<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL
INDUSTRIES, INCORPORATED
1101 Pennsylvania Avenue, N.W.,
Suite 1010
Washington, D.C. 20004
September 15, 1999
Dear Harman International Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held on Tuesday, November 9, 1999 at 11:00 a.m. at the Chase Manhattan Bank,
270 Park Avenue, New York, New York. Information about the meeting and the
nominees for Director is presented in the Notice of Annual Meeting of
Stockholders and the Proxy Statement on the following pages.
In addition to the formal items of business to be presented at the meeting,
management will report on our Company's operations during fiscal 1999. This will
be followed by a question and answer period.
It is important that your shares be represented at the meeting regardless
of the number of shares that you hold. To ensure your representation, please
sign, date and return the enclosed proxy card promptly.
We look forward to seeing you on November 9th.
Sincerely,
/s/ Sidney Harman
Sidney Harman
Chairman
<PAGE>
[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 9, 1999
------------------------
The 1999 Annual Meeting of Stockholders of Harman International Industries,
Incorporated (the "Company") will be held at Chase Manhattan Bank, 270 Park
Avenue, New York, New York on November 9, 1999 at 11:00 a.m. for the following
purposes:
(1) To elect two directors to serve for a three-year term expiring at
the 2002 Annual Meeting of Stockholders;
(2) To consider and take action upon a proposal to adopt a performance
based bonus plan for the Company's Key Executive Officers;
(3) To consider and take action upon a proposal to amend the Company's
1992 Incentive Plan; and
(4) To transact such other business as properly may come before the
meeting on November 9 or on any date to which the meeting may be
adjourned.
Stockholders of record as of the close of business on September 10, 1999
are entitled to notice of, and to vote at, the meeting.
If you plan to attend the meeting and will need special assistance or
accommodation due to a disability, please include such information on the
enclosed proxy card.
By Order of the Board of Directors
/s/ Frank Meredith
Frank Meredith
Secretary
Washington, D.C.
September 15, 1999
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, PLEASE VOTE BY MEANS OF THE
ENCLOSED PROXY WHICH YOU ARE REQUESTED TO SIGN, DATE AND RETURN AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
1101 PENNSYLVANIA AVENUE, N.W.
SUITE 1010
WASHINGTON, D.C. 20004
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harman International Industries,
Incorporated (the "Company") for use at the 1999 Annual Meeting of Stockholders
(the "Meeting") and for the purpose of considering and acting upon the matters
specified in the accompanying Notice of Annual Meeting. This Proxy Statement and
the enclosed proxy card were first sent or given to stockholders on or about
September 15, 1999.
Holders of record of the Company's common stock (the "Common Stock"), par
value $0.01 per share, as of the close of business on September 10, 1999, will
be entitled to vote at the Meeting or at any adjournment thereof, and each
stockholder of record on such date will be entitled to one vote for each share
of Common Stock held. On September 10, 1999, there were 17,258,112 shares of
Common Stock outstanding.
Shares of Common Stock cannot be voted at the Meeting unless the owner is
present or represented by proxy. A proxy may be revoked at any time before it is
voted by giving written notice of revocation or by the delivery of a new proxy
to the Company at the address shown above, or by the stockholder's personal vote
at the Meeting.
All properly executed proxies, unless previously revoked, will be voted at
the Meeting or any adjournment thereof in accordance with the directions given.
With respect to the election of two Directors to serve until the 2002 Annual
Meeting, stockholders of the Company voting by proxy may vote in favor of both
nominees, may withhold their vote for both nominees or may withhold their vote
as to a specific nominee. With respect to the other proposals for stockholder
action, stockholders of the Company voting by proxy may vote in favor or against
the proposals. If no specific instructions are given with respect to the matters
to be acted upon at the Meeting, shares of Common Stock represented by a
properly executed proxy will be voted FOR (i) the election of the two nominees
for Director listed under the caption "Election of Directors," (ii) the approval
of the adoption of a performance based bonus plan for the Company's Key
Executive Officers; and (iii) the approval of an amendment to the Company's 1992
Incentive Plan (the "1992 Plan").
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. Abstentions and non-votes will be counted for purposes
of determining the existence of a quorum at the Meeting. The candidates for
election as Directors will be elected by the affirmative vote of a plurality of
the shares of Common Stock present in person or by proxy and actually voting at
the Meeting. Any action other than a vote for a nominee (including abstentions
and broker non-votes) will have the practical effect of voting against the
nominee.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
Pursuant to the Company's Restated and Amended Certificate of
Incorporation, the Board of Directors is divided into three classes. Two classes
consist of two Directors and one class consists of three Directors.
Two Directors are to be elected at the Meeting. Set forth below is
information concerning the two nominees for Director, as well as information
concerning the Directors whose terms of office will extend beyond the Meeting.
The current nominees for Director, if elected, will serve for a three-year term
expiring at the 2002 Annual Meeting. The Board of Directors expects that the
nominees will be available for election. In the event that a nominee for any
reason should become unavailable for election, it is intended that the shares of
Common Stock represented by the proxies will be voted for a nominee who would be
designated by the Board of Directors, unless the Board of Directors reduces the
number of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES.
DIRECTORS TO BE ELECTED AT THE MEETING
Sidney Harman, Ph.D., age eighty-one, has been Chairman of the Board and a
Director of the Company since the Company's founding in 1980. Dr. Harman also
served as Chief Executive Officer of the Company from 1980 to 1998. Dr. Harman
served as Deputy Secretary of Commerce of the United States from January 1977
through December 1978.
Shirley Mount Hufstedler, age seventy-four, has been a Director of the
Company since September 1986. Ms. Hufstedler is and has been for the past
seventeen years in private law practice. Since 1995, she has been with the law
firm of Morrison & Foerster, LLP in Los Angeles, California and from 1981 to
1995, was with the firm of Hufstedler & Kaus. 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 Director Emeritus of US West, Inc. and Hewlett-Packard Company.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
Bernard A. Girod, age fifty-seven, has been Chief Executive Officer of the
Company since 1998 and a Director of the Company since 1993. Mr. Girod also
served as President of the Company from 1994 to 1998, Chief Operating Officer of
the Company from 1993 to 1998, Secretary of the Company from 1992 to 1998 and
Chief Financial Officer of the Company from 1986 to 1995 and again from 1996 to
1997. Mr. Girod's term as a director expires at the 2001 Annual Meeting.
Gregory P. Stapleton, age fifty-three, has been Chief Operating Officer of
the Company since 1998 and a Director of the Company since November 1997. Mr.
Stapleton also served as President of the Company's OEM Group from 1987 to 1998.
Prior to his association with the Company, he was Senior Vice President of
General Electric Venture Capital Corporation from 1986 to 1987 and was General
Manager, Industrial Products Section, Factory Automation Products Division of
General Electric Corporation from 1982 to 1985. Mr. Stapleton's term as a
Director expires at the 2000 Annual Meeting.
Edward H. Meyer, age seventy-two, has been a Director of the Company since
July 1990. Mr. Meyer has been the Chairman of the Board, Chief Executive Officer
and President of Grey Advertising, Inc., New York, New York since 1970. Mr.
Meyer serves as a Director for Ethan Allen Interiors, Inc. and as a
Director/trustee of thirty-one mutual funds advised by Merrill Lynch Asset
Management, Inc. Mr. Meyer's term as Director expires at the 2000 Annual
Meeting.
Ann McLaughlin, age fifty-seven, has been a Director of the Company since
1995. She served as Secretary of Labor of the United States under President
Reagan from 1987 until 1989. Ms. McLaughlin is a Director of AMR Corporation,
Donna Karan International Inc., Fannie Mae, General Motors Corporation, Host
Marriott Corporation, Kellogg Company, Nordstrom, Inc. and Vulcan Materials
Company. She is currently Chairman of the Aspen Institute and is also a member
of the Board of Overseers of the Wharton
2
<PAGE>
School of the University of Pennsylvania. Ms. McLaughlin's term as a director
expires at the 2001 Annual Meeting.
Stanley A. Weiss, age seventy-two, has been a Director of the Company since
November 1997. From 1991 to 1997, Mr. Weiss served as Chairman of American
Premier, Inc., a private mining, refractories, chemicals and mineral processing
company. Prior to that he was Chairman and President of American Minerals. Mr.
Weiss is also founder and Chairman of Business Executives for National Security
(BENS). Mr. Weiss' term as a Director expires at the 2000 Annual Meeting.
THE BOARD OF DIRECTORS, ITS COMMITTEES AND COMPENSATION
The Board of Directors of the Company held four meetings during the 1999
fiscal year. The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee and the Compensation and Option Committee (the
"Compensation Committee"). The Company does not have a standing committee on
nominations. The full Board nominates candidates for Director. All Directors
attended at least seventy-five percent of the meetings of the Board of Directors
and the committees on which such Directors served.
The Executive Committee, which held three meetings during the 1999 fiscal
year, presently consists of Dr. Harman, Mr. Girod and Mr. Stapleton. The
Executive Committee is empowered to exercise all of the power and authority of
the Board of Directors in the management of the business affairs of the Company
when the full Board of Directors is not in session, except for those matters
that may not be delegated to it under the Company's Restated and Amended
Certificate of Incorporation or Bylaws. The Executive Committee has also been
delegated certain authority by the Board of Directors with respect to matters
relating to the Company's 1992 Plan and retirement plans.
The Audit Committee, which held two meetings during the 1999 fiscal year,
presently consists of Mr. Meyer and Ms. McLaughlin. The Audit Committee reviews
the results of the annual audit with the Company's independent auditors and the
adequacy of the Company's internal accounting controls and practices and
recommends to the Board of Directors the independent auditors to be retained by
the Company.
The Compensation Committee, which held three meetings during the 1999
fiscal year, presently consists of Ms. Hufstedler and Mr. Weiss. The
Compensation Committee establishes compensation each year for the Chief
Executive Officer and the other top executive officers and reviews with the
Chief Executive Officer the compensation of the Company's other executive
officers. The Compensation Committee has been delegated certain authority by the
Board of Directors with respect to matters relating to the Company's Chief
Executive Officer Incentive Plan, the 1992 Plan and retirement plans.
The Company does not pay fees to Directors who also serve as officers of
the Company or its subsidiaries. Non-officer Directors receive an annual fee of
$20,000 plus $2,500 for each Board meeting attended and $750 for each committee
meeting attended that occurred other than on the day of a Board meeting. The
Company reimburses all Directors for expenses incurred for attending meetings.
Under the 1992 Plan, immediately following each annual meeting of
stockholders, each incumbent non-officer Director who served during the prior
fiscal year and who continues to serve on the Board of Directors receives an
option to purchase 2,500 shares of Common Stock and is eligible to receive
additional performance-based options if the Company achieves a certain Return on
Consolidated Equity (as that term is defined in the 1992 Plan) for the previous
fiscal year. If the Company achieves a Return on Consolidated Equity of at least
nine percent, but less than thirteen percent, each non-officer Director receives
an option to purchase 750 shares of Common Stock. If the Company achieves a
Return on Consolidated Equity of thirteen percent or more, each non-officer
Director receives an option to purchase 1,500 shares of Common Stock. Pursuant
to the terms of the 1992 Plan, in November 1998 following the 1998 Annual
Meeting, each non-officer Director received options to purchase 2,500 shares of
Common Stock and, because the Company achieved a Return on Consolidated Equity
for fiscal 1998 of 10.3%, additional performance-based options to purchase 750
shares of Common Stock. Assuming adoption of the amended and restated 1992 plan,
at the Meeting it is anticipated that Ms. Hufstedler, Ms. McLaughlin, Mr. Meyer
and Mr. Weiss will each receive
3
<PAGE>
options to purchase 3,000 shares of Common Stock but, because the Company did
not achieve a Return on Consolidated Equity for fiscal 1999 of at least nine
percent, the non-officer Directors will not receive additional performance-based
options in November 1999 to purchase shares of Common Stock.
