KVH INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
to be held on May 26, 1999
and
PROXY STATEMENT
IMPORTANT
Please mark, sign and date your proxy
and promptly return it in the enclosed envelope.
<PAGE>
KVH Industries, Inc.
50 Enterprise Center
Middletown, RI 02842
April 19, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of KVH
Industries, Inc. The meeting will be held at the offices of Foley, Hoag & Eliot
LLP, One Post Office Square, 16th Floor, Boston, Massachusetts on Wednesday, May
26, 1999, beginning at 11:00 a.m. local time.
As a stockholder, your vote is important. We encourage you to execute and return
your proxy promptly whether you plan to attend the meeting or not so that we may
have as many shares as possible represented at the meeting. Returning your
completed proxy will not prevent you from voting in person at the meeting prior
to the proxy's exercise if you wish to do so.
Thank you for your cooperation, continued support and interest in KVH
Industries, Inc.
/s/ Martin Kits van Heyningen
Martin Kits van Heyningen
President and Chief Executive Officer
<PAGE>
KVH Industries, Inc.
Notice of Annual Meeting of Stockholders
May 26, 1999
Notice is hereby given that the Annual Meeting of Stockholders of KVH
Industries, Inc. (the "Company") will be held at the offices of Foley, Hoag &
Eliot LLP, One Post Office Square, 16th Floor, Boston, Massachusetts on
Wednesday, May 26, 1999, beginning at 11:00 a.m. local time for the following
purposes:
1. To vote upon the election of three Class III Directors
2. To vote upon a proposed amendment to the Company's 1996 Incentive and
Nonqualified Stock Option Plan
3. To vote upon a proposed amendment to the Company's 1996 Employee Stock
Purchase Plan; and
4. To transact such further business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1999, as the
record date for the determination of the stockholders of the Company entitled to
notice of, and to vote at, said Meeting and any adjournment thereof. Only
stockholders of record on such date are entitled to notice of, and to vote at,
said Meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ Robert Kits van Heyningen
Robert Kits van Heyningen
Secretary
Middletown, Rhode Island
April 19, 1999
YOUR VOTE IS IMPORTANT
Please sign and return the enclosed proxy, whether or not you
plan to attend the meeting.
<PAGE>
KVH Industries, Inc.
50 Enterprise Center
Middletown, Rhode Island 02842
(401) 847-3327
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 26, 1999
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about April 19, 1999, in connection with the solicitation by
the Board of Directors of KVH Industries, Inc. (the "Company") of proxies to be
used at the Annual Meeting of Stockholders of the Company, to be held on
Wednesday, May 26, 1999, and at any and all adjournments thereof (the "Annual
Meeting"). When proxies are returned properly executed, the shares represented
will be voted in accordance with the stockholder's directions. Stockholders are
encouraged to vote on the matters to be considered. If no choice has been
specified by a stockholder, the shares will be voted as recommended by
management. Any stockholder may revoke a proxy at any time before it has been
exercised by providing the Company with a later dated proxy, by notifying the
Company's Secretary in writing or by orally notifying the Company in person.
The Board of Directors of the Company (the "Board") has fixed the close of
business on March 31, 1999, as the record date for the determination of the
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting and any adjournment thereof. Only stockholders of record on such date
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof. At the close of business on the record date, there were issued and
outstanding 7,205,928 shares of the Company's Common Stock, $.01 par value (the
"Common Stock"), entitled to vote. Each share is entitled to one vote.
The by-laws of the Company provide that the holders of a majority of the
shares of Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum at
the Annual Meeting. Shares of Common Stock represented by a properly signed and
returned proxy will be treated as present at the Annual Meeting for purposes of
determining a quorum. Abstentions and broker non-votes with respect to any
particular proposals will not affect the determination of a quorum. Thus, shares
voted to abstain as to a particular matter, or as to which a nominee (such as a
broker holding shares in street name for a beneficial owner) has no voting
authority in respect of a particular matter, shall be deemed present for
purposes of determining a quorum. A stockholder who attends the Annual Meeting
may not withhold his shares from the quorum count by declaring such shares
absent from the Annual Meeting.
The Class III Directors to be elected at the meeting will be elected by a
plurality of the votes properly cast. Abstentions and broker non-votes as to
this proposal and election do not count as votes for or against such matters.
Votes will be tabulated by the Company's transfer agent, Boston EquiServe.
ELECTION OF DIRECTORS
The Company's by-laws provide for a Board of Directors consisting of from
two to seven members. Within such limits, the number of directors constituting
the whole Board is determined by the stockholders at the annual meeting of
stockholders, and may be increased or decreased by the stockholders or the
directors from time to time. The Board is divided into three classes, designated
as Class I, Class II and Class III. Classes I and II each contain two directors.
Class III includes three directors. Directors are elected to serve for
three-year terms, and until their respective successors are duly elected and
qualified. The term of one of the three classes of directors expires each year
at the Company's annual meeting or special meeting in lieu thereof.
