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Employee Retention of Harman International Industries

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Pratik Kukreja
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Employee Retention of Harman International Industries - April 12th, 2011

Harman International Industries (NYSE: HAR) is an international audio and infotainment equipment company. The company designs, manufactures and markets audio and infotainment products for the car, the home, theatres and venues, as well as electronics for audio professionals. Harman International's consumer group makes loudspeakers, CD and DVD players, CD recorders, and amplifiers under several brand names such as Harman Kardon, JBL, and Infinity. Harman's automotive division sells branded audio systems through several car makers, including Mercedes-Benz, Toyota/Lexus, BMW, and General Motors. Its professional unit makes audio equipment, such as studio monitors, amplifiers, microphones, and mixing consoles for recording studios, cinemas, touring performers, and others. The company is headquartered in Stamford, Connecticut, and maintains major operations in the Americas, Europe, and Asia. Harman International includes many consumer and specialty brands targeting specific audio and electronics product categories.

WASHINGTON, D.C. September 21, 2007 - Harman International Industries, Incorporated (NYSE: HAR) announced that it was informed this afternoon that Kohlberg Kravis Roberts & Co. L.P. (KKR) and GS Capital Partners VI Fund, L.P. (GSCP) no longer intend to complete the previously announced acquisition of Harman by a company formed by investment funds affiliated with or sponsored by KKR and GSCP. KKR and GSCP have informed Harman that they believe that a material adverse change in Harman's business has occurred, that Harman has breached the merger agreement and that they are not obligated to complete the merger. Harman disagrees that a material adverse change has occurred or that it has breached the merger agreement.

This communication contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward looking statements include all statements other than those made solely with respect to historical fact. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in any forward-looking statements.

These factors include, but are not limited to, (1) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; (2) the outcome of the discussions relating to the status of the proposed merger; (3) the inability to complete the proposed merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to the merger; (4) the failure to obtain the necessary financing arrangements set forth in the commitment letter received in connection with the proposed merger, including as a result of the current condition of the debt capital markets; (5) the inability to complete the proposed merger on the terms set forth in the merger agreement; (6) risks that the proposed merger disrupts current plans and operations of Harman and the potential difficulties in employee retention as a result of the merger; (7) the outcome of any legal proceedings that may be instituted by or against Harman and others following the announcement of the merger agreement; and (8) other factors described in Harman’s filings with the SEC, including its reports on Forms 10-K, 10-Q and 8-K. Many of the factors that will determine the outcome of the subject matter of this communication are beyond Harman's ability to control or predict. Harman undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future results or otherwise.

Harman International designs, manufactures and markets a wide range of products for the automotive, consumer and professional markets. Its brands include Harman Kardon®, JBL®, Revel®, Mark Levinson®, Infinity®, Lexicon®, Soundcraft-Studer®, AKG®, Becker® and QNX®. The company maintains a strong presence in the Americas, Europe and Asia and employs more than 10,500 people. Harman International Industries, Incorporated is a leading manufacturer of high-quality, high-fidelity audio products and electronic systems for the automotive, consumer and professional markets. The company’s stock is traded on the New York Stock Exchange under the Symbol: HAR

Harman International Industries, Inc. (NYSE:HAR) today announced that it has entered into an agreement to be acquired by affiliates of Kohlberg Kravis Roberts&Co. L.P. (”KKRā€¯) and GS Capital Partners (”GSCPā€¯) in a transaction valued at approximately $8 billion. The transaction was unanimously approved by the Harman Board of Directors, following the recommendation of a Special Committee of independent directors. KKR initiated discussions with Harman and structured the transaction so that current Harman stockholders have the opportunity to participate in the future upside potential of the enterprise. The company will continue to be named Harman International Industries and Dr. Sidney Harman, Founder and Executive Chairman, will remain Executive Chairman.

