Harbinger Group Inc.
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DEF 14A
HRG GROUP, INC. filed this Form DEF 14A on 04/05/2002
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<PAGE>
 
 
                                  PROPOSAL 2
 
              APPROVAL OF OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
 
     On March 1, 2002, the Board of Directors approved specific stock option
grants to the Company's non-employee directors subject to stockholder approval.
The New York Stock Exchange rules require that such grants of stock options be
submitted to the Company's stockholders for approval.
 
     The Company's Amended and Restated 1987 Special Incentive Plan, which
provided for the grant of options to non-employee directors, expired in 1997.
The Company's Amended and Restated 1996 Long-Term Incentive Plan does not
provide for the grant of options to non-employees. The Board has elected not to
adopt a new plan for non-employee directors, but rather to make specific grants
to directors.
 
     To this end, in March, 2002, the Company granted, subject to stockholder
approval, to each of Bryan G. Glazer, Edward S. Glazer, Darcie S. Glazer, Warren
H. Gfeller, Robert V. Leffler, Jr., and John R. Halldow, all of whom are members
of the Board of Directors who are not employees of the Company, 10 year non-
qualified options each to purchase 1,000 shares of the Company's common stock.
The options are exercisable in cumulative one-third installments vesting
annually beginning on the first anniversary of the date of grant. The exercise
price for these stock options is $26.60 per share, which was the closing price
of the Common Stock on the date of grant. The closing price per share of the
Company's Common Stock on the NYSE on April 2, 2002, was $25.30.
 
     The Board of Directors considers that it is in the Company's best interest
to grant non-qualified stock options to non-employee directors in order to align
their interest with those of the Company's stockholders and to provide them with
appropriate compensation for their services.
 
TAX TREATMENT
 
     The options granted are non-qualified options for tax purposes. No taxable
income is recognized by an optionee upon the grant of an option. The optionee
will, in general, recognize ordinary income, in the year in which the option is
exercised, equal to the excess of the fair market value of the purchased shares
on the exercise date over the exercise price paid for the shares, and the
optionee will be required to satisfy the tax withholding requirements applicable
to such income. Upon a subsequent sale or exchange of shares acquired pursuant
to the exercise of an option, the optionee will have taxable gain or loss
measured by the difference between the amount realized on the disposition and
the tax basis of the shares (generally, the amount paid for the shares plus the
amount treated as ordinary income at the time the option was exercised).
 
     If the Company complies with applicable reporting requirements and with the
restrictions of Section 162(m) of the Internal Revenue Code, it generally will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by the optionee with respect to the exercised option. The deduction
will in general be allowed for the taxable year of the Company in which such
ordinary income is recognized by the optionee.
 
VOTE REQUIRED
 
     The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the meeting and entitled to
vote on this matter is required to approve Proposal 2.
 
 
    THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL
TO GRANT STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS.
 
                                       A-14

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