<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
HARMON INDUSTRIES, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
1600 N.E. CORONADO DRIVE
BLUE SPRINGS, MISSOURI 64014
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 2:00 P.M. ON MAY 9, 2000
AT THE COUNTRY CLUB OF BLUE SPRINGS
1600 N.W. 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 four (4) members of Class I of the Board of Directors;
2. To approve the selection of KPMG LLP, as Auditors for the forthcoming
fiscal year; and
3. 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 13, 2000, 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. Shareholders may also vote via the
Internet as indicated on the proxy card instructions.
BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Harmon
Chairman
1600 N.E. Coronado Drive
Blue Springs, Missouri 64014
March 30, 2000
<PAGE>
[LOGO]
1600 N.E. CORONADO DRIVE
BLUE SPRINGS, MISSOURI 64014
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
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 30,
2000. 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.W. Circle Drive, Blue Springs,
Missouri on May 9, 2000 at 2:00 p.m. and at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
You may also vote via the Internet as indicated on the proxy card instructions.
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 13, 2000, 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 11,372,441 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.
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 13, 2000 by each person who, as of that
date, to the best knowledge of
1
<PAGE>
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 St. Denis J. Villere & Company 1,184,950(3) 10%
210 Baronne Street, Suite 808
New Orleans, LA 70112-1727
Common Stock Firstar Corporation 901,984(4) 8%
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Common Stock Capital Group International, Inc. 831,800(5) 7%
11100 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025-3384
Common Stock Wellington Management Company 635,900(6) 5%
75 State Street
Boston, MA 02109
Common Stock Richard A. Daniels 25,972(7) --%
Common Stock Lloyd T. Kaiser 45,022(8) --%
Common Stock William P. Marberg 20,100(9) --%
Common Stock Bjorn E. Olsson 55,200(10) 1%
Common Stock Raymond A. Rosewall 39,450(11) --%
Common Stock Beneficial ownership of all officers 1,188,471 10%
and directors as a group
(30 in group)
</TABLE>
- ------------------------
(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 LTIP option shares and
unexercised vested 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. Daniels,
Kaiser, Marberg, Olsson and Rosewall and all officers and directors as a
group were 6,045; 3,186; -0-; 3,336; 207; and 54,354 shares, respectively.
(2) Rounded to the nearest whole percentage. Percentages are calculated on
11,714,395 shares representing the total of 11,338,295 outstanding shares
(excluding certain shares held in a Rabbi Trust) and 376,100 shares for
unexercised vested director, ISOP options and LTIP options.
(3) St. Denis J. Villere & Company has shared voting power and shared
dispositive power over 1,184,950 shares. It also has sole voting power and
sole dispositive power over 40,400 shares.
(4) Firstar Corporation ("Firstar") is beneficial owner of 901,984 shares for
which it has sole voting power over 38,818, sole dispositive power over
2,546, and shared dispositive power over 899,128. Firstar's subsidiary
Mercantile Trust Company at One Mercantile Center, St. Louis, MO 63101, as
Trustee for the Company's ESOP, beneficially owns 901,674 shares of which
it has sole voting
2
<PAGE>
power over 38,508 shares, sole dispositive power over 2,546 shares, and
shared dispositive power over 899,128 shares. These shares are included in
the total shown above for Firstar.
(5) Capital Group International, Inc. ("CGII") is beneficial owner of 831,800
shares for which it has sole dispositive power and 578,800 shares for which
it has sole voting power. CGII's subsidiary, Capital Guardian Trust Company
(same address), is beneficial owner of 684,000 shares (6.0%) for which it
has sole dispositive power and also has sole voting power as to 431,000 of
such shares. These shares are included in the total shown above for CGII.
Other shares shown for the parent are beneficially owned by other
subsidiaries, none of which has more than 5%. Each of the entities
disclaims beneficial ownership pursuant to Rule 13d-4.
(6) Wellington Management Company, L.L.P. has a beneficial ownership of 635,900
shares, for which it has shared dispositive power. It has shared voting
power with respect to 411,100 shares.
(7) 11,272 shares are beneficially owned and held of record by Richard A.
Daniels as Trustee of the Richard A. Daniels Trust with sole voting and
disposition power. 14,700 shares are held by Richard A. Daniels and
represent unexercised vested option shares. 6,300 option shares are not
vested and are not included.
(8) 30,322 shares are owned by Lloyd T. Kaiser with sole voting and dispositive
power. 14,700 shares are held by Lloyd T. Kaiser and represent unexercised
vested option shares. 6,300 option shares are not vested and are not
included.
(9) Does not include 728 shares held by a Rabbi Trust for deferred compensation
for William P. Marberg, 217 of which are vested. 20,100 shares represent
unexercised vested option shares. 15,150 option shares are not vested and
are not included.
