<PAGE>
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Harman International Industries, Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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:
- --------------------------------------------------------------------------------
<PAGE>
[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL
INDUSTRIES, INCORPORATED
1101 Pennsylvania Avenue, N.W., Suite
1010
Washington, D.C. 20004
September 16, 1997
Dear Harman International Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held on Monday, November 10, 1997 at 11:00 a.m. at the Chase Manhattan Bank,
270 Park Avenue, New York, New York. Information about the meeting, the nominees
for Director and the proposals to be considered is presented in the Notice of
Annual Meeting of Stockholders and the Proxy Statement on the following pages.
In addition to the formal items of business to be presented at the meeting,
I will report on our Company's operations during fiscal 1997. This will be
followed by a question and answer period.
It is important that your shares be represented at the meeting regardless
of the number of shares that you hold. To ensure your representation, please
sign, date and return the enclosed proxy card promptly.
We look forward to seeing you on November 10th.
Sincerely,
/s/ Sidney Harman
Sidney Harman
Chairman and Chief Executive Officer
<PAGE>
[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 10, 1997
------------------------
The 1997 Annual Meeting of Stockholders of Harman International Industries,
Incorporated (the "Company") will be held at Chase Manhattan Bank, 270 Park
Avenue, New York, New York on November 10, 1997 at 11:00 a.m. for the following
purposes:
(1) To elect three directors to serve for a three-year term expiring at
the 2000 Annual Meeting of Stockholders;
(2) To consider and take action upon a proposal to adopt a
performance-based bonus plan for the Company's Chief Executive
Officer;
and to transact such other business as properly may come before the meeting on
November 10 or on any date to which the meeting may be adjourned.
Stockholders of record as of the close of business on September 12, 1997
are entitled to notice of, and to vote at, the meeting.
If you plan to attend the meeting and will need special assistance or
accommodation due to a disability, please include such information on the
enclosed proxy card.
By Order of the Board of Directors
/s/ Bernard A. Girod
Bernard A. Girod
Secretary
Washington, D.C.
September 16, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, PLEASE VOTE BY MEANS OF THE
ENCLOSED PROXY WHICH YOU
ARE REQUESTED TO SIGN, DATE AND RETURN AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
1101 PENNSYLVANIA AVENUE, N.W.
SUITE 1010
WASHINGTON, D.C. 20004
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harman International Industries,
Incorporated (the "Company") for use at the 1997 Annual Meeting of Stockholders
(the "Meeting") and for the purpose of considering and acting upon the matters
specified in the accompanying Notice of Annual Meeting. This Proxy Statement and
the enclosed proxy card were first sent or given to stockholders on or about
September 16, 1997.
Holders of record of the Company's common stock (the "Common Stock"), par
value $0.01 per share, as of the close of business on September 12, 1997, will
be entitled to vote at the Meeting or at any adjournment thereof, and each
stockholder of record on such date will be entitled to one vote for each share
of Common Stock held. On September 12, 1997, there were 18,475,758 shares of
Common Stock outstanding.
Shares of Common Stock cannot be voted at the Meeting unless the owner is
present or represented by proxy. A proxy may be revoked at any time before it is
voted by giving written notice of revocation or by the delivery of a new proxy
to the Company at the address shown above, or by the stockholder's personal vote
at the Meeting.
All properly executed proxies, unless previously revoked, will be voted at
the Meeting or any adjournment thereof in accordance with the directions given.
With respect to the election of three Directors to serve until the 2000 Annual
Meeting, stockholders of the Company voting by proxy may vote in favor of the
nominees or may withhold their vote for the nominees. With respect to the one
other proposal for stockholder action, stockholders of the Company voting by
proxy may vote in favor of or against the proposal. If no specific instructions
are given with respect to the matters to be acted upon at the Meeting, shares of
Common Stock represented by a properly executed proxy will be voted FOR (i) the
election of the three nominees for Director listed under the caption "Election
of Directors," and (ii) the approval of a performance-based bonus plan for the
Company's Chief Executive Officer.
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. Abstentions and non-votes will be counted for purposes
of determining the existence of a quorum at the Meeting. The candidates for
election as Directors will be elected by the affirmative vote of a plurality of
the shares of Common Stock present in person or by proxy and actually voting at
the Meeting. All other matters require for their approval the favorable vote of
a majority of the shares of Common Stock voted in person or by proxy at the
Meeting. Any action other than a vote for a nominee or proposal (including
abstentions and broker non-votes) will have the practical effect of voting
against the nominee or proposal, as the case may be.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
Pursuant to the Company's Restated and Amended Certificate of
Incorporation, the Board of Directors is divided into three classes. Previously,
two classes consisted of two Directors and one class consisted of one Director,
with each Director elected for a three-year term, and one class of Directors
being elected at each annual meeting of stockholders. At its meeting on
September 9, 1997, however, the Board of Directors voted to increase the number
of Directors from five to seven and to designate the two new directorships in
the class of Directors to be elected at the Meeting. As a result, two classes
consist of two Directors and one class consists of three Directors.
At its September 9, 1997 meeting, the Board of Directors also nominated two
new Directors for election at the Meeting to fill the two vacancies on the
Board. Therefore, three Directors are to be elected at the Meeting. Set forth
below is information concerning the three nominees for Director, as well as
information concerning the Directors whose terms of office will extend beyond
the Meeting. The current nominees for Director, if elected, will serve for a
three-year term expiring at the 2000 Annual Meeting. The Board of Directors
expects that the nominees will be available for election. In the event that a
nominee for any reason should become unavailable for election (which is not
anticipated), it is intended that the shares of Common Stock represented by the
proxies will be voted for a nominee who would be designated by the Board of
Directors, unless the Board of Directors reduces the number of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES.
DIRECTORS TO BE ELECTED AT THE MEETING
Edward H. Meyer, age seventy, has been a Director of the Company since July
1990. Mr. Meyer has been the Chairman of the Board, Chief Executive Officer and
President of Grey Advertising, Inc., New York, New York since 1972. Mr. Meyer
serves as a Director for May Department Stores Company, Bowne & Co., Inc., Ethan
Allen Interiors, Inc., and as a Director/trustee of thirty-five mutual funds
advised by Merrill Lynch Asset Management, Inc.
Gregory P. Stapleton, age fifty-one, has been President of the Company's
OEM Group since October 1987. Prior to his association with the Company, he was
Senior Vice President of General Electric Venture Capital Corporation from
January 1986 to September 1987, and was General Manager, Industrial Products
Section, Factory Automation Products Division of General Electric Corporation
from October 1982 through December 1985.
Stanley A. Weiss, age seventy, has been Chairman of American Premier, Inc.,
a private mining, refractories, chemicals and mineral processing company since
1991. Prior to that he was Chairman and President of American Minerals. Mr.
Weiss is also founder and Chairman of Business Executives for National Security
(BENS).
