<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
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 Section 240.14a-11(c) or Section
240.14a-12
HARMON 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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:
------------------------------------------------------------------------
/X/ 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:
------------------------------------------------------------------------
<PAGE>
[LOGO]
1300 JEFFERSON COURT
BLUE SPRINGS, MISSOURI 64015
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 2:00 P.M. ON MAY 9, 1995
AT THE COUNTRY CLUB OF BLUE SPRINGS
1600 N. CIRCLE DRIVE
BLUE SPRINGS, MISSOURI
To the Holders of Common Stock of Harmon Industries, Inc.:
Notice is hereby given that the Annual Meeting of the Shareholders of Harmon
Industries, Inc. will be held for the following purposes:
1. To elect eleven (11) members of the Board of Directors;
2. To approve the selection of KPMG Peat Marwick LLP, as Auditors for the
forthcoming fiscal year;
3. To vote on a proposal to increase the number of shares covered by the
Company's 1990 Incentive Stock Option Plan from 500,000 to 650,000.
4. To vote on a shareholder proposal to recommend the Company terminate its
practice of paying to members of the Board of Directors a fee for
attending meetings by telephonic conference;
5. To vote on a shareholder proposal to recommend the Company terminate its
practice of granting options to members of the Board of Directors
pursuant to the Company's 1988 Director Stock Option Plan; and
6. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on March 17, 1995, will
be entitled to notice of and to vote at the meeting and any adjournments
thereof. The transfer books of the Company will not be closed.
Shareholders who do not expect to attend the meeting in person are asked to
date, sign and return the proxy using the enclosed envelope which needs no
postage if mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Harmon
Chairman
1300 Jefferson Court
Blue Springs, Missouri 64015
March 31, 1995
<PAGE>
[LOGO]
1300 JEFFERSON COURT
BLUE SPRINGS, MISSOURI 64015
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 1995
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders of Harmon Industries, Inc. (the "Company") commencing on March 31,
1995. The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company to be used at the Annual Meeting of Shareholders, which will be
held at the Country Club of Blue Springs, 1600 N. Circle Drive, Blue Springs,
Missouri on May 9, 1995 at 2:00 p.m. and at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
Any shareholder who executes and returns the enclosed proxy has the right to
revoke it, in writing, at any time before it is voted at the meeting.
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited personally or by telephone or
facsimile by the directors or by a few executives or employees of the Company at
a nominal cost, and the Company may reimburse brokers and other persons holding
stock in their names or in the names of their nominees for their expenses in
sending proxy material to principals.
The Board of Directors of the Company has fixed the close of business on
March 17, 1995, as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting. As of that date, the Company
had 6,766,211 shares of Common Stock outstanding and entitled to vote at the
meeting.
Each share of Common Stock entitles the shareholders to one vote for each
share held. All voting, unless otherwise specifically indicated, requires
approval by majority of the shares of stock represented in person or by proxy at
the meeting and voted on the matter in question. Abstentions and broker
non-votes are tabulated as if no vote was cast for the matter indicated.
Shareholders have the right to accumulate votes in the election of directors,
that is, to cast a total number of votes for one or more nominees for directors
equal to the number of shares held times the number of directors to be elected.
The shareholder may cast his or her votes for one nominee or distribute his or
her votes among two or more nominees. Votes withheld in the election of
directors are not tabulated as a vote for or against the person or persons
indicated. The selection of directors is determined in the order of those
nominees receiving the highest number of votes in favor of election until the
number of nominees to be elected in the election have been selected.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of the
Company owned beneficially as of March 17, 1995 by each person who, as of that
date, to the best knowledge of management, was the beneficial owner of more than
5% of the outstanding shares or who is a named executive officer. Common Stock
is the only class of voting securities.
<TABLE>
<CAPTION>
PERCENT
TITLE NAME AND ADDRESS OF BENEFICIAL OF
OF CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
------------------ ------------------------------------------------- --------------- -------------
<C> <S> <C> <C>
Common Stock ROPARBAN, Designee for MidAmerican Bank & Trust, 447,743 6.5%
as Trustee for the Company's ESOP
P.O. Box 1677
Lawrence, Kansas 66044
Common Stock FMR Corp. 433,900(3) 6.3%
82 Devonshire Street
Boston, Massachusetts 02109
Common Stock Robert E. Harmon 253,889(4) 3.7%
Common Stock Charles M. Foudree 43,300(5) 0.6%
Common Stock Bjorn E. Olsson 43,000 0.6%
Common Stock Gary E. Ryker 25,365 0.4%
Common Stock Noel B. Smith 12,365 0.2%
Common Stock Beneficial ownership of all officers and 587,052 8.5%
directors as a group (21 in group)
<FN>
(1) All amounts of shares reflect sole voting and disposition power unless
otherwise indicated. The share amounts reflected in this column include
outstanding shareholdings, as well as unexercised ISOP option shares and
unexercised director option shares (see discussion under caption "Executive
Compensation" herein). Shares allocated under the Company's ESOP are not
included since participants have no disposition power and have only shared
voting rights. Amounts in the ESOP allocated to Messrs. Harmon, Foudree,
Olsson, Ryker and Smith and all officers and directors as a group were
5,006; 4,161; 948; 11; 1,343 and 29,689 shares, respectively.
(2) Percentages are calculated on 6,896,751 shares representing the total of
6,766,211 outstanding shares and 130,540 shares for unexercised director
and ISOP options.
(3) FMR Corp., through its subsidiaries and affiliates, provides investment
advisory and/or management services concerning these shares which are owned
by various institutional clients. It has sole voting power in 389,100
shares and sole dispositive power in 433,900 shares.
(4) Does not include 4,200 shares owned by his wife for which Robert E. Harmon
disclaims beneficial ownership.
(5) 29,000 shares are beneficially owned and held of record by M. Colleen
Foudree as trustee for the M. Colleen Foudree Trust with sole voting and
disposition power. 10,300 shares are held by the Charles M. Foudree Trust
with sole voting and disposition power. The remainder are held by Charles
M. Foudree and represent unexercised director option shares.
</TABLE>
2
<PAGE>
Based on a review of reports on Forms 3, 4 and 5 and amendments to such
forms filed with the Company, the Company is aware of no late filing of such
forms for persons required to file such forms in connection with Section 16(a)
of the Securities Exchange Act of 1934, as amended. The Company is unaware of
any transactions in which there was a failure to file by a reporting person
under such Act.
ELECTION OF DIRECTORS
Eleven directors are to be elected at the Annual Meeting of Shareholders for
one year or until their successors are elected and qualified. It is the
intention of the persons named in the accompanying form of proxy to vote for the
election of the nominees listed below. If, for any reason, any of the nominees
is unable or declines to serve, the proxies will be voted for the other persons
listed or for substitute nominees nominated by management. During fiscal 1994,
the Board of Directors held six meetings. All of the directors nominated for
re-election herein attended greater than 75% of the meetings of both the Board
and the respective committees for which they were eligible to serve.
The Director Compensation and Nomination Committee proposes nominees for
Board positions and evaluates director compensation. The Committee consists of
Herbert M. Kohn (Chairman), Bruce M. Flohr and Judith C. Whittaker. The
Committee met one time during 1994. The Committee will consider proposed
director candidates submitted by shareholders. Proposals for the 1996 election
must be received in writing prior to November 14, 1995.
