UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to § 240.14a-12

Harman International Industries, Incorporated

(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (Check the appropriate box):
þ			No fee required.
o			Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
			(1	)		Title of each class of securities to which transaction applies:
			(2	)		Aggregate number of securities to which transaction applies:
			(3	)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			(4	)		Proposed maximum aggregate value of transaction:
			(5	)		Total fee paid:
o			Fee paid previously with preliminary materials.
o			Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
			(1	)		Amount Previously Paid:
			(2	)		Form, Schedule or Registration Statement No.:
			(3	)		Filing Party:
			(4	)		Date Filed:

 

Dear Harman International Stockholder:

 

You are cordially invited to attend the 2007 Annual Meeting of Stockholders of Harman International Industries, Incorporated. The meeting will be held on Monday, December 17, 2007, beginning at 11:00 a.m. at the JPMorgan Chase Building, 270 Park Avenue, New York, New York. Information about the meeting, the nominees for election as directors and other action to be taken is presented in the following Notice of Annual Meeting of Stockholders and Proxy Statement.

 

At the meeting, management will also report on the Company’s operations during fiscal 2007 and comment on the Company’s 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 promptly return the enclosed proxy card or use the telephone or Internet voting procedures described on the proxy card.

 

We look forward to seeing you on December 17th.

 

Sincerely,

 

 

Sidney Harman

Executive Chairman

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To be held on December 17, 2007

 

 

 

The 2007 Annual Meeting of Stockholders of Harman International Industries, Incorporated (the “Company”) will be held at the JPMorgan Chase Building, 270 Park Avenue, New York, New York, on December 17, 2007, beginning at 11:00 a.m. The meeting will be held for the following purposes:

 

 

(3) to transact other business that properly comes before the meeting.

 

Information concerning the matters to be acted upon at the meeting is set forth in the accompanying Proxy Statement. Stockholders of record as of the close of business on October 25, 2007 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 2007.

 

By Order of the Board of Directors,

 

 

Edwin C. Summers

Secretary

 

Washington, D.C.

October 29, 2007

 

 

 

 

HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED

1101 Pennsylvania Avenue, N.W.

Suite 1010

Washington, D.C. 20004

 

 

 

 

PROXY STATEMENT

 

 

 

 

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 Company’s 2007 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 of Stockholders. This Proxy Statement and the enclosed proxy card are being mailed to stockholders on or about October 31, 2007.

 

Holders of record of the Company’s common stock (“Common Stock”) as of the close of business on October 25, 2007 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 October 25, 2007, there were 65,250,651 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 can vote by proxy in one of three convenient ways:

 

 

You may revoke your proxy at any time prior to the vote at the Meeting by:

 

 

All properly executed proxies, unless revoked as described above, will be voted at the Meeting in accordance with your directions on the proxy. With respect to the election of directors, you may vote for both nominees, withhold your vote for both nominees, or withhold your vote as to a specific nominee. If a properly executed proxy does not provide instructions, the shares of Common Stock represented by your proxy will be voted:

 

 

A majority of the outstanding shares of Common Stock must be present, in person or by proxy, to constitute a quorum at the Meeting.

The Company’s majority voting policy requires any director nominee in an uncontested election who receives a greater number of votes “withheld” than votes “for” his or her election to tender his or her resignation promptly following the certification of the election results. The Nominating and Governance Committee of the Board will consider all of the relevant facts and circumstances and make a recommendation to the Board with respect to whether to accept the resignation. Within 90 days, the Board is required to take action with respect to the recommendation and to publicly disclose its decision by issuing a press release. The majority voting policy is more fully described in “The Board, Its Committees and Its Compensation — Majority Voting Policy.”

 

Those who fail to return a proxy or attend the Meeting will not count towards determining any required vote or quorum. Stockholders and brokers returning proxies or attending the Meeting who abstain from voting on the election of our directors will count towards determining a quorum. Brokers holding shares of record for customers generally are not entitled to vote on certain matters unless they receive voting instructions from their customers. In the event that a broker does not receive voting instructions for these matters from its customers, a broker may notify us that it lacks voting authority to vote those shares. These broker non-votes refer to votes that could have been cast on the matter in question by brokers with respect to uninstructed shares if the brokers had received their customers’ instructions. These broker non-votes will be included in determining whether a quorum exists, but will have no effect on the outcome of the election of our directors. To be sure your shares are voted in the manner you desire, you should instruct your broker how to vote your shares.

 

The Company is soliciting your proxy and will pay the cost of preparing and mailing this Proxy Statement and the enclosed proxy card. The Company has retained Mellon Investor Services LLC to assist in the solicitation of proxies for the Meeting. For these services, the Company will pay Mellon $8,500 and will reimburse Mellon for 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 these proxy materials to their principals and to request authority for the execution of proxies. The Company may reimburse such persons for their expenses in so doing.

 

PROPOSAL NO. 1
ELECTION OF DIRECTORS

 

At the Meeting, two directors will be elected to serve three-year terms expiring at the 2010 Annual Meeting of Stockholders. This section contains information relating to the two director nominees and the directors whose terms of office extend beyond the Meeting. The nominees for election are Ann McLaughlin Korologos and Dr. Harald Einsmann, each of whom is currently a director. Dr. Einsmann was appointed a director of the Company on October 26, 2007. He was recommended to the Nominating and Governance Committee by Edward H. Meyer, a director of the Company.

 

The Board expects that the 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 or allows that nominee’s director position to remain vacant until a qualified nominee is identified.

 

Under Delaware law and our Bylaws, a plurality of the votes cast is required for the election of Directors. This means that the Director nominee with the most votes for a particular Board position is elected for that position. You may vote “for” or “withheld” with respect to the election of directors. Only votes “for” or “withheld” are counted in determining whether a plurality has been cast in favor of a Director. Abstentions are not counted for purposes of the election of Directors.

 

Our majority voting policy requires, in an uncontested election, any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” to promptly tender his or her resignation following certification of the election results. The Nominating and Governance Committee will promptly consider the resignation and a range of possible responses based on the circumstances that led stockholders to withhold votes, if known, and make a recommendation to the Board. The Board will act on the Committee’s recommendation within 90 days following certification of the results of the election.

 

The Board recommends a vote FOR election of each of the nominees.

 

Nominees to be Elected at the Meeting

 

Ann McLaughlin Korologos, age 65, 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, Inc.), Host Hotels & Resorts, Inc., Kellogg Company and Vulcan Materials Company, a provider of construction aggregates. In April 2004, Ms. Korologos was elected Chairman of the RAND Corporation Board of Trustees. She is also a Chairman Emeritus of the Aspen Institute and previously served as a Senior Advisor to Benedetto, Gartland & Company, Inc. from 1996 to 2005.