The number of directors constituting the whole Board is currently fixed at
seven. The term of the Company's three Class III Directors will expire at the
1999 Annual Meeting. The Board has nominated, Robert W. B. Kits van Heyningen,
Martin A. Kits van Heyningen and Werner Trattner, who currently serve as Class
III Directors, for reelection as Class III Directors at the 1999 Annual Meeting,
each to serve until the Company's annual meeting of stockholders in 2002 or
special meeting in lieu thereof, and until a successor is duly elected and
qualified.
The Company's Class I Directors are Mark S. Ain and Stanley K. Honey. Their
terms as directors will expire at the Company's 2000 annual meeting of
stockholders or special meeting in lieu thereof. The Company's Class II Director
is Arent H. Kits van Heyningen. His term as director will expire at the
Company's 2001 annual meeting of stockholders or special meeting in lieu
thereof. The Company intends to select an individual to complete the term of the
Class II Director position held by James Saalfield, who resigned from the Board
in October 1998.
Robert W. B. Kits van Heyningen, Martin A. Kits van Heyningen and Werner
Trattner have agreed to serve as Class III Directors if elected, and the Company
has no reason to believe that they will be unable to serve. In the event that
either is unable or declines to serve as director at the time of the Annual
Meeting, proxies will be voted for such other nominee as is then designated by
the Board.
The Board recommends that you vote FOR the election of each of Robert W. B.
Kits van Heyningen, Martin A. Kits van Heyningen and Werner Trattner as a Class
III Director of the Company.
AMENDMENT TO THE 1996 STOCK OPTION PLAN
The Board of Directors has approved a proposed amendment to the Company's
1996 Incentive and Nonqualified Stock Option Plan (the "1996 Option Plan") that
would increase shares reserved for issuance under the 1996 Option Plan by
500,000 shares to 1,415,000 shares from 915,000 shares. As of December 31, 1998,
options to purchase a total of 1,194,633 shares of Common Stock were outstanding
under the 1996 Option Plan and the 1995 Incentive Stock Option Plan. The Company
believes that stock options are an important incentive for recruiting and
retaining highly qualified employees, officers and directors. Approval of this
amendment would increase the total shares available for disbursement under the
two plans to 715,498 shares and allow the Company to continue offering its
officers, employees and directors stock option incentives.
The Board recommends that you vote FOR an amendment to the Company's 1996
Incentive and Nonqualified Stock Option Plan increasing the number of shares
reserved for issuance pursuant to options granted under the Plan to 1,415,000
shares from 915,000 shares.
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved an amendment that would increase the
shares reserved for issuance under the 1996 Employee Stock Purchase Plan (the
"Stock Purchase Plan") by 150,000 shares to 300,00 shares from 150,000 shares.
The amendment also would establish the maximum number of shares offered to
employees in any six-month period at one percent of the Company's outstanding
shares. The Company believes that employees who are also stockholders are more
committed and loyal to the Company. As of December 31, 1998, employees had
purchased a total of 93,210 shares under the Plan and 56,790 shares remained to
be offered pursuant to the Plan. Approval of the amendment would allow the
Company to continue offering its employees the incentive to participate in the
Company's growth as shareholders.
The Board recommends that you vote FOR the amendment to increase shares of
Common Stock reserved for issuance under the Employee Stock Purchase Plan by
150,000 shares and limit the number of shares offered to employees in any
six-month period to one percent of the Company's outstanding shares at the
beginning of each period.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Arent H. Kits van Heyningen(1) 83 Chairman, Board of Directors
Martin A. Kits van Heyningen(1) 40 President, Chief Executive Officer and Director
A. Nath Srivastava 53 Chief Operating Officer
Richard C. Forsyth 52 Chief Financial Officer
Josina de Smit(2) 62 Treasurer
Sid Bennett 60 Vice President, FOG Business Development
Christopher T. Burnett 44 Vice President of Business Development
James S. Dodez 40 Vice President of Marketing and Sales Support
Robert W. B. Kits van Heyningen(1) 42 Vice President of R&D and Director
Mads E. Bjerre-Petersen 55 Managing Director, KVH Europe
Mark S. Ain(4) 55 Director
Stanley K. Honey(3) 44 Director
Werner Trattner(3), (4) 46 Director
</TABLE>
(1) Arent Kits van Heyningen is the father of Martin Kits van Heyningen and
Robert Kits van Heyningen
(2) Josina de Smit is the spouse of Arent Kits van Heyningen and the mother
of Martin Kits van Heyningen and Robert Kits van Heyningen
(3) Member of the Audit Committee
(4) Member of the Compensation Committee
Arent H. Kits van Heyningen, a founder of the Company, has been Chairman of
the Company's Board of Directors since 1982. He also has served as the Company's
Chief Scientist since that time. From 1963 to 1986, Mr. Kits van Heyningen was
Principal Engineer at the Submarine Signal Division of Raytheon Company. Mr.
Kits van Heyningen received a BS and an MS in electrical engineering from Delft
Technical University, The Netherlands.
Martin A. Kits van Heyningen, a founder of the Company, has been President
and a director of the Company since 1982 and has served as the Company's Chief
Executive Officer since 1990. From 1980 to 1982, Mr. Kits van Heyningen was
employed as a marketing consultant by the New England Consulting Group, a
marketing consulting firm. Mr. Kits van Heyningen received a BA cum laude from
Yale University.
