KOLLMORGEN CORPORATION
Reservoir Place
1601 Trapelo Road
Waltham, MA 02451
April 5, 1999
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders
on Wednesday, May 12, 1999, at 10:00 a.m. at the Auditorium, BankBoston, N.A.,
100 Federal Street, Boston, Massachusetts.
At the Annual Meeting you will be asked to elect five directors as
described in this Notice of Annual Meeting and Proxy Statement. As part of this
year's Annual Meeting, you will have an opportunity to hear a report on the
operations of Kollmorgen, and to ask questions.
Your vote is important, regardless of the number of shares that you
hold. Please execute and return the proxy card enclosed with this material.
Sincerely,
Gideon Argov
Chairman of the Board,
President and
Chief Executive Officer
<PAGE>2
KOLLMORGEN CORPORATION
Reservoir Place
1601 Trapelo Road
Waltham, MA 02451
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 5, 1999
PLACE AND TIME
The Annual Meeting of Shareholders of Kollmorgen Corporation will be
held at the Auditorium, BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts, on Wednesday, May 12, 1999, at 10:00 a.m., local time.
ITEMS OF BUSINESS
1. To elect five Class I directors;
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
RECORD DATE
Only shareholders of record at the close of business on March 25, 1999,
will be entitled to vote at the Annual Meeting or any adjournments or
postponements thereof.
VOTING
You may vote in person or submit your proxy by mail.
By order of the Board of Directors
James A. Eder
Secretary
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* IMPORTANT *
* *
* It is important that your shares be represented at the *
* Annual Meeting. Please sign, date and return the enclosed *
* proxy card promptly in order that your shares will be voted at *
* the Annual Meeting. A return envelope, which requires no *
* postage if mailed in the United States, is enclosed for your *
* convenience. *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>3
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Kollmorgen Corporation (the
"Corporation") to be used in voting at the Annual Meeting of Shareholders of the
Corporation to be held on Wednesday, May 12, 1999, and at any adjournments or
postponements thereof (the "Annual Meeting"). The close of business on March 25,
1999, is the record date for shareholders entitled to notice of and to vote at
the Annual Meeting. At such record date, there were outstanding 10,163,806
shares of the Corporation's Common Stock, par value $2.50 per share ("Common
Stock"), each of which is entitled to one vote on each matter to be presented
before the shareholders of the Corporation. This Proxy Statement, the
accompanying form of proxy and the 1998 Annual Report to Shareholders are being
first sent to shareholders on or about April 5, 1999.
VOTING INSTRUCTIONS
Shares may be voted by shareholders of record in person or by proxy,
and shares represented by a properly executed proxy will be voted with respect
to all shares represented by it in accordance with the instructions, if any,
given therein. If no instructions are given, the proxy will be voted as
recommended by the Board of Directors and, in the discretion of the persons
designated on the proxy card, the proxy will be voted with respect to any other
matter which may properly come before the meeting or any adjournments or
postponements thereof.
If a shareholder participates in the Corporation's Dividend
Reinvestment Plan, any shares of Common Stock held in his/her account will be
voted in accordance with the proxy returned by that person.
Any proxy received by the Board of Directors may be revoked by the
shareholder at any time prior to its use at the meeting by a subsequent written
instrument signed in the same manner as the proxy and received by the
Corporation either at the Annual Meeting or before the Annual Meeting at
Kollmorgen Corporation, Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451
Attention: Secretary.
QUORUM REQUIREMENT
Under New York law and the governing instruments of the Corporation,
the presence, either in person or by proxy, of the holders of a majority of the
shares of Common Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum for the transaction of business. Assuming the presence of a
quorum, directors will be elected by a plurality of the votes cast at the Annual
Meeting by shareholders entitled to vote in the election. Any other items of
business submitted to shareholders at the Annual Meeting will require the
affirmative vote of a majority of the votes cast at the Annual Meeting by
shareholders entitled to vote on such matters.
<PAGE>4
An independent inspector of election will tabulate all votes cast at
the Annual Meeting. For purposes of the voting requirements, the inspector of
election will treat shares represented by proxies that withhold authority to
vote for a nominee for election as a director or that reflect abstentions as
shares that are present and entitled to vote on the matters for purposes of
determining the presence of a quorum, but neither proxies that withhold
authority (without naming an alternative nominee) nor abstentions will be
counted as votes cast at the Annual Meeting. Accordingly, such proxies will not
have any effect on the outcome of the voting on the election of directors. In
the event that any other matters are submitted to shareholders at the Annual
Meeting, abstentions will have no impact on the voting with respect to those
matters.