(10) 39,750 shares are held by Bjorn E. Olsson with sole voting and dispositive
power. 15,450 shares are held by Bjorn E. Olsson and represent unexercised
vested option shares. 6,300 option shares are not currently vested and are
not included. Does not include 33,418 shares held by a Rabbi Trust for
deferred compensation, 22,107 shares of which are currently vested.
(11) Raymond A. Rosewall holds 30,000 shares directly with sole voting and
dispositive power. 9,450 shares are owned by Raymond A. Rosewall and
represent unexercised vested option shares. 6,300 option shares are
currently not vested and are not included.
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 two 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 5 was
filed approximately one month late by an officer. Another Form 4 was filed
approximately 16 months late by a director who mistakenly believed that the
report had been filed. The Company is unaware of any transactions in which there
was a failure to file by a reporting person under such Act.
3
<PAGE>
ELECTION OF DIRECTORS
On December 10, 1998, the Board of Directors amended its Bylaws to divide
the directors into three approximately equal classes, having three-year terms
that expire in successive years. The implementation of this classification of
the Board arrangement required that the classes of directors elected at the
annual meeting of shareholders held May 1999 were elected for terms of one, two
and three years, respectively. After this initial implementation, each class of
directors shall be elected for three year terms upon expiration of the initial
term for each class. 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 are unable or decline to serve,
the proxies will be voted for the other persons listed or for substitute
nominees nominated by management. During calendar 1999, the Board of Directors
held nine 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. The Committee met two times during 1999. The Committee will consider
proposed director candidates submitted by shareholders. Proposals for the 2001
election must be received in writing on or prior to November 9, 2000.
The Audit Committee of the Board of Directors was composed of Gerald E.
Myers (Chair), Herbert M. Kohn, John Sprague and Judith C. Whittaker during
1999. 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 1999.
The Compensation Committee was composed of Douglass Wm. List (Chair),
Bruce M. Flohr and Rodney L. Gray during 1999. The Compensation Committee is a
standing committee of the Board of Directors and establishes executive salary
and bonus levels for the executive officers of the Company. During 1999, the
Compensation Committee met four times.
4
<PAGE>
DIRECTOR NOMINEES
<TABLE>
<CAPTION>
SERVED
PRINCIPAL CONTINUOUSLY PERCENT STOCK
OCCUPATION FOR AS A DIRECTOR OF OWNED
NAME OF NOMINEE AGE LAST FIVE YEARS SINCE CLASS(2) BENEFICIALLY(1)
--------------- --- --------------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS I TO BE ELECTED FOR AN INITIAL TERM OF ONE YEAR:
Bruce M. Flohr 61 President of Flohr Enter- 05/11/93 --% 14,540(3)
prise, Inc. since
February 2000. From August
1998 to February 2000,
Director of RailTex, Inc. and
prior to that, CEO and Board
Chairman of RailTex, Inc. from
1977 to August 1998.
Gerald E. Myers 58 President of GEM Financial 05/03/88 --% 50,216(4)
Services, Inc. since July
1989.
Judith C. Whittaker 61 Since January 1997, Vice 05/11/93 --% 9,540(5)
President, General Counsel/
Secretary of Hallmark Cards,
Incorporated; prior to that
Vice-President-Legal of
Hallmark Cards, Incorporated.
Emanuel Cleaver, II 54 Mayor of the City of Kansas New --% -0-
City, Missouri from Nominee
April 1991 to April 1999;
Senior Pastor of St. James
United Methodist Church from
1975 to present.
</TABLE>
5
<PAGE>
DIRECTORS NOT STANDING FOR ELECTION
<TABLE>
<CAPTION>
SERVED
PRINCIPAL CONTINUOUSLY PERCENT STOCK
OCCUPATION FOR AS A DIRECTOR OF OWNED
NAME OF NOMINEE AGE LAST FIVE YEARS SINCE CLASS(2) BENEFICIALLY(1)
--------------- --- --------------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS II ELECTED FOR AN INITIAL TERM OF TWO YEARS IN 1999:
Robert E. Harmon 60 Chairman of the Board of the 10/02/61 3% 377,378(6)
Company since February 1975.
Chief Executive Officer of the
Company from November 1969 to
December 1994. President of
the Company from Novem-
ber 1969 to July 1990.
Herbert M. Kohn 61 Since June 1991, a partner in 09/01/85 --% 39,190(7)
the law firm of Bryan Cave,
LLP.
Douglas Wm. List 44 Since October 1999, a 05/08/90 --% 8,840(8)
consultant with The Boston
Consulting Group in New York
City. Also since
January 1988, President of
List & Company, Inc. a manage-
ment consulting firm based in
Baltimore, Maryland. Since
December 1992, also President
of Railway Engineering Associ-
ates, 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.