The exercise price of any option granted to a non-officer Director under
the 1992 Plan is equal to the fair market value of the Common Stock on the date
of grant. Each such option vests at a rate of twenty percent per annum and
expires ten years from the date of grant.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 1, 1999, the beneficial
ownership of the Company's Common Stock for the following persons: (a) all
stockholders known by the Company to beneficially own more than five percent of
the Common Stock, (b) each of the Company's current Directors, (c) the Company's
Chief Executive Officer and the four other most highly paid executive officers
of the Company and (d) all of the Company's Directors and executive officers as
a group. Certain information in the table is based upon information contained in
filings made by the beneficial owner with the Securities and Exchange Commission
(the "Commission").
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1) APPROXIMATE PERCENT
---- ----------------------- -------------------
<S> <C> <C>
AXA Assurances I.A.R.D. Mutuelle and
AXA Assurances Vie Mutuelle............................. 1,988,675(2) 11.2 %
21, rue de Chateaudun
75009 Paris France
AXA Conseil Vie Assurances Mutuelle
100-101 Terrasse Boieldieu
92042 Paris La Defense France
AXA Courtage Assurance Mutuelle
26, rue Louis le Grand
75002 Paris France
AXA
9 Place Vendome
75001 Paris France
The Equitable Companies Incorporated
1290 Avenue of the Americas
New York, New York 10104
Lazard Freres & Co. LLC................................. 1,379,530(3) 7.4 %
30 Rockefeller Plaza
New York, New York 10020
Strong Schafer Capital Management, LLC.................. 1,207,500(4) 6.8 %
Schafer Capital Management, Inc. and
David K. Schafer
101 Carnegie Center
Princeton, New Jersey 08540
Schafer Cullen Capital Management, Inc.
645 Fifth Avenue
New York, New York 10022
Clover Capital Management, Inc.......................... 978,350(5) 5.5 %
Michael E. Jones
James G. Gould
Geoffrey H. Rosenberger
Charles W. Ruff
11 Tobey Village Office Park
Pittsford, New York 14534
Sidney Harman........................................... 1,310,247(6) 7.2 %
Harman International Industries, Incorporated
1101 Pennsylvania Avenue, N.W.
Suite 1010
Washington, D.C. 20004
Bernard A. Girod........................................ 94,488(7) *
Shirley M. Hufstedler................................... 21,398 *
Ann McLaughlin.......................................... 4,155 *
Edward H. Meyer......................................... 30,322 *
Stanley A. Weiss........................................ 600 *
Gregory P. Stapleton.................................... 73,516(8) *
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1) APPROXIMATE PERCENT
---- ----------------------- -------------------
<S> <C> <C>
Frank Meredith.......................................... 20,454(9) *
William Palin........................................... 9,020 *
All Directors and executive officers as a group (12
persons).............................................. 1,585,260(10) 8.7 %
</TABLE>
- ---------------
* Less than one percent
(1) Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
disposition of such security. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. A person is also
deemed to be a beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within 60 days. Accordingly, the
beneficial ownership amounts include shares of Common Stock that may be
acquired pursuant to stock options exercisable within 60 days from August
1, 1999 by the following stockholders in the indicated amounts: Dr. Harman
(572,250 shares), Mr. Girod (43,600 shares), Ms. Hufstedler (17,533
shares), Ms. McLaughlin (4,050 shares), Mr. Meyer (13,733 shares), Mr.
Stapleton (49,075 shares), Mr. Meredith (12,700 shares), Mr. Palin (6,920
shares) and all Directors and executive officers as a group (738,246
shares).
(2) Information reflected in this table and the notes thereto with respect to
AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle (as a group,
collectively, the "Mutuelles AXA"), AXA and The Equitable Companies
Incorporated is derived from the Schedule 13G filed with the Commission by
and on behalf of them on April 12, 1999. The Mutuelles AXA beneficially own
a majority interest in AXA, which in turn beneficially owns a majority
interest in The Equitable Companies Incorporated. The shares are owned by
subsidiaries of The Equitable Companies Incorporated as follows: by
Alliance Capital Management L.P. ("Alliance"), on behalf of client
discretionary investment advisory accounts, with respect Alliance has sole
dispositive power with respect to 1,753,475 of those shares, and sole
voting power of 458,975 of those shares and shared voting power with
respect to 1,254,700 of those shares; and The Equitable Life Assurance
Society of the United States hassle voting and dispositive power with
respect to 235,200 of those shares. The Mutuelles AXA and AXA do not admit
beneficial ownership of the subject shares.
(3) Information reflected in this table and the notes thereto with respect to
Lazard Freres & Co. LLC ("Lazard Freres") is derived from the Schedule 13G
filed with the Commission by and on behalf of Lazard Freres on February 16,
1999 to report its beneficial ownership of the Company's Common Stock as of
December 31, 1998. As of that date, Lazard Freres beneficially owned
1,379,530 shares on behalf of client investment advisory accounts, with
respect to which Lazard Freres has sole dispositive power over all of those
shares and sole voting power of 1,157,515 of those shares.
(4) Information reflected in this table and the notes thereto with respect to
Strong Schafer Capital Management, LLC, Schafer Capital Management, Inc.,
David K. Schafer and Schafer Cullen Capital Management, Inc. is derived
from the Schedule 13G filed with the Commission by and on behalf of them on
February 22, 1999. David K. Schafer is the President and sole shareholder
of Schafer Capital Management, Inc., which in turn is the sole managing
member of Strong Schafer Capital Management, LLC. Mr. Schafer is also
Chairman of the Board and a shareholder of Schafer Cullen Capital
Management, Inc. Of the 1,207,500 subject shares, 101,400 are held by
Schafer Cullen Capital Management, Inc. on behalf of its investment
advisory client with respect to which it has sole voting and dispositive
power, 1,106,100 shares are held by Schafer Capital Management, Inc., with
respect to which it has sole voting and dispositive power, 1,030,000 are
held by Strong Schafer Capital Management, LLC. with respect to which it
has sole voting and dispositive power over all its shares and Mr. Schafer
has sole voting and dispositive power with respect to 1,106,100 of the
shares and shared voting and dispositive power with respect to 101,400 of
the shares.
(5) Information reflected in this table and the notes thereto with respect to
Clover Capital Management, Inc. ("Clover"), Michael E. Jones, James G.
Gould, Geoffrey H. Rosenberger, and Charles W. Ruff is derived from the
Schedule 13G filed with the Commission by and on behalf of Clover on
February 2,1999. As investment adviser to the client accounts owning the
subject securities, Clover shares the
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<PAGE>
voting and dispositive power with the account owner of each account. As
directors of Clover, Messrs. Jones, Rosenberger, Ruff and Gould share the
dispositive powers with Clover. In addition, Mr. Rosenberger holds sole
voting and dispositive power with respect to 3,500 shares and shared voting
and dispositive power with respect to 700 shares of the subject securities
beneficially owned by him (other than indirectly through Clover) and Mr.
Ruff holds sole voting and dispositive power with respect to 600 shares and
shared voting and dispositive power with respect to 800 shares of the
subject securities beneficially owned by him (other than indirectly through
Clover).
(6) Includes: 401,323 shares held in a trust for which Dr. Harman has sole
dispositive and sole voting power; 61,497 shares held in two irrevocable
trusts for various family members for which Dr. Harman has sole voting
power but shared dispositive power; 100,000 shares held by the Sidney
Harman Charitable Remainder Trust for which Dr. Harman acts as co-trustee
and for which he has shared dispositive power and shared voting power; and
140,731 shares held by family members for which Dr. Harman has sole voting
power pursuant to revocable proxies for which Dr. Harman disclaims
beneficial ownership. As noted in footnote 1, the number of shares
beneficially owned by Dr. Harman also includes 572,250 shares that may be
acquired pursuant to stock options exercisable within 60 days from August
1, 1999. The 572,250 shares subject to stock options include a long-term
performance incentive option to purchase 315,000 shares granted to Dr.
Harman on November 9, 1993 (as adjusted to reflect the five percent stock
dividend paid by the Company in August 1995). This performance incentive
option is subject to cancellation, and any shares issued as a result of the
exercise of the option are subject to repurchase, if the Company does not
meet certain performance criteria for the fiscal years ending June 30, 1995
through June 30, 2001; 225,225 (28.5%) of the shares relating to this
option are no longer subject to cancellation because the Company exceeded
the performance criteria for each of the 1995, 1996, 1997 and 1998 fiscal
years.
(7) Includes 2,787 shares held by Mr. Girod in the Company's Section 401(k)
Retirement Savings Plan (the "401(k) Plan").
(8) Includes 6,451 shares held by Mr. Stapleton in the 401(k) Plan.
(9) Includes 4,314 shares held by Mr. Meredith in the 401(k) Plan.
(10) Includes 13,707 shares held by all Directors and executive officers as a
group in the 401(k) Plan.
7
<PAGE>
REPORT OF THE COMPENSATION AND OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
implementing the Company's executive compensation program. The Compensation
Committee has been delegated this authority by the Board of Directors, and
thereby makes determinations regarding the compensation of the Company's
executive officers. The Compensation Committee has also been delegated the
authority to administer the Company's stock incentive plans with respect to
awards to executive officers. The Compensation Committee is comprised entirely
of outside, non-employee Directors: Shirley Mount Hufstedler and Stanley A.
Weiss. See "The Board of Directors, Its Committees and Compensation."
The key elements of the Company's executive compensation program consist of
(a) base salaries that are determined based upon concerns of competitive pay and
performance; (b) cash bonus awards that are driven solely by performance; and
(c) ownership of stock options to align the interests of management with those
of stockholders. Each of these elements is discussed in more detail below.
ANNUAL CASH COMPENSATION
SALARY. Decisions with respect to base salaries are typically made at the
beginning of each fiscal year and are based upon two factors -- considerations
of competitive pay and of pay for performance. The Company conducts its business
in a competitive industry and recognizes that it operates in a competitive
global marketplace where the best people are in great demand. Because the
Company seeks to attract and retain the best people -- people with demonstrated
skills and experience -- the Company's competitive pay structure is evaluated
and set against market data developed based upon compensation practices by
industry competitors, companies of comparable size, high growth companies and
successful global marketing companies.
In August 1998, the Compensation Committee set base salaries for the Chief
Executive Officer and the top four executive officers for fiscal year 1999,
based upon competitive pay information accumulated by the Company's Human
Resources Department and upon a review of the Company's results of operations
for the 1998 fiscal year. The competitive pay information was derived in part
from data furnished by outside compensation consulting firms which surveyed the
compensation practices of companies (1) in the electrical and electronics
industry and (2) companies similar in size to the Company. Although this survey
group is different from the group used by the Company for comparing stock
performance (see "Stock Price Performance Graph"), the Compensation Committee
believes that the survey group offers more reliable information for compensation
practices. In setting compensation for individual executive officers, the
Company and the Compensation Committee sought to establish base salaries at the
50th-75th percentile of base salaries for the survey group companies, consistent
with the Company's competitive pay goals. The salary changes for fiscal year
1999 reflected changes in the survey group compensation practices, but also
responded to the achievement of individual performance objectives.
BONUS AWARD PLAN. Cash bonus awards are typically set following the end of
each fiscal year and are based entirely upon performance. Performance is
measured in three ways. First, annual bonus awards focus on current fiscal year
financial and operational performance. Award levels for the executive officers
vary and are based on corporate or group earnings and attainment of financial
objectives. Second, and most importantly, annual bonus awards are based upon the
attainment of personal performance objectives established by the individual
officer and approved by management. Individual performance objectives vary from
officer to officer and include financial objectives for appropriate business
units (such as earnings, asset management and sales growth), other business
objectives (such as timely introduction of new products and the communication of
new technologies and processes among business units) and personal development
objectives (such as attention to personal and professional development, and
effective interaction with other business units). Similarly, these individual
performance objectives are incorporated annually into the Company's business
plan developed by management and approved by the Board of Directors. Finally,
the bonus award program also contemplates rewards for exemplary individual
performance in the form of a discretionary bonus which is recommended by the
Chairman and approved by the Compensation Committee.