Shares represented at the Annual Meeting that are held by brokers or
nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote and over which the broker or nominee does not
have discretionary voting power on a particular matter (so-called, "broker
non-votes") will be treated as present for purposes of determining the presence
of a quorum. However, such shares will not be treated as shares that are
entitled to vote on the particular matter as to which the broker or nominee does
not have discretionary authority, nor will they be treated as votes cast at the
Annual Meeting. Accordingly, broker non-votes will have no impact on the voting
with respect to any matter to come before the Annual Meeting.
COST OF SOLICITATION
The entire cost of preparing, printing and distributing these proxy
materials will be borne by the Corporation. Solicitation will be made by use of
the mails, except that, if necessary, directors, officers and regular employees
of the Corporation (none of whom will receive any additional compensation
therefor) may make solicitations of proxies by telephone, telecopy, telegram or
personal interview. The Corporation has retained the firm of Georgeson &
Company, Inc. to aid in the solicitation of proxies, for which the Corporation
has agreed to pay a maximum fee of $6,500 plus out-of-pocket expenses. The
Corporation will reimburse brokers and other persons holding shares of Common
Stock in their names, or in the names of nominees, for their expenses incurred
in sending proxy materials to beneficial owners and obtaining their proxies.
THE STRUCTURE OF THE BOARD OF DIRECTORS AND COMMITTEES
The business and affairs of the Corporation are managed under the
direction of the Board of Directors. Members of the Board serve on one or more
committees to carry out particular responsibilities.
The Board of Directors held a total of nine regular and special
meetings during 1998. Each director attended at least 75% of the aggregate
number of meetings of the Board and Board committees on which such director
served.
<PAGE>5
AUDIT COMMITTEE
The Audit Committee is responsible for overseeing and reviewing the
audit of the Corporation's books and accounts, for reviewing the audited
financial statements of the Corporation, for reviewing the Corporation's
internal control procedures and for reviewing and approving the Corporation's
independent public accountants. No member of this Committee is an employee of
the Corporation. The Audit Committee met two times during 1998.
PERSONNEL AND COMPENSATION COMMITTEE
The Personnel and Compensation Committee generally is responsible for
reviewing the Corporation's compensation policies and practices, and
specifically for (i) reviewing and recommending to the Board of Directors the
total compensation and benefit programs applicable to the Corporation's key
employees, including corporate officers, and (ii) administering the
Corporation's stock option plans. Also, this Committee reviews and makes
recommendations on the policies and programs for the development of management
personnel throughout the Corporation. This Committee met four times in 1998.
RETIREMENT PLANS COMMITTEE
The Retirement Plans Committee advises the Board with respect to the
Corporation's retirement plans and trusts, reviews the selection of trustees,
recommends investment managers, and recommends action regarding the
establishment and amendment of the retirement plans and trusts. This Committee
held two meetings in 1998.
EXECUTIVE COMMITTEE
The Executive Committee may exercise, with certain exceptions, all of
the authority of the Board in the management of the business of the Corporation
between regular meetings of the entire Board. The Executive Committee did not
meet in 1998.
NOMINATING COMMITTEE
The Corporation does not have a standing nominating committee.
ITEM 1. ELECTION OF DIRECTORS
INFORMATION ON NOMINEES
The Corporation's By-Laws provide for two classes of directors, with
each class to serve a term of two years and to be composed of not less than
three nor more than five directors. The Board is presently composed of nine
directors, five of whom are members of Class I and four of whom are members of
Class II. The current terms of the members of Class I are scheduled to expire at
this Annual Meeting.
<PAGE>6
Accordingly, the five Class I nominees standing for election at this
Annual Meeting are Jerald G. Fishman, Herbert L. Henkel, James H. Kasschau, J.
Douglas Maxwell, Jr. and Robert N. Parker. If elected, their terms will expire
in 2001. Biographical summaries of each nominee and of the continuing directors
appear on the following pages.
All nominees have consented to be so named and to serve if elected. If
a nominee becomes unavailable for election, it is the intention of the persons
named in the accompanying proxy card to vote for such other person, if any, as
the Board of Directors may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF
THE FOLLOWING NOMINEES:
NOMINEES
For Class I Directors, whose terms expire in 2001:
JERALD G. FISHMAN, 53, is the President, Chief Executive Officer and a director
of Analog Devices, Inc., Norwood, Massachusetts. Prior to November 1996, he was
the President and Chief Operating Officer of that company for five years. He
served as the Executive Vice President of that company from 1988 to November
1991 and was the Group Vice President-Components from 1981 to 1988. Mr. Fishman
has been a director of the Corporation since 1994 and he is a member of the
Corporation's Executive and Personnel and Compensation Committees.