The Audit Committee of the Board of Directors is composed of Donald V. Rentz
(Chairman), Thomas F. Eagleton, Herbert M. Kohn and Judith C. Whittaker. The
Audit Committee reviews and monitors financial controls throughout the Company,
supervises the internal audit function and monitors the Company's relationship
with the external auditors. The committee met two times in 1994.
The Compensation Committee was composed of Gerald E. Myers (Chairman until
May 10, 1994), Rodney L. Gray, Bruce M. Flohr and Douglass Wm. List during 1994.
On May 10, 1994, Rodney L. Gray became Chairman. The Compensation Committee is a
standing committee of the Board of Directors and establishes executive salary
and bonus levels for the executive officers and the Presidents of the Company's
subsidiaries. During 1994, the Compensation Committee met four times.
3
<PAGE>
DIRECTOR NOMINEES
<TABLE>
<CAPTION>
SERVED
PRINCIPAL CONTINUOUSLY STOCK
OCCUPATION FOR AS A DIRECTOR PERCENT OF OWNED
NAME OF NOMINEE AGE LAST FIVE YEARS SINCE CLASS(2) BENEFICIALLY(1)
------------------------ ----------- -------------------------------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas F. Eagleton 65 Since 1987, University Professor of 05/03/88 0.1% 6,000
Public Affairs, Washington University
in St. Louis, Missouri and member of
the law firm of Thompson & Mitchell;
for more than five years prior to that
a United States Senator from Mis-
souri.
Bruce M. Flohr 56 Since 1977, President of RailTex, Inc. 05/11/93 0.1% 4,000
Charles M. Foudree 50 Executive Vice President of the 07/27/72 0.6% 43,300(3)
Company since Sept. 1986. Treasurer of
the Company since 1974. Secretary of
the Company since 1982.
Rodney L. Gray 42 Since June 1993, Chairman and Chief 05/11/93 0.1% 5,000
Executive Officer of Enron
International, Inc.; prior to that,
Senior Vice-President-Finance and
Treasurer of Enron Corp. from October
1992 to June 1993; prior to that
Vice-President and Treasurer of Enron
Corp.
Robert E. Harmon 56 Chairman of the Board of the Company 10/02/61 3.7% 253,889(4)
since February 1975. Chief Executive
Officer of the Company from November
1969 to December 1994. President of
the Company from November 1969 to July
1990.
Herbert M. Kohn 56 From June 1991, a partner in the law 09/01/85 0.4% 30,400
firm of Bryan Cave; from 1966 to May
1991, a partner in the firm of Linde
Thomson Langworthy Kohn and Van Dyke,
P.C.
Douglass Wm. List 39 Since January 1988, President, List & 05/08/90 0.2% 13,600
Company, Inc., a management consulting
firm based in Baltimore, Maryland.
Since December 1992, also President of
Railway Engineering Associates, Inc.,
having been Vice-President and General
Manager of that company since May
1988.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SERVED
PRINCIPAL CONTINUOUSLY STOCK
OCCUPATION FOR AS A DIRECTOR PERCENT OF OWNED
NAME OF NOMINEE AGE LAST FIVE YEARS SINCE CLASS(2) BENEFICIALLY(1)
------------------------ ----------- -------------------------------------- -------------- ------------- ---------------
Gerald E. Myers 53 Self employed management consultant 05/03/88 0.5% 34,918(5)
since July 1989; prior to that Vice
President of Electronics Materials &
Components Group of Square D Company
since 1985; prior to that Chairman of
the Board, President & Chief Executive
Officer of General Semiconductor
Industries, Inc. (a wholly-owned
subsidiary of Square D) from July
1985.
<S> <C> <C> <C> <C> <C>
Bjorn E. Olsson 49 President and Chief Executive Officer 05/06/86(6) 0.6% 43,000
of the Company since January 1995;
President and Chief Operating Officer
of the Company from August 1990 to
December 1994; prior to that Vice
President of Corporate Development of
Investment AB Cardo since 1987; prior
to that President of SAB NIFE AB, a
subsidiary of Investment AB Cardo
(formerly Wilh. Sonesson AB) since
1982.
Donald V. Rentz 56 President of Graham Wholesale Floral 09/09/70 0.1% 4,000
since 1993; President of Renmar
Company from 1991 to 1993; President
of Morton Cabinet Company, Inc. from
1984 to 1991.
Judith C. Whittaker 56 Since 1992, Vice-President-Legal, of 05/11/93 0.1% 4,000
Hallmark Cards, Incorporated; prior to
that, Associate General Counsel of
Hallmark Cards, Inc. since 1978; from
1988 to present, also
Vice-President/General Counsel of
Univision Holdings, Incorporated, a
subsidiary of Hallmark Cards,
Incorporated.
<FN>
(1) All amounts of shares reflect sole voting and disposition power unless
otherwise indicated. The share amounts reflected in this column include
outstanding shareholdings, as well as unexercised ISOP option shares and
unexercised director option shares (see discussion under caption "Execu-
tive Compensation" herein). Shares allocated under the Company's ESOP are
not included since participants have no disposition power and shared voting
rights. Shares in the ESOP allocated to Messrs. Harmon, Foudree and Olsson
were 5,000; 4,161 and 948 shares respectively.
(2) Percentages are calculated on 6,896,751 shares representing the total of
6,766,211 outstanding shares and 130,540 shares for unexercised director
and ISOP options.
(3) 29,000 shares are beneficially owned and held of record by M. Colleen
Foudree as trustee for the M. Colleen Foudree Trust with sole voting and
disposition power. 10,300 shares are held by the Charles M. Foudree Trust
with sole voting and disposition power. The remainder are held by Charles
M. Foudree and represent unexercised ISOP and director option shares.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
(4) Does not include 4,200 shares owned by his wife for which Robert E. Harmon
disclaims beneficial ownership.
(5) Includes 30,743 shares which are held in a living trust.
(6) Mr. Olsson had previously served as a director of the Company from February
1982 until May 1985.
</TABLE>
Mr. Eagleton serves as an advisory director of Monsanto Chemical
Corporation, a publicly-held company. Ms. Whittaker serves as a director of MCI
Communications Corporation, a publicly-held company. Mr. Flohr serves as an
officer and director of RailTex, Inc., which is a publicly-held company. Mr.
List is a director of Mark VII, Inc., a publicly-held company. Mr. Gray is a
director of Battlemountain Gold Company, a publicly-held company. Mr. Foudree is
a director of OTR Express, Inc., a public company. None of the other director
nominees serves as a director of any other company with a class of stock
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of that Act or any company
registered under the Investment Company Act of 1940.
CERTAIN TRANSACTIONS.
Mr. Kohn is currently a partner of the Bryan Cave firm, which the Company
retains as legal counsel for certain matters.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries (determined as
of the end of the last fiscal year), to or on behalf of the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company or its subsidiaries (hereafter referred to as the "named
executive officers") for the fiscal years ended December 31, 1994, 1993 and
1992:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
AWARDS
ANNUAL COMPENSATION(1) --------------------------------
-------------------------------------------------------- OPTIONS/ SARS
SALARY BONUS OTHER ANNUAL RESTRICTED STOCK (# OF SHS.)
