Harman Kardon 2008 Annual Report Download - page 81

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63
Modification of Certain Stock Option Awards
The award agreements under the 2002 Plan state that vested options not exercised are forfeited upon
termination of employment for any reason other than death or disability. However, the award agreements
provide that the Compensation and Option Committee of the Board of Directors may extend the time
period to exercise vested options 90 days beyond the employment termination date for certain employees.
During the fiscal year ended June 30, 2008, the Compensation and Option Committee used this authority.
This action represents a modification of the terms or conditions of an equity award and therefore was
accounted for as an exchange of the original award for a new award. During fiscal 2008, $1.3 million of
incremental share-based compensation cost was recognized for the excess of the fair value of the new
award over the fair value of the original award immediately before the terms were modified.
Grant of Stock Options with Market Conditions
We granted 330,470 stock options containing a market condition to employees on March 21, 2008. The
options vest three years from the date of grant based on a comparison of Harman’s total shareholder
return (“TSR”) to a selected peer group of publicly listed multinational companies. TSR will be
measured as the annualized increase in the aggregate value of a company’s stock price plus the value of
dividends, assumed to be reinvested into shares of the company’s stock at the time of dividend payment.
The base price to be used for the TSR calculation was the 20-day trading average from February 6, 2008
through March 6, 2008. The ending price to be used for the TSR calculation will be the 20-day trading
average prior to and through March 6, 2011. The grant date fair value of $4.2 million was calculated
using a combination of Monte Carlo simulation and lattice-based models. Share-based compensation
expense for this grant was $0.5 million for the fiscal year ended June 30, 2008.
Restricted Stock
A summary of the status of our nonvested restricted stock as of June 30, 2008 and changes during the
year ended June 30, 2008, is presented as follows:
Weighted
average
grant-date
Shares fair value
Nonvested at July 1, 2007 12,000 $ 82.00
Granted 86,079 98.36
Vested --- ---
Forfeited (5,169) 116.65
Nonvested at June 30, 2008 92,910 $ 95.23
As of June 30, 2008, there was $4.1 million of total unrecognized compensation cost related to nonvested
restricted stock-based compensation arrangements granted under the plan. The weighted average
recognition period is 1.83 years.