SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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 sec.240.14a-11(c) or sec.240.14a-12
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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(5) Total fee paid:
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[ ] 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.
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[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL
INDUSTRIES, INCORPORATED
1101 Pennsylvania Avenue, N.W.,
Suite 1010
Washington, D.C. 20004
September 27, 2002
Dear Harman International Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Harman International, to be held on Friday, November 8, 2002 beginning at 11:00
a.m. at the JPMorganChase Building, 270 Park Avenue, New York, New York.
Information about the meeting, the nominees for director and other actions to be
taken at the meeting is presented in the following Notice of Annual Meeting of
Stockholders and Proxy Statement.
In addition to presenting formal items of business at the meeting,
management will report on the Company's operations during fiscal year 2002 and
comment on our outlook for the current fiscal year. The report will be followed
by a question and answer period.
It is important that your shares be represented at the meeting. To ensure
representation of your shares, please sign, date and return the enclosed proxy
card promptly.
We look forward to seeing you on November 8th.
Sincerely,
/s/ Sidney Harman
Sidney Harman
Executive Chairman
[HARMAN INTERNATIONAL LOGO]
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 8, 2002
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The 2002 Annual Meeting of Stockholders of Harman International Industries,
Incorporated (the "Company") will be held at the JPMorganChase Building, 270
Park Avenue, New York, New York, on November 8, 2002 beginning at 11:00 a.m. The
meeting will be held for the following purposes:
(1) to elect two directors, each to serve until the 2005 Annual Meeting
of Stockholders;
(2) to consider and take action upon a proposal to approve the Company's
2002 Key Executive Officers Bonus Plan;
(3) to consider and take action upon a proposal to approve the Company's
2002 Stock Option and Incentive Plan; and
(4) to transact other business that properly comes before the meeting.
Stockholders of record as of the close of business on September 9, 2002 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 describe your needs on the enclosed
proxy card. Also enclosed is the Company's Annual Report for fiscal year 2002.
By Order of the Board of Directors,
/s/ Frank Meredith
Frank Meredith
Secretary
Washington, D.C.
September 27, 2002
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE VOTE BY SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE USING THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
1101 PENNSYLVANIA AVENUE, N.W.
SUITE 1010
WASHINGTON, D.C. 20004
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PROXY STATEMENT
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This Proxy Statement provides information in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Harman
International Industries, Incorporated (the "Company") for use at the 2002
Annual Meeting of Stockholders or any postponement or adjournment thereof (the
"Meeting"). This Proxy Statement also provides information you will need in
order to consider and to act 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 27, 2002.
Holders of record of the Company's common stock ("Common Stock") as of the
close of business on September 9, 2002 are entitled to vote at the Meeting. Each
stockholder of record as of that date is entitled to one vote for each share of
Common Stock held. On September 9, 2002, there were 32,460,230 shares of Common
Stock outstanding.
You cannot vote your shares of Common Stock unless you are present at the
Meeting or you have previously given your proxy. You may revoke your proxy at
any time prior to the vote at the Meeting by (a) delivering a written notice
revoking your proxy to the Company's Vice President -- Financial Operations at
the above address, (b) delivering a new proxy bearing a date after the date of
the proxy being revoked, or (c) voting in person at the Meeting.
All properly executed proxies, unless revoked or superceded in accordance
with the preceding instructions, will be voted at the Meeting in accordance with
your directions on the proxy. With respect to the election of directors,
stockholders voting by proxy may vote for both nominees, withhold their vote for
both nominees, or withhold their vote as to a specific nominee. With respect to
each other proposal, stockholders voting by proxy may vote for, against, or
abstain. If a properly executed proxy gives no specific instructions for the
matters to be acted upon at the Meeting, the shares of Common Stock represented
by the proxy will be voted as follows:
- FOR election of two nominees for director to serve until the 2005 Annual
Meeting;
- FOR approval of the 2002 Key Executive Officers Bonus Plan; and
- FOR approval of the 2002 Stock Option and Incentive Plan.
A majority of the outstanding shares of Common Stock must be present, in
person or by proxy, to constitute a quorum at the Meeting. Abstentions and
broker non-votes will be included in determining the number of shares of Common
Stock present or represented at the Meeting for purposes of determining whether
a quorum exists. Abstentions with respect to any proposal brought to a vote at
the Meeting will have the same effect as a vote against such proposal. Broker
non-votes are treated as shares of Common Stock not present for the purposes of
the vote with respect to a specific proposal and therefore will have no effect
on the outcome of the vote on any proposal.
The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement, the Notice of Annual Meeting and the enclosed proxy card. The
Company has hired Mellon Investor Services to solicit proxies for the Meeting.
The Company anticipates that the fees of Mellon Investor Services will be
approximately $10,500. The Company will pay all fees and expenses of Mellon
Investor Services and will reimburse Mellon Investor Services for its out-of-
pocket expenses. Additionally, employees of the Company may solicit proxies
personally and by telephone. The Company's employees will receive no
compensation for soliciting proxies other than their regular salaries. The
Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and to
request authority for the execution of proxies. The Company may reimburse such
persons for their expense in so doing.
2
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
At the Meeting, two directors will be elected to serve a three-year term
expiring at the 2005 Annual Meeting. This section contains information relating
to the two nominees for director and the directors whose terms of office extend
beyond the Meeting. The nominees for election are Sidney Harman and Shirley
Mount Hufstedler. The Board expects that both nominees will be available for
election at the time of the Meeting. If, for any reason, a nominee should become
unavailable for election, the shares of Common Stock voted FOR that nominee by
proxy will be voted for a substitute nominee designated by the Board, unless the
Board reduces the number of directors.
The nominees for director will be elected by the affirmative vote of a
plurality of the shares of Common Stock actually voted in person or by proxy at
the Meeting.
THE BOARD RECOMMENDS A VOTE FOR ELECTION OF BOTH NOMINEES.
NOMINEES TO BE ELECTED AT THE MEETING
SIDNEY HARMAN, age 84, has been Executive Chairman of the Board since July
2000 and has served as Chairman of the Board and as 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 1977 through 1978.
SHIRLEY MOUNT HUFSTEDLER, age 77, has been a director of the Company since
September 1986. Ms. Hufstedler has been in private law practice for the past 20
years. Since 1995, she has been with the law firm of Morrison & Foerster LLP.
From 1981 to 1995, Ms. Hufstedler 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 serves as Director Emeritus of Hewlett-Packard Company.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
BERNARD A. GIROD, age 60 has been Vice Chairman of the Board since July
2000, 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 from 1996 to 1997. His current term as a director expires at
the 2004 Annual Meeting.
ANN MCLAUGHLIN KOROLOGOS, age 60, has been a director of the Company since
1995. She served as Secretary of Labor of the United States from 1987 until
1989. Ms. Korologos is a director of AMR Corporation (and its subsidiary,
American Airlines), Fannie Mae, Host Marriott Corporation, Kellogg Company,
Microsoft Corporation, and Vulcan Materials Company. She is a Senior Advisor to
Benedetto, Gartland & Company, Inc., Chairman Emeritus of the Aspen Institute,
and a member of the Board of Overseers of the Wharton School of the University
of Pennsylvania. Her current term as a director expires at the 2004 Annual
Meeting.
EDWARD H. MEYER, age 75, has been a director of the Company since 1990. Mr.
Meyer has been the Chairman, Chief Executive Officer and President of Grey
Global Group, Inc., New
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York, New York since 1970. Mr. Meyer also serves as a director of Ethan Allen
Interiors, Inc. His current term as a director expires at the 2003 Annual
Meeting.
GREGORY P. STAPLETON, age 56, has been President of the Company since July
2000, Chief Operating Officer of the Company since 1998 and a director of the
Company since 1997. Mr. Stapleton also served as President of the Company's OEM
Group from 1987 to 1998. His current term as a director expires at the 2003
Annual Meeting.
STANLEY A. WEISS, age 75, has been a director of the Company since 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 the
founder and Chairman of Business Executives for National Security Inc. His
current term as a director expires at the 2003 Annual Meeting.
4
APPROVAL OF THE
2002 KEY EXECUTIVE OFFICERS BONUS PLAN
(ITEM 2 ON THE PROXY CARD)
The Board believes that the Company's ability to attract and retain key
executives is significantly strengthened by its ability to offer an incentive
bonus plan. In November 1999, the stockholders approved the Company's Key
Executive Officers Incentive Plan ("1999 Executive Plan"), which expires on
November 9, 2002. In September 2002 the Board approved the Company's 2002 Key
Executive Officers Bonus Plan ("2002 Executive Plan") to replace the 1999
Executive Plan. The Board adopted the 2002 Executive Plan upon the
recommendation of the Compensation and Option Committee ("Compensation
Committee"), subject to stockholder approval.
You are being asked to approve the 2002 Executive Plan, but you should read
and understand the terms of the 2002 Executive Plan before you vote. A summary
of the 2002 Executive Plan appears below and the full text of the 2002 Executive
Plan is attached to this Proxy Statement as Exhibit A. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present in
person or by proxy at the Meeting will be required to approve the 2002 Executive
Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2002 EXECUTIVE PLAN.
2002 EXECUTIVE PLAN SUMMARY
This summary of the 2002 Executive Plan does not purport to be exhaustive
and is expressly qualified in its entirety by reference to the full text of the
2002 Executive Plan, which is attached to this Proxy Statement as Exhibit A.
ADMINISTRATION. The 2002 Executive Plan will be administered by a
committee with full authority to interpret and oversee the operation of the 2002
Executive Plan. The plan committee will be the Compensation Committee or any
other committee appointed by the Board. The plan committee will in any event be
comprised of not fewer than two of the Company's directors, each of whom
qualifies as an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code and the applicable Treasury regulations.
ELIGIBILITY. Each of the Company's Executive Chairman, Chief Executive
Officer, Chief Operating Officer, and Chief Financial Officer will be eligible
to receive an award under the 2002 Executive Plan. In addition, the plan
committee may designate any other executive officer of the Company to be
eligible to receive awards under the 2002 Executive Plan. Currently, there are
four individuals who could be designated as eligible to receive awards under the
2002 Executive Plan.
GOALS AND AWARDS. No later than September 28 of each fiscal year, the plan
committee will meet to establish a return on shareholder equity goal for the
fiscal year and the maximum cash award payable to each plan participant if that
goal is met. Cash awards paid under the 2002 Executive Plan to a plan
participant shall not exceed $2,000,000 during any fiscal year.
After the end of each fiscal year, the plan committee will meet to
determine whether the return on shareholder equity goal for the fiscal year was
met. If the goal was met, the plan committee will establish the amount of the
cash award to be paid to each plan participant, exercising discretion only to
decrease the award amount.
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CHANGE IN CONTROL. In the event of a change in control of the Company,
each plan participant shall be entitled to the award amount for that fiscal year
without proration or any other reduction, provided that he or she is employed by
the Company at the time of the change in control or, if the plan participant is
no longer employed by the Company, the plan participant's employment is
terminated after commencement of discussions that resulted in a change of
control of the Company but within 180 days prior to the change in control.
TERM. If the stockholders approve the 2002 Executive Plan, it will become
effective as of July 1, 2002 and shall remain effective until five years after
the date approved by the stockholders.
TAX DEDUCTIBILITY OF AWARDS. The Company intends for awards made under the
2002 Executive Plan to constitute "performance-based" compensation as defined in
Section 162(m) of the Internal Revenue Code. Section 162(m) generally disallows
a tax deduction to public companies for compensation over $1,000,000 paid to a
corporation's top executives, but does not include performance-based
compensation in determining whether the $1,000,000 threshold has been exceeded.
