Filed with the Commission on March 27, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14A-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934
Filed by the Registrant |X| Filed by a party | |
other than the Registrant
Check the appropriate box:
| | Preliminary Proxy Statement | | Definitive Additional Materials
| | Confidential, for Use of the Commission | | Soliciting Material Pursuant to
Only (as permitted by Rule 14a-6(e)(2)) ss. 240.14a-11(c) or ss.
240.14a-12
|X| Definitive Proxy Statement
Filing By:
Harmon Industries, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required | | Fee computed below per Exchange
Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): _____________________________
4) Proposed maximum aggregate value of transaction: _________________________
5) Total fee paid: __________________________________________________________
| | Fee paid previously with preliminary materials
| | Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: __________________________________________________
2) Form, Schedule or Registration Statement No.: ____________________________
3) Filing Party: ____________________________________________________________
4) Date Filed: ______________________________________________________________
<PAGE>
Harmon Industries, Inc.
1300 Jefferson Court
Blue Springs, Missouri 64015
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
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 April
1, 1998. 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 12, 1998 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.
On February 27, 1998, the Company effected a 3 for 2 stock split, paid as
a dividend to shareholders of record February 13, 1998. All share information,
including current and historical data, has been adjusted in this proxy statement
to reflect this stock split.
The Board of Directors of the Company has fixed the close of business on
March 16, 1998, 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 10,521,189 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 a 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 will be treated as present at the meeting for purposes of determining
a quorum but are tabulated as if no vote was cast on the matter indicated.
Directors are elected by a plurality of the votes cast. Shareholders do not have
the right to accumulate votes in the election of directors. 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.
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<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 16, 1998 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.
Title Name and Address of Beneficial Percent
of Class Beneficial Owner Ownership (1) of Class (2)
-------- ------------------- ------------- ------------
Common Stock St. Denis J. Villere & Company 1,139,775 11%
210 Baronne Street, Suite 808 (3)
New Orleans, LA 70112-1727
Common Stock Wellington Management Company, LLP 827,400 8%
75 State Street (4)
Boston, Massachusetts 02109
Common Stock Mercantile Bancorporation Inc. 768,360 7%
#1 Mercantile Center
St. Louis, MO 63101
Common Stock Charles M. Foudree 64,000 1%
(5)
Common Stock Robert E. Heggestad 37,185 --%
(6)
Common Stock Lloyd T. Kaiser 40,822 --%
(7)
Common Stock Bjorn E. Olsson 51,000 --%
(8)
Common Stock Raymond A. Rosewall 35,250 --%
(9)
Common Stock Beneficial ownership of 920,725 9%
all officers and
directors as a group
(20 in group)
(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. Shares in the ESOP allocated to Messrs.
Foudree, Heggestad, Kaiser, Olsson and Rosewall and all officers and
directors as a group were 8,070; 6,630; 2,686; 2,778; 3; and 49,615
shares, respectively.
2
<PAGE>
(2) Rounded to the nearest whole percentage. Percentages are calculated on
10,829,289 shares representing the total of 10,521,189 outstanding shares
(including certain shares held in a Rabbi Trust) and 308,100 shares for
unexercised director, ISOP options and LTIP options.
(3) St. Denis J. Villere & Company has shared voting power and shared
dispositive power over 1,139,775 shares.
(4) Wellington Management Co. has shared voting power over 464,250 shares and
shared dispositive power over 827,400 shares.
(5) 41,250 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. 9,700 shares are held by the Charles M. Foudree Trust
with sole voting and disposition power. 300 shares are held directly by
Charles M. Foudree. The remainder are held by Charles M. Foudree and
represent unexercised option shares.
(6) 26,685 shares are owned by Robert E. Heggestad with sole voting and
dispositive power. The remainder represent unexercised option shares.
(7) 30,322 shares are held by Lloyd T. Kaiser with sole voting and dispositive
power. The remainder represent unexercised option shares.
(8) 38,250 shares are held by Bjorn E. Olsson with sole voting and dispositive
power, not including 24,150 shares held by a Rabbi Trust for deferred
compensation, 8,740 shares of which are currently vested. The remainder
represent unexercised option shares.
(9) Raymond A. Rosewall holds no shares directly with sole voting and
dispositive power. 35,250 shares represent unexercised option shares.
Section 16(a) Beneficial Ownership Reporting
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 only one late filing of
such forms by any person required to file such forms in connection with Section
16(a) of the Securities Exchange Act of 1934, as amended. A Form 4 was filed
approximately one month late by a director relating to beneficial ownership
changes of his children. 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
Ten 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 1997,
the Board of Directors held five 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 Nomination and Compensation Committee proposes nominees for
Board positions and evaluates director compensation. The Committee consists of
Herbert M. Kohn (Chair), Douglass Wm. List, Bruce M. Flohr and Judith C.
Whittaker. Mr. List joined the Committee in May 1997. The Committee met two
times during 1997. The Committee will consider proposed director
3
<PAGE>
candidates submitted by shareholders. Proposals for the 1999 election must be
received in writing on or prior to November 13, 1998.
The Audit Committee of the Board of Directors was composed of Judith C.
Whittaker (Chair), Herbert M. Kohn and Gerald E. Myers during 1997.
Additionally, Thomas F. Eagleton was a member of the Committee until his
retirement as a director in May 1997. 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 1997.
The Compensation Committee was composed of Rodney L. Gray (Chair), Bruce M.
Flohr and Douglass Wm. List during 1997. Additionally, Donald V. Rentz was a
member of the Committee until his retirement as a director in May 1997. 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 1997, the Compensation
Committee met six times.
DIRECTOR NOMINEES
-----------------
Served Stock
Continuously Per- Owned
Name as a cent Benefi-
Of Principal Occupation Director Of Class cially
Nominee Age For Last Five Years Since (2) (1)
------- --- -------------------- ------------ -------- -------
Bruce M. 59 Since 1977, Chairman 05/11/93 --% 6,000
Flohr and Chief Executive (3)
Officer of RailTex, Inc.
