<PAGE>
RULE NO. 424(b)(4)
REGISTRATION NO. 333-28711
Prospectus
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
$150,000,000 [LOGO OF HARMAN INTERNATIONAL]
7.32% SENIOR NOTES DUE 2007
Harman International Industries, Incorporated ("Harman" or the "Company") is
offering $150,000,000 aggregate principal amount of 7.32% Senior Notes due
2007 (the "Senior Notes"). Interest on the Senior Notes is payable on January
2 and July 1 of each year, commencing January 2, 1998. The Senior Notes will
mature on July 1, 2007. The Senior Notes may not be redeemed prior to maturity
and are not subject to any sinking fund.
The Senior Notes will be represented by one or more permanent global Senior
Notes registered in the name of The Depository Trust Company (the
"Depositary") or its nominee. Beneficial interests in the permanent global
Senior Notes will be shown on records maintained by participants, and
transfers thereof will be effected only through the Depositary or any
participant. See "Description of Notes--Book-Entry System." Except as
described herein, Senior Notes in definitive form will not be issued.
Settlement for the Senior Notes will be made in immediately available funds.
The Senior Notes will trade in the Depositary's Same-Day Funds Settlement
System, and secondary trading activity in the Senior Notes will therefore
settle in immediately available funds.
The Senior Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all existing or future indebtedness of the
Company that is by its terms expressly subordinated in right of payment to the
Senior Notes and will rank pari passu with all other existing or future
indebtedness of the Company.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(/1/) DISCOUNT(/2/) COMPANY(/1/)(/3/)
- ----------------------------------------------------------------------------------------
<CAPTION>
PER
SENIOR
NOTE 100.000% .650% 99.350%
TOTAL $150,000,000 $975,000 $149,025,000
</TABLE>
(1) Plus accrued interest, if any, from July 1, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $350,000.
--------------------------------------------------------
The Senior Notes are being offered by Chase Securities Inc., NationsBanc
Capital Markets, Inc., Lehman Brothers Inc., Montgomery Securities and Societe
Generale Securities Corporation (collectively, the "Underwriters"), subject to
prior sale, when, as and if issued by the Company and accepted by the
Underwriters, and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offers and to reject
orders in whole or in part. It is expected that delivery of the Senior Notes
will be made in book-entry form through the facilities of the Depositary on or
about July 1, 1997.
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SOCIETE GENERALE
SECURITIES
CORPORATION
The date of this Prospectus is June 25, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES,
INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the offices of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at certain Regional Offices of the Commission: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Company's Common Stock, $0.01 par value per share, is listed on the New York
Stock Exchange and other information concerning the Company may be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005. The Company is an electronic filer and the Commission
maintains a website (located at http://www.sec.gov) that contains reports,
proxy statements and other information regarding registrants that file
electronically.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, referred to herein as the
"Registration Statement") under the Securities Act with respect to the Senior
Notes. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Senior Notes offered hereby, reference is made hereby to the
Registration Statement. The Registration Statement and the exhibits thereto
may be inspected at the public reference facilities of the Commission at the
addresses set forth above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1996, December 31, 1996 and March 31, 1997; and
3. The Company's Current Reports on Form 8-K filed March 14, 1997 and April
3, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be part hereof from the date of filing of
such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document which is also incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
2
<PAGE>
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of the documents incorporated herein by reference in this Prospectus
(other than exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents). Such requests should be
directed to Harman International Industries, Incorporated, 1101 Pennsylvania
Avenue, N.W., Suite 1010, Washington, D.C. 20004, (telephone number (202) 393-
1101) Attention: Bernard A. Girod, President and Chief Operating Officer.
THE COMPANY
The Company is a worldwide leader in the design, manufacture and marketing
of high-quality, high-fidelity audio products targeted primarily at the
consumer, professional and original equipment manufacturer ("OEM") markets.
For almost 50 years, the Company and its predecessors have been leaders and
innovators in creating loudspeakers and electronic audio products that deliver
superior sound. The Company's JBL, Mark Levinson, Infinity and Harman Kardon
brand names are well-known worldwide for premium quality and performance.
Since its formation in 1980, the Company has developed, internally and through
a series of strategic acquisitions, a broad range of product offerings sold
under renowned brand names in each of its three major markets. Concurrently,
the Company has developed its engineering, manufacturing and distribution
capabilities worldwide to achieve the benefits of vertical integration of
design, manufacturing and marketing.
The Company's total revenues for the fiscal year ended June 30, 1996 were
$1.4 billion. For the nine months ended March 31, 1997, the Company's total
revenues were $1.1 billion, with the Consumer Group, the Professional Group
and the OEM Group accounting for approximately 35%, 32% and 33% of revenues,
respectively.
The key elements of the Company's strategy are to provide superior sound
quality in all of its products, to capitalize on the strength of its brand
names, to leverage the Company's engineering and manufacturing expertise
across all of its businesses and to integrate design, engineering,
manufacturing and marketing.
The Company was incorporated in Delaware in 1980. The Company's principal
executive offices are located at 1101 Pennsylvania Avenue, N.W., Suite 1010,
Washington, D.C. 20004. The Company's telephone number is (202) 393-1101.
FORWARD-LOOKING STATEMENTS
Except for historical information contained in this Prospectus and in the
documents incorporated in this Prospectus by reference, the matters discussed
herein and therein contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
suggested in the forward-looking statements, including without limitation, the
effect of economic conditions, product demand, currency exchange rates,
competitive products and other risks detailed herein and in the Company's
other filings with the Commission.
3
<PAGE>
THE OFFERING
Issuer...................... Harman International Industries, Incorporated.
Securities Offered.......... $150,000,000 aggregate principal amount of 7.32%
Senior Notes due 2007.
Maturity Date............... July 1, 2007.
Interest Payment Dates...... January 2 and July 1 of each year, commencing
January 2, 1998.
Redemption.................. The Senior Notes will not be redeemable prior to
maturity.
Ranking..................... The Senior Notes will be general unsecured
obligations of the Company and will rank senior
in right of payment to all existing or future
indebtedness of the Company that is by its terms
expressly subordinated in right of payment to the
Senior Notes and will rank pari passu with all
other existing or future indebtedness of the
Company.
Same-Day Settlement......... Initial settlement for the Senior Notes will be
made in immediately available funds. While held
in global form, the Senior Notes will settle in
DTC's Same-Day Funds Settlement System, and
settlement for any secondary market trades and
all payments of principal and interest will be
made in immediately available funds.
Book-Entry System and Form
and Denomination of Senior
Notes.......................
The Senior Notes will be issued in denominations
of $1,000 or any integral multiple thereof.
Payment of principal of, and interest on, Senior
Notes represented by one or more permanent global
Senior Notes registered in the name of or held by
the Depositary or its nominee will be made in
immediately available funds to the Depositary or
its nominee as the registered owner and holder of
such permanent global Senior Note or Senior
Notes. Senior Notes will not be issued in
definitive form except under certain limited
circumstances described herein. See "Description
of Senior Notes--Book-Entry System."
Certain Covenants........... The indenture under which the Senior Notes will
be issued (the "Indenture") limits: (i) the
creation and existence of liens, (ii) sale and
leaseback transactions, (iii) domestic subsidiary
indebtedness and (iv) certain restricted
payments.
Use of Proceeds............. The net proceeds from the sale of the Senior
Notes offered hereby will be used to repay
existing indebtedness of the Company and for
working capital and general corporate purposes.
See "Use of Proceeds."
Governing Law............... The Indenture and the Senior Notes will be
governed by, and will be interpreted and
construed in accordance with, the laws of the
State of New York.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial and operating
data of the Company for each of the five fiscal years ended June 30, 1996 and
for the nine month periods ended March 31, 1997 and 1996, which have been
derived from, and are qualified by reference to, the Company's consolidated
financial statements and those records incorporated by reference herein into
this Prospectus. In the opinion of management, the unaudited information
reflects all adjustments necessary for a fair presentation of the results for
such periods. The results of operations for such periods are not necessarily
indicative of results that may be expected for any future period or the full
fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- --------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 1997 1996
---------- ---------- -------- -------- -------- ---------- --------
(UNAUDITED)
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STATEMENT OF OPERATIONS
DATA:
Net sales............... $1,361,595 $1,170,224 $862,147 $664,913 $604,454 $1,097,462 $988,482
Gross profit............ 408,125 364,081 269,162 190,563 164,622 315,930 300,831
Selling, general and
administrative......... 302,747 276,632 202,830 149,308 137,075 242,939 226,414
Operating income........ 105,378 87,449 66,332 41,255 27,547 72,991 74,417
Interest expense........ 27,510 25,284 22,110 23,566 21,075 18,971 21,682
Income before taxes,
minority interest and
extraordinary item..... 75,024 61,157 42,686 18,570 5,893 53,513 51,612
Net income.............. 52,042 41,161 25,664 11,246 3,487 37,449 35,253
OTHER FINANCIAL DATA:
EBITDA(1)............... $ 156,312 $ 131,899 $ 98,591 $ 64,334 $ 49,688 $ 113,026 $113,125
Depreciation and
amortization........... 50,934 44,450 32,259 23,079 22,141 40,035 38,708
Capital expenditures.... 80,554 54,654 40,720 25,563 21,003 50,594 53,175
Net cash provided by
(used in) operating
activities............. (20,390) 37,537 (16,319) 22,694 (6,412) 18,388 (14,558)
Net cash used in
investing activities... 73,845 63,865 38,587 29,895 26,054 34,214 59,708
Net cash provided by
financing activities... 83,286 27,856 62,451 6,561 31,529 20,474 72,890
FINANCIAL RATIOS:
Ratio of EBITDA to
interest expense....... 5.68x 5.22x 4.46x 2.73x 2.36x 5.96x 5.22x
Ratio of earnings to
fixed charges(2)....... 3.05x 2.84x 2.54x 1.67x 1.24x 2.97x 2.75x
Debt/EBITDA............. 1.84x 2.32x 2.29x 3.32x 4.07x * *
<CAPTION>
JUNE 30, MARCH 31,
---------------------------------------------------- --------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 1997
---------- ---------- -------- -------- -------- --------------------
(UNAUDITED)
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BALANCE SHEET DATA:
Working capital......... $ 377,311 $ 257,564 $215,878 $147,492 $102,374 $ 437,463
Total assets............ 996,209 886,872 680,691 431,726 415,909 1,022,177
Short-term debt......... 32,790 40,214 69,254 37,762 69,697 34,572
Long-term debt.......... 254,611 266,021 156,577 175,583 132,675 294,530
Shareholders' equity.... 436,477 289,490 232,021 111,149 111,241 452,087
</TABLE>
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* Not meaningful
(1) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA is not intended to represent cash flow, or to be used as an
alternative to net income or any other measure of performance in
accordance with generally accepted accounting principles. Reference is
made to the Statement of Cash Flows contained in the Consolidated
Financial Statements of the Company incorporated by reference in this
Prospectus for a complete presentation of cash flows from operating,
investing and financing activities prepared in accordance with generally
accepted accounting principles.