HERBERT L. HENKEL, 50, is the President and Chief Operating Officer of Ingersoll
Rand Company, Woodcliff, New Jersey. From 1987 until March 1999 he held several
executive positions with Textron Inc. (a multi-industry company with operations
in aircraft, automotive, industrial and finance), including serving as Vice
President of Textron responsible for the Textron Industrial Products segment
from 1993 to 1998, and as Chief Operating Officer of Textron from July 1998 to
March 1999. Mr. Henkel was elected a Director of the Corporation in 1997 and is
a member of the Audit Committee.
JAMES H. KASSCHAU, 47, is the President of International Contract Furnishings,
Inc., Norwood, New Jersey, a position he has held since October 1995. Prior to
that date, he was the President of Tinicum Incorporated, an investment
management company located in New York, New York, and the President of Tinicum
Enterprises, Inc., Garden City, New York. Mr. Kasschau has been a director of
the Corporation since March 1990. He is the chairman of the Audit Committee and
a member of the Retirement Plans Committee.
J. DOUGLAS MAXWELL, JR., 57, is the Chief Executive Officer of NIRX Medical
Technologies, Glen Head, New York. Prior to January 1, 1999 he was for ten years
the Chairman of the Board and Chief Executive Officer of Swissray Empower, Inc.,
a distributor of medical products. From 1984
<PAGE>7
to 1988, he was President of Chemco Technologies, Inc. He has been a director of
the Corporation since April 1983. He is a member of the Audit Committee and
Personnel and Compensation Committee of the Board.
Mr. Maxwell is also a director of the First National Bank of Long Island.
ROBERT N. PARKER, 70, is a business consultant. From February 1991 to January
1992, he was the Executive Vice President of LTV Aerospace and Defense
Corporation. From November 1986 to January 1991 he was President of the LTV
Missiles and Electronics Group of The LTV Corporation. From 1983 until November
1986, he was President of the Missiles Division of The LTV Corporation. Mr.
Parker has been a director of the Corporation since April 2, 1990. He is the
chairman of the Personnel and Compensation Committee. He is also a director of
Perceptronics, Inc., Woodland Hills, California.
CONTINUING DIRECTORS
Class II Directors, whose terms expire in 2000:
GIDEON ARGOV, 42, is the Chairman of the Board, President and Chief Executive
Officer of the Corporation. He was elected Chairman of the Board on March 26,
1996. He has been a director of the Corporation since May 23, 1991, and served
as the Vice Chairman of the Board from that date until November 1991, when he
was elected President and Chief Executive Officer. From 1988 to May 1991, he was
the President and Chief Executive Officer of High Voltage Engineering
Corporation. Mr. Argov is a member of the Executive Committee. He is also a
director of TransTechnology Corporation and WorldCorp Inc.
ROBERT J. COBUZZI, 57, is the Senior Vice President, Treasurer and Chief
Financial Officer of the Corporation. He joined the Corporation in July 1991 as
the Treasurer, Chief Financial Officer and a Vice President. He was elected to
his current position as Senior Vice President in February 1993. He was elected a
Director of the Corporation in 1996 and is a member of the Retirement Plans
Committee.
GEOFFREY S. REHNERT, 41, is a Managing Director and a General Partner of Bain
Capital, Inc., a private equity firm located in Boston, Massachusetts. Mr.
Rehnert has been associated with Bain Capital, which he helped to found, since
1984. He is also a director of Artisan Entertainment, Inc., ICON Health &
Fitness, Inc., FTD Holdings, Inc. and Nutraceutical, Inc., as well as a
director of several privately held companies. He was elected a director of the
Corporation in 1996.
GEORGE P. STEPHAN, 65, is a Managing Director and a member of Stonington Group,
LLC., a financial and management consulting firm located in East Hartford,
Connecticut, a position he has held since 1994. From February 1992 through 1993,
he acted in an of-counsel capacity to the law firm of Murtha, Cullina, Richter
and Pinney located in Hartford, Connecticut. For over 22 years, Mr. Stephan held
various executive management positions with the Corporation and served as the
Chairman of the Board of the Corporation from 1991 until March 26, 1996. Mr.
Stephan is a member of the Corporation's Executive Committee and Chairman of its
Retirement
<PAGE>8
Plans Committee and has been a director of the Corporation since July 1982. He
is also a director of Barr Laboratories, Inc., and a member of the Board of
Advisors of the Hartwick Humanities in Management Institute.
DIRECTOR COMPENSATION
Pursuant to the By-Laws of the Corporation, directors who are not
employees of the Corporation receive an annual retainer of $24,000. In addition,
outside directors receive (a) $800 for attendance at each meeting of the Board,
and for attendance at each meeting of a Committee on which they serve, and (b)
$800 per day for attendance at the Corporation's annual planning meeting and for
participating in any special assignments requested by the Corporation. Outside
directors also are reimbursed for their reasonable expenses incurred in
connection with Board and committee meetings and special assignments.