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
Sidney Harman, Ph.D., age seventy-nine, has been Chairman of the Board,
Chief Executive Officer and a Director of the Company since the Company's
founding in 1980. Dr. Harman served as Under Secretary of Commerce of the United
States from January 1977 until December 1978. Dr. Harman's term as a Director
expires at the 1999 Annual Meeting.
Bernard A. Girod, age fifty-five, has been President of the Company since
March 1994, Chief Operating Officer of the Company since March 1993, Secretary
of the Company since November 1992 and a Director of the Company since July
1993. Mr. Girod also served as Chief Financial Officer of the Company from
September 1986 to August 1995 and again from March 1996 to February 1997. Mr.
Girod's term as a Director expires at the 1998 Annual Meeting.
Shirley M. Hufstedler, age seventy-two, has been a Director of the Company
since September 1986. Ms. Hufstedler is and has been for the past sixteen years
in private law practice. She served as Secretary of
2
<PAGE>
Education of the United States from 1979 to 1981 and as a judge on the United
States Court of Appeals for the Ninth Circuit from 1968 to 1979. She is
currently with the law firm of Morrison & Foerster, LLP in Los Angeles,
California and from 1981 to March 1995, was with the firm of Hufstedler & Kaus.
Ms. Hufstedler is Director Emeritus of US West, Inc. and Hewlett-Packard
Company. Ms. Hufstedler's term as a Director expires at the 1999 Annual Meeting.
Ann McLaughlin, age fifty-five, has been a Director of the Company since
November 1995. She served as Secretary of Labor of the United States under
President Reagan from 1987 until 1989. Ms. McLaughlin is a Director of AMR
Corporation, General Motors Corporation, Kellogg Company and Nordstrom, Inc. She
is also a member of the Board of Overseers of the Wharton School of the
University of Pennsylvania and a member of the Board of the Nixon Center for
Peace and Freedom. Ms. McLaughlin's term as a Director expires at the 1998
Annual Meeting.
THE BOARD OF DIRECTORS, ITS COMMITTEES AND COMPENSATION
The Board of Directors of the Company held four meetings during the 1997
fiscal year. The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee and the Compensation and Option Committee (the
"Compensation Committee"). The Company does not have a standing committee on
nominations, but rather the full Board nominates candidates for Director. All
Directors attended at least seventy-five percent of the meetings of the Board of
Directors and the committees on which such Directors served.
The Executive Committee, which held ten meetings during the 1997 fiscal
year, presently consists of Dr. Harman and Mr. Girod and contains one vacancy.
The Executive Committee is empowered to exercise all of the power and authority
of the Board of Directors in the management of the business affairs of the
Company when the full Board of Directors is not in session, except for those
matters that may not be delegated to it under the Company's Restated and Amended
Certificate of Incorporation or Bylaws. The Executive Committee has also been
delegated certain authority by the Board of Directors with respect to matters
relating to the Company's 1992 Incentive Plan (the "1992 Plan") and retirement
plans.
The Audit Committee, which held three meetings during the 1997 fiscal year,
presently consists of Ms. Hufstedler, Mr. Meyer and Ms. McLaughlin. The Audit
Committee reviews the results of the annual audit with the Company's independent
auditors and the adequacy of the Company's internal accounting controls and
practices, and recommends to the Board of Directors the independent auditors to
be retained by the Company.
The Compensation Committee, which held two meetings during the 1997 fiscal
year, presently consists of Ms. Hufstedler, Mr. Meyer and Ms. McLaughlin. The
Compensation Committee establishes compensation each year for the Chief
Executive Officer and the other top executive officers and reviews with the
Chief Executive Officer the compensation of the Company's other executive
officers. The Compensation Committee has been delegated certain authority by the
Board of Directors with respect to matters relating to the Company's Chief
Executive Officer Incentive Plan, the 1992 Plan and retirement plans.
The Company does not pay fees to Directors who also serve as officers of
the Company or its subsidiaries. Non-officer Directors receive an annual fee of
$20,000 plus $2,500 for each Board meeting attended and $750 for each committee
meeting attended that occurred other than on the day of a Board meeting. The
Company reimburses all Directors for expenses incurred for attending meetings.
Under the 1992 Plan, immediately following each annual meeting of
stockholders, each incumbent non-officer Director who served during the prior
fiscal year and who continues to serve on the Board of Directors receives an
option to purchase 2,500 shares of Common Stock and is eligible to receive
additional options if the Company achieves a certain Return on Consolidated
Equity (as that term is defined in the 1992 Plan) for the previous fiscal year.
If the Company achieves a Return on Consolidated Equity of at least nine
percent, but less than thirteen percent, each non-officer Director receives an
option to purchase 750 shares of Common Stock. If the Company achieves a Return
on Consolidated Equity of thirteen percent or more, each non-officer Director
receives an option to purchase 1,500 shares of Common Stock. Pursuant to the
terms of the 1992
3
<PAGE>
Plan, in November 1996 following the 1996 Meeting, each non-officer Director
received options to purchase 2,500 shares of Common Stock and, because the
Company achieved a Return on Consolidated Equity for fiscal 1996 in excess of
13%, additional performance-based options to purchase 1,500 shares of Common
Stock. At the Meeting it is anticipated that, Ms. Hufstedler, Ms. McLaughlin and
Mr. Meyer will also receive options to purchase 2,500 shares of Common Stock
and, because the Company achieved a Return on Consolidated Equity for fiscal
1997 of 12.14%, additional performance-based options to purchase 750 shares of
Common Stock.
The 1992 Plan also provides that any person who becomes a non-officer
member of the Board of Directors shall be granted an option to purchase 3,000
shares of Common Stock on the date such person first becomes a non-officer
Director. Pursuant to this provision, Mr. Weiss, if elected a Director at the
Meeting, will receive an option to purchase 3,000 shares of Common Stock on the
date of the Meeting.
The exercise price of any option granted to a non-officer Director under
the 1992 Plan is equal to the fair market value of the Common Stock on the date
of grant. Each such option vests at a rate of twenty percent per annum and
expires ten years from the date of grant.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 1, 1997, the beneficial
ownership of the Company's Common Stock for the following persons: (a) all
stockholders known by the Company to beneficially own more than five percent of
the Common Stock, (b) each of the Company's current Directors, (c) the Company's
Chief Executive Officer and the five other most highly paid executive officers
of the Company, and (d) all of the Company's Directors and executive officers as
a group. Certain information in the table is based upon information contained in
filings made by the beneficial owner with the Securities and Exchange Commission
(the "Commission").