CLASS III ELECTED FOR AN INITIAL TERM OF THREE YEARS IN 1999:
Rodney L. Gray 47 Management consultant since 05/11/93 --% 27,040(9)
January 2000; Vice-Chairman of
Azurix, an affiliate of Enron
Company from November 1998 to
January 2000; prior to that
from 1997 to 1998, Executive
Vice President, Finance of
Enron International, Inc.;
from 1994 to November 1997,
Chairman and Chief Executive
Officer of Enron Global
Power & Pipelines, LLC.
Bjorn E. Olsson 54 President and Chief Executive 05/06/86 1% 55,200(10)
Officer of the Company since
January 1995; President and
Chief Operating Officer of the
Company from August 1990 to
December 1994.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SERVED
PRINCIPAL CONTINUOUSLY PERCENT STOCK
OCCUPATION FOR AS A DIRECTOR OF OWNED
NAME OF NOMINEE AGE LAST FIVE YEARS SINCE CLASS(2) BENEFICIALLY(1)
--------------- --- --------------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
John A. Sprague 46 Managing General Partner of a 05/11/99 --% 3,540(11)
private equity investment
firm, Jupiter Partners, LLC
since 1994.
</TABLE>
- ------------------------
(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 Mr. Olsson were 3,336 shares.
(2) Percentages shown are rounded to the nearest whole percentage. Percentages
are calculated on 11,714,395 shares representing the total of 11,338,295
outstanding shares (excluding certain shares held in a Rabbi Trust) and
376,100 shares for unexercised vested director, ISOP and LTIP options.
(3) 11,540 shares are beneficially owned and held of record by Bruce M. Flohr.
The remainder represent unexercised LTIP director options.
(4) Includes 42,654 shares which are held in a living trust, 1,562 shares are
held in an IRA and the remainder represents unexercised LTIP director
options.
(5) 3,540 shares are held directly by Judith C. Whittaker. The remainder
represents unexercised LTIP director options.
(6) 14,470 shares are held by Robert E. Harmon directly. 353,908 shares are
held of record by Robert E. Harmon, as Trustee for the Robert E. Harmon
Trust, with sole voting and dispositive powers. The remainder are held by
Robert E. Harmon and represent unexercised director options. Does not
include 13,330 shares owned by his wife for which Robert E. Harmon
disclaims beneficial ownership.
(7) 13,495 shares are held directly by Herbert M. Kohn. 19,650 shares are held
through an IRA and 45 shares are held in a Supplemental Executive
Retirement Plan. The remainder represent unexercised LTIP director options.
(8) 540 shares are held directly by Douglass Wm. List. 2,300 shares are held
through an IRA. The remainder represent unexercised LTIP director options.
Does not include 2,550 shares held by Moorgate Foundation Fund, L.L.C., for
which Mr. List disclaims beneficial ownership. Mr. List owns approximately
19% of Moorgate Foundation Fund, L.L.C. Moorgate, Inc., an investment
advisory company, provides investment advisory services to Moorgate
Foundation Fund, L.L.C., and Mr. List is President of Moorgate, Inc.
(9) 21,040 shares are held of record by Rodney L. Gray. 7,950 shares are held
directly by Mr. Gray, 13,000 shares are held in an IRA and 90 shares are
held in a Supplemental Executive Retirement Plan. The remainder represent
unexercised LTIP director options.
(10) 39,750 shares are held by Bjorn E. Olsson with sole voting and dispositive
power. 15,450 shares represent unexercised vested option shares. 6,300
option shares are not currently vested and are not included. Does not
include 33,418 shares held by a Rabbi Trust for deferred compensation,
22,107 shares of which are currently vested.
7
<PAGE>
(11) 540 shares are held of record by John A. Sprague. The remainder represent
unexercised LTIP director options.
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, L.L.P. law firm, which
the Company retains as legal counsel for certain matters. Mr. Flohr is an
investor in RailComm, Inc. which provides on-site training concerning railroad
crossing signals in competition with the Company and which is developing
railroad signal systems not in competition with the Company.
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, 1999,
1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------------------ ------------------------- ---------
RESTRICTED
OTHER ANNUAL STOCK OPTIONS LTIP
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARD(S) (# OF SHS.) PAYOUTS
POSITION YEAR ($)(2) ($)(3) ($) ($) (4) ($)
------------------ ------ ------ ------ ------------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Bjorn E. Olsson 1999 406,598 49,129 -- -- 5,250 --
President & CEO 1998 351,425 216,490 -- -- 5,250 --
1997 305,848 192,309 -- -- 5,250 --
Richard A. Daniels 1999 188,822 12,013 -- -- 5,250 --
V.P. and General 1998 134,773 65,685 -- -- 5,250 --
Manager-Harmon Control 1997 126,253 80,481 -- -- 5,250 --
and Information
Systems, Inc.