Charles 53 Executive Vice President- 07/27/72 1% 64,000
M. Foudree Finance of the Company (4)
since Sept. 1986.
Treasurer of the Company
since 1974. Secretary of
the Company since 1982.
Rodney L. 45 Since November 1997, 05/11/93 --% 12,000
Gray Executive Vice President, (5)
Finance of Enron
International, Inc.;
from 1994 to November 1997,
Chairman and Chief
Executive Officer of Enron
Global Power & Pipelines,
LLC; prior to that, Senior
Vice-President-Finance and
Treasurer of Enron Corp.
from October 1992 to 1994.
4
<PAGE>
Served Stock
Continuously Per- Owned
Name as a cent Benefi-
Of Principal Occupation Director Of Class cially
Nominee Age For Last Five Years Since (2) (1)
------- --- -------------------- ------------ -------- -------
Robert E. 59 Chairman of the Board 10/02/61 4% 386,938
Harmon of the Company since (6)
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 59 Since June 1991, a 09/01/85 --% 40,650
M. Kohn partner in the law firm (7)
of Bryan Cave.
Douglass 42 Since January 1988, 05/08/90 --% 6,300
Wm. List President, List & (8)
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. Since January
1997, President of
Moorgate, Inc., an
investment advisory
company.
Gerald E. 56 Self-employed 05/03/88 --% 46,376
Myers management consultant (9)
through GEM Financial
Services, Inc. since
July 1989.
Bjorn E. 52 President and Chief 05/06/86 --% 51,000
Olsson Executive Officer of (10)
the Company since January
1995; President and Chief
Operating Officer of the
Company from August 1990
to December 1994.
5
<PAGE>
Served Stock
Continuously Per- Owned
Name as a cent Benefi-
Of Principal Occupation Director Of Class cially
Nominee Age For Last Five Years Since (2) (1)
------- --- -------------------- ------------ -------- -------
John A. 44 Managing General New nominee --% -0-
Sprague Partner of a private
equity investment firm,
Jupiter Partners, LP
since 1994; from June
1993 to Feb. 1994, a
private investor.
Judith C. 59 Since January 1997, 05/11/93 --% 6,000
Whittaker Vice President, General (11)
Counsel/ Secretary of
Hallmark Cards,
Incorporated; prior to
that Vice-
President-Legal of
Hallmark Cards,
Incorporated.
(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
shared voting rights. Shares in the ESOP allocated to Messrs. Foudree and
Olsson were 8,070 and 2,778 shares, respectively.
(2) Percentages shown are rounded to the nearest whole percentage. Percentages
are calculated on 10,829,289 shares representing the total of 10,521,189
outstanding shares (including certain shares held in a Rabbi Trust) and
308,100 shares for unexercised director ISOP and LTIP options.
(3) 6,000 shares are beneficially owned and held of record by Bruce
M. Flohr.
(4) 41,250 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. 9,700 shares are held by the Charles M. Foudree Trust
with sole voting and disposition power. 300 shares are held directly by
Charles M. Foudree. The remainder are held by Charles M. Foudree and
represent unexercised option shares.
(5) 9,000 shares are held of record by Rodney L. Gray. The remainder represent
unexercised LTIP director options.
(6) 12,030 shares are held by Robert E. Harmon directly. 368,908 shares are
held of record by Robert E. Harmon, as Trustee for the Robert E. Harmon
Trust, with sole voting and dispositive powers. Does not include 11,430
shares owned by his wife for which Robert E. Harmon disclaims beneficial
ownership. The remainder are held by Robert E. Harmon and represent
unexercised director options.
(7) 18,000 shares are held directly by Herbert M. Kohn. 19,650 shares are held
through an IRA and the remainder represent unexercised LTIP director
options.
(8) 3,000 shares are held through an IRA. 300 shares in the aggregate are held
on behalf of the daughters of Douglass William List. The remainder
represent unexercised LTIP director options. Does not include 300 shares
held by Moorgate Foundation Fund, L.L.C., for which Mr. List disclaims
beneficial ownership. Mr. List owns approximately 9% of Moorgate
Foundation Fund, L.L.C. Moorgate, Inc., an investment advisory company,
6
<PAGE>
provides investment advisory services to Moorgate Foundation Fund, L.L.C.,
and Mr. List is President of Moorgate, Inc.
(9) Includes 43,114 shares which are held in a living trust, 262 shares are
held in an IRA and the remainder represent unexercised LTIP director
options.
(10) 38,250 shares are held by Bjorn E. Olsson with sole voting and dispositive
power, not including 24,150 shares held by a Rabbi Trust for deferred
compensation, 8,740 shares of which are currently vested. The remainder
represent unexercised option shares.
(11) 3,000 shares are held directly by Judith C. Whittaker. The remainder
represent unexercised LTIP director options.