All non-employee directors participate in the 1992 Stock Ownership Plan
for Non-Employee Directors (the "Director Plan"). The purpose of the Director
Plan is to attract, and retain as directors, qualified persons who are not
employees of the Corporation. The Director Plan provides that at least 50% of
the yearly retainer of each non-employee director will be paid in shares of
Common Stock in lieu of cash on a quarterly basis. In addition, the Director
Plan provides for (i) a one-time grant to each non-employee director of a
non-qualified stock option to purchase 15,000 shares of Common Stock and (ii) an
additional one-time grant to each such non-employee director of a non-qualified
stock option to purchase a number of shares of Common Stock (not to exceed
10,000) equal to the number of shares each such director purchases on the open
market during a ninety (90) day period commencing as of the first trading day
following the date of grant of the initial stock option. Upon termination of a
non-employee director's services, the option will be exercisable for a period
equal to the greater of (i) one month for each year of service up to twelve
months, or (ii) ninety (90) days. As of March 25, 1999, there were 126,694
shares of Common Stock currently available for issuance under the Director Plan.
In March 1996, the Board terminated all future rights to participate in
the non-employee director retirement program (the "Former Program") that had
been maintained by the Corporation since 1985. The termination of the Former
Program did not affect the vested rights of those non-employee directors who
vested in the Former Program as of May 1996, but no further benefits will accrue
under this program.
Under the Former Program, any non-employee director who retires after
reaching the age of 55 and has at least three years of continuous service may
enter into a consulting agreement with the Corporation to provide such
consulting services to the Corporation as the Board of Directors may request
from time to time, at a yearly compensation level equal to the amount of the
annual retainer in effect in May 1996, ($12,000). The term of each agreement is
equal to the number of years of such director's Board service, up to a maximum
of ten years. Under this arrangement, each retired director agrees not to engage
in any
<PAGE>9
competitive activity with the Corporation during the period that payments are
made and not to disclose to others any trade secrets or confidential
information relating to the Corporation or its business. Messrs. Parker,
Maxwell and Stephan participate in the Former Plan.
The Corporation, as permitted by the Corporation's By-Laws and New York
law, has purchased directors and officers liability insurance from Federal
Insurance Company covering all of the Corporation's directors and officers. The
aggregate premium for these policies paid during 1998 was approximately
$280,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of March 25,
1999 with respect to all persons known to the Corporation to be the beneficial
owners of more than 5% of any class of shares of the capital stock of the
Corporation:
<TABLE>
<CAPTION>
Amount and
Nature
Name and Address of Beneficial Percentage
of Beneficial Owner Title of Class Ownership of Class
- -------------------------------- --------------- -------------- ----------
<S> <C> <C> <C>
The "Gabelli Group" consisting of: Common Stock 2,574,656(1) 25%
Gamco Investors, Inc.
Gabelli Funds, Inc.
Gabelli Performance Partnership
Gabelli International Limited
Gabelli Securities, Inc.
Gabelli & Company, Inc.
Mario J. Gabelli
c/o The Gabelli Group, Inc.
One Corporate Center
Rye, NY 10580
Lord, Abbett & Co. Common Stock 706,339(2) 6.94%
GM Building
767 Fifth Avenue
New York, NY 10153
Schroder Capital Management, Inc. Common Stock 574,700(3) 5.65%
787 Seventh Avenue
New York, NY 10019
</TABLE>
<PAGE>10
<TABLE>
<CAPTION>
Amount and
Nature
Name and Address of Beneficial Percentage
of Beneficial Owner Title of Class Ownership of Class
- -------------------------------- --------------- -------------- ----------
<S> <C> <C> <C>
U. S. Trust Company of New York Common Stock 856,754(4) 8.33%
114 West 47th Street
New York, NY 10036
<FN>
(1) According to a Schedule 13D (Amendment No. 28) dated September 28,
1998, the Gabelli Group reported that the number of shares of Common
Stock beneficially owned by the Gabelli Group includes shares of Common
Stock receivable by the Gabelli Group if they were to convert all of
the Corporation's 8-3/4% Convertible Subordinated Debentures Due 2009
(the "Debentures") beneficially owned by them. According to the Gabelli
Group's Schedule 13D, as amended, each member of the Gabelli Group has
the sole power to vote or direct the vote and sole power to dispose or
to direct the disposition of the Common Stock or Debentures reported
for it, either for its own benefit or for the benefit of its investment
clients or its partners, as the case may be, except as specifically set
forth on such Schedule 13D.
(2) According to a 13G dated February 12, 1999, Lord, Abbett & Co.
represented that it has sole voting and dispositive power with respect
to all the shares reported.