William P. Marberg 1999 201,775 19,240 -- -- 5,250 --
Executive V.P.-- 1998(6) 156,534 103,644 -- -- 30,000 --
Technology 1997 -0- -- -- -- -0- --
Lloyd T. Kaiser 1999 174,171 16,528 -- -- 5,250 --
Executive V.P.-- 1998 160,178 87,268 -- -- 5,250 --
Sales & Marketing 1997 151,131 98,842 -- -- 5,250 --
Raymond A. Rosewall 1999 164,728 15,686 -- 5,250 --
Executive V.P. & Chief 1998 148,204 73,592 -- 5,250 --
Operating Officer 1997 137,163 85,186 -- 5,250 --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)(5)
------------------ ------------
<S> <C>
Bjorn E. Olsson 158,656
President & CEO 167,922
162,418
Richard A. Daniels 9,224
V.P. and General 9,102
Manager-Harmon Control 10,909
and Information
Systems, Inc.
William P. Marberg 5,155
Executive V.P.-- 2,675
Technology -0-
Lloyd T. Kaiser 29,606
Executive V.P.-- 20,962
Sales & Marketing 10,909
Raymond A. Rosewall 9,687
Executive V.P. & Chief 9,102
Operating Officer 5,454
</TABLE>
- ------------------------
(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.
(2) Salary includes amounts deferred under the Company's 401(k), flexible
spending account plan, and the SERP at the election of the named executive
officer.
8
<PAGE>
(3) Bonus consists of cash. (See discussion under the heading "Employment
Contracts" below.)
(4) Includes grants of non-qualified options in the amount of 5,250 shares in
1999, 1998 and 1997 under the Company's 1996 Long-Term Incentive Plan to all
except William P. Marberg who received a grant of non-qualified options for
30,000 shares in 1998.
(5) Includes allocation of contributions to the Company's Deferred Compensation
Plan, to the Company's Defined Contribution Plans 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
1998 to the Company's ESOP for Messrs. Olsson, Daniels, Kaiser, Marberg and
Rosewall were $9,687; $9,224; $9,687; $-0-; and $9,687, 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.
<TABLE>
<CAPTION>
SUMMARY OF RABBI TRUST ACCOUNTS FOR OLSSON AND MARBERG (DEFINED CONTRIBUTION PLANS)
- --------------------------------------------------------------------------------------------
INCOME ATTRIBUTABLE
SHARES SHARES VESTED SHARES VESTED ON TO ASSETS
CONTRIBUTED UPON GRANT PRIOR YEAR GRANTS VESTING THIS YEAR*
----------- ------------- ----------------- -------------------
<S> <C> <C> <C> <C>
OLSSON
1999 -- -- 6,683 $116,896
1998 9,268 1,854 4,830 $129,120
1997 16,100 5,827 -- $124,011
MARBERG
1999 374 75 71 $ 5,155
1998 354 71 -- $ 2,675
</TABLE>
* Vested assets include shares for Olsson and include shares and cash
contributions for Marberg. (See discussion under the heading "Pension
Plan" below.)
(6) Mr. Marberg's employment with the Company commenced in April 1998.
Accordingly, base salary for 1998 was prorated.
9
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
During 1999, 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
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------ ANNUAL RATES OF
OPTIONS % OF TOTAL STOCK PRICE
GRANTED OPTIONS EXERCISE APPRECIATION FOR
(1) GRANTED TO OR BASE OPTION TERM(3)
(# OF EMPLOYEES PRICE EXPIRATION -------------------
NAME SHARES) IN FISCAL YR. ($/SH) DATE(2) 5%($) 10%($)
- ---- -------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bjorn E. Olsson 5,250 2.853 20.50 3/16/04 44,175 104,016
through
3/16/08
Richard A. Daniels 5,250 2.853 20.50 3/16/04 44,175 104,016
through
3/16/08
William P. Marberg 5,250 2.853 20.50 3/16/04 44,175 104,016
through
3/16/08
Lloyd T. Kaiser 5,250 2.853 20.50 3/16/04 44,175 104,016
through
3/16/08
Raymond A. Rosewall 5,250 2.853 20.50 3/16/04 44,175 104,016
through
3/16/08
</TABLE>
- ------------------------
(1) Each of Messrs. Olsson, Daniels, Marberg, 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 1999. A total of
184,000 shares in the form of non-qualified options were granted to
employees of the Company during 1999. For a description of the terms of the
options see "Compensation Committee Report--Incentive Stock Option Plan"
below.