(2) Earnings used in computing the ratio of earnings to fixed charges consist
of income before taxes plus fixed charges charged to income. Fixed charges
consist of interest on indebtedness, amortization of debt issue costs and
that portion of rental expenses representative of interest (deemed to be
one-third of rental expenses).
5
<PAGE>
USE OF PROCEEDS
The net proceeds from the offering contemplated hereby are estimated to be
approximately $148.7 million and initially will be used by the Company to
repay a portion of the borrowings outstanding under the $275 million multi-
currency, multi-option credit agreement of the Company and certain of its
subsidiaries (the "Revolving Credit Facility") (of which $158.5 million and
$3.1 million are outstanding under the credit facility and related letters of
credit, respectively, as of April 30, 1997, with interest rates thereon
ranging from 0.86% in Japan to 6.44% in the United Kingdom). The Company plans
to thereafter use availability under the Revolving Credit Facility (i) to
repay at maturity the $17.5 million principal amount of its 10.40% Series B
Senior Notes due September 1997, (ii) to redeem in August 1997 the $63.75
million remaining principal amount outstanding of its 12.00% Senior
Subordinated Notes due 2002 at a redemption price equal to 106% of the
principal amount outstanding, or approximately $67.6 million, and (iii) for
working capital and general corporate purposes.
6
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company (unaudited) as of March 31, 1997 and as adjusted to give effect to the
issuance of the Senior Notes offered hereby, the redemption of the 12.00%
Senior Subordinated Notes due 2002 and the repayment at maturity of the 10.40%
Series B Senior Notes due 1997. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(1)
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(IN THOUSANDS)
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Short-term debt:
Notes payable....................................... $ 11,208 $ 11,208
10.40% Series B Senior Notes due 1997............... 17,500 0
Other current portion of long-term debt............. 5,864 5,864
-------- --------
Total short-term debt............................. $ 34,572 $ 17,072
======== ========
Long-term debt:
Borrowings under the Revolving Credit Facility...... $170,398 $104,134
Other senior long-term debt......................... 15,382 15,382
Senior Notes, offered hereby........................ 0 150,000
11.20% Senior Subordinated Notes due 1998........... 45,000 45,000
12.00% Senior Subordinated Notes due 2002........... 63,750 0
-------- --------
Total long-term debt.............................. 294,530 314,516
-------- --------
Shareholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized; none issued and outstanding............ -- --
Common Stock, par value $0.01 per share; 50,000,000
shares authorized; 18,454,068 shares issued and
outstanding........................................ 185 185
Additional paid-in capital.......................... 283,908 283,908
Equity adjustment from foreign currency translation. (13,872) (13,872)
Retained earnings................................... 181,866 179,380
-------- --------
Total net shareholders' equity.................... 452,087 449,601
-------- --------
Total capitalization............................ $746,617 $764,117
======== ========
</TABLE>
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(1) Underwriters' discounts and other expenses in connection with the issuance
and distribution of the Senior Notes are not included herein.
7
<PAGE>
BUSINESS
OVERVIEW
The Company is a worldwide leader in the design, manufacture and marketing
of high-quality, high-fidelity audio products targeted primarily at the
consumer, professional and original equipment manufacturer ("OEM") markets.
For almost 50 years, the Company and its predecessors have been leaders and
innovators in creating loudspeakers and electronic audio products that deliver
superior sound. The Company's JBL, Mark Levinson, Infinity and Harman Kardon
brand names are well known worldwide for premium quality and performance.
Since its formation in 1980, the Company has developed, internally and through
a series of strategic acquisitions, a broad range of product offerings sold
under renowned brand names in each of its three major markets. Concurrently,
the Company has developed its engineering, manufacturing and distribution
capabilities worldwide to achieve the benefits of vertical integration of
design, manufacturing and marketing.
The Company's total revenues for the fiscal year ended June 30, 1996 were
$1.4 billion. For the nine months ended March 31, 1997, the Company's total
revenues were $1.1 billion, with the Consumer Group, the Professional Group
and the OEM Group accounting for approximately 35%, 32% and 33% of revenues,
respectively.
The key elements of the Company's strategy are to provide superior sound
quality in all of its products, to capitalize on the strength of its brand
names, to leverage the Company's engineering and manufacturing expertise
across all of its businesses and to integrate design, engineering,
manufacturing and marketing.
The Company's operations are organized into three primary groups: the
Consumer Group, the Professional Group and the OEM Group.
CONSUMER GROUP
The Company's Consumer Group designs, manufactures and markets loudspeakers
under the JBL and Infinity brand names for home and automotive audio systems.
The Company also designs, manufactures and markets a broad range of consumer
electronics products under the Harman Kardon, Mark Levinson, Citation,
AudioAccess and Proceed brand names. The Company has the preeminent portfolio
of brand names and range of product offerings in the consumer audio market.
The JBL, Infinity and Harman Kardon brands are recognized throughout the world
for superior sound quality and good value. High-end amplifiers and other
electronic components bearing the Mark Levinson, Citation and Proceed brand
names are acclaimed for their superior build quality and state-of-the-art
sound reproduction.
The Company has leveraged its strong brand names in growing consumer audio
markets such as the home theater/multi-channel arena and the mini-systems
market. Sales of Harman Kardon audio/video receivers, JBL and Infinity
surround sound loudspeaker systems and multi-channel amplifiers and digital
signal processing components from Citation and Proceed have benefited from the
vigorous home theater market. Integrated mini-systems, including the JBL ESC
550 Simply Cinema System and the Harman Kardon Festival line, will capitalize
on the Company's strong brand names in this significant segment of the
consumer audio market.
The Company believes the new Digital Versatile Disc (DVD) technology will
provide additional growth opportunities for its consumer brands. Harman
Kardon, Proceed and Mark Levinson plan to introduce DVD players later this
year. Additionally, the Company expects DVD to stimulate loudspeaker sales due
to increased customer traffic in audio dealers' stores and the improvement in
audio performance from DVD over current analog audio/video and digital audio
components. Sales expectations are dependent, to a substantial extent, on
discretionary spending by consumers, which may be affected by economic
conditions.
8
<PAGE>
The Consumer Group's distribution strategy includes sale of its products
through large, multi-location retailers, such as Circuit City in the United
States (accounting for 5.4% of the Company's consolidated net sales for the
first nine months of fiscal 1997) and MediaMarkt in Germany (the Consumer
Group's two largest customers), and through high-fidelity audio specialists.
The Company operates marketing and distribution subsidiaries in its major
European and Asian markets to enhance responsiveness and service for
international customers.
PROFESSIONAL GROUP
The Company's Professional Group is a leading manufacturer and marketer of
professional audio equipment, including loudspeakers, amplifiers, mixing
consoles, signal processing equipment, microphones and effects devices. Such
products are marketed on a worldwide basis under brand names including JBL,
Soundcraft, Allen & Heath, DOD, Digitech, Lexicon, AKG, dbx, BSS, Turbosound,
Orban, Spirit and Studer. The Professional Group is uniquely equipped to
provide turnkey systems solutions for professional audio applications that
offer the customer improved performance, ease of installation and reduced
cost. The principal market segments served by the Professional Group are sound
reinforcement, broadcast and recording and music instrument support.
JBL is the leader in the vibrant cinema market, holding a dominant share of
Dolby and THX theater sound systems and serving customers such as Cineplex
Odeon and United Artists Theaters. Stadiums, concert halls, houses of worship
and major concert tours rely on sound reinforcement products from the
Professional Group, such as JBL and Turbosound loudspeakers, JBL and BSS
amplifiers, AKG microphones, Lexicon, DOD and dbx signal processing equipment,
and Soundcraft and Allen & Heath mixing consoles, to produce top quality
sound.
Customers in the recording and broadcast segment include radio and
television stations and recording studios. These customers, including AMS
Westfunk Radio, Abbey Road Studios and The Hit Factory, are primarily served
by Studer and Orban, with additional offerings from JBL, Lexicon, Soundcraft
and AKG.
JBL, DOD and Spirit serve the music instrument support segment of the
professional audio market. JBL manufactures and markets loudspeakers, monitors
and amplifiers. DOD manufactures and markets guitar amplifiers, sound effects
processors and portable mixing consoles. Spirit markets portable mixing
consoles. Music instrument support products are sold through music retail
stores such as Guitar Center and Sam Ash.
OEM GROUP
Automotive Audio Systems. Harman is one of the world's largest manufacturers
of premium branded automotive OEM audio systems. The Company believes
excellent growth opportunities are still available in the automotive OEM
market through higher penetration levels within existing models, increases in
the number of models offering the Company's audio systems and the addition of
new automotive OEM customers.