A. Nath Srivastava has been Chief Operating Officer since 1998 when he
joined the Company from his prior position as managing partner and president of
Manufacturing Diagnostics Group, a consulting and acquisition organization that
he co-founded. Previously he was Chief Executive Officer of Market Forge
Industries, Chief Operating Officer of Servolift Eastern Corporation and plant
manager for Litton Westrex OEM Products, Inc., a former division of Litton
Industries. Mr. Srivastava holds an MBA from Northeastern University, an MS in
computer science from the University of Rhode Island and a BS in mechanical
engineering from Allahabad University.
Richard C. Forsyth has been Chief Financial Officer of KVH since joining
the Company in 1988. Mr. Forsyth consulted for Technology Transition, Inc., a
venture capital firm, from 1986 until 1988 and served as the Chief Financial
Officer for two of Technology Transition's portfolio companies. Between 1981 and
1985, Mr. Forsyth was Divisional Controller at Wang Laboratories, a computer
manufacturer. Mr. Forsyth is a Certified Public Accountant and received BS and
AB degrees from Boston College.
Josina de Smit, a founder of the Company, has been Treasurer of KVH since
1986. Previously Ms. de Smit held a variety of financial, administrative and
human resources positions at the Company, including Financial Manager and Human
Resources Manager.
Sid Bennett joined the Company as Vice President of the Fiber Optic Group
in November 1997 after the group was acquired from Andrew Corporation. Mr.
Bennett was employed by Andrew Corporation from 1985 to 1997 and his most recent
positions were Director, Sensor Products, and President, Andrew-Thompson
Broadcasting, Inc. Previously Mr. Bennett was with Sanders Associates managing
military electronic systems development. Mr. Bennett has received a BEE from
Cornell University and an MEE from New York University. He is Chair of the IEEE
Gyro and Accelerometer Panel and a member of the Board of Governors of the IEEE
Aerospace and Electronic Systems Society.
Christopher T. Burnett has been KVH's Vice President of Business
Development since 1994. Mr. Burnett joined the Company in 1988 as its Director
of Business Development and held that position until 1994. From 1985 until 1988,
Mr. Burnett was Program Manager for Sippican Inc., an engineering and
manufacturing company. From 1983 until 1985, Mr. Burnett was a Senior Consultant
in the Aerospace Defense Consulting Group of Peat Marwick and Mitchell. Mr.
Burnett received a BS from the U.S. Naval Academy and an MBA from Golden Gate
University.
James S. Dodez was named KVH's Vice President of Marketing and Sales
Support in October 1998 after serving as the Vice President of Marketing and
Reseller Sales since 1995. Mr. Dodez joined KVH in 1986 as Marketing Director, a
position he held until 1995. From 1985 until 1986, Mr. Dodez was Marketing
Director at Magratten Wolley, Inc., an advertising agency. Mr. Dodez received a
BS from Miami University (Ohio).
Robert W. B. Kits van Heyningen, a founder of the Company, has been a
director since 1982 and the Company's Vice President of Research and Development
since 1998. Previously he served as the Company's Vice President of Engineering
from 1982 until 1998. Mr. Kits van Heyningen was an associate engineer at the
Submarine Signal Division of Raytheon Company and was also a consultant to
various companies and universities from 1980 to 1985. Mr. Kits van Heyningen
received a BS in physics from McGill University.
Mads E. Bjerre-Petersen has been Managing Director of the Company's Danish
subsidiary, KVH Europe A/S, since 1992. After founding in 1976 KVH Europe's
predecessor company, Danaplus A/S, Mr. Bjerre-Petersen served as its Managing
Director until 1992, when the Company acquired its assets in a bankruptcy
proceeding. Prior to founding Danaplus A/S, Mr. Bjerre-Petersen founded and
operated MBP Trading, a marine electronic distribution firm. Mr. Bjerre-Petersen
received a MSc in mechanical engineering from Technical University of Denmark.
Werner Trattner has been a director of the Company since 1994. Mr. Trattner
has been Chief Financial Officer/Vice President of Sales of Swarovski Optik KG,
an Austrian manufacturer of optical equipment, since 1989. Mr. Trattner received
a degree in business administration from the Studiengemeinschaft in Darmstadt,
Germany and received a diploma from the Controller Akademie in Munich/Gauting,
Germany. Mr. Trattner completed the Program for Executive Development at the
International Institute for Management Development in Lausanne, Switzerland.
Mark S. Ain has been a director of the Company since 1997. He is the
founder, Chief Executive Officer, and Chairman of the Board of Directors of
Kronos Incorporated since its organization in 1977. He also held the office of
President from 1977 until October 1996. From 1974 to 1977, Mr. Ain operated his
own consulting company, providing strategic planning, product development and
market research services. From 1971 to 1974, he was associated with a consulting
firm. From 1969 to 1971, Mr. Ain was employed by Digital Equipment Corporation
in product development and as Sales Training Director. He received a BS from the
Massachusetts Institute of Technology and an MBA from the University of
Rochester.