8
<PAGE>
Consistent with past practice, bonus awards for the Company's top officers
were set by the Compensation Committee in July 1999 based on fiscal year 1999
performance. The bonuses for the 1999 fiscal year for Mr. Meredith and Mr. Palin
were awarded based upon their achievement of individual performance objectives,
and Mr. Stapleton's bonus award was based upon the consolidation of the consumer
business and the continued strong performance of the Company's automotive
business. The Compensation Committee also awarded a bonus to Dr. Harman for his
position as Chief Executive Officer for a portion of the 1999 fiscal year, for
his significant contribution to the Company's extraordinary performance during
the fiscal year in meeting significant objectives, and for his success in
creating a closely integrated team of four key executives to run the Company.
The Compensation Committee judged that it was appropriate to make the bonus
payment to Dr. Harman under the Company's discretionary bonus program, although
it meant a slight loss in tax deductions.
EQUITY BASED COMPENSATION
The Company's stock option program reinforces the Company's long term
commitment to increasing shareholder value by aligning executive officers'
long-term interests with those of the shareholders. Executive officers and key
employees of the Company are eligible to participate in the Company's stock
option plans. The amount of stock options awarded to executive officers is based
upon a recommendation made by the Chairman and approved by the Compensation
Committee. The Chairman usually bases the amount of awards upon his assessment
of officer performance and the need for the future long-term incentive that is
offered by stock options. The Compensation Committee approved the Chairman's
recommendations for the 1999 fiscal year and authorized the grant of
performance-based options to Messrs. Meredith and Stapleton. Options to purchase
100,000 and 80,000 shares were authorized for Messrs. Stapleton and Meredith,
respectively. These options would vest upon achievement of certain performance
targets defined by reference to the 30-day average closing price of the
Company's Common Stock. One-third of these options would vest when each of the
following three target prices are achieved: $55 per share, $65 per share and $75
per share. In light of Mr. Stapleton's succession as Chief Operating Officer and
the importance to the Company of retaining Mr. Meredith as Chief Financial
Officer, the Compensation Committee believes that such performance-based, equity
incentive compensation for these key officers is in the best interest of the
Company and its shareholders and achieves a greater alignment of key management
with the interests of shareholders. The Company plans to report the cost of
these performance-based options as the difference between the exercise price and
the market price. As a result, the Company will recognize this expense over
estimated vesting dates and in full for options that have vested.
In July 1999, after the close of the fiscal year, the Compensation
Committee granted options to purchase 50,000 shares each of Common Stock to Dr.
Harman, Mr. Stapleton and Mr. Meredith, respectively, at an exercise price of
$44.00 per share, the fair market value of the Common Stock on July 30, 1999.
FISCAL 1999 COMPENSATION FOR CHIEF EXECUTIVE OFFICER
SALARY. In fiscal year 1999, Mr. Girod was paid a salary of $583,333. This
represented an increase of $83,333 over his salary for fiscal year 1998. This
increase was consistent with the competitive pay information developed from the
survey group discussed above and was based in large part on the positive results
of the Company during the 1998 fiscal year in sales, earnings and shareholder
value, which the Compensation Committee attributes in large part to the
leadership provided by Mr. Girod. Additionally, the Compensation Committee
believed it was appropriate to increase Mr. Girod's salary in light of his
succession as Chief Executive Officer.
PERFORMANCE BASED COMPENSATION. In July 1997 the Board of Directors
adopted the 1997 CEO Plan in order to provide "performance-based" bonus
compensation to the Company's Chief Executive Officer. Mr. Girod served as Chief
Executive Officer from November 1998 through the end of the 1999 fiscal year,
and the Compensation Committee determined, in its judgment, to pay his bonus
under the discretionary bonus program because of the Company's extraordinary
performance, including strong sales to OEM customers, inventory reduction, and
record cash flow.
9
<PAGE>
EQUITY BASED COMPENSATION. The Compensation Committee approved the
Chairman's recommendations for the 1999 fiscal year and authorized the grant of
performance-based options to Mr. Girod. Options to purchase 120,000 shares were
authorized for Mr. Girod. These options would vest upon achievement of certain
performance targets defined by reference to the 30-day average closing price of
the Company's Common Stock. One-third of these options would vest when each of
the following three target prices are achieved: $55 per share, $65 per share and
$75 per share. In light of Mr. Girod's succession as Chief Executive Officer,
the Compensation Committee believes that such performance-based, equity
incentive compensation for Mr. Girod is in the best interest of the Company and
its shareholders and achieves a greater alignment of key management with the
interests of shareholders. The Company plans to report the cost of these
performance-based options as the difference between the exercise price and the
market price. As a result, the Company will recognize this expense over
estimated vesting dates and in full for options that have vested.
Although not awarded in the 1999 fiscal year, in July 1999 the Compensation
Committee granted options to purchase 50,000 shares of Common Stock to Mr. Girod
at an exercise price of $44.00 per share, the fair market value of the Common
Stock on July 30, 1999.
STATUS OF REPORT
The foregoing report on 1999 Executive Compensation was provided by the
Compensation Committee and shall not be deemed to be "soliciting material," or
to be "filed" with the Commission or subject to Regulation 14A promulgated by
the Commission or Section 18 of the Securities Exchange Act of 1934, as amended.
Shirley Mount Hufstedler
Stanley A. Weiss
10
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Common Stock, the S&P Composite-500 Stock
Index and a peer company index (based on the Company's Standard Industrial Code)
for the five-year period ending June 30, 1999. This stock price performance
graph assumes that the value of the investment in the Common Stock and each
index was $100 on July 1, 1994. The stock price performance shown on the graph
below is not necessarily indicative of future price performance.
Shareholder Graph
<TABLE>
<CAPTION>
HARMAN INTERNATIONAL INDS S&P 500 INDEX PEER GROUP
------------------------- ------------- ----------
<S> <C> <C> <C>
Jun94 100.00 100.00 100.00
Jun95 162.02 126.07 78.07
Jun96 207.83 158.85 106.64
Jun97 178.55 213.97 136.56
Jun98 163.90 278.51 129.10
Jun99 188.26 341.88 163.02
</TABLE>
11
<PAGE>
PROPOSAL TO APPROVE THE KEY EXECUTIVE OFFICERS INCENTIVE PLAN
(ITEM 2 ON PROXY CARD)
On November 10, 1997, the stockholders of the Company approved the Chief
Executive Officer Incentive Plan (the "CEO Plan"), which provides for
"performance-based" bonuses for the Company's Chief Executive Officer. Other
officers of the Company were not eligible to participate in the CEO Plan. The
CEO Plan became effective as of July 1, 1997, and remained effective until June
30, 1999.
Because Dr. Harman has created a closely integrated team of four key
executives to run the Company, the Compensation Committee in July 1999 adopted a
new Key Executive Officers Incentive Plan (the "1999 Plan") with substantially
the same terms and conditions contained in the original CEO Plan, except that
participation in the 1999 Plan has been expanded to include the Chairman, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and any
other executive officer designated by the Compensation Committee (the "Key
Executives"). Provisions of the 1999 Plan are summarized below. Such summaries
do not purport to be complete and are qualified in their entirety by reference
to the full text of the 1999 Plan, a copy of which is attached hereto as Exhibit
A.
Under the 1999 Plan, an annual cash bonus will be paid to the Key
Executives only if a targeted return on shareholder equity ("Return on
Shareholder Equity Goal") has been met for the year. Such bonuses will be paid
in lieu of discretionary bonuses under the Company's bonus program. The 1999
Plan will be administered by the Compensation Committee.
Under the terms of the 1999 Plan, at the beginning of each fiscal year, the
Compensation Committee must establish (a) the Return on Shareholder Equity Goal
for the year and (b) the maximum cash award (the "Award Amount") payable to the
Company's Key Executives if the goal is met for the year. The terms of the plan
permit the Compensation Committee to determine at the beginning of a fiscal year
whether the targeted return will be applied before or after the application of
extraordinary items. At the end of the year, the Committee must certify whether
the Return on Shareholder Equity Goal has been met for the year. If the goal has
been met, the Compensation Committee retains the discretion to reduce the Award
Amount for the year based upon subjective factors. The Compensation Committee
does not have the discretion to increase the Award Amount which cannot exceed $1
million for any one of the Key Executives.
It is intended that the Award Amount paid to Key Executives under the 1999
Plan will constitute "performance-based" compensation as defined in Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Section
162(m) of the Code generally disallows a tax deduction to public companies for
compensation over $1 million paid to a corporation's top executives, but does
not take into account performance-based compensation in determining whether the
$1 million threshold has been exceeded.
If the stockholders approve the 1999 Plan, it will become effective as of
July 1, 1999, and remain effective until the third anniversary of the date of
such approval, subject to the right of the Board of Directors to terminate the
1999 Plan, on a prospective basis, at any time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE 1999 PLAN.
12
<PAGE>
PROPOSAL TO AMEND AND RESTATE THE 1992 INCENTIVE PLAN
(ITEM 3 ON PROXY CARD)
On November 10, 1992, the stockholders of the Company first adopted the
1992 Plan, which provides for the granting of stock options and other benefits
to officers, key employees and non-officer Directors of the Company and its
subsidiaries.
The Board of Directors believes that the 1992 Plan has assisted the
Corporation and its subsidiaries in attracting and retaining personnel of high
quality and outstanding ability by continuing to provide such persons incentives
and rewards for superior performance. The Board of Directors therefore believes
that it is in the best interests of the Company to continue the Plan and
recommends that the Stockholders approve amendments to the Plan to increase the
maximum aggregate number of shares of Common Stock subject to issuance under the
Plan from 2,200,000 to 3,200,000 shares. No further request is anticipated by
the Board of Directors before November 2002.
Additional amendments to the 1992 Plan are also being proposed, including
(i) increasing the amounts of automatic and performance based option awards to
non-officer directors and (ii) changes to the method by which the 1992 Plan may
be amended.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock present in person or by proxy at the Annual Meeting will be
required to approve the amended and restated 1992 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND AND RESTATE
THE 1992 PLAN.
1992 INCENTIVE PLAN SUMMARY
The provisions of the amended and restated 1992 Plan are summarized below.
These summaries do not purport to be complete and are qualified in their
entirety by reference to the full text of the amended and restated 1992 Plan, a
copy of which is attached to this proxy statement as Exhibit B.
ADMINISTRATION
The 1992 Plan is administered by the Compensation Committee, which has been
delegated the authority by the Board of Directors to grant options and make
other awards from the 1992 Plan to officers and key employees of the Company and
its subsidiaries. The Board of Directors has also delegated authority to the
Executive Committee to grant awards to key employees of the Company and its
subsidiaries between meetings of the Compensation Committee. The Compensation
Committee also makes all determinations necessary or advisable for the
administration of the 1992 Plan, including interpretation of the 1992 Plan and
related agreements and other documents; provided that the full Board of
Directors makes all determinations with respect to grants to non-officer
Directors. The Compensation Committee consists of not less than two non-officer
Directors who are "non-employee directors" within the meaning of Rule 16b-3
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act. The annual costs to the Company for the administration of the 1992 Plan
continue to be minimal.
ELIGIBILITY
Executive officers (currently 8), non-officer directors (currently 4) and
key employees (as designated by the Compensation Committee or Executive
Committee) of the Company and its subsidiaries may be granted options or other
awards under the 1992 Plan. Non-officer Directors of the Company are ineligible
to receive grants or awards under the 1992 Plan, except for the automatic grants
of options to purchase shares of Common Stock described below. Consultants to
the Company and its subsidiaries are not eligible to receive awards under the
1992 Plan.
13
<PAGE>
OPTION RIGHTS
Options may be granted which entitle the optionee to purchase Common Stock
at a price not less than the fair market value at the date of grant. The option
price is payable (i) in cash at the time of exercise, (ii) by the transfer to
the Company of nonforfeitable unrestricted Common Stock owned by the optionee
having a value at the time of exercise equal to the option price, (iii) any
other legal consideration the Committee may deem appropriate, or (iv) a
combination of such payment methods. Any grant may provide for deferred payment
of the option price from the proceeds of sale through a bank or broker of some
or all of the Common Stock to which the exercise relates. Successive grants may
be made to the same optionee whether or not options previously granted remain
unexercised. The Compensation Committee may cancel options and re-grant new
options, as well as determine to limit, waive or modify any limitation or
requirement with respect to any option grant under the 1992 Plan. The
Compensation Committee may not, however, reduce the option price of any
outstanding option right without the approval of the Stockholders. The 1992 Plan
does not require holding an option for a specified period and permits immediate
sequential exchanges of Common Stock at the time of exercise of options.