The Company's largest automotive OEM customer, Chrysler, offers Infinity
branded audio systems in the majority of its car, truck and sport-utility
vehicle platforms. Through the first nine months of fiscal 1997, sales to
Chrysler represented 9.6 percent of total Company sales. Becker supplies head
units to Mercedes Benz (the Company's second largest customer), BMW and
Porsche. Harman Kardon branded systems are offered in cars produced by BMW,
Saab, Jaguar and Range Rover. Other customers include Mitsubishi, Toyota and
Ford. The loss of, or a material decrease or delay in purchasing the Company's
products by, any of the Company's significant customers could have an adverse
effect on the results of operations of the Company. In addition, sales of the
Company's audio products to the automotive OEM market are dependent on the
sales of the automobile industry and automobile purchasers' willingness to pay
for the option of a premium branded automotive audio system.
9
<PAGE>
In 1995, the Company withdrew Ford's exclusive use of the JBL brand name for
automotive audio and made the brand name available to other automakers.
Although the Company expects that the number of Ford vehicles offering JBL
systems will continue to decline, the Company believes that this reduction
will ultimately be offset by additional volume from other automakers. For
example, the Company recently reached an agreement with Toyota to provide JBL
branded audio systems in the majority of its broad range of vehicles beginning
in fiscal 1999, including vehicles produced by Toyota for sale in Asia. In
fiscal year 1998, the OEM Group will add the BMW 5-Series (Becker radio), the
Toyota Aristo (JBL audio system), the Peugeot 406 (JBL audio system), the
Hyundai Grandeur (JBL audio system), the Chrysler Durango (Infinity audio
system), and the BMW Z3 (Harman Kardon audio system) to its list of offerings.
The OEM Group offers integrated audio systems that provide a platform for
further expansion into associated automotive electronic products such as
communication, security and navigation.
Audio for Computers. The Company manufactures branded audio systems and
loudspeakers for manufacturers of personal computers, including a line of "JBL
Pro" branded audio systems for Compaq Computer Corporation's Presario line of
personal computers and a higher-powered Harman Kardon branded sound system for
Gateway's new Destination "TV Computer." These audio systems provide high-
quality sound and thus enhance the appeal and capability of the personal
computer as an entertainment device.
STRATEGY
The Company utilizes its technical expertise and reputation for creating
superior sound to increase market share in existing markets and to enter new
markets in which Harman's audio engineering capabilities and strong brand
names generate a competitive advantage. The key elements of the Company's
strategy are:
Provide Superior Sound. Harman strives to provide its customers with
products that deliver high-quality, high-fidelity sound. The Company's
subsidiaries have been leaders and innovators in loudspeaker and electronic
production and technology for almost 50 years. Management believes the
Company's research, development and engineering capabilities are among the
most advanced in the audio industry.
Capitalize on Brand Equity. The Company believes that its brand names are
well recognized worldwide for premium quality and performance. Harman believes
that this strong brand name recognition has enabled it to expand its product
offerings and market share in the consumer, professional and OEM audio
markets, and will continue to facilitate such growth in the future.
Leverage Engineering and Manufacturing Expertise. The Company leverages its
engineering and manufacturing expertise across all segments of its businesses
and utilizes its expertise for entry into new markets, such as the OEM audio
for computers market and the market for intellectual property such as audio
software. Additionally, new segments within the consumer and professional
markets, such as home theater in the consumer market and the conversion to
digital technology in the professional market, offer opportunities for growth.
The Company will continue to pursue new opportunities.
Integrate Design, Engineering, Manufacturing and Marketing. Harman has
invested significant resources in developing sophisticated manufacturing
processes and facilities in the United States and Europe. Management believes
that its ability to manufacture innovative, high-quality products is
attributable to the Company's integrated facilities, coupled with its policy
of emphasizing workers' education, training and participation in the decision-
making process. The Company seeks to integrate the disciplines of design,
engineering, manufacturing and marketing. As distinguished from the
traditional separation of these functions, management believes that
communication and cooperation among all functional areas significantly reduces
development time, generates products that can be
10
<PAGE>
more efficiently and competitively produced, and improves the Company's
ability to respond to customer needs.
Market on an International Basis. The Company's subsidiaries have been
actively marketing products worldwide for almost 50 years. Harman strives to
produce products that are responsive to the requirements of different
international markets for functionality, appearance and performance. As a
result, the Company believes that its major brands are well recognized for
high-quality in most major markets worldwide. Approximately 60 percent of the
Company's sales are outside the United States.
OPPORTUNITIES
Within its Consumer, Professional and OEM Groups, the Company foresees
growth opportunities including the following:
Existing and Emerging Market Segments. The Company continues to leverage its
brand names and technical expertise to broaden its product offerings in
existing market segments and enter new segments, including surround sound,
home theater and audio systems for personal computers. The Company continually
seeks to improve its market position in its important loudspeaker business by
introducing new products that offer greater efficiency and reduced size.
Further, the Company's advanced technology in loudspeakers and electronics
permits it to develop integrated systems that offer substantial improvements
in performance, such as loudspeakers with built-in amplifiers. The Company
also intends to pursue opportunities in emerging product categories such as
electronic components that offer simplified digital control, reduced size and
high-quality sound.
Comprehensive, Integrated Professional Product Offerings. Management
believes that the ability to offer professional customers complete turnkey
systems across its principal market segments, including broadcast and
recording, sound reinforcement and musical instrument support, will allow the
Company to continue increasing sales in these segments. The Company believes
that advances in motion picture audio and recording technology will continue
to drive demand for loudspeakers and electronics in movie theaters and
recording studios. Management also expects that emerging markets in Eastern
Europe and Asia will increase demand for its professional audio products and
recording and broadcast equipment to satisfy infrastructure needs.
Fully-Integrated Automotive Audio Systems. The Company believes significant
growth opportunities exist within the automotive audio market to increase
sales by increasing product penetration in OEM models currently supplied,
expanding the number of automobile models offering its systems, adding new OEM
customers and increasing content. The Company now has the capability to
provide fully-integrated automotive audio systems that incorporate a head
unit, amplifiers, loudspeakers and associated electronics. These integrated
systems make possible a potential increase in the unit price of the Company's
audio systems, and they also provide a platform for the Company's expansion
into additional automotive electronic products such as communications and
security and navigation, thereby providing the opportunity for further
increases in system content.
New Technology. Through the extensive development of digital signal
processing capabilities by its electronic engineering organization, the
Company is generating a substantial body of intellectual property, including
proprietary software, titled VMAx(TM), which produces virtual surround audio
from only two speakers. The Company has signed licensing agreements with
Microsoft for the inclusion of VMAx(TM) in Windows and with Medianix
Semiconductor for inclusion of VMAx(TM) on its multimedia chip. Further, the
Company sold its Smart TV software to Intel in fiscal 1997. The Company's 6-
axis(TM) surround sound system employed in the Harman Kardon Citation
Processor is of interest to a number of advanced technology users. These and
other technological developments form a body of intellectual property around
which the Company believes it can develop new revenue sources.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained in this Prospectus and in the
documents incorporated in this Prospectus by reference, the matters discussed
herein and therein contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
suggested in the forward-looking statements, including without limitation, the
effect of economic conditions, product demand, currency exchange rates,
competitive products and other risks detailed herein and in the Company's
other filings with the Commission.
RESULTS OF OPERATIONS
Comparison of the Three-Month and Nine-Month Periods Ended March 31, 1997 and
1996.
Net sales for the quarter ended March 31, 1997 totaled $358.1 million, a 6
percent increase over the comparable period in the prior year. Exclusive of
currency effects, sales rose 10 percent for the quarter ended March 31, 1997,
over the comparable period in the prior year. For the first nine months of
fiscal 1997, sales increased 11 percent to $1.1 billion. Exclusive of currency
effects, sales rose 14 percent in the nine month period ended March 31, 1997,
over the comparable period in the prior year.
The Consumer Group reported sales increases for the quarter ended March 31,
1997 and for the first nine months of fiscal 1997 compared to the same periods
in the prior year, excluding currency effects. JBL sales were particularly
strong in the face of soft market conditions in the United States.
The Professional Group reported sales for the quarter ended March 31, 1997
matching the same period in the prior year and higher sales for the first nine
months of fiscal 1997. Strong gains at JBL Professional, Lexicon and the
Harman Music Group were offset by lower sales at Studer due to delays in
shipment of automated broadcast equipment to customers in emerging nations,
and lower sales at AKG to a large OEM customer.
The OEM Group reported higher sales for the quarter ended March 31, 1997 and
the first nine months of fiscal 1997. Shipments of high-fidelity systems to
the automakers increased over the prior year, reflecting the addition of new
models and growing penetration rates. The addition of the Toyota Camry to the
OEM Group's customer base and higher audio system shipments for Dodge's pickup
truck line contributed to the growth. Sales for the quarter and the first nine
months included shipments to Compaq for its new Presario line.
The gross profit margin for the quarter ended March 31, 1997 was 28.9
percent ($103.5 million) compared to 30.5 percent ($103.4 million) for the
same period in the prior year. The gross profit margin for the first nine
months of fiscal 1997 was 28.8 percent ($315.9 million) compared to 30.4
percent ($300.8 million) in the previous year. The decrease in the gross
profit margin rate for the quarter and the first nine months resulted from the
Studer and AKG third quarter sales shortfalls, the effect of the strong dollar
on the Company's European and Asian distribution companies' profit margins,
and lower than anticipated sales volume and higher factory start-up costs for
the Audio for Computers unit.