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., 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
publicly-held company. Mr. Kohn is a director of American Pad & Paper Company, a
publicly-held company. Mr. Sprague is a director of Heartland Wireless
Communications, Inc., a publicly-held company. Mr. Sprague is a director of
Heartland Communications, Inc., a publicly-held 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 law 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 (together hereafter referred to as
the "named executive officers") for the fiscal years ended December 31, 1997,
1996 and 1995:
7
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
Summary Compensation Table
==================== --------------------------------------- ------------------------------ ========
Long Term Compensation
Annual Compensation<F1>
--------------------- --------
Awards Payouts
--------- -------- --------- ---------- ------------ -------- --------
Other All
Name Annual Restricted Options Other
And Compen- Stock (# of LTIP Compen-
Principal Fiscal Salary Bonus sation Award(s) Shs.) Payouts sation
Position Year ($)<F2> ($)<F3> ($) ($) <F4> ($) ($)<F5>
==================== --------- -------- --------- ---------- ------------ -------- -------- =========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bjorn E. Olsson 1997 305,848 192,309 -- -- 5,250 -- 162,418
----
President & CEO 1996 298,274 218,791 -- -- 5,250 -- 47,028
----
1995 264,747 -- -- -- -- -- 44,339
----
==================== --------- -------- --------- ---------- ------------ -------- -------- =========
Charles M. Foudree 1997 180,445 110,498 -- -- 5,250 -- 51,307
----
Executive V.P. - 1996 176,568 109,895 -- -- 5,250 -- 75,304
----
Finance, Secretary 1995 163,281 -- -- -- -- -- 70,470
----
and Treasurer
- -------------------- --------- -------- --------- ---------- ------------ -------- -------- =========
Robert E. Heggestad 1997 131,061 82,505 -- -- 5,250 -- 10,909
----
Vice 1996 130,738 77,455 -- -- 5,250 -- 72,515
----
President-Technology 1995 129,352 -- -- -- -- -- 85,652
----
- -------------------- --------- -------- --------- ---------- ------------ -------- -------- =========
Lloyd T. Kaiser 1997 151,131 98,842 -- -- 5,250 -- 10,909
----
Executive Vice 1996 156,717 103,441 -- -- 5,250 -- 20,693
----
President-Domestic 1995 151,821 -- -- -- -- -- 22,317
----
Sales & Service
==================== ========= ======== ========= ========== ============ ======== ======== =========
Raymond A. 1997 137,163 85,186 -- -- 5,250 -- 5,454
----
Rosewall 1996 172,651 81,145 -- -- 30,000 -- 36,049
----
Vice President 1995 -- -- -- -- -- -- --
----
Manufacturing
==================== ========= ======== ========= ========== ============ ======== ======== =========
<FN>
<F1> 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.
<F2> Salary includes amounts deferred under the Company's 401(k) and the SERP
at the election of the named executive officer.
<F3> Bonus consists of cash. (See discussion under the heading "Employment
Contracts" below.)
<F4> Includes grants of options in the amount of 5,250 shares in 1997
under the Company's 1996 Long-Term Incentive Plan and in 1996
under the Company's 1990 Incentive Stock Option Plan.
<F5> Includes allocation of contributions to the Company's Deferred
Compensation Plan, SERP 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 1997 to the Company's
ESOP for Messrs. Olsson, Foudree, Heggestad, Kaiser and Rosewall were
$10,909; $10,909; $10,909; $10,909; and $5,454, respectively. The
remainder shown for each in the column represents allocation of
contributions for such named executive officers under the Company's
Deferred Compensation Plan. During 1997, a total of 24,150 shares were
deposited in a Rabbi Trust for deferred compensation through the SERP
allocated to Mr. Olsson, 8,740 shares of which were vested. $124,011 of
the amount included in this column for Mr. Olsson in 1997 represents the
value of the vested shares. (See discussion under the heading "Pension
Plan" below.)
</FN>
</TABLE>
8
<PAGE>
Stock Options and Stock Appreciation Rights.
During 1997, all of the named executive officers received a grant of stock
options under the Company's 1996 Long-Term Incentive Plan. The Company has no
outstanding Stock Appreciation Rights (SARs). The following table contains
information concerning the grant of stock options under the Company's 1996
Long-Term Incentive Plan to the named executive officers (see discussion below
under "Compensation Committee Report--1996 Long-Term Incentive Plan"):
<TABLE>
<CAPTION>
==================================================================================================
Option Grants in Last Fiscal Year
- -------------------------------------------------------------------------- =======================
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term(3)
===================== ------------ ------------- ------------ ------------ ----------- ===========
Name Options % of Total Exercise Expiration 5% ($) 10% ($)
Granted Options or Base Date(2)
(1) Granted to Price
(# of Employees ($/Sh)
Shares) In Fiscal
Year
===================== ------------ ------------- ------------ ------------ ----------- ===========
<S> <C> <C> <C> <C> <C> <C>
Bjorn E. Olsson 5,250 4.3 12.17 2/14/02 26,225 61,750
through
2/14/06
===================== ------------ ------------- ------------ ------------ ----------- ===========
Charles M. Foudree 5,250 4.3 12.17 2/14/02 26,225 61,750
through
2/14/06
===================== ------------ ------------- ------------ ------------ ----------- ===========
Robert E. Heggestad 5,250 4.3 12.17 2/14/02 26,225 61,750
through
2/14/06
===================== ------------ ------------- ------------ ------------ ----------- ===========
Lloyd T. Kaiser 5,250 4.3 12.17 2/14/02 26,225 61,750
through
2/14/06
===================== ============ ============= ============ ============ =========== ===========
Raymond A. Rosewall 5,250 4.3 12.17 2/14/02 26,225 61,750
through
2/14/06
===================== ============ ============= ============ ============ =========== ===========
</TABLE>
(1) Each of Messrs. Olsson, Foudree, Heggestad, Kaiser and Rosewall received
5,250 shares pursuant to a non-qualified stock option grant from the
Company's 1996 Long-Term Incentive Plan (LTIP) in 1997. For a description
of the terms of the options see "Compensation Committee Report-Incentive
Stock Option Plan" below.