(2) The exercise price for non-qualified LTIP equals the fair market value of
the underlying shares on the date of grant. Historically, 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
10
<PAGE>
appreciation calculated at specified rates for 5,250 share granted on
March 1999, with vesting as shown:
<TABLE>
<CAPTION>
IMPLIED PER
FUTURE SHARE POTENTIAL
STOCK PRICE APPRECIATION REALIZABLE
TERM OF @ @ VALUE @
DATE DATE SHARES OPTION ------------------- ------------------- -------------------
EXERCISE PRICE VESTED EXPIRES VESTED IN YEARS 5% 10% 5% 10% 5% 10%
- --------------------- -------- -------- -------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$20.50 3/16/99 3/16/04 1,050 5 26.16 33.02 5.66 12.52 5,947 13,141
3/16/00 3/16/05 1,050 6 27.47 36.32 6.97 15.82 7,321 16,608
3/16/01 3/16/06 1,050 7 28.85 39.95 8.35 19.45 8,763 20,421
3/16/02 3/16/07 1,050 8 30.29 43.94 9.79 23.44 10,277 24,616
3/16/03 3/16/08 1,050 9 31.80 48.34 11.30 27.84 11,867 29,230
------ -------
44,175 104,016
</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 any of the
1990 Incentive Stock Option Plan ("ISOP") and 1996 Long-Term Incentive Plan
("LTIP"):
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISE IN LAST PERIOD AND FY-END OPTION VALUES
- -------------------------------------------------------------------------------------------------
VALUE (IN $)
OF
NUMBER UNEXERCISED
OF IN-THE-
NUMBER UNEXERCISED MONEY
OF SHARES OPTIONS/ OPTIONS AT
TYPE OF ACQUIRED VALUE (IN $) SHARES AT 12/31/99
NAME OPTION ON EXERCISE REALIZED(1) 12/31/99 (2)(3)
- ---- -------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Bjorn E. Olsson ISOP -- -- 6,000 15,875
LTIP -- -- 15,750 --
Richard A. Daniels ISOP -- -- 5,250 13,781
LTIP -- -- 15,750 --
Lloyd T. Kaiser ISOP -- -- 5,250 13,781
LTIP -- -- 15,750 --
William P. Marberg LTIP -- -- 35,250 --
Raymond A. Rosewall ISOP 30,000 345,000 5,250 --
LTIP -- -- 10,500 --
</TABLE>
- ------------------------
(1) Market price at exercise less exercise price times the number of options
exercised.
(2) There are no SARs.
(3) Market price at 12/31/99 ($12.125) less exercise price.
11
<PAGE>
LONG-TERM INCENTIVE PLANS.
Under the 1996 Long-Term Incentive Plan (the "LTIP"), the Compensation
Committee may establish vesting criteria for the grant of options or other
permitted awards under the LTIP. The Compensation Committee currently
anticipates that the primary awards vehicle under the plan will consist of
non-qualified options. Historically grants have been made 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. The Committee is currently reviewing a proposal to change the
vesting schedule from a time based schedule to a performance based schedule
premised on vesting when specified stock price benchmarks are attained. The
annual recharge rate of the LTIP is 1.25% of outstanding shares of the Company
on each January 1. At the 1.25% rate, the recharge for the LTIP in 1999 was
133,280 shares. At the 1.25% rate, the recharge for the LTIP in 2000 was 142,116
shares. In addition, the LTIP provides that up to 120,000 additional shares may
be purchased on the open market for use under the LTIP. The expiration date of
the LTIP is May 31, 2003. There are no performance-based criteria relating to
the award or vesting under the 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 LTIP, the
Compensation Committee currently anticipates that grants to executive officers
will be in the amount of 5,250 option shares per year. 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 525 option
shares. Finally, grants of non-qualified options under the LTIP are anticipated
to certain Assistant Vice Presidents at 1,500 non-qualified option shares to
each with similar vesting percentage provisions to those options granted to
executive officers.
Under the LTIP, 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 LTIP will immediately vest and will have a term of seven years for
exercise.
On May 11, 1999, each of the non-employee directors received a grant of
1,500 non-qualified options, with an exercise price of $21.25 per share. On
March 16, 1999, non-qualified options for 68,250 option shares (5,250 to each
officer) were issued to 13 key employees under the LTIP. Additionally, on
March 16, 1999, non-qualified options for 53,250 option shares (750 to each key
employee) were granted to 71 key employees of the Company, and on that same
date, 10,500 option shares (1,500 to each Assistant Vice President) were issued
to seven Assistant Vice Presidents. On May 3, 1999, special grants of
non-qualified options were granted to subsidiary directors Joseph Noffsinger and
Silvano Brandi, 20,000 and 10,000 option shares respectively, with an exercise
price of $22.00 per share. The exercise price of the officer and key employee
options was $20.50 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 1999 was approximately
$239,000 and amounts allocated to the named executive officers are included in
the "All Other Compensation" column of the
12
<PAGE>
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. During 1999, the only member of senior
management participating in a defined contribution plan was William P. Marberg.