Operating income as a percentage of sales was 5.8 percent ($20.7 million)
for the quarter ended March 31, 1997, compared to 8.2 percent ($27.7 million)
for the same period in the prior year. Selling, general and administrative
expenses were 23.1 percent of sales for the third quarter of fiscal 1997
compared to 22.3 percent for the same period in the prior year. The operating
income percentage decreased in the third quarter of fiscal 1997 due to lower
gross profit margins and higher selling, general and administrative expenses
as a percentage of sales. The increase in the selling, general and
administrative cost percentage for the third quarter of fiscal 1997 reflected
a $2.5 million (18 percent) increase in research and development expenditures
over the prior year and lower than anticipated
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sales volume. Major product development efforts included new Harman Kardon
products featuring Dolby Digital (AC-3), home mini-systems and the OEM Group's
development of automotive audio/navigation systems.
For the first nine months of fiscal 1997, operating income as a percentage
of sales was 6.7 percent ($73.0 million) compared to 7.5 percent ($74.4
million) in the prior year. Selling, general and administrative expenses were
22.1 percent of sales for the first nine months of fiscal 1997, down from 22.9
percent for the same period in the prior year. The lower operating income
percentage for the first nine months of fiscal 1997 was due to lower gross
profit margins, partially offset by lower selling, general and administrative
expenses as a percentage of sales resulting from overhead reductions at
Becker.
Interest expense for the quarter ended March 31, 1997 of $6.1 million was
down from $7.2 million in the same period in the prior year. For the nine
months ended March 31, 1997, interest expense was $19.0 million, down from
$21.7 million in the prior year. Average borrowings outstanding were $327.9
million for the third quarter of fiscal 1997 and $320.5 million for the first
nine months of fiscal 1997, down from $379.7 million and $354.6 million,
respectively, for the same periods in the prior year. Lower average borrowings
resulted from the May 1996 secondary stock offering, partially offset by
increased working capital requirements and the January 1997 retirement of
220,000 shares of Common Stock of the Company.
The average interest rate on borrowings was 7.4 percent for the quarter
ended March 31, 1997 and 7.9 percent for the nine months ended March 31, 1997.
The average interest rates for the comparable periods in the prior year were
7.6 percent and 8.2 percent, respectively. The decrease in average interest
rates resulted from lower interest rates in Europe and a decrease in the
percentage of borrowings under the Revolving Credit Facility drawn in the
United States, which generally carry higher interest rates than borrowings in
European currencies and Japanese yen. Also, the interest rate on the Revolving
Credit Facility was reduced in fiscal 1997 from LIBOR plus 0.30 percent to
LIBOR plus 0.25 percent due to the Company's achievement of certain financial
performance criteria. Interest expense as a percentage of sales was 1.7
percent for the third quarter and the first nine months of fiscal 1997, down
from 2.1 percent and 2.2 percent for the same periods in the previous year,
respectively.
Income before income taxes and minority interest for the quarter ended March
31, 1997 was $14.6 million, compared to $20.3 million for the same period in
the prior year. For the nine months ended March 31, 1997, income before income
taxes and minority interest was $53.5 million, compared with $51.6 million in
the prior year.
The effective tax rate for the third quarter of fiscal 1997 was 29.1 percent
compared with 31.5 percent in the same period in the prior year. The effective
tax rate for the first nine months of fiscal 1997 was 29.9 percent compared
with 31.6 percent in the prior year. The lower effective tax rate is due to
the restructuring of certain foreign subsidiaries to realize the benefit of
current and prior year tax losses and the utilization of tax loss
carryforwards at certain foreign subsidiaries. The Company calculates its
effective tax rate based upon its current estimate of annual results.
Net income for the quarter ended March 31, 1997 was $10.3 million, or $0.56
per share, compared with $13.9 million, or $0.86 per share, for the same
period in the prior year. Net income for the first nine months of fiscal 1997
was $37.4 million, or $2.02 per share, compared with $35.3 million, or $2.17
per share, in the prior year. Earnings per share is based on an additional 2.2
million (14 percent) shares outstanding compared to the prior year due to the
May 1996 stock offering.
The Company has assets located outside the United States and a substantial
portion of the Company's sales and earnings are attributable to operations
conducted abroad and to export sales.
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In the nine months ended March 31, 1997, approximately 60 percent of the
Company's gross revenues consisted of sales made outside the United States.
The Company's international operations subject the Company to certain risks,
including exposure to currency exchange rate fluctuations. The Company also
relies on foreign suppliers and sells products it manufactures domestically to
foreign markets. The Company's international operations are subject to other
risks, including adverse political and economic developments in the countries
in which it conducts business, dividend restrictions, tariffs and potential
adverse tax consequences, including payment of taxes in jurisdictions that
have higher tax rates than the United States. There can be no assurance that
one or more of these factors of doing business in an international market will
not have a material effect on the Company's financial position or results of
operations in the future.
FINANCIAL CONDITION
Net working capital at March 31, 1997 was $437.5 million, compared with
$377.3 million at June 30, 1996. Working capital increased primarily due to
higher inventories ($308.1 million at June 30, 1996 and $330.2 million at
March 31, 1997) and lower accounts payable and accrued liabilities ($241.9
million at June 30, 1996 and $213.3 million at March 31, 1997). Inventories
have increased primarily to support sales to new OEM customers (Compaq and
Toyota) and to support generally higher sales volumes. Lower accounts payable
and accrued liabilities reflect the timing of payments to vendors and the
timing of payments for interest and taxes.
Borrowings under the Revolving Credit Facility on March 31, 1997 were $175.5
million, comprised of swing-line borrowings of $5.1 million, which are
included in notes payable, and competitive advance borrowings and revolving
credit borrowings of $170.4 million. Borrowings under the Revolving Credit
Facility at June 30, 1996 were $120.9 million, comprised of swing-line
borrowings of $12.9 million and competitive advance borrowings and revolving
credit borrowings of $108.0 million. Increased borrowings reflect the
financing of higher working capital requirements, the retirement in January
1997 of 220,000 shares of Common Stock and capital expenditures. The Company's
Revolving Credit Facility matures in September 2002.
The Company's borrowings at March 31, 1997 include $63.75 million of
subordinated debt callable on August 1, 1997 and $17.5 million of senior debt
due on September 30, 1997. The Company intends to repay these obligations
using the net proceeds from this offering.
RECENT DEVELOPMENTS
The Company announced in an April 3, 1997 press release that in the second
half of calendar 1998 it will begin supplying JBL branded audio systems to
Toyota. Toyota will offer the JBL systems in the dominant portion of its
United States models and in some vehicles produced for sale in Asia. The
Company currently supplies non-branded audio systems for the Toyota Avalon and
Camry.
The strike at Chrysler's Mound Road Engine Plant, which began on April 10,
1997 and was settled on May 9, 1997, resulted in reduced demand for the
Company's Infinity automotive music systems during the fourth quarter of
fiscal 1997. The Company estimates a reduction in fourth quarter earnings, due
to the impact of lower shipments to Chrysler, of approximately $0.15 per
share, after taxes.
The Company from time to time considers acquisitions and investments in
complementary businesses, assets or technologies. The Company is currently in
negotiation regarding the acquisition of a loudspeaker business which, if
completed, would not be material to the Company's business or results of
operations.
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MANAGEMENT
The following table sets forth the names, ages and positions of the
Directors and Executive Officers of the Company as of June 6, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sidney Harman................... 78 Chairman of the Board of Directors and
Chief Executive Officer
Bernard A. Girod................ 55 President, Chief Operating Officer,
Secretary and Director
Shirley Mount Hufstedler........ 71 Director
Ann McLaughlin.................. 55 Director
Edward H. Meyer................. 70 Director
Thomas Jacoby................... 42 President--Harman Consumer Group
Philip Hart..................... 52 President--Harman Professional Group
Gregory P. Stapleton............ 50 President--Harman OEM Group
Frank Meredith.................. 40 Vice President, Chief Financial Officer and
Assistant Secretary
Jerome H. Feingold.............. 55 Vice President--Quality
Sandra B. Robinson.............. 37 Vice President--Financial Operations
Floyd E. Toole.................. 58 Vice President--Engineering
William S. Palin................ 54 Vice President--Controller
</TABLE>
The principal occupation of each Director and Executive Officer for at least
the last five years is set forth below.
Sidney Harman, Ph.D., the Company's founder, has been Chairman of the Board
and Chief Executive Officer since the Company's formation in 1980. Dr. Harman
served as Under Secretary of Commerce of the United States from 1977 through
1978.
Bernard A. Girod 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 1993. From September
1986 to August 1995, Mr. Girod served as Chief Financial Officer of the
Company. From September 1979 to September 1986, Mr. Girod was the Vice
President and General Manager of Permacel, a subsidiary of Avery International
and Vice President of Planning and Business Development for Avery
International. From 1977 to 1979, Mr. Girod was the Chief Financial Officer of
the predecessor of the Company.
Shirley Mount Hufstedler has been a Director of the Company since September
1986. Ms. Hufstedler is and has been for the past fifteen years in private law
practice. She served as Secretary of 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. Ms. Hufstedler is a Director of U S WEST, Inc. and
Director Emeritus of Hewlett-Packard Company. She is currently with the firm
of Morrison & Foerster in Los Angeles, California and, from 1981 to March
1995, was with the firm of Hufstedler & Kaus.
Ann McLaughlin 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, General Motors
Corporation, Kellogg Company and Nordstrom, Inc. She is 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.
Edward H. Meyer, who was elected a Director of the Company in July 1990, has
been the Chairman of the Board, Chief Executive Officer and President of Grey
Advertising, Inc., New York,
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New York, an advertising firm, 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 35 mutual funds advised by Merrill Lynch Asset
Management, Inc.
Thomas Jacoby has been President of the Harman Consumer Group since February
1993. Prior to that time, Mr. Jacoby served as President of JBL Consumer since
August 1990. From July 1988 to August 1990, Mr. Jacoby served as Executive
Vice President of Harman Kardon.
Philip J. Hart has been President of the Harman Professional Group since
November 1993. Prior to that time, Mr. Hart served as President of Soundcraft
since its 1988 acquisition by Harman.