No option right may be exercisable more than ten years from the date of
grant. Each grant to an employee provides for termination of the option upon the
termination of employment with the Company or any subsidiary and may provide for
the earlier exercise of such option rights in the event of a "change of control"
of the Company or other similar transaction or event.
Option rights may constitute (i) incentive stock options or other options
which may be intended to qualify under particular provisions of the Code, as in
effect from time to time, (ii) non-qualified options which are not intended to
so qualify, or (iii) combinations of the foregoing. The 1992 Plan provides that
no Plan participant may be granted stock options (or stock appreciation rights)
for more than 300,000 shares of Common Stock in any one fiscal year.
STOCK APPRECIATION RIGHTS
Stock appreciation rights which provide optionees an alternative means of
realizing the benefits of option rights may be granted in tandem with options.
The holder of a stock appreciation right may, in lieu of exercising all or any
part of his option rights, receive from the Company an amount equal to one
hundred percent, or such lesser percentage as the Compensation Committee may
determine, of the spread between the option price and the current value of the
optioned shares.
Any grant of stock appreciation rights may specify that the amount payable
upon exercise thereof may be paid by the Company in cash, in shares of Common
Stock, or in any combination thereof, and may either grant to the optionee or
retain in the Compensation Committee the right to elect among those
alternatives. If the stock appreciation right provides that the optionee may
elect to receive payment in either cash or shares of Common Stock, an election
to receive cash in whole or in part will be subject to the approval of the
Committee at the time of such election.
The Compensation Committee may specify that the amount payable upon
exercise of a stock appreciation right may not exceed a maximum specified by the
Board of Directors at the date of grant and may specify waiting periods before
exercise and permissible exercise dates or periods. A stock appreciation right
will not be exercisable except at a time when the related option right is also
exercisable and when the spread is positive. Stock appreciation rights may
include such other terms and provisions, consistent with the 1992 Plan, as the
Compensation Committee may approve. The 1992 Plan also permits the Compensation
Committee to grant stock appreciation rights that are exercisable only upon a
Change in Control.
RESTRICTED STOCK
A grant of restricted stock involves the immediate transfer by the Company
to a participant of ownership of a specific number of shares of Common Stock in
consideration of the performance of services. The participant is entitled
immediately to voting, dividend and other ownership rights in such shares. Such
transfer
14
<PAGE>
may be made without additional consideration or in consideration of a payment by
the participant that is less than current market value of the shares, as the
Compensation Committee may determine.
Each grant of restricted stock will be subject for a period of time to a
"substantial risk of forfeiture" within the meaning of Section 83 of the Code,
as determined by the Compensation Committee. For example, a grant of restricted
stock may provide that such stock will be forfeited if the participant ceases to
serve the Company as an officer or key employee prior to the expiration of a
specified period. The 1992 Plan requires that the period of time for which the
restricted stock will be subject to a "substantial risk of forfeiture" must be a
minimum of three years. In order to enforce these forfeiture provisions, the
transferability of restricted stock will be prohibited or restricted in a manner
and to the extent prescribed by the Compensation Committee for the period during
which the forfeiture provisions are in effect. The Compensation Committee may
provide for the earlier termination of the forfeiture provisions in the event of
a change in control of the Company.
PERFORMANCE UNITS
A performance unit is the equivalent of $100. Upon any award of performance
units, a participant will be given an achievement objective ("Management
Objective") to meet within a specified period determined by the Compensation
Committee on the date of grant ("Performance Period"). A minimum level of
acceptable achievement will also be established ("Minimum"). If by the end of
the Performance Period the participant has achieved the specified Management
Objective, he or she will be deemed to have fully earned the performance unit.
If the participant has not achieved the Management Objective but has attained or
exceeded the Minimum, he or she will be deemed to have partly earned the
performance unit (such part to be determined in accordance with a formula). To
the extent earned, the performance unit will be paid to the participant, at the
time and in the manner determined by the Compensation Committee, either in cash
or Common Stock or a combination thereof. Any award of performance units may
specify that the performance unit may become payable in the event of a Change in
Control of the Company.
Management Objectives may be described either in terms of Company-wide
objectives or objectives that are related to performance of the division,
subsidiary, department or function with the Company or a subsidiary in which the
participant is employed. The Compensation Committee may adjust any Management
Objective and the related Minimum if, in the sole judgment of the Compensation
Committee, events or transactions after the date of grant which are unrelated to
the participant's performance have effected the Management Objective or the
Minimum.
GRANTS TO NON-OFFICER DIRECTORS
The 1992 Plan currently provides that any person who becomes a non-officer
member of the Board of Directors after November 10, 1992, shall be granted an
option to purchase 3,000 shares of Common Stock on the date such person first
becomes a non-officer Director. In addition, immediately following each annual
meeting of stockholders, each incumbent non-officer Director who continues to
serve on the Board of Directors is granted an option to purchase 2,500 shares of
Common Stock.
The 1992 Plan further provides that each non-officer Director is eligible
to receive additional options if the Company achieves a certain Return on
Consolidated Equity in any fiscal year. Under the current Plan if the Company
achieves a Return on Consolidated Equity of at least nine percent but less than
thirteen percent, each non-officer Director receives an option to purchase 750
shares of Common Stock and, if the Company achieves a Return on Consolidated
Equity of thirteen percent or more, each non-officer Director receives an option
to purchase 1,500 shares of Common Stock.
The proposed amendments to the 1992 Plan increase the options granted to
each non-officer director after the annual meeting of the Company's stockholders
from 2,500 shares to 3,000 shares.
The exercise price of each option granted to a non-officer Director under
the 1992 Plan is equal to the fair market value of the Common Stock on the date
of grant. Each such option shall vest at the rate of twenty percent per annum
and expire ten years from the date of grant.
15
<PAGE>
COMMON STOCK AND PERFORMANCE UNITS SUBJECT TO THE PLAN
Subject to certain adjustments as provided in the 1992 Plan, the number of
shares that may be issued or transferred under the current 1992 Plan shall not
exceed in the aggregate 2,200,000 shares of Common Stock. Under the proposed
amendments to the 1992 Plan, the number of shares available for issuance under
the Plan would be increased from 2,200,000 to 3,200,000 shares.
Shares to be issued may be of original issuance or shares held in treasury
or a combination of the two. For the purpose of determining the shares available
under the 1992 Plan, Restricted Stock is considered to be issued or transferred
only at the earlier of the time when it ceases to be subject to a substantial
risk of forfeiture or the time when dividends are paid to the holder of the
award. The 1992 Plan limits the aggregate amount that may be paid by the Company
in satisfaction of a performance unit.
PLAN BENEFITS
The table sets forth the stock options that were granted to each of the
following persons or groups under the 1992 Plan in fiscal 1999.
PLAN BENEFITS PREVIOUSLY GRANTED
<TABLE>
<CAPTION>
NUMBER OF
STOCK OPTIONS(1)
----------------
DOLLAR FISCAL
NAME AND POSITION VALUE 1999
----------------- ------ -------
<S> <C> <C>
Sidney Harman
Chairman.................................................. (2) --
Bernard A. Girod
Chief Executive Officer................................... (2) 120,000
Gregory P. Stapleton
Chief Operating Officer................................... (2) 100,000
Frank Meredith
Vice President-Finance and Administration, Chief Financial
Officer and Secretary..................................... (2) 80,000
William Palin
Vice President -- Controller.............................. (2) 5,000
Executive Officer Group..................................... (2) 344,000
Non-Officer Director Group.................................. (2) 13,000
Non-Executive Officer Employee Group........................ (2) 233,250
</TABLE>
- ------------
(1) No awards other than stock options were granted in fiscal 1999.
(2) Stock options are granted under the 1992 Plan at exercise prices equal to or
exceeding the fair market value of the Common Stock on the date of grant.
The actual value, if any, a person may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised.
On September 10, 1999, the last reported closing price of the Common Stock
on the New York Stock Exchange was $43.00.
The number of stock options to be granted in the future under the 1992 Plan
is not determinable for the above persons or groups, except non-officer
directors. As discussed above, pursuant to the 1992 Plan, as amended, each
non-officer director will receive (i) options to purchase 3,000 shares of Common
Stock in each year he or she continues to serve as a non-officer Director and
(ii) additional options if the Company achieves a certain Return on Consolidated
Equity in any fiscal year.
16
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences to individuals receiving grants or awards under the 1992 Plan. The
following summary is based upon federal income tax laws in effect on August 1,
1999 and is not intended to be complete or to describe any state or local tax
consequences.
NON-QUALIFIED STOCK OPTIONS. In general, (i) no income will be recognized
by an optionee at the time a non-qualified stock option is granted; (ii) at
exercise, ordinary income will be recognized by the optionee in an amount equal
to the difference between the option price paid for the shares and the fair
market value of the shares, if unrestricted, on the date of exercise; and (iii)
at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
INCENTIVE STOCK OPTIONS. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to the optionee pursuant to the exercise of an incentive
stock option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as short-term or long-term capital gain (or loss),
depending on the holding period.
STOCK APPRECIATION RIGHTS. No income will be recognized by an optionee in
connection with the grant of a stock appreciation right. When the appreciation
right is exercised, the optionee normally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of cash
received and the fair market value of any unrestricted shares of Common Stock
received on the exercise.
RESTRICTED STOCK. The recipient of shares of restricted stock generally
will be subject to tax at ordinary income rates on the fair market value of the
restricted stock (reduced by any amount paid by the participant for such
restricted stock) at such time as the shares are no longer subject to forfeiture
or restrictions on transfer for purposes of Section 83 of the Code
("Restrictions"). However, a recipient who so elects under Section 83(b) of the
Code within thirty days of the date of transfer of the shares will have taxable
ordinary income on the date of transfer of the shares equal to the excess of the
fair market value of such shares (determined without regard to the Restrictions)
over the purchase price, if any, of such restricted stock. If a Section 83(b)
election has not been made, any dividends received with respect to restricted
stock subject to Restrictions generally will be treated as compensation that is
taxable as ordinary income to the participant.
PERFORMANCE UNITS. No income generally will be recognized upon the grant
of performance units. Upon payment in respect of the earn-out of performance
units, the recipient generally will be required to include as taxable ordinary
income in the year of receipt an amount equal to the amount of cash received and
the fair market value of any unrestricted shares of Common Stock received.
TAX CONSEQUENCES TO THE COMPANY. To the extent that a participant
recognizes ordinary income in the circumstances described above, the
participant's employer should be entitled to a corresponding deduction,
provided, among other things, such income meets the test of reasonableness, is
an ordinary and necessary business expense, is not an "excess parachute payment"
within the meaning of Section 280G of the Code and is not disallowed by the $1
million limitation on certain executive compensation.
17
<PAGE>
ACCOUNTING TREATMENT
Stock appreciation rights and performance units will require a charge
against income of the Company each year representing appreciation in the value
of such benefits which it is anticipated will be exercised or paid. In the case
of stock appreciation rights, such charge is based on the excess of the current
market price of the Common Stock over the option price specified in the released
option rights; in the case of performance units, such charge is based on the
dollar amount expected to be paid at the end of the Performance Period.
Restricted stock will require a charge against income equal to the fair market
value of the awarded shares at the time of award less the amount, if any, paid
by the participants. Such charge generally is spread over the period during
which the related services are performed.