NAME AND PRINCIPAL POSITION FISCAL YEAR ($)(2) ($)(3) COMPENSATION ($) AWARD(S) ($)(4) (5)
--------------------------- ----------- --------- --------- --------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Harmon 1994 205,854 124,614 -- -- 2,000
CEO 1993 202,222 79,400 -- -- 2,000
1992 184,688 81,483 -- -- 1,000
Bjorn E. Olsson 1994 219,285 112,914 -- -- 2,000
President & COO 1993 191,487 89,400 -- -- 3,000
1992 179,845 81,483 -- -- 1,000
Charles M. Foudree 1994 157,505 77,514 -- -- 2,000
Executive V.P. - 1993 145,736 69,100 -- -- 2,000
Finance, Secretary 1992 137,690 72,313 -- -- 1,000
and Treasurer
Gary E. Ryker (7) 1994 140,989 73,714 -- -- -0-
V.P. - Marketing 1993 133,824 69,100 -- -- -0-
and Sales 1992 78,589 34,956 -- -- 25,000
Noel B. Smith 1994 135,253 70,814 -- -- -0-
President, Electro 1993 124,800 78,800 -- -- -0-
Pneumatic 1992 119,739 56,102 -- -- -0-
Corporation
<CAPTION>
PAYOUTS
------------- ALL OTHER
LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($)(6)
--------------------------- ------------- -----------------
<S> <C> <C>
Robert E. Harmon -0- 93,629
CEO -0- 83,440
-0- 82,503
Bjorn E. Olsson -0- 47,091
President & COO -0- 36,547
-0- 33,490
Charles M. Foudree -0- 71,379
Executive V.P. - -0- 60,815
Finance, Secretary -0- 57,139
and Treasurer
Gary E. Ryker (7) -0- 25,342
V.P. - Marketing -0- 8,922
and Sales -0- -0-
Noel B. Smith -0- 47,271
President, Electro -0- 36,181
Pneumatic -0- 33,591
Corporation
<FN>
(1) Includes no perquisites (i.e. auto allowance, club dues or aircraft use)
because in all instances these total less than $50,000 or 10% of the total
of annual salary and bonus reported for each named executive officer.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
(2) Salary includes amounts deferred under the Company's 401(k) at the election
of the named executive officer.
(3) Bonus includes cash and stock components (See discussion under the heading
"Employment Contracts" below.)
(4) Restricted stock awards (100% vested) are described under the heading
"Employment Contracts" below and are included under the "Bonus" column in
this table. At year end 1994, the aggregate restricted stock holdings and
values based on year-end price of $19.50 per share of Messrs. Harmon,
Olsson, Foudree, Ryker and Smith were 3,365 shares ($65,618); 4,365 shares
($85,118); 3,365 shares ($65,618); 365 shares ($7,118) and 1,365 shares
($26,618), respectively.
(5) Includes grants of options under the Company's 1990 Incentive Stock Option
Plan, as well as annual awards to Messrs. Harmon, Olsson and Foudree of
options on 1,000 shares under the Company's non-qualified 1988 Director
Option Plan for 1992. In 1993, the 1988 Director Option Plan annual grants
were increased to 2,000 shares.
(6) Includes allocation of contributions to the Company's Deferred Compensation
Plan and to the Company's non- discriminatory Employee Stock Ownership Plan
(ESOP). The amounts included in this column representing allocation of the
contribution made in 1994 to the Company's ESOP for Messrs. Harmon, Olsson,
Foudree, Ryker and Smith were $18,017; $18,017; $16,040; $15,682; and
$15,097, respectively. The balance shown for each in the column represented
allocation of contributions for such named executive officers to the
Company's Deferred Compensation Plan. (See discussion under the heading
"Pension Plan" below.)
(7) Mr. Gary E. Ryker commenced employment as an officer of the Company on
August 1, 1992. Amounts shown for 1992 represent amounts paid during that
partial year of Mr. Ryker's employment.
</TABLE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
During 1994, none of the named executive officers received a grant of stock
options or stock appreciation rights under the Company's 1990 Incentive Stock
Option Plan. The following table contains information concerning the grant of
stock options under the Company's non-qualified 1988 Director Option Plan to the
named executive officers (see discussion below under "Director Compensation"
below):
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS/SARS APPRECIATION FOR OPTION
OPTIONS/ SARS GRANTED TO EXERCISE OR TERM(3)
GRANTED (1) (# EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME OF SHARES) YEAR ($/SH) (2) DATE(1) 5% ($) 10% ($)
--------------------------- --------------- ------------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Harmon 2,000 7.7 20.50 05/31/96 $ 4,203 $ 8,610
Bjorn E. Olsson 2,000 7.7 20.50 05/31/96 4,203 8,610
Charles M. Foudree 2,000 7.7 20.50 05/31/96 4,203 8,610
Gary E. Ryker -0- -0- N/A N/A N/A N/A
Noel B. Smith -0- -0- N/A N/A N/A N/A
<FN>
(1) In their capacities as directors of the Company, on May 31, 1994, Messrs.
Harmon, Olsson and Foudree received an option for 2,000 shares of the
Company's common stock under the Company's non-qualified 1988 Director
Option Plan. For a description of the terms of the options see "Director
Compensation" below.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
(2) The exercise price equals the fair market value of the underlying shares on
the date of grant. Options are exercisable immediately upon grant unless
delays are necessary to avoid the statutory limitations on grants
established under the Internal Revenue Code. The options are exercisable
anytime during a five-year period from date of grant or the date on which
the option was first exercisable.
(3) These amounts represent certain assumed rates of appreciation only and may
have no correlation to current or future actual market conditions.
</TABLE>
OPTION EXERCISES AND HOLDINGS.
The following table provides, for the named executive officers, information
concerning the exercise of stock options during the last fiscal year and
unexercised options held as of the end of the last fiscal year for both the
Company's 1990 ISOP (numbers to the left) and the Company's non-qualified 1988
Director Option Plan (numbers to the right):
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE (IN $) OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SHARES OPTIONS AT
AT 12/31/94 12/31/94(2)(3)
NUMBER OF SHARES
ACQUIRED ON VALUE (IN $) ISOP/DIRECTOR ISOP/DIRECTOR
NAME EXERCISE REALIZED(1) OPTIONS OPTIONS
----------------------------------- ------------------ ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Robert E. Harmon -0-/1,000 -0-/13,125 45,800/4,000 707,586/12,250
Bjorn E. Olsson 37,000/1,000 575,971/13,438 1,000/4,000 -0-/12,250
Charles M. Foudree 39,300/1,000 634,679/12,500 -0-/4,000 -0-/12,250
Gary E. Ryker 3,000/-0- 33,950/-0- 22,000/-0- 247,500/-0-
Noel B. Smith 1,650/-0- 28,867/-0- 9,350/-0- 146,047/-0-
<FN>
(1) Market price at exercise less exercise price.
(2) All outstanding options shown are currently exercisable. There are no SARs.
(3) Market price at 12/31/94 ($19.50) less exercise price.
</TABLE>
LONG-TERM INCENTIVE PLANS.
The company has no Long-Term Incentive Plans for which awards are granted or
vested based upon return on equity or changes therein.
PENSION PLANS.
The Company has no defined benefit pension plans. The Company has a
non-qualified, unfunded deferred compensation plan and trust for officers and
key employees, providing for certain payments upon retirement, death or
disability. Under the plan, the employees receive retirement payments equal to a
portion of the average of the three highest consecutive years' compensation.