 

Dr. Harald Einsmann, age 73, was appointed a director of the Company on October 26, 2007. Dr. Einsmann currently serves as a director of Tesco Plc, the Carlson Group, a provider of business and leisure travel, hotel, restaurant, cruise and marketing services, Checkpoint Systems, Inc., a provider of integrated system solutions for retail security, labeling, and merchandising, and Rezidor Hotel Group in Scandinavia. From 2000 to 2006, Dr. Einsmann served as an Operating Partner and a member of the Board of Directors/Investment Committee of EQT, a leading European Private Equity Group sponsored by the Wallenberg group of Scandinavia. Prior to joining EQT, Dr. Einsmann held senior management positions, as well as a seat on the Worldwide Board at The Procter & Gamble Company.

Directors Whose Terms Extend Beyond the Meeting

 

Sidney Harman, age 89, has been Executive Chairman of the Company 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 has informed the Board that he will forego the title of Executive Chairman effective as of the Meeting. He will continue as the Chairman of the Board. Dr. Harman served as Chief Executive Officer of the Company from 1980 to 1998 and from January 1, 2007 to June 30, 2007. Dr. Harman served as Deputy Secretary of Commerce of the United States from 1977 through 1978. His current term as a director expires at the 2008 Annual Meeting of Stockholders.

 

Shirley Mount Hufstedler, age 82, has been a director of the Company since September 1986. Ms. Hufstedler has been in private law practice for more than 25 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 is Director Emeritus of Hewlett-Packard Company. Her current term as a director expires at the 2008 Annual Meeting of Stockholders.

 

Edward H. Meyer, age 80, has been a director of the Company since 1990. Mr. Meyer has served as Chairman, Chief Executive Officer and Chief Investment Officer of Ocean Road Advisors, Inc., an investment management company, since January 2007. Mr. Meyer also served as Chairman, Chief Executive Officer and President of Grey Global Group, Inc., from 1970 to 2006. Mr. Meyer also serves as a director of Ethan Allen Interiors Inc, NRDC Acquisition Corp., and National CineMedia, Inc. His current term as a director expires at the 2009 Annual Meeting of Stockholders.

 

Dinesh Paliwal, age 49, was elected as a director of the Company on August 13, 2007. He began serving as President, Chief Executive Officer and Vice Chairman on July 1, 2007. Prior to joining the Company, Mr. Paliwal served as President of Global Markets and Technology of ABB Ltd from January 2006 until June 2007 and he served as President and CEO of ABB North America from January 2004 until June 2007. He was President and CEO of ABB Automation from October 2002 to December 2005. Mr. Paliwal is a director of Embarq Corporation, a provider of communication services. His current term as a director expires at the 2009 Annual Meeting of Stockholders.

 

Mr. Brian F. Carroll, age 36, was appointed a director of the Company on October 26, 2007. Mr. Carroll has been a member of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) since January 2006 and before that, an executive of KKR since July 1999. In addition, Mr. Carroll was an executive at KKR from 1995 to 1997, at which time he left KKR to attend business school at Stanford University. Prior to joining KKR in 1995, Mr. Carroll was with Donaldson, Lufkin & Jenrette. Mr. Carroll is also a member of the board of directors of Rockwood Specialties Group, Inc. and Sealy Corporation. His current term as a director expires at the 2008 Annual Meeting of Stockholders.

 

PROPOSAL NO. 2
APPROVAL OF THE 2007 KEY EXECUTIVE OFFICERS BONUS PLAN

 

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 2002, the stockholders approved the Company’s 2002 Key Executive Officers Bonus Plan (“2002 Plan”), which expires on November 8, 2007. In October 2007, the Board approved the Company’s 2007 Key Executive Officers Bonus Plan (“2007 Plan”) that amends and restates the 2002 Plan. The Board adopted the 2007 Plan upon the recommendation of the Compensation and Option Committee, subject to stockholder approval.

 

You are being asked to approve the 2007 Plan. You should read and understand the terms of the 2007 Plan before you vote. A summary of the 2007 Plan appears below and the full text of the 2007 Plan is attached to this Proxy Statement as Appendix 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 2007 Plan.

 

The Board Recommends a Vote FOR Approval of the 2007 Plan.

 

2007 Plan Summary

 

This summary of the 2007 Plan does not purport to be exhaustive and is expressly qualified in its entirety by reference to the full text of the 2007 Plan, which is attached to this Proxy Statement as Appendix A.

 

Administration.  The 2007 Plan will be administered by a committee with full authority to interpret and oversee the operation of the 2007 Plan. The plan committee will be the Compensation and Option Committee or any other committee appointed by the Board. The plan committee will in any event be comprised of not fewer than two 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.  The Company’s Chief Executive Officer and any other officer of the Company designated by the plan committee will be eligible to receive an award under the 2007 Plan. Currently, there are four individuals who are designated as eligible to receive awards under the 2007 Plan.

 

Goals and Awards.  No later than September 28 of each fiscal year, the plan committee will meet to establish a return on stockholder 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 2007 Plan to a plan participant shall not exceed $3,000,000 during any fiscal year.

 

After the end of each fiscal year, the plan committee will meet to determine whether the return on stockholder 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.

 

All awards under the 2007 Plan shall be null and void if the 2007 Plan is not approved by the Company’s stockholders.

 

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 2007 Plan, it will become effective as of July 1, 2007 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 2007 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.

 

2007 Plan Benefits

 

Under the 2007 Plan, the plan committee will establish a return on stockholder 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 2007 Plan that will be received by or allocated to any person or group, or in the aggregate, is not determinable.

 

THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

 

The Board of Directors

 

The Board currently consists of seven directors. Five of the directors are independent directors and two directors are members of the Company’s senior management. Each of the Company’s non-management directors meets the qualifications for independence under the listing standards of the New York Stock Exchange.

 

Director Compensation

 

Cash Compensation

 

For services rendered during fiscal 2007, non-management directors received an annual retainer fee of $60,000, plus $1,500 for each committee meeting attended on a day other than the day of a Board meeting. We do 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.

 

Equity-Based Compensation

 

Under the 2002 Stock Option and Incentive Plan, each non-management director received an option to purchase 5,000 shares of Common Stock on the date of our 2006 Annual Meeting of Stockholders. The exercise price of the options was the fair market value of the shares of Common Stock on the date of grant. Each option vests at a rate of 20% per year and expires 10 years after the date of grant.

 

The following table sets forth compensation earned by each of our non-management directors for his or her service as a director during fiscal 2007.