2002 EXECUTIVE PLAN BENEFITS
Under the 2002 Executive Plan, the plan committee will establish a return
on shareholder equity goal at the beginning of each fiscal year and the maximum
amount of a cash award that is payable to each plan participant if the goal is
met. At the end of each fiscal year, the plan committee will determine whether
the goal was met and, if so, the amount of the cash award to be paid to each
plan participant. Therefore, the dollar value of awards under the 2002 Executive
Plan that will be received by or allocated to any person or group, or in the
aggregate, is not determinable.
6
APPROVAL OF THE 2002 STOCK OPTION AND INCENTIVE PLAN
(ITEM 3 ON THE PROXY CARD)
The Board believes that equity-based compensation programs are an important
element of the Company's continued financial and operational success. The
Company's 1992 Incentive Plan will expire on November 9, 2002 and no awards will
be issued under that plan after the Meeting. In September 2002 the Board
approved the Company's 2002 Stock Option and Incentive Plan ("2002 Incentive
Plan") to replace the 1992 Incentive Plan. The Board approved the 2002 Incentive
Plan upon the recommendation of the Compensation Committee, subject to
stockholder approval. As a result, if the Company's stockholders approve the
2002 Incentive Plan, it will become the Company's only equity-based compensation
plan.
You are being asked to approve the 2002 Incentive Plan, but you should read
and understand the terms of the 2002 Incentive Plan before you vote. A summary
of the 2002 Incentive Plan appears below and the full text of the 2002 Incentive
Plan is attached to this Proxy Statement as Exhibit B. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present in
person or by proxy at the Meeting will be required to approve the 2002 Incentive
Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2002 INCENTIVE PLAN.
2002 INCENTIVE PLAN SUMMARY
This summary of the 2002 Incentive Plan does not purport to be exhaustive
and is expressly qualified in its entirety by reference to the full text of the
2002 Incentive Plan, which is attached to this Proxy Statement as Exhibit B.
ADMINISTRATION. The 2002 Incentive Plan will be administered by one or
more committees of the Board, as determined by the Board, and shall have the
authority delegated to it by the Board from time to time.
AVAILABLE SHARES; LIMITATIONS ON AWARDS. Subject to adjustments described
below, no more than 3,000,000 shares of Common Stock may be issued in the
aggregate under the 2002 Incentive Plan. If awards are granted under the 2002
Incentive Plan and subsequently expire or are forfeited to the Company, the
shares of Common Stock underlying those awards will not be available for
reissuance. No more than 3,000,000 shares of Common Stock may be issued upon the
exercise of incentive stock options granted under the 2002 Incentive Plan. No
plan participant may be awarded more than 300,000 options and appreciation
rights, in the aggregate, under the 2002 Incentive Plan during any calendar
year. No more than 300,000 shares of Common Stock may be issued as non-option
awards denominated in shares of Common Stock under the plan, and no participant
may receive non-option awards of more than 25,000 shares during any calendar
year. No plan participant may receive performance units in any calendar year
having an aggregate maximum value as of their grant dates in excess of
$2,000,000.
ELIGIBILITY. The plan committee may designate any officer, director or key
employee of the Company, or any of its subsidiaries, or any other person who has
agreed to serve in such capacity within 90 days of the date of a grant, to
receive awards under the 2002 Incentive Plan; provided that non-officer
directors are only eligible to receive awards of options as described below.
Currently, the Company has eight executive officers and four non-officer
directors who could be designated as eligible to participate in the 2002
Incentive Plan. A total of approximately 250 persons could be designated as
eligible to participate in the 2002 Incentive Plan.
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OPTION RIGHTS. Plan participants may receive options to purchase shares of
Common Stock for an exercise price fixed on the date of the grant. The exercise
price may not be less than the fair market value of the Common Stock on the date
of the grant. Grants of option rights under the 2002 Incentive Plan may be
incentive stock options or non-qualified stock options. An incentive stock
option is an option that is intended to qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code. A plan participant may pay the
exercise price of an option in cash, by check, or by the transfer of shares of
unrestricted Common Stock owned for a period of time acceptable to the plan
committee and having a value at the time of exercise equal to the exercise
price, by any other consideration the plan committee may deem appropriate, or by
a combination thereof. The plan committee shall determine the vesting schedule
and requirements for continuous service associated with each grant of options
and may provide for earlier vesting under specified circumstances. The vesting
or exercise of option rights may be subject to the optionee or the Company
achieving management objectives. No options shall be exercisable more than 10
years after the date of grant.
AWARDS OF OPTION RIGHTS TO NON-OFFICER DIRECTORS. Under the 2002 Incentive
Plan, each person who becomes a non-officer director will, on the date such
person first becomes a non-officer director, receive a grant of options to
purchase 3,000 shares of Common Stock. After the 2003 Annual Meeting of the
Stockholders, and annually thereafter, each person serving as a non-officer
director will receive a grant of options to purchase an additional 3,000 shares
of Common Stock. At that time, each person serving as a non-officer director who
was a non-officer director during the preceding fiscal year will also receive
options to purchase either 750 or 1,500 shares of Common Stock, if the Company
achieved targeted levels of return on consolidated equity for the most recently
ended fiscal year. The options included in each grant will (a) have an exercise
price equal to the market value of the Common Stock on the date of the grant,
(b) become exercisable at a rate of 20% on each anniversary of the date of the
grant, until fully vested, (c) become fully exercisable upon a change in control
of the Company, and (d) expire no later than the tenth anniversary of the date
of the grant. If the term of service of the non-officer director ends, other
than by reason of death or disability, he or she may exercise outstanding
options only with respect to the options that were exercisable on the date of
termination and the options will expire 90 days after termination or on the
stated expiration date, whichever occurs first. In the event of death or
disability, the outstanding options held by a non-officer director may be
exercised at any time within one year after his or her death or disability, but
in no event after the stated expiration date. Finally, non-officer directors may
pay the exercise price for an option right in the same manner as any other
holder of option rights granted under the 2002 Incentive Plan.
APPRECIATION RIGHTS. Plan participants may also receive stock appreciation
rights, which may be "free-standing" or "tandem." A free-standing stock
appreciation right allows the plan participant to receive the increase, if any,
in the fair market value of the number of shares of Common Stock underlying the
award during the life of the award. A tandem stock appreciation right is granted
in connection with an option to purchase Common Stock and allows the participant
to receive the spread, if any, between the fair market value of the Common Stock
and the exercise price of the underlying option. The plan committee may specify
that any amount payable upon the exercise of a stock appreciation right may be
paid by the Company to the plan participant in cash, Common Stock or any
combination thereof. In addition, awards of stock appreciation rights may be
subject to other restrictions, including:
8
- a maximum amount payable;
- a waiting period prior to exercise;
- the payment of dividend equivalents on a current, deferred or contingent
basis;
- the satisfaction of certain management objectives prior to exercise; and
- exercisability only upon the occurrence of a change in control of the
Company.
RESTRICTED SHARES. Plan participants may be awarded shares of Common Stock
that are not transferable and are subject to forfeiture until certain
restrictions are removed or conditions are satisfied. Removal of restrictions
may be contingent on the achievement by the recipient or the Company of specific
management objectives. The 2002 Incentive Plan provides that in connection with
any grant of restricted shares of Common Stock, the period during which those
shares will be subject to forfeiture will be a minimum of three years.
PERFORMANCE UNITS. Plan participants may receive performance units that
will become payable upon the achievement of specified management objectives
during a "performance period." The length of the performance period will be
specified at the time the grant is made, but will not be less than three years.
In addition, performance units may be subject to earlier lapse or other
modification in the event of a change in control of the Company.
MANAGEMENT OBJECTIVES. As stated above, awards of performance units will
be, and other awards may be, made subject to certain management objectives.
These objectives may be based on Company-wide objectives or objectives that are
related to the performance of an individual participant, a subsidiary, a
division, a department, a region or a function within the Company or its
subsidiaries. The objectives will be based on specified levels of, or growth in,
one or more of the following areas:
- cash flow/net assets ratio;
- return on total capital or assets;
- return on consolidated stockholders' equity;
- earnings or earnings per share;
- revenue;
- cash flow; and/or
- share price or total return to stockholders.
If the plan committee determines that a change in the business, operations,
corporate or capital structure of the Company, the manner in which the Company
conducts its business, or other events or circumstances render the management
objectives unsuitable, the plan committee may, in its discretion, modify the
management objectives or the related minimum acceptable level of achievement, in
whole or in part, as it deems appropriate and equitable, unless such action
would result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Internal Revenue Code.
TERM. The 2002 Incentive Plan will become effective as of September 24,
2002, subject to approval by the stockholders. No grants of any kind may be made
under the 2002 Incentive Plan after November 8, 2012. All awards made under the
2002 Incentive Plan that remain outstanding subsequent to November 8, 2012 shall
continue to be governed by the terms of the 2002 Incentive Plan.
9
PROHIBITION ON REPRICINGS. The plan committee may not lower the exercise
price of outstanding option rights without the approval of the Company's
stockholders.
TRANSFERABILITY. Unless otherwise approved by the plan committee, options,
appreciation rights or other derivative securities granted under the 2002
Incentive Plan may not be transferred other than by will or the laws of descent
and distribution.
ADJUSTMENTS. The maximum number of shares of Common Stock which may be
awarded under the 2002 Incentive Plan, and the number of shares and price per
share applicable to any outstanding award, are subject to adjustment in the
event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations or other reorganizations of the
Company.
AMENDMENTS. The plan committee may amend the 2002 Incentive Plan at any
time without the consent of stockholders, unless consent is required by law or
the applicable rules of each securities exchange upon which the Common Stock is
traded.
MARKET VALUE OF UNDERLYING SECURITIES OF THE 2002 INCENTIVE PLAN
Common Stock underlies all of the options and rights to be awarded under
the 2002 Incentive Plan. The market value of the Common Stock at the close of
trading on September 24, 2002 was $48.23 per share.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2002 INCENTIVE PLAN
The following is a summary of certain federal income tax consequences
relating to awards under the 2002 Incentive Plan, based on federal income tax
laws currently in effect. This summary is not intended to and does not describe
all of the possible tax consequences that could result from the acquisition,
holding, exercise or disposition of an option right or shares of Common Stock
purchased or granted pursuant to, or any other award granted under, the 2002
Incentive Plan and does not describe any state, local or foreign tax
consequences.
TAX CONSEQUENCES TO PARTICIPANTS
INCENTIVE STOCK OPTIONS. A plan participant will not recognize income upon
the grant of an option intended to be an incentive stock option. Furthermore, a
plan participant will not recognize ordinary income upon the exercise of an
incentive stock option if he or she satisfies certain employment and holding
period requirements although the exercise may be subject to alternative minimum
tax. To satisfy the employment requirement, a plan participant must exercise the
option not later than three months after he or she ceases to be an employee of
the Company and its subsidiaries (one year if he or she is disabled). To satisfy
the holding period requirement, a plan participant must hold the shares acquired
upon exercise of the incentive stock option for more than two years from the
grant of the option and more than one year after the shares are transferred to
him or her. If these requirements are satisfied, the plan participant will be
taxed on the difference between his or her basis in the shares and the net
proceeds of the sale at capital gain rates on the sale of the shares.
If a plan participant disposes of shares of Common Stock acquired upon the
exercise of an incentive stock option without satisfying the holding period
requirement, the plan participant will usually recognize ordinary income at the
time of disposition equal to the amount of the difference between the fair
market value of the stock on the date the option is exercised and the exercise
price of the option.
