determined to be an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K.

Personnel & Compensation Committee

The Personnel & Compensation Committee reviews and approves the terms of, as well as oversees, the Company's executive compensation strategies (including the plans and policies to execute those strategies), administers its equity plans (including the review and approval of equity grants to executive officers) and annually reviews and approves compensation decisions relating to executive officers, including those for the CEO and the other executive officers named in the Summary Compensation Table (collectively, the “named executive officers”) on page 37. The committee considers the CEO's recommendations when determining the compensation of the other executive officers, but the CEO has no role in determining his own compensation (although as part of the annual CEO evaluation process, he prepares a self-assessment for review by the Corporate Governance Committee, which shares that evaluation with this committee). The committee then submits its determinations regarding proposed CEO compensation at an executive session of the Board for consideration and approval.

The Personnel & Compensation Committee also monitors management's compliance with stock ownership guidelines adopted from time to time by the Board; reviews and approves employment, severance, change in control, and termination arrangements for all executive officers and periodically reviews the Company's policies and procedures for management development.

During each of the last nine years, the committee has directly engaged Geoffrey A. Wiegman, founder and president of Wiegman Associates LLC, an independent compensation consulting firm, to assist the committee in fulfilling its responsibilities (Mr. Wiegman is sometimes referred to in this proxy statement as the “independent consultant”). The independent consultant attends each committee meeting, including executive sessions. He advises the committee on marketplace trends in executive compensation and evaluates proposals for compensation programs and executive officer compensation decisions. He has also provided services to the Corporate Governance Committee in connection with its evaluation of Director compensation. Although he interacts with Company management in his capacity as an advisor to the committee, he is directly accountable to the committee.

In past years, the independent consultant has provided certain other compensation-related services at the request of Company management that are not related to his work for the committee, but such services generally were authorized and approved by the committee and no such services were provided at the request of Company management during 2012.

At its December 2012 meeting, the committee considered whether the work of the independent consultant raises any particular conflict of interest that would need to be addressed by the committee. In conducting its assessment, the committee considered, among others, the following factors: the extent to which the independent consultant provides other services to the Company; the amount of fees received from the Company as a percentage of the total revenue of the independent consultant; the policies and procedures of the independent consultant that are designed to prevent conflicts of interest; any business or personal relationship of the independent consultant with any member of the committee; any stock of the Company owned by the independent consultant; and any business or personal relationship of the independent consultant with any executive officer of the Company. After considering the foregoing, the committee determined that the work of the independent consultant does not raise any conflict of interest that would need to be addressed by the committee.

Finance Committee

The Finance Committee assists the Board in fulfilling its responsibilities concerning matters of a material financial nature, including the Company’s strategies, policies and financial condition, insurance-related risk management programs, financing agreements, dividend policy, significant derivative instrument or foreign currency positions, and administration of tax-qualified defined contribution and defined benefit plans. The committee’s responsibilities also include review of the Company’s annual business plan and long range planning strategies; all forms of major debt issuances; the financial aspects of proposed acquisitions or divestitures that exceed transaction levels for which the Board has delegated authority to management; material capital expenditures; methods of financing; and the Company’s relationship with its lenders.


Director Nominees

The Board is responsible for selecting its own members and in recommending them for election by the shareholders. The Board delegates the screening process involved to the Corporate Governance Committee, which consults with the Chairman and CEO, after which it provides recommendations to the Board. While the Corporate Governance Committee does not have specific minimum qualifications for potential directors, its policy is that all candidates, including those recommended by shareholders,




will be evaluated on the same basis. The committee utilizes a nationally recognized third-party consultant to assist in identifying potential candidates. The consultant is provided with the Committee’s assessment of the skill sets and experience required in the context of current Board composition and identifies potential candidates for introduction to the Committee. Thereafter, consideration of any such individuals is the responsibility of the Committee in consultation with the CEO.

During 2012, the Corporate Governance Committee retained the services of the nationally recognized third-party consultant referenced above to assist the Committee in identifying one or more potential candidates to increase the size of our Board from nine to ten Directors. The 2012 search resulted in the Committee's recommendation to the full Board that Mr. Kuechle be elected a Director, which occurred on February 19, 2013. Mr. Kuechle has been designated a Class 2 Director, and his initial term expires at the 2013 annual meeting. The fee for conducting this search was $80,000, plus out of pocket expenses.

Under our Bylaws, only individuals nominated in accordance with certain procedures are eligible for election as Directors of the Company (except for the rights of preferred shareholders, of which there currently are none). Generally, nominations are made by the Board of Directors or any shareholder (i) who is a shareholder of record on the date of the giving of written notice in respect of the nomination for Director and on the record date for the determination of shareholders entitled to notice of and to vote at a meeting where Directors are to be elected, and (ii) who provides advance written notice, all of the foregoing in accordance with the Bylaws. A shareholder’s written notice of a proposed nomination must describe (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person, if any, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”), and its rules and regulations. The shareholder making the proposal must also provide (i) the shareholder's name and record address, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the shareholder, (iii) a description of all arrangements or understandings between the shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the persons identified in its notice, and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors pursuant to Section 14 of the Exchange Act and its rules and regulations. The written notice must be accompanied by a written consent of each proposed nominee to being named or referred to as a nominee and to serving as a Director if elected. The Board may require any proposed nominee to furnish such other information (which may include meetings to discuss the furnished information) as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director.

The Board’s Role in Oversight of the Company’s Risk Management Process

The Board oversees the Company’s processes to identify, report and address risks across the full spectrum of Company operations. To that end, each of the Board’s committees has been delegated responsibility for evaluating specific risk management processes and issues resulting therefrom. The Board receives regular reports from these committees and, where appropriate, directs that action be taken. The Board also conducts direct oversight of certain risk management processes.

The following description of specific Board committee risk management oversight activities is not intended to be exhaustive in nature. The Company’s Internal Audit Department reports directly to the Audit Committee and the committee regularly reviews with management the Company’s financial reporting and accounting policies, internal controls over financial reporting, internal accounting controls, business risk assessment framework and principal business risks, and Code of Business Conduct compliance. The Finance Committee reviews the Company’s short and long-term business plans, certain proposed acquisitions or divestitures (including consideration of any substantial diversification from current business operations), any significant debt/equity issuances, and risk management programs from an insurance coverage perspective. The Company’s Assistant Vice President - Corporate Risk, Safety and Environmental Management also reports directly to the committee on a periodic basis. The Personnel & Compensation Committee reviews and approves the Company’s executive compensation strategies and programs related to annual, longer term and equity incentives and the business unit and corporate performance goals associated therewith, monitors management progress in compliance with stock ownership guidelines, considers and approves all employment-related agreements or termination arrangements with the Company’s Exchange Act Section 16 “executive officers” and periodically reviews policies related to management development. The Corporate Governance Committee reviews the Company’s succession plan for the CEO and other top senior management, assures annual evaluation of Board performance, establishes selection criteria for new Directors, and manages the annual CEO evaluation process. The charters of each Committee are more fully described above beginning at page 9.

In addition to its consideration of matters brought to its attention by the Board’s committees, the Board conducts direct oversight of various business risk management functions. At each regular meeting, the Board receives senior management reports about current operations as well as the identification of, and progress in addressing, principal business risks. The Board also




receives direct reports from management regarding its Enterprise Risk Management program for identification and development of mitigation activities relative to longer-term business risks. In addition to the regular reports provided regarding current principal business risks, the Audit Committee periodically receives summary reports regarding the Enterprise Risk Management program. Annually, the Board reviews and approves the Company’s strategic plan objectives with periodic reviews thereafter regarding progress against that plan and any changes that are being considered. The Board’s oversight role in this area has not affected its approach to the Board’s leadership structure at least in part due to the level of direct communication that the Board and its committees experience with a variety of management employees involved in operations, finance, human resources, risk management and legal roles.

Board and Committee Independence Requirements

Our Corporate Governance Principles provide that, as a matter of policy, a significant majority of the Board should consist of independent Directors. In order to be deemed independent, our Corporate Governance Principles specify that a Director must be free from any relationship which, in the opinion of the Board, would interfere with the exercise of his or her independent judgment in carrying out his or her responsibilities as a director. In addition to establishing its own criteria for independence, the Company complies with the rules promulgated by the NYSE for determining the independence of directors, as well as the Sarbanes-Oxley Act for independence of directors on the Audit Committee, and Internal Revenue Code of 1986 and Dodd-Frank Wall Street Reform and Consumer Protection Act requirements for independence of Directors on the Personnel and Compensation Committee (or any other committee performing an equivalent function).

Based on the review and recommendation of the Corporate Governance Committee, the Board has determined that all of the current Directors meet the applicable independence standards referenced in the preceding paragraph, except for Mr. Keating, the Company’s Chairman, President and CEO. In evaluating and determining the independence of the Company's Directors, the Corporate Governance Committee considered that, in the ordinary course of business, transactions may occur between the Company and its subsidiaries and certain entities with which some of the Directors are or have been affiliated.

Specific Experience, Qualifications, Attributes and Skills of Current Board Members and Director Nominees

The Corporate Governance Committee is responsible for reviewing with the Board, on a periodic basis, the appropriate characteristics required of Board members in the context of the Board’s current composition. This includes review of the suitability for continued service of each Board member when his or her term expires and when he or she has a significant change in status. Overall, the assessment includes areas such as senior leadership positions; professional experience in areas relevant to the Company’s businesses, including aerospace, industrial distribution, international, government, regulatory, mergers and acquisitions, financial, accounting, human resources or information technology systems experience; other public company board service; diversity, age and evidence of the intangible characteristics that are vital to the successful operation of any board. Diversity in this context has traditionally referred to encouragement of the identification of candidates from so-called “minority” categories, including women and individuals of varied national origin. Consideration of diversity has been an element communicated to the third-party search firms in each of the director searches in the past several years.

The Board believes that intangible characteristics include a demonstrated understanding of a Director’s policy making role while constructively challenging management to seek and attain competitive targets and increase shareholder value; a demonstrated understanding of the Company’s values and strategic plan; capacity for critical thought; maintenance of objectivity in not being unreasonably influenced by personal experience or other Board members in situation analysis; and the independence required for participation on the Board and its committees. In addition, Board members are evaluated with respect to their active contributions, including regular attendance and preparation for/participation at meetings while maintaining an ongoing understanding of the issues and trends affecting the Company.

In addition to these intangible characteristics, we have described specific experience, qualifications, attributes and skills that the Board believes qualify each current director for his or her position on the Board in the summary of biographical information described above, beginning at page 4. Those descriptions are not intended to be comprehensive descriptions of the types of expertise or contributions provided by each Director. At this time, the Board believes that each of these Directors possesses the experience, qualifications, attributes and skills, as well as the intangible characteristics described above, which, taken together, qualify them for their positions on the Board.

Transactions With Related Persons

The Company’s Code of Business Conduct requires that all business transactions be at arms’ length, negotiated in good faith and based on merit alone. All of the Company’s employees have a responsibility and duty of loyalty to the Company and all business decisions are to be made in the best interests of the Company, which means putting the Company’s interests first. Should




a situation arise that would constitute a related-party transaction under SEC rules, the independent and disinterested Board members will review the propriety of, and approve or disapprove, such transaction.

There were no transactions, relationships or arrangements proposed between executive officers of the Company and the Company or any of its subsidiaries during 2012.

Other Information about the Board’s Structure

Board Size:  The Company’s Board size currently has been fixed at ten, with four Directors to be elected at the 2013 annual meeting. The Company’s Amended and Restated Certificate of Incorporation provides that the Board will consist of at least three and not more than fifteen Directors and, while the Board is permitted to increase its size during the year and elect a Director to fill the vacancy created by the increase, any Director so elected may only serve until the annual meeting immediately following his or her election. Under our Corporate Governance Principles, a Board size of nine to eleven individuals continues to be considered appropriate.

Mandatory Retirement:  The Company’s Bylaws provide for mandatory Director retirement at age 72 (age 75 for directors serving as of November 14, 2000). The Board’s policy in implementing this requirement is that if a Director attains mandatory retirement age during his or her then current term, the Director may continue to serve the remaining portion of that term. In addition, the Board is permitted to make an exception to this requirement, but it intends to exercise this right only under extraordinary circumstances.