 

 

 

Corporate Governance

 

The Board and senior management believe that one of their primary responsibilities is to promote a culture of ethical behavior throughout the Company by setting examples and by displaying a sustained commitment to instilling and maintaining deeply ingrained principles of honesty and decency. Consistent with these principles the Company has, among other things, adopted:

 

 

The committee charters, corporate governance guidelines, ethics codes and majority voting policy are available on the Company’s website (www.harman.com) in the Corporate Governance section of the Investor Information page. Copies of these documents are also available upon written request to the Company’s Secretary. The Company will post information regarding any amendment to, or waiver from, its Code of Ethics for Senior Executive and Financial Officers and Directors on its website under the Corporate Governance section of the Investor Information page.

 

The Board periodically reviews its corporate governance policies and practices. Based on these reviews, the Board expects to adopt changes to policies and practices that are in the best interests of the Company and as appropriate to comply with any new requirements of the Securities and Exchange Commission (the “Commission”) or the New York Stock Exchange.

 

Director Independence

 

As part of the Company’s Corporate Governance Guidelines, the Board has established a policy requiring a majority of the members of the Board to be independent. The Board has also adopted a policy establishing independence standards to assist the Board in determining the independence of the non-management directors. Those standards reflect, among other things, the requirements under the listing standards of the New York Stock Exchange. The independence standards for non-management directors are attached to this proxy statement as Appendix B.

 

The Board has determined that each of the current non-management directors, Mr. Carroll, Dr. Einsmann, Ms. Hufstedler, Ms. Korologos and Mr. Meyer, is independent of the Company and its management within the meaning of the New York Stock Exchange listing standards and satisfies the Company’s independence standards.

 

Majority Voting Policy

 

Under our majority voting policy, in an uncontested election of directors, any nominee who receives a greater number of votes “withheld” than votes “for” his or her election will, promptly following the certification of the stockholder vote, tender his or her written resignation to the Board for consideration by the Nominating and Governance Committee. The Nominating and Governance Committee will consider the resignation and will make a recommendation to the Board concerning whether to accept or reject it.

In determining its recommendation to the Board, the Nominating and Governance Committee will consider all factors it considers relevant, which may include:

 

 

The Nominating and Governance Committee also will consider a range of possible alternatives concerning the director’s tendered resignation as it deems appropriate, which may include:

 

 

Under our majority voting policy, the Board will take formal action on the recommendation no later than 90 days following the certification of the results of the stockholders’ meeting. In considering the recommendation, the Board will consider the information, factors and alternatives considered by the Nominating and Governance Committee and any additional information that the Board considers relevant. The Company will publicly disclose the Board’s decision promptly after the decision is made in a press release. If applicable, the Board will also disclose the reason or reasons for rejecting the tendered resignation.

 

Communications with the Board

 

Stockholders and other interested parties may communicate with the Board, the non-management directors or specific directors by mail addressed to: Board of Directors, c/o Harman International Industries, Incorporated, 8500 Balboa Boulevard, Northridge, California 91329, Attn: General Counsel. The mailing envelope should also clearly indicate whether the communication is intended for the Board, the non-management directors or a specific director. The General Counsel or the Internal Auditor will review all these communications and will, within a reasonable period of time after receiving the communications, forward all communications to the appropriate director or directors, other than those communications that are merely solicitations for products or services or relate to matters that are of a type that are clearly improper or irrelevant to the functioning of the Board or the business and affairs of the Company.

 

Board Meetings

 

The Board held eleven meetings during fiscal 2007. Each director attended at least 75% of the Board meetings held during the period he or she was a director in fiscal 2007, other than Mr. Weiss who attended one of two Board meetings before his retirement as a director in November 2006 and Ms. Hufstedler who attended eight of eleven meetings. Each director attended at least 75% of the meetings of the committees on which he or she served held during the period he or she was a director in fiscal 2007, other than Mr. Weiss who attended one of two meetings held by the Nominating and Governance Committee and two of three meetings held by the Audit Committee

before his retirement as a director in November 2006; Ms. Hufstedler who attended five of seven meetings held by the Audit Committee and two of six meetings held by the Compensation and Option Committee; and Mr. Meyer who attended one of two meetings held by the Nominating and Governance Committee.

 

The Board has established a policy that the non-management directors meet in executive session, without members of the Company’s management present, at each regularly scheduled meeting of the full Board. These executive sessions are chaired by the non-management directors on a rotating basis.

 

Annual Meetings of Stockholders

 

As part of the Company’s Corporate Governance Guidelines, the Board has adopted a policy that each director is expected to make reasonable efforts to attend stockholders meetings. All Board members who were directors at the time of the meeting, other than Mr. Meyer, attended the Company’s 2006 Annual Meeting of Stockholders.

 

Audit Committee

 

The Audit Committee currently consists of Ms. Hufstedler (Chairwoman), Ms. Korologos and Mr. Meyer. During fiscal 2007, the Audit Committee held seven meetings. The Board has determined that each of the members of the Audit Committee is independent under the New York Stock Exchange listing standards and each is financially literate and experienced in financial matters. The Board has also determined that Ms. Hufstedler is an “audit committee financial expert” within the meaning of applicable Commission regulations. In making its determination, the Board considered Ms. Hufstedler’s knowledge of, and experience with, financial and accounting matters gained through serving as Chair of the Company’s Audit Committee and as a member of boards and audit committees of other public companies, as well as her experience in such matters as a practicing attorney, as a judge in both California state courts and the U.S. Court of Appeals, and as Secretary of Education.

 

The Audit Committee assists the Board in its oversight of the Company’s financial reporting, focusing on the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the qualifications and independence of the Company’s independent auditor and the performance of the Company’s internal audit function and independent auditor. The Audit Committee’s primary responsibilities include:

 

 

The Audit Committee’s responsibilities and key practices are more fully described in its written charter. A report of the Audit Committee appears on page 41 of this Proxy Statement.

 

Compensation and Option Committee

 

The Compensation and Option Committee currently consists of Mr. Meyer (Chairman), Ms. Hufstedler and Ms. Korologos. During fiscal 2007, the Compensation and Option Committee held six meetings. Each of the members of the Compensation and Option Committee is independent under the New York Stock Exchange listing standards.

The Compensation and Option Committee assists the Board in overseeing executive compensation and administers the Company’s executive bonus, option and incentive, deferred compensation and retirement plans. The Compensation and Option Committee’s primary responsibilities include:

 

 

The Compensation and Option Committee’s responsibilities and key practices are discussed more fully in its charter. A report of the Compensation and Option Committee appears on page 41 of this Proxy Statement.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee currently consists of Ms. Korologos (Chairwoman), Ms. Hufstedler and Mr. Meyer. During fiscal 2007, the Nominating and Governance Committee held two meetings. Each of the members of the Nominating and Governance Committee is independent under the New York Stock Exchange listing standards.

 

The Nominating and Governance Committee assists the Board in carrying out its oversight responsibilities relating to the composition of the Board and certain corporate governance matters. The Nominating and Governance Committee’s primary responsibilities include considering and making recommendations to the Board with respect to:

 

 

The Nominating and Governance Committee’s responsibilities and key practices are more fully described in its charter.

 

Director Nominees.  The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating director nominees. The Committee may consider candidates recommended by the Company’s directors, members of management, professional search firms or stockholders. These candidates may be considered at any point during the year.

 

Qualifications.  In evaluating nominees for election as a director, the Nominating and Governance Committee considers a number of factors, including the following:

 

 

 

The Nominating and Governance Committee will also consider other criteria for director candidates included in the Company’s Corporate Governance Guidelines or as may be established from time to time by the Board.

 

Stockholder Recommendations.  The Nominating and Governance Committee will evaluate director candidates recommended by a stockholder in the same manner as candidates otherwise identified by the Nominating and Governance Committee. The Company has never received any recommendations for director candidates from stockholders. In considering director candidates recommended by stockholders, the Nominating and Governance Committee will also take into account such factors as it considers relevant, including the length of time that the submitting stockholder has been a stockholder of the Company and the aggregate amount of the submitting stockholder’s investment in the Company.

 

Stockholders may recommend candidates at any time, but to be considered by the Nominating and Governance Committee for inclusion in the Company’s proxy statement for the next annual meeting of stockholders, recommendations must be submitted in writing no later than 120 days before the first anniversary of the date of the proxy statement mailed to stockholders in connection with the previous year’s annual meeting. A stockholder’s notice must contain the following:

 

 

The stockholder’s notice must be signed by the stockholder recommending the director candidate for consideration and sent to the following address: Harman International Industries, Incorporated, 8500 Balboa Boulevard, Northridge, California 91329, Attn: Corporate Secretary (Nominating and Governance Committee Communication / Director Candidate Recommendation).

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Compensation Program Objectives

 

The Company’s executive compensation program is intended to attract, retain and motivate the key people necessary to lead the Company to achieve its strategic objective of increased stockholder value over the long term, reflecting the Compensation and Option Committee’s belief that executive compensation should seek to align the interests of the Company’s executives with those of our stockholders. In establishing compensation, the committee seeks to provide our executive officers with a competitive total compensation package.

 

Compensation and Option Committee

 

Our executive compensation program is designed and implemented under the direction of our Compensation and Option Committee, which is comprised solely of independent directors. The committee is authorized to retain advisors with respect to compensation matters. The committee periodically consults with outside advisors, and uses survey data provided by compensation consultants, in connection with its decisions with respect to executive compensation matters.

 

Executive Compensation Programs and Policies

 

The components of our executive compensation program provide for a combination of fixed and variable compensation. As described in more detail below, these components are:

 

 

Base Salary

 

The base salary for each of our executive officers represents the fixed portion of their total compensation. Base salaries are determined on the basis of management responsibilities, level of experience and tenure with our Company, as well as internal and market comparisons, including surveys furnished from time to time by outside compensation consulting firms concerning practices of other companies, primarily companies engaged in electronics and manufacturing industries, with revenues comparable to the Company. In setting base salaries for executive officers, the committee seeks to provide a reasonable level of fixed compensation that is competitive with base salaries for comparable positions at similar companies.

 

At the request of the committee, Dr. Sidney Harman, our Executive Chairman, makes annual recommendations with respect to changes in base salary for our executive officers. Neither Dr. Harman nor any other executive officer participates in the committee’s decisions regarding the base salaries of our executive officers.

Annual Incentive Compensation

 

The Company maintains annual incentive compensation programs for its executive officers and other key employees that provide for awards in the form of cash bonuses.

 

The Company’s 2002 Key Executive Officers Bonus Plan, or the 2002 Plan, is the company’s annual incentive program for its most senior executive officers. The 2002 Plan was approved by the Company’s stockholders at its annual meeting in 2002. Awards payable under the 2002 Plan are intended to qualify as “performance-based compensation” for federal income tax purposes. The 2002 Plan will expire on November 8, 2007. You are being asked to approve the 2007 Plan that amends and restates the 2002 Plan. If the 2007 Plan is not approved, annual incentive compensation awards for senior executives will not qualify as performance-based compensation for federal income tax purposes.

 

Under the 2002 Plan, the Company’s Executive Chairman, Chief Executive Officer, Chief Financial Officer and any other executive officer designated by the committee are eligible to receive awards. Under this plan, each year the committee establishes a return on stockholder equity goal for the fiscal year and a maximum cash award payable to each plan participant if that goal is met. Annual cash awards payable to any plan participant under the 2002 Plan cannot exceed $2 million. The compensation committee maintains discretion under the 2002 Plan to decrease the amount paid to any participant in the 2002 Plan.

 

The Company also maintains a separate annual incentive program for executive officers, as well as other key employees, that do not participate in the 2002 Plan. Under this management incentive program, or MIP, executive officers are eligible to receive a cash bonus expressed as a percentage of base salary, generally 25% to 45%. In order to receive an award under the MIP, the executive’s business unit must achieve preestablished performance targets for operating income and working capital. These targets are established by reference to the Company’s internal business plan. In addition, plan participants are evaluated based upon performance against individual objectives. Performance against these objectives is a multiplier of the award, ranging from zero to 120%. The bonus award payable to any MIP participant cannot exceed 150% of the plan participant’s target bonus. The committee retains the authority to award discretionary cash bonuses to executives that participate in the MIP under circumstances in which the performance targets are not met in a fiscal year.

 

The Compensation and Option Committee believes annual incentive compensation is a key element of the total compensation of each executive officer. The committee also believes that as an executive progresses to greater levels of responsibility within the Company, the annual incentive award opportunity should represent an increasing portion of the executive’s potential annual compensation. Further, the committee believes that placing a significant portion of executive compensation at risk each year, subject to the Company’s results and individual performance, appropriately motivates executives to achieve the Company’s financial and other objectives thereby enhancing stockholder value, and also assists the Company in attracting and retaining executive officers and other key employees.

 

The committee has not adopted a formal policy regarding recovery of incentive awards for fiscal years for which financial results are later restated. While not anticipated, the committee would expect to consider any restatement in establishing incentive and other compensation awards for executives in future periods.

Long-Term Equity Incentive Compensation

 

The Company’s equity incentive plans are administered by the Compensation and Option Committee and are designed to provide incentive compensation to executive officers and other key employees, principally in the form of stock options, and to a lesser extent, restricted stock and restricted stock units. The grants are designed to align the interests of management with those of our stockholders and are intended as a long-term incentive for future performance.

 

In general, the committee considers equity awards for the Company’s most senior executive officers annually. Equity awards to other executive officers and key employees are generally considered every 18 months. All stock option awards under these equity incentive plans are granted at an exercise price equal to the market price of the Common Stock on the date of grant. The option awards generally vest over five years commencing one year from the date of grant and expire after ten years. A substantial majority of the option grants that have been awarded to executive officers under the Company’s equity incentive plans are “non-qualified” stock options, thereby providing the Company with the ability to realize tax benefits upon the exercise of these option awards. Awards of restricted stock and restricted stock units granted under the plans are subject to forfeiture for a period of at least three years. The committee views awards under the equity incentive plans as an additional means to encourage management retention.

 

When making equity-based incentive awards, the committee takes into consideration the dates on which the Company expects to make public announcements regarding earnings as well as other events or circumstances that have not been publicly announced that may be deemed material to the Company, our stockholders and other investors.

 

The committee intends to make appropriate executive compensation decisions so that our executives receive a total compensation package that is competitive and has a significant component that is at risk. The increase in the value of equity awards is directly linked to an increase in stockholder return, subject to continued employment by the executives with respect to unvested equity awards. The committee believes, as a general matter, that this positive result should not negatively impact future compensation decisions.

 

Severance and Change-in-Control Arrangements

 

Under the terms of the Company’s equity incentive plans and the related award agreements, unvested stock options and restricted stock and restricted stock unit awards become fully vested upon a change of control of the Company.

 

The Company has severance agreements with Dr. Harman, the Company’s Executive Chairman, and Kevin Brown, the Company’s Chief Financial Officer. These agreements provide for severance benefits in the event of a termination of employment under specified circumstances following a change in control of the Company. These agreements provide for additional “gross up” payments to these executives for excise taxes, if applicable. The excise tax gross up payments are intended to make these executives whole for any adverse tax consequences they may become subject to under the federal tax laws and to preserve the level of severance deemed to be appropriate under the terms of these agreements and the Company’s other compensation programs. The Company believes that these provisions are a reasonable part of the compensation package for these executives and consistent with the practice of many other public companies.

 

The Company also has employment agreements with Dr. Erich A. Geiger and Helmut Schinagel. Before Dr. Geiger assumed his current position with the Company, he was the chief executive officer of our automotive group, based in Germany. Mr. Schinagel currently holds that position. Employment agreements with executives are customary in Germany and many other

countries outside the United States. Among other things, these agreements provide for severance benefits upon termination of employment under certain circumstances.

 

These agreements are described in more detail under the caption “Severance and Employment Agreements” on page 23 of this Proxy Statement. The committee believes that these benefits are necessary and appropriate in order to attract and retain qualified senior executives.

 

Employee Benefits

 

The Company provides each of our current executive officers (other than Dr. Geiger and Mr. Schinagel) with supplemental retirement, termination and death benefits under the Company’s Supplemental Executive Retirement Plan. Dr. Geiger and Mr. Schinagel are entitled to pension and related benefits under the terms of their employment agreements. As described above, these differences in retirement benefits derive from the present or prior employment of these executives in Germany, where substantially all of the Company’s employees participate in a defined benefit pension program. The Company also provides its executive officers employed in the United States with the opportunity to participate in a deferred compensation plan. These plans are described under the captions “Pension Benefits — Supplemental Executive Retirement Plan” and “Nonqualified Deferred Compensation” on pages 26 and 27 of this Proxy Statement.

 

The Company’s executive officers are also eligible to participate in other company-sponsored benefit plans available to employees generally, including medical and life insurance. Employees, including executive officers, that are employed in the United States are eligible to participate in a company-sponsored 401(k) defined contribution plan.

 

The Compensation and Option Committee believes that these benefits are necessary and appropriate in order to attract and retain qualified executive officers insofar as these benefits are generally made available by similarly situated companies.

 

Executive Perquisites

 

The Company provides executive officers with certain perquisites that have historically been provided and that the committee believes enhance our ability to attract and retain qualified executives. These perquisites include the use of company owned or leased cars and reimbursement of car-related expenses. These cars use infotainment systems and other products designed and manufactured by the company and permit these executives to experience and evaluate these products. Other executive perquisites include the personal use of company provided tickets to concerts and other music events when those tickets are not otherwise being used for business purposes. In addition, on occasion, the spouses of our executives travel with them to attend business-related functions.

 

The Company leases corporate aircraft for use by management for business purposes. The committee believes that the use of corporate aircraft enables executives to devote maximum time and attention to the Company’s business and enhances their productivity and availability while traveling. The Board has authorized the use of this aircraft for non-business use by the Company’s Executive Chairman. The Company considers the incremental cost to the Company to be negligible as these flights were otherwise being made for business purposes. The Company believes that the personal use of corporate aircraft by the Executive Chairman is appropriate considering the significant obligations required by his position with the Company.

The Company provides Dr. Harman with an assistant, who also provides him with non-business related services. The Company estimates the portion of those services that are not directly related to company business and reports that portion of this employee’s salary and benefits as compensation to the Executive Chairman.

 

Dr. Geiger is entitled to receive certain life insurance benefits under the terms of his employment agreement, and receives additional cash payments to reimburse him for German taxes related to these insurance benefits and his company car.

 

The committee has determined it is appropriate to provide these perquisites in order to attract and retain our executive officers by offering compensation opportunities that are competitive with those offered by similarly situated public companies. In determining the total compensation payable to our executive officers, the committee considers perquisites in the context of the total compensation which our executive officers are eligible to receive. However, given the fact that perquisites represent a relatively small portion of the executive’s total compensation, the availability of these perquisites does not materially influence the decisions made by the committee with respect to other elements of the total compensation to which the Company’s executive officers are entitled or awarded. For a description of the perquisites received by our named executive officers during fiscal 2007, see the information under the caption “All Other Compensation” on page 22 of this Proxy Statement.

 

Stock Ownership Guidelines

 

The committee encourages ownership of Common Stock by our executive officers and other key employees, including through awards under our equity incentive compensation plans. However, the Company does not currently have a policy that requires our executives to own a specific number of shares, or dollar amount, of Common Stock, nor do we require our executives to retain any specific percentage of shares received upon exercise of options or upon vesting of any restricted stock award.

 

Internal Revenue Code Section 162(m)

 

Section 162(m) of the Internal Revenue Code provides that compensation in excess of $1 million paid to the chief executive officer or to any of the other four most highly compensated executive officers of a public company is not deductible for federal income tax purposes unless the compensation qualifies as “performance based compensation” under Section 162(m). Bonus awards under our 2002 Plan and option grants under our equity incentive plans are intended to qualify for deduction under Section 162(m). As described above, the 2002 Plan will expire on November 8, 2007, and unless the 2007 Plan is approved by the Company’s stockholders, annual incentive awards to some of the Company’s executive officers may not qualify for deduction under Section 162(m). The committee reviews on an annual basis the potential impact of this deduction limitation on executive compensation. The committee intends to continue to evaluate the Company’s potential exposure to this deduction limitation.

Fiscal 2006 and Fiscal 2007 Compensation

 

Base Salary

 

In September 2006, the Compensation and Option Committee considered changes to the base salaries for our executive officers for fiscal 2007.

 

Dr. Harman recommended to the committee that his base salary, and Mr. Girod’s base salary, remain unchanged. The committee accepted this recommendation. Dr. Harman’s base salary has not changed since September 2004, and Mr. Girod’s base salary did not change from September 2004 until his retirement.

 

The base salaries for Dr. Geiger and Mr. Schinagel for fiscal 2007 were established by the terms of their respective employment agreements with the Company.

 

In September 2006, the committee also considered changes to the base salary of the Company’s other executive officers, including Kevin Brown, our Chief Financial Officer. Based on the committee’s evaluation of Mr. Brown’s responsibilities and performance, the committee approved an increase in his annual base salary from the $400,000 provided for in his employment agreement to $500,000 (a 25% increase). Gina Harman was not designated by the Board as an executive officer until November 2006, and therefore her base salary for fiscal 2007 was not established by the committee.

 

Fiscal 2007 Annual Incentive Compensation Awards

 

For fiscal 2007, the committee designated Dr. Harman, Mr. Brown and Dr. Geiger as participants in the 2002 Plan, set the return on stockholder equity goal at 10% and set the maximum award for each participant at $2 million.

 

At its meeting in August 2007, the committee approved bonus awards for Gina Harman and the other executive officers that do not participate in the 2002 Plan. Ms. Harman’s award was discretionary, as the performance targets set for the Company’s Consumer business unit were not met. The committee determined that Ms. Harman should receive a cash award for fiscal 2007 due to her extraordinary efforts despite a very difficult market for her business unit’s products. Awards to the other executive officers were also discretionary, and were generally made with a view to achievement of the Company’s financial objectives under the 2002 Plan.

 

At its meeting in September 2007, the committee determined that the return on stockholder equity goal had been met. Using its discretion to decrease the awards payable under the 2002 Plan, the committee approved awards to these three executive officers shown under the column “Non-Equity Incentive Plan Compensation” under the caption “Summary Compensation Table” on page 21 of this Proxy Statement.

 

In addition, in fiscal 2007, Dr. Geiger received a one-time cash bonus of $250,000 in connection with an amendment to his employment agreement in September 2006.

 

Mr. Schinagel is entitled to receive a cash bonus of €455,000 ($613,113) for fiscal 2007. This amount represents a guaranteed bonus for fiscal 2007 under the terms of his employment agreement entered into in August 2006 in connection with his joining the Company.

 

Mr. Girod retired on December 31, 2006, and Mr. Pertz resigned in August 2006. As a result, neither of these individuals was eligible to receive an annual incentive award for fiscal 2007.

Fiscal 2007 Equity Awards

 

The committee approved stock option grants to Dr. Harman, Mr. Brown and Dr. Geiger in August 2006. In addition, at this meeting, the committee approved stock option and restricted stock unit awards to Mr. Schinagel in connection with his joining the Company as Chief Executive Officer of the Company’s Automotive business unit. The grant date of Mr. Schinagel’s awards was October 2, 2006, the first trading day after his first day of employment with the Company.

 

The committee approved stock option awards to each of the other then-executive officers in May 2007. These awards had originally been scheduled to be considered by the committee at its regularly scheduled meeting in April 2007, consistent with the company’s historical practice of granting awards to these individuals on an 18-month cycle. However, due to the ongoing discussions that led to the public announcement on April 26, 2007, of the then-proposed merger with KHI Parent Inc., a company formed by affiliates of Kohlberg Kravis Roberts & Co. L.P. and GS Capital Partners VI Fund, L.P., the committee deferred taking action with respect to the awards until May 1, 2007.

 

The awards made to our named executive officers are described in more detail under the captions “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year-End” on pages 23 and 25 of this Proxy Statement.

 

For additional information regarding the compensation received by our named executive officers in fiscal 2007, see the information under the caption “Summary Compensation Table” on page 21 of this Proxy Statement.

 

New Chief Executive Officer

 

On July 1, 2007, Dinesh Paliwal joined the Company as President, Chief Executive Officer and Vice Chairman pursuant to an employment agreement approved by the Board and the committee in May 2007. In connection with his joining the Company, Mr. Paliwal was granted 100,000 stock options, 64,579 shares of restricted stock and 32,291 restricted stock units. The grant date of these awards was July 2, 2007, the first trading day after his first day of employment with the Company. In addition, the Company entered into a severance agreement with Mr. Paliwal, on terms substantially similar to the Company’s severance agreements with Dr. Harman and Mr. Brown described under the caption “Severance and Change-in-Control Arrangements” on page 16 of this Proxy Statement. The committee also granted Mr. Paliwal 100,000 options on October 18, 2007.

 

The committee is in active discussions with Mr. Paliwal relating to amending his compensation arrangements. These new arrangements would provide Mr. Paliwal with, among other things, a long-term incentive award if the enterprise value of the Company increases significantly during the next five years. The proposed arrangements would also provide Mr. Paliwal with annual equity grants and certain additional payments. These proposed compensation arrangements have not been finalized and are subject to the execution of definitive agreements relating to the terms of these arrangements.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table discloses all compensation earned by our Executive Chairman, the individuals who served as our Chief Executive Officer during fiscal 2007, our Chief Financial Officer and our three other most highly paid executive officers for fiscal 2007.

 

 

 

All Other Compensation

 

The following table provides information regarding each component of compensation included in the All Other Compensation column in the Summary Compensation Table.

 

 

Grants of Plan-Based Awards

 

The following table shows all plan-based awards granted to the named executive officers in fiscal 2007.

 

 

 

Severance and Employment Agreements

 

We have entered into severance agreements with each of Dr. Harman and Mr. Brown. 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, 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. Brown serves as Executive Vice President and Chief Financial Officer pursuant to a letter agreement with the Company. Under the terms of his letter agreement, Mr. Brown is entitled to an

annual base salary of $400,000. Mr. Brown also participates in incentive compensation and some of our other benefit plans and programs. If we terminate Mr. Brown’s employment before June 30, 2008 for any reason, except for job-related illegal misconduct or under circumstances for which Mr. Brown would be entitled to compensation under his severance agreement, he will continue to receive salary and benefit payments for a period of one year or until he accepts other employment.

 

Dr. Geiger serves as Executive Vice President, Chief Strategy Officer and Chief Technology Officer pursuant to an employment agreement with the Company. The agreement provides for an annual base salary of $1,000,000. Dr. Geiger is eligible to receive a target bonus of 100% of his salary based on certain performance parameters established annually by us. In addition, Dr. Geiger received a one-time cash bonus of $250,000 in fiscal 2007 pursuant to the agreement. The agreement also provides that Dr. Geiger is eligible to participate in our Deferred Compensation Plan and that we will maintain Dr. Geiger’s life insurance policy and provide disability and death benefits to him. Dr. Geiger is entitled to an annual pension benefit equal to the greater of $988,755 or 50% of the average of his highest five consecutive years of eligible salary and incentive compensation plan bonus (after taking into consideration pension benefits he has earned under a prior employment agreement with a subsidiary of the Company). The employment agreement terminates on August 31, 2008. On January 15, 2007, we entered into a consulting agreement with Dr. Geiger which becomes effective upon his retirement or other termination of his employment and terminates in August 2011. Under this agreement, Dr. Geiger will be entitled to $40,000 for each month he provides consulting services to us.

 

Mr. Schinagel serves as Chief Executive Officer of our Automotive business unit pursuant to an employment agreement with the Company. The agreement provides for an annual base salary of €650,000. Additionally, Mr. Schinagel is eligible to earn a target bonus equal to 70% of his base salary (which was guaranteed at that level for fiscal 2007) and a maximum bonus of 105% of his base salary. Mr. Schinagel is also entitled to a retirement benefit of annual pension payments equal to 12.5% of his average base salary while working for us, subject to a 2.5% annual increase for each year of service Mr. Schinagel has been with us beyond five years, up to a maximum of 30% of his base salary. The pension benefit Mr. Schinagel is entitled to under his employment agreement will be reduced by any pension benefit he is entitled to from previous employers. The employment agreement may be terminated by us or Mr. Schinagel for any reason upon six months’ notice. However, any termination without cause will not be effective until September 30, 2011 and Mr. Schinagel would remain entitled to his base salary and benefits until such time.

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information regarding stock options, shares of restricted stock and restricted stock units held by the named executive officers that were outstanding at June 30, 2007.

 

 

 

Option Exercises and Stock Vested

 

The following table provides information regarding the acquisition of Common Stock by the named executive officers upon the exercise of stock options during fiscal 2007. None of the shares of restricted stock or restricted stock units held by our named executive officers vested during fiscal 2007.

 

 

 

Pension Benefits

 

The following table provides information regarding the present value of benefits and payments during fiscal 2007 under our Supplemental Executive Retirement Plan (“Supplemental Plan”), and employment agreements with Dr. Geiger and Mr. Schinagel.

 

 

 

Supplemental Executive Retirement Plan

 

The Supplemental Plan provides supplemental retirement, termination and death benefits to certain executive officers and key employees designated by the Board. Benefits under the Supplemental Plan payable upon termination or death are described under the caption “Severance and Change in Control Benefits — Supplemental Executive Retirement Plan” on page 29 of this Proxy Statement. The Compensation and Option Committee administers the Supplemental Plan. Each of the named executive officers who are currently employed by the Company, other than Dr. Geiger and Mr. Schinagel, has been designated as a participant. All Supplemental Plan benefits are subject to deductions for Social Security and federal, state and local taxes.

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”). Participants retiring at age 65 or older receive an annual retirement benefit equal to either (a) 31/3% of Average Cash Compensation per year of service up to a maximum of 50%, or (b) 2% of Average Cash Compensation per year of service up to a maximum of 30%, as designated by the Company. Each of Dr. Harman and Mr. Brown has been designated as a participant entitled to receive an annual retirement benefit of up to 50% of Average Cash Compensation, and Ms. Harman has been designated as a participant entitled to receive an annual retirement benefit of up to 30% of Average Cash Compensation. 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 after benefits have commenced but prior to receiving 10 years of benefits, they are paid to the participant’s beneficiary for the remainder of that period.

 

Other Retirement Benefits

 

Dr. Geiger is entitled to receive an annual pension benefit under an employment agreement with the Company equal to the greater of $988,755 or 50% of the average of his highest five consecutive years of eligible salary and incentive compensation plan bonus (after taking into consideration pension benefits he has earned under a prior employment agreement with a subsidiary of the Company).

 

Mr. Schinagel is entitled to receive an annual pension benefit pursuant to his employment agreement with the Company equal to 12.5% of his average base salary during his time of service with the Company. This benefit will be increased by 2.5% for each year Mr. Schinagel is employed by the Company beyond five years, up to a maximum of 30%. Mr. Schinagel is entitled to this pension benefit once he reaches age 60 and is no longer employed by the Company; provided, however, that if Mr. Schinagel is terminated for good cause as determined by the German Civil Code on or before October 2, 2011, he will not be entitled to any pension benefit from the Company. Mr. Schinagel’s annual pension benefit will be reduced by any other pension benefits he is entitled to from previous employers.

 

Nonqualified Deferred Compensation

 

Our Deferred Compensation Plan provides supplemental retirement benefits for executive officers designated by the Compensation and Option Committee. Prior to the beginning of each fiscal year, each plan 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 and subject to a 10% penalty on any unscheduled withdrawals. We 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. This may be changed once in any calendar month by the plan participant. The Company credits earnings to the accounts based on the rate of return of the designated funds. For fiscal 2007, the designated funds produced returns ranging from 5.3% to 28.4%. 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.

The following table provides information for the named executive officers regarding contributions, earnings and balances for our Deferred Compensation Plan.

 

 

 

Severance and Change in Control Benefits

 

We provide benefits to each of the named executive officers in the event his or her employment is terminated. We provide these benefits through our Supplemental Plan and 2002 Key Executive Officers Bonus Plan and employment and severance agreements we have entered into with some of the named executive officers.

 

Severance Agreements

 

We have entered into severance agreements with Dr. Harman and Mr. Brown. These agreements provide that if, within 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, 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 plus his highest incentive pay during the three fiscal years preceding the change in control.

 

An executive officer is deemed to have been terminated without cause if he is terminated by us for any reason other than:

 

 

An executive officer is entitled to severance compensation if he terminates his employment with us within two years following a change in control under the following circumstances:

 

 

A change of control is defined as:

 

 

 

 

The severance agreements also provide that we 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. Additionally, the agreements provide that the executive officer shall not engage in any competitive activity, as defined in the agreement, without our written consent, during the term of the agreement and for a period of one year after his employment is terminated.

 

Supplemental Executive Retirement Plan

 

Dr. Harman, Mr. Brown and Ms. Harman are participants in the Supplemental Plan. Benefits payable under the Supplemental Plan 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 whose employment is terminated prior to age 65 with at least 15 years of service, and who is not otherwise entitled to retirement benefits under the Supplemental Plan, is entitled to an annual termination benefit equal to either (a) 30% of Average Cash Compensation, increased by 4% for each year of service over 15 years, up to a maximum of 50%, or (b) 15% of Average Cash Compensation, increased by 3% for each year of service over 15 years, up to a maximum of 30%, as designated by the Company. The termination benefit commences upon the later of termination of the participant’s employment, other than due to death, or the participant reaching age 55. Dr. Harman and Mr. Brown have each been designated as a participant entitled to receive an annual termination benefit of up to 50% of Average Cash Compensation and Ms. Harman has been designated as a participant entitled to receive an annual termination benefit of up to 30%.