Gregory P. Stapleton has been President of the Harman 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.
Frank Meredith has been the Chief Financial Officer of the Company since
February 1997. Mr. Meredith has served as the Vice President, General Counsel
and Assistant Secretary of the Company since July 1992. Prior to that time,
Mr. Meredith held other positions within the Company since May 1985.
Jerome H. Feingold has been the Vice President-Quality of the Company since
January 1992. Prior to that time, Mr. Feingold served as President of Harman
Speaker Manufacturing since July 1985. Prior to 1985, Mr. Feingold held
various management positions within the manufacturing division of the Company.
Sandra B. Robinson has been Vice President-Financial Operations since
November 1992. Prior to that time, Ms. Robinson was Director of Corporate
Accounting and has been employed by the Company since December 1984.
Floyd E. Toole, Ph.D., joined the Company as Vice President-Acoustic
Research in November 1991. Prior to joining the Company, Dr. Toole spent 25
years, most recently as Senior Research Officer, with the National Research
Council of Canada's Acoustics and Signal Processing Group. At the National
Research Council, Dr. Toole worked to develop psychoacoustic-optimized
adaptive digital techniques for improving loudspeaker performance.
William S. Palin has been Vice President-Controller of the Company since
March 1994. Prior to joining the Company, Mr. Palin was a partner of MacHardy
Palin & Co. from July 1978 to March 1994. From July 1978 to January 1982, Mr.
Palin served as an officer of two of the Company's international subsidiaries.
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<PAGE>
DESCRIPTION OF SENIOR NOTES
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all provisions of the Indenture, including the definitions of
certain terms contained in the Indenture. Copies of the Indenture have been
filed as exhibits to the Registration Statement with the Commission.
Capitalized terms not otherwise defined herein shall have the respective
meanings given to them in the Indenture.
GENERAL
The Senior Notes will be issued under an indenture to be dated as of July 1,
1997 (the "Indenture"), between the Company and PNC Bank, National
Association, as trustee (the "Trustee").
The Senior Notes will be issued in denominations of $1,000 or any integral
multiple thereof. As discussed below, payment of principal of, and interest
on, Senior Notes represented by one or more permanent global Senior Notes
registered in the name of or held by the Depositary or its nominee will be
made in immediately available funds to the Depositary or its nominee as the
registered owner and holder of such permanent global Senior Note or Senior
Notes ("Global Notes").
The Senior Notes will be general unsecured obligations of the Company
limited to $150,000,000 aggregate principal amount and will rank senior in
right of payment to all existing or future indebtedness of the Company which
is by its terms expressly subordinated in right of payment to the Senior Notes
and will rank pari passu with all other existing or future indebtedness of the
Company. See "--Priority."
The Senior Notes will be exchangeable, and transfers thereof will be
registerable, at the office or agency of the Company designated for that
purpose in New York, New York, or any other office or agency of the Company
designated for that purpose, provided that, at the option of the Company,
payment of any interest may be made by check mailed to the address of the
person entitled thereto as it appears in the Senior Note register.
The Company will from time to time execute and deliver Senior Notes to the
Trustee for authentication and delivery, and the Trustee will authenticate and
deliver such Senior Notes upon written order of the Company. No service charge
will be made for any transfer or exchange of the Senior Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
TERMS OF THE NOTES
Interest on the Senior Notes will be payable semi-annually on January 2 and
July 1 of each year, commencing January 2, 1998, to holders of record on the
preceding December 15 and June 15, respectively, at the per annum rate set
forth on the cover page of this Prospectus, with respect to interest accrued
(based on a 360-day year of twelve 30-day months) from the preceding interest
payment date (or from the date of issuance in the case of the first interest
payment) to the current interest payment date.
The Senior Notes are not redeemable prior to maturity and no sinking fund
will be established with respect to the Senior Notes.
PRIORITY
The Senior Notes offered hereby will rank equally with the Company's other
general unsecured and unsubordinated indebtedness, including indebtedness from
time to time outstanding to banks and other unaffiliated lenders. The Senior
Notes will be effectively subordinated to any and all existing and future
secured indebtedness of the Company (to the extent of the value of the related
collateral). In addition, because the Company is a holding company whose
operations are conducted through its operating subsidiaries, the Senior Notes
will be structurally subordinated to any and all
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<PAGE>
existing and future indebtedness (whether or not secured) of any subsidiary of
the Company. As of March 31, 1997, after giving pro forma effect to the sale
of the Senior Notes offered hereby (excluding Underwriters' discounts and
other expenses of the offering) and the use of proceeds described under "Use
of Proceeds," the Company and its subsidiaries would have had approximately
$286.6 million of total unsubordinated indebtedness, approximately $18.9
million of which was secured indebtedness and $139.6 million of which was
indebtedness of the subsidiaries of the Company (including letters of credit,
but excluding subsidiary guarantees of Company indebtedness). See
"Capitalization." The Indenture does not prohibit the Company or its
subsidiaries from issuing additional debt securities or incurring bank or
other loans that may rank pari passu in right of payment to the Senior Notes
offered hereby, nor does it prohibit subsidiaries of the Company from issuing
additional debt securities or incurring bank or other loans that may be
structurally senior in right of payment to the Senior Notes offered hereby.
CERTAIN COVENANTS
Liens. The Indenture provides that so long as any Senior Notes are
outstanding, the Company will not, and will not permit any Principal
Subsidiary to, create, incur, assume or suffer to exist any Lien upon any
property or assets owned or leased by the Company or any Principal Subsidiary
to secure any Indebtedness, without making effective provision whereby
outstanding Senior Notes shall (so long as such other Indebtedness shall be so
secured) be equally and ratably secured.
Under the terms of the Indenture, the foregoing limitation does not apply
to: (a) Liens for taxes not yet due or that are being contested in good faith
by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company or its Principal
Subsidiaries, as the case may be, in conformity with generally accepted
accounting principles (or, in the case of foreign subsidiaries, generally
accepted accounting principles in effect from time to time in their respective
jurisdictions of incorporation), (b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business that are not overdue for a period of more than 60 days or that are
being contested in good faith by appropriate proceedings, (c) pledges or
deposits in connection with workers' compensation, unemployment insurance and
other social security legislation and deposits securing liability to insurance
carriers under insurance or self-insurance arrangements, (d) deposits to
secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course
of business, (e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Company
or such Principal Subsidiary, (f) Liens in existence on the closing date,
provided that no such Lien is spread to cover any additional property after
the closing date and that the amount of Indebtedness secured thereby is not
increased, (g) Liens arising in connection with trade letters of credit issued
for the account of the Company or a Principal Subsidiary securing the
reimbursement obligations in respect of such letters of credit, provided, that
such Liens encumber only the property being acquired through payments made
under such letters of credit or the documents of title and shipping and
insurance documents relating to such property, (h) Liens on intellectual
property acquired by the Company or a Principal Subsidiary (such as software)
securing the obligation of the Company or such Principal Subsidiary to make
royalty or similar payments to the seller of such intellectual property,
provided, that such Liens encumber only the intellectual property to which
such payments relate, (i) any Lien upon any property or assets created at the
time of the acquisition, purchase, improvement or development of property or
assets used or held by the Company or any Principal Subsidiary or within one
year after such time to secure all or a portion of the purchase price for, or
the costs of improvement or development of, such property or assets, (j) any
Lien upon any property or assets existing thereon at the time of the
acquisition thereof by the Company or any Principal Subsidiary (whether or not
the obligations secured thereby are assumed by the Company or any Principal
Subsidiary), (k) any Lien in
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<PAGE>
favor of the Company or any Principal Subsidiary, (l) any Lien created or
assumed by the Company or any Principal Subsidiary in connection with the
issuance of debt securities the interest on which is excludable from gross
income of the holder of such security pursuant to the Internal Revenue Code of
1986, as amended, for the purpose of financing, in whole or in part, the
acquisition, purchase, improvement or development of property or assets to be
used or held by the Company or any Principal Subsidiary, (m) any Lien securing
any Indebtedness in an amount which, together with (1) all other Indebtedness
secured by a Lien that is not otherwise permitted by the foregoing provisions,
and (2) any Sale and Leaseback Transaction permitted only under clause (e)
below, that does not at the time of the incurrence of the Indebtedness so
secured exceed 10% of the Company's Consolidated Net Tangible Assets, or (n)
any extension, renewal or refunding of any Lien permitted by the foregoing
clauses (f) through (m), inclusive, on substantially the same property or
assets theretofore subject thereto.
Sale and Leaseback Transactions. The Indenture provides that so long as any
Senior Notes are outstanding, the Company will not, and will not permit any
Principal Subsidiary to, enter into any Sale and Leaseback Transaction with
respect to any property or assets of the Company or any Principal Subsidiary,
unless (a) such Sale and Leaseback Transaction involves a lease for a term of
not more than three years, (b) such Sale and Leaseback Transaction is between
the Company and its Principal Subsidiaries or between Principal Subsidiaries,
(c) the Company or a Principal Subsidiary would be entitled to incur
Indebtedness secured by a Lien on such property or assets involved in such
Sale and Leaseback Transaction without equally and ratably securing the Senior
Notes pursuant to the covenant concerning future Liens described above, (d)
the cash proceeds of such Sale and Leaseback Transaction are at least equal to
the fair market value thereof or to the debt attributable thereto and the
Company applies the amount equal to the greater of the net proceeds of such
sale or the Indebtedness with respect to such Sale and Leaseback Transaction
within 180 days of such sale to either (or a combination) of (1) the
retirement (other than the mandatory retirement, mandatory prepayment or
sinking fund payment or by payment at maturity) of long-term debt of the
Company or a Subsidiary (other than long-term debt that is subordinated to the
Senior Notes) or (2) the acquisition, purchase, improvement or development of
other comparable property, or (e) any Sale and Leaseback Transaction in an
amount which, together with (1) all other Sale and Leaseback Transactions
under this clause (e), and (2) all other Indebtedness secured by a Lien that
is not otherwise permitted by the provisions at clauses (a) through (l) above,
does not at the time of such transaction exceed 10% of the Company's
Consolidated Net Tangible Assets.