<PAGE>
Stanley K. Honey has been a director of the Company since 1997. He has been
the Executive Vice President and Chief Technology Officer of SporTVision
Systems, LLC, since November 1997. From 1993 to 1997 Mr. Honey was Executive
Vice President, Technology, for the New Technology Group of News Corporation.
From 1989 to 1993 Mr. Honey was President and Chief Executive Officer of ETAK,
Inc., a wholly-owned subsidiary of News Corporation. Mr. Honey founded ETAK in
1983 and was its Executive Vice President, Engineering, until it was acquired by
News Corporation in 1989. Mr. Honey received a BS from Yale University and an MS
from Stanford University.
Nominees for Election to the Board
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The full Board is comprised of two Class
I Directors, two Class II Directors and three Class III Directors. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the Class III directors expire at the 1999 Annual
Meeting. Robert W. B. Kits van Heyningen, Martin A. Kits van Heyningen and
Werner Trattner are nominees for election as Class III Directors. The two Class
I Directors are Messrs. Ain and Honey and the Class I Director is Arent H. Kits
van Heyningen. There is a vacancy on the Board caused by the resignation of a
Class II Director in October 1998. The terms of the current Class II Directors
and Class I Directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders held in calendar years
2000 and 2001, respectively. The terms of the Class III Directors to be elected
at this Annual Meeting shall expire upon the election and qualification of
successor directors at the annual meeting of stockholders held in calendar year
2002. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors.
Committees and Meetings of the Board
During the fiscal year ended December 31, 1998 ("1998"), the Board met six
times. No incumbent director attended fewer than 80% of the aggregate of the
total number of meetings held by the Board and Committees of the Board on which
he served.
The Board currently has two committees. The Audit Committee (currently
composed of Werner Trattner and Stanley Honey) reviews the internal accounting
procedures of the Company and consults with and reviews the services provided by
the Company's independent auditors. The Audit Committee met once during fiscal
1998. The Compensation Committee (currently composed of Werner Trattner and Mark
Ain) makes general policy decisions relating to compensation and benefits for
the Company's employees, including decisions with respect to compensation for
the Company's executive officers, and administers the Company's 1996 Incentive
and Nonqualified Stock Option Plan (the "1996 Option Plan"), 1995 Incentive
Stock Option Plan (the "1995 Option Plan") and 1996 Employee Stock Purchase
Plan. The Compensation Committee met three times during fiscal 1998.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
Directors' Compensation
Each non-employee director of the Company receives a fee of $1,500 for
attending each meeting of the Board of Directors and is reimbursed, upon
request, for expenses incurred in attending such meetings. Pursuant to the
Company's 1996 Stock Option Plan, each new non-employee director of the Company,
upon his election to the Board, will be granted on a non-discretionary basis a
non-qualified option to purchase 10,000 shares of Common Stock at an exercise
price equal to fair market value of the Common Stock on the date of grant. Each
such option will be for a term of five years and will vest in four equal
quarterly installments. Following each annual meeting of stockholders of the
Company, each non-employee director then continuing in office will be granted on
a non-discretionary basis a non-qualified option to purchase an additional 5,000
shares of Common Stock, at an exercise price equal to the fair market value of
the Common Stock on the date on which it is granted. Each such option will be
for a term of five years and will vest on the date it is granted.
Executive Compensation
The following table sets forth certain information concerning the
compensation for services rendered in all capacities to the Company for the
fiscal years ended December 31, 1998 ("1998"), December 31, 1997 ("1997") and
December 31, 1996 ("1996") of (i) those persons who served as the Chief
Executive Officer of the Company during 1997 and (ii) the Company's four most
highly compensated executive officers, other than the Company's Chief Executive
Officer, who were serving on December 31, 1998, and whose salary and bonus for
1998 exceeded $100,000 (collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
<C>
Long-term
Compensation
Annual Compensation Awards
<S> <C> <C> <C> Securities
Name and Fiscal Salary(1) Bonus(2) Underlying
Principal Position Year ($) ($) Options(#)
- ----------------------------------- -------- ------------ ----------- -------------
Martin A. Kits van Heyningen 1998 180,000 -- 78,000
President and Chief Executive 1997 150,000 106,248 --
Officer 1996 150,000 119,438 60,000
Robert W. B. Kits van Heyningen 1998 136,500 -- 25,000
Vice President of 1997 130,000 63,744 --
Research and Development 1996 130,000 71,633 --
Arent H. Kits van Heyningen 1998 126,000 -- 15,000
Chairman, Board of 1997 120,000 42,498 --
Directors 1996 120,000 47,775 --
Christopher T. Burnett 1998 147,621 (3) -- 24,000
Vice President of Business 1997 148,464 (3) 10,625 5,000
Development 1996 140,166 (3) 11,944 --
James S. Dodez 1998 137,783 (4) -- 50,000
- ---------------------------------- 1997 135,303 (4) 10,625 --
Vice President of Marketing 1996 135,687 (4) 11,944 50,000
and Sales Support
</TABLE>
(1) Includes amounts deferred by the named individuals pursuant to the
Company's 401(k) Plan and Trust. Amounts shown do not include amounts
expended by the Company pursuant to plans (including group disability, life
and health) that do not discriminate in scope, terms or operation in favor
of officers and directors and are generally available to all salaried
employees.