(3) According to a Schedule 13G (Amendment No. 1) dated February 8, 1999,
Schroder Capital Management, Inc. reported that it has sole voting
power with respect to 497,800 shares and sole dispositive power over
all of the shares reported.
(4) According to a Schedule 13G dated February 12, 1999, U.S. Trust Company
of New York reported that it has shared voting and dispositive power
with respect to all of the shares reported which include 119,679 shares
that could be acquired upon conversion of outstanding Debentures.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 25, 1999, the shares of
each class of stock of the Corporation beneficially owned by all
<PAGE>11
nominees, all directors, and all executive officers named in the Summary
Compensation table, and all nominees, directors and executive officers of the
Corporation as a group:
<TABLE>
<CAPTION>
Share Percent
Name of Beneficial Owner Title of Class Ownership of Class
- ------------------------ -------------- --------- --------
<S> <C> <C> <C>
Gideon Argov (1) Common Stock 253,000 2.49%
Robert J. Cobuzzi (1) Common Stock 164,600 1.62%
Daniel F. Desmond (1) Common Stock 30,881 *
James A. Eder (1) Common Stock 55,037 *
Jerald G. Fishman (2) Common Stock 19,874 *
Herbert L. Henkel (2) Common Stock 21,138 *
James H. Kasschau (2) Common Stock 55,875 *
J. Douglas Maxwell, Jr. (2) Common Stock 81,119 *
Robert N. Parker (2) Common Stock 23,334 *
Mark E. Petty (1) Common Stock 76,500 *
Geoffrey S. Rehnert (2) Common Stock 37,398 *
George P. Stephan (2) Common Stock 74,905 *
All directors and
executive officers of
the Corporation, as a
group Common Stock 911,361(1)(2) 8.97%
<FN>
* less than 1%.
(1) Includes the number of shares that could be acquired within 60 days
under the Corporation's stock option plans: (i) Mr. Argov 232,500; (ii)
Mr. Cobuzzi 159,600; (iii) Mr. Desmond 30,750; (iv) Mr. Eder 54,600;
and (v) Mr. Petty 76,500.
(2) Inclusive of 17,000, 16,750, 29,000, 29,000 19,000, 25,000, 24,000
shares of Common Stock which, respectively, Messrs. Fishman, Henkel,
Kasschau, Maxwell, Parker, Rehnert and Stephan have the present right
to acquire upon the exercise of non-qualified stock options granted
under the Director Plan.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation of
the Corporation's Chief Executive Officer and the Corporation's four other most
highly compensated executive officers during the last three fiscal years.
<PAGE>12
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
------------------------------------- -------------------------
Restricted Number
Stock of Stock
Name and Principal Units Options All Other
Position Year Salary($) Bonus($) Value$(4) Awarded Compensation(3)
- ---------------------- ---- --------- -------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gideon Argov 1998 $331,000 $156,000 $39,000 125,000 $3,200
Chairman of the Board, 1997 315,000 295,000 -0- -0- 3,200
President and Chief 1996 299,000 227,000 -0- 50,000 -0-
Executive Officer
Robert J. Cobuzzi 1998 $228,000 $ 91,000 $22,000 76,000 $3,200
Senior Vice President, 1997 217,000 163,000 -0- -0- 3,200
Treasurer and Chief 1996 207,000 125,000 -0- 30,000 -0-
Financial Officer
Daniel F. Desmond(2) 1998 $196,040 $ 77,200 $19,300 60,000 -0-
Vice President; 1997 171,756 -0- -0- -0- -0-
President, Aerospace &
Defense Products Group
James A. Eder 1998 $182,000 $133,000 $33,000 66,000 $3,200
Vice President, 1997 173,000 100,000 -0- -0- 3,200
Secretary and General 1996 165,000 75,000 -0- 20,000 -0-
Counsel
Mark E. Petty(2) 1998 $205,000 $ 17,938 -0- 45,000 $3,200
Vice President; 1997 200,000 -0- -0- -0- 3,200
President, Industrial 1996 190,000 63,000 -0- 20,000 -0-
& Commercial Products
Group
<FN>
(1) The dollar value of prerequisites and other personal benefits for each
of the named executive officers was less than the applicable reporting
thresholds.
(2) Messrs. Desmond and Petty were elected corporate officers in November
1997, and January 1996, respectively. Mr. Petty resigned as an employee
of the Corporation on March 12, 1999.
(3) Represents contributions by the Corporation to its 401(k) Savings and
Investment Plan on behalf of the named executive officers.