9
<PAGE>
(2) The exercise price for non-qualified LTIP equals the fair market value of
the underlying shares on the date of grant. The grants are 20% vested at
the date of grant and an additional 20% vests on each anniversary of the
date of grant until fully vested. Non-qualified LTIP options expire on the
later of five years from the date of grant or the date the options first
become exercisable. The following tables illustrate the effect of vesting,
expiration dates and assumed appreciation calculated at specified rates
for 5,250 share options granted on February 14, 1997, with vesting as
shown:
<TABLE>
<CAPTION>
================================================================================================
Term Future Implied per Potential
Grant Date Date Shares of Stock Price @ Share Realizable Value @
Price Vested Expires Vested Option Appreciation
In @
Years
------------------------------------------------------
5% 10% 5% 10% 5% 10%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$12.17 2/14/97 2/14/02 1,050 5 $15.53 $19.60 $3.36 $7.43 $3,531 $7,802
2/14/98 2/14/03 1,050 6 $16.31 $21.56 $4.14 $9.39 $4,346 $9,859
2/14/99 2/14/04 1,050 7 $17.12 $23.72 $4.95 $11.55 $5,202 $12,123
2/14/00 2/14/05 1,050 8 $17.98 $26.09 $5.81 $13.92 $6,101 $14,613
2/14/01 2/14/06 1,050 9 $18.88 $28.70 $6.71 $16.53 $7,045 $17,353
------ -------
$26,225 $61,750
================================================================================================
</TABLE>
(3) These amounts represent only the fully vested amounts over the full
vesting period (see footnote 2 above) and certain assumed rates of
appreciation only. The assumed rates may have no correlation to current or
future actual market conditions.
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 1988 Director Option Plan ("Director"), 1990 Incentive Stock Option
Plan ("ISOP") and 1996 Long-Term Incentive Plan ("LTIP"):
10
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Aggregated Option Exercise in Last Period and FY-End Option Values
======================================================================================================
Value (in $)
of
Number Unexercised
of In-the-Money
Number Unexercised Options at
of Shares Options/ 12/31/97
Type of Acquired Value (in $) Shares at <F2><F3>
Name Option on Exercise Realized<F1> 12/31/97
- ------------------------- ------------- --------------- ---------------- -------------- ==============
<S> <C> <C> <C> <C> <C>
Bjorn E. Olsson Director 3,000 2,000 -- --
ISOP 1,500 3,875 7,500 60,383
LTIP -- -- 5,250 33,233
- ------------------------- ------------- --------------- ---------------- -------------- ==============
Charles M. Foudree Director 3,000 2,000 -- --
ISOP -- -- 7,500 67,883
LTIP -- -- 5,250 33,233
- ------------------------- ------------- --------------- ---------------- -------------- ==============
Lloyd T. Kaiser ISOP 8,250 65,312 5,250 47,250
LTIP -- -- 5,250 33,233
- ------------------------- ------------- --------------- ---------------- -------------- ==============
Robert E. Heggestad ISOP -- -- 5,250 47,250
LTIP -- -- 5,250 33,233
- ------------------------- ------------- --------------- ---------------- -------------- ==============
Raymond A. Rosewall ISOP -- -- 30,000 285,000
LTIP -- -- 5,250 33,233
- ------------------------- ------------- --------------- ---------------- -------------- ==============
<FN>
<F1> Market price at exercise less exercise price times the number of options
exercised.
<F2> There are no SARs.
<F3> Market price at 12/31/97 ($18.50) less exercise price.
</FN>
</TABLE>
Long-Term Incentive Plans.
Under the 1996 Long-Term Incentive Plan (the "1996 Plan"), the
Compensation Committee may establish vesting criteria for the grant of options
or other permitted awards under the 1996 Plan. The Compensation Committee
currently anticipates that the primary awards vehicle under the plan will
consist of non-qualified options, with vesting over a four-year period from the
date of grant so that 20% of the grant vests at grant and the remaining amount
will vest on the anniversary of the grant for the next four years. There are no
performance-based criteria relating to the award or vesting under the
contemplated plan in connection with the non-qualified options. The exercise
prices of such non-qualified options equals the Closing price for the Company's
stock on the date of grant. Under the 1996 Plan, the Compensation Committee
currently anticipates that grants to executive officers will be in the amount of
5,250 option shares per year so that 1,050 option shares will be vested as of
the date of grant and an additional 1,050 option shares will vest over each of
the following four years from the date of grant. In addition, the Compensation
Committee anticipates granting non-qualified options to certain key employees of
the Company, which grants will be in the amount of 750 option shares, with 150
option shares vested upon grant and 150 option shares vesting in each of the
following four years following the date of grant. Finally, grants of LTIP shares
are anticipated to five Assistant Vice
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Presidents at 1,500 non-qualified option shares to each with similar vesting
percentage provisions to those options granted to officers.
Under the 1996 Plan, on the last business day of May, commencing May 31,
1996 (or if later, on the date on which the person is first elected or begins to
serve as a non-employee director, other than by reason of termination of
employment) and, thereafter on the date of each annual meeting of shareholders
of the Company, each person who is a non-employee director after such meeting of
stockholders shall be granted a non-qualified option for 1,500 option shares of
the Common Stock of the Company. The option amount shall be prorated if such
non-employee director is first elected or begins to serve as a non-employee
director on a date other than the date of an annual meeting of stockholders. The
exercise prices of such non-qualified options equal the Closing price for the
Company's stock on the date of grant. Options granted to non-employee directors
pursuant to the 1996 Plan will immediately vest and will have a term of seven
years for exercise.
On May 13, 1997, each of the non-employee directors received a grant of
1,500 non-qualified options, with an exercise price of $13.00 per share. On
February 14, 1997, non-qualified options for 68,250 option shares (5,250 to each
officer) were issued to 13 key employees under the 1996 Plan. Additionally, on
February 14, 1997, non-qualified options for 40,500 option shares (750 to each
key employee) were granted to 54 key employees of the Company. The exercise
price of the officer and key employee options was $12.17 per share, and the
other terms of such options were as set forth above.
Pension Plans.
The Company has no defined benefit pension plans. The Company has a
non-qualified, unfunded deferred compensation plan and trust for certain
officers and key employees, providing for 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 1997 was approximately
$573,000 and amounts allocated to the named executive officers are included in
the "All Other Compensation" column of the Summary Compensation Table.
Participation in the Deferred Compensation Plan and Trust has been frozen and no
additional participants are permitted.