10
NON-QUALIFIED STOCK OPTIONS. In general, a plan participant will not
recognize income at the time an option is granted. At the time of exercise of
the option, he or she will recognize ordinary income if the shares are not
subject to a substantial risk of forfeiture (as defined in Section 83 of the
Internal Revenue Code). The amount of such income will be equal to the
difference between the option exercise price and the fair market value of the
shares of Common Stock on the date of exercise. At the time of the sale of the
shares of Common Stock acquired pursuant to the exercise of an option,
appreciation in value of the shares after the date of exercise will be treated
as either short-term or long-term capital gain, and depreciation in value will
be treated as short-term or long-term capital loss, depending on how long the
shares have been held. Long-term capital gains may be eligible for reduced rates
if the participant has satisfied applicable holding period requirements.
APPRECIATION RIGHTS. A plan participant will not recognize income upon the
grant of a stock appreciation right. In general, a participant will recognize
ordinary income at the time he or she receives payment on a stock appreciation
right in the amount of the payment.
RESTRICTED SHARES. In general, a plan participant will not recognize
ordinary income upon receipt of restricted shares. The plan participant will
recognize ordinary income when the shares are transferable by the plan
participant or are no longer subject to a substantial risk of forfeiture,
whichever occurs first. At such time, the plan participant will recognize
ordinary income in an amount equal to the current fair market value of the
shares. A plan participant may, however, elect to recognize ordinary income when
the restricted shares are granted in an amount equal to the fair market value of
the shares at that time, determined without regard to the restrictions. Any
appreciation in the value of the shares after the date the shares become
transferable or are no longer subject to substantial risk of forfeiture, or
after the participant has made the election referred to in the preceding
sentence, if applicable, will be treated as either short-term or long-term
capital gain, and any depreciation in value will be treated as either short-term
or long-term capital loss, depending upon how long the shares have been held.
PERFORMANCE UNITS. A plan participant will not recognize income upon the
grant of performance units. In general, a plan participant will recognize
ordinary income at the time he or she receives payment with respect to
performance units in the amount of the payment.
TAX CONSEQUENCES TO THE COMPANY. To the extent that a plan participant
recognizes ordinary income as described above, the Company, or its subsidiary
for which the plan participant performs services, will be entitled to a
corresponding deduction provided that, among other things, the 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 Internal
Revenue Code and is not disallowed by the $1,000,000 limitation on certain
executive compensation under Section 162(m) of the Internal Revenue Code.
2002 INCENTIVE PLAN BENEFITS
If the stockholders approve the 2002 Incentive Plan, there will be at least
one annual grant of options to purchase 3,000 shares of Common Stock under the
2002 Incentive Plan to each non-officer director, commencing with the 2003
Annual Meeting. However, beyond this known grant and subsequent fixed grants to
non-officer directors, the plan committee will determine in its discretion and
from time to time the amount of option rights, stock appreciation rights,
restricted shares or performance units that will be awarded to plan
participants, as well as any applicable conditions. Therefore, the dollar value
and number of units comprising plan awards that will be received by or allocated
to any person or group, or in the aggregate, are not determinable.
11
EQUITY COMPENSATION PLAN INFORMATION
As of the end of fiscal year 2002, the Company's 1987 Stock Option Plan and
the 1992 Incentive Plan were the only compensation plans under which securities
of the Company were authorized for issuance. These Plans, including amendments
to the 1992 Incentive Plan, were approved by the Company's stockholders. The
following table provides information as of June 30, 2002:
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, OPTIONS, WARRANTS EXISTING EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COMPENSATION PLANS (1)
------------- -------------------- ----------------- -----------------------
Equity compensation plans
approved by security
holders.................. 3,925,700 $23.04 1,742,310
Equity compensation plans
not approved by security
holders.................. 0 0 0
Total................. 3,925,700 $23.04 1,742,310
---------------
(1) Represents 1,742,310 shares of Common Stock that were available for future
issuance under the 1992 Incentive Plan. Under the 1992 Incentive Plan,
awards of restricted shares of Common Stock also may be granted, subject to
the aggregate limit of shares of Common Stock permitted to be issued under
that plan. No further options or other awards may be made under the 1987
Stock Option Plan or, after November 9, 2002 under the 1992 Incentive Plan.
12
THE BOARD, ITS COMMITTEES AND ITS COMPENSATION
BOARD AND COMMITTEES
The Board held five meetings during fiscal year 2002. The Board currently
has three standing committees: the Executive Committee, the Audit Committee and
the Compensation Committee. Since the Company does not currently have a
nominating committee, the full Board nominates candidates for director.
Shirley Hufstedler has been a member of the Board, Chairwoman of the Audit
Committee and a member of the Compensation Committee for many years; and she has
performed her duties diligently in all these roles. On August 7, 2001 Ms.
Hufstedler was not able to participate when the other directors and committee
members conducted telephonic meetings of the Board and of these two committees.
The Executive Chairman reviewed with Ms. Hufstedler in advance of the telephonic
meetings the substance of what would be discussed and Ms. Hufstedler authorized
the Executive Chairman to describe her views to the Board and to the committees.
Shortly after the conclusion of the telephonic meetings, the Executive Chairman
reviewed with Ms. Hufstedler the discussions at the meetings and the action
taken; and Ms. Hufstedler was in agreement with all action taken. Ms. Hufstedler
was unable to attend the one-hour meeting which occurred immediately prior to
the November 5, 2001 Annual Meeting of Stockholders. Prior to the meeting, the
Executive Chairman reviewed with Ms. Hufstedler the agenda for the meeting; he
communicated her comments to the Board at the meeting; and he reported to Ms.
Hufstedler after the meeting. In fiscal year 2002, Ms. Hufstedler attended the
six other meetings of the Board and committees on which she served.
Historically, Ms. Hufstedler's attendance record at Board and committee meetings
has been excellent--100% in both fiscal years 2000 and 2001.
The Executive Committee, consisting of Dr. Harman and Messrs. Girod and
Stapleton, held four meetings during fiscal year 2002. The Executive Committee
has been delegated the powers and authority of the Board in the management of
the business affairs of the Company when the full Board is not in session,
except for powers and authority not permitted to be delegated to it under the
Company's Restated and Amended Certificate of Incorporation or By-Laws.
The Audit Committee, consisting of Ms. Hufstedler, Mr. Meyer, Ms. Korologos
and Mr. Weiss, held two formal meetings during fiscal year 2002. In addition,
the Audit Committee met with management and representatives of the Company's
independent auditors four additional times in fiscal year 2002 prior to the
issuance of the Company's earnings each fiscal quarter. The Audit Committee,
together with the Company's management, internal auditors and independent
auditors, reviews the financial reports and other financial information provided
by the Company to governmental bodies or to the public. The Audit Committee
monitors the Company's financial reporting process and internal control system
and recommends independent auditors for the Board's approval. A report of the
Audit Committee appears later in this Proxy Statement. The Board has adopted a
written Audit Committee Charter, a copy of which is available upon request to
the Secretary of the Company.
The Compensation Committee, consisting of Ms. Hufstedler and Mr. Weiss,
held three meetings during fiscal year 2002. The Compensation Committee
establishes compensation levels each year for the Company's executive officers,
and reviews these matters with the Executive Chairman and the Chief Executive
Officer. The Board has delegated to the Compensation Committee authority to
decide certain matters relating to the Company's retirement plans, as well as
awards made under the 1999 Executive Plan and the 1992 Incentive Plan. If the
13
stockholders approve the 2002 Executive Plan and the 2002 Incentive Plan, the
Board expects to delegate authority to the Compensation Committee to decide
matters relating to the amount and terms of awards under, and the administration
of, those plans.
DIRECTOR COMPENSATION
Non-officer directors receive an annual fee of $40,000, plus $1,500 for
each committee meeting attended on a day other than the day of a Board meeting.
The Company does not pay fees to directors who are officers of the Company or
its subsidiaries. The Company reimburses all directors for expenses incurred in
attending Board and committee meetings.
The 1992 Incentive Plan provides that each non-officer director who served
during the prior fiscal year and continues to serve on the Board will receive
after each Annual Meeting an option to purchase 3,000 shares of Common Stock.
Each non-officer director is also eligible for an additional option to purchase
750 shares of Common Stock if the Company achieves a return on consolidated
equity for the prior fiscal year of at least 9% but less than 13%, or an
additional option to purchase 1,500 shares of Common Stock if the Company
achieves a return on consolidated equity of 13% or more. The exercise price of
the options is the fair market value of the shares of Common Stock on the date
of the grant. Each option vests at a rate of 20% per year and expires 10 years
after the date of grant. Effective at the time of the Meeting, each non-officer
director will receive an option to purchase 4,500 shares of Common Stock under
the 1992 Incentive Plan, including options to purchase 1,500 shares of Common
Stock granted as a result of the Company achieving certain return on
consolidated equity goals. No option rights will be granted to non-officer
directors under the 1992 Incentive Plan after November 9, 2002, but outstanding
option rights granted under the 1992 Incentive Plan will continue to be governed
by the terms of the 1992 Incentive Plan.
If the stockholders approve the 2002 Incentive Plan at the Meeting, each
non-officer director will be eligible to receive option grants on the same terms
as the 1992 Incentive Plan. A summary of the 2002 Incentive Plan appears in this
Proxy Statement under the caption "Approval of the 2002 Stock Option and
Incentive Plan" and the complete text of the 2002 Incentive Plan is attached to
this Proxy Statement as Exhibit B.
14
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE
The Compensation Committee implements the Company's executive compensation
program pursuant to authority delegated by the Board. As part of its
responsibilities, the Compensation Committee establishes the compensation of the
Company's executive officers and administers the Company's stock incentive plans
and bonus plans for executive officers. The Compensation Committee is comprised
of Ms. Hufstedler and Mr. Weiss, neither of whom is an officer or employee of
the Company.
EXECUTIVE COMPENSATION PROGRAM
The Company's long-term success is dependent in part on attracting and
retaining people who have demonstrated superior skill and experience, and
incentivize them by rewarding outstanding individual performance. The key
elements of the Company's executive compensation program are (a) base salaries
determined in light of competitive pay analysis and the executive's performance
during the prior fiscal year; (b) cash bonus awards tied to either targeted
returns on shareholder equity or to Company and individual performance during
the prior fiscal year; and (c) grants of stock options and other equity awards
to align the interests of management with those of the stockholders.
SALARY. Base salaries are established in light of both competitive pay
data and performance reviews. The Company's competitive pay structure is built
by reference to market data. Company and individual performance is reviewed at
the end of each fiscal year.
In July 2001, the Compensation Committee reviewed the Company's results of
operations for fiscal year 2001 and competitive pay practices data. Some of the
data were obtained from surveys furnished by outside compensation consulting
firms of compensation practices among companies in the electrical and
electronics industries, and companies similar in size to the Company. The survey
group differs from the comparison group used in the Company's stock performance
graph, appearing later in this Proxy Statement under the caption "Stock Price
Performance Graph," because the Compensation Committee believes that the survey
group offers more reliable information on compensation practices and better
represents competitors for executive officer candidates. Consistent with the
Company's past practice, the Compensation Committee sought to establish base
salaries for fiscal year 2002 at the 50th-75th percentile of base salaries for
the survey group of companies.
BONUS. For fiscal year 2002, the Company awarded cash bonuses under the
1999 Executive Plan to its executive officers because the Company achieved the
targeted return on shareholder equity for fiscal year 2002 set by the
Compensation Committee. Cash bonus awards under the 1999 Executive Plan are
intended to constitute "performance-based compensation" for tax purposes.