AMENDMENT
The 1992 Plan currently may be amended from time to time by the Board of
Directors, but without further approval by the stockholders no such amendment
shall (i) increase the maximum number of shares of Common Stock that may be
issued or delivered thereunder or increase the number of performance units that
may be paid, (ii) reduce the option price of any outstanding option right or
reduce the base price of any outstanding appreciation right, or (iii) revise the
amount, price and timing of automatic grants to non-officer Directors. In no
event shall the provisions of the Plan relating to the amount, price or timing
of automatic grants to non-officer Directors be amended more than once every six
months, except to comport with changes in the Internal Revenue Code or the
regulations thereunder. The Compensation Committee is not permitted to
accelerate the time at which any substantial risk of forfeiture or prohibition
or restriction on transfer relating to a grant of Restricted Stock will lapse.
The proposed amendments to the 1992 Plan will allow it to be amended by the
Compensation Committee, provided that, if shareholder approval is required to
comply with applicable law or the rules of the New York Stock Exchange or, if
the Common Stock ceases to be traded on the New York Stock Exchange, the
principal national securities exchange on which the stock is traded or quoted,
such amendment will not be effective until it is approved by the shareholders of
the Company.
MISCELLANEOUS
TRANSFERS. The Compensation Committee is provided the discretion to permit
the transfer of options or stock appreciation rights to take advantage of recent
changes in federal income tax laws permitting the transferability of options to
family members (or trusts established for the benefit of family members), which
provide the potential for estate and gift tax savings.
ADJUSTMENTS. The maximum number of shares of Common Stock that may be
issued and delivered under the 1992 Plan, the number of shares covered by
outstanding options and stock appreciation rights, and the prices per share
applicable thereto, are subject to adjustment in the event of stock dividends,
stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants and similar events.
18
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table discloses compensation received by the Company's Chief
Executive Officer and the four other most highly paid executive officers for the
three fiscal years ended June 30, 1999:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- --------------------------
OPTIONS
FISCAL GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION(1)
--------------------------- ------ -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Sidney Harman 1999 $850,000 $425,000 -- $12,000
Chairman of the Board 1998 850,000 375,000(2) -- 11,500
1997 800,000 375,000(2) 52,500 11,250
Bernard A. Girod 1999 583,333 425,000 120,000 12,000
Chief Executive Officer 1998 500,000 275,000 40,000 11,500
1997 450,000 275,000 30,000 11,250
Gregory P. Stapleton 1999 498,077 425,000 100,000 12,800
Chief Operating Officer 1998 400,000 350,000 40,000 12,300
1997 350,000 250,000 30,000 11,177
Frank Meredith 1999 341,667 250,000 80,000 12,000
Vice President -- Finance and 1998 300,000 150,000 10,000 11,500
Administration, Chief 1997 239,583 100,000 7,500 8,700
Financial Officer and Secretary
William Palin(3) 1999 246,960 63,092 5,000 24,037
Vice President -- Controller 1998 230,538 58,370 5,000 23,074
1997 210,002 49,935 4,000 10,500
</TABLE>
- ------------
(1) The amounts in All Other Long Term Compensation for Dr. Harman, Messrs.
Girod, Stapleton and Meredith represent Company contributions into the
Company's Retirement Savings Plan. For Mr. Palin, the amounts shown
represent Company contributions to his Personal Pension Scheme, a defined
contribution plan established under the laws of the United Kingdom.
(2) Paid pursuant to the Company's Chief Executive Officer Incentive Plan.
(3) Mr. Palin's salary compensation and contributions to his Personal Pension
Scheme (see footnote 1) have been converted from British Pounds to U.S.
Dollars using average $/L exchange rates for the periods covering the 1999,
1998 and 1997 fiscal years of 1.6464, 1.6467 and 1.6154, respectively. His
bonus compensation has been converted from British Pounds to U.S. Dollars
using the $/L exchange rate on the dates of the bonus grants. The rates used
for fiscal 1999, 1998 and 1997 bonuses were the fiscal year end $/L exchange
rates of 1.5773, 1.6677 and 1.6645, respectively.
19
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1992 Plan to the named executive officers during the
year ended June 30, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE PRESENT
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE VALUE(2)
---- --------- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Sidney Harman.............. -- -- -- -- --
Bernard A. Girod(1)........ 120,000 21% $39.75 8/11/08 $2,618,400
Gregory P. Stapleton(1).... 100,000 17% 39.75 8/11/08 2,182,000
Frank Meredith(1).......... 80,000 14% 39.75 8/11/08 1,745,600
William Palin(3)........... 5,000 1% 44.00 11/10/08 86,199
</TABLE>
- ---------------
(1) These options would vest upon achievement of certain performance targets
defined by reference to the 30-day average closing price of the Company's
Common Stock. One-third of these options would vest when each of the
following three target prices are achieved: $55 per share, $65 per share and
$75 per share.
(2) Based on the Black-Scholes option price model, which requires assumptions to
be made about the future movement of the stock price. The Company used the
following assumptions to estimate the Grant Date Present Value: an estimated
dividend yield of $0.20 per share, an estimated risk-free interest rate of
5.75%, an estimated volatility of 34%, and an option term of 2.3 years,
which is the estimated period from time of vesting until exercise of the
options. There is no assurance that the actual value realized by an
executive officer will equal the amount estimated based upon the
Black-Scholes option pricing model.
(3) Represents stock options granted on November 10, 1998 under the 1992 Plan.
The exercise price of the option is equal to the fair market value of the
Common Stock on the date of grant. The options vest at the rate of 20%
annually, commencing one year from the date of grant.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
For each of the named executive officers, the following table shows
information about stock options exercised during fiscal 1999 and the value of
unexercised options as of June 30, 1999.
<TABLE>
<CAPTION>
NUMBER NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OF SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sidney Harman.................. -- -- 572,250 -- $8,952,612 --
Bernard A. Girod............... 3,150 $48,197 29,600 175,250 126,800 $651,375
Gregory P. Stapleton........... -- -- 35,075 153,675 230,452 551,263
Frank Meredith................. 750 15,600 9,200 93,550 46,925 372,825
William Palin.................. 1,575 49,872 5,120 12,030 27,543 17,495
</TABLE>
DEFERRED COMPENSATION PLAN
The Company maintains a Deferred Compensation Plan (the "Plan") to provide
supplemental retirement income benefits for a select group of management and
highly compensated employees who contribute materially to the continued growth,
development, and future business success of the Company and its subsidiaries
through deferrals of a portion of their salary and bonus on a pre-tax basis. The
Plan was amended and restated as of June 1, 1997 to expand the select group of
people eligible for participation in the Plan, to enhance certain features of
the Plan to make it more flexible and to allow the Company to make discretionary
20
<PAGE>
contributions to selected accounts within the Plan. Pursuant to the provisions
of the Plan, executives designated by the Plan's administrative committee, the
members of which are appointed by the Board of Directors, are eligible to
participate in the Plan. Participants may elect to defer up to 100% of their
base salary and bonus. The minimum annual deferral is $3,000 of base salary and
$2,500 of bonus. Amounts deferred are credited to a Deferral Account, and
participants specify that portions of their account be deemed invested in
selected benchmark funds. The Company credits earnings to Deferral Accounts by
reference to the rate of return on such funds. Amounts credited to Deferral
Accounts are always 100% vested, subject to a 10% penalty imposed on an
unscheduled "in service" withdrawal. After termination of employment,
participants receive the balance of their Deferral Accounts in the form of a
lump sum or annual installments of up to 15 years, as elected by the
participants. The Plan provides for discretionary Company contributions, but no
such contributions are currently contemplated. Such contributions would be
subject to a separate vesting schedule.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company maintains a Supplemental Executive Retirement Plan (the
"Supplemental Plan") that provides supplemental benefits to certain key
executive officers designated by the Board of Directors. Currently, Dr. Harman,
Messrs. Girod, Stapleton, Meredith and other officers of the Company and certain
subsidiaries have been designated as eligible under the Supplemental Plan. The
Supplemental Plan provides for retirement benefits based on the average cash
compensation (including bonuses) paid to such executive during the five years
prior to retirement at age sixty-five. Executive officers that participate in
the Supplemental Plan and retire at age sixty-five receive a benefit equal to
two percent of such average cash compensation for each year of service up to a
maximum benefit of thirty percent of such average cash compensation after
fifteen years of service. Benefits are generally in the form of a life annuity
which are payable monthly for a period of at least ten years, although the
Supplemental Plan permits the Board of Directors to allow payment of the
retirement benefit at a retirement date later than age sixty-five and in a form
other than a life annuity payable monthly. Benefits under the Supplemental Plan
are funded pursuant to specifically allocable insurance contracts, except in the
case of Dr. Harman for whom such benefits are a direct obligation of the
Company.
The following table sets forth the annual retirement benefits that would be
received under the Supplemental Plan at various compensation levels after the
specified years of service:
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 3 6 9 12 15
- ------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 $18,000 $ 36,000 $ 54,000 $ 72,000 $ 90,000
400,000 24,000 48,000 72,000 96,000 120,000
500,000 30,000 60,000 90,000 120,000 150,000
600,000 36,000 72,000 108,000 144,000 180,000
700,000 42,000 84,000 126,000 168,000 210,000
800,000 48,000 96,000 144,000 192,000 240,000
900,000 54,000 108,000 162,000 216,000 270,000
1,000,000 60,000 120,000 180,000 240,000 300,000
1,100,000 66,000 132,000 198,000 264,000 330,000
1,200,000 72,000 144,000 216,000 288,000 360,000
1,300,000 78,000 156,000 234,000 312,000 390,000
1,400,000 84,000 168,000 252,000 336,000 420,000
1,500,000 90,000 180,000 270,000 360,000 450,000
</TABLE>
Dr. Harman is the only executive officer who has reached age sixty-five and
has fully vested retirement benefits under the Supplemental Plan.
21
<PAGE>
The Supplemental Plan also entitles each participating officer to an
additional annual benefit, payable on the participating officer's normal
retirement date (age sixty-five), equal to thirty percent of the average cash
compensation paid to such officer during the preceding five-year period if such
officer terminates employment within three years of a Change in Control (as
defined in the Supplemental Plan). Further, in the event of a Change in Control,
a participating officer will become one hundred percent vested in Supplemental
Plan retirement benefits if, within three years after such Change in Control,
the Supplemental Plan is terminated, such officer's designation as a
participating officer is revoked or any participating officer's accrued or
projected benefits are eliminated or substantially reduced. The Supplemental
Plan also indemnifies participants for legal fees and expenses incurred to
enforce the Supplemental Plan following a Change in Control.
The Supplemental Plan provides for a pre-retirement death benefit for
participating executive officers. The amount of this benefit is equal to twice
the highest annual cash compensation, excluding bonuses, paid to the
participating executive officer during his employment with the Company. Dr.
Harman is not entitled to pre-retirement death benefits under the Supplemental
Plan.
Finally, the Supplemental Plan provides for termination benefits for each
participating officer who retires or terminates employment (whether voluntarily
or involuntarily) prior to age sixty-five with at least fifteen years of
service. After fifteen years of service, a participating officer is entitled to
termination benefits equal to fifteen percent of the average cash compensation
(including bonuses) paid to such officer during the five years prior to the
termination of such officer's employment. That percentage increases three
percent for each additional year of service, with a maximum benefit equal to
thirty percent of such compensation after twenty years of service.
The following table sets forth the annual termination benefits that would
be received under the Supplemental Plan at various compensation levels after the
specified years of service:
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 15 16 17 18 19 20
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 45,000 $ 54,000 $ 63,000 $ 72,000 $ 81,000 $ 90,000
400,000 60,000 72,000 84,000 96,000 108,000 120,000
500,000 75,000 90,000 105,000 120,000 135,000 150,000
600,000 90,000 108,000 126,000 144,000 162,000 180,000
700,000 105,000 126,000 147,000 168,000 89,000 210,000
800,000 120,000 144,000 168,000 192,000 216,000 240,000
900,000 135,000 162,000 189,000 216,000 243,000 270,000
1,000,000 150,000 180,000 210,000 240,000 270,000 300,000
1,100,000 165,000 198,000 231,000 264,000 297,000 330,000
1,200,000 180,000 216,000 252,000 288,000 324,000 360,000
1,300,000 195,000 234,000 273,000 312,000 351,000 390,000
1,400,000 210,000 252,000 294,000 336,000 378,000 420,000
1,500,000 225,000 270,000 315,000 360,000 405,000 450,000
</TABLE>
Dr. Harman is the only named executive officer with fifteen years of
service and fully vested termination benefits under the Supplemental Plan.