Domestic Subsidiary Indebtedness. The Indenture provides that so long as any
Senior Notes are outstanding, the Company shall not permit any Domestic
Subsidiary to Incur any Funded Indebtedness. Notwithstanding the foregoing,
any Domestic Subsidiary may Incur the following Funded Indebtedness: (a)
Funded Indebtedness of any Domestic Subsidiary outstanding on the date of the
Indenture, (b) Funded Indebtedness owed by a Domestic Subsidiary to the
Company or to a wholly-owned Subsidiary; provided, however, that upon either:
(1) the transfer or other disposition by the Company or such wholly-owned
Subsidiary of any Funded Indebtedness so permitted to a Person other than the
Company or another wholly-owned Subsidiary, or (2) the issuance (other than
directors' qualifying shares), sale, lease, transfer or other disposition of
shares of Capital Stock (including by consolidation or merger) of such wholly-
owned Subsidiary to a Person other than the Company or another wholly-owned
Subsidiary, the provisions of this clause (b) shall no longer be applicable to
such Funded Indebtedness and such Funded Indebtedness shall be deemed to have
been Incurred at the time of such transfer or other disposition, (c) Funded
Indebtedness Incurred by a Person before such Person became a Domestic
Subsidiary in an acquisition by the Company from a non-Affiliate (whether
through a stock acquisition, merger, consolidation or otherwise) after the
date of the Indenture; provided, that such Funded Indebtedness was not
Incurred in anticipation of or in connection with, and was outstanding prior
to, such acquisition, (d) Funded Indebtedness Incurred in connection with the
acquisition, purchase, improvement or development of property or assets used
or held by any Subsidiary of the Company prior to, or within one year after,
the time of such
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acquisition, purchase, improvement or development, (e) Funded Indebtedness
Incurred in connection with the issuance of debt securities the interest on
which is excludable from gross income of the holder of such security pursuant
to the Code for the purpose of financing in whole or in part the acquisition,
purchase, improvement or development of property or assets to be used or held
by any Domestic Subsidiary, (f) Funded Indebtedness Incurred in connection
with a Sale and Leaseback Transaction permitted by clauses (a) through (d)
pursuant to "--Sale and Leaseback Transactions" above, or (g) Funded
Indebtedness Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings) in whole or in part, of any
Funded Indebtedness referred to in the foregoing clauses (a) or (c) through
(f); provided, that the principal amount of Funded Indebtedness Incurred
pursuant to this clause (g) shall not exceed the principal amount of Funded
Indebtedness so extended, renewed, refinanced or refunded plus the aggregate
amount of premiums, other payments, costs and expenses required to be paid or
Incurred in connection with such extension, renewal, refinancing or refunding.
In addition to the foregoing, any Domestic Subsidiary may Incur Funded
Indebtedness if, immediately after the Incurrence thereof, the aggregate
principal amount of such Funded Indebtedness plus all other Funded
Indebtedness (without duplication) of all Domestic Subsidiaries of the Company
then outstanding (other than Funded Indebtedness permitted by clauses (a)
through (g) inclusive, above) does not exceed 10% of Consolidated Net Tangible
Assets (the "Debt Basket"); provided, however, that the Debt Basket shall be
reduced, without duplication, by the amount of Indebtedness secured by a Lien
permitted only under clause (m) pursuant to "--Liens" above and by any Sale
and Leaseback Transaction permitted only under clause (e) pursuant to "--Sale
and Leaseback Transactions" above, in each case to the extent such secured
Indebtedness or the debt attributable to such a Sale and Leaseback Transaction
may from time to time be outstanding.
Restricted Payments. The Indenture provides that until such time as the
Senior Notes are rated Baa2 by Moody's Investors Service, Inc., and its
successors, or BBB by Standard & Poor's Ratings Group, a division of McGraw-
Hill Companies, Inc., and its successors, or higher, the Company will not, and
will not permit any Principal Subsidiary to, directly or indirectly, (a)
declare or pay any dividend on, or make any distribution in respect of, the
Company's or any Principal Subsidiary's Capital Stock, (b) purchase, redeem or
otherwise acquire or retire for consideration any Capital Stock of the Company
or a Principal Subsidiary or (c) voluntarily purchase, redeem or otherwise
acquire or retire for consideration, prior to a scheduled mandatory sinking
fund payment date, mandatory amortization or mandatory prepayment or maturity
date (including, but not limited to, by legal defeasance), any Indebtedness of
the Company that is junior in right of payment to the Senior Notes, other than
in connection with the refinancing of such Indebtedness to the extent not
prohibited under the Indenture (each such declaration, distribution, purchase,
redemption, acquisition or retirement being referred to as a "Restricted
Payment") if, at the time of such action, or after giving effect to such
Restricted Payment, (1) an Event of Default shall have occurred and be
continuing, or (2) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments declared or made after the date of the
Indenture, exceeds the sum of (i) 50% of the aggregate cumulative Consolidated
Net Income of the Company accrued on a cumulative basis during the period
beginning on the date of the Indenture and ending on the last day of the
Company's last fiscal quarter ending prior to the date of such Restricted
Payment (or, if such aggregate cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss), (ii) the aggregate Net Cash Proceeds and the
fair market value (as determined in good faith by the board of directors of
the Company) of marketable securities and other property, if any, received by
the Company or a wholly-owned Subsidiary (other than from a Principal
Subsidiary) from the issuance and sale of either Capital Stock (other than
Capital Stock that is redeemable) or Indebtedness that is convertible into
Capital Stock, to the extent such Indebtedness is converted into Capital Stock
after the date of the Indenture, (iii) the fair market value (as determined in
good faith by the board of directors of the Company) of any shares of Capital
Stock (other than Capital Stock that is redeemable) or options in respect
thereof of the Company issued
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after the date of the Indenture, pursuant to a plan or other arrangement
approved by the Compensation Committee of the board of directors of the
Company, to or for the benefit of any employee or director of the Company or
any Subsidiary or to or by any stock ownership plan or similar trust for the
benefit of any such employee or director, in each case to the extent such
value is includible as compensation expense in the computation of Consolidated
Net Income, (iv) 50% of the aggregate Net Cash Proceeds received after the
date of the Indenture by the Company or a wholly-owned Subsidiary of the
Company, from an Asset Sale, and (v) $75,000,000.
The foregoing will not prohibit, so long as no Event of Default shall have
occurred and be continuing, (a) the payment of any dividend within 60 days
after the date of the declaration, if at the date of declaration thereof such
payment would comply with such provisions or (b) the declaration or payment of
any dividend on or purchase, redemption or retirement of shares of Capital
Stock payable solely in shares of Capital Stock (other than Capital Stock that
is redeemable) of the Company or any Subsidiary that does not constitute a
Principal Subsidiary.
For purposes of the Indenture:
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance,
disposition or other transfer by such Person of all or substantially all of
the properties and assets of any division or line of business of such Person
or any other properties or assets of such Person other than in the ordinary
course of business (including by way of a sale and leaseback and including the
sale or other transfer of any of the Capital Stock of any related
transactions). For the purposes of this definition, the term "Asset Sale"
shall not include any transfer of properties and assets (a) that is (1)
permitted under "--Limitation on Consolidations and Mergers" below or (2) from
the Company to any Subsidiary or from any Subsidiary to the Company or another
Subsidiary, (b) that is a Sale and Leaseback Transaction permitted pursuant to
"--Sale and Leaseback Transactions" above or (c) in any given fiscal year
(other than in the ordinary course of business) if the aggregate fair market
value (as determined in good faith by the board of directors of the Company)
of all such properties and assets transferred (other than in the ordinary
course of business) in such fiscal year is less than $1,000,000, it being
understood that if such aggregate fair market value exceeds $1,000,000, the
entire aggregate fair market value shall be included.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and
all equivalent ownership interests in a Person (other than a corporation) and
any and all warrants or options to purchase any of the foregoing.
"Consolidated Net Income" means, for any fiscal period, the net income of
the Company and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Tangible Assets" means total assets (less applicable
reserves and other properly deductible items) after deducting therefrom (a)
all current liabilities and (b) all goodwill, trade names, trademarks,
patents, organization expenses and other like intangibles, all as set forth on
the most recent balance sheet of the Company and its consolidated subsidiaries
and computed in accordance with GAAP.
"Domestic Subsidiary" means any Principal Subsidiary organized and
incorporated under the laws of the United States, or any state thereof, or any
Principal Subsidiary whose principal place of business is located within the
United States, or any state thereof.
"Funded Indebtedness" means Indebtedness that by its terms (a) matures more
than one year from the date of original issuance or creation or (b) matures
within one year from such date but is renewable or extendible at the option of
any obligor to a date more than one year from such date.
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"GAAP" means generally accepted accounting principles in effect from time to
time in respect of a Person's jurisdiction of incorporation.
"Incur" means, with respect to any Indebtedness of any Person, to create,
issue, incur (by conversion, exchange or otherwise), assume, guarantee or
otherwise become, directly or indirectly, liable in respect of such
Indebtedness or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Indebtedness on the balance
sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in GAAP that results in an obligation of such Person
that exists at such time becoming Indebtedness shall not be deemed an
Incurrence of such Indebtedness.
"Indebtedness" of any Person at any date means all indebtedness or
obligations of such Person, as reflected on the balance sheet of such Person
prepared in accordance with generally accepted accounting principles, other
than current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices.