(2) Amounts reported for each fiscal year include amounts earned with respect
to that fiscal year fiscal year.r but paid in the subsequent
(3) Includes commissions as follows: $15,321 in 1998, $20,156 in 1997 and
$20,166 in 1996. (4) Includes commissions as follows: $17,783 in 1998, $23,188
in 1997 and $25,687 in 1996.
Bonus Program
The Company maintains a bonus program for certain qualified employees,
including executive officers, under which such employees may be awarded cash
bonuses based upon individual performance and the performance and profitability
of the Company, at the discretion of the Board of Directors. All bonuses earned
under the bonus program for the year ended December 31, 1998, are included in
the foregoing compensation table.
<PAGE>
Summary of Option Grants
The following table sets forth certain information regarding stock options
granted by the Company to the individuals named in the Summary Compensation
Table:
Option Grants in Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
Individual Grants Value at Assumed
Percent of Annual Rates of
Number of Total Options Exercise Stock Price
Shares Under- Granted to or Base Appreciation For
lying Options Employees in Price Expiration Option Term (2)
Name Granted(#) Fiscal Year ($/Sh)(1) Date 5%($) 10%($)
Martin A. Kits van Heyningen 30,000 4.4 4.538 3/02/03 21,799.84 63,160.61
3.5 4.125 7/11/01 17,629.39 37,354.43
24,000(3) 1.9 4.125 4/19/01 8,829.07 18,601.34
1.6 4.538 4/19/01 2,956.46 11,272.60
12,966(3)
11,034(3)
Robert W. B. Kits van Heyningen 25,000 3.6 4.538 3/02/03 18,166.54 52,633.84
Arent H. Kits van Heyningen 15,000 2.2 4.538 3/02/03 10,899.92 31.580.31
Christopher T. Burnett 20,000 2.9 4.125 3/02/03 22,793.23 50,367.08
0.6 4.125 3/03/02 3,558.53 670.43
4,000(3)
James S. Dodez 10,000 1.5 4.125 3/02/03 11,396.61 25,183.54
5.5 4.125 5/09/01 26,070.46 55,001.31
37,576(3) 0.4 4.125 5/09/01 1,681.79 3,548.09
2,424(3)
</TABLE>
(1) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of grant, with the exception of Arent
H., Martin A. and Robert W.B. Kits van Heyningen whose shares were granted
at 110 percent of fair market value.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compounded rates of appreciation of
the Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not represent the Company's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the timing of such exercise and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals. This table does not
take into account any appreciation in the price of the Common Stock from
the date of grant to the current date. The values shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise.
(3) New Option shares amounting to 80 percent of previously granted options
with exercise prices of $5.00 per share or more that were exchanged under a
stock option repricing program with new exercise prices ranging from $4.125
to $4.538 per share based upon the fair market closing price on March 2,
1998.
<PAGE>
Aggregate Option Exercise in Fiscal Year ended December 31, 1998, and
Option Values As of December 31, 1998
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during the fiscal year ended
December 31, 1998 and the number of shares subject to both exercisable and
unexercisable options as of December 31, 1998:
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Shares of
Shares Common Stock Underlying Value of Unexercised
Acquired Unexercised Options In-the-Money Options
on Value at 12/31/98(#) at 12/31/98 ($)(2)
-------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
Martin A. Kits van Heyningen -- -- 173,000 30,000 -- --
Robert W. B. Kits van Heyningen -- -- 125,000 25,000 -- --
Arent H. Kits van Heyningen -- -- 125,000 15,000 -- --
Christopher T. Burnett 16,700 44,693 29,000 20,000 -- --
James S. Dodez -- -- 53,094 23,334 16,385 --
</TABLE>
(1) Value is based on the last sale price of the Common Stock on the exercise
date, as reported by the NASDAQ National Market, less the applicable option
exercise price.
(2) Value is based on the last sale price of the Common Stock in 1998 ($1.22
per share on December 31, 1998), as reported by the
NASDAQ National Market, less the applicable option exercise price.
Stock Option Plans
The Company's 1995 Option Plan authorizes the grant of options to purchase
740,000 shares of Common Stock, all of which are intended to qualify as
Incentive Options. The Company's 1996 Option Plan authorizes the grant of
options to purchase a total of 915,000 shares of Common Stock. The 1996 Option
Plan authorizes the grant of options intended to qualify as Incentive Options
and also authorizes the grant of Nonqualified Options, including
non-discretionary, formula grants of nonqualified options to non-employee
directors. As of December 31, 1998, options to purchase a total of 1,194,633
shares of Common Stock, having a weighted average exercise price of $3.14 per
share, were outstanding under the 1995 and 1996 Option Plans (the "Option
Plans").
The Option Plans are each administered by the Compensation Committee of the
Board of Directors (the "Committee") consisting of non-employee directors, as
that term is defined under rules promulgated by the Securities and Exchange
Commission. The Committee will select the individuals to whom awards will be
granted and determine the option exercise price and other terms of each award,
subject to the provisions of the Option Plans.