Dr. Harman stated: ”We are pleased to reach an agreement with KKR and GSCP that is in the best interest of our stockholders, presenting them with excellent value for their shares and the opportunity to participate in Harman's future growth. KKR and GSCP are two of the world's leading private equity investors and our Board of Directors strongly believes that this transaction will create attractive long-term opportunities for our employees, customers and business partners. Together, we will continue to execute our strategic plan, capitalize on new opportunities, and build on our history of product innovation and service excellence.ā€¯

Henry R. Kravis, Co-Founding Member of KKR, said, ”Harman is one of the world's outstanding providers of audio equipment and infotainment systems with an unparalleled portfolio of legendary brands and strong customer relationships. Since founding Harman more than 50 years ago, Dr. Sidney Harman has brought exceptional vision to the company and we are proud to work with him and the management team to continue building the value of their company.ā€¯

Under the terms of the agreement, Harman stockholders will be entitled to receive $120 in cash for each share of Harman common stock they hold. As an alternative to receiving the cash consideration, Harman's stockholders will be offered the opportunity to elect, on a purely voluntary basis, to exchange some or all of their shares of Harman stock for shares in the new corporation incorporated by KKR and GSCP in order to acquire Harman. The total amount of Harman shares that may elect to receive shares in the post-transaction corporation is approximately 8.3 million, which would represent $1.0 billion (at the $120 per share transaction value) and an approximate 27% equity stake in Harman following the transaction. If elections for post-transaction shares exceed the $1.0 billion cap, post-transaction shares will be allocated to electing stockholders on a pro-rated basis, and the remaining Harman shares will be exchanged for cash. The election process will be fully detailed in the proxy statement/prospectus that will be mailed to Harman stockholders.

Dr. Harman, who owns approximately 5% of the outstanding common stock of Harman, will participate in the same election process available to all stockholders. He has committed that he will elect to exchange half of his current holdings for post-transaction shares, subject to the same pro ration that applies to all stockholders as described above.

Under the agreement, Harman may solicit proposals for alternative transactions from third parties for a 50-day period ending on June 15, 2007. Harman's Board of Directors will work with its independent advisors to solicit proposals during this period. There can be no assurances that this solicitation will result in an alternative transaction. Harman does not intend to disclose developments with respect to this solicitation process unless and until its Board of Directors has made a decision regarding any alternative proposals.

Completion of the transaction, which is expected to occur in the third quarter of 2007, is subject to the approval of Harman stockholders, customary closing conditions and regulatory approvals. The Board of Directors of Harman has unanimously recommended that Harman stockholders vote in favor of the transaction.

The stock of the new corporation issued to current shareholders in exchange for their existing shares will be registered with the U.S. Securities and Exchange Commission. The shares will not be listed on any exchange, although the buyers expect that there will be market makers in the stock.

Bank of America Securities LLC, Credit Suisse, Goldman Sachs and Lehman Brothers have committed debt financing for the transaction, subject to customary terms and conditions, and are also acting as financial advisors to KKR and GSCP. Simpson Thacher&Bartlett LLP is acting as legal advisor to KKR and GSCP. Bear, Stearns&Co. Inc. is acting as Harman's financial advisor. Wachtell, Lipton, Rosen&Katz is providing legal counsel to the Special Committee of the Harman Board of Directors, and Jones Day is providing legal counsel to Harman.

For employees everywhere, remuneration – the way they are compensated for their work – is at the very heart of the employment proposition.

Other aspects of the job are important: company culture, work/life balance, satisfying work challenges, for instance. But the rewards that come to employees in return for their efforts are at the center of the employer/employee relationship. At most companies, compensation and benefits are a critical component of what it takes for them to attract and retain the best people available. At Harman, that’s just the beginning of the total rewards story. Our strategy as a competitive employer is to enrich the employment proposition beyond what is offered by most employers. Balancing the costs of that strategy with the financial goals of a competitive business requires an expansive approach and creative solutions.

The result for employees at Harman International is a package that considers the whole employee, providing:

Financial compensation and incentives
A broad array of benefits that support the health and well-being of employees and their dependents
Retirement benefit programs that augment employees’ efforts to build a secure financial future
Special employee pricing for Harman audio products, customer automobiles, and other third-party products and services
Recognition and reward programs
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