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1) APPROXIMATE PERCENT
- ------------------------------------------------------ ----------------------- -------------------
<S> <C> <C>
AXA Assurances I.A.R.D. Mutuelle and.................. 2,105,300(2) 11.20%
AXA Assurances Vie Mutuelle
21, rue de Chateaudun
75009 Paris France
Alpha Assurances I.A.R.D. Mutuelle and
Alpha Assurances Vie Mutuelle
100-101 Terrasse Boieldieu
92042 Paris La Defense France
AXA Courtage Assurance Mutuelle
26, rue Louis le Grand
75002 Paris France
AXA
23, avenue Matignon
75008 Paris France
The Equitable Companies Incorporated
787 Seventh Avenue
New York, New York 10019
Sidney Harman......................................... 1,294,701(3) 6.79%
Harman International Industries, Incorporated
1101 Pennsylvania Avenue, N.W.
Suite 1010
Washington, D.C. 20004
Wellington Management Company, LLP.................... 935,750(4) 5.02%
75 State Street
Boston, Massachusetts 02109
Bernard A. Girod...................................... 53,295(5) *
Shirley M. Hufstedler................................. 16,394 *
Ann McLaughlin........................................ 705 *
Edward H. Meyer....................................... 12,638 *
Gregory P. Stapleton.................................. 32,173(6) *
Frank Meredith........................................ 6,410 *
Thomas Jacoby......................................... 16,060(7) *
Philip Hart........................................... 35,025 *
All Directors and executive officers as a group (14
persons)............................................ 1,492,615 7.79%
</TABLE>
- ---------------
* Less than one percent
(1) Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
disposition of such security. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the persons named in the table have sole voting and
investment power with respect to the shares of Common Stock beneficially
owned. A person is also deemed to be a beneficial owner of any securities of
which that person has the right to acquire beneficial ownership within 60
days. Accordingly, the beneficial ownership amounts include shares of Common
Stock that may be acquired pursuant to stock options exercisable within 60
days from August 1,
5
<PAGE>
1997 by the following stockholders in the indicated amounts: Dr. Harman
(591,150 shares), Mr. Girod (6,000 shares), Ms. Hufstedler (12,929 shares),
Ms. McLaughlin (600 shares), Mr. Meyer (7,049 shares), Mr. Stapleton (13,875
shares), Mr. Meredith (4,920 shares), Mr. Jacoby (14,550 shares), Mr. Hart
(27,990 shares) and all Directors and executive officers as a group (698,558
shares).
(2) Information reflected in this table and the notes thereto with respect to
Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Assurances Vie Mutuelle, AXA Assurances I.A.R.D. Mutuelle and AXA Courtage
Assurance Mutuelle (as a group, collectively, the "Mutuelles AXA"), AXA and
The Equitable Companies Incorporated is derived from the Schedule 13G
amendment filed with the Commission by and on behalf of them on February 13,
1997. The Mutuelles AXA beneficially owns a majority interest in AXA, which
in turn beneficially owns a majority interest in The Equitable Companies
Incorporated. The listed shares of Common Stock represent shares owned by
subsidiaries of The Equitable Companies Incorporated as follows: 1,926,300
shares held by Alliance Capital Management L.P. ("Alliance"), on behalf of
client discretionary investment advisory accounts, with respect to which
Alliance has sole dispositive power, and sole voting power of 1,924,700 of
those shares; 200 shares held by Donaldson, Lufkin & Jenrette Securities
Corporation, with shared dispositive power and no indicated voting power;
and 178,800 shares held by The Equitable Life Assurance Society of the
United States, with sole voting and dispositive power. The Mutuelles AXA and
AXA do not admit beneficial ownership of the listed shares. On September 10,
1997, a Schedule 13G amendment was filed with the Commission by and on
behalf of Mutuelles AXA, AXA and The Equitable Companies Incorporated
reporting an aggregate beneficial ownership of 6,100 shares of Common Stock,
representing less than five percent of the Common Stock.
(3) Includes: 401,323 shares held in a trust for which Dr. Harman has sole
dispositive and sole voting power; 61,497 shares held in two irrevocable
trusts for various family members for which Dr. Harman has sole voting power
but shared dispositive power; and 140,731 shares held by family members for
which Dr. Harman has sole voting power pursuant to 3-year revocable proxies
and for which Dr. Harman disclaims beneficial ownership. As noted in
footnote 1, the number of shares beneficially owned by Dr. Harman also
includes 591,150 shares that may be acquired pursuant to stock options
exercisable within 60 days from August 1, 1997. The 591,150 shares subject
to stock options include a long-term performance incentive option to
purchase 315,000 shares granted to Dr. Harman on November 9, 1993 (as
adjusted to reflect the five percent stock dividend paid by the Company in
August 1995). This performance incentive option is subject to, cancellation,
and any shares issued as a result of the exercise of the option are subject
to, repurchase, if the Company does not meet certain performance criteria
for the fiscal years ending June 30, 1995 through June 30, 2001; 135,135
(42.9%) of the shares relating to this option are no longer subject to
cancellation because the Company has exceeded the performance criteria for
each of the 1995, 1996 and 1997 fiscal years.
(4) Information reflected in this table and the notes thereto with respect to
Wellington Management Company, LLP ("Wellington") is derived from the
Schedule 13G filed by them with the Commission on February 14, 1997. Of the
935,750 listed shares, which are held of record by clients of Wellington,
Wellington has shared voting power with respect to 835,750 shares and shared
dispositive power with respect to all such shares.
(5) Includes 1,777 shares held by Mr. Girod in the Company's Section 401(k)
Retirement Savings Plan (the "401(k) Plan").
(6) Includes 1,707 shares held by Mr. Stapleton in the Company's 401(k) Plan.
(7) Includes 10 shares held by Mr. Jacoby in the Company's 401(k) Plan.
6
<PAGE>
REPORT OF THE COMPENSATION AND OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
implementing the Company's executive compensation program. The Compensation
Committee has been delegated this authority by the Board of Directors, and
thereby makes determinations regarding the compensation of the Company's
executive officers. The Compensation Committee has also been delegated the
authority to administer the Company's stock incentive plans with respect to
awards to executive officers. The Compensation Committee is comprised entirely
of outside, non-employee Directors: Shirley Mount Hufstedler, Ann McLaughlin and
Edward Meyer. See "The Board of Directors, Its Committees and Compensation."
The key elements of the Company's executive compensation program consist of
(a) base salaries that are determined based upon concerns of competitive pay and
performance; (b) cash bonus awards that are driven solely by performance; and
(c) ownership of stock options to align the interests of management with those
of stockholders. Each of these elements is discussed in more detail below.
ANNUAL CASH COMPENSATION
SALARY. Decisions with respect to base salaries are typically made before
the beginning of each fiscal year and are based upon two
factors -- considerations of competitive pay and of pay for performance, with
more weight given to setting competitive salaries. The Company conducts its
business in an increasingly competitive industry and, while pursuing a
high-growth strategy, recognizes that it operates in a competitive global
marketplace where the best people are in great demand. Because the Company seeks
to attract and retain the best people -- people with demonstrated skills and
experience -- the Company's competitive pay structure is evaluated and set
against market data developed based upon compensation practices by industry
competitors, companies of comparable size, high growth companies and successful
global marketing companies.