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,
1997, 1998, and 1999 totaled $3,874,000, $4,809,000, and 2,342,000,
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 1999, the Company did not cancel, regrant or reprice any outstanding
stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Mr. Rodney L. Gray, Mr. Douglass Wm. List (Chairman), and Mr. Bruce M. Flohr
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, Daniels, Kaiser, Marberg and Rosewall have employment
contracts with the Company which provides for the payment to such officers of
annual base salaries of $416,000, $188,808, $193,803, $209,456 and $208,000,
respectively. As of December 31, 1998, the base salaries for Messrs. Olsson,
Daniels, Kaiser, Marberg, and Rosewall were $400,000, $137,535, $166,349
$201,400, and $140,662 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, 1999, these officers' contracts included an
annual cash bonus. Cash bonuses paid to Messrs. Olsson, Daniels, Kaiser, Marberg
and Rosewall for calendar year 1999 under the cash bonus plan were $49,129,
12,013, 16,528, $19,240, and $15,686, respectively. (See description below under
"Compensation Committee Report on Bonuses".) In 1999, the employment contracts
were amended to modify special provisions to be triggered only upon a change in
control of the Company.
13
<PAGE>
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
never 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.
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 cash bonuses and (iii) equity
incentives through stock option grants. During 1999, the Committee utilized
option grants under the Company's 1996 Long-Term Incentive Plan ("LTIP"). Upon
approval by the shareholders in 1996, the Committee replaced the Company's prior
ISOP plan and the prior 1988 Director Option Plan with the Company's new 1996
Long Term Incentive Plan (the "LTIP"). This plan was amended by shareholder
approval in May 1998. The Committee began use of this plan during 1996. The LTIP
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).
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
14
<PAGE>
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 to a
compensation peer group. In addition, the Committee reviews at least two other
surveys of industry trade groups with similarities to 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 1999, the Committee
retained an independent compensation consultant to analyze the Company's
compensation programs for executives and to compare the Company's executive
compensation program to that of other companies in the Company's compensation
peer group. During 1999, the Compensation Committee analyzed the base salary,
total cash compensation (base salary plus annual cash bonus) and the total
direct compensation (base salary plus annual cash bonus and long term
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 December 12, 1999, the Committee conducted a review of the performance
and compensation of the Company's executive officer group which included 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, the Company's performance for 1999
and its assessment of competitive compensation practices, the Committee
recommended no general increase in base salaries for executive officers and key
employees (including some of the named executive officers) effective
September 1, 1999. However, six executive officers received increases in base
salaries due to promotions and, generally, the base salaries of the executive
officers were increased effective February 14, 2000 due to cost of living
adjustments.
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 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 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
15
<PAGE>
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. For 1999, the executive cash bonus plan was based on 38% weighting
for ROCE, 38% weighting for earnings per share growth and 24% for Balanced
Scorecard parameters. The Balanced Scorecard parameters consisted of equal
weighting (8% each) for target levels of three different parameters for 1999 as
follows: on time shipments at 93%, unplanned employee turnover at 8.5% and
safety occurrence frequency rate at 5.0. The cash bonus plan establishes target
base bonus levels as a percentage of current base salary. Percentages are 35%,
with the exception of Mr. Olsson and Mr. Rosewall, whose target base bonuses are
established at 45% of their respective base salaries for 2000. For 1999, the
base bonus target levels of Messrs. Daniels, Kaiser, Marberg, Olsson and
Rosewall were $54,464, $65,222, $70,490, $180,000 and $66,500, respectively. The
actual bonus is calculated based on actual performance numbers for ROCE as
compared to budget, 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 1998 and 1999. 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. The other
bonus factors have similar upward and downward adjustment criteria based on the
achievement of their targets.
For 1999, budgeted ROCE was 19.3% and actual ROCE was 9.5% (without
restructuring charges incurred in the latter part of 1999). Targeted earnings
per share growth was 10% and actual primary earnings per share (without
restructuring charges) was $.58. For Balanced Scorecard, the target for on-time
shipments was 93% and actual was 94%; the target for unplanned turnover was 8.5%
and actual was 10.9%; and the target for safety was an occurrence of 5 and the
actual was 4.3. No bonus was payable in 1999 for ROCE, earnings per share
growth, or the unplanned turnover factors. Bonus was payable in 1999 for
exceeding targets in the on-time shipment and safety factors. Amounts payable
under the cash bonus plan for 1999 to the named executive officers,
Messrs. Daniels, Kaiser, Marberg, Olsson and Rosewall were $12,013; $16,528;
$19,240; $49,129; and $15,686, respectively.
For 2000, the Incentive Bonus Plan for the Company's Executive Officer Group
is weighted as follows: ROCE factor 40%, EPS factor 40% and 20% for Balanced
Scorecard. The Balanced Scorecard parameters for 2000 are 10% for on-time
shipments with a target level of 94% and 10% for safety with a target level of
an accident occurrence frequency ratio of 4.2. For 2000, the base bonus target
levels for Messrs. Daniels, Kaiser, Marberg, Olsson and Rosewall are $56,642,
$67,831, $73,310, $187,200 and $93,600, respectively.
LONG-TERM INCENTIVE PLANS.