On October 7, 1997, the Compensation Committee of the Board of Directors
approved the establishment of one or more defined contribution plans for
executive management of the Company who were not covered under the prior
deferred compensation plan of the Company. The defined contribution plans have a
variable contribution level up to 12% of base salary for new members of senior
management. Contribution levels above 12% require Compensation Committee
approval. Contributions are made in cash and stock to a rabbi trust with vesting
over a rolling period based on 20% at the time of contribution and 20% on each
of the anniversary dates of the contribution until fully vested. Finally, the
defined contribution plan includes life insurance coverage at eight times
current salary up to a cap of $1,400,000. Currently, the only member of senior
management participating in a defined contribution plan is William L. Bush.
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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 with respect to hours and years of service are eligible to participate.
Allocations are based on the ratio that an eligible individual's salary (subject
to current regulatory caps) represents 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 ESOP, the Company is
not required to make any contributions, other than matching employee 401K
contributions up to 4% of eligible compensation. However, the Company's current
intention is to contribute approximately 15% of the Company's pre-tax earnings
to the ESOP. The 15% contribution would include the funds required to fulfill a
portion of the Company's obligation to match a portion of the employee's 401K
contribution. The contribution to the ESOP for the years ended December 31,
1995, 1996 and 1997 totaled $2,785,000, $3,815,000 and $3,874,000, 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 1997, the Company did not cancel, regrant or reprice any
outstanding stock options.
Compensation Committee Interlocks and Insider Participation.
Mr. Rodney L. Gray (Chairman), Mr. Douglass Wm. List, Mr. Bruce M. Flohr
and Mr. Donald V. Rentz (until his retirement) served on the Compensation
Committee of the Company during the past fiscal year. 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.
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. Olsson, Foudree, Heggestad, Kaiser and Rosewall had employment
contracts with the Company as of December 31, 1997 which provides for the
payment to such officers of annual base salaries of $325,000, $182,481,
$135,570, $156,933 and $140,933, respectively. The employment contracts have a
rolling 12-month term, except that Mr. Olsson's contract has a rolling 24-month
term. For the year ended December 31, 1997, these officers' contracts included
an annual cash bonus. Cash bonuses paid to the named executive officers for
calendar year 1997 under the cash bonus plan were $192,309, $110,498, $82,505,
$98,842 and $85,186, respectively. (See description below under "Compensation
Committee Report on Bonuses".)
During 1997, non-qualified LTIP options for 5,250 shares were granted to
each of thirteen executive officers effective February 14, 1997 at an exercise
price of $12.17 per share. (See discussion in the Compensation Committee Report
under "Bonuses" below.)
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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
Responsibilities and Composition of the Committee.
The Compensation Committee is responsible for (i) establishing
compensation programs for executive officers of the Company and its subsidiaries
designed to attract, motivate and retain key executives responsible for the
success of Company as a whole; (ii) administering and maintaining such programs
in a manner that will benefit the long-term interests of the Company and its
shareholders; and (iii) determining the compensation of the Company's executive
officers and certain key employees. The Committee serves pursuant to a charter
adopted by the Board of Directors. The Committee is composed entirely of
directors who have not served as officers or employees of the Company within the
past ten years.
Compensation Philosophy and Objectives.
The Committee believes that the Company's executive officer compensation
should be determined according to a competitive framework and based on overall
financial results, individual contributions and teamwork that together help
build value for the Company's shareholders. Within this overall philosophy the
Committee addresses a number of specific objectives, including (i) a total
compensation program that takes into account compensation practices and
financial performance as compared to similar companies, (ii) annual bonus
programs that take into account the Company's overall performance relative to
corporate objectives established in advance by the Committee which help create
value for the Company's shareholders, and (iii) alignment of the financial
interests of executive officers to those of shareholders by providing equity
based compensation through option grants and through mandatory minimum
shareholding requirements.
The Committee believes that the top management of the Company 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 measures 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.
Compensation Components and Process.
There are three major components of the Company's executive officer
compensation: (i) base salary; (ii) annual bonuses and (iii) equity incentives
through ISOP and LTIP option grants and minimum shareholding requirements.
During 1997, the Committee utilized option grants under the Company's 1996
Long-Term Incentive Plan ("LTIP"). Upon approval by the shareholders, the
Committee replaced the ISOP plan and the 1988 Director Option Plan with the
Company's new 1996 Long Term Incentive Plan (the "1996 Plan"). The Committee
began use of this plan during 1996. The 1996 Plan operates to cover both the
executive officer group, as well as a fairly extensive key employee group.
Non-employee directors also receive an automatic annual option grant of 1,500
shares each year. (See discussion above under Executive Compensation--Long-Term
Incentive Plan).
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The process utilized by the Committee in determining executive officer
compensation levels for all of these components is based on the Committee's
objective judgment and takes into account both qualitative and quantitative
factors. No predetermined weights are assigned to such factors with respect to
any compensation component. 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 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. Among the factors
considered by the Committee are the recommendation of the Chief Executive
Officer with respect to compensation of the Company's other key executive
officers. However, the Committee makes the final compensation decisions
concerning such officers.
Comparative information is utilized by the Company relating its peer group
(as set forth below under the section herein dealing with the "Performance
Graph"). In addition, the Committee reviews at least two other surveys of
industry trade groups with similarities the Company's operations. The trade
group survey data sources are standard general indices constructed and provided
by outside vendors. The surveys consist of many more data points than the
limited number of companies in the peer performance stock group. In making
compensation decisions, the Committee also from time to time receives
assessments and advice regarding the compensation practices of the Company and
others from independent compensation consultants. During 1997, 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, the electronic
equipment manufacturing industry and the greater Kansas City area.
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 base salaries for similar
positions at companies with similar levels of sales and overall financial
performance. Annual cash bonus and equity awards, which are directly linked to
the short-term and long-term financial performance of the Company as a whole,
are designed to provide better than competitive pay only for better than
competitive financial performance.