For fiscal year 1997, the Compensation Committee set base salaries for the
top five executive officers in July 1996, based upon competitive pay information
accumulated by the Company's Human Resources Department and upon a review of the
Company's results of operations for the 1996 fiscal year. The competitive pay
information was derived in part from data furnished by outside compensation
consulting firms which surveyed the compensation practices of companies (1) in
the electrical and electronics industry and (2) high-growth companies. Although
this survey group is different from the group used by the Company for comparing
stock performance (see "Stock Price Performance Graph"), the Compensation
Committee believes that the survey group offers more reliable information for
compensation practices. In setting compensation for individual executive
officers, the Company and the Compensation Committee sought to establish base
salaries at the 50th - 75th percentile of base salaries for the survey group
companies, consistent with the Company's competitive pay goals. The salary
changes for fiscal year 1997 reflected changes in the survey group compensation
practices, but also responded to the significant improvement in performance at
every level of the Company, both in sales and earnings, and on the achievement
of individual performance objectives.
BONUS AWARD PLAN. Cash bonus awards are typically set following the end of
each fiscal year, and are based entirely upon performance. Performance is
measured in three ways. First, annual bonus awards focus on current fiscal year
financial performance and continuous improvement. Award levels for the executive
officers vary and are based on corporate or group earnings. Second, and most
importantly, annual bonus awards are based upon the attainment of personal
performance objectives established by the individual officer and approved by
management. Individual performance objectives vary from officer to officer, and
include financial objectives for appropriate business units (such as earnings,
asset management and sales growth), other business objectives (such as timely
introduction of new products and the communication of new technologies and
processes among business units) and personal development objectives (such as
attention to personal and professional development, and effective interaction
with other business units). Similarly, these individual performance objectives
are incorporated annually into the Company's business plan developed by
management and approved by the Board of Directors. Finally, the bonus award
program also contemplates
7
<PAGE>
discretionary rewards for exemplary individual performance in the form of a
discretionary bonus which is recommended by the Chief Executive Officer and
approved by the Compensation Committee.
Consistent with past practice, bonus awards for the Company's top officers
were set by the Compensation Committee in July 1997 based on fiscal year 1997
performance. Bonus awards for Messrs. Girod and Meredith for the 1997 fiscal
year were awarded based upon the strong performance of the Company and Mr.
Stapleton's bonus award was based upon the extraordinary performance of the OEM
Group. Messrs. Hart and Jacoby did not receive bonus awards for fiscal year 1997
because certain financial targets for the Professional and Consumer Groups,
respectively, were not met.
EQUITY BASED COMPENSATION
The Company's stock option program reinforces the Company's long term
commitment to increasing shareholder value by aligning executive officers'
long-term interests with those of the shareholder. Executive officers and key
employees of the Company are eligible to participate in the Company's stock
option plans. The amount of stock options awarded to executive officers is
determined based upon a discretionary recommendation made by the Chief Executive
Officer and approved by the Compensation Committee. The Chief Executive Officer
usually bases the amount of awards upon his assessment of officer performance
and the need for the future long-term incentive that is offered by stock
options. The Compensation Committee approved the Chief Executive Officer's
recommendations for the 1997 fiscal year and granted options to purchase 30,000,
30,000, 15,000, 15,000 and 7,500 shares of Common Stock to each of Messrs.
Girod, Stapleton, Jacoby, Hart and Meredith, respectively, at an exercise price
of $43.50 per share, the fair market value of the Common Stock on September 5,
1996 (the date of the grant of the options).
FISCAL 1997 COMPENSATION FOR CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SALARY. In July 1996, after reviewing the Company's performance during the
1996 fiscal year, the Compensation Committee awarded Dr. Harman a pay increase
of $50,000 or 9.4% of his July 1995 salary, effective July 1, 1996. This
increase, while consistent with the competitive pay information developed from
the survey group discussed above, was based in large part upon the continuing
impressive results of the Company during the 1996 fiscal year in sales, earnings
and shareholder value which the Compensation Committee attributes largely to the
leadership provided by Dr. Harman. In fiscal 1996, the Company had net income of
$52.0 million (compared to $41.2 million in fiscal 1995) on sales of $1,361.6
million (compared to sales of $1,170.2 million in fiscal 1995). From June 30,
1995 to June 30, 1996, the value of the Company's stock increased by 28%.
PERFORMANCE BASED COMPENSATION. In August 1994 the Compensation Committee
adopted the Chief Executive Officer Incentive Plan (the "CEO Plan") in order to
provide "performance-based" bonus compensation to the Company's Chief Executive
Officer. The CEO Plan was subsequently approved by the Company's full Board of
Directors and by the stockholders at the 1994 Annual Meeting. Under the CEO
Plan, an annual cash bonus will be paid to the Company's Chief Executive Officer
only if a targeted return on shareholder equity goal has been met for the year.
The CEO Plan was adopted to preserve the deductibility for the Company of cash
compensation paid to Dr. Harman in excess of $1 million, consistent with the
requirements of Section 162(m) of the Internal Revenue Code.
According to the terms of the CEO Plan, at the beginning of each fiscal
year, the Compensation Committee must establish (i) the return on shareholder
equity goal for the year and (ii) the maximum cash award (the "Award Amount")
payable to the Company's Chief Executive Officer if the goal is met. At the end
of the year, the Committee must certify whether the return on shareholder equity
goal has been met for the year. If the goal has been met, the Compensation
Committee retains the discretion to reduce the Award Amount for the year based
upon subjective factors. The Compensation Committee, however, does not have the
discretion to increase the Award Amount, and under no circumstance can the Award
Amount for a given year exceed $1 million.
Pursuant to the CEO Plan, in July 1996 the Compensation Committee
established a return on shareholder equity goal for fiscal 1997 of 10% and an
Award Amount of up to $1 million. Under the leadership
8
<PAGE>
provided by Dr. Harman, the Company's return on average shareholder equity for
fiscal 1997 was 12%. In addition, the Company achieved strong performance for
the 1997 fiscal year by other measures -- the Company earned $54.8 million (a
5.4% increase from net income of $52.0 million in fiscal 1996) on sales of
$1,474.1 million (an 8.3% increase from sales of $1,361.6 million in fiscal
1996). Notwithstanding the very successful year and the fact that the Company
exceeded the goals established by the Compensation Committee, because the
Company did not meet profit objectives set for the year, Dr. Harman recommended
to the Compensation Committee that his bonus for fiscal year 1997 be reduced to
$375,000, or half of the amount paid for fiscal 1996. The Compensation Committee
accepted this recommendation and awarded Dr. Harman a cash bonus of $375,000 for
the 1997 fiscal year.