If the stockholders approve the 2002 Executive Plan, cash bonus awards may
be made if specific returns on shareholder equity, set by the Compensation
Committee for a given fiscal year, are achieved. Amounts awarded under the 2002
Executive Plan are intended to constitute qualified "performance-based
compensation" for tax purposes.
EQUITY BASED COMPENSATION. The Company's stock option program is designed
to align the interests of the Company's executive officers and key employees
with those of the stockholders. The Executive Chairman makes recommendations to
the Compensation Committee based upon
15
an assessment of each executive officer's and key employee's performance and a
need for further long-term performance incentives. If the 2002 Incentive Plan is
approved by the stockholders, participants may receive option rights, stock
appreciation rights, restricted shares or performance units under its terms. The
Compensation Committee believes that equity-based incentives for key executive
officers and key employees are in the best interests of the Company.
FISCAL YEAR 2002 COMPENSATION FOR THE EXECUTIVE CHAIRMAN AND THE CHIEF EXECUTIVE
OFFICER
SALARY. During fiscal year 2002, Dr. Harman was paid a base salary of
$941,667, and Mr. Girod was paid a base salary of $891,667. These salaries were
based on their leadership in creating the proper corporate environment and
structure for accelerated growth in sales, earnings and share value, and overall
results during fiscal year 2001. These salaries were also based on competitive
pay practices data reviewed by the Compensation Committee in July 2001.
BONUS. The Company made cash bonus awards of $950,000 to Dr. Harman and
$900,000 to Mr. Girod for fiscal year 2002 under the 1999 Executive Plan because
the Company achieved the targeted return on shareholder equity for fiscal year
2002 set by the Compensation Committee.
EQUITY BASED COMPENSATION. In August 2001, the Compensation Committee
granted to each of Dr. Harman and Mr. Girod options to purchase 75,000 shares of
Common Stock at an exercise price of $36.89 per share, the market value of the
Common Stock on the date of the grant.
STATUS OF REPORT
This report shall not be deemed to be "soliciting material," or to be
"filed" with the Securities and Exchange Commission ("Commission") or subject to
Regulation 14A promulgated by the Commission or Section 18 of the Securities
Exchange Act of 1934, as amended.
This report is submitted by the members of the Compensation Committee.
Shirley Mount Hufstedler
Stanley A. Weiss
16
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table discloses compensation received by the Company's
Executive Chairman, the Chief Executive Officer and the other three most highly
paid executive officers for the last three fiscal years.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -----------------------------
OPTIONS
FISCAL OTHER ANNUAL GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (SHARES)(2) COMPENSATION(3)
--------------------------- ------ -------- -------- --------------- ----------- ---------------
Sidney Harman 2002 $941,667 $950,000 $145,976 75,000 $13,600
Executive Chairman of the 2001 891,667 500,000 62,356 100,000 13,750
Board 2000 850,000 750,000 -- 100,000 12,000
Bernard A. Girod 2002 891,667 900,000 -- 75,000 13,600
Vice Chairman of the Board 2001 833,333 500,000 -- 100,000 13,750
and Chief Executive Officer 2000 725,000 750,000 -- 100,000 12,000
Gregory P. Stapleton 2002 791,667 800,000 -- 75,000 13,600
President and 2001 729,167 500,000 -- 100,000 13,750
Chief Operating Officer 2000 604,166 750,000 -- 100,000 12,000
Frank Meredith 2002 591,667 600,000 -- 75,000 13,600
Executive Vice President and 2001 533,333 300,000 -- 100,000 13,750
Chief Financial Officer 2000 433,333 450,000 -- 100,000 12,000
William S. Palin(4) 2002 285,008 107,247 -- 0 28,501
Vice President -- Controller 2001 263,619 63,689 -- 10,000 25,394
2000 260,722 91,038 -- 15,000 25,378
------------
(1) For Dr. Harman in fiscal year 2002, includes $76,735 relating to the use of
leased aircraft as authorized by the Board and $37,171 relating to the use
of Company-owned vehicles and, in fiscal year 2001, includes $32,188
relating to the use of Company-owned vehicles. Perquisites and other
personal benefits received by the Company's other executive officers
identified above in fiscal years 2002, 2001, and 2000 are not included in
the Summary Compensation Table because the aggregate amount of such
compensation, if any, did not meet disclosure thresholds established under
the Commission's regulations.
(2) Share amounts reflect a two-for-one stock split effective as of August 28,
2000 (the "Stock Split").
(3) For Dr. Harman and Messrs. Girod, Stapleton and Meredith, the amounts shown
for fiscal year 2002 include Company contributions to the Company's
Retirement Savings Plan. For Mr. Palin, the amounts shown for fiscal year
2002 represent Company contributions to his personal pension scheme, a
defined contribution plan established under the laws of the United Kingdom.
(4) Mr. Palin's salary and contributions to his personal pension scheme were
paid in British Pounds Sterling but shown as U.S. Dollars using average
exchange rates for the periods covered. Mr. Palin's bonus awards are paid in
British Pounds Sterling and shown in U.S. Dollars based upon the exchange
rate in effect on the date the bonus payment was made.
17
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options during fiscal year 2002,
under the 1992 Incentive Plan, to each of the named executive officers.
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN PER SHARE PRESENT
NAME GRANTED(1) FISCAL YEAR EXERCISE PRICE EXPIRATION DATE VALUE(2)
---- ---------- ------------- -------------- --------------- ----------
Sidney Harman............. 75,000 24% $36.89 8/7/2011 $1,533,900
Bernard A. Girod.......... 75,000 24% 36.89 8/7/2011 1,533,900
Gregory P. Stapleton...... 75,000 24% 36.89 8/7/2011 1,533,900
Frank Meredith............ 75,000 24% 36.89 8/7/2011 1,533,900
William S. Palin.......... 0 N/A N/A N/A N/A
---------------
(1) Represents stock options granted on August 7, 2001. The exercise price was
the market value of the Common Stock on the date of grant. Commencing one
year from the date of grant, the options vest annually at a rate of 20%.
(2) Based on the Black-Scholes option price model, which requires assumptions to
be made about the future changes in the price of the Company's Common Stock.
The Company used the following assumptions to estimate the Grant Date
Present Value: an estimated dividend yield of $0.10 per share; an estimated
risk-free interest rate of 4.0%; an estimated volatility of 60%; and an
option term of 5.4 years representing 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.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
For each of the named executive officers, the following table shows stock
options exercised during fiscal year 2002 and the value of unexercised options
as of June 30, 2002.
NUMBER NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OF SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE YEAR-END FISCAL YEAR-END(2)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ---------- ----------- ------------- ----------- -------------
Sidney Harman....... 147,000 $5,330,150 1,057,500 215,000 $34,444,237 $3,992,000
Bernard A. Girod.... 12,188 194,058(3) 194,582 231,000 5,321,096 4,448,500
Gregory P.
Stapleton......... 12,494 270,437(3) 200,906 231,000 5,479,693 4,448,500
Frank Meredith...... 11,232 175,859(3) 75,768 219,000 1,893,256 4,106,125
William S. Palin.... 0 0 36,300 23,000 1,017,225 593,175
---------------
(1) Based on the difference between the market price of the Common Stock on the
date of exercise of the relevant option exercise price.
(2) Based on the difference between $49.25 (the closing price of the Common
Stock on June 28, 2002, the last trading day prior to the 2002 fiscal year
end), and the exercise price of the options.
(3) See the information under the caption "Option Repurchases" in this Proxy
Statement.
18
DEFERRED COMPENSATION PLAN
The Company's Deferred Compensation Plan provides supplemental retirement
benefits for executive officers designated by the Deferred Compensation Plan's
administrative committee. The members of the administrative committee are
appointed by the Board. Prior to the beginning of each fiscal year, each
participant may elect to defer up to 100% of his or her annual base salary and
bonus on a pre-tax basis to a deferral account. These amounts are always fully
vested, subject to a 10% penalty on any unscheduled withdrawals. The Company may
decide to make contributions on a pre-tax basis to a plan participant's account,
subject to a vesting schedule. In the event of a change in control of the
Company, any unvested amounts vest immediately and the Company indemnifies the
plan participant for any expense incurred in enforcing his or her rights under
the Deferred Compensation Plan.
Plan participants specify that portion of their accounts to be deemed
invested in designated benchmark funds. The Company credits earnings to the
accounts based on the rate of return of the designated funds. Upon retirement or
termination of employment other than due to death, plan participants may receive
their account balances in the form of a lump-sum payment or in annual
installments. In the event of death prior to the commencement of benefits or
during payment of installments, the balances in a plan participant's vested
accounts as of the date of death are payable to the plan participant's
beneficiaries.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company's Supplemental Executive Retirement Plan ("Supplemental Plan")
provides supplemental retirement, termination and death benefits to key
executive officers designated by the Board. Dr. Harman and Messrs. Girod,
Stapleton and Meredith have been designated as Supplemental Plan participants.
As of August 1, 2002, Mr. Palin was not designated as a participant in the
Supplemental Plan. Dr. Harman has 22 years, Mr. Girod 15 years, Mr. Stapleton 14
years and Mr. Meredith 17 years of service credited under the Supplemental Plan.
All Supplemental Plan benefits are subject to deductions for Social Security and
federal, state and local taxes.
RETIREMENT BENEFIT. Retirement benefits are based on the average of the
participant's highest cash compensation (base salary and bonus) during any five
consecutive years of employment by the Company ("Average Cash Compensation"). A
participant retiring at age 65 or older receives an annual retirement benefit
equal to 3 1/3% of Average Cash Compensation per year of service up to a maximum
of 50%. If a participant's employment is terminated within three years after a
change in control of the Company, the participant vests with maximum retirement
benefits regardless of age or years of service and the Company indemnifies the
participant for any expense incurred in enforcing the participant's rights in
the retirement benefit under the Supplemental Plan. Unless another form of
payment is approved by the administrative committee for the Supplemental Plan,
benefits are payable monthly in the form of a life annuity. If the participant
dies prior to receiving 10 years of benefits, they are paid to the participant's
beneficiary for the remainder of that period.
19
The following table sets forth the annual retirement benefits that would be
received under the Supplemental Plan at the specified Average Cash Compensation
levels after the specified years of service:
YEARS OF SERVICE
-------------------------------------------------
REMUNERATION 3 6 9 12 15
------------ ------- ------- ------- ------- ---------
800,000 80,000 160,000 240,000 320,000 400,000
900,000 90,000 180,000 270,000 360,000 450,000
1,000,000 100,000 200,000 300,000 400,000 500,000
1,100,000 110,000 220,000 330,000 440,000 550,000
1,200,000 120,000 240,000 360,000 480,000 600,000
1,300,000 130,000 260,000 390,000 520,000 650,000
1,400,000 140,000 280,000 420,000 560,000 700,000
1,500,000 150,000 300,000 450,000 600,000 750,000
1,600,000 160,000 320,000 480,000 640,000 800,000
1,700,000 170,000 340,000 510,000 680,000 850,000
1,800,000 180,000 360,000 540,000 720,000 900,000
1,900,000 190,000 380,000 570,000 760,000 950,000
2,000,000 200,000 400,000 600,000 800,000 1,000,000
2,100,000 210,000 420,000 630,000 840,000 1,050,000
2,200,000 220,000 440,000 660,000 880,000 1,100,000
TERMINATION BENEFIT. A participant who retires or whose employment is
terminated prior to age 65 with at least 15 years of service, and who is not
otherwise entitled to benefits under the Supplemental Plan, is entitled to an
annual termination benefit equal to 30% of Average Cash Compensation, increased
by 4% for each year of service over 15 years, up to a maximum of 50%. The
benefit commences upon the later of termination of the participant's employment,
other than due to death, or the participant reaching age 55. Termination
benefits are payable in the same manner as retirement benefits.
