UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
SCHEDULE 14A
Proxy Statement Pursuant To Section 14(A) Of The Securities Exchange Act Of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-12
KATY INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
KATY INDUSTRIES, INC.
765 Straits Turnpike
Middlebury, Connecticut 06762
(203) 598-0397
April 30, 2003
Dear Stockholders:
You are cordially invited to attend the 2003 annual meeting of
stockholders of Katy Industries, Inc. (the Company or Katy), which will be held
at 10:00 a.m. (local time) on Thursday, June 12, 2003, at The Heritage - A Dolce
Conference Resort, located at 522 Heritage Road, Southbury, Connecticut.
The principal business of the annual meeting will be (i) the election of
our Class II directors, (ii) the ratification of the appointment by the
Company's Audit Committee of the Board of Directors of PricewaterhouseCoopers
LLP as independent auditors for the year ending December 31, 2003, and (iii) the
consideration of a stockholder proposal, if it is properly presented at the
meeting. We will also review our results for the past fiscal year and report on
significant aspects of our operations during the first quarter of 2003.
It is important that your shares be represented at the annual meeting.
Whether or not you plan to attend the annual meeting, we encourage you to vote
by signing and returning the enclosed proxy card so that your shares will be
voted at the annual meeting. If you decide to attend the annual meeting, you may
revoke your proxy and personally cast your votes.
Thank you, and we look forward to seeing you at the annual meeting or
receiving your proxy vote.
Sincerely yours,
William F. Andrews
Chairman of the Board
KATY INDUSTRIES, INC.
765 Straits Turnpike
Middlebury, Connecticut 06762
(203) 598-0397
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Katy Industries, Inc.:
We are holding an annual meeting of stockholders of Katy Industries, Inc.
on June 12, 2003 at 10:00 a.m., local time. The meeting will be held at The
Heritage - A Dolce Conference Resort, located at 522 Heritage Road, Southbury,
Connecticut. At the meeting, you will be asked to vote on the following:
1. The election of five Class II members of the Board of Directors to serve
for a term of two years;
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent public accountants for the year ending December 31, 2003;
3. A stockholder proposal, if the proposal is properly presented at the
annual meeting; and
4. The transaction of other business as may properly come before the annual
meeting or any adjournment thereof.
The Proxy Statement that we are delivering with this Notice contains
important information concerning the proposals to be considered at the annual
meeting. You will be entitled to vote at the annual meeting if you were a
stockholder of Katy at the close of business on April 18, 2003.
By Order of the Board of Directors
Amir Rosenthal
Secretary
Middlebury, Connecticut
April 30, 2003
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO
ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY
AND VOTE IN PERSON.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The annual meeting will be held on June 12, 2003 at The Heritage - A Dolce
Conference Resort, located at 522 Heritage Road, Southbury, Connecticut, at
10:00 a.m., local time.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because our Board of Directors is
seeking your proxy to vote your shares at the annual meeting. This Proxy
Statement includes information that we are required to provide to you under the
rules of the Securities and Exchange Commission and is intended to assist you in
voting your shares. On April 30, 2003, we began mailing information to all
people who, according to our stockholder records, owned shares of our common
stock at the close of business on April 18, 2003. As of April 18, 2003, there
were 8,362,177 shares of our common stock outstanding.
Katy will pay the cost of requesting these proxies. Katy's directors,
officers and employees may request proxies in person or by telephone, mail,
telecopy or letter.
VOTING YOUR SHARES
You are entitled to one vote at the annual meeting for each share of
Katy's common stock that you owned of record at the close of business on April
18, 2003. The number of shares you own (and may vote) is listed on the enclosed
proxy card.
You may vote your shares at the annual meeting in person or by proxy. To
vote in person, you must attend the annual meeting and obtain and submit a
ballot. We will give you a ballot at the annual meeting. To vote by proxy, you
must complete and return the enclosed proxy card. By completing and returning
the proxy card, you will be directing the persons designated on the proxy card
to vote your shares at the annual meeting in accordance with the instructions
you give on the proxy card.
Your proxy card will be valid only if you sign, date and return it before
the annual meeting. IF YOU COMPLETE THE PROXY CARD EXCEPT FOR THE VOTING
INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF
DIRECTORS RECOMMENDATIONS. You may revoke your proxy at any time before it is
voted by any of the following means:
- Notifying the Secretary of Katy in writing that you wish to revoke
your proxy.
- Submitting a proxy dated later than your original proxy.
- Attending the annual meeting and voting. Merely attending the annual
meeting will not by itself revoke a proxy; you must vote your shares
at the annual meeting to revoke the proxy.
The Board of Directors does not expect any matter other than the proposals
discussed in this Proxy Statement to be presented at the annual meeting.
However, if any other matter properly comes before the annual meeting, your
proxies will act on such matter in their discretion.
QUORUM AND VOTES REQUIRED FOR APPROVAL
The presence in person or by proxy of holders of a majority of the
outstanding shares of common stock will constitute a quorum for the annual
meeting. Abstentions and "broker non-votes" will be treated as present in
determining whether the quorum requirement is satisfied. A "broker non-vote"
occurs when a broker holding shares for a beneficial owner votes on one proposal
pursuant to discretionary authority or instructions from the beneficial owner,
but does not vote on another proposal because the broker has not received
instructions from the beneficial owner and does not have discretionary power.
Each share of common stock is entitled to one vote on each matter to come
before the annual meeting. With regard to the election of directors, you may
vote for a candidate or withhold your vote. If a quorum is present, directors
will be elected by a plurality of the votes cast for the election of directors.
"Plurality" means that the nominees who receive the largest number of votes cast
will be elected as directors, up to the maximum number of directors to be
elected at the annual meeting. Consequently, any shares not voted (whether by
abstention, broker non-vote or withholding authority) have no impact on the
election of directors except to the extent the failure to vote for an individual
results in another individual receiving a larger number of votes.
If a quorum is present, the approval of Proposals 2 and 3 requires the
affirmative vote of the holders of a majority of the common stock present, in
person or by proxy, at the annual meeting. With respect to these matters, a
stockholder may (i) vote "For" the matter, (ii) vote "Against" the matter, or
(iii) "Abstain" from voting on the matter. A vote to abstain from voting on
these proposals has the same effect as a vote against such matters. Broker
non-votes will be treated as shares which are not present with respect to such
matter, although they will be counted for purposes of determining a quorum, as
described above. Accordingly, broker non-votes will not be counted in
determining the required number of votes cast with respect to these proposals
and will have no effect on the outcome of the voting on such proposals.
HOUSE HOLDING
Unless we have received contrary instructions, the Company may send a
single copy of the annual report, proxy statement and notice of annual meeting
to any household at which two or more stockholders reside if the Company
believes the stockholders are members of the same family. Each stockholder in
the household will continue to receive a separate proxy card. This process,
known as "householding," reduces the volume of duplicate information received at
your household and helps to reduce the Company's expenses.
If you would like to receive your own set of the Company's annual
disclosure documents this year or in future years, follow the instructions
described below. Similarly, if you share an address with another stockholder and
together both of you would like to receive only a single set of the Company's
annual disclose documents, follow these instructions:
If your shares are registered in your own name, please contact our
corporate office at 765 Straits Turnpike, Middlebury, Connecticut 06762, Attn:
Secretary, and inform us of your request.
If a bank, broker or other nominee holds your shares please contact your
bank, broker or other nominee directly.
2
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
Katy's business is managed under the direction of its Board of Directors.
There are currently nine directors, divided into two classes serving staggered
terms. The classes are as nearly equal in number as possible with four Class I
directors, elected to two-year terms at the 2002 annual meeting, and five Class
II directors, elected to two-year terms at the 2001 annual meeting. Stockholders
will elect five Class II directors at the annual meeting to serve for a two-year
term ending at the time of the 2005 annual meeting.
Nominees for election whose terms will expire in 2005 (Class II):
Christopher Anderson
William F. Andrews
Samuel P. Frieder
James A. Kohlberg
Christopher Lacovara
All of the nominees are current directors of the Company and have
indicated their willingness to serve as directors. The four Class I directors of
Katy are: C. Michael Jacobi, Robert M. Baratta, Daniel B. Carroll, and Wallace
E. Carroll, Jr. The Class I directors are not up for re-election at the annual
meeting, as their terms expire at the time of the 2004 annual meeting.
For information concerning the nominees for director and the current
directors, see the sections of this Proxy Statement entitled "Information
Concerning Directors and Executive Officers," "Security Ownership of Management"
and "Security Ownership of Certain Beneficial Owners."
REQUIRED VOTE
Directors are elected by the affirmative vote of a plurality of the votes
cast in the election.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF PROPOSAL 1. IF ANY NOMINEE BECOMES UNAVAILABLE TO SERVE ON THE BOARD
OF DIRECTORS FOR ANY REASON, YOUR PROXY WILL BE VOTED FOR A PERSON OR PERSONS TO
BE SELECTED BY THE BOARD OF DIRECTORS. PROXIES CANNOT BE VOTED FOR A NUMBER OF
NOMINEES GREATER THAN THE NUMBER OF CLASS II DIRECTORS.