The CEO Plan which became effective July 1, 1994 remained effective until
June 30, 1997. At its meeting on July 22, 1997, the Compensation Committee and
the full Board of Directors, approved a new CEO plan with substantially the same
terms and conditions contained in the original CEO plan. If the stockholders of
the Company approve the new CEO Plan (Item 2 on the Proxy Card), compensation
that the Company's Chief Executive Officer receives under such plan would remain
deductible for the Company for Federal income tax purposes.
EQUITY BASED COMPENSATION. On May 31, 1995, the Compensation Committee
authorized the automatic grant to Dr. Harman of options to purchase 50,000
shares on each of May 31, 1995, May 31, 1996 and May 31, 1997, fully exercisable
on the date of the grant, at a price per share equal to the fair market value on
the date of grant or the price per share for options granted to other officers
and key employees on that date. The Compensation Committee subsequently adjusted
this option grant to reflect the five percent stock dividend paid by the Company
in August 1995. As a result, on May 31, 1997 Dr. Harman received options to
purchase 52,500 shares at a price per share of $52.50 (the fair market value on
the date of the grant). The options to Dr. Harman were granted and authorized
based upon both (i) the strong performance of the Company in sales, earnings and
in return on shareholder equity, and (ii) as a long-term performance incentive.
The base salary, the performance based award and the stock option grant
were each determined by the Compensation Committee to be appropriate based on
the Company's basic compensation performance criteria described above as well as
Dr. Harman's leadership in orchestrating impressive growth in the Company's
earnings over the past three years and in repositioning the Company, through a
successful corporate reorganization and a number of strategic acquisitions, to
take advantage of emerging domestic and international long-term growth
opportunities.
STATUS OF REPORT
The foregoing report on 1997 Executive Compensation was provided by the
Compensation Committee and shall not be deemed to be "soliciting material," or
to be "filed" with the Commission or subject to Regulation 14A promulgated by
the Commission or Section 18 of the Exchange Act.
Shirley Mount Hufstedler
Ann McLaughlin
Edward Meyer
9
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (based on the Company's Standard Industrial Code)
for the five-year period ending June 30, 1997. This stock price performance
graph assumes that the value of the investment in the Common Stock and each
index was $100 on July 1, 1992. The stock price performance shown on the graph
below is not necessarily indicative of future price performance.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Jun 92 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 INDEX 100 113.63 115.23 145.27 183.04 246.55
HARMAN 100 171.42 205.10 332.30 426.26 366.21
PEER GROUP 100 111.07 165.04 128.73 175.84 225.18
</TABLE>
10
<PAGE>
PROPOSAL TO APPROVE THE CHIEF EXECUTIVE OFFICER INCENTIVE PLAN
(ITEM 2 ON PROXY CARD)
On November 2, 1994, the stockholders of the Company adopted the Chief
Executive Officer Incentive Plan (the "CEO Plan"), which provides for
"performance-based" bonuses for the Company's Chief Executive Officer in order
to retain the tax deductions available to the Company for compensation. The CEO
Plan became effective as of July 1, 1994, and remained effective until June 30,
1997.
In July 1997, the Board of Directors adopted a new CEO Plan (the "1997 CEO
Plan") with substantially the same terms and conditions contained in the
original CEO Plan. The Board of Directors believes that the 1997 CEO Plan is in
the best interests of the Company and recommends that the stockholders approve
the new plan. Provisions of the 1997 CEO Plan are summarized below. Such
summaries do not purport to be complete and are qualified in their entirety by
reference to the full text of the 1997 CEO Plan, a copy of which is attached
hereto as Exhibit A.
Participation in the 1997 CEO Plan is limited to the Company's Chief
Executive Officer. Under the 1997 CEO Plan, an annual cash bonus will be paid to
the Company's Chief Executive Officer only if a targeted return on shareholder
equity goal ("Return on Shareholder Equity Goal") has been met for the year.
Such bonuses are paid in lieu of bonuses under the Company's bonus award plan
for executive officers. The 1997 CEO Plan will be administered by the
Compensation Committee.
According to the terms of the 1997 CEO Plan, at the beginning of each
fiscal year, the Compensation Committee must establish (a) the Return on
Shareholder Equity Goal for the year and (b) the maximum cash award (the "Award
Amount") payable to the Company's Chief Executive Officer if the goal is met for
the year. At the end of the year, the Committee must certify whether the Return
on Shareholder Equity Goal has been met for the year. If the goal has been met,
the Compensation Committee retains the discretion to reduce the Award Amount for
the year based upon subjective factors. The Compensation Committee, however,
does not have the discretion to increase the Award Amount, and under no
circumstances can the Award Amount for a given year exceed $1 million.
It is intended that the Award Amount paid to the Chief Executive Officer
under the 1997 CEO Plan will constitute "performance-based" compensation as
defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Section 162(m) of the Code generally disallows a tax deduction to
public companies for compensation over $1 million paid to a corporation's top
executives, but does not take into account performance-based compensation in
determining whether the $1 million threshold has been exceeded.
The Company will not implement the 1997 CEO Plan without the requisite
stockholder approval. If the stockholders approve the 1997 CEO Plan, it will
become effective as of July 1, 1997, and remain effective until June 30, 2000,
subject to the right of the Board of Directors to terminate the 1997 CEO Plan,
on a prospective basis, at any time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE 1997 CEO PLAN.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table discloses compensation received by the Company's Chief
Executive Officer and the five other most highly paid executive officers for the
three fiscal years ended June 30, 1997:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION OPTIONS
FISCAL -------------------------------- GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) (SHARES)
COMPENSATION(2)
- ----------------------------------- ------ -------- -------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sidney Harman 1997 $800,000 $375,000(3) $-- 52,500 $11,250
Chairman of the Board and Chief 1996 750,000 750,000(3) -- 52,500 11,250
Executive Officer 1995 650,000 700,000(3) -- 52,500 12,733
Bernard A. Girod 1997 450,000 275,000 -- 30,000 11,250
President, Chief Operating
Officer 1996 400,000 350,000 -- -- 11,250
and Secretary 1995 350,000 350,000 -- 26,250 13,514
Gregory P. Stapleton 1997 350,000 250,000 -- 30,000 11,177
President -- OEM Group 1996 310,000 275,000 -- -- 12,843
1995 280,000 230,000 -- 18,375 16,800
Frank Meredith 1997 239,583 100,000 -- 7,500 8,700
Vice President -- Finance and 1996 187,500 125,000 -- -- 6,750
Administration and Chief 1995 155,000 75,000 -- 5,250 12,345
Financial Officer
Philip Hart(4) 1997 306,922 -- -- 15,000 30,692
President -- Professional Group 1996 263,109 159,856 -- -- 26,311
1995 239,505 175,395 -- 18,375 23,951
Thomas Jacoby 1997 300,000 -- -- 15,000 5,784
President -- Consumer Group 1996 275,000 125,000 -- -- 9,000
1995 250,000 165,000 -- 18,375 7,515
</TABLE>
- ------------
(1) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $50,000 or 10% of the total annual
salary and bonus reported for the named executive officer.