</FN>
<PAGE>13
(4) Pursuant to the 1998 Corporate Incentive Plan for corporate officers,
20% of an individual's bonus is paid in restricted stock units in
accordance with the terms of 1998 Management Stock Incentive Plan (the
"Plan"). These values (based upon the closing price of a share of the
Corporation's Common Stock on February 9, 1999, the date of grant)
represent the following number of restricted stock units for each of
the named individuals: Mr. Argov 3151; Mr. Cobuzzi 1777; Mr. Eder 2666
and Mr. Desmond 1559. Pursuant to the Plan, the units (i) vest on the
third anniversary of the date of grant, except that they vest
immediately upon "a change of control", (ii) are not entitled to any
voting rights, and (iii) receive a quarterly payment equal to the
dividend paid on the Corporation's Common Stock.
<CAPTION>
Aggregated Option Exercises in 1998 and Option Values at December 31, 1998
Shares Number of
Acquired Value Securities Underlying Value of Unexercised
On Realized Unexercised Options "In-the-money" Options
Name Exercise (1) December 31, 1998 December 31, 1998 (2)
- -------------- -------- -------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gideon Argov 15,000 $171,750 220,000 175,000 $1,463,750 $263,750
Robert Cobuzzi -0- -0- 152,000 104,000 $1,037,250 $146,500
Daniel Desmond 8,250 $ 90,082 24,750 64,000 $ 185,544 $ 38,500
James Eder 10,000 $106,250 48,000 78,000 $ 314,000 $ 58,500
Mark Petty -0- -0- 72,000 73,000 $ 467,500 $152,500
<FN>
(1) Value represents the differences between the closing price of the Common
Stock on the date of exercise and the exercise price, multiplied by the
number of shares acquired on exercise.
(2) Based upon the December 31, 1998, fair market value share price of $15.25,
less the share price to be paid upon exercise.
</FN>
</TABLE>
<PAGE>14
<TABLE>
<CAPTION>
Option Grants During 1998
Individual Grants Potential
--------------------------------------------- Realizable Value
% of Total at Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Exercise Appreciation for
Options Employees or Base Option Term
Granted in Fiscal Price(2) Expiration ---------------------
Name (1) Year ($/Share) Date 5%(3) 10%(3)
- -------------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gideon Argov 40,000 8.7% $18.125 2/09/08 $455,960 $1,155,480
75,000 16.3% $17.750 5/25/08 $837,225 $2,121,675
Robert Cobuzzi 36,000 7.8% $18.125 2/09/08 $410,364 $1,039,932
40,000 8.7% $17.750 5/25/08 $446,520 $1,131,560
Daniel Desmond 30,000 6.5% $18.125 2/09/08 $341,970 $ 866,610
30,000 6.5% $17.750 5/25/08 $334,890 $ 848,670
James Eder 36,000 7.8% $18.125 2/09/08 $410,364 $1,039,932
30,000 6.5% $17.750 5/25/08 $334,890 $ 848,670
Mark Petty 20,000 4.4% $18.125 2/09/08 $227,980 $ 577,740
25,000 5.4% $17.750 5/25/08 $279,075 $ 707,225
</TABLE>
(1) 10% of the options granted in 1998 are exercisable starting 12 months
after the grant date, an additional 10% of the options are exercisable
after 18 months, and an additional 20% of the options are exercisable on
the second, third, fourth and fifth anniversary dates thereafter. All
options were granted at the fair market value on the date of grant.
(2) The option exercise price is equal to the fair market value of the
underlying shares of Common Stock on the date of the grant.
(3) In accordance with SEC rules, these columns show gains that might exist
for the respective options over a period of ten years. If the stock
price does not increase above the exercise price, compensation to the
named executives will be zero.
PENSION PLAN
All salaried employees with one year of service, including executive
officers of the Corporation, are participants in the Kollmorgen Corporation
Salaried Employees Retirement Plan (the "Plan"). The Plan is a defined benefit
plan, and the benefits are not reduced by Social Security benefits or by
payments from other sources. In the event of a termination of the Plan following
a Change in Control (as defined in the Plan), any assets of the Plan remaining
after provision is made for all benefits thereunder will be used to supplement
such benefits. This provision may not be amended or terminated following a
Change in Control. Benefits under the Plan are based upon years of service and
the highest consecutive five year average annual base salaries. The term "annual
<PAGE>15
base salary," as used in the preceding sentence, makes reference to the "Salary"
column in the Summary Compensation Table. For the year ended December 31, 1998
the credited years of service of Messrs. Argov, Cobuzzi, Desmond, Eder, and
Petty under the Plan are 8, 7, 25, 22, and 7, respectively.