On May 14, 1996, the shareholders of the Company approved the Company's 1996
Long-Term Incentive Plan ("LTIP"), which plan became effective May 31, 1996. The
purposes of the LTIP are (i) to align the interests of the Company's
shareholders and recipients of awards under the LTIP 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 LTIP,
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
the 1990 Incentive Stock Option Plan remain valid although no new grants were
permitted under either plan after May 31, 1996. The LTIP was amended in May,
1998 (i) to increase the annual recharge from 1.15% of outstanding common stock
of the Company on January 1 of each year to 1.25% and (ii) to extend the life of
the LTIP from May, 2001 to May, 2003.
16
<PAGE>
Under the LTIP, the Compensation Committee may establish vesting criteria
for the grant of options or other permitted awards under the LTIP. The
Compensation Committee has historically anticipated that the primary awards
vehicle under the plan would 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 Committee is currently reviewing a proposal to change the
vesting schedule from a time based schedule to a performance based schedule
premised on vesting when specified stock price benchmarks are attained. Option
grants by the Committee in 2000 may utilize this new vesting approach. 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 LTIP, the Compensation
Committee currently anticipates that grants to executive officers will be in the
amount of 5,250 option shares per year. In addition, the Compensation Committee
anticipates granting non-qualified options to certain key employees of the
Company, which grants will be in the amount 525 option shares. Finally, the
Committee anticipates grants of 1,500 non-qualified option shares each to
certain Assistant Vice Presidents.
Under the LTIP, on the date of each annual meeting of shareholders of the
Company (or 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),
each person who is a non-employee director after such date 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 LTIP will immediately vest and will have a term of
seven years for exercise.
In March 1999, each executive officer (13 in all) received grants of
non-qualified options under the LTIP for 5,250 option shares, vesting over four
years at an exercise price of $20.50 per option share. On May 31, 1999, each of
the non-employee directors received a grant of 1,500 non-qualified options, with
an exercise price of $21.25 per share. In March 1999, non-qualified options for
63,750 option shares (750 to each key employee and 1,500 to each Assistant Vice
President) were issued to 60 key employees and seven Assistant Vice Presidents
under the LTIP. The option exercise price of the non-qualified options granted
to key employees was $20.50 per option share with vesting over four 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, 1999, each member of the Company's Executive Group,
including each of the Named Executive Officers, satisfied their respective
minimum stockholding requirements.
Rodney L. Gray Douglass Wm. List (Chair)
Bruce M. Flohr
17
<PAGE>
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, the index of selected peer group
companies shown last year (the "Old Peer Group") and a new index of selected
peer group companies (the "New Peer Group"). 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 $212 Million to $1,735
Million, as compared to $304 Million for the Company. Total Assets for these
companies range from $119.4 Million to $1,624 Million, as compared to $178.4
Million for the Company. The Old Peer Group consists of the following companies:
Harsco Corporation; Trinity Industries, Inc.; Varlen Corporation; L.B. Foster
Company; Ansaldo Signal NV, Westinghouse Air Brake Co.; Motive Power
Industries, Inc.; ABC Rail Products,Inc.; Wabash National Corporation and the
Company. The New Peer Group consists of the following companies: Harsco
Corporation; Trinity Industries, Inc.; Varlen Corp.; LB Foster Company; Ansaldo
Signal NV; ABC-NACO, Inc.; Wabash National Corporation; Railworks Corporation;
Westinghouse Air Brake Co.; and the Company. Effective February 23, 1999 ABC
Rail Products Corp. changed its name to ABC-NACO Inc. 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, 1994.
Comparison of Five-Year Cumulative Total Return* Among the Company, Peer
Performance Groups and S&P Composite 500 Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HARMON INDUSTRIES NEW PEER GROUP OLD PEER GROUP S&P 500
<S> <C> <C> <C> <C>
1994 100.00 100.00 100.00 100.00
1995 81.6 101.5 98.4 137.6
1996 97.3 116.0 113.9 169.5
1997 146 161.4 163.8 226.1
1998 182.8 136.4 144.5 291.8
1999 96.8 119.4 120.2 353.7
</TABLE>
18
<PAGE>
The reference points on the foregoing graph are as follows:
<TABLE>
<CAPTION>
DEC. 1994 DEC. 1995 DEC. 1996 DEC. 1997 DEC. 1998 DEC. 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harmon Industries.................... 100.0 81.6 97.3 146.0 182.8 96.8
New Peer Group....................... 100.0 101.5 116.0 161.4 136.4 119.4
Old Peer Group....................... 100.0 98.4 113.9 163.8 144.5 120.2
S&P 500.............................. 100.0 137.6 169.5 226.1 291.8 353.7
</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, 1994 and that all
dividends were reinvested.
DIRECTOR COMPENSATION
Effective May 12, 1998, each non-employee director receives an annual cash
director's fee of $6,000 and 360 shares of Common Stock of the Company per year
issued in January of each year. In January 1999, 180 shares (prorated for the
first partial year of existence of the 1998 Director Stock Plan) were issued to
each of eight non-employee directors. 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.