(2) The amounts in All Other Long Term Compensation for Dr. Harman, Messrs.
Girod, Stapleton, Meredith and Jacoby represent Company contributions into
the Company's Retirement Savings Plan. For Mr. Hart, the amounts shown
represent Company contributions to his Personal Pension Scheme, a defined
contribution plan established for Mr. Hart under the laws of the United
Kingdom.
(3) Paid pursuant to the Company's Chief Executive Officer Incentive Plan.
(4) Mr. Hart's salary compensation and contributions to his Personal Pension
Scheme (see footnote 2) have been converted from British Pounds to U.S.
Dollars using average $/L exchange rates for the periods covering the 1997,
1996 and 1995 fiscal years of 1.6154, 1.5477 and 1.5967, respectively. Mr.
Hart's bonus compensation for 1996 and 1995 has been converted from British
Pounds to U.S. Dollars using the $/L exchange rates of 1.5520 and 1.5945,
the exchange rates as of June 30, 1996 and June 30, 1995, respectively.
12
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1992 Plan and 1987 Executive Incentive Plan to the
named executive officers during the year ended June 30, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
PRESENT
NAME GRANTED FISCAL YEAR ($/SHARE) DATE VALUE(4)
- --------------------------- --------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Sidney Harman.............. 52,500(1) 12.8% $ 42.375 May 31, 2007 $557,299
Bernard A. Girod........... 30,000(2) 7.3% $ 43.50 Sept. 5, 2006 $507,553
Gregory P. Stapleton....... 30,000(3) 7.3% $ 43.50 Sept. 5, 2006 $507,553
Frank Meredith............. 7,500(3) 1.8% $ 43.50 Sept. 5, 2006 $126,888
Philip Hart................ 15,000(3) 3.7% $ 43.50 Sept. 5, 2006 $253,777
Thomas Jacoby.............. 15,000(3) 3.7% $ 43.50 Sept. 5, 2006 $253,777
</TABLE>
- ---------------
(1) Represents automatic stock option grant to Dr. Harman pursuant to the 1992
Plan effective on May 31, 1997, at a price per share equal to the fair
market value on that date or the price per share for options granted to
other officers and key employees on that date. The options are exercisable
immediately.
(2) Represents stock options granted on September 5, 1996 under the Company's
1987 Executive Incentive Plan. The exercise price of the options is equal to
the fair market value of the Common Stock on the date of grant. The options
vest at the rate of 20% annually, commencing one year from the date of
grant.
(3) Represents stock options granted on September 5, 1996 under the 1992 Plan.
The exercise price of the option is equal to the fair market value of the
Common Stock on the date of grant. The options vest at the rate of 20%
annually, commencing one year from the date of grant.
(4) Based on the Black-Scholes option price model, which requires assumptions to
be made about the future movement of the stock price. The Company used the
following assumptions to estimate the Grant Date Present Value: an estimated
dividend yield of .45%, an estimated risk-free interest rate of 5.9%, an
estimated volatility of 33%, and an option term of 2.3 years, which is the
estimated period from time of vesting until exercise of the options. There
is no assurance that the actual value realized by an executive officer will
equal the amount estimated based upon the Black-Scholes option pricing
model.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
For each of the named executive officers, the following table shows
information about stock options exercised during fiscal 1997 and the value of
unexercised options as of June 30, 1997.
<TABLE>
<CAPTION>
NUMBER
OF VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
EXERCISABLE UNEXERCISABLE
- ------------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sidney Harman................. -- $ -- 585,900 10,500 $ 8,504,402 $ 234,812
Bernard A. Girod.............. 19,950 527,850 5,250 52,050 40,531 262,481
Gregory P. Stapleton.......... 2,100 99,737 5,775 45,225 75,334 179,041
Frank Meredith................ 1,200 27,586 2,790 11,910 31,643 52,496
Philip Hart................... -- -- 28,455 28,545 650,592 141,471
Thomas Jacoby................. -- -- 10,500 30,225 139,687 191,541
</TABLE>
DEFERRED COMPENSATION PLAN
The Company maintains a Deferred Compensation Plan (the "Plan") to provide
supplemental retirement income benefits for a select group of management and
highly compensated employees who contribute materially to the continued growth,
development, and future business success of the Company and its
13
<PAGE>
subsidiaries through deferrals of a portion of their salary and bonus on a
pre-tax basis. The Plan was amended and restated as of June 1, 1997 to expand
the select group of people eligible for participation in the Plan, to enhance
certain features of the Plan to make it more flexible, and to allow the Company
to make discretionary contributions to selected accounts within the Plan.
Pursuant to the provisions of the Plan, executives designated by the Plan's
administrative committee, the members of which are appointed by the Board of
Directors, are eligible to participate in the Plan. Participants may elect to
defer up to 100% of their base salary and bonus. The minimum annual deferral is
$3,000 of base salary and $2,500 of bonus. Amounts deferred are credited to a
Deferral Account, and participants specify that portions of their account be
deemed invested in selected benchmark funds. The Company credits earnings to
Deferral Accounts by reference to the rate of return on such funds. Amounts
credited to Deferral Accounts are always 100% vested, subject to a 10% penalty
imposed on an unscheduled "in service" withdrawal. After termination of
employment, participants receive the balance of their Deferral Accounts in the
form of a lump sum or annual installments of up to 15 years, as elected by the
participants. The Plan provides for discretionary Company contributions, but no
such contributions are currently contemplated. Such contributions would be
subject to a separate vesting schedule.
EXECUTIVE SPLIT-DOLLAR INSURANCE PLAN
During the 1997 fiscal year, the Company maintained an optional Executive
Split-Dollar Insurance Plan (the "Insurance Plan") in which executives
designated as eligible by the Board of Directors could participate. Under the
Insurance Plan, the Company purchased a life insurance policy of which the
participant was the owner. The Company retained certain rights under the policy,
and a participant could not surrender, borrow against or transfer the policy
until the Company released those rights. While the participant was an employee
of the Company, the Company paid annual premiums equal to the participant's
deferrals under the Executive Deferred Compensation Plan. Participants gained
full rights in the policy upon the occurrence of either of the following: (i) A
Security Release Date, which the participant must specify two years in advance
in an irrevocable filing with the Company, and on which the participant must be
employed or (ii) A Qualifying Termination of Employment, which includes
termination for disability, involuntary termination without cause, or
termination within 36 months after a change-in-control of the Company. If
employment was terminated prior to these events, the participant forfeited the
cash value of the policy to the Company but retained ownership of the policy. If
a participant attained full policy rights, the Company could cause the
participant to withdraw an amount equal to any loan balances owed by the
participant to the Company and any tax withholding obligations.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company maintains a Supplemental Executive Retirement Plan (the
"Supplemental Plan") that provides supplemental benefits to certain key
executive officers designated by the Board of Directors. Currently, Dr. Harman,
Messrs. Girod, Stapleton, Meredith, Jacoby, and other officers of the Company
and certain subsidiaries have been designated as eligible under the Supplemental
Plan. The Supplemental Plan provides for retirement benefits based on the
average cash compensation (including bonuses) paid to such executive during the
five years prior to retirement at age sixty-five. Executive officers that
participate in the Supplemental Plan and retire at age sixty-five receive a
benefit equal to two percent of such average cash compensation for each year of
service up to a maximum benefit of thirty percent of such average cash
compensation after fifteen years of service. Benefits are generally in the form
of a life annuity which are payable monthly for a period of at least ten years,
although the Supplemental Plan permits the Board of Directors to allow payment
of the retirement benefit at a retirement date later than age sixty-five and in
a form other than a life annuity payable monthly. Benefits under the
Supplemental Plan are funded pursuant to specifically allocable insurance
contracts, except in the case of Dr. Harman for whom such benefits are a direct
obligation of the Company.