The following table sets forth the annual benefits which would become
payable at age 65 under the Plan based upon a straight life annuity form of
benefit and various levels of covered compensation and years of service:
Years of Service at Retirement in 1999
--------------------------------------
Final Average
Earnings at
Retirement 15 20 25 30 or more
- ------------- ------- ------- ------- ----------
$100,000 $24,525 $32,700 $40,875 $49,050
125,000 31,275 41,700 52,125 62,550
150,000 38,025 50,700 63,375 76,050
175,000 40,725 54,300 67,875 81,450
200,000 40,725 54,300 67,875 81,450
250,000 40,725 54,300 67,875 81,450
300,000 40,725 54,300 67,875 81,450
350,000 40,725 54,300 67,875 81,450
400,000 40,725 54,300 67,875 81,450
Annual benefits provided by the Corporation under this Plan are subject
to certain restrictions and limitations under the Internal Revenue Code of 1986,
as amended (the "Code"), and applicable regulations, as in effect from time to
time. Currently the Code prohibits tax-qualified defined benefit pension plans
from taking into account for benefit calculation any compensation in excess of
$160,000 per annum and limits annual benefit payments under such plans to
$130,000. These limits and prohibitions are indexed for inflation.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Corporation entered into employment agreements with Mr. Argov and
Mr. Cobuzzi at the time each of them joined the Corporation. Each agreement
protects the Corporation from disclosure of confidential information by the
executive and contains the executive's covenant not to compete with the
Corporation following termination of employment under certain circumstances. The
agreement with Mr. Argov, the Corporation's Chairman of the Board, President and
Chief Executive Officer, provides for the initial annual base salary, describes
the employee benefit plans under which he is entitled to participate, and
provides that if the Corporation terminates his employment other than for
"Cause" (as defined in the agreement) he will be entitled to receive an amount
equal to his current base salary, in a lump sum. The agreement with Mr. Cobuzzi,
the Corporation's Chief Financial Officer, Treasurer and Senior Vice President,
provides for the initial annual base salary and otherwise is substantially
identical to Mr. Argov's agreement.
<PAGE>16
The Corporation has entered into employment agreements with each of the
individuals named in the Summary Compensation Table that will trigger a term of
employment of two years upon a Change of Control. During the term of the
employment period the executive, among other things, is entitled to (a) receive
an annual base salary at his current rate, and (b) participate in all incentive
and benefit plans at the same levels in effect immediately prior to the Change
of Control. If the executive's employment is terminated without cause or for
good reason (as defined in the agreements) during the two year term following a
Change of Control, the executive shall be entitled to a lump sum payment, equal
to two and one-half times (a) the current annual salary, and (b) the average of
the two most recent annual incentive bonuses. In addition, the executive shall
be entitled to a continuation of welfare benefits for a period of thirty months
following the date of termination. If any payment or distribution by the
Corporation to the executive is determined to be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code, he is entitled to receive
from the Corporation a payment on an after-tax basis equal to the excise tax
imposed. A "Change of Control" is generally defined for purposes of the
agreements as (i) the acquisition of 30% or more of the outstanding shares of
Common Stock, (ii) a change in a majority of the Board of Directors, unless
approved by the incumbent directors (other than as a result of a contested
election), and (iii) certain reorganizations, mergers, consolidations,
liquidations or dissolutions.
BOARD COMPENSATION REPORT ON EXECUTIVE COMPENSATION
The Personnel and Compensation Committee (the "Committee") of the
Corporation's Board of Directors is composed of independent directors who are
not employees or officers of the Corporation. The Committee's decisions on
compensation with respect to executive officers are reviewed with and approved
by all of the non-employee directors, who constitute a majority of the Board.
The Committee is responsible for developing and implementing the compensation
programs which establish the pay levels of the Corporation's executive officers
and certain other key employees. The Committee strives to establish performance
criteria, evaluate performance and determine base salary and incentive payments
for the Corporation's key decision makers to ensure the Corporation's ability to
attract and retain high caliber executives by providing appropriate incentives
to deliver the maximum short-term and long-term financial results for the
benefit of shareholders. The Committee also approves compensation matters
involving other key employees of the Corporation, and periodically reviews the
annual salaries of all key employees, including executive officers.
The Committee also administers and approves the grant of awards under
the Kollmorgen 1991 Long Term Incentive Plan ("LTIP"), the 1998 Management Stock
Incentive Plan ("MSIP"), and other incentive compensation plans of the
Corporation for executive officers and certain other key employees of the
Corporation. From time to time, the Corporation, on the recommendation of the
Committee, has retained the services of independent compensation consultants to
evaluate the Corporation's executive compensation programs.
<PAGE>17
In order to meet its objectives, the Committee has chosen three
components of its compensation program to meet the Corporation's pay philosophy.