Messrs. Girod, Stapleton and Meredith have twelve years, eleven years and
fourteen years, respectively, of service with the Company. On July 24, 1996, the
Compensation Committee modified the above Supplemental Plan termination benefits
for Messrs. Girod and Stapleton as follows. Each were granted vested termination
benefits equal to ten percent of their respective average cash compensation
(including bonuses) for the five years prior to a termination of their
employment. That percentage increases two percent per year from July 24, 1996
until the maximum benefit of thirty percent of such compensation is reached. All
benefits payable under the Supplemental Plan are subject to deductions for
Social Security and Federal, state and local taxes.
22
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Bernard Girod serves as the Chief Executive Officer of the Company
pursuant to an employment agreement effective as of November 25, 1996. Pursuant
to the terms of the employment agreement, Mr. Girod is entitled to receive a
minimum guaranteed salary of $450,000 per year and to have rights under the
Company's stock option plans, normal benefit plans and the Supplemental Plan
described above, all of which continue to exist, accrue and vest through
December 31, 1999, except in the case of termination of Mr. Girod's employment
by the Company for cause.
Mr. William Palin serves as Vice President-Controller of the Company
pursuant to an employment agreement effective as of September 1, 1999. Pursuant
to the terms of the employment agreement, Mr. Palin is entitled to receive an
annual base salary of L165,000 and to have rights under the Company's stock
option plans and UK health and life insurance plans. Mr. Palin's employment is
subject to a notice period of twelve months and such notice may not be given
prior to June 30, 2001.
CERTAIN FAMILY RELATIONSHIPS
Thomas Jacoby was an executive officer of the Company during the 1999
fiscal year and is the son-in-law of Dr. Sidney Harman, Chairman of the
Company's Board of Directors. Mr. Jacoby is no longer employed by the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers and persons who beneficially own
more than ten percent of the Company's Common Stock, to file initial reports of
ownership and reports of changes in ownership with the Commission. Directors,
executive officers, and greater than ten percent beneficial owners are required
by the Commission to furnish the Company with copies of all Section 16(a) forms
filed by such persons.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's Directors and executive
officers, the Company believes that all Section 16(a) filing requirements
applicable to its Directors and executive officers were complied with during the
1999 fiscal year.
INDEPENDENT AUDITOR
KPMG LLP served as the independent auditor of the Company for the fiscal
year ended June 30, 1999 and has been selected by the Board of Directors to
serve as the Company's independent auditor for the year ending June 30, 2000.
Representatives of the firm of KPMG LLP are expected to be present at the
Meeting with the opportunity to make a statement, if they desire to do so, and
to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholders who wish to submit a proposal for consideration at the 2000
Annual Meeting should submit the proposal in writing to the Company at 1101
Pennsylvania Avenue, N.W., Suite 1010, Washington, D.C. 20004. Proposals must be
received by the Company no later than May 18, 2000 for inclusion in next year's
proxy materials.
OTHER MATTERS
The Company will bear the cost of preparing and mailing the Proxy
Statement, form of proxy and other material that may be sent to stockholders in
connection with this solicitation. In addition to solicitations by mail,
officers and other employees of the Company may solicit proxies personally or by
telephone or facsimile.
23
<PAGE>
The Board of Directors does not intend to present and knows of no others
who intend to present at the Meeting any matter of business other than those
matters set forth in the accompanying Notice of Annual Meeting of Stockholders.
However, if other matters properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy card to vote the proxy in accordance
with their best judgment.
By Order of the Board of Directors
/s/ Bernard A. Girod
Bernard A. Girod
Chief Executive Officer
Washington, D.C.
September 15, 1999
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999,
AS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE TO EACH STOCKHOLDER UPON WRITTEN REQUEST TO SANDRA B.
ROBINSON, VICE PRESIDENT, HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED, 1101
PENNSYLVANIA AVENUE, N.W., SUITE 1010, WASHINGTON, D.C. 20004.
24
<PAGE>
EXHIBIT A
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
KEY EXECUTIVE OFFICERS INCENTIVE PLAN
1. PURPOSE. The purpose of the Key Executive Officers Incentive Plan (the
"Plan") is to attract and retain key executives for Harman International
Industries, Incorporated, a Delaware corporation (the "Company"), and its
Subsidiaries and to provide such persons with incentives for superior
performance. Award Amounts payable under the Plan are intended to constitute
qualified "performance-based compensation" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and Section 1.162-27 of the Treasury
Regulations promulgated thereunder, and the Plan shall be construed consistently
with such intention.
2. DEFINITIONS. As used in this Plan,
"AWARD AMOUNT" means, for each Eligible Executive, the maximum cash award
payable pursuant to Section 5 below.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the combined voting power of
the then outstanding Voting Stock of the Company; provided, however,
that for purposes of this definition, the following acquisitions shall
not constitute a Change in Control: (A) any issuance of Voting Stock of
the Company directly from the Company that is approved by the Incumbent
Board (as defined below), (B) any acquisition by the Company or a
Subsidiary of Voting Sock of the Company, (C) any acquisition of Voting
Stock of the Company by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, or (D) any
acquisition of Voting Stock of the Company by any Person pursuant to a
Business Combination (as defined below) that complies with clauses (A),
(B) and (C) of subsection (iii) below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director after the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least two-thirds of the directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be deemed to have been a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest (within the meaning of
Rule 14a-11 of the Exchange Act) with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) consummation of a reorganization, merger or consolidation, a sale or
other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"),
unless, in each case, immediately following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners of Voting Stock of the
Company immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of the combined voting
power of the then outstanding shares of Voting Stock of the entity
resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries), (B) no Person (other
than the Company, such
<PAGE>
entity resulting from such Business Combination, or any employee
benefit plan (or related trust) sponsored or maintained by the
Company, any Subsidiary or such entity resulting from such Business
Combination) beneficially owns, directly or indirectly, 25% or more
of the combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination, and (C)
at least a majority of the members of the Board of Directors of the
entity resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement
or of the action of the Board providing for such Business
Combination; or
(iv) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company, except pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of subsection
(iii) above.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means the Compensation Committee of the Board or any other
committee appointed by the Board to administer the Plan; provided,
however, that in any event the Committee shall be comprised of not less
than two directors of the Company, each of whom shall qualify as an
"outside director" for purposes of Section 162(m) of the Code and Section
1.162-27(e)(3) of the Regulations.
"ELIGIBLE EXECUTIVE" means the Company's Chairman of the Board, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and
any other executive officer of the Company that the Committee designates
as an Eligible Executive under the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"REGULATIONS" mean the Treasury Regulations promulgated under the Code,
as amended from time to time.
"RETURN ON SHAREHOLDER EQUITY GOAL" means the targeted return on
shareholder equity goal for the year determined by the Committee pursuant
to Section 5 below.
"SUBSIDIARY" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a
direct or indirect ownership or other equity interest.
"VOTING STOCK" means securities entitled to vote generally in the
election of directors.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, which shall have full power and authority to construe, interpret and
administer the Plan.
4. ELIGIBILITY. Eligibility under this Plan is limited to Eligible
Executives.
5. AWARDS.
(a) At the beginning of each fiscal year (and no later than September 28),
the Committee shall meet in order to establish (a) the Return on Shareholder
Equity Goal for the year and (b) the Award Amount payable to each Eligible
Executive if the goal is met for the year. "Return on shareholder equity" shall
mean net income for the fiscal year determined in accordance with generally
accepted accounting principles as reported in the Company's annual report
divided by the average shareholder equity for such year. "Average shareholder
equity" shall mean the sum of the shareholder equity at the beginning of the
year and the shareholder equity at the end of the year, with such sum divided by
two. At the beginning of each fiscal year, the Committee shall express whether
the Return on Shareholder Equity Goal for such year shall be applied before or
after the application of "extraordinary items" (as determined in accordance with
generally accepted accounting principles).
(b) At the end of each fiscal year, the Committee shall meet to determine
and certify whether the Return on Shareholder Equity Goal has been met for the
year. In the event that the goal has been met, the Committee shall establish the
Award Amount for each Eligible Executive for the year, exercising discretion
only to reduce the amount of the maximum cash award if in its judgment such a
reduction is appropriate.
A-2
<PAGE>
(c) Notwithstanding any other provision of the Plan to the contrary, in no
event shall the Award Amount paid to an Eligible Executive under the Plan for a
year exceed $1,000,000.
6. COMMITTEE CERTIFICATION. As soon as reasonably practicable after the
end of each fiscal year of the Company, the Committee shall determine whether
the Return on Shareholder Equity Goal has been achieved and the amount of the
Award Amount to be paid to each Eligible Executive for such fiscal year and
shall certify such determinations in writing.
7. PAYMENT OF AWARD AMOUNTS. Subject to a valid election made by an
Eligible Executive with respect to the deferral of all or a portion of his or
her Award Amount, Award Amounts shall be paid within 30 days after written
certification pursuant to Section 6.
8. CHANGE IN CONTROL. In the event of a Change in Control, each Eligible
Executive shall be entitled to the Award Amount for the year (without proration
or any other reduction), provided that the Eligible Executive is employed by the
Company on the date of the Change in Control. Such payment shall be made no
later than 30 days after the effective date of the Change in Control and shall
be payment in full of all obligations of the Company under the Plan for such
year.
9. NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither the establishment of
the Plan, the provision for or payment of any amounts hereunder nor any action
of the Company, the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any person (a) any legal right to receive, or
any interest in, an Award Amount or any other benefit under the Plan or (b) any
legal right to continue to serve as an officer or employee of the Company or any
Subsidiary of the Company.
10. WITHHOLDING. The Company shall have the right to withhold, or require
an Eligible Executive to remit to the Company, an amount sufficient to satisfy
any applicable federal, state, local or foreign withholding tax requirements
imposed with respect to the payment of any Award Amount.
11. NONTRANSFERABILITY. Except as expressly provided by the Committee, the
rights and benefits under the Plan shall not be transferable or assignable other
than by will or the laws of descent and distribution.
12. EFFECTIVE DATE. Subject to its approval by the shareholders, this Plan
shall become effective July 1, 1999, and shall remain effective until the third
anniversary of the date of such approval, subject to any further shareholder
approvals (or reapprovals) mandated for performance-based compensation under
Section 162(m) of the Code, and subject to the right of the Board to terminate
the Plan, on a prospective basis only, at any time.
A-3
<PAGE>
EXHIBIT B
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
1992 INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to attract and retain officers,
key employees and Non-Officer Directors for Harman International Industries,
Incorporated, a Delaware corporation (the "Company"), and its Subsidiaries and
to provide to such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Paragraph 5 of this
Plan.
"Board" means the Board of Directors of the Company.
"Committee" means the committee of the Board referred to in Paragraph 16 of
this Plan.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company or any security into which such Common Stock may be changed by reason of
any transaction or event of the type described in Paragraph 10 of this Plan.
"Date of Grant" means the date specified by the Committee on which a grant
of Option Rights, Appreciation Rights or Performance Units or a grant or sale of
Restricted Stock shall become effective (which date shall not be earlier than
the date on which the Committee takes action with respect thereto), including
the date on which an automatic grant of Option Rights to a Non-Officer Director
becomes effective pursuant to Paragraph 8 of this Plan.
"Effective Date" means November 10, 1992.
"Eligible Participant" means a person who is selected by the Committee to
receive benefits under this Plan and (a) who is at the time an officer or key
employee of the Company or any of its Subsidiaries, or (b) who has agreed to
commence serving in any of such capacities within 90 days of the Date of Grant.