In June 2000, the Compensation Committee modified the termination benefits
for Messrs. Girod and Stapleton. Effective September 24, 1999, Mr. Girod vested
in an annual termination benefit equal to 26% of Average Cash Compensation,
increased by 2% per year for the following two years of service and by 4% per
year of service thereafter, up to a maximum of 50%. Mr. Stapleton vested in an
annual termination benefit equal to 24% of Average Cash Compensation, increased
by 2% per year for the following three years of service and by 4% per year of
service thereafter, up to a maximum of 50%.
20
The following table sets forth the annual termination benefits that would
be received under the Supplemental Plan at the specified Average Cash
Compensation levels after the specified years of service:
YEARS OF SERVICE
---------------------------------------------------------------------------------
REMUNERATION 13 14 15 16 17 18 19 20
------------ ------- ------- ------- ------- ------- ------- --------- ---------
800,000 208,000 224,000 240,000 272,000 304,000 336,000 368,000 400,000
900,000 234,000 252,000 270,000 306,000 342,000 378,000 414,000 450,000
1,000,000 260,000 280,000 300,000 340,000 380,000 420,000 460,000 500,000
1,100,000 286,000 308,000 330,000 374,000 418,000 462,000 506,000 550,000
1,200,000 312,000 336,000 360,000 408,000 456,000 504,000 552,000 600,000
1,300,000 338,000 364,000 390,000 442,000 494,000 546,000 598,000 650,000
1,400,000 364,000 392,000 420,000 476,000 532,000 588,000 644,000 700,000
1,500,000 390,000 420,000 450,000 510,000 570,000 630,000 690,000 750,000
1,600,000 416,000 448,000 480,000 544,000 608,000 672,000 736,000 800,000
1,700,000 442,000 476,000 510,000 578,000 646,000 714,000 782,000 850,000
1,800,000 468,000 504,000 540,000 612,000 684,000 756,000 828,000 900,000
1,900,000 494,000 532,000 570,000 646,000 722,000 798,000 874,000 950,000
2,000,000 520,000 560,000 600,000 680,000 760,000 840,000 920,000 1,000,000
2,100,000 546,000 588,000 630,000 714,000 798,000 882,000 966,000 1,050,000
2,200,000 572,000 616,000 660,000 748,000 836,000 924,000 1,012,000 1,100,000
DEATH BENEFIT. A pre-retirement death benefit equal to three times the
highest annual cash compensation achieved by a participant during his or her
employment with the Company is paid to the beneficiaries of a participant who
dies prior to the commencement of benefits under the Supplemental Plan. The
benefit is paid to the participant's designated beneficiary in a single lump sum
or, at the request of the beneficiary and with the consent of the administrative
committee, the benefit may be paid in another form providing the actuarial
equivalent of the lump-sum payment. Any death benefit payable to Dr. Harman's
designated beneficiary will be paid in five equal annual installments, providing
the actuarial equivalent of the lump-sum payment otherwise due.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company entered into Severance Agreements ("Severance Agreements"),
containing substantially identical terms and conditions, with each of Dr. Harman
and Messrs. Girod, Stapleton and Meredith as of June 20, 2000. The Severance
Agreements provide that if, within the two years following a change in control
of the Company, the executive officer is terminated without cause or under
certain circumstances terminates his own employment, then he is entitled to
receive a severance payment equal to three times the sum of his highest annual
base salary (during any period prior to his termination) and his highest
incentive pay (during the three fiscal years preceding the change in control).
The Severance Agreements also provide that the Company will pay the executive
officer an additional amount for excise taxes, subject to a limitation based on
the overall cost of the Severance Agreements, including any additional payment
for excise taxes. Unless the executive officer or the Company notifies the other
by September 30 that it does not wish the agreement to be extended, each
Severance Agreement is automatically extended on the following January 1 for an
additional year.
Mr. Palin serves as Vice President -- Controller of the Company pursuant to
an employment agreement dated April 4, 2001 that provides for an annual base
salary of L185,000
21
as well as rights under the Company's stock option plans and U.K. health and
life insurance plans. In August 2001, his base salary was increased to L200,000.
Under the employment agreement, either the Company or Mr. Palin may terminate
his employment upon 12-months prior notice, provided that neither the Company
nor Mr. Palin may give a termination notice prior to June 30, 2003.
OPTION REPURCHASES
In 1998, the Board of Directors made special stock option awards to Messrs.
Girod, Stapleton and Meredith. Under the awards and after adjustment for the
Stock Split, Mr. Girod received options to purchase 240,000 shares of Common
Stock, Mr. Stapleton received options to purchase 200,000 shares of Common Stock
and Mr. Meredith received options to purchase 160,000 shares of Common Stock.
The exercise price of the options was $19.875 per share, the market price of the
shares of Common Stock at the time of the option award, adjusted for the Stock
Split. The options were to become exercisable only upon the achievement of
certain performance targets defined by reference to the 30-day average closing
price of the shares of Common Stock. Adjusted for the Stock Split, one-third of
the options would become exercisable when each of three target prices were
achieved: $27.50 per share, $32.50 per share and $37.50 per share. The target
prices represented a premium of 38.4%, 63.5% and 88.7% over the split adjusted
market price of the shares of Common Stock on the grant date. The Company's
stock price exceeded the prescribed levels and as a result the options became
fully exercisable. The Company recorded $8.6 million in fiscal year 2001 and
$2.0 million in fiscal year 2000 in compensation expense as these options became
exercisable.
On September 10, 2001, the Board approved payment for the repurchase of the
600,000 options at $18.125 per option. The price represented the difference
between $38.00 and the $19.875 exercise price of the options. The closing price
of the shares of Common Stock on September 10, 2001 was $39.61. As a result of
the option repurchases, the Company paid Mr. Girod $4,350,000, Mr. Stapleton
$3,625,000 and Mr. Meredith $2,900,000.
22
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is currently composed of four directors who are not
officers or employees of the Company or its subsidiaries. All members of the
Audit Committee are "independent" as that term is defined by the New York Stock
Exchange's listing standards as currently in effect. The Company's Board of
Directors has approved a written Audit Committee Charter, a copy of which is
available from the Secretary of the Company upon request.
The Audit Committee reviewed the audited financial statements appearing in
the Company's Annual Report on Form 10-K for fiscal year 2002, and discussed
these financial statements with the Company's management and KPMG LLP, the
Company's independent auditors. The Audit Committee also discussed with the
Company's independent auditors those matters required to be discussed under SAS
No. 61 (Codification of Statements and Auditing Standards) and SAS No. 90
(Communication with Audit Committees).
The Audit Committee has also received and reviewed the written disclosures
and the letter from KPMG LLP required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), and has discussed with
KPMG LLP their independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on Form 10-K for fiscal year 2002, filed with the
Commission.
This report is submitted by the members of the Audit Committee.
Shirley Mount Hufstedler
Ann McLaughlin Korologos
Edward H. Meyer
Stanley A. Weiss
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of August 1, 2002, the beneficial ownership
of the Company's Common Stock for (a) all stockholders known by the Company to
beneficially own more than 5% of the Common Stock, (b) each of the 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. Some of the information in the
table is based upon information contained in filings made by the beneficial
owner with the Commission.
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1) PERCENTAGE(2)
---- ----------------------- -------------
T. Rowe Price Associates, Inc.................. 3,019,400(3) 9.3%
Sidney Harman.................................. 2,567,692(4) 7.6%
FMR Corp....................................... 1,888,100(5) 5.8%
Reich & Tang Asset Management LLC.............. 1,842,000(6) 5.7%
Bernard A. Girod............................... 373,323(7) 1.1%
Gregory P. Stapleton........................... 341,094(8) 1.0%
Frank Meredith................................. 176,096(9) *
Edward H. Meyer................................ 93,004 *
Shirley M. Hufstedler.......................... 59,831 *
William S. Palin............................... 40,150 *
Ann McLaughlin Korologos....................... 26,610 *
Stanley A. Weiss............................... 22,900 *
All directors and executive officers as a group
(12 persons)................................. 3,769,692(10) 11.0%
---------------
* Less than 1%
(1) As required by the rules of the Commission, the table includes shares of
Common Stock that may be acquired pursuant to stock options exercisable
within 60 days from August 1, 2002 as follows: Dr. Harman (1,112,500
shares), Mr. Girod (265,582 shares), Mr. Stapleton (271,906 shares), Mr.
Meredith (134,768 shares), Mr. Meyer (45,726 shares), Ms. Hufstedler
(49,926 shares), Mr. Palin (38,300 shares) Ms. Korologos (26,400 shares),
Mr. Weiss (12,000 shares) and all directors and executive officers as a
group (2,012,573 shares).
(2) Based on 32,475,090 shares of Common Stock outstanding as of August 1,
2002.
(3) Information with respect to T. Rowe Price Associates, Inc. ("Price
Associates") is based solely on the Schedule 13G/A filed with the
Commission on February 5, 2002 by Price Associates. Price Associates has
sole dispositive power with respect to 3,019,400 shares and sole voting
power with respect to 682,700 shares. Price Associates expressly disclaims
that it is the beneficial owner of such securities. The address of Price
Associates is 100 East Pratt Street, Baltimore, Maryland 21202.
(4) Includes 910,028 shares held in a trust for which Dr. Harman has sole
dispositive and sole voting power; 122,994 shares held in two irrevocable
trusts for various family members for which Dr. Harman has sole voting
power but shared dispositive power; 200,000 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;
173,870 shares held by family members for which Dr. Harman has sole voting
power pursuant to revocable proxies and for which Dr. Harman disclaims
beneficial ownership; and 1,112,500
24
shares that may be acquired pursuant to stock options exercisable within 60 days
from August 1, 2002. Dr. Harman's address is c/o Harman International
Industries, Incorporated, 1101 Pennsylvania Avenue, N.W., Suite 1010,
Washington, D.C. 20004.
(5) Information with respect to FMR Corp. is based solely on the Schedule 13G/A
filed with the Commission on June 10, 2002 by FMR Corp. FMR Corp. has sole
dispositive power with respect to 1,888,100 shares. Edward C. Johnson 3d,
Chairman of FMR Corp. and his wife Abigail P. Johnson, a director of FMR
Corp. are also deemed to be the beneficial owners of the 1,888,100 shares
of Common Stock beneficially owned by FMR Corp. by virtue of their
positions with and ownership of FMR Corp. The address for FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
(6) Information with respect to Reich & Tang Asset Management LLC ("Reich &
Tang") is based solely on the Schedule 13G/A filed with the Commission on
February 15, 2002 by Reich & Tang. Reich & Tang has shared voting power and
shared dispositive power with respect to 1,842,000 shares. The address of
Reich & Tang is 600 Fifth Avenue, New York, New York 10020.
(7) Includes 3,951 shares held by Mr. Girod in the Company's Retirement Savings
Plan.
(8) Includes 13,014 shares held by Mr. Stapleton in the Retirement Savings
Plan.
(9) Includes 8,703 shares held by Mr. Meredith in the Retirement Savings Plan.
(10) Includes 26,178 shares held by all directors and executive officers as a
group in the Retirement Savings Plan.
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 10% of the Company's Common Stock to file initial reports of ownership
and reports of changes in ownership with the Commission. 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 fiscal year 2002.