"Lien" means any mortgage, pledge, hypothecation, encumbrance, lien or other
security interest.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Temporary
Cash Investments (except to the extent that such obligations are financed or
sold with recourse to the Company or any Principal Subsidiary) net of (1)
brokerage commissions and other actual fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (2)
provisions for all taxes payable as a result of such Asset Sale, (3) payments
made to retire Indebtedness where payment of such Indebtedness is secured by
the assets or properties which are the subject of such Asset Sale, (4) amounts
required to be paid to any Person (other than the Company or any Subsidiary)
owning a beneficial interest in the assets subject to the Asset Sale and (5)
appropriate amounts to be provided by the Company or the Principal Subsidiary,
as the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or
Principal Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected
in an officer's certificate delivered to the Trustee and (b) with respect to
any issuance or sale of Capital Stock or Indebtedness or Capital Stock that
have been converted into or exchanged for Capital Stock, the proceeds of such
issuance or sale in the form of cash or Temporary Cash Investments, including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Temporary Cash
Investments (except to the extent that such obligations are financed or sold
with recourse to the Company or any Principal Subsidiary), net of attorney's
fees, accountants' fees and brokerage, consultation, underwriting and other
fees and expenses actually incurred in connection with such issuance or sale
and net of taxes paid or payable as a result thereof.
"Principal Subsidiary" means (a) each Subsidiary of the Company existing on
the closing date and (b) any Subsidiary created or acquired after the closing
date, including its Subsidiaries, which meets either of the following
conditions: (1) the Company and its other subsidiaries' investments in and
advances to the Subsidiary exceeds 10% of the total assets of the Company and
its subsidiaries consolidated as of the end of the most recently completed
fiscal year (for a proposed business combination to be accounted for as a
pooling of interests, this condition is also met when the number of common
shares exchanged by the Company exceeds 10% of its total common shares
outstanding at the date the combination is initiated) or (2) the Company and
its other subsidiaries' proportionate
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share of the total assets (after intercompany eliminations) of the Subsidiary
exceeds 10% of the total assets of the Company and its subsidiaries
consolidated as of the end of the most recently completed fiscal year.
"Sale and Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Principal Subsidiary of real
or personal property that is to be sold or transferred by the Company or such
Principal Subsidiary to such Person or to any other Person to whom funds have
been or are to be advanced by such Person on the security of such property or
rental obligations of the Company or such Principal Subsidiary.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of capital stock, entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (b) any partnership (1) the sole general
partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (2) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Temporary Cash Investments" means (a) any evidence of Indebtedness issued
by the United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, maturing not more than one year after the date of
acquisition, (b) any certificate of deposit, maturing not more than one year
after the date of acquisition, issued by, or time deposit of, a commercial
banking institution that is a member of the Federal Reserve System and that
has combined capital and surplus and undivided profits of not less than
$500,000,000, whose debt has a rating of, at the time of which any investment
therein is made, "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, (c) commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than the Company or
its Subsidiaries) organized and existing under the laws of the United States
of America with a rating, at the time as of which any investment therein is
made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P or (d) any money market deposit accounts issued or offered by a
domestic commercial bank having capital and surplus in excess of $500,000,000.
LIMITATION ON MERGERS AND CONSOLIDATIONS
The Indenture provides that the Company will not consolidate or merge with
or into any Person, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets, or assign any of its obligations under the
Indenture or the Senior Notes, to any Person, unless: (i) the Person formed by
or surviving such consolidation or merger (if other than the Company), or to
which such sale, lease, conveyance or other disposition or arrangement shall
be made (collectively, the "Successor"), is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and the Successor assumes by supplemental indenture in a
form reasonably satisfactory to the Trustee all of the obligations of the
Company under the Indenture and under the Senior Notes; and (ii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing.
EVENTS OF DEFAULT AND NOTICE THEREOF
The Indenture defines an Event of Default as being any one of the following
events: (a) failure to pay interest on the Senior Notes when due, which
failure continues for 30 days, (b) failure to pay principal of the Senior
Notes when due, (c) failure to comply with "--Limitation on Mergers and
Consolidations," (d) failure to observe or perform any other covenant of the
Company set forth in the Indenture for the Senior Notes, which failure
continues for 60 days after notice as provided in the
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Indenture, (e) certain events of bankruptcy, insolvency or reorganization in
respect of the Company, (f) any default or event of default under any
Indebtedness of the Company or any of its Subsidiaries (other than any
indebtedness of the Company or any Subsidiary to the seller of a business or
asset incurred in connection with the purchase thereof) which default or event
of default results in at least $20 million of aggregate principal amount of
such Indebtedness being declared due and payable prior to maturity, and (g)
failure by the Company or any of its Subsidiaries to pay at maturity at least
$20 million aggregate principal amount of such Indebtedness at any one time,
which failure continues for 15 days after notice from the Trustee or the
holders of 25% of the Senior Notes.
Within 60 days after the occurrence of a Default known to the Trustee, the
Trustee is required to transmit notice thereof to the holders of the Senior
Notes. Except in the case of a default in the payment of the principal of or
interest on the Senior Notes, the Trustee may withhold such notice if and so
long as the Trustee, in good faith, determines that the withholding of such
notice is in the interests of the holders of the Senior Notes. If an Event of
Default shall occur and be continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Senior Notes outstanding may
declare the principal immediately due and payable. However, if prior to the
entry of any judgment or decree for the accelerated amount, the Company shall
pay or deposit with the Trustee all principal and interest arrearage, the
holders of not less than a majority in aggregate principal amount of the
Senior Notes shall have the right to waive all defaults and the consequences
of having all principal payments due. Such waiver will not, however, be
operative as against nor impair any rights arising as a result of any
subsequent Event of Default. The Trustee will not be charged with knowledge of
any Event of Default other than the Company's failure to make principal and
interest payments unless actual written notice thereof is received by the
Trustee.
The Indenture contains provisions regarding limitations on the right to
institute legal proceedings. No holder of Senior Notes shall have the right to
institute an action or proceeding for rights arising under the Indenture
unless (a) such holder has given written notice of default to the Trustee, (b)
the holders of not less than 25% of the aggregate principal amount of Senior
Notes outstanding shall have made a written request to the Trustee to
institute an action and offered the Trustee such indemnification satisfactory
to it, (c) the Trustee shall have not commenced such action within 60 days of
receipt of such notice and indemnification offer, and (d) no direction
inconsistent with such request has been given to the Trustee by the holders of
not less than a majority of the aggregate principal amount of the Senior Notes
then outstanding. Notwithstanding the foregoing, subject to applicable law,
nothing shall prevent the holders of Senior Notes from enforcing payment of
the principal of or interest on their Senior Notes.
The holders of a majority in aggregate principal amount of the Senior Notes
outstanding at the time may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee, provided, however, that the Trustee shall
have the right to decline to follow such direction if, after being advised by
counsel, the Trustee determines that the action so directed may not lawfully
be taken, or if the Trustee in good faith determines that the action so
directed would be unduly prejudicial to the holders of the Senior Notes not
taking part in such action, or that such action would involve the Trustee in
personal liability.
The Indenture provides that, in case an Event of Default shall occur (which
shall not have been cured or waived), the Trustee will be required to use the
degree of care a prudent person would use in the conduct of their own affairs.
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the holders of the Senior Notes unless they shall have offered the Trustee
security or indemnity satisfactory to it.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all its obligations under the
Indenture.
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BOOK-ENTRY SYSTEM
Upon issuance, the Senior Notes will be represented by one or more Global
Notes. Each Global Note will be deposited with, or on behalf of, the
Depositary and registered in the name of a nominee of the Depositary. Except
under the limited circumstances described below, Global Notes will not be
exchangeable for definitive certificated Senior Notes.
Ownership of beneficial interests in Global Notes will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") or persons that may hold interests through participants. In
addition, ownership of beneficial interests by participants in such Global
Notes will be evidenced only by, and the transfer of that ownership will be
effected only through, records maintained by the Depositary or its nominee for
such Global Notes. Ownership of beneficial interests in such Global Notes by
persons that hold through participants will be evidenced only by, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The Depositary has no
knowledge of the actual beneficial owners of the Senior Notes. Beneficial
owners will not receive written confirmation from the Depositary of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the participants though which the beneficial owners entered the
transaction. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in such Global Notes.
The Company has been advised by the Depositary that upon the issuance of
Global Notes and the deposit of such Global Notes with the Depositary, the
Depositary will immediately credit, on its book-entry registration and
transfer system, the respective principal amounts represented by such Global
Notes to the accounts of participants.
Payment of principal of, and interest on, Senior Notes represented by Global
Notes registered in the name of or held by the Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the
registered owner and holder of the Global Notes representing such Senior
Notes. The Company has been advised by the Depositary that upon receipt of any
payment of principal of, or interest on, a Global Note, the Depositary will
immediately credit, on its book-entry registration and transfer system,
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown in the records of the Depositary. Payments by participants to owners of
beneficial interests in a Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the sole responsibility of such
participants subject to any statutory or regulatory requirements as may be in
effect from time to time.
None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the
records of the Depositary, any nominee or any participant relating to, or
payments made on account of, beneficial interests in a Global Note or for
maintaining, supervising or reviewing any of the records of the Depositary,
any nominee or any participant relating to such beneficial interests.
A Global Note is exchangeable for definitive Senior Notes registered in the
name of, and a transfer of a Global Note may be registered to, any person
other than the Depositary or its nominee, only if:
(a) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Note or if at any time the
Depositary ceases to be registered or in good standing under the Exchange
Act;
(b) the Company in its sole discretion determines that such Global Note
shall be exchangeable for definitive Senior Notes in registered form; or
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(c) there shall have occurred and be continuing an Event of Default or an
event which, with the giving of notice or lapse of time or both, would
constitute and Event of Default under the Senior Notes.