No Incentive Options may extend for more than ten years from the date of
grant (five years in the case of an employee or officer holding 10% or more of
the total combined voting power of all classes of stock of the Company or any
subsidiary or parent [a "greater-than-ten-percent-stockholder"]). The exercise
price for Incentive Options may not be less than the fair market value of the
Common Stock on the date of grant (110% of fair market value in the case of a
greater-than-ten-percent-stockholder). The aggregate fair market value
(determined at the time of grant) of shares issuable pursuant to Incentive
Options which first become exercisable by an employee or officer in any calendar
year may not exceed $100,000. Participants in the 1996 Option Plan may not be
granted options with respect to more than 120,000 shares of Common Stock in any
calendar year.
Options are non-transferable except by will or by the laws of descent or
distribution. Incentive Options generally may not be exercised after (i)
termination by the Company for cause or voluntary termination by the optionee of
an optionee's employment with the Company, (ii) thirty days following the
optionee's retirement from the Company in good standing by reason of age or
termination by the Company without cause of the optionee's employment with the
Company, or (iii) one year following an optionee's retirement from the Company
in good standing by reason of disability or death. Nonqualified Options under
the 1996 Option Plan need not be subject to the foregoing restrictions.
Payment of the exercise price for shares subject to options may be made
with (i) cash, check, bank draft or postal or express money order payable to the
order of the Company for an amount equal to the exercise price for such shares;
(ii) with the consent of the Committee, shares of Common Stock of the Company
having a fair market value equal to the option price of such shares; (iii) in
the case of the 1996 Option Plan, a promissory note or other consideration
acceptable to the Committee having a fair market value not less than the option
price; or, (iv) with the consent of the Committee, a combination of the
foregoing. Full payment for shares purchased upon exercise of an option must be
made at the time of exercise.
Federal Income Tax Information with Respect to the Option Plans
The grantee of an Incentive Option under the Option Plans recognizes no
income for federal income tax purposes on the grant thereof. Except as described
below with respect to the alternative minimum tax, there is no tax upon exercise
of an Incentive Option. If no disposition of shares acquired upon exercise of
the Incentive Option is made by the option holder within two years from the date
of the grant of the Incentive Option or within one year after exercise of the
Incentive Option, any gain realized by the option holder on the subsequent sale
of such shares is treated as a long-term capital gain for federal income tax
purposes. If the shares are sold prior to the expiration of such periods, the
differences between the lesser of the value of the shares at the date of
exercise or at the date of sale and the exercise price of the Incentive Option
is treated as compensation to the employee taxable as ordinary income and the
excess gain, if any, is treated as capital gain (which will be long-term capital
gain if the shares are held for more than one year).
The excess of the fair market value of the underlying shares over the
option price at the time of exercise of an Incentive Option will constitute an
item of tax preference for purposes of the alternative minimum tax. Taxpayers
who incur the alternative minimum tax are allowed a credit which may be carried
forward indefinitely to be used as a credit against regular tax liability in a
later year; however, the minimum tax credit cannot reduce the regular tax below
the alternative minimum tax for that carryover year.
In connection with the sale of the shares covered by Incentive Options
under the Option Plans, the Company is allowed a deduction for tax purposes only
to the extent, and at the time, the option holder receives ordinary income (for
example, by reason of the sale of shares by the holder of an Incentive Option
within two years of the date of the granting of the Incentive Option or within
one year after the exercise of the Incentive Option), subject to certain
limitations on the deductibility of compensation paid to executives.
The grantee of a Nonqualified Option under the 1996 Option Plan recognizes
no income for federal income tax purposes on the grant thereof. On the exercise
of a Nonqualified Option, the difference between the fair market value of the
underlying shares of Common Stock on the exercise date and the option exercise
price is treated as compensation to the holder of the option taxable as ordinary
income in the year of exercise, and such fair market value becomes the basis for
the underlying shares which will be used in computing any capital gain or loss
upon disposition of such shares. Subject to certain limitations, the Company may
deduct for the year of exercise an amount equal to the amount recognized by the
option holder as ordinary income upon exercise of a Nonqualified Option.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors is composed of independent,
non-employee directors. The Committee currently consists of Messrs. Trattner and
Ain.
<PAGE>
Compensation Committee Report on Executive Compensation
Compensation Policy
The Company's compensation package for its executive officers for fiscal
1998 had three principal components: (1) base salary; (2) bonus; and (3) stock
options. The Company's executive officers were also eligible to participate in
other employee benefit plans on substantially the same terms as other employees
who meet applicable eligibility criteria, subject to any legal limitations on
the amounts that may be contributed or the benefits that may be payable under
these Company plans.
Base salary levels for the Company's executive officers are intended to be
fair and competitive in the Company's industry. Salaries for executive officers
are reviewed annually, and any adjustments are based on individual performance,
change in responsibilities and market-based comparisons with other comparable
companies.
Bonuses for the Company's executive officers generally are based on a
percentage of base salary and conditioned upon the Company's ability to achieve
its financial plan.