Change of Principal Occupation:  Our Corporate Governance Principles require Directors who change their principal occupation, position, or responsibility held at the time of election to submit a conditional letter of resignation to the Board, after which a judgment will be made in each case as to the appropriateness of continued membership under the circumstances. During December 2012, Mr. Higgins notified the Board that he had stepped down as the President, Chairman and Chief Executive Officer of CIRCOR International, Inc., and he submitted a conditional letter of resignation to the Board in accordance with our Corporate Governance Principles. At a meeting duly called and held on December 11, 2012, the Corporate Governance Committee considered Mr. Higgin's change in circumstance and his many contributions to the Board and unanimously determined not to accept Mr. Higgin's resignation.

Section 16(a) Beneficial Ownership Reporting Compliance

Based upon information provided to the Company by persons required to file reports under Section 16(a) of the Exchange Act, there were no Section 16(a) reporting delinquencies during 2012.





Non-Employee Director Compensation

The Corporate Governance Committee reviews our non-employee director compensation policies on a biennial basis with the assistance of the independent consultant to the Personnel & Compensation Committee. The most recent review was conducted in 2012 with assistance from the independent consultant, who analyzed reports of Frederic W. Cook & Co., Inc., Pearl Meyer & Partners, Total Compensation Solutions, Bloomberg BNA, The Harvard Law School Forum and Mercer, as well as the director pay practices of the Russell 2000 peer companies against which the Company benchmarks its executive compensation program. This analysis resulted in a recommendation to the Corporate Governance Committee to increase the annual Board retainer, eliminate the Board meeting fees (except for "special" meetings, as set forth in the footnote below) and change the current practice of paying per meeting fees to paying annual retainers for committee chairpersons and committee members. The following table summarizes the fee schedule approved by the Board effective January 1, 2013:
Kaman Corporation Board of Directors Retainer and Meeting Fees
 
 
 
  
 
 
Effective
1/1/13
Cash
 
 
 
Retainer Fees (payable quarterly in arrears)*:
 
 
  
Board
 
 
$60,000
Lead Director
 
 
$30,000
Committee Chairs:
 
 
  
Audit Committee
 
 
$30,000
Corporate Governance Committee
 
 
$20,000
Personnel & Compensation Committee
 
 
$25,000
Finance Committee
 
 
$20,000
Committee Members:
 
 
 
Audit Committee
 
 
$10,500
Corporate Governance Committee
 
 
$6,000
Personnel & Compensation Committee
 
 
$7,500
Finance Committee
 
 
$6,000
Equity
 
 
 
Restricted Stock Award**
 
 
Shares having fair
market value equal
to $80,000
_____________
*
In addition to these annual retainers, Board members may receive additional meeting fees ($1,500 for an in person meeting and $750 for a telephonic meeting) for "special" board meetings. Special board meetings are defined as meetings that are in addition to the meetings regularly scheduled in advance. Committee members may also receive additional meeting fees ($1,500 for an in person meeting and $750 for a telephonic meeting) for any committee meeting that exceeds the number of regularly scheduled committee meetings by more than two.
**
This award is made pursuant to the 2003 Stock Incentive Plan at the annual Board meeting that is held in conjunction with the annual shareholders’ meeting. All restrictions lapse immediately and the number of shares for this award is determined based upon the average of the high and low Company stock price on that date, in accordance with the Plan. In the event that shareholders approve the 2013 Management Incentive Plan at the annual meeting, awards made after the date of the annual meeting would be made under the 2013 Management Incentive Plan.





The following table shows the total compensation actually paid to each non-employee Director in 2012:(1) 

Director Compensation
Name
 
Fees Earned
or Paid in
Cash ($)
 
Stock
Awards(2)
($)
 
Total ($)
Brian E. Barents
 
$
79,500

 
$
80,016

 
$
159,516

E. Reeves Callaway III
 
$
66,000

 
$
80,016

 
$
146,016

Karen M. Garrison
 
$
75,200

 
$
80,016

 
$
155,216

A. William Higgins
 
$
67,500

 
$
80,016

 
$
147,516

Scott E. Kuechle(3)
 
$

 
$

 
$

Eileen S. Kraus
 
$
112,800

 
$
80,016

 
$
192,816

George E. Minnich
 
$
90,900

 
$
80,016

 
$
170,916

Thomas W. Rabaut
 
$
64,500

 
$
80,016

 
$
144,516

Richard J. Swift
 
$
82,300

 
$
80,016

 
$
162,316

_______________
(1)
During 2012, each Director received an annual cash retainer of $45,000, an annual stock award of Common Stock having a value of $80,000, and Board and Committee per meeting fees of $1,500 each (committee chairs received $1,800). Each committee chair also received an annual cash retainer, as follows: Audit - $15,000; Personnel & Compensation - $10,000; Corporate Governance - $7,500; and Finance - $6.500. In addition, the Lead Director received an annual cash retainer of $30,000.
(2)
Please refer to Footnote 18, Share-Based Arrangements, contained in the Company’s audited consolidated financial statements for the year ended December 31, 2012, in its Annual Report on Form 10-K. Each stock award consisted of 2,374 shares of our Common Stock in the form of fully vested restricted stock issued under our 2003 Stock Incentive Plan at a price of $33.705 per share on April 18, 2012. The fair market value of the shares awarded to each non-employee director for 2012 exceeded $80,000 by an immaterial amount because fractional shares are not issued.
(3)
Mr. Kuechle was first elected to the Board, effective February 19, 2013.

From time to time, special activities may be undertaken by one or more Directors at the direction of the Board and, in such cases, additional fees will ordinarily be paid. There were no such special activities during 2012.

Directors may defer all, or a portion, of their cash compensation. Interest accrues on such deferrals at the Applicable Interest Rate, which is the same rate that applies to our Deferred Compensation Plan for Company executives. When a Director ends his or her service on the Board, distributions are made either in quarterly installments over a maximum period of 10 years or in a lump sum, based on prior elections made in connection with each deferral. Distributions are made beginning either in the next calendar quarter after the date service ends or on the following January 1 at the prior election of the Director.

Mr. Keating receives no additional compensation for his Board service.

The Board has adopted stock ownership guidelines for non-employee Directors, which are discussed in more detail on page 35 under the caption, "Stock Ownership Guidelines for Directors and Executive Officers." The Corporate Governance Committee periodically reviews the progress of each non-employee Director toward achieving these guidelines. As of December 31, 2012, all persons then serving as non-employee Directors were in compliance with these guidelines.

Code of Business Conduct and Other Governance Documents Available on the Company’s Website

The Company has for many years maintained a Code of Business Conduct applicable to all of its employees, consultants and the Board of Directors. This Code of Business Conduct is also specifically applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions. The current Code of Business Conduct, which was amended and restated in its entirety effective January 1, 2013, may be accessed on the Company’s web site at www.kaman.com by first clicking on the “Governance” link and then “Kaman Code of Conduct.”

In addition to the Code of Business Conduct and the committee charters and Governance Principles already referenced, our other governance documents including Bylaws and Amended and Restated Certificate of Incorporation can be accessed on the Company’s web site at www.kaman.com by first clicking on the “Governance” link and then the link to each document.






Communications with the Board

Shareholders or others wishing to communicate with any member of the Board, a Board committee, or the Lead Independent Director may do so by mail, addressed to Kaman Corporation Corporate Headquarters, c/o Corporate Secretary, 1332 Blue Hills Ave., Bloomfield, Connecticut 06002 or by e-mail through the Kaman Corporation web site at www.kaman.com using the tab "About Kaman", then selecting “Contact Kaman - General Inquiries” and then choosing the “Contact Kaman - Corporate Secretary” link. The Corporate Secretary will compile all such communications and forward each item to the individual to whom it is directed or, if the communication is not directed to any particular Board member, to the entire Board. Items that the Corporate Secretary determines are frivolous, unlawful or that constitute commercial advertisements will not be forwarded to the Board or any particular Board member.

Director Education

The Board maintains a policy that Directors should be regularly exposed to discussion of current developments in their roles and responsibilities as Directors and their attendance at such sessions is reimbursed by the Company. The Board’s policy also encompasses receipt of information regarding developments in the law and conditions in the market segments in which the Company operates. During the past few years, several Board members have participated in seminars sponsored by various national organizations, which have included developments in the law, board/management relationship development, and audit-related topics. The Board has also received presentations from outside industry experts regarding developments and trends in certain of the Company’s market segments and other subjects of importance to the Company. In addition, the Board and the Company have an orientation process for new Directors that includes background material, meetings with senior management and visits to Company facilities.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership of Directors and Executive Officers

The following table sets forth information about the beneficial ownership of the Company’s Common Stock by each Director and Director nominee, each executive officer named in the Summary Compensation Table, and all Directors and executive officers as a group, as of February 1, 2013. The beneficial ownership percentages have been calculated based on 26,621,392 shares of Common Stock outstanding on February 1, 2013. Unless otherwise indicated, each person listed has the sole voting and investment power with respect to the shares listed, and the business address of each person is c/o Kaman Corporation, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002.
Name
 
Number of Shares
Beneficially Owned
as of February 1, 2013
 
 
Percentage
Brian E. Barents
 
20,047

 
 
*
E. Reeves Callaway III
 
15,180

 
 
*
William C. Denninger
 
71,603

(1)
 
*
Ronald M. Galla
 
44,559

 
 
*
Karen M. Garrison
 
14,547

  
 
*
A. William Higgins
 
8,547

 
 
*
Neal J. Keating
 
166,470

(2)
 
*
Eileen S. Kraus
 
23,842

 
 
*
Scott E. Kuechle
 

 
 
*
George E. Minnich
 
8,793

 
 
*
Thomas W. Rabaut
 
14,947

 
 
*
Steven J. Smidler
 
30,547

(3)
 
*
Gregory L. Steiner
 
67,228

(4)
 
*
Richard J. Swift
 
10,547

 
 
*
All Directors and Executive Officers as a group
 
522,763

(5)
 
1.96%
_______________
*
Less than one percent.
(1)
Includes 22,580 shares issuable upon the exercise of stock options exercisable or which will become exercisable within 60 days.
(2)
Includes 14,000 shares held in a trust, of which Mr. Keating and his spouse are trustees.
(3)
Includes 6,328 shares issuable upon the exercise of stock options exercisable or which will become exercisable within 60 days.
(4)
Includes 39,109 shares issuable upon the exercise of stock options exercisable or which will become exercisable within 60 days.
(5)
Includes 75,361 shares issuable upon the exercise of stock options exercisable or which will become exercisable within 60 days.