Base Salary.
On August 20, 1997, the Committee conducted a review of the performance
and compensation of the Company's executive officer group, including Bjorn E.
Olsson and the other named executive officers. This review included an analysis
of key accomplishments of each officer, an evaluation of achievement of
individual goals and objectives, and an assessment of their contributions to the
Company's performance. Based on this review and its assessment of competitive
compensation practices, the Committee recommended a general increase in base
salaries of 4% for certain executive officers and key employees (including some
of the named executive officers) effective September 1, 1997.
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Bonuses.
The Company's cash bonus or Incentive Bonus Plan for its Executive Officer
Group includes not only the traditional ROCE (Return on Capital Employed)
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 so as to
advance the interests of the Company and its stockholders and create a more
direct tie between annual performance and increased shareholder values. The
Committee believes that the cash bonus plan encourages the creation of
shareholder wealth by creating incentives both to maximize operating profit for
the Company and minimize capital employed. Additionally, the cash bonus plan
rewards efficiencies in production and innovation in quality-based productivity
techniques. The executive cash bonus plan was based on 70% weighting for ROCE
and 30% weighting for earnings growth for 1997. For 1998, the executive cash
bonus plan will be based on 50% weighting for ROCE and 50% weighting for
earnings growth. The formula for ROCE is the sum of pretax earnings plus
interest expense divided by the sum of average total assets minus non-interest
bearing liabilities. The new proposal establishes target base bonus levels as a
percentage of current base salary. Percentages are 35%, with the exception of
Mr. Olsson, whose target base bonus is established at 45% of his base salary.
For 1997, the base bonus levels for Messrs. Olsson, Foudree, Heggestad, Kaiser
and Rosewall were $131,332, $61,412, $38,369, $51,817 and $40,576, respectively.
For 1998, the base bonus levels of Messrs. Olsson, Foudree, Heggestad, Kaiser
and Rosewall will be $146,250, $63,868, $40,671, $54,927; and $42,199,
respectively. 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 10% for fiscal 1997 and 1998. The ROCE portion of the formula 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
bonus award; at 100% of budgeted ROCE--100% of potential ROCE bonus award and
for each 1% above budgeted ROCE a $7,000 incremental increase for each officer.
For 1997, budgeted ROCE was 18.7% and actual ROCE was 23.8%. Targeted
earnings per share growth was 10% and actual primary earnings per share growth
was 16.5%. Amounts payable under the cash bonus plan for 1997 to all
participants totaled $1,123,900 and the named executive officers, Messrs.
Olsson, Foudree, Heggestad, Kaiser and Rosewall received the following amounts:
$192,309, $110,498, $82,505, $98,842 and $85,186, respectively.
Incentive Stock Option Plan.
The Committee historically considered outstanding option holdings in
determining whether to grant additional options under the Company's 1990
Incentive Stock Option Plan to any individual. Each of the named executive
officers received no grant of options pursuant to the ISOP during 1996 except
for 5,250 option shares granted in lieu of their annual stock bonus. The
exercise price for option shares granted under the ISOP is equal to 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. Upon approval of the 1996 Long-Term
Incentive Plan by the Shareholders of the Company on May 14, 1996, the 1990
Incentive Stock Option Plan was replaced. No additional grants
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are permitted under the 1990 ISOP, although outstanding options remain
exercisable in accordance with their terms.
Long-Term Incentive Plans.
On May 14, 1996, the shareholders of the Company approved the Company's
1996 Long-Term Incentive Plan ("1996 Plan"), which plan became effective May 31,
1996. The purposes of the 1996 Plan are (i) to align the interests of the
Company's shareholders and recipients of awards under the 1996 Plan by
increasing the proprietary interests of such recipients in the Company's growth
and success, and (ii) to advance the interests of the Company by attracting and
retaining officers, other employees and non-employee directors. Upon adoption of
the 1996 Plan, it replaced both the Company's 1988 Non-Qualified Director Option
Plan and the Company's 1990 Qualified Incentive Stock Option Plan. Outstanding
options under both the 1988 Non-Qualified Director Option Plan and the 1990
Incentive Stock Option Plan remain valid although no new grants were permitted
under either plan after May 31, 1996.
Under the 1996 Plan, the Compensation Committee may establish vesting
criteria for the grant of options or other permitted awards under the 1996 Plan.
The Compensation Committee currently anticipates that the primary awards vehicle
under the plan will consist of non-qualified options, with vesting over a
four-year period from the date of grant so that 20% of the grant amount will
vest each year. The exercise prices of such non-qualified options are equal to
the Closing price for the Company's stock on the date of grant. Under the 1996
Plan, the Compensation Committee currently anticipates that grants to executive
officers will be in the amount of 5,250 option shares per year so that 1,050
option shares will be vested as of the date of grant and an additional 1,050
option shares will vest over each of the following four years from the date of
grant. In addition, the Compensation Committee anticipates granting
non-qualified options to certain key employees of the Company, which grants will
be in the amount of 750 option shares, with 150 option shares vested upon grant
and 150 option shares vesting in each of the following four years following the
date of grant. Finally, the Committee anticipates grants of 1,500 non-qualified
option shares each to certain Assistant Vice Presidents with similar percentage
vesting schedules to the officer grants.
Under the 1996 Plan, on the last business day of May, commencing May 31,
1996 (or if later, on the date on which the person is first elected or begins to
serve as a non-employee director, other than by reason of termination of
employment) and, thereafter on the date of each annual meeting of shareholders
of the Company, each person who is a non-employee director after such meeting of
stockholders shall be granted a non-qualified option for 1,500 option shares of
the Common Stock of the Company. The option amount shall be prorated if such
non-employee director is first elected or begins to serve as a non-employee
director on a date other than the date of an annual meeting of stockholders.