14
<PAGE>
The following table sets forth the annual retirement benefits that would be
received under the Supplemental Plan at various compensation levels after the
specified years of service:
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------
REMUNERATION 3 6 9 12 15
- ------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 $18,000 $ 36,000 $ 54,000 $ 72,000 $ 90,000
400,000 24,000 48,000 72,000 96,000 120,000
500,000 30,000 60,000 90,000 120,000 150,000
600,000 36,000 72,000 108,000 144,000 180,000
700,000 42,000 84,000 126,000 168,000 210,000
800,000 48,000 96,000 144,000 192,000 240,000
900,000 54,000 108,000 162,000 216,000 270,000
1,000,000 60,000 120,000 180,000 240,000 300,000
1,100,000 66,000 132,000 198,000 264,000 330,000
1,200,000 72,000 144,000 216,000 288,000 360,000
1,300,000 78,000 156,000 234,000 312,000 390,000
1,400,000 84,000 168,000 252,000 336,000 420,000
1,500,000 90,000 180,000 270,000 360,000 450,000
</TABLE>
Dr. Harman is the only executive officer who has reached age sixty-five and
has fully vested retirement benefits under the Supplemental Plan.
The Supplemental Plan also entitles each participating officer to an
additional annual benefit, payable on the participating officer's normal
retirement date (age sixty-five), equal to thirty percent of the average cash
compensation paid to such officer during the preceding five-year period if such
officer terminates employment within three years of a Change in Control (as
defined in the Supplemental Plan). Further, in the event of a Change in Control,
a participating officer will become one hundred percent vested in Supplemental
Plan retirement benefits if, within three years after such Change in Control,
the Supplemental Plan is terminated, such officer's designation as a
participating officer is revoked or any participating officer's accrued or
projected benefits are eliminated or substantially reduced. The Supplemental
Plan also indemnifies participants for legal fees and expenses incurred to
enforce the Supplemental Plan following a Change in Control.
The Supplemental Plan provides for a pre-retirement death benefit for
participating executive officers. The amount of this benefit is equal to twice
the highest annual cash compensation, excluding bonuses, paid to the
participating executive officer during his employment with the Company. Dr.
Harman is not entitled to pre-retirement death benefits under the Supplemental
Plan.
Finally, the Supplemental Plan provides for termination benefits for each
participating officer who retires or terminates employment (whether voluntarily
or involuntarily) subsequent to age fifty-five, but prior to age sixty-five with
at least fifteen years of service. After fifteen years of service, a
participating officer is entitled to termination benefits equal to fifteen
percent of the average cash compensation (including bonuses) paid to such
officer during the five years prior to the termination of such officer's
employment. That percentage increases three percent for each additional year of
service, with a maximum benefit equal to thirty percent of such compensation
after twenty years of service.
15
<PAGE>
The following table sets forth the annual termination benefits that would
be received under the Supplemental Plan at various compensation levels after the
specified years of service:
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION 15 16 17 18 19 20
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 45,000 $ 54,000 $ 63,000 $ 72,000 $ 81,000 $ 90,000
400,000 60,000 72,000 84,000 96,000 108,000 120,000
500,000 75,000 90,000 105,000 120,000 135,000 150,000
600,000 90,000 108,000 126,000 144,000 162,000 180,000
700,000 105,000 126,000 147,000 168,000 189,000 210,000
800,000 120,000 144,000 168,000 192,000 216,000 240,000
900,000 135,000 162,000 189,000 216,000 243,000 270,000
1,000,000 150,000 180,000 210,000 240,000 270,000 300,000
1,100,000 165,000 198,000 231,000 264,000 297,000 330,000
1,200,000 180,000 216,000 252,000 288,000 324,000 360,000
1,300,000 195,000 234,000 273,000 312,000 351,000 390,000
1,400,000 210,000 252,000 294,000 336,000 378,000 420,000
1,500,000 225,000 270,000 315,000 360,000 405,000 450,000
</TABLE>
Dr. Harman and Mr. Jacoby are the only executive officers with fifteen
years of service and fully vested termination benefits under the Supplemental
Plan. Messrs. Girod, Stapleton and Meredith have nine years, eight years and
twelve years, respectively, of service with the Company. On July 24, 1996, the
Compensation and Option Committee modified the above Supplemental Plan
termination benefits for Messrs. Girod and Stapleton as follows. Each were
granted vested termination benefits equal to ten percent of their respective
average cash compensation (including bonuses) for the five years prior to a
termination of their employment. That percentage increases two percent per year
from July 24, 1996 until the maximum benefit of thirty percent of such
compensation is reached. All benefits payable under the Supplemental Plan are
subject to deductions for Social Security and Federal, state and local taxes.
EMPLOYMENT AGREEMENTS
Mr. Bernard Girod serves as the President and Chief Operating Officer of
the Company pursuant to an employment agreement effective as of November 25,
1996. Pursuant to the terms of the employment agreement, Mr. Girod is entitled
to receive a minimum guaranteed salary of $450,000 per year, and to have rights
under the Company's stock option plans, normal benefit plans and the
Supplemental Plan described above, all of which continue to exist, accrue and
vest through December 31, 1999, except in the case of Mr. Girod's voluntary
resignation from his positions at the Company prior to December 31, 1997 or
termination of Mr. Girod's employment by the Company for cause.
CERTAIN FAMILY RELATIONSHIPS
Thomas Jacoby, an executive officer of the Company, is the son-in-law of
Dr. Sidney Harman, Chairman and Chief Executive Officer of the Company.
INDEPENDENT AUDITOR
KPMG Peat Marwick LLP served as the independent auditor of the Company for
the fiscal year ended June 30, 1997 and has been selected by the Board of
Directors to serve as the Company's independent auditor for the year ending June
30, 1998. Representatives of the firm of KPMG Peat Marwick LLP are expected to
be present at the Meeting with the opportunity to make a statement, if they
desire to do so, and to be available to respond to appropriate questions.