25
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, 2002. This stock price performance
graph assumes that the value of the investment in the Common Stock and each
index was $100 on July 1, 1997. The stock price performance shown on the graph
below is not necessarily indicative of future performance of the Common Stock.
HARMAN INTERNATIONAL S&P 500 INDEX PEER GROUP
-------------------- ------------- ----------
Jun97 100.00 100.00 100.00
Jun98 91.79 130.16 94.54
Jun99 105.44 159.78 119.30
Jun00 146.87 171.37 206.97
Jun01 183.95 145.95 145.99
Jun02 238.37 119.70 115.54
The peer company index was derived using the following peer companies:
Boston Acoustics, Inc., Carver Corp., Emerson Radio, Koss Corp., Pioneer
Corporation (ADRs), Polk Audio, Incorporated (through June 1998 only), Sensory
Science Corporation, Sony Corp. (American shares) and Zenith Electronics Corp.
26
INDEPENDENT AUDITOR
SELECTION. KPMG LLP served as the Company's independent auditor for fiscal
year 2002 and has been selected by the Board to serve as the Company's
independent auditor for fiscal year 2003. Representatives of KPMG LLP will
attend the Meeting, will have an opportunity to make a statement and will be
available to respond to questions.
AUDIT FEES. Fees related to the fiscal year 2002 audit of the Company's
annual financial statements and review of those financial statements included in
the Company's quarterly reports on Form 10-Q totaled $1,256,161, all of which
had been billed as of August 15, 2002.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The Company
did not engage KPMG LLP to provide advice to the Company regarding financial
information systems design and implementation during fiscal year 2002.
ALL OTHER FEES. Fees billed to the Company by KPMG LLP for all other
non-audit services performed for the Company during fiscal year 2002, including
tax related services, totaled $693,486 as of August 15, 2002. The Audit
Committee considered whether the provision of non-audit services by KPMG LLP is
compatible with maintaining KPMG LLP's independence with respect to the Company.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
In order to be included in the Company's proxy materials for the 2003
Annual Meeting of the Stockholders, a stockholder proposal must be received in
writing by the Company at 1101 Pennsylvania Avenue, N.W., Suite 1010,
Washington, D.C. 20004 by May 30, 2003, and otherwise comply with all
requirements of the Commission for stockholder proposals. In addition, the
Company's By-Laws provide that any stockholder who desires to bring a proposal
before an annual meeting must give timely written notice of the proposal to the
Company's Secretary. To be timely, the notice must be delivered to the above
address not less than 60 days before the first anniversary of the date on which
the Company first mailed its proxy materials for the immediately preceding
annual meeting. Stockholder proposals for the 2003 Annual Meeting must be
received not later than July 29, 2003. However, the Company's By-Laws also
provide that if an annual meeting is not publicly announced at least 75 calendar
days prior to the date of the annual meeting, then stockholder proposals for
that annual meeting must be received by the close of business on the tenth
calendar day following the day on which the date of the annual meeting is
announced. The notice must also describe the stockholder proposal in reasonable
detail and provide certain other information required by the By-Laws. A copy of
the By-Laws is available upon request from the Company's Secretary.
27
OTHER MATTERS
The Board does not intend to present, and knows of no others who intend to
present, any matter of business at the Meeting 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
Vice Chairman and
Chief Executive Officer
Washington, D.C.
September 27, 2002
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 2002, 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 -- FINANCIAL OPERATIONS, HARMAN INTERNATIONAL INDUSTRIES,
INCORPORATED, 1101 PENNSYLVANIA AVENUE, N.W., SUITE 1010, WASHINGTON, D.C.
20004.
28
EXHIBIT A
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
2002 KEY EXECUTIVE OFFICERS BONUS PLAN
1. PURPOSE. The purpose of the 2002 Key Executive Officers Bonus Plan
(this "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 this 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 any successor provision to either), and
this 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 of this Plan.
"Board" means the Board of Directors of the Company.
"Change in Control" means the occurrence of any of the following events:
(a) 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: (i)
any issuance of Voting Stock of the Company directly from the
Company that is approved by the Incumbent Board (as defined below),
(ii) any acquisition by the Company or a Subsidiary of Voting Stock
of the Company, (iii) 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 (iv) any acquisition
of Voting Stock of the Company by any Person pursuant to a Business
Combination (as defined below) that complies with clauses (i), (ii)
and (iii) of subsection (c) below;
(b) 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 stockholders, 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;
A-1
(c) 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, (i) 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), (ii) no Person (other
than the Company, such 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 (iii) 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
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (i), (ii) and (iii)
of subsection (c) above.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation and Option Committee of the Board or
any other committee appointed by the Board to administer this 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 or any successor provision to either.
"Eligible Executive" means the Company's Executive Chairman, 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 this 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 of this Plan.
"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 THIS PLAN. This Plan shall be administered by the
Committee, which shall have full power and authority to construe, interpret and
administer this Plan.
A-2
4. ELIGIBILITY. Eligibility under this Plan is limited to Eligible
Executives.
5. AWARDS.
(a) No later than September 28 of each fiscal year, the Committee shall
meet in order to establish (i) the Return on Shareholder Equity Goal
for the fiscal year and (ii) the Award Amount payable to each
Eligible Executive if the Return on Shareholder Equity Goal for the
fiscal year is met. "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) After the end of each fiscal year, the Committee shall meet to
determine and certify whether the Return on Shareholder Equity Goal
for the fiscal year has been met. In the event that the goal has
been met, the Committee shall establish the Award Amount for each
Eligible Executive for the fiscal year, exercising discretion only
to reduce the amount of the maximum cash award if in its judgment
such a reduction is appropriate.
(c) Notwithstanding any other provision of this Plan to the contrary, in
no event shall the Award Amount paid to an Eligible Executive under
this Plan for a fiscal year exceed $2,000,000.
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 of this Plan.
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 (a) employed by
the Company at the time of the Change in Control or (b) if the Eligible
Executive has been terminated or removed from his or her office or position with
the Company, such action occurred (i) not more than 180 days prior to the date
on which a Change in Control occurs, and (ii) following the commencement of any
discussion with a third person that ultimately results in a Change in Control.
Any payment under this Section 8 shall be made no later than 30 days after the
effective date of the Change in Control and shall constitute payment in full of
all obligations of the Company under this Plan for such year.
9. NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither the establishment of
this Plan, the provision for or payment of any amounts hereunder nor any action
of the Company, the Board or the Committee with respect to this 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
A-3
under this 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 this Plan shall not be transferable or assignable
other than by will or the laws of descent and distribution.
12. EFFECTIVE DATE. Subject to approval by the stockholders of the
Company, this Plan shall become effective as of July 1, 2002, and shall remain
effective until the fifth anniversary of the date of such approval, subject to
any further stockholder approvals (or reapprovals) mandated for
performance-based compensation under Section 162(m) of the Code and the
Regulations (or any successor provision to either), and subject to the right of
the Board to terminate this Plan, on a prospective basis only, at any time. All
awards under this Plan shall be null and void if this Plan is not approved by
the stockholders of the Company.
A-4
EXHIBIT B
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
2002 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the 2002 Stock Option and Incentive Plan (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. If this Plan is approved by the
Company's stockholders, it will replace the Company's 1992 Incentive Plan.
2. DEFINITIONS. As used in this Plan,
"Applicable Exchange Rules" shall have the meaning set forth in Section
17(a) of this Plan.
"Appreciation Right" means a Tandem Appreciation Right or Free-Standing
Appreciation Right granted pursuant to Section 5 of this Plan.
"Base Price" means the price to be used as the basis for determining the
Spread upon the exercise of a Free-Standing Appreciation Right.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the committee of the Board referred to in Section 16
of this Plan.
"Common Stock" means the shares of Common Stock, par value $0.01 per
share, of the Company or any security into which such shares of Common Stock may
be changed by reason of any transaction or event of the type referred to in
Section 10 of this Plan.
"Company" has the meaning set forth in Section 1 of this Plan.
"Covered Employee" means an Eligible Participant who is, or is
determined by the Committee to be likely to become, a "covered employee" within
the meaning of Section 162(m) of the Code (or any successor provision).
"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 Shares shall become effective.
"Director" means a member of the Board.
"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,
director or key employee of the Company or any one or more of its Subsidiaries,
or (b) who has agreed to commence serving in any of such capacities within 90
days of the Date of Grant; provided, however, that a Non-Officer Director shall
only be eligible to receive awards under Section 8 of this Plan.
"Evidence of Award" means an agreement, certificate, resolution or other
type or form of writing or other evidence approved by the Committee which sets
forth the terms and conditions of the Option Rights, Appreciation Rights,
Performance Units or Restricted Shares. An Evidence of Award may be in an
electronic medium, may be limited to a notation on the books and records of the
Company and, with the approval of the Committee, need not be signed by a
representative of the Company or an Eligible Participant.
B-1
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Less-Than-80% Subsidiary" means a Subsidiary with respect to which the
Company, directly or indirectly, owns or controls less than 80% of the total
combined Voting Power represented by all classes of stock issued by such
Subsidiary.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Eligible Participants who have
received grants of Performance Units or, when so determined by the Board, Option
Rights, Appreciation Rights, Restricted Shares, dividend credits or other awards
pursuant to this Plan. Management Objectives may be described in terms of
Company-wide objectives or objectives that are related to the performance of the
individual Eligible Participant or of the Subsidiary, division, department,
region or function within the Company or Subsidiary in which the Eligible
Participant is employed. The Management Objectives may be made relative to the
performance of other corporations. The Management Objectives applicable to any
award to a Covered Employee that is intended to comply with Section 162(m) of
the Code shall be based on specified levels of or growth in one or more of the
following criteria:
(a) cash flow/net assets ratio;
(b) return on total capital or assets;
(c) Return on Consolidated Equity;
(d) earnings or earnings per share;
(e) revenue;
(f) cash flow; and/or
(g) stock price or total return to stockholders.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
it conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Committee may in its discretion modify such
Management Objectives or the related minimum acceptable level of achievement, in
whole or in part, as the Committee deems appropriate and equitable, except in
the case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code. In
such case, the Committee shall not make any modification of the Management
Objectives or minimum acceptable level of achievement.
"Market Value per Share" means, as of any particular date, (a) the
closing sale price per share of Common Stock, regular way, as reported on the
New York Stock Exchange Composite Tape or, if the shares of Common Stock are no
longer traded on the New York Stock Exchange, on the principal exchange on which
the shares of Common Stock are then traded, or, if the Common Stock is not then
traded on an exchange, the last sale price as reported on the Nasdaq National
Market System or other division of the Nasdaq on which the shares of Common
Stock are then quoted, on the relevant date (or, if no trades are reported on
that date, on the next preceding date on which a sale occurred), or (b) if
clause (a) does not
B-2
apply, the fair market value of the shares of Common Stock as determined in good
faith by the Committee.
"Non-Officer Director" means a Director who is not an officer or
employee of the Company or any Subsidiary.
"Optionee" means the optionee named in an Evidence of Award evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase shares of Common Stock upon
exercise of an option granted pursuant to Section 4 of this Plan.
"Performance Period" means, in respect of a Performance Unit, a period
of time established pursuant to Section 7 of this Plan within which the
Management Objectives relating to such Performance Unit must be achieved.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $100.00 awarded pursuant to Section 7 of this Plan.
"Plan" has the meaning set forth in Section 1 of this Plan.