Options granted to non-employee directors pursuant to the 1996 Plan will
immediately vest and will have a term of seven years for exercise.
During 1996, no awards of non-qualified option grants were made to the
executive officers of the Company under the 1996 Plan and, therefore, none of
the named executive officers received grants of non-qualified options or other
awards under the 1996 plan during 1996. On February 14, 1997, each executive
officer (13 in all) received grants of non-qualified options under the 1996 Plan
for 5,250 option shares, vesting over 4 years at an exercise price of $12.17 per
option share. On May 13, 1997, each of the non-employee directors received a
grant of 1,500 non-qualified options, with an exercise
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price of $13.00 per share. In February 1997, non-qualified options for 40,500
option shares (750 to each key employee) were issued to 54 key employees under
the 1996 Plan. The option exercise price of the non-qualified options granted to
key employees was $12.17 per option share with vesting over 4 years.
Minimum Stockholding Requirement.
During 1996, the Compensation Committee, with the Board of Director's
approval, established a minimum stockholding requirement for Company stock
(exclusive of ESOP and unexercised option shares) in amounts equal to two times
base salary for the CEO, one-time base salary for the Executive Vice Presidents
and one-half of base salary for all other members of the Executive Officer
Group. For any person subject to the minimum stockholding requirements who holds
less than the minimum stockholding requirement (measured at each year-end), the
delinquency will result in up to one-third of that person's annual cash bonus
being utilized to purchase shares of the Company's stock in the name of such
individual. New officers will be given five years in which to satisfy their
minimum stockholding requirement before application of the bonus withholding
procedure. At December 31, 1997, each member of the Company's Executive Group,
including each of the Named Executive Officers, satisfied their respective
minimum stockholding requirements.
Rodney L. Gray (Chair) Douglass Wm. List
Bruce M. Flohr
TOTAL RETURN TO SHAREHOLDERS
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 constructed a peer group consisting of the
Company and nine other manufacturing and service companies in the railroad
supply industry. Revenues (on a 12-month trailing basis) for this group of
companies range from $213.5 Million to $2,617.6 Million, as compared to $213.5
Million for the Company. Total Assets for these companies range from $124.4
Million to $2,224.2 Million, as compared to $135.7 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; L.B. Foster Company; Ansaldo Signal NV (acquired on December 11,
1996, by merger); ABC Rail Products,Inc.; Wabash National Corporation and the
Company. Last year's peer group also included Brenco, Incorporated, which was
acquired by Varlen Corporation and is, therefore, not included as a separate
company. 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, 1993.
Comparison of Five-Year Cumulative Total Return* Among the Company, Peer
Performance Group and S&P Composite 500 Index.
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The reference points on the foregoing graph are as follows:
Dec.1992 Dec.1993 Dec. 1994 Dec. 1995 Dec.1996 Dec.1997
-------- -------- --------- --------- -------- --------
Harmon 100.00 191.70 163.80 133.60 159.40 239.10
Industries
Peer Group 100.00 136.20 134.70 144.60 169.10 229.60
S&P 500 100.00 109.80 111.30 153.10 188.80 252.00
*Assumes that the value of the Company's common stock, Performance Peer
Group and S&P 500 Index were each $100 on December 31, 1992 and that all
dividends were reinvested.
DIRECTOR COMPENSATION
From May 14, 1996 to May 12, 1998, the Board of Directors' compensation
consists of annual fees of $8,000 plus travel expenses to and from the meetings
for each director. Effective May 14, 1996, only non-employee directors were
entitled to receive annual directors fees. 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 chairperson of the respective committees of the
Board of Directors receives an annual payment of $500 for acting as chairperson
of a committee.
Effective May 12, 1998, each non-employee director will receive an annual
cash director's fee of $6,000 and 360 shares of Common Stock of the Company per
year. In addition, non-employee directors receive $1,500 per Board meeting, $750
per committee meeting and $500 for special telephonic board meetings on specific
subjects. Board and committee meeting fees are payable for attendance in person
or for telephonic participation. Each chair of a committee receives $250 per
quarter. Finally, each non-employee director may receive $500 for a three-hour
block of such director's time (capped at $1,500 total per day) for special or ad
hoc projects assigned to such non-employee director by the Board.
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The package also grants each director an annual non-qualified option to
purchase 1,500 shares of the Company's Common Stock at a price equal to the
closing market price on the date of grant. The non-qualified options are granted
under and are governed by the Company's 1996 Long-Term Incentive Plan. These
options are exercisable at any time during a seven year period following the
date of grant. On May 31, 1995, options for 3,000 shares were granted to each of
the directors pursuant to the 1988 Director Option Plan, which options expired
May 31, 1997 and had an exercise price of $11.83 per share. During 1997, Messrs.
Foudree, Gray, Kohn, Olsson, Rentz and List exercised those outstanding director
options for 3,000, 3,000, 1,500, 3,000, 3,000 and 3,000 shares, respectively. On
May 31, 1996, options for 1,500 shares were granted to each of the Non-Employee
Directors pursuant to the 1996 Long-Term Incentive Plan. Such options have an
exercise price of $11.33 per share, are fully vested and are exercisable over a
term of seven years. On May 13, 1997, options for 1,500 shares were granted to
each of the non-employee directors pursuant to the 1996 Long-Term Incentive
Plan. These options have an exercise price of $13.00 per share, are fully vested
and have a term of seven years. As of March 16, 1998, none of such options
granted in 1996 have been exercised other than the exercise in March 1998 by
Bruce M. Flohr of both the 1996 and 1997 grants for 1,500 shares each. See
discussion above under "Executive Compensation--Long-Term Incentive Plan" for a
description of the non-qualified LTIP options granted annually to the
Non-Employee Directors.
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 Chairman of the Board is treated as a
Non-Employee Director for annual and director meeting fees. The defined 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 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 fee, subject to
review each year, was approximately $79,000 for fiscal 1997 and will be
approximately $79,000 for fiscal 1998.