Any Global Note that is exchangeable pursuant to the preceding sentence will
be exchangeable in whole for definitive Senior Notes in registered form, of
like tenor and of an equal aggregate principal amount as the Global Note, in
denominations of $1,000 and integral multiples thereof. Such definitive Senior
Notes will be registered in the name or names of such persons as the
Depositary shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Depositary from its participants
with respect to ownership of beneficial interests in such Global Note. Any
principal and interest will be payable, the transfer of the definitive Senior
Notes will be registerable and the definitive Senior Notes will be
exchangeable at the office or agency of the Company in the Borough of
Manhattan, the City of New York (which will initially be the Trustee), except
that, at the option of the Company, interest may be paid by mailing a check to
the address of the person entitled thereto as it appears in the Senior Note
register.
Except as provided above, owners of beneficial interests in such Global
Notes will not be entitled to receive physical delivery of Senior Notes in
definitive form and will not be considered the holders thereof for any purpose
under the Indenture, and no Global Note shall be exchangeable except for
another Global Note of like denomination and tenor to be registered in the
name of the Depositary or its nominee. Accordingly, each person owning a
beneficial interest in such Global Note must rely on the procedures of the
Depositary and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any
rights of a holder under the Global Note or the Indenture.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of holders, or an owner of a
beneficial interest in such Global Notes desires to give or take any action
that a holder is entitled to give or take under the Indenture, the Depositary
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. The rules applicable to the Depositary and its
participants are on file with the Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Senior Notes will be made in immediately available funds.
So long as the Senior Notes are represented by one or more permanent Global
Notes, all payments of principal and interest will be made by the Company in
immediately available funds.
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So long as the Senior Notes are represented by one or more Global Notes
registered in the name of the Depositary or its nominee, the Senior Notes will
trade in the Depositary's Same-Day Funds Settlement System, and secondary
market trading activity in the Senior Notes will therefore be required by the
Depositary to settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on the
trading activity in the Senior Notes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Senior
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Senior Notes, to replace mutilated, destroyed,
lost or stolen Senior Notes and to maintain a registrar and paying agent in
respect of the Senior Notes. The Company at any time may also terminate its
obligations under the covenants described under "--Certain Covenants" (other
than "--Limitations on Mergers and Consolidations"), the operation of the
cross acceleration provision, the bankruptcy provisions (but only with respect
to a Subsidiary) and the other Indebtedness default provision described under
"--Events of Default and Notice Thereof" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Senior Notes may not be
accelerated because of an Event of Default specified in clauses (c) and (e)
through (g) under "--Events of Default and Notice Thereof" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or non-
callable U.S. Government Obligations (as specified in the Indenture)
sufficient to pay all remaining principal and interest on the Senior Notes,
and must comply with certain other conditions, including delivery to the
Trustee of an Opinion of Counsel (as specified in the Indenture) to the effect
that holders of such Senior Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance (and in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law). Purchasers of such Senior Notes should consult their own advisors with
respect to the tax consequences to them of defeasance, including the
applicability and effect of tax laws other than the Federal income tax law.
MODIFICATION OF THE INDENTURE
With the consent of the holders of not less than a majority in the aggregate
principal amount of the outstanding Senior Notes, the Indenture, the rights
and obligations of the Company and the rights of the holders of Senior Notes
may be modified by the Company and the Trustee. However, without the consent
of each holder of an outstanding Senior Note affected thereby, no modification
may, among other things, (i) modify the terms of payment of principal or
interest on the Senior Notes, or (ii) reduce the percentage of outstanding
Senior Notes required for modification. The Company and the Trustee may also
enter into supplemental indentures, without obtaining the consent of the
holders of the Senior Notes, to cure any ambiguity or to correct or supplement
any provisions of the Indenture or any supplemental indenture which may be
defective or inconsistent with any other provision, to pledge any property to
or with the Trustee or to make any other provisions with respect to matters or
questions arising under the Indenture, provided that such action shall not
adversely affect the interests of the holders of the Senior Notes. Such
supplemental indentures may also be entered into without the consent of
holders of the Senior Notes to evidence the succession of another person to
the Company or to add to the covenants of the Company.
27
<PAGE>
CERTIFICATES AND OPINIONS TO BE FURNISHED TO TRUSTEE
The Indenture provides that, in addition to such other certificates or
opinions as may be specifically required by other provisions of the Indenture,
every application by the Company for action by the Trustee thereunder shall be
accompanied by a certificate of certain officers of the Company and an opinion
of counsel for the Company stating that, in the opinion of the signers, all
conditions precedent to such action have been complied with.
REPORT TO HOLDERS OF SENIOR NOTES
The Trustee is required to submit an annual report to the holders of the
Senior Notes regarding, among other things, the Trustee's eligibility to serve
as such, the priority of the Trustee's claims regarding certain advances made
by it, and any action taken by the Trustee materially affecting the Senior
Notes.
THE TRUSTEE
PNC Bank, National Association, whose Corporate Trust Office is currently
located at 1600 Market Street, Philadelphia, Pennsylvania, will be the Trustee
under the Indenture.
The Company and its affiliates maintain other banking relationships in the
ordinary course of business with the Trustee and its affiliates.
The Trustee may resign or be removed by the Company and a successor trustee
may be appointed. The holders of a majority in aggregate principal amount of
the Senior Notes then outstanding may remove the Trustee.
The Indenture contains certain limitations on the rights of the Trustee
thereunder, in the event that it becomes a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise.
28
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") dated June 25, 1997 among the Company and the
several Underwriters named below, the Company has agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase from the
Company, the following respective principal amounts of the Senior Notes:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER SENIOR NOTES
----------- ------------
<S> <C>
Chase Securities Inc........................................ $ 60,000,000
NationsBanc Capital Markets, Inc............................ 60,000,000
Lehman Brothers Inc......................................... 10,000,000
Montgomery Securities....................................... 10,000,000
Societe Generale Securities Corporation..................... 10,000,000
------------
Total..................................................... $150,000,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Senior Notes
offered hereby if any of the Notes are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Senior Notes to the public initially at the respective
public offering price set forth on the cover page of this Prospectus, and to
certain dealers initially at such price less a discount not in excess of
0.400% of the principal amount of the Senior Notes. The Underwriters may
allow, and such dealers may reallow, a concession to certain other dealers not
in excess of 0.250% of the principal amount on sales to certain other dealers.
After the public offering, the public offering price and such concessions may
be changed.
Chase Securities Inc. is an affiliate of The Chase Manhattan Bank which is
the agent for and a lender to the Company under the Company's Revolving Credit
Facility. NationsBanc Capital Markets, Inc. is an affiliate of NationsBank,
N.A. which also is a lender to the Company under the Company's Revolving
Credit Facility. Societe Generale Securities Corporation is an affiliate of
Societe Generale which also is a lender to the Company under the Company's
Revolving Credit Facility. In addition, The Chase Manhattan Bank, NationsBank,
N.A., Societe Generale and their respective affiliates participate on a
regular basis in various general financing and banking transactions for the
Company and its affiliates.
The Company expects to use a portion of the net proceeds from the sale of
the Senior Notes to repay outstanding borrowings under the Revolving Credit
Facility. See "Use of Proceeds." The Chase Manhattan Bank, NationsBank, N.A.
and Societe Generale will receive their proportionate share of such repayment.
Because more than 10% of the net proceeds of the offering will be paid to
affiliates of members of the National Association of Securities Dealers, Inc.
(the "NASD") which are participating in the distribution of the Senior Notes,
the offering is being conducted pursuant to the provisions of Rule 2710(c)(8)
of the Conduct Rules of the NASD.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, and to contribute
to payments which the Underwriters might be required to make in respect
thereof.
In connection with the offering and sale of the Senior Notes, Chase
Securities Inc., on behalf of the Underwriters, may engage in overallotment,
stabilizing transactions and syndicate covering
29
<PAGE>
transactions in accordance with Regulation M under the Exchange Act.
Overallotment involves sales in excess of the offering size, which creates a
short position for the Underwriters. Stabilizing transactions permit bids to
purchase the Senior Notes in the open market for the purpose of pegging,
fixing or maintaining the price of the Senior Notes. Syndicate covering
transactions involve purchases of the Senior Notes in the open market after
the distribution has been completed in order to cover short positions. Such
stabilizing transactions and syndicate covering transactions may cause the
price of the Senior Notes to be higher than it would otherwise be in the
absence of such transactions. Such activities, if commenced, may be
discontinued at any time.
The Senior Notes are a new series of securities with no established trading
market and will not be listed on any securities exchange. The Underwriters
have advised the Company that they intend to make a market in the Senior
Notes, but are under no obligations to do so and such market making may be
terminated at any time. Therefore, no assurance can be given as to the
liquidity of, or the trading market for, the Senior Notes.
EXPERTS
The consolidated financial statements and schedules of Harman International
Industries, Incorporated and subsidiaries as of June 30, 1996 and 1995, and
for each of the years in the three-year period ended June 30, 1996, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Senior Notes offered hereby will be passed upon for the
Company by Jones, Day, Reavis & Pogue, Washington, D.C. Certain legal matters
will be passed upon for the Underwriters by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York.
30
<PAGE>
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information 2
Incorporation of Certain Information
by Reference 2
The Company 3
Forward-Looking Statements 3
The Offering 4
Summary Consolidated Financial
and Operating Data 5
Use of Proceeds 6
Capitalization 7
Business 8
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 12
Management 15
Description of Senior Notes 17
Underwriting 29
Experts 30
Legal Matters 30
</TABLE>
Prospectus
HARMAN INTERNATIONAL
INDUSTRIES, INCORPORATED
$150,000,000
7.32% SENIOR NOTES DUE 2007
[LOGO OF HARMAN INTERNATIONAL APPEARS HERE]
CHASE SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
LEHMAN BROTHERS
MONTGOMERY SECURITIES
SOCIETE GENERALE SECURITIES CORPORATION
Dated June 25, 1997