Stock option awards are intended to provide the executive officers with
longer-term incentives that more generally align their interests with those of
the Company's stockholders. The Compensation Committee granted additional
incentive stock options to 10 of the Company's executive officers during fiscal
1998.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
/s/ Werner Trattner
/s/ Mark Ain
Werner Trattner
Mark S. Ain
Stock Option Repricing
On March 2, 1998, the Compensation Committee of the Board of Directors
approved a stock option repricing program pursuant to which all employees and
directors of the company could elect to exchange certain previously granted
incentive and non-qualifying stock options for a "New Option" granted under the
1996 Plan. The Company repriced the options because the exercise prices of such
options were significantly higher than the fair market value of the Company's
Common Stock and therefore did not provide the desired incentive to employees.
The Board of Directors believes that stock option plans promote the interests of
the Company by providing an inducement to obtain and retain the services of
qualified employees and officers and that stock option participation aligns
executive officers' interests with those of the stockholders.
Under the terms of the exchange, employees had the option to surrender all
outstanding previously granted options with exercise prices of $5.00 per share
or more for a New Option amounting to 80 percent of the previously granted
options at new exercise prices ranging from $4.125 to $4.538 per share. Options
to purchase 361,500 shares of Common Stock, with an average exercise price per
share of $7.77, were surrendered and exchanged for 289,200 shares repriced at
exercise prices ranging from $4.125 to $4.538 per share, based upon the closing
price for the Company's stock on March 2, 1998. The vesting schedule and all
other terms and conditions of the options remained unchanged.
<PAGE>
The following table sets forth the Company's stock option repricing
information with respect to the beneficial ownership of the Common Stock as of
March 31, 1999, by each current director and executive officer of the Company
who participated in the option exchange:
Ten-year Option/SAR Repricing
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Length of
Exercise Original Option
Number of Market Price at Term
Securities Price Of Time of Remaining at
Underlying Stock at Repricing New Date of
Options/SARs Time of Or Exercise Repricing or
Name Repriced or Repricing Amendment Price Amendment
Date Amended (#) or Amendment
($) ($) ($) (Years)
Mark Ain
Director 3/2/98 8,000 4.125 6.750 4.125 3.93
Mads Bjerre-Petersen
Managing Director, KVH Europe 3/2/98 20,000 4.125 7.375 4.125 4.00
Christopher Burnett
Vice President, Business
Development 3/2/98 4,000 4.125 7.375 4.125 4.00
Josina de Smit
Treasurer 3/2/98 20,000 4.125 8.390 4.538 3.64
James Dodez
Vice President, Marketing and
Sales Support 3/2/98 40,000 4.125 8.000 4.125 3.19
Richard C. Forsyth
Chief Financial Officer 3/2/98 40,000 4.125 8.000 4.125 3.19
Stanley K. Honey 3/2/98 8,000 4.125 5.500 4.125 4.18
Director
Martin A. Kits van Heyningen 3/2/98 24,000 4.125 8.750 4.125 3.36
President and 3/2/98 12,966 4.125 7.250 4.125 3.13
Chief Executive Officer 3/2/98 11,034 4.125 7.980 4.538 3.13
James Saalfield 3/2/98 8,000 4.125 6.500 4.125 3.09
Director 3/2/98 4,000 4.125 8.250 4.125 4.40
Werner Trattner 3/2/98 8,000 4.125 6.500 4.125 3.09
Director 3/2/98 4,000 4.125 8.250 4.125 4.40
</TABLE>
<PAGE>
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of two broad market indexes, the NASDAQ
Stock Market Index for U.S. Companies and the NASDAQ Telecommunications Stock
Index.
The cumulative stockholder return for shares of the Company's Common Stock
is calculated assuming $100 was invested on April 2, 1996, the date on which the
Company's Common Stock commenced trading on the NASDAQ National Market. The
cumulative stockholder returns for the market indexes are calculated assuming
$100 was invested on April 2, 1996. The Company paid no cash dividends during
the periods shown. The performance of the market indexes is shown on a total
return basis.
Performance Graph
April 2, 1996 - December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Month Nasdaq Nasdaq KVH Nasdaq Nasdaq KVH
Stock Telecommunications Industries, Stock Telecommunications Industries,
Market Stocks Inc. Market Stocks Inc.