16
<PAGE>
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholders who wish to submit a proposal for consideration at the 1998
Annual Meeting should submit the proposal in writing to the Company at 1101
Pennsylvania Avenue, N.W., Suite 1010, Washington, D.C. 20004. Proposals must be
received by the Company no later than May 19, 1998 for inclusion in next year's
proxy materials.
OTHER MATTERS
The Company will bear the cost of preparing and mailing the Proxy
Statement, form of proxy and other material that may be sent to stockholders in
connection with this solicitation. In addition to solicitations by mail,
officers and other employees of the Company may solicit proxies personally or by
telephone or facsimile.
The Board of Directors does not intend to present and knows of no others
who intend to present at the Meeting any matter of business other than those
matters set forth in the accompanying Notice of Annual Meeting of Stockholders.
However, if other matters properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy card to vote the proxy in accordance
with their best judgment.
By Order of the Board of Directors
/s/ Bernard A. Girod
Bernard A. Girod
President, Chief Operating Officer
and Secretary
Washington, D.C.
September 16, 1997
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997,
AS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE TO EACH STOCKHOLDER UPON WRITTEN REQUEST TO
SANDRA
ROBINSON, VICE PRESIDENT, HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED,
1101
PENNSYLVANIA AVENUE, N.W., SUITE 1010, WASHINGTON, D.C. 20004.
17
<PAGE>
EXHIBIT A
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
CHIEF EXECUTIVE OFFICER INCENTIVE PLAN
1. Purpose. The purpose of the Chief Executive Officer Incentive Plan
(the "Plan") of Harman International Industries, Incorporated, a Delaware
corporation (the "Company"), is to promote the long-term success of the Company
by providing its chief executive officer with incentives and rewards for
superior performance in accordance with the Company's normal bonus plan for
officers, but to provide such incentives and rewards as "performance-based
compensation" as defined in Section 162(m) of the Internal Revenue Code, as
amended (the "Code").
2. Effective Date. Subject to its approval by the shareholders, this Plan
shall become effective July 1, 1997, and shall remain effective until June 30,
2000, subject to any further shareholder approvals (or reapprovals) mandated for
performance-based compensation under Section 162(m) of the Code, or any
successor provision, and subject to the right of the Board of Directors
("Board") of the Company to terminate the Plan, on a prospective basis only, at
any time.
3. Eligibility. Participation in the Plan is limited to the Chief
Executive Officer of the Company, who shall hereinafter be referred to as
"Participant".
4. Awards.
4.1 At the beginning of each fiscal year (and no later than September
28), the Committee (as defined in Section 8) shall meet in order to establish
(a) the targeted return on shareholder equity goal ("Return on Shareholder
Equity Goal") for the year and (b) the maximum cash award ("Award Amount")
payable to the Participant if the goal is met for the year. "Return on
shareholder equity" shall mean net income for the fiscal year determined in
accordance with generally accepted accounting principles as reported in the
Company's annual report divided by the average shareholder equity for such year.
"Average shareholder equity" shall mean the sum of the shareholder equity at the
beginning of the year and the shareholder equity at the end of the year, with
such sum divided by two.
4.2 At the end of each fiscal year, the Committee shall meet to
determine and certify whether the Return on Shareholder Equity Goal has been met
for the year. In the event that the goal has been met, the Committee shall
establish the Award Amount for the year, exercising discretion only to reduce
the amount of the maximum cash award if in its judgment such a reduction is
appropriate.
4.3 Notwithstanding any other provision of the Plan to the contrary, in
no event shall the Award Amount paid to the Participant for a year exceed
$1,000,000.
5. Payment of Awards. A Participant's Award Amount shall be paid in cash
to such Participant within 30 days after written certification by the Award
Amount pursuant to Section 4.2.
6. Non-transferability. Awards granted under the Plan shall not be
transferable or assignable other than by will or the laws of descent and
distribution.
7. Tax Withholding. The Company shall have the power and right to deduct
or withhold amounts sufficient to satisfy federal, state and local taxes
required by law to be withheld with respect to any award.
8. Administration of the Plan. The Plan shall be administered by a
committee approved by the Board (the "Committee"). The Committee shall:
(a) Compute and certify the Award Amount as soon as practicable after
the close of a fiscal year, reducing the Award Amount in accordance with
Section 4.2 where appropriate, but in no event increasing the Award Amount;
and
(b) Generally administer, interpret and amend the Plan provisions in
compliance with the intent of the Plan and any applicable laws, regulations
and other governmental authority. To the extent any amendment to the Plan
would require shareholder approval in order for compensation paid pursuant
to the Plan to continue to qualify as "performance-based" compensation
under Section 162(m) of the Code, such amendment shall not be effective
until shareholder approval is received.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank Meredith and Sandra B. Robinson
and each of them as Proxies and authorizes them to represent and vote all
the shares of Common Stock of Harman International Industries, Incorporated
that the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on November 10, 1997 and at any adjournment
thereof, as designated for the items set forth on the reverse side hereof
and in the Notice of Annual Meeting of Stockholders and the Proxy Statement
dated September 16, 1997.
IF PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE HEREOF OR, IF NOT SPECIFIED, WILL BE VOTED FOR THE THREE
NOMINEES IN ITEM 1 AND FOR THE PROPOSAL IN ITEM 2. IN THEIR DISCRETION, THE
PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. AT THIS TIME,
MANAGEMENT KNOWS OF NO SUCH OTHER BUSINESS.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- ---------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes
as this [X]
The Board of Directors recommends a vote FOR the election of
the Directors set forth below and FOR the proposal in Item 2.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Election of Edward H. (Instruction: To withhold authority to 2. Proposal to adopt the FOR
AGAINST ABSTAIN
Meyer, Gregory P. vote for any individual nominee strike a Chief Executive Officer [ ] [ ]
[ ]
Stapleton and Stanley line through the nominee's name.) Incentive Plan.
A. Weiss as Directors.
</TABLE>
FOR all three WITHHOLD vote
nominees for all three nominees
[ ] [ ]
<TABLE>
<S> <C>
Please date and sign exactly as the name appears herein and return this
proxy
in the enclosed envelope. Persons signing as executors, administrators,
trustees, etc. should so indicate. If shares are held jointly, each joint
owner should sign. In the case of a corporation or partnership, the full
name
of the organization should be used and the signature should be that of a
duly
authorized officer or partner.
Dated:__________________________________________________________________, 1997
------------------------------------------------------------------------------
Signature
------------------------------------------------------------------------------
Signature (if held jointly)
"PLEASE MARK INSIDE BOXES SO THAT DATA USING BLUE OR BLACK INK, PLEASE
MARK, SIGN, AND PROMPTLY RETURN THIS PROXY
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES" CARD IN THE ENVELOPE
PROVIDED
</TABLE>
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