Beneficial Owners of More Than 5% of Common Stock

Following is information about persons known to the Company to be beneficial owners of more than five percent (5%) of the Company’s outstanding voting securities. Except as otherwise indicated, all information is given as of February 1, 2013.
Name and Address of Beneficial Owner
 
Number of Shares
Beneficially Owned
 
Percentage of
Common Stock
GAMCO Asset Management, Inc.(1)
 
3,897,804
 
14.6%
One Corporate Center
Rye, NY 10580
 
  
 
  
The London Company(2)
 
2,442,150
 
9.2%
1801 Bayberry Court, Suite 301
Richmond, VA 23226
 
 
 
 
BlackRock, Inc.(3)
 
1,996,841
 
7.5%
40 East 52nd Street
New York, NY 10022
 
  
 
  
T. Rowe Price Associates, Inc.(4)
 
1,482,481
 
5.6%
100 East Pratt Street
Baltimore, MD 21202
 
  
 
  
The Vanguard Group(5)
 
1,418,932
 
5.3%
100 Vanguard Boulevard
Malvern, PA 19355
 
 
 
 
_______________
(1)
As reported in Amendment No. 16 to Schedule 13D, dated October 28, 2011 (“Amendment 16”), filed by Mario J. Gabelli and various entities which he directly or indirectly controls or for which he acts as chief investment officer (collectively, the “Reporting Persons”), GAMCO Asset Management, Inc. (“GAMCO”) is the beneficial owner of 2,730,377 shares, Gabelli Funds, LLC (“Gabelli Funds”) is the beneficial owner of 1,021,720 shares, MJG Associates, Inc. (“MJG Associates”) is the beneficial owner of 11,000 shares, Teton Advisors, Inc. (“Teton Advisors”) is the beneficial owner of 130,507 shares, GGCP, Inc. (“GGCP”) is the beneficial owner of 200 shares, and Gabelli Securities, Inc. (“GSI”) is the beneficial owner of 4,000 shares. Mr. Gabelli is deemed to have beneficial ownership of the shares owned beneficially by each of the foregoing entities, and GAMCO Investors, Inc. and GGCP are deemed to have beneficial ownership of the shares owned beneficially by each of the foregoing entities other than Mr. Gabelli. Each of the Reporting Persons, together with their executive officers and directors, has the sole power to vote or direct the vote and the sole power to dispose or to direct the disposition of the shares reported for it, either for its own benefit or for the benefit of its investment clients or its partners, as the case may be, except that (i) GAMCO does not have authority to vote 140,000 of the reported shares, (ii) Gabelli Funds has sole dispositive and voting power with respect to the shares held by a number of investment funds for which Gabelli Funds serves as an investment adviser (the “Funds”) so long as the aggregate voting interest of all joint filers does not exceed 25% of their total voting interest in the Company and, in that event, the Proxy Voting Committee of each Fund shall respectively vote that Fund's shares, (iii) at any time, 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 Mr. Gabelli, GBL, and GGCP is indirect with respect to the shares beneficially owned directly by other Reporting Persons.
(2)
As reported in Amendment No. 2 to Schedule 13G, dated February 6, 2013, The London Company is the beneficial owner of 2,442,150 shares held by various investment advisory clients as of December 31, 2012. According to the filing, The London Company has the sole power to vote or direct the vote and the sole power to dispose or to direct the disposition of 2,268,947 shares and the shared power to dispose or to direct the disposition of 173,203 shares.
(3)
    As reported in Amendment No. 3 to Schedule 13G, dated February 4, 2013, BlackRock, Inc. is the beneficial owner of 1,996,841 shares held by specified subsidiaries as of December 31, 2012. According to the filing, BlackRock, Inc. has the sole power to vote or direct the vote and the sole power to dispose or to direct the disposition of all such shares.
(4)
As reported in Amendment No. 2 to Schedule 13G, dated February 14, 2013, T. Rowe Price Associates, Inc. ("Price Associates") is the beneficial owner of 1,482,481 shares held by various individual and institutional investors as of December 31, 2012, which Price Associates serves as an investment adviser with power to direct investments and/or power to vote the securities. According to the filing, Price Associates has the sole power to vote or direct the vote of 477,320 shares and the sole power to dispose or to direct the disposition of 1,482,481 shares. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be the beneficial owner of such shares; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such shares.
(5)
As reported in Schedule 13G, dated February 7, 2013, The Vanguard Group is the beneficial owner of 1,418,932 shares held by various investment advisory clients as of December 31, 2012. According to the filing, The Vanguard Group has the sole power to vote or direct the vote of 38,462 shares, the sole power to dispose or to direct the disposition of 1,381,670 shares, and the shared power to dispose or to direct the disposition of 37,262 shares.





EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

This section explains our executive compensation program as it applies to our named executive officers (whose 2012 compensation is summarized in the tables following this discussion) as well as the role, responsibilities and philosophy of our Board’s Personnel & Compensation Committee (the “Committee” or the “committee”), which oversees the design and operation of the program. Our named executive officers are:

Neal J. Keating
Chairman, President and Chief Executive Officer
William C. Denninger
Executive Vice President and Chief Financial Officer
Gregory L. Steiner
Executive Vice President, Kaman Corporation and
     President, Kaman Aerospace Group, Inc.
Steven J. Smidler
Executive Vice President, Kaman Corporation and
     President, Kaman Industrial Technologies Corporation
Ronald M. Galla
Senior Vice President and Chief Information Officer

Our fundamental objectives are to:
Increase shareholder value by motivating talented individuals to achieve the Company’s annual and longer-term financial and strategic operational goals with compensation related to objective benchmarks and Company performance. To do this, we use a mix of pay elements, including salary, annual and long-term incentive opportunities and benefits, which we believe results in an appropriate balance among salary, incentive compensation and benefits. Overall, salary and benefits are determined based upon comparison to the competitive market for our executives and a group of the Russell 2000 index companies that approximate our revenue size, while the annual and long-term incentive opportunities are directly related to the Company’s financial performance compared to the Russell 2000 index companies.
Have a significant percentage of our senior executives’ incentive compensation tied to successful execution of strategic operational goals. To accomplish this, we establish objective and measurable goals on an annual and longer-term (3 years) basis and compare actual performance to objective, measurable benchmarks. As a result, executives, especially our named executive officers, earn above average compensation when the Company achieves above average financial performance compared to the Russell 2000 index of companies.
Have our named executive officers maintain a significant equity stake in the Company to further align their interests with those of our shareholders. We maintain meaningful stock ownership guidelines and allow up to 1/3 of a cash long term incentive award payment to be paid in stock if the Company’s stock ownership guidelines have not been attained by a named executive officer.
Protect against inappropriate risk taking. We use caps on potential awards for both annual and long-term incentives. The Committee also introduced a claw back policy in 2010 applicable to the Company's Chief Executive Officer and Chief Financial Officer, and Messrs. Keating's and Denninger's employment agreements were amended to reflect the policy. We will establish a claw back policy for all executive officers after the New York Stock Exchange issues listing conditions for the recovery of incentive compensation as required under the Dodd-Frank Act. In addition, no Director or executive officer is allowed to speculate in Company stock or debt securities, including hedging or any type of arrangement that would have a similar economic effect.

Provide compensation and benefits to our named executive officers consistent with practices of similar companies and also aligned with shareholder interests. To accomplish this, we have made the following changes in recent years:
Due to uncertain business conditions, the Committee, at the request of the CEO, has elected to defer any 2013 salary increases for all named executive officers, including the CEO, and the other executive officers who report directly to the CEO until at least July 1, 2013. 2013 salary increases for other officers have been deferred until April 1, 2013.





The Company closed its supplemental retirement plan to new executive officers in early 2010. Grandfathered participants may continue to earn credited service under this plan, but only compensation earned through calendar year 2010 counts toward final average compensation that is used to calculate supplemental retirement benefits. This treatment is the same as that which applies to participants under our tax qualified defined benefit pension plan.
Perquisites that were available to the named executive officers and others were eliminated for the named executive officers in early 2010, including medical expense reimbursement (up to $5,000 per year) and tax and estate planning reimbursement (up to $10,000 per year). Further, leased Company vehicles were replaced by vehicle allowances on a going forward basis.
The Committee intends not to include an excise tax gross-up provision in any new or renewed management agreement, except in unusual circumstances. On November 17, 2012, Mr. Denninger's change in control agreement was renewed and included continuation of the excise tax gross-up provision due to inequitable results under applicable tax rules resulting from him being with the Company for a short period of time. Mr. Steiner's current change in control agreement, which does not expire until July 7, 2013, contains an excise tax gross-up provision. The Committee intends not to provide for an excise tax gross-up provision in connection with any renewal of Mr. Steiner's change in control agreement in 2013. Apart from Messrs. Denninger and Steiner, no other named executive officers have agreements with excise tax gross-up provisions.
We believe that several other aspects of the executive officers’ agreements (as described below) are already consistent with market practices, including the existence of a so-called “double trigger” in order to receive severance payments in the event of a change of control: that is, the need for both a change in control and termination of employment before any severance payments would be paid in a change of control situation.

At our 2012 annual meeting, we asked shareholders to provide non-binding, advisory votes on the compensation paid to our named executive officers and almost all of our shareholders that voted did so in favor of a resolution approving such compensation. As disclosed in the Current Reports on Form 8-K reporting the results of the voting, 98.45% of the votes were cast in favor of the proposal (excluding abstentions and broker non-votes) at the 2012 annual meeting. This approval percentage was higher than in 2011, when 94.80% of the votes were cast in favor of our executive compensation program (excluding abstentions and broker non-votes) at the 2011 annual meeting.(1) The Committee interpreted these results to mean that our shareholders generally support our executive compensation program. As such, the Committee took no specific action to modify our executive compensation program as a direct result of the these non-binding, advisory votes.

We encourage shareholders to review this Compensation Discussion and Analysis and the accompanying compensation tables for an explanation of our approach to executive compensation and a discussion of the correlation between the compensation paid to our named executive officers and the Company’s financial performance. As discussed herein, we believe that the compensation paid to our named executive officers for 2012 bears a direct and corresponding relationship to the Company’s 2012 financial performance.
_____________

(1) The results of the voting at the 2012 annual meeting were reported in a Current Report on Form 8-K, dated April 18, 2012, and the results of the voting at the 2011 annual meeting were reported in a Current Report on Form 8-K, dated April 27, 2011. Copies of these reports may be accessed on the Company's website at www.kaman.com by first clicking on the "Investor Relations" link, followed by the "Financial Information" link and then clicking on the "SEC Filings" link.

The Pay Elements; Performance Metrics and Evaluation of Market Pay Practices

We have designed our executive compensation program to achieve the goals described above in a variety of ways with the intention of providing reasonable pay for a company of our size and incentive opportunities that challenge and correspondingly reward our executives when, and to the extent that, the Company succeeds. First, we use a combination of pay elements, each of which over time is intended to approximate the market median compensation for each position. These elements include base salary, annual and longer-term cash incentive opportunities, and benefits. The opportunities afforded by each pay element are determined on the basis of comparison to objective criteria to assure consistency with companies of similar revenue size, which include national surveys and a sampling of the Russell 2000 companies recommended by the Committee’s independent consultant which approximate the Company’s revenue size (but none of which reflects our unique combination of business segments in one organization).

Actual annual and longer-term incentive pay is then determined by comparing selected metrics of Company financial and operational performance to the entire Russell 2000 index of companies. The Committee uses the Russell 2000 because it believes




that this continues to be the most likely group that both current and potential shareholders would use to evaluate the Company in making their investment decisions; this is largely due to the fact that our two business segments (Aerospace and Distribution) are so different from one another that it is not feasible to compare us to a specific peer group of companies. The Committee regularly reviews the continued appropriateness of using the Russell 2000 for comparison and has reconfirmed its use for 2013.

The financial performance metrics upon which annual and longer-term incentive opportunities have been based are those that management has used to evaluate business performance. For corporate participants, annual incentive metrics have included return on investment, growth in earnings per share, and growth in earnings per share compared to the Company’s annual plan projection for earnings per share; for business segment participants, metrics have included accomplishment of predetermined financial goals and other operational performance factors approved by the Committee. Longer-term incentive metrics have been the same for corporate and business segment executives and have consisted of the Company’s average return on investment, compounded growth in earnings per share and total return to shareholders over a three-year period. The weightings of these metrics in the overall determination of award payments have differed for the annual cash incentive and longer-term incentive, as discussed below.

During the past few years, the Committee has taken a number of steps in an effort to assure that the benefits provided to the named executive officers more closely approximate the benefits provided to other employees. These include the eliminating almost all perquisites, phasing out the supplemental employees’ retirement plan for executives in the same manner as the basic tax-qualified pension plan for all other employees, and modifying employment and change-in-control agreements consistent with current market practices. The Committee also amended the 2003 Stock Incentive Plan in February 2012 to prohibit the Company from reducing the exercise price of awarded stock options or stock appreciation rights (“SARs”). The amendment also prohibits the cancellation of an outstanding option or SAR award in exchange for cash or another award having an exercise price less than the exercise price of the original awarded option or SAR. The only exception is in connection with a corporate transaction that includes, for example, a stock or cash dividend, stock split, recapitalization, reorganization, merger, consolidation or an exchange of shares.