"Less-Than-80-Percent Subsidiary" means a Subsidiary with respect to which
the Company, directly or indirectly, owns or controls less than eighty percent
of the total combined voting or other decision-making power.
"Management Objectives" means the achievement objectives established
pursuant to Paragraph 7 of this Plan for Eligible Participants who have received
grants of Performance Units.
"Market Value Per Share" means the fair market value of the Common Stock as
determined by the Committee from time to time.
"Non-Officer Director" means a member of the Board who is not an officer or
employee of the Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Right" means the right to purchase a share of Common Stock upon
exercise of an option granted pursuant to Paragraph 4 of this Plan.
"Performance Period" means, in respect of a Performance Unit, a period of
time established pursuant to Paragraph 7 of this Plan within which the
Management Objectives relating to such Performance Unit are to be achieved.
"Performance Unit" means a unit equivalent to U.S. $100.00 awarded pursuant
to Paragraph 7 of this Plan.
<PAGE>
"Restricted Stock" means shares of Common Stock granted or sold pursuant to
Paragraph 6 of this Plan as to which neither the substantial risk of forfeiture
nor the prohibition on transfers referred to therein has expired.
"Return on Consolidated Equity" means a fraction (expressed as a
percentage), the numerator of which is the net income of the Company as set
forth in the Company's audited consolidated financial statements and the
denominator of which is the Company's average shareholders' equity for the
fiscal year, as determined by adding the average shareholders' equity for each
quarter of the fiscal year, divided by four.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended
(or any successor rule to the same effect), as in effect from time to time.
"Spread" means the excess of the Market Value Per Share of Common Stock on
the date when an Appreciation Right is exercised over the option price provided
for in the related Option Right.
"Subsidiary" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, for purposes of
determining whether any person may be an Eligible Participant for purposes of
any grant of Incentive Stock Options, "Subsidiary" means any corporation in
which the Company owns or controls, directly or indirectly, more than fifty
percent of the total combined voting power represented by all classes of stock
issued by such corporation.
3. SHARES AND UNITS AVAILABLE UNDER PLAN. The shares of Common Stock which
may be (a) sold or transferred upon the exercise of Option Rights or
Appreciation Rights, (b) awarded or sold as Restricted Stock and released from
substantial risks of forfeiture thereof or (c) transferred in payment of
Performance Units which have been earned, shall not exceed in the aggregate
3,200,000 shares, subject to adjustment as provided in Paragraph 10 of this
Plan. Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing. Upon exercise of any Appreciation Rights, there
shall be deemed to have been transferred under this Plan the number of shares of
Common Stock covered by the related Option Rights, regardless of whether such
Appreciation Rights were paid in cash or in shares of Common Stock. No more than
3,200,000 Performance Units will be paid in cash under this Plan.
4. OPTION RIGHTS. The Committee may, from time to time and upon such terms
and conditions as it may determine, grant to Eligible Participants options to
purchase shares of Common Stock. Without limiting the foregoing, each such grant
may utilize any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
(a) Each grant shall specify the number of shares of Common Stock to which
it pertains.
(b) Each grant shall specify an option price per share not less than the
Market Value Per Share on the Date of Grant.
(c) Each grant shall specify the form of consideration to be paid in
satisfaction of the option price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Company, (ii) shares of nonforfeitable,
unrestricted Common Stock, which are already owned by the Optionee and have a
value at the time of exercise that is equal to the option price, (iii) any other
legal consideration that the Committee may deem appropriate, including without
limitation any form of consideration authorized under Paragraph 4(d) below, on
such basis as the Committee may determine in accordance with this Plan and (iv)
any combination of the foregoing.
(d) On or after the Date of Grant of any Option Rights, the Committee may
determine that payment of the option price may also be made in whole or in part
in the form of Restricted Stock or other Common Shares that are subject to risk
of forfeiture or restrictions on transfer. Unless otherwise determined by the
Committee on or after the Date of Grant, whenever any option price is paid in
whole or in part by means of any of the forms of consideration specified in this
Paragraph 4(d), the Common Stock received by the Optionee upon the exercise of
the Option Rights shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the consideration surrendered
by the Optionee; provided, however, that
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<PAGE>
such risks of forfeiture and restrictions on transfer shall apply only to the
same number of shares of Common Stock received by the Optionee as applied to the
forfeitable or restricted Common Stock surrendered by the Optionee.
(e) Any grant may provide for deferred payment of the option price from the
proceeds of sale through a bank or broker of some or all of the Common Stock to
which the exercise relates.
(f) Successive grants may be made to the same Eligible Participant whether
or not any Option Rights previously granted to such Eligible Participant remain
unexercised.
(g) Each grant shall specify the period or periods of continuous service by
the Optionee with the Company or any Subsidiary which is necessary (as
consideration to the Company) before the Option Rights or installments thereof
will become exercisable.
(h) Option Rights granted under this Plan may be (i) options which are
intended to qualify under particular provisions of the Internal Revenue Code of
1986, as amended from time to time ("Code"), (ii) options which are not intended
to so qualify, or (iii) combinations of the foregoing.
(i) No Option Right shall be exercisable more than ten years from the Date
of Grant.
(j) Each grant of Option Rights shall be evidenced by an agreement executed
on behalf of the Company by any officer and delivered to the Optionee and
containing such terms and provisions, consistent with this Plan, as the
Committee may approve, including providing for the acceleration of any vesting
period for such Option Rights in the event of a change in control of the Company
or other similar transaction or event.
(k) No Eligible Participant shall be granted Option Rights (or Appreciation
Rights in respect of Option Rights) for more than 300,000 shares of Common Stock
in any one fiscal year of the Company, subject to adjustments provided in
Section 10 of this Plan.
5. APPRECIATION RIGHTS. The Committee may, from time to time and upon such
terms and conditions as it may determine, also grant to any Optionee
Appreciation Rights in respect of Option Rights granted hereunder. An
Appreciation Right shall be a right of the Optionee, exercisable by surrender of
the related Option Right, to receive from the Company an amount which shall be
determined by the Committee, and shall be expressed as a percentage of the
Spread (not exceeding one hundred percent) at the time of exercise. Without
limiting the foregoing, each such grant may utilize any or all of the
authorizations, and shall be subject to all of the limitations, contained in the
following provisions:
(a) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in shares of Common
Stock, or in any combination thereof, and may either grant to the Optionee or
retain in the Committee the right to elect among those alternatives; provided,
however, that if the right to elect among those alternatives is granted to the
Optionee, the Committee shall have sole discretion to consent to or disapprove
the Optionee's election to receive cash in full or partial settlement of an
Appreciation Right, which consent or disapproval may be given at any time after
the election to which it relates.
(b) Any grant may specify that the amount payable on exercise of an
Appreciation Right (valuing shares of Common Stock for this purpose at their
Market Value Per Share at the date of exercise) may not exceed a maximum
specified by the Committee at the Date of Grant.
(c) Any grant may specify waiting periods before exercise and permissible
exercise dates or periods, and shall provide that no Appreciation Right may be
exercised except at a time when the related Option Right is also exercisable and
at a time when the Spread is positive.
(d) Any grant may specify that an Appreciation Right may be exercised only
in the event of a change in control of the Company or other similar transaction
or event.
(e) Each grant may specify that the Committee may at any time amend,
suspend or terminate any notification or document evidencing Appreciation Rights
(provided that, in the case of an amendment, the amended Appreciation Rights
shall conform to the provisions of this Plan).
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(f) Each grant of Appreciation Rights shall be evidenced by a notification
executed on behalf of the Company by any officer and delivered to and accepted
by the Optionee, which notification shall describe such Appreciation Rights,
identify the related Option Rights, state that such Appreciation Rights are
subject to all the terms and conditions of this Plan, and contain such other
terms and conditions, consistent with this Plan, as the Committee may approve.
6. RESTRICTED STOCK. The Committee may, from time to time and upon such
terms and conditions as it may determine, also grant or sell to Eligible
Participants Restricted Stock. Without limiting the foregoing, each such grant
or sale may utilize any or all of the authorizations, and shall be subject to
all of the limitations, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of the
ownership of shares of Common Stock to the Eligible Participant in consideration
of the performance of services, entitling such Eligible Participant to voting,
dividend and other ownership rights, but subject to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Eligible Participant that is less than
Market Value Per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the shares of Restricted
Stock covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code and the regulations of
the Internal Revenue Service thereunder, for a period of time of not less than
three years, to be determined by the Committee on the Date of Grant, and any
grant or sale may provide for the earlier termination of such period in the
event of a change in control of the Company or other similar transaction or
event.
(d) Each such grant or sale shall provide that during the period for which
such substantial risk of forfeiture is to continue, the transferability of the
Restricted Stock shall be prohibited or restricted in a manner and to the extent
prescribed by the Committee at the Date of Grant (which restrictions may
include, without limiting the generality of the foregoing, rights of repurchase
or first refusal in the Company or provisions subjecting the Restricted Stock to
a continuing substantial risk of forfeiture in the hands of any transferee).
(e) Each grant or sale of Restricted Stock shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to and
accepted by the Eligible Participant and shall contain such terms and
conditions, consistent with this Plan, as the Committee may approve.
7. PERFORMANCE UNITS. The Committee may, from time to time and upon such
terms and conditions as it may determine, also grant Performance Units which
will become payable to an Eligible Participant upon achievement of specified
Management Objectives. Without limiting the foregoing, each such grant may
utilize any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
(a) Each grant shall specify the number of Performance Units to which it
pertains.
(b) The Performance Period with respect to each Performance Unit shall be
such period of time commencing with the Date of Grant as shall be determined by
the Committee at the time of grant.
(c) Each grant shall specify the Management Objectives that are to be
achieved by the Eligible Participant, which may be described in terms of
Company-wide objectives or objectives that are related to performance of the
division or Subsidiary in which such Eligible Participant is employed.
(d) Each grant shall specify a minimum acceptable level of achievement in
respect of the specified Management Objectives below which no payment will be
made and shall set forth a formula for determining the amount of payment to be
made if performance is at or above such minimum, but short of full achievement
of the Management Objectives.
(e) Each grant shall specify the time and manner of payment (whether in
cash, shares of Common Stock or a combination thereof) of Performance Units
which have been earned.
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<PAGE>
(f) The Committee may adjust Management Objectives and the related minimum
acceptable level of achievement if, in the sole judgment of the Committee,
events or transactions have occurred after the Date of Grant which are unrelated
to the performance of the Eligible Participant and result in distortion of the
Management Objectives or the related minimum.
(g) Any grant may specify that a Performance Unit may become payable in the
event of a change in control of the Company or other similar transaction or
event.
(h) Each grant of Performance Units shall be evidenced by a notification
executed on behalf of the Company by any officer and delivered to and accepted
by the Eligible Participant, which notification shall describe the Performance
Units, state that such Performance Units are subject to all the terms and
conditions of this Plan, and contain such other terms and conditions, consistent
with this Plan, as the Committee may approve.
8. AUTOMATIC GRANTS OF NONQUALIFIED STOCK OPTIONS TO NON-OFFICER
DIRECTORS. Non-Officer Directors may only receive grants or awards under this
Plan pursuant to the terms of this Section. If the Plan is approved by the
requisite vote of the stockholders of the Company, Option Rights shall be
automatically granted to Non-Officer Directors as follows:
(a) On the original Effective Date of this Plan (November 10, 1992), an
Option Right to purchase 5,000 shares of Common Stock shall be granted to each
person who immediately after the annual meeting on that date was an incumbent
Non-Officer Director for each of the five years preceding the Effective Date,
and an Option Right to purchase 3,000 shares of Common Stock shall be granted to
any other person who immediately after the annual meeting on that date was an
incumbent Non-Officer Director for less than five years.
(b) With respect to each person who first becomes a Non-Officer Director
after the Effective Date of this Plan, an Option Right to purchase 3,000 shares
of Common Stock shall be granted on the date such person first becomes a
Non-Officer Director.