"Restricted Shares" means shares of Common Stock granted or sold
pursuant to Section 6 of this Plan as to which neither the substantial risk of
forfeiture nor the prohibition on transfers referred to in such Section 6 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 stockholders' equity for the
fiscal year, as determined by adding the average stockholders' equity for each
quarter of the fiscal year, divided by four.
"Spread" means the excess of the Market Value per Share on the date when
an Appreciation Right is exercised over (i) the Option Price provided for in the
related Option Right (for Options Rights or Tandem Appreciation Rights) or (ii)
the Base Price (for Free-Standing Appreciation Rights).
"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 50% of the
total combined Voting Power represented by all classes of stock issued by such
corporation.
"Tandem Appreciation Right" means an Appreciation Right granted pursuant
to Section 5 of this Plan that is granted in tandem with an Option Right.
"Voting Power" means with respect to any Subsidiary, the total votes
relating to the then-outstanding securities entitled to vote generally in the
election of its board of directors (or other managing body).
3. SHARES AVAILABLE UNDER THIS PLAN.
(a) Subject to adjustment as provided in Section 10 of this Plan, the
number of shares of Common Stock that may be issued or transferred (i) upon the
exercise of Option Rights or
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Appreciation Rights, (ii) as Restricted Shares and released from substantial
risks of forfeiture thereof, (iii) in payment of Performance Units that have
been earned, (iv) as awards to Non-Officer Directors or (v) in payment of
dividend equivalents paid with respect to awards made under this Plan, shall not
exceed in the aggregate 3,000,000 shares of Common Stock. Such shares of Common
Stock may be shares of original issuance or treasury shares or a combination of
the foregoing.
(b) Shares of Common Stock relating to awards that expire, are
forfeited, surrendered or relinquished, whether upon exercise or otherwise,
shall not be available for reissuance under this Plan.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary and subject to adjustment as provided in Section 10 of
this Plan, (i) the aggregate number of shares of Common Stock actually issued or
transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 3,000,000 shares of Common Stock; (ii) no Eligible Participant shall
be granted Option Rights and Appreciation Rights, in the aggregate, for more
than 300,000 shares of Common Stock during any calendar year; (iii) non-option
awards denominated in shares of Common Stock (including, without limitation,
awards of Restricted Shares) shall not exceed 300,000 shares of Common Stock, in
the aggregate; and (iv) no Eligible Participant shall be granted during any
calendar year non-option awards denominated in shares of Common Stock
(including, without limitation, awards of Restricted Shares) representing more
than 25,000 shares of Common Stock, in the aggregate.
(d) Notwithstanding any other provision of this Plan to the contrary, in
no event shall any Eligible Participant in any calendar year receive an award of
Performance Units having an aggregate maximum value as of their respective Dates
of Grant in excess of $2,000,000.
4. OPTION RIGHTS. The Committee may authorize the grant of options to
purchase shares of Common Stock to Eligible Participants. Each such grant may
utilize any or all of the authorizations, and shall be subject to all of the
requirements contained in the following provisions:
(a) Each grant shall specify the number of shares of Common Stock to
which it pertains subject to the limitations set forth in Section 3 of this
Plan.
(b) Each grant shall specify an Option Price of not less than the Market
Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of shares of unrestricted Common Stock
owned by the Optionee for a period of time acceptable to the Committee, having a
value at the time of exercise equal to the total Option Price, (iii) any other
legal consideration that the Committee may deem appropriate, including without
limitation any form of consideration authorized under Section 4(d) of this Plan,
on such basis as the Committee may determine in accordance with this Plan, and,
unless otherwise determined by the Committee pursuant to Section 4(d) of this
Plan, or (iv) by a combination of such methods of payment.
(d) The Committee may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares or
other shares of Common Stock that are forfeitable or subject to restrictions on
transfer (based on the Market Value per Share on the date of exercise), other
Option Rights (based on the Spread on the date of exercise) or
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Performance Units. Unless otherwise determined by the Committee at 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 Section 4(d), the shares of
Common Stock received upon the exercise of the Option Rights shall be subject to
such risks of forfeiture or restrictions on transfer as may correspond to any
that apply to the consideration surrendered, but only to the extent, determined
with respect to the consideration surrendered, of (i) the same number of shares
of Common Stock received by the Optionee as applied to the forfeitable or
Restricted Shares surrendered by the Optionee, (ii) the Spread of any
unexercisable portion of Option Rights, or (iii) the stated value of Performance
Units.
(e) Unless otherwise determined by the Committee, each grant of Option
Rights shall specify the period or periods of continuous service by the Optionee
with the Company or any Subsidiary that is necessary before the Option Rights or
installments thereof will become exercisable and may provide for the earlier
exercise of such Option Rights upon the occurrence of a change of control of the
Company or other similar transaction or event specified in an Evidence of Award.
(f) Subject to the limitations set forth in Section 3 of this Plan,
successive grants of Option Rights may be made to the same Eligible Participant
whether or not any Option Rights previously granted to such Eligible Participant
remain unexercised.
(g) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(h) Option Rights granted under this Plan may be (i) options, including,
without limitation, Incentive Stock Options, that are intended to qualify under
particular provisions of the Code, (ii) options that are not intended so to
qualify, or (iii) combinations of the foregoing.
(i) The Committee may, at or after the Date of Grant of any Option
Rights (other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or, deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(j) The exercise of an Option Right shall result in the cancellation on
a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(k) No Option Right shall be exercisable more than 10 years from the
Date of Grant.
(l) Each grant of Option Rights shall be evidenced by an Evidence of
Award, which shall contain such terms and provisions, not inconsistent with this
Plan, as the Committee may approve.
5. APPRECIATION RIGHTS.
(a) The Committee may authorize the granting (i) to any Optionee, of
Tandem Appreciation Rights in respect of Option Rights granted hereunder, and
(ii) to any Eligible Participant, of Free-Standing Appreciation Rights. A Tandem
Appreciation Right shall be a right of the Optionee, exercisable by his or her
surrender of the related Option Right, to receive from the Company an amount
determined by the Committee, which shall be expressed as a percentage of the
Spread (not exceeding 100%) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Eligible Participant to receive from the Company an
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amount determined by the Committee, which shall be expressed as a percentage of
the Spread (not exceeding 100%) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(i) Any grant of Appreciation Rights 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 Eligible Participant 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 the sole discretion to approve or disapprove the
Optionee's election to receive cash in full or partial settlement of an
Appreciation Right, which consent or approval may be given at any time
after the election to which it relates.
(ii) Any grant of Appreciation Rights 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 on the date
of exercise) may not exceed a maximum amount specified by the Committee on
the Date of Grant.
(iii) Any grant of Appreciation Rights may specify waiting
periods before exercise and permissible exercise dates or periods.
(iv) Any grant of Appreciation Rights may provide that an
Appreciation Right may be exercised upon the occurrence of, or only
exercised in the event of, a change of control of the Company or other
similar transaction or event specified in an Evidence of Award.
(v) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such
Appreciation Rights.
(vi) Any grant of Appreciation Rights may provide for the
payment to the Eligible Participant of dividend equivalents thereon in cash
or shares of Common Stock on a current, deferred or contingent basis.
(vii) Each grant of Appreciation Rights shall be evidenced by an
Evidence of Award that shall describe such Appreciation Rights, identify
the related Option Rights (in the case of Tandem Appreciation Rights), and
which shall contain such terms and provisions, not inconsistent with this
Plan, as the Committee may approve.
(c) Any grant of Tandem Appreciation Rights shall provide that such
Rights may be exercised only at a time when the related Option Right is also
exercisable and at a time when the Spread is positive, and by surrender of the
related Option Right for cancellation.
(d) Any grant of Free-Standing Appreciation Rights may utilize any or
all of the following additional authorizations, and shall be subject to the
following additional requirements:
(i) Each grant shall specify in respect of each Free-Standing
Appreciation Right a Base Price, which shall be equal to or greater than
the Market Value per Share on the Date of Grant.
(ii) Subject to the limitations set forth in Section 3 of this
Plan, successive grants of Free-Standing Appreciation Rights may be made to
the same Eligible Participant regardless of whether any Free-Standing
Appreciation Rights previously granted to the Eligible Participant remain
unexercised.
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(iii) No Free-Standing Appreciation Right granted under this
Plan may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Committee may authorize the grant or sale of
Restricted Shares to Eligible Participants. Each such grant or sale may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale of Restricted Shares 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 referred to
hereinafter.
(b) Each such grant or sale of Restricted Shares may be made without
additional consideration or in consideration of a payment by such Eligible
Participant that is less than Market Value per Share on the Date of Grant.
(c) Each such grant or sale of Restricted Shares shall provide that the
Restricted Shares covered by such grant or sale shall be subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the Code
for a period to be determined by the Committee on the Date of Grant, provided
that such period shall be at least three years. Notwithstanding the foregoing
restriction, any grant or sale of Restricted Shares may provide for the earlier
lapse of substantial risk of forfeiture in the event of a change in control of
the Company or other similar transaction or event specified in an Evidence of
Award.
(d) Each such grant or sale of Restricted Shares shall provide that
during the period for which a substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Company on the Date of Grant
(which restrictions may include, without limitation, rights of repurchase or
first refusal in favor of the Company or provisions subjecting the Restricted
Shares to a continuing substantial risk of forfeiture in the hands of any
transferee).
(e) Any grant or sale of Restricted Shares may specify Management
Objectives that, if achieved, will result in termination or early termination of
the restrictions applicable to such shares. Each grant or sale may specify in
respect of such Management Objectives a minimum acceptable level of achievement
and may set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.
(f) Any grant or sale of Restricted Shares may provide that any or all
dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional Restricted
Shares, which shall be subject to the same restrictions as the underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
Evidence of Award that shall contain such terms and provisions, not inconsistent
with this Plan, as the Committee may approve. Unless otherwise directed by the
Committee, all certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon have lapsed, together with
a stock power or powers executed by the Eligible Participant in whose name such
certificates are registered, endorsed in blank and covering such shares.
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7. PERFORMANCE UNITS. The Committee may authorize the grant of Performance
Units to Eligible Participants. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(a) Each grant of Performance Units shall specify the number of
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors, provided,
however, that no such adjustment shall be made in the case of a Covered Employee
where such action would result in the loss of the otherwise available exemption
of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance Unit shall
be such period of time (not less than three years), commencing with the Date of
Grant as shall be determined by the Committee at the time of grant. The
Performance Period may be subject to earlier lapse or other modification in the
event of a change in control of the Company or other similar transaction or
event specified in the Evidence of Award.
(c) Any grant of Performance Units shall specify Management Objectives
that must be achieved as a condition to the payment or early payment of the
award, and each grant may specify in respect of such specified Management
Objectives a minimum acceptable level of achievement and shall set forth a
formula for determining the number of Performance Units that will be earned if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives. The grant of Performance
Units shall specify that, before Performance Units shall be earned and paid, the
Committee must certify that the Management Objectives have been satisfied.
(d) Each grant of Performance Units shall specify the time and manner of
payment of Performance Units that have been earned. Any grant may specify that
the amount payable with respect thereto may be paid by the Company in cash, in
shares of Common Stock or in any combination thereof and may either grant to the
Eligible Participant or retain in the Committee the right to elect among those
alternatives.
(e) Any grant of Performance Units may specify that the amount payable
or the number of shares of Common Stock issued with respect thereto or any
combination thereof may not exceed a maximum amount or number, as applicable,
specified by the Committee on the Date of Grant.