 

Additionally, if a participant’s employment is terminated for any reason other than death within three years after a change in control of the Company, the participant vests with the maximum designated retirement benefit 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. Under the Supplemental Plan, a change in control is defined in the same manner as under Dr. Harman’s and Mr. Brown’s severance agreements, as described above.

 

A pre-retirement death benefit equal to two or 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. Dr. Harman and Mr. Brown have each been designated as a participant entitled to receive a death benefit equal to three times his highest annual cash compensation, and Ms. Harman has been designated as a participant entitled to receive a death benefit equal to two times her highest annual cash compensation. 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.

 

2002 Key Executive Officers Bonus Plan

 

In the event of a change in control of the Company, each participant in the 2002 Key Executive Officers Bonus Plan is entitled to the award amount for that fiscal year without proration or any other deduction, provided that he or she is employed by us at the time of the change in control or, if the plan participant is no longer employed by us, the participant’s employment is terminated after commencement of discussions that resulted in a change in control of the Company but within 180 days prior to the change in control. Under this plan, a change in control is defined in the same manner as under Dr. Harman’s and Mr. Brown’s severance agreements, as described above.

 

Summary of Benefits

 

The following tables quantify potential compensation that would become payable to each of our named executive officers under the agreements and company plans and policies discussed above if their employment had terminated on June 29, 2007 (the last business day of fiscal 2007), given the named executive officer’s base salary as of that date, and, if applicable, the closing price of the Company’s Common Stock on June 29, 2007.

 

Due to the factors that may affect the amount of any benefits provided upon the events described below, any actual amounts paid or payable may be different than those shown in this table. Factors that could affect these amounts include the date the termination event occurs, the base salary of an executive officer on the date of termination of employment and the price of our common stock when the termination event occurs.

Sidney Harman

 

 

 

Kevin Brown

 

 

 

Erich A. Geiger

 

 

Helmut Schinagel

 

 

 

Gina Harman

 

 

 

Former Officers

 

 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Company Policies Regarding Related Party Transactions

 

The Board has not adopted a formal written policy regarding a transaction or series of transactions involving the Company and a related party. A related party is one of our executive officers, directors, a person owning more than 5% of any class of our securities, an entity in which any of such persons is employed or is a partner or principal, or an immediate family member of such a person. The Board may consider the desirability of adopting a formal written policy during fiscal 2008. However, given our history and past practice, the Board may decide that such action is unnecessary.

 

While the Board has not adopted a formal written policy, directors are typically made aware of any transaction or transactions involving the Company and a related party. On an annual basis, we request that each of our directors and executive officers identify potential related party transactions involving the director or executive officer and his or her family. In addition, our Code of Business Conduct provides that employees are to avoid situations or activities where their personal interests are, or may appear to be, in competition with or in opposition to the Company’s interests.

 

Certain Family Relationships

 

Two of Dr. Harman’s adult children, Gina Harman and Lynn Harman, are employed by the Company. Gina Harman serves as President of Harman Consumer Group and Lynn Harman serves as corporate counsel. For services rendered during fiscal 2007, Lynn Harman was paid salary and bonus of $209,993. Gina Harman’s compensation for fiscal 2007 is disclosed under the caption “Summary Compensation Table” on page 21 of this Proxy Statement.

 

Gina Harman and Lynn Harman have been employed by the Company for 22 years and 12 years, respectively. Over this period, the directors have been made aware of their employment and have approved elements of their compensation arrangements. As an executive officer, Gina Harman’s compensation is approved annually by the Compensation and Option Committee which is comprised of our non-management directors.

 

Certain KKR Relationships

 

Brian F. Carroll, one of our directors, is a member of KKR & Co. LLC, which serves as a general partner of KKR.

 

On October 22, 2007, the Company entered into an agreement terminating its merger agreement with companies formed by investment funds affiliated with KKR and GS Capital Partners VI Fund, L.P. and its related funds (“GSCP”), which are sponsored by Goldman, Sachs & Co. Under this termination agreement, the Company, KKR, affiliates of KKR and GSCP agreed to release each other from all claims and actions arising out of or related to the merger agreement and the related transactions. In connection with this termination agreement, the Company issued $400.0 million of its 1.25% Convertible Senior Notes due 2012, of which $342.8 million was either purchased by an affiliate of KKR or for which KKR has substantial economic benefit and risk. The Company also agreed to provide KKR registration rights with respect to the notes purchased in the transaction and the Company’s Common Stock into which the notes may be converted.

 

Further, in connection with the note purchase, KKR has the right to designate a nominee to the Company’s Board of Directors, for the Board’s consideration, which designee must be qualified and suitable to serve under all applicable Company policies and guidelines and other regulatory requirements, meet the independence requirements of the New York Stock Exchange and otherwise be acceptable to the Board in its good faith discretion. For so long as KKR continues to have

ownership rights as to at least $200.0 million principal amount of the notes or until the occurrence of other specified events, KKR will have the right to select a successor designee in the event the designee ceases to serve on the Board, provided the membership requirements are met. Mr. Carroll was KKR’s nominee. Based upon the recommendation of the Nominating and Governance Committee, the Board appointed Mr. Carroll as a director to serve for a term expiring at the 2008 Annual Meeting of Stockholders.

 

EQUITY COMPENSATION PLAN INFORMATION

 

As of June 30, 2007, the 1992 Incentive Plan and the 2002 Stock Option and 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 our stockholders. The table provides information as of June 30, 2007:

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table shows, as of October 25, 2007, the beneficial ownership of shares of the Company’s Common Stock for (a) all stockholders known by us to beneficially own more than 5% of the shares of Common Stock, (b) each of our current directors, (c) our named executive officers and (d) all of our directors and executive officers as a group. Unless otherwise noted, these persons have sole voting and investment power over the shares listed below. Some of the information in the table is based on information included in filings made by the beneficial owners with the Commission.

 

 

 

INDEPENDENT AUDITOR

 

Selection.  KPMG LLP served as the Company’s independent auditor for fiscal 2007 and has been selected by the Audit Committee to serve as the Company’s independent auditor for fiscal 2008. 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 and Non-Audit Fees.  The following table presents fees for professional audit services rendered by KPMG LLP for the audit of our annual financial statements for fiscal 2007 and fiscal 2006, and fees billed for other services rendered by KPMG LLP.