Base salaries, the fixed regular periodic component of pay, are based on the
average level of base salaries among a competitive peer group of companies of
comparable size. The bonus plan for executive officers, which is directly linked
to the financial performance of the Corporation, is designed to provide
additional cash and stock compensation when specific financial performance goals
are achieved or exceeded. The 1999 annual incentive bonus plan for executive
officers provides for a combination of cash and restricted stock units (pursuant
to the MSIP) when the Corporation meets its operating plan in terms of primary
earnings per share, cash flows, revenues and critical objectives. Finally, the
LTIP and MSIP plans reward executive officers and key employees for delivering
long-term value to the Corporation's shareholders. The plans are structured in
such a way as to reward executives only to the extent that shareholders have
benefited over some measurable period of time. Historically, the Corporation has
used the grant of stock options that vest over specified periods, currently five
years, to accomplish this objective. In determining a grant of stock options,
the Committee considers the amount and terms of outstanding options previously
granted to executive officers.
In 1998 and 1999, Mr. Argov, Chairman of the Board, President and Chief
Executive Officer received salary increases of 5.4% and 4%. Having met and
surpassed the Corporation's 1998 operating plan, Mr. Argov received an incentive
bonus composed of (i) cash in the amount of $156,000 and (ii) 3151 restricted
stock units. The Committee exercised its judgment in determining the amount of
Mr. Argov's salary increase after reviewing the overall performance of the
Corporation and after reviewing comparative executive compensation data provided
by independent compensation consultants.
The Committee believes that Mr. Argov's total compensation package is
equitable in comparison to the median of the total compensation awarded to chief
executives of industries with similar product lines and of similar size, based
on information regarding compensation trends which has been obtained via survey,
outside consultants, and historical data.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to
the Internal Revenue Code of 1986, as amended. Section 162(m) generally denies a
publicly held corporation, such as the Corporation, a federal income tax
deduction for compensation in excess of $1 million per year paid or accrued for
each of its chief executive officers and four other most highly compensated
executive officers. Certain "performance based" compensation is not subject to
the limitation on deductibility provided that certain shareholder approval and
independent director requirements are met.
Because of the fact that the compensation paid to each of the
Corporation's executive officer has not exceeded $1 million per year, the
Committee does not believe that the limitation on deductibility of executive
compensation is currently material to the Corporation. The Committee will
continue to review the situation in light of the final
<PAGE>18
regulations and future events with the objective of achieving deductibility to
the extent appropriate.
Members of the Personnel and Compensation Committee:
Jerald G. Fishman Robert N. Parker J. Douglas Maxwell, Jr.
PERFORMANCE GRAPH
The following performance graph compares the five-year cumulative total
shareholder return, assuming reinvestment of dividends, on $100 invested on
December 31, 1993, in each of Kollmorgen Corporation Common Stock, Standard &
Poors 500 Stock Index, and the Standard & Poors Electrical Equipment Index.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
KOLLMORGEN CORPORATION COMMON STOCK, S&P 500 INDEX
AND S&P ELECTRICAL EQUIPMENT
Measurement Period Kollmorgen S&P Electrical
(Fiscal Year Covered) Corporation S&P 500 Index Equipment Index
- --------------------- ---------- ------------- ---------------
Measurement Pt.
12/31/93 $100.00 $100.00 $100.00
FYE 12/31/94 $ 77.00 $101.00 $101.00
FYE 12/31/95 $150.00 $139.00 $142.00
FYE 12/31/96 $151.00 $171.00 $192.00
FYE 12/31/97 $252.00 $229.00 $271.00
FYE 12/31/98 $211.00 $294.00 $363.00
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, executive officers and persons who beneficially own
more than 10 percent of the Corporation's stock to file certain reports with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
concerning their beneficial ownership of the Corporation's equity securities.
Applicable SEC regulations also require such persons to furnish the Corporation
with copies of all such reports. Based solely on a review of the copies of such
reports furnished to the Corporation as of the date of this proxy statement, or
written representations that no reports were required, the Corporation believes
that, during 1998, all filing requirements applicable to its directors, officers
and greater than 10 percent shareholders were satisfied.
ACCOUNTANTS
PricewaterhouseCoopers LLP has been selected by the Board of Directors
to serve as the independent accountants for the Corporation. Representatives of
PriceWaterhouseCoopers LLP will be present at the Annual Meeting and will be
given an opportunity to make a statement if they desire to do so. They will be
available to respond to questions of shareholders.
<PAGE>19
PROPOSALS FOR THE 2000 ANNUAL MEETING
In accordance with the rules of the Securities and Exchange Commission,
shareholder proposals for inclusion in the Corporation's proxy statement for the
2000 Annual Meeting must be received at the Office of the Secretary, Kollmorgen
Corporation, Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451, no later
than December 14, 1999.
OTHER MATTERS
The Board of Directors does not intend to present any other matters
before the meeting and is not informed of any other business which others may
bring before the meeting. However, if any other matters should properly come
before the meeting, or any adjournments or postponements thereof, it is the
intention of the persons named in the accompanying proxy card to vote on each
such matter as they, in their sole discretion, may determine.