Upon retirement, these payments are to be made for the remainder of the
employee's life with a minimum payment of ten years' benefits to either the
employee or his beneficiary. The plan provides for reduced benefits upon early
retirement, disability or termination of employment. The amount of the deferred
compensation expense for all covered employees for 1994 was approximately
$522,000 and amounts allocated to the named executive officers are included in
the "All Other Compensation" column of the Summary Compensation Table.
The Company also has an Employee Stock Ownership Plan and Trust ("ESOP").
Employees, including officers of the Company who satisfy the ESOP's eligibility
criteria of hours and service are eligible to participate. Allocations are based
on the ratio of an eligible individual's salary (subject to current regulatory
caps) to the total salaries of all eligible persons. Standards for vesting are
based upon years of service with the Company in accordance with current
regulatory guidelines. Under the
8
<PAGE>
ESOP, the Company is not required to make any contributions, other than matching
401K funds. However, the Company's current intention is to contribute
approximately 15% of the participating companies' pre-tax earnings to the ESOP.
The 15% contribution would include the funds required to fulfill a portion of
the companies' obligation to match a portion of the employee's 401K
contribution. The contribution to the ESOP for the years ended December 31,
1992, 1993 and 1994 totalled $1,547,000; $2,540,000 and $3,045,000,
respectively, which amounts were paid in cash. The amount of compensation
included in the "All Other Compensation" column of the Summary Compensation
Table includes the amounts of respective annual contributions allocated for the
named executive officers as of March 31 of the preceding year.
CANCELLATION AND REGRANT OF OPTIONS.
During 1994 the Company did not cancel, regrant or reprice any outstanding
stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Mr. Gerald Myers (Chairman until May 10, 1994), Mr. Douglass Wm. List, Mr.
Bruce M. Flohr and Mr. Rodney L. Gray served on the Compensation Committee of
the Company for the past fiscal year. On May 10, 1994, Mr. Rodney L. Gray was
named Chairman of the Compensation Committee. None of the members of the
Compensation Committee are officers or employees of the Company. The
Compensation Committee of the Company establishes executive salary and bonus
levels for the executive officers of the Company and the Presidents of its
subsidiaries.
The Company does not believe that any interlocks exist between members of
the Compensation Committee and any third party represented on the Board of
Directors or providing significant services to the Company.
EMPLOYMENT CONTRACTS.
Messrs. Harmon, Olsson, Foudree, Ryker and Smith had employment contracts
with the Company during 1994 which provide for the payment to such officers of
annual salaries of at least $193,200, $250,000, $151,095, $137,865 and $131,250,
respectively. Mr. Harmon retired as Chief Executive Officer at December 31,
1994, at which time his employment contract expired. The employment contracts
have a rolling 12-month term. For the year ended December 31, 1994, these
officers' contracts included an annual cash bonus based on 1994 return on
capital employed as it related to the 1994 budget. If the return on capital
employed is higher than budget, then the bonus increases; if the return is
lower, the bonus decreases. 1994 bonuses under this plan, which are included in
the above table, amounted to $114,100; $102,400; $67,000, $63,200 and $60,300
for Messrs. Harmon, Olsson, Foudree, Ryker and Smith, respectively.
The executive officers of the Company and certain key employees of the
Company and its subsidiaries were also subject to a stock bonus plan whose
contribution is based on a percentage of pre-tax consolidated profits. A portion
of this bonus is normally paid in shares of Harmon stock which are subject to a
two-year trading restriction and are valued at fair market value at time of
issuance. The remainder of the bonus is paid in cash to help offset the
individual's income tax expense. During 1994, a bonus accrued for 1993 was paid
in cash to each of twelve individuals, including the named executive officers,
which bonus was $10,000. During 1995, a bonus accrued for 1994 was paid to each
of thirteen individuals, which bonus was valued at $10,514. (See discussion in
the Compensation Committee Report under "Bonuses" below.)
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
The Company's executive compensation program is overseen by the Compensation
Committee, a standing committee of the Board of Directors composed of
non-employee directors. The Compensation Committee was composed of Directors
Rodney L. Gray, Bruce M. Flohr, Douglass Wm. List and Gerald E. Myers during
1994. Prior to May 10, 1994, Gerald E. Myers served as Chairman, and after that
date, Rodney L. Gray served as Chairman. None of these non-employee directors
have any interlock or other relationships with the Company that would call into
question their independence as
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committee members. The Committee determines compensation matters involving
senior executives of the Company and the Presidents of the Company's
subsidiaries. The purpose of the Compensation Committee of the Board of
Directors is to provide guidance and overview monitoring of all executive
compensation and benefit programs with a focus on sustaining the Company's
strong performance values, rewarding improved shareholder value and ensuring
competitive compensation to hold and attract highly-talented executives. The
Committee periodically reviews and monitors in the aggregate, annual salaries of
all such executives and key employees, as well as deferred compensation, bonus
and other incentive compensation plans for executive officers of the Company.
The Committee also has responsibility for reviews and revisions of employment
contracts and the recommended base salary levels under the employment contracts
(subject to minimum levels established in the contracts) for the executive
officers of the Company. The Company also reviews and administers the 1990
Incentive Stock Option Plan of the Company. During 1994, the Committee met four
times.
During 1994 and each of the prior years since 1991, the Committee has
conducted a comprehensive salary and total compensation package analysis for the
officers and key employees of the Company. This analysis was based upon
information on comparable companies provided to the Committee by independent
sources, including Executive Compensation Services, Inc., Growth Resources,
Hewitt Association and William M. Mercer, Inc.
Additionally, during 1994, the Compensation Committee retained William M.
Mercer, Incorporated, to undertake a comprehensive Executive Compensation Review
of executive compensation for the Company, including a comparison to other
companies in the railroad supply industry. The Committee utilized the analysis
and suggestions in the report as part of the basis upon which base salary and
bonus adjustments were evaluated.
The Compensation Committee analyzed the base salary and the total
compensation (base salary plus annual incentives) of the Company's executives as
compared to median survey data and to comparative companies in the rail supply
industry. Overall, base salaries are below (yet competitive with) median survey
data. Total compensation levels for the Company's executives was close to or at
the 75th percentile of survey data. Additionally, base salary increases for the
Company's executives in 1994 averaged a 5.0% increase over the prior year's
level (other than adjustments made for changes of responsibility), which
increases were consistent with the survey data. The survey data sources are
standard general indices constructed and provided by outside vendors and are
believed to be more comparable in size, based on gross sales, than the
performance peer group. Furthermore, the surveys consist of many more data
points than the limited number of companies in the peer performance stock group.
Generally, the Committee compares the Company executive salaries with median
base salaries for similar positions from the surveys, and historically sets base
salaries for the Company's executives below the median of comparable survey
levels. Bonus awards, including those tied to shareholder value indices, are set
as a percentage of base at levels higher than the median of survey percentages
for the respective positions. The Executive Compensation Review undertaken by
Wm. H. Mercer, Incorporated used both broad general surveys and Peer Performance
stock group for comparison purposes.