How the Pay Elements Work in Practice

The pay elements of our executive compensation program are designed to work together in a way that results in above average compensation when the Company achieves above average financial performance compared to the Russell 2000 index of companies. Set forth below are charts comparing our performance to the 50th and 75th percentiles of our market (as described above) for both annual and long-term incentive award determination purposes.

Annual Cash Incentive Awards

This chart compares our 2012 financial performance with the 50th and 75th percentile performance of the Russell 2000 companies for the period 2007 – 2011 (which is the period we use to evaluate our results for annual cash incentive awards):


The Committee determined the 2012 award percentage under our annual cash incentive plan based on the Company's actual financial results for 2012 after excluding costs related to acquisition and divestitures in 2012 and certain long-term capital investments that were not expected to provide any current benefits. This resulted in an annual incentive performance award factor of 155.9% of the target award. Excluding acquisition costs and long-term capital investments reflects the Committee's views that acquisitions are of vital importance to the Company's long-term growth and that management should be encouraged to pursue acquisitions when appropriate and make capital investment decisions without regard to their effect on compensation plans. If




these adjustments had not been made, the performance award factor would have been 139.4%. The calculation of the performance award factor is further discussed starting on page 26.
    
    
Our 2012 return on investment (ROI) performance was slightly below the 75th percentile and our 2012 earnings per share (EPS) growth was in the 59th percentile of the Russell 2000. We also achieved 94.1% of our plan earnings per share.

Mr. Keating's combined base salary and annual cash incentive award actually earned for 2012 was below the 50th percentile of the competitive market for other chief executive officers at companies having similar revenue, as illustrated by the chart below:
Please see the discussion at page 22 for information about our independent consultant’s determination of the 50th and 75th percentile for this market comparison.

Performance Related to Long-Term Incentive Award Determination.

The following chart compares the Company’s three year (2010 – 2012) performance against the Russell 2000 companies for the same three-year period based on available data as of January 31, 2013. We note that only about 12% of the Russell 2000 companies had reported data as of January 31, 2013.

_______________
* Three-year average return on investment
** Average annual compounded growth in earnings per share
*** Three-year total return to shareholders

Based on the data currently available and as illustrated above, our performance was at the 54th percentile for compounded growth in EPS growth and at the 67th percentile for average return on investment. Total return to shareholders for this period was at the 66th percentile. Based on these performance levels, we have accrued approximately $2.1 million for Mr. Keating’s LTIP award for the 2010-2012 performance period. This amount represents approximately the 50th percentile of the competitive market for other chief executive officers in similar companies based on 2011 competitive market data.





The award opportunities for the named executive officers for the 2010-2012 LTIP performance period are as follows:

Target Awards for 2010-2012 LTIP Performance Cycle
Named Executive Officer
 
2010 Base Salary
 
Target Award Opportunity as a % of Base Salary
 
Target Award
Neal J. Keating
 
$
725,000

 
195%
 
$
1,413,750

William C. Denninger
 
$
478,200

 
115%
 
$
549,930

Gregory L. Steiner
 
$
371,725

 
115%
 
$
427,484

Steven J. Smidler (1)
 
$

 
 
$

Ronald M. Galla
 
$
327,000

 
90%
 
$
294,300

_______________
(1) Mr. Smidler did not receive a grant for the 2010-2012 LTIP performance cycle. He did receive a two-year LTIP grant for the 2011-2012 performance period. The following chart reflects Mr. Smidler's award opportunity for the 2011-2012 LTIP performance cycle.
Target Award for Mr. Smidler -- 2011-2012 LTIP Performance Cycle
Named Executive Officer
 
2011 Base Salary
 
Target Award Opportunity as a % of Base Salary
 
Target Award
Steven J. Smidler
 
$
330,000

 
110%
 
$
363,000



The Summary Compensation Table does not include amounts accrued as expenses for 2010-2012 LTIP performance period for Mr. Smidler's 2011-2012 LTIP award. We will report the actual amounts earned and paid to Mr. Keating and our other named executive officers for the 2010-2012 LTIP performance period and the 2011-2012 LTIP performance period and an update of the 3-Year Performance Period vs. Russell 2000 chart in an 8-K filing later this year after the Committee has received sufficient 2012 operating results for Russell 2000 companies and certified the extent to which the Company achieved the LTIP performance goals.

Additional Information About the Committee

A detailed discussion of the Committee’s structure, roles and responsibilities and related matters and the role of the independent consultant are located under the caption “Personnel & Compensation Committee” on page 10.

Following is more detailed information about our executive compensation program as it relates to our named executive officers:

Compensation Policies

Our Comparison to External Market Practices

The Committee determines the threshold, target and maximum level of base salary, annual cash incentive and long term incentive targets for our named executive officers using a market report prepared biennially by the Committee’s independent consultant. As described above, the Committee has been advised by our independent consultant that our business segment diversity makes identification of a sensible peer group to benchmark compensation unworkable. Instead, the independent consultant’s market report (the most recent being in 2011) estimates the 25th percentile, 50th percentile and 75th percentile for base salary, annual cash incentive awards and the annualized cash value of long-term incentives using information for manufacturing companies contained in nationally recognized compensation surveys published by Aon Hewitt and Towers Watson, two large independent consulting firms. Exhibit 1 to this proxy statement identifies these surveys (which are not prepared at the Company’s request), along with the number, type and size of the covered organizations. In all cases, the revenue size of organizations was adjusted by the independent consultant for each position to provide a more accurate view of the market data. This revenue-size adjustment was made utilizing a regression analysis applied to the scope of each position, generally based on revenue responsibility. In order to test the reliability of this information, the independent consultant evaluated the compensation levels of a sample of twenty-two (22) Russell 2000 companies having annual revenues similar to ours, which are also identified on Exhibit 1 to this proxy statement. The Committee reviewed the list of companies used in prior years and, in conjunction with its independent consultant, makes certain changes as appropriate. Our independent consultant has advised the Committee that the data from this sample is consistent with the national compensation surveys when adjusted for company revenue size.





The Committee’s policy is that the base salary, annual cash incentive targets, the annualized value of long-term incentives and other benefits (including perquisites and retirement programs) should each, over time, approximate the market median. As of the 2011 comprehensive competitive compensation analysis by our independent consultant, our base salary and target incentive annual cash award opportunities for our named executive officers as compared to the median of the competitive market for 2011 were as follows:
Neal J. Keating(1)
Base Salary
 
Target Annual Cash Incentive Award %
Market Median
$847,000
 
100%
Kaman
$850,000
 
100%
William C. Denninger(1)
Base Salary
 
Target Annual Cash Incentive Award %
Market Median
$432,400
 
65%
Kaman
$505,000
 
60%
Gregory L. Steiner(2)
Base Salary
 
Target Annual Cash Incentive Award %
Market Median
$385,200
 
63%
Kaman
$410,000
 
60%
Steven J. Smidler(2)
Base Salary
 
Target Annual Cash Incentive Award %
Market Median
$344,800
 
58%
Kaman
$345,000
 
60%
Ronald M. Galla(2)
Base Salary
 
Target Annual Cash Incentive Award %
Market Median
$299,200
 
48%
Kaman
$348,598
 
50%
_______________
(1)
The market median figures for Messrs. Keating and Denninger are based upon the surveys and the sample of Russell 2000 companies referenced above.
(2)
The market median figures for Messrs. Steiner, Smidler and Galla are based upon the surveys because these positions are not typically shown separately in the proxy statements of the sample Russell 2000 companies.

Annual cash incentive targets and annualized value of long-term incentives for each named executive officer approximate market medians. Currently, Messrs. Keating, Steiner and Smidler are positioned at or slightly above the midpoint of their salary grades. Mr. Denninger’s variation above the midpoint reflects his many years of experience as a chief financial officer in both the distribution and aerospace industries. Mr. Galla's variation from the market median is primarily due to his 28-year length of service with the Company. Based on the manner in which the Company manages base salaries, it is expected that actual and market salaries will converge over time. Since annual cash incentive targets, the annualized value of long-term incentive targets and retirement income formulas are applied to actual annual base salaries, total compensation levels may similarly differ from market median total compensation levels.

Our policy also results in a greater percentage of total compensation (excluding benefits) being based on performance-based total cash and stock-based compensation (excluding benefits) for the named executive officers. As the table below shows, the proportion of performance-based compensation for all named executives is significant and over or equal to 2011.

Allocation of 2012 Total Cash and Stock-based Compensation

 
 
Fixed
 
Performance-Based*
Name
 
Salary
(% of Total)
 
Annual
Cash Incentive
(% of Total)
 
Long-Term
Incentive
(% of Total)
 
Total
Performance
Related
(% of Total)
Neal J. Keating
 
21%
 
21%
 
58%
 
79%
William C. Denninger
 
32%
 
19%
 
49%
 
68%
Gregory L. Steiner
 
32%
 
19%
 
49%
 
68%
Steven J. Smidler
 
32%
 
19%
 
49%
 
68%
Ronald M. Galla
 
42%
 
21%
 
37%
 
58%





Allocation of 2011 Total Cash and Stock-based Compensation

 
 
Fixed
 
Performance-Based*
Name
 
Salary
(% of Total)
 
Annual
Cash Incentive
(% of Total)
 
Long-Term
Incentive
(% of Total)
 
Total
Performance
Related
(% of Total)
Neal J. Keating
 
25%
 
25%
 
50%
 
75%
William C. Denninger
 
36%
 
22%
 
42%
 
64%
Gregory L. Steiner
 
36%
 
22%
 
42%
 
64%
Steven J. Smidler
 
38%
 
21%
 
41%
 
62%
Ronald M. Galla
 
42%
 
21%
 
37%
 
58%
_______________
*
Percentages are based on target performance for the annual cash incentive and the long-term incentive elements of compensation.

Components of the Executive Compensation Program

The total compensation program for our named executive officers has consisted of the following elements:
Base Salaries;
Annual Cash Incentive Awards;
Long-Term Incentives; and
Retirement and Other Benefits.

While base salaries, long-term incentives, and retirement and other benefits generally are determined in similar ways for each of our named executive officers, different annual cash incentive awards apply to those named executive officers employed at Corporate Headquarters (Messrs. Keating, Denninger and Galla), Aerospace (Mr. Steiner) and Distribution (Mr. Smidler).


Base Salaries

Base salaries are a traditional pay element established initially based upon the individual’s professional experience and knowledge of his or her area of management responsibility. The Committee annually reviews and determines base salaries of the CEO and other named executive officers. Its determination regarding the CEO is subject to the Board’s approval. Adjustments to base salary are determined as follows: An overall salary increase budget guideline is developed, based on market data and the use of nationally recognized surveys of anticipated salary increases published by Meridian, AonHewitt, and World at Work. Within the overall budget guideline, a narrow range of salary adjustment percentages is then established for each salary grade, with slightly higher percentages for individuals who are below the grade midpoint and slightly lower percentages for individuals who are above the grade midpoint. Salary adjustments, if any, are then determined within this narrow range based upon an annual performance rating given to the named executive officer by Mr. Keating and recommended to the Committee. The performance rating determination is primarily based upon the officer’s level of substantive performance in executing each category of responsibilities as described in his or her position description.

The Committee’s recommendation to the Board regarding the CEO’s salary is made after consultation with the Corporate Governance Committee concerning its assessment of the CEO’s performance for the year and the Committee's own assessment. The Corporate Governance Committee solicits input from all independent directors in connection with the CEO performance assessment.

The 2012 salaries for the named executive officers are shown in the Summary Compensation Table that follows this Compensation Discussion and Analysis. At the request of the CEO, the Committee has elected to defer any 2013 salary increases for the named executive officers until at least July 1, 2013 due to uncertain business conditions.

Annual Cash Incentives

Our annual cash incentive award plan (“Cash Bonus Plan”) is intended to reward employees for financial and operational performance that drives shareholder value and focus our organization on meeting or exceeding designated individual goals. The




plan provides employees, including our named executive officers, the opportunity to earn cash awards based on the degree to which the Company achieves pre-determined performance measures for the year. Each executive also has the opportunity to earn up to an additional 10% of his or her target award based upon the degree to which the executive actually achieved his or her individual performance goals set in early 2012. This opportunity has been eliminated for 2013 and future years.

Amounts paid under our Cash Bonus Plan (other than due to individual performance goals or with respect to employees hired during the year) are intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

The elements used to determine awards include:
an award opportunity (expressed as a percentage of base salary);
performance measures (such as growth in earnings per share);
a weighting for each performance measure toward the executive’s total award; and
a performance goal for each performance measure (such as a particular earnings per share target).

Award Opportunities

The Committee establishes the target award opportunity for each named executive officer using the independent consultant’s market report and advice. Positioning award targets at the market median reinforces the Committee’s strategy that annual cash incentive payments should exceed target levels only when financial performance exceeds the Company’s targeted objectives. The 2012 target performance award opportunity for each named executive officer was as follows:

Named Executive Officer
 
2012 Target Award
Opportunity Expressed as %
of Base Salary
Neal J. Keating
 
100%
William C. Denninger
 
60%
Gregory L. Steiner
 
60%
Steven J. Smidler
 
60%
Ronald M. Galla
 
50%

Corporate Named Executive Officers

Performance Measures. The 2012 annual cash incentive awards for Messrs. Keating, Denninger and Galla were almost entirely determined by comparing the Company’s degree of achievement of the following performance factors compared against the benchmark indicated:
Performance Measure
 
Benchmark
 
Weighting
Actual return on investment
 
Russell 2000 index for 2007 – 2011
 
33%
Growth in earnings per share (fully diluted)
 
Russell 2000 index for 2007 – 2011
 
33%
Actual earnings per share (fully diluted)
 
2012 business plan performance goal
 
34%

We use the five-year period for the Russell 2000 index primarily because many of the Company’s military and commercial aerospace programs are longer-term in nature, the time period between sales efforts and actual revenues can be very long, and revenues are often not evenly spread from year to year. Further, because the Russell 2000 index includes companies in a variety of industries that may experience different business cycles, the Committee determined that averaging performance of these companies over a period of time provided a better comparison than just one year. During 2012, the Committee re-evaluated the continued appropriateness of the five-year time-frame and concluded that it continued to be appropriate for the reasons stated above. We cannot include the last completed fiscal year in the analysis because sufficient data for the Russell 2000 index is not available until approximately the June 2013 time frame. We use these performance measures because they are the metrics used by management and the Board to evaluate the Company’s performance.

Company performance in the bottom quartile of the Russell 2000 earns no cash incentive award payment for the performance goal; performance at the median results in a cash incentive award at 100% of target for the performance goal; and performance at the top of, or above, the top quartile results in a maximum cash incentive award payment at 200% of the target for the performance goal. Interpolation is used to determine payments for financial performance between the 25th percentile up to median, and above




median up to the 75th percentile. This performance measurement methodology remains constant through the years although the performance of the Russell 2000 changes annually, thus increasing or decreasing the targets annually.

The Company’s annual business plan is developed jointly by business segment and corporate senior management, incorporating revenue, earnings and cash flow generation goals that take into account global economic circumstances, market conditions, and existing or targeted business opportunities. The business plan is reviewed and approved by both the Finance Committee and the Board. If the Company’s actual earnings per share meet the business plan projection, the target award for this factor is earned. To the extent that actual earnings per share exceed the business plan projection, a greater award is earned, up to a maximum of 200% of target.

2012 Company Financial Performance. For 2012, the Committee based annual incentive awards on the Company's modified performance for 2012 (actual results modified as per original award opportunity to exclude the impact of the costs related to acquisitions and divestitures and certain long-term capital investments occurring in 2012). The following table shows the relationship between the Company's 2012 adjusted financial performance, and each performance factor described above, the degree to which each performance factor was attained, the Russell 2000 index comparison for the 25th percentile, median and 75th percentiles, and the resulting corporate performance factor. The Company’s 2012 modified return on investment and growth in adjusted earnings per share results compared favorably to the Russell 2000, and modified earnings per share was 98.2% of the business plan projection, resulting in an overall corporate performance factor of 155.9%.

Benchmark 5 Year Russell 2000 Performance — 2007 – 2011
 
25th Percentile
 
Median
 
75th Percentile
Compounded EPS Growth
(8.4)%
 
3.0%
 
15.2%
Average Return on Investment
(4.7)%
 
2.9%
 
8.3%





Company Performance vs. Benchmark 5 Year Russell 2000 Performance
Earnings per Share (fully diluted)
2011 Actual
 
2012 Plan
 
2012 Actual
 
2012 Modified*
$1.93
 
$2.20
 
$2.07
 
$2.16


 
2012
Actual Results*
 
Median
Return For
Prior 5-Year
Period —
Russell 2000
 
Percentage
Of Factor Earned
 
Weighting
Factor
 
% Of
Target Award**
Return on Investment
8.5
%
 
2.9
%
 
200.0
%
 
33

 
66.0
%
Growth In Earning per share
11.9
%
 
3.0
%
 
173.0
%
 
33

 
57.1
%
Actual versus projected Earnings per share performance
98.2
%
 
N/A

 
96.4
%
 
34

 
32.8
%
Corporate Performance Factor
  

 
  

 
  

 
  

 
155.9
%
_______________
* The 2012 Actual Results shown above are based on the following reconciled diluted earnings per share and invested capital:

Reconciliation of Diluted Earnings Per Share and Invested Capital
Modified Earnings:
In Millions
 
Per Diluted Share
 
Reported Earnings
$
55.0

 
$
2.07

 
Divestiture Costs, net of tax
1.0

 
0.04

 
Acquisition Costs, net of tax
1.5

 
0.05

 
   Net Adjustments to Earnings
$
2.5

 
$
0.09

 
Modified Earnings
$
57.5

 
$
2.16

 
 
 
 
 
 
Modified Invested Capital:
 
 
 
 
Reported Shareholders' Equity
$
420.2

 
 
 
Total Reported Debt
259.6

 
 
 
Total Reported Invested Capital
679.8

 
 
 
Divestiture Costs, net of tax
$
1.0

 
 
 
Acquisition Costs, net of tax
$
1.5

 
 
 
Certain Capital Investments
$
(8.6
)
 
 
 
Modified Invested Capital
$
673.7

 
 
 

** This column represents the product of the Percentage of Factor Earned figures multiplied by the Weighting Factor.

2012 Individual Performance. Individual performance goals for Messrs. Keating, Denninger and Galla, respectively, were taken into consideration in determining the annual cash incentive award payments made to each executive for 2012. The achievement of such goals may result in an additional percentage being added to the executive's target annual incentive award.

Mr. Keating's Individual Performance: The Corporate Governance Committee annually evaluates the performance of our Chief Executive Officer. The Personnel and Compensation Committee uses this evaluation to reach its own judgment in its sole discretion as to the degree to which key objectives were successfully completed and the appropriate additional payment under the Cash Bonus Plan payment, if any, to be made on account of individual performance. The financial metric that was established early in 2012 by the Personnel & Compensation Committee for individual performance of our Chief Executive Officer was achieving at least $34.2 million in free cash flow in 2012, and the Company achieved free cash flow of $48.4 million ($52.0 million from continuing operations) for 2012. In addition, the Committee determined that Mr. Keating substantially or fully achieved several operational objectives for 2012, including successfully integrating businesses that were acquired in 2011, implementing a new Code of Business Conduct and Ethics and related processes, meeting succession planning objectives, and fulfilling corporate




strategy processes and related requirements. Based on the achievement of these key financial and operational objectives, the Personnel & Compensation Committee recommended, and the Board ratified and approved, an additional 6.5% of the target award to Mr. Keating.

Messrs. Denninger's and Galla's Individual Performance: Our Chief Executive Officer annually evaluates the performance of our executive officers against our 2012 business plan. The Personnel and Compensation Committee uses this evaluation to reach its own judgment in its sole discretion as to the degree to which key objectives were successfully completed and the appropriate additional payment under the Cash Bonus Plan payment, if any, to be made on account of individual performance. The financial metric that was established early in 2012 by the Personnel & Compensation Committee for Mr. Denninger's individual performance was achieving at least $34.2 million in free cash flow in 2012, and the Company achieved free cash flow of $48.4 million ($52.0 million from continuing operations) for 2012. With respect to Mr. Denninger, he also substantially or full achieved key operational objectives in 2012 with respect to successfully negotiating and implementing a new credit facility, preparing for the transition to IFRS, and forming a social media task force and work plan. Based on the achievement of these key financial and operational objectives, the Chief Executive Officer recommended, and the Personnel & Compensation Committee approved, an additional 7% of the target award to Mr. Denninger. With respect to Mr. Galla, he substantially or fully achieved key operational objectives in 2012 with respect to implementing IT strategy, infrastructure and support related to ERP initiatives, installing Voice Over Internet Protocol (VOIP) infrastructure, achieving lower-cost telecommunications contracts, integrating acquired business units to the company network and developing information security initiatives. Based on the achievement of these operational objectives, the Chief Executive Officer recommended, and the Personnel & Compensation Committee approved an additional 10% of the target award to Mr. Galla.

Actual 2012 Annual Cash Incentive Award Payments. The following are the total annual cash incentive awards earned for calendar year 2012 for the Corporate named executive officers:
Named Executive Officer
 
2012 Cash
Incentive
Award
 
Incentive Award
Expressed as a
Percentage of
Base Salary
Neal J. Keating
 
$1,380,400
 
162.4%
William C. Denninger
 
$493,587
 
97.7%
Ronald M. Galla
 
$289,162
 
83.0%

Business Segment Named Executive Officers

Aerospace Segment Named Executive Officer

Performance Measures.  The 2012 annual cash incentive award for Mr. Steiner, president of the Aerospace segment, was calculated based 25% on corporate performance and 75% on (i) predetermined financial goals for this business segment as recommended by the CEO and adopted by the committee, which excludes certain long-term capital investments and the impact of the the segment's investment in the India joint venture; and (ii) performance relative to other factors described below. The financial goals and their weighting for this business segment were:

Performance Goal
 
Benchmark
 
Weighting
Plan return on investment
vs.
Target return on investment
 
20%
Actual return on investment
vs.
Plan return on investment
 
20%
Actual return on investment
vs.
Target return on investment
 
40%
Growth in segment operating income year over year
vs.
Operating income
 
20%

Target return on investment performance goal is the average return on investment for the three previous calendar years (i.e., the average of 2009, 2010, and 2011 for the 2012 performance year). The plan return on investment performance goal measures the business segment’s annual business plan versus the target return on investment. This performance goal is included in order to incentivize management to develop both challenging and realistic goals. Accomplishing just this performance goal alone is not sufficient to earn a cash incentive award.

There are also other performance goals (referred to below as “other factors”) for Mr. Steiner established by the Committee based on the CEO’s recommendation. The extent to which each of the performance goals is achieved results in the earning of




“points”. The Cash Bonus Plan requires that a minimum number of points be accumulated for a cash incentive award to be earned and the more points that are earned, the greater the cash incentive award. Varying point levels are assigned to each factor based upon the Committee’s assessment of the degree of attainment difficulty, after consultation with management. Possible point values ranged from 0 to 6 for each “other factor” with a maximum of 20 points.

Following is a conversion chart demonstrating how the total number of points is converted into a percentage of the target award:
CONVERSION CHART EXAMPLE
 
 
Total Points
Earned
 
Percent of Target
Award Earned
Below 50
 
50
 
20
60
 
30
70
 
45
80
 
60
90
 
80
100
 
100
110
 
120
120
 
140
130
 
160
140
 
180
150 & Above
 
200

Because the maximum percentage of target award that can be earned is 200%, the maximum number of points available for the predetermined financial goals is 150. In other words, points earned that are in excess of 150 are ignored in calculating the annual cash incentive award. Interpolation is used to determine payments if the number of points falls between two stated levels of total points earned in this table.