3
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following table shows information with respect to nominees for
director, current directors, and executive officers of Katy:
Nominees - Class II Directors
The following table shows information about the nominees to Katy's Board
of Directors who are currently Class II directors.
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
---------------------- --- --------------------------------------- ------------------ -----------------
Christopher Anderson 28 1998 to Present: Associate at Kohlberg None 2001 to Present
& Co., L.L.C.
1997 to 1998: Financial Analyst at
Warburg Dillon Read L.L.C.
William F. Andrews 71 2001 to Present: Chairman of Katy Black Box 1991 to Present
Industries, Inc. Corporation
2001 to Present: Chairman of Allied Corrections Corp.
Aerospace Corp., an aerospace and of America
defense engineering firm and provider TREX Corp.
of comprehensive aerospace and Holley
defense products and services Performance
2000 to Present: Chairman of Products Inc.
Corrections Corp. of America, a
private sector provider of detention
and correction services
1998 to 2001: Chairman of Northwestern
Steel & Wire Company, a manufacturer
of steel rods and
beams
1997 to Present: Consultant with
Kohlberg & Co., L.L.C.
1995 to 2001: Chairman of Scovill
Fasteners, a manufacturer of apparel
and industrial fasteners
Samuel P. Frieder 38 1989 to Present: Principal of Kohlberg Holley 2001 to Present
& Co., L.L.C. Performance
Products
Inc.
James A. Kohlberg 45 1987 to Present: Co-Founder and Managing Holley 2001 to Present
Principal of Kohlberg & Performance
Co., L.L.C. Products Inc.
Christopher Lacovara 38 1988 to Present: Principal of Kohlberg Holley 2001 to Present
& Co., L.L.C. Performance
Products Inc.
4
Class I Directors
The following directors were elected to two year terms at the 2002 annual
meeting, and are not up for re-election at the 2003 annual meeting.
Principal Occupation and Period of
Business Experience Other Service as
Name Age During the Past Five Years Directorships Katy Director
------------------------ --- ----------------------------------------------- ---------------- ----------------
Robert M. Baratta 73 2001 to Present: Director of Katy None 2001 to Present
2001 (February) to 2001 (June):
President and Chief Executive Officer and
Director of Katy
1999 to 2000 (June): Senior Vice President of
Katy
1995 to 1999: Executive Vice President of Katy
Daniel B. Carroll 67 2002 to Present: Private Investor None 1994 to Present
1998 to 2002: Member and Manager of Newgrange
L.L.C., a components supplier to the global
footwear industry
1994 to 2002: Partner of Newgrange L.P., a
holding company for Newgrange L.L.C., a
components supplier to the global footwear
industry
1985 to Present: Vice President of ATP
Manufacturing, LLC, a manufacturer of
molded poly-urethane components
Wallace E. Carroll, Jr. 65 1992 to Present: Chairman of CRL, Inc., a None 1991 to Present
diversified holding company
5
Principal Occupation and Period of
Business Experience Other Service as Katy
Name Age During the Past Five Years Directorships Director
------------------- --- ---------------------------------------------- ------------------ ----------------
C. Michael Jacobi 61 2001 to Present: Chief Executive Officer, Corrections Corp. 2001 to Present
President, and a Director of Katy of America
2001 to Present: Chairman of Innotek, Inc., a Webster Financial
privately held company engaged in the Corporation
manufacturing and distribution of
electronic products for the training,
tracking and containment of sporting dogs
and companion pets
1999 to 2001: Owner, Stable House Consulting
1999 to 2000: Chairman of Timex Watches
Limited (India), a publicly held company
headquartered in New Delhi, India
1999 to 2000: Chairman and Chief Executive
Officer of Beepwear Paging Products, LLC, a
company jointly owned by Timex Corporation
and Motorola, Inc.
1993 to 1999: Chief Executive Officer,
President, and a director of Timex
Corporation, a leading worldwide
manufacturer and marketer of watches
1993 to 1999: Chairman of Callanen
International, a company engaged in the
fashion watch business
Wallace E. Carroll, Jr. and Daniel B. Carroll are first cousins.
6
Executive Officers
Principal Occupation and Business Experience
Name Age During the Past Five Years
---------------- --- --------------------------------------------------------------------
Thomas D. Burns 49 2002 to Present: President, Katy Commercial Products
1999 to 2002: President, Rubbermaid Closet & Organization, a
division of Newell Rubbermaid
1998 to 1999: President, Bernzomatic, a division of Newell
Rubbermaid
David C. Cooksey 58 2001 to Present: Corporate Director-Internal Financial Reporting and
Assistant Treasurer, Katy
1999 to Present: Chief Financial Officer of Contico International,
L.L.C., a wholly-owned subsidiary of Katy
1987 to 1999: Chief Financial Officer of Contico International, Inc.
(predecessor to Contico International, L.L.C.)
Roger G. Engle 56 2000 to Present: Vice President and Chief Information Officer, Katy
1999 to 2000: Chairman, Contico International, L.L.C., a wholly-
owned subsidiary of Katy
1998 to Present: Vice President, Katy
Mark P. Ingebritson 37 2001 to Present: Corporate Director-External Financial Reporting and
Treasurer, Katy
1999 to 2001: Controller, Katy
1997 to 1999: Manager of Corporate Accounting, Coors Brewing
Company
David S. Rahilly 58 2002 to Present: President, Katy Consumer Products
2001 to 2002: President and General Manager, Woods Industries, Inc.,
a wholly-owned subsidiary of Katy
1998 to 2001: Principal and President of Stunt, L.L.C. and Radius,
L.L.C., companies engaged in the import and distribution of watches
Amir Rosenthal 42 2001 to Present: Vice President, Chief Financial Officer, General
Counsel and Secretary, Katy
2000 to 2001: Chairman of Timex Watches Limited (India), a publicly
held company headquartered in New Delhi, India
1997 to 2001: Treasurer, Timex Corporation
Officers hold office until their successors are elected or appointed by
the Board of Directors and duly qualified. Officers elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors.
7
PROPOSAL 2 - RATIFICATION OF THE INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP ("PwC"), independent public accountants,
audited the financial statements of the Company for 2002, the first year the
firm was engaged to do so. The Board of Directors, upon the recommendation of
the Audit Committee, has approved the selection of PwC as independent public
accountants to audit the books of Katy and its subsidiaries for the year ending
December 31, 2003, to report on the consolidated balance sheets and related
statement of operations of Katy and its subsidiaries, and to perform such other
appropriate accounting services as may be required by the Board of Directors.
The Board of Directors recommends that the stockholders vote in favor of
ratifying the selection of PwC for the purposes set forth above. PwC has advised
the Company that they are independent accountants with respect to the Company,
within the meaning of standards established by the American Institute of
Certified Public Accountants, the Independence Standards Board, and federal
securities laws administered by the Securities and Exchange Commission.
A representative of PwC will be present at the annual meeting with the
opportunity to make a statement and respond to appropriate questions.
PwC billed Katy for audit services and certain other professional services
during 2002 and early 2003. Katy's former auditor, Arthur Andersen LLP, billed
Katy for audit services and certain other professional services during 2001 up
through May 2002. These amounts are divided into the following four categories,
and are detailed below.
Audit Fees
Fees for professional services rendered by PwC for the audits of the
Company's annual financial statements for 2002, 2001 and 2000, and the review of
the financial statements included in the Company's second and third quarter 2002
quarterly reports, were $912,401, of which an aggregate amount of $220,215 has
been billed through December 31, 2002. A significant portion of the audit fees
were billed in 2003, or have yet to be billed in 2003. It should be noted that
as a result of several factors described below, full reaudits of the 2001 and
2000 financial statements were required to be performed along with the routine
2002 audit. The reaudits had a significant impact on the level of fees for the
2002 audit; a large portion of which have been, or will be billed in 2003. The
reaudits of our 2001 and 2000 financial statements came about for two reasons:
1) the Company is a former client of Arthur Andersen LLP, which has ceased
operations, and 2) as a result of the actual or planned sale of certain
subsidiaries, the Company presented certain businesses as discontinued
operations in its financial statements for all periods presented in accordance
with generally accepted accounting principles. The accounting for discontinued
operations resulted in changes to the presentation of nearly all amounts in the
prior years' financial statements, which were audited by Arthur Andersen LLP. As
a result of these circumstances, and our interpretation of Auditing
Interpretation 508 of Statement of Auditing Standards No. 58, "Reports on
Financial Statements," we determined that full reaudits of the prior period
financial statements were required.
Fees for professional services rendered by Arthur Andersen LLP for the
audits of the Company's annual financial statements for 2001 and the review of
the financial statements included in the Company's 2001 quarterly reports were
$486,416, billed during 2001 and early 2002. Arthur Andersen LLP also billed
Katy $10,000 for their review of financial statements included in the Company's
first quarter 2002 quarterly report.
8
Audit-Related Fees
PwC billed the Company $2,000 for audit-related fees in 2002, which
include other audit and attest services, transaction and due diligence services,
risk and controls review and financial accounting, reporting and compliance
consulting matters.