The Committee believes that the top management of Harmon must operate as a
team and that the cause and effect relationship between the efforts of any one
individual and corporate performance is difficult to discern. Hence, in general,
the compensation of the executive team tends to track as a group with the
performance of the Company. The Committee does, however, make exceptional
decisions where exceptional circumstances exist. Furthermore, the Committee does
establish individual performance objectives and measure individual performance
against these objectives in an effort to ensure that all members of the top
management team are fulfilling the expectations set for them. Recommendations
for base salaries and awards for each individual executive officer are
established after evaluation of individual performance factors (equally
weighted) including the following: knowledge of job responsibilities,
relationship with others, working capacity, initiative, character, leadership,
adaptability, teamwork, administrative ability and individual goal attainment.
The evaluation by
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the Committee includes the degree to which each individual has met individual
performance objectives. These performance objectives are believed to relate
directly to the Company's performance and are therefore related to shareholder
value.
Additionally, in option grants under the 1990 Incentive Stock Option Plan,
the Committee considers the shareholdings and option holdings of both the
individual executive as well as those of other executives on the management
team.
In order to meet the objectives set out above, the Committee has designed
the executive compensation program to be consistent with the Company's overall
pay philosophy. Base salaries, the fixed regular periodic component of pay, are
conservatively established at levels comparable to the median of base salaries
for similar positions at companies with similar levels of sales and overall
financial performance. Annual cash and stock bonuses, which are directly linked
to the short-term financial performance of the Company as a whole, are designed
to provide better than competitive pay only for better than competitive
financial performance. The incentive stock option plan is structured in such a
way as to advance the interests of the Company and its shareholders by
encouraging key employees of the Company to acquire an equity interest in the
success of the Company and to improve shareholder values. The Board of Directors
and the Committee believe that the plan enables the Company to attract and
retain the services of key employees upon whose judgment, interest and special
efforts the successful conduct of the Company's operations is largely dependent.
The incentive stock option plan is intended as a long-term incentive program,
which provides rewards to the executives only to the extent that shareholders
have benefitted. Each of the components is described in more detail below.
BASE SALARY.
On August 4, 1994, the Committee conducted a review of the performance and
compensation of the Company's senior executives, including Robert E. Harmon and
the other named executive officers. This review included key accomplishments of
each officer, an evaluation of achievement of individual goals and objectives,
and an assessment of their contributions to the Company's improved performance.
In reliance in part upon survey data at median levels and his plans for
retirement at December 31, 1994, the Committee recommended that Robert E. Harmon
receive no base salary increase effective September 1, 1994. The Committee also
recommended an increase of 5% for the executive officers and key employees
(including the other named executive officers) except for Mr. Olsson and three
other individuals. Base salary for Mr. Olsson was increased by approximately 33%
over his prior year's base salary as a result of the realignment of his duties.
The three other individuals received base salary increases in a range of
approximately 9% to 20% to bring their base salary levels comparative to median
survey levels. The new base salary levels for all executives were established by
the Committee and presented to the Board of Directors at its August 1994
meeting.
BONUSES.
All of the executive officers of the Company, including the named executive
officers, were subject to a stock bonus plan. The bonus is based on a percentage
of pre-tax consolidated profits set by the plan at 1%. The percentage has not
been changed since the plan was established in 1987. The plan includes a fixed
percentage but no range of minimum or maximum levels are set in the plan. The
Committee is currently evaluating replacement of the stock bonus plan with a
long-term incentive plan tied to stock ownership requirements. A portion of this
bonus is normally paid in shares of Harmon stock which are subject to a two-year
trading restriction and are valued at fair market value at time of issuance. The
remainder of the bonus is normally paid in cash to help offset the individual's
income tax expense associated with the bonus. During 1993, a bonus for fiscal
year 1992 was paid to each of twelve individuals including the named executive
officers, which bonus was $8,123 ($3,515 in cash and $4,068 represented by 365
shares of common stock of the Company.) During 1994, a bonus in cash for fiscal
year 1993 was paid to each of twelve individuals including the named executive
officers,
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which bonus was $10,000. Each recipient was required to use the cash payment to
exercise outstanding stock options held by the recipient and to pay the
resulting income taxes attributable to the exercise. The stock bonus for 1994
(to be paid in 1995) will be $10,514 for each of thirteen officers. The stock
bonus will be paid as either (i) $5,316 in cash and $5,198 represented by 460
restricted shares of common stock of the Company, or (ii) ISOP options for 1,100
shares. To the extent that an officer receives ISOP options, there is no current
cost to fund the grant and there is no tax deduction at the time of the grant of
the option. See discussion below under "Incentive Stock Option Plan" for details
of option term and exercise price. The decision of payment of the stock bonus in
the form of an option is believed to be consistent with the goal of increasing
the common stock ownership of the Company's executive officers.
The Company maintained for its executive officers and key employees during
1994 an additional cash bonus plan the "ROCE bonus plan" based on Return on
Capital Employed as compared to the budget adopted by the Board of Directors.
Operating budgets for the Company and its subsidiaries, which provide the base
for the ROCE bonus plan, are approved by the Board of Directors. The ROCE bonus
plan provides for increases in bonus, if the return on capital employed is
higher than budget, as well as a decrease in bonus, or no bonus, if the return
is lower than budget. There is no maximum limit on the amount of bonus which
could be payable under the ROCE plan. The formula for Return on Capital Employed
is the sum of pretax earnings from continuing operations plus interest expense
divided by the sum of average total assets minus non-interest bearing
liabilities. Thus, the percentage may be increased by maximizing operating
income while minimizing the total assets necessary for the operation of the
business to produce that operating income. As a consequence, the bonus of each
participant is determined by comparison of annual operating results and use of
capital employed to budgeted levels. For 1994, budgeted ROCE on a consolidated
basis was 30.8%, and actual ROCE for 1994 on the same basis was 34.2%. The
Committee annually evaluates total bonus compensation paid under the return on
capital employed plan (ROCE) and the relative percentage participation levels of
key employees. For 1994, the percentage participation levels for Messrs. Harmon,
Olsson, Foudree, Ryker and Smith were 7.8%, 7.8%, 6.6%, 7.7% and 6.6%,
respectively.
Amounts payable under the ROCE plan for 1994 for Messrs. Harmon, Olsson,
Foudree, Ryker and Smith were $114,100; $102,400; $67,000; $63,200 and $60,300
and are included in the "Bonus" column of the Summary Compensation Table above.
The Committee believes that the ROCE plan encourages the creation of shareholder
wealth by creating incentives both to maximize operating profit for the Company
and minimize capital employed. Additionally, the ROCE Plan rewards efficiencies
in production and innovation in quality-based productivity techniques.