(c) Immediately after each annual meeting, beginning with the annual
meeting in 1999, an Option Right to purchase 3,000 shares of Common Stock shall
be granted to each Non-Officer Director for so long as he or she continues to be
a Non-Officer Director.
(d) In addition, Option Rights shall be automatically granted to each
Non-Officer Director at each annual meeting of the Company based on the
Company's Return on Consolidated Equity as follows: either (i) for a Return on
Consolidated Equity of at least nine percent but less than thirteen percent,
each Non-Officer Director shall receive an Option Right to purchase 750 shares
of Common Stock; or (ii) for a Return on Consolidated Equity of thirteen percent
or more, each Non-Officer Director shall receive an Option Right to purchase
1,500 shares of Common Stock.
(e) Each such grant shall be evidenced by an agreement in such form as
shall be approved by the Committee, and shall be subject to the following
additional terms and conditions:
(i) The option price per share for which each such Option Right is
exercisable shall be 100 percent of the Market Value Per Share on the Date of
Grant.
(ii) Each such Option Right shall become exercisable to the extent of
one-fifth of the number of shares covered thereby one year after the Date of
Grant and to the extent of an additional one-fifth of such shares after each of
the next four successive years thereafter. Such Option Rights shall become
exercisable in full immediately in the event of a change in control of the
Company. Each such Option Right granted under the Plan shall expire ten years
from the Date of Grant and shall be subject to earlier termination as
hereinafter provided.
(iii) In the event of the termination of service on the Board by the
holder of any such Option Rights, other than by reason of disability or death as
set forth in subparagraph (iv) hereof, the then outstanding Option Rights of
such holder may be exercised only to the extent that they were exercisable on
B-5
<PAGE>
the date of such termination and shall expire 90 days after such termination, or
on their stated expiration date, whichever occurs first.
(iv) In the event of the death or disability of the holder of any such
Option Rights, each of the then outstanding Option Rights of such holder may be
exercised at any time within one year after such death or disability, but in no
event after the expiration date of the term of such Option Rights.
(v) If a Non-Officer Director subsequently becomes an officer or
employee of the Company or a Subsidiary while remaining a member of the Board,
any Option Rights then held under the Plan by such individual shall not be
affected thereby.
(vi) Option Rights may be exercised by a Non-Officer Director only upon
payment to the Company in full of the option price of the Common Stock to be
delivered. Such payment shall be made in cash or in Common Stock previously
owned by the optionee for more than six months, or in a combination of cash and
such Common Stock.
9. TRANSFERABILITY. Except as otherwise determined by the Committee, no
Option Right or Appreciation Right shall be transferable by an Optionee other
than by will or the laws of descent and distribution.
10. ADJUSTMENTS. The Committee may make or provide for such adjustments in
the numbers of shares of Common Stock covered by outstanding Option Rights and
Appreciation Rights granted hereunder, in the prices per share applicable to
such Option Rights and Appreciation Rights and in the kind of shares covered
thereby, as the Committee in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of the rights
of Optionees that otherwise would result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, or (b) any merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities, or (c) any other corporate transaction or event having
an effect similar to any of the foregoing. In the event of any such transaction
or event, the Committee may provide in substitution for any or all outstanding
grants or awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any grant or award under this Plan that the holder of the grant or award may
elect to receive an equivalent grant or award in respect of securities of the
surviving entity of any merger, consolidation or other transaction or event
having a similar effect, or the Committee may provide that the holder will
automatically be entitled to receive such an equivalent grant or award. The
Committee may also make or provide for such adjustments in the number of shares
specified in Paragraph 3 of this Plan and in the number of shares under options
granted automatically pursuant to Section 8 of this Plan as the Committee in its
sole discretion, exercised in good faith, may determine is appropriate to
reflect any transaction or event described in the preceding sentence.
11. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement of fractions in
cash.
12. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by an Eligible Participant or other person under this
Plan, and the amounts available to the Company for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Eligible Participant or such other person
make arrangements satisfactory to the Company for payment of the balance of such
taxes required to be withheld. At the discretion of the Committee, such
arrangements may include relinquishment of a portion of such benefit.
13. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80-PERCENT SUBSIDIARY. As a
condition to the effectiveness of any grant or award to be made hereunder to an
Eligible Participant who is an employee of a Less-Than-80-Percent Subsidiary,
regardless whether such Eligible Participant is also employed by the Company or
another Subsidiary, the Committee may require the Less-Than-80-Percent
Subsidiary to agree to transfer to the Eligible Participant (as, if and when
provided for under this Plan and any applicable agreement entered
B-6
<PAGE>
into between the Eligible Participant and the Less-Than-80-Percent Subsidiary
pursuant to this Plan) the Common Stock that would otherwise be delivered by the
Company upon receipt by the Less-Than-80-Percent Subsidiary of any consideration
then otherwise payable by the Eligible Participant to the Company. Any such
award may be evidenced by an agreement between the Eligible Participant and the
Less-Than-80-Percent Subsidiary, in lieu of the Company, on terms consistent
with this Plan and approved by the Committee and the Less-Than-80-Percent
Subsidiary. All Common Stock so delivered by or to a Less-Than-80-Percent
Subsidiary will be treated as if they had been delivered by or to the Company
for purposes of Section 3 of this Plan, and all references to the Company in
this Plan shall be deemed to refer to the Less-Than-80-Percent Subsidiary except
with respect to the definitions of the Board and the Committee and in other
cases where the context otherwise requires.
14. CERTAIN TERMINATIONS OF EMPLOYMENT. Notwithstanding any other
provision of this Plan to the contrary, in the event of termination of
employment by reason of death or disability, or in the event of hardship or
other special circumstances, of an Eligible Participant who holds an Option
Right that is not immediately and fully exercisable, any Restricted Stock as to
which the substantial risk of forfeiture or the prohibition or restriction on
transfer has not lapsed, or any Performance Units that have not been fully
earned, the Committee may in its sole discretion take any action that it deems
to be equitable under the circumstances or in the best interests of the Company,
including without limitation waiving or modifying any limitation or requirement
with respect to any award under this Plan.
15. INTERNATIONAL EMPLOYEES. In order to facilitate the making of any
grant or combination of grants under this Plan, the Committee may provide for
such special terms for awards to Eligible Participants who are foreign
nationals, or who are employed by the Company or any Subsidiary outside of the
United States of America, as the Committee may consider necessary or appropriate
to accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements or
alternative versions of, this Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of this Plan as in effect
for any other purpose; provided, however, that no such supplements, amendments,
restatements or alternative versions shall include any provisions that are
inconsistent with the terms of this Plan, as then in effect, unless this Plan
could have been amended to eliminate such inconsistency without further approval
by the shareholders of the Company.
16. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by one or more committees of the Board,
as determined by the Board, each of which shall consist of not less than two
directors appointed by the Board who are "non-employee directors" under Rule
16b-3, except that, in the case of grants or awards to key employees, the
committee need not consist of "non-employee directors" under Rule 16b-3. Each
such committee shall be deemed the "Committee" hereunder with the limits of its
authority as prescribed by the Board. A majority of the Committee shall
constitute a quorum, and the action of the members of the Committee present at
any meeting at which a quorum is present, or acts unanimously approved in
writing, shall be the acts of the Committee.
(b) The interpretation and construction by the Committee of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Stock or Performance Units and
any determination by the Board pursuant to any provision of this Plan or of any
such agreement, notification or document shall be final and conclusive. No
member of the Committee or the Board shall be liable for any such action or
determination made in good faith.
17. AMENDMENTS, ETC.
(a) This Plan may be amended from time to time by the Committee; provided,
however, that any amendment that must be approved by the shareholders of the
Company in order to comply with applicable law or the rules of the New York
Stock Exchange or, if the Common Stock is not traded on the New York Stock
Exchange, the principal national securities exchange upon which the shares of
Common Stock are traded or quoted, shall not be effective unless and until such
approval has been obtained. Presentation of this Plan or any amendment hereof
for shareholder approval shall not be construed to limit the Company's authority
to offer
B-7
<PAGE>
similar or dissimilar benefits under other plans or otherwise with or without
shareholder approval. Without limiting the generality of the foregoing, the
Committee may amend this Plan to eliminate provisions which are no longer
necessary as a result of changes in tax or securities laws or regulations, or in
the interpretation thereof.
(b) The Committee may, with the concurrence of the affected Optionee,
cancel or amend any agreement evidencing Option Rights granted under this Plan.
The Committee shall not, without the further approval of the stockholders of the
Company, authorize the amendment of any outstanding Option Right to reduce the
option price or authorize the amendment of any outstanding Appreciation Right to
reduce the base price. Furthermore, no Option Right or Appreciation Right shall
be cancelled by agreement between the Company and Eligible Participant and
replaced with an award having a lower option price or base price without the
further approval of the stockholders of the Company.
(c) The Committee may, in its sole discretion, accelerate the time at which
any Option Right or Appreciation Right may be exercised or the time at which any
Performance Units will be deemed to have been fully earned. The Committee may
not, however, accelerate the time at which any substantial risk of forfeiture or
prohibition or restriction on transfer relating to any grant or sale of
Restricted Stock will lapse, without further approval of the stockholders of the
Company, except that such grant or sale may provide for the earlier termination
of such period in the event of a change in control of the Company or other
similar transaction or event.
(d) In the event an Optionee shall intentionally commit an act materially
inimical to the interests of the Company or any Subsidiary and the Committee in
its sole discretion, exercised in good faith, shall so find, notwithstanding any
other provision in this Plan the Committee may terminate as of the time of such
act any Option Rights or other benefits under this Plan granted such Optionee.
(e) This Plan shall not confer upon any Eligible Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Eligible Participant's
employment or other service at any time.
18. TERMINATION DATE. No Option Rights shall be granted under this Plan
subsequent to November 9, 2002. Option Rights outstanding subsequent to November
9, 2002 shall continue to be governed by the provisions of this Plan.
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<PAGE>
Please mark your [X]
votes in this
manner
The Board of Directors recommends a vote FOR the election of the
Directors set forth below and FOR the proposals in item 2 and item 3.
1. Election of Dr. Sidney Harman and Shirley Mount Hufstedler
as Directors.
FOR both Withhold vote for
nominees both nominees
[ ] [ ]
(Instruction: To withhold authority to vote for any individual
nominee strike a line through the nominee's name.)
2. Proposal to adopt the Key Executive Officer Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to amend the 1992 Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
"PLEASE MARK INSIDE BOXES SO THAT DATA PROCESSING
EQUIPMENT WILL RECORD YOUR VOTES"
Please date and sign exactly as the name appears herein and return the
proxy in the enclosed envelope. Persons signing as executors, administrators,
trustees, etc. should so indicate. If shares are held jointly, each joint
owner should sign. In the case of a corporation or partnership, the full name
of the organization should be used and the signature should be that of a duly
authorized officer or partner.
Dated: , 1999
--------------------------
- ----------------------------------------
Signature
- ----------------------------------------
Signature (if held jointly)
USING BLUE OR BLACK INK, PLEASE MARK, SIGN AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
- ----------------------------------------------------------------------
FOLD AND DETACH HERE
Harman International Industries, Incorporated
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE>
Harman International Industries, Incorporated
Annual Meeting of Stockholders - November 9, 1999
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Frank Meredith and Sandra B. Robinson and
each of them as Proxies and authorizes them to represent and vote all the
shares of Common Stock of Harman International Industries, Incorporated
that the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on November 9, 1999 and at any adjournment thereof,
as designated for the items set forth on the reverse side hereof and in the
Notice of Annual Meeting of Stockholders and the Proxy Statement dated
September 15, 1999.
If properly executed, this proxy will be voted as specified on the reverse
side hereof or, if not specified, will be voted FOR all nominees for Director
in Item 1 and FOR the proposals in Items 2 and 3. In their discretion, the
Proxies are authorized to vote upon such other business as may properly come
before the meeting or any adjournment thereof. At this time, management knows
of no such other business.
(Continued and to be signed on the reverse side)
- ----------------------------------------------------------------------
FOLD AND DETACH HERE