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, 1996, May 13, 1997, May 29, 1998, and May 11, 1999,
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, $13.00, $23.875, and $21.25 per share for 1996, 1997, 1998, and
1999, respectively. The shares are fully vested and are exercisable over a term
of seven years. As of March 8, 2000, 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 the period of September 1996 to August 1998 and is
approximately $86,000 for each 12-month period commencing September 1998.
19
<PAGE>
APPROVAL OF SELECTION OF AUDITORS
The Board of Directors recommends voting to approve the selection of KPMG
LLP, as Auditors for the Company for the 2000 fiscal year. This firm has served
continuously as Auditors for the Company since 1969.
A representative of KPMG 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--2001 MEETING
In the event any shareholder intends to present a proposal at the Annual
Meeting of Shareholders to be held in 2001, such proposal must be received by
the Company, in writing, on or before November 9, 2000, 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 9, 2000.
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 30, 2000
20
<PAGE>
HARMON INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
COUNTRY CLUB OF BLUE SPRINGS
1600 NW CIRCLE DRIVE
Blue Springs, Missouri
Tuesday, May 9, 2000
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at http://www.umb.com/proxy and follow
the instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to
the same extent as if you marked, signed, dated and returned the proxy
card. Please note that all votes cast by Internet must be submitted
prior to 5:00 p.m. Central Time, May 8, 2000.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
THANK YOU FOR YOUR VOTE.
Cut or tear along perforated edge.
- -----------------------------------------------------------------------------
PROXY
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 2000
The undersigned holders of shares of Common Stock of Harmon Industries, Inc.
(the "Company") hereby appoint Robert E. Harmon and Stephen L. Schmitz, 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 NW Circle Drive, Blue Springs, Missouri on Tuesday, May 9,
2000, and at any adjournments of such meeting, with all powers which the
undersigned would possess if personally present.
1. ELECTION OF FOUR (4) DIRECTORS IN CLASS I: (FOR A TERM OF THREE YEARS)
BRUCE M. FLOHR, GERALD E. MYERS, JUDITH C. WHITTAKER, EMANUEL CLEAVER, II
FOR ALL NOMINEES AUTHORITY WITHHELD FOR ALL NOMINEES EXCEPT
FROM ALL NOMINEES VOTE(S) WITHHELD FOR
THE FOLLOWING NOMINEES
/ / / / / /
---------------------------------------------------------------------------
2. SELECTION OF KPMG LLP AS AUDITORS FOR THE COMPANY
FOR AGAINST ABSTENTION
/ / / / / /
(Please sign reverse side and return promptly)
(REVERSE SIDE)
UNLESS OTHERWISE DIRECTED, THE MANAGEMENT PROXY COMMITTEE WILL VOTE FOR THE
ELECTION OF FOUR (4) DIRECTORS IN CLASS I AS LISTED IN THE PROXY STATEMENT
AND FOR THE SELECTION OF KPMG LLP.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting and Proxy Statement of the Company dated March 30, 2000.
Dated _______________, 2000
___________________________________
(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>
HARMON INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 9, 2000
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at http://www.umb.com/proxy and follow
the instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to
the same extent as if you marked, signed, dated and returned the proxy
card. Please note that all votes cast by Internet must be submitted
prior to 5:00 p.m. Central Time, May 8, 2000.
IF YOU VOTE BY INTERNET, PLEASE DO NOT RETURN YOUR PROXY BY MAIL.
THANK YOU FOR YOUR VOTE.
Cut or tear along perforated edge.
- -----------------------------------------------------------------------------
PROXY
INSTRUCTION CARD
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 2000
INSTRUCTIONS TO: The Mercantile Bancorporation, Inc. 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, 2000.
1. ELECTION OF FOUR (4) DIRECTORS IN CLASS I: (FOR A TERM OF THREE YEARS)
BRUCE M. FLOHR, GERALD E. MYERS, JUDITH C. WHITTAKER, EMANUEL CLEAVER, II
FOR ALL NOMINEES AUTHORITY WITHHELD FOR ALL NOMINEES EXCEPT
FROM ALL NOMINEES VOTE(S) WITHHELD FOR
THE FOLLOWING NOMINEES
/ / / / / /
---------------------------------------------------------------------------
2. SELECTION OF KPMG LLP AS AUDITORS FOR THE COMPANY
FOR AGAINST ABSTENTION
/ / / / / /
(Please sign reverse side and return promptly)
(REVERSE SIDE)
UNLESS OTHERWISE DIRECTED, THE MANAGEMENT PROXY COMMITTEE WILL VOTE FOR THE
ELECTION OF FOUR (4) DIRECTORS IN CLASS I AS LISTED IN THE PROXY STATEMENT
AND FOR THE SELECTION OF KPMG LLP.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting and Proxy Statement of the Company dated March 30, 2000.
Dated _______________, 2000
___________________________________
Participant's Signature