APPROVAL OF AN AMENDMENT TO THE ARTICLES OF INCORPORATION
REGARDING AN INCREASE IN THE NUMBER OF AUTHORIZED CAPITAL SHARES
On December 11, 1997, the Board of Directors of the Company recommended
that shareholder approval be sought for a proposed amendment to the Articles of
Incorporation of the Company to increase the number of authorized shares of
capital stock of the Company from 20,000,000 shares to 50,000,000 shares. The
Company had as of March 16, 1998, 10,521,189 shares of its common stock
outstanding and had 308,100 shares reserved to cover obligations to issue shares
in connection with outstanding options. The Company is proposing to increase its
authorized capital to provide additional shares for future acquisitions,
employee benefit plan needs and possible future stock splits or stock dividends.
In recent years, the Company has frequently used stock as part or all of the
consideration in its acquisitions. Although the Company has no major pending
acquisitions, Management and the Board of Directors wish to have sufficient
share capital authorized to be able to consider one or more significant
acquisitions using stock as consideration. The Board of Directors has not
previously adopted a rights plan and is not currently considering such a plan.
On February 27, 1998, the Company increased its number of outstanding shares of
Common Stock through a 3 for 2 stock split paid as a stock dividend. Management
and the Board of Directors recommend voting to approve the proposed amendment.
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The affirmative vote of the holders of a majority of the Company's
outstanding common stock present and entitled to vote at the meeting is required
to approve the proposed amendment of the Articles of Incorporation to increase
the number of authorized capital shares.
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1996 LONG-TERM INCENTIVE
PLAN REGARDING AN INCREASE IN THE NUMBER OF SHARES AVAILABLE UNDER
THE PLAN AND AN EXTENSION OF THE TERM OF THE PLAN
General
On May 14, 1996, the Shareholders approved the adoption of the Harmon
Industries, Inc. 1996 Long-Term Incentive Plan (the "1996 Plan"). The purposes
of the 1996 Plan are (i) to align the interests of the Company's Shareholders
with those of the recipients of awards under the 1996 Plan by increasing the
proprietary interests of such recipients in the Company's growth and success and
(ii) to advance the interests of the Company by attracting and retaining
officers, employees and non-employee directors. The Board of Directors has
approved an Amendment to the 1996 Plan to increase the number of shares
available under the Plan and to extend the term of the Plan. The 1996 Plan, as
originally adopted, provided that the number of shares of common stock available
for grants of awards to officers, other employees and non-employee directors in
any calendar year will be 1.15% of the outstanding common stock as of January 1
of such year, beginning January 1, 1996, plus the number of shares which shall
become available for grants of awards under the 1996 Plan in subsequent years
but which shall not have become subject to such an award. After the January 1,
1998 increase (and as adjusted for the February 1998 3-for-2 stock split), the
Company had available for grant a total of 179,883 shares under the 1996 Plan.
As a result of recruitment plus plan participation for non-employee Board
members, executive officers and key employees, the anticipated need for 1998 is
for approximately 200,000 shares. Consequently, the Compensation Committee of
the Board of Directors has approved a proposed amendment to increase the
applicable percentage from 1.15% of outstanding stock on January 1 to 1.25% of
outstanding common stock on January 1, commencing January 1, 1999. The shortfall
for the remainder of 1998, if any, will be covered by the purchase of additional
shares on the open market, which is permitted under the terms of the 1996 Plan
up to a maximum of 120,000 shares.
Additionally, as originally adopted, the 1996 Plan became effective on May
31, 1996 and expires on May 31, 2001. The Compensation Committee of the Board of
Directors has proposed an amendment for Shareholder approval to extend the life
of the Plan from the current expiration date of May 31, 2001 to a new expiration
date of May 31, 2003.
Other than the amendments described above, no other changes will be made
in the 1996 Plan.
Stockholder Vote Required and Board of Directors Recommendations
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for approval of the amendments to the 1996 Plan as outlined
above. Approval of the amendments of the 1996 Plan requires the affirmative vote
of the majority of the shares of common stock present or represented by proxy at
the annual meeting. Abstentions and broker non-votes will not be counted as
votes cast. The Board of Directors recommends a vote for approval of an
amendment of the
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Company's 1996 Long-Term Incentive Plan to increase the number of shares
available and to extend the term of the Plan as described above.
APPROVAL OF SELECTION OF AUDITORS
Management recommends voting to approve the selection of KPMG Peat Marwick
LLP, as Auditors for the Company for the 1998 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.
SHAREHOLDER PROPOSALS-1999 MEETING
In the event any shareholder intends to present a proposal at the Annual
Meeting of Shareholders to be held in 1999, such proposal must be received by
the Company, in writing, on or before November 13, 1998, to be considered for
inclusion in the Company's next Proxy Statement. Shareholder proposals for
suggested nominees for director should be submitted to the Company's Director
Nomination and Compensation Committee on or before November 13, 1998.
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
April 1, 1998
22
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Harmon Industries, Inc
1300 Jefferson Court
Blue Springs, Missouri 64015
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 2:00 P.M. ON MAY 12, 1998
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 ten (10) members of the Board of Directors;
2. To approve an amendment of the Company's Articles of Incorporation to
increase the number of shares of common stock ($.25 par value)
authorized from 20,000,000 shares to 50,000,000 shares.
3. To approve an amendment to the Company's 1996 Long-Term Incentive
Plan to extend the expiration of the Plan from May 31,2001 to May
31,2003 and to increase the amount of shares available annually under
the Plan from 1.15% to 1.25% of outstanding shares on January 1 of
each year of the Plan, commencing January 1,1999;
4. To approve the selection of KPMG Peat Marwick LLP, as
Auditors for the forthcoming fiscal year; and
5. 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 16, 1998,
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
April 1, 1998
23