2012 Actual Financial Performance.  The table below illustrates the performance parameters and calculation method used to determine Mr. Steiner's 2012 annual cash incentive payment. Mr. Steiner earned 136.4 points based on actual 2012 business segment results as measured against the described financial goals. Mr. Steiner's “other factors” related to achievement of certain individual goals for 2012. Mr. Steiner's individual goals were established and approved by Mr. Keating in the first 90 days of 2012, as were the quantitative metrics used to evaluate goal achievement. As part of the evaluation process, Mr. Keating assessed whether Mr. Steiner's goals were achieved. Mr. Keating then presented his review to the Committee along with a recommendation that Mr. Steiner receive 1 additional point in 2012 for successfully forming and implementing a manufacturing joint venture in India. The objectively-based criteria used to determine achievement of the goal was whether a joint venture agreement was executed in 2012. This goal was fully achieved based on the execution of a joint venture agreement on November 1, 2012. The Committee accepted Mr. Keating's recommendation and awarded Mr. Steiner with 1 additional point for purposes of Mr. Steiner's 2012 annual cash incentive payment.  Given the weightings described above, 2012 financial performance by the Aerospace segment and achievement of other segment performance factors resulted in a total of 130.4 points and a correlating performance factor of 160.8% out of a maximum of 200%.

Average Return on Investment (“ROI”)
 
Operating Income
(in millions)
2012 Target
 
2012 Plan
 
2012 Actual*
 
2011
 
2012
19.6%
 
22.8%
 
20.4%
 
$80.4
 
$89.1
                        
* 2012 average investment used to calculate ROI is modified to exclude certain long-term investments made in 2012.





 
Performance %
 
Points
Earned
 
Performance Range
Plan vs. Target ROI
116.3
%
 
33.0

 
50% = 0
 
100% = 20
 
125% = 40
Actual Performance vs Plan ROI
89.5
%
 
15.8

 
50% = 0
 
100% = 20
 
125% = 40
Actual Performance vs Target ROI
104.1
%
 
46.6

 
50% = 0
 
100% = 40
 
125% = 80
Growth in Operating Income
10.8
%
 
34.0

 
0% = 0
 
8% = 20
 
12% = 40
Points Earned based on Financial Performance
  

 
129.4

 
  
 
  
 
  
Other Factors (20 point maximum)
 
 
1.0

 
 
 
 
 
 
Total Points Earned
 
 
130.4

 
 
 
 
 
 
_____________
*2012 average investment used to calculate ROI is modified to exclude certain long-term investments made in 2012.

Since 25% of Mr. Steiner's annual cash incentive award is based on Corporate's performance, Mr. Steiner's annual cash incentive award factor is 159.6%.

Actual 2012 Cash Incentive Award Payments. Following is the total annual cash incentive award earned for calendar year 2012 for Mr. Steiner:
Named Executive Officer
 
2012 Cash
Incentive
Award
 
Incentive Award
Expressed as a
Percentage of
Base Salary
Gregory L. Steiner
 
$392,616
 
95.8%

Distribution Segment Named Executive Officer

Performance Measures.  The 2012 annual cash incentive award for Mr. Smidler, president of the Distribution segment, was calculated 25% based on corporate performance and 75% on (i) predetermined financial goals for this business segment as recommended by the CEO and adopted by the Committee, which excludes acquisition and divestiture costs and certain long-term capital investments and includes the net gain on the divestiture of Distribution's Canadian operation ; and (ii) performance relative to other factors described below.

Performance Goal
 
Benchmark
 
Weighting
Plan return on investment
vs.
Target return on investment
 
15%
Actual return on investment
vs.
Plan return on investment
 
15%
Actual return on investment
vs.
Target return on investment
 
30%
Growth in segment operating income year over year
vs.
Operating income
 
20%
Growth in sales year over year
vs.
Sales
 
20%

The target return on investment performance goal is established as the average return on investment for the three previous calendar years (i.e., the average of 2009, 2010 and 2011 for the 2012 performance year). The plan return on investment performance goal measures the business segment’s annual business plan versus the target return on investment. This performance goal is included in order to incent management to develop both challenging and realistic goals. Accomplishing just this factor alone is not sufficient to earn a cash incentive award.

There are also other performance goals (referred to below as “other factors”) for Mr. Smidler’s performance that are established by the committee based on the CEO’s recommendation. The extent to which each of these factors performance goals is achieved results in the earning of “points”. The Cash Bonus Plan requires that a minimum number of points be accumulated for a cash incentive award to be earned and the more points that are earned, the greater the cash incentive award. Varying point levels are assigned to each performance goal based upon the Committee’s assessment of the degree of attainment difficulty, after consultation with management. Possible point values ranged from 0 to 6 for each “other factor” with a maximum of 20 points.

The conversion chart shown above for the Aerospace segment president was also used for Distribution segment president to demonstrate how the total number of points earned is converted into a percentage of the target award.





Because the maximum percentage of target award that can be earned is 200%, the maximum number of points available for the predetermined financial goals is 150. That is, points earned in excess of 150 are ignored in calculating the annual cash incentive award. Interpolation is used to determine payments if the number of points falls between two stated levels of total points earned in this table.

2012 Actual Financial Performance.  The following table illustrates the performance parameters and calculation method to determine Mr. Smidler's 2012 annual cash incentive payment. Mr. Smidler earned 156.4 points based on actual 2012 business segment results as measured against predetermined financial goals. Mr. Smidler's “other factors” related to achievement of certain individual goals for 2012. Mr. Smidler's individual goals were established and approved by Mr. Keating in the first 90 days of 2012, as were the metrics used to evaluate goal achievement. As part of the evaluation process, Mr. Keating assessed whether Mr. Smidler's goals were achieved. Mr. Keating determined that Mr. Smidler earned a total of 17.5 points (out of 20) for achievements with respect to the other factors, including: successfully implementing the Parker reseller strategy; acquired growth and profitability; growth of national and non-national accounts; gross margin improvement; achieving implementation milestones of the new ERP system, purchasing efficiency gains; and implementing the organizational strategy. Given the weightings described above, 2012 financial performance by the Distribution segment and achievement of other segment performance factors resulted in a total of 173.9 points and a performance factor of 200% out of a maximum of 200%. Because the performance factor is capped at 200% upon the achievement of 150 points, none of the points earned by Mr. Smidler for "other factors" were taken into account by the Committee in calculating Mr. Smidler's annual cash incentive award.

Sales
(in millions)
 
Average Return on Investment (“ROI”)
 
Operating Income
(in millions)
2011
 
2012
 
2012 Target
 
2012 Plan
 
2012 Actual*
 
2011
 
2012*
$950.9
 
$1,032.2
 
15.0%
 
21.8%
 
18.6
%
 
$48.1
 
$53.5
__________
*
Distribution's modified operating income is based on reported operating income is $50.7 million, excluding divestiture costs of $1.5 million and including the net gain on the sale of the segment's Canadian operation of $1.3 million for a modified operating income of $53.5 million. Average investment used to calculate ROI is modified to exclude certain long-term investments made in 2012.
 
Performance %
 
Points Earned
 
Performance Range
Plan vs. Target ROI
145.3
%
 
30.0

 
50% = 0
 
100% = 15
 
125% = 30
Actual Performance vs Plan ROI
85.3
%
 
10.6

 
50% = 0
 
100% = 15
 
125% = 30
Actual Performance vs Target ROI
124.0
%
 
58.8

 
50% = 0
 
100% = 30
 
125% = 60
Growth in Operating Income
11.1
%
 
35.5

 
0% = 0
 
8% = 20
 
12% = 40
Growth in Sales
8.6
%
 
21.5

 
0% = 0
 
8% = 20
 
16% = 40
Points Earned based on Financial Performance
  

 
156.4

 
  
 
  
 
  
Other Factors (20 point maximum)
 
 
17.5

 
 
 
 
 
 
Total Points Earned
  

 
173.9

 
  
 
  
 
  

Since 25% of Mr. Smidler's annual cash incentive award is based on Corporate's performance, Mr. Smidler's annual cash incentive award factor is 189.0%.

Actual 2012 Cash Incentive Award Payments. Following is the total annual cash incentive award earned for calendar year 2012 for Mr. Smidler:
Named Executive Officer
 
2012 Cash
Incentive
Award
 
Incentive Award
Expressed as a
Percentage of
Base Salary
Steven J. Smidler
 
$391,230
 
113.4%

Long-Term Incentives (“LTIP”)

The Committee uses cash-based awards under the long-term incentive feature of the Company's Stock Incentive Plan (“LTIP”) to focus executive officers on long-term performance. LTIP Awards are based on the Company’s actual performance during a three-year performance period with respect to performance measures selected under the Stock Incentive Plan. The payment amount for completed performance periods is determined by a comparison of the Company’s financial performance for the three-year period with performance of the Russell 2000 Index for the same period. Payments attributable to completed performance periods




are made in cash unless a participant has not yet achieved his or her required stock ownership level under the Company’s guidelines, in which case, up to one-third of the earned award may be paid in the form of Company stock. These awards are intended to qualify as performance-based compensation in accordance with the requirements of Internal Revenue Code Section 162(m). The Committee retains the discretion to eliminate or decrease the amount payable to a participant with respect to any award.

Prior to 2011, the Company's practice had been to include new executive officer participants in the three-year LTIP award performance cycle that followed their hire date. This practice was followed with respect to Messrs. Keating, Denninger and Steiner, and resulted in no LTIP payment for at least three years after first becoming a participant. In the interim, new executives received stock options and restricted stock grants instead of LTIP awards. In February 2011, the Committee determined that, as a better means of relating a new executive's incentive compensation to the Company's performance against the Russell 2000 companies, it would utilize LTIP awards with one and two year performance cycles in addition to the traditional three-year performance cycle, beginning in 2011. These LTIP awards would correspondingly use one, two and three-year Russell 2000 index performance periods to determine the LTIP payment, and would be of similar value to the stock options and restricted stock awards previously granted to new executive officers.

As a result of the change described above, Mr. Smidler, who became an executive officer on September 1, 2010, received three separate LTIP awards in 2011 covering the periods January 1, 2011 through December 31, 2011 (which was paid in June 2012), January 1, 2011 through December 31, 2012, and January 1, 2011 through December 31, 2013.

In 2012, the Committee granted LTIP Awards for the 2012-2014 performance period to Messrs. Keating, Denninger, Steiner, Smidler and Galla. The award opportunities for the named executive officers for the 2012-2014 LTIP performance period are as follows:

Target Awards for 2012-2014 LTIP Performance Cycle
Named Executive Officer
 
2012 Base Salary
 
Target Award Opportunity as a % of Base Salary
 
Target Award
Neal J. Keating
 
$
850,000

 
275%
 
$
2,337,500

William C. Denninger
 
$
505,000

 
150%
 
$
757,500

Gregory L. Steiner
 
$
410,000

 
150%
 
$
615,000

Steven J. Smidler
 
$
345,000

 
150%
 
$
517,500

Ronald M. Galla
 
$
348,598

 
90%
 
$
313,738


The Committee uses the following performance measures and weightings based on its determination of their importance as indicators of the Company’s long-term success:

Performance Factor
 
Weighting
Three-year average return on investment
 
40%
Average annual compounded growth in earnings per share
 
40%
Three-year total return to shareholders
 
20%

The Committee chooses the Russell 2000 Index companies for long-term financial performance comparison for much the same reason that it does for annual cash incentive awards — the Committee believes that these are the type of companies against which an investor would likely compare the Company’s performance in considering investment decisions. This performance measurement methodology remains constant through the years although the performance of the Russell 2000 changes annually, thus increasing or decreasing the targets annually. As part of its review of the compensation programs in 2012, the Committee reviewed the weighting of these performance factors and determined that the relative weighting was still appropriate.





The financial measures and target performance factors used in the estimated calculation for the 2010 – 2012 performance period are as follows:

Three-year average return on investment. Our three-year average return on total investment is 8.0%, which represents the average for the three-year performance period 2010 - 2012 shown in the following table. The Company defines total investment (capitalization) as total shareholder equity plus total long-term debt (including current portion). Return on investment is net earnings divided by total investment as follows:
 
(In Thousands)
  
2012
 
2011
 
2010
Net Earnings
$
55,025

 
$
51,142

 
35,611

Total Equity
$
420,193

 
$
373,071

 
$
362,670

Total Debt
$
259,606

 
$
205,207

 
$
148,423

Total Capitalization
$
679,799

 
$
578,278

 
$
511,093

Return on investment
8.1
%
 
8.8
%
 
7.0
%

Average Annual Compounded Growth in Earnings per Share. Our average annual compounded growth in diluted earnings per share represents the average diluted earnings per share growth rate over the three-year performance period, which is calculated as follows:
 
2007

 
2008
 
2009
 
3 Year
Average
 
2010
 
2011
 
2012
 
3 Year
Average
EPS
$
1.60

 
$
1.49

 
$
0.97

 
$
1.35

 
$
1.36

 
$
1.93

 
$
2.07

 
$
1.79


Average Compounded Annual Growth = ($1.79 ÷ $1.35)1/3 – 1 = 9.9%.

Three-Year Total Return to Shareholders. Return to shareholders combines share price appreciation and dividends reinvested. The total return to shareholders is based on a computation that is obtained from Standard & Poor’s Compustat, an independent research service. The Company’s total return to shareholders for the performance period from 2010 – 2012 is 69.0%.

Financial performance below the 1st quartile results in no award payment; performance at the median results in an award payment at 100% of target; and performance at the top of, or above, the 3rd quartile results in a maximum award payment at 200% of the target. Interpolation is used to determine payments for financial performance within these quartiles. The methodology for determining the financial targets remains the same year to year, although the actual targets vary for each performance period based on the three-year performance of the Russell 2000 companies. (By contrast, annual cash incentive awards are calculated using the Russell 2000 index for the five-year period preceding, but not including, the performance year.) LTIP grants made for the performance period January 1, 2012 through December 31, 2014 are shown in the “Grant of Plan-Based Awards in 2012 Fiscal Year” table on page 38.

Payments earned, if any, are generally made in June of the year following the end of the performance period. This payment date gives the Committee time to collect and analyze more complete performance results of the Russell 2000 companies for the performance period. As explained above, amounts earned for the performance period January 1, 2010 – December 31, 2012 are not yet determinable and are not reflected in the Summary Compensation Table. The Company will disclose actual payments for the performance period when they are made by filing a Form 8-K.

    
Retirement Benefits

The Company offers a non-contributory tax qualified defined benefit pension plan (“pension plan”) for most of its employees, including Messrs. Keating, Denninger, Steiner and Galla. Tax rules restrict the amount of benefit that can be accrued for higher paid employees under this plan. The Company also maintains a non-tax qualified Supplemental Employees’ Retirement Plan, which we refer to as the SERP. The SERP provides certain key executives, whose compensation is in excess of the limitations imposed by federal law on the tax qualified pension plan, with supplemental benefits based on eligible earnings, years of service and age at retirement. All of the named executive officers participate in the SERP except for Mr. Smidler who joined the Company after the date on which the pension plan was closed to new employees of Kaman Industrial Technologies Corporation. The purpose of these plans is to provide a reasonable level of retirement income to participants taking into account pre-retirement earnings and length of service with the Company.





In early 2010, the Board approved closing the pension plan to all new hires on or after March 1, 2010, and continued it for then existing employees with the following changes:

Changes in pay were taken into account for benefit calculation purposes until the end of calendar year 2010, after which no further changes have been taken into account.
The benefit formula was improved to use the highest five years out of the last ten years of service up to December 31, 2010, whether or not consecutive.
Years of service (as defined by the pension plan) will continue to count for accruing benefits under the pension plan through December 31, 2015 — this will provide employees with several years’ time for planning and executing alternative retirement savings strategies and will moderate the transition for those participants already near retirement age.

These changes apply equally to the SERP except that the SERP already provides for use of non-consecutive years of service for benefit calculations.

The change in the value of the tax-qualified pension plan and SERP benefits in 2012 is shown in the Summary Compensation Table at page 37 and the full value of these benefits at normal retirement age is shown in the Pension Benefits Table at page 41.

The Company also sponsors a tax-qualified defined contribution plan ("401(k) plan") in which the named executive officers are eligible to participate. Participants generally may elect to contribute from 1% to 50% of their eligible compensation to the 401(k) plan in the form of pre-tax, after-tax or Roth contributions subject to certain limitations imposed by federal law. The Company makes employer-matching contributions on a participant's pre-tax and Roth contributions in the amount of $1.00 for each $1.00 that a participant contributes, up to 5% of compensation subject to applicable limits imposed by federal tax law. As an example, if a participant contributes 5% of his or her compensation to the 401(k) plan, the Company will make a 5% employer-matching contribution to the participant's account. Participants in the 401(k) plan are always vested in their own contributions. Employer-matching contributions vest upon a participant reaching 3 years of service with the Company.

Other Benefits

A select group of highly compensated management employees, including the named executive officers, are eligible to participate in our non-qualified Deferred Compensation Plan, which permits pre-tax deferrals of up to 50% of a participant's base salary and up to 100% of his or her annual cash incentive award. The Company makes matching contributions on deferrals in the amount of 25% of a participant's deferrals for the plan year, up to a maximum of 2.5% of base salary plus the annual cash incentive award less the maximum allowable match under the 401(k) plan. The Company also makes supplemental deferred compensation contributions to eligible participants equal to 10% of the amount of which a participant's compensation exceeds the maximum allowable allowable compensation limit for purposes of tax-qualified plan, which for 2012 is $250,000. Prior to 2012, participants in the SERP were not eligible to receive supplemental deferred compensation contributions; however, starting in 2012, SERP participants became eligible for such contributions in recognition of the significant changes made to the pension plan and SERP in 2010. The supplemental deferred compensation earned by the named executive officers in 2012 is included in the "All Other" section of the Summary Compensation Table on page 37. Participant accounts under the Deferred Compensation Plan are credited with interest at a predetermined crediting rate equal to 120% of the applicable federal long-term rate compounded monthly in effect for the month of October prior to the beginning of the applicable plan year. A participant must be actively employed on the crediting date (i.e., January 1 following the applicable plan year) to receive matching and supplemental deferred compensation contributions. Deferrals and all Company contributions and earnings are 100% vested. For more information about the Deferred Compensation Plan, please refer to “Non-Qualified Deferred Compensation Plan” following the Non-Qualified Deferred Compensation Plan Table, below at page 42.

The Company provides relatively few perquisites for the named executives. As explained above, all vehicle leases have ended for the named executive officers. Each executive officer now receives a vehicle allowance. In addition, starting in 2012, the Company pays for an annual physical examination for the named executives. The Summary Compensation Table provides information regarding the incremental cost of perquisites for the named executive officers for the portion of 2012 during which any were in place. In addition, the Company maintains one corporate aircraft, which was used solely for business purposes in 2012.





Employment Agreements and Change in Control Arrangements

The Company has entered into employment agreements and change in control agreements with our named executive officers. The terms and conditions of the agreements are described beginning on page 38. The Committee has extended employment agreements for the named executive officers in order to encourage the retention of valuable executive talent, discourage competitors from attempting to hire those executives, and to protect the Company in the event that an executive departs by strictly prohibiting the disclosure of confidential information, limiting the executive’s ability to compete with the Company after employment termination, requiring the signing of a release agreement before the payment of severance benefits and imposing reasonable post-employment cooperation obligations. The Committee believes that the change in control agreements serve the interests of our Company and its shareholders by ensuring that if a hostile or friendly change of control is ever under consideration, our executives will be able to advise our board of directors about the potential transaction in the best interests of shareholders, without being unduly influenced by personal considerations.

In early 2010, the Committee notified the Company’s executive officers that in the event their management agreements were renewed, it did not intend to provide an excise tax gross-up benefit, except in unusual circumstances. The Committee also determined that no new management agreements would contain any excise tax gross-up benefit; therefore, no excise tax gross-up was provided in Mr. Smidler’s management agreements when he became President of the Company's Distribution segment in September 2010. The Committee took these actions in light of evolving market practices for change in control agreements. Since 2010, the employment agreements for all named executive officers, except Messrs. Denninger and Steiner, have been modified to remove excise tax gross-up benefits. In 2012, Mr. Denninger's management agreement was renewed with a continuation of the excise tax gross up provision because Mr. Denninger's relatively short tenure with the Company was the cause of the potential excess parachute payment and he is not expected to have an excess parachute payment if a change of control occurs after 2013. The Committee will address the terms of Mr. Steiner's change in control agreement prior to it expiring on July 7, 2013.

The employment agreements and change in control agreements for Messrs. Keating and Denninger provide the Company with a right to “claw back” compensation paid or received, or to be paid or received, by these officers relating to Incentive Compensation (as defined in the agreements) awards made on or after January 1, 2010, with respect to fiscal periods beginning with 2010 where there is a Mandatory Restatement (as defined in the agreements) of the Company’s financial statements for fiscal 2010 or any year thereafter that arises directly from the fraudulent or knowing, intentional misconduct of the officer. We will establish a claw back policy for all executive officers after the New York Stock Exchange issues listing conditions for the recovery of incentive compensation as required under the Dodd-Frank Act.

The employment and change in control agreements for Mr. Keating are essentially the same as the agreements entered into by the other named executive officers, except for differences reflecting Mr. Keating’s position as President and CEO. Information regarding each of the named executive officers’ agreements and the payments that would be received under different termination circumstances is set forth below under the caption “Payments Made Due to Qualifying Employment Termination on or After a Change In Control” at page 44.

Stock Ownership Guidelines for Directors and Executive Officers

Since 2006, the Board has maintained stock ownership guidelines for both non-employee Directors and corporate management. The Board believes that Directors and senior management should have a significant equity position in the Company and that these guidelines further the Board’s interest in encouraging a longer-term focus in managing the Company.

Under the guidelines, non-employee Directors are required to have an ownership multiple of 3 times their current annual cash retainer. For 2012, the stock ownership requirement was $135,000 based on an annual cash retainer of $45,000. In 2013, the ownership requirement increases to $180,000 based upon the annual cash retainer increasing to $60,000. Directors who do not meet the ownership guidelines must hold shares received pursuant to restricted stock grants (net of any shares used to satisfy income tax withholding requirements) for a period of 3 years or until the guidelines are met, whichever is earlier.

The stock ownership guidelines for senior management require covered executives to retain one-third of the net after-tax gain realized under equity-based compensation awards granted after the adoption of the guidelines, until they achieve and continue to maintain the following stock ownership levels:

President and CEO
 
3 times salary
Participants in the LTIP
 
2 times salary
All Other Corporate Officers
 
1 times salary





The Committee reviews stock ownership levels of executives subject to these guidelines on a quarterly basis. Exercisable stock options are not included in the determination of compliance with the ownership levels set forth above. Each of the named executive officers achieved their applicable stock ownership requirements in 2012.

In determining whether the guidelines have been achieved at any particular point, the price of the Company’s stock will be the higher of (i) the then current market value determined by the closing price on the date of the determination; or (ii) the closing price on February 21, 2006, which was $21.13. The closing price of the stock on December 31, 2012 was $36.80 and was used for the final determination of compliance for 2012.

Material Tax and Accounting Implications of the Program

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation paid in excess of $1 million for any fiscal year to the Company’s CEO and the three other most highly compensated executive officers (excluding the Chief Financial Officer). However, “performance-based compensation” that meets certain requirements under Section 162(m) is exempt from this deduction limitation. The Committee generally intends that short and long-term cash incentive awards qualify for this exemption. Nevertheless, the Committee may provide compensation that may be not deductible due to this limitation, such as time-based restricted stock awards and bonuses for individual performance based on subjective determination of performance. The Company is requesting that shareholders approve the 2013 Management Incentive Plan so that the Committee will continue to have flexibility to provide incentive compensation that will qualify for favorable tax advantages to the Company.

Context of This Discussion

To the extent that the foregoing discussion contained future individual or Company performance targets and goals, they were disclosed solely to facilitate a better understanding of the Company’s executive compensation program. Such performance targets and goals should not be deemed to be statements of management's expectations or estimates of results or other guidance. We strongly encourage investors not to apply these statements in other contexts.

Personnel & Compensation Committee Report

The Committee has reviewed and discussed this Compensation Discussion and Analysis with management and concurs with its contents. Based on this review and discussion, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement on Schedule 14A and incorporated in its annual report to the SEC on Form 10-K for the year ended December 31, 2012.