On December 7, 1994, the Committee approved a modification of the current
executive cash bonus plan of the Company effective for fiscal 1995. The
Committee referred to the Mercer Executive Compensation Review and
recommendations contained in that report. The Committee approved a new executive
cash bonus plan based on 70% weighting for ROCE and 30% weighting for earnings
growth. The new proposal establishes target base bonus levels as a percentage of
current base salary. Percentages are 30%, with the exception of Mr. Olsson,
whose target base bonus is established at 40% of his base salary. The base bonus
levels of Messrs. Olsson, Foudree, Ryker and Smith are $100,000; $45,329;
$41,360; and $39,375, respectively. Mr. Harmon is not eligible for participation
in the executive cash bonus plan due to his retirement on December 31, 1994. The
actual bonus is calculated based on actual performance numbers for ROCE as
compared to budget and earnings growth based on primary earnings per share as
compared to an Earnings Growth Rate Target established by the Board of Directors
at 20% for fiscal 1995. The ROCE portion of the formula accounts for 70% of the
base bonus and is adjusted as follows based on the ratio of actual versus budget
ROCE: under 75% of budgeted ROCE--no bonus award; from 75% to 99% of budgeted
ROCE--pro-rated award; at 100% of budgeted ROCE--100% of potential ROCE bonus
and for each 1% above budgeted ROCE a $7,000 incremental increase for each
officer. The earnings growth factor is calculated on a comparison between
primary earnings per share for the fiscal year as compared to an annual Earnings
Growth Rate Target established by the Board of Directors. The growth rate target
for fiscal 1995 will be 20%
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and for each 1% plus or minus deviation of actual results from the Earnings
Growth Rate Target, the awards under the earnings growth factor for each officer
will be modified by plus or minus 5%. This new executive cash bonus plan has
been expanded to include not only the traditional ROCE measurement standard, but
also earnings growth as a critical indicator of financial health of the Company.
The objective of this Incentive Bonus Plan is to provide an additional incentive
to each officer of the Company to advance the interests of the Company and its
stockholders and create a more direct tie between annual performance and
increased shareholder values.
INCENTIVE STOCK OPTION PLAN.
The Committee considers outstanding option holdings in determining whether
to grant additional options under the Company's 1990 Incentive Stock Option Plan
to any individual. No named executive officer received a grant of options
pursuant to the ISOP during 1994 since the Committee believed that their
holdings of outstanding options were sufficient to meet the goals described
above. The Board approved of an option grant, effective on commencement of
employment on January 4, 1994, on 20,000 shares under the ISOP for a newly-hired
executive officer of the Company, who was not a named executive officer. The
exercise price for shares granted under the ISOP are determined by the closing
price for the Company's stock on the date of grant. Options are exercisable
immediately upon grant unless delays are necessary to avoid the statutory
limitations on grants established under the Internal Revenue Code. The options
are exercisable anytime during a five-year period from date of grant or the date
on which the option was first exercisable.
SUMMARY.
For the past fiscal year, combined salary and bonus have increased for Mr.
Robert E. Harmon by 17.3%. For 1994, the Company continued its strong growth
record. This growth was evidenced by record sales of $119.7 million, an increase
of 21% over 1993 levels. The Company also enjoyed record net earnings of $7.6
million, an 11% increase and record year-end backlog levels. Additionally, the
Company completed the acquisition of a significant product line in December 1994
which is expected to improve strategic positioning of the Company. Finally, the
return on assets and return on equity comparisons to the peer performance group
based on 1993 annual results indicate that the Company's return on assets at 15%
and return on equity at 29% rank the Company number one in each category among
all members of the performance peer group.
Gerald E. Myers (Chairman) Douglass Wm. List
Bruce M. Flohr Rodney L. Gray
PERFORMANCE GRAPH.
The Company has included in this proxy statement, a graph of five-year
shareholder returns on an indexed basis comparing the Company's common stock
performance to other broad market indices or an index of selected peer group
companies. The Board of Directors has approved a peer group of the Company and
ten other manufacturing and service companies in the railroad supply industry.
Revenues (on a 12-month trailing basis) for these companies range from
$109,500,000 to $2,641,300,000, as compared to $119.7 Million for the Company.
Total Assets for these companies range from $68,400,000 to $1,857,100,000, as
compared to $68.4 Million for the Company. The peer group consists of the
following companies: Harsco Corporation; Trinity Industries, Inc.; The Timken
Companies; Morrison Knudsen Corporation; Varlen Corporation; Brenco,
Incorporated; L.B. Foster Company; Union Switch & Signal Corporation; ABC Rail
Products,Inc.; Wabash National Corporation and the Company. In addition, the
performance graph shows comparisons between the Company, the peer group and the
S&P Composite 500 Stock Index. Data points for the performance graph comparisons
are included in the Legend below. All indices have been weighted for market
capitalization. The following performance graph also sets forth the percentage
of cumulative total return for the last fiscal year and cumulative return since
January 1, 1990.
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TOTAL RETURN TO SHAREHOLDERS
Comparison of Five-Year Cumulative Total Return* Among the Company, Peer
Performance Group and S&P Composite 500 Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HARMON INDUSTRIES PEER GROUP S&P 500
<S> <C> <C> <C>
Dec. 1989 100 100 100
Dec. 1990 53.29 84.94 96.89
Dec. 1991 75.34 105.23 126.28
Dec. 1992 176.4 126.81 135.88
Dec. 1993 338.1 170.46 149.52
Dec. 1994 288.93 158.24 151.55
</TABLE>
*Assumes that the value of the Company's common stock, Performance Peer Group
and S&P 500 Index were each $100 on December 31, 1990 and that all dividends
were reinvested.
DIRECTOR COMPENSATION
The Board of Directors' compensation package calls for annual fees of $8,000
plus travel expenses to and from the meetings for each director. In addition,
the directors who are not employees of the Company receive $500 for each Board
or separate committee meeting in which the director participates by attending or
through telephonic conference. In addition, each chairman of the respective
committees of the Board of Directors receives an annual payment of $500 for
acting as chairman of their committee.
The package also grants each director an annual non-qualified option to
purchase 2,000 shares of the Company's Common Stock at a price equal to the
closing market price for the last day of May in the year in which the option is
granted. This option is exercisable at any time during a two year period
following the date of grant. Stock issued under this plan will be subject to a
two year trading restriction. In accordance with this package, the Company
granted a stock option to purchase up to 2,000 shares to each of its eleven
directors on May 30, 1993. These options, which expire May 31, 1995, have an
exercise price of $13.38 per share. On May 31, 1994, options for 2,000 shares
were granted to each of the directors, which options expire May 31, 1996 and
have an exercise price of $20.50 per share. During 1994, outstanding director
options for 1,000 shares each were exercised by Messrs. Eagleton, Foudree,
Harmon, Kohn, List, Myers, Olsson and Rentz and Ms. Whittaker.
On December 8, 1994, the Board of Directors approved a compensation package
for Mr. Robert E. Harmon, in his capacity as Chairman of the Board effective
January 1, 1995. The expanded duties of the Chairman include the following:
representing the Company at national trade association meetings; assisting in
lobbying efforts; assisting in overseas representation of the Company; assisting
the
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CEO in acquisitions; assisting in the development of relationships with
securities analysts and investors; assisting with sales and promotional calls;
providing advisory services to the CEO; and conducting all Board meetings. The
Chairman's annual compensation, subject to review each year, will be
approximately $147,000 for fiscal 1995 and $73,000 for fiscal 1996.
APPROVAL OF SELECTION OF AUDITORS
Management recommends voting to approve the selection of KPMG Peat Marwick
LLP as Auditors for the Company for the forthcoming fiscal year. This firm has
served continuously as Auditors for the Company since 1969.
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting of Shareholders and will be available to make a statement, if he or she
desires to do so, and to answer appropriate questions asked by the shareholders.
APPROVAL OF INCREASE IN THE NUMBER OF SHARES
COVERED BY COMPANY'S 1990 INCENTIVE STOCK OPTION PLAN.
Management recommends voting to increase from 500,000 to 650,000 the number
of shares covered by the Company's 1990 Incentive Stock Option Plan (the "ISOP
Plan"). On September 26, 1990, the Board of Directors adopted the ISOP Plan,
subject to approval by a majority of the shares of stock represented at the
Company's annual meeting of shareholders in May 1991. At the time the ISOP Plan
was adopted, outstanding and previously approved options totaling 378,200 shares
were then held by officers of the Company under the Company's 1988 Non-Qualified
Option Plan. Those options were terminated by the agreement of the holders
thereof, and the Board of Directors then granted options totaling 349,475 shares
under the ISOP Plan.
When approved by the shareholders in May 1991, the ISOP Plan authorized the
issuance of a maximum of 500,000 shares of common stock of the Company, then
described as approximately 10% of the outstanding shares of the Company's common
stock. There are currently approximately 6,700,000 shares outstanding. As of
December 31, 1994, the Board of Directors of the Company had awarded options
pursuant to the ISOP Plan so that the amount available to be granted in the
future under the ISOP Plan totals 136,975. The Board of Directors favors
increasing the number of shares that can be issued upon exercise of such options
to provide sufficient shares for use for incentive bonuses for existing and
future officers of the Company. Such action would be consistent with past
efforts undertaken by the Board of Directors to both increase stock ownership by
executives of the Company and more closely align the financial interests of
executives of the Company with interests of the shareholders of the Company. The
options granted pursuant to the ISOP Plan have no value unless the market price
of the common stock of the Company increases subsequent to the grant of the
option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY
A DIFFERENT CHOICE.
SHAREHOLDER PROPOSALS
Mr. Louis Glaser, 1155 Francis Place, St. Louis, Missouri 63117, owner of
4,800 shares of common stock of the Company in joint tenancy with Roberta
Glaser, has informed the Company he intends to present two proposals at the
meeting. Although the Company is not required to permit a single shareholder to
communicate two proposals in this proxy, the proposals submitted by Mr. Glaser
both relate to the single subject of director compensation. For that reason, the
Company has in this instance agreed to permit communication of both proposals,
which are described separately below and which will be voted on separately at
the meeting.
SHAREHOLDER PROPOSAL NO. 1
Mr. Glaser has informed the Company he intends to present the following
proposal at the meeting:
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"RESOLVED: that the shareholders of the Company recommend the
Company terminate its practice of paying to members of the Board
of Directors a fee of $500 for attending meetings by telephonic
conference."
The following statement was submitted by Mr. Glaser in support of such
proposal:
"Payment to Board members of $500.00 for telephonic conversations that may
require a few minutes of time is without any basis and can only be considered
another windfall and perk granted to the Board member beyond his or her annual
salary. A board member receiving an $8,000.00 annual salary should be expected
to spend a few minutes on the telephone to cast his or her vote during any such
Board meetings."
STATEMENT OF DIRECTORS "AGAINST" SHAREHOLDER PROPOSAL NO. 1.
The Company has worked diligently in recent years to create a Board that has
a broad range of experience and is geographically diverse. The Board is
convinced that this strategy has provided substantial benefits to the Company.
In addition, the work of the Board is increasingly allocated to working
committees composed of members of the Board. An ancillary result of these two
changes is that some Directors can only make their substantial contribution to
meetings of the Board and the various working committees of the Board if they
are permitted to participate by phone.
There is no evidence to suggest that members of the Board who participate in
meetings by telephone are either less prepared than those attending in person or
unable to provide the meaningful participation in such meetings that they would
be able to provide if attending in person. To the contrary, the experience of
the Company suggests that phone participation both requires the same amount of
preparation by the Board member participating by phone and does not unduly
diminish the ability of such Board member to participate effectively. The
proposal does not suggest that members of the Board participating in person at a
meeting should not receive the $500 fee for attending such meeting. The duration
of meetings of the Board is typically four to six hours and committee meetings
average two to three hours. Participation in meetings by telephonic conference
does not add to or diminish the time required by each director to participate in
the meeting. Additionally, the preparation time for each director is not
materially different whether attending in person or by telephonic conference.
Finally, the participation by directors through telephonic conference has been
rarely used. During 1994, individual directors participated in Board or
Committee meetings through telephonic conference in only three instances,
representing less than 5% of all attendance by directors at Board or Committee
meetings. The Board sees no difference in the benefits to the Company provided
by those attending by telephone and those attending in person. Accordingly, the
Board believes that participation in either manner warrants receipt of the $500
fee.
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS
SPECIFY A DIFFERENT CHOICE.
SHAREHOLDER PROPOSAL NO. 2
Mr. Glaser has informed the Company he intends to present the following
proposal at the meeting:
"RESOLVED: that the shareholders of the Company recommend the
Company terminate its practice of granting options to members of
the Board of Directors pursuant to the Company's 1988 Director
Stock Option Plan."
The following statement was submitted by Mr. Glaser in support of such
proposal:
"Board members receive an annual salary of $8,000.00 plus reimbursement of
travel expenses to and from the meetings and plus $500.00 for each meeting
attended in person. Such basic compensation is adequate payment to such board
member for his or her services. To give each member a two-year option within
which to purchase the Company's stock at a price below the then prevailing
market value would be a windfall and a perk benefitting such member of the Board
at the expense of other shareholders who do not receive this risk-free
investment opportunity."
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STATEMENT OF DIRECTORS "AGAINST" SHAREHOLDER PROPOSAL NO. 2.
The 1988 Director Stock Option Plan (the "Plan") provides to each Director
each year the option to purchase only 2,000 shares of common stock of the
Company. The exercise price for those options is the market price of the common
stock of the Company at the time the options are granted, and the options lapse
if not exercised within two years. Because the Company has not incurred the
expense to cause the Plan to be characterized as a "qualified plan," the
Directors do not obtain the tax and securities law benefits that other
publicly-traded companies frequently choose to make available to their directors
as a part of such an option plan. Stock issued upon exercise of director options
is "restricted" stock, which under current law must be held at least two years
before sale on the open market.
The Company seeks to attract, retain, and motivate the best qualified
individuals to serve as members of its Board. The Board believes that the
Company would be inhibited in attracting, retaining, and motivating the most
qualified and experienced persons were it limited in its ability to compensate
such individuals with stock options. The Plan provides an economical form of
compensation as it requires no cash and its value is contingent on an increase
in the price of the common stock of the Company. The Directors believe that
Directors' benefits are not excessive, in view of the very valuable services
these experienced business leaders impart to the Company.
In recent years, many companies have adopted methods of compensating
officers and directors that relate compensation to performance of a company's
common stock. Compensation like the options provided through the Plan provide
the Board with an incentive to identify more closely with the interests of the
other shareholders of the Company. Benefits of the Plan to Directors are
directly related to the value of common stock of the Company and compensate the
Directors for providing value to all shareholders.
Finally, shareholders of the Company voted overwhelmingly at the Company's
1993 annual meeting to double, from 1,000 to 2,000, the number of options made
available to each Director pursuant to the Plan. The Board believes the reasons
for supporting that change in the Plan remain valid and to eliminate the Plan
would be disadvantageous to the Company.
THE BOARD OF DIRECTORS FAVORS A VOTE AGAINST THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS SHAREHOLDERS
SPECIFY A DIFFERENT CHOICE.
SHAREHOLDER PROPOSALS--1996 MEETING
In the event any shareholder intends to present a proposal at the Annual
Meeting of Shareholders to be held in 1996, such proposal must be received by
the Company, in writing, on or before November 12, 1995, to be considered for
inclusion in the Company's next Proxy Statement.
OTHER MATTERS
Management is not aware of any other matters which may come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote the
proxy in accordance with their best judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Harmon
Chairman
March 31, 1995
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PROXY HARMON INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 1995
The undersigned holders of shares of Common Stock of Harmon Industries, Inc.
(the "Company") hereby appoint Robert E. Harmon and Charles M. Foudree, and each
of them, attorneys, agents and proxies of the undersigned with full power of
substitution and revocation to each of them, to vote all the shares of Common
Stock which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at the Country Club of Blue Springs, 1600
N. Circle Drive, Blue Springs, Missouri on Tuesday May 9, 1995, and at any
adjournments of such meeting, with all powers which the undersigned would
possess if personally present.
1. Election of eleven (11) Directors - Nominees: Thomas F. Eagleton, Bruce
M. Flohr, Charles M.
Foudree, Rodney L. Gray,
Robert E. Harmon, Herbert
M. Kohn, Douglass Wm.
List, Gerald E. Myers,
Bjorn E. Olsson, Donald
V. Rentz, Judith C.
Whittaker.
/ / FOR all Nominees / / AUTHORITY WITHHELD from all Nominees
---- ----
/ / FOR all Nominees, except vote(s) withheld for the following
----
Nominee(s):
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2. / / FOR / / AGAINST / / ABSTENTION Selection of KPMG Peat
---- ---- ---- Marwick, LLP, as auditors
for the Company.
3. / / FOR / / AGAINST / / ABSTENTION Resolution recommending an
---- ---- ---- increase from 500,000 to
650,000 the number of shares
covered by the Company's 1990
Incentive Stock Option Plan.
4. / / FOR / / AGAINST / / ABSTENTION Resolution recommending the
---- ---- ---- Company terminate its practice
of paying to members of the
Board of Directors a fee
for attending meetings by
telephonic conference.
5. / / FOR / / AGAINST / / ABSTENTION Resolution recommending the
---- ---- ---- company terminate its practice
of granting options to members
of the Board of Directors
pursuant to the Company's 1988
Director Stock Option Plan.
6. Upon such other business as may properly come before said meeting or any
adjournment or adjournments thereof.
(Please sign reverse side and return promptly)
(Reverse Side)
UNLESS OTHERWISE DIRECTED, THE MANAGEMENT PROXY COMMITTEE WILL VOTE FOR THE
ELECTION OF ELEVEN (11) DIRECTORS AS LISTED IN THE PROXY STATEMENT, FOR THE
SELECTION OF KPMG PEAT MARWICK, LLP, FOR THE RESOLUTION RECOMMENDING AN
INCREASE FROM 500,000 TO 650,000 THE NUMBER OF SHARES COVERED BY THE
COMPANY'S 1990 INCENTIVE STOCK OPTION PLAN. AGAINST THE RESOLUTION
RECOMMENDING THE COMPANY TERMINATE ITS PRACTICE OF PAYING TO MEMBERS OF THE
BOARD OF DIRECTORS A FEE FOR ATTENDING MEETINGS BY TELEPHONIC CONFERENCE,
AND AGAINST THE RESOLUTION RECOMMENDING THE COMPANY TERMINATE ITS PRACTICE OF
GRANTING OPTIONS TO MEMBERS OF THE BOARD OF DIRECTORS PURSUANT TO THE
COMPANY'S 1988 DIRECTOR STOCK OPTION PLAN.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
and Proxy Statement of the Company dated March 31, 1995.
DATED , 1995
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(Where stock is registered jointly
in the names of two or more
persons, all should sign.
Signatures should correspond
exactly with the name or names on
the stock certificate. Executing
partners, trustees, guardians,
etc., should so indicate when
signing.)
THIS PROXY IS SOLICITED BY THE
BOARD OF DIRECTORS
<PAGE>
INSTRUCTION CARD
HARMON INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 1995
INSTRUCTIONS TO: THE MIDAMERICAN BANK & TRUST, TRUSTEE OF THE HARMON
INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST,
FOR VOTING AT THE ANNUAL MEETING OF SHAREHOLDERS OF HARMON
INDUSTRIES, INC. ON MAY 9, 1995.
Please vote the shares held by you for my account as specified upon the
proposals listed below:
1. Election of eleven (11) Directors - Nominees: Thomas F. Eagleton, Bruce
M. Flohr, Charles M.
Foudree, Rodney L. Gray,
Robert E. Harmon, Herbert
M. Kohn, Douglass Wm.
List, Gerald E. Myers,
Bjorn E. Olsson, Donald
V. Rentz, Judith C.
Whittaker.
/ / FOR all Nominees / / AUTHORITY WITHHELD from all Nominees
/ / FOR all Nominees, except vote(s) withheld for the following
Nominee(s):
--------------------------------------------------------------------------
-------------------------------------------------------------------------
2. / / FOR / / AGAINST / / ABSTENTION Selection of KPMG Peat
---- ---- ---- Marwick, LLP, as auditors
for the Company.
3. / / FOR / / AGAINST / / ABSTENTION Resolution recommending an
---- ---- ---- increase from 500,000 to
650,000 the number of shares
covered by the Company's 1990
Incentive Stock Option Plan.
4. / / FOR / / AGAINST / / ABSTENTION Resolution recommending the
---- ---- ---- Company terminate its practice
of paying to members of the
Board of Directors a fee
for attending meetings by
telephonic conference.
5. / / FOR / / AGAINST / / ABSTENTION Resolution recommending the
---- ---- ---- company terminate its practice
of granting options to members
of the Board of Directors
pursuant to the Company's 1988
Director Stock Option Plan.
6. Upon such other business as may properly come before said meeting or any
adjournment or adjournments thereof.
(Please sign reverse side and return promptly)
(Reverse Side)
UNLESS OTHERWISE DIRECTED, THE MANAGEMENT PROXY COMMITTEE WILL VOTE FOR THE
ELECTION OF ELEVEN (11) DIRECTORS AS LISTED IN THE PROXY STATEMENT, FOR THE
SELECTION OF KPMG PEAT MARWICK, LLP, FOR THE RESOLUTION RECOMMENDING AN
INCREASE FROM 500,000 TO 650,000 THE NUMBER OF SHARES COVERED BY THE
COMPANY'S 1990 INCENTIVE STOCK OPTION PLAN. AGAINST THE RESOLUTION
RECOMMENDING THE COMPANY TERMINATE ITS PRACTICE OF PAYING TO MEMBERS OF
THE BOARD OF DIRECTORS A FEE FOR ATTENDING MEETINGS BY TELEPHONIC
CONFERENCE, AND AGAINST THE RESOLUTION RECOMMENDING THE COMPANY TERMINATE ITS
PRACTICE OF GRANTING OPTIONS TO MEMBERS OF THE BOARD OF DIRECTORS PURSUANT TO
THE COMPANY'S 1988 DIRECTOR STOCK OPTION PLAN.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
and Proxy Statement of the Company dated March 31, 1995.
DATED , 1995
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Participant's Signature