Arthur Andersen LLP billed the Company $2,000 for audit related fees in
2001.
Tax Fees
PwC billed the Company $7,350 for tax compliance and advisory services in
2002.
Arthur Andersen LLP billed the Company $37,100 and $15,000 for tax
compliance and advisory services in 2002 and 2001, respectively.
All Other Fees
Fees billed to the Company by PwC for professional service rendered during
2002 for all other services were $96,227, consisting of fees for employee
benefit plan audits.
Fees billed to the Company by Arthur Andersen LLP for professional service
rendered during 2001 for all other services were $99,000, also consisting of
fees for employee benefit plan audits.
REQUIRED VOTE
Approval of this proposal to ratify the appointment of PwC requires the
affirmative vote by the majority of the outstanding shares of common stock
present, in person, or by proxy, at the annual meeting.
Although the ratification of independent auditors is not required to be
submitted to a vote of the stockholders, the Company believes that such
ratification is a matter on which the stockholders should express their opinion.
Notwithstanding stockholder approval of the ratification of independent
auditors, the Audit Committee, in its discretion, may direct the appointment of
new independent auditors at any time during the year, if the Audit Committee
believes that such a change would be in the best interest of Katy and its
stockholders. If the stockholders fail to ratify the selection, the Audit
Committee will reconsider whether to retain PwC as independent auditors for the
fiscal year ending December 31, 2003.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
9
PROPOSAL 3 - STOCKHOLDER PROPOSAL REGARDING STOCKHOLDER RIGHTS AGREEMENT
GAMCO Investors, Inc., One Corporate Center, Rye, NY, 10580, owner of
1,144,000 shares of common stock, has given notice that it intends to present
for action at the annual meeting the following resolution and has furnished the
following statement in support of the proposal:
RESOLVED: That the shareholders of Katy Industries, Inc. (the "Company")
hereby request that the Board of Directors redeem the Rights issued pursuant to
the Rights Agreement adopted as of January 13, 1995 (as amended) unless a
majority of the outstanding shares of common stock approve the issuance by
affirmative vote cast at a special meeting of the shareholders held as soon as
practical following adoption of this proposal.
On January 13, 1995 the Board of Directors declared a distribution of
rights pursuant to a Rights Agreement dated as of that date and amended from
time to time thereafter. Generally, the shareholders may exercise the Rights
only when a person or group acquires, or through exchange or tender offer
attempts to acquire, a beneficial interest in 10% or more of the common stock of
the Company. Shareholders--other than the person or group attempting to acquire
10%--may then exercise the Rights and receive stock at a fraction of its market
value. The Agreement permitted certain shareholders, including GAMCO and
affiliates, to retain existing shareholdings that exceeded 10%. The Company may
redeem the Rights for $.01 per Right. These Rights represent a corporate
anti-takeover device, commonly known as a "poison pill."
Issuing the Rights allows the Company to increase vastly the cost to a
potential bidder of effecting any merger or tender offer unless the Board of
Directors favors the bid. Potential bidders cannot take their offer directly to
the shareholders even if an overwhelming majority would have accepted the offer.
The potential bidder must instead negotiate with management, and a Board or
management may sometimes have interests that conflict with the interests of the
shareholders. In effect, the Board has arrogated to itself the sole right to
determine what price a potential buyer must pay to acquire the entire Company.
We believe the Board should allow its shareholders to decide for themselves what
represents a fair price for their holdings.
By redeeming the Rights or putting this significant matter to a vote of
all shareholders, the Board will serve two important goals. First, it will
encourage shareholder democracy by soliciting the views of its shareholder
constituency about the advisability of anti-takeover devices. Second, it will
allow shareholders to decide for themselves whether a Rights Plan improves or
undermines shareholder value. Finally, the power of shareholders to accept an
offer by a potential bidder provides an important check and balance on
management and the Board in their stewardship of the shareholders' interests.
Should this proposal prevail, the Board, in an effort to improve shareholder
value, should itself redeem the Rights or put the decision whether to continue
to use a poison pill to a shareholder vote of the shareholders at a special
meeting to be held as soon as practical.
GAMCO URGES SHAREHOLDERS TO VOTE FOR THIS RESOLUTION
10
COMPANY STATEMENT IN OPPOSITION TO PROPOSAL
The Board of Directors recommends a vote AGAINST the adoption of this
proposal relating to the Company's Stockholder Rights Agreement (the "Rights
Agreement"), which is sometimes referred to as a "poison pill," for the
following reasons:
The Board of Directors believes that rights plans such as the Company's
Rights Agreement help maximize stockholder value and protect Company
stockholders from unfair and abusive takeover tactics. The Board of Directors
believes that the Rights Agreement is in the best interests of the Company and
its stockholders. The Rights Agreement does not prevent offers to acquire the
Company at a fair price. The Rights Agreement is designed instead to encourage
any potential acquirer to negotiate directly with the Board of Directors, which
is in the best position to evaluate the adequacy and fairness of proposed offers
and to negotiate on behalf of stockholders. The opportunity of the Board of
Directors to seek a higher price in a takeover contest on behalf of all
stockholders is significantly greater than the ability of the individual
stockholder to seek a higher price. In addition, the Board of Directors is in
the best position to protect stockholders against abusive tactics during a
takeover process, such as partial or two-tiered tender offers that do not treat
all stockholders fairly and equally or acquisitions in the open market of shares
constituting control without offering fair value to all stockholders. For these
reasons, many of the companies in the S&P 500 Index have stockholder rights
plans similar to the Company's Rights Agreement.
The Rights Agreement encourages a potential acquirer of control of the
Company to negotiate with the Board of Directors on behalf of all stockholders,
thereby strengthening the leverage of the Company and its stockholders. In
responding to an acquisition proposal, your Board of Directors recognizes its
obligation to fulfill its fiduciary duties to the Company and its stockholders.
The Rights Agreement gives the Board of Directors the time and flexibility to
fully evaluate an acquisition proposal and provides the Board leverage to
negotiate better terms for the Company's stockholders. The terms of the Rights
Agreement allow the Board of Directors to redeem the rights and to permit an
acquisition that it determines, in the exercise of its fiduciary duties,
reflects the full value of the Company and is fair to all stockholders. In
evaluating whether to redeem the rights and approve an acquisition proposal,
your Board will act in the best interests of the Company's stockholders.
Stockholder rights plans do not prevent unsolicited acquisition proposals
and do not prevent companies from being acquired. The Board of Directors
believes the Company's Rights Agreement is appropriately within the scope of
responsibilities of the Board of Directors, acting on behalf of all
stockholders. The continuation of the Rights Agreement accords with the Board's
responsibilities for the management of the Company's affairs. Redeeming the
rights under the Company's Rights Agreement would remove an important tool that
the Board of Directors should have for the protection of stockholders. The Board
of Directors believes that any decision to redeem the rights under the Rights
Agreement should be made in the context of a specific acquisition proposal.
Studies have validated the economic benefits of rights plans to
stockholders. A study by Georgeson & Company published in November 1997
concluded that companies with rights plans received $13 billion dollars in
additional premiums during the study period, 1992 to 1996. The study also found
that (i) premiums paid for target companies with rights plans were on average
eight percentage points higher than premiums paid for companies without a rights
plan, (ii) having a rights plan in place did not increase the likelihood of the
withdrawal of a friendly bid or a hostile takeover being defeated, and (iii)
rights plans did not reduce the likelihood that a
11
Company would become a takeover target. This evidence suggests that rights plans
achieve their intended objectives of protecting stockholders against inadequate
offers and abusive tactics and increasing the bargaining power of the Board of
Directors, resulting in a higher value for stockholders.
REQUIRED VOTE
Approval of the stockholder proposal requires the affirmative vote by a
majority of the outstanding shares of common stock present, in person or by
proxy, at the annual meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"AGAINST" PROPOSAL 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE.
12
INFORMATION ABOUT KATY STOCK OWNERSHIP
OUTSTANDING SHARES
The shares of common stock are the only outstanding class of Katy voting
securities. As of April 18, 2003, there were 8,362,177 shares of Katy common
stock outstanding and 233,225 options to acquire shares of common stock
exercisable within the next 60 days.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and notes show, as of April 1, 2003, information on
the beneficial ownership of those persons or entities (including certain members
of the family of Wallace E. Carroll, former Chairman of the Board, since
deceased (the "Carroll Family")), and related persons and entities, who are
known to Katy to be the beneficial owners of more than 5% of the shares of our
common stock. The notes below the table describe the nature of that beneficial
ownership. Unless otherwise indicated, the nature of beneficial ownership is
that of sole voting power and sole investment power. In calculating percentages
for a given person, shares for which such person has the right to acquire
beneficial ownership within 60 days (e.g. through exercising options) are deemed
to be outstanding.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Notes Class
---------------------------------------------- -------------------- ----- ----------
Wallace E. Carroll, Jr. and 3,127,979 (1) 37.3%
the WEC Jr. Trusts
c/o CRL, Inc.
7505 Village Square Drive, Suite 200
Castle Rock, CO 80104
Amelia M. Carroll and 3,153,979 (2) 37.6%
the WEC Jr. Trusts
c/o CRL, Inc.
7505 Village Square Drive, Suite 200
Castle Rock, CO 80104
Dimensional Fund Advisors, Inc. 569,100 (3) 6.8%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Gabelli Funds, LLC, GAMCO Investors, Inc., 1,823,600 (4) 21.8%
MJG Associates, Inc., Gabelli Advisers, Inc.
One Corporate Center
Rye, NY 10580-1434
Supplemental Disclosure Regarding
Convertible Preferred Stock
---------------------------
KKTY Holding Company, L.L.C. * (5) *
111 Radio Circle
Mt. Kisco, NY 10549
13
(1) Wallace E. Carroll, Jr. directly holds 181,239 shares and options to
acquire 23,000 shares. He is a trustee of trusts for his and his descendants'
benefit (the "WEC Jr. Trusts") which collectively hold 804,453 shares. He and
certain of the WEC Jr. Trusts own all the outstanding shares of CRL, Inc. which
holds 2,073,436 shares. He is also a trustee of the Wallace Foundation which
holds 32,910 shares. Wallace E. Carroll, Jr. also beneficially owns 8,729 shares
directly owned by his wife, Amelia M. Carroll, and 2,106 shares held by a "rabbi
trust" for his wife and 2106 shares held for him in connection with the Katy
Industries, Inc. Directors' Deferred Compensation Plan. Amounts shown for
Wallace E. Carroll, Jr. and Amelia M. Carroll reflect multiple counting of
shares where more than one of them is a trustee of a particular trust and is
required to report beneficial ownership of shares that these trusts hold.
(2) Amelia M. Carroll holds 8,729 shares directly. She is a trustee of the
WEC Jr. Trusts which collectively own 804,453 shares, and the Wallace Foundation
which holds 32,910 shares. Wallace E. Carroll, Jr. and certain of the WEC Jr.
Trusts own all the outstanding shares of CRL, Inc., which holds 2,073,436
shares. Amelia M. Carroll is also trustee of trusts for Lelia Carroll and her
descendants' benefit holding 26,000 shares in the aggregate. Amelia M. Carroll
also beneficially owns 181,239 shares and options to acquire 23,000 shares
directly owned by her husband, Wallace E. Carroll, Jr., and 2,106 shares held by
a "rabbi trust" for her and 2,106 shares held for her husband in connection with
the Katy Industries, Inc. Directors' Deferred Compensation Plan. Amounts shown
for Amelia M Carroll and Wallace E. Carroll, Jr. reflect multiple counting of
shares where more than one of them is a trustee of a particular trust and is
required to report beneficial ownership of shares that these trusts hold.
(3) Information obtained from Schedule 13G dated February 3, 2003 filed by
Dimensional Fund Advisors, Inc. for the calendar year 2002.
(4) Information obtained from Schedule 13D/A dated December 20, 2002,
filed by Gabelli Asset Management, Inc. ("GAMI"). That Schedule 13D/A was filed
by Mario Gabelli and various entities which he directly or indirectly controlled
or for which he acted as chief investment officer. The reporting persons
beneficially owning the stock shown in the chart are as follows: Gabelli Funds,
LLC (Gabelli Funds) (538,100 shares), GAMCO Investors, Inc. (GAMCO) (1,144,100
shares), MJG Associates, Inc. (MJG) (133,400 shares), and Gabelli Advisers, Inc.
(Gabelli Advisers) (8,000 shares). Mario Gabelli, Gabelli Asset Management, Inc.
(GAMI) and Gabelli Group Capital Partners, Inc., (Gabelli Partners) are all
deemed to have beneficial ownership of the securities owned beneficially by each
of these persons. Each of the reporting persons has the sole power to vote or
direct the vote and sole power to dispose or to direct the disposition of the
securities reported for it, except that (i) GAMCO does not have the authority to
vote 22,000 of the reported shares, and (ii) Gabelli Funds has sole dispositive
and voting power with respect to the shares of Katy held by the funds so long as
the aggregate voting interest of all joint filers does not exceed 25% of their
total voting interest in Katy, and, in that event, the proxy voting committee of
each fund shall vote that funds shares, (iii) the proxy voting committee of each
fund may take and exercise in its sole discretion the entire voting power with
respect to the shares held by such fund under special circumstances such as
regulatory considerations, and (iv) the power of Mario Gabelli, GAMI and Gabelli
Partners is indirect with respect to securities beneficially owned directly by
other reporting persons.
(5) KKTY Holding Company, L.L.C., a Delaware limited liability company,
currently owns 805,000 shares of our convertible preferred stock, which is
presently convertible into 13,411,906 shares of our common stock upon the
earlier of June 28, 2006 or the occurrence of certain fundamental changes in
Katy. Through December 31, 2004 (except under certain
14
circumstances), the holders of the convertible preferred stock are entitled to a
paid-in-kind (PIK) stock dividend, which accrues from and is payable on August 1
of each year. Through April 1, 2003, the accrued and unpaid PIK dividend on the
shares of convertible preferred stock held by KKTY Holding Company equaled
81,051 shares of convertible preferred stock, which when paid will be
convertible into 1,350,849 shares of common stock. KKTY Holding Company is
controlled by several entities, which have Kohlberg Management IV, L.L.C., a
Delaware limited liability company ("KMIV"), as their general partner.
Christopher Lacovara, Samuel P. Frieder, Christopher Anderson, James A. Kohlberg
and C. Michael Jacobi all of whom are members of the Board of Directors of Katy,
are members of KMIV. Each of Messrs. Lacovara, Frieder, Anderson, Kohlberg and
Jacobi disclaim beneficial ownership of these securities for purposes of Section
16 of the Exchange Act and any other purpose. It is not expected that the
preferred shares will be converted into common stock prior to June 28, 2006.
However, if a conversion did occur, based upon the ownership level of
convertible preferred stock at April 1, 2003, the disclosed percentage
ownerships of the Katy common stock on the above table would change as follows:
Ownership
Percentage
Name of Beneficial Owner Upon Conversion
------------------------ ---------------
Wallace E. Carroll, Jr. 13.5%
Amelia M. Carroll 13.6%
Dimensional Fund Advisors, Inc 2.5%
Gabelli Funds, GAMCO, MJG,
Gabelli Advisers 7.9%
KKTY Holding Company, L.L.C. 63.8%
15
SECURITY OWNERSHIP OF MANAGEMENT
The following tables show, as of April 1, 2003, 1) the number of shares of
common stock (first table) and 2) the number of shares of Convertible Preferred
Stock (second table) that directors and certain executive officers beneficially
own, and that directors and executive officers as a group own. Unless otherwise
indicated, the nature of beneficial ownership is that of sole voting power and
sole investment power. In calculating percentages, shares for which a person has
the right to acquire beneficial ownership within 60 days (e.g., through
exercising options) are deemed to be outstanding.
Common Stock
Amount and Nature of Percent of
Name Beneficial Ownership Notes Class
---------------------------------------- -------------------- ----- ----------
William F. Andrews 17,000 (1) *
Robert M. Baratta 61,499 (1)(3) *
Daniel B. Carroll 31,000 (1) *
Wallace E. Carroll, Jr 3,127,979 (1)(2)(3) 37.3%
Roger G. Engle 5,685 (3) *
Mark P. Ingebritson 871 -- *
C. Michael Jacobi -- -- *
David S. Rahilly 16,667 -- *
Amir Rosenthal -- -- *
All directors and executive officers of
Katy as a group (13 persons) 3,260,701 (1)(2)(3) 38.5%
* Indicates 1% or less
Convertible Preferred Stock
Amount and Nature of Percent of
Name Beneficial Ownership Notes Class
---------------------------------------- -------------------- ----- ----------
Christopher Anderson -- (4) *
Samuel P. Frieder -- (4) *
James A. Kohlberg -- (4) *
Christopher Lacovara -- (4) *
C. Michael Jacobi -- (4) *
All directors and executive officers of
Katy as a group (5 persons) -- (4) *
* Indicates 1% or less
(1) Includes options to acquire the following number of shares within 60
days:
William F. Andrews 12,000
Robert M. Barratta 41,000
Daniel B. Carroll 23,000
Wallace E. Carroll, Jr. 23,000
David S. Rahilly 16,667
16
(2) Includes shares deemed beneficially owned by Wallace E. Carroll, Jr.
in his capacity as trustee of certain trusts for the benefit of members of the
Wallace E. Carroll, Jr. family (see notes (1) and (2) under "Security Ownership
of Certain Beneficial Owners.").
(3) Includes shares held by a "rabbi trust" in connection with either the
Katy Industries, Inc. Supplemental Retirement and Deferral Plan or the
Directors' Deferred Compensation Plan:
Robert M. Baratta 3,936
Wallace E. Carroll 2,106
Roger G. Engle 1,685
(4) Christopher Lacovara, Samuel P. Frieder, Christopher Anderson, James
A. Kohlberg and C. Michael Jacobi have membership interests in Kohlberg
Management IV, L.L.C., a Delaware limited liability company ("KMIV"). KMIV is
the general partner of several entities with ownership interests in KKTY Holding
Company, which currently owns 805,000 shares of our convertible preferred stock
that is presently convertible into 13,411,906 shares of our common stock upon
the earlier of June 28, 2006 or the occurrence of certain fundamental changes in
Katy. Through December 31, 2004 (except under certain circumstances) the holders
of the convertible preferred stock are entitled to a paid-in-kind (PIK) stock
dividend, which accrues from and is payable on August 1 of each year. Through
April 1, 2003, the accrued and unpaid PIK stock dividend on the shares of
convertible preferred stock held by KKTY Holding Company equaled 81,051 shares
of convertible preferred stock, which when paid will be convertible into
1,350,849 shares of common stock. KKTY Holding Company is controlled by several
entities, which have KMIV as their general partner. Each of Messrs. Lacovara,
Frieder, Anderson, Kohlberg and Jacobi disclaim beneficial ownership of these
securities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Exchange Act, Katy's directors, executive officers
and persons beneficially owning more than 10% of the shares must file reports of
ownership and changes in ownership with the SEC, and copies of these reports
with the New York Stock Exchange and Katy. Based solely on reviewing copies of
the Section 16 reports, Katy believes that, during its fiscal year ended
December 31, 2002, its directors, executive officers and greater than 10%
beneficial owners complied with their Section 16 filing requirements.
17
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the years ending December 31, 2002, 2001,
and 2000, the cash compensation paid by Katy and its subsidiaries (and certain
other compensation paid or accrued for those years) to Katy's Chief Executive
Officer ("CEO"), and the four other most highly compensated executive officers
for the year ended December 31, 2002.
----------Annual Compensation----------- Long-Term Compensation
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation(4) Awards (5) Options Compensation (6)
------------------ ---- ------ ----- --------------- ---------- ------- ----------------
C. Michael Jacobi 2002 $509,803 $133,000 $ 19,998 $ -- $ --
President and Chief 2001 250,061 -- 7,398 -- 1,050,000 --
Executive Officer (1) 2000 -- -- -- -- -- --
Roger G. Engle 2002 $285,000 $ 57,000 $124,593 $ -- 125,000 $ --
Vice President and Chief 2001 283,173 -- 4,568 -- -- 213,750
Information Officer 2000 285,000 -- 136,421 -- -- --
Amir Rosenthal 2002 $266,346 $ 75,000 $ 11,765 $ -- 50,000 $ --
Vice President, Chief 2001 81,731 75,000 3,322 -- 200,000 --
Financial Officer, 2000 -- -- -- -- -- --
General Counsel and
Secretary (2)
David S. Rahilly 2002 $221,154 $187,500 $ 9,365 $ -- 25,000 $ --
President, Consumer 2001 33,654 24,063 99 -- 50,000 12,544
Products (3) 2000 -- -- -- -- -- --
Mark P. Ingebritson
Corporate Director - 2002 $150,000 $ 36,000 $ 53,949 $ -- -- $ --
External Financial 2001 120,748 -- 4,065 -- 30,000 87,000
Reporting and Treasurer 2000 111,000 23,200 1,791 -- -- --
(1) C. Michael Jacobi became an officer of Katy on June 28, 2001.
(2) Amir Rosenthal received a $75,000 sign-on bonus upon the commencement of his
employment with Katy on September 1, 2001.
18
(3) During 2001, David S. Rahilly was an independent consultant to Katy prior to
accepting employment with the Company on October 8, 2001. Mr. Rahilly was paid
$12,544 during 2001 for services rendered in that capacity.
(4) The 2002, 2001 and 2000 figures include employer contributions to the Named
Executive Officers' 401(k) retirement accounts, and non-cash compensation
consisting of personal use of corporate automobiles and group term life
insurance.
The 2002 figures include the following amounts:
Group Term Life
Auto Allowance Insurance 401(k) Match
-------------- --------- ------------
C. Michael Jacobi $12,000 $5,148 $2,750
Roger G. Engle 4,843 2,322 1,028
Amir Rosenthal 9,600 540 1,625
David S. Rahilly 7,200 965 1,200
Mark P. Ingebritson 7,200 270 2,750
The 2002 figures include reimbursements to Roger G. Engle and Mark P.
Ingebritson for expenses incurred during 2002 in connection with their moves to
Middlebury, Connecticut.
The 2000 figures include reimbursements to Roger G. Engle for expenses
incurred during 2000 in connection with his move to Chicago, Illinois.
(5) The number and value of the Named Executive Officers' aggregated restricted
stock holdings at the end of the fiscal year, priced at Katy's closing stock
price at December 31, 2002, were:
Roger G. Engle 500 non-vested shares valued at $1,720
Mark P. Ingebritson 50 non-vested shares valued at $172
(6) Roger G. Engle received payments related to the completion of the 2001
recapitalization, which were made through a special agreement with Katy. Those
payments were based on 75% of base salary levels in December, 2000. Mr. Engle
surrendered his outstanding stock options as a result of the payment. Mark P.
Ingebritson received a success bonus related to the completion of the 2001
recapitalization, equal to 75% of his base salary in December, 2000.
19
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of stock options during
2002 to the Named Executive Officers.
Number of % of Total
Securities Options/SARs
Underlying Granted to Potential Realized Value
Options Employees Exercise or Expiration at Assumed Annual Rates of
Name Granted(1) During 2002 Base Price Date Stock Price Appreciation(2)
---- ---------- ----------- ---------- ---- ---------------------------
5% 10%
-- ---
Roger G. Engle 125,000 12.9% $3.45 08/22/12 $237,760 $585,615
Amir Rosenthal 50,000 5.15% $3.45 08/22/12 $ 95,104 $234,246
David S. Rahilly 25,000 2.6% $3.45 08/22/12 $ 47,552 $117,123
(1) Options that were granted vest nine years from the date of grant (assuming
continued employment). However, options may vest earlier if certain performance
measures are met, at a rate of one-third each calendar year.
(2) These columns show the hypothetical value of the options granted at the end
of the option term if the price of the Katy common stock were to appreciate
annually by 5% and 10%, respectively, based on the grant date value of the Katy
common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
TABLE
The following table shows the value of in-the-money options at December
31, 2002 to the Named Executive Officers. No options were exercised in 2002.
Aggregate Fiscal Year-End Option Value
------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of In-the-Money Options
Options at Year End at Year End (1)
------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
C. Michael Jacobi 0 1,050,000 $0 $ 0
Roger G. Engle 0 125,000 0 0
Amir Rosenthal 0 250,000 0 0
David S. Rahilly 0 75,000 0 11,000
Mark P. Ingebritson 0 30,000 0 9,900
(1) Based on closing price o the New York Stock Exchange Composite Tape on
December 31, 2002 of $3.44.
20
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, CHANGE OF CONTROL AND OTHER
ARRANGEMENTS
President and Chief Executive Officer
On June 28, 2001, C. Michael Jacobi entered into an employment agreement
with Katy. The contract states that if Mr. Jacobi is terminated other than for
cause, Katy will continue to pay his base salary for (i) one year, if such
termination occurs other than as a result of a Change in Control, or (ii) two
years, if such termination is a result of or within the six month period
following a Change in Control.
Vice President, Chief Financial Officer, General Counsel and Secretary
On August 6, 2001, Amir Rosenthal entered into an agreement with Katy. The
contract states in the event that if prior to December 31, 2004, Mr. Rosenthal's
employment is terminated other than for cause, or there is a Change of Control
event after which (i) Mr. Rosenthal is terminated other than for cause, (ii) he
is required to relocate or (iii) there is substantial change in his job
responsibilities, Katy will continue to pay his regular base salary for the
period of one year.
For purposes of Messrs. Jacobi's and Rosenthal's agreements, "Change in
Control" means (i) a sale of 100% of Katy's outstanding capital stock, (ii) a
sale of all or substantially all of Katy's operating subsidiaries or assets or
(iii) a transaction or transactions in which any third party acquires Katy stock
in an amount greater than that held by KKTY Holding Company and in which KKTY
Holding Company relinquishes its right to nominate a majority of the candidates
for election to the Board.
Vice President and Chief Information Officer
On January 17, 1996, the Board of Directors adopted and approved a
compensation and benefits assurance program (the "Program") for Katy's key
officers to ensure that Katy retains personnel having particular experience with
and knowledge of Katy's business and affairs. As of December 31, 2002, Roger G.
Engle was a participant in this program. The program provides for certain
severance benefits following: (a) an involuntary termination without "cause" (as
defined under the Program) in the two years after a "Change in Control" (as
defined below) of Katy; or (b) a deemed constructive termination in the two
years after a Change in Control of Katy.
Severance benefits include: (i) two years base salary, (ii) a lump sum
payment of annual bonuses; (iii) continuation of health care benefits; (iv)
matching contributions under Katy's 401(k) savings plan (two years); (v)
advancement of legal fees incurred in enforcing rights under the Program; (vi)
out-placement assistance; and (vii) a "gross-up" payment for any excise tax
payments due by the officer as a result of receiving these severance benefits.
In the event of a Change of Control, Katy is required to establish and fund a
"rabbi trust" in an amount equal to the sum of the above severance benefits (not
including health care benefit costs and outplacement assistance).
A "Change in Control" is generally defined as: (i) any person (except
persons in control on the effective date) becoming the beneficial owner of Katy
securities with at least 30% of the combined voting power of Katy's then
outstanding shares; (ii) during any period of two consecutive years, individuals
who, at the beginning of that period constitute the Board (including any new
director, whose election by Katy's stockholders was approved by a vote of at
least two-
21
thirds (2/3) of the directors then still in office at the beginning of the
period or whose election or nomination for election was so approved), ceasing to
constitute a majority of the Board; or (iii) Katy's stockholders approving a
plan of liquidation, an agreement to dispose of substantially all Katy's assets,
or a merger, consolidation, or reorganization of Katy, other than a merger,
consolidation, or reorganization that would result in the voting securities of
Katy outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power of
the voting securities of Katy (or such surviving entity) outstanding immediately
after such merger, consolidation, or reorganization.
DIRECTORS' COMPENSATION
For 2002, directors who were not employed by Katy or its subsidiaries
received: (i) an annual retainer of $9,000 (ii) options to acquire 2,000 shares
under the Directors Stock Option Plan (see below); (iii) a stock grant of 500
shares for service on the Board of Directors; and (iv) up to $2,000 for
attending each meeting of the Board or a Board committee. Class II directors and
those directors that are also officers do not receive the compensation described
in this section for their service on the Board of Directors. For 2003, the
annual retainer for directors is increasing to $10,000, and the fee paid for
each meeting attended is increasing to $2,500.
Under the Katy Industries, Inc. Non-Employee Director Stock Option Plan
(the "Directors' Stock Option Plan"), each non-employee director who is not a
Class II director receives on the date immediately following the annual meeting
an annual grant of options to acquire 2,000 shares of Katy common stock. The
exercise price is the fair market value on the date of grant. The director may
exercise these options at any time during the ten years from the date of grant.
Directors receiving compensation for their services may also participate
in the Directors' Deferred Compensation Plan which became effective June 1, 1995
(the "Directors' Deferred Compensation Plan"). Under this Plan, a director may
defer directors' fees, retainers and other compensation paid for services as a
director until the later of the director's attainment of age 62 or ceasing to be
a director. Each director has 30 days before the beginning of a Plan Year (as
defined in the Directors' Deferred Compensation Plan) in which to elect to
participate in the Directors' Deferred Compensation Plan. Directors may invest
these amounts in one or more investment alternatives offered by Katy. Directors
may elect to receive distributions of deferred amounts in a lump sum or five
annual installments.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") presents the following executive compensation report for the 2002
fiscal year:
The Compensation Committee consists of Christopher Lacovara (Chairman) and
Christopher Anderson. The Committee makes decisions on executive officer
compensation and reports its decisions to the Board. It also seeks the Board's
approval on the Chief Executive Officer's compensation. The following summarizes
the compensation practice and philosophy that was in effect at Katy for the
fiscal year ended December 31, 2002. Modifications to such philosophy have been,
and may continue to be, made.
22
Compensation Philosophy
Katy's compensation program aims to align executive officers' economic
interests with those of stockholders (including Katy's financial objectives and
market performance). The Compensation Committee seeks to adjust compensation
levels (through competitive base salaries and bonus payments) based on
individual and Katy performance. It reviews the executive compensation program
annually in view of Katy's annual strategic and financial objectives and
performance.
Compensation Program Components
Annual compensation for Katy's Chief Executive Officer and other executive
officers (including the Named Executive Officers) consists of two cash
compensation components: base salary and annual cash bonuses. A third component,
stock options (and SARs for certain employees, but none of the Named Executive
Officers), is used for executive retention, to attract new key people, and to
align the long-term interests of eligible executives with those of stockholders.
Salary and bonus levels reflect job responsibility, Compensation Committee
judgments of individual effort and performance, and Katy's financial and market
performance (in light of the competitive environment in which Katy operates).
Annual cash compensation is also influenced by comparable companies'
compensation practices so that Katy remains reasonably competitive in the
market. While competitive pay practices are important, the Compensation
Committee believes that the most important considerations are individual merit
and Katy's financial and market performance. In considering Katy's financial and
market performance, the Compensation Committee reviews, among other things, net
income, cash flow, working capital and revenues and share price performance
relative to comparable companies and historical performance.
The annual bonus plan compensates employees based on target bonus
opportunities established by the Compensation Committee stated as a percentage
of annual base salary for recommended key employees each year (including the
Chief Executive Officer and the other Named Executive Officers). An employee
achieves the target bonus opportunity if he or she meets 100% of pre-established
performance goals. A higher or lower bonus is earned if performance exceeds or
falls short of the target levels. For 2002, the only Named Executive Officer who
received a bonus based on the achievement of specific performance goals was
David S. Rahilly. However, the Compensation Committee felt that certain
employees, including the other four Named Executive Officers, performed in a
manner that exceeded expectations in certain areas that benefited the Company
during 2002. As a result, cash bonuses were awarded in amounts indicated in the
executive compensation table. These bonuses were less than the Named Executive
Officer's bonus target in each case. Also, employees at certain subsidiaries
received bonuses based on the operating performance at their divisions
The Supplemental Retirement and Deferral Plan (the "Supplemental Deferral
Plan"), among other things, allows participants to voluntarily defer up to 100%
of their annual bonus and up to 50% of their base salary until retirement or
termination of his or her employment. The Supplemental Deferral Plan allows Katy
to make a profit sharing allocation to participants' accounts of, in aggregate,
2% of adjusted pre-tax income, as determined by the Compensation Committee. For
2002, Katy did not make an allocation under the Supplemental Deferral Plan. Katy
invests voluntary deferrals and profit sharing allocations at the employee's
election in several investment alternatives offered by Katy. The profit-sharing
allocation was discontinued as of January 1, 2002.
23
The third compensation component is a stock option and stock appreciation
rights (SAR) program. Under Katy's current stock option program, the Board may
provide compensation in the form of incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock, performance units or
shares, and other incentive awards including cash bonuses, contingent on Katy's
share price reaching certain goals specified under the stock option and SAR
program. The Compensation Committee believes that the stock option and SAR
program optimizes Katy's growth and profitability through incentives to
employees which are consistent with Katy's goals and which link employees'
personal interests to those of the stockholders. The stock option program is
also intended to give Katy flexibility to attract, motivate, and retain the
services of employees and other individuals who contribute to its success.
During 2002, 275,000 stock options and 696,425 SARs were granted to employees.
Chief Executive Officer Compensation
C. Michael Jacobi became President and Chief Executive Officer in June
2001. Mr. Jacobi's salary for 2002, which was increased in September 2002 from
$500,000 to $530,000 on an annual basis, was based upon his experience,
qualifications and responsibilities, as well as his performance as CEO since
June 2001. Mr. Jacobi was awarded a cash bonus of $133,000 for his performance
in 2002. This amount was less than Mr. Jacobi's bonus target, as the Company did
not reach its pre-established performance goals. However, the Compensation
Committee felt it was appropriate to reward Mr. Jacobi for his performance
related to specific areas of the Company's improvement, including the execution
of restructuring and other cost reduction programs, as well as management of
working capital. These factors were also considered in the decision to increase
Mr. Jacobi's annual salary level as indicated above. Mr. Jacobi was not granted
any stock options or SARs during 2002.
Summary
The Compensation Committee believes that the total compensation program
for executive officers is appropriately related to individual performance and
Katy's performance (including Katy's financial results and stockholder value).
The Compensation Committee monitors the executive compensation of comparable
companies and believes that Katy's compensation program is competitive and
provides appropriate incentives for Katy's executive officers to work towards
continued improvement in Katy's overall performance.
Compensation Committee of the Board of Directors
Christopher Lacovara, Chairman
Christopher Anderson
The Compensation Committee Report on Executive Compensation shall not be
deemed to be incorporated by reference as a result of any general incorporation
by reference of this Proxy Statement or any part hereof in the Company's 2003
Annual Report to Stockholders, its Annual Report on Form 10-K for the year ended
December 31, 2002 or any other filings with the SEC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2002, Katy paid Kohlberg & Co. $500,000 for ongoing management
advisory services. Katy expects to pay $500,000 per year for these services, as
outlined in the Recapitalization Agreement of June 2, 2001. William F. Andrews,
Chairman of the Board, is a consultant, or "Operating Principal," with Kohlberg
& Co.
24
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met five times during 2002. Each director in office
at the time of such meeting attended at least 75% of the Board meetings and the
meetings of the Board committees of which he is a member.
Katy's bylaws provide for an Executive Committee to which the Board of
Directors has assigned all powers delegable by law. The Executive Committee met
informally through numerous telephone conferences at intervals between meetings
of the full Board of Directors, and acted by unanimous consent without formal
meetings. The Executive Committee consists of Christopher Lacovara, Christopher
Anderson and C. Michael Jacobi.
The Board of Directors also has an Audit Committee and a Compensation
Committee. The Audit Committee consists of Daniel B. Carroll (Chairman),
Christopher Lacovara and William F. Andrews. This Committee met five times
during 2002. The Audit Committee reviews the results of the annual audit with
Katy's independent auditors, reviews the scope and adequacy of Katy's internal
auditing procedures and its system of internal controls, reviews Katy's
financial statements and related financial issues with management and the
independent auditors, and reports its findings and recommendations to the Board
of Directors.
The Compensation Committee consists of Christopher Lacovara (Chairman) and
Christopher Anderson. This Committee, which reviews current and deferred
compensation for Katy officers and for some officers and key employees of its
subsidiaries, held four meetings, and met informally throughout the year. It
makes decisions on executive officer compensation and reports its decisions to
the Board of Directors. It also seeks the Board's approval on the Chief
Executive Officer's compensation.
The Nominating and Governance Committee consists of Samuel P. Frieder
(Chairman), William F. Andrews and Daniel B. Carroll. This Committee monitors
the Company's compliance with various laws and regulations to which public
companies are subject, and sets and reviews policies and procedures in place
throughout various disciplines within the Company to ensure high ethical
standards are practiced. The Committee reports its findings and recommendations
to the Board. The Corporate Governance Committee was established during 2003,
and has met once prior to the filing of this proxy statement.
The entire Board of Directors considers and selects nominees for directors
on the basis of recommendations from the Nominating and Governance Committee.
The Board of Directors has adopted an advance notice bylaw provision requiring
stockholder nominations for directors to be received by Katy not less than 50
days or more than 90 days before the annual meeting. Any nominations for
directors made by stockholders must include the following information regarding
the nominee: name; age; business address; residence address; principal
occupation or employment; class and number of shares of Katy beneficially owned;
and any other information required to be disclosed in a proxy solicitation for
the election of directors. Additionally, the stockholder making such nomination
must provide his or her name and address, and the number of shares of the
Company beneficially owned by such stockholder. No person is eligible for
election as a director of the Company unless he or she is nominated (i) by the
Board of Directors or (ii) in accordance with the foregoing requirements.
25
AUDIT COMMITTEE REPORT
The following report of the Audit Committee does not constitute soliciting
materials and should not be deemed filed or incorporated by reference into any
of our other filings under the Securities Act of 1933, as amended, or the
Exchange Act of 1934, except to the extent that we specifically incorporate this
report by reference therein.
The Audit Committee acts pursuant to a written charter, as amended on
February 3, 2003, by the Board of Directors. A copy of the amended and restated
Audit Committee charter is attached to this Proxy Statement as Annex A. As set
forth in more detail in the charter, the Audit Committee's primary
responsibilities are focused in four broad categories:
1. Recommend to the Board of Directors the appointment of independent
auditors;
2. Consult with management or independent auditors regarding the audit
scope and the audit plan;
3. Review and approve company financial statements; and
4. Review with management and independent auditors the adequacy of
internal controls.
Each of the Audit Committee members qualifies as an "independent" director
under the current listing standards of the New York Stock Exchange (referred to
as the NYSE), except that Mr. Lacovara may not be considered independent because
he is on the Board of Managers of KKTY Holding Company, which owns all of our
outstanding Convertible Preferred Stock and he therefore may be deemed to have a
"business relationship" under NYSE listing standards. The Board of Directors has
determined that it is nevertheless in the best interest of the Company and its
stockholders for Mr. Lacovara to serve on the Audit Committee notwithstanding
his relationship, as permitted by NYSE rules, because of his extensive knowledge
of financial matters generally, his significant experience with Katy and his
past service on the boards of directors and audit committees of other companies.
The Audit Committee has reviewed and discussed the audited financial
statements for the year ending 2002 with management and our independent
auditors, and has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards 61 (Communications with Audit
Committees). The Audit Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with the independent auditors the independent auditors' independence
from Katy and our management. Based on these reviews and discussions, the Audit
Committee recommended to the Board of Directors, and the Board approved, that
the audited financial statements be included in Katy's Annual Report on Form
10-K for the year ended December 31, 2002 filed with the Securities and Exchange
Commission.
Audit Committee of the Board of Directors
Daniel B. Carroll (Chairman)
Christopher Lacovara
William F. Andrews
26
The Audit Committee Report shall not be deemed to be incorporated by
reference as a result of any general incorporation by reference of this Proxy
Statement or any part hereof in the Company's 2003 Annual Report to
Stockholders, its Annual Report on Form 10-K for the year ended December 31,
2002 or any other filings with the SEC.
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative
total stockholder return on the shares of Katy common stock with the cumulative
total return of the Russell 2000 and the cumulative total return of the Dow
Jones US Industrial Diversified Index for the fiscal years ending December 31,
1997 through 2002. The Company had previously compared its total return with
that of the S&P Manufacturing Diversified Index. However, this index ceased
publication during 2002, and has been replaced by the Dow Jones US Industrial
Diversified Index. The graph below assumes $100 invested, including reinvestment
of dividends, on December 31, 1997.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG KATY INDUSTRIES, INC., THE RUSSELL 2000 INDEX,
THE S & P MANUFACTURING (DIVERSIFIED) INDEX
AND THE DOW JONES US INDUSTRIAL DIVERSIFIED INDEX
[LINE CHART OMITTED]
Comparison of Five Year Cumulative Total Return
Cumulative Total Return
-------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
Katy Industries, Inc. 100.00 87.66 44.46 31.77 18.11 18.21
Russell 2000 100.00 97.45 118.17 114.60 117.45 93.39
S&P Manufacturing (Diversified) 100.00 115.90 142.48 169.61 167.07
Dow Jones US Industrial Diversified 100.00 128.61 174.24 175.49 157.77 102.45
27
PROPOSALS OF STOCKHOLDERS FOR 2004 ANNUAL MEETING
In order to be considered for inclusion in Katy's proxy materials for the
2004 annual meeting of stockholders, any stockholder proposal must be addressed
to Katy Industries, Inc., 765 Straits Turnpike, Middlebury, Connecticut 06762,
Attention: Secretary, and must be received no later than January 2, 2004.
If proposals are not received in time to be included in the proxy
materials, Katy's bylaws set forth additional requirements and procedures
regarding the submission of stockholder proposals for consideration at an annual
meeting of stockholders. A stockholder proposal or nomination intended to be
brought before the 2004 annual meeting must be received by the Secretary in
writing not less than 50 days or more than 90 days prior to the 2004 annual
meeting. A nomination or proposal that does not comply with such requirements
and procedures will be disregarded.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any matters to be presented at the meeting other than the proposals
noted in this Proxy Statement. However, if other matters come before the
meeting, it is the intention of the persons named on the accompanying proxy to
vote on such matters in accordance with their best judgment. Katy's Board of
Directors has adopted an advance notice bylaw provision requiring that
stockholder proposals to be made at any annual meeting be received by Katy not
less than 50 days nor more than 90 days prior to the annual meeting. No such
stockholder proposals were received for the 2003 annual meeting.
FORM 10-K
Upon written request to our corporate office at 765 Straits Turnpike,
Middlebury, Connecticut 06762, stockholders will be furnished without charge a
copy of our Annual Report on Form 10-K required to be filed with the Securities
and Exchange Commission, including the financial statements and the schedules
thereto for the most recent fiscal year.
Middlebury, Connecticut
April 30, 2003
28
ANNEX A
KATY INDUSTRIES, INC.
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
The Board of Directors of Katy Industries, Inc. (Katy or the Company) hereby
defines and establishes the role of its Audit Committee (the Committee) with
authority, responsibility, and specific duties as described in the following
text.
The Audit Committee
Composition
The Committee shall be comprised of three or more directors each of whom shall
meet the independence and experience requirements of the New York Stock
Exchange, as then in effect. One of the members shall be appointed Committee
Chairman by the Chairman of the Board of Directors. All members of the Committee
shall have a requisite working familiarity with basic finance and accounting
practices in compliance with the rules of the New York Stock Exchange. Upon
promulgation of rules, at least one member of the Committee shall be a financial
expert, as such term is defined by the Securities and Exchange Commission.
No member of the Committee may serve on the audit committees of more than three
public companies. The members of the Committee shall be appointed by the Board,
at the Board's annual meeting, at the recommendation of the Nominating &
Governance Committee.
Authority
The Audit Committee is granted the authority to investigate any activity of the
Company, and all employees are directed to cooperate as requested by members of
the Committee. The Committee is empowered to retain persons having special
competence as necessary to assist the Committee in fulfilling its
responsibility.
The Committee shall have the sole authority to appoint or replace the
independent auditors and shall approve all audit engagement fees and terms and
all significant non-audit engagements with the independent auditors. The
Committee shall consult with management, but shall not delegate these
responsibilities.
Responsibility
The Audit Committee is to serve as a focal point for communication between
noncommittee directors, the independent auditors, internal audit, and Katy's
management, as their duties relate to financial accounting, reporting, and
controls. The Audit Committee is to assist the Board of Directors in fulfilling
its fiduciary responsibilities as to accounting policies and reporting practices
of Katy and all subsidiaries and the sufficiency of auditing relative thereto.
It is to be the Board's principal agent in assuring the independence of the
corporation's independent auditors, the integrity of management, and the
adequacy of disclosures to stockholders. The opportunity for the independent
auditors to meet with the entire Board of Directors as needed is not to be
restricted. The Committee shall prepare the report of the Committee required by
the rules of the Securities and Exchange Commission to be included in Katy's
annual proxy statement.
A-1
The Committee shall make regular reports to the Board, and shall review with the
Board any issues that arise with respect to the quality or integrity of Katy's
financial statements, Katy's compliance with legal or regulatory requirements,
the performance and independence of Katy's independent auditors, or the
performance of internal audit function. The Committee shall review and reassess
the adequacy of this Charter, at least annually, and shall recommend any
proposed changes to the Board for approval. The Committee shall annually review
its own performance.
Meetings
The Audit Committee is to meet at least quarterly and as many additional times
as the Committee deems necessary.
Attendance
Members of the Audit Committee are to be present at all meetings; however, a
quorum of two, including the Chairman, suffices for a meeting. As necessary or
desirable, any member of the Committee may request that members of management,
internal auditors, and representatives of the independent auditors be present at
meetings of the Committee. Members of the Committee may participate in a meeting
of the Committee by means of conference call or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Minutes
Minutes of each meeting are to be prepared and sent to Committee members and the
Katy directors who are not members of the Committee, and/or matters reviewed at
each committee meeting will be discussed with the Board of Directors.
Specific Duties
The Audit Committee is to:
Financial Statements and Disclosure Matters
1) Review with the Company's management, independent auditors and internal
auditors, as deemed necessary by the Committee, the Company's critical
accounting policies and procedures, including, but not limited to,
judgments that may be viewed as critical, significant changes to Katy's
accounting and auditing policies and audit steps adopted in light of
material control deficiencies, to reasonably assure the adequacy of
internal accounting and financial reporting controls.
2) Review quarterly results before their release with management and
the independent auditors. The independent auditors should be
instructed to communicate with the Committee if there is a
probability that any quarterly review report, if one is to be
issued, will be other than standard.
3) Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and recommend to the Board whether the
audited financial statements should be included in Katy's Annual
Report on Form 10-K.
A-2
4) Review with management and the independent auditor any
correspondence with regulators or governmental agencies, any
employee complaints or published analyst reports which raise
material issues regarding the Company's financial statements or
accounting policies.
5) Review and discuss with management and the independent auditors: (a)
any material financial or non-financial arrangements of Katy which
do not appear on the company's financial statements; and (b) any
transactions or courses of dealing with parties related to Katy
which transactions are significant in size or involve terms or other
aspects that differ from those that would likely be negotiated with
independent parties and which are relevant to an understanding of
Katy's financial statements.
6) Review and discuss with management its policies and practices
regarding earnings press releases, as well as financial information
and earnings guidance given to analysts and ratings agencies, giving
attention to any use of "pro forma" or "adjusted" non-GAAP
information.
7) Discuss with management Katy's major financial risk exposures and
the steps management has taken to monitor and control such
exposures, including Katy's risk assessment and risk management
policies.
8) Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives, as well as off-balance sheet
structures on Katy's financial statements.
Oversight of Katy's Relationship with the Independent Auditor
9) Approve the engagement or discharge of the independent auditors and
approve the compensation of the independent auditors. In evaluating
the independence of the independent auditors, the Committee will
review and/or consider annually:
a) The resumes of the key partners and managers,
b) A description of the quality control procedures the auditing
firm has established,
c) A report from the auditing firm describing any material issues
raised by the most recent quality control review of that firm
and describing the steps the firm has taken to deal with any
reported problems;
(d) A report delineating all relationships between the auditors
and the Company ("Statement as to Independence"), addressing
each non-audit service provided to the Company and at least
the matters set forth in Independence Standards Board No. 1;
and
(e) Any other relationships that may adversely affect the
independence of the auditor.
10) Assure the regular rotation of the lead audit partner as required by
laws, and evaluate whether it is appropriate to rotate independent
auditing firms from time to time. Additionally, to maintain the
integrity of the independent audit, the Committee will set clear
hiring policies for employees or former employees of the independent
auditors, taking into account pressures that may exist for auditors
consciously or subconsciously seeking a job with Katy.
11) Assure that the independent auditor understands it is accountable to
the Board of Directors (through the Audit Committee), not
management.
Process Improvement
12) Establish regular and separate systems of reporting to the Committee
by Katy's management, the independent auditor and the internal
auditors regarding any significant judgments made in
A-3
management's preparation of the financial statements, and the view
of each as to the appropriateness of such judgments.
13) Review and discuss with the independent auditor the audit planning
and procedures, including the scope, fees, staffing and timing of
the audit; review and discuss the results of the audit exam and
management letters, and any reports of the independent auditor with
respect to any interim period.
14) Review with Katy's internal auditors and the independent auditor the
coordination of their audit efforts to assure completeness of
coverage, reduction of redundant efforts and effective use of audit
resources.
15) Review separately with Katy's management, the independent auditor
and the internal auditing department, following completion of Katy's
annual audit, any significant difficulties encountered during the
course of the audit, including: a) difficulties with management's
response; b) any restrictions on the scope of work or access to
required information; and (c) the nature and extent of any
significant changes in accounting principles or the application
therein.
16) Review any significant disagreement among Katy's management and its
independent auditor or the internal auditing department in
connection with the preparation of Katy's financial statements.
17) Review with the independent auditor any audit problems or
difficulties and management's response. Such review shall include
any accounting adjustments that were noted or proposed by the
auditor but were "passed" (as immaterial or otherwise); review any
"management" or "internal control" letters issued, or proposed to be
issued, by the audit firm to Katy and any discussions with the
independent auditor's national office respecting auditing or
accounting issues presented by the engagement.
18) Review with Katy's independent auditor, the internal auditing
department and management the extent to which changes or
improvements in financial or accounting practices and standards, as
approved by the Committee, have been implemented, with such review
to be conducted at an appropriate amount of time subsequent to
implementation of any changes or improvements thereto, as decided by
the Committee in its discretion.
Oversight of the Corporation's Internal Audit Function
19) Review the appointment, replacement, reassignment or dismissal of
the members of Katy's internal auditing department, including the
appointment and replacement of the senior internal auditing
executive.
20) Review the regular internal reports to management prepared by the
internal auditing department and management's responses.
21) Discuss with the independent auditor the internal audit department's
responsibilities, budget and staffing, and any recommended changes
in the planned scope of the internal audit.
A-4
Compliance Oversight Responsibilities
22) Obtain from the independent auditor assurance that Section 10A of
the Securities Exchange Act of 1934 has not been implicated.
23) Obtain reports from management, Katy's senior internal auditing
executive and the independent auditor that Katy and its
subsidiary/foreign affiliated entities are in conformity with
applicable legal requirements and Katy's Code of Business Conduct
and Ethics; review reports and disclosures of insider and affiliated
party transactions; advise the Board with respect to Katy's policies
and procedures regarding compliance with applicable laws and
regulations and with Katy's Code of Business Conduct and Ethics.
24) Review any material pending legal proceedings involving Katy and
other contingent liabilities; discuss with Katy's General Counsel
legal matters that may have a material impact on the financial
statements or Katy's compliance policies.
25) The Committee shall establish procedures for (A) the receipt,
retention, and treatment of complaints received by Katy regarding
accounting, internal accounting controls, or auditing matters; and
(B) the confidential, anonymous submission by employees of Katy of
concerns regarding questionable accounting or auditing matters.
Limitation of Committee's Role
While the Committee has the responsibilities and powers set forth in the
Charter, it is not the duty of the Committee to plan or conduct audits, to
certify Katy's financial statements or to guarantee the auditor's report. These
are the responsibilities of management and the independent auditor.
A-5
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted "FOR" proposals 1 and 2, and
"AGAINST" proposal 3.
1. Election of Directors:
Nominees:
Christopher Anderson
William F. Andrews
Samuel P. Frieder
James A. Kohlberg
Christopher Lacovara
|_| For All |_| Withhold All |_| For All Except*
--------------------------------------------------------------------------------
* To withhold authority to vote for any individual nominee, write the nominee's
name in the space provided above and fill in the "For All Except" oval.
Proposal 2. To ratify the selection of PricewaterhouseCoopers LLP as the
independent public accountants of Katy.
|_| For |_| Against |_| Abstain
Proposal 3. To consider and vote upon a stockholder proposal regarding Katy's
Stockholder Rights Agreement.
|_| For |_| Against |_| Abstain
Please check this box if you plan to attend the annual meeting.
|_|
Date: ____________________________________
(signature)
Date: ____________________________________
(signature)
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons or in the name of a
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed in corporate name by the President or
Vice President and the Secretary or Assistant Secretary, and the corporate seal
should be affixed thereto. If shares of stock are held of record by any other
legal entity, the Proxy should be executed in the entity name by an authorized
person. Executors or administrators or other fiduciaries who execute the above
Proxy for a deceased stockholder should give their full title. Where applicable,
indicate your official position or representative capacity. Please date the
proxy.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
B-1