Personnel & Compensation Committee
 
Richard J. Swift, Chair
Brian E. Barents
E. Reeves Callaway III
A. William Higgins

This report shall not be deemed to be incorporated by reference by any general statement incorporating this proxy statement by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such statutes, except to the extent that the Company specifically incorporates the report by reference therein.





SUMMARY COMPENSATION TABLE

The table, footnotes and narrative below describe the aggregate compensation earned by each of our named executive officers for our 2010, 2011 and 2012 fiscal years. For information on the role of each component of our executive compensation program, please, see the description under “Compensation Discussion and Analysis” beginning on page 18.

Name and Principal Position
 
Year
 
Salary
($)
 
Bonus
($)(1)
 
Stock
Awards(2)
($)
 
Option
Awards(3)
 
Non-Equity
Incentive Plan
Compensation(4)
($)
 
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(5)
($)
 
All Other
Compensation(6)
($)
 
Total
($)
NEAL J. KEATING
Chairman, President and
Chief Executive Officer
 
2012
 
850,000

 

 

 

 
1,380,400

 
356,445

 
385,036

 
2,971,881

2011
 
800,000

 

 

 

 
2,716,160

 
328,638

 
49,616

 
3,894,414

2010
 
725,000

 

 

 

 
2,845,430

 
251,650

 
65,901

 
3,887,981

WILLIAM C. DENNINGER
Executive Vice President and
Chief Financial Officer
 
2012
 
505,000

 

 

 

 
493,587

 
144,767

 
166,136

 
1,309,490

2011
 
492,540

 

 
615,524

 

 
1,025,681

 
146,895

 
44,026

 
2,324,666

2010
 
478,200

 

 
223,681

 
225,781

 
444,726

 
126,992

 
31,653

 
1,531,033

GREGORY L. STEINER
Executive Vice President, Kaman Corporation and President, Kaman Aerospace
Group
 
2012
 
410,000

 

 

 

 
392,616

 
142,939

 
131,388

 
1,076,943

2011
 
382,875

 

 
478,553

 

 
832,439

 
89,694

 
59,275

 
1,842,836

2010
 
371,725

 
43,715

 
170,237

 
171,798

 
124,899

 
91,270

 
26,180

 
999,824

STEVEN J. SMIDLER
Executive Vice President, Kaman Corporation and President, Kaman Industrial Technologies
 
2012
 
345,000

 

 

 

 
391,230

 

 
139,159

 
875,389

2011
 
330,000

 

 
190,968

 
190,672

 
932,910

 

 
69,185

 
1,713,735

2010
 
307,500

 
137,500

 

 

 
321,000

 

 
116,383

 
882,383

RONALD M. GALLA Senior Vice President and
Chief Information Officer
 
2012
 
348,598

 

 

 

 
289,162

 
641,375

 
110,048

 
1,389,183

2011
 
338,445

 

 

 

 
619,241

 
578,115

 
66,330

 
1,602,131

2010
 
327,000

 

 

 

 
682,518

 
498,707

 
25,149

 
1,533,374

_______________
(1)
The figure in this column in 2010 for Mr. Steiner represents a special, one-time discretionary bonus awarded to him that is attributable to the Company’s receipt of a $6.6 million payment related to the claim for “look-back” interest that we filed with the IRS in connection with the Aerospace segment’s former Australia SH-2G program and the gain on sale of certain assets by the Aerospace segment during the year. The figure in this column in 2010 for Mr. Smidler represents a starting bonus which was considered necessary for his recruitment in December 2009.
(2)
Amounts shown in the Stock Awards column reflect the aggregate grant date fair value of restricted stock granted to our named executive officers with respect to the 2010, 2011 and 2012 fiscal years in accordance with ASC 718. For a discussion of valuation assumptions, see Note 18, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. No named executive officer received grants of stock awards during 2012. The restricted stock awards that were granted in 2010 and 2011, respectively, were made prior to a particular named executive officers' eligibility for a LTIP cash award opportunity.
(3)
Amounts shown in the Option Awards column reflect the aggregate grant date fair value of stock options granted to our named executive officers with respect to the 2010, 2011 and 2012 fiscal years in accordance with ASC 718. For a discussion of valuation assumptions, see Note 18, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. No named executive officer received grants of stock options during 2012. The stock options that were granted in 2010 and 2011, respectively, were made prior to a particular named executive officers' eligibility for a LTIP cash award opportunity.
(4)
Represents annual cash incentive awards earned by named executive officers during the applicable fiscal year under our Cash Bonus Plan, which plan is discussed under “Compensation Discussion and Analysis” beginning on page 24. The amounts in the table do not reflect payments that cannot yet be determined but which may become due under the LTIP for the January 1, 2010 – December 31, 2012 performance period for Messrs Keating, Denninger, Steiner and Galla and under the LTIP for the 2011 - 2012 Performance Cycle (January 1, 2011 – December 31, 2012) for Mr. Smidler. The 2011 figure reflects the LTIP payment made in June 2012 under the LTIP feature of the 2003 Stock Incentive Plan for the January 1, 2009 – December 31, 2011 performance period for Messrs Keating, Denninger, Steiner and Galla and the LTIP feature of the 2003 Stock Incentive Plan for the January 1, 2011 - December 31, 2011




performance period for Mr. Smidler. Similarly, the 2010 figure reflects the LTIP payment made in June 2011 under the LTIP feature of the 2003 Stock Incentive Plan for the January 1, 2008 – December 31, 2010 performance period. Our LTIP is discussed in further detail on page 31 of the Compensation Discussion and Analysis.
(5)
Represents the total change in the present value of accrued benefits under our pension plan and SERP from year to year. Pension plan and SERP benefits are discussed in further detail herein starting on page 41.
(6)
The amounts included in this column consist of the following: Participation in our life insurance program for senior executives, employer matching contributions under our 401(k) Plan, supplemental employer contributions earned under our Deferred Compensation Plan, and perquisites consisting of payments for annual physical examinations and a vehicle allowance. The 2012 figures include supplemental deferred compensation earned for Messrs. Keating, Denninger, Steiner, Smidler and Galla of $331,616, $120,968, $89,644, $95,531 and $71,784, respectively. The 2012 figures also include vehicle a vehicle allowance of $33,420 for Mr. Keating, $26,460 for Messrs. Denninger, Steiner and Smidler, and $20,448 for Mr. Galla. Infrequently, spouses and guests of named executive officers ride along on the Company aircraft when the aircraft is already going to a specific destination for a business purpose. This use has minimal cost to the Company. Where required by law, income was imputed to the named executive officer for income tax purposes for the items described in this footnote.

Employment Agreements and Change in Control Agreements

We currently have employment agreements and change in control agreements with all named executive officers. The term of the employment agreements generally extend until January 1, 2014, subject to annual renewal thereafter, at the discretion of the Board, except for Mr. Smidler's employment agreement which expires September 1, 2013. The elements of compensation and benefits that are reflected in the Summary Compensation Table were provided according to the terms of the employment agreements and the compensation and benefit plans in place during 2012; however, the Company reserves the right to change the terms and conditions of its compensation and benefit plans. These agreements further provide for participation in our employee benefit programs generally applicable to our senior executives, except that Messrs. Keating and Steiner are entitled to continued premium payments for their lifetime under our Senior Executive Life Insurance Program under certain circumstances. The estimated post termination compensation payable to our named executive officers under these agreements are described in detail under the caption “Post Termination Payments and Benefits” beginning at page 42.

Grants of Plan-Based Awards in 2012 Fiscal Year

The following grants were made during the 2012 fiscal year to our named executive officers pursuant to the Company’s Cash Bonus Plan and 2003 Stock Incentive Plan. There are no estimated future payouts under equity incentive plans.

Grants of Plan-Based Awards
 
 
  
  
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
 
All Other Stock
Awards
Number
of Shares
of Stock
or Units
(#)
 
All Other
Option
Awards
Number of
Securities
Underlying
Options
(#)
 
Exercise or
Base Price
of Option
Awards
($/Sh)
 
Grant
Date
Fair Value
of Stock
and
Option Awards
($/Sh)
Name
 
Grant
Date
 
Threshold
($)
 
Target
($)
 
Maximum
($) (3)
 
Neal J. Keating
 
1/1/2012 (1)
 

 
$
850,000

 
$
1,700,000

 

 

 

 

  
 
1/1/2012 (2)
 

 
2,337,500

 
3,000,000

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
William C. Denninger
 
1/1/2012 (1)
 

 
$
303,000

 
$
606,000

 

 

 

 

  
 
1/1/2012 (2)
 

 
757,500

 
1,515,000

 

 

 

 

  
 

 


 
  

 
  

 


 
  

 
  

 


Gregory L. Steiner
 
1/1/2012 (1)
 

 
$
246,000

 
$
492,000

 

 

 

 

  
 
1/1/2012 (2)
 

 
615,000

 
1,230,000

 

 

 

 

  
 

 


 
  

 
  

 


 
  

 
  

 


Steven J. Smidler
 
1/1/2012 (1)
 

 
$
207,000

 
$
414,000

 

 

 

 

  
 
1/1/2012 (2)
 

 
517,500

 
1,035,000

 

 

 

 

 
 

 


 


 


 


 


 


 


Ronald M. Galla
 
1/1/2012 (1)
 

 
$
174,299

 
$
348,598

 

 

 

 

  
 
1/1/2012 (2)
 

 
313,738

 
627,476

 

 

 

 

_______________
(1)
Represents annual Cash Bonus Plan participation for the 2012 fiscal year. Actual determination of the award amount, and its payment, was made in February 2013. Please see the Annual Cash Incentives section of the Compensation Discussion and Analysis at page 24.
(2)
Represents a long-term incentive award grant under the LTIP feature of the 2003 Stock Incentive Plan for the three-year performance period 1/1/12 – 12/31/14. Payments, if any are earned, will not be made until approximately June of 2015. Please see the Long-Term Incentives section of the Compensation Discussion and Analysis at page 31.
(3)
The maximum represents two-times the target, except in the case for Mr. Keating. Under the LTIP feature of the 2003 Stock Incentive Plan, the maximum monetary award that can be paid to a LTIP participant is $3,000,000.





Outstanding Equity Awards at 2012 Fiscal Year-End

The following table lists the outstanding stock options and restricted stock awards at December 31, 2012 for each of our named executive officers.
 
 
Option Awards
 
Stock Awards
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
 
Option
Exercise
Price
($)
 
Option
Grant
Date
 
Option
Expiration
Date
 
Stock
Awards
 
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
 
Market
Value of
Number of
Shares or
Units of
Stock That
Have Not
Vested
($)(2)(3)
Neal J. Keating
 

 

 

 

 

 
9/23/2008

 
6,000

 
$
220,800

  
 
  

 
  

 
  

 
  

 
  

 


 


 


William C. Denninger
 
8,000

 
2,000

 
$
21.27

 
11/17/2008

 
11/17/2018

 
11/17/2008

 
300

 
$
11,040

  
 
9,720

 
14,580

 
$
26.07

 
2/22/2010

 
2/22/2020

 
2/22/2010

 
3,089

 
$
113,675

 
 
  

 
  

 
  

 
  

 
  

 


 


 


Gregory L. Steiner
 
16,000

 
4,000

 
$
21.595

 
7/7/2008

 
7/7/2018

 
7/7/2008

 
1,000

 
$36,800
  
 
8,010

 
8,010

 
$
16.35

 
2/23/2009

 
2/23/2019

 
2/23/2009

 
3,158

 
$
116,214

  
 
7,396

 
11,094

 
$
26.07

 
2/22/2010

 
2/22/2020

 
2/22/2010

 
3,918

 
$
144,182

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven J. Smidler
 

 

 

 

 

 
12/1/2009

 
840

 
$
30,912

 
 
3,164

 
12,656

 
$
31.775

 
2/21/2011

 
2/21/2021

 
2/21/2011

 
4,808

 
$
176,934

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ronald M. Galla
 

 

 
$