4/2/96(IPO) 365.460 597.474 6.500 100.00 100.00 100.00
12/31/96 424.801 579.712 9.125 116.24 97.03 140.38
12/31/97 521.159 858.435 5.063 142.60 143.68 77.88
12/31/98 732.615 1,401.836 1.219 200.46 234.63 18.75
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1999, by (i) each
person known by the Company to own beneficially more than five percent of the
Common Stock as of such date, (ii) each current director of the Company, (iii)
each current executive officer of the Company, (iv) all current executive
officers and directors of the Company as a group and (v) each person who served
as an executive officer or director of the Company during the fiscal year ended
December 31, 1998:
Beneficial Ownership of Common Stock
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Owned(2)
Name(1) Number Percent
Gerhard Swarovski(5) 604,210 8.45%
State of Wisconsin Investment Board
P.O. Box 7842
Madison, WI 53707 595,000 8.32%
Wellington Management Co. LLP
75 State Street
Boston, MA 02109 504,500 7.06%
Daniel Swarovski(6) 480,000 6.71%
Melanie Swarovski(7) 480,000 6.71%
Arent H. Kits van Heyningen(3) 640,435 8.96%
Josina de Smit (4) 640,435 8.96%
Martin A. Kits van Heyningen(8) 483,131 6.76%
Robert W. B. Kits van Heyningen 420,899 5.89%
James A. Saalfield 292,420 4.09%
Christopher T. Burnett(9) 85,208 1.19%
James S. Dodez(10) 69,167 *
Werner Trattner 47,000 *
Mads E. Bjerre-Petersen 33,661 *
Richard C. Forsyth(10) 37,083 *
Bruce M. Costa(10) 35,833 *
Sid Bennett 25,000 *
Stanley K. Honey 13,000 *
Mark S. Ain 13,000 *
All current directors and executive officers as a group (14 persons) 2,195,837 30.47%
*Less than one percent.
</TABLE>
<PAGE>
(1) The address of all directors and executive officers of the Company is c/o
KVH Industries, Inc., 50 Enterprise Center, Middletown, RI 02482. The
address of Gerhard Swarovski, Erika Swarovski, Melanie Swarovski and Daniel
Swarovski is c/o Swarovski 18A, Wattens, Austria.
(2) The persons named in this table have sole voting and investment power with
respect to the shares listed, except as otherwise indicated. The inclusion
herein of shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
(3) Includes indirect beneficial ownership of 261,752 shares of Common Stock
held by Arent H. Kits van Heyningen's spouse, Josina de Smit. Arent Kits
van Heyningen is the father of Martin A. Kits van Heyningen and Robert W.B.
Kits van Heyningen and disclaims beneficial ownership of his sons' shares.
(4) Includes indirect beneficial ownership of 378,683 shares of Common Stock
held by Josina de Smit's spouse, Arent H. Kits van Heyningen. Josina de
Smit is the mother of Martin A. Kits van Heyningen and Robert W.B. Kits van
Heyningen and disclaims beneficial ownership of her sons' shares.
(5) Includes indirect beneficial ownership of 151,641 shares of Common Stock
held by Gerhard Swarovski's spouse, Erica Swarovski. (6) Gerhard Swarovski is
the father of Daniel Swarovski and disclaims beneficial ownership of his son's
shares. (7) Gerhard Swarovski is the father of Melanie Swarovski and disclaims
beneficial ownership of his daughter's shares. (8) Includes indirect beneficial
ownership of 5,165 shares of Common Stock owned by Martin Kits van Heyningen's
spouse. (9) Includes indirect beneficial ownership of 6,355 shares of Common
Stock owned by Mr. Burnett's spouse and child. (10) Includes 6,667 shares
issuable upon the exercise of outstanding options exercisable within 60 days of
March 31, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater-than-10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished
to the Company during fiscal 1998 and Form 5 and amendments thereto furnished to
the Company with respect to fiscal 1998, or written representations that Form 5
was not required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-10%
stockholders were fulfilled in a timely manner.
SOLICITATION
No compensation will be paid by any person in connection with the
solicitation of proxies. Brokers, banks and other nominees will be reimbursed
for their out-of-pocket expenses and other reasonable clerical expenses incurred
in obtaining instructions from beneficial owners of the Common Stock. In
addition to the solicitation by mail, special solicitation of proxies may, in
certain instances, be made personally or by telephone by directors, officers and
certain employees of the Company. It is expected that the expense of such
special solicitation will be nominal. All expenses incurred in connection with
this solicitation will be borne by the Company.
<PAGE>
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the proxy materials related to the
fiscal 1999 Annual Meeting of Stockholders or Special Meeting in lieu thereof
must be received by the Company at its Executive Offices no later than December
20, 1999. Shareholders must notify the Company no later than March 5, 2000, of
their intent to introduce proposals at the fiscal 1999 Annual Meeting of
Stockholders, otherwise management can use its discretionary voting authority
for the proposals when they are raised at the 1999 Annual Meeting of
Stockholders.
MISCELLANEOUS
The Board does not intend to present to the Annual Meeting any business
other than the proposals listed herein, and the Board was not aware, a
reasonable time before mailing this Proxy Statement to stockholders, of any
other business which may be properly presented for action at the Annual Meeting.
If any other business should come before the Annual Meeting, the persons present
will have discretionary authority to vote the shares they own or represent by
proxy in accordance with their judgment. KPMG LLP, which has been selected by
the Board of Directors as independent public accountants to audit the financial
statements of the Company for the 1999 fiscal year, has served as auditors for
the Company since 1986.
AVAILABLE INFORMATION
Stockholders of record on March 31, 1999, will receive a Proxy Statement
and the Company's 1998 Annual Report to Stockholders, which contains detailed
financial information concerning the Company. The Company will mail, without
charge, a copy of the Company's Annual Report on Form 10-K (excluding exhibits)
to any stockholder solicited hereby who requests it in writing. Please submit
any such written request to Alice Andrews, KVH Industries, Inc., 50 Enterprise
Center, Middletown, Rhode Island, 02842.