(f) Each grant of Performance Units shall be evidenced by an Evidence of
Award containing such terms and provisions, not inconsistent 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 8. If this 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) Each person who first becomes a Non-Officer Director after the
effective date of this Plan will be granted an Option Right to purchase 3,000
shares of Common Stock on the date such person first becomes a Non-Officer
Director.
(b) Beginning with the 2003 annual meeting of the Company's
stockholders, each person serving as a Non-Officer Director shall be granted an
Option Right to purchase 3,000 shares of Common Stock immediately after each
annual meeting of the Company's stockholders.
B-8
(c) Beginning with the 2003 annual meeting of the Company's stockholders
each person serving as a Non-Officer Director during the preceding fiscal year
shall be automatically granted Option Rights at each annual meeting of the
Company's stockholders based on the Company's Return on Consolidated Equity for
its most recently completed fiscal year as follows: either (i) for a Return on
Consolidated Equity of at least nine percent but less than 13%, 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 13% or more, each Non-Officer
Director shall receive an Option Right to purchase 1,500 shares of Common Stock.
(d) Each grant of Option Rights under this Section 8 shall be subject to
the following additional requirements:
(i) The Option Price per share for which each such Option Right
is exercisable shall be not less than 100% 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 of Common Stock covered thereby
one year after the Date of Grant and to the extent of an additional
one-fifth of such shares of Common Stock after each of the next four
successive years thereafter so long as the holder of the Option Right has
served continuously as a Director. Such Option Rights shall become
exercisable in full immediately in the event of a change in control of the
Company or other similar transaction or event specified in the Evidence of
Award. Each such Option Right granted under this Plan shall expire 10 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 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 shall be exercisable in full and 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 Director, any
Option Rights then held under this Plan by such individual shall not be
affected thereby.
(vi) Option Rights may be exercised by a Non-Officer Director
upon payment to the Company in full of the Option Price in accordance with
Section 4(c) of this Plan.
(vii) Successive grants of Option Rights may be made to a
Non-Officer Director whether or not Option Rights previously granted to
such Non-Officer Director remain outstanding.
(viii) Each grant of Option Rights under this Section 8 shall be
evidenced by an Evidence of Award containing the foregoing terms and
conditions and such other terms and conditions, not inconsistent with this
Plan, as the Committee may approve.
B-9
9. TRANSFERABILITY.
(a) Except as otherwise determined by the Committee, no Option Right,
Appreciation Right or other derivative security granted under this Plan shall be
transferable by an Eligible Participant other than by will or the laws of
descent and distribution. Except as otherwise determined by the Committee,
Option Rights and Appreciation Rights shall be exercisable during the Optionee's
lifetime only by him or her or by his or her guardian or legal representative.
(b) The Committee may specify on the Date of Grant that part or all of
the shares of Common Stock that are (i) to be issued or transferred by the
Company upon the exercise of Option Rights or Appreciation Rights, or upon
payment under any grant of Performance Units or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
10. ADJUSTMENTS. The Committee may make or provide for such adjustments in
the numbers of shares of Common Stock covered by any outstanding Option Rights
or Appreciation Rights, in the Option Price and Base Price provided in
outstanding Appreciation Rights, and in the kind of shares of Common Stock
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 Eligible Participants or Optionees that otherwise would result
from (a) any stock dividend, stock split, combination of shares of Common Stock,
recapitalization or other change in the capital structure of the Company, (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
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.
Moreover, in the event of any such transaction or event, the Committee, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Committee may also make or provide for
such adjustments in the numbers and kind of shares of Common Stock specified in
Section 3 of this Plan, and numbers of Option Rights issuable 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 this Section 10, provided, however, that any such adjustment to the
number specified in Section 3(c)(i) of this Plan shall be made only if and to
the extent that such adjustment would not cause any option intended to qualify
as an Incentive Stock Option to fail so to qualify.
11. GOVERNING LAW. This Plan and all awards granted and actions taken
thereunder shall be governed by and construed in accordance with the internal
substantive laws of the State of Delaware.
12. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional shares of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement of fractions in
cash.
13. 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,
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which arrangements (in the discretion of the Committee) may include
relinquishment of a portion of such benefit. Eligible Participants shall also
make such arrangements as the Company may require for the payment of any
withholding tax obligations that may arise in connection with the disposition of
shares of Common Stock acquired upon the exercise of Option Rights. In no event,
however, shall the Company accept shares of Common Stock for payment of taxes in
excess of required tax withholding rates, except that, in the discretion of the
Committee, an Eligible Participant may surrender shares of Common Stock that
have been owned by such Eligible Participant for a period of time acceptable to
the Committee to satisfy any tax obligations resulting from any such
transaction.
14. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80% 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% Subsidiary,
regardless whether such Eligible Participant is also employed by the Company or
another Subsidiary, the Committee may require the Less-Than-80% Subsidiary to
agree to transfer to the Eligible Participant (as, if and when provided for
under this Plan and any applicable agreement entered into between the Eligible
Participant and the Less-Than-80% Subsidiary pursuant to this Plan) the shares
of Common Stock that would otherwise be delivered by the Company upon receipt by
the Less-Than-80% Subsidiary of any consideration then otherwise payable by the
Eligible Participant to the Company. Any such award may be evidenced by an
Evidence of Award between the Eligible Participant and the Less-Than-80%
Subsidiary, in lieu of the Company, on terms not inconsistent with this Plan and
approved by the Committee and the Less-Than-80% Subsidiary. All shares of Common
Stock so delivered by or to a Less-Than-80% 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% Subsidiary except with respect to the definitions of the Board
and the Committee and in other cases where the context otherwise requires.
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 stockholders of the Company.
16. ADMINISTRATION OF THIS PLAN.
This Plan shall be administered by one or more committees of the Board, as
determined by the Board. Each committee shall be deemed a "Committee" hereunder
and shall have the authority delegated to it by the Board from time to time. The
interpretation and construction by the Committee of any provision of this Plan
or of any Evidence of Award and any determination by the Committee pursuant to
any provision of this Plan or of any Evidence of Award shall be final and
conclusive. No member of the Committee shall be liable for any such action or
determination made in good faith.
B-11
17. AMENDMENTS, ETC.
(a) The Committee may at any time and from time to time amend this Plan
in whole or in part; provided, however, that any amendment that must be approved
by the stockholders of the Company in order to comply with applicable law or the
rules of the New York Stock Exchange or, if the shares of Common Stock are not
traded on the New York Stock Exchange, the principal securities exchange upon
which the shares of Common Stock are then traded or quoted (the "Applicable
Exchange Rules"), shall not be effective unless and until such approval has been
obtained. Presentation of this Plan or any amendment hereof for stockholder
approval shall not be construed to limit the Company's authority to offer
similar or dissimilar benefits under other plans without stockholder approval to
the extent permitted under applicable law or Applicable Exchange Rules. Without
limiting 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 law or regulations or in financial accounting principles, or in the
interpretation thereof.
(b) The Evidence of Award evidencing any outstanding award may, with the
concurrence of the affected Eligible Participant, be amended by the Committee,
provided that the terms and conditions of each Evidence of Award and amendment
are not inconsistent with this Plan and that no amendment shall adversely affect
the rights of an Eligible Participant with respect to any outstanding award
without the Eligible Participant's consent.
(c) 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, in the case of Option Rights, and replaced with an award
having a lower Option Price without the further approval of the stockholders of
the Company.
(d) The Committee may, in its sole discretion, accelerate the time at
which any Option Right or Appreciation Right may be exercised, the time during
which any Restricted Shares are subject to a substantial risk of forfeiture or
other restrictions on transfer, or the time at which any Performance Units will
be deemed to have been fully earned or may waive any other limitation or
requirement under any such award. 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 Shares 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
manner provided in Section 6(c) or 6(e) of this Plan.
(e) The Committee may permit Eligible Participants to elect to defer the
issuance of shares of Common Stock or the settlement of awards in cash under
this Plan pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Committee may provide that such deferred issuances
and settlements include the payment or crediting of dividend equivalents or
interest on the deferral amounts.
(f) The Committee may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the Eligible
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Eligible Participant.
(g) In the event an Eligible Participant shall have (i) been convicted
of a criminal violation involving fraud, embezzlement or theft in connection
with his or her duties or in the course of his or her employment with the
Company or any Subsidiary, (ii) committed
B-12
intentional wrongful damage to property of the Company or any Subsidiary, or
(iii) committed intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary, and the Committee, in
good faith, shall determine that any such act shall have been demonstrably and
materially harmful to the Company, then notwithstanding any other provision in
this Plan to the contrary, the Committee may terminate any Option Rights or
other awards under this Plan granted such Eligible Participant. Any termination
of Option Rights or other awards under this Section 17(g) shall be effective at
such time as the Committee may determine in its sole discretion, but in any
event no earlier than the date the Committee makes the determination
contemplated by this Section 17(g).
(h) 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.
(i) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to such
Option Right. Such provision, however, shall remain in effect for other Option
Rights and there shall be no further effect on any provision of this Plan.
18. EFFECTIVE DATE. This Plan shall be effective immediately; provided,
however, that the effectiveness of this Plan is conditioned on its approval by
the stockholders of the Company in accordance with applicable law within 12
months after the date this Plan is adopted by the Board. All awards under this
Plan shall be null and void if this Plan is not approved by the stockholders
within such 12-month period.
19. TERM. No awards shall be granted under this Plan after November 8,
2012. Any awards previously granted under this Plan and outstanding subsequent
to November 8, 2012 shall continue to be governed by the provisions of this
Plan.
B-13
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 8, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Frank Meredith and Sandra B.
Robinson, with the power to appoint his or her substitute, as Proxy and
authorizes each 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 8, 2002 and at
any adjournment thereof, as specified on the reverse side hereof and in the
Notice of Annual Meeting of Stockholders and the Proxy Statement, each dated
September 27, 2002.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE HEREOF OR, IF NOT SPECIFIED, WILL BE VOTED FOR EACH NOMINEE FOR
DIRECTOR SET FORTH IN ITEM 1, FOR APPROVAL OF THE 2002 KEY EXECUTIVE OFFICERS
BONUS PLAN SET FORTH IN ITEM 2 AND FOR APPROVAL OF THE 2002 STOCK OPTION AND
INCENTIVE PLAN SET FORTH IN ITEM 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.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE DIRECTORS SET Please mark your
FORTH IN ITEM 1, FOR APPROVAL OF THE 2002 KEY EXECUTIVE OFFICERS BONUS PLAN SET votes as indicated [X]
FORTH IN ITEM 2, AND FOR APPROVAL OF THE 2002 STOCK OPTION AND INCENTIVE PLAN in this example.
SET FORTH IN ITEM 3.
1. Election of Sidney Harman and 2. Approval of the 2002 Key Executive Officers 3. Approval of the 2002 Stock Option and
Shirley Mount Hufstedler as DIRECTORS: Bonus Plan: Incentive Plan:
FOR both WITHHOLD vote FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
nominees for both nominees [ ] [ ] [ ] [ ] [ ] [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR Please date and sign exactly as the name appears
ANY INDIVIDUAL NOMINEE, STRIKE A LINE to the left and return this proxy in the
THROUGH THAT NOMINEE'S NAME.) 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 , 2002
--------------------------------------
-------------------------------------------------
Signature
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Signature (if held jointly)
-------------------------------------------
PLEASE MARK INSIDE BOXES SO THAT DATA USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND
PROCESSING EQUIPMENT WILL RECORD YOUR VOTE PROMPTLY RETURN THIS PROXY CARD IN THE ENVELOPE
------------------------------------------- PROVIDED
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- FOLD AND DETACH HERE